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

Good morning, everyone. Welcome to the earnings releases video conference of 2023. I want to thank the market and the people that are following us. [Audio Gap] I am Daniel Kuratomi. We have our Executive Director, Manzeppi, he was here with us in the last call. So many of you know him. Mauricio Puliti that everybody knows, our CFO. And Gabby Medeiros from my team. Sheilla, which is our CEO, she couldn't be here with us. Unfortunately, she had to do a small medical procedure, schedule one. She is okay, but she can't be with us, unfortunately. I just wanted to inform that we are recording this video conference. It's going to be available at the Investor Relations website, alongside with our results. It's also possible to do the downloads of this in the chat. [Operator Instructions] The information that we have in this presentation and other information that are related to business operational measures, they are of beliefs of the information that are already available. And they are not a guarantee of performance and refer to future events and depend on circumstances that may not happen. Investors must remember that other factors can affect the future of AgroGalaxy and to have conducted results that are different from the ones that are previewed. So I'm going to give the word to Fernando Manzeppi to start our presentation, and then we're going to comment on some of the results, okay? Thank you.

Thank you, Daniel. Good morning, everyone. I would like to thank for your presence. As Daniel said, we're going to talk about our performance in the first quarter. We're going to have also a moment for Q&A. And it's very interesting because we're going to bring some of the highlights of the market in the first quarter. It was a very different year, a very dynamic one, but we believe that we are going to have a lot of opportunities. Puliti, can you pass the slide? I'm going to start by the operating highlights. First of all, I want to bring to you that we have opened in this first quarter of 2023, 4 new stores of AgroGalaxy that at this moment, we have 167 stores opened throughout Brazil. Ahead. I'm going to talk specifically about our future plan for the opening of the stores that we are planning for this year, but we want to reinforce the commitment to be next to the producer taking all the structure -- of logistics structure, storage of product, our technical team and our consultant team. Another important highlight that we are very happy about. We are opening another CTA. These are our AgroGalaxy technological centers. And of course, we have a technical team that tests all technologies that we offer to our producers. And we are totally now 80 hectares for research. This is very nice to highlight, this great number of research. It's because Brazil is really big, has different biomes. And we need to tax those technologies in the many biomes and environments we have. So we have one more CTA that is open, and we are reinforcing the commitment to take what is best to the producer. Another special highlight that we're going to see numbers, and I wanted to already tell you, it's the growth of specialties of bio inputs. It's a market that is growing a lot about 30% to 40%. And in this first quarter has demonstrated a little bit of what we brought about our great strategies, and we are growing in this segment. It really adds value to the producer, brings productivity and sustainability that we need in the agribusiness. As you can see, 8.2% of our input revenue mix. So we have grown 72% in our earnings if we compare from last year. And the market growth for every 30% or 40%. So we gained a lot of participation, a lot of share for this year and for the next years as well. Also very important, our growth of our client base, our active client base, it's about almost 28% when we compare to the first quarter of last year. So AgroGalaxy has almost 30,000 clients that are registered and active. And one of our strategies of growth is to increase our participation share and also to have more clients. Also very important to highlight the strategy of ESG, the review of goals for 2023 and the release of the third AgroGalaxy annual report, very rich that is solidifying our commitment. Also, I'm going to get into details of what these goals are for 2023 and what we intend to do this year. Also, we are committed about governance, the transformation of the Audit Committee into a statutory committee. And we have to have a speed -- and we have to be serious about our process of governance. So this transformation of the committee into a statutory one shows our focus, our transparency and our responsibility. Can you pass the slide. Here, as I said, this year is a very dynamic year. As I mentioned before, we're going to bring some market highlights that are important for us. So we had a harvest and a soybean trade that is delayed. We were talking about the cycle of the soybean. It is a very different -- a different regime and also the trade of the soybean is very delayed when we compare with the last 4 summer crops, especially is the biggest delay, especially because of the lower prices in the third day. So the producer that didn't take the opportunity in the last 4 weeks, especially, they were really scared. So this leads to an impact in the whole chain, of course. He needs to close the soybean to pay the bills, and we know that we're going to have a little bit of a delay this year, but we have a lot of guidelines to our clients, and they are doing what we are saying. So we have a lot of trust. We have a lot of commitment because everything is really well planned. And I have been working in the industry for the last 20 years, and we know that this chain, it is impacted, and we are getting a lot of reinforcement and a lot of support from our suppliers in the industry because they know that this is happening. And we are hoping that the situation changes over the next few weeks. Also, we have the reduction in the area of corn planting in specific regions that we could see that it was going to happen all over Brazil, but only in center south of Brazil, specifically in Paraná and Mato Grosso do Sul with a dynamic agriculture and also with increasing sorghum planting. The third highlight that is important to bring something that the market has been saying a lot, that is a reflects of the adjustment of the supply chain that was impacted in the last year due to the pandemic, is the prices of the fertilizers are decreasing and now they will reach a steady level. And what is positive about that. Last year, the price was really high and a lot of producers in Brazil, they ended up using their storage of fertilizers. And historically, when this happens, the producer needs to have this fertility of the soil again. So we can see that we have more volume this year compared to last year, and this brings a lot of opportunity for AgroGalaxy that has the best partners, and we have [ smarter ] conditions to take this opportunity to help the producer in this recovery of the fertility of the year. The fourth highlight of falling prices of herbicide. When we take a look at this segment about fungicides and herbicides, we don't see a huge drop. But we see a great drop, and we have this consumption that is quite high after 2022. This is already in the radar of the market, and we have really importance of the stock management. So we took a decision in January. We reviewed this and especially of these herbicides. And we are prepared to take a look at the future over the year in a more light way, and taking the opportunity for this cost of reposition that will turn the prices a little bit more competitive and will add value to the chain. Another highlight is the prices and inventories that they have led the farmers to buy only whenever necessary. They changed a little bit of their behavior where there was a previsibility of a lack of product. Now we don't have this anymore. Now we say that they work from hand to mouth because they have the stock in the market and is going to use this time to buy -- to make the orders -- less orders made in advance. When we compare from last year and the other years, but it's a behavior of the market. We are following this, and we're going to have much more opportunities. We believe that in this platform, we have the best suppliers to capacity of react faster, and this will bring an opportunity to be prepared, so the producer can take this -- make this decision. Here, we have a really interesting graph where you can see the behavior for commercialization of this soy harvest. This one in '22 and '23, we just harvested where you see the lighter blue line. Here, we can see November, December, January and especially, we see a big mismatch with the history. And now in March and April, we start accelerating this closing rep case even with this delay because it gives us this perspective of the scenario. As I mentioned in the previous slide. Please, Puliti. Now as we talk about our historical profile here, some big numbers here. For AgroGalaxy, it's a platform that has advanced into one more state in Brazil. We opened up a physical store in Piauí. Before we used to work with the stores close by, now we have this expansion project. And we already have one more Piauí. Now we're present in 14 different states. And I'll also mention that we still have 15 or 20 during the year and another 11 or 16 to be opened. So we have 9 technological centers. And they bring the capacity to offer what's best in class to the farmers. And here, we can see a bit of our focus. And so we see soy, corn and over 95% of our focus and that shares a bit of our expertise. Now Puliti, I'll pass it on to you as we talk about the financial results, and then I'll get back to our future planning and operational model for stores and ESG.

