6-K
Lavoro Ltd (LVROF)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13a-16 OR 15d-16 UNDER THE SECURITIES EXCHANGE ACT OF 1934
For the month of March 2024
Commission File Number: 001-41635
Lavoro Limited
(Exact name of registrant as specified in its charter)
Av. Dr. Cardoso de Melo, 1450, 4th floor, office 401 São Paulo — SP, 04548-005, Brazil +55 (11) 4280-0709
(Address of principal executive office)
Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F:
| Form 20-F | X | Form 40-F |
|---|
TABLE OF CONTENTS
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| Lavoro Limited | ||
|---|---|---|
| By: | /s/ Ruy Cunha | |
| Name: | Ruy Cunha | |
| Title: | Chief Executive Officer |
Date: March 7, 2024
Document
Lavoro Reports Fiscal Second Quarter 2024 Earnings Results1
•Lavoro’s revenue for 2Q24 reached $618.7 million, marking a 1% increase compared to the prior year period, as volume growth led by market share gains helped to offset continued significant input price deflationary pressures in crop protection and fertilizers across various operating regions
•2Q24 gross profit stood at $103.0 million, reflecting a -17% decrease year-over-year, with gross margins contracting by -360 basis points to 16.7%, driven mainly by deflationary pressures affecting Ag retail distribution margins, partly mitigated by a more favorable segment mix, as Crop Care grew to represent 24% of Lavoro’s gross profit in 2Q24 (up from 16% in 2Q23)
•Crop Care segment emerged as a highlight this quarter, with revenue increasing 26% to $72.8 million, and gross profit expanding 21% to $25.7 million driven by strong growth in specialty fertilizers
•Net profit for 2Q24 was $1.9 million, compared to $35.3 million in the prior year period. This decline is attributed to a reduction in gross profit alongside increased SG&A and interest expenses
•Adjusted EBITDA for the quarter was $40.1 million, a -48% decrease from the previous year, mainly due to significant input price deflation. Adjusted net profit stood at $2.6 million, down from $37.4 million in the prior year.
•Lavoro’s financial outlook for FY2024 is unchanged relative to the projections provided last quarter
SÃO PAULO – March 7, 2024 (GLOBE NEWSWIRE) — Lavoro Limited (Nasdaq: LVRO, LVROW), the first U.S.-listed pure-play agricultural inputs retailer in Latin America, today announced its financial results for the fiscal second quarter of 2024, which ended on December 31, 2023.
Ruy Cunha, CEO of Lavoro, commented, “Our second-quarter results underscore our resilience in the face of challenging market conditions not seen in our industry for well over a decade. Our model is intact, as demonstrated by the performance of our Brazil Ag Retail that produced yet another quarter of strong volume growth and market share gains, which offset the impact of the deflationary environment in crop protection and fertilizer inputs. Supporting these share gains is momentum in attracting seasoned technical sales representatives (RTVs) to the Lavoro organization, which is illustrated by 25% sequential growth in RTVs to just over 1,040 sales reps in Brazil, an increase of 25% over 1Q24. We are in a great position and anticipate the positive contribution of these new hires to help drive growth next fiscal year.”
Mr. Cunha added, “Second quarter gross margins experienced sequential improvement, signaling the beginning of a path to recovery supported by stabilizing local input prices from the retail channel to farmers, and by the continued improvement in our average cost of goods sold, as we gradually cycle through our higher-cost inventory. Moreover, Crop Care’s performance in the quarter was a stand-out, with double-digit year-over-year growth in revenue and gross profit year-over-year growth in spite of the market headwinds, and demonstrating yet again the synergies associated with the vertical integration with Lavoro Ag retail.
Our market outlook remains consistent with our late January assessment. We still foresee a 25% decrease in Brazil's retail inputs market for the 2023/2024 crop year, concluding in June 2024. Although price competition within the retail channel has broadly stabilized, disparities persist across Brazil's various regions, influenced by the ongoing destocking of excess agrochemical inventories. We are encouragingly by the recent favorable weather conditions, which have contributed to an uptick in farmer sentiment,
1 Financials presented in US dollars in throughout this release are converted using the following average period USD/BRL exchange rate: 4.955 for 2Q24; 5.265 for 2Q23; the 1Q24 period was calculated using monthly exchange rates (4.801 for Jul-23, 4.904 for Aug-23, 4.937 for Sep-23); 1Q23 period was calculated (5.368 for Jul-22, 5.143 for Aug-22, 5.237 for Sep-22)
evidenced by the strong start to the safrinha corn planting season—currently at 71%, exceeding the five-year average of 52%."
For the presentation of financials in US dollars, conversion was based on the average USD/BRL exchange rates for the period: 4.955 for the second quarter of 2024 and 5.265 for the second quarter of 2023. For the first quarter of 2024, calculations utilized monthly exchange rates (July 2023: 4.801, August 2023: 4.904, September 2023: 4.937); similarly, for the first quarter of 2023, the rates used were (July 2022: 5.368, August 2022: 5.143, September 2022: 5.237)
FY2Q24 Financial Highlights
•Consolidated revenue for Lavoro in 2Q24 increased by 1% to $618.7 million, compared to the prior year period. Inputs revenue expanded 1% (y/y) to $610.8 million, as continued robust volume growth, contributions from recent M&A, and currency tailwinds, more than offset for the input price deflationary environment.
•Brazil Ag Retail segment revenue grew by 1% to $528.7 million in 2Q24, reflecting market share gains, volume growth, and the impact from the acquisitions of Referencia and Coram, which collectively contributed 6% to 2Q24 segment revenue. Latam Ag Retail segment revenue fell by -2% to $55.8 million in the quarter, as the increase in fertilizer sales volumes and the favorable impact of the Colombian Peso’s strength were outweighed by a decrease in crop protection category revenues. Crop Care revenue increased 26% y/y to $72.8 million, led by the strong performance of specialty fertilizers and adjuvants product categories, which more than offset declines in biologicals.
•Consolidated gross profit decreased by -17% to $103.0 million in 2Q24, while gross margins contracted by -360 bps y/y to 16.7%. This reflects primarily lower distribution margins within our Brazil Ag Retail and Latam Ag Retail segments, higher freight costs as percentage of sales (an increase of 120 bps), and category mix-related headwinds in our Crop Care segment (with high margin biologicals underperforming in the quarter).
•Crucially, the year-over-year trends in consolidated gross margins saw a notable improvement sequentially, improving from a decline of -840 bps in the first quarter of 2024 to a decrease of -360 bps in the second quarter. This improvement stemmed primarily from the reduction in the average cost of goods sold, as higher-cost inventory purchased at the past elevated prices is gradually cycled through and replaced with inventory procured at current lower prices.
•Adjusted EBITDA decreased -48% y/y to $40.1 million in 2Q24, with Adjusted EBITDA margin contracting by -620 bps to 6.5%, reflecting the gross margin compression detailed above, along with a y/y increase in the SG&A (excluding D&A) as a percentage of sales, rising 300 bps to 11.3%. SG&A (excl. D&A) to sales increased due to primarily to (i) higher personnel costs associated with newly hired RTVs that have yet to contribute to sales, and (ii) an increase in the allowance for expected credit losses.
•Adjustment items excluded from Adjusted EBITDA increased by $1.5 million to $2.4 million for 2Q24, due primarily to higher stock-based compensation expense (+0.5 million), and an increase in related-party consultancy services expenses in 2Q24 (+$0.9 million).
•Adjusted net profit in 2Q24 was $2.6 million, a decline of -$34.8 million over the prior year quarter, driven mainly by lower Adjusted EBITDA (-$37.4 million), higher financial costs (-$5.4 million) due to higher interest expense on trade payables, partially offset by a positive contribution from income tax (+11.0 million).
| Consolidated Results (USD) | 2Q23 | 2Q24 | Chg. % | 1H23 | 1H24 | Chg. % |
|---|---|---|---|---|---|---|
| (in millions of US dollars) | ||||||
| Revenue by Segment | 611.7 | 618.7 | 1% | 1,048.5 | 1,101.8 | 5% |
| Brazil Ag Retail | 524.8 | 528.7 | 1% | 883.1 | 940.6 | 7% |
| Latam Ag Retail | 57.0 | 55.8 | (2)% | 123.7 | 122.1 | (1)% |
| Crop Care | 57.7 | 72.8 | 26% | 93.7 | 108.5 | 16% |
| Intercompany eliminations1 | (27.8) | (38.6) | (52.0) | (69.4) | ||
| Revenue by Category | 611.7 | 618.7 | 1% | 1,048.5 | 1,101.8 | 5% |
| Inputs revenue | 606.7 | 610.8 | 1% | 1,021.2 | 1,047.4 | 3% |
| Grains revenue | 5.0 | 7.9 | 57% | 27.3 | 54.4 | 99% |
| Gross Profit | 123.7 | 103.0 | (17)% | 214.4 | 162.6 | (24)% |
| Brazil Ag Retail | 99.7 | 73.3 | (27)% | 169.1 | 108.9 | (36)% |
| Latam Ag Retail | 11.5 | 9.9 | (14)% | 21.0 | 19.1 | (9)% |
| Crop Care | 21.3 | 25.7 | 21% | 38.1 | 41.2 | 8% |
| Intercompany | (8.8) | (5.9) | (13.7) | (6.6) | ||
| Gross Margin | 20.2% | 16.7% | (360) bps | 20.5% | 14.8% | (570) bps |
| Gross Margin (% of Inputs revenue) | 20.4% | 16.9% | (350) bps | 21.0% | 15.5% | (550) bps |
| SG&A (excl. D&A) | (50.5) | (69.7) | 38% | (102.3) | (125.0) | 22% |
| Other operating income (expense) | 3.4 | 4.4 | 6.0 | 4.4 | ||
| EBITDA | 76.6 | 37.7 | (51)% | 118.2 | 42.0 | (64)% |
| (+) Adjustment items | 0.9 | 2.4 | 3.7 | 9.3 | ||
| Adjusted EBITDA | 77.5 | 40.1 | (48)% | 121.9 | 51.3 | (58)% |
| Brazil Ag Retail | 64.3 | 26.7 | (58)% | 97.4 | 30.9 | (68)% |
| Latam Ag Retail | 7.1 | 4.7 | (34)% | 11.5 | 7.8 | (32)% |
| Crop Care | 15.0 | 16.2 | 8% | 26.8 | 21.7 | (19)% |
| Corporate / Intercompany | (8.8) | (7.4) | n.m. | (13.7) | (9.2) | n.m. |
| Adjusted EBITDA Margin % | 12.7% | 6.5% | (620) bps | 11.6% | 4.7% | (700) bps |
| Adjusted EBITDA Margin (% of Inputs) | 12.8% | 6.6% | (620) bps | 11.9% | 4.9% | (700) bps |
| Share of profit of an associate | – | (0.2) | – | (0.4) | ||
| D&A2 | (7.0) | (7.0) | (15.5) | (17.3) | ||
| Finance income (costs) | (31.9) | (37.3) | (60.0) | (63.3) | ||
| Income taxes, current and deferred | (2.4) | 8.6 | 7.8 | 26.3 | ||
| Net profit (loss) | 35.3 | 1.9 | (95)% | 50.4 | (12.6) | n.m. |
| (+) Adjustment items | 3.2 | 1.2 | 6.3 | 9.9 | ||
| (+) Income tax impact of adjustments | (1.1) | (0.4) | (2.2) | (3.4) | ||
| Adjusted net profit (loss) | 37.4 | 2.6 | (93)% | 54.6 | (6.1) | n.m. |
1 Intercompany eliminations represent sales between Crop Care and Brazil Ag Retail
2 Depreciation & amortization expense, which here also includes the fair value adjustment on inventory sold from acquired companies, a non-cash expenses resulting from purchase price allocation of past acquisitions
| Consolidated Results (BRL) | 2Q23 | 2Q24 | Chg. % | 1H23 | 1H24 | Chg. % |
|---|---|---|---|---|---|---|
| (in millions of Brazilian reais) | ||||||
| Revenue by Segment | 3,220.2 | 3,065.9 | (5)% | 5,506.1 | 5,431.8 | (1)% |
| Brazil Ag Retail | 2,763.0 | 2,619.9 | (5)% | 4,637.8 | 4,637.8 | 0% |
| Latam Ag Retail | 300.3 | 276.3 | (8)% | 649.6 | 600.5 | (8)% |
| Crop Care | 303.5 | 360.8 | 19% | 491.5 | 535.8 | 9% |
| Intercompany eliminations | (146.6) | (191.1) | (272.8) | (342.3) | ||
| Revenue by Category | 3,220.2 | 3,065.9 | (5)% | 5,506.1 | 5,431.8 | (1)% |
| Inputs revenue | 3,193.7 | 3,026.7 | (5)% | 5,363.0 | 5,166.6 | (4)% |
| Grains revenue | 26.5 | 39.2 | 48% | 143.1 | 265.2 | 85% |
| Gross Profit | 651.1 | 510.6 | (22)% | 1,125.3 | 803.9 | (29)% |
| Brazil Ag Retail | 525.1 | 363.2 | (31)% | 887.6 | 539.5 | (39)% |
| Latam Ag Retail | 60.5 | 49.2 | (19)% | 110.5 | 93.9 | (15)% |
| Crop Care | 112.0 | 127.4 | 14% | 199.5 | 203.3 | 2% |
| Intercompany | (46.5) | (29.2) | (72.2) | (32.8) | ||
| Gross Margin | 20.2% | 16.7% | (360) bps | 20.4% | 14.8% | (560) bps |
| Gross Margin (% of Inputs revenue) | 20.4% | 16.9% | (350) bps | 21.0% | 15.6% | (540) bps |
| SG&A (excl. D&A) | (265.9) | (345.3) | 30% | (536.8) | (615.4) | 15% |
| Other operating income (expense) | 18.1 | 21.6 | 31.7 | 21.9 | ||
| EBITDA | 403.3 | 186.8 | (54)% | 620.2 | 210.4 | (66)% |
| (+) Adjustment items | 4.9 | 12.1 | 19.7 | 46.2 | ||
| Adjusted EBITDA | 408.2 | 198.9 | (51)% | 640.0 | 256.7 | (60)% |
| Brazil Ag Retail | 338.3 | 132.3 | (61)% | 511.4 | 155.3 | (70)% |
| Latam Ag Retail | 37.4 | 23.1 | (38)% | 60.5 | 38.4 | (37)% |
| Crop Care | 79.0 | 80.2 | 1% | 140.4 | 108.4 | (23)% |
| Corporate / Intercompany | (46.5) | (36.7) | n.m. | (72.2) | (45.4) | n.m. |
| Adjusted EBITDA Margin % | 12.7% | 6.5% | (620) bps | 11.6% | 4.7% | (690) bps |
| Adjusted EBITDA Margin (% of Inputs) | 12.8% | 6.6% | (620) bps | 11.9% | 5.0% | (700) bps |
| Share of profit of an associate | (0.8) | (1.8) | ||||
| D&A3 | (37.1) | (34.8) | (81.6) | (85.0) | ||
| Finance income (costs) | (167.9) | (184.7) | (315.7) | (313.6) | ||
| Income taxes, current and deferred | (12.5) | 42.6 | 41.0 | 128.2 | ||
| Net profit (loss) | 185.8 | 9.2 | (95)% | 263.9 | (61.8) | n.m. |
| (+) Adjustment items | 16.9 | 5.7 | 33.5 | 49.1 | ||
| (+) Income tax impact of adjustments | (5.8) | (1.9) | (11.4) | (16.7) | ||
| Adjusted net profit (loss) | 197.0 | 12.9 | (93)% | 286.0 | (29.4) | n.m. |
3 Depreciation & amortization, which includes the fair value adjustment on inventory sold from acquired companies, a non-cash expenses resulting from purchase price allocation of past acquisitions
Segment Results
Brazil Ag Retail
•Segment revenue of $528.7 million increased by 1% (a decrease of -5% in BRL terms) over the prior year period, reflecting volume growth in crop protection (up 46%), fertilizers (up 63%), specialty products (up 29%), and seeds (up 3%), which were offset by price deflation and negative product mix across all categories. Notably, revenue in seeds products decreased by -11% y/y, negatively impacted by the shift in timing of farmers purchasing decisions, and a decrease in the mix of higher technology corn seed varieties due to El Niño. Recently acquired Referencia and Coram together contributed 6% to 2Q24 Brazil Ag Retail segment revenue.
•Gross margin contracted by -510 bps y/y to 13.9% in 2Q24, led by the impact of input price deflation across all product categories. Positively, gross margins saw a notable sequential improvement in y/y trends relative 1Q24, where gross margins had contracted by -1,070 bps. The sequential improvement was most pronounced in crop protection (a reduction of -260 bps y/y in 2Q24 vs. a reduction of -1,310 bps in 1Q24) and fertilizers (-280 bps in 2Q24 vs. -1,200 bps in 1Q24), as local input prices from the retail channel to farmers have stabilized, and as our average cost of goods sold continues to improve with the cycling of higher-cost inventory. Gross margins in seeds products sales declined sequentially (-430 bps y/y in 2Q24 vs. flat in 1Q24), due to the above-mentioned headwinds from mix.
•Adjusted EBITDA experienced a 58% decrease to $26.7 million in 2Q24, with Adjusted EBITDA margins reducing by -720 bps to 5.0%, attributable to gross margins headwinds, in addition to increased SG&A expenses due to a higher allowance for expected credit losses and elevated personnel costs stemming from the recent hiring of RTVs which have yet to impact sales.
| Brazil Ag Retail (USD) | 2Q23 | 2Q24 | Chg. % | 1H23 | 1H24 | Chg. % |
|---|---|---|---|---|---|---|
| (in millions of US dollars) | ||||||
| Inputs revenue | 520.6 | 521.7 | 0% | 861.9 | 893.3 | 4% |
| Grains revenue | 4.2 | 7.0 | 66% | 21.3 | 47.3 | 122% |
| Revenue | 524.8 | 528.7 | 1% | 883.1 | 940.6 | 7% |
| Gross Profit | 99.7 | 73.3 | (27)% | 169.1 | 108.9 | (36)% |
| Gross Margin | 19.0% | 13.9% | (510) bps | 19.1% | 11.6% | (760) bps |
| Gross Margin (% Inputs revenue) | 19.2% | 14.0% | (510) bps | 19.6% | 12.2% | (740) bps |
| Adjusted EBITDA | 64.3 | 26.7 | (58)% | 97.4 | 30.9 | (68)% |
| Adjusted EBITDA margin | 12.2% | 5.0% | (720) bps | 11.0% | 3.3% | (770) bps |
| Adjusted EBITDA (% Inputs revenue) | 12.3% | 5.1% | (720) bps | 11.3% | 3.5% | (780) bps |
| Brazil Ag Retail (BRL) | 2Q23 | 2Q24 | Chg. % | 1H23 | 1H24 | Chg. % |
| --- | --- | --- | --- | --- | --- | --- |
| (in millions of Brazilian reais) | ||||||
| Inputs revenue | 2,740.7 | 2,585.0 | (6)% | 4,526.5 | 4,407.6 | (3)% |
| Grains revenue | 22.3 | 34.9 | 56% | 111.4 | 230.3 | 107% |
| Revenue | 2,763.0 | 2,619.9 | (5)% | 4,637.8 | 4,637.8 | 0% |
| Gross Profit | 525.1 | 363.2 | (31)% | 887.6 | 539.5 | (39)% |
| Gross Margin | 19.0% | 13.9% | (510) bps | 19.1% | 11.6% | (750) bps |
| Gross Margin (% Inputs revenue) | 19.2% | 14.0% | (510) bps | 19.6% | 12.2% | (740) bps |
| Adjusted EBITDA | 338.3 | 132.3 | (61)% | 511.4 | 155.3 | (70)% |
| Adjusted EBITDA margin | 12.2% | 5.0% | (720) bps | 11.0% | 3.3% | (770) bps |
| Adjusted EBITDA (% Inputs revenue) | 12.3% | 5.1% | (720) bps | 11.3% | 3.5% | (780) bps |
| Brazil Ag Retail KPIs | 2Q23 | 2Q24 | Chg. % | |||
| --- | --- | --- | --- | |||
| Retail stores | 175 | 172 | (2)% | |||
| Number of RTVs | 736 | 1,040 | 41% |
Latam Ag Retail
•Segment revenue was $54.9 million in 2Q24, marking a -2% decrease from the prior year quarter (a decrease of -8% in BRL terms, and -17% in local Colombian Peso terms), led primarily by price deflationary headwinds to fertilizers and crop protection distribution revenue, and the ongoing impact of the discontinuation of a herbicide from a supplier’s product lineup. These headwinds to revenue were partly offset by growth in sales of specialty product, seeds, and services, as well as
the currency tailwind stemming from the appreciation of the Colombian Peso relative to the US Dollar and Brazilian Real.
•Segment gross profit was $9.9 million in 2Q24, a decrease of -14% y/y over the prior year period, while gross margins declining by -230 bps to 17.8% due primarily to the above-mentioned impact of pricing deflation to crop protection and fertilizer distribution margins.
