Brasilagro Brazilian Agric Real Estate Co Sponsored ADR (Brazil)

We are here for our conference call for results presentation for another semester. First six months, 2024. Thank you for participating. Thank you for waiting. We're a little late. It's always good to remember that our year at Brasilagro goes from July to June. So... We will be covering the first six months ended December 31st, first six months. On the next slide, we have instructions. If you wish to ask questions, the presentation in English is available in the chat. And to hear a simultaneous translation, please click on the interpretation icon. Now I will pass the floor to Andrei, and we will begin our call. Thank you. Thank you, Ana. I would like to thank all the participants once again who are with us, investors, analysts, all those who follow us, and thank you. We will try to go over the presentation quickly to leave a lot of time, as much time as we can for the Q&A session. which is very good for both sides. I would like to begin with the highlights of the first six months. Six months, $424 million in revenue, net income $24 million, net revenue $424 million. Then operational, we will give you data in detail. You know it's been a challenging year in terms of production. We will say how we did, how things came out. and how we're making progress in the harvest, the delivery of 2 million tons of sugar cane, once again being strong as a large producer of sugar cane. So it's going to be a very productive call. Next, please. Next slide. Well, here I'd like to call your attention. When we look at our CAGR, our growth was 3%. But what I'd like to call your attention to is that in the last years, in spite of being a company that sold a lot of land, we were able to continue to grow the planted area. So we see we had important operations and we have been able to maintain the planted area. So we will work. We expect the CAGR 8 to 10% a year. We are going to work for this, but in the last few years, due to price and everything else, we were more sellers and we had good prices to sell land. We leased some land, but it's important to say that it's a growth series. and now we sold a lot of land in the last few years. The graph or the pie charts here on the right show the breakdown of our crops, the cultures, those who have been following us for a long time. You can see that things are changing. We must have a better revenue in some crops, but when we looked at the first pie chart a few years ago, most of it had two crops, sugarcane and soybean, and the rest we called others. And now we see a much heterogeneous distribution, the pie chart on the right, many other crops, cultures. So this makes sense when we talk about agriculture, we have to diversify because we need geographic diversification and climate diversification. We've been saying this for a long time. We're always after alternative crops, those that will generate more value on that soil and thus also increasing the value of the land. The graph on the right shows us the distribution of our land and leased land, our own land and leased land, showing our strategy in our 4060, leased land, our own land, or half and half of our own land, and we have some, also some land leased to third parties. This is a test drive for buyers, showing that our strategy has been to diversify crops operations, and this has been very important for our operational results, and much even more important for real estate results. A farm that begins to really plant cotton begins to call the attention of buyers. So that's how we have worked. Next slide, please. Well, I'd like to tell you about the year. You know very well, especially on Brazil Agro Day, we made an announcement that we would We would plant less corn in second crop corn. We had contribution margins that were very bad. If you plant to lose money, we don't need that. We plant to make money or at least avoid losing money. And so we made an important reduction in corn even before planting. Then there was a small drop Also, after beginning the planting, soybean, for example, began later than in the last few years, and this would not help the second crop of corn. We saw that the break-even was difficult for corn. We reduced the planted herb. There was a small drop in soybean, especially in the new lands, especially in Bahia, when we saw that the planting window was going to December, we cut down on planting. We're very rigorous in the planting window. So, there was a small drop in soybean, and part of this reduction in soybean went to beans, first crop, then part of corn went to beans. If you look at the bottom, beans had 7 000 and now almost 12 000. there was an important growth in beans and it's a product that we have worked a lot for the domestic market and also beans for exports so this graph shows what we said in the previous slide diversification of crops and the map on the right is a picture of rainfall, and you can see the challenge that it was to plant this year. Well, when we look at the total number, there's an important