Thank You, Manzeppi. Hi, guys. Good morning, everyone. Well, we're going to talk about our earnings and on the slide, we mention every quarter. I think it's really important to mention the seasonality of the business. So 2/3 of the orders, you see on the green bar that are placed on average in the first semester and 1/3 that are placed. And this year, we are seeing orders a little more delayed compared to the years. And a lot of this expectation is related to the drop in prices of inputs and this ends up postponing the decision-making process a bit. So about 1/3 of our revenue takes place in the first semester, 2/3 in the second semester and then here on the graph we have 22%. And on the bottom part, you can see an average of 20% to 22%. So there is a bit of a difference. Last year in the third quarter, we're a little stronger with our revenue, and fourth quarter was a little weaker. But this kind of seasonality considering that we're really focused on soy and corn markets, the seasonality varies a little bit upwards or downwards. But it is really connected here to the -- physical cycle, the biological cycle, it's what's going on in the field if it rained or not. So you could have some kind of a mismatch from one quarter to another, from one year to another. It really depends on what the real need is for these products and this link between industry and farmers, and we work with them more like from hand to mouth, knowing that farmers don't like stocking up in their own properties, and we also end up being a logistical partner for them. So now as we talk about our net revenue, we dropped 11% compared to last year. And 6.8% in inputs and 16% in grains. As you probably saw in our release, we had a record all-time high receipt of soy bags. Production was really good, and we have left over soy in the field. And then the commercialization is a little delayed. So from BRL 1.4 billion last year, we traded BRL 1.2 billion this year. And we had margins that were a little better, but this delay is also related to a drop in the prices of grains which started off in December. It went on a bit in January and February, but it really got intensified in March and April, which is normally when you have the payments. And we're going to talk about that a bit. So for inputs, we dropped 6.8%. And here, we're comparing against last year. So everything that was like organic and M&A will now all become organic, and we have no addition. So when we leave the same base, we drop a bit in our prices, and we drop a bit in our volumes. Well, but did prices fertilizers drop a lot? Yes. But this was offset by the prices that are still above the first quarter of last year when it comes to chemicals and seeds especially. So the net effect and the price wasn't that significant. We're going to see a drop in prices, it's bigger in the next quarters. Volume dropped 6%. Well, Didn't you grow the volume of fertilizers? Yes, we did, but we had a drop in corn seeds, which is something that had happened a lot in the fourth quarter of '22. And he also had a drop in the volume of chemicals due to a delay and we're seeing this application of chemicals that went from Q1 to Q2. And so the global volume effect was minus 6%. Now the mix in the revenue, we can see that there's a bit of a maintenance in fertilizers. So the price effect in the drop of prices was offset by the increase in volumes. In chemicals, we had a little bit of a drop in the mix for seeds and an important highlight is the very relevant share, an increase in specialties 5.3% and 8.2%. So we're super proud about this number. This number is not here by chance. It's a result of the strategy with the increase of our CTAs and the specialists in the field, helping us to train and sell more specialties. And so we decided to also disclose this. So with bio inputs, we grew 62% (sic) [ 72% ]. We're very proud of this, will transform into numbers a bit of the strategy for differentiation. And so we can be focused on unique solutions. So on the margins, we had a quarter where margins are very complex, especially for fertilizers and chemicals. For chemicals, especially with herbicides and so you had this kind of a burn in the stocks that we ended up making the global margins despite the increase of specialties dropping from 18% to 15%, so 3% lower. Our grains margin had an improvement of [ BRL 1 million to BRL 1.4 million. ] And our margin was from 10.3% to 9.2%, so minus 1.1% and a global margin for inputs. And then for expenses, we are saying that this year, the industry is already very sparse. We're working with very lean margins, so you need to keep your expenses under check. This year was also the case. We had only BRL [ 8 million ] of total expenses. We've been really controlling our expenses, and we've been focusing a lot on this with our team. From a percentage perspective, we had a worsening of 1 percentage point due to a drop in revenue. So the biggest impact was due to the drop in revenue with an increase of 3% in our global overall expenses. Then with the EBITDA, we did suffer a bit of a drop in the margins and the increase that was not that relevant in expenses. So the biggest effect in the EBITDA in the quarter was a drop in the margin from BRL 130 million to BRL 58 million. So our earnings here, we have 2 significant impacts compared to the results last year. So the payments we've been making ever since last year for our embedded interest in the sales we perform is not an easy process. We took on this effect from our suppliers and this was occurring actually in an anticipated way before we could pass this on through to our customers, but we've been able to do this well. We've seen financial results and our earnings of interest passed on to customers. That was a lot greater. So this impacts the net results of almost BRL 60 million positive. Higher interest due to the increase in our expenses or our debt, sorry. And also the reference rate from 10.5% from the last quarter last year and this amount this quarter. So the difference is smaller than the increase of the debt, but it still did occur. And we see a relative increase in the spread. So we can see that credit is not lacking. We have a lot of availability in credit. We have good CRA negotiations, but we have more spread and more expenses, and that's what we're also feeling in AgroGalaxy. So financial expenses are a little smaller than last year, but we had this net income of BRL 52 million worth than last year, as you remember. We had BRL 72 million in EBITDA [indiscernible], and this led to