BrasilAgro - Companhia Brasileira de Propriedades Agrícolas ($AGRO3)

Good morning, everyone. Welcome to the third quarter earnings call, the first 9 months of the '25, '26 period at BrasilAgro. Thank you for waiting. We started a little bit late today, and we have Andre and Gustavo to present our earnings. If you're in English, this presentation is also available on the chat. And before we begin the call, I want to start off by saying, first of all, that BrasilAgro is completing anniversary. We're completing 20 years of history, and we're really happy with this milestone. No one imagined 20 years ago that a PowerPoint would become such a big company that's so significant in the sector and the industry. You'll also see we have a new visual identity to celebrate this anniversary, and we're really happy to share our anniversary. So now I'm going to pass the floor to Andre to start the call.

Can you hear me now? Great. Sorry about that. We had some technical issues here. Ana, thank you for the introduction. Thank you all for being with us 20 years, as mentioned by Ana Paula, a lot of resilience and a lot of lessons learned, a lot of achievements and mistakes, of course, but that's what makes the company mature and really have results. And no doubt, the points right were a lot greater than the wrong points. And so that really helps us to become a better company. So that we also enabled the growth of many people and the development of many regions. So when we left behind, and this is a reason of a lot of happiness for us, how many people were able to achieve support for their families, how many regions were transformed and thousands of kilometers of growth and electrical networks were implemented. So now these 20 years, we're going to get into a little bit of what this history of 20 years is all about and how we built this. And we definitely did this with people's work and your trust. there's no work without trust and there's also not only trust, right? So the combination of trust in the company's investors and analysts in these 20 years and the work on our behalf really made us reach the point we're in and work in this direction, right? So that's what makes everyone really happy as they are part of the company today. So we're going to talk about our results, and it's a really complex year due to the interest rate and other factors. But let's look at what we have under our own control, which is technology, plantations, productivity, and we know our agribusiness has its cyclical nature. And today, we're experiencing a low cycle moment. And we're going to talk about this and the good things and the bad things, and that's why we're really going to be available to respond to this, right? So let's talk about the numbers for the first 9 months, BRL 637 million of net revenue. It's really important to -- when we look at the first 9 months last year, there were sales that were also accounted for, and we have an adjusted EBITDA of BRL 42.8 million and an interest rate and with all of this, we reached those 9 months with BRL 76 million of net losses. So this is really influenced by the financial expenses and sugarcane in the second half of last year. And thankfully, sugarcane is doing really well this year, but we've had very positive perspectives here, and we actually were able to close some harvest that we'll be able to demonstrate here when it comes to soy. So on the next slide, please. Here, we can see once again, the resilience of the company to continue to sell land in Paraguay, it's a small sale, but it's really important to demonstrate that we have liquidity and that it is a project that in the last few years suffered a lot with climate issues, but this year is doing really well. So when you have a good productive year, you attract liquidity, right? And we were able to complete a sale in Paraguay, not very big, but very significant when it comes to internal return rates. We're talking about 23% in reais within our historical averages and 14% of the internal return rate in dollars, right? So no doubt, Paraguay, this year, we have very positive production and we'll have a lot of success from a productive and real estate perspective as well. Next, please. Here's a little bit of the scenario and here's what we have to share here, which is this line over here at the end of H1 where we began the -- where we had the beginning of the war in Iran. And then what we see is so kind of moving sideways ever since the conflict began. Corn as well is really connected to this. And the only commodity where there was a significant recovery after this was cotton. And we know why because of the connection that cotton has and the synthetic fibers have with oil subproducts really made cotton pull this -- the prices. And we have cattle raising following a very positive cycle, and we have a restricted supply in Australia and in the U.S. and in Brazil with an increase of the rate due to the DC. And so we have more food to the cows, still take 9 months for pregnancy, right? And so this is going to take a while. But ethanol was another commodity we expected would react positively as occurred in cotton due to the umbilical kind of connection and the price of gasoline, but we know that political years are always difficult. And we see the quality of the exports -- sorry, the imports that is not really preserved. We saw petroleum go from 65 and reach 130 or 90. And we haven't seen a recovery in the price of gasoline. And so we do expect this to happen in the end of the second half if the complex really perpetuate all the way there. But the sugarcane has been following a short historical series. And however, we're going to talk about the climate. We're going to talk about perspective. We're going to see the El Nino coming along really strongly, and that really increases the intensity of this discussion