drop of 17%, but it's based mostly on corn. Corn, when we look at soybean, we have an expected drop of 6%, and this drop gentlemen, ladies and gentlemen, is due to the reduction of the area, not reduction in productivity. Corn also, we see this large drop due to the area. It's not due to productivity. We believe that since we planted corn in a restricted window, we believe we will have a very positive harvest in corn. and also the second crop was planted in a good window. So this shows basically the reduction in tonnage produced and a product that produces a lot of tons per hectare like corn. So it doesn't mean a big drop in contribution margin since this crop had a very negative price. Very negative result. Here's sugar cane. In the semester, Gustavo will go into detail about this. We see an important difference when we look at the numbers on the right, and this is linked to the drop to price. We began sugar cane with 110, 112. We ended the harvest at 90 cents. Our sugar cane goes to ethanol, and this has been the challenge of the company. to grow in areas where we can have ethanol and also sugarcane for sugar production. But semester after semester we see more deliveries, less than 180,000, and what we see is the important difference in the price of sugarcane. We maintained the productivity. There was a small improvement year after year. Important gains in the level. We know that we have new areas where new areas with sugarcane were making adjustments and we see an improvement year after year. This has been very resilient inside the company. Here, cattle raising, this drought, in October, November that had a strong impact on planting in the central region of Brazil. So this hindered past pastures. This was bad for pastures. And when we looked, the rainfall has begun in all our cattle raising units as of December 10th. rainfall is back after December 10th, so most of this number as we show here is a picture of December 30th will change. There is a great difference between estimated and actual until now, but reminding you that the impact was especially in November and December, lack of rainfall. Now we have favorable pasture, and we will close this gap in GMT. Inventory, we maintain very similar, a small drop in inventory. This is due to the farm that we leased in Xingu. We were selling and transforming areas, so a drop in inventory comes from that. The pasture area is very, And GMD, which is the average daily gain in weight, we hope this will be converted closer to the estimated numbers. Well, here you are following us, what has been happening in commodities, in the last few months, and soybean more recently now, in the last month especially, soybean went from 182 years ago to 117. And then we will show you the strategy, what calls our attention in spite of the drop in price, We will talk about this later. A good liquidity of real estate. So, we're very optimistic. Soon, we will have good news for you in terms of sale of land, sale of farms, and we will bring you real estate good news for purchase and sale. If you look at the cycle of commodity prices and the sale cycle of the company, when you have high commodity prices we sell more when we have low prices in commodities we buy more land so this is our strategy you will see that we have many transactions selling farms when we have high prices and then we buy land when the prices are low when when you work with agriculture this is the name of the game so we have to have capacity resilience to surf on these moments and to be a company like ours. Well here, a picture, I believe in the previous call, we talked about this, our cost was not that low and the price dropped, so we see these graphs showing the stability now in prices of potassium chloride and phosphated fertilizer. Urea had some fluctuation in the prices, but an important trend we see here with lower prices when we look at phosphated products. 2023, we had a cost before the war, 1950, and because of the war, and now 500. harvest that is planted when you look at chloride 720 we paid last year and before that the price was 1200 in 2223 and now chloride 624 and even more drops in prices 604 for 2023 2024 we're beginning to buy chloride with lower prices for the next So an important drop in fertilizer prices, especially potassium chloride. Phosphorus also has a drop. Nitrogenated products, this is something that calls our attention. This is the fertilizer that has a lot of fluctuation, but we're trying to buy at the right time. We know that our demand for nitrogenated products product is linear. The great demand is for sugarcane, and this is during the months of harvest. Here we see historical relationships and converging. There are things that historically we believe can go down, phosphated products, phosphated products, are still high, chloride has dropped a lot, so below historical levels, and nitrogenated fluctuating. Well, here the previous harvest, this harvest, and this will really be explained by Gustavo, when we look at the first Here, soybean, we sold 