our net income of BRL 52 million better or improved and then the offset one part of this due to an improvement in the financial revenue. Then you look at the income tax later on when you look at details, and you'll say, well, how can you have income tax if you have a negative base? Well, some companies and especially Ferrari Zagatto, where we calculate the actual profits without any kind of incentives. We have a positive basis, and then we have a calculation of income tax specifically in Ferrari Zagatto. So we do this individually in each legal entity under the platform of AgroGalaxy, but we did not have a loss with some kind of offsetting or compensation of the IR. In our portfolio of orders, we are 40% lower than last year. We had 2 impacts. One is the price of the inputs being a little lower, especially for fertilizers which makes our portfolio of orders drop or reduce naturally. So this year, it's going to cost a little less. And the second point is this delay in the portfolio of orders. We're always comparing us against the market, and we're pretty much equal to the rest of the market. And now we're going to see this accelerating with the decision making, especially for fertilizers and seeds. So we have some crucial needs that need to be met and a bigger delay with farmers and chemicals that will probably continue to buy from hand to mouth as they need. So we reached BRL 1.8 billion in debt. And I'm going to talk about our cash flow. But here, the main point is the cash flow for the grains. So it's a quarter where we receive a lot of grains. We pay our customers, our all farmers, and we end up receiving this after 30 days or 45 days and it depends on the contract. And this is positive as well for inputs. So this is one of the biggest impacts in the quarter. So this is a passing effect, transitional effect, and we're already seeing this in the second quarter and third quarter. So we think this is not something permanent. It's a temporary effect. But we do have better terms, about 20% more in the long term than in the short term. And we've been searching for new CRA financial instruments, and we're going to bring you some news as soon as we have it. But we already have about 1/3 of our debt in the long term. And this year, we're going to extend this term even more. So cash generation compared to last year, BRL 107 million, this year BRL 260 million. I'm going to show you that in just a bit with our cash flow here, we have a worsening in the accounts receivable. A flow that is a little related to the postponing or the non anticipation of the payments for harvest. So maybe farmers were holding on to these grains a bit more. In previous years, we would see this kind of anticipation more frequently. So if a bill is going to expire on the 30th of April, he would pay in February and March before the actual maturity date. But this didn't happen this year that much. So we had an improvement in our stock terms with almost 40 days and an improvement in our terms -- payment terms. So we had a reduction in our working capital of 2 days really in line, but with different effects our stock also continues to have some real strong work being done. And we really think we're going to be in a situation that's a lot better for stock than what we had in '21 and '22. Now here you can see our cash flow, as I mentioned, getting back to the noncash provisions with a strong working capital flow. So it's the first time we're looking at this kind of detail for the working capital between grains and inputs, and we're going to start reporting it like this. We have cash generation for inputs that's not as strong as what we had in other years. So farmers do not prepay their accounts that were expiring and taxes paid with interest and others generating this operational flow of BRL 273 (sic) [ 263 ] million plus BRL 39 million in investments and BRL 68 million from others, generating this total cash flow of BRL 370 million. This scenario in the second quarter will be very different when we see June, for example, we'll see a reversal of this flow and a generation of operational cash flow that's very significant. Then we'll have an NPL at very low levels compared to our history of BRL 4.6 million. Here, we had some intense work with the credit and commercial teams. They've been working on this and receiving delayed accounts. So when you have a provision, eventually, your base criteria is above 180 days plus a provision that's still going to expire. But when you have the receipt from the past and you have like a renegotiation one year later, if it was already expiring, you can reverse this provision, and that leads to a provision of just 0.3% in the quarter, and that was a significant excellent work from the credit and commercial teams. And here, giving a bit of a history that we always share, I want to remind you that M&A is an entry point or the beginning of our organic growth. So we have about the same amount of stores that were purchased. We have the same number of stores that we open organically. So we like saying that we like doing M&A, but we also like having organic openings and this greater density in the amount of stores that we have within the companies we operate with which are AgroGalaxy. So we have very strong growth. We tripled our revenue and more than doubled the amount of -- so about the history. We went from 108 stores to 166 (sic) [ 167 ]. Now we had about 440 technical sales reps. Now we had 108 CTVs, 442, moving on to 643 from 18,000 to 20,000 new customers. So this makes us really happy with this level of growth that our customer base is growing organically in a sustainable way. So our revenue during the IPO of BRL 4.7 billion, now it's BRL 11.2 billion compared to the same period last year, it's 32% higher. Our same-store sales and LTM were 40%. Our EBITDA of course, you have an EBITDA that is smaller than the first quarter last year because it drops when I compare with LTM. But it's still a very positive trend. And we're sure that this will be reversed in the next quarters. Then the net income almost reaching 0 because you exchanged a quarter last year with a loss of BRL 44 million, and then now you add BRL [ 94 ] million, and we still see profits within '23. So we see the ROIC. We see this reduction to 21% in the first quarter. And a bit of a reduction in the spread between what we have in the ROIC, but we believe this is just temporary and this curve will get back to growing. Now I'll let Manzeppi talk about this event with the future, and then we'll get back into Q&A.

