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

Good morning, everyone, and thank you for standing by. Welcome to the earnings conference call of AgroGalaxy Participações for the fourth quarter of 2024 and the fiscal year ended December 31, 2024, currently under judicial reorganization. I would like to highlight that simultaneous translation is available on the platform for those who need it. [Operator Instructions] Please note that this video conference is being recorded and will be available on the company's IR website at www.ri.agrogalaxy.com.br where the complete materials for our earnings call can also be found. The presentation is also available for download in the chat icon included in the English version. [Operator Instructions] We would like to emphasize that the information contained in this presentation as well as any statements that maybe made during this video conference regarding AgroGalaxy's business outlook, projections and operational and financial goals are based on the beliefs and assumptions of the company's management as well as information currently available. Forward-looking statements are not guarantee of the performance. They involve risks, uncertainties and assumptions as they relate to events and depend on circumstances that may or may not occur. Investors should understand that general economic conditions, market conditions and other operational factors may affect AgroGalaxy's future performance and lead to results that differ materially from those expressed in such forward-looking statements. Today, we are honored to have the following executives from the company with us. Mr. Eron Martins, CEO of AgroGalaxy; and Mr. Luiz Conrado Sundfeld, CFO and Investor Relations Officer. I now turn the floor over to Mr. Eron Martins.

Hello, everybody. Good morning. I thank everyone for participating in our video conference, in our earnings conference call [indiscernible] quarter 2024. So I'll have a duo with Luiz Conrado, our CFO. Let me talk a little about our current context and Conrado will talk about the numbers in detail and then I'll come back [indiscernible] to talk about future perspectives. And I think it's important before we present the numbers to contextualize it and it will support the numbers that we'll bring. Then -- so we are talking about the results presentation of Q4 '24. This is the first complete quarter after the judicial reorganization request in September. It impacts the number that we can see. So we are going to separate the impact from judicial reorganization and business as usual. But it's important to remember that we're talking about the month of October, November, December. In October -- in last October, we had a very good work in reorganizing the size of the company. So we announced a restructuring, the decrease of number of stores. We rethought our grid of operation. We left the state of Mato Grosso Do Sul [indiscernible] to focus on the states that support our strategy. We had also some mitigation works aiming to reinforce the cash of the company that is necessary for this moment of preparation, approval of the judicial reorganization plan. So please, let's -- to the next slide to guide the context that I'm talking now. Can you please move the slide. Perfect. We might have some delay because of the platform. I hope you can see that in which moment we are now. In September, we are reorganizing the company, this company reorganization at first, that's through revisiting stores, the geographical operation grid. We are talking about a company with 65 stores, 14 silos and a unit -- seed unit, present in 9 states of the country. So this reorganization of the structure sought to adjust the SG&A level to the revenue perspective that we predicted in the plan and we announced inside the plan, within the plan. So this work was well conducted. We did it intensely during the first 30 days and then we adjusted and more recently, more than reducing the expenses, we have been rethinking, redefining the processes of the company looking for empowering the operation. So our reading, our learning curve, the improvement of governance something that's very present in our every day, especially after [indiscernible] capital to associate this governance with the power at the end of the operation because when we empower the end of the operation, we improved the decision-making processes and it influences, impacts the service for the producers. And this is our strategy. This is our mission. This work has been concluded. We finished the last remodeling, revisiting this empowerment at the end of preparation, the stores, the managed stores for managers that -- we approximated the seed and grains there, the credit areas and people. So now we have a