AgroGalaxy Participações S.A. (AGXY3) Earnings Call Transcript & Summary

Good morning, everyone, and welcome to the earnings call for the fourth quarter and the year 2022 at AgroGalaxy. Today, we have the presence of Sheilla Albuquerque, CEO; Mauricio Puliti, the CFO and Investor Relations; and Fernando Manzeppi, VP, Daniel Kuratomi, the IR Head and the IR team. We'd like to let you know that this earnings call is being recorded and will be provided on the Investor Relations website, ir.agrogalaxy.com.br where you will also find the complete information for our earnings call. So you can download the presentation on the chat icon as well. To access the simultaneous translation, please select the interpretation button through the [ globe by ] come at the bottom part of your screen and choose your language of preference, Portuguese or English. [Operator Instructions] We want to mention that all of the information contained in this presentation and possible statements that could be made during the earnings call related to business perspectives, forecasts and operational targets and financial targets at AgroGalaxy represent assumptions from the company's management as well as information that's currently available. Future statements are not a guarantee of performance. They involve risks, uncertainties and assumptions because they refer to future events and thus rely on circumstances that could or not occur. Investors must understand that economic conditions, market conditions and other factors operationally can affect the future performance at AgroGalaxy and lead to results that differ materially from those present in these future statements. Now I'll pass the floor to Ms. Sheilla Albuquerque to begin our earnings call.

Good morning. Thank you, everyone, for your interest. Thank you in AgroGalaxy. It's a pleasure to be here with you guys today after a very challenging year, in the morning we had mentioned -- we had run this presentation for all of the employees, and I shared my feeling that we ran 3 marathons, and we had 3 very important moments in the same year as if we had experienced 3 years in 1. I even split the year until the 20th of February and the beginning of the war. And then when the war began, and so there was a first year during the war and then after when the lack of fertilizers do not actually take place and there is a super supply fertilizers and prices started dropping. So we had experienced 3 different marathons in this year. Besides of course this race with the Selic rate, the interest rate, and I'm happy that at the end, we were able to win this situation and bring in positive results to the company ending with 0 stock fertilizers. So this is -- we look at the [ gold ] results. And so we worked 24/7 basically to work with our customers and bring in positive results to the company. So I would like to express my gratitude to the team and I have a conviction that we really have the best team in the market. And I want to publicly express my gratitude to all of the AgroGalaxy team with over 2,500 employees. We have some highlights operationally with what we would like to mention within the operational aspects. We had 29 new stores. We ended the year with 163 stores within our Galaxy and 18 of these were organic openings and 11 came through the Agrocat M&A. So we're really happy to say that we know how to do both things. We know how to do organic well, and we know how to do M&A well. And when companies come in, they start having a base that we can expand organically through. We also expand our CTAs, and we have 8 for those of you that have been keeping up with this for quite a while. We consider the technical center. My ambition is that the companies and suppliers really know about the best way to use their products and AgroGalaxy can be the company that really knows how to combine these biofertilizers chemicals, organo-mineral fertilizers, chemical fertilizers and all of the available technology. So we believe that we are the best in performing these combinations because our mission is to guarantee higher productivity for farmers with sustainability. So at the end of the day, I'm not going to go over time here, but the importance of having these 8 CTAs is that Brazil has different countries in the same country. So each reality is very different in Mato Grosso, so the reality is so different from the reality in Parana and Sao Paulo. So we must test how we're going to handle these in different locations so that these tests can have significance and be representative. So they're self-sustainable, and it's important to highlight this because the suppliers pay to perform the protocols, and our CTAs kind of reach the breakeven. They're not a cost, they're self-sustainable. And then after we perform our fair trade fairs like the Super Agro, where they become profitable because we use the same environment to run our fares and events. So we went from over 27,000 customers, Agrocat brought in a new base for organic expansions in 2022. We worked with 20% more customers, extending our base, and we also increased productivity at the CTV and that -- we could say, well, was it a price increase? Yes, it was. But we highlighted this, and this was an increase in prices, fertilizers and herbicides, and we also had growth in the market share and volume. And so we need to have this division to understand if we're growing and if it's a market situation or if we also grew in volumes, we were able to reach 100%. In some cases, we even went over our ESG targets. And in Agro, ESG and profit is in the same kind of equation. We don't have this dichotomy of what would be considered a economy with high emission sources and the more sustainable the farmer is, the more he'll produce. So you can see operational highlights, our financial highlights. As we talk about the fourth quarter, our revenue increased by 35%, where in inputs, it was about 39%, and we had some input in gains, good about that came from prices, a good amount came from volumes. Our EBITDA grew as well to [ 353 ] with imports and margin gains as well and some different percentages. So our EBITDA was 44% higher and our net income in the fourth quarter was also higher, 18%. So we always reinforce the seasonality. We're normally having some losses in the first and second quarter. Then we have a positive breakeven in the third quarter, and we offset this in the fourth quarter where you have most of the shipments. So this is what we can see here, and we can figure this accordingly. When we talk about the year, we were reaching -- we had a target theoretically of having 12. We knew, of course, we wanted to reach the closest we could, but the team was really good at reaching those 11.6%, then 7.7% this comes from inputs and 74% growth. Our EBITDA went from BRL 700 million with 0.1% margin, which is important to follow on. And so this is the mix, and we need to grow and so we can set this up in the best way. And of course, our net income, which came in and the cost of the debt really tripled, although the net debt remains sideways, we went from 2 to 2.1 in our leverage position. But we're hoping that the fiscal structure is not an even bigger problem and that we can actually see some relief in these rates, but we were able to finally win this and bring in positive profit. Our ROIC is bigger. And after Puliti will mention how this can be compared to the fixed income to understand what the real gains are and our net debt, as I mentioned as well, increases because we almost doubled in size where capital intensive when it comes to working capital, part of this is short term, and we need to be funding about 100% of our clients and most of these fund their activities with us for their harvest. So it's great because in the year like '22, we were able to keep our leverage situation within the maximum levels. And we mentioned that we have a limit. Our maximum leverage is 3, and we were able to keep 2.1, which was also a victory for us. We remember where we are all around Brazil, where we have corn and soy. We have a little bit of coffee. And here, we already included our CTAs as well in yellow. So you can see where we want to gain more significant representativity, and we started operating in Santa Catarina in 3 different states with over 600 technical consultants and productivity specialists that are really demonstrating these processes, which are responsible for the increases in specialties and our 8 CTAs as well. So as we talk about our centers a bit more, the CTA, it's a big differential for AgroGalaxy. We test all of the products before they enter our portfolio, which gives us more security and safety as well as we are also obsessed with understanding what the best mixes between bio inputs and chemicals to guarantee productivity. And if the platform will be leading this transition, which at the end of the day is all about that, right, strengthening this makes an adding bios. So we work on the treatment, we validate them and develop this. And after we select the products that come in, we include them in what we call the technical protocols. We train our teams, rev over 1,000 SKUs, and we can't train the team so quickly. So we just allow the suppliers to be working with what we consider in our technical protocol. And if it's followed, then we also have the best margins when the PTA is applied. So just to give a better idea of the dimensions, we tested about 394 new products that are extremely new, actually, in 180 different areas. These are already taking place in the -- at the producers, they test these and handle these for us. From these we also approved 309, and they had about 6,000 areas. After we understand this, we can see lucky deliver what you delivered, we add this to the PTA and we can we can work on this test. And this, of course, represents maybe a little more than 5,000 producers, testing this and farmers testing this. And that's where you have the sale of organo- minerals, and we are definitely the platform with the biggest platform for this. and also specialties, which is our super sales and ambition to be the first in bio inputs. Okay, next. And then here we go through -- for the second year, we've been going through our NPS. In 2021, we did this, and we -- we're really happy with the results. 75% promotions, these grew a lot, 8 points and the traction dropped as well from 15 to 9. So we're really happy with this. We had stores -- let me see this per store. And we hope that each store can reach the average AgroGalaxy, we have stores that have 95% or 96% special promotions, and we hope everyone can get there. And some interesting data is that in 2021 we ask everyone if they understood the [ AgroSan ] belong to AgroGalaxy and only 52% would associate these companies. And so then this also grew to 84%. This is because we are gradually removing the names of the company just to be able to have the AgroGalaxy. So this brand recognition is super important. -- very challenging year with huge supply challenges as well and having this response from our customers was super satisfactory. Now I'm going to invite Puliti, so you can get into more details about our results financially.

