Q4 2024 Lavoro Ltd Earnings Call
Greetings and welcome to La Boodles fiscal fourth quarter 2024 earnings conference call. At this time all participants are in a listen only mode. A brief question and answer session will follow the formal presentation.
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During the conference. Please press Star zero on your telephone keypad.
As a reminder, this conference is being in a cluttered and a replay will be made available on Companys investor relations website at IR adopt level.
Speaker Change: It is now my pleasure to introduce your host Mr. Tigran Competion head of Investor Relations. Thank you. Mr. Perturbation you may begin.
Speaker Change: Thank you for joining us today on the worst fiscal 2020 for fourth quarter earnings Conference call. Our results ended June 32024.
Speaker Change: On today's call are Chief Executive Officer, Cornea, and Chief Financial Officer, Julian how are you doing.
Speaker Change: The company has provided a supplemental earnings presentation on its investor Relations website at IR <unk> Com and may be helpful. In your analysis of the quantity performance.
Speaker Change: Before we begin please remember that during the course of this call.
Speaker Change: It make forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995, including statements regarding our future results and operations and financial position industry and business trends business strategy and market growth among others.
Speaker Change: These statements are based on management's current expectations and beliefs and involve risks and uncertainties that could differ materially from actual events or doses scribe and these forward looking statements.
Speaker Change: Please refer to the company's registration form.
Speaker Change: <unk> filed with U S yesterday.
Speaker Change: Other reports filed from time to time with the ACC for a detailed discussion of the risks that could cause actual results to differ materially from those expressed or implied in any forward looking statements made today.
Speaker Change: Please note on today's call management in search of certain non <unk> measures, including adjusted EBITDA adjusted EBITDA margin adjusted net profit and loss among others.
Speaker Change: While the company believes that these non <unk> measures will provide useful information for investors. The presentation of this information is not intended to be considered in isolation or as a substitute for the financial information presented in accordance to <unk>.
Speaker Change: Please refer to today's release for reconciliation of non <unk> measures to the most comparable measures prepared in accordance with <unk>.
I'll now turn it over to week when you see.
Speaker Change: Thank you Cherilyn.
Rick Winfield: Good morning, everyone and thank you for joining us today as a rig drill a moralist results for that keeps call you had plenty of time for Alban.
Begin by touching upon the overall business landscape.
Rick Winfield: The economic complex.
After a bad Julian will ensure financial highlights and I'll return for some concluding remarks.
Rick Winfield: Overall, our fourth quarter traditionally.
Speaker Change: Our lowest since she's on mute.
Speaker Change: Well she did a largely in line with our expectations fall from all of our lifestyle market updates on the revenue side, our <unk> retail segment saw inputs revenue declined 16% to $124 $8 million.
Speaker Change: Driven in large part by our conservative approach to credit, which led us to postpone shipments for clients.
Speaker Change: Outstanding overdue receivables rules.
Speaker Change: Nevertheless, we had a strong quarter for Barca operations, which led to a grain revenues to increase by 40% to $67 $7 million.
Speaker Change: Crop care once again had a strong quarter with revenue, increasing 87% to $19 9 million with a strong contribution from on Oahu, our specialty fertilizer business.
Speaker Change: All talking about the second semester margin improvement, our gross margins as a percentage of.
Speaker Change: Input sales improved by 70 basis points year over year to 22, 3% in the QUADRA.
Speaker Change: Marking the first positive year over year impact since the start of the downturn.
We see progression in gross margins for our retail business in particularly as we went on especially in the third and fourth quarters.
Speaker Change: Given the seasonality of our business. It makes most sense to look at the year over year trends or gross profit as a percentage of inputs revenue, which excludes the impact of grants.
Speaker Change: That point, our gross margins improved from declining over 1000 basis points year over year in the fourth quarter declined 500 basis points in the second quarter.
Speaker Change: A declining 200 basis points for the first quarter and finally, an increasing 600 basis points in the fourth quarter.
