AgroGalaxy Participacoes SA

BOVESPA:AGXY3

Earnings Call Transcript 2023-Q3

[Daniel Kuratomi, executive]

Good morning, everyone, and welcome to our earnings call. This is our earnings call for the third quarter of 2023. I'd like to thank you all for your presence and for those that are watching us for once again, I'm Daniel Kuratomi, the Head for IR. I'm here with our CEO, Welles Pascoal; Axel Labourt, our VP of Operations; and Eron Martins, our CFO; and IR Director, Alves Flavia Costa. And I'd like to let you know that the earnings call is being recorded. It will be available on the IR website along with the other materials at the earnings center. Our website is ri.agrogalaxy.com.br and we will also provide on the chat, all of the presentations with the links in English and Portuguese, so you can download it. After we finish up with our speech here, we'll start with Q&A. And I want to remind you all that if you do have a question, just select the Q&A icon here at the bottom, write your name, company and language.

At the moment when you have the microphone appear on the bottom on your screen. Just quick on it and make your questions and we ask you to also make your questions at once. We also want to let you know that the information in this presentation and possible statements that could be made during the earnings call related to business perspectives, forecasts and operational targets represent beliefs and assumptions of the company's management as well as information that's currently available. Future statements are not a guarantee of performance. They involve risks, uncertainties and assumptions as they refer to future events and depend on circumstances that could or not occur. Investors must understand that economic general conditions, market conditions and other operational factors could affect the future performance at AgroGalaxy lead to results that differ materially from those listed in such statements. Now I'll pass the floor on to Welles, so we can begin our presentation. Welles, please?

[Welles Pascoal, executive]

Hey, guys, good morning, everyone. Pleasure to be with you and to share this time with you as we are going to be presenting the earnings for the third quarter. I have, as mentioned by Daniel, Axel Labourt, he's our COO; and Eron Martins, our CFO. So both of them will take care of the operations and finances. And I will cover the aspects related to the overall performance of the company in the third quarter. Even considering the turbulent year we're experiencing with agribusiness here in Brazil.

I'm not going to get into details. I believe all of you are already closely tuned in, but we are in a year where we've seen an excessive amount of inventory in distribution channels and also for the farmers, the price of the agricultural inputs also went from a level that was super high in 2022 and dropping drastically when it comes to fertilizers as well as agrochemicals in 2023. And besides the issue with the drop in commodity prices produced by our farmers and customers and a new component, which is a climate aspect and where we see a real different scenario when it comes to climate conditions. And I'd say that when we had a very small summer and spring. And now we're going through a second moment that's very complex when it comes to climate conditions, which has also delayed drastically our plantation for the summer harvest. And this could, of course, impact when it comes to the offseason harvest in the next year, but we're going to get into our earnings now.

We focused a lot on working with our margins in the company, and we're going to talk about all of the initiatives we've added and put into practice. You probably remember [Audio Gap] very significant results as well as considering our preparation for this summer harvest, but also for the year of 2024 where our company will be doing very well, and we're prepared to really extract value and take advantage of the opportunities the agribusiness will bring. As we get into the gross margins a bit, we consider that this was an all-time high in gross margins. We never had this level. We ended up with 18.2%. And in previous years, as I mentioned, our margins were lower than this because we see that this is really heavy on revenue from fertilizers, which is the product with the biggest -- with the lowest margin.

We had excellent work done also with the reduction of our overall expenses. With the exclusion of depreciation and amortization, we had a reduction of 22% of our expenses overall. And this brought in savings of BRL 54 million. And we also placed our organization to work on our barter operations with an increment in our offseason harvest of 2023, reinforcing our quality of credit and ensuring the best receipt of our sales to our customers. And so some of the most important segments for us in margins in specialties reached about 8.2% of our revenue mix. And so when it comes to bioinputs, we had a growth that was very significant as well, reaching 5% of the mix of inputs in this period in the third quarter. And this really makes us super comfortable because we can tell you that today, AgroGalaxy is the biggest platform for bioinputs and retail in Brazilian farming and agriculture.

