Slc Agricola Sa S/Adr

Good morning, everyone, and welcome to SLC Agricola's Q4 2024 Earnings Conference Call. My name is Rodrigo Gelain. I am the Financial Manager and Investor Relations Officer. Joining me today are our CEO, Aurelio Pavinato, and our CFO and IRO, Ivo Brum. It is a pleasure to be with you this morning. Please note that this conference is being recorded and will be available on our Investor Relations website, where you can also find the presentation. For those who need simultaneous translation, this feature is available on Zoom under the interpretation icon that you'll find on the bottom center of your screen. There you may select your preferred language, Portuguese or English. If you're listening to the audio conference in English, you can also mute the original audio if desired. For the Q&A session, we kindly ask you to submit your questions via the Q&A icon at the bottom of your screen. Bye. Default your names will be announced so that you can ask your questions and at that time a prompt to activate your microphone and camera will appear on the screen. If you prefer not to use your microphone and camera, please write no microphone at the end of your question and then I can read it aloud. We would like to remind you that the information shared in this presentation, as well as any statements made during this call regarding business outlook projections and operational and financial goals, are based on management's beliefs and assumptions, as well as currently available information. Forward-looking statements are not guarantees of future performance, as they involve risks and uncertainties. they refer to future events. So investors should consider economic conditions, market factors, and other operational variables that may affect SLC Agricola's future performance and lead to outcomes differing from those expressed in these statements. I will now Turn the floor over to our CEO, Aurelio Pavinato, to begin our presentation. You may proceed. Thank you very much, Gelain. Good morning, everyone. We appreciate your participation in SLC Agricola's Q4 2024 Earnings Conference Call. Let's begin, please, with slide four, where we'll say a few words about the current market. Cotton prices closed December at approximately 70 cents per pound, reflecting the global supply and demand dynamic. According to USDA data projected global cotton consumption, for the season harvest is 116.5 million bales, while production is expected to reach 120.9 million bales, resulting in a supply surplus of 4.4 million bales. While the US faced losses, China experienced production growth with favorable climatic conditions and growth of approximately 17% or 4.75 million bales. This contributed to maintaining a global supply surplus. Moving to slide five, let's discuss soybeans. The 24-25 harvest in the United States started favorably with an expected production of 118.8 million tons, an important recovery from the 113.3 million tons recorded in the previous year. At that time, the U.S. soybean output declined by over 9 million tons. In Brazil, the 24-25 harvest has seen irregular rainfall, particularly in Mato Grosso do Sul and Rio Grande do Sul. where a combination of high temperatures and below average precipitation have created uncertainty regarding the final production volume. As the harvest progresses in Brazil and production estimates are revised, we will gain a clearer view on the national output, still pending the results in harvests that are underway. So, therefore, it's fundamentally important to monitor the South American harvest, especially in Brazil, so that we can consolidate the global supply and demand level since the The expectations of the cereales exchange show decreases in soybeans regarding the prior climate. The global supply and demand balance is expected to show a surplus of 11.6 billion tons. Now let's move to slide six to discuss corn. Corn prices in the CBOT spot contract and in the Brazilian domestic market followed a positive curve throughout January and December 2024. Currently, the global supply and demand is expected to show a production deficit of 19 million tons. marking the largest shortfall in four years. Following Brazil's record exports in 2023, 2024 saw a significant reduction in comparison to the previous cycle. And this was primarily due to an increase in domestic corn consumption. driven largely by higher demand from the corn ethanol industry, which has contributed to a lower exportable balance of the commodity. According to UNAM data, Brazil is expected to consume 8 million tons of corn for ethanol production in 2024-25, 4 million tons more than the 2023-24 mark, representing an annual increase of 25% in the demand for the biofuel. These developments are crucial in reshaping global corn export dynamics as Argentina, Brazil, Ukraine, together with the United States, remain the leading suppliers of corn. Moving to slide 8, let's say a few words about our operational performance for the 23-24 harvest, the previous one. Cotton harvesting suffered with lower rainfall that affected the west of Mato Grosso with a significant reduction in rainfall in October, November and December 2023. Soybean reaching 3,264 kilos per hectare, 17% less than budget. And cotton harvesting concluded in September with an average yield of 1,922 kilos per hectare, slightly below our projections, minus 0.8%. And then second crop corn was also harvested in September with a yield of 7,093 kilos per hectare, 6.5% below projections. The loss in yields were the main factors affecting our 2024 results in comparison to 2023. I will now turn it over to Ivo Bru, who will discuss our financial performance. Ivo, please go ahead. Thank you, Covinato. Please, let's turn to slide 10. where we present some key highlights. Net revenue for the year reached nearly 7 billion BRL, driven by cotton shipments reaching 364,000 tons. However, net revenue declined by 4% compared to 2023, due to lower than expected soybean and corn yields in 2023-2024 harvests, adjusted EBITDA total 2 billion with an adjusted EBITDA margin of 29.4% and free cash flow generation of 34 million BRL. Cash flow was impacted mainly by the lower gross revenue from soybean and corn and investments in expanding planted areas, and the acquisition of minority shareholders in SLC Landco, as announced, for the amount of 524 million reais. In spite of this, our leverage remained under control at 1.8 times. Regarding investments in 2024, We see in slide 18 the breakdown between maintenance and expansion. Total investments in 2024, 1.1 billion were invested, of which $533 million in investments allocated to expansion of planted area. Maintenance CAPEX represented 51.5% in a total of $567 million, ensuring operational continuity. Key investments included machinery, equipment, soil correction, and infrastructure, with a highlight to the expansion of irrigation at Pari Piratini Farm, where 62 million were invested together with the investment in silos. Now moving to slide 12, let's turn to our debt profile. Adjusted net debt closed the quarter at 3.7 billion with a net debt over adjusted EBITDA ratio of 1.8 times. That was impacted primarily by lower farming productivity and an increase of 10.6% in the planted area, which requires, of course, working capital and CAPEX. Moving to slide 13, in the year 2024, we lengthened our final term maturities and issued