Lavoro Limited

Welcome to Levaro's Fiscal 2025 First Quarter Earnings Conference Call. At this time, all participants are in listen-only mode. If anyone requires operator assistance during the conference, please press star zero on your telephone keypad. A question-and-answer session will follow the formal presentation. Please note this conference call is being recorded, and a replay will be made available on the company's investor relations website at ir.levaroagro.com. I will now turn the conference over to T. Garnett. Kapishin, Head of Investor Relations. Thank you. You may now begin.

Thank you for joining us today on La Jolla's Fiscal 2025 First Quarter Earnings Conference Call, where results ended on September 30, 2024. On today's call are Chief Executive Officer, Hui Cunha, and Chief Financial Officer, Julian Garrido. The company has provided a supplemental earnings presentation on its investor relations website at ir.lavoroagro.com. that may be helpful in your analysis in the quarterly performance. Before we begin, please remember that during the course of this call, management may make forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements regarding our future results in operations and financial position, business strategy, and market growth, among others. These statements are based on management's current expectation, beliefs, and involves risks and uncertainties that could differ materially from actual events or those described in these forward-looking statements. Please refer to the company's registration form 6K filed with the SEC today and other reports filed from time to time with the SEC for detailed discussions of the risks that could cause actual results to differ materially from those expressed or implied in any forward-looking statements made today. Please note today management will refer to certain non-IFRS measures, including adjusted EBITDA, adjusted EBITDA margin, adjusted profit or loss, among others. While the company believes that these non-IFRS financial measures will provide useful information for investors, the presentation of this information is not intended to be considered in isolation or as a substitute for the financial information presented in accordance with the IFRS. Please refer to today's release for reconciliation of non-IFRS measures to the most comparable measure prepared in accordance with the IFRS. I'll now turn it over to Hui-Kun Ye, CEO.

Thank you, Tigran. Good morning, everyone, and thank you for joining us today as we reveal Lavoro's first quarter 2025 results. As outlined in today's earnings release, our first quarter 2025 results largely mirror the trends in entire quarters across our operating segments. CropCare continued to demonstrate strength and resilience, delivering double-digit year-over-year growth in revenue, gross profit, and adjusted EBITDA. Progress made with initiatives aimed at enhancing the vertical integration between CropCare and our retail operations in Brazil are continuing to yield strategic benefits. LATAM AgRetail reported its second consecutive quarter of revenue and gross profit growth as market conditions improved with the easing of input price deflation pressures and the residual impact of last year's dry growing season. Brazil Ag Retail achieved 7% year-over-year growth in gross profit, supported by 350 basis points in gross margin expansion. This is more than offset by the impact of revenue decline by the tightening of our credit policy with farmers and the carryover effect of last year's input price declines. Now let's discuss the evolving market landscape, which has seen considerable changes since the end of our first quarter. If you recall, in our last earnings call, we described the Brazilian ag inputs market as being shaped by contrasting dynamics. On one hand, expectations for notable improvement in farmer profitability for the 2024-2025 crop year, alongside stabilizing input prices, On the other hand, worsening farmer liquidity and tighter credit availability adversely impacting near-term demand and purchasing behavior. Fast forward to today, the outlook for farmer profitability for this year and next has improved further. Favorable weather conditions during the soybean growing season have improved yield expectations across Brazil. In addition, rainfall projections for safrinha season appear encouraging, particularly as local corn cash prices have risen above 70 reais per bag for the first time since early 2023. Meanwhile, agrochemical prices at the farm gate have remained stable for the second consecutive quarter, suggesting that the issue of excess channel inventories has been largely resolved. In contrast to these positive developments, liquidity constraints in the agribusiness sector have selected significantly in the last two months of the calendar year. As a reminder, credit plays a fundamental role in Brazil's retail sector. Retailers extending financing to small and medium-sized farmers for input purchases at the start of crop season, with repayments expected at harvest. Similarly, input suppliers provide credit to retailers expecting repayments on a similar timeline, making liquidity a critical factor across the value chain. Farmers' liquidity restrictions have resulted in a significant decline in cash-based input purchases, which ordinarily account for 25 to 30 percent of farmers' purchase orders. In this first half of this year, This percentage fell to low single digits, increasing Lavoro's working capital financing requirements. In addition, the judicial reorganization proceedings of a major agri-retailer in Brazil triggered a sudden shift in risk aversion among suppliers and financial institutions, which led to a significant tightening in inventory financing conditions for Lavoro and retail industry peers. This abrupt tightening of supplier inventory finance coupled with the decline in cash-based purchase orders from farmers led to severe inventory shortages for our Brazil retail operations in key product categories during November and December, a critical window for the first soybean crop. In early January, successful renegotiations with key suppliers helped partially ease these bottlenecks, though inventory replenishment and new purchase order activity have yet to fully normalize.