decision making nucleus inside of each unit. And I'm going to show you the map later. So I'd like to talk a little about we -- you had access to this information. We had a reverse stock split because we traded below BRL 1. So this reverse stock is going to be active from March 6 in the ratio of [ 50:1 ].That's a fact that we announced. And the judicial plan, the judicial reorganization plan and the binding proposal for credit acquisition that is part of our plan. So let me remind you, we approved the plan, the last 10th and now we're doing the process of the judicial ratification by the judge. And a very important part of this plan is the sale of the portfolio. We have a binding proposal and we are now at the moment in which other interested parties can assess the portfolio and after the ratification, offer a proposal. So this is our current moment. So we are prepared and we are participating in the 2024 and 2025 crop and deliver crop for '25. So moving to the next slide. It's important to emphasize here and forgive us about the delay. Perfect. I can see that, here just to remind you the numbers of the approval of our number. I'm not going to go into further details but it's important to emphasize that we approved the plan in 6.5 months. And we had over 80% of approval on the creditors side. So I'd like to thank the creditors that participated in the general creditors meeting and voted favorably to our plan. And to thank the producers and the employees and some clients that are still believing in AgroGalaxy and this is what makes us be able to approve the plan within the period and allows -- enables us to execute and enable the plans according to the commitments that we agreed on. Next slide. So here, we are just revisiting the process of the judicial reorganization. As I said before, we are now at the moment of judicial ratification. It can last up to 60 days. We believe in the shorter term, like 30 days max. And you will be following this up as we're going to announce. And then we have the implementation of the plan and we're going to revisit the debt with the creditors before the approval of the plan and how thy reflect our profit and loss statement after the approval of the plan. There is a very important period of renegotiation with our partners. We have to formalize the agreements and we've been working on that. Once we do it, once we implement that, we move to the monitoring phase with all the transparency with the help of the judicial administrators and they're going to help us with the monthly reports and the [indiscernible]. And last but not least, if everything goes right, the closing of the process and the full compliance of the judicial reorganization plan, the fulfillment of obligations and the end of the process. Just to talk about the market overview, just to show you that, that this year, as it was in '23 and '24, this year, we keep having the dynamics that we call internally they consume from hand to mouth. So the producer has been negotiating at the limit of the decision-making moment or the planting of the crop, it's not different. It has nothing different this year. For the latest 2 years, it was the economic context. We had a decrease in the profitability of the producer because of the decrease of the price of the grain and some of the inputs. And because of that, the producer was a little more resistant, waiting for the best price. '24, '25, it was the climate impact. We know the challenges that the crops faced and the rain problems we had. And this year, we have a very good productivity but -- and there are many factors that contribute to the productivity. And now we have a soybean record crop and we can realize that, we can see that the producer is a little hesitant because of the current context, because of the exchange rate and some factors. And now we have some trade wars between China and the United States that somehow impact the exportation of soybean from the U.S. to China. So we expect that China will look for soy in Brazil. And I believe that we know that -- we have a different version but maybe there is a compensation with good premium for the negotiation with China. So when everything is on the table, in the mind of the producer, they think, okay, let's wait a little longer just for us to make the best decision. And in the previous moment, it was a worrisome point. But in our case, we can see that positively, we will be able to participate into this market, that's a little more blocked after the approval and ratification of the plan. Our confidence level with our producers is very strong. And I'm going to turn over the floor to Conrado, our CFO, for him to talk about the numbers and I'll come back to talk about perspectives in the future.