two CRAs very successfully, showing that the market trusts our strategy for growth. At the end of 2024, 70% of our debt was long-term, with an average cost of 13.1% in January. We can now proceed to slide 14, where we present the 2024 results for seed business. In 2024, the seed business contributed 106 million BRL in the beta with a beta margin of 14.4% and net income of 54 million with a net margin of 7.3%. On slide 15, we see sales by channel. There was an expansion in our portfolio with an increase in sales of 39% in sales to third parties and a margin of 9.4 percentage point increase in relation to 2023. On slide 16, we outline our 2025 sales estimates. Soybean seed sales to third parties are estimated at 1.4 million bags, a 12% increase from the previous year. Cotton seed sales including third parties and internal use are projected at 145,000 bags, a 1.2% increase. Moving to slide 17, we will discuss the distribution of the parent company's net income. Management proposes distributing 50% of the parent company's 2024 adjusted net income, totaling 241 million, to be paid in May 2025. This corresponds to a dividend yield of 3.1%. Now I'll turn it back to Pavinado, who will discuss the outlook for 2024 and 2025-26 harvests. Please, let's go to slide 19, where we show the evolution of the planted area for 2024 and 2025 harvests. The planted area grew 10.6% compared to 2023-24, totaling 731,000 hectares. On slide 20 we provide a brief summary of the operations that supported this expansion. During the year, we announced the expansion of our joint venture with Agro Prenido, Fazenda Pioneira. We also entered a joint venture with Agropecuária Rica, Fazenda Preciosa, and signed a new lease agreement in the state of Piauí, land annexed to Fazenda Paranaguam. combined these three operations expanded our potential planted area by 60 000 hectares for the 24 25 harvest moving to slide 21 we reviewed the status of the current harvest The planting of early and super early soybeans, which enables the cultivation of second crop cotton and corn, began in late September with a slight delay because of the rains. putting soybeans in an optimal window for high productivity potential. So far, 65% of soybean has been harvested and we expect to exceed our initial projections. Cotton crops also show good productivity potential and due to the delay in soybean harvest, planting we shifted approximately 4,600 hectares of second crop cotton to second crop corn. Cotton planting was completed and corn planting also has been concluded. The volume of harvested soybeans and adjustments in planting schedules Justify our revised yield forecasts as follows. Soybeans budgeted 3,076 kilos per hectares. Our current forecast is one bag above, 4,043 kilos per hectare, an increase of 1.7% over budget and 23.9% higher than the 23-24 harvest. First, crop cotton budgeted 2,041 kilos per hectare. Currently, we have a forecast of 2,034 kilos per hectare, yet 2% higher than the 2023-2024 harvest. Second, crop cotton budgeted 1,910. Current forecast, 1812 therefore 0.8 percent lower than the 23 24 harvest owing to the delay in finishing the harvesting corn budgeted 7 542 kilos per hectares and current forecast 6 982 kilos per hectare minus 7.4 percent and 1.6 percent lower than the 23 24 harvest also related to delay in planting soybeans in the ideal schedule Now, let's review the cost estimates. The estimated cost per hectare for 24-25 harvest is 5.4% lower than in the 2023-24 budget. This reduction is mainly due to declining prices of fertilizers, pesticides, and seeds which are closely correlated with commodity prices. Now, moving to slide 23, we present the current hedge positions for 24-25 and 25-26 harvests. We continue selling soybeans for the 24-25 harvest, reaching 75.1% of estimated production in commitments. We have locked 49.1% of cotton production and 35% of corn. Additionally, we have hedged a currency in line with commodity sales. For the 25-26 harvest, we initiated Fertilizer purchases securing 50% of nitrogen fertilizers, 82% of potassium chloride, 77% of phosphates, and 30% of pesticides. We also advanced hedge positions for 2025-2026. with 45.7% of soybean production hedged, including commitments, and 6.6% of cotton. Cotton is typically traded in the short term, and as a result, there is currently no market liquidity for hedging for the 2025-2026 harvest. Now, moving to slide 24, we disclose a brief summary of the acquisition that was revealed by a material fact on March 6th. We announced the acquisition of Sirians Agro Brazil for $135 million. The transaction involves 100% leased land, totaling approximately 96,000 hectares. Upon completion and closing of the deal, around 33,000 hectares have already a binding proposal for the acquisition of operational rights by tariffs, a condition for the transaction. SLC will operate 63,000 hectares, approximately 100,000 hectares of planted area considering second crops. The production plan is to maintain soybean and corn cultivation in the initial years, with cotton being introduced from the third year of operations. SLC Agricola is expected to take control of the operation starting July 1st, 2025. Moving to slide 25, we illustrate the strategic impact of this transaction. The new acquisition will enable a 14% increase in planted area for the 2024-25 harvest, as well as greater strategic diversification of our land portfolio, helping to mitigate climate risks. We can now move on to slide 27. where we will highlight ESG achievements and awards we received. We once again received the Great Place to Work certifications for the agriculture sector and Rio Grande do Sul. Additionally, we were awarded the Mental Health Seal, granted by the same organization. This certification evaluates employees' mental health status, and we achieved the operational level, reinforcing our commitment to the well-being and quality of life of our team. On slide 28, we received in August the gold seal from the Brazilian GHG protocol program for the company's 2023 inventory regarding greenhouse gas emissions. In the seed business, we achieved the triple championship of the MASC award, which reflects SLC Seeds' ongoing commitment to providing high-quality seeds and exceptional service to our clients. To finish, we won the Transparency Trophy and a FAQ. in October for the sixth time. This is a recognition of the transparency and quality of our financial statements. And now on slide 29, we see the certification in regenerative agriculture. We have received this award for our role in Region Agri. And the farms Planalto and Pamplona have been certified since 2023. We now added the farms Palmares, Pantanal, Planeji, and Pamoji. Together, these units account for 137 million certified hectares, a very significant improvement towards our big dream. Thank you very much, and now we will open for the Q&A session. Thank you very much, Pavinato. We will now begin the Q&A. Kindly submit your questions in writing all at once and wait for the company's reply. Remember to ask questions. We ask you to send them via the Q&A icon at the bottom of your screen. Your names will be announced for you to ask your questions live. At this point, a prompt to activate your microphone and camera will appear on the screen. If you prefer not to activate your microphone and camera, please write no microphone and I can read it aloud.

