Slc Agricola Sa S/Adr

My name is André Vasconcelos, Financial Planning and Investor Relations Manager. Joining me today are our CEO, Aurélio Pavinato, and our CFO and IRO, Ivo Broom. It is a pleasure to have you with us this morning. Please note that this conference call is being recorded and will be available on the company's investor relations website, where you can also find the presentation. For those who require simultaneous translation, we have this feature available on Zoom through the interpretation icon located at the bottom center of your screen. After selecting it, please choose your preferred language, Portuguese or English. Participants listening in English may also mute the original Portuguese audio by selecting Mute Original Audio. For the Q&A session, we kindly ask that your questions be submitted through the Q&A icon at the bottom of your screen. As usual, your names will be announced so that you can ask your questions live. At that moment, a request to activate your microphone and camera will appear on your screen. If you prefer not to speak live or turn on your camera, please write no microphones. and I will read your question aloud. Before proceeding, I would like to remind everyone that statements made during this conference call regarding the business outlook, projections, and operating and financial targets of SLC Agricola are based on the beliefs and assumptions of the company's management, as well as information currently available. Forward-looking statements are not guarantees of performance. They involve risks, uncertainties, and assumptions as they relate to future events and therefore depend on circumstances that may or may not occur. Investors should understand that general economic conditions, market conditions, and other operating factors may affect the future performance of SLC Agricola and may cause actual results to differ materially from those expressing such forward-looking statements. Now I would like to turn the call over to our CEO, Aurelio Pabinato, so that we can begin the presentation. Pabinato, please go ahead. Thank you, André. Good morning, everyone. Welcome to SLC Agricola's first Q26 earnings conference call. We appreciate the participation of our shareholders, analysts, and all other attendees. Today, we will present the main operational, financial, and strategic highlights for the quarter. I would like to ask you to please move to slide four, where we will discuss the cotton market. The beginning of 2026 was marked by significant recovery in international cotton prices, following an extended period of downward pressure on quotations. Among the key drivers for this was the escalation of the conflict between the United States and Iran throughout the period, which led to higher oil prices. Rising oil prices generally support cotton prices because synthetic fibers, which are petroleum derivatives, and cottons make competitors become more expensive. In this context, expectations remain positive for Brazil to continue gaining market share internationally. further strengthening Brazil's position as one of the leading global players. According to USDA, the supply and demand balance for the 2025-26 crop season points to a surplus of 2.5 million bales. For the 2026-27 crop season, USDA data indicate a global deficit of 5.6 million bales driven by tighter supply conditions and with the world production projected at only 116 million bales, while consumption is expected to reach 121.7 million bales. This scenario should lead to a 7% decline in global inventories, which will also support prices. Now let's turn to slide five for some words on soybeans. The recovery observed in the global market as reflected in the CBOC benchmark is associated with the onset of the conflict between the United States and Iran, and, of course, to the resulting increase in oil and energy prices. Against the backdrop of decarbonization in the global energy matrix, combined with ongoing efforts to expand the share of renewable fuels in the transportation sector, The correlation between CBOT soybean oil prices and crude oil prices has strengthened. As a result, soybean oil prices posted a significant increase on Chicago Board of Trade. Next, slide six. In addition to prices, we'll discuss the global soybean outlook. For the 25-26 crop season, the USDA projects a positive global soybean supply and demand balance of only 1 million tons. And Brazil, once again, consolidated its position as the world's largest producer, leading global exports. According to the USDA, the outlook for the 2026-27 crop season points to a positive balance of only 0.8 million tons. despite a 4% increase in planted acreage in the United States. Global production is projected to reach a record 441.5 million tons, led by expectations of a historic performance from Brazil, where production is estimated at 186 million tons, despite record supply levels, the market remains tight. Imports from China are projected to increase to 114 million tons, keeping global ending stocks on a slight downward trend to 124.8 million tons. This scenario should continue to support prices. Now let's please advance to slide 7 to discuss corn. Prices stabilized in February and recovered slightly in March, sustained by a strong demand for export and initial weather-related concerns. However, since expectations for the global supply for the 25-26 crop season remain comfortable, there was no significant price appreciation. The global corn outlook for 25-26 indicates record production, resulting in a modest supply surplus. The USDA projects production with a positive balance of 19.9 million tons. For the 26-27 crop year, the USDA estimates point to a global deficit of 11.1 