So thank you, Sheilla. Good morning, everyone. Pleasure to be with you guys, and I want to thank you for your interest. And after we discuss the seasonality, which is so important in our results, 2/3 of our orders, which are the green bars take place in the first semester and 1/3 takes place in the second semester. And the billing is the opposite. So you have 1/3 of this taking place in the first quarter and 2/3 in the second quarter. So this is what happens erratically on the field, and we're going to share a bit of the information on the harvest, the area, the replant. And then that changes a bit, but this is an indication of how things happen with the harvest in plantations and payments at the end of the harvest. So we had a third quarter of '22, that was a little stronger than the average in the last 3 years. So you can see we made 29% against 27% from the seasonality on average and a little bit less like 39% in the fourth quarter compared to 44% in the average in the last 3 years. This is a little bit related to the anticipation of the fertilizers we had in the third quarter compared to the fourth quarter. So I'm going to talk about this a little more and in greater detail now. We can move on. As we talk about the quarter, 35% above the same revenue in the previous quarter. And for inputs from the almost BRL 3 billion in the quarter, 2% came from an increase in volume, 18% from increase in prices. So here, we already mentioned the price compared to the quarter would be a little bit smaller than what we saw, but these prices grew throughout 2021 as well. So this comparison was the same quarter and the previous month showed that this price gap was also dropping. And here, you have basically Agrocat because in the fourth quarter of last year, we already had all of the M&As, [indiscernible] were already part of this. So in the year, we grew 76% and 74% in revenue for inputs where we were able to reach [ BRL 7.16 billion ] compared to BRL 4.4 million last year. So we increased BRL 3.3 billion in sales among which BRL 2.4 billion came in organically and BRL 900 million came in inorganically. So I think that was excellent growth, and we reached almost BRL 2 billion in revenue with this full value. So when we talk about the mix, we can see that our mix of fertilizers in the fourth quarter dropped compared to the same quarter last year. And in the year, there was an increase of almost 1 percentage point or so. So we know that this growth in the mix was because of prices and the use of the fertilizers in the field dropped about 50%. We know there's a drop in this, and we imagine that there's going to be an increased recovery of the use per hectare to historical levels. Another important point is that despite the increase in price for fertilizers and chemicals, especially herbicides or glyphosate, we were able to keep this smaller price increase when it comes to specialties that moved sideways more, but we were able to keep our share in specialties by about [ 6.6 to 6.5 ]. So although there was an increase in prices in one of the categories, we were able to keep our share for specialties, and this was almost 72% increase in specialties with a smaller increase in prices. So we do hope that by '23 with the prices of fertilizers dropping and the recovery also in the herbicides, we hope that our share in specialties in our mix with prices that are going to drop less than the other inputs that will get back to having growth in our mix. It's really reasonable for specialties and bio inputs, which are where we have a bit of the categories of fertilizers and specialties. We can do the biologicals, organo-minerals, the fertilizers, and we reached 7% of the revenue. So we grew 44% compared to the previous year. Now when we talk about our portfolio with orders, we saw that between the end of the year '22 and '21, we had a drop of 32%, and that was due to 2 effects. It's basically had a drop in the input prices and our portfolio for 1 hectare is worth less costs less than last year due to the drop in fertilizers. And we're also noticing a dynamic with the producers buying more short term, right? Farmers know that the market has a lot of stock and especially for chemicals. And we don't have the same level of stock for fertilizers, thankfully, but we were close to almost 0 in fertilizers, but we do have a stock for chemicals and farmers are buying just like a very short term for short periods of time not keeping much stock. When it comes to our gross margins, we had an earning of 2 percentage points in the quarter, especially for inputs and a little bit in grains as well. And in the year, we were able to increase our margins for inputs, but the grains did drop. There is more competition for grain with the reduction of the gross margins, and we had an effective minus [ 0.3 ] in our consolidated gross margin. And in expenses, we had an increase in the last quarter of 1 percentage point and the added dilution in the year of 0.5 percentage point. And I want to remind you that we opened up almost in the last 3 years, almost 48 new stores between '20, '21, '22, and these stores are still ramping up. So they're not -- they haven't achieved their full potential. We have a project that Manzeppi will discuss in just a bit, that's going to present the synergies. So we really have efforts to make in the dilution of expenses. Now we really don't think we're at the optimal level. We've been growing though with the revenues and expenses and this comes through this growth with the new stores and also through the structure that is still not adequate because of the fact that we're operating in 8 different companies. And we have like 8 accounting departments, 8 systems that are different, and we do consider that the -- we have a lot of opportunities for synergies in the midterm with these processes. Now when we talk about the EBITDA, we increased 0.6%, so 46 in the quarter. And we were able to, in the last quarter, dilute financial expenses that were very significant during the whole year, but the margin we grew at was of over BRL 110 million allowed us. Well, we also had an increase in financial expenses, but they weren't so big proportionally to the increase in the EBITDA, where we able to increase 18% in the year. In the year, we increased 0.1%. Sheilla mentioned, this was -- if you take a look at our margin, it's like a little watch. We're always close to the 6%. And this is, of course, without capturing the synergies we already mentioned and despite the worsening of the mix last year in fertilizers, so fertilizers selling more, which means that we're having less gross margins in other categories. Then our net income in the year. I'm going to talk about financial expenses a lot here, but the effect was this reduction of 64%. We're really happy with these results, and we consider that the effect of the Selic rate didn't affect only us, obviously. So we experienced higher performance even than the rest of the market when it comes to this. Another important point is that with the EBITDA, we had a stock provision to adjust the value market value to be able to handle this production prices, and we've been negotiating a lot with suppliers. We're reaching some agreements to be able to have letters of credit to recover the amount of the stocks we have that are positioning us positioned, especially in the generics. Next, please. So debt, if we compare with last year where we performed the M&As. We didn't have a margin for this. And so last year, we already had disclosed and considering the issue with Agrocat and even this tip as well. And we increased BRL 450 million in our debt. I'm going to talk about the cash flow issue a little bit. And this is mainly due to the consumption of working capital increased BRL 650 million of working capital [indiscernible] BRL 3.3 billion in inputs. So it's a lot of an increase in sales. We have days of working capital. And we're happy with the 20% because it's a little smaller than our history and consumption. We were able to keep our stocks in line