•Adjusted EBITDA decreased -34% y/y to $4.7 million, and Adjusted EBITDA margins compressed by -410 bps to 8.4% due to the same drivers outlined above.
| Latam Ag Retail (USD) | 2Q23 | 2Q24 | Chg. % | 1H23 | 1H24 | Chg. % |
|---|---|---|---|---|---|---|
| (in millions of US dollars) | ||||||
| Inputs & services revenue | 56.2 | 54.9 | (2)% | 117.7 | 115.0 | (2)% |
| Grains revenue | 0.8 | 0.9 | 11% | 6.0 | 7.1 | 17% |
| Revenue | 57.0 | 55.8 | (2)% | 123.7 | 122.1 | (1)% |
| Gross Profit | 11.5 | 9.9 | (14)% | 21.0 | 19.1 | (9)% |
| Gross Margin | 20.2% | 17.8% | (230) bps | 17.0% | 15.6% | (140) bps |
| Gross Margin (% Inputs revenue) | 20.4% | 18.1% | (230) bps | 17.9% | 16.6% | (130) bps |
| Adjusted EBITDA | 7.1 | 4.7 | (34)% | 11.5 | 7.8 | (32)% |
| Adjusted EBITDA margin | 12.4% | 8.4% | (410) bps | 9.3% | 6.4% | (290) bps |
| Adjusted EBITDA (% Inputs revenue) | 12.6% | 8.5% | (410) bps | 9.8% | 6.8% | (300) bps |
| Latam Ag Retail (BRL) | 2Q23 | 2Q24 | Chg. % | 1H23 | 1H24 | Chg. % |
| --- | --- | --- | --- | --- | --- | --- |
| (in millions of Brazilian reais) | ||||||
| Inputs & services revenue | 296.1 | 272.0 | (8)% | 617.9 | 565.6 | (8)% |
| Grains revenue | 4.2 | 4.3 | 4% | 31.7 | 34.9 | 10% |
| Revenue | 300.3 | 276.3 | (8)% | 649.6 | 600.5 | (8)% |
| Gross Profit | 60.5 | 49.2 | (19)% | 110.5 | 93.9 | (15)% |
| Gross Margin | 20.2% | 17.8% | (230) bps | 17.0% | 15.6% | (140) bps |
| Gross Margin (% Inputs revenue) | 20.4% | 18.1% | (230) bps | 17.9% | 16.6% | (130) bps |
| Adjusted EBITDA | 37.4 | 23.1 | (38)% | 60.5 | 38.4 | (37)% |
| Adjusted EBITDA margin | 12.4% | 8.4% | (410) bps | 9.3% | 6.4% | (290) bps |
| Adjusted EBITDA (% Inputs revenue) | 12.6% | 8.5% | (410) bps | 9.8% | 6.8% | (300) bps |
| Latam Ag Retail KPIs | 2Q23 | 2Q24 | Chg. % |
|---|---|---|---|
| Retail stores | 40 | 37 | (8)% |
| Number of RTVs | 276 | 263 | (5)% |
Crop Care
•Segment revenue was $72.8 million in 2Q24, marking a 26% increase (19% in BRL terms) from the previous year, reflecting strong performance in the specialty fertilizer product category (up 55%), as well as the contribution of newly acquired manufacturer of adjuvants and enhancers, Cromo Química, which contributed 5% to Crop Care’s 2Q24 segment revenue.
•Cromo’s y/y revenue growth exceeded 100% in 2Q24, benefiting from effective cross-selling with Brazil Ag Retail distribution. These positive contributors to revenue were partly offset by a -19% decline in biological products sales, which were adversely impacted by the shift in timing of farmers purchasing decisions, and by the impact of El Niño on the safrinha corn crop.
•Segment gross profit grew 21% y/y to $25.7 million in 2Q24, while gross margins decreased by -160 bps to 35.3% due to adverse mix effects from the relative performance of high-margin biological products in the quarter.
•Adjusted EBITDA grew 8% y/y to $16.2 million in 2Q24, while Adjusted EBITDA margins decreased by -380 bps to 22.2% due to the above-mentioned gross margin headwinds, along with increased investments in R&D and other growth initiatives.
| Crop Care (USD) | 2Q23 | 2Q24 | Chg. % | 1H23 | 1H24 | Chg. % |
|---|---|---|---|---|---|---|
| (in millions of US dollars) | ||||||
| Revenue | 57.7 | 72.8 | 26% | 93.7 | 108.5 | 16% |
| Gross Profit | 21.3 | 25.7 | 21% | 38.1 | 41.2 | 8% |
| Gross Margin | 36.9% | 35.3% | (160) bps | 40.6% | 37.9% | (270) bps |
| Adjusted EBITDA | 15.0 | 16.2 | 8% | 26.8 | 21.7 | (19)% |
| Adjusted EBITDA margin | 26.0% | 22.2% | (380) bps | 28.6% | 20.1% | (850) bps |
| Crop Care (BRL) | 2Q23 | 2Q24 | Chg. % | 1H23 | 1H24 | Chg. % |
|---|---|---|---|---|---|---|
| (in millions of Brazilian reais) | ||||||
| Revenue | 303.5 | 360.8 | 19% | 491.5 | 535.8 | 9% |
| Gross Profit | 112.0 | 127.4 | 14% | 199.5 | 203.3 | 2% |
| Gross Margin | 36.9% | 35.3% | (160) bps | 40.6% | 37.9% | (260) bps |
| Adjusted EBITDA | 79.0 | 80.2 | 1% | 140.4 | 108.4 | (23)% |
| Adjusted EBITDA margin | 26.0% | 22.2% | (380) bps | 28.6% | 20.2% | (830) bps |
Full Fiscal Year 2024 Consolidated Outlook4
Lavoro is maintaining its FY2024 guidance, with consolidated revenue projected between USD $2.0 billion and $2.3 billion, consolidated Inputs revenue expected to range from $1.7 billion to $2.0 billion, and consolidated Adjusted EBITDA anticipated to be between $80 million and $110 million.
| FY2024 Guidance | ||
|---|---|---|
| Consolidated Financials Outlook | Low | High |
| (in millions of US dollars) | ||
| Revenue | 2,000 | 2,300 |
| Inputs revenue | 1,700 | 2,000 |
| Adjusted EBITDA | 80 | 110 |
Conference Call Details
The Company will host a conference call and webcast to review its fiscal Second Quarter 2024 results on March 7, 2024, at 5 pm ET / 7 pm BRT.
Participant numbers: 1-877-407-9716 (U.S.), 1-201-493-6779 (International)
The live audio webcast will be accessible in the Events section on the Company's Investor Relations website at https://ir.lavoroagro.com/disclosure-and-documents/events/.
4 USD/BRL average period exchange rate embedded in our financial outlook: monthly exchange rates (4.801 for Jul-23, 4.904 for Aug-23, 4.937 for Sep-23) used for 1Q24; 4.955 for 2Q24; 4.95 for the remainder of FY24
Non-IFRS Financial Measures
This press release contains certain non-IFRS financial measures, including Adjusted EBITDA, Adjusted EBITDA Margin, Adjusted Net Profit/Loss and Adjusted Net Profit/Loss Margin. A non-IFRS financial measure is generally defined as a numerical measure of historical or future financial performance, financial position, or cash flow that purports to measure financial performance but excludes or includes amounts that would not be so adjusted in the most comparable IFRS measure. The Company believes these non-IFRS financial measures provide meaningful supplemental information as they are used by the Company's management to evaluate the Company's performance, and provide additional information about trends in our operating performance prior to considering the impact of capital structure, depreciation, amortization and taxation on our results, as well as the effects of certain items or events that vary widely among similar companies, and therefore may hamper comparability across periods, although these measures are not explicitly defined under IFRS. Management believes that these measures enhance a reader's understanding of the operating and financial performance of the Company and facilitate a better comparison between fiscal periods. Adjusted EBITDA is defined as profit (loss) for the year, adjusted for finance income (costs), net, income taxes, depreciation and amortization and excluding the impact of certain revenues, expenses and costs that we believe are isolated in nature incurred as part of our expansion, namely: (i) fair value on inventories sold from acquired companies, (ii) M&A adjustments that in management’s judgment do not necessarily occur on a regular basis, (iii) listing and other expenses recognized in connection with the Business Combination, (iv) share-based compensation expenses, (v) bonuses paid out to our employees as a result of the closing of the Business Combination, (vi) expenses paid to Patria in connection with management consultancy services, (vii) depreciation and amortization recognize on cost of goods sold and (viii) losses/gains on the fair value of commodity forward contracts. Adjusted EBITDA Margin is calculated as Adjusted EBITDA as a percentage of revenue for the period/year. Adjusted Net Profit/Loss is defined as Net Profit/Loss excluding the impact of certain revenues, expenses and costs that we believe are isolated in nature incurred as part of our expansion, namely: (i) fair value on inventories sold from acquired companies, (ii) M&A adjustments that in management’s judgment do not necessarily occur on a regular basis, (iii) listing and other expenses recognized in connection with the Business Combination, (iv) share-based compensation expenses, (v) bonuses paid out to our employees as a result of the closing of the Business Combination, (vi) expenses paid to Patria in connection with management consultancy services, (vii) depreciation and amortization recognize on cost of goods sold and (viii) losses/gains on the fair value of commodity forward contracts. Adjusted Net Profit/Loss Margin is calculated as Adjusted Net Profit/Loss as a percentage of revenue for the period/year.
The Company does not intend for the non-IFRS financial measures contained in this release to be a substitute for any IFRS financial information. Readers of this press release should use these non-IFRS financial measures only in conjunction with comparable IFRS financial measures. Reconciliations of the non-IFRS financial measures Adjusted EBITDA, Adjusted EBITDA Margin, Adjusted Net Profit/Loss and Adjusted Net Profit/Loss Margin, to their most comparable IFRS measures, are provided in the table below.
Reconciliation of Adjusted EBITDA
| Reconciliation of Adjusted EBITDA (USD) | 2Q23 | 2Q24 | 1H23 | 1H24 |
|---|---|---|---|---|
| (in millions of US dollars) | ||||
| Net profit (loss) | 35.3 | 1.9 | 50.4 | (12.6) |
| (+) Income taxes, current and deferred | 2.4 | (8.6) | (7.8) | (26.3) |
| (+) Finance income (costs) | 31.9 | 37.3 | 60.0 | 63.3 |
| (+) Depreciation and amortization | 7.0 | 7.0 | 15.5 | 17.3 |
| (+) Share of profit of an associate | – | 0.2 | – | 0.4 |
| (+) M&A expenses | 0.5 | 0.5 | 1.0 | 3.9 |
| (+) Stock-based compensation | 0.5 | 1.0 | 2.2 | 2.2 |
| (+) DeSPAC related bonus | – | 0.1 | – | 1.4 |
| (+) Related party consultancy services | – | 0.9 | 0.6 | 1.8 |
| (+) Other non-operating (benefits) expenses | – | – | – | – |
| Adjusted EBITDA | 77.5 | 40.1 | 121.9 | 51.3 |
| Reconciliation of Adjusted EBITDA (BRL) | 2Q23 | 2Q24 | 1H23 | 1H24 |
| --- | --- | --- | --- | --- |
| (in millions of Brazilian reais) | ||||
| Net profit (loss) | 185.8 | 9.2 | 263.9 | (61.8) |
| (+) Income taxes, current and deferred | 12.5 | (42.6) | (41.0) | (128.2) |
| (+) Finance income (costs) | 167.9 | 184.7 | 315.7 | 313.6 |
| (+) Depreciation and amortization | 37.1 | 34.8 | 81.6 | 85.0 |
| (+) Share of profit of an associate | – | 0.8 | – | 1.8 |
| (+) M&A expenses | 2.4 | 2.4 | 5.0 | 19.3 |
| (+) Stock-based compensation | 2.5 | 4.7 | 11.4 | 10.7 |
| (+) DeSPAC related bonus | – | 0.4 | – | 7.0 |
| (+) Related party consultancy services | – | 4.4 | 3.1 | 8.7 |
| (+) Other non-operating (benefits) expenses | – | 0.1 | 0.2 | 0.6 |
| Adjusted EBITDA | 408.2 | 198.9 | 640.0 | 256.7 |
Reconciliation of Adjusted Net Profit (Loss)
| Reconciliation of Adjusted Net Profit (USD) | 2Q23 | 2Q24 | 1H23 | 1H24 |
|---|---|---|---|---|
| (in millions of US dollars) | ||||
| Net profit (loss) | 35.3 | 1.9 | 50.4 | (12.6) |
| (+) Fair value of inventories sold from acquired companies | 2.3 | (1.4) | 2.6 | 0.2 |
| (+) Share of profit of an associate | — | 0.2 | — | 0.4 |
| (+) M&A expenses | 0.5 | 0.5 | 1.0 | 3.9 |
| (+) Stock Option Plan | 0.5 | 1.0 | 2.2 | 2.2 |
| (+) DeSPAC related bonus | — | 0.1 | — | 1.4 |
| (+) Related party consultancy services | — | 0.9 | 0.6 | 1.8 |
| (+) Other non-operating (benefits) expenses | — | — | — | — |
| (+) Income tax impact of adjustments | (1.1) | (0.4) | (2.2) | (3.4) |
| Adjusted net profit (loss) | 37.4 | 2.6 | 54.6 | (6.1) |
| Reconciliation of Adjusted Net Profit (BRL) | 2Q23 | 2Q24 | 1H23 | 1H24 |
| --- | --- | --- | --- | --- |
| (in millions of Brazilian reais) | ||||
| Net profit (loss) | 185.8 | 9.2 | 263.9 | (61.8) |
| (+) Fair value of inventories sold from acquired companies | 12.0 | (7.2) | 13.8 | 1.1 |
| (+) Share of profit of an associate | — | 0.8 | — | 1.8 |
| (+) M&A expenses | 2.4 | 2.4 | 5.0 | 19.3 |
| (+) Stock Option Plan | 2.5 | 4.7 | 11.4 | 10.7 |
| (+) DeSPAC related bonus | — | 0.4 | — | 7.0 |
| (+) Related party consultancy services | — | 4.4 | 3.1 | 8.7 |
| (+) Other non-operating (benefits) expenses | — | 0.1 | 0.2 | 0.6 |
| (+) Income tax impact of adjustments | (5.8) | (1.9) | (11.4) | (16.7) |
| Adjusted net profit (loss) | 197.0 | 12.9 | 286.0 | (29.4) |
About Lavoro
Lavoro is Brazil's largest agricultural inputs retailer and a leading producer of agricultural biological products. Lavoro's shares and warrants are listed on the Nasdaq stock exchange under the tickers "LVRO" and "LVROW." Through its comprehensive portfolio of products and services, the company empowers small and medium-size farmers to adopt the latest emerging agricultural technologies and enhance their productivity. Since its founding in 2017, Lavoro has broadened its reach across Latin America, serving 72,000 customers in Brazil, Colombia, and Uruguay, via its team of over 1,000 technical sales representatives (RTVs), its network of over 210 retail locations, and its digital marketplace and solutions. Lavoro's RTVs are local trusted advisors to farmers, regularly meeting them to provide agronomic recommendations throughout the crop cycle to drive optimized outcomes. Learn more about Lavoro at ir.lavoroagro.com.
Reportable Segments
Lavoro’s reportable segments are the following:
Brazil Cluster (Brazil Ag Retail): comprises companies dedicated to the distribution of agricultural inputs such as crop protection, seeds, fertilizers, and specialty products, in Brazil.
LatAm Cluster (Latam Ag Retail): includes companies dedicated to the distribution of agricultural inputs outside Brazil (currently primarily in Colombia).
Crop Care Cluster (Crop Care): includes companies that produce and import our own portfolio of private label products including specialty products (e.g., biologicals and specialty fertilizers) and off-patent crop protection.
Lavoro’s Fiscal Year
Lavoro follows the crop year, which means that its fiscal year comprises July 1st of each year, until June 30 of the following year. Given this, Lavoro’s quarters have the following format:
1Q – quarter starting on July 1 and ending on September 30.
2Q – quarter starting on October 1 and ending on December 31.
3Q – quarter starting on January 1 and ending on March 31.
4Q – quarter starting on April 1 and ending on June 30.
Definitions
RTVs: refer to Lavoro’s technical sales representatives (Representante Técnico de Vendas), who are linked to its retail stores, and who develop commercial relationships with farmers.
Forward-Looking Statements
The contents of any website mentioned or hyperlinked in this press release are for informational purposes and the contents thereof are not part of or incorporated into this press release.
Certain statements made in this presentation are “forward-looking statements” within the meaning of the “safe harbor” provisions of the United States Private Securities Litigation Reform Act of 1995. Forward-looking statements may be identified by the use of words such as “aims,” “estimate,” “plan,” “project,” “forecast,” “intend,” “will,” “expect,” “anticipate,” “believe,” “seek,” “target” or other similar expressions that predict or indicate future events or trends or that are not statements of historical matters. These forward-looking statements include, but are not limited to, statements regarding the expectations regarding the growth of Lavoro's business and its ability to realize expected results, grow revenue from existing customers, and consummate acquisitions; opportunities, trends, and developments in the agricultural input industry, including with respect to future financial performance in the industry. These forward-looking statements are provided for illustrative purposes only and are not intended to serve as and must not be relied on by any investor as, a guarantee, an assurance, a prediction, or a definitive statement of fact or probability. Actual events and circumstances are difficult or impossible to predict and will differ from assumptions. Many actual events and circumstances are beyond the control of Lavoro.
These forward-looking statements are subject to a number of risks and uncertainties, including but not limited to, the outcome of any legal proceedings that may be instituted against Lavoro related to the business combination
agreement or the transaction; the ability to maintain the listing of Lavoro's securities on Nasdaq; the price of Lavoro's securities may be volatile due to a variety of factors, including changes in the competitive and regulated industries in which Lavoro operates, variations in operating performance across competitors, changes in laws and regulations affecting Lavoro's business; Lavoro's inability to meet or exceed its financial projections and changes in the consolidated capital structure; changes in general economic condition; the ability to implement business plans, forecasts, and other expectations, changes in domestic and foreign business, market, financial, political and legal conditions; the outcome of any potential litigation, government and regulatory proceedings, investigations and inquiries; costs related to the business combination and being a public company and other risks and uncertainties indicated from time to time in the proxy statement/prospectus filed by Lavoro relating to the business combination or in the future, including those under “Risk Factors” therein, and in Lavoro's other filings with the SEC. If any of these risks materialize or our assumptions prove incorrect, actual results could differ materially from the results implied by these forward-looking statements. There may be additional risks that Lavoro currently believes are immaterial that could also cause actual results to differ from those contained in the forward-looking statements. In addition, forward-looking statements reflect Lavoro's expectations, plans, or forecasts of future events and views as of the date of this presentation. Lavoro anticipates that subsequent events and developments will cause Lavoro's assessments to change. However, while Lavoro may elect to update these forward-looking statements at some point in the future, Lavoro specifically disclaims any obligation to do so. These forward-looking statements should not be relied upon as representing Lavoro's assessments as of any date subsequent to the date of this presentation. Accordingly, undue reliance should not be placed upon the forward-looking statements.
In addition, forward-looking statements reflect Lavoro’s expectations, plans, or forecasts of future events and views as of the date of this press release. Lavoro anticipates that subsequent events and developments will cause Lavoro’s assessments to change. However, while Lavoro may elect to update these forward-looking statements at some point in the future, Lavoro specifically disclaims any obligation to do so. These forward-looking statements should not be relied upon as representing Lavoro’s assessments as of any date subsequent to the date of this press release. Accordingly, undue reliance should not be placed upon the forward-looking statements.
