Três Tentos Agroindustrial S/A (TTEN3) Earnings Call Transcript & Summary

Good morning, everyone, and welcome to Três Tentos' Video Conference to discuss results relative to Q2 2026. Joining us today, we have Mr. Joao Marcelo Dumoncel, CEO and IRO; Mr. Luiz Osorio Dumoncel, Executive Chairman; Luis Augusto Dumoncel, COO; Cristiano Costa, Chief Financial Officer; and Mr. Eduardo Motter, IR Manager. This video conference is being recorded and will be made available on the company's IR website where the respective slide deck is also available. [Operator Instructions] Before moving on, we will to state that any forward-looking statements made during this call regarding the company's business outlook, operating and financial forecasts and goals and as well as first into future growth potential are based on the company's current expectations and assumptions and on current information. Such statements involve risks and uncertainties and therefore, depend on circumstances that may or may not materialize. Investors should have in mind that general economic conditions, agri business conditions and other operating factors may affect stent's future performance and lead to results that will differ considerably from those expressed in these forward-looking statements. I now would like to turn the floor over to Mr. Joao Dumoncel. Over to you, Mr. Dumoncel, you may carry on. Thank you.

Good morning, everyone. And welcome to our Q2 results call. Thank you for your attention. Once again, we'll start by showing the highlights for the quarter, Q2 2026. The company continues on its growth momentum. As per the thesis we have been advocating and exercising throughout the years. This is the 30th consecutive quarter where the company has a growth in revenue. This quarter, in particular, this growth was driven by ag inputs and grains, as I mentioned, and also about a record side being harvest in Brazil. making up for losses in the brands as well in terms of crop numbers and in terms of inputs, we have delivered an increase in canola acreage in Rio Grande do Sul. We more than doubled canola acreage and 3 status has been an important player in this scenario fostering growers and fostering the scrapping grade soup as an alternative or a second crop. This has been a quarter where we have finalized the expansions, both for the swiping industries, and we have started the new ethanol plant in the Vale do Araguay region. When we look in terms of revenue, on the next slide, please. When you look from the lenses of net revenue, we have an important growth in the quarter, over 30% of growth. And when we look for the first 6 months, the first half of the year, we can already realize that this growth is consistent or has been consistent throughout the year up to now. We also have numbers relative to the whole half -- first half of the year 2026, especially in terms of bottom line. some mitigation of the seasonal effects and we have a more trustworthy view of the year. We're growing both adjusted EBITDA and adjusted net income to the tune of 12% and 14%, respectively. EBITDA and net income. Looking at the revenue for different segments on the next slide, we see that different segments have all grown as I mentioned, especially ag inputs and grains, which saw an important growth in particular, the grains segment and industry where in terms of revenue, we saw a growth which was slightly lower basically coming from a growth in volume provided that the costs were higher in this quarter -- sorry, lower this quarter. The value of growth, grains grew, especially because of the bumper crop that we had in soybeans and the results for inputs has an important effect involving canola, Três Tentos has an important share in promoting canola, as I just mentioned. And this quarter, Q2, is the moment where we have helped implement those new canola acreages in Rio Grande do Sul. Also worth mentioning the gain in inputs has been continuous, especially across new stores, not only the stores, which are now being ramped up, but with a good outlook for the stores. We have been recently opened in the states where we have just started operating still around the industry we had a scenario -- and I'm going to go into more detail in the coming slides. In addition to the growth in revenue being lower than the other segments. We also had an impact coming from a drop in prices, as I also mentioned, and also coming from a drop in profitability. So next slide, please, if you may. And then we have this bit of information about the Industrial segment. On the left-hand side of the chart, we have a comparison across margins as we had for revenue and net income the margins for Q2 are here expressed on the chart comparing Q1 -- sorry, Q2 '25 and Q2, '26 and the first half of the year of last year and this year, '25 vis-a-vis '26. What can we tell? What were the offenders for that drop in margin for the quarter in the Industrial segment? Number 1 and the main one there is a quantification of that impact in percentage points on the margin is the drop in profitability coming from biodiesel that was driven by the delay in the mandatory plant that we have 15 and our prediction was that this would increase to 16 in March. That increase did not happen, and that created a pressure in the market, which was an important factor that led to a sharp drop. On the chart below, you see the behavior of biodiesel fees for the last 12 months. And we can say we had negotiations for at very high levels and a drop, which was quite important in negotiations for the second quarter. The profitability around biodiesel in the case of Três Tentos, it is combined with other factors that are highlighted here as well. We had a loss of profitability in our soybean meal business, 0.4%. We also had a drop in profitability because of an increase in cost in input, item #3, including methanol and Nexen, which are important ingredients for our cost composition, both for soybean crushing and for the production of biodiesel. The impact was 0.75 percentage points on the margin. that happened because of the war -- those are products that come from oil. They are oil by products. We also had impact coming from been commitments, which were in line with predicted capacities that we had that we had defined for production and crushing for the second half. But because of the delay, they never materialized. So that adjustment of those commitments agreements that were made by buying meal from third parties or our negotiations being sold before being processed. That led to an impact to the tune of 0.8 percentage points on the industry margin. And finally, the fifth point is the suspension of the PIS/COFINS tax or taxes during the quarter. That had an impact of 4 percentage points on the margin approximately just like item #3, an increase in input costs. Those 2 combined were driven by the war. So Item #5 has been reversed. So that suspension is no longer valid. That was lifted at the end of July. The soybean mini commitment item #4, that the company had to go to market to raise and make adjustments because of the delay of the mandatory plan for biodiesel and soybean crushing, that's not a recurring fact either. The profitability of biodiesel, you can see on the chart in the middle that there is a trend for that curve to be reversed in terms of price not yet at previous levels, but there is a trend that shows some recovery in the fees. And also for the meal prices, we see signs that improvements are in the horizon. So the idea for this slide was to be as transparent as possible to clarify where we sit in terms of margins for the Industrial segment which was the segment that led to a drop in numbers to a drop in margins that we see in the first chart on the left. If we look at the next slide, please. We have what I just said, but now translating into numbers. We had a growth in net operating revenue, both in the quarter and in the first half. A revenue of BRL 4.7 billion and year-to-date for the first half, a growth of 12.8%. And a drop in margin, but a growth in absolute figures. When you look at it from the point of view of the whole half -- first half of the year, I'd like to reinforce there are aspects to that picture that are seasonal or nonrecurring. That's why we are going to break that down in detail and share that with you. I now turn the floor over to Cristiano, he will go into more detail on the financial numbers. Over to you.