Our first question is from Gabriel Barra, Citi.

Please go ahead and open your microphone.

I think Gabriel is not with us.

Pedro, you can go ahead now.

Good morning.

First of all, thank you very much for taking our questions. I have two questions about the seed business. I would like to understand what you expect for 2025 and what's the rationale behind your sales targets. Why do you expect lower growth in cotton since you were going to grow your planted area of cotton in this harvest? And what do you expect in terms of pricing for 2025? Do you expect prices to drop because both crops are going to be planted. And also, what are the main highlights of the operation? I think that even with the growth in volume and the adverse climate, you were able to secure a positive EBITDA margin. Could you comment on that? Good morning, Pedro. In our seed business, we are growing our market, and soybean seed market is huge in Brazil. And growth of sales in the next year echoes our strategy. Now, growth in cotton sales follows a different dynamic. In cotton, there are major farmers planting cotton in Brazil. Most of our seed production is employed internally. We are trying to develop a cotton seed market right now, and that's why we are moving more slowly in relation to our expectations of growth in cotton seed sales. That's why we are not really betting so much on that. But depending on the planted area, this could result in higher or lower internal demand, and the numbers might change. Now, as for... Did I understand your question correctly about... Seed prices, well, they're correlated with the commodity price. Obviously, a small share of the seed prices derive from the grain. We have royalties, in fact, that make up the price because of the biotechnology and germplasm used. So we believe that Seed prices will stabilize and probably they could actually increase in comparison to the previous cycle, because there the commodity prices in BRL were slightly lower than current prices. Yes, considering prices in BRL, both soybeans and cotton, that's why we believe that prices will stabilize. So it will depend on our efficiency and production cost. If we are able to reach prices that are the same or lower than last year, then we can have better prices in the next one.