in '22 compared to '21. And I think we did some good work. And in '23, we're noticing that the working capital is getting back to recovery level with a smaller growth in revenue. And we're going to talk about this a little bit more later on. I'm sure you're going to ask about '23. We're going to give you some of the dynamic here with the volume growth through the store maturity gains and share, and even the increase in fertilizer consumption per hectare, farmers, what we've seen that this in the orders per hectare, and there should be some kind of a setback in the working capital and cash generation. So we did have a improvement in our short-term debt from 82% of the previous year. We went on to 65%. We were able to issue that CRA financial instrument at the end of last year with BRL 500 million in 2 years grace period, and that helped improve our debt -- profile we ensure long term. So some financial expenses. We increased about BRL 47 million compared to the same period in the previous months. So a big impact in the quarter because that was due to interest -- in the year, the increase of interest rates and bank interest was BRL 250 million and the AVP was BRL 152 million. So we've been able to transfer this in the company to transfer the interest in our orders to the sales, we had a bigger interest transfer. And surely, we've been able to transfer this to the new orders that we created now in the end of the year to be built, and we can see this potential growth to have this adjustment at present value, and this has helped us also with the net results next year. And so a bit of the -- this inside the financial expenses from the [ BRL 250 million -- BRL 8 million ] that increased our financial bank expenses, about half of them was due to the increase in the debt. And that's, of course, what we demonstrated about BRL 600 million to BRL 1 billion, BRL 1.4 billion, and half of this was due to the transfer of the Selic rate. So our cost of debt, which was about 9% in 2021, became 16% in '22. So we are not expecting in our forecast that there is going to be an increase or reduction of the Selic rate. We're going to control the financial expense with this growth at smaller -- and we're going to talk about the amount of stores. So we are expecting smaller growth in the year, and we're not expecting any M&As, which should be the correct attitude considering this scenario with such high rates still in the financial market. Now I'm going to talk about the operational cash flow on the next slide. But here, on the right side, you can see that we reduced 46 days of our stock dates and on the amounts were really close to the others. So -- and BRL 1.6 million in the period of '22. So it's a very small amount, although there was an increase in sales and so we noticed that part of this improvement is related to the increase in the sale of fertilizers. So considering that we didn't -- we see that fertilizers are a lot more like short-term purchases. We did have a reduction in the numbers. You're dividing this by a bigger amount of sales but we were able to also turn this with very small stock available. But a good part of this was, while we had the same stock of chemicals in the previous year, which I think really demonstrates how we are increasing our sales without increasing the stocks. And we still have a lot of work to be done. But I think we're in a situation that's better than what we had in 2021 when it comes to stock levels. So now about our cash flow. We went from an EBITDA of BRL 704 million. We get back into the provisions. And this provision in the market of BRL 30 million, we can deduct the adjustment in the EBITDA of the fair value for the commodities, which is what's already captured in the working capital of BRL 660 million of working capital. Now we increased and consumed as cash in the pass plus the taxes and interest paid, and we reached its operational cash flow of BRL 144 million. We call on some acquisitions and investments as well. And a big part of this was the ERP with the opening of the new stores and digital impact as well and intangibles as well with the purchase of Agrocat where we reach an operational flow plus investments of BRL 412 million. So our investments will be smaller this year. Of course, we're not going to be doing M&As. We still have part of our CapEx to be done in the ERP project, but the CapEx level smaller and operational cash generation with a forecast also for reduction in this day as well. Okay. Next. So our PDD and our NPL was BRL 77 million last year, it's about 1%, always about 1% of our sales and this is an amount that makes us quite happy. We're entering new markets, acquiring new customers. And we've been able to keep the NPLs at levels that are lower or equal to 1%, demonstrating our capacity in the credit team and the commercial teams to finally reach the end of the year with an item that we were able to have the BRL 72 million compared to BRL 141 million of the previous year. So this is an increase in our portfolio and a reduction of the coverage for expired items. This improves our portfolio compared to the previous year. And so we always say -- I just want to highlight that M&A is a platform, an additional organic growth platform. So overall, we basically doubled the amount of stores that we fired. We acquired 73. We opened up -- we already have 149 from the same base. Boa Vista, we've already opened up 5 stores and Ferrari Zagatto, we opened up 1 store. Manzeppi will talk about this a little more. So we more than doubled the store base acquired. And we almost tripled the revenue of these inputs in the same base in the acquisition year. So we -- as Sheilla mentioned, we know how to do M&A, but we really know how to grow organically as well. And they both work hand in hand despite the fact that we are now worked on this -- pause in this M&A topic due to the capital structure issues. And so we're just going to go through the history here, the numbers. So ever since IPO, we grew about 51%, 41% in the amount of CTVs and 46% and the number of clients. So it's very robust growth in 1.5 years, ever since December -- sorry, ever since July 2021 until December '22, one year and a half in our IPO, and these were our main operational numbers. Next study, we grew our sales by 2.5x. We went from BRL 4.7 million to BRL 11.7 million. We are able to keep some symmetrical analysis between the sale of grains and inputs [indiscernible] against the previous year, we went from 4.3% to 7.7%. So it's very interesting results. Same-store sales we've been able to deliver same-store sales consistently bigger than the increase in prices. So this increase in last year of 35%. We increased our same-store sales by 40%. Our EBITDA also kept up with the same trend. We were able to increase 2.4x ever since the IPO from BRL 294 million to BRL 704 million, and BRL 394 to BRL 704 ever since the end of the last year. So significant growth. And as I mentioned, we have a margin that's been working really well. It's a little in a very timely manner. And in the net income, this is not true. We had a lot more of an increase in the Selic rate and an increase in our debt at the same moment. We were able to also reduce our EBITDA ever since -- our net income ever since IPO by 38% and 64% compared to last year. We can move on. And at ROIC, 25.8% last year that we achieved. So our NOPAT is improving. Our invested capital is not growing proportionally to the increase in sales. Now we've been able to keep that spread. We always mention of our cost of debt, which is currently -- we ended '22 with 16% on average against 26% of the ROIC. So we've been investing in the correct openings, the correct stores, and we've noticed this in the numbers. And the spread between the ROIC and the cost of debt demonstrates that we're at the right moment in the right direction. So it's the first time, Manzeppi is here in this call. Welcome Manzeppi, and I'll pass the floor on to him as he talks about the future, and then Sheilla will complete the call. Thank you guys.

