Earnings Call Transcript - LND Q1 2023

Operator, Operator

Good afternoon to all. We're here once again for the earnings of BrasilAgro Q1 2022-2023. Just to clarify for those who are beginning to follow us that fiscal year goes from June to June every year. So today, we will be talking about the first 3 months of the harvest '22-'23. I have here Mr. Andre Guillaumon, our CEO; and Gustavo Lopez, our CFO. Okay, you have the floor, Andre. Before that, I'd like to mention concerning Q&A. Okay, Andre, have the floor.

Andre Guillaumon, CEO

Thank you, Ana. Thank you, Gustavo. I want to extend my gratitude to all the participants who consistently engage with us and support the company. This is our first quarter, and we are optimistic that this year will be more stable compared to the previous two years impacted by pandemic restrictions and rising costs. We view this year as very encouraging for Agro in Brazil. As Ana mentioned, it’s our first quarter, and while there's much to cover, we are already identifying some trends to discuss today. Please feel free to ask questions and join in. Now, let's move on to the presentation. The first highlight is our financial performance. We closed the quarter with BRL 299.8 million in net profit of BRL 42 million and an adjusted EBITDA of BRL 107 million. We will provide further details later. Last year, we achieved exceptional results. Operationally, we processed 1.7 million tons of sugarcane and started planting soybeans, with 38% already done, particularly in Mato Grosso and Goias. The climate has been stable. On the real estate front, our market activity is ongoing, with companies actively buying and selling to uncover profitable opportunities for our investors. This quarter, we made two significant moves: a purchase and a sale. We acquired Fazenda Panamby, and we will share more details about that. Last night, we announced the first sale of part of our operation in Paraguay. Regarding Panamby, it is a farm located in a highly productive area of Mato Grosso, covering 10,800 hectares, of which 5,400 hectares are suitable for agriculture. Previously, this land was used for cattle raising but has the potential to be converted back into agricultural land. We see great opportunity for a second crop here, estimated to be valued at BRL 285.6 million. Additionally, we have successfully completed our first sale in Paraguay. We are pleased with this announcement. For instance, we sold the first 600 hectares of the Jatoba farm, which has a significant agricultural area, mirroring our operations in Paraguay where we've been producing for five to six years. We've had some challenging years due to drought, but the potential remains. I want to highlight that we also started planting cotton in Paraguay, with 800 hectares planted last year. This year, we will expand our cotton planting, along with the region's overall increase in cotton cultivation. Our group was among the early adopters of soybeans, covering more than 80,000 hectares. In the upcoming harvest, we expect cotton production to increase to 15,000 hectares, promising an economically viable return of $1.5 million, with a TIR of 27.9%. In terms of reals, we project a return of 42.2%. We're selling 500 useful hectares, with more area available for sale, some of which will be transformed. This demonstrates liquidity in the region and our ability to capture profitability effectively. Now, shifting focus to the agriculture landscape, we graphically represented changes on a larger scale in the past and have now narrowed it down. We began showing the short-term soybean increase from 176 to 184. I'd like to note this is related to BMF corn, which decreased from 101 to 89. The global cotton market has seen a significant drop, affected by potential recession fears and fluctuating interest rates. Cattle raising has experienced some impacts connected to our exports to China, leading to a smaller volume. We're observing high food prices, but though we have a lot of confined cattle, the numbers have varied. The ethanol market saw prices significantly influenced by factors like changes in gasoline taxes, impacting its competitiveness and pricing. This upcoming harvest is expected to yield more sugar than ethanol, with ethanol prices affected as indicated by Consecana due to similar issues. A recurring concern since the war began was related to fertilizers. Fertilizers have been widely discussed, particularly in a country with a major agricultural focus like ours. We took proactive measures by purchasing fertilizers in advance before restrictions were implemented, buying chloride prior to the Ukrainian conflict and phosphate afterward. Prices for fertilizers, particularly phosphate, have consistently declined post-purchase. Nitrogen prices depend on fluctuating natural gas prices in Europe. Currently, we see average fertilizer prices around 1,350 BRL, with current prices at 675 BRL. Chloride has also decreased from about $740 to historical figures around 390-400 BRL. Our advance purchases at 700 BRL now seem advantageous given the current price drops. Importantly, we have a significant volume of planted areas; these began being utilized in July with fertilizer applications and subsequent planting for the second crop. We had a deadline for decisions due to the volume of our purchases, which included about 80, 90, or 1000 tons, making it impractical to buy last minute. We feel we made wise purchasing decisions and