Slc Agricola Sa S/Adr

If you wish to listen the simultaneous translation, we have this feature available on Zoom under the globe icon labeled Interpretation that you'll find at the bottom center of the screen. When you select it, please choose your preferred language, Portuguese or English. For those listening to the conference call in English, you can mute the original audio by clicking on Mute Original Audio. For the Q&A, we kindly ask you to submit your question through the Q&A icon at the bottom of your screen. As usual, your name will be announced so that you can ask your question live. At that point, a request to activate your microphone and camera will appear on the screen. If you do not wish to activate your microphone and camera, please type no microphone and I will read it aloud. We would like to emphasize that the information contained in this presentation, as well as any statements made during the conference call regarding SLC Agricola's business outlook, projections and operational and financial targets, are based on the management's beliefs and assumptions as well as on information currently available. Forward-looking statements are not guarantees of performance. They involve risks, uncertainties and assumptions as they relate to future events that may or may not occur. Investors should understand that general economic conditions, market conditions and other operational factors may affect SLC Agricola's future performance leading to results that differ materially from those expressed in such forward-looking statements. I would now like to turn the floor over to our CEO, Aurelio Pavinato, to begin our presentation. Pavinato, please go ahead. Good morning. Good morning, everyone. Thank you, Andrea. Welcome to SLC Agricola's second quarter 2026 earnings conference call. We appreciate the participation of our shareholders, analysts, investors, and all other participants. Let's please move to slide four, where we'll discuss the cotton market. The first six months of 2026 were marked by significant recovery in international cotton prices, following a long period of depressed prices. This scenario directly affected international polyester prices, which, given its competition with cotton and given the textile industry's ability to switch between these two raw materials, helped support the appreciation of the natural fiber. From a fundamentals standpoint, global cotton consumption for the 2026-27 crop season is estimated at approximately 123 million bales compared with a projected production of 117 million bales. Therefore, there is a global deficit of approximately 5.3 million bales. Brazil is expected to continue gaining market share in the international market, consolidating its position as one of the top global players. The 2025-26 crop year already reflects this trend, with Brazilian cotton exports registering volumes above the historical average for the period. Now let's move to slide 5 to talk about soybeans. Soybean crisis both on the CBOT spot market and at the Paranaguá CP benchmark have recovered significantly through 2026. The recovery in global prices, as reflected in the CBOT benchmark, has been driven largely by the outbreak of the conflict between the United States and Iran and the resulting rise in oil and energy prices. Against the backdrop of growing concerns related to the decarbonization of the global energy mix and the increase of use of renewable fuels in the mix, we see the correlation between soybean oil prices on the CBOT and crude oil prices strengthening. This provides important support for soybean prices. Globally, the USDA projects a tighter supply and demand balance for the 26-27 crop season, with the smallest surplus in the past five years. Demand for Brazilian soybeans also remains strong, with national exports in January through March, broadly in line with the volumes recorded in the same period in recent years. This confirms both robust global demand and the competitiveness of Brazilian soybeans in international markets. It's also important to monitor potential tariff changes imposed by the United States on its trading partners, similar to what occurred with China during Donald Trump's first presidential term. At that time, Brazilian soybean exports to China benefited relative to U.S. exports. Over the past few years, particularly since 2018, Brazil has established itself as a consistent supplier to the Chinese market. Let's please now advance to slide 6, where we'll talk about corn. Corn prices in the CBOT spot contracts and in the Brazilian domestic market have shown significant volatility throughout 2026. Corn prices in Brazil have found solid support from growing domestic demand. and this has been driven in turn by the expansion of the corn ethanol industry. As a result, Brazilian exports have been facing increasing competition from the domestic market where prices have been more attractive. Globally, the corn market is expected to remain in a deficit with demand exceeding supply by 24 million tons. This is the