Well, we have been talking about the moment. We're very close to experiencing, which is this new operational model, and everyone with us for a longer period of time knows that this is a revolution we're going to go through with this integration systems, integration of processes and will give us more transparency and that we can bring a lot of synergies to operation because this will certainly impact our customers as well. We can see this is planned for July with all of our units, a lot of preparation going on, and we're sure that this will help us gain synergies. But beyond this -- and it will give us more tools so that our team can transfer this to our customers. And another very interesting plan is our expansion plan. So it's important to remember that within the expansion strategy, we do see some elements to be able to choose where we should open up in advance and the potential for this area is soy, corn and coffee. And this location or region does have this profile of farmers that have access to the resales and distribution and within this plan of opening between 15 and 20 stores in '23, we've already opened up 4. When we arrived in Piaui, it was additional state. We're already operating in physically with an important highlight for BR-163 where you have a strong farming potential. And to give you an idea among these municipalities with the greatest income per capita, almost 10 of them are in this region. Our plan is to open up 4 stores in BR-163 and Lucas do Rio Verde, Nova Mutum, Sorriso, Sinop as a core strategy for expansion, we have already hired 100% of our commercial team in BR-163 ever since January. And when we look at our plan from 15 to 20 stores in other locations, we already have our commercial team ready, operating, prospecting sales and reinforcing our arrival. So we hope that by the end of '23, we'll have between 180 and 178 stores. So this would demonstrate one more strategy of being close to the farmers, which is always our focus. So we can share our logistical capacity, stocking products, personnel, commercial teams, and really add services and quality in the search for always gaining productivity with the farmers. We can move on, Puliti. So just a bit about how the ramp-up of the store works. So we say that it's really a high investment in the beginning. But in the first 3 or 4 years, then it starts maturing and consolidating. And that's when we start seeing the returns on this investment. So on the first line, Puliti, if you could help me, I want to give you an example of how this works. We have the stores we opened up in 2019, 10 stores. And over the years, 2021, '22, '23, they experienced this robust growth. And when you look at this time line, you can see that they already made almost BRL 2 billion in revenue. And so this gives us a perspective to really look back in the stores we've been opening and understand that one of our strategies for growth is really going to go through the store opening. So despite this initial effort and investment in the first year, this becomes an investment you have to do to be able to continue to grow. And when you look at this and you add the stores in 2023, a lot of this growth will come from these store openings, and this also demonstrates our efficiency in store openings. We can move on, Puliti. So another thing that we should also cover is our strategy with ESG. As I mentioned, we have a review of these targets for 2023 with 3 major commitments here. But what is really important to share with you is that as we follow this recommendation from our sustainability, we're going to really focus on ESG initiatives that are directly connected to this. So you can contribute to the supply chain in a sustainable way with a big focus on developing the supply chains and really focused on the farmers. So of course, you have the offer of solutions and with bio inputs and mineral substances. So Puliti mentioned, we're really happy with our performance in the first quarter, and that's because we had a strategy that's really focused on this path with more sustainable agriculture, and we're really -- we have some commitments this year. We want to improve our sustainability, the social environmental capacity of the properties we work in and this education work to share all the benefits that this brings as well as really reinforcing our organizational culture that we want to be present in all the business areas, especially when you consider the engagement of the commercial teams which are really our connection bond with the farmers. And our intention, of course, is to redirect our targets and commitments so we can operate stronger in the supply chain with the farmers. Because we really understand that, that is where we're going to make a huge difference. So guys, that's what I had to share here from my part. And I just wanted to reinforce how we are looking at this year. We had a very difficult quarter, and we see it's a really different scenario. Our big trust is here to understand when this environment is really complex, and the farmers need more support than -- we really have this scenario, and we have the capacity to strengthen this. So a team with high quality, great relationship with the best suppliers in the market and a lot of trust that this different scenario with the farmers will also bring a big opportunity for us to add value and capture this value to continue to grow in the firming market in Brazil.