Good morning, everyone. The next slide, give us some color on what the quarter was in terms of our net debt. We closed December last year with a net debt of about BRL 1.6 billion. And we closed the quarter at the half of the year on June 30 at BRL 3.6 billion. So that variation reflects a need for working capital, which is a seasonal need for the company where we recover our inventory throughout the first half, especially the second quarter of the first half, and also final investments as we expand our industry segment to recover inventories throughout the half and about BRL 500 million in terms of CapEx. Those 2 amounts combined account for almost all the variation in our net debt, BRL 1.845 billion. So there is a need for working capital, which is totally consistent with our production dynamics. So this is a first breakdown of how that net debt varied. On the next slide, we have our net debt throughout the time. As you can see on the left-hand side of the slide, usually, we have an increase in that throughout the second quarter because of an increase in inventory. When we look from Q1 to Q2 '25, that also happened, BRL 1.460 billion. Throughout 2025, we can see that from the Q2 to Q4, that net debt drops, which reflects the fact that inventory is transformed into finalized products. Why hasn't that drop played out in a more consistent manner? Because we are working on our industrial CapEx, and we ended the year with a net debt of 1.2x our adjusted EBITDA as a hedging. This is a new metric that the market has adopted. We have been explaining that this is the best way to reflect where the company stands. And when we see that same varies between Q2 '26 and Q3 '26, we see a growth of about BRL 1.6 billion, which reflects the whole variation in inventory that we have received are the soybeans we have received, and we have started for that so that in the second half of the year, we can brush. So we have we understood that in light of all those factors that Mr. Dumoncel has just explained that we saw in the second quarter, that we could have an EBITDA line a little -- slightly more compromised by the war and other market dynamics. We talked with our creditors, and we made a methodological adjustment instead of using pure EBITDA as we used before in contracts, we started to use this new metric, which is conceptually more adequate to our business which is the adjusted EBITDA with the hedges effect included, the fuel observed in our financial statements. Today, the hedge effect coming from that combination is high better than 45% or 50% of all our EBITDA. So there is a dynamic to hedge or protect the company, which is totally in line with the commodity price dynamics and foreign exchange dynamics which you have seen for the past 18 months. Of course, we also understand we are still following our working capital planning, quite reassured all creditors have understood this new metric and they also understood the dynamics of the company within that seasonality that was mentioned. On the top right-hand side of the slide, we can see that usually we have a drop of about 42% in our inventory levels. So if we look at our inventory today, it's sitting at BRL 4.2 billion. If we include that number to estimate what will be happening in the second half of the year. We are talking about BRL 1.7 billion in terms of reduction with an additional component, which is the following. Throughout the second half of 2025, we had a volume of BRL 862 million of CapEx, which will not happen in the second half of 2026. So if we were to follow this dynamics, this momentum of transforming all the inventory into finalized products and ship out and transform that into revenue, we will resume adequate levels of net debt over EBITDA, which is the metric you use to adjust the hedges. So we are, as I said, quite reassured. And we are confident that we'll be able to carry this on. But at the same time, we need to continue our job to recover margins, as Jean Marcelo said, so that we can resumed previous levels, which were deemed to be healthier, to start to kick off 2027 in a more adequate position. So in terms of leveraging dynamics, that's what I had in terms of the waiver, we talked -- we did it over the accounting period before June 30 with no default or reclassification of that -- so that's what I had for that. I turn the floor back over to [indiscernible] to talk about a bit about the quarter and how this quarter is an important moment for the company but even more relevant is that we have a long-term dynamics quite well in place and quite well on track.