mitigated uncertainty effectively. As represented in the pie chart, 91% of our inputs have already been acquired, leaving about 9%-10% yet to be bought, primarily for the second campaign. The second campaign refers to the winter crops and sugarcane harvest scheduled for February-March. The subsequent graph shows not only the fertilizer volume delivered but also delivery consistency. Recently, deliveries have reached substantial volumes, overcoming some disruptions from blocked roads, with 84% successfully delivered. Therefore, all units are operational without shortages. All units in Xingu have completed planting, while others are in the process and have access to guaranteed fertilizers. It has been a year full of volatility, and we continuously strive for the best mix of revenue and cost while minimizing uncertainty around fertilizer. I want to emphasize our diversification strategy. This graph showcases our company’s geographic distribution. In agriculture, diversification is key. With a diverse portfolio, we can mitigate climate-related risks. For instance, maize in Mato Grosso has exhibited higher productivity. Our operations benefit from substantial logistical advantages, notably in areas like Mineiros, compared to Mato Grosso. The company effectively utilizes partnerships, incorporating diversified regions in Mato Grosso and Comodoro. Our business model remains effective as we continue to combine our owned land with leased land. Last year, discussing Q1, we maintained efficiency in asset sales. Year after year, we expand the planted area, which remains critical for cash flow and stability in our operational results, providing predictability for our investors. We acknowledge agriculture's inherent volatility. To minimize this, we highlight the diverse crop breakdown in our portfolio: soybean, beans, corn, sugarcane, and cotton. The right pie chart illustrates our cultivation areas, encompassing both owned and leased land. This balance is essential. The owned land contributes directly to our real estate performance alongside the operational contributions from leased areas in stable zones. This dual strategy, from our viewpoint, constitutes a successful approach, enabling significant real estate gains, reduced costs for leased land, and greater stability in results. This strategy continues to be robust within the company, as we constantly fine-tune it for efficiency. We present a new graph aimed at enhancing visibility for our operations. Our approach has been cautious in depicting key crops, including their planting beginnings and harvest timelines, allowing us insight into results quarter to quarter beyond seasonal influences. There are also commercial considerations; for instance, harvesting in Q3 does not necessarily mean selling in Q3. We recognize the seasonality but will clarify further. Currently, more than 30% of soybean has been planted. We are starting corn planting for the second crop next week, with some summer corn planted in Bahia. Cotton planting initiates in November and continues until mid-December, with an additional cotton crop planted in Mato Grosso in January. The business remains dynamic and challenging, and we diligently monitor climate conditions throughout the year. Regarding climate trends, we have positive updates. We mentioned earlier that La Nina is waning. This is advantageous for Brazil's extensive agricultural regions. Ideally, planting during La Nina in the first half of the calendar year is beneficial. After La Nina, we could shift into an El Nino phase next year, which typically increases rainfall, thus supporting agriculture in Brazil. Farmers are optimistic about this trend. Notably, sugarcane harvests flourish under stable conditions from April to June. We are ensuring plantation stability and anticipate an improved year ahead, with a balanced rainfall pattern benefiting Brazilian agriculture and our operations. In summary, I emphasize that cattle raising is a transitional strategy as we convert pasture land to agricultural land. This process can introduce volatility in the initial two years; however, cattle raising has proven to be a beneficial endeavor, reducing risk and enhancing portfolio value while being profitable. We present insights into our cattle numbers and pasture land, where close GMD indicates average weight gain of 600 grams, compared to 350 grams in the first three months. This is encouraging, especially given that typically dry months in July, August, and September can restrict pasture availability. Hence, despite apparent discrepancies between estimated and actual figures, we remain focused on profitability monitoring. Currently, the company has receivables linked to sold farms, providing a snapshot of our situation. Soybean sales reflect 57% completion, with over 80,000 hectares in the farming cycle, contributing to a highly productive environment. Shifting focus to corn, our company has effectively hedged these positions, successfully selling cotton with an average price of 88.98% and a hedge of 45.94%. Although this crop has faced challenges, our hedging initiatives have proven effective. Concerning ethanol, I want to highlight our proactive measures in this new product line, with hedging reaching 33%-38% at favorable prices per cubic meter and nearly 40% of sales occurring at higher price points, given current spot prices around 2,700 BRL. Now, I would like to hand over to Gustavo for an explanation of our revenue.