And we also work with working capital aspects. And in the third quarter, we really focused on a reduction of 28 days in our use of capital. So our cash position was a big priority for us in our plan. We ended the quarter with a cash position equivalent to BRL 900 million, which makes us very comfortable to take on our AgroGalaxy operation. And so also when we consider the control receivables and our capacity to bring in-house the cash result, we want to demonstrate to you that in this month of November, we are already back to single digits when it comes to our default rate. And this is super relevant, and it makes us very close to the same level we had last year with our receivables in 2022. We've also done extraordinary work when it comes to balancing our inventory levels.

Now we'd like to mention our level of inventories at the end of the harvest, which was pretty much in line with the entire volume in the market of over 30% chemicals that were on our inventory for distribution channels and also on farmer channels. And today, we can say that more than 90% of our inventory is balanced out. And we also had, in this quarter, a growth of 13% in volumes of transactions. Of course, all of the price drops we've already mentioned really pulled the prices downwards, but this demonstrates our capacity to continue growing and adding volume even in a scenario that is so complex as we've seen this year. And to end this slide, I just want to mention that we were one of the first companies that was able to view the level of difficulties we'd have this year in Brazil with inputs. And I can mention also that we are very well prepared to face this moment and to prepare the company for the next years.

Next slide, please. So quickly about the sector. I want to take advantage of the slide to remind you all that if we look at the harvest from 2014 all the way here, we've had growing harvest with only 2 of them where we had a slight drop. And what I want to demonstrate here is that agriculture will continue to grow. And we must understand very well that agriculture is a cyclical business. And so moments like these when you have these adjustments can take place throughout the process with agriculture and they will take place. And actually, what's most important is that we need to be prepared for this. So the slide is splendid, even with climate issues, delaying in some replanting requirements, but the levels we have today, and you'll see this with Axel, continue to be very good for agriculture. And the biggest concern is with corn in the offseason harvest, and we'll see what the exchange rates are and how our farmers and our operation has been preparing ourselves to face the 2024 off-season harvest.

Next slide. So this is the market context, and I already described this pretty well. So we saw that in these 9 months of 2023, that there was a big drop in fertilizers that reached almost 50%, 55% in the net prices. And for chemicals, we can see some herbicides that reach almost a drop of 70% in the pricing. I've already mentioned climate issues has started affecting us a bit. And this has placed our farmers, our customers in a situation where they start buying products in a very different way than previous years. We use this term that says farmers are buying just on [ SPA ] according to their immediate needs. When it comes to the inventory that's okay. But when it comes to revenue, of course, we suffer with this delay, [ land leads ] that is involving climate issues as well as farmers just buying for immediate short-term needs.

And the last slide here on my first part of the presentation, I want to share you the evolution of how we're commercializing soy in 2023. So from April all the way to September or October, when we went from 28% commercialization, and we were able to reach 87%. This was impressive, and it did help us in our campaign for receipts. So our biggest success point that we've had so far is coming from this acceleration in the commercialization and having an organization for credit and also commercial organization taking care of our receivables customer by customer, and I'll stop here, and I'll pass the floor on to Axel, our COO, as he helps us with the operational aspects. Thank you very much.

[Axel Labourt, executive]

Thank you, Welles. And to add on to a bit of the details on the context here. First of all, I want to thank you all for being here. Once again, you have been keeping up with us in this presentation. In the quarter, or earnings slide, we will move on to the next slide, please. What I have to present here as we did in the second quarter and getting back to the point what is mentioned at the beginning about this exchange ratio. When you compare this with the soy crops in 2023 compared to the 2 last harvests, we can see that in the Cerrado region in the South, the ratio is pretty equivalent. So the Brazilian farmers have a really good profitability rate, which makes us positively optimistic. If we consider the closing of the window of the soy plantations, we consider that the levels of investments for soy should not have major changes.