Thank you.

Thank you, Pedro. Our next question is from Isabella Simonato, Bank of America. Good morning, Isabella. Please go ahead with your question.

Good morning, Gelaim, Pavinato and Ivo.

Can you hear me? Yes.

Two questions, please.

How do you feel the grain market, especially soybean, cotton and corn, considering the trade war between China and the United States. We see the United States losing competitiveness, and we think that the Brazilian exports will increase. What do you see in terms of price and opportunities in this scenario? Also, when we look at the expansions, last year that were very relevant in your leverage, how do you feel the expectations for deleveraging if this could be expected that you continue to expand your areas? I think that, or did you reach a size that's good enough for you for the next two crop seasons? Well, thank you. Thank you, Isabella. Very strategic questions. So first of all, let's address commodity prices and how they will be affected by the trade war. So first, a brief summary, right? And then Ivo will talk about leverage. Well, how do we view the agricultural commodities market without taking Trump into account? When we look at the curve of supply and demand, especially inventory and consumption globally, at this juncture, soybean has a higher ratio. of inventory consumption. It would be normal to have an inventory of 28% and today we have 30% in soybeans. But where are these stocks? They are in China. If I exclude China from the picture, China has 43 million tons of soybeans stocks. It would be normal to have a rate of 18% and excluding China, we have globally 16%. So we have high soybean inventories, but all of them in China, located in China. And this will provide sustained prices. Now, when we look to corn, the normal ratio is 28% and today it's 23% inventory consumption. So that's why corn has been sustaining higher prices. And once again, This year, there was a deficit between production and consumption. And when we simulate the 2626 harvest globally, we'll see a deficit in corn production. production over consumption, consumption over production. So there will be a positive pressure on corn prices, which also indirectly sustains soybean prices. So our vision is that Soybean and corn prices today are being traded at low levels, especially soybean, that the prices will remain at these levels and there could be some peaks as well depending on climate effects whenever there is an extreme climate effect we see a rally in prices this is our perspective in relation to prices in the case of cotton we see demand that's always fluctuating so that's why you know carbon even when the inventory and and consumption ratio is adequate, prices dropped significantly, always related to insecurity. Oh, a recession will hit in Europe and the United States. So after this, then, you know, Trump took office, and Trump today is creating insecurity in relation to demand, and this put prices of cotton under pressure. So we believe that in our vision, prices are being paid at low levels, below production costs in most cotton producing countries, which is at a level of 67 cents. And it's this insecurity that's creating pressure on prices. So, you know, so far, the first months of the Trump administration have been very turbulent because, you know, tariffs are on, tariffs are off. This is, you know, creates a lot of insecurity. So the Trump effect over cotton is negative. This is, you know, the short of it. not on the demand for cotton, but the demand of, you know, apparel and clothing, everything that's made of cotton, and that reflects the European and American GDPs. In relation to corn and soybeans, I think I showed that we believe that the prices will remain stable with more positive volatility than negative. So Trump's trade policies are Raising prices in the United States, prices are now slightly lower than they would be before if it weren't for the trade war. But in the case of Brazil, the decrease of prices in Chicago was offset by the premiums in Brazil. So the premiums that were negative for Trump, now they are 50%. $0.70 in future prices for July and August, so we don't see any losses in prices owing to the trade war. If the trade war continues, we believe that Brazilian agriculture will benefit in Brazil, and Brazil will be seen as a safe source of supply for food. And this is how we view prices and the connection with Trump. Okay, leverage. Good morning, Isabela. First of all, it's important to remember that we have 11 billion BRL in land that support our leverage. we have debt that's far lower than our assets. In this half of the year, we will deliver half of the cotton volumes from this season, and soybean will be probably higher than budget, so this is another source of revenue. With this, our advice is to have at the most two times and not that over a bit. So when we are below two times, we will continue to pursue growth. So if any opportunities arise, we will consider them and we can continue the expansion. Looking to the future, when we didn't grow our land, we quickly decreased leverage and we were even below one-time ratios. And we actually had to engage in a share buyback because we didn't have any opportunities for expansion. So when it's below this level of times, we'll continue to grow. And our strategy has been shown to be very consistent and adequate. Thank you. Thank you very much. Very clear. Thank you, Isabella. Our next question is from Julia Rizzo, Morgan Stanley. Good morning, Julia. You can proceed with your question.