Speaker Change: This is consistent with what we have been communicating for how the year, namely that our higher cost inventory cycles, often now or you can turn cost position improves.
Speaker Change: In a stable environment for input prices agrochemicals in particular, these niche to battery distribution margins.
Speaker Change: It's worth highlighting again these dynamics do you think the impact of gross margin compression had shuar, resulting she's probably a 'twenty 'twenty four.
Speaker Change: As illustrated in the adjusted EBITDA Bridge slide in today's presentation, approximately 70% of the declining actually boosted gross margin compression largely driven by dynamics with all clients and which we expect will gradually resolved.
Now talking a little bit about the markets.
Speaker Change: We see now.
Speaker Change: Uh huh.
Speaker Change: Turning are pointing in the markets environments in Brazil.
Speaker Change: Tom can you see a mix of contrasting dynamics for the AG inputs markets on.
Speaker Change: On the positive sides, we see farmer profitability for crop year 'twenty four 'twenty five.
Speaker Change: That you show a notable improvement over last year.
Speaker Change: Recent inquiries using local grain prices in Brazil, combined with the relatively affordability of imports have creative beneficial exchange ratio for farmers, creating additional incentives for them to increase length of acres and invest in technology to maximize yields.
Speaker Change: We expect planted acreage for soy and corn to grow in the low single digits, while yields are projected to improve by <unk>.
Mid single digits following last year's drops effect that's cool.
Speaker Change: Moreover, input prices have largely stabilized on a sequential basis in recent months.
Speaker Change: As previously noted <unk> is favorable for distribution margins.
Speaker Change: Margins.
Speaker Change: Contrasting with both positive and market developments in recent months, we observed a deterioration small and midsized farmers liquidity profile.
In our last call, we discussed how the impact of trucks, especially in Brazil Center West region. That's many farmers cash constraints after lower than expected harvests.
Speaker Change: To give some additional context credit Suisse first two farm a strong government problem as banks and other private lenders was down 30% year over year will be most recent September quarter.
Speaker Change: These amounts to a reduction of approximately 5 billion. He is off quite a bit available into the system.
Speaker Change: This reduction reflects in part the lingering effects of the last year surrounding.
Speaker Change: As mentioned the extreme drugs into regions, such as muscle, but also lots of soybean yields fell significantly below the 20 year trend line, resulting lower than expected cash flow that's harvest for many farmers in the affected regions.
Dynamic has made credit more difficult for farmers to access as banks understandably look at the most recent repayments history to make decisions.
Speaker Change: And have you show many farmers also held back on commercializing their suffering a poor choosing to wait for better market conditions to sell their grains.
Speaker Change: Well with all that said I want to emphasize that in the vast majority of cases are farmers repayment delays. There nishu is one of liquidity rather than solvency.
An estimated 80% of Brazilian farmers on the land are valuable an appreciating asset.
Speaker Change: <unk> generating operating margins they have averaged between 25 and 30% over the past decades.
Speaker Change: Consequently, we believe that these farmer liquidity issues will resolve themselves with the cash generated from the upcoming crop seasons, except reports farmer demand for inputs to expand profitable banks of acres now far exceeds the credit available in the system to support this growth and this.
Persistent great Gaffney, Brazil has only widening in the recent months.
Speaker Change: Looking out our ultimate for fiscal year 2025, we expect that the egg repay your inputs markets will contract by approximately 10% for that period with modest volume growth more than offset by the base effect of last year's price declines.
Speaker Change: With this challenging market environment, we expect to grow slightly above the market rates.
Speaker Change: This year, our main priority is to improve margins and operating efficiency to be well positioned when the end market rebounds.
Speaker Change: Event, we plan to optimize our retail network by consolidating bowls.
Speaker Change: It starts that are closing for symmetry and capture fixed cost savings, while maintaining high service levels.
Speaker Change: With all that said our projections for fiscal year 2025 is for consolidated revenues to the range of $8 6 billion to $9 2 billion highs and for inputs revenue to range between $7 7 billion and $8 3 billion has.