So as we advance into corn on the next slide, we can see the ratio is pretty different. In the Cerrado region in the South, this ratio is more unfavorable. And this brings a consequence, which is a farmer that is a lot more connected to possible savings that he would be able to capture through purchases with lower levels of investments. And so I'm going to talk about this in the next slide, a bit better. So please. What's happening today in the market? Welles mentioned that while the commercialization for the '22-'23 harvest has already reached a level that is very equivalent as the previous harvest, when it comes to soy plantations for '23 and '24, on the right side of the slide here, you can see that in the beginning of November, we had an advance of about 60% actually. So this is about 8 to 10 percentage points delayed compared to the last harvest and about 20 percentage points if compared to the harvest in '21, '22.

So this brings, as a consequence, a farmer that is a lot more concerned with purchasing now, he is a lot more concerned with climate issues and the irregularity of the rains, the lack of rain also till the 20th of November in the Cerrado region. And actually, when he doesn't pay the soy, he's not really thinking about the level of investments he's going to do so once he solves this issue with the plantations and Brazil has big advantages because when it comes to agriculture and farming machinery, they perform this mainly in the major regions which happens very quickly. So that's why we think that we still have a lot of opportunities in Brazilian agrobusiness in the next few months. But this brings a big reality. And this is related to the crops that are going to be planted afterwards in the corn in the off-season harvest in 2024.

So now a days with the impact on Mato Grosso, we are seeing a potential reduction in the area that could lead to almost 5% of the impact in the Cerrado regions, which could be offset in the south of the country. So there are some regions where the rain periods and the climate is a lot more favorable and which could offset a lot of this reduction in the area that could take place in this region. So what this means really they in concrete terms is that when we consider this corn exchange rate, the farmers that for the off-season harvest in 2024 it is going to be a lot more connected to possible savings and how to reduce the levels of investments, which means that they're going to search for hybrids that would maybe keep the levels of productivity relatively stable and could represent a lower investment as we look more towards generic defensives that are, of course, cheaper than first-in-class products. And this will, of course, help them to try to balance out this exchange ratio to have a more favorable value.

And we understand that the offseason harvest will have such a big reduction, but the corn off season crop is an essential part of this rotation system and the farming harvest seasons in Brazil and also in the cash flow conversion rates for farmers. And so now we're going to get into our earnings for the third quarter. And before I pass the floor to Eron want to highlight the main operational highlights in the third quarter for 2023 compared to the same period in 2022. Some of them were already discussed by Welles in the beginning of this presentation, accounts receivable. We had a significant reduction in default rates. In the third quarter, that we also launched a collaboration with many suppliers with a campaign to value the corn from the offseason harvest. And in regions where we had a relatively high rate of nonpayment such as Goiás and Mato Grosso so this helped us to anticipate almost BRL 200 million of receivables in the offseason harvest.

So this is an important intervention an initiative made in the third quarter that really helped us to reduce nonpayment in a very accelerated pace. And in specialties, as Welles mentioned and, despite the drop in prices of most of the inputs in revenue, we've been able to grow almost 3 percentage points compared to the same period in 2022 with specialties representing about 8.2%. So in grains, we've also had in this third quarter of '23, 45% more volume than in the same period last year. So in the accumulated 9-month period, we've been above 25% growth and the volume of growth of received grains compared to '22. And so this highlights the confidence of the farmers, but also the convenience AgroGalaxy provides when it comes to operationalizing and transactioning with the grains that farmers have been producing. And the amount of customers, once again, were growing and the amount of customers that are active in the third quarter compared to the same period last year, with a growth of 30%.

And in the third quarter, we also have one of the strategies designed third -- in the second quarter where we really focused on managing margins, especially with some systems for pricing that can help us reduce the dispersion of prices that take place in country in years like this one, where we have an adjustment in the dynamic of prices of inputs coming from 3 to 4 years of increases in prices in a year, we have a drop of prices. This has been helped with improvements in the margins and also interventions and overall expenses, including adjustments and some other expenses throughout this period that allowed us to capture many savings. We just recently announced the extension of our debt as well, which was placed in AgroGalaxy short-term debt, and we were able to postpone these for 3 years with a grace period of 1 year. And so this is about BRL 841 million.