All right. So now we're going to start our Q&A session. [Operator Instructions] We already have our first question in the queue, which is from Gabriel Barra.

So guys, can you hear me? Well, Manzeppi, Puliti, Daniel. I have a few points, but I'll just focus on the 2 main ones. There's a point I would like to understand more about which is the order portfolio. We do have the scenario now that's more full of delays in our portfolio due to market dynamics. But this lag we're seeing that we saw with 2 different points you mentioned. Within these, I wanted to understand how you're looking at the portfolio for the rest of the year. Although you have like a delay or postponing this on behalf of the farmers. What could we expect for the rest of the year? Although you do have this lag, how much would you recover now in the second, third quarters to understand this dynamic a little bit more? And how much is this like a price effect? And how much is this lagging effect with the closing of these orders? The second point is about cash generation. So due to this, we also had to burn cash a bit more than what we were expecting for the next quarters. And I wanted to know how we're going to handle this. And so we can have a better dynamic of the working capital in the year, looking at the second quarter forward. And if you could allow me to have a third question about the operational integration aspects, which is a big investment the company has been working on. And I wanted to understand this impact on credit for the farmers and this impact with the CRM being more developed. And what we can consider as factors with practical aspects when it comes to an improvement in the margins, maybe the cost of debt being a little lower? And so what would be some practical aspects with this integration? These are the 3 points.