Contact
Julian Garrido
julian.garrido@lavoroagro.com
Tigran Karapetian
tigran.karapetian@lavoroagro.com
Fernanda Rosa
fernanda.rosa@lavoroagro.com
a2q24erpreso_vf
FY2Q24 Earnings Presentation March 7th, 2024
2 Disclaimer The contents of any website mentioned or hyperlinked in this presentation are for informational purposes and the contents thereof are not part of or incorporated into this presentation. Certain statements made in this presentation are “forward-looking statements” within the meaning of the “safe harbor” provisions of the United States Private Securities Litigation Reform Act of 1995. Forward- looking statements may be identified by the use of words such as “aims,” “estimate,” “plan,” “project,” “forecast,” “intend,” “will,” “expect,” “anticipate,” “believe,” “seek,” “target” or other similar expressions that predict or indicate future events or trends or that are not statements of historical matters. These forward-looking statements include, but are not limited to, statements regarding the expectations regarding the growth of Lavoro's business and its ability to realize expected results, grow revenue from existing customers, and consummate acquisitions; opportunities, trends, and developments in the agricultural input industry, including with respect to future financial performance in the industry. These forward-looking statements are provided for illustrative purposes only and are not intended to serve as and must not be relied on by any investor as, a guarantee, an assurance, a prediction, or a definitive statement of fact or probability. Actual events and circumstances are difficult or impossible to predict and will differ from assumptions. Many actual events and circumstances are beyond the control of Lavoro. These forward-looking statements are subject to a number of risks and uncertainties, including but not limited to, the outcome of any legal proceedings that may be instituted against Lavoro related to the business combination agreement or the transaction; the ability to maintain the listing of Lavoro's securities on Nasdaq; the price of Lavoro's securities may be volatile due to a variety of factors, including changes in the competitive and regulated industries in which Lavoro operates, variations in operating performance across competitors, changes in laws and regulations affecting Lavoro's business; Lavoro's inability to meet or exceed its financial projections and changes in the consolidated capital structure; changes in general economic condition; the ability to implement business plans, forecasts, and other expectations, changes in domestic and foreign business, market, financial, political and legal conditions; the outcome of any potential litigation, government and regulatory proceedings, investigations and inquiries; costs related to the business combination and being a public company and other risks and uncertainties indicated from time to time in the proxy statement/prospectus filed by Lavoro relating to the business combination or in the future, including those under “Risk Factors” therein, and in Lavoro's other filings with the SEC. If any of these risks materialize or our assumptions prove incorrect, actual results could differ materially from the results implied by these forward-looking statements. There may be additional risks that Lavoro currently believes are immaterial that could also cause actual results to differ from those contained in the forward-looking statements. In addition, forward-looking statements reflect Lavoro's expectations, plans, or forecasts of future events and views as of the date of this presentation. Lavoro anticipates that subsequent events and developments will cause Lavoro's assessments to change. However, while Lavoro may elect to update these forward-looking statements at some point in the future, Lavoro specifically disclaims any obligation to do so. These forward-looking statements should not be relied upon as representing Lavoro's assessments as of any date subsequent to the date of this presentation. Accordingly, undue reliance should not be placed upon the forward-looking statements. We have prepared this presentation solely for informational purposes. The information in this presentation does not constitute or form part of, and should not be construed as, an offer or invitation to subscribe for, underwrite or otherwise acquire, any of our securities or securities of our subsidiaries or affiliates, not should it or any part of it form the basis of, or be relied on, in connection with any contract to purchase or subscribe for any of our securities or securities of any of our subsidiaries or affiliates, nor shall it or any part of it form the basis of, or be relied on, in connection with any contract or commitment whatsoever. This presentation also includes certain non-IFRS financial information. We believe that such information is meaningful and useful in understanding the activities and business metrics of our operations. We also believe that these non-IFRS financial measures reflect an additional way of viewing aspects of our business that, when viewed with our International Financial Reporting Standards (“IFRS”) results, as issued by the International Accounting Standards Board, provide a more complete understanding of factors and trends affecting our business. Further, investors regularly rely on non-IFRS financial measures to assess operating performance and such measures may highlight trends in our business that may not otherwise be apparent when relying on financial measures calculated in accordance with IFRS. We also believe that non-IFRS financial measures are frequently used by securities analysts, investors and other interested parties in the evaluation of public companies in our industry, many of which present these measures when reporting their results. The non-IFRS financial information is presented for informational purposes and to enhance understanding of the IFRS financial statements. The non-IFRS measures should be considered in addition to results prepared in accordance with IFRS, but not as a substitute for, or superior to, IFRS results. As other companies may determine or calculate this non-IFRS financial information differently, the usefulness of these measures for comparative purposes is limited. A reconciliation of such non-IFRS financial measures to the nearest IFRS measure is included in this presentation.
3 Market and Guidance Update FY2Q24 Financial Highlights ▪ Revenue: $618.7M (+1% y/y; -5% in BRL terms), with continued growth in sales volume in crop protection (+46% y/y), fertilizers (63%) and specialties (+29%), continued to offset deflationary pressures ▪ Share gains supported by strong momentum in attracting seasoned RTVs. RTVs ▪ Gross Profit: $103.0M (-17% y/y). Gross Margin declined by -360 bps to 16.7%, driven mainly by deflationary pressures affecting Ag retail distribution margins, partly mitigated by a more favorable segment mix ▪ Crop Care segment emerged as a highlight this quarter, with revenue increasing 26% to $72.8 million, and gross profit expanding 21% to $25.7 million driven by strong growth in specialty fertilizers ▪ Adjusted EBITDA: $40.1M (-48% y/y). Adj. EBITDA Margin contracted by -620 bps to 6.5% CEO Highlights ▪ Lavoro’s financial outlook for FY2024 is unchanged relative to the projections provided last quarter ▪ Estimate for Brazil retail inputs market size FY24 unchanged at -25% for the 2023/2024 crop year ▪ Soybean/Corn futures declined since last update, due to better expectations for global supply (Argentina/RS) and higher global stocks-to-use ▪ Price competition within the retail channel has broadly stabilized, though disparities persist across Brazil's various regions, influenced by the ongoing destocking of excess agrochemical inventories ▪ Safrinha scenario: Better distribution of rains, and early harvest of 1st soy created an improved window for corn planting relative to expectations of a month ago. Farmer sentiment slightly improved vs. 6 weeks ago evidenced by the strong start to the safrinha corn planting season (currently at 71%, vs. 5-yr average of 52%) USD/BRL monthly average period exchange rate used to translate results to USD: 4.955 for 2Q24; 5.265 for 2Q23; the 1Q24 period was calculated using monthly exchange rates (4.801 for Jul-23, 4.904 for Aug-23, 4.937 for Sep-23); 1Q23 period was calculated (5.368 for Jul-22, 5.143 for Aug-22, 5.237 for Sep-22)
4 2Q24 Financial Performance Note: Intercompany results represent sales between Crop Care and Brazil Ag Retail segments (1) USD/BRL monthly average period exchange rate used to translate results to USD: 5.368 for Jul-2022, 5.143 for Aug-2022, 5.237 for Sep-2022 | 4.801 for Jul-2023, 4.904 for Aug-2023, 4.937 for Sep-2023 606.6 610.8 5.0 7.9 611.7 618.7 +1% Inputs Grains 99.7 73.3 11.5 9.9 21.3 25.7 (8.8) (5.9) 123.7 103.0 -17% 524.8 528.7 57.0 55.8 57.7 72.8 (27.8) (38.6) 611.7 618.7 +1% Intercompany / Corporate Crop Care Latam Ag Retail Brazil Ag Retail Revenue Gross Profit Adjusted EBITDA As % of Revenue 20.2% 16.7% As % of Inputs Revenue 20.4% 16.9% 64.3 26.7 15.0 16.2 (8.8) 7.1 4.7 (7.4) 77.5 40.1 -48% In millions of US dollars1 12.2% 6.5% 12.3% 6.6% 2Q23 2Q24 2Q23 2Q24 2Q23 2Q24 2Q23 2Q24
5 FY2024 Outlook Remains Unchanged FY2024 Financials Outlook Low High (in millions of US dollars) Revenue 2,000 2,300 Inputs revenue 1,700 2,000 Adjusted EBITDA 80 110 Note: USD/BRL average period exchange rate embedded in our financial outlook: monthly exchange rates (4.801 for Jul-23, 4.904 for Aug-23, 4.937 for Sep-23) used for 1Q24; 4.955 for 2Q24; 4.95 for the remainder of FY24
6 Summary of Financial Results for 2Q24 in USD In millions of US dollars1 (1) USD/BRL monthly average period exchange rate used to translate results to USD: 4.955 for 2Q24; 5.265 for 2Q23; the 1Q24 period was calculated using monthly exchange rates (4.801 for Jul-23, 4.904 for Aug-23, 4.937 for Sep-23); 1Q23 period was calculated (5.368 for Jul-22, 5.143 for Aug-22, 5.237 for Sep-22) Key Financial Metrics 2Q23 2Q24 Chg. % 1H23 1H24 Chg. % Revenue by Segment 611.7 618.7 1% 1,048.5 1,101.8 5% Brazil Ag Retail 524.8 528.7 1% 883.1 940.6 7% Latam Ag Retail 57.0 55.8 (2%) 123.7 122.1 (1%) Crop Care 57.7 72.8 26% 93.7 108.5 16% Intercompany² (27.8) (38.6) (52.0) (69.4) Revenue by Category 611.7 618.7 1% 1,048.5 1,101.8 5% Inputs revenue 606.6 610.8 1% 1,021.2 1,047.4 3% Grains revenue 5.0 7.9 57% 27.3 54.4 99% Gross Profit 123.7 103.0 (17%) 214.4 162.6 (24%) Brazil Ag Retail 99.7 73.3 (27%) 169.1 108.9 (36%) Latam Ag Retail 11.5 9.9 (14%) 21.0 19.1 (9%) Crop Care 21.3 25.7 21% 38.1 41.2 8% Intercompany² (8.8) (5.9) (13.7) (6.6) Gross Margin 0.2 0.2 -360 bps 0.2 0.1 -570 bps Brazil Ag Retail 0.2 0.1 -510 bps 0.2 0.1 -760 bps Latam Ag Retail 0.2 0.2 -230 bps 0.2 0.2 -140 bps Crop Care 0.4 0.4 -160 bps 0.4 0.4 -270 bps Gross Margin (% of Inputs revenue) 0.2 0.2 -350 bps 0.2 0.2 -550 bps Brazil Ag Retail 0.2 0.1 -510 bps 0.2 0.1 -740 bps Latam Ag Retail 0.2 0.2 -230 bps 0.2 0.2 -130 bps Crop Care 0.4 0.4 -160 bps 0.4 0.4 -270 bps SG&A (excl. D&A) (50.5) (69.7) 0.380 (102.3) (125.0) 22% Other operating income (expense) 3.4 4.4 6.0 4.4 EBITDA 76.6 37.7 (51%) 118.2 42.0 (64%) (+) Non-operating (benefit) expenses 0.9 2.4 3.7 9.3 Adjusted EBITDA 77.5 40.1 (48%) 121.9 51.3 (58%) Brazil Ag Retail 64.3 26.7 (58%) 97.4 30.9 (68%) Latam Ag Retail 7.1 4.7 (34%) 11.5 7.8 (32%) Crop Care 15.0 16.2 8% 26.8 21.7 (19%) Corporate / Intersegment (8.8) (7.4) (13.7) (9.2) Adjusted EBITDA Margin % 0.1 0.1 -620 bps 0.1 0.0 -700 bps Adjusted EBITDA Margin (% of Inputs revenue) 0.1 0.1 -620 bps 0.1 0.0 -700 bps Share of profit of an associate - (0.2) - (0.4) D&A (7.0) (7.0) (0%) (15.5) (17.3) 11% Finance income (costs) (31.9) (37.3) 17% (60.0) (63.3) 5% Income taxes, current and deferred (2.4) 8.6 7.8 26.3 Net profit 35.3 1.9 (95%) 50.4 (12.6) n.m. (+) Non-operating (benefit) expenses 3.2 1.2 6.3 9.9 (+) Income tax impact of adjustments (1.1) (0.4) (2.2) (3.4) Adjusted net profit 37.4 2.6 (93%) 54.6 (6.1) n.m.
7 Reconciliation of Adjusted EBITDA and Adjusted Net Profit In millions of US dollars1 (1) USD/BRL monthly average period exchange rate used to translate results to USD: 4.955 for 2Q24; 5.265 for 2Q23; the 1Q24 period was calculated using monthly exchange rates (4.801 for Jul-23, 4.904 for Aug-23, 4.937 for Sep-23); 1Q23 period was calculated (5.368 for Jul-22, 5.143 for Aug-22, 5.237 for Sep-22) Reconciliation of Adjusted EBITDA 2Q23 2Q24 1H23 1H24 (in millions of US dollars) Net Profit/Loss for the Period 35.3 1.9 50.4 (12.6) (+) Income taxes, current and deferred 2.4 (8.6) (7.8) (26.3) (+) Finance income (costs) 31.9 37.3 60.0 63.3 (+) Depreciation and amortization 7.0 7.0 15.5 17.3 (+) Share of profit of an associate - 0.2 - 0.4 (+) M&A expenses 0.5 0.5 1.0 3.9 (+) Stock-based compensation 0.5 1.0 2.2 2.2 (+) DeSPAC related bonus - 0.1 - 1.4 (+) Related party consultancy services - 0.9 0.6 1.8 (+) Other non-operating (benefits) expenses - 0.0 - 0.0 Adjusted EBITDA 77.5 40.1 121.9 51.3 Reconciliation of Adjusted Net Profit 2Q23 2Q24 1H23 1H24 (in millions of US dollars) Profit/Loss for the Period 35.3 1.9 50.4 (12.6) (+) Fair value of inventories sold from acquired companies 2.3 (1.4) 2.6 0.2 (+) Share of profit of an associate - 0.2 - 0.4 (+) M&A expenses 0.5 0.5 1.0 3.9 (+) Stock Option Plan 0.5 1.0 2.2 2.2 (+) DeSPAC related bonus - 0.1 - 1.4 (+) Related party consultancy services - 0.9 0.6 1.8 (+) Other non-operating (benefits) expenses - 0.0 - 0.0 (+) Tax impact of adjustements (1.1) (0.4) (2.2) (3.4) Adjusted Net Profit/Loss 37.4 2.6 54.6 (6.1)
Document
Content
| Unaudited interim condensed consolidated financial statements | |||||
|---|---|---|---|---|---|
| Interim condensed consolidated statement of financial position | 3 | ||||
| Interim condensed consolidated statement of profit or loss | 6 | ||||
| Interim condensed consolidated statement of comprehensive income or loss | 8 | ||||
| Interim condensed consolidated statement of changes in equity | 9 | ||||
| Interim condensed consolidated statement of cash flows | 10 | ||||
| 1 | Background information | 12 | |||
| 2 | Significant accounting policies | 13 | |||
| 3 | Segment information | 18 | |||
| 4 | Cash equivalents | 25 | |||
| 5 | Trade receivables | 25 | |||
| 6 | Financial instruments | 27 | |||
| 7 | Financial and capital risk management | 29 | |||
| 8 | Inventories | 37 | |||
| 9 | Taxes recoverable | 38 | |||
| 10 | Commodity forward contracts – Barter transactions | 39 | |||
| 11 | Right-of-use assets and lease liabilities | 41 | |||
| 12 | Property, plant and equipment | 42 | |||
| 13 | Intangible assets | 43 | |||
| 14 | Trade payables | 45 | |||
| 15 | Borrowings | 46 | |||
| 16 | Agribusiness Receivables Certificates | 48 | |||
| 17 | Payables for the acquisition of subsidiaries | 48 | |||
| 18 | Acquisition of subsidiaries | 49 | |||
| 19 | Accounting considerations related to the SPAC Transaction | 53 | |||
| 20 | Income taxes | 54 | |||
| 21 | Provisions for contingencies | 56 | |||
| 22 | Advances from customers | 56 | |||
| 23 | Related parties | 57 | |||
| 24 | Equity | 58 | |||
| 25 | Revenue from contracts with customers | 63 | |||
| 26 | Costs and expenses by nature | 64 | |||
| 27 | Finance income (costs) | 65 | |||
| 28 | Non-cash transactions | 66 | |||
| 29 | Subsequent events | 66 | |||
| Interim condensed consolidated statement of financial<br><br>As of December 31, 2023<br><br>(In thousands of Brazilian reais - R$, except if otherwise indicated) | |||||
| --- | Notes | December 31,<br>2023 | June 30,<br>2023 | ||
| --- | --- | --- | --- | ||
| Assets | |||||
| Current assets | |||||
| Cash equivalents | 4 | 693,851 | 564,294 | ||
| Trade receivables | 5 | 4,291,676 | 2,667,057 | ||
| Inventories | 8 | 2,648,851 | 1,868,204 | ||
| Taxes recoverable | 9 | 59,451 | 57,001 | ||
| Derivative financial instruments | 7 | 28,908 | 40,410 | ||
| Commodity forward contracts | 10 | 73,264 | 114,861 | ||
| Advances to suppliers | 358,833 | 192,119 | |||
| Other assets | 51,625 | 32,701 | |||
| Total current assets | 8,206,459 | 5,536,646 | |||
| Non-current assets | |||||
| Restricted cash | 19 | 144,384 | 139,202 | ||
| Trade receivables | 5 | 44,862 | 41,483 | ||
| Other assets | 5,420 | 8,390 | |||
| Commodity forward contracts | 10 | 20,622 | |||
| Judicial deposits | 9,007 | 8,820 | |||
| Right-of-use assets | 11 | 192,419 | 173,679 | ||
| Taxes recoverable | 9 | 363,187 | 282,903 | ||
| Deferred tax assets | 20 | 431,135 | 329,082 | ||
| Investments | 1,879 | — | |||
| Property, plant and equipment | 12 | 214,455 | 196,588 | ||
| Intangible assets | 13 | 979,769 | 807,192 | ||
| Total non-current assets | 2,407,139 | 1,987,339 | |||
| Total assets | 10,613,598 | 7,523,984 |
The accompanying notes are an integral part of the unaudited interim condensed consolidated financial statements.
| Interim condensed consolidated statement of financial<br><br>As of December 31, 2023<br><br>(In thousands of Brazilian reais - R$, except if otherwise indicated) | | --- || | Notes | December 31,<br>2023 | June 30, 2023 | | --- | --- | --- | --- | | Liabilities | | | | | Current liabilities | | | | | Trade payables | 14 | 4,699,892 | 2,575,701 | | Trade payables – Supplier finance | 14(c) | - | 26,157 | | Lease liabilities | 11 | 91,885 | 85,865 | | Borrowings | 15 | 1,613,955 | 922,636 | | Obligations to FIAGRO quota holders | | 168,892 | 150,018 | | Payables for the acquisition of subsidiaries | 17 | 248,471 | 221,509 | | Derivative financial instruments | 7 | 54,354 | 44,008 | | Commodity forward contracts | 10 | 121,295 | 207,067 | | Salaries and social charges | | 174,702 | 223,376 | | Taxes payable | | 61,103 | 37,105 | | Dividends payable | | 9,263 | 1,619 | | Warrant liabilities | 19 | 36,613 | 36,446 | | Advances from customers | 22 | 459,040 | 488,578 | | Other liabilities | | 54,140 | 34,388 | | Total current liabilities | | 7,793,605 | 5,054,473 | | Non-current liabilities | | | | | Trade payables | 14 | 889 | 2,547 | | Lease liabilities | 11 | 112,858 | 98,554 | | Borrowings | 15 | 32,546 | 42,839 | | Agribusiness Receivables Certificates | 16 | 403,153 | — | | Commodity forward contracts | 10 | 410 | — | | Payables for the acquisition of subsidiaries | 17 | 23,110 | 53,700 | | Provision for contingencies | 21 | 12,938 | 8,845 | | Liability for FPA Shares | 19 | 144,306 | 139,133 | | Other liabilities | | 521 | 223 | | Taxes payable | | 800 | 963 | | Deferred tax liabilities | 20 | 18,189 | 12,351 | | Total non-current liabilities | | 749,720 | 359,155 | | Equity | 24 | | | | Share Capital | | 591 | 591 | | Additional Paid-in Capital | | 2,108,209 | 2,134,339 | | Capital reserve | | 25,227 | 14,533 | | Other comprehensive loss | | (11,460) | (28,634) | | Accumulated losses | | (342,258) | (260,710) | | Equity attributable to shareholders of the Parent Company | | 1,780,309 | 1,860,119 | | Non-controlling interests | | 289,964 | 250,238 || Interim condensed consolidated statement of financial<br><br>As of December 31, 2023<br><br>(In thousands of Brazilian reais - R$, except if otherwise indicated) | | --- || Total equity | 2,070,273 | 2,110,357 | | --- | --- | --- | | Total liabilities and equity | 10,613,598 | 7,523,984 |
The accompanying notes are an integral part of the unaudited interim condensed consolidated financial statements.
| Interim condensed consolidated statement of profit or loss<br><br>(In thousands of Brazilian reais - R$, except if otherwise indicated) | | --- || | Notes | Three-month period ended December 31, | | Six-month period ended December 31, | | | --- | --- | --- | --- | --- | --- | | | | 2023 | 2022 | 2023 | 2022 | | Revenue | 25 | 3,065,902 | 3,220,211 | 5,431,858 | 5,506,175 | | Cost of goods sold | 26 | (2,555,320) | (2,569,096) | (4,627,991) | (4,380,852) | | Gross profit | | 510,582 | 651,115 | 803,867 | 1,125,323 | | Operating expenses | | | | | | | Sales, general and administrative expenses | 26 | (380,120) | (303,013) | (700,358) | (618,438) | | Other operating (expenses) income, net | | 21,560 | 18,093 | 21,912 | 31,710 | | Share of profit of an associate | | (786) | | (1,753) | — | | Operating profit | | 151,236 | 366,195 | 123,668 | 538,595 | | Finance Income (costs) | | | | | | | Finance income | 27 | 111,399 | 71,064 | 197,298 | 159,883 | | Finance costs | 27 | (278,248) | (227,948) | (514,235) | (455,368) | | Other financial income (costs) | 27 | (17,848) | (10,973) | 3,288 | (20,192) | | Profit (loss) before income taxes | | (33,461) | 198,338 | (189,981) | 222,918 | | Income taxes | | | | | | | Current | 20 | (6,544) | (30,535) | 31,949 | (14,303) | | Deferred | 20 | 49,186 | 18,007 | 96,216 | 55,274 | | Profit (loss) for the period | | 9,181 | 185,810 | (61,816) | 263,889 | | Attributable to: | | | | | | | Net investment of the parent/ Equity holders of the parent | | (15,011) | 149,695 | (81,548) | 209,310 | | Non-controlling interests | | 24,192 | 36,115 | 19,732 | 54,579 | | Earnings (loss) per share | | | | | || Interim condensed consolidated statement of profit or loss<br><br>(In thousands of Brazilian reais - R$, except if otherwise indicated) | | --- || | Notes | Three-month period ended December 31, | | Six-month period ended December 31, | | | --- | --- | --- | --- | --- | --- | | | | 2023 | 2022 | 2023 | 2022 | | Basic, profit (loss) for the period attributable to net investment of the parent/ equity holders of the parent | 24 | (0.13) | 1.32 | (0.72) | 1.84 | | Diluted, profit (loss) for the period attributable to net investment of the parent/ equity holders of the parent | 24 | (0.13) | 1.29 | (0.72) | 1.82 |
The accompanying notes are an integral part of the unaudited interim condensed consolidated financial statements.