Thank you, Puliti. Good day, everyone, and I want to thank you all for your interest and participation to understand a bit more about how we've been managing AgroGalaxy, what our growth plans are. And when we talk about the future, we must also look at how we're preparing for this. So we have a new operational model, which is not a secret to any of you guys. You guys have been watching and keeping up with our operations. It's a topic that we discussed as a priority. This is super important. And we have a team that's dedicated exclusively to the project. We have over 100 professionals dedicated to this that are highly skilled and capable. We had the first go live in August 2022 in the Agro-Ferrari investment, this new model operationally really is based on the deployment of new systems that are going to bring in improvements here. But of course, we know that integration and harmonization in these processes and flows greater speed and sharing information, as Puliti mentioned. There's a lot of complexity in this management, about 8 or 9 companies in this system. We're really bringing the speed and transparency that's so important to help us have synergies. So besides this, another important point is that the new operational model will really be the basis for us to consider building this platform that can use technology to service our customers and add value and also increase and potentialize our support for customers. And so we have also -- we had also planned now in April the next week, the second wave of this go-live process in some regions, but everyone knows that the cycle of soil really took longer this year, which brought in some risks in an operational aspect also important with the received grains. And so we replanned for this and the next go-lives will really help us to have the capacity to deliver quality and meet the demands of the producers. So as we talk about where we're going to be growing and where, Puliti mentioned our expertise, knowing how to open up organic stores. This brings in a bit of our history and performance. And so we open up 58 stores organically. You can notice that year-over-year, we grew our capacity for the amount of store openings in the year, which is very cool because -- and this is an important ramp-up for the maturity of these stores take a little while. So from the first to fourth year, there's exponential growth, but I also wanted to mention a very relevant fact, which is -- all of these stores that have been opened in 2021 and 2022 were responsible for the BRL 3 billion in revenue, which represented about 18% of our revenue for inputs in 2019 and '22. So when we end here, we have a perspective overview because a lot of the stores in '21 and '22, we're not able to reach maturity yet, and we know that this project for the growth in organic stores will continue to be a driver for growth at AgroGalaxy. And this screen here shows us how important this is and how you've been performing in the last 3 years. So Daniel next slide. Here, you can see specifically our plan for 2023 without, of course, disregarding that in '22, we had the opening of about 29 new stores, 18 with the organic openings, as I mentioned in the previous slide and 11 coming from acquisitions with Agrocat in Mato Grosso. We also had some performance in the 29 stores reaching 144% of the goals for revenue and this demonstrates that the team really performed very well in the new stores and acquisitions. And this is specifically about 2023, we have a plan to open up between 15 and 20 new stores. We've already begun the year of '23 at an accelerated pace. We have 4 stores opened in the first quarter of '23 and this is an important highlight with our arrival in the state of South Catarina, where we already have store openings, and we have -- on the left side map, you can see that there are some specific points with darker green or lighter green. Dark green will be the physical stores you've already opened and the lighter green will be the locations where you have the plan to open them. So I want to highlight that in this short period of time, we had our arrival in the BR-163 region. If you know Montink dos, a little better, you probably know that there are 4 main municipalities there, [indiscernible] -- and this micro region or MicroStat in Mato Grosso, when we look at the potential for soy and corn is comparable with major states that -- like Parana. So our arrival, there is a reason for a lot of happiness. And within our expansion strategy, this is not only about opening up a physical store, but the big strategy is really finding the people and professionals and consultants so that they can bring in this portfolio of new customers, take on our solutions that are very well managed in our CTAs and in Mato Grosso BR-163. We have over 15 professionals that have been hired, our first employee there in that region took place in November 2022 because we understood that there was in the state of Mato Grosso like characteristic of its own where you always had to operate the negotiations for the next harvest. So we already started that as well at a quicker pace, and we already have the orders for the next batch coming from the team that's working on the field and in the next few months, we'll also be able to open up the physical stores. Next point that is so important in line with what Sheilla mentioned, which is for NPS. We're entering BR-163, which is a big region. We weren't participating in before. We had the AgroGalaxy brand coming in. So physical stores like AgroGalaxy and the team is all prepared and using uniforms from AgroGalaxy, they're all senior professionals in the local market from big companies that had the trust or confidence and to the project, and they really believed, and we've had big results in the last few weeks. So Sheilla, I think that's it. I'll pass the floor back to you. And thank you all for your participation. Have a great day.