million tons. This supply deficit reflects lower global production and inventories projected to fall to their lowest levels in more than one decade. The decline in global production is particularly significant in the United States and Argentina. In the United States, production declined by 6%, reflecting a 4% reduction in planted area and a 2% decline in productivity. In Argentina, the decline is driven by expectations of lower planted area, with production decreasing by 4 million tons, according to the USDA. This scenario is expected to put pressure on global ending stocks for 26, 27, which are estimated at 277.5 million tons, down 19.4 million tons compared to the previous year. If confirmed, this would represent the lowest global inventory level since 2013-14. potentially leading to higher prices. Now, let's please proceed to slide 9 to discuss the status on the 25-26 crop season. Soybean harvesting has been fully completed. First crop cotton is in the final maturation stage and progressing well toward the beginning of harvest, which is expected to start in June 26. Second crop corn and second crop cotton and corn are developing very well. For second crop corn, however, the situation requires additional caution since part of the planted area was sown outside the ideal planting window and therefore depends on adequate rainfall volume and distribution over the coming weeks to ensure full grain filling and yield potential. On slide 10, we'll discuss the record soybean yields in the recently harvested areas. The historic increase in soybean productivity achieved over recent years reflect a consistent long-term strategy that was based on continuous investments in soil quality, people development, and the discipline adoption of agronomic practices and more efficient technologies. Over the past eight years, soybean yield increased by 11%, going up from 62 bags per hectare in the 2018-19 crop season to 69.1 bags per hectare in the current season. During the same period, we also grew our planted area by 75%. This crop season, we achieved a new record with average productivity of 4,146 kilograms per hectare, representing, in comparison to the previous crop season, an increase of 4.7%. while soybean planted area also increased by 12.5% versus the 24-25 crop season. Now let's move to slide 11. We are well hedged already, ensuring greater predictability in a more volatile market environment. All crop inputs for the season have already been purchased. In soybeans, considering existing commitments, we reached 79.2% of estimated production hedged at $11.20 per bushel. In cotton, we hedged 84.6% of expected production at an average price of $0.73.88 per pound. While in corn, we logged in 47% of expected production at 53.36 BRL per bag. We also executed for exchange hedges aligned with commodity sales, mitigating both price and currency exposure. At this point, I would like to turn the call over to my colleague, Ivo Broom, to discuss our financial performance. Ivo, please go ahead. Thank you, Pavinato. Good morning to all. Please let's move to slide 13, where we present some highlights from our income statement. Net revenue totaled the quarter at 2.3 billion, down 2.7%, reflecting lower sales volumes of cotton, soybeans, and cotton seed. And it's important to highlight that during this quarter, we recorded revenues from farms located in the Midwest of Brazil, which posted lower productivity levels. In the coming quarters, revenue from other regions will begin to recognize with productivity levels above or in line with the company's overall average. During the period, adjusted EBITDA was $695.2 million. Cash generation was negative by $1.3 billion, reflecting higher working capital requirements especially related to crop input payments. Additionally, the investment from the quarter was marked by the final payments related to the acquisition of Azenda Paladino in Bahia, totaling $361.5 million, and the farm located in Unaí, Minas Gerais, totaling $95 million BRL. Now let's move to slide 14, where we present a summary of CAPEX in the quarter. In 2026, first quarter expansion investments represented 32.6% of total CAPEX, amounting to BRL 95.3 million, of which 73.3 million was invested in the irrigation project. Maintenance CAPEX represented 67.4% of total investments, totaling 197.2 million. Investments were concentrated in the implementation of private irrigation structures, drilling of wells, reservoirs, and electrical and hydraulic infrastructure works. Moving on to slide 15, where we present our debt position, the company ended the first quarter of 2026 with adjusted net debt increasing by $1.3 billion compared to 2025. This increase was primarily driven by crop financing means and the settlement of acquisitions of Paladino and Unai Farms. As a result, leverage measured by net debt to Edita increased 1.97 times to 2.72 times. Regarding our debt profile on slide 16, the company further extended its debt maturity profile compared to the fourth quarter of 2025 with the share of long-term liabilities increasing from 78% to 81% in first quarter 26. Continuing the presentation, I will now turn the call back to Pavinato to discuss the outlook for the 26-27 crop season. Pavinato, please go ahead. Thank you, Ivo. Now let's continue moving to slide 18, where we'll provide an update on fertilizer purchasing status. The company has already contracted 100% of phosphorus and 85% of potassium requirements, with an average increase of 4.3% in U.S. dollar terms, in line with planning for the 35-26 crop season. For nitrogen, no nitrogen purchases have been made yet due to the recent impact of the conflict involving the United States, Israel, and Iran on global