| Interim consolidated statement of comprehensive income or loss<br><br>(In thousands of Brazilian reais - R$, except if otherwise indicated) | | --- || | Three-month period ended December 31, | | Six-month period ended December 31, | | | --- | --- | --- | --- | --- | | | 2023 | 2022 | 2023 | 2022 | | Profit (loss) for the period | 9,181 | 185,810 | (61,816) | 263,889 | | Items that may be reclassified to profit or loss in subsequent periods | | | | | | Exchange differences on translation of foreign operations | 3,146 | (89,512) | 17,340 | (28,488) | | Total comprehensive income (loss) for the period | 12,327 | 96,298 | (44,476) | 235,401 | | Attributable to: | | | | | | Net investment of the parent/ equity holders of the parent | (12,031) | 61,190 | (64,374) | 181,829 | | Non-controlling interests | 24,358 | 35,108 | 19,898 | 53,572 |
The accompanying notes are an integral part of the unaudited interim condensed consolidated financial statements.
| Interim condensed consolidated statement of changes in equity<br><br>For the six-month period ended December 31, 2023 and 2022<br><br>(In thousands of Brazilian reais - R$, except if otherwise indicated) | | --- || | Notes | Net investment of the Parent | Share Capital | Additional Paid-in Capital | Capital reserve | Accumulated losses | Other comprehensive loss | Total | Non-controlling interest | Total<br>Equity/ Net<br>Investment | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | At June 30, 2022 | | 1,451,647 | — | — | — | — | — | 1,451,647 | 218,080 | 1,669,727 | | Capital contributions | | 1,871 | — | — | — | — | — | 1,871 | — | 1,871 | | Acquisition of non-controlling interests | | (51,324) | — | — | — | — | — | (51,324) | (36,176) | (87,500) | | Non-controlling dilution on capital contributions | | (7,475) | — | — | — | — | — | (7,475) | 7,475 | — | | Dividends paid | | — | — | — | — | — | — | | (3,485) | (3,485) | | Acquisition of subsidiaries | | 8,809 | — | — | — | — | — | 8,809 | 9,707 | 18,516 | | Share-based payment | | 12,112 | — | — | — | — | — | 12,112 | — | 12,112 | | Profit for the period | | 209,310 | — | — | — | — | — | 209,310 | 54,579 | 263,889 | | Exchange differences on translation of foreign operations | | (27,481) | — | — | — | — | — | (27,481) | (1,007) | (28,488) | | At December 31, 2022 | | 1,597,469 | — | — | — | — | — | 1,597,469 | 249,173 | 1,846,642 | | At June 30, 2023 | | — | 591 | 2,134,339 | 14,533 | (260,710) | (28,634) | 1,860,119 | 250,238 | 2,110,357 | | Exchange differences on translation of foreign operations | | — | — | — | — | — | 17,174 | 17,174 | 166 | 17,340 | | Share-based payment | 24 | — | — | — | 10,694 | — | — | 10,694 | — | 10,694 | | Acquisition of subsidiaries | 18 | — | — | — | — | — | — | — | 2,118 | 2,118 | | Other | | — | — | (26,130) | — | — | — | (26,130) | 17,710 | (8,420) | | Loss for the period | | — | — | — | — | (81,548) | — | (81,548) | 19,732 | (61,816) | | At December 31, 2023 | | — | 591 | 2,108,209 | 25,227 | (342,258) | (11,460) | 1,780,309 | 289,964 | 2,070,273 |
The accompanying notes are an integral part of the interim consolidated financial statements.
| Interim condensed consolidated statement of cash flows<br><br>For the six-month period ended December 31, 2023<br><br>(In thousands of Brazilian reais - R$, except if otherwise indicated) | |||
|---|---|---|---|
| Notes | 2023 | 2022 | |
| --- | --- | --- | --- |
| Operating activities: | |||
| Profit (loss) before income taxes | (189,980) | 222,918 | |
| Adjustments to reconcile profit (loss) for the period to net cash flow: | |||
| Allowance for expected credit losses | 26 | 76,212 | 17,838 |
| Foreign exchange differences | 27 | (30,017) | 7,705 |
| Accrued interest expenses | 27 | 158,715 | 163,972 |
| Interest arising from revenue contracts | 27 | (161,270) | (139,450) |
| Accrued interest on trade payables | 27 | 323,457 | 279,176 |
| Loss (gain) on derivatives | 27 | 6,947 | 7,513 |
| Interest from tax benefits | 27 | (17,736) | (10,390) |
| Fair value on commodity forward contracts | 27 | 19,783 | 4,974 |
| Gain on changes in fair value of warrants | 19 | 167 | - |
| Amortization of intangibles | 26 | 35,311 | 35,677 |
| Amortization of right-of-use assets | 26 | 39,247 | 24,170 |
| Depreciation | 26 | 9,708 | 8,240 |
| Losses and damages of inventories | 26 | 5,003 | 6,103 |
| Provisions for contingencies | 3,941 | (2,073) | |
| Share-based payment | 24 | 10,694 | 12,112 |
| Share of profit of an associate | 1,753 | - | |
| Others | (3,162) | 7,394 | |
| Changes in operating assets and liabilities: | |||
| Assets | |||
| Trade receivables | (1,690,556) | (1,759,501) | |
| Inventories | (683,870) | (753,503) | |
| Advances to suppliers | (159,378) | 24,043 | |
| Derivative financial instruments | 14,901 | 378 | |
| Taxes recoverable | (40,107) | (116,213) | |
| Other receivables | (78,515) | 20,514 | |
| Liabilities | |||
| Trade payables | 2,113,050 | 1,420,984 | |
| Advances from customers | (34,312) | 32,293 | |
| Salaries and social charges | (53,252) | 2,350 | |
| Taxes payable | 23,310 | 65,114 | |
| Other payables | 48,065 | (57,328) | |
| Interest paid on borrowings and FIAGRO quota holders | (132,284) | (64,546) | |
| Interim condensed consolidated statement of cash flows<br><br>For the six-month period ended December 31, 2023<br><br>(In thousands of Brazilian reais - R$, except if otherwise indicated) | |||
| --- | |||
| Interest paid on acquisitions of subsidiary | (6,328) | (3,127) | |
| --- | --- | --- | --- |
| Interest paid on trade payables and lease liabilities | (459,601) | (248,435) | |
| Interest received from revenue contracts | 206,829 | 111,731 | |
| Income taxes paid/received | 12,977 | (28,422) | |
| Net cash flows used in operating activities | (630,298) | (707,789) | |
| Investing activities: | |||
| Acquisition of subsidiary, net of cash acquired | (187,723) | (110,919) | |
| Additions to property, plant and equipment and intangible assets | (47,749) | (29,399) | |
| Proceeds from the sale of property, plant and equipment | 3,539 | 1,598 | |
| Net cash flows used in investing activities | (231,933) | (138,720) | |
| Financing activities: | |||
| Proceeds from borrowings | 15 | 1,702,374 | 1,105,864 |
| Repayment of borrowings | 15 | (1,084,144) | (199,715) |
| Proceeds from Agribusiness Receivables Certificates, net of transaction cost | 16 | 402,259 | — |
| Payment of principal portion of lease liabilities | 11 | (37,952) | (22,977) |
| Proceeds from FIAGRO quota holders, net of transaction costs | 16 | 137,496 | 143,082 |
| Repayment of FIAGRO quota holders | 16 | (109,126) | — |
| Trade payables – Supplier finance | 14(c) | (26,157) | 14,753 |
| Acquisition of non-controlling interests | — | (87,500) | |
| Dividend payments (i) | (1,208) | — | |
| Capital contributions | — | 1,871 | |
| Net cash flows provided by financing activities | 983,542 | 955,378 | |
| Net increase in cash equivalents | 121,311 | 108,869 | |
| Net foreign exchange difference | 8,246 | - | |
| Cash equivalents at beginning of the period | 564,294 | 254,413 | |
| Cash equivalents at end of the period | 693,851 | 363,282 |
(i) Dividend payments made to minority shareholders from acquired subsidiaries.
The accompanying notes are an integral part of the unaudited interim condensed consolidated financial statements.
| Notes to the interim condensed consolidated financial statements<br><br>(In thousands of Brazilian reais - R$, except if otherwise indicated) |
|---|
1.Background information
Lavoro Limited is a Cayman Island exempted company incorporated on August 22, 2022.
Lavoro Limited is a public company listed with the US Securities and Exchange Commission (“SEC”) and its shares are traded on Nasdaq Global Select Market under ticker symbol “LVRO”.
Lavoro Limited (“Lavoro” and collectively with its subsidiaries, the “Group”) is one of the main agricultural input distribution platforms in Latin America, with relevant agricultural input distribution operations in Brazil and Colombia, and an early stage agricultural input trading company in Uruguay. Also, as a result of a verticalization strategy, the Group produces agricultural biological and special fertilizers products through its own facilities. The Group offers farmers a complete portfolio of products and services with the goal of helping farmer customers succeed by providing multi-channel support.
As of December 31, 2023, the Group is controlled by investment funds managed by Patria Investments Limited (“Patria”), a global alternative asset manager with shares listed on NASDAQ.
Seasonality
Agribusiness is subject to seasonality throughout the year, especially due to the crop cycles that depend on specific weather conditions. Operations, especially in Brazil, have unique weather conditions compared to other countries producing agricultural commodities, making it possible to harvest two to three crops in the same area per year. Thus, considering that the activities of the Group’s customers are directly related to crop cycles, which are seasonal in nature, revenues and cash flows from sales may also be substantially seasonal.
The sale of our products is dependent upon planting and growing seasons, which vary from year to year, and are expected to result in both highly seasonal patterns and substantial fluctuations in quarterly sales and profitability. Demand for our products is typically stronger between October and December, with a second period of strong demand between January and March. The seasonality of agricultural inputs results in our sales volumes and net sales typically being the highest during the period between September to February and our working capital and total debt requirements typically being the highest just after the end of this period.
| Notes to the interim condensed consolidated financial statements<br><br>(In thousands of Brazilian reais - R$, except if otherwise indicated) |
|---|
Relevant events
•Agribusiness Receivables Certificates (“CRA”).
On December 27, 2023, Lavoro Agro Holding S.A raised a total of R$420 million in debt through the issuance of Agribusiness Receivables Certificates ("CRA"). These certificates are divided into two series (“Series”) maturing in December 2027. Series I, amounting to R$68 million carries an interest rate of CDI plus 3% per annum and Series II, amounting to R$352 million, carries an interest rate of 14.2% per annum.
This new debt includes covenants related to the level of indebtedness of the subsidiary Lavoro Agro Holding S.A, requiring it to maintain a net debt to EBITDA ratio of not more than 2.5 x to be calculated as of June 30 of each year.
As of December 31, 2023 there was no evidence that the subsidiary will not be able to fully comply with the contractual terms.
2.Significant accounting policies
(a)Basis for preparation of the unaudited interim condensed consolidated financial statements
The unaudited interim condensed consolidated financial statements for the six-month period ended December 31, 2023 have been prepared in accordance with IAS 34 Interim Financial Reporting. The Group has prepared the financial statements on the basis that it will continue to operate as a going concern. The Directors consider that there are no material uncertainties that may cast significant doubt over this assumption. They have formed a judgement that there is a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future, and not less than 12 months from the end of the reporting period.
The unaudited interim condensed consolidated financial statements for the period ended of December 31, 2022, reflect the historical operating results of Lavoro Brazil, Crop Care and Lavoro Colombia on a combined basis prior to the corporate reorganizations as disclosed in the annual consolidated financial statements for the year ended June 30, 2023.
The interim condensed consolidated financial statements do not include all the information and disclosures required in the annual financial statements and should be read in conjunction with the Group’s annual consolidated financial statements as of June 30, 2023.
These interim condensed consolidated financial statements as of December 31, 2023 and for the six-month period ended December 31, 2023 and 2022 were authorized for issuance by the Board of Directors on March 4, 2024.
(b)New standards, interpretations and amendments adopted by the Group
| Notes to the interim condensed consolidated financial statements<br><br>(In thousands of Brazilian reais - R$, except if otherwise indicated) |
|---|
The accounting policies adopted in the preparation of the unaudited interim condensed consolidated financial statements are consistent with those used in the preparation of the Group’s annual consolidated financial statements for the year ended June 30, 2023. The Group has not early adopted any standard, interpretation or amendment that has been issued but is not yet effective.
Certain amendments applicable for the first time in 2022 and 2023 do not have an impact on
the interim consolidated financial statements of the Group.
(c)Basis of combination/consolidation procedures
All unrealized intra-group and intercompany balances, transactions, gains and losses relating to transactions between group companies were eliminated in full.
The interim condensed consolidated financial statements include the following subsidiaries of Lavoro Limited:
| Equity interest | ||||||||
|---|---|---|---|---|---|---|---|---|
| Name | Core activities | Location | December 31, 2023 | June 30, 2023 | ||||
| Corporate: | ||||||||
| Lavoro Agro Limited | Holding | George Town – Cayman Island | 100 | % | 100 | % | ||
| Lavoro America Inc. | Holding | California - USA | 100 | % | 100% | |||
| Lavoro Merger Sub II Limited | Holding | George Town – Cayman Island | 100 | % | 100 | % | ||
| Lavoro Agro Cayman II | Holding | George Town – Cayman Island | 100 | % | 100 | % | ||
| Lavoro Latam SL | Holding | Madrid - Spain | 100 | % | 100 | % | ||
| Lavoro Uruguay S.A. (formerly Malinas SA) | Holding | Montevideu – Uruguay | 100 | % | 100 | % | ||
| Lavoro Brazil: | ||||||||
| Lavoro Agro Holding S.A. | Holding | São Paulo – Brazil | 100 | % | 100 | % | ||
| Lavoro Agrocomercial S.A. | Distributor of agricultural inputs | Rondonópolis – Brazil | 97.42 | % | 97.42 | % | ||
| Agrocontato Comércio e Representações de Produtos Agropecuários S.A. | Distributor of agricultural inputs | Sinop – Brazil | 97.42 | % | 97.42 | % | ||
| PCO Comércio, Importação, Exportação e Agropecuária Ltda. | Distributor of agricultural inputs | Campo Verde – Brazil | 97.42 | % | 97.42 | % | ||
| Agrovenci Distribuidora de Insumos Agrícolas Ltda. (MS) | Distributor of agricultural inputs | Chapadão do Sul – Brazil | 93.11 | % | 93.11 | % | ||
| Produtiva Agronegócios Comércio e Representação Ltda. | Distributor of agricultural inputs | Paracatu – Brazil | 87.40 | % | 87.40 | % | Notes to the interim condensed consolidated financial statements<br><br>(In thousands of Brazilian reais - R$, except if otherwise indicated) | |
| --- | Facirolli Comércio e Representação S.A. (Agrozap) | Distributor of agricultural inputs | Uberaba – Brazil | 62.61%- | 62.61 | % | ||
| --- | --- | --- | --- | --- | --- | --- | ||
| Agrovenci Comércio, Importação, Exportação e Agropecuária Ltda. | Distributor of agricultural inputs | Campo Verde – Brazil | 97.42 | % | 97.42 | % | ||
| Central Agrícola Rural Distribuidora de Defensivos Ltda. | Distributor of agricultural inputs | Vilhena – Brazil | 97.42 | % | 97.42 | % | ||
| Distribuidora Pitangueiras de Produtos Agropecuários S.A. | Distributor of agricultural inputs | Ponta Grossa – Brazil | 93.11 | % | 93.11 | % | ||
| Produtec Comércio e Representações S.A. | Distributor of agricultural inputs | Cristalina – Brazil | 87.40 | % | 87.40 | % | ||
| Qualiciclo Agrícola S.A. | Distributor of agricultural inputs | Limeira – Brazil | 66.75 | % | 66.75 | % | ||
| Desempar Participações Ltda. | Distributor of agricultural inputs | Palmeira – Brazil | 93.11 | % | 93.11 | % | ||
| Denorpi Distribuidora de Insumos Agrícolas Ltda. | Distributor of agricultural inputs | Palmeira – Brazil | 93.11 | % | 93.11 | % | ||
| Deragro Distribuidora de Insumos Agrícolas Ltda. | Distributor of agricultural inputs | Palmeira – Brazil | 93.11 | % | 93.11 | % | ||
| Desempar Tecnologia Ltda. | Holding | Palmeira – Brazil | 93.11 | % | 93.11 | % | ||
| Futuragro Distribuidora de Insumos Agrícolas Ltda. | Distributor of agricultural inputs | Palmeira – Brazil | 93.11 | % | 93.11 | % | ||
| Plenafértil Distribuidora de Insumos Agrícolas Ltda. | Distributor of agricultural inputs | Palmeira – Brazil | 93.11 | % | 93.11 | % | ||
| Realce Distribuidora de Insumos Agrícolas Ltda. | Distributor of agricultural inputs | Palmeira – Brazil | 93.11 | % | 93.11 | % | ||
| Cultivar Agrícola Comércio, Importação e Exportação S.A. | Distributor of agricultural inputs | Chapadão do Sul – Brazil | 93.11 | % | 93.11 | % | ||
| Nova Geração Comércio e Produtos Agrícolas Ltda. | Distributor of agricultural inputs | Pinhalzinho – Brazil | 66.75 | % | 66.75 | % | ||
| Floema Soluções Nutricionais de Cultivos Ltda. | Distributor of agricultural inputs | Uberaba – Brazil | 62.61 | % | 62.61 | % | ||
| Casa Trevo Participações S.A. | Holding | Nova Prata – Brazil | 79.14 | % | 79.14 | % | ||
| Casa Trevo Comercial Agrícola Ltda. | Distributor of agricultural inputs | Nova Prata – Brazil | 79.14 | % | 79.14 | % | ||
| CATR Comercial AgrícolaLtda. | Distributor of agricultural inputs | Nova Prata – Brazil | 79.14 | % | 79.14 | % | ||
| Sollo Sul Insumos Agrícolas Ltda. | Distributor of agricultural inputs | Pato Branco – Brazil | 93.11 | % | 93.11 | % | ||
| Dissul Insumos Agrícolas Ltda. | Distributor of agricultural inputs | Pato Branco – Brazil | 93.11 | % | 93.11 | % | ||
| Referencia Agroinsumos Ltda(i) | Distributor of agricultural inputs | Dom Pedrito - Brazil | 65.18 | % | — | % | ||
| Lavoro Agro Fundo de Investimento nas Cadeias Produtivas Agroindustriais | FIAGRO | São Paulo – Brazil | 5.00 | % | 5.00 | % | Notes to the interim condensed consolidated financial statements<br><br>(In thousands of Brazilian reais - R$, except if otherwise indicated) | |
| --- | CORAM - Comércio e Representações Agrícolas Ltda.(i) | Distributor of agricultural inputs | São Paulo – Brazil | 66.75 | % | — | % | |
| --- | --- | --- | --- | --- | --- | --- | ||
| Lavoro Colômbia: | ||||||||
| Lavoro Colombia S.A.S. | Holding | Bogota – Colombia | 94.90 | % | 94.90 | % | ||
| Crop Care Colombia | Distributor of agricultural inputs | Bogota - Colombia | 94.90 | % | 94.90 | % | ||
| Agricultura y Servicios S.A.S. | Distributor of agricultural inputs | Ginebra - Colombia | 94.90 | % | 94.90 | % | ||
| Grupo Cenagro S.A.S. | Distributor of agricultural inputs | Yumbo – Colombia | 94.90 | % | 94.90 | % | ||
| Cenagral S.A.S. | Distributor of agricultural inputs | Yumbo – Colombia | 94.90 | % | 94.90 | % | ||
| Grupo Gral S.A.S. | Distributor of agricultural inputs | Bogota - Colombia | 94.90 | % | 94.90 | % | ||
| Agrointegral Andina S.A.S. | Distributor of agricultural inputs | Bogota – Colombia | 94.90 | % | 94.90 | % | ||
| Servigral Praderas S.A.S. | Distributor of agricultural inputs | Bogota – Colombia | 94.90 | % | 94.90 | % | ||
| Agroquímicos para la Agricultura Colombiana S.A.S. | Distributor of agricultural inputs | Bogota – Colombia | 94.90 | % | 94.90 | % | ||
| Provecampo S.A.S. | Distributor of agricultural inputs | Envigado – Colombia | 94.90 | % | 94.90 | % | ||
| Crop Care: | ||||||||
| Crop Care Holding S.A. | Holding | São Paulo – Brazil | 100.00 | % | 100.00 | % | ||
| Perterra Insumos Agropecuários S.A. | Private label products | São Paulo – Brazil | 100.00 | % | 100.00 | % | ||
| Araci Administradora de Bens S.A. | Private label products | São Paulo – Brazil | 100.00 | % | 100.00 | % | ||
| Union Agro S.A. | Private label products | Pederneiras – Brazil | 73.00 | % | 73.00 | % | ||
| Agrobiológica Sustentabilidade S.A. | Private label products | São Paulo – Brazil | 65.13 | % | 65.13 | % | ||
| Agrobiológica Soluções Naturais Ltda. | Private label products | Leme – Brazil | 65.13 | % | 65.13 | % | ||
| Cromo Indústria Química LTDA. | Private label products | Estrela - Brasil | 70.00 | % | 70.00 | % | ||
| Perterra Trading S.A. | Private label products | Montevideu - Uruguay | 100.00 | % | 100.00 | % |
(i)See note 18 of Acquisitions of subsidiaries.
| Notes to the interim condensed consolidated financial statements<br><br>(In thousands of Brazilian reais - R$, except if otherwise indicated) |
|---|
Additionally, the interim condensed consolidated financial statements include the following non-consolidated affiliate company:
| Equity interest | ||||
|---|---|---|---|---|
| Name | Core activities | Location | December 31, 2023 | June 30, 2023 |
| Gestão e Transformação Consultoria S.A. | Consulting | São Paulo – Brazil | 40% | 40% |
(d)Statement of cash flows
In 2023, cash outflows related to acquisitions of non-controlling interests are classified under net cash flows provided by financing activities. In 2022, this amount was classified under net cash flows used in investing activities.