Speaker Change: Yes.
Speaker Change: In terms of adjusted EBITDA, we anticipate that growth relative to fiscal year 2024, driven by margin improvement.
Speaker Change: On a U S dollar basis consolidated revenue is projected to range between $1 5 billion and $1 $6 billion.
Speaker Change: Inputs revenue of $1 35 billion that you 145 billion and adjusted EBITDA as well as anticipate that you grow relatively through fiscal year 2024.
Speaker Change: Our guidance reflects the impact of recent farmer liquidity constraints and the resulting reduction in overall market visibility.
Speaker Change: With that I'll now pass over to Julian for a deeper look at our financial results.
Thanks, Louise good morning afternoon.
Speaker Change: You are right.
Julian: Talk a little bit about the full year results and let me start with that our consolidated revenue for the fiscal year 2024 grew by 6%, reaching $1 89 billion. This was mainly driven by 61% increase in Green Dragon.
Julian: Particularly our barter operations, which came in at 209.
Julian: Good.
Julian: Despite headwinds from the price deflation.
Julian: Revenue increased 1%.
Julian: Market share gains helped balance the challenges.
Julian: The full year of 2024 gross profit was down 19% to $264 million.
Julian: And gross margin compressed by 430 basis points to 14 point too this was largely due to the.
Julian: Price deflation.
Julian: In a less favorable product mix.
Julian: Just sort of be tobacco.
Julian: 53, four importantly positive for the year.
64% decline year over year.
Julian: We mentioned this was primarily due to gross margin compression.
Julian: Xtra.
Julian: Our allowance for expected credit losses.
Julian: The increase in provision for expiring either advice.
Julian: Net loss was 154.
Julian: One 6 million compared to a net loss of $43 7 million in the previous year.
Julian: Yes.
Julian: Loss was $1 $44 5 million compared to an adjusted net profit of 31 million the year before.
Julian: Syed a lower gross profit.
Julian: We saw a headline from higher finance costs.
Julian: All of our benefit for income tax net cash flow from operations.
Speaker Change: Well 33.1 of the moving parts okay.
Julian: Wanted to I don't know.
To fight even closet skip a pay is up.
Julian: 29 million.
Julian: Corresponding to a holiday.
Julian: The previous year.
Speaker Change: No I'm talking about all our fiscal fourth quarter results.
Speaker Change: With our consolidated results for the fourth quarter with total revenue and increased by 2% year over year to $71 1 million.
Speaker Change: Really driven by a 41% rise in claims revenue to $16 3 million.
Speaker Change: What's driving it declined by 6% to $202 8 million affected by lower input sales in Brazil AG retail and the conversion of the results from Brazilian Reais to U S dollars.
Speaker Change: Consolidated gross margin contracted by 100 basis points to 67.
Speaker Change: Gross profit down by 4% to $45 2 million guests.
Speaker Change: This margin compression reflects a higher mix of great dragged remain.
Speaker Change: Favorable product mix impacting crop care, while inputs gross margin improved slightly by 70 basis points to 22, 3%.
Speaker Change: Net loss was $77 2 million and includes all <unk>.
Speaker Change: $7 8 million year over year, driven by the higher income.
Speaker Change: Income tax of 35 million, an increase of finance cost of.
Speaker Change: Adjusted net loss was $76 2 million compared to an adjusted net loss of 52 meters in prior year, but similar factors affecting our results.
Speaker Change: Right right.
Speaker Change: They decreased by 2% to 192 5 million.
Speaker Change: With a decline of 16 or something he puts revenue due to all the strategic decision to delay shipments to certain clients with overdue payments as previously mentioned.
Speaker Change: Profit however grew by 13% to 21 million supported by a 210 basis point margin expansion, reaching 15, 5%.
Speaker Change: In aggregate they are writing an increase by 5%.
Speaker Change: $65 2 million, mainly due to favorable currency effects for the Colombian pesos.
Speaker Change: Profits rose by 10% to 10 point for me and gross margin expanded by 70 basis points to 15 nine.
