AgroGalaxy Participacoes SA

BOVESPA:AGXY3

Earnings Call Analysis

Record Margins and Debt Reduction, Despite Revenue Miss

In this fourth quarter, the company has achieved a historic milestone with record high margins, reaching 21.1%, signifying an all-time high compared to past years. Specialty products, accounting for 12.1% of the sales mix, brought in high margins and were pivotal in reaching this achievement. At the same time, the company has continued to streamline operations by significantly cutting expenses by BRL 70 million and reducing working capital. Despite successful cost control, there’s been a reported decrease in revenues and net result relative to last year due to factors like the early onset of El Niño affecting harvests. A 40-day reduction in working capital coupled with historic lows in stock values and a focus on lean inventory management has improved the company's financial health. Nevertheless, financials have been affected, with net debt remaining high and the company exceeding its debt covenants.

Record-High Margins and Strengthened Supplier Relations

The company reported an impressive all-time high gross margin of 21.1% for the fourth quarter, a testament to rigorous margin management and stronger initiatives with suppliers, which include leveraging over 500 commercial technical representatives to understand market dynamics across 14 states and 150 stores. This improved negotiation capability with suppliers has contributed significantly to achieving this historical margin.

Improvement in Trust and Reduction of Working Capital Requirements

An increase in grain volume received during the fourth quarter indicates rising trust from farmers in the company, which is noteworthy in the agribusiness sector. Coupled with this is the successful reduction in working capital and debt levels, culminating in the optimization of the accounts receivable and payable processes. With a finely tuned stock level management system in place, the company managed to end the year with a healthy outcome, adjusting their purchases to market dynamics, thus avoiding overstocking by year-end.

Navigating through Covenant Challenges and EBITDA Pressures

While successfully handling certain waiver discussions, the complexity of the previous year created challenges that reflected on EBITDA levels and covenant fulfillment. Despite these issues, the company's management of financial obligations and commitments demonstrates their ability to work through such complications.

Revenue Challenges Offset by Improved Sales Mix

The company faced a revenue shortfall due to a conservative hand-to-mouth purchasing behavior by farmers, early signs of El Niño affecting crop windows, and a general downturn in off-season harvests. However, they were able to soften the blow with a strategic improvement in their sales mix, pushing specialties up to 12.1% and focusing on high-margin products, thus supporting the gross margin figures despite a tough year.

Sustainability Efforts and SG&A Control

Continued focus on reducing harmful product sales underpins the company's commitment to sustainability, while diligent management of grains has helped improve both trust and margins in this segment. Additionally, the company has exerted strict control over its Selling, General, and Administrative (SG&A) expenses, contributing to a more resilient and agile corporate structure, poised to navigate the uncertain journey of 2024.

Assessing Net Results Amid Cost Adjustments

Even with determined efforts to decrease net debt and rationalize SG&A, the company did endure a heavier financial impact, leading to net results that were smaller than the previous year's figures in the fourth quarter. Nonetheless, the overall direction indicates progress towards better financial footing as they continue to optimize working capital and manage margins more effectively.

Working Capital Optimization and Leverage Reduction

A 40-day reduction in working capital was highlighted, showing the company's prudence in managing stock quantity, ultimately leading to a leaner inventory at just about BRL 70 million. Their careful 'hand-to-mouth' purchase strategy mimicked farmer behavior, easing the pressure on end-of-year stock levels and facilitating a healthier dialogue with suppliers. Moreover, the company has managed to reduce its net debt levels, although it acknowledged navigating around the EBITDA-related covenant breach.

Earnings Call Transcript 2023-Q4

[Flavia Alves Costa, executive]

Good morning. Welcome to the earnings call for the fourth quarter of '23 and the full year of 2023 at AgroGalaxy. I'd like to thank you all for your presence and to all those who are watching during another earnings call. I'm Flavia Costa the Investor Relations analyst. And today, I have our CEO, Axel Labourt; and Eron Martins, our CFO and Director of Investor Relations. I'd like to let you know that this earnings call is being recorded and will be provided on the company's IR website, ir.agrogalaxy.com.br, where you'll also find the full material of our earnings release. Then you may download the presentation on the chat icon in English as well. After the presentation, we'll open up to the Q&A session. [Operator Instructions]

We'd like to know that the information contained in this presentation and possible declarations made during the earnings call about the business perspectives, forecasts and operational targets and financial targets represent beliefs and assumptions of the company's management as well as current information available.