Hello, good morning. Can you hear me? Can you hear me?

Thank you very much. I have two questions. Pavinato, I would love to explore the issue of global inventories in corn and soybean. It was interesting to hear that China has more than the rest of the world. And what's the impact on Brazil since our most important client today is China. So if you could make a connection between this and Trump, well, Trump one was more incisive relation to agriculture than he's being right now in spite of all uncertainty. So it would be interesting while you've talked about the the pressure on prices in Chicago that's being offset by the premiums in Brazil. So do you think that this premium incorporates higher tariffs, do you think? Or do you think that the premiums will go down? I think this is it. Then I would like to ask a follow-up on production costs.

How much does China...

So, China. Well, in 2018, China depended in the United States on agricultural products to a certain level that's completely different from right now. They had soybean stock of 23 million tons. Now they have 43 million tons. In 2018, half of the imports into China came from the United States and half came from Brazil. Now, They closed the year, 26 million tons were imported from the United States, 73 million tons were imported from Brazil in 2024. The expectation for 2025 is that China will import around 80 million tons from Brazil and 21 million tons from the United States. So China's reliance on the United States for food has decreased dramatically. Looking at corn, there was a moment in which China was importing a lot. They tried transgenic and they are now importing 295 million tons in the current cycle. Last year, they imported 1.3 million tons of corn, almost nothing from Brazil. So China, that five years ago, or three, four years ago, imported 20, 30 million tons of corn, now imported 4 million tons of corn in 2024. And the expectation for 2025 is 8 million tons of So China does not depend on the U.S. for corn imports. Even if China imports soybeans, zero soybeans from the United States, they will not go hungry because they can import from Argentina and Brazil. And in cotton is no different. Last year they imported 760,000 tons. and Brazil is growing its cotton production very soon. Brazil will be able to meet China's demand and they are reducing imports because many industries are now migrating to countries such as Vietnam. So very soon China will not depend on the United States for cotton. So this dependence between China and the United States in agriculture has significantly decreased. The question is, will there be a new trade agreement between China and the United States in the area of agriculture? We believe not. There could be a trade agreement, but agriculture will not be the pillar for this trade agreement. There will be other geopolitical and strategic poise, and this war is much more geopolitical than commercial, in fact, in our understanding. So we do not believe know because a trade agreement as we saw under trump one on could not be beneficial for brazil because it's a trade agreement china would be importing large volumes from the united states and this would decrease our share but we don't believe this is the case any longer outlook on demand for the Brazilian production. Well, when I said that China is stocked up, if I exclude China from the world, we would have normally 18% in the balance between inventory and consumption. But if I exclude China, the soybean ration would be at 17%. So inventories in soybeans are high, but they are all in China. So globally, they are just normal, 17% to 18%. This is a normal ratio, a normal balance. So once again, this is something that shows that our perspective makes sense. now premium offsets well this is driven by rumors more than facts 10 percent you know of soybean imports so you know so they're 10 percent more of premium for brazil in prices in fact so if the price is 10 and there is a tariff of 10 percent it's going to be one dollar in a premium that we will have that we would have in relation to the normal premium. And then the normal premium is based on supply and demand. For Brazil, what's normal is a positive 50% premium. It's bad when there is a negative premium, as we had with the oversupply in Brazil in recent years. So in this year, the normal premium would be at zero or negative as it was one month ago. And now it has climbed 50, 60 cents. So 6% in comparison to the 10% that is expected from the tariff. So this is the short of it. About cotton, I said that inventory levels are normal in the world, and cotton is 67%. In the case of cotton, when USDA makes the analysis in July and August, they always have high levels of inventory. And globally, This inventory is also in China. When I exclude China, the normal inventory level is 18%. It's now at 17%. So cotton prices are low because of the uncertainty in demand and supply. Otherwise, there's no justification for prices this low. The point is that when there are positive prices in the first quarter, the North will plant cotton. China, India, Pakistan, and the United States, they will plant cotton. And this is positive because cotton planting countries will reduce uh the current plan to theirs because of the low prices for example in february cotton was being traded at low prices in the united states and this did not impel americans farmers to plant cotton so they expect a reduction in the cotton planted area that's just getting started march april a reduction of 15 in the cotton planted area in the united states and climate forecast is not good there is a draft forecast in the cotton planting regions so they are not expecting rain so on one side we have the area reduction that is expected and climate that will be unfavorable for cotton in the northern hemisphere so so that's why we believe that the prices will be sustained with possible upsides as well What was the second question? Well, since we were talking about the weather, about climate, I understood based on your previous comment that you believe that the deficit in corn will continue even with the increase of the planted area for corn in 25-26, right? Can you tell us a little bit more about these expectations? And of course, I don't want to take any more of your time, but the last question is about costs and hedging, which I believe is a little behind schedule for the period. I don't know if you have a different vision for them. for the following periods. Well, in our simulations for the 25-26 corn crop, global supply will be lower than consumption. Consumption is growing. Consumption for protein is growing in Brazil and China. and other corn consuming countries and we have also an expansion of demand of corn for ethanol this year we should have 22 million tons being used for ethanol production india has started to produce sugarcane ethanol now they shifted this to corn, so it's domestic production in India is being used for ethanol production, and they are importing more corn for food. So growth in corn demand is consistent, and also considering the trending curves, And next year, even with an expanded planted area in the United States, we shouldn't see production above consumption. There is a surplus in corn. When we look at the corn and soybean curves along the year, you know, Soybean grows consumption 10 million tons per year and corn grows 24 feet, but it also increased 7 million tons a year for ethanol. So that's why corn is growing consistently and sustaining its prices now inputs in fact we have made more progress this year in comparison to the previous year in fertilizers we're moving at the same pace both potassium and phosphate and also ammonia sulfate has already been purchased uh it's not real the 50 i was talking about and we have Uh, enough time to purchase Maria, uh, with the perspective of, uh, of a deal in Ukraine at the end of the war. So when we look at the purchases for the 25, 26 season, they are, uh, giving us opportunity for a positive price adjustment as for crop protection. It was the other way around. At this time of year, last year, they were at a high, the prices, and we waited. We made the purchase in April and May, and we were able to benefit from lower prices. This year, in the traditional market, prices are at attractive levels, so that's why we are making progress in the negotiations.