You've got care revenue surged by 87% to 19 point magnesium led by strong results from human I agree.
Speaker Change: However, gross profit declined by 29% to five game related with margins compressions too.
Speaker Change: $28 nine largely due to product mix effects of spirit.
Contribution of increased.
Speaker Change: Adjusted EBITDA was $2 five.
Speaker Change: $2 1 million negative down point to 0.4.
Speaker Change: The prior year period, reflecting lower gross profit and a decline in the other operating income.
Speaker Change: And then on the Star consolidated net debt.
Speaker Change: Two would be just at the beach at that ratio.
Speaker Change: Payables of acquisition, a CRE lender at a forefront too if we excluded those people we landed at 3.4.
Speaker Change: Our Brazil distribution net debt.
Speaker Change: Adjusted of each of our duration, which is the covenants of our crop.
Speaker Change: At 1.7 X below the two five times leverage with all that said I'll pass it back to William for some concluding remarks.
William: I think as you know.
I think with that we summarize both.
Results from last year, and also a little bit of a perspective for the next year.
William: Her worked through provides a summary of the feeling of the market nowadays.
William: We expect farmers to be optimistic in the midterm.
William: And we got to have short term challenges that we will have to be dealt with so we can have better visibility on the actual potential for these upcoming here.
William: Deep it is.
William: Encouraging to see that some of the factors that have impacted negatively the markets.
William: Yeah.
William: Yes shop.
William: Variation of input prices and also the declining crime profitability. Dr. Now are improving.
Speaker Change: Brazil is a culture, where our business stands as one of its main strengths.
Speaker Change: Cycles will come and go but this does not change the fact that the region will play an increasingly prominent role in food and energy protection.
Speaker Change: This and the gradual improvement of market from our main thoughts about Florida, together with our strategic partners and our over 3000 employees is focused on overcoming short term challenges.
Speaker Change: As context, I'd like to thank and recognize the work of our team, which has shown incredible commitment to our clients and the company in these very dynamic environments.
Speaker Change: That's <unk>.
Speaker Change: Sure.
Speaker Change: And that's over for Q&A.
Speaker Change: Thank you.
Speaker Change: We'll now be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad.
Speaker Change: Information tone will indicate your line is in the question queue.
Speaker Change: You May press Star two if you would like to move to questions from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the stock East one moment. Please while we poll for questions.
Speaker Change: The first question comes from the line of Kristen Owen Open-eyed Ma'am. Please go ahead.
Kristen Owen: Hi, Good morning, and thank you for taking the question and we are sitting here on November 1st and see your fiscal first quarter already in the books for 2025, just wondering if you can help us think about the cadence of your guidance.
Kristen Owen: The fiscal year, how we should be thinking that that first half versus second half and the order trends there.
Kristen Owen: Yeah.
Kristen Owen: Yeah.
Thanks, Hi, Christen.
Speaker Change: Maybe you want to start just giving some sunny highlights and then I can complement.
Kristen Owen: Yeah.
Speaker Change: Hi, Christian Yeah, I would say.
As you sit here today I don't think D seasonality, we don't expect it to be materially different from last year.
Speaker Change: There might be some puts and takes but I think it's going to be broadly similar.
Speaker Change: In terms of the quarterly and first half versus second half breakdown.
Speaker Change: Yeah, Yeah that Santa Cruz from the markets performing so let's say the pace of the market is performing very much in line with what you saw last year the pace of negotiations the behavior of the farmers. So we do not anticipate a lot of changing dynamics and just this year.
Speaker Change: Okay, maybe if we can double click on sort of where channel inventories are today and given the impact that that had on pricing in the last year.
Speaker Change: And maybe just.
Speaker Change: Where where channel inventories are.
Speaker Change: Noted the pricing is starting to stabilize on a year over year basis, and any any commentary that you can provide in terms of where there are opportunities or risks associated with them.
Speaker Change: With the bankruptcy of one of your large competitors in the region.
