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.

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