100% at 1440, and the exchange rate was 547. In this harvest, we were aggressive, doing what we thought made sense. We sold 60% in the past, 60% sold in the past, so this that is sold, sold at 13.20%. and with an exchange rate that is very favorable. When we look at this spot, we have a little more favorable 533 in the exchange rate. It's important to say that we expect a drop in prices year after year because we have another 40% to be sold. And there's this challenge of basis points. knowing that basis depends on ports, depends on countries. We're trying to optimize basis. In the case of cotton on the right, last year we made sales at 87.50 with an exchange rate of 5.65%. This year we have a price, 72% has already been sold at 82.50, and we have an exchange rate of 558 reais to a dollar. Cotton was sold, we sold more cotton than soybean. We had, there was more volatility in the past, and we were able to have a good exchange rate. receivables from the sale of farms this is very important the sale of farms receivables we have a lot of receivables transactions ready main especially alto taquari the sale of this farm this is important to monitor and we are working on this so we have almost 60 closed at an exchange rate of 539. Corn is the great challenge. We saw the prices. This is a crop where we're optimistic. We know the importance of this harvest. This can strengthen basis and the price of corn in a short period of time. has been a challenge for us due to what you have been following in terms of prices. Many of you follow also the prices of ethanol and sugar. It has been a challenge, and we begin to see signs of improvements for the next harvest. Because of this drought we had, we didn't have a super harvest in Brazil. In ethanol, we have a challenge, the Brazilian harvest. The year before last, we produced 530, 540,000 tons, and we went to a harvest of more than 600. This is an expressive amount. There is a policy on the part of Petrobras and also reduction in taxes that compromise the price of ethanol. Well, Gustavo, I'd like to pass the floor to you to give details about the numbers. Thank you, Andrei. Good morning. Good morning to all the participants. Well, let's begin with the main numbers of the semester. reminding you that we begin on July 1st, we end on June 30th. Soon during this semester, the company sells the harvest, soybean, cotton, corn and beans, and we also deliver 65% of the harvest of sugarcane also during these six months. Andrei showed a graph, and we saw how the price of soybean and meat had a drop in prices. For example, a bag of soybean, 187 reais at the beginning of the year. Right now, 115, 120 reais, a great drop. a drop of more than 35%. Also, corn was 25%, price of ethanol also 25%. In the case of soybean, a product that we had defined with a strategy of 53,000 tons to sell during this period, This strategy was made in this way because we saw the drop in price, especially due to the record harvest in Brazil, logistics, freight prices. Soybean was competing, the logistics was competing with corn. So we saw that this was putting pressure on the price. The exchange rate was dropping. So with the prices we have seen in our hedge, the premium was under pressure with drops in prices. And since the cost of this harvest was more expensive than the previous harvest because of fertilizer, price of fertilizer and so forth. We had an operational margin that was lower than the historical levels. So we thought the best would be to wait until the second semester to sell. And the results of this scenario, we see net revenue 424 million Reais, 12% less. And as I said, we sold more products and we were not able to capture better prices in all these products. And this has a result in the adjusted EBITDA of the company during this semester, 8 million last year, 124. and we will show you the harvest, the behavior of the inventory. Last year, 2023, we thought of using the same strategy as the one we used this year, and we were able to capture better prices. Now, for ethanol, it was not different. As Andrei said, Prices are lower, also government policies. The price of gasoline also affects the price of ethanol. Ethanol is always 30% cheaper than gasoline, and the EBITDA margin was also affected, dropped, and later I will show you this effect. Net profit, 24 million Reais. And why is it similar to last year? For example, we have receivables from the sale of farms, 5.5 million bags of soybean to receive, and this appraised, there was a positive price, 49 million, and result from derivatives. during this period receivables from farms also 24 million reais for the next quarter we will begin to have the sale of these 200 000 tons of soybean that andre mentioned cotton and the new harvest of sugar cane so the real results will happen as of the next two quarters. In the next slide, we can see here, this is what we were trying to show, the results of the harvest, soybean and corn. On the right, on top we have soybean, at the bottom, corn and we can see the results of the