Gustavo Lopez, CFO

Thank you, Andre. Thank you. I'd like to thank all those participating. This is the Q1, and we have consistently mentioned that last year was a spectacular year in terms of cost and price. Now we will explain this effect. Andre mentioned during this quarter we had the following concerning sugarcane harvest. When comparing quarters, sugarcane production was similar, as were sales. Now let's consider margin. Last year, when we sold sugarcane, we had an average of BRL 1.3 per kilogram. Entering this quarter, government policy provided tax exemptions, and this made ethanol less competitive, leading to sales at BRL 1.10. This impacted our prices. On another front, Andre highlighted that we are managing fertilizer costs that remain elevated. CCT also has become more relevant, which provoked a dip in margins. Later, we will demonstrate that margins remain very good when compared with historical averages. The second effect we observe during this quarter: in the first quarter of 2022, we had 70,000 tons of soybeans and 40,000 tons of corn. This year, we explored a different strategy. We intended to sell most soybeans and corn in the first semester, with results showing 25,000 tons of soybeans and 60,000 tons of corn. Net revenue of the company reached BRL 378 million during the first 3 months of last year; we will illustrate tons and prices. Here, we have a summary indicating a 21% drop when compared to last year. This was a result of selling slightly less in soybeans but a bit more in cotton. When evaluating June, we’re discussing a BRL 50 million difference between price and quantity. Additionally, for sugarcane, we reported selling 16% less, leading to an impact of BRL 95 million. When considering the company's EBITDA, last year we achieved BRL 120 million and this year we reported BRL 106 million, coming from the BRL 223 million achieved the previous year. BRL 18 million of this EBITDA is connected to soybean sale for the 60,000 tons mentioned. On the other hand, we achieved an EBITDA of BRL 140 million from sugarcane. The tonnage harvested and sold led to a sales price at BRL 185 per ton with a production cost of BRL 85. The margin was BRL 100. This, converted to reals per hectare, results in a BRL 9,000 profit per hectare. This year, we managed a small amount, selling overall less grains; last year, we had a million tons sold priced around BRL 159 per ton. With a cost of 95, this amounts to a margin of BRL 60 per ton. Thus, when comparing the years, the margins in sugarcane have declined 50%, and the rest is season-dependent on the volume of product we carry. Concerning net profit, last year we posted BRL 107 million, while this year net profit yields BRL 42 million. The next page illustrates this difference. Last year during this period, 60,000 tons of soybeans were sold; this year, we are discussing about 19,000 tons. Though pricing per ton was slightly better, the smaller volume reduced the results. In regards to corn, we sold more tons but this didn’t offset the variation stemming from soybean pricing. In sugarcane, as mentioned, tonnage remained similar; however, last years’ price was 185 and this year sits at BRL 159, which denotes a price drop. These main products have impacted net revenue. We see net revenue from last year of BRL 378,000 compared to BRL 299,000 this year. Here, we see EBITDA achieving approximately 