largest deficit in the past six years according to USDA data. Meanwhile, the ongoing Russia-Ukraine conflict remains an important factor in the global corn trade, given Ukraine's position as one of the largest world exports. This situation remains critical for global export flows, as Argentina, Brazil, and Ukraine, together with the United States, are among the world's leading corn suppliers. Let's please now go to slide 8, where we'll discuss the status of the 25-26 crop season. We have completed the soybean harvest with an Record average yield of 4,146 kilograms per hectare. This performance is 4.7% higher than the previous cycle and 2.7% above our initial projections. More important that the record itself is the fact that this result was achieved while you expanding the soybean acreage. This demonstrates the efficiency of our operations and the benefits of our investments over the past few years. As a result, we have achieved a yield approximately 12% higher than the national average. We have now harvested 62% of our cotton crop and the output remains very positive. We expect one of the best cotton crops in the company's history, with yields approximately 12% higher than last year's crop season, reflecting the strong crop development we have seen so far. For second crop corn, we have now harvested 90% of the crop. The crop faced weather-related challenges due to delayed planting and uneven rainfall, particularly in Maranhão and the Araguaia Valley in Mato Grosso. Even so, we continue to expect yields of approximately 6,798 kilograms per hectare demonstrating the resilience of our operations in spite of less than favorable conditions. Let's move now to slide 9 for an update on our hedge position for the 25-26 crop season. We continue to maintain a high level of hedging for the 25-26 crop. We have already had 90% of our soybean, 94% of our cotton, and 54% of our corn. This increases revenue visibility and reduces our exposure to price and market volatility. I will now give the floor to my colleague, Ivo Brum, For a few comments on our financial performance, Ivo, please proceed. Thank you, Pavinato. Let's please move to slide 11, where we share some highlights from our income statement. Net revenue for the semester reached a record 4.4 billion, up 6% year over year. This performance was driven mainly by higher volumes of cotton, soybeans, corn, and cattle. Gross profit reached 1.9 billion, an 8.8% increase, mainly reflecting improved operating performance in cotton and corn. Adjusted EBITDA totaled 1.3 billion in the first half, 10% from first half, 25%. mainly reflecting lower gross profit from soybeans and cottonseed. In addition, salient administrative expenses increased. Now, let's move to slide 12, where we have a summary on our CAPEX for the quarter. During the first half of the year, we continued to execute our investment plan to expand production capacity and strengthen operational resilience. We invested 155 million BRL In irrigation, one of our key levers to mitigate weather-related risks, improve stability in production, and support productivity gains. Following the end of the quarter, we announced the acquisition of 8.9 thousand hectares of arable land from Grupo Radar. We also renewed leases covering 8.7 thousand hectares with the new tenants, ensuring that we can continue to operate this land. As a result, 5.3 thousand are leased through the 29-30 crop. and around 1,000 hectares are leased through 26-27. The remaining 2,500 hectares have been re-leased for an additional 15 years starting with the expiration of the current lease at the end of 26-27 crop. at a cost of 19.5 sacks per hectare. We have also opened a new cotton gin at Fazenda Parnaguá. These initiatives expand our operational and industrial capacity. Now, on slide 13, we discuss our debt position. Regarding our capital structure, adjusted net debt ended the quarter at 7.5 billion, while leverage stood at 3.5 billion. This increase reflects our operational growth, higher working capital requirements, and the investments made in the period. Despite the increase in net debt, which of course reflects our expansion, we maintain a solid capital structure and a balanced debt profile. We have paid off Most of the costs associated with the 2025-26 crop and 78% of our debt was classified as long term, similarly to 2025. This reflects our discipline and financial management and our focus on maintaining a capital structure that supports sustainable growth. Now turning to slide 14, we will give you an assessment of our land portfolio. We have completed a re-evaluation of the company's land portfolio. Our own property together with those held through private equity partnerships were valued at 13.5 billion, reflecting the continued appreciation in the average price of Over the past five years, the assets have appreciated 8.4%. At the end of June 2026, net asset value stood at 27.12 BRL per share, representing a significant discount to the company's market value. Continuing the presentation, I