Thank you Manzeppi. I'm going to be quick here with the questions. But thank you so much for your clarifications about these plans for growth, mainly organically from now on. Now digital continues to evolve. And I want to highlight that, of course, this is going to be available to you, you can read it later. I'm not going to get into all the details now, but our networks continue to grow adhesion from farmers has been growing also in our app. It's a super app, and we are able to include many other features. We're testing and we have a POC, proof of concept for an online store through the app where we've already installed the NMO, the single source of orders for the CTV is going to be the app. So as the NMO spreads around and you can convert this so that it can be done in a single spa and that our CTV can just have one view, one place where they can do everything. And we are also testing this so that the same feature can be provided as well to farmers. So there's a lot of really cool stuff being done in the digital front with the focus on increasing our productivity commercially and reducing cost. So this year, we have been prioritizing certain things to be able to focus on the operational efficiency and commercial efficiency. So this is the path and trend we're following. Next, in ESG, as I mentioned in the beginning, we reached all of our targets. We had proposed to achieve. I'm not going to get into each one individually. But I want to highlight too that we mentioned a year that were included and presented to the entire corporate office, including lab executives that also had these 2 goals or targets to achieve and they remain in '23, which is increasing our revenue with bio inputs, which is our role in the regenerative farming and agriculture and also reducing chemical products that are considered highly hazardous by the World Health Organization. We had a goal to reach 33%, in biosolutions, we reached 44%, and we wanted to cut down on 20% of the volume of the other highly toxic products, and we're able to cut down on 26%. This year, we want to cut down on 25%. We can reach 2025, which is our agreement with 0 of these actually going to be the last year, we're going to be selling these highly hazardous products. You can move on. And now just the scenario for '23. If in '22, I felt like the BAM 3 marathons, in 2023, we are going to have 12 marathons, Manzeppi, each month will be very unique and a very big challenge. So it's a complete different scenario, different than last year. We have good news, all-time high harvest of soy, one of the biggest in Brazil, already heard 153, 155. It's going to depend on what ends up happening here, going to use with the drought there. But it's a super harvest for farmers. An exchange ratio that's very good still. In the last few weeks, we did notice a drop in prices with soy with funds fearing some of the bank crisis, but I think this is going to calm down eventually and hopefully though get back to investing in commodities, and we'll see some kind of recovery. Then the harvest and trading of soy was delayed due to the rain, which is probably going to cause an impact in our overall portfolio. When we think about corn seeds impacting with a reduction in some areas, some farmers giving up on planting corn because they've already left that window, and there's no more insurance, it's really risky to plan in the off-season without any kind of coverage and churn. So we're noticing that there's going to be a reduction in the first quarter. The exchange ratio is 14% better than what it was last year. It's still very good. Farmers should take advantage of this but they are as way and think that the soy prices are gong to grow, but that's a whole another matter. Fertilizers continue to have a trend for stability potassium. We'll probably have some drops due to the [indiscernible] procedures to continue with the experts without any brands. This lack of feeling among resellers and industry has an opportunity, the industry, unfortunately, super stocked up on channels, double what they had in the previous year and more than what they consider -- 2x more what they consider a healthy level for stock. So we're seeing war on prices, especially for herbicides where you had the cost dropping a lot. So the cost they bought it are higher than what we're noticing in the market and we have to coexist with this and recover this in the second semester. And once again, farmers see the prices drop every day, and they are not in a rush to buy. They don't have this feeling that there's going to be a lock and they're right, there's not going to be a lack of products this year. So that's why this where I'm saying they're going to be like 12 marathons because we're going to pick up the order for the month in that month. They're not buying in an anticipated way, they're getting back to normality because farmers didn't have this feeling of some kind of a lag and they were buying closer unless soy increases in price and you have a supercar ratio, which will end up leading to a race you need to go through. We're going to see the behavior of these farmers buying very close to their use. So it's going to be a real heart attack, but I trust my team and that once again, we're going to hope that we'll have good results in '23. Now we'll get into Q&A.