50%. We observe a dip this quarter, especially as sugarcane appears to be the only product we are currently producing. Nevertheless, we should expect an EBITDA margin of 60% compared to the previous year. In soybeans, last year, we achieved a margin of BRL 1,000 per ton, yielding BRL 4,500 per hectare. Today, our expectations sit at BRL 600 per ton with a BRL 2,800 per ton outcome. Sugarcane yields a similar story, where last year our cost remained at BRL 85 per ton leading to a BRL 9,000 per hectare profit. This year, we predict costs of BRL 95 per ton leading to margins of BRL 60. Reviewing hectare returns, we settle at BRL 4,500 profit. Therefore, margin adjustments are expected due to increased costs. In the cases of soybean and corn, costs elevated by 30% stemming from fertilizer procurement. Adjusted EBITDA for this quarter is illustrated at BRL 223,000 versus BRL 107, which includes sugarcane, with the discrepancy arising from inventory already sold. This highlights once again the primary impacts our main crops bring. From net profit, we deduct depreciation, amortization, and taxes while adding fair price evaluations of produced but unsold assets, with derivatives amounting last year to BRL 220 million; 60% from sugarcane and the rest is attributed to soybeans. Now turning to financial computations for the company, no substantial changes have occurred. The cash equivalent positions remain similar with an overall increase in investments, showcasing Panamby farm acquisition; both were recorded at cost with receivables for sales of farms involving a split between short-term and long-term, showing a recorded value at BRL 480 million. This further discloses that some of the farms sold will deliver necessities to Alto Taquari, where verification of the sale occurs in 2024. We see the company's financial position being robust. Now reviewing debt details, we observe a total debt of BRL 400 million, where 93% traces back to the CDI index, with some framed relationships existing at IPCA levels. Notably, we do feature some pre-fixed loans as well. Our BRL 150 million in debt will be designated for the upcoming harvest, and our current prospects are reassuring considering our receivables from farm sales remain excluded from this overview. We anticipate BRL 150 million for the current year, which will be leftover into the next. In terms of dividends, as noted, we aim for recurring dividends. On October 27, we approved BRL 300 million slated for distribution to be delivered on November 16. Our objective is to continue forward with this strategy next year, through farm sales and operational results, maintaining our commitment to dividend payments. Furthermore, it’s essential to emphasize the reforms made under the guidance of our administrative council—including Alejandro, Isabella Saboya, Eliane Lustosa, and Mariana—aiming to comprehensively adapt the company to SEC regulations. We established an audit committee and will number its members soon; additionally, we successfully implemented transaction policies, alongside compensation adjustments within the auditing committee. With that, we conclude various changes and adaptations implemented. The fiscal and tax committee continues its operations, collaborating closely with the audit committee and fiscal council. We firmly believe that commitments towards higher governance standards enhance transparency.