[Foreign Language] to say we are finalizing the corn ethanol plant to gross. We have been investing heavily in the past 2 years. We completed that in June, mid-June, the ramp-up started had an important contribution in terms of revenue, about 0 in the second quarter. we'll see results coming in Q3. But to have a full contribution, we have to wait for Q4. In Q3, we're still ramping it up. Even though in the current basis, the ramp-up is happening in a very successful manner and we are already operating at full nominal capacity, 2,800 tonnes of oil a day. So we are quite happy with this ramp-up with the operational ramp-up. Of course, we are a bit behind We were expecting to have this up and running by late March initially. And we had 3 months where we lag behind. But everything is back on track. The ramp-up has been concluded. Next slide, please. As for the stores, more stores opened in the second quarter in line with what we had announced as of late last year, have reached the level of 81 stores. Those 6 new stores were opened in the expansion areas as we call them, expansion areas, there are 4 new states, Goa, Minas, Tocancipa, totaling 8 stores across those new -- those 4 new states. In addition to those 8 stores, we have 14 stores in Mato Grosso, along with the 2 industries, Vera and Puerto [indiscernible] and 59 stores we are going to along with the 2 industrial plants in [indiscernible] If we move to the next slide, we have a summary compilation, if you will, of all the numbers from a long-term view, so that we can show the consistency of our thesis. The consistency of our results delivery, our growth, and we try to draw a time line to convey to you all the reassurance, all the confidence we have in our business model and what we are delivering now. If we look in terms of net revenue, we had between 23% and 25%, an average CAGR of 35%, and we already have reached a CAGR of 26% when we compare '25 to '26. In terms of adjusted EBITDA, we also had an important growth from between '23 and '25. We continue to grow EBITDA of course, in this comparison at a slower pace because of what we have already discussed, especially linked to industry margins and a CapEx base, which was quite intense last year, 2025, especially as we reach the construction of [indiscernible] ago Norte, but also with investments in expansion. Once again, to recap, we invested in swing crushing and also biodiesel production plants, those investments. We have the itemized in 2023 completed, the wide bean processing plant in Vera. We acquired the Três TentosCap. We opened 6 new stores. The Trading Division was established and Matros accounted for an important share of our net revenue. 2024. We continue to grow in Mangroso. We opened yet other 7 stores. And for 2025, will increase by 40% in our capacity processing in Twin and 62% in the production of biodiesel. We started the process to increase those productions. We have opened new stores and Mato Grosso continue to increase their share in the revenue. And as I just mentioned, in the first half of 2026, we opened 8 new stores in new states, as I mentioned, and we computed the first ethanol plant in Matro Grosso. So this is sort of journey of deliveries that we have been threading and which makes us all very confident of our capacity, of our consistency of our thesis. Despite some seasonal effects, some seasonal cycling effect that inherent to the business and are quite common in the agribusiness scenario as a whole. In terms of the long-term vision continue on our track. We have opened new stores. As I mentioned, of course, very, very cautiously moving forward, trying to identify opportunities and of course, using a very solid rationale, it has to be viable for us to move forward. And right now, as investments in infrastructure, we have being more conservative, if you will, it's not in our radar to make larger investments in CapEx in the short run anyway. So we had the start of Três Tentos ethanol, a new activity for us, which is now being consolidated within our ecosystem. We expanded our industrial complexes. As I mentioned, the canola Real brand also highlight. We have a summer crop which was quite promising, the last crop, good expectations for the next crop as well. And also a material fact that we announced in terms of guidance for the second half of '26, an update of that, once again, reaffirming the figures for the second half of 2026. So in summary, that's what we had. And now we remain available for questions or comments that you may have. we are all available to address questions or doubts that you may have. Reaffirming, as I said, our trust or confidence in the business our confidence in our thesis and the structure the company has put together 4 industries working at full steam, 81 stores, 250 consultants out in the field. providing support to growers every single day, selling inputs. So the operation is completely up and running and moving forward. And we are quite confident for the second half. The second half of the year has, of course, as usual, many challenges, but we are prepared to face them all.