So it's a really big achievement that gives us the necessary oxygen and breadth to handle our operation with these focused assumptions and priorities. And finally, I want to highlight this challenging context in agribusiness. Naturally, this really impacts people. But for the second consecutive year, we were able to have the GPTW certification. And when we talk about the labor environment that we have and our work environment, AgroGalaxy, besides the context. So these are the main operational highlights. And I want to pass the floor to Eron Martins, our CFO.

[Eron Martins, executive]

So I want to thank you all for your presence, over 150 people present here. And I want to talk to you guys about how this quarter was. It's a quarter where we really feel we are fulfilling our duties and 3 months ago, I was working on my first presentation together with Welles and Axel. So we committed to this year with these adjustments that are necessary for a company like this and what we're presenting at the beginning of this result. And so if you could go over the next slide, please.

And so due to the warm weather in the last 15 days in September, we had a bit of a slide on part of this, farming in the beginning of this fourth quarter. And so that way, we could avoid the farmers having to plant soy in a moment with high temperatures that could compromise the planting and so -- and lead to additional costs. And so this brings some comfort where we're going to see a small gap in the revenue, and this is going to be offset in the next period. So if we look up ahead, we'll see the net revenue, and you can move on a bit. So the net revenue in the quarter is 22.9%, 22% lower than what it was last year. And what's important is to consider what we mentioned in the -- a year with a reduction in prices of fertilizers. And so some of these reached about 70% reduction, and this is normal.

And we offset this in the grains and this also comes from the increase in confidence that farmers have in AgroGalaxy to deposit their grains. And if we look at this more towards the right side, you'll see that, yes, there is an impact of about 44.4% less price with all the fertilizers and defensives. And it's important to see the growth of 3% volume. If we look at that, we can see that we delivered 13% more fertilizers and defensives. So when we look at the mix and the revenue we can see the growth of the specialties and reaching 8.2% in the quarter, this is where we really have a strong presence of fertilizers with 52.5%. And this is going to be -- so for the next quarter. And so we'll be delivering an all-time high margin. And so this is coming from seeds, specialties and grains, and we have an expectation for better margins still.

So let's take a look at the next slide, where we see the gross margins of inputs, and that's a graph that shows us working on our homework. So 18.2% in this quarter compared to the same quarter last year, we're talking about 17.5% or 17.9% in 2021. And why is it an all-time record because we're doing our homework. This is the considerable control of our policies on discounts, some close work with all of our suppliers to understand the price of this product at a cost where we can buy and sell with margins. And this is going to reflect in the 18.2%. This is a quarter with major presence for fertilizers where you have lower margins with a quarter that has more seeds and more defensives where we should have an increment in the margin. So if we look at this, another picture here that we like highlighting a lot is a reduction in the expenses, which is over BRL 50 million compared to the same quarter last year.

And so we should consider that this is a reduction where we opened over 15 stores. And the normal thing would be that expenses would increase. This is of the second wave -- of the first wave of reductions we had. And more recently, we had another adjustment in our structure. And we're performing this adjustment, but we also want to gain speed. So delivering 7.6% SG&A considering the price of the fertilizer and defensives, it's a big victory. This helps us be prepared for the fourth quarter but also for the year 2024, where we're going to really reap the effects of everything that we've done based on the expenses. And so we still delivered an EBITDA in the quarter of BRL 74.4 million. But yes, it is lower than last year, which is mainly impacted by the reduction of revenue, but more than a loss of revenue, we don't have is perception. It's more like a squeeze or slide into the next quarter. So that impacts adjusted EBITDA in the quarter, as I mentioned.

And we had this reduction in the LTM where we have BRL 413 million compared to BRL 597 million in the previous year. On the next slide, we're going to take a look this is going to impact the financial results. We've been managing our level of debt really well, and I'm going to show you how we've been working on the working capital [Audio Gap]. But I think quarter-over-quarter, even with all of the challenges in the economic context in Brazil and especially in the agriculture and retail, we're in, we can keep about [ 3.6%, 3.7% ] and our spread, which allows us to really enjoy this reduction of interest rates that's been announced by the Central Bank.