While the effect of the change in classification of that cash flows from investing to financing is not material, management has retrospectively revised those periods for comparison purposes.
The retrospective changes in the comparative period can be summarized as follows:
| Originally presented | Effects of Change in classification | After change in classification | |
|---|---|---|---|
| Acquisition of subsidiary, net of cash acquired | (87,500) | 87,500 | — |
| Net cash flows used in investing activities | (226,220) | 87,500 | (138,720) |
| Acquisition of non-controlling interests | — | (87,500) | (87,500) |
| Net cash flows provided by financing activities | 1,042,878 | (87,500) | 955,378 |
| Notes to the interim condensed consolidated financial statements<br><br>(In thousands of Brazilian reais - R$, except if otherwise indicated) | |||
| --- |
3.Segment information
(a)Reportable segments by management
The chief operating decision-maker of the Group (the “CODM”) is the board of directors wich is responsible for allocating resources among operating segments and assessing their performance and making strategic decisions.
The determination of the reportable segments is based on internal reports reviewed by the CODM, which include considerations in relation to risks and returns, organizational structure, etc. Certain expenses across segments are allocated based on reasonable allocation criteria, such as revenues or historical trends.
The Group’s reportable segments are the following:
•Brazil Cluster: comprising companies located in Brazil that sell agricultural inputs;
•LATAM Cluster: comprising companies located in Colombia that sell agricultural inputs;
•Crop Care Cluster: comprising companies that produce and import their own portfolio of proprietary products including off-patent crop protection and specialty products (e.g., biologicals and specialty fertilizers).
The CODM used information on a pro forma basis, incorporating the impact of the acquisitions completed during the year. Starting from March 31, 2023, the CODM began using historical segment financial information. Segment information for the prior period has been recast for comparative purposes.
| Notes to the interim condensed consolidated financial statements<br><br>(In thousands of Brazilian reais - R$, except if otherwise indicated) |
|---|
(b)Financial information by segment
Segment assets and liabilities as of December 31, 2023:
| Description | Brazil | LATAM | Crop Care | Total reportable segments | Corporate (i) | Eliminations between segments (ii) | Consolidated |
|---|---|---|---|---|---|---|---|
| Certain assets | |||||||
| Cash equivalents | 600,342 | 16,204 | 56,794 | 673,340 | 20,511 | - | 693,851 |
| Trade receivables | 3,618,413 | 355,369 | 637,892 | 4,611,674 | - | (275,136) | 4,336,538 |
| Inventories | 2,337,110 | 227,899 | 149,375 | 2,714,384 | - | (65,533) | 2,648,851 |
| Advances to suppliers | 349,335 | 1,699 | 9,999 | 361,033 | - | (2,200) | 358,833 |
| Total assets | 9,039,122 | 734,424 | 1,076,671 | 10,850,217 | 1,962,243 | (2,198,862) | 10,613,598 |
| Certain liabilities | |||||||
| Trade payables | 4,434,768 | 296,609 | 243,721 | 4,975,098 | 819 | (275,136) | 4,700,781 |
| Borrowings | 1,372,027 | 91,537 | 182,937 | 1,646,501 | - | - | 1,646,501 |
| Advances from customers | 455,490 | 716 | 5,034 | 461,240 | - | (2,200) | 459,040 |
| Total liabilities and equity | 9,039,122 | 734,424 | 1,076,671 | 10,850,217 | 1,962,243 | (2,198,862) | 10,613,598 |
(i)Corporate items refer to balances and expenses with certain corporate demands not directly related to any operating segment.
(ii)Transactions between the Crop Care segment and the Brazil segment.
| Notes to the interim condensed consolidated financial statements<br><br>(In thousands of Brazilian reais - R$, except if otherwise indicated) |
|---|
Statement of profit or loss data for the six-month period ended December 31, 2023:
| Description | Brazil | LATAM | Crop Care | Total reportable segments | Corporate (i) | Eliminations between segments (ii) | Consolidated |
|---|---|---|---|---|---|---|---|
| Revenue | 4,637,824 | 600,503 | 535,804 | 5,774,131 | - | (342,273) | 5,431,858 |
| Cost of goods sold | (4,098,319) | (506,581) | (332,538) | (4,937,438) | - | 309,447 | (4,627,991) |
| Sales, general and administrative expenses (iii) | (519,439) | (60,057) | (113,807) | (693,303) | (7,055) | - | (700,358) |
| Share of profit of an associate | (4,290) | - | 1,911 | (2,379) | (49,182) | 49,808 | (1,753) |
| Other operating income, net | 39,786 | (1,057) | 3,604 | 42,333 | (20,421) | - | 21,912 |
| Financial (costs) income | (285,594) | (9,820) | (23,164) | (318,578) | 4,929 | - | (313,649) |
| Income taxes | 130,439 | (8,929) | (4,506) | 117,004 | - | 11,161 | 128,165 |
| Profit (loss) for the period | (99,593) | 14,059 | 67,304 | (18,230) | (71,729) | 28,143 | (61,816) |
| Depreciation and amortization | (66,157) | (5,564) | (13,275) | (84,996) | - | - | (84,996) |
(i)Corporate items refer to balances and expenses with certain corporate demands not directly related to any operating segment.
(ii)Sales between the Crop Care segment and the Brazil segment.
(iii)Sales, general and administrative expenses and Cost of goods sold includes depreciation and amortization.
| Notes to the interim condensed consolidated financial statements<br><br>(In thousands of Brazilian reais - R$, except if otherwise indicated) |
|---|
Statement of profit or loss data for the three-month period ended December 31, 2023:
| Description | Brazil | LATAM | Crop Care | Total reportable segments | Corporate (i) | Eliminations between segments (ii) | Consolidated |
|---|---|---|---|---|---|---|---|
| Revenue | 2,619,906 | 276,342 | 360,759 | 3,257,007 | - | (191,105) | 3,065,902 |
| Cost of goods sold | (2,256,746) | (227,095) | (233,359) | (2,717,200) | - | 161,880 | (2,555,320) |
| Sales, general and administrative expenses(iii) | (288,802) | (28,966) | (57,600) | (375,368) | (4,752) | - | (380,120) |
| Share of profit of an associate | (2,831) | - | 1,419 | (1,412) | 8,209 | (7,583) | (786) |
| Other operating income (expenses), net | 22,133 | 90 | 2,085 | 24,308 | (2,748) | - | 21,560 |
| Financial (costs) income | (163,745) | (4,444) | (10,607) | (178,796) | (5,901) | - | (184,697) |
| Income taxes | 44,481 | (6,678) | (5,098) | 32,705 | - | 9,937 | 42,642 |
| Profit (loss) for the period | (25,604) | 9,249 | 57,599 | 41,244 | (5,192) | (26,871) | 9,181 |
| Depreciation and amortization | (24,587) | (2,754) | (7,431) | (34,772) | - | - | (34,772) |
(i)Corporate items refer to balances and expenses with certain corporate demands not directly related to any operating segment.
(ii)Sales between the Crop Care segment and the Brazil segment.
(iii)Sales, general and administrative expenses include depreciation and amortization.
| Notes to the interim condensed consolidated financial statements<br><br>(In thousands of Brazilian reais - R$, except if otherwise indicated) |
|---|
Segment assets and liabilities as of June 30, 2023:
| Description | Brazil | LATAM | Crop Care | Total reportable segments | Corporate (i) | Eliminations between segments (ii) | Consolidated |
|---|---|---|---|---|---|---|---|
| Certain assets | |||||||
| Cash equivalents | 207,744 | 22,003 | 95,585 | 325,332 | 238,962 | - | 564,294 |
| Trade receivables | 2,194,853 | 343,745 | 242,391 | 2,780,989 | - | (72,449) | 2,708,540 |
| Inventories | 1,547,384 | 202,239 | 151,289 | 1,900,912 | - | (32,708) | 1,868,204 |
| Advances to suppliers | 176,831 | 2,266 | 13,088 | 192,185 | - | (66) | 192,119 |
| Total assets | 5,926,380 | 683,894 | 680,294 | 7,290,568 | 449,779 | (216,363) | 7,523,984 |
| Certain liabilities | |||||||
| Trade payables | 2,304,043 | 309,828 | 46,506 | 2,660,377 | 455 | (56,427) | 2,604,405 |
| Borrowings | 824,868 | 71,562 | 69,045 | 965,475 | - | - | 965,475 |
| Advances from customers | 478,313 | 7,020 | 3,245 | 488,578 | - | - | 488,578 |
| Total liabilities and equity | 5,926,380 | 683,894 | 680,294 | 7,290,568 | 449,779 | (216,361) | 7,523,984 |
(i)Corporate items refer to balances and expenses with certain corporate demands not directly related to any operating segment.
(ii)Transactions between the Crop Care segment and the Brazil Segment.
| Notes to the interim condensed consolidated financial statements<br><br>(In thousands of Brazilian reais - R$, except if otherwise indicated) |
|---|
Statement of profit or loss data for the six-month period ended December 31, 2022:
| Description | Brazil | LATAM | Crop Care | Total reportable segments | Eliminations between segments (i) | Combined |
|---|---|---|---|---|---|---|
| Revenue | 4,637,837 | 649,616 | 491,508 | 5,778,961 | (272,786) | 5,506,175 |
| Cost of goods sold | (3,750,225) | (539,133) | (292,040) | (4,581,398) | 200,546 | (4,380,852) |
| Sales, general and administrative expenses (ii) | (496,635) | (54,557) | (67,246) | (618,438) | - | (618,438) |
| Other operating income, net | 35,119 | (3,065) | (344) | 31,710 | - | 31,710 |
| Financial (costs) income | (297,586) | (7,360) | (10,731) | (315,677) | - | (315,677) |
| Income taxes | 63,814 | (16,419) | (30,985) | 16,410 | 24,561 | 40,971 |
| Profit for the period | 192,324 | 29,082 | 90,162 | 311,568 | (47,679) | 263,889 |
| Depreciation and amortization | (69,568) | (5,800) | (6,276) | (81,644) | (81,644) |
(i)Sales between the Crop Care segment and the Brazil segment.
(ii)Sales, general and administrative expenses include depreciation and amortization.
| Notes to the interim condensed consolidated financial statements<br><br>(In thousands of Brazilian reais - R$, except if otherwise indicated) |
|---|
Statement of profit or loss data for the three-month period ended December 31, 2022:
| Description | Brazil | LATAM | Crop Care | Total reportable segments | Eliminations between segments (i) | Consolidated |
|---|---|---|---|---|---|---|
| Revenue | 2,762,984 | 300,252 | 303,546 | 3,366,782 | (146,571) | 3,220,211 |
| Cost of goods sold | (2,237,897) | (239,728) | (191,503) | (2,669,128) | 100,032 | (2,569,096) |
| Sales, general and administrative expenses(ii) | (244,637) | (26,486) | (31,890) | (303,013) | - | (303,013) |
| Other operating income (expenses), net | 25,278 | (661) | (6,524) | 18,093 | - | 18,093 |
| Financial (costs) income | (159,234) | (4,426) | (4,197) | (167,857) | - | (167,857) |
| Income taxes | (711) | (9,821) | (17,819) | (28,351) | 15,823 | (12,528) |
| Profit (loss) for the period | 145,783 | 19,130 | 51,613 | 216,526 | (30,716) | 185,810 |
| Depreciation and amortization | (31,116) | (2,183) | (3,804) | (37,103) | (37,103) |
(i)Sales between the Crop Care segment and the Brazil segment.
(ii)Sales, general and administrative expenses include depreciation and amortization.
Revenues from external customers for each product and service are disclosed in Note 25. Further breakdown in relation to products and services provided by the Group is not available and such information cannot be produced without unreasonable effort.
| Notes to the interim condensed consolidated financial statements<br><br>(In thousands of Brazilian reais - R$, except if otherwise indicated) |
|---|
4.Cash equivalents
| Annual yield | December, 31 2023 | June, 30 2023 | |
|---|---|---|---|
| Cash equivalents (R$) | 75% CDI (i) | 657,136 | 304,292 |
| Cash equivalents (COP) | 13.17% DTF(ii) | 16,204 | 22,003 |
| Cash equivalents (US$) | 3.84% a year(iii) | 20,511 | 237,999 |
| Total cash equivalents | 693,851 | 564,294 |
(i)Represents the Brazilian interbank deposit rate, which is an average of the overnight interbank rates in Brazil (the "CDI").
(ii)Colombian investment rate, which is an average of interbank and corporate finance ("DTF").
(iii)Average annualized yield obtained in the last year from overseas bank accounts.
5.Trade receivables
| December, 31 2023 | June, 30 2023 | |
|---|---|---|
| Trade receivables (Brazil) | 4,206,956 | 2,525,845 |
| Trade receivables (Colombia) | 385,282 | 370,767 |
| (-) Allowance for expected credit losses | (255,700) | (188,072) |
| Total | 4,336,538 | 2,708,540 |
| Current | 4,291,676 | 2,667,057 |
| Non-current | 44,862 | 41,483 |
The average effective interest rate used to discount trade receivables for the three and six-month period ended December 31, 2023 was 0.96% per month (0.96% as of June 30, 2023). The Group does not have any customer that represents more than 10% of its trade receivables or revenues.
As of December 31, 2023, the Group also transferred trade receivables to the FIAGRO (Agro-industrial Supply Chain Investment Fund), a structured entity, as defined by IFRS 10, established under Brazilian law designed specifically for investing in agribusiness credit rights receivables, in the amount of R$186,745 (R$167,278 in June 30, 2023).
As the Group has retained the risks and rewards of ownership, these amounts were not derecognized from trade receivables. Consequently, the liability resulting from these operations is recorded as obligations to FIAGRO quota holders.
| Notes to the interim condensed consolidated financial statements<br><br>(In thousands of Brazilian reais - R$, except if otherwise indicated) |
|---|
Allowance for expected credit losses:
| December, 31 2023 | December, 31 2022 | |
|---|---|---|
| Opening balance | (188,072) | (151,114) |
| Increase in allowance | (76,212) | (17,838) |
| Allowance for credit losses from acquisitions | (15,314) | (761) |
| Trade receivables write-off | 25,677 | 1,497 |
| Exchange rate translation adjustment | (1,779) | 2,163 |
| Ending balance (i) | (255,700) | (166,053) |
(i)The credit risk of the Group is described in note 7.b.
The aging analysis of trade receivables is as follow:
| December, 31 2023 | June, 30 2023 | |
|---|---|---|
| Not past due | 3,813,596 | 2,089,543 |
| Overdue | ||
| 1 to 60 days | 155,296 | 169,556 |
| 61 to 180 days | 200,517 | 359,958 |
| 181 to 365 days | 223,691 | 90,734 |
| Over 365 days | 199,138 | 186,821 |
| Allowance for expected credit losses | (255,700) | (188,072) |
| 4,336,538 | 2,708,540 | |
| Notes to the interim condensed consolidated financial statements<br><br>(In thousands of Brazilian reais - R$, except if otherwise indicated) | ||
| --- |
6.Financial instruments
The Group’s financial instruments were classified according to the following categories:
| December, 31 2023 | ||||
|---|---|---|---|---|
| Amortized cost | Fair value through profit or loss | |||
| Assets: | ||||
| Trade receivables | 4,336,538 | |||
| Commodity forward contracts | 73,264 | |||
| Derivative financial instruments | 28,908 | |||
| Restricted cash | 144,384 | |||
| Total | 4,480,922 | 102,172 | ||
| Liabilities: | ||||
| Trade payables | 4,700,781 | |||
| Lease liabilities | 204,743 | |||
| Borrowings | 1,646,501 | |||
| Agribusiness Receivables Certificates | 403,153 | |||
| Obligations to FIAGRO quota holders | 168,892 | |||
| Payables for the acquisition of subsidiaries | 271,581 | |||
| Derivative financial instruments | 54,354 | |||
| Salaries and social charges | 174,702 | |||
| Commodity forward contracts | 121,295 | |||
| Dividends payable | 9,263 | |||
| Warrant liabilities | 36,613 | |||
| Liability for FPA Shares | 144,306 | |||
| Total | 7,723,922 | 212,262 | Notes to the interim condensed consolidated financial statements<br><br>(In thousands of Brazilian reais - R$, except if otherwise indicated) | |
| --- | June, 30 2023 | |||
| --- | --- | --- | ||
| Amortized cost | Fair value through profit or loss | |||
| Assets: | ||||
| Trade receivables | 2,708,540 | - | ||
| Commodity forward contracts | - | 114,861 | ||
| Derivative financial instruments | - | 40,410 | ||
| Restricted cash | 139,202 | - | ||
| Total | 2,847,742 | 155,271 | ||
| Liabilities: | ||||
| Trade payables | 2,578,248 | - | ||
| Lease liabilities | 184,419 | - | ||
| Borrowings | 965,475 | - | ||
| Obligations to FIAGRO quota holders | 150,018 | - | ||
| Payables for the acquisition of subsidiaries | 275,209 | - | ||
| Derivative financial instruments | - | 44,008 | ||
| Salaries and social charges | 223,376 | - | ||
| Commodity forward contracts | - | 207,067 | ||
| Dividends payable | 1,619 | - | ||
| Warrant liabilities | - | 36,446 | ||
| Liability for FPA Shares | 139,133 | - | ||
| Total | 4,517,497 | 287,521 |
The Group considers that assets and liabilities measured at amortized cost, have a carrying value approximate to their fair value and, therefore, information on their fair values is not presented.
(a)Hierarchy of fair value
The Group uses various methods to measure and determine fair value (including market approaches and income or cost approaches) and to estimate the value that market participants would use to price the asset or liability. Financial assets and liabilities carried at fair value are classified and disclosed within the following fair value hierarchy levels:
Level 1 - Quoted prices (unadjusted) in active, liquid and visible markets, for identical assets and liabilities that are readily available at the measurement date;
| Notes to the interim condensed consolidated financial statements<br><br>(In thousands of Brazilian reais - R$, except if otherwise indicated) |
|---|
Level 2 - Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable; and
Level 3 – Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable.
For assets and liabilities that are recognized in the financial statements at fair value on a recurring basis, the Group determines whether transfers have occurred between levels in the hierarchy by re-assessing categorization (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period.
All financial instruments accounted for at fair value are classified as level 2, except for the Warrant liability which is classified as level 1. On December 31, 2023 and June 30, 2023, there were no changes in the fair value methodology of the financial instruments and, therefore, there were no transfers between levels.
7.Financial and capital risk management
(a)Considerations on risk factors that may affect the business of the Group
The Group is exposed to several market risk factors that might impact its business. The Group’s board of directors is responsible for monitoring these risk factors, as well as establishing policies and procedures to address them. The Group’s risk management structure considers the size and complexity of its activities, which allows for a better understanding of how such risks could impact Group’s strategy through committees and other internal meetings.
Currently, the Group is focused on action plans relating to risks that could have a significant impact on its strategic goals, including those required by applicable regulations. To efficiently manage and mitigate these risks, its risk management structure conducts risk identification and assessments to prioritize the risks that are key to pursuing potential opportunities that may prevent value from being created or that may compromise existing value, with the possibility of impacting its results, capital, liquidity, customer relationships and/or reputation.
The Group’s risk management strategies were developed to mitigate and/or reduce the financial market risks which it is exposed to, which are as follows:
•credit risk
•liquidity risk
•capital risk
•interest rate risk
•exchange rate risk
•commodity price risk in barter transactions
| Notes to the interim condensed consolidated financial statements<br><br>(In thousands of Brazilian reais - R$, except if otherwise indicated) |
|---|
(b)Credit risk
Credit risk is the risk of financial losses if a customer or a counterparty to a financial instrument fails to fulfill its contractual obligations, which arise mainly from the Group’s trade receivables. The Group maintains short-term investments and derivatives with financial institutions approved by its management according to objective criteria for diversification of such risk.