[Operator Instructions] First question comes from Lucas Ferreira from JPMorgan.

My first question is about corn ethanol now that have reached nominal capacity, do you have any numbers you could share in terms of profitability of the plant. The corn -- based on the corn, you have bought are you able to give that prediction, the quality of the DDG coming from that discounts compared to the industry numbers just to better understand your vision on your breakeven cost for the plant and now to look on profitability, if you could. And also about stores in new stores in new states. How are those stores being received, right, or performing in terms of market share, that learning curve, if you will, for those new stores especially in a year or we have El Nino coming in for those new regions. So what can you tell us about that? -- can you hear me now?

Okay. Good morning, everyone. I apologize for the technical glitch, but I was able to hear Joao Marcelo. So I'd like to reinforce our confidence our commitment I see Três Tentos as a very strong company in its ecosystem. Lucas, I apologize. I'm going to recap a little bit, but I'll soon get to your question. This is an agri business company that is prepared to face seasonalities, volatility, if we go back to 2021, the IPO, in 2.5 years, we delivered a the plan we had committed to at the time or industry with the BR-163 plant up and running. Then we started our second growth cycle. And today, we already have 81 stores out of the 100 we had proposed by 2030. And the ethanol plant in Porto Adena also operational. So the whole plan is almost delivered I'd also like to make a comment about the leverage level of the company. On June 30, 2026. We were on track we knew it was going to be a higher leverage because of all the investment that was made [indiscernible] million tonnes for the crop Grande over 50 million tonnes of swipinmatof gross in addition to the corn origination. So in short, we prepared for that moment. So on July 1, we started the second half of the year with all that investment behind us, and now we can manage that. So there's 81 stores for plants operational and across 6 states.