Thank you. Thank you, Julia. Thank you.

Our next question is from Matheus Enfield, UBS. Matheus, could you please activate your camera and microphone?

Good morning, Pavinato, Ivo, Gelaim.

We have two questions. Well, the answer for CAPEX 2024-2025. 2024 was an important year with growth of 10% and for 2025-2026, you're growing your land in 100,000 hectares. And I know that you said that CAPEX would be relatively low, but I would like to think of the total capex for 2025, because we're starting off with a larger planted area. So I imagine that maintenance capex will probably go over 700 billion PRL. And so should we expect a relevant growth in capex of 5% to 10%? Does it make sense or is there, or am I assuming this incorrectly? Now about cotton prices, I think that you were very clear in the short term, but I'm not concerned in the medium and long term. Brazil has found out it's a great producer of cotton and of course we'll continue to expand. uh cotton planted area and even with this this price of 60 to 70 per pound you know we'll continue to see more planted area in cotton and the new in the new normal brazil will continue to put pressure on this market in the medium term so my question is Is there anything that Brazil can do to drive demand globally, similarly with what we did with ethanol? Can we become demand drivers to try to balance this market where supply keeps on growing? Thank you very much for the question about CAPEX. I think it's a good question. In the 135 million that we spent on the purchase of CIRID, we included machinery as well. This includes machinery. So all the CAPEX is included.

There could be some adjustments.

That is pretty much it. So you are correct. As we expand our planted area, our maintenance CAPEX increases as well. So if you make the formula, this is the trend. There will be a small increase in the CAPEX area.

It's only natural.

We can, of course, make any adjustments needed to your model. So we cannot say if CAPEX is going to increase 5% to 10%. I would say no, actually, because everything has been incorporated. We'll see. We see an increase in maintenance Capex related to this area. We want to continue growing 30,000 to 35,000 hectares per year. But let's try to focus on that. We have room to grow. And Capex was around 1 billion in 2024. I think it will be probably within this range. Mateus, about... Cotton demand a very complex question. Cotton competes with synthetic fiber. This is the competition. So in Brazil, competitiveness is far exceeds any competitor. When you think of the production cost, and this is what I keep on saying, that we have to continue working on production cost, because like this we'll be able to increase volume and sell more. well there you know there is the option always you know for the buyer to buy cotton or synthetic fiber and it's important to think of the end consumer and this is what in brapa is doing with the social woodland program to drive consumption of cotton in brazil and we're talking to the uh American and Australian associations so that we can develop a project to increase cotton consumption. But it's a difficult fight because the competition is fierce with synthetic fibers. So when we look at the global scenario, Brazil will take the position of other countries. Other countries will reduce their planted area and Brazil will increase its planted area and occupy more space. So our focus has to be high product, high yield, low cost, so that we can sell with a profit at 60, 70 cents. I think this is the future for cotton in Brazil. Thank you. Our next question is from Guilherme Gutila, BTG Factual. Good morning, Guilherme. Please open microphone.