harvest 22 23 20 22 23 and as we said the margins began to drop in the previous year we had 21 percent contribution margin for soybean and we had a great drop the price of soybean but through derivatives we were able to compensate this drop and we were able to have a unit price that was that was 2% lower than the previous year so this This was in the unit cost. We see what happened in 21, 22, and also in the harvest 22, 23, what we mentioned. Price of fertilizer, phosphates, and other products, seeds also. Prices went up and gave us this low margin. Now, in the case of corn, the contribution margin of 12%, also, there is an impact on the price, but through derivatives, we were able to manage. And the unit costs hadn't suffered so much variance because last year, the production of corn, the second crop in 21-22, We bought the fertilizers a little before planting with the increase in prices. Now, it's important to look. I'd like to highlight the columns in the middle. We see soybean, 53,000 tons. We understood that we could capture better premiums. This did not happen. This did not happen, so the products that we delivered, we had a negative premium, and this resulted in 23% drop in prices, so it was not as good as the previous harvest, where we had 35,000 tons of inventory, and we were able to capture very positive premiums last year, 30 million reais better in our results. In the case of corn, I mentioned the pressure that existed in the first and second crops, two good crops, especially in the region. where we have the farms producing second crop in Mato Grosso, state of Mato Grosso, Xingu. This generated a pressure. Here, we can't store. We had to sell at prices 39% lower than the previous year. we were able to decrease a little the impact. We had derivatives that are June 30 last year. When we saw that the future in the short term would have lower prices, we thought it would be the right time to sell our inventory and thus, during the first semester, we obtained negative results of 23 million Reais. Also, when we see the semester last year and this impacts Evita, we see that 114,000 tons generated a result of 36 million Reais and we sold with a loss of 14 million reais during this semester why because with the derivatives we left them to get better results here when we see soybean and corn 66 million reais in results generated during this period and this year we're talking about seven million reais negative here we see sugar cane on this slide as andre mentioned two million tons sold this was built we see here the impact of the price andre showed the results, lower planting area, an important drop in revenue, and here we see in the case of a different cost, Andrea showed the drop in the price of fertilizers. We buy fertilizer as we harvest, so we were able to surf on Better prices. Price of fuel is very relevant for us. In the previous harvest, we had 6 reais and 50 cents for fuel. Today, we're talking about lower prices in fuel. Although we have a stabilized production, the margin last year, 26%, dropped to 17%. generating a difference in results 75 million 38 million less on the next slide showing our calculation of adjusted EBITDA beginning with net profit without sale of farms during this period we had small amounts These were recordings, postings of the sale of, but not very relevant. Here we excluded interest, taxes, we included depreciation, and we removed all the effects, and we added the results of derivatives that have to do not with the sale of grains, because of the sale of farms, which is based on bags of grain. And here we remind you that last year we had 66 million reais from grains, 40 million, 46 million from sugarcane, and this year these amounts were consumed by administrative expenses. On the right, we have the breakdown. We talked about 40% sugar cane, 40% soybean. We know that now with the increase in the planted area that we have with grains, so We can see here that during this semester, the result comes specially from sugarcane, 65%, and last year, this inventory also generated an important result, and this year, corn gave us a negative result, and soybean represented 7 million reais. Now the debts, the company's debts, we have 743 million reais in debt, cash 241. This is when we have low cash because we have most of the costs already paid for, and revenue will come after March. In March, we begin to sell the products. And in March, we begin to sell the inventory. Net debt, 416 million Reais. Reminding you that we have receivables from the sale of farms. 5.5 million bags of corn, and the cost of debt, 4.9 CDI. Recently, we issued debentures for an irrigation project, more than 4,000 hectares in Arrojadinho Farm, and we understand that in the short term, These 240 million in debt is a small amount, the ideal to finance our costs. But with very high costs, we thought it would be better to work with our own capital and use loans only for fertilizers. 