Thank Luis rose again. on, if you could please carry on -- now going back to Lucas' question then. Okay. and -- and then perhaps Luis can come back, okay? Lucas, I can answer your questions. Now first of all, in terms of ethanol -- we are still in the ramp-up phase, including the commercial ramp-up. So we are trading ethanol. We do have active contracts in place. we're also selling in the spot market. I wouldn't have a guidance now in terms of profitability to share with you at this point. What I do have, of course, is that we are quite bullish with the potential demand. The market is wide open. And we are able to trade that regionally I see -- and also DDG, of course, has been performing really, really well in the region, specifically surprisingly enough, our DDG book is filled until the end of the year. So we are already trying to manage a pent-up demand for DDG. And that's a very important factor for us. especially for feedlots in the region. As for the stores, the resellers, our expectation for the year for those new stores is still a more conservative expectation the stores ramp up from the opening day, then we get together. The teams, the team has been introduced to the market. That, of course, takes time. There is a sequence of events that need to unfold and which not happen overnight. So it takes some time for us to gain traction, if you will, in the coming periods. Our expectation is that the revenue for those new regions, we'll see at around 6% to 8% of the overall revenue for imports for the whole company. So not yet that relevant. But from the qualitative point of view, we are quite excited with those new regions. Because we were quite well received and welcomed. We understand that markets understand and like our value proposition. So pharmas are buying into our program. Our teams are also out in the field working well. We have highly qualified professionals, experienced professionals who have worked in the region before and who understood our value proposition as well and have also bought into the program and are helping us add value to those regions, which is our model. Thank you.

Our next question comes from Gustavo Troyano from Itau BBA.

I have 2 questions. First, about the industry segment. I'd like to go back to that slide where you had a breakdown of all the impacts on the quarter. and focus specifically on the implementation of the B16. Those 4 percentage points that you mentioned coming from that delay. I'd like to get your perception on how comfortable you are that those 4 points will be recovered in the second half of the year and recover more normalized levels. The trend curve shows that, but I'd like to hear from you -- how comfortable are you that, that trend will continue? And based on your momentum on your track record, how long a nonintegrated players are able to operate with that bio fee, which seems to be low. So you may have to react to that. So a bit of your perception in terms of the time line that, that will take to happen. It doesn't seem to be profitable today with that level of fees. The second question about the leverage, the inventory levels that Cristiano mentioned, you said historically, inventory will drop by 40% from here on and to the end of the year. So does it make sense for us to think that, that level of reduction will follow the track record or if there's any other reason that would lead that second half to be slightly much difficult from what you had historically as we move towards the end of the year.

Thank you. I can start, and then Cristiano will help me out here then results can also jump in. As for the industry, Triano, we have a reduction in the fees as we see in the chart, there is a trend, a downward trend, not necessarily recovering the full 4 percentage points. We know that the second half does show an improvement the fees because we leave the cycle of the year, and supply tends to be more stable. But the B16 delay and the clear end is that it won't happen in the second half, and that will be a factor that will continue to be present. So there is a possibility for us to see an improvement in the fee as the chart shows, but perhaps not enough to recover those 4 percentage points. That's how we feel about it today. You also talked about nonintegrated players Also, the feeling in the market, the sentiment in the market is that, to some extent, we will need to have an increase in fee or necessarily have to have some kind of drop in the supply level. Because of that dynamic. As for the leverage level, Cristiano, if you want to take over?

Yes, sure. Troyano, thank you for your question. We presented our global inventory dynamics and we're talking about grains plus finished products. If you look at our explanatory notes for inventories, if you add what we have in biodiesel at home, oil, meal and grains, today, it's BRL 3.2 billion. So we would imagine that we could reach the end of the year within our forecast. Even if we are more conservative about 35% instead of 42%, still, we would reach the end of the year in a position that we deem to be adequate. Of course, we will carry over some more inventory than last year. But we are now working with industrial capacities, which are quite relevant in terms of expansions and so on. So we need to have inventories for about 60 to 90 days that has to make sense. Looking at the cost to carry that inventory, of course, the market dynamics for pricing, we're always monitoring that and doing the hedges that are necessary. So if you want to use a deflator for that 42% to 35%, that might make sense, 42% to 35%. Something I did not mention but it might be worth mentioning now. [indiscernible] increase in recoverable tax have been working to make those resources become cash in -- of course, She's going to be put in place that might help us recover some of those taxes as the new law is implemented. And that's slightly more [indiscernible], more difficult topic, more complex, and we don't want to use that as a delevering factor. But just to mention, it is also a point to be taken into account, the new tax law.