Good morning. I would like to talk about cotton.

There was a projection reduction, but you still carry inventory. So is it really worth to sell cotton in the next season? and also a quick question you were talking about and about the comedy price expectations but we would like to ask what are you expecting in terms of yield for cotton in the near future In 2024, we delivered part of the 23 and part of the 24 seasons, but it was equivalent to a whole crop season. We expanded cotton in 2023, 2023, 2024, and now in 2025, we will deliver volumes equivalent to the ones in 2024. because the balance to be carried over from 23 to 24 is similar to the one we have from 24 to 35 and we'll be harvesting in july and august and now with the planted area expansion we'll see more cotton in the 25 26 season but this will be only recognized in 2027, because we're harvesting in 2025, we'll deliver part of the production, then there will be a balance for 2026, we'll deliver part of the 2026 season, and the expansion volume will be delivered in terms of volume in 2027. This is the volume scenario for cotton in the near future.

I think we can look here.

Yes. In the release, You see, net income, table 16. Well, 23, 24.

This was 40% for cotton. If we up to 24, 40%. Now, if you look at the year to date in 2024, we have 39% of net income. In 23, it was 35%, but we had a very significant loss. So margins are very consistent between 37% and 40%. As Favinato said, prices fluctuate, but the costs also get adjusted, so I think that margins are very consistent. You can use this as a guide. If you look at the hedge or how much we hedge, the price in dollars is lower, 24, 25 debt-proof delivery, 25 and 26 prices are lower, 76.9 cents. versus 81, says. But the exchange was 143. So the price in PRL of the 24-25 season is higher than the previous crop season. So the expectations of profitability, even with the low prices of cotton at 70%, we believe that we'll maintain our profitability. Thank you very much. Our next question is from Pedro Fonseca XP. Please go ahead, Pedro.

Thank you very much for this opportunity.

Firstly, about cost.

I think that you were

I think that your input acquisition was very effective. But when we think that in the first guidance and looking to the future, does it make sense uh that there is room for a revision with lower costs than expected considering that you managed costs very efficiently this is my first question and then i would like to explore with you what have you seen in relation to new technologies and how should we see the marginal gains of the company, especially in terms of opportunities. Can you give us, you know, details by crop? It would be great to see whether there, you know, there is room for increases in productivity. This is my question. Well, about costs. Yes, I think that we managed the inputs last year in a very positive window, but we always look at the price and cost ratio. If prices are not improving and there were no significant improvements, then the price will remain the same with the effect in the exchange. So I don't really see a prospect for cost reductions. I think the likelihood is zero. We could, of course, make an acquisition that will have an impact, but we are now acquiring crop protections, only normal that the vendors want to increase prices, but with commodity prices as stable as they are, it doesn't make sense to see any increases. Of course, we have also inflation in BRL to think about, but there's a correlation between cost and price in this definition. And for new technologies, let's turn it over if the exchange is is depreciated as it is now our costs will be lower so there could be adjustments in cost productions that are negative in u.s dollars perspective well um Technology and productivity gains, they are helping us become more efficient and increase yields. Everything that we are investing in digital culture is making us more competitive. The productivity and yields we have reached in Brazil are very positive, surprisingly positive. Now the climate is becoming more volatile. We have to be prepared for climate events because they're taking place more often. It's not because you have higher yields that you'll be able to reach potential every year. But when we make the comparison between the technologies and the yield we reach in soybean, for example, with a farm with 85 bags per hectare and our average is 60 something. Well, there is room for increasing yield in some farms and regions. Of course, it's a matter of adjusting to the new realities and market conditions. So we are feeling optimistic about growing productivity in the near future. And at the same time, we believe that volatility in productivity will be more frequent. That's why we have this geographic diversification, so if there is a draft in one region or excessive rainfall in another one, we can maintain the averages. This for all cultures. In corn, we are consolidating the second crop. Corn is something that's really very substantial in terms of volume. We are producing nine 10 11 000 per hectare in kilos in some farms so we are investing in the drying capacity so that we can plant corn sooner if we plant by february 20 instead of 7 000 kilos per hectares we can reach 9 000 kilos per hectare of course investing also in nitrogen and fertilizer but this is the potential that we can explore and also cotton uh today we harvest 2,000 kilos per hectare and we're going to harvest 2,200 up to 3,000 and with this we're going to reduce the cost per pound of mint produced. So in this very competitive fiber market our rationale is to boost productivity, not to increase margins, but to secure our margins in the case of cotton.