So well, I'll start off with the portfolio, and then I'll help you with the operational models as well. Anyway, Gabriel, thank you so much for sharing this point. When we look at this dynamic with the market, we see that there's this portfolio process, right? We're not going -- we're not standing behind the market. What we see is that the market is postponing their purchase decisions. And farmers do this a lot when they see that there's going to be a comfortable supply whenever they need. And while we see the timing for chemicals, fertilizers, specialties is very different. So there's adjustments in the timing. And what we're expecting now in the second quarter to be able to have this placement of the orders. This is going to at least be consolidated with this portfolio of fertilizers, which has integrated its international and farmers need to position themselves. If not, they're going to have a lack of product. But of course, when you go to the defensive substances you have a bit more of a stock, so it takes a little longer, but this acceleration process already started. So this vision from the first of April, when you look at the month of May and you have our internal calculations, you see this difference from 41% versus last year, and it's already dropping to 25%. So we've already noticed that especially in the month of May, farmers started to make decisions for purchases. Now what we see is different this year is that you have this a bit separated from the rest. So fertilizer is really accelerated. But we do believe that this -- in the second quarter, the difference between our portfolio this year and last year will -- this gap will reduce because they need to make their decisions for purchases.

Great. I'm going to answer your question about the cash generation. Well, what we're looking at when it comes to cash, Barra, is that historically, you have an amount of receivables that come along before the maturity. So they search for us before April to pay their bills. And then, of course, we negotiate some kind of discount in this anticipation. This year, this number was smaller than previous years because of a drop in the prices of inputs, but now we're also noticing that there is a postponing or a delay in the payments to the farmers. And so we've been negotiating with the farmers, and the farmers are saying, we have a lot of credit granting, and we can see the grains in the silos, but while they don't trade the grains, they're also paying for them. So what we're looking at is a delay in payments which is not -- you see it's not a credit problem. It's not going to become a loss. The production was super good in all of our markets, really all-time highs in production -- huge production. So the farmers have the soy, but they're just concerned about commercializing it. So of course, we're using our resources here to charge for the interests above what we would charge and a normal sale. So these are extraordinary interests here, and we are not looking at a credit issue. So in the second quarter, I see cash generation that's really strong compared to the second quarter. And the cash generation scenario for the year considering the receipts will be good. The second point that I recall when you have a bit of relief from the pricing, but you see that between the first quarter and the second, we're going to start seeing this year plan. We will have a top line that's very similar. A little more upwards or downwards depending on how much the inputs are. We do consider that this is going to be an important offsetting of the drop in prices with the increase in volumes. So we have a big amount of stores than what we had last year, Manzeppi also showed us that the stores do have ramp-ups from year-to-year. So as they mature, they will also conquer these new customers, and that brings in an additional volume. So it's going to be more focused on the actual cash generation in the past than just the reduction in the revenue release of the working capital considering the reduction of the revenue. This is not something that's going to happen in our opinion. So it's going to be more like due to the cash generation despite a possible delay in regards to March. I hope that was clear. Then operational integration. Do you want to start with that, Manzeppi? And I'll add on.

Yes, I can. So Gabriel, you've already brought some elements here and considering your expense, you probably know what the benefits are that we're reaping with this kind of integration in the system because it's not just like a pure system integration. But of course, basics come in with more information in a quicker way with less efforts. And all of this brings scalability to the company. So you can see we have an operation that is almost 170 stores, certainly with 2,500 people without the integration of the system. We add on major efforts to be able to look for the best indicators and monitor this. And with the integration, we really reduced this effort a lot. So we gain synergies and what -- this brings benefits to the customer, many benefits because you have better management. You can take advantage of the best potential with the commercial team because given the necessary tools, in a very quick way. So with this kind of integration, your technological basis for this digital transformation is a lot easier. So of course, your operational efficiency includes this harmonization of the processes, which is really reflected directly in the precision and punctuality of the commitments we have with all of our producers. And so of course, as you mentioned, with this integration, we go through this new CRM model, and we have about 8 or 9 investees that work with different systems. And this ends up leveraging the management that we already have within our strateyear-over-year.

All right. Just to highlight your point here. I think Manzeppi, you did cover almost everything. But when we had the IPO, there was a lot of people that would ask us like, oh, you guys are just maybe another setup of companies. You like a big opening with a bunch of companies throw in with a bunch of crazy deals, just as other deals that didn't really have success, you had the big holding in all these messy companies under and complete independence between the companies, no integration, but that's not what AgroGalaxy will be. AgroGalaxy is going to be a national coverage company that's really focused on being set up through the acquisition of these regional players. So this item with the integration is almost like cleanup item, right? It's something that needed to be done. You can't operate with such complexity like this and so many stores, so many people in different systems because you won't be able to bring improvements into your process and your team in such a quick way. It's really impossible. So this was like a matter of cleaning up our own house, right? It's like a sanitation process to be able to prepare for M&As in the future as well. So now we've stopped a bit. It's not like we don't see any opportunities in M&A anymore. There still are opportunities. Of course, the situations with our capital structures don't allow us to continue to have M&A sale, but we do enable ourselves to work on these M&As in the future. We'll have other integrations and mergers in the future. Now we're doing this within all of the information. So I'm going to give you this process with the systems. And there is no way for us to continue to operate with all of these different systems. So let me know if that's clear. And no, I think you can let us if we covered everything.