Good morning, everyone. Thanks for accelerating the slides but I'd like to share with you some numbers about the Q4 and the fiscal year ended December 31. The most important to talk about is the result management of Q4 that was a quarter that we had just presented the judicial reorganization plan. Management was focused on the generation of liquidity for the company. We would like to monetize our position and business that would generate revenue for the company. So once that being said, it was a big effort that we did. It was to consolidate our cash position because we finished Q3 with BRL 200 million and we increased that a lot for Q4. And I'll talk a little more about this cash movement. The first topic I'd like to show you here is the solid decrease in revenue. And this decrease was due to the judicial recovery, judicial reorganization request because we've been providing income from fertilizers. When this structure with our suppliers because of the judicial reorganization, we had to cancel many requests, many POs that we had with our client. So this decrease in BRL 1.4 billion, it was due to canceling of POs. And in parallel with this plan for generating liquidity, we converted the POs from the inventory and we converted those requests, those purchase orders to cash sales. It was very effective because obviously, when we do that, we have a financial discount, the arbitration of the term. And for that strategy to be implemented, we had to concede on price. And then you see the delta, the price delta. We had 4% that was the price delta. And it's embedded, of course, the term, the accounts payable that was adjusted. But the biggest effect in the decrease of revenue was the interruption of sourcing, the supply of inputs and the fall of the requests. So we had BRL 740 million, [ BRL 1.4 million ] below the same quarter last year. When we go to the chart -- on the charts, we have like profit -- adjusted gross profit. Beyond the effect of effective margin that affected this result, we have the volume impact that's very relevant. And we have this impact that I called the delta price. And different from the Q4 last year, we had some provisions that were relevant. Some of them related to the judicial reorganization. A very big provision we had here is provision for ADM inventories like adjustment in market value, not adjusting the inventory price but we provisioned observing the quantity of products in the inventory we had in which the expiration date would be due to the end of '25 and predicting as the preventive [indiscernible] and reestablishment of relationship with the suppliers, the vendors. If we couldn't do that, if we couldn't trade or change this product because of the expiration date, we had a very relevant provision in our inventory that was inside this account. So we not only evaluated the variation in price but the shelf life. So 2 big impacts beyond the volume. Comparing Q4 '23, we had 2 big effects that was the effective margin because of cash sale instead of [ divided sales ]. And looking at the chart at the bottom left, here you have a variation of SG&A and we have a very important picture and Eron talked about that. All the effort that we had made in Q4 in reducing and resizing the structure of the company, not only in the store footprint but in all the layers inside the company, we had a big reduction of strength. Eron captured a relevant impact of this effect. First quarter '25 will show the continuity of this reflects of this impact but we see a reduction of the size of the company comparing Q3 '23 -- Q4 '23 to Q4 '24. The best comparison would be with the Q3 '23 to Q3 '24. But you can see here the reduction in SG&A. It's not the final number. There are some numbers that -- some actions that will have results in the Q4. And this is a very important effect and will bring sustainability for the operation forward. And the resulting of that is the adjusted EBITDA is a reflex on the -- of the gross margin and there are other provisions that are inside SG&A that will affect the EBITDA. And the most relevant one is that the company made a structural decision of interrupting the rollout of the LP platform that was implemented. We are revisiting the type of technology that we're going to use from now on and facing this interruption of this rollout, we decided to write down the asset we had that was the investment in technology. So it was a very big, adjusted BRL 92 million that we realized in Q4. And this is -- part of this negative EBITDA of BRL 200 million. But there are other provisions and other things that are nonrecurring, not related to the operation that affects a lot this number. So one more slide. Here, you can see the picture of the fiscal year ended. And the biggest effect that affected the results of '24, we acknowledged related to -- of the effects of the judicial reorganization. So we detailed that on Q4 call -- the Q3 call, I'm sorry. And you can see on the EBITDA chart, all the effects related to the judicial reorganization that affected the EBITDA in the year. But the most important, if you see the top left part is the decrease of revenue compared to the year-to-year. It was the canceling of the POs, purchase orders. So the effect after the judicial reorganization regarding the canceling of purchase orders was not acknowledged in Q3 but was acknowledged in Q4. That is the biggest factor that impacted revenue and the bigger gross margin. And the big numbers -- about the big numbers, that was what I wanted to share with you, and I'll turn the floor over to Eron. Okay. So I'm -- so you would like me to talk about the numbers? No, I'm sorry. This is the presentation [indiscernible] of Q3, it's important to share. We are not giving any guidance. It is a public information. It's part of the package of the request of judiciary reorganization. This is the projection and that was credited by third parties that support our plan. But the importance here is the size of the SG&A of the company and we are aiming for 2025 that size of structure, not that size of revenue but to overcome, to have a surplus in revenue. We are very optimistic regarding that and increasing the profit, the gross profit and the EBITDA. So we believe that we're going to work with the gross margin period above that and have a better revenue but this is our projections and you can see the sustainability of our business. Understand that 2025 is a recovery year. If we analyze same-store sale, the number [ 1.8 ] is the same-store sales is well above that but it's a potential and this recovery depends on the ratification of the plan, the agreements with suppliers and the recovery of the operations in a sustainable way. Now I'll turn the floor over to Eron. My presentation has ended.