Speaker Change: Yeah, so on the on the inventory and input prices.
Speaker Change: So through two important components here so.
Speaker Change: So the trend line on the input prices use of stabilization, particularly.
Speaker Change: What we've seen and then I have some bumps and bruises also being reflected in the farm gate prices, which is an.
Speaker Change: An important indication of the margin recovery, so stabilization scenario and suites applying T are now becoming more clear the second thing even though there's no.
Official data on retail inventory the sentiment here is that our inventory is mostly normalized right now we do have regions in which we continue to see more competitive price. That's I would say that in the beginning of this year we have.
Speaker Change: <unk>.
Speaker Change: Better inventory position overall in the retail in Brazil.
Speaker Change:
Speaker Change: Now regarding your second question I think that the market's nowadays.
Speaker Change: Very dynamic as I mentioned, there's some nervousness in the system.
Speaker Change: But.
Speaker Change: Farmers are.
Speaker Change: Investing in there.
Speaker Change: Expansion they continue to buy imports that are coming through all the stores to get the basic keyboard studying their needs.
Speaker Change: So I think what what's the nature of which you understand is that even though there's some some noise in the short term demand remains strong and this might be an opportunity for us moving forward.
Speaker Change: That's very helpful. One last one for me before I turn it over you mentioned on the Opex cost savings side, and maybe a little bit of restructuring around the physical footprint just help us understand in the waterfall for EBITDA next year.
Speaker Change: How you think about those cost savings contributing to that to that waterfall.
Speaker Change: Yeah, I think most of what we expect to recover in terms of EBITDA will actually come from margins because the impact to the margins that the last year was.
Speaker Change: Very much high.
Speaker Change: Now with that being said.
Speaker Change: We grew by acquisitions combined with organic store openings, and we do see opportunities to eliminate some overlaps and some low performing stores.
Speaker Change: In specific regions, it's I want to anticipate a major restructuring, but we do see opportunities for further consolidation that to have a both a positive impact in our SG&A, but also on our profitability.
Speaker Change: So we'll provide more details on on the next upcoming months, but what I can anticipate that most of the recovery comes from margin, but we are also counting on our footprint optimization was a let's say a second driver.
Speaker Change: Thank you I'll pass it on.
Speaker Change: Yeah.
Speaker Change: Thank you and next question comes from the line of Ventura with Barclays. Please go ahead.
Ventura: Yeah, Good morning, and thanks for taking my question just a quick follow up as it relates to the outlook and what youre seeing in the market from or.
Ventura: Profitability.
Ventura: Yeah.
Speaker Change: Somewhat stretched obviously in kind of like stress because of the the drought conditions have you seen any improvement of lately and how do you think that has changed some of the behavior of farmers right. As we think about it there's still an expectation of prices to come down if you reflect in your guidance So does that.
Speaker Change: <unk> any way of how farmers go to you buy the product.
Speaker Change: Process them through any any comment you have as to the behavioral part that would be much appreciated.
Speaker Change: Sure Hi, Ben.
Speaker Change: So a few comments like like last year farmers are.
<unk> delayed into and taken their buying decisions and there were delays.
Speaker Change: Right now in selling for instance, the grains film.
Speaker Change: Suffering.
Speaker Change: We also saw and this particularly I would say over the last.
Speaker Change: A month or so a growing concern of farmers true secure there.
Speaker Change: Our inputs our availability.
Given the overall scenario and also the lower margin of some inputs.
Speaker Change: The parks to Brazil have reduced for some specific products and farmers are now are worried about not getting the product so I would say.
Speaker Change: In the last month or so we saw a growing concern on that and that is accelerating the demands.
Speaker Change: And ER visits to the stores, but overall I would say the market is moving slowly in line with last year and much lower than the previous years now when it comes true true profitability band and I think it's a it's a combination of two things right. So even though the grain prices are.
Not August near their peak and I think corn has.
A better position sorry is not that much but in that sense.