Yes, that was very clear. But what will be the kickoff of this integration, just so we can monitor this in our side?

Well, we do have a go/no-go, which will be now in the beginning of June. And we see things are doing well. We're actually on our fourth round of integrated tests. Remember, we had the first integration as Manzeppi demonstrated in the graph in August last year. Thankfully, we were able to have the indication with a smaller company. We had a lot of people focused here to be able to continue to handle the operation and Agro-Ferrari went really well in its earnings last year, but we did identify over 100 items, Barra, that were solved between that version that was implemented last year, and this version now we rolled out to everyone. So we will have a go/no-go in the beginning of June, and it should start taking place in the beginning of July.

Okay. Guys, thank you, very clear.

Well, guys, we have another question here from Pedro Fonseca at XP. Please, you may open up his mic.

Puliti, Manzeppi, Daniel and Gabriella. The first question I wanted to explore with you guys is about the stock volumes. So when you see this in the stock of fertilizers being very well addressed, but defensives have a whole different scenario. So I would like to understand from the BRL 770 million in your region, is there still some part that could suffer a bit with the margin issues in the next quarters? And with this point, what's your guys' vision about the sector? Do you have visibility about the level of stock in the sector? Has this sector been able to clean the stock out? Or could it still become a problem when you look up to the future? The second point I wanted to explore is working capital. I think this worsening in receivables is really clear with Puliti's explanation -- demonstrating improvement signs, but I wanted to explore the stock. I think we had a super positive change in the level of stock, but I wanted to understand how much of this improvement we could expect ahead? And how much of this improvement comes from the stock burning that you had to work on due to this issue with the supply chain and super stock in the market? So I wanted to explore at this point. And then a third point, if you'd allow me to is about specialties. But if you could give us a little more specifics on what the volume -- what was volume, what was price. It would be great to have these points covered. Thank you so much, guys.

All right. Manzeppi, I'll start and then you can add on a right?

Sure, yes, of course, that's perfect.

So Pedro about the stocks. We had excellent management in our stock of fertilizers. What was left was a little bit in Q1 and in the end of Q2 -- sorry, Q4 of '22. We had stock that was really low. And in Q1 for '23, what was left is a bit of the harvest in this area that wasn't planted. So farmers lost this window and then they ended up not capturing that and that will be taking place now in the first fertilizer in the '23 and '24 harvest. So for chemicals, we had that amount of stock for chemical that was pretty much [ BRL 200 ] million of the items we call generics. The items that buried prices a little more not only glyphosate, but also some others. And so this stock was about 60% already operating in Q1, and we're missing the other 4% still. But now we have also -- in the last quarter, we've been working with a provision of about almost BRL 30 million for adjustments to market value. So we continue to have this provision to handle this amount of orders or the sales with lower margins. So then all the rest, and then we're talking about another BRL 60 million or BRL 80 million, but the rest of the inputs and chemicals are insecticides, fungicides that we don't see price variations downwards. So these are items that have quite firm position. So I'd imagine that at most in the beginning of the third quarter, we will be -- we will have ended these items here with higher stock value, but we still have a provision of about BRL 30 million to handle this. Then in working capital are number of days did get improved. So you have the fertilizers that are items we don't stock up on. We work on them from mouth -- hand to mouth. This, of course, helps reduce this a bit. We do plan to also see -- we have, I think, another point that's important to mention here, maybe in our next meeting, where we can look at the process, the S&OP, right? The integrated planning between sales and supplies to be able to bring these stocks into levels that are a little more -- that are a little lower. And historically, Pedro, the distributors were kind of advanced parts of the industry. So if you were like A brand, then -- and a distributor for brand A, you had maybe 80% of the shelf life of that brand and that was almost like when you had a leftover harvest, whatever you hadn't sold, the manufacturer would rebuy and he would place this new stock for the next harvest. So this management could be a little more relaxed. You can leave it up. But now since the stock is ours, and we're like a multi-brand and I have suppliers A, B, C, D, E, the stock management needs to be done in a more spartan way, and we always question ourselves about like should I have a little leftover stock to not have a loss in opportunities or maybe I don't have leftovers in stock, but I'll lose a little bit of sales. This process of the S&OP is a process that might see the SAP is doing this in a single system. Looking at a single information will help us a lot. But I think that this reduction in the stock and a few of those days will be temporary because of fertilizers, which is a product we do stock with. The other is just this better process where you just leave leftover amounts of what we have the support in the industry for because we don't have the margins to have these stocks carried up from harvest to harvest. So I am sure that this is an improvement that is temporary, but also because of the process with the -- looking at the stocks and making them drop. They got better now, but we still have things we can reduce.