Thank you, Conrado. Conrado brought some numbers for the Q4 '24. And I'm talking now about expectations. And what I'd like to share with you in the next slide is, it's not a new layout. It's the implementation and the execution of what we've been talking since beginning of '24. I arrived in August '23. So a lot that I'm talking about, we've been working since then. We sped up the process because of the judicial reorganization but the first pillar is the reorganization of the business model. So we are thinking about areas of operation, processes but also merging experiences that we have lived since 2015, 2016. We're talking about on a hand, a level of governance, internal control that's very, very strict. We have been listed since 2021. So our governance level is very, very professional and associated with intelligence and proximity with our original retail. So this combination makes us focus on -- this is our internal model. That's how we've been working. We are focusing on taking the best solution to the rural producer without losing agility. And it's paramount inside any business, especially in retail in the agribusiness, the optimization of the working capital. So we are still disciplined with the inventory levels. We are not just decreasing per se the inventory but one of the services for the rural producer is the proximity level when they need to replace. So our inventory levels are correct at the tip of the operation, at the moment the producer needs it, balancing the inventory and rentability. And another important pillar is to improve the quality of credit provision. We provide credit for the small and medium producer and we have evolved a lot, especially after Conrado arrived in terms of the resources, tools, policies. We have [ new ] tools for billing processes. And we have third party billings in some cases and we have seen great numbers after those changes. And the last pillar here is looking for opportunities for asset monetization, both liquidity. We have accounts payable for vehicles, real estate inside the framework of judicial organization being transparent, being audited to be able to monetize part of those assets, generate cash revenue. And as far as we can generate monetization [indiscernible], we make it, the more these opportunities we generate. And we've been working a lot internally that, especially in 2025. Let me wait a little for this slide to show. We had forgot about this slide and I have to share with you our presence. I really want to talk about the future but I cannot forget this important item. How we are divided now? We have 2 Vice -- 2 VPs, 2 Vice presidents, 2 people working in the commercial pillars. One is responsible for the North [indiscernible] and the other VP is talking about [indiscernible] Sao Paulo and South Minas. And we believe that this geographic distribution around 65 stores, 14 silos and 1 seed unit, we can not only deliver the plan but also serve the producer well in which the agribusiness belt in Brazil. And we have a lower risk of exposition of climate event and problems. And now after when I see the slides, I'm going to talk a lot about how we've been basing our work in 2025. Okay. Everyone, we are back to the roots of the company without any nostalgia, the feet on the floor. As I've been talking to you, we have experience that we've been collecting since 2015, 2016. We have like the moments of soybean at [ BRL 200 ], pricing adjustment, climate event and we learned a lot from that. So we are not excluding governance and having data management being a listed company with all the compliance rules we have but we will bring from the [indiscernible] that originated in our origins. And we can summarize that. Our work as agriculture retail is to provide rural producers with the best economic solution. That was our advantage. We have always been able to deliver specialties, biological areas and those are our pillars. We believe this is our differential advantage in the market and we're going to rely on that. But we will do that with 3 values that based our everyday operation. First is simplicity, especially talking about processes, how to make the producer journey easier when they arrive there early in our store to get a product. And -- so we are working on this simplicity. Proximity is the other value. We believe a lot as we did originally, we have to put the hands and the feet on the floor and the credit, administrative personnel needs to be in the field. And you're going to be able to see that in the AgroGalaxy staff. And efficiency is the last pillar. It's not only cutting and reducing expenses but also improve the sales mix, the specialties, taking the step out of the fertilizers pedal, improving the technological tools, bringing third parties to help us improving the credit concessions, credit offering and increasing the new tools of credit. And when we have barter, we have a shorter way for billing and this is the AgroGalaxy in the future. Learning from what we had from 2021 on with the IPO and the governance but without losing our spirit, our original spirit and being close to the producers. I thank you all for your participation, and we are open to your questions.

[Operator Instructions]

We don't have any questions, I believe we can conclude the webinar. I'd like to emphasize that the numbers were published yesterday. We have our RI channel for any further clarifications. Thank you so much and have a great day. The operator is going...

The video conference for the disclosure of AgroGalaxy Participações' results for the fourth quarter of 2024 fiscal year ended December 31, 2024, currently under judicial reorganization is now concluded. The Investor Relations department remains available to address any additional questions or concerns you may have. Thank you for participating and have a great day. [Statements in English on this transcript were spoken by an interpreter present on the live call.]