will now turn the floor over to Pavinato to discuss the outlook for the 26-27 crop. Okay, let's move now to slide 16 for an update on fertilizer purchases. As we move through the current crop season, we continue to make progress in planning for the 26-27 crop. We have already secured 100% of our phosphate requirements, 90% of our potassium chloride, 70% of our nitrogen fertilizer needs, and 96% of our crop protection. On slide 17, we discuss our hedging for the 26-27 crop. We have continued to manage our risks, carefully increasing our hedged positions for the next crop, always protecting margins and reducing our exposure to market volatility. Our current hedge position covers 49.2% of soybeans and 55% of cotton, including committed volumes. Now finally, let's move to slide 19. where we discussed some ESG highlights and awards. For the fifth consecutive year, we have been recognized among the best companies in Brazil in Exame's Best ESG Awards, further strengthening our track record in ESG. We have also identified five farms with a negative carbon balance, showing that productivity and sustainability can walk hand in hand. And finally, we have ranked 15th in the 2026 Great Places to Work Agriculture Ranking. Improving from the place we had in 2025, which was the 19th. Now we are ranking 15th among agribusiness companies. We thank you all for watching and we will now open the Q&A session. André? Thank you. We will now begin the Q&A session. To ask a question, please submit it through the Q&A icon at the bottom of your screen. As usual, your name will be announced so that you can ask your question live. And at that point, a prompt to activate your microphone and camera will appear on the screen. If you do not wish to open your microphone and camera, please type No microphone. Camera at the end of your question. Our first question comes from Gabriel Barra, Citi. Gabriel, could you please activate your camera and audio? Gabriel, are you with us? Hello, can you all hear me? Yes, we hear you fine. Good morning. Good morning, Ivo. Thank you very much for taking my questions. Well, there are two things. I think that when you're talking about agriculture, I think that this question is It's something you cannot walk away from. We see a very challenging climate scenario. Several companies are preparing for a more challenging climate scenario. So I would like to know what measures have you been discussing to To overcome any risks, I think that, for example, your investment in irrigation is a sign of what you're planning, but are you thinking of doing something more specific in the second half, especially in relation to the next crop season? How are you going to protect against this uncertain scenario? Now, we see now that the company is at a higher leverage level, even in comparison with the previous year. You're 0.7 points higher than last year. And Ivo made reference to the investments you made and the current working capital requirements. But this is a level that makes us a little more uncomfortable considering also the interest rates. So could you give us your perception on the current leverage? And in your vision, what should be the leverage by the end of the year? Is this a reason for discomfort in your view that could lead you to take any measures to reduce the leverage and also face the higher interest rates that are expected for next year? Gabriel, such easy questions always. Okay, so I'll answer the question about El Niño and then Ivo will talk about the financial indicators and leverage. Well, El Niño is something we're not facing for the first time. And we know that there is an effect in our operations. And this year, we have the forecast of a very strong El Niño. And this, of course, causes a concentration of rainfall in the south of Brazil and more drought in the center north. So we're preparing for it. So what could be done to mitigate any damage caused by El Niño? Well, the damage could be greater or lesser. We've had some El Niño years with very little damage. In Mato Grosso, it will rain less. And in Mato Grosso, it always rains too much. It doesn't mean that we're going to have a draft. And now in Bahia, you know, it doesn't really rain too much. So those are the two extremes, Mato Grosso, Bahia. We also have Mato Grosso do Sul, which is usually not affected by El Nino and Maranhão as well. Even though the Northeast in general is affected, we have shorter Indian summers in Maranhão. So at any rate, we could have some droughts. So what could be done in terms of mitigation? Just to give an example of what we're doing today. Increasing soil coverage or also avoiding turning of the soil is something that we could do. because this, of course, this leads to loss of moisture that could affect germination. So we changed our management to maintain more moisture in the soil. So we've been investing greatly in soil coverage. Our system has a much higher capacity of soil, of water retention in the soil than in the past. Also, the planting window requires