The Group seeks to mitigate its credit risk related to trade receivables by setting forth credit limits for each counterparty based on the analysis of its credit management process. Such credit exposure determination is performed considering the qualitative and quantitative information of each counterparty. The Group also focuses on the diversification of its portfolio and monitors different solvency and liquidity indicators of its counterparties. In addition, primarily for receivables in installments, the Group monitors the balance of allowances for expected credit losses (see Note 5).
The main strategies on credit risks management are listed below:
•creating credit approval policies and procedures for new and existing customers.
•extending credit to qualified customers through a review of credit agency reports, financial statements and/or credit references, when available.
•reviewing existing customer accounts every twelve months based on the credit limit amounts.
•evaluating customer and regional risks.
•obtaining guarantees through the endorsement of rural producer notes (“CPR”), which give physical ownership of the relevant agricultural goods in the event of the customer’s default.
•establishing credit approval for suppliers in case of payments in advance.
•setting up provisions using the lifetime expected credit loss method considering all possible default events over the expected life of a financial instrument, Receivables are categorized based on the number of overdue days and/or a customer’s credit risk profile, Estimated losses on receivables are based on known troubled accounts and historical losses, Receivables are considered to be in default and are written off against the allowance for credit losses when it is probable that all remaining contractual payments due will not be collected in accordance with the terms of the agreement.
•requiring minimum acceptable counterparty credit ratings from financial counterparties.
•setting limits for counterparties or credit exposure; and
•developing relationships with investment-grade counterparties.
The current credit policy sets forth credit limits for customers based on credit score analysis made by the Group’s credit management area. Such score is determined
| Notes to the interim condensed consolidated financial statements<br><br>(In thousands of Brazilian reais - R$, except if otherwise indicated) |
|---|
considering the qualitative and quantitative information related to each customer, resulting in a rating classification and a level of requirement of guarantees as follows:
| % Of guarantees required on sales | ||||
|---|---|---|---|---|
| Credit rating | % Customers | Risk classification | Medium-sized farmers (i) | Other |
| AA & A | 23% | Very small | 80-90% | 0% |
| B | 49% | Medium | 100% | 30% |
| C & D | 16% | High | 100% | 60% |
| Simplified | 12% | Small farmers | N/A | N/A |
(i)Medium-sized farmers ranging between 100 and 10,000 hectares in planted acreage that are typically not serviced directly by agricultural input producers,
For Colombia there is a similar credit scoring process, however, guarantees are not required based on credit ratings but instead based on qualitative factors such as relationships and past experiences with customers.
Maximum exposure to credit risk as of December 31, 2023 and June 30, 2023:
| December 31, 2023 | June 30, 2023 | |
|---|---|---|
| Trade receivables (current and non-current) | 4,336,538 | 2,708,539 |
| Advances to suppliers | 358,833 | 192,119 |
| 4,695,371 | 2,900,658 |
(c)Liquidity risk
The Group defines liquidity risk as the risk of financial losses if it is unable to comply with its payment obligations in connection with financial liabilities settled in cash or other financial assets in a timely manner as they become due. The Group’s approach to managing this risk is to ensure that it has sufficient cash available to settle its obligations without incurring losses or affecting the operations. Management is ultimately responsible for managing liquidity risk, which relies on a liquidity risk management model to manage funding requirements and liquidity in the short, medium and long term.
The Group’s cash position is monitored by its senior management, through management reports and periodic performance meetings. The Group also manages its liquidity risk by maintaining reserves, bank credit facilities and other borrowing facilities deemed appropriate, through ongoing monitoring of forecast and actual cash flows, as well as through the combination of maturity profiles of financial assets and liabilities.
| Notes to the interim condensed consolidated financial statements<br><br>(In thousands of Brazilian reais - R$, except if otherwise indicated) |
|---|
The following maturity analysis of the Group’s financial liabilities and gross settled derivative financial instruments contracts (for which the cash flows are settled simultaneously) is based on expected undiscounted contractual cash flows from the year end date to the contractual maturity date:
| December, 31 2023 | |||||
|---|---|---|---|---|---|
| Up to 1 year | From 1 to 5 years | Total | |||
| Trade payables | 4,981,357 | 889 | 4,982,246 | ||
| Lease liabilities | 97,742 | 120,053 | 217,795 | ||
| Borrowings | 1,716,844 | 34,621 | 1,751,465 | ||
| Obligations to FIAGRO quota holders | 179,659 | - | 179,659 | ||
| Agribusiness Receivables Certificates | — | 428,854 | 428,854 | ||
| Payables for the acquisition of subsidiaries | 250,484 | 23,297 | 273,781 | ||
| Commodity forward contracts | 122,277 | 413 | 122,690 | ||
| Derivative financial instruments | 54,794 | - | 54,794 | ||
| Salaries and social charges | 176,117 | - | 176,117 | ||
| Dividends payable | 9,338 | - | 9,338 | ||
| Warrant liabilities | 36,613 | - | 36,613 | ||
| Liability for FPA Shares | - | 145,475 | 145,475 | ||
| 7,625,225 | 753,602 | 8,378,827 | Notes to the interim condensed consolidated financial statements<br><br>(In thousands of Brazilian reais - R$, except if otherwise indicated) | ||
| --- | June, 30 2023 | ||||
| --- | --- | --- | --- | ||
| Up to 1 year | From 1 to 5 years | Total | |||
| Trade payables | 2,765,354 | 2,547 | 2,767,901 | ||
| Lease liabilities | 91,419 | 111,304 | 202,723 | ||
| Borrowings | 982,318 | 48,382 | 1,030,700 | ||
| Obligations to FIAGRO quota holders | 159,722 | - | 159,722 | ||
| Payables for the acquisition of subsidiaries | 224,689 | 55,242 | 279,931 | ||
| Commodity forward contracts | 210,040 | - | 210,040 | ||
| Derivative financial instruments | 44,639 | - | 44,639 | ||
| Salaries and social charges | 226,583 | - | 226,583 | ||
| Dividends payable | 1,642 | - | 1,642 | ||
| Warrant liabilities | 36,446 | - | 36,446 | ||
| Liability for FPA Shares | - | 139,133 | 139,133 | ||
| 4,742,852 | 356,608 | 5,099,460 |
(d)Capital risk
The Group manages its capital risk through its leverage policy to ensure its ability to continue as a going concern and to maximize the return of its stakeholders by optimizing its balances of debt and equity.
The Group's strategy is to maintain the total Group net debt up to 2 times the projected adjusted EBITDA for twelve months to be ended on June 30, 2024.
(i)Interest rate risk
Fluctuations in interest rates, such as the Brazilian interbank deposit rate, which is an average of interbank overnight rates in Brazil, and Colombian investment rate, which is an average of interbank and financial corporation loans, may have an effect on the cost of the Group’s borrowings and new borrowings.
The Group periodically monitors the effects of market changes in interest rates on its financial instruments portfolio. Funds raised by the Group are used to finance working capital for each crop season and are typically raised at short term conditions.
As of December 31, 2023 and June 30, 2023, the Group had no derivative financial instruments used to mitigate interest rate risks.
| Notes to the interim condensed consolidated financial statements<br><br>(In thousands of Brazilian reais - R$, except if otherwise indicated) |
|---|
(i)Sensitivity analysis – exposure to interest rates
To mitigate its exposure to interest rate risk, the Group uses different scenarios to evaluate the sensitivity of variations transactions impacted by the CDI Rate and IBR Rate. The Scenario 1 represents the impact on booked amounts considering the most current (February 2024) CDI Rate and IBR Rate and reflects management’s best estimates. The Scenario 2 and Scenario 3 consider an increase of 25% and 50% in such market interest rates, before taxes, which represents a significant change in the probable scenario for sensitivity purposes.
The following table sets forth the potential impacts on the statements of profit or loss:
| December, 31 2023 | ||||
|---|---|---|---|---|
| Expense on profit or loss | ||||
| Current Index | Scenario 1 | Scenario 2 | Scenario 3 | |
| Floating rate borrowings in Brazil | CDI Rate (11,15%) | 269,608 | 312,953 | 356,297 |
| Floating rate borrowings in Colombia | IBR Rate (12,72%) | 15,814 | 18,726 | 21,638 |
| 285,422 | 331,679 | 377,935 |
(ii)Exchange rate risk
The Group is exposed to foreign exchange risk arising from its operations related to agricultural inputs, mainly related to the U.S. dollar, which significantly impacts global prices of agricultural inputs in general. Although all purchases and sales are conducted locally, certain purchase and sales contracts are indexed to the U.S. dollar.
The Group’s current commercial department seeks to reduce this exposure. Its marketing department is responsible for managing pricing tables and commercial strategies to seek a natural hedge between purchases and sales and to match currency and terms to the greatest extent possible.
The Group’s corporate treasury department is responsible for monitoring the forecasted cash flow exposure to the U.S. dollar, and whenever any mismatches as to terms and currencies are identified, non-deliverable forwards derivative financial instruments are purchased to offset these exposures, and therefore fulfill internal policy requirements. U.S. dollar exposure is managed by macro hedging through the analysis of the forecasted cash flow for the next two harvests. The Group may not have any leveraged derivative position.
The Group’s exchange rate exposure monitoring committee meets periodically across the commercial, treasury and corporate business departments. There are also
| Notes to the interim condensed consolidated financial statements<br><br>(In thousands of Brazilian reais - R$, except if otherwise indicated) |
|---|
committees on purchase valuation and business intelligence for the main goods traded by the Group.
The Group does not adopt hedge accounting. Therefore, gains and losses from derivative operations are fully recognized in the statements of profit or loss, as disclosed in Note 27.
(i)Sensitivity analysis – exposure to exchange rates
To gauge its exposure to exchange rate risk, the Group uses different scenarios to evaluate its asset and liability positions in foreign currency and their potential effects on its results.
The Scenario 1 below represents the impact on carrying amounts of the most current (February 2024) market rates for the U.S. dollar (R$4.9761 to US$1.00). This analysis assumes that all other variables, particularly interest rates, remain constant. The Scenario 2 e Scenario 3 consider the appreciation of the Brazilian real against the US dollar at the rates of 25% and 50%, before taxes, which represents a significant change in the probable scenario for sensitivity purposes.
The following table set forth the potential impacts on the statements of profit or loss:
| December 31, 2023 | ||||
|---|---|---|---|---|
| Effect on profit or loss | ||||
| Current Index | Scenario 1 | Scenario 2 | Scenario 3 | |
| Cash equivalents in U.S. Dollars | 4,9761 | 571 | 5,842 | 11,112 |
| Trade receivables in U.S. Dollars | 4,9761 | 9,868 | 100,932 | 191,996 |
| Trade payables in U.S. Dollars | 4,9761 | (12,096) | (123,723) | (235,351) |
| Borrowings in U.S. Dollars | 4,9761 | (13,170) | (134,715) | (256,260) |
| Net impacts on commercial operations | (14,827) | (151,664) | (288,503) | |
| Derivative financial instruments | 4,9761 | 15,187 | 155,340 | 295,493 |
| Total impact, net of derivatives | 360 | 3,676 | 6,990 |
(iii)Commodity prices risk in barter transactions
In all barter transactions mentioned in Note 10, the Group uses future commodity market price as the reference to value the quantities of commodities included in the forward contracts to be delivered by the customers as payment for the Group’s
| Notes to the interim condensed consolidated financial statements<br><br>(In thousands of Brazilian reais - R$, except if otherwise indicated) |
|---|
products into currency. The Group uses prices quoted by commodity trading companies to value the grain purchase contracts from farmers, Lavoro enters into grain sale contracts with trading companies or forward derivatives with financial institutions to sell those same grains, at the same price of the purchased contracts with farmers. As such, the Group strategy to manage its exposure to those commodity prices by entering into the purchase and sale contracts at similar conditions.
These transactions are conducted by a corporate department which manages and controls such contracts as well as the compliance of Group’s policies.
(i)Sensitivity analysis – exposure to commodity price
To gauge its exposure to commodity price risk, the Group uses different scenarios to evaluate its asset and liability positions on commodity forward contracts in soybean and corn and their potential effects on its results.
The “current risk” scenario below represents the impact on carrying amounts as of December 31, 2023, with assumptions described in Note 10. The other scenarios consider the appreciation of main assumptions at the rates of 25% and 50%, before taxes, which represents a significant change in the probable scenario for sensitivity purposes.
As of December 31, 2023:
| Tons | Position | Current Risk | Average of contract prices | Current Market (R$/bag) | +25% current | +50% current | |||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Position | Market | Impact | Market | Impact | |||||||
| Soybean 2024 | 534,316 | Purchased | (62,283) | 126 | 119 | 149 | (15,571) | 179 | (31,142) | ||
| Soybean 2024 | (348,108) | Sold | 8,258 | 135 | 134 | 167 | 2,064 | 201 | 4,129 | ||
| Corn 2024 | 135,505 | Purchased | 19,159 | 46 | 56 | 70 | 4,790 | 84 | 9,579 | ||
| Corn 2024 | (62,914) | Sold | (13,111) | 41 | 55 | 69 | (3,278) | 82 | (6,555) | ||
| Soybean 2025 | 145,416 | Purchased | 20,212 | 102 | 112 | 139 | 5,053 | 167 | 10,106 | ||
| Net exposure on grain contracts | 404,215 | Net purchased | (27,765) | (6,942) | (13,883) | ||||||
| Soybean 2024 | (102,211) | Sold on derivatives | 24,499 | 156 | 141 | 176 | 6,125 | 212 | 12,249 | ||
| Corn 2024 | (131,313) | Sold on derivatives | 571 | 72 | 72 | 90 | 143 | 108 | 285 | ||
| Soybean 2025 | (145,236) | Sold on derivatives | (23,000) | 131 | 141 | 176 | (5,750) | 211 | (11,500) | ||
| Net exposure on derivatives | (378,760) | 2,070 | 518 | 1,034 | |||||||
| Net exposure (i) | 25,455 | (25,695) | (6,424) | (12,849) | Notes to the interim condensed consolidated financial statements<br><br>(In thousands of Brazilian reais - R$, except if otherwise indicated) | ||||||
| --- |
(iv)Derivative financial investments
The Group is exposed to market risks mainly related to fluctuations in exchange rates and commodity prices. The Group maintains operations with financial instruments of protection to mitigate exposure to these risks. The Group has been implementing and improving the internal controls to identify and measure the effects of transactions with trading companies and with financial institutions, so that such transactions are captured, recognized and disclosed in the consolidated financial statements. The Group does not carry out investments of a nature speculative in derivatives or any other risk assets. Trading derivatives are classified as current assets or liabilities.
| December 31, 2023 | June 30, 2023 | |
|---|---|---|
| Options (put/call of commodities) | 551 | (513) |
| Forwards (R$/US$) (i) | 2,110 | 8,837 |
| Swap (R$/US$) | (28,107) | (11,922) |
| Derivative financial instruments, net | (25,446) | (3,598) |
(i) See Note 7 (d) that describes the exposure to commodity prices and volume.
8.Inventories
(a)Inventories composition
| December 31, 2023 | June 30, 2023 | |||
|---|---|---|---|---|
| Goods for resale | 2,674,642 | 1,885,941 | ||
| (-) Allowance for inventory losses | (25,790) | (17,737) | ||
| Total | 2,648,852 | 1,868,204 | Notes to the interim condensed consolidated financial statements<br><br>(In thousands of Brazilian reais - R$, except if otherwise indicated) | |
| --- |
(b)Allowance for inventory losses
| December 31, 2023 | December 31, 2022 | |
|---|---|---|
| Opening balance | (17,737) | (10,186) |
| Increase in allowance | (5,003) | (3,884) |
| Allowance for inventory losses from acquisitions | (2,820) | — |
| Exchange rate translation adjustment | (230) | 356 |
| Ending balance | (25,790) | (13,714) |
9.Taxes recoverable
| December 31, 2023 | June 30, 2023 | |
|---|---|---|
| State VAT (“ICMS”) (i) | 80,056 | 78,805 |
| Brazilian federal contributions (ii) | 307,024 | 239,815 |
| Colombian federal contributions | 35,558 | 21,284 |
| Total | 422,638 | 339,904 |
| Current | 59,451 | 57,001 |
| Non-current | 363,187 | 282,903 |
(i)Refers to the Brazilian value-added tax on sales and services, The Group’s ICMS relates mainly to the purchase of inputs and the Group has the benefit of a reduced ICMS tax rate.
(ii)Includes: a) credits arising from the Brazilian government’s taxes charged for the social integration program (PIS) and the social security program (COFINS), and Brazilian corporate income tax and social contributions, These credits, which are recognized as current assets, will be used by the Group to offset other Federal taxes; b) withholding and overpaid taxes which can be used to settle overdue or future payable federal taxes; c) withholding income tax on cash equivalents which can be used to offset taxes owed at the end of the calendar year, in case of taxable profit, or are carried forward in case of tax loss; and
Income tax Benefits arising from ICMS deduction
During 2022/2023 the Group obtained the benefit of deducting the ICMS benefit explained in item (i) in the income tax calculation. This was applied for the current year tax calculation and for the prior years and generated an income tax credit recorded in the period ended December 31, 2023 in the amount of R$68,861 recorded under “Brazilian federal contributions”.
In accordance with Article 30 of Law No, 12,973/2014, the amount of ICMS benefits must be allocated to the fiscal incentive reserve category when there is sufficient
| Notes to the interim condensed consolidated financial statements<br><br>(In thousands of Brazilian reais - R$, except if otherwise indicated) |
|---|
profit in each subsidiary. Additionally, under the same law, these tax benefits must be included in the calculation base for Corporate Income Tax (IRPJ) and Social Contribution on Net Profits (CSLL) when dividends are distributed or capital is refunded to the shareholders of the subsidiaries.
As of December 31, 2023, the amount of fiscal incentive reserve in the subsidiaries is R$318,976 and the balance of the fiscal benefit not yet allocated due to insufficient profits for this allocation stands at R$913,501. The Group has no intention to make our subsidiaries distribute the incentive amounts to the parent. In the event of dividend distribution taxation will apply, as per the provisions of tax laws.
10.Commodity forward contracts – Barter transactions
As of December 31, 2023, fair value of commodity forward contracts is as follows:
| December 31, 2023 | June 30, 2023 | |
|---|---|---|
| Fair value of commodity forward contracts: | ||
| Assets | ||
| Purchase contracts | 69,530 | 53,695 |
| Sale contracts | 24,356 | 61,166 |
| Current | 73,264 | 114,861 |
| Non-current | 20,622 | — |
| Liabilities | ||
| Purchase contracts | (92,497) | (206,881) |
| Sale contracts | (29,208) | (186) |
| Current | (121,295) | (207,067) |
| Non-current | (410) | — |
The changes in fair value recognized in the statements of profit or loss are in note 27.
| Notes to the interim condensed consolidated financial statements<br><br>(In thousands of Brazilian reais - R$, except if otherwise indicated) |
|---|
The main assumptions used in the fair value calculation are as follows:
| Outstanding Volume (tons) | Average of contract prices R$/Bag | Average Market Prices (Corn R$/bag (ii); Soybean US$/bu(i)) | Soybean market premium (US$/bu) | Freight (R$/ton) | |
|---|---|---|---|---|---|
| Purchase Contracts | |||||
| Soybean | |||||
| As of June 30, 2023 | 449,847 | 127,95 | 13,16 | (0,30) | 293,65 |
| As of December 31, 2023 | 679,732 | 121,13 | 12,96 | (0,58) | 265,82 |
| Corn | |||||
| As of June 30, 2023 | 303,432 | 65,25 | 56,04 | N/A | 282,23 |
| As of December 31, 2023 | 135,505 | 46,70 | 72,08 | N/A | 269,56 |
| Selling Contracts | |||||
| Soybean | |||||
| As of June 30, 2023 | 145,915 | 145,71 | 13,16 | 0,01 | - |
| As of December 31, 2023 | 348,108 | 135,31 | 13,07 | (0,25) | 286,34 |
| Corn | |||||
| As of June 30, 2023 | 298,293 | 41,42 | 47,33 | N/A | 284,59 |
| As of December 31, 2023 | 62,914 | 41,25 | 72,06 | N/A | 287,29 |
(i)Market price published by Chicago Board of Trade which is a futures and options exchange in United States.