Now we're going to begin our Q&A session. [Operator Instructions] We're going to move on to our first question from Gabriel Barra, he's an analyst, sell-side analyst at Citibank. Gabriel will open up your mic, so that you can submit your question. Gabriel, you may proceed, please.

Well, how is it going Sheilla and everyone. If you allow me, I have 3 points I would like to include here. There's a lot of clarity, I want to understand what can be done even with the growth in the EBITDA, most of the cash generations have been consumed by the working capital. And a big part of this is really -- I want to understand what we could do throughout 2023 to maybe reduce this effect that is consequential to the reduction in the input prices but what you could do beyond this and what we can expect for this year? The second point is growth, and I think that's an important point here. Puliti also mentioned this with the Easter openings. And I want to understand how you've been looking at this for the future, not only '23, but also what would be the leverage position in the company at a level where you would feel comfortable to accelerate and tighten and step on the accelerator once again, for organic and inorganic growth. And with all of this, how are you choosing these regions? I think on the map, there was a whole region where that was very competitive with the cooperatives, BR-163 has a lot of players. And how have you been discussing all of this to define this growth in the company. I'll stop here. I think I already submitted a lot of questions, but thanks.

Sorry, guys. Let me start off talking about the cash position and leverage. And then after you guys can talk about the growth. Okay. So thanks for the question. As you saw in the graph with the cash flow, the EBITDA generation was pretty much completely consumed by the working capital, and that's because of the growth. So the growth in our business. We don't sell everything up in cash, but -- we have stocks that also had higher amounts kind of pushed the cash position. So the lower growth in this year -- we don't know exactly if it's going to grow a little bit or reduce a bit or if it's going to -- but it should be very close to the same revenue in the last year. So we have a growth in volumes, store maturity and we have a growth in the volumes and the use of fertilizers per hectare. And all of this should offset the reduction of prices. So the working capital, well, we are going to gain more cash because of smaller growth in revenue. That's one point. The second point is that the CapEx investments in the year and acquisitions are smaller than what I had last year, I'm not going to add this M&A, I'm going to have a smaller level of investments and a little bit is related to what I had already mentioned. When it comes to the impact of the financial, we have been able to transfer interest while not in the way we would like to, but we've been transferring this interest in the market to be able to have smaller financial expenses. So I think these 3 points are what we're focusing on for the reduction of the debt and consequently, a bigger net income. So I think we have a plan for this. Well, if I could add on, I would also talk about our focus on reducing inventories. Yes. We bought less last year, and we're going to have a stock now in the harvest and of season harvest with amounts that are smaller than what we experienced last year, but it's not ideal. And we have a plan to reduce the stocks even more by the end of this year with an effect in next year as well. So second point, when you accelerate this, what's going to be the leverage level? Well, I think I felt more comfortable with a Selic rate of 2, then a Selic rate of 13 almost 14%. So this is not so much related to the leverage level. We had a level of about 2.1 and our plan is, of course, to reach '23 with a level that is smaller than what we mentioned as assigned slightly -- I'm not going to talk about paying half of the debt. So '23 the M&A won't happen. And so these stores that we're opening now 15 to 20 in a year, we already have a plan that's well done. We have people in the field collecting orders. And when it comes to the future in the long term, I don't think that it's not going to be this rate, and I do hope that we'll be able to redo these plans, but I think to start about 15 to 20 stores should provide us with comfort that we can keep our leverage or maybe reduce it slightly year-over-year, even with this amount of stores opening. So can I continue, Mauricio?

Yes. Well, Gabriel, I'm going to talk about the choice for the location of the store openings. Of course, there is a business case that's built, and we work with agriculture. So we have some climate variables and biological variables that we need to mention, when we mentioned to define the main regions we're going to work in what are the main guidances we always work with our suppliers on this as well. So the part of the suppliers understanding, which regions they need to be and they're going to support us as well. Just one of the guides and the agricultural potential in the region, if it's a macro region as well or a micro region, with our strategy for soy and corn. So these are limits for us to go from one region to another. We always to assess the profile of the producers in a macro region. There's also the profile of the distribution because the main -- they're very big regions as to whether the direct sales have an important share in this process and then the struggle is even tougher and the technological level as well in the region, which in a certain form helps us define the prioritization of the regions we're choosing. So there's another topic that is an important leverage factor to accelerate the business case, if we should go quicker now, which is the people factor, as I mentioned in the presentation, they're different regions that we've defined 1 year ago and some of them are going to be quicker senior team that brings in a little more trust. And of course, when we look at the full year, the whole topic of the cash position and cash even in the physical stores that we're going to be opening in 2023, they're being selected very well. A lot of them are resales, properties that were already a resale of some location. And if we were going to start off with a point that was a little bit bigger. We always had our business case for store openings, which brings in a more selective use of this cash. And so the main issue and this kind of defines we are over headed. Thank you, Gabriel.

Our next question is from Pedro Luis Fonseca, our sell-side analyst at XP. Pedro we'll open up your mic so that you can submit your questions. Pedro, you may proceed, please.

Congrats on the results, the first point I wanted to explore with you is a follow-up on what you mentioned a lot about when you discussed the strategy to reduce stocks and 0 stock for fertilizers. I think the effect you see in the results are quite clear when it comes to positive and cash flow effects. But I wanted to explore what could be the impact from a commercial perspective. And if there's any stress moment for demand, this could maybe generate some sales frustration and what this represents in a bargaining power -- purchase power discussion with suppliers. And so I think when it comes to CapEx, you also had a lot of investments in ERP systems in digital. And I can imagine that in the future, although you still have a bit of this, this level will drop. So my question is, how much more do you have to produce still? And what can we imagine as CapEx in the year? And if you allow me a third point here would be that we've seen significant growth also in biologicals and organo-minerals, can you give us some color on what the price and volumes were like for this line? And if there was an effect from Ferrari Zagatto impacting all of this positive growth as well. Thank you, guys.

Thank you, Pedro. First point here is, well, Manzeppi, do you want to give us your commercial perspective on this?