Future statements are not a guarantee of performance. They involve risks, uncertainties and assumptions as they refer to future events and thus depend on circumstances that could or not occur. Investors must understand that general conditions, market conditions and other operational factors can also affect the future performance at AgroGalaxy and lead to results to differ materially from those listed in certain future statements.

Now I'll pass the floor on to Axel to begin our presentation. Axel.

[Axel Labourt, executive]

Thank you, Flavia. Good morning, everyone. Thank you for watching today during this earnings release of the fourth quarter and the full year '23. Please, we can move on to the next slide. We'll share some of the main highlights of this quarter, and they represent the it starts from an inflection point that is another inflection point on the acceleration of the agribusiness cycle. So our focus in '23 was efficiency. And these highlights you see on the screen are what I'm going to get into greater depth up ahead, and this reflects how we focus on the entire organization last year. We were able to expand when the weight and relevance of categories with a greater gross margin and specialties that reached 12.1% of the mix and 3 percentage points of growth and inputs that had a significant relevance of 5.3% of our total mix with a growth of 2 percentage points.

The fourth quarter of '23 is also characterized by the deployment of a system to focus on margins, adherence of our prices and price dispersion. The fourth quarter reflects the gross margin that's an all-time high in AgroGalaxy's history of 20.1%. So in grains, we also grew significantly in the crops of corn and soy. Barter is also a tool for agribusiness that is based on 2 attributes, especially related to an improvement in margins and also an improvement in the risk profile. While we have a Barter deal, we can work with an exchange ratio with the producers and farmers improving the mix and the prices of our inputs, and we can capture guarantees that also allow us to have more trustworthy receivables.

In the expenses, if we exclude the G&A and bad debt, we were able to have a reduction of 26%, which allowed us to capture savings of BRL 71 million. And some of the other highlights we already mentioned to you throughout 2023, where the performance of our industrialization and processing unit for soy seeds where we're able to have a gross margin of 13.5%, which represents 2 percentage points above the previous year and an increase of the bags sold about 13% in this period. From 2023, we had a super offer, super supply in the soy sector. So our commercial team is active as one of the most efficient in the resale and distribution processes and our team of technical sales reps reached an average revenue of BRL 9 million throughout the year, which places us in a leadership position when it comes to commercial effectiveness and a gross profit of about BRL 1.7 million.

As I mentioned, efficiency was one of our main focuses in 2023. We had a big priority in all of the levers that have an impact on the working capital preservation, and this led to a reduction of 40 days, which is the equivalent to BRL 665 million of savings. The work performed in the first semester of the year, balancing out our stocks and distributing our stocks with old prices as well as managing the purchases to be sure that we really went through the second semester of the year with the best level of stocks, which allowed us to save 28 days out of these 40 days, I just mentioned on the improvement of the working capital.

Let's move to the next slide. So when it comes to recapping the main factors that determined this market context in 2023. As I mentioned at the beginning of the conversation, an inflection point that's very relevant with an accelerated drop in commodity prices and inputs. This led to a ratio -- an exchange ratio for farmers in Brazil, that was very unfavorable in the first semester if we compare the last 2 years. There was also a reduction in the production in this 2023 harvest of about and a reduction of the planted corn area with an estimate of about around 9% and an unfavorable exchange ratio, especially in the first month of the year. These were all factors determined in some way influenced the business environment in 2023.

So let's move on to the next slide. So what can we share when it comes to soy harvest in '23 and '24 and also we consider planting the corn in 2024. The soy harvest went through a period in the second semester where we had some irregularities due to the rain and also some periods with extremely high temperatures and characteristics in the La Niña phenomenon. And that, of course, impacted the soy harvest making many regions in Brazil, have rupturing the production cycles, which made certain sectors in Brazil and farmers also chose to anticipate the soy harvest to have a window for the corn harvest that would be better. So as you can see on the right side of the screen, the corn harvest for 2024 is really a lot more anticipated than what we saw in previous years.