adjustment. So in Bahia we plant cotton in December. This year we have to plant sooner because if there is a shortage of rainfall, the crop will have developed. to avoid greater damage. So we'll adjust the planting windows also to mitigate the effect of an Indian summer in the middle of the cycle that could lead to crop failure. Moreover, adjustment in inputs. Am I going to use up all of my potassium in the first application? No, I will do it in two parts and the same with nitrogen. Usually, we apply in cotton three times, so we'll make adjustments depending on crop development. It's a strategy to retain moisture and to reduce cost. This is what we can do. And, of course, making the most of whatever rainfall there is. and always following the weather forecasts to avoid greater losses. This is what we'll do to reduce any damage that might occur. And by the way, Pavinato, maybe you could talk about our area distribution. Yes, yes. If we compare the situation to 2016, where we had losses of 20% of our output. We saved 5%, so in the end we had losses of 15%. In 2016, we had a much greater concentration in the Northeast than in the Southwest, and we had more immature land from Cerrado to to planted areas in a range from 10% to 25%. Now we have 100% of these areas as mature land, so the system is far more resilient. In 2016, some crop areas in Bahia were producing 45 sacks of soybeans, and young areas produced 10 or 12. Sacks of Soybeans. So this, of course, shows the magnitude of difference. And in 2016, there was almost no irrigation installed in Bahia, and now with the project we are completing at Piratini, we have 25,000 hectares under irrigation in the farms where risks were higher. So the 25,000 hectares, since we have two crops a year, this represents 50,000 hectares in Bahia and Goiás. This is where we have most of the irrigation that was non-existent in 2016. So in a similar In this damaged scenario, we expect that the losses in 2027 should be much lower than they were in 2016. Well, Barra, about leverage. At the time of acquisition of Syrians, we knew that we would see a pressure on our working capital requirements. We pay off most of the suppliers in the first half of the year. So, having a net bet over a beta ratio of three times, this is no surprise to us. Now, at the end of the cotton harvest and corn, and with the deliveries in the second half, and also with the conclusion of the soybean harvest, we believe that there will be a significant leverage Actually, we are wondering whether we need to get more leverage to pay off the land that we acquired in June. Of course, we still are pending payment because this is a period of very high cash generation. So the trend is downward on the net debt over EBITDA ratio if we want to. Step up our deleveraging. We also have the opportunity of selling, but we would like to do this without leaseback because we know the areas, we know about the potential of these areas. It would be not good for us to lose an area that's already in operation. This is something we commented on our last communication. We might sell, but without leaseback. And of course, firstly, we have to find the right buyer So, you know, a leverage of three times makes us slightly uncomfortable, but it was already, you know, in planning. Thank you, Barra. Our next question, Mr. Gabriel Palhares. Could you please ask your question and activate your camera and microphone? Palhares, are you with us? Hello, good morning, Pavinato, Ivo and Andre. My apologies. Congratulations, Pavinato, 33 years with the company. And I would like to hear your thoughts on two points. Well, the timing for fertilizer purchases, you made a large nitrogen purchase. I think that you did it right on time. Urea and the nitrogen in general, well, you had a window of opportunity and you seized it. And I would like to hear a little bit of a follow-up about your debt amortization schedule. Do you think there's anything that you can do in that sense? Because there's a concentration of payments in 26, 27. Thank you very much, Guilherme, for your question. Fertilizer purchases. Yes, we got the timing right. We had already purchased all of the phosphorus before the outbreak of the war. And phosphorus is what is really going through structural cost change. So, you know, in fact, and with potassium, Potassium was not deeply affected by the conflict. We had already purchased it on the early days of the conflict. And this combination of phosphorus and potassium, we were able to buy with a reduction of 4% in dollar prices. So once again, we got the right time in our Ivo Marcon Brum, Alvaro Luiz Dilli Goncalves, Gustavo Lunardi, Leonardo Matteus de Celini, Leonardo Matteus de Celini To form our prices at adequate levels for the next crop season, we don't run the risk of witnessing a very expressive cost increase for the next crop year. We believe that with the increases In prices in the international market, we believe that prices actually will outpace the increase in costs. Well, about the