Operator, Operator

Thank you, Andre. Thank you, Gustavo. We have here Pedro from XP and Henrique from BTG to ask questions.

Pedro Fonseca, Analyst

My first question is about the allocation of capital. Considering this outlook, with more difficulty in buying farms, and as you mentioned, results should continue to be above historical levels. Can you discuss capital allocation regarding dividends? Can we expect a dividend yield more in line with history, at 6% or 7%, or can we expect something in line with last year close to 10%? That's my first question. My second point asks if you could provide more details about the sale of the farm. It had an attractive yield, but it seemed like a small sale. Can you explain the strategy behind this sale? Wouldn't it make sense to sell more, or can we expect more sales of this size later on?

Gustavo Lopez, CFO

Pedro, thank you for the questions. We could spend a long time addressing these two points, so let me try to tackle them. First, our objective is to be an anti-cyclic company. We need to sell farms when everyone is buying and buy farms when others are selling. This is the essence of our business model. It may seem simple, but the execution is challenging. As you correctly stated, we should indeed sell more, given our liquidity in the market. The company will continue to sell while actively creating value for shareholders. We maintain a benchmark amount that we aim to sell annually, which enhances the stability of results. Reflecting back on the BRL 520 million profit we had mid-year, BRL 300 million derives from operations while BRL 240 million comes from real estate sales. This is our intention, balancing operational results with real estate sales. Should this occur, we strive to maintain our status as a key dividend payer. Our policy traditionally involves distributing 25% of net profit to shareholders as set out in the Novo Mercado standards. Yet, historically, we have paid more. I'm confident that when we have a necessity to acquire significant assets, we can adjust our investments because shareholders are aware of our capacity to generate value. So I believe this clarifies my stance on capital allocation and dividends. Regarding your second question, it is an excellent inquiry. Why did we sell a small parcel of land? The amount is minor, tied to a leasing operation for the buyer. We believe this sale won't be limited; we will continue selling additional fractions like this one. These regions are new for us. When large companies operate in an area, the perception is that it’s merely their scale that produces good results. Conversely, when small farmers contribute positively, the success is attributed to their effort. So the smaller size of the parcel we sold aims to engage new entrepreneurs within the region. The sale mentioned was particularly important in demonstrating asset appreciation and the company’s capacity to drive value. The strategy behind these small sales reflects the arrangement for establishing liquidity. Andre, why didn’t we sell more?

Andre Guillaumon, CEO

This driver does not depend on us. We are actively working toward sales. However, whether it becomes a small or large sale depends on proposals. We are analyzing substantial proposals presently. Our goal aims for a sale range of 3,000 to 3,500 per hectare. Remember that we paid $280 for this land, and today we're selling it at $603,000. So I’m not worried about it being small, but the company had the right strategy; this asset has liquidity. Even more, if liquidity exists at smaller scales, we find it for larger assets. However, when liquidity is only present for larger clients due to logistics and efficiency, it harms smaller farmers’ potential. Therefore, small sales should not alarm me. An emphasis should be placed when observing only larger clients' liquidity. We're optimistic about cotton and its potential, especially how it establishes real estate value in the area. As I mentioned before, the small sale does not concern us; rather, it affirms that with small transactions come great ones too. Did I answer your question?

Operator, Operator

While responding to Pedro, Andre also addressed two questions that had been submitted regarding dividends. Our results were smaller than anticipated, to which we have already responded. There is another question regarding potential dividend distribution this year because of the sale. I will now pass the floor to Henrique from BTG for his question.

Henrique Brustolin, Analyst

My question is a follow-up in terms of capital allocation. I'd like you to focus on growth. We’ve observed the company consolidate its business model over the years, and with strong numbers, it appears the space for NAV appraisal seems to have slowed down. With commodity prices stabilizing, I'd love to hear from you about the main opportunities and growth priorities for the company in the coming years. Is buying more land a strategy you're considering? Or leasing land, or perhaps verticalizing? What will the key priorities be moving forward?

Andre Guillaumon, CEO

That's an insightful question, Henrique. Thank you for participating again. I will begin discussing our areas of focus. What you stated resonates well with the current situation. There’s stability in commodity pricing, yet you should note a portion of our portfolio benefited from transformations—this aspect substantially increases the land's value. In focusing on Brazil, a few assets remain to be transformed; however, we are still ramping up growth yield from areas under conversion. While the speed of transformation may slow, much of the portfolio will see appreciable value increments. This is essential to underscore. Despite commodity price stabilization, considerable value exists. For instance, when one has an area in the Savannah, currently worth 100 bags, the subsequent year should ideally yield a cost of CapEx and premiums until stabilizing at 350 bags, say in Bahia should reach around 354,000 bags. This growth occurs gradually. Although price stabilization could lead to slower asset transformation, substantial yield growth remains critical across our portfolio. Focusing on leasing, this year alone, we added 10,000 hectares, primarily leased; only 1,000 will factor into the current harvest, reflecting 8,000-9,000 allocated for the next harvest. Such regions have significant potential for secondary cropping. We continue working toward misaligned diversification. The company has enjoyed growth, as witnessed through the acquisition of Panamby plus leasing, equating more than 25,000 hectares anticipated for the next few years. This is commendable—the diversification strategy reaching for a balance shifting crops performed effectively. With vertical integration in some production systems, we’re advancing irrigation projects in Bahia that are being implemented. We are already in Phase B and defining further steps. Additionally, we’re considering acquisitions based on identifying valuable areas, predominantly along borders yet have acquired properties further away based on specific opportunities. As the situation develops, we remain aligned and observant, weighing prospects and paths for unleashing value.