(ii)Market price published by B3 – Brasil, Bolsa, Balcão which is a futures, options and stock exchange in Brazil.
| Notes to the interim condensed consolidated financial statements<br><br>(In thousands of Brazilian reais - R$, except if otherwise indicated) |
|---|
11.Right-of-use assets and lease liabilities
(a)Right-of-use assets
| Vehicles | Buildings | Machinery and equipment | Total | |
|---|---|---|---|---|
| Cost | 120,052 | 141,915 | 73,236 | 335,203 |
| Accumulated depreciation | (54,560) | (77,732) | (29,232) | (161,524) |
| Balance at June 30, 2023 | 65,492 | 64,183 | 44,004 | 173,679 |
| Cost | 146,578 | 151,476 | 79,528 | 377,582 |
| Accumulated depreciation | (58,489) | (94,133) | (32,541) | (185,163) |
| Balance at December 31, 2023 | 88,089 | 57,343 | 46,987 | 192,419 |
Right-of-use assets amortization expense for the six-month period ended December 31, 2023 was R$39,248 (R$24,170 for the six-month period ended December 31, 2022)
(b)Lease liabilities
| December, 31 2023 | June, 30 2023 | |
|---|---|---|
| Vehicles | 86,526 | 68,420 |
| Buildings | 87,441 | 85,839 |
| Machinery and equipment | 30,776 | 30,160 |
| Total | 204,743 | 184,419 |
| Current | 91,885 | 85,865 |
| Non-current | 112,858 | 98,554 |
Total interest on lease liabilities for the six-month period ended December 31, 2023 was R$8,695 (R$8,327 for the six-month period ended December 31, 2022).
| Notes to the interim condensed consolidated financial statements<br><br>(In thousands of Brazilian reais - R$, except if otherwise indicated) |
|---|
12.Property, plant and equipment
(a)Property, plant and equipment balance is as follows:
| Vehicles | Lands, buildings and improvements | Machines, equipment and facilities | Furniture and fixtures | Computer equipment | Total | |
|---|---|---|---|---|---|---|
| Cost | 40,851 | 142,561 | 75,134 | 15,610 | 10,015 | 284,171 |
| Accumulated depreciation | (31,349) | (14,698) | (26,817) | (7,198) | (7,521) | (87,583) |
| Balance at June 30, 2023 | 9,502 | 127,863 | 48,317 | 8,412 | 2,494 | 196,588 |
| Cost | 44,259 | 164,292 | 77,776 | 16,573 | 10,994 | 313,894 |
| Accumulated depreciation | (34,976) | (19,272) | (28,358) | (8,091) | (8,742) | (99,439) |
| Balance at December 31, 2023 | 9,283 | 145,020 | 49,418 | 8,482 | 2,252 | 214,455 |
Depreciation expense of property, plant and equipment for the six-month period ended December 31, 2023 was R$9,708 (R$8,240 for the six-month period ended December 31, 2022).
There were no indications of impairment of property and equipment as of and for the six-month period ended December 31, 2023.
| Notes to the interim condensed consolidated financial statements<br><br>(In thousands of Brazilian reais - R$, except if otherwise indicated) |
|---|
13.Intangible assets
(a)Intangible assets balance is as follows:
| Goodwill | Customer relationship | Purchase contracts and brands | Software and other | Total | |
|---|---|---|---|---|---|
| Cost: | |||||
| At June 30, 2022 | 451,974 | 301,477 | 21,846 | 56,373 | 831,670 |
| Additions | - | - | - | 5,025 | 5,025 |
| Business combinations (i) | 98,890 | 50,600 | 1,207 | — | 150,698 |
| Other (ii) | (3,201) | — | — | — | (3,201) |
| Translation adjustment | (998) | (666) | (48) | (10) | (1,722) |
| At June 30, 2023 | 546,665 | 351,412 | 23,005 | 61,388 | 982,470 |
| Additions | - | - | - | 16,359 | 16,359 |
| Business combinations (i) | 105,491 | 58,986 | - | 35 | 164,512 |
| Other (iii) | 34,388 | (9,957) | - | - | 24,431 |
| Translation adjustment | 1,720 | 243 | 622 | - | 2,585 |
| At December 31, 2023 | 688,264 | 400,684 | 23,627 | 77,782 | 1,190,357 |
| Amortization: | |||||
| At June 30, 2022 | - | 89,502 | 6,929 | 10,918 | 107,349 |
| Amortization for the period | - | 50,263 | 8,983 | 8,682 | 67,928 |
| At June 30, 2023 | - | 139,765 | 15,912 | 19,600 | 175,277 |
| Amortization for the period | - | 24,572 | 4,217 | 6,522 | 35,311 |
| At December 31, 2023 | - | 164,337 | 20,129 | 26,122 | 210,588 |
| At June 30, 2023 | 546,665 | 211,646 | 7,093 | 41,788 | 807,192 |
| At December 31, 2023 | 688,264 | 236,347 | 3,498 | 51,660 | 979,769 |
(i) Balances arising from business combinations (Note 18).
| Notes to the interim condensed consolidated financial statements<br><br>(In thousands of Brazilian reais - R$, except if otherwise indicated) |
|---|
(ii) Balance arising from the adjustment in the purchase price from acquisition of Agrozap, which occurred in the year ended June 30, 2022, The consideration for the acquisition was subject to post-closing price adjustment, based on the working capital variations of the purchased company.
(iii) Balance arising from the adjustment in the purchase price from acquisition of Casa Trevo Participações and Sollo Sul, which occurred in the year ended June 30, 2023. The consideration for the acquisition was subject to post-closing price adjustment, based on the working capital variations of the purchased company.
Impairment of intangible assets
For the six-month period ended December 31, 2023, there were no indications that the Group’s intangible assets might be impaired.
| Notes to the interim condensed consolidated financial statements<br><br>(In thousands of Brazilian reais - R$, except if otherwise indicated) |
|---|
14.Trade payables
(a)Trade payables
| December 31, 2023 | June 30, 2023 | |
|---|---|---|
| Trade payables – Brazil | 4,366,016 | 2,268,420 |
| Trade payables – Colombia | 334,765 | 309,828 |
| Total | 4,700,781 | 2,578,248 |
| Current | 4,699,892 | 2,575,701 |
| Non-current | 889 | 2,547 |
The average effective interest rate used to discount trade payables for the three and six-month period ended December 31, 2023 was 1.58% per month (1.58% as of June 30, 2023).
(b)Guarantees
The Group acquires guarantees with financial institutions in connection with installment purchases of agricultural inputs from certain suppliers. These guarantees are represented by short-term bank guarantees and endorsement to the supplier of CPRs obtained from customers in the sale process. The amount of these guarantees as of December 31, 2023 wasR$1,192,756 (R$920,870 as of June 30, 2023).
(c)Trades payable — Supplier finance
During the year ended June 30, 2023, the Group signed agreements with financial institutions to negotiate with suppliers to extend the payment terms and discounting of trade receivable from its suppliers, with interest rates ranging from 1 and 1.5 per month. When trade payable is included in this transaction, such amount is transferred from “Trade Payables” to “Trades payable — Supplier finance”. The Group did not sign supplier finance agreements for the period ended December 31, 2023.
During the six-month period ended on December 31, 2023 the Group fully settled the supplier finance operation.
| Notes to the interim condensed consolidated financial statements<br><br>(In thousands of Brazilian reais - R$, except if otherwise indicated) |
|---|
15.Borrowings
| December 31, 2023 | June 30, 2023 | |
|---|---|---|
| Borrowing in Colombia | 91,537 | 71,562 |
| Borrowings in Brazil | 1,554,964 | 893,913 |
| Total borrowings | 1,646,501 | 965,475 |
The Group’s borrowings are contracted for the purpose of strengthening the working capital and have repayment terms scheduled in conjunction with the operating cycles of each harvest.
(a)Debt composition
| Average interest rate December 31,2023 (i) | December 31, 2023 | Average interest rate June 30, 2023 (i) | June 30, 2023 | |||
|---|---|---|---|---|---|---|
| Debt contracts in Brazil in: | ||||||
| R$, indexed to CDI (ii) | 14.46 | % | 955,444 | 16.62 | % | 725,563 |
| R$, with fixed interest | 17.23 | % | 56,969 | 8.76 | % | 8,590 |
| U.S. Dollars, with fixed interest | 7.49 | % | 542,550 | 4.03 | % | 159,760 |
| Debt contracts in Colombia in: | ||||||
| COP, indexed to IBR (iii) | 16.73 | % | 82,325 | 15.43 | % | 69,862 |
| COP, with fixed interest | 16.60 | % | 9,213 | 15.72 | % | 1,700 |
| Total | 1,646,501 | 965,475 | ||||
| Current | 1,613,955 | 922,636 | ||||
| Non-current | 32,546 | 42,839 |
(i)In order to determine the average interest rate for debt contracts with floating rates, the Group used the rates prevailing during the years.
(ii)Brazilian reais denominated debt that bears interest at the CDI Rate (see Note 7 for a definition of those indexes), plus spread.
(iii)Colombian peso-denominated debt that bears interest at the IBR rate (see Note 7 for a definition of those indexes), plus spread.
| Notes to the interim condensed consolidated financial statements<br><br>(In thousands of Brazilian reais - R$, except if otherwise indicated) |
|---|
(b)Movement in borrowings
| At June 30, 2022 | 710,552 | |||
|---|---|---|---|---|
| Proceeds from borrowings | 1,105,864 | |||
| Repayment of principal amount | (199,715) | |||
| Accrued interest | 155,645 | |||
| Exchange rate translation | 25,756 | |||
| Interest payment | (64,546) | |||
| At December 31, 2022 | 1,733,556 | At June 30, 2023 | 965,475 | |
| --- | --- | |||
| Proceeds from borrowings | 1,702,374 | |||
| Repayment of principal amount | (1,084,144) | |||
| Accrued interest | 125,497 | |||
| Borrowings from acquired companies | 61,763 | |||
| Foreign exchange differences | (10,630) | |||
| Exchange rate translation | (1,018) | |||
| Interest payment | (112,816) | |||
| At December 31, 2023 | 1,646,501 |
(c)Schedule of maturity of noncurrent portion of borrowings
The installments are distributed by maturity year:
| December 31, 2023 | June 30, 2023 | |||
|---|---|---|---|---|
| 2024 | 726 | |||
| 2025 | 2,543 | 15,452 | ||
| 2026 | 1,569 | 1,376 | ||
| 2027 | 19,447 | 25,285 | ||
| 2028 | 8,987 | - | ||
| Total | 32,546 | 42,839 | Notes to the interim condensed consolidated financial statements<br><br>(In thousands of Brazilian reais - R$, except if otherwise indicated) | |
| --- |
(d)Covenants
The Group has no financial covenants as of December 31, 2023.
16.Agribusiness Receivables Certificates
(a)Composition
| Maturity | Average interest rate 2023 (i) | December 31, 2023 | ||
|---|---|---|---|---|
| Serie I | December 22, 2027 | CDI + 3,00% | 68,088 | |
| Serie II | December 22, 2027 | 14.20 | % | 335,065 |
| Total | 403,153 | |||
| Current | — | |||
| Non-current | 403,153 |
(b) Movement in Agribusiness Receivables Certificates
| At June 30, 2023 | — |
|---|---|
| Proceeds from borrowings | 420,000 |
| Transaction cost | (17,741) |
| Accrued interest | 894 |
| At December 31, 2023 | 403,153 |
(c) Covenants
This debt includes covenants related to level of indebtedness of the subsidiary Lavoro Agro Holding S.A (This entity encompasses our Brazil Cluster operations) requiring to meet a net debt to EBITDA ratio of not more than 2.5 x to be calculated as of June 30 of each year.
17.Payables for the acquisition of subsidiaries
The purchase agreements for acquisition of subsidiaries include payments to the seller in the event of successful collection, after the acquisition date of outstanding receivables and certain tax credits subject to administrative proceedings.
| Notes to the interim condensed consolidated financial statements<br><br>(In thousands of Brazilian reais - R$, except if otherwise indicated) |
|---|
Consideration paid during the period ended December 31, 2023, net of cash acquired, was R$187,273 which includes installment payments for acquisitions completed in previous years in the amount of R$97,236 (R$162,317 on June 30, 2023, which includes payments for acquisitions made in previous years in the amount of R$106,764). All these payments are included in the “Acquisition of subsidiary, net of cash acquired” in the cash flows.
| Notes to the interim condensed consolidated financial statements<br><br>(In thousands of Brazilian reais - R$, except if otherwise indicated) |
|---|
18.Acquisition of subsidiaries
(a)Acquisition in the six-month period ended December 31, 2023.
The fair value of the identifiable assets and liabilities, consideration transferred and goodwill as of the date of each acquisition was:
| Fair value as of the acquisition date | ||
|---|---|---|
| Referência Agroinsumos (c) | CORAM (d) | |
| Assets | ||
| Cash equivalents | 8,135 | 15,352 |
| Trade receivables | 31,464 | 61,791 |
| Inventories | 43,680 | 54,034 |
| Other assets | 11,473 | 14,038 |
| Property, plant and equipment | 1,556 | 1,804 |
| Intangible assets | 30,494 | 14,777 |
| 126,802 | 161,796 | |
| Liabilities | ||
| Trade payables | 56,137 | 79,298 |
| Borrowings | 32,429 | 29,334 |
| Advances from customers | 40,757 | 1,263 |
| Other liabilities | 4,168 | 10,349 |
| 133,491 | 120,244 | |
| Total identifiable net assets at fair value | (6,689) | 41,552 |
| Non-controlling interests | 2,007 | — |
| Goodwill arising on acquisition | 106,794 | 8,321 |
| Consideration transferred | 102,112 | 49,873 |
| Cash paid | 67,112 | 20,000 |
| Payable in installments | 35,000 | 29,873 |
| Notes to the interim condensed consolidated financial statements<br><br>(In thousands of Brazilian reais - R$, except if otherwise indicated) | ||
| --- |
(b)Fair value of assets acquired.
The Group estimated the fair value of significant assets acquired using the following valuation methods:
| Item | December 31, 2023 | Nature | Valuation method |
|---|---|---|---|
| Customer relationship | 45,236 | A loyal relationship between the acquirees and its customers, which translates into recurring purchases of products and services | Multi Period Excess Earnings Method (MPEEM) |
| Inventories | — | Inventories | Selling price less all expenses related to the distribution of that good |
| Purchase Contracts | — | Favorable purchase contract with suppliers | Multi Period Excess Earnings Method (MPEEM) |
| Brand | — | Private label products (Produtiva, Union and Cenagral) | Relief from Royalty method |
| Total | 45,236 |
There were no differences between accounting basis and tax basis on fair value adjustments, and therefore no deferred taxes were recorded.
(c) Acquisition of Referência Agroinsumos
On February 28, 2023, the Group signed an agreement for the acquisition of Referência Agroinsumos Ltda, (“Referência Agroinsumos”), establishing the terms and other conditions for its acquisition.
The acquisition was completed on July 31, 2023. The Group currently indirectly owns 65.15% Referência Agroinsumos through Distribuidora Pitangueiras de Produtos Agropecuários S.A. wich directly owns a 70% interest at Referência Agroinsumos.
(d) Acquisition of CORAM
On July 24, 2023, the Group signed an agreement for the acquisition of CORAM - Comércio e Representações Agrícolas Ltda., (“CORAM”), establishing the terms and other conditions for its acquisition.
The acquisition was completed on November 30, 2023. The Group currently indirectly owns 62.15% CORAM through Qualiciclo Agrícola S.A. wich directly owns a 100% interest at CORAM.
| Notes to the interim condensed consolidated financial statements<br><br>(In thousands of Brazilian reais - R$, except if otherwise indicated) |
|---|
(e) Pro forma information (unaudited)
The following tables discloses the Group’s revenues and profit or loss for the period assuming all of the acquisitions completed during the year were completed at the beginning of such year:
| December 31, 2023 | December 31, 2022 | |
|---|---|---|
| Revenues | 270,084 | 5,830,176 |
| Profit (loss) for the period | (14,254) | 291,984 |
(f) Revenues and results from new subsidiaries
The revenues and profit or loss of the acquisitions from the acquisition date through the end of the fiscal year in which the acquisition was completed and included in the consolidated statement of profit or loss are as follows:
Acquisitions in the period ended December 31, 2023:
| Revenues | Profit (loss) | Period from | |
|---|---|---|---|
| Referência Agroinsumos | 178,173 | 23,923 | July 2023 |
| CORAM | 21,809 | 1,544 | November, 2023 |
| Total | 199,982 | 25,467 |
Acquisitions in the period ended December 31, 2022:
| Revenues | Profit (loss) | Period from | |
|---|---|---|---|
| Provecampo | 18,097 | 2,684 | August, 2022 |
| Floema | 108,634 | 8,981 | August, 2022 |
| Casa Trevo | 87,024 | 8,574 | September, 2022 |
| Sollo Sul | 14,556 | (5,908) | December, 2022 |
| Dissul | 1,007 | (623) | December, 2022 |
| Total | 229,318 | 13,708 |
(g) Signed agreement for future acquisitions
| Notes to the interim condensed consolidated financial statements<br><br>(In thousands of Brazilian reais - R$, except if otherwise indicated) |
|---|
The Group signed an agreement on August 25, 2022, for the acquisition of an 82% interest in NS Agro S.A. (“NS Agro”), establishing the terms and other conditions for its acquisition. The precedent conditions for this transaction were not completed by August 31, 2023 and the parties subsequently canceled the agreement. As a result, the consideration which was transferred in advance for the acquisition amounted to R$14,924 was not recovered and was therefore transferred for other operating income for the three months period ended September 30, 2023.
- Accounting considerations related to the SPAC Transaction
On February 28, 2023, Lavoro and TPB Acquisition Corp, consummated a capital reorganization transaction (as described in note 1.b to the Group’s annual consolidated financial statements as of June 30, 2023) . Warrants and forward purchase agreements were assumed in the SPAC Transaction (See Note 22 to the Group’s annual consolidated financial statements as of June 30, 2023).
Warrants
TPB Acquisition Corp, issued 10,083,606 public and private warrants to certain of its shareholders and its maturity is February 28, 2028. Such public and private warrants were assumed by Lavoro as a result of the SPAC Transaction. The outstanding warrants as of December 31, 2023, is 10,083,592 and aggregate fair value of the private and public warrants is 22,944, and the warrants are reported in the consolidated statement of financial position as warrant liabilities under non-current liabilities. For the six-month period ended December 31, 2023, the Group recognized a loss of 167 related to changes to the fair value of public warrants and private warrants. The fair value of the warrants was calculated based on the listed market price of such warrants.
Forward share purchase agreements
TPB Acquisition Corp, entered into certain Forward Share Purchase Agreements with certain shareholders of TPB Acquisition Corp., in which TPB Acquisition Corp. agreed to purchase, in the aggregate, up to 2,830,750 of TPB Acquisition Corp,’s Class A Ordinary Shares held by those equity holders, either after 24 months after closing of the SPAC Transaction or after meeting certain criteria as defined in the Forward Share Purchase Agreements. Such Forward Share Purchase Agreements were assumed by Lavoro, whereby Lavoro agreed to purchase the same number of Lavoro’s ordinary shares under the same conditions as defined in those Forward Share Purchase Agreements. Lavoro placed a designated balance of funds into an escrow account at the closing of the SPAC Transaction for the purpose acquiring such shares.
Lavoro’s Ordinary Shares subject to the Forward Share Purchase Agreement are considered financial liabilities and are recorded in the consolidated statement of financial position as Liability for FPA Shares in non-current liabilities at the amounts
| Notes to the interim condensed consolidated financial statements<br><br>(In thousands of Brazilian reais - R$, except if otherwise indicated) |
|---|
deposited in the escrow account. The designated balance of funds in the escrow account is reported in the consolidated statement of financial position as restricted cash. The amount of Liability for FPA Shares and the restricted cash was R$144,306 as of December 31, 2023.
- Income taxes
(a)Reconciliation of income taxes expense
| December 31, 2023 | December 31, 2022 | |
|---|---|---|
| Profit (loss) before income taxes | (189,981) | 222,918 |
| Statutory rate (i) | 34% | 34% |
| Income taxes at statutory rate | 64,594 | (75,792) |
| Unrecognized deferred tax asset (ii) | (4,145) | (43,598) |
| Difference from income taxes calculation based on taxable profit computed as a percentage of gross revenue | (24) | 11,356 |
| Deferred income taxes over goodwill tax recoverable | (3,916) | — |
| Tax benefit (iii) | 68,861 | 146,171 |
| Other | 2,795 | 2,835 |
| Income tax expense | 128,165 | 40,971 |
| Income tax and social contribution effective rate | -67% | 18% |
| Current income taxes | 31,949 | (14,303) |
| Deferred income taxes | 96,216 | 55,274 |
(i)The effective tax rate reconciliation considers the statutory income taxes rates in Brazil, due to the significance of the Brazilian operation when compared to Colombia, The difference to reconcile the effective rate to the Colombian statutory rate (35%) is included in others.
(ii)The Group did not recognize deferred tax assets on accumulated tax losses from certain subsidiaries in a total amount of unrecognized credits on tax losses of 202,388 (R$140,738 for December 31, 2022). The Group assessed that is unlikely that these subsidiaries will generate future taxable income in the foreseeable future.