350 million Reais working capital, The rest is services and other costs, but we're very comfortable in terms of the payment terms. The first CRA that we issued for farms are practically all invested, and now We are beginning this project with 4,000 hectares, 1,000 we have already finished to implement irrigation, and this will result in cash flow to pay these debts without any problem. On the next here, we have some projects we're working on, the efforts we have made, In the last two years, we always mention for those who are in our meetings that the company has been working with SAP as the main ERP. We use SAP. We're implementing this in verticals. We're implementing this software. And this is helping us to control all our processes in terms of production, transactions. But we understood that it would be interesting to have a better integration with SAP because management was becoming complex. So we tried to simplify this process through some implementation. And we began the integration of SAP. We're using now another software too called AgroBit. It's a partner of SAP. SAP recommends to work with AgroBit to have this integration. So what we're doing here is to make all the management to obtain gains in efficiency in agricultural production. So we began to digitalize all these field operations, and this allows us to plan operations, integrate this with machinery and meteorology to have more efficiency. Now, what is interesting in this product is that by accumulating data from different harvests and through artificial intelligence, through this algorithm, that the system supplies, we are able to make, it makes recommendations for us to work in a preventive way or corrective way to avoid losses. So we began this process, it'll be in three steps. The first is digitalization, it's ready. There's a second to integrate machinery irrigation equipment we have this software working and a third phase using the formulas we will be able to look at gas emissions this is a long-term project but We will have focus on this because we believe this will help us to increase productivity and have a better idea of our assets. The next slide, the next project, sorry, connectivity, the next project is connectivity, although AgroBit can work

with cell phones and internet.

For us it's interesting if we're able to connect this to other tools we already have. So we're working with some softwares that also control machinery. Reminding you, we don't have our own equipment. We work with, we outsource the equipment, these companies, supply services, planting, harvesting. We're investing to have telemetry so we can increase our efficiency, even outsourcing. On San Jose and Chaparral farms, these farms, are very important for cash generation in the company. And we hired the services of TIM and Claro. These are telcos. And one part was already implemented with a shared investment with the mill. that produces ethanol on that farm, and in the other, we have a system where CLADO has been investing, the telco is investing, and we amortize this with monthly payments for services. Now, what we want is to continue increasing the efficiency in cash generation. Here we have a high volume of operations, consumption of inputs, especially fuel. We hope to have an improvement in the efficiency of the use of fuel. And last year we had a problem in San Jose Farm, so we saw the importance of having the whole farm connected and remote monitoring to increase efficiency. So I believe it's a project we will continue. When we finish implementing this at Chaparral, we will implement this in other farms where it makes sense. Finally, bio plants to strengthen biological activity we installed two new plants we already had two now we added one in Shingu farm where we produce soybean corn second crop for corn San Jose also where we have sugarcane, soybean and corn. We began and we ran some tests with some bugs that are a threat and gave us problems with the quality of the product. We had a positive result with these biopharms and we began to use this in other crops. and the result was very good, so it became more relevant. The company has 18 million Reais in terms of cost with insecticides and herbicides, we And we're investing in biological also products, herbicides and pesticides for the next harvest. Here, this is to show the behavior of our shares, Agro 3. And now we'd like to begin the Q&A session. Thank you. Thank you, Gustavo. Thank you, Andrei. Well, I will pass the floor to Pedro from XP for the first question. Good morning. Can you hear me? Good morning, Andrei, Gustavo, Ana. It's a great pleasure to talk to you again. I'd like to ask a first question concerning mix in the current harvest there was an important change in mix. Andrei talked about this due to the climate. And at the same time, with the follow-up that we do of contribution margins, sugarcane is becoming attractive now. So, looking at the next harvest, what can we think of in terms of mix? Does it make sense to use the same strategy? As last year or more sugar cane. And the second point, sale of land. We talked recently about this. Recent. Andre has said.