on sugar production in India and Thailand. And so we're not optimistic that the prices are going to get back to 18, but we think that the bottom of the well is kind of locked in there, and it should be an upside for gasoline and for the production of sugarcane as well. And whenever you have a geopolitical conflict or discussion, you have the cost matrix and the revenue metrics. And unfortunately, until now, the only thing that was really impacted was the cost metrics. As we've shown you in the commodities, [indiscernible] caution was where we had an alteration in the matrix. So thankfully, we're not ITS specialist, and we don't work with this, right? Farmers -- we're just the farmers and the agronomists. But anyways, as I was saying, we have this cost situation that was impacted by the war, especially for phosphate fertilizers, and they went from prices at $600 reaching almost $800. Chloride as well went up a lot and urea also and those inputs that are really can see natural gas went up a lot. So potassium chloride, we had already basically bought about 70% at the beginning of the harvest. With fertilizers, we already had a pretty big position. And when you look at the 43, that represents the first harvest, right? Sorry, it represents the total amount of fertilizers, not only the first harvest. And so in the first harvest, the fertilizers are going to have -- that we're going to need in the month of September, October, November. We have a much greater percentage of growth because we estimate and expect that the complex should be cooling down a bit in the next month. So in the first harvest, we already have most of it of the phosphate inputs bought. But when you look at the off-season harvest, plant of sugarcane in the first half of next year, the phosphate products are not purchased, but we also see an exchange ratio that's kind of skyrocketing. So the complex generated only an increment in the cost matrix, but it still has not led to an increment in the revenue matrix. If the complex finishes today, no doubt, we will have a significant impact in the costs, and we won't necessarily have a revenue benefit. So we must all hope that this cools down as quick as possible. So then here about the planted area. So the harvest of '25, we closed at 168,000 hectares. And it's important to highlight here that the company in the last few years has been a seller. And basically, we've been able to continue to keep a significant production area. For soy, we're basically keeping about 94% harvested. We lack very little. And what's missing is Paraguay, especially. All the rest has already been harvested and Paraguay is doing really well. But this year, we have Paraguay bringing in positive surprises. And we've already started to harvest and we're starting the beginning of the harvest for corn in summer. And generally, Central Brazil has a rain distribution that's really positive. And for sugarcane, we already started harvesting 2 units, especially in the [indiscernible]. And we started off with the first harvest with a lot of adherence. It's an El Nino year. And a bit of what I started saying is the biggest concern we have is that the Northeast region tends to suffer a bit more and it's a year with a lot of caution when it comes to the next harvest, right? The harvest is going to be planted around October, November, where we have to critically look at this and be careful when it comes to how we're going to allocate capital and especially when we start seeing the risks are very low. And we've been working on this carefully in the company to really exclude some areas that historically lead to some production issues, right, because we're seeing a significant El Nino year ahead. Great. So now just a bit about the hedge position in the company. And we're sharing basically this harvest that -- the soy we already mentioned, we harvested. It's a year of a lot of volatility, but I think the company was able to position itself positively, and we'll see the numbers now, right? So it's worth mentioning that when we were still defining the budget last year, we were talking about soy at about BRL 1,060, BRL 1,070, and we had a currency rate at about BRL 6. So that was the company's budget. And ever since we have been locking in some operations, we had a currency rate that was almost at about BRL 490. So what is important to consider here is basically what we have as a hedge locked in. We have a currency that's 65% locked in at about BRL 590 almost, BRL 589, and that's what we have locked in at. As a currency, Chicago is at BRL 10.85. But of course, what we need to lock in still is being locked in at about $12. Then that's going to lead to a really interesting combination because even with the currency dropping, we should be able to have average currency of about BRL 565, BRL 570 and the Chicago will also be able to recover, right? So cotton is a crop where the currency is a lot better actually due to an area reduction when we saw a major concern with the cost of capital this year with the crop that we can put capital at risk. We had already performed some sales back then, and we have about 60% of the cotton sold at a title currency of about BRL 665 spectacular dollar, and we've also seen about 76% of the commodities sold. And then for ethanol, we've been working on volume and ethanol, we've already -- we see corn is about 54% sold and farm receivables, which is also very significant. The company has over BRL 600 million in this line here in the company. It's a super significant account. We're working on it in the P&L. And there's a currency that's really adherence to the harvest, which is BRL 586 million and in Chicago about BRL 179. Next, please. So then Gustavo now, that was the intro, but we can get into the numbers now. I'm just going to close my camera real fast here and pass on the mic.