Our next question comes from Guilherme Palhares from Santander.

Good morning. Can you hear me? Could you take us I'd like to have a follow-up on the question about the CapEx for the SML plant. You said BRL 1.5 billion on the slide. How can we compare that with budget given that there is a capitalized interest rates issue, if you could break that down a bridge of that investment and also to understand -- how much of that investment has already been made CapEx so that we can understand if that CapEx includes anything else as you expand the plant, I know it's a modular plant. So how much has been done and how much needs to be done looking at the midterm. And a second question -- if we could go back to Tremor Ryan's question about biodiesel fees, -- it seems to me that it is also a matter of distribution. There is a gradual process of cleaning their ups based on your experience, you have an average time for that. We have had that happened before. Delay in blends and then margins were recovered, that movement has happened before. income share your expectation based on your experience in terms of the absorption of those volumes vis-a-vis the delay in the mediatory blend.

I can talk about CapEx and then Cristiano will address the other question, the biodiesel fees. And the is [indiscernible] can also jump in and talk about distribution -- contract we sell. In laso -- as for the FMO CapEx -- we did not make a final review of the CapEx because the plants started to operate just now at the end of Q2. So it does take structural preparation, things that made sense for a potential expansion and also the interest rates, capitalization, which makes this CapEx behave as it has from 1.3, which we had announced to 1.5, which we have just shared as the new CapEx. So basically it has -- we have to include the interest rates issue and that preparation for a potential expansion, something we had already mentioned in case we need to increase capacity. So some things were made, especially relative to infrastructure the dry, the energy portions, several technical parts or aspects that have prepare for potential expansion, as I said. Mr Dumoncel, can you complement in terms of the fee for biodiesel?

Yes, sure. [indiscernible] and everyone, thank you for your question. as for the biodiesel fee you are correct. It's not new. That has happened, as you mentioned, in the biodiesel industry, throughout the years, we have made this market since 2014. We have seen cuts in the plans that were delayed and affected the fees. And right now, we are now going through yet another period where there is a delay in the military bland. So you understand that, yes, that has happened and distributors are trying to by before time or to push their purchases slightly forward in Cartier -- so they have a lot of product in their portfolios because of that. But I would say that throughout these 5 years where no longer have the auction [indiscernible] in place. This is a scenario where there was a delay at a delay, but there was no crop failure, for example. So throughout these 5 years we had, for example, some problems, [indiscernible] had a problem, slightly lower, but also impacted supply scenario. But this year, as [indiscernible] mentioned, both auto growth, I think we were going to assume harvested good to very good crops and still, we had that delay in the B16 plant. So that's about how we see. I think if you look back, as you said, it's nothing new.

But that is just one final complement 237 billion and capitalized interest rates, just to be sure, you have the number.

Our next question comes from Leonard Alencar from XP.

First of all, you could mentioned what is one-off, what's recurrent in logistics that has a correlation with the grain trading segment. But because of that volatility on that line, if you could give us some more detail on that Also, the input dynamics was positive. Margins have improved mine healthy, especially in the south. If you could talk from the point of view of growers. Are they delaying purchases [indiscernible] So from the point of view of the growers. And one follow-up. Going back to biodiesel if I got it right, you're talking about profitability. There was a drop in master bleeding biodiesel and the chart shows a variation in phase. So there is a marginal improvement if we were to follow up on that model. 16 happening only early next year or second half of next year with the Eneco -- how do you see that evolution going forward of those fees and what does that negative part on the chart mean? I didn't really understand that negative portion of the graph of the chart.