On the next slide, we're going to talk about our net income, which is impacted by the EBITDA and also by what I mentioned with this offsetting of the fourth quarter. And with this, we're delivering in this quarter, a negative net revenue against BRL 19.4 million. That was under the last year. And so if this hadn't come on we would have numbers that are a lot more in line with what was done last year. In the last slide, we're going to talk about the debt profile a bit. We finished the quarter with a net debt of BRL 1.7 billion and compared to BRL 1.6 billion, which was the same period last year, and the covenant provided takes on its leap concluding the EBITDA. And I want to remind you all that when we measure our covenants, this is going to be end of the year, where we have the covenant of 3x.

And in the company's management, we're super comfortable with the EBITDA we announced in our guidance last period of BRL 500 million and also the measures that we have been put into practice to respect this covenant and also -- we also have the extension of the debt will have a shift in the profile as well. So moving on to the next one. And so we normally mention that this management of resales has 3 important pillars: margin with 18.2% reduction of expenses and an exhaustive expand management of our working capital. And so the numbers speak for themselves. We're reducing 20 days of working capital compared to the same period last year and 31 days compared to the last quarter. So this is really focused on our stock reduction, working with levels of stock that are a lot closer to the reality of the resale. And so we're really focused on accounts receivable.

And we've also performed some campaigns and it's helped us value us and also counting on some partnerships with our suppliers where we sometimes had to extend our payment [Audio Gap] in line with the dynamic with the reduction of our company's debt, in line with the improvement in the margins and reduction of our expenses, important focuses in any resale in Brazil. Next slide. When we consider the provision loss of receivables, we had a provision of BRL 34.9 million and 1% of our revenue, less than what we did last year, and this is a of what we've done in this work with accounts receivable. And this is something that's super positive in AgroGalaxy. So receiving this late -- this is not only a topic of there's an important role of the commercial team negotiating with producers and taking advantage to discuss what's in the market. This helped us and this also leads to an important reduction in the impact of the nonprovision -- nonpayment provisions.

And about the portfolio of our orders. This is the last slide. And so we can notice that there's a delay compared to the previous year. This has been reduced. As you can see, we've been talking about something around 28%. And this is a reality because more and more, you can see this expression in our presentation and the producers have really [ buttoned mouth ] to expecting this reduction in the price of the inputs, but we're also adjusting and also taking advantage of this [ mouth ] for like immediate needs, and that way we don't have to have inventory at our results. I'm going to pass the word back to Welles, so he can talk about our focuses.

[Welles Pascoal, executive]

And so Eron, thank you very much. Next slide, please. Here, I want to remind you and which are the main priorities that we designed in the second quarter. A big point here, of course, with the reduction of the default, I think Axel and Eron mentioned this very well, with what was done with valuing the partnering suppliers, and this has a big impact on the receipt. Unfortunately, we had to perform some bad credit scores for some of our clients that do not pay for their purchases. And at the end of the day, that led to a result that was very positive besides, of course, the execution of the guarantees of customers are out something.

So we were very rigorous in this process and bouncing of the stock this year and we can really bounced the sell. And at this moment, as I've already mentioned, with some suppliers, but I do see that this was understood entirely by everyone because you could just take a look at the results of the big inputs. And in the third quarter, they demonstrated results that were very, very negative, and they were impacted by the excessive inventory in chemicals here in Brazil. So a big focus on profitability now also that's where we're headed. And we're really focusing on our technology centers to switch for the best product mix and also working on efficiency in the processes and productivity of our organization. So this is something that needs to be done on an ongoing basis. Now we must do this, of course, every day.

We're also working on the ramp-up with the acceleration of the maturity in our stores. We see this is not a moment to invest in new store maturing processes, but make our stores reach this level -- at this level that we were projecting. Ad also the allocation of the working capital and also the synergies and also the general expenses, and this is something we've been working on, so we can be closer to what is a profile of a distribution company for inputs here in Brazil. And so these were the main priorities that we mentioned here.