Thank you, Andre. And well, thank you all for your presence and during this presentation of the results and this exercise starts off in the beginning of July, and then it goes up until 30th of July. And we consider about BRL 76 million within the highlights. And last year in the same period, we had presented a positive result of BRL 76 million with total revenue about 27%. And I want to remind you that we already had mentioned on the 31st of December with the impact that impacted the revenue and the results. And we also saw that we also had a sale in the farm performed previously in this year. We at the moment just accounted for this transaction that I was mentioning in the beginning of our presentation. And the adjusted EBITDA in this period was BRL 42 million, BRL 42.8 million and prior to this is BRL 195 million. And on the graph, we presented this with the main movements in these 2 periods that we have, one part that's on the right side here at the center, and we see soy and corn but it's important to highlight also that everything we have here up until the 31st of March was basically stocks and corrections that were performed in 2025. With everything that would be like the new harvest, Andre mentioned, the 240,000 tons of soy. And we only sold about 55,000 tons in this quarter. So the decision of carrying on this a little more up ahead due to the fact that in the beginning of the war, we had this expectation of a short-term solution that we saw freight started to pressure a bit. considering the excellent harvest results in as well as due to this increment and this increase we have at the logistics level. So we decided to hold this a bit more and see if we could find opportunities that were better for logistics because the products are already practically all sold, about 60% compromised already. But we're just searching for the best moment, right, for all of this. But until the 31st of March, we had already sold only the stocks, and then we had BRL 11 million sold in soy and BRL 22 million in corn. And then sugarcane which is different BRL 56 million that we have presented in the 31st of December when we talked about the ice period and the frost we had in the region of Sao Paulo and issues also with burns in the northern region and the prices also that started pulling this downwards. Cotton had we had a harvest in some areas with losses, and that led to reducing the amount of hectares that were planted during this new harvest and the farm so the other administrative and costs and then especially -- when you can see this in sugarcane and the farm, and that explains the main differences between the adjusted EBITDA, right? So when we see the results of this exercise in the top part of the graph, you can see BRL 76 million positive and negative. And then you see the price of sugarcane and cotton, and that represented a variation of about BRL 36 million negative. The lower volume of sugarcane as well, which added to this BRL 19 million, and there was a reduction in the cost as well with some soy, corn crops that we should have some kind of a savings because of the productivity in the past. But we can see the fair value when you can see the performance of everything we've been marking to market at fair value and the impact of the prices as well presented for ethanol and sugar that really impacted this, generating an impact with a lower results and the sale of farms and also an impact that was positive for this period of BRL 37 million of financial results, which we can only see at the bottom part last year during these 9 months, 2025 with BRL 93 million. And this year, this impact represents BRL 56 million and I always want to remind you that the first line of financial investments, we have the minimum