Moving on to the next slide. The commercialization of soy ever since the end of last year and the beginning of this year, [indiscernible] it to be a little more accelerated than what we had in the previous year. So we're going to talk about this exchange ratio for soy and corn. But as you saw, although the commercialization of soy in the end of 2023 and the beginning of 2024 is a little more accelerated than what it was in 2022 and it's still taking a little while with some delays compared to the 2 previous harvests. So when we talk about the exchange ratio, it becomes very visible how this first semester of '23 had this negative exchange ratio, which was one of the main factors postponing the commercialization of the grains at the beginning of the year.

And also this exchange ratio for soy, which are already in the historical levels in agribusiness. So when we talk about corn, the situation is very different. Corn, the context is still kind of unfavorable. And this leads to pressure on the farmers to have good austerity and productivity and this leads to a lower technological rate in the corn crops, which also happen in soy and corn clearly demonstrated a higher level of production, of pressure for the farmers.

So what does this represent in concrete terms as an agribusiness resale operation? Well, sometimes throughout like last year, we discussed the behavior of a farmer from hand to mouth. And what you can see is 2 curves, one for 2022. And the darkest one for 2023. So this considers in a very illustrative way how things happened in each of these areas. So if you look at March, in March 2022 4% of these periods that we were able to originate in the month were -- of the orders that we originated were built in this month. But in March '23, over half of the period, the orders that we originated that we considered were built within this month. And what does this represent. So a fragmentation of the orders in smaller volumes. So we must follow this and keep up with them constantly. Farmers are also looking at this exchange ratio to maximize profitability, which considers the delays in the commercialization of these inputs, but also hand-to-mouth kind of purchase, which is what we discussed many times in the previous years. So I'm going to stop here now. Eron will get into the highlights of the financial results in 2023 and our earnings.

[Eron Martins, executive]

Thank you for being present in another earnings call for AgroGalaxy, right? And we're in March, and we're finishing 2023. Before we talk about numbers, I think talking about 2023 and the process we went through, which we call the year of adjustments. It's a quite complicated year and if you're living in agribusiness, this is a normal dynamic in agribusiness. So you have some positive years and then you have some adjustments in the commodity prices, how this happened in '23 or even climate issues, which is kind of what we saw in 2023. So what do we do in a year of 2023? Well, learn with what happened, improve as a company, and what we did is that although we are one of the biggest in the distribution market, we had the necessary speed to make decisions and adapt to this context. So by the end of this presentation, we'll be sharing with you a company that is stronger and more robust, more lean, more agile and prepared for any kind of new challenges.

So we normally say that if we repeat 2023, we're going to go through that a lot better because now we're prepared. If we have something a lot better than '23 and we have signs of possible improvements, then I think we'll be surfing with through this wave that's positive. So we are talking about a company that already did its homework. So we communicated the last adjustments. And today, we have a company that so how can we highlight this? Well, I think first of all, and you'll see this on the slide with the graph that demonstrates this. We talked about these points with different discussions. And we were saying that our management was based on 3 pillars, which we consider to be good management. Margin, expenses and working capital.

So when you look at the margins, the first bullet here, we're presenting in this fourth quarter, a margin and percentage it's all-time high compared to the fourth quarters of previous years. And I give you some more details about this. But we are also going through an initiative that's closer to our suppliers so that we can have competitive prices on the field. So we have over 500 commercial technical reps, and this is a very rich source of information to understand what's going on in the 14 states we're in and the 150 stores we have, which allows us to have greater detail and information as we negotiate with our suppliers. So as a result, we're delivering 21.1%, it's an all-time high record margin. And other secrets to success that we were demonstrating are that it's a richer mix. So specialties reached 12.1% of our sales mix. And for specialties, we have an important sustainability element, but we also have something that's very important, which is the margin. So we're selling products that have very interesting margins and also contribute to this all-time high margin we presented in this quarter.