Operator, Operator

Now we have some questions in writing. The first concerns the point mentioned by Gustavo regarding the establishment of our auditing committee. Can you elaborate if this has any impacts? Is there any impact connected to the audit committee's formation?

Andre Guillaumon, CEO

Well, you know me. I'm an agronomist; however, I adapted quickly. Regarding the committee, it is a matter dealt by the SEC in Brazil. So we prepared it accordingly. Initially, we felt that the audit committee would substitute the fiscal council attributes, yet we retained the fiscal council's responsibilities. Now we have both a dedicated audit committee composed of independent and company counselors to enact differently from the fiscal council. The council primarily reviews numerical accuracy; the auditing committee will look into operational efficiency. This setup can enhance the company’s standing—it's indicative of our alignment with capital market standards, which we have pursued. We've consistently ensured that every transaction undergoes scrutiny via assembly agreement processes. One of my learnings from a legal counsel is that it isn’t sufficient to be compliant; you also have to demonstrate it. The committee reflects transparency, governance, and a commitment to safeguarding small investors. Therefore, it may not abruptly transform the company’s operations, since the essence of our business remains focused on identifying, investing in, and subsequently selling assets. Their contributions will enforce efficient mechanisms to ensure governance and transparency across all stakeholders.

Gustavo Lopez, CFO

To complement Andre, the company had previously engaged with a fiscal council. The fiscal council held the same attributes as the auditing committee. The primary differentiation lies in internal controls. An internal controls department reports separately from management. This denotes a significant shift in our structure. The fiscal council was somewhat temporary, responding to demands from minority shareholders. Presently, the fiscal council will analyze financial accounts and numbers while collaborating in hiring auditors, also evaluating increases in capital, with internal control driven by the auditing committee.

Operator, Operator

Thank you, Andre and Gustavo, for the clarity. Rodrigo is asking a question. Rodrigo?

Unidentified Analyst, Analyst

I have a follow-up question about irrigation. Andre, does it make sense to purchase equipment, or should we rent irrigation equipment?

Operator, Operator

Before Andre responds, I'll include a question from Antonio that probes deeper into the new irrigated areas. Brazil and Cosan are becoming increasingly robust in irrigation; we’d like to hear more about this.

Andre Guillaumon, CEO

I will address Antonio's question first. It’s crucial to distinguish between our two comprehensive irrigation projects: one focuses on sugarcane, while the other in Bahia emphasizes grains and cotton production. The sugarcane regions are marginal and do not fit well within Cornbelt zones. Even the mid-south regions are witnessing instability regarding rainfall. Irrigation is becoming vital given today’s challenges and will bolster production stability. For those engaged in discussions about productivity increases in soybean, cotton, corn, and sugarcane over the last few years, our production metrics show significant volume increases, striving for 600 million tons, nearing 570 to 580 million tons this year if conditions are favorable. The sugarcane sector strives for credibility and forward-thinking in biofuel demand and sugar pricing modifiers; thus, generating productivity amidst insufficient rainfall is essential. Now addressing the rental versus purchasing question, we continuously assess these variables. Our initial strategy involved effectively leasing irrigation equipment, and we depend on operator-supplied leasing offers. The financial dynamics must favor leasing arrangements when weighing costs; however, leasing demonstrates vast advantages. Here, the company provides equipment while we compensate based on irrigation usage. This results in a minimum payment owed. We’ve adopted this model with favorable outcomes in one of our units while entertaining more capital-intensive models. In discussions recently, assessing internal versus external financial capital costs for irrigation projects arose. Today, with the fluctuating capital conditions and tightening external financing, long-term investments to purchase our equipment appear feasible. Greater production reliability and improved yields elevate our deliberations; we recently finished a harvest at Fazenda do Mato—a new area—through irrigation, reaching around 217 bags on average. Would this land, over its lifecycle, appreciate to a value of 350 to 400 bags, especially when projected against cotton? I reiterate—our expectations maintain strong numbers, and we'll always retain open discussions on economic viability for efficient strategies.