cash we see our interest on liabilities as well, which is the cost of debt that the company has. And so we see approximately BRL 55 million. And in the last year, this effect of minus BRL 59 million was smaller because of the lower interest rate at a percentage level. And then after we saw that for these 9 months, especially for mark-to-market, which are the updates to fair value and the other variations as well practically at a no effect. But to complete this, we are presenting the BRL 76 million that are negative. And you can see this performance that we've had in sugarcane as well. So next, here, you can see the gross results once again, mentioning that everything that was commercialized here with the exception of soy, which is 55,000 tonnes. All the rest are the sale of stock of the prior harvest and soy, as you can see, there's an improvement in the gross earnings and results as a consequence of better cost per tonne. And for corn as well, we also see the price and cost leveraging the results of the products and looking at the unit results considering reais per ton, and that would be the potential. So with the increase in volume, not only for the soy, but also corn, we had an increment in the volume. When we look at sugarcane, which is to the right side on the left here to the right, you can see how this performance was of 1,341,000 tonnes for 2025. And for '25, '26, we have 971,000 tonnes, and that really brought in this difference that's so significant about BRL 36 million. We also see the unit price, not only because of the price of the ACR, but also considering the concentration of the kilogram of sugar that we considered in the provision, and that led to our margins, which are normally stabilized at 3,500 hectares, which keep a lower margin as a consequence of this impact on productivity. So when we see cotton as well, we had -- as we mentioned, part of this cotton was we performed sales and commercialization, which are produced in irrigation areas that were very positive. And we had other areas that did not have irrigation that would have very negative impacts. But besides having productivity is very low, we also had an issue with quality, which made the unit price be a lot lower than what we normally had achieved through a hedge that had led to these results of BRL 9.9 million, but the discount made the price be a lot lower, right? So this was the main engine, let's say, that made us decide to reduce the service for this harvest that we're working with now. And then we can also see the net debt for the company, a total of BRL 1 billion and the cash level of BRL 887 million. And then this debt is at 93.2% CDI with the maturities considering this period, we have the receivables at the farm, BRL 678 million that we still have to receive. And here, what's important to mention is we are at a moment where all costs were already incurred. And from now on, we're going to be commercializing and transporting and receiving all of the receivables for production. So then here, when we consider soy, for example, we have to receive over BRL 280 million. And as we had mentioned in the beginning of this exercise from now on, we'll begin reducing the level of leverage, especially considering the understanding that the reduction of interest would happen throughout this year and the next year. But after the beginning of the war and as you saw the Central Bank was reducing their pace, we will make a decision to search for a reduction in our level of investments and try to be more efficient as well in how we place in the production. But we are at this moment confirming the [indiscernible] for the climate conditions in the next harvest. So I think with that, we wrap up our presentation, and now we'll get into Q&A.