And the next slide, please. So also how we've been delivering this considering these priorities. So for default, we also considered closing November at a single digits with everything we've seen in the market this year. And I'm sure that we'll recognize the work of all of our organization and also placing us in this position as receivables. And so we can also see that there's a question about this. And so we also see that over 90% of the stocks are bounced out. So this also helped us in this level of gross margin. So I'm sure that we have the capacity to improve this, as Eron mentioned, with our margins and everything that we were able to do to keep our house organized, and I've already talked about our gross margins and expenses. And I want to talk about this issue with the ramp-up of the stores.

They represented 23% of our revenue in total, which is what we would like. And we are not afraid if you do -- if you hear that we have some stores closing. And we've been trying to analyze the performance of each one. And so how they -- and as much as what they've been bringing in as returns. And also what will help us a lot is going to bring our short-term debt to a profile that's more mid- to long term, which will help us at this moment that we're experiencing in Agribusiness. And so to finish up here, we're going to be opening up to questions and answers, of course, but we want to thank you all for your presence. We want to show you our commitment and the leadership in the company to search for the best results for this company. And even in a moment with so much disturbance and turmoil that we're experiencing this year.

So what's most important in all of this, as mentioned before as well, is not only preparing for 2024, but also preparing ourselves for the next years that will come along in agribusiness, and we can't state that in the next year we're going to leave all of these blockages and challenges we had this year in the overall sector. But what is most important is that capturing these opportunities. And so I'm trusting the company and organization that we are prepared. Thank you.

[Daniel Kuratomi, executive]

Okay. Now we're going to begin our Q&A session.

[Operator]

So click on the Q&A box, put in your name, your company's name and the language you want to ask your question in. And if you want to ask your questions, we can open the mic for you or you can send them in written in the QA. We have a question already from Gabriel from Citi Bank.

[Gabriel Coelho Barra, analyst]

I think you went over things very well. We heard a great level of detail. I would like to hear more about capital allocation. So since as you mentioned, it's a difficult moment for the -- for the comfort of the sector, the prices have gone down. The big rural producers are counting on investments more. So within this new macro scenario, I would like to go over a few points. First of all, we have a guidance that you have shared with us. And in that guidance, we faced the challenge of -- well, there's a big challenge that needs to be reached by the end of the year. So that's where I'd like to understand from you, what is the risk of not reaching that? Are there any risks if there are those risks? How confident are you that you will reach it?

And the second, in terms of leverage, if you don't reach the guidance -- could you share with us more on the covenant levels and how you'll test the covenant levels moving forward as well as which would be the potential plan B in a scenario where you reach the covenant. So what do you think of an asset in the core in terms of deinvesting or what do you think of bringing in more capital, negotiating with banks, negotiating due dates for debt and leverage. I mean, if you could just specify a little more of the detail of the company's strategy in the short to midterm would help us understand better. So those are the main questions.

[Welles Pascoal, executive]

I think we have an echo. Okay. I think if you can turn off your second audio, sorry we still have an echo in the room. I think we have an improvement. Now I'm sorry for that technical issues, but I think we've overcome them. So first of all, the guidance, I think that was Gabriel's first question about our guidance. We're very confident about our EBITDA guidance because we can't forget that we are delivering very important margins for the third quarter. Third quarter where the main leaders are fertilizers, especially in the harvest. So we have the fourth quarter where the leaders and protagonists will be seeds agrochemicals and grains. I think it's also important that we share with you that we had made a strategic decision this year to take a big part of our seedlings and seeds to our seeds in-house cultivated and produced by ourself.