Very clear.

Thank you very much, Pavinato and Ivo.

Thank you.

The next question is from Gustavo Troiano. Could you please open your microphone? Could you please activate your microphone? Good morning, can you hear me? Yes, we can. Hello, thank you very much for this opportunity. It's always great to talk to you. My first question, in fact, both of them are about cash flow, but in the first one,

Well, we already discussed your CAPEX expectations for this year.

And what about working capital requirements? Could you say a few words about it? What are your expectations? Any investments for working capital that are not part of the acquisitions in the last 12 months?

It would be great.

for you to give us a little flavor about cash flow generation. And a second question is about capital allocation in your expansion cycle. We would love to hear your payout expectations for the future. You just paid 50%. And I would like to know whether you see room to continue at this level of payout, assuming that perhaps there won't be any other expansion opportunities. to seize in the near future. So I just would like to know whether you intend to continue distributing value to the shareholders like in the form of dividends. Well, I think it's important to highlight We have broken down MESES versus growth CAPEX. Growth CAPEX is not invested in a single year. We are increasing, for example, our storage capacity in Panaguá, a farm that grew 15,000 hectares, and then, of course, a silo was needed. so we are doing everything we can in in the pionera farm we are also uh building a silo in impressive farm as well sometimes it's not an instant investment you know if we wait for the best moment when uh this is a necessity for the farm in relation to working capital If we don't grow, we'll quickly grow our cash and deleverage the company. Along the years, we have shown, first of all, payout has been capped at 50%. historical trend. When we are under leveraged, we restart the share buyback program in order to transfer the gains to our shareholders. So if we think of the future, I think that 50% payout, I don't see any reasons why this should be decreased or any scenarios. but CapEx will depend on growth and everything will be managed. It's not going to be on a single investment. We are going to be smart about managing our cash flow and the investments we need to make.

Thank you, Troiano.

We have one more question from Laureirata Santander. Could you please activate your microphone and camera?

Hello, good morning.

Can you hear me? Yes.

Thank you very much for this opportunity.

I have two questions. Firstly, a follow-up on some of the previous questions. I would like to understand your outlook for fertilizer prices, 25, 26. Could you link the source of these fertilizers? We would like to find out more about your sourcing strategy for fertilizers and also profitability strategy considering what you have already sourced. And now another topic, new crops. In your guidance, sorghum, a new area in sorghum. So I would like to understand more about your outlook. And we also know that you focus on non-permanent crops, but I would like to understand if you, you know, since there is a growing demand for biomass, are you thinking of going into this area, new crops such as eucalyptus, for example? Thank you very much, Laura. About fertilizers, as we announced, we purchased potassium at 10% lower than in the current crop. So this is, of course, a positive indication in terms of costs for the new season. And phosphates as well at very similar prices. And nitrogen in line just slightly below. So today fertilizer prices are higher than prices we purchase them so we have to see we have to see now the prices That's why we have a vision that the 25-26 crop year should see prices and production costs that are very balanced in comparison to the previous or the current crop. We're going to be recovering margins in 25 thanks to yield because it's now back to the normal levels and our expectation for the futures that will maintain normal margins for the 20 25 26 seasons with this scenario of low prices and depreciated exchange rates so it's a a it's a time normal times for margins in the crop not the best not the worst they have asked for both corn and So, owing to scheduling reasons, we cannot plant corn, so we are going to plant sorghum after the corn window, so that we can meet the needs of the ethanol industry, both in Maranhão and Bahia. Embasa is also installing a plant in Maranhão. and there will be demand for the grains so this you know the ethanol industry is driving demand for corn and also liquidity for corn and the same applies to sorghum now biomass this is the hot topic biomass is being used for the ethanol industry so we are analyzing the potential but it's not our main focus we have studied many permanent crops such as fruits and even coffee we never felt very excited about them but we are thinking about biomass yes very clear thank you very much If there are no more questions, the earnings conference call on 4Q24 is now finished. Our investor relations department will be happy to take any questions that you might have. We thank you for attending. Have a great day, everyone.