(iii)This amount reflects the tax benefit from the deduction of the ICMS tax benefits in the calculation of the income tax (See Note 9).
| Notes to the interim condensed consolidated financial statements<br><br>(In thousands of Brazilian reais - R$, except if otherwise indicated) |
|---|
(b)Deferred income taxes balances
| December 31, 2023 | June 30, 2023 | ||||
|---|---|---|---|---|---|
| Deferred assets and liabilities: | |||||
| Amortization of fair value adjustment | 71,541 | 66,065 | |||
| Tax losses | 194,187 | 123,072 | |||
| Allowance for expected credit losses | 58,543 | 49,026 | |||
| Adjustment to present value | 3,518 | 14,222 | |||
| Provision for management bonuses | 11,694 | 22,182 | |||
| Allowance for inventory losses | 5,263 | 3,841 | |||
| Financial effect on derivatives | 8,411 | (1,468) | |||
| Fair value of commodity forward contracts | 9,250 | 31,343 | |||
| Unrealized exchange gains or losses | (10,224) | (7,618) | |||
| Unrealized profit in Inventories | 22,281 | (11,121) | |||
| Amortized right-of-use assets | 4,347 | 6,273 | |||
| Deferred tax on goodwill | (3,290) | (2,067) | |||
| Other provisions | 37,425 | 22,981 | |||
| Deferred income tax assets, net | 431,135 | 329,082 | |||
| Deferred income tax liabilities, net | (18,189) | (12,351) | |||
| Deferred income tax assets, net | 412,946 | 316,731 | Deferred income tax and social contribution | ||
| --- | --- | ||||
| At June 30, 2022 | 193,495 | ||||
| Recognized in the statement of profit or loss | 128,362 | ||||
| Deferred tax from acquired companies | (5,126) | ||||
| At June 30, 2023 | 316,731 | ||||
| Recognized in the statement of profit or loss | 96,215 | ||||
| At December 31, 2023 | 412,946 | Notes to the interim condensed consolidated financial statements<br><br>(In thousands of Brazilian reais - R$, except if otherwise indicated) | |||
| --- |
The aging analysis of net deferred income tax is as follow:
| December 31, 2023 | June 30, 2023 | |
|---|---|---|
| Up to 1 year | 218,759 | 185,123 |
| Over 1 year | 194,187 | 131,608 |
| Total | 412,946 | 316,731 |
- Provisions for contingencies
Probable losses
The balance of probable losses from civil, tax, labor and environmental contingencies recognized by the Group was R$12,938 and R$8,845 respectively as of December 31, 2023 and June 30, 2023.
Possible losses
The Group is a party to various proceedings involving tax, environmental, labor and other matters that were assessed by management, under advice of legal counsel, as possibly leading to losses. Possible losses from contingencies amounted to R$99,470 and R$77,724 as of December 31, 2023 and June 30, 2023, respectively.
- Advances from customers
Advances from customers arise from the “Cash sale” modality, in which rural producers advance payments to the Group at the beginning of a harvest, before the billing of agricultural inputs. These advances are settled in the short term.
(a)Movement in the period
| December 31, 2023 | June 30, 2023 | |
|---|---|---|
| Opening balance | 488,578 | 320,560 |
| Revenue recognized that was included in the contract liability balance at the beginning of the period | (431,304) | (320,560) |
| Increase in advances | 359,746 | 427,463 |
| Advances from acquired companies | 42,020 | 61,115 |
| Ending balance | 459,040 | 488,578 |
| Notes to the interim condensed consolidated financial statements<br><br>(In thousands of Brazilian reais - R$, except if otherwise indicated) | ||
| --- |
- Related parties
Related parties of the Group that have receivable, payable or other balances are either (i) Non-controlling shareholders, (ii) Patria Investments Limited, which manages the funds that control the Group, or (iii) Key management personnel.
(a)Breakdown of assets and liabilities:
| December 31, 2023 | June 30, 2023 | |
|---|---|---|
| Assets | ||
| Trade receivables (i) | 25,383 | 24,487 |
| Total assets | 25,383 | 24,487 |
| Liabilities | ||
| Trade payables (i) | 1,554 | 1,675 |
| Advances from customers (i) | 432 | — |
| Payables for the acquisition of subsidiaries (ii) | 99,109 | 100,287 |
| Total liabilities | 101,095 | 101,962 |
(i)Refer to commercial transactions in the ordinary course of business with non-controlling shareholders of subsidiaries, Such transactions are carried at the same commercial terms as non-related parties customers.
(ii)Payments in installments to the non-controlling shareholders related to certain business combinations as described in Note 18.
(b)Statement of profit or loss
| December 31, 2023 | December 31, 2022 | |
|---|---|---|
| Revenue from sales of products (i) | 14,356 | 14,348 |
| Monitoring expenses (ii) | (7,520) | (6,242) |
| Interest on payables for the acquisition of subsidiaries | (1,674) | (492) |
| Other expenses | (1,476) | (145) |
| Total | 3,686 | 7,469 |
(i)Refer to commercial transactions in the ordinary course of business with non-controlling shareholders of subsidiaries, Such transactions are carried at the same commercial terms as non-related party customers.
(ii)Expenses paid to the Parent in relation to management support services rendered by the investee Gestão e Transformação S.A. in connection with acquisition transactions.
| Notes to the interim condensed consolidated financial statements<br><br>(In thousands of Brazilian reais - R$, except if otherwise indicated) |
|---|
(c)Key management personnel compensation
| December 31, 2023 | December 31, 2022 | |
|---|---|---|
| Wages | 8,492 | 6,337 |
| Direct and indirect benefits | 722 | 262 |
| Variable compensation (bonuses) | 6,478 | 11,525 |
| Short-term benefits | 15,692 | 18,124 |
| Share-based payment benefits | 10,694 | 6,177 |
| Total | 26,386 | 24,301 |
Key management personnel compensation includes payments to Group board of directors and the executive officers.
- Equity
The following table illustrates the outstanding amount of issued shares as of December 31, 2023. There were no changes in relation to June 30, 2023:
| Ordinary authorized and issued shares | Number of <br>shares | Share Capital<br>(In thousands of Brazilian reais ) |
|---|---|---|
| Shares issued to the shareholders of Lavoro Agro Limited | 98,726,401 | 514 |
| Shares issued to the shareholders of TPB Acquisition Corp | 14,875,879 | 77 |
| As of December 31, 2023 | 113,602,280 | 591 |
Ordinary Shares
Lavoro ordinary shares have a par value of US$0.001 and are entitled to one vote per share.
Other capital reserves
Other capital reserves is comprised of a reserve set-up by the Group share-based payment (an equity-settled share-based compensation plan).
| Notes to the interim condensed consolidated financial statements<br><br>(In thousands of Brazilian reais - R$, except if otherwise indicated) |
|---|
Share based payment
Share Options
On August 17, 2022, the Group approved the Lavoro Agro Holding S.A. Long-Term Incentive Policy (the “Lavoro Share Plan”). Under the Lavoro Share Plan, individuals selected by the Lavoro board of directors (“Selected Employees”) are eligible to receive incentive compensation consisting of cash, assets or share options issued by Lavoro Agro Limited, in an amount linked to the appreciation in the Lavoro Agro Limited share price at the time of the liquidity event, upon the satisfaction of certain conditions, as described below.
As of December 31, 2023, Lavoro has granted 42,093,732 share options as incentive compensation to Selected Employees, Share options granted under the Lavoro Share Plan will vest in the event the following market conditions are met (the “Market Conditions”):
(i)the occurrence of a liquidity event satisfying a minimum internal rate of return specified in the Lavoro Share Plan; and
(ii)the price per share obtained under such liquidity event must be greater than or equal to one of the following amounts:
(a)a pre-established reference price multiplied by three; or
(b)an amount calculated in accordance with a pre-established formula, in each case specified under the Lavoro Share Plan.
Moreover, upon the satisfaction of the Market Conditions, such share options will vest according to the following schedule (the “Service Conditions”):
(i)one-third of the options vest on the third anniversary of the grant date;
(ii)one-third of the options vest on the fourth anniversary of the grant date; and
(iii)one-third of the options vest on the fifth anniversary of the grant date.
The Lavoro Share Plan has a term of five years: if the Market Conditions have not been satisfied within this year, all options granted under the Lavoro Share Plan will be extinguished, with no further payment or incentive obligation remaining due by Lavoro. The consummation of the SPAC Transaction (See Note 1 to the Group’s annual consolidated financial statements as of June 30, 2023)) did not satisfy the Market Conditions.
As of February 28, 2023, the shareholders of Lavoro approved the Lavoro Share Plan. As a result, Lavoro reserved for issuance the number of ordinary shares equal to the number of Lavoro Share Plan Shares under the Lavoro Share Plan, as adjusted in accordance with the Business Combination Agreement, in an amount of 1,663,405 ordinary shares.
The exercise price of the share-based payment is equal to the options price agreed with the employee in the contracts, representing the amount of R$1 monetarily adjusted until the date on which the liquidity event occurs.
| Notes to the interim condensed consolidated financial statements<br><br>(In thousands of Brazilian reais - R$, except if otherwise indicated) |
|---|
The fair value of share options granted is estimated at the date of grant considering the terms and conditions using the Black-Scholes model, taking into account the terms and conditions on which the share options were granted. The model also takes into account historical and expected dividends, and the share price volatility of Lavoro.
The expense recognized for employee services received during the period and the number of options granted is shown in the following tables:
| Other capital <br>reserves | ||||
|---|---|---|---|---|
| At June 30, 2022 | - | |||
| Share-based payments expense during the year | 14,533 | |||
| At June 30, 2023 | 14,533 | |||
| Share-based payments expense during the period | 476 | |||
| At December 31, 2023 | 15,009 | Options granted | ||
| --- | --- | |||
| At June 30, 2022 | - | |||
| Granted options | 49,518,732 | |||
| Canceled | (3,800,000) | |||
| At June 30, 2023 | 45,718,732 | |||
| Canceled | (3,625,000) | |||
| At December 31, 2023 | 42,093,732 |
The weighted average fair value of the options granted was R$0.44 per option. The significant data included in the model were: weighted average share price of R$2.88 on the grant date, exercise price presented above, volatility of 33.88%, no dividend yield, an expected option life of 3.37 years and a risk-free annual interest rate of 12.45%.
Lavoro Limited Restricted Stock Unit Plan (“RSU Plan”)
| Notes to the interim condensed consolidated financial statements<br><br>(In thousands of Brazilian reais - R$, except if otherwise indicated) |
|---|
On May 26, 2023 the Board of Directors approved a long-term incentive plan (the “Restricted Stock Unit Plan” or the “RSU Plan”) in which beneficiaries will be granted equity awards pursuant to the terms and conditions of the RSU Plan and any applicable award agreement. Each RSU, once all the conditions under the plan are met, shall entitle the participant to receive one share issued by Lavoro Limited at no cost.
The total number of shares that may be delivered to the participants within the scope of the plan shall not exceed five percent of shares representing the Group’s total share capital.
On August 16, 2023 and September 28, 2023, (the grant date) the board of directors of Lavoro (the “Board”) approved the RSU Plan, which provides for the grant of restricted stock units to participants identified by the Board.
The RSUs will vest according to the following schedule, except if otherwise established by the Board of Directors:
(i) one-third of the options vest on the third anniversary of the vesting date;
(ii) one-third of the options vest on the fourth anniversary of the vesting date; and
(iii) one-third of the options vest on the fifth anniversary of the vesting date.
In the event of termination/dismissal of the participant, all unvested RSUs shall be automatically extinguished with not compensation rights. participant, all RSUs whose vesting period has not elapsed on the date of such termination/dismissal shall be automatically extinguished without being entitled any right to compensation.
The fair value of shares granted was measured at the market price of Lavoro’s share at the grant date.
As of December, 2023, the number of RSU granted is shown in the following tables:
| RSUs granted | |
|---|---|
| At June 30, 2023 | - |
| Granted options | 1,597,076 |
| Canceled | (38,538) |
| At December 31, 2023 | 1,558,538 |
The weighted average fair value of the shares granted was R$27.14 per share.
The expense for employee services received during the period was R$10,217.
| Notes to the interim condensed consolidated financial statements<br><br>(In thousands of Brazilian reais - R$, except if otherwise indicated) |
|---|
Earnings per share
Earnings (loss) per share is calculated by dividing the profit (loss) for the period attributable to net investment of the parent/equity holders of the parent by the weighted average number of common shares available during the fiscal year. Diluted earnings (loss) per share is calculated by adjusting the weighted average number of common shares, presuming the conversion of all the potential diluted common shares.
The number of ordinary shares issued by Lavoro, as a result of the corporate reorganization is reflected retroactively, for purposes of calculating earnings per share in the period ended December 31, 2022.
The table below show data used in calculating basic and diluted earnings (loss) per share attributable to the net investment of the parent/equity holders of the parent:
| Three-month period ended December 31, | Six-month period ended December 31, | |||
|---|---|---|---|---|
| 2023 | 2022 | 2023 | 2022 | |
| Weighted average ordinary shares of Lavoro | 113,602 | 113,602 | 113,602 | 113,602 |
| Effects of dilution from: | ||||
| Share-based payment (i) | 2,137 | 2,421 | 2,192 | 1,632 |
| Restricted stock unit plan (ii) | 1,584 | - | 1,294 | - |
| Number of ordinary shares adjusted for the effect of dilution | 117,323 | 116,023 | 117,088 | 115,234 |
| Profit (loss) for the period attributable to net investment of the parent/equity holders of the parent | (15,011) | 149,695 | (81,548) | 209,310 |
| Basic earnings (loss) per share | (0.13) | 1.32 | (0.72) | 1.84 |
| Diluted earnings (loss) per share | (0.13) | 1.29 | (0.72) | 1.82 |
(i)Based on the numbers of shares reserved by Lavoro Limited to the Lavoro Share Plan, as explained above
(ii)Based on the numbers of shares reserved by Lavoro Limited to the Lavoro RSU Plan, as explained above.
The Group reported a loss for the three and six-month period ended December 31, 2023, accordingly the ordinary shares related to the share-based payment and RSU Plan have a non-dilutive effect and therefore were not considered in the total number of shares outstanding to determine the diluted earnings (loss) per share.
All public and private warrants are out of the money as of December 31, 2023; therefore, the approximately 6,012,085 and 4,071,507 public and private warrants, respectively, were not included in the calculation of the diluted earnings (loss) per
| Notes to the interim condensed consolidated financial statements<br><br>(In thousands of Brazilian reais - R$, except if otherwise indicated) |
|---|
share. Similarly, the 3,060,662 Founder Shares, that were detailed in Note 22 to the Group’s annual consolidated financial statements as of June 30, 2023, were not considered in the calculation of the diluted earnings (loss) per share due to the Group’s market share price.
- Revenue from contracts with customers
Below is revenue from contracts with customers disaggregated by product line and geographic location:
| Three-month period ended December 31, | Six-month period ended December 31, | |||
|---|---|---|---|---|
| 2023 | 2022 | 2023 | 2022 | |
| Inputs Retails sales | ||||
| Brazil | 2,474,901 | 2,691,567 | 4,154,752 | 4,417,580 |
| Colombia | 241,919 | 229,154 | 507,527 | 534,383 |
| Private Label products | ||||
| Crop Care | 279,796 | 206,082 | 446,352 | 327,603 |
| Grains (i) | ||||
| Brazil | 34,864 | 22,311 | 230,251 | 111,376 |
| Colombia | 4,328 | 4,157 | 34,944 | 31,681 |
| Services | ||||
| Colombia | 30,094 | 66,940 | 58,032 | 83,552 |
| Total Revenues | 3,065,902 | 3,220,211 | 5,431,858 | 5,506,175 |
| Summarized by region | ||||
| Brazil | 2,789,561 | 2,919,960 | 4,831,355 | 4,856,559 |
| Colombia | 276,341 | 300,251 | 600,503 | 649,616 |
(i)As explained in Note 10, the Group receives grains from certain customers in exchange to the product sold. The fair value of such non-cash consideration received from the customer is included in the transaction price and measured when the Group obtains control of the grains. The Group estimates the fair value of the non-cash consideration by reference to its market price.
| Notes to the interim condensed consolidated financial statements<br><br>(In thousands of Brazilian reais - R$, except if otherwise indicated) |
|---|
- Costs and expenses by nature
The breakdown of costs and expenses by nature is as follows:
| Three-month period ended December 31, | Six-month period ended December 31, | |||
|---|---|---|---|---|
| 2023 | 2022 | 2023 | 2022 | |
| Cost of inventory (i) | 2,503,618 | 2,550,455 | 4,546,898 | 4,345,018 |
| Personnel expenses | 151,086 | 151,569 | 274,533 | 298,485 |
| Maintenance of the units | 10,559 | 8,013 | 22,505 | 15,456 |
| Consulting, legal and other services | 29,881 | 28,484 | 60,334 | 52,315 |
| Freight on sales | 47,755 | 11,573 | 74,576 | 27,566 |
| Commissions | 31,316 | 9,302 | 53,435 | 27,931 |
| Storage | 4,456 | 737 | 10,779 | 3,017 |
| Travel | 8,837 | 9,006 | 17,393 | 16,818 |
| Depreciation | 5,193 | 4,662 | 9,708 | 8,240 |
| Amortization of intangibles | 16,935 | 12,840 | 35,311 | 35,677 |
| Amortization of right-of-use assets | 19,807 | 7,557 | 39,248 | 24,170 |
| Taxes and fees | 12,132 | 5,852 | 21,688 | 14,626 |
| Short term rentals | 5,701 | 10,033 | 8,726 | 14,309 |
| Business events | 1,999 | 1,060 | 5,887 | 4,930 |
| Marketing and advertising | 4,898 | 4,802 | 9,165 | 7,138 |
| Insurance | 3,120 | 2,490 | 6,763 | 4,374 |
| Utilities | 3,625 | 8,766 | 6,749 | 11,209 |
| Allowance for expected credit losses | 49,716 | 5,777 | 76,212 | 17,838 |
| Losses and damage of inventories | 3,438 | 1,894 | 5,003 | 6,103 |
| Fuels and lubricants | 8,800 | 7,601 | 15,753 | 13,857 |
| Other administrative expenditures | 12,568 | 29,636 | 27,683 | 50,213 |
| Total | 2,935,440 | 2,872,109 | 5,328,349 | 4,999,290 |
| Classified as: | ||||
| Cost of goods sold | 2,555,320 | 2,569,096 | 4,627,991 | 4,380,852 |
| Sales, general and administrative expenses | 380,120 | 303,013 | 700,358 | 618,438 |
(i)Includes fair value on inventory sold from acquired companies, in the six-month of R$729 and R$13,557 respectively for the periods ended December 31, 2023 and 2022.
| Notes to the interim condensed consolidated financial statements<br><br>(In thousands of Brazilian reais - R$, except if otherwise indicated) |
|---|
- Finance income (costs)
| Three-month period ended December 31, | Six-month period ended December 31, | |||
|---|---|---|---|---|
| 2023 | 2022 | 2023 | 2022 | |
| Finance income | ||||
| Interest from cash equivalents | 4,641 | 3,181 | 11,447 | 4,631 |
| Interest arising from revenue contracts | 95,623 | 74,321 | 161,270 | 139,450 |
| Interest from tax benefit (see note 20) | 7,270 | 2,983 | 17,735 | 10,390 |
| Other | 3,865 | (9,421) | 6,846 | 5,412 |
| Total | 111,399 | 71,064 | 197,298 | 159,883 |
| Finance costs | ||||
| Interest on borrowings | (64,021) | (91,502) | (126,391) | (127,805) |
| Interest on acquisitions of subsidiary | (4,036) | (3,508) | (7,672) | (2,906) |
| Interest on FIAGRO | (6,077) | (11,309) | (15,957) | (24,934) |
| Interest on leases | (4,438) | (4,388) | (8,695) | (8,327) |
| Interest on trade payables | (181,097) | (130,265) | (323,457) | (279,176) |
| Gain on changes in fair value of warrants | 1,253 | — | (167) | — |
| Other | (19,832) | 13,024 | (31,896) | (12,220) |
| Total | (278,248) | (227,948) | (514,235) | (455,368) |
| Other Finance Income (Cost) | ||||
| Loss on fair value of commodity forward contracts | (19,498) | (8,095) | (19,782) | (4,974) |
| Loss on changes in fair value of derivative instruments | (33,228) | (7,063) | (6,947) | (7,513) |
| Foreign exchange differences on cash equivalents | (1,089) | - | 8,246 | - |
| Foreign exchange differences on trade receivables and trade payables, net | 16,614 | 4,185 | 11,168 | (7,705) |
| Foreign exchange differences on borrowings | 19,353 | — | 10,603 | — |
| Total | (17,848) | (10,973) | 3,288 | (20,192) |
| Finance costs, net | (184,697) | (167,857) | (313,649) | (315,677) |
| Notes to the interim condensed consolidated financial statements<br><br>(In thousands of Brazilian reais - R$, except if otherwise indicated) | ||||
| --- |
- Non-cash transactions
The Group engages in non-cash transactions which are not reflected in the statement of cash flows.
The Group had non-cash transactions related to the acquisition of subsidiaries through the issuance of shares and accounts payable as described in Note 18.
Additionally, the Group reported non-cash additions to right-of-use assets and lease liabilities of R$52,873 in the six-month period ended December 31, 2023 (R$43,969 in the six-period ended December 31, 2022).
- Subsequent events
•New financing transactions
Following December 31, 2023, and up to the date of this interim condensed consolidated financial statements, several of our Brazilian and Colombian subsidiaries have executed multiple financing agreements, with principal sum of R$96,8 million, with interest rating from CDI Rate plus 0.4% to 17.5% and maturities ranging from May 2024 to May 2027, and COP$11,500.0, with interest rate IBR Rate plus 1.50% and maturity January 2025.
•Law 14.789/2023 – Tax benefits suspension
The federal government suspended the income tax benefit arising from ICMS deduction, with effects starting in 2024. Consequently, in 2024, the Group will no longer be able to benefit from the income tax explained in Note 9.
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