So if you could just give us a bit of the granularity with regards to volumes and prices. And you did mention a highlight with biologicals, but maybe there's some other lines that are standing out, and it will be great to look at.

Well, for specialties, we did have the biggest impact in our mix. So we didn't increase the volume in meters, but since we had a lot more biologicals with a bigger added value, then you have a price -- also in the stated value that's a lot greater. So the biggest effect was in the mix and therefore, the volume.

So just to contribute to this, the growth you noticed for bio inputs with all of our specialties. When you look at the market, there wasn't an increment in the price, and there was a few decisions with -- prices are a little smaller, but I think very relevant. And I would like to mention that 100% of this growth comes from volumes, achievements in the market, market preferences with greater adhesion or even new customers that had adhered to this technology.

So we have one more question here, guys, from [indiscernible] from BTG.

I had 2 actually. The first one is if you could talk about the impact in the revenue for the inputs. And this drop of 6% per volume. So just to understand if there is a mix effect reflected in this number. And what would maybe be mentioned in regards to the competitive environment at this moment where the price of inputs and the channel had a real high stock level. And when you look at the impact of the prices in your revenue, it wasn't that big. So how does this competitive dynamic also operate behind this. And the second point is about the transfer of financial costs to customers you mentioned in the release. How are you positioned in regards to the market and the rates you guys were charging before and currently? And how has this negotiation taking place? And how has this impacted the performance of the volumes? And how much more room do you see to be able to pass on that impact? These are the 2 points.

So we have in the mix of the volumes, there is an important topic here. The first is fertilizers and the growth of volumes. So I think the chemicals are more related to the delays in the offseason harvest than an actual loss in the share. So we had a delay in the plantations. And for Chemicals, we'll see a bit of the recovery now in the second quarter. So for corn seats, there was an anticipation last year. We had more -- the corn seeds are in the fourth quarter and in the first quarter of the year or the current year. So there's a bit of an anticipation and in certain cases, you have some specific areas like Mato Grosso do Sul and Paraná, where you have a bit of a -- where you have the farmers giving up this process because of this delay. So I think this was the most specific item in the drop of volumes in this quarter, not necessarily in the actual corn harvest. So for specialties, we did see an improvement of this mix. And as I mentioned, we're very confident about what we're seeing in the soy harvest. We're super strong with these soy seeds and production for chemicals, all of our forecasts this year are focusing on the increment of the volumes, of the fertilizers, chemicals and corn seeds and specialty. So I think when you look at this reduction of volumes, there's this mix combined so despite the fact that the fertilizers went up, the chemicals delayed and seeds were [ split ] between 2 semesters. So an increase of the financial costs, right? We also had a bit of a disadvantage in regards to the cooperatives. We know that they also practice rates that are smaller than ours. We've been able to have rates that are closer to our fundraising costs. And we think that this could impact volumes a bit, but it is a need for survival, right, really being able to transfer this. So I think that we'll be able to transfer more than what we have maybe from 1.2% to 1.6% during last year. So that was a process. But we've been successful with this. Now what we see in our forecast this year is that this will bring our revenues kind of sideways in regards to last year. If you are using 1.2%, could it be better? Yes, of course. But we do have a gap, but it would be impossible for us to operate with price -- with costs that are lower than what we're operating with. So about the impacts on the volumes, I can't tell you about that. We would have to have not made this change to see what would have happened to this volume. I hope I answered that?

Yes. No, you did. That was very clear.

Okay, great.

Since we do not have any more questions, I would just like to say that me and Gabby from the IR team are available to help you with whatever you need. And I'll pass the floor to Puliti for his final remarks. So we can end our call.

Well, guys, thank you once again, and we think the scenario is a little more difficult in other years. The first 2 years, '21 and '22, were -- had our prices upwards, and we think our position -- our relative position is pretty good compared to what we see in the market. We see our stocks. And everything we've seen with farmers holding on their payments. Now we're [ panning ] with the guarantees. And so we have the high stock levels, and we have some industry information. We compare with data from the association. And we really feel like we are better positioned. So we had a very good decision, which was leaving the stocks. We started off with less stocks in generics. And now we're ending the stocks beforehand. So these adjustments were necessary. We're leaving before the situation and the scenario than our competitors have. So as Manzeppi mentioned, if you move quicker before, you have the compensation up ahead. So we are comfortable in regard to the situation. So we are focusing on this. We reduced the positions. I think no one is questioning the direction of agri business in Brazil. As Manzeppi mentioned, farmers are going to continue to farm and plant, and we're going to be successful on the other hand. Thank you all so much. Have a great Friday, and see you in the next quarter.

Thanks guys. Thank you for participation. Thank you. [Statements in English on this transcript were spoken by an interpreter present on the live call.]