debt amortization schedule, every year we pay off between 1.2 and 1.3 billion. for the crop year expenses. Of course, we are trying to lengthen our debt profile and also we don't see a reversal of the trend of interest rates in the near term. Now we're a little bit more optimistic, so we're thinking of taking Ivo Marcon Brum, Alvaro Luiz Dilli Goncalves, Gustavo Lunardi, Leonardo Matteus de Celini, Roberto Acauan de Araujo Ivo Marcon Brum, Alvaro Luiz Dilli Goncalves, Gustavo Lunardi, Leonardo Matteus de Celini, Roberto Acauan Since our debt is financed by the crop, of course, this is the only difference. Okay, Pavinato, just going back to something you said and also thinking of the response you gave to Barra, in a high-cost scenario, not everybody has been making purchases of fertilizers as well as you have. So maybe this will have an impact because there's a climate risk and inflation. So when you think of your hedging strategy, are you thinking of underutilizing imports? This could lead to lower yields, perhaps? No. No. We are using the maximum. economic efficiency, which is not the same as the highest agricultural yield rate. So we always take the economic factors into account. We are not reducing the use of fertilizer in the next crop season. Of course, there are some one-off adjustments that we make depending on soil fertility. But as I said, we'll only stop applying fertilizer if there's no water, right? Because this would be an expense with no return on investment. So basically, it's going to depend on the drought. If there is rain enough for plants to develop, then we're going to fertilize the areas as we usually do. Thank you. Thank you, Palhares. Our next question is from Mr. Leonardo Alencar XP. Alencar, please activate your camera and microphone. Good morning, Andre. Good morning, Pavinato. I have two questions, if I may.

Well, there was some expectation

Ivo Marcon Brum, Alvaro Luiz Dilli Goncalves, Gustavo Lunardi, Leonardo Matteus de Celini, Roberto Acauan de Araujo Do you think that this is causing an impact in terms of the premiums and exports? How does it affect you in relation to biodiesel? And a question to Pavinato. There was a change in the cotton curve recently, and also following the war dynamic. that it didn't go back to the same level. Now cotton has accelerated a little bit more and we see this more in the short term. So the curve is not really adjusting and when we think of your models and we see how it's going, it's an impact. So I would like to hear, you know, what you expect for the cotton market more in the long term. Thank you. Well, soybean demand for biofuels. Well, since oil is more expensive now, this favors biodiesels. And this is something that is very positive, in fact. Even if we maintain B15 today, We see a very consistent demand for soybean. Prices in Mato Grosso are now disconnected from the export prices. So we have a domestic prices higher than export prices. So prices are now more in parity in the Northeast where they don't have a biodiesel industry yet. So there is a strong demand in corn, in soybean, even with the massive crop that we had. And of course, this is one of the top areas of demand. So for B16 and B17, this strengthens the demand in the domestic market. And this favors liquidity and also creates a premium in prices. Now, in cotton, We see a connection to geopolitics and wars. Polyester prices were at 0.40%, now it's at 50 cents. So, polyester is the top competitor for cotton. And the fiber that grows the most in the world is polyester because it's cheaper. So the fact that polyester has appreciated is something that supports cotton prices. So this is a very important driver, you know, with the conflict, you know, cotton is favored. And then we have the market. In the United States, the crop is smaller. In India as well. In Australia, they don't want Ivo Marcon Brum, Alvaro Luiz Dilli Goncalves, Roberto Acauan de Araujo They will plant cotton. This is what we saw in April in Australia. This is the consequence of El Niño. El Niño is driving a reduction of area in Australia. So therefore, this is a scenario in which Well, production of cotton is not meeting the demand, so that's why our prices are supported. I think that the critical times in terms of pricing of cotton are now behind us, and we are at a level that remunerates Brazilian growers better. For American growers, the current price of cotton does not really remunerate them. They have a cost of around 82 cents per pound. So that's why Brazil is gaining share. The world's demand for cotton has remained stable at around 125 million bales and Brazil has increased exports and now India has become a very important So this is our vision So this is our market outlook. I think that the valley or the trough is behind us. And of course, geopolitics affect cotton greatly. Thank you very much for your answer, Pavinato. Thank you, Leonardo. Our next question is from Lucas Ferreira, JP Morgan. Lucas, Could you please activate your camera and microphone?