Well, I think Puliti, and Pedro, we just need to separate the segments a bit. And I understand here that your question is like, we have not too much stock, and maybe this could cause some stress losing sales and having this technological package available. So about fertilizers, they normally work in a very anticipated way. So they normally have -- they take on their position in an anticipated way because the portfolio needs this and they need to have this kind of logistics. And so having the stock with almost 0 fertilizers is a risk management process that doesn't actually bring a perspective of a lack of capacity to meet demands that could exist. So when you move on to other segments for seeds and even specialties than that's the contrary. And if you have a 0 stock management, you could have some kind of a loss of competitiveness and purchase power to react to some kind of a need like this. And there's also a level of stock that's relatively healthy. And so that you don't affect your cash position, and we understand that our stock have gone through for this segment for seeds and specialties and defensive substances did not bring any risk for loss of sales or the capacity to meet the needs of a pharma whenever they need it. So if I could add this, we're investing a lot in planning and mentioning that asking for the forecast in each stores, which is something they weren't used to doing. So there's a learning curve, but we want to get this right because there's a lot of obsolete aspects, stock in one store has to be transferred to another. So sometimes with the pressure in the quarter, you send a product to a place where we have space. And so we have a lot of opportunities to improve our planning and send this to the right spot. The right product. And this year is a little different. But normally, we have the portfolio. We have 5% to 10% of our sales taking place on the counter, which is the sales of farmer needed on that day, there is a bigger play than what they expected. And so we know which products are -- these are, so we can be a lot more intelligent with this and more precise in planning, and this is why we've been investing in, Manzeppi. So there is an impact, of course, of our -- but it's just 5% of our sales that are counter based, but those 5% make the customer not by the other 95% because I think you can't trust you. So yes, there is a ratio. If you don't have the products available, you don't only harm that sale, you harm the farmers trust in your brand and your services. So it's very important to do this with planning. You talked about bargaining power and purchase power with the supply that also exists, right, because you've the famous rebates that pressures as maybe some of them are hearing me now at this moment, right? So that's kind of how the game goes, but we're going to select our suppliers even more and even better. We want to reduce this because we can provide critical volumes but also reduce our stock inventory levels. We need to do, this is very important for our working capital. It is not going to come from night to day. We started this last year. We still haven't ended because you can't do this all at ones. And the other thing is our team needs to sell it in stock. Sometimes you have insecticide, and they'll do the same thing as the other brand, but the team asks there for that other brand. And then you have that same product that maybe has a different brand or different components. So we're at this process that is not easy because it's an educational process to insist on having the team selling first what's at the store and then we'll ask for a product with another brand or ingredient as long as it reaches the same goal for the farmer. And then we have the importance of our CTAs and our specialists because they're the technical base that really has the capacity to work with our consultants to understand and how they can recommend what the farmers need and now what they want or they believe they need. So this technical capacity also to really share what's best in the stock we have technically along with planning is something we're building and we have a lot of lessons learned. But there's a path we must follow and for sure, this will help us with the risk management in the stock and also the capacity to be ready to work with the farmers and not lose any percentage of sales. It's not just a 1% sales. It's sometimes is in the trust of the farmer, and he wakes up 1 day and he paid more than what we planned and is a play that's more intense than what they imagined. And they need to go and visit our store and have a solution that can meet their needs. Manzeppi, I just want to add on and say that there's a strategic discussion also, and I hope -- we have some suppliers also hearing us, and I'm sure there are a few with really having these agreements with suppliers in liquid the financial costs we have today and say, look, this is the lowest stock to have at the end of the day is on newspaper. Have you ever heard about the story because it's one needs to appreciate, look, I didn't lose sales because we had no lacks, but we only had one left over. So I think here, to not have a lack of products at the stores. We also have been discussing with suppliers how we can have an agreed-upon stock with the supplier that can be renegotiated from one harvest or another that could be developed like this because in the retail industry, this always happen and from a few years suppliers have been a little tougher with this or reduce this kind of flexibility with allowing the -- for us to renew the terms, the additional costs, give back stock, et cetera. They could be losing sales. I'm going to try to reduce as much as I can in my financial area, so don't have a leftover of paid stock, we have to pay for the supplier, but we don't actually perform the sale. Now we don't want this to happen. So we need to have a partnership with the suppliers as well. They need to say, look, up into 10% of the stock, let's just leave here because that could be the additional application they're going to need if I don't have this, they're not going to buy it. So I think this has been happening a lot, and we have this discussion so that we can have this partnership to not end up with stock in our hands when the harvest finishes and you have to pay the supplier for that, and I'll sell it but I think we've heard some positive comments from some of the suppliers. And as Sheilla mentioned, we need to perform the selection of these are partners, suppliers about the CapEx in '23. It's not a year with a major CapEx reduction. Of course, you have M&A that's not happening, that happened last year. But in '23, we still have about half of the CapEx for NMO, the new operational model and half took place in '22 and half will take place in '23. We have a volume of digital that's a little smaller as well compared to last year. But it is not that much smaller. And what's really going to make a difference from '24 onwards is that we have about BRL 60 million in expenses that I'm not going to have in a recurring manner, so you can look at our CapEx in the year minus BRL 60 million. This should be our CapEx from a recurring perspective for like 15 or 20 stores and then work with the rest of the CapEx in the company. I think we need to talk about the growth. The significant volume of inputs -- that was the last part of his question. Well, about the volumes, they really behave very well. The bio inputs -- the only part that increased a bit was the organo-mineral substances because they have a chemical component and an organic component. And when prices go up for chemicals, the organic part doesn't go up proportionally then you have some competitive advantage in the market. We see a bit of pressure in the price gap, which closes when the chemicals drop in prices because the organic part is a little more fixed and varies less, but these prices are kind of sideways and prices had gone up, but most of the specialties that we increase were increases in volume. So we consider this mix where we really had some important work with the volume specialties, and we're noticing that there's significant performance in specialties and we see that producers have an important adoption in specialties, which is super exciting for us. And yes, Pedro, we can have help from Ferrari Zagatto, they're the company with the biggest mix in specialties that we have in the group, and they know how to work with this. They've been doing this for hundreds of years and they also grew. So of course, we increased our mix in EMS. We increased our mix and you already have an important part of this. But yes, we did have support from Ferrari Zagatto, but not only this.