So grains, while this is not only about insuring the receipts, but also to have healthy business opportunities. So it's different when you sit down with the producer, farmer to negotiate through this exchange ratio and not the price per liter ton, but grains also demonstrate the trust that farmers have. So having an all-time high volume received in the fourth [ quarter ] is also demonstrating that farmers really trust AgroGalaxy. So we continue with our reduction of working capital and also the reduction of our debt levels, which would represent rather 40 days of reduction. And we believe that when we look at the accounts receivable and accounts payable, they walk hand in hand, but also when it comes to stock levels, we were able to do our homework and reach a point that we consider to be healthy. And besides, as you also saw in our presentations before, now we started trending to with 1.6 billion of stocks at old prices. We ended the year with BRL 70 million at our old price. So almost known -- old prices, and this allows us to have better margins as you'll see in the graph in the second semester of 2023, especially.

So about the waiver, I think this is an important milestone. We were able to cover this and part of these participants in the call, we're participating in the discussions with the waivers. So it's a previous year. It's a complex year and although you do your homework. This impacts the level of EBITDA. And as a consequence also on how you're going to fulfill the covenants. But I think that the conversations with the other players was really healthy. And I also want to thank you all for participating in this call about trusting the work we're doing in the company. And all of this, of course, without losing our ESG focus, so we continue to have our program for the reduction of sales of products considered harmful or dangerous according to EMS.

So as I mentioned, if we did our homework, but what's missing, well, we missed revenue considering the factors Axel presented. So it was a year when we had a different behavior with the farmers more like hand-to-mouth. So El Niño also had it presented its signs very early. And now in November, this already impacted the soy window and also the off-season harvest, which impacts the revenue. There's no miracle there. Of course, we have a loss in prices, about 25% reduction of the fertilizer prices, defensives also, but there's also an impact in volumes. We had an off season harvest that was [indiscernible] technically and that affects the volume of business that we're able to do. So when you look at the right side of the presentation, the good news is the improvement in the mix. So you go from 8.9% in the specialties to 12.1%.

So we reached double-digit in specialties with an important highlight of 5.3% in bioinputs. With more margins and more sustainability in our chain. But we still have a challenge that we're working on, which is a reduction in the fertilizers prioritizing, defensives and seeds especially where we had a very important year. We had some adjustments in the team that works on these and we also had investments to increase the level of quality, and we reaped excellent fruits, which really helps with the mix and improvement in the margins. So we'll move on to the next slide, which is the gross margin side. And this is where we have a focus on the first access I mentioned on good management for resale. Well, we went from a year where the first quarter of '23 had a margin of 15.1%. One of the worst margins in the per quarter at AgroGalaxy really impacted by the old stock those 1.6 billion in stock. We had a BRL 900 million and give back, and we still had some adjustments in the stock with the discount controls, but we ended the year with 21.1% margin in the quarter, which is the best quarter in all years.

So we really believe that in order to survive an agribusiness as a resale operation, margin management must be very rigorous. That's what we've done. So in grains, we were able to keep a focus on trust and grains besides improving the margins that involve a relation -- a discussion on the amount of fact you need to be able to plan, right? So it's more of a value perception. On the next slide. We are talking about the second biggest access line, which is SG&A. So we see these waves of adjustments to AgroGalaxy. We normally say that AgroGalaxy is reselling more and more, and this is reflected here. So in the previous quarter, we'd already presented this ratio. And now we had about BRL 70 million more reduction in expenses.

So here, we don't mention the work done. So -- but we understand that we brought AgroGalaxy here to the SG&A size, that we consider to be healthy. So we had no crazy cuts, right? We studied what we had, and we understand there was a possibility for a reduction in the layers so that the company could be more agile and, of course, have a reduction in expenses, which is over reflecting on here. And this, alongside our margin controls, our 2 pillars that make us comfortable to go through 2024 regardless of what it represents because the company is prepared for the most difficult scenario. If we don't have the worst scenario, we'll be able to profitabilize this in a very positive way.

On our next slide, we want to talk about our earnings. We still have a pretty heavy impact on financial results. And we can't forget that although we had our homework to reduce the net debt, we still had [indiscernible] really high in 2023. It's been dropping, but last year, it was still pretty high. And what we've been working on is to improve our working capital, to reduce our need, for debt and of course, our SG&A adjustments, selling with more margins. And so of course, some normalization, which will allow us to have a smaller impact as well that's being presented here on the screen.