Well, I just wanted to get back to one discussion on the cost of fertilizers that Andre had already mentioned in the beginning of the conversation, but this has been a central point here for discussion, and I think it's worth reinforcing, right? So we had a comment from management on the news today that maybe [indiscernible] is more appreciated, it could compensate this and maybe amortize a headwind and maybe bring in an inflation year-over-year that could be lower than what the market feared, right? But I wanted to understand what are the assumptions behind this? And what are the prices of product inputs, nitrogen-related inputs that you could maybe be more inclined to accelerate purchases for? And what would be the timing for this since you have the logistics and the flow required to reach the farms? And I imagine this is probably smaller for smaller farmers, but I would imagine that would maybe considered a stabilized level that would already encourage this kind of movement, right? So then to bring in this discussion on the cancellation there of the farm that we saw last month with a worse scenario from the counterparty. And how are you considering the risk for the receivable portfolio? Are there any other possibilities of cancellations that are concerning you? And just if you could give us a little more visibility on this, it would be interesting for the market.

Okay. [indiscernible], how are you doing? Well, for fertilizers, you know it's an area I love, and I've been working in this sector -- I worked in the sector for 12 years, but I want to share a little bit of the expectations here. So what are we working on from a time line perspective? The sugarcane harvest started off in April in some areas, and it's going to go until the month of November. There is a period in sugarcane where you're harvesting it, especially the sugarcane we're harvesting in these months where you still have humidity in the soil, and that's still like the remaining from the rain period. And also when you talk about Sao Paulo, you should have some humidity in the month of May or so. And when you get into a region like [indiscernible], things are a little more complicated, right, to get rain and then you get back to having rain in September. And so the fertilizers and nitrogen-based products that we have the need to work on, we're going to be buying considering this, and we're going to be harvesting -- we're going to be fertilizing these sugarcane plantations, right? So the discussion we've been working on to try to balance out this impact is if we should have the full dose of fertilizers. When you put this fertilizer sugarcane, you have an absorption curve. And this happens in the month of January, February and March, where you have most of the dry material accumulated. So when you're fertilizing sugarcane right now, while not fertilizing this is bad because it won't have the availability of the nutrition that it needs, but it's growing about 100% as we do every year for an operational matter, you're going to kind of fertilize about 100% in the sugarcane. And due to this significant movement with the prices, sugarcane is going to be harvested now that has humidity the soil or protected through rain in the next month, we're going to treat -- how are we going to treat this? Well, it depends on this year. We would already kind of like a full dose or maybe installments. When we have a full dose applied, normally older sugarcane where you don't want to have such a small installment or part, right? In the younger sugarcane, we're going to drill this down to try to bring this a little bit before the sugar season -- sorry, before the rain season for the sugarcane. So the sugarcane we treat and harvest. The sugarcane you're harvesting now, you should treat. But what you're going to harvest in August or the end of July and September, that fertilizer you put in the soil is just to help you operationally because the sugarcane won't absorb that. They're only going to absorb the fertilizer or any crop. It only absorbs this when you have water. So you're going to fertilize sugarcane in August, you have no rain or humidity, the fertilizer is going to be stabilized on the surface and it won't absorb it. So we would do this every year when we had another stable price situation, right? When you have price volatility, then you throw this up ahead of it. So when you look at the time line of the sugarcane, that's going to be it. And as I mentioned, phosphate products, we already have good positioning for, and it's important to see this impact when you get into the discussion on the conflict, the biggest damage is for the nitrogen-based products, right? And 35% of this goes through the straight, right? So we are straight. So when you look at phosphate-related products, then you could have an increase in the cost matrix, right, with natural gas prices going up, et cetera, but it's less than 15% of the phosphate fertilizer that goes through the straight of farmers. So we would -- it wouldn't be -- and yes, we're going to have a cost issue considering the increment of the cost of natural gas, which is the basis of everything. So for fertilizers, I try to answer this a bit. And I can add on as well a bit. What we are looking at here is that last year for hectare of soy, we were talking about BRL 4,100 of direct cost, right, per hectare. But all of this confirmation of cost was considering a dollar of almost BRL 6. So what has happened during this period, we're in this process of starting up a new budget. And we see that the appreciation of the dollar has really pulled the cost downwards, especially for expenses. And since we've already purchased part of the chloride almost 70% and everything with the phosphated products and everything for soy and corn. And we still -- although we have some prices pushed upwards, let's say, in any of these cases such as the urea for the off-season harvest, we can see that this impact and the appreciation of the real has made costs be very, very similar from one year to another. So then the big challenge here when we see this in reais and tax per hectare with the costs here that are normally 30, 35. Historically, we see that it's kind of at the ceiling, the 35. And the big challenge up ahead is how we are going to position ourselves, right? At a moment where we bought the chloride, we already sold a bit of soy, and that would give us a stack of soy approximately with like 4% or 5% better than the previous year, right? So when we saw this through the margins, it was actually a little bit better. But of course, from now on, we have to see what's going to happen and if this will impact the services, especially. But when we consider the first version of the budget we had seen before between March and April, just as presented here and the impact, the prices for the fertilizers and we're kind of stabilizing there. And from then on, we saw a possibility to begin the negotiation, right? So when you have scale to buy, you can have some sort of discount, right? But also the doses, we're talking about 130, 140, 150 per hectare. And when you see the impact of all of this of the price in the fertilizers, there's not much of an incidence, right? So that's the vision we have. And we can see this impact in the fertilizers.