This brings a significant increase in margin. So we see that to reach this covenant or this EBITDA guidance, we see leverage and margin as very present. We were positively surprised by the work we -- the efforts we made in the third quarter, and we have a lot of confidence in terms of what the margin will be for the third quarter. Another leverage, which is important are our expenses. We just resized on through an important process of resizing and the effects will come in the fourth quarter. We did this at the end of the fourth quarter. So in terms of EBITDA, I'm very confident -- we're confident, of course, just to answer some of your questions. We're always monitoring our covenant usually 3x at the end of December.

And of course, in terms of our day-to-day, we strategically list any potential plan B, Cs, or Ds in the case of any emergence catastrophes that we don't have on our radar at the moment short. When we talk about guidance, and I'm sure you've probably read something all of these lines, but our main challenge currently is in profitability, and that's why on the 22nd of December, we're going to be verifying revenue until the 22nd of December, but the covenants and EBITDA are in-house with plan Bs in our strategy shared by the admin of the company regarding potential difficulties in how we can overcome them. So I'm very confident about the covenants for the end of the year, Gabriel.

[Gabriel Coelho Barra, analyst]

If you want to -- if I can follow up on this in terms of the rationalization of capital and liability management that you have done very well recently, is there in your head or the way you see things anything in terms of closing stores that are maybe not as profitable, closing down some of the operation that's not profitable. Do you think that there are any assets that are not core assets to the company and that maybe could be a source of capital if you need to inject some funds into the company? Or is it too early to think along those lines?

[Eron Martins, executive]

I'm going to answer you in the following way. I think that we are practicing at AgroGalaxy, not that there wasn't before, but it's part of our day-to-day to manage like any other retail. So like any other retail, we will always be assessing our stores' performance. We will be assessing some commercial regions and also some of our assets. There's nothing specifically predicted for the current moment AgroGalaxy. What I can say is that starting today or 3 months ago, let's say, on the monthly, we're assessing the performance of each of our assets and regions. And obviously, if an asset starts not making sense or a store starts not making sense, we will take the necessary measures, considering that our focus now is to grow, but grow profitably. That's our core business. That's why we included the guidance in the past to reduce the opening of new stores and focusing on the performance and ramp-up of the new stores we have opened. This is the way AgroGalaxy will be managing, moving forward, focused on profitability, so we can bring those numbers up.

[Daniel Kuratomi, executive]

We have one more question here in the box. Sorry, Eron, I think you muted your mic. Okay, back here. So we have one more question here from Henrique at BTG. Can you open Henrique's mic, please team.

[Henrique Brustolin, analyst]

The first question would be -- firstly, I would like to come back to the point on -- well, we were discussing in the past regarding the amount of stores. But considering 2024, you have a perspective or we did a very interesting backlog in terms of the priorities from 2023 where needed to be delivered and what you have effectively delivered throughout the year. So I would like to hear from you regarding 2024, if you could do something similar reflect on which are the company's priorities for 2024, given the current scenario that we are going through some of the market challenges, we see a scenario which is much more margin oriented and the volatility also as well as the commercialization -- well sales, which have been decelerated.

And also in terms of growth and the amount of stores, it makes sense that we have some changes, if necessary, but I also would like to hear how you see the level of maturity at your stores and how -- when it might make sense again to think about an expansion plan maybe for 2024? And the last point I would have also along those lines would be regarding integration and our operational efficiency plan. You have shown 2023, but I understand that a good part of that plan was postponed to next year. So understanding how much more we could capture with that. Those are the main points.

[Welles Pascoal, executive]

Thanks, Henrique. I'm going to answer that question and leave the mic open for further questions and comments. So in terms of 2024, what is our main focus? Our main focus continues to be the company's profitability. So all of our organization and focus on the structural model that we're trying to attain is really along the lines of giving us more muscle, cutting fat and keeping us agile at the edge. Our sector needs to be agile in the way that we see our clients. So we can leave a more core structure to a structure in which we can have quicker decisions made, and we can serve our clients, the farmers better, which is really the most important thing. So profitability, levels of products and portfolio. Some products of high volumes and low margin will have to be redefined.