fertilizer markets. The region represents a significant share of global fertilizer trade and also natural gas flows, which are the main input for nitrogen fertilizers. thereby putting pressure on urea and ammonia prices. The procurement window for nitrogen fertilizers is longer since these inputs will be used in cotton planting between November and January and in second crop corn that will be planted in February. In this context, the company will continue to monitor the market in order to make purchases at the most appropriate timing. Crop protection products, which represent around 19% of production costs, have already been contracted at 74.3%, with an average reduction of 6.3% in U.S. dollar prices. Finally, the planting mix for the 26-27 crop season has not been finalized yet and may impact future fertilizer and crop protection requirements. On slide 19, we present our current hedge position for the 26-27 crop season. From a hedging standpoint, we have already made strategic advances enjoying the market opportunities. We have 35.7% of soybean production hashed at an average price of $11.20 per bushel and 33.5% of cotton production hashed at an average price of $73.88 per pound considering existing commitments. To conclude, CLADS Let's please move to slide 21, where we highlight some ESG achievements and awards. At the beginning of 2026, we published our integrated report for 2025 and also expanded the area certified under regenerative agriculture by the RegenAgri program. representing growth of 79% with 325,000 hectares. As a result, we maintain our position as the largest certified area in the Americas. We also obtain animal welfare certification for our feedlot operations, rented by Fair Food for the Pantanal and Planalto farms. For the fourth consecutive year, SLC Agricola's Inclusion and B3's Corporate Sustainability Index reinforces, from an investor perspective, the strength of our ESG strategy and our ability to execute consistently over time. More than a one-time recognition, the company's recurring presence in the index demonstrates consistency in governance practices risk management and environmental efficiency, aspects that are increasingly incorporated into capital allocation decisions. Let us move now to slide 22 to discuss our carbon intensity index. The company maintains the carbon emissions reduction program with several commitments and initiatives. This has enabled us to obtain a reduction in our carbon intensity index from 0.179 to 0.123 of CO2 per ton in 2025. Finally, let us move to slide 23 to discuss the carbon removal potential of our farms It's important to mention that four farms recorded a negative carbon balance in the 24-25 crop season, meaning they removed more carbon from the atmosphere than they emitted. This result demonstrates the potential of certain areas to operate as net carbon sinks, contributing to long-term net carbon removal. Thank you all for your participation. And at this point, we will open the floor for the Q&A session. We will now begin the Q&A session. As a reminder, questions should be submitted through the Q&A icon located at the bottom of your screen. As usual, your names will be announced so that you can ask questions live. At this moment, a request to activate your microphone and camera will appear on your screen. If you prefer not to activate your microphone or camera live, please write no microphone, no camera, and I will read it aloud. Our first question comes from Julia Zaniolo, Bank of America. Julia, could you please activate your microphone and camera? Good morning, good morning, Pavinato, Ivo, André. I have two questions. Firstly, about El Niño. Well, since the last call, you know, we saw that expectations about the intensity of El Niño have grown, and in years where El Niño was strong, we witnessed a drop in production. Well, based on this, how are you preparing? Also, thinking of the acreage for the next season, 26, 27, thinking there's still a lot of uncertainty around nitrogen. And my second question is about fertilizers, focusing on nitrogen again. Well, the war is not over. It's already May. And I think that the risk of product availability and higher prices is still growing. I understand that you can wait for a better purchasing window. You have all the way through January. But based on what you have been discussing with other partners and exporters of fertilizers, what is their view? Will there be a lot of competition for the product if you wait And what about availability of the products in the market? Will there be enough for everyone? Because, of course, there will be a certain erosion of the supply. Thank you, Giulia. Thank you for this question about El Nino.

We are...

analyzing the potential effects of El Nino in our production. We know that with El Nino, there's more rainfall in the south of Brazil, in Argentina, and less rainfall in the north and northeast of Brazil. Sometimes it's not the same behavior. Sometimes there's less rainfall with El Nino and a loss of yield. In other years, this is not the case. But our strategy... is to analyze the conditions of each farm and of each crop and to try to mitigate risks. We'll also make adjustments to the fertilizer package, trying to say for this year, if it doesn't rain this year, we'll obtain cost reduction software. we're being very, very cautious in analyzing the details of each farm. I think that in a year like this where we're expecting lower rainfall, risk mitigation is especially important because it reflects in, you know, lower costs. In relation to fertilizers, the market is still running. I mean, even if you're not directly involved in the conflict, we see that some people are intensifying production.