Great. And so also to answer Bruno, the second part of the question here on financial risks. And I think that we were very quick in solving this. And so there's 2 ways to and we will be able to sell this, right? So I like looking at the half full cup, right? We were buying an area. So yes, this transaction, we had a reduction. This asset will get back to our shareholder base and -- sorry, our asset base, and it is within our space, and we're going to be searching for ways to do good business with it, right? We're not going to get into details here, but I'd say that this asset that came back was one of the assets we had of a buyer. Maybe -- I don't think we had a detailed credit analysis, but it's a buyer that has a leverage rate that's a lot higher than the others in our portfolio. So generally, our portfolio, we always sell farms to farmers that already have a big portfolio. And this farmer that we canceled this business, they didn't have such a big portfolio. And so the liquidity capacity was smaller, but that's not what happens in our portfolio with other creditors. So we're really keeping our eyes open to this. And it's always worth mentioning that the transactions we have protect the risk for this to happen, and that's something we just demonstrated, right? So if you have a huge challenge and you can see our horizon here where there's no possibility of time frames. In the sense, we have an asset registered in the company, and it's a lot easier for us to -- it's a sale where you can sell this asset, and this is what we consider you deliver the title, but deliver the property but not the title, and that's where we can guarantee the solvency of our transactions. So it was a creditor where we already had a relationship of leased properties that was one of the worst in our portfolio. And I'd say that our portfolio, we're very confident about the receivables as well.

Thank you, Bruno. Now we're going to open up Thiago Duarte's mic from BTG Pactual.

Gustav, pleasure to speak with you always. As always, I wanted to take advantage of this topic on the fertilizers and also hear a little bit of [indiscernible] opinion as well as Andre's about a more market-based issue. And this graph on the exchange that you present in the presentation from 2 years from now, basically, if we were to extend this decade later, that would be maybe not as favorable for commodity. We had the war in Ukraine and then in 2027, 2028. And my question here -- my answer -- my question here to you, Andre, how you understand that this ratio will get back to the historical average -- do you understand that it will be a retraction in the demand for fertilizers and a bit of what you guys chose as how you're going to work with them eventually and maybe bring this downwards? Or will it be for the recovery of prices and commodities as you've already presented is happening? But the truth is that this happened very little when you look at the grain specifically. And so my question to you is, first, do you understand that this should get back to the average? Or do you think the sector will have to handle these very unfavorable exchange ratios for a while? So that would be my question to you.

Thiago always has intelligent and difficult questions here. He wants to take advantage of my past experience in the industry for fertilizers, but just to understand here, what I'm going to explain a bit about production just so we can understand how this will accommodate this. So nitrogen fertilizer industry is one of the most beautiful things. The air we're breathing here has more nitrogen than oxygen. So what the fertilizer industry is all about is they need energy, and that's why you have the natural gas hit story, and we capture nitrogen from the atmosphere. And through this process that is external, adding energy into the molecule so they can shop. We produce gas, which is called ammonia, NH3, and this gas is where you start all of the production of the fertilizer industry. So when you look at the ammonia and you -- NH3 and you react with SO4, this is sulfate and -- when you say -- when you react to NO3, you have just ammonium nitrate. And when you get ammonia and you react against another molecule, you have CO2 and N2, which is the molecule of urea. And it's really important to understand, right, to understand the fertilizer production and that starts off with the production and you need to have this fundamental element, which is natural gas. And this natural gas is going to be where everything starts. So what's the phosphate [Foreign Language]

[indiscernible] coverage in the case of sugarcane, what I talked about, we would have fertilization since there is a time where the rain will take longer. It gives us more favorable time for the fertilization of nitrogen for sugarcane. So we are working on this for next year. Okay. To complement the costs that were mentioned, all of this previous budget that we inaugurated has a cost for all of the crops very similar to what we had last year. And because of the appreciation of the real, defenses are cheaper and fertilizers are costing $180. Now it's $80 with more chloride. So we are anticipating some changes because of that. The concern that we have for the future is the CCT. The CCT may have some kind of impact, some material impact if we maintain the diesel price over BRL 160. This is the only crop that we are more concerned with. But there are still a lot of things that can happen. We still have contracts with service providers to make, and it will be the beginning of a harvest where we need to be very attentive and be able to control the costs that are still going to close.

Thank you for those answers. Thank you, everyone, for your questions and for your time with us this morning. We will be closing this call. So if anyone has any questions, please contact us through our Investor Relations team and see you next quarter.