Speaker Change: The calculation that farmers toys that how many bags of corn, so to say I'll have true used to buy my basic package of the inputs. So for instance in in our estimations.
The backs of the quantity of bags of corn for suffering there.
And the less Ah yeah, they had to use something around 50 253 bags to buy a basic package of seeds fertilizers and crop protection. These number has now came down through 47 bags and this is again a combination of the basic grain.
Speaker Change: Prices, but also on the input prices so the relationship.
Getting more positive and I think farmers will be using these true take the decisions.
Speaker Change: Okay got it very clear and then.
Speaker Change: Just wanted to maybe get.
Speaker Change: Your thoughts as to the the sentiment amongst some of your suppliers and how your relationship is with the suppliers obviously.
Speaker Change: A large competitor of yours have to a bankruptcy has that.
Speaker Change: Triggered some sort of change in behavior amongst the suppliers of yours and how they think about our credit lines to it with you or is that not the case with not unaffected.
Speaker Change: Oh, I think we always make sure to look at the Big picture are we balance it all.
Particular look into some specific player what what pre with CS That's obviously after the.
Speaker Change: The impact that farmers had on their profitability and at the end of last year that it was already concerns when it comes true credit concessions right.
Speaker Change: And that was even apply true to ourselves right. So we were more lets say conservative in providing credits and that's also holds true for banks and suppliers right. So what I can say is that the conservative approach was already in place.
Speaker Change: When he sees them start that's I think it continues to be there.
Speaker Change: And it will basically improve as farmers will improve profitability you would start buying again money continues to flow through the system.
Speaker Change: And then lenders with few more let's say.
Speaker Change: Confidence to provide credit again.
Speaker Change: I think it's a it's a matter of time.
Speaker Change: He has a start that's I'll say early on this season.
Okay perfect. Thank you very much for the color talk to you soon.
Speaker Change: Thank you.
Speaker Change: Thank you next question comes from the line of Austin Muller with Canaccord. Please go ahead.
Speaker Change: Hello. Good morning, just the first question I have here. So the data that we've collected unknowable rainfall data in Brazil, Argentina, and Colombia has continued to show elevated drought activity even within the past month can you discuss the timing of the coming planting.
Speaker Change: Seasons, and when do you think this may be normalized based on what you've seen historically with El Nino what Nino.
Speaker Change: Yeah. So the soy planting evolution right now so I can talk about Brazil, which is the number that I have is in my mind.
Speaker Change: So the site planting in Brazil is about 40% of the total area.
Speaker Change: These number last year was around 45%.
Speaker Change: So I would say is it's a slightly delayed.
Speaker Change: Congratulations here and there if you see an average of <unk>.
Speaker Change: The previous year. So we had I would say we should be more towards the 40.
Speaker Change: 47%, so it's a it's 40% is delayed.
Speaker Change: With recent raise is progressing faster than them.
That's good to hear and how are you thinking about your M&A strategy with retailers and the cadence of that in this environment.
Speaker Change: Yeah.
Speaker Change: Yeah. That's I think the environment continues to be similar to what we saw in the last year when it comes true.
Speaker Change: And inorganic growth opportunities.
We believe that our nowadays even though the the you know interesting M&A targets swaps, where you were a focus more is on the organic side. We knew each received more opportunity. It's true we continue growing into a.
Speaker Change: <unk> gained market participation.
Speaker Change: So that'll be the main focus of our team this year.
Speaker Change: Excellent thanks for the color.
Right.
Speaker Change: Thank you a reminder to all the participants that do them at the start and one to ask a question.
Speaker Change: Ladies and gentlemen, we have reached the end of our question and answer session I would now like to turn the floor over to Rick <unk> for closing comments.
Rick Winfield: Thank you just run out and thank you all for the Playstation and I'm looking forward to the army.
Speaker Change: <unk> next quarterly review.
Speaker Change: Seasonal.
Thank you. This concludes today's teleconference. You may disconnect. Your lines at this time. Thank you for your participation.
Speaker Change: [music].