Operator, Operator

We have a question from Filipe. Alright, Filipe, I will read your question. Next time, please present the question. Since Argentina is facing challenging climatic conditions, will grains really benefit in the short term? How do you see the climate in Paraguay following challenging years? Finally, which regions focus on acquisition? I know you mentioned the border, but are there regions that capture your interest more significantly?

Andre Guillaumon, CEO

Yes, regarding grains, as I perpetually assert, we observe various evolving aspects constantly. We track the Argentine market and engage in climate monitoring across Argentina; your question is very pertinent. Concerns arise from the conditions, and yes, they indicate worry. The first crops are lagging in Argentina; this shift naturally affects crop choices. However, as I indicated, whether retaining or losing strength, the situation stands to improve the southern crop shows in Argentina. The productivity of the segment ultimately relies on healthy installations, yet unbalanced rainfall can impact future output. It remains critical that the game commences at day 0. As for Paraguay, we note marked improvements. Reviewing weather forecasts, we employ three meteorologists alongside a climate company, formulating reports continuously. The prospects for long-term improvements brighten. Notably, we anticipated a smaller summer initially in January-February; however, current forecasts indicate a reduction—previously projecting 35 days with summer, now down to 20. Moreover, soil fertility in Paraguay is beneficial, further facilitating agricultural success. Now, inquiring about regions designated for focus acquisition, we continue to prioritize value-oriented areas, principally around border segments. However, past acquisitions reveal successes further from borders. We analyze these prospects accordingly; we also recognize differing geographical diversity and the balance of local versus leased land. Overall, our strategy aligns closely with value extraction potential.

Operator, Operator

What are the forecasts for cash flows, investments, and sales next year?

Andre Guillaumon, CEO

I will begin by stating our investment approvals are overseen by the council. These encompass all potential involvements, such as new areas alongside soil transformation, irrigation needs, technology upgrades, and geoprocessing. Our team dedicates substantial time to this portfolio. Gustavo is spearheading connectivity strategies for maximizing Internet capacity, deploying IoT applications to enhance farm operations. Therefore, this year we anticipate a CapEx encompassing restructuring across diverse transformation scopes, primarily targeting pasture land—BRL 100 million in projected expenditure. We aim to sustain sales on par with 5-year averages, although the climate factors in larger variables. The anticipated sales’ growth remains tied to historical patterns, and cash flow should reflect established sales minus CAPEX intertwined with operational results; we can track its natural behavior. Gustavo, care to elaborate?

Gustavo Lopez, CFO

I believe clarity on our financial strategy is essential. We craft our strategies through rigorous budgets—including operational ones. In terms of farm sales, we typically engage with a distribution strategy allocating 34% to our partners and 85% to shareholders while emphasizing investment as a priority. Previous EBITDA figures from last year report BRL 400 million, suggesting a generation prediction of 60% on this figure this year. Highlighting our 35%-30% model affirms investment focus remains: restructuring various planting infrastructures. As we previously mentioned doing my recent results presentation, our net value was BRL 140 million—projecting the anticipated cash flow and our approved expenditure cap of BRL 130 million. Investments will cover irrigation projects as this aspect continues to yield positive projections. Overall, we retain a positive cash generation outlook.