Our next question is from [ Yaki Brustlin ]. He's a sell-side analyst. We are going to enable your audio so that you can submit your question. [ Yaki ], you may proceed, please.

The first point I wanted to mention is the volumes for 2023, and the total volume in '22 was impacted clearly by market impacts as we consider the increase in the application of fertilizers and high volume as well. When you look at the supply for chemicals, how are you looking at the total growth in the company? And what this kind of evolution will be between the possible impact on the margins considering this mix. And about this issue also, you mentioned a provision with the adjustment in the stock value of BRL 30 million. And so will this also include all the adjustments in the chemicals or could there be more things in the sense. We will also follow along if you could give us an understanding of this by the end of the first quarter, we have an impact on prices and how the farmers are behaving in this batch. And we can see how this is moving along in the second half of the year and also the volume and prices and all of the opening of stores and maturity of these stores as well. These are the points I wanted to explore.

We have a scenario with the budget. This is something that changes every day, but it's a photograph. Our photograph has the following components. And so we have 40 stores, which is different than last year where we had opened 9 stores due to the pandemic. And we have about 21 and 18 last year. So we have a bigger amount of stores that are ramping up. And so the volume per store openings is proportionately higher. But the biggest application of fertilizers. We've noticed this in the volumes getting back to 15%. And so 15% is not enough, right, for this. So at the end of the day, we are seeing that fertilizers will lose space in the mix, and we're going to gain space in the mix with the specialties with a higher margin. So from a percentage perspective, the gross margin will probably be better than last year with less fertilizers in the mix and more specialties and a percentage margin is higher. I won't be able to tell you what the revenue is like yet and how much it will go up or down. We're piloting this still. But there should be some stability. So things as they are in the budget have some kind of stability in the revenue, a little downwards or upwards. So better mix. And then the next point you asked about, which is we have a criteria for the provisions of the BRL 30 million. We don't think it's enough to be able to handle the costs and prices we have in the market. We have many negotiations that are being conducted now for the first quarter. We have a lot of margin recompositions and -- but we're reestablishing the stock with things we've already sold. So you have an additional amount, there should be a worsening in the margin for chemicals in the first quarter and insecticides and fungicides and herbicides, yes, -- so we do have this expectation in the first quarter. And for herbicides, we have a smaller margin considering this, but we've been able to recover most of this. And so it's not a huge volume, right? For fertilizers, thankfully, we've been able to not only add the entire volume we had last year in the cancellation in the BRL 3 billion we sold in fertilizer, we had a cancellation of about BRL 40 million. This is an amount of 1.2% of the total value that we had in orders that we had to cancel. We were able to add fertilizers into the harvest as well. So this risk management really taking on fertilizers from hand to mouth has been paying off, and we don't have problems regarding this. We've noticed a lot of people doing crazy things in the market, burning margins, selling their stock to be able to build cash. But thankfully, we're not doing this. We're just keeping up with certain things maybe a little bit of pressure from the market, but it's not like we have major fertilizing -- fertilizer stock issues, then the portfolio of orders in the end of the first quarter is in line with what we had reported in the end of '22. We still have a portfolio that's smaller late orders, and we don't think that the market is going to reduce in this. And we also think that the market is pretty late. We've been keeping up with this, but we're not late in regards to the market, but the market is delayed compared to what it was in the last year. If you want to add on Manzeppi or Sheilla.

No, I think that was very clear. You covered all of the points and the market is a little more late than last year, we've been keeping up with this as well. So when we compare our current portfolio with us in the past, it's a linear delay with the market. And when we look at the harvest of soys, there's not a perspective for a reduction to the country. So in Brazil has been growing in areas in the last decade or years, and it's going to continue to grow in our perspective. So it's really about continuing to keep up the market, making the right choices. As Puliti mentioned, the market is really nervous, especially now for the players that have stock, and we need to sometimes leave some businesses that are not healthy, but we've been trying to offset this in our mix, as you mentioned, right? Because this is already part of our activities and from producer, farmer perspective, this is part of the technological package. So they already start the negotiations by adding this product to the package. We've been able to grow a lot in our order portfolio. And when it comes to the defensive insecticides and fungicides are really a focus for us because herbicides have real high levels of stock, and there's a drop in prices that's very significant. And so now we're working on the mix to be able to continue to keep up the market and not be left behind.

Our next question is from Mr. [ Happel ], and he is an investor from Chat. His question is the following, which is the index of cancellation for orders that you had in '22 due to the drop in prices.

I hadn't seen this question, but I already gave the sputter of this day. So we had BRL 40 million in fertilizers that we -- for some reason, we're not able to place in this BRL 3 billion portfolio for fertilizers.

The Q&A session is officially ended. Other questions that were not answered live will be answered by e-mail by the company. Now we would like to pass the floor on to the company for their final remarks.

Well, just to reinforce my gratitude to the AgroGalaxy team and to all of you for your interest. '22 was a very good year for us. We're hoping that our country can start working and that we can have some relief in our interest rates, who knows. Today, we'll have the central bank and government finally reaching an understanding, but you can count on us at AgroGalaxy with clarity and transparency always, and we hope that this year of '23 is good for everyone. Thank you very much.

Thank you, guys. Bye. Take care. Bye-bye.

The earnings call for the fourth quarter in 2022 and the year -- AgroGalaxy has officially ended. The Investor Relations department is available to clarify any future questions or comments. Thank you so much for your participation, and have a wonderful afternoon. [Statements in English on this transcript were spoken by an interpreter present on the live call.]