We're trying to understand what is the percentage of that line of product. How much do we need to have? It's not what we need -- not what we would like to have, but what do we need to keep in the portfolio? And we're going to focus on the products, which give us more margins so we can continue to grow with our 2 feet strongly fastened to the floor. I don't see at this moment that we will be opening stores in the next 2 years. Maybe in '24 and '25, 2025, we might have 2, 3 or 4 stores, which would make sense to open, but really no fascinating plans of opening 30 stores on the short term. In my perspective, the maturity of the stores that we have currently have of the over 50 stores that we opened from 2019 until now. is the most important thing that we can focus on right now. So we will focus strongly on that line of thought.

Our new operational model that we're calling the operational model, which is the implementation of our new [ RT ] is going to happen next year. We do see that we will be capturing a very interesting value. We rolled out this year, and it was super successful with the seeds at Agro Ferrari. So we see that these gains need to be captured as well. In a period as short term as possible, so we can reach a level of profitability that we need to reach for the next few years. So lots of margin, lots of products, autonomy for our team, a good organization, very efficient and a model which is autonomous and responsible for its decision-making. That is the path we will be following.

[Axel Labourt, executive]

Look, I think we also have another echo here. So Welles can put his volume down a bit and close his mic. Perfect. So in terms of what Welles said, management and 3 pillars. So control of margin, control of discounts that stores can give, buy well, so we need to have good partners and a lot of those partners are here with us on the call and having these partners really helps us to be able to buy well, buy smart and bring the barter language into our day-to-day barter is a credit and charging tool, but it's also a tool for good business. It helps us to sell well and the exchange relationship, but not price per liter. And also obviously intensive cost management. 2024 is when we're going to gather the fruits of an intense of work and labor we put into this.

AgroGalaxy will be lightweight in terms of costs. Like any other store or reseller will be just as lightweight as a reseller, but with the governance of the chemical industry. We'll bring those elements into our day-to-day, which will allow us to have the numbers that I'm presenting. On the other end, the exhaustive control of stocks. Priority one is to work with a very healthy level of stocks, which will avoid future stress. A lot of the stress that we are seeing in the market is because our stock levels were inadequate. So keeping stock levels healthy and sustainable as fundamental to the health of our resellers.

Obviously, if I'm bartering well, selling, well, selling to good clients, maintaining the sustainability and health of the company, then my credit becomes less complicated. So instead of selling a lot we want to sell well. If this means shutting a store down or changing stores from one region to the next, we're willing to implement that. We're really focused on profitability, profitability and profitability.

[Daniel Kuratomi, executive]

Well, we have one more written question in the Q&A box, and I'll read it to you. I think it's from [ Carlos ] the impact of -- has all the impact of this difficult scenario come in 2023? Or will we see more impact in the last quarter.

[Welles Pascoal, executive]

Look, the stock equalization that we mentioned here is already finished. It's done. Now what we do see up ahead, as I mentioned, is that we'll probably have better margins. So today, we are buying products at market price. So this allows us to have better margins.

I see that this year's excess of stock and inventory for all in a generalized way and fashion also brings in teaching not only for us as distributors but also for big suppliers, which I certainly respect. A big part of my sales and livelihood and my career is based on that.

So I think we need to rethink what Brazil can handle because if we add up the plans for growth of all the companies, then we see -- we'll be selling almost 2 years in 1. So we need to be careful and consider the sustainability of the business and the health of the business for all of the players in the sector. I think at the end of the day, we will be delivering good quality services to our clients at a competitive cost and also allowing us to have levels of profitability that will pay back the investors and shareholders that we have in the sector. Thank you.

[Daniel Kuratomi, executive]

Perfect. I think with that, we are coming to the end of our call. We don't have any further questions in the Q&A box. I'd like to thank you all for coming, and we will finish our questions-and-answer session. I would like to tell you that the team, myself and Flavio are all available for follow-ups. We're here to answer you. Please talk to us on the Investor Relations website. You'll find all of our contacts and if you wish to access our admin -- and thank you, and have a good day. Thank you, and have a great day. Thank you. Have a good day.

[Welles Pascoal, executive]

Thanks.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]