Operator, Operator

One last question to close. From Douglas Rebeiro, could you discuss the differences between book value and internal evaluations of the same assets and price discovery of sales?

Andre Guillaumon, CEO

This is an area we've been working diligently across. Each year, we undertake evaluations. We engage independent auditors every two years along with internal assessments annually. How do we approach valuations? Yearly, we analyze our assets and assign multiples against our evaluations; additionally, the best sales approach often occurs via installments. This structured approach captures optimal profitability as most sales transpire in this fashion. We maintain agricultural land in Brazil wherein payments are executed in segments. Sales made in installments yield greater profitability than one-time cash sales, representing crucial liquidity optimization for engaged investors. We follow a specific pricing method and evaluate our properties based on production specifics; this involves analyzing maturity rates against varying multiples by commodity. I frequently present our evaluation metrics forecasting growth; our assets experience appreciation values. These evaluations incorporate manageable variables projected against commodity prices. Should we remain optimistic regarding soybean pricing, this valuation framework delivers notable additional portfolio value. If perspectives dwindle, internal adjustments would augment accordingly. Our sales processes consistently yield performance marks between 5%-12% over standard evaluations. When revisiting the year with a comparative focus, we instigated BRL 200 million assessments but naturally sold some during varying transformations. Our growth manifestations here have accrued stories illustrating a 15%-16% appreciation propagating through active engagement. These assumptions remain critical as they indicate the broader sentiment held by both our management objectives and effective realization efforts. Understanding this requires consistent input, constructing a composite view of our future expectations. Overall, our evaluation methodology relies on our comparative analysis coupled with pricing dynamics drawn from rigorous assessment. We compiled a robust database through all Brazilian lands while acquiring intelligence to bolster negotiations from this standpoint; chiefly, there's an emphasis on realistic projections tailored toward acknowledgments over gloomy narratives.

Gustavo Lopez, CFO

In addition to Andre's remarks regarding asset pricing, we maintain the option to choose between cost and market value assessments. Initially, the decision to choose between these two paths stemmed from critical discussions surrounding subjectivity in future soybean price evaluations. Today, we must approach evaluations internally or externally concerning leading indicators that could signify impairment; if an asset's value dips below the acquisition cost, this depreciation should be recognized. Normally, our portfolio's composition includes properties acquired around $1,200-$1,500 per hectare, which subsequently underwent transformation costs climbing to an average of $2,500. Rarely do we come across farms under this threshold. Thus—as a standard, valuation recognition proceeds through sales, allowing proper measurement of results over time. Investors often inquire about our net value situation; with our evaluative processes we strive to be as conservative as possible. Historically, our valuation and operational profitability will reflect through and during our sales.

Operator, Operator

Thank you, Andre and Gustavo, for your time. We spent a little more than 1.5 hours discussing our results thus far. We appreciate the audience participation. It is important to have your feedback and questions, and we look forward to our subsequent discussions. I will pass the floor to Andre for closing remarks.

Andre Guillaumon, CEO

Thank you, Ana. Thank you to the team—Daisy, Camilla—and thanks to all participants. I want to express gratitude to this wonderful audience for trusting in the management of our company. We remain committed to prioritizing sustainability over immediate gains. We've achieved recognition as one of the best agribusiness companies to work for; this reaffirms that we’re on the right path. We are continuously surrounded by dedicated individuals aligned with our reliable results delivery. As Ana said, this year is just beginning, and optimistic observations suggest favorable conditions compared to last year—especially in Paraguay and mid-Brazil. Sugarcane production should witness increased rainfall, ultimately benefitting our crop outcomes. While hope springs eternal, we remain realistic in our approach; our empowerment and underpinning lies in processes, strategies, and committed personnel. This firm commitment extends beyond myself to all managers involved as well as you, who entrust us with your capital. Thank you dearly, and for any remaining unanswered questions, please connect with Ana in Investor Relations; we will ensure to get back to you promptly. Should you wish to reach out directly, we're always available to assist with your inquiries. Thank you!