So next slide, we have a net result of smaller than last year and in the fourth quarter. And so this is, of course, very much connected to the volume of revenue. So with this, you don't generate the gross margins in absolute volumes, you can affect the EBITDA and then, of course, the net results.

On the next slide, we demonstrate the third pillar of good management, and this is where we present 40 days of working capital. And so this is based on our stock level. Of course, you have this stock volume effect, but especially related to the quantity of the stock. We did our homework. We took care of our stocks with the old values or prices. We had a level of about BRL 70 million, which is very low compared to what we sell. But really buying what's most necessary. So we just kind of humbly copied what farmers did. So they bought from hand to mouth, and we also bought from hand to mouth to adjust to this dynamic without having over stock by the end of the year, which helps it make it easier to define the purchase price, and we have greater ease to find the purchase price and the sale price to the farmers. And this obviously helps us with our dialogue with suppliers because it's difficult to have this kind of relationship when there's a discussion with this healthy stock level that we're discussing now. We have an easier day-to-day operations.

So our last slide here is about the leverage. We were able to reduce the net debt levels, but considering the EBITDA effect, we still had -- we ran over our covenant. Our covenants 3, we're at 3.9x. And we already had these approvals for the waiver in 2023. And we were able to demonstrate what our short- and long-term debt will be like after the approval of the waivers. So when you look at our income statement, mechanically due to the fact that the waiver should have been requested and approved before December 31, the debt are classified as short term. But if you look at this information, you'll see our comments from the auditors actually that all the waivers were obtained within the timing required and in the next release, we already reclassify them with the photograph that's very similar to what you see on the screen now.

I'll pass the floor back to Axel, so you can talk about our expectations for '24. And by the end of the presentation, we'll open up for Q&A as well. Thank you guys.

[Axel Labourt, executive]

Thank you, Eron. Before we talk about expectations for '24. I wanted to share with you guys that when we look at the history of agribusiness and the different cycles and realities on average, the phases where you have adjustments that are unfavorable, they normally last about 2 years. We see that 2024 is the beginning -- the second year of this adjustment period. We believe that at the end of the year, we could have some very positive signs of how this phase of adjustments that's unfavorable can be headed towards a more positive context, but we still see 2024 as a challenging year. So we'll have opportunities, but actually, we'll have an exchange ratio that's a little tighter. So the focus will continue to be austerity and productivity.

And what this means in practical terms and pragmatic terms and concrete terms for 2024 is the following: we're harvesting soy, as we mentioned, and this is impacted by certain regions in Brazil, especially in the west of Mato Grosso due to the climate effects of El Niño that we suffered mainly in the second semester of 2023. So our focus is going to be of course, on a reduction in the volumes, to be able to, of course, consider this an important milestone of commodity prices globally, considering the production expansion of this area in the U.S., where we don't think it's going to be very probable to have an increase in the current prices for commodities. So our challenge as a distributor in this market.

Of course, now the focus is going to be the harvest, but -- this is focused a lot on the performance and anticipated work of our team to have good performance in our receipts, especially on the 30th of April. So when we get into the off-season harvest for corn in 2024, we talked about advanced planting close to about 87% and exchange ratio that's pretty tight. When we talk about corn and a scenario when it comes to the climate conditions in the south of the country that's more favorable and keeping up with this harvest together with the farmers, taking advantage of these impacts on the field with important incidents in certain regions in Brazil of plagues and diseases and trying to help and contribute to the farmers in the production of the farms and also, of course, focusing on the anticipation of the receivables in the month of August.

So what we'll see as a constant factor in 2024 is the exchange ratio with soy that's going to be a lot better and closer to historical levels. For corn, it's still a little tight. But naturally, the evolution and exchange ratio and our capacity with the distributors and agribusiness to take up offers to this farmer that consider this exchange ratio at a higher level or more favorable level will really be what determines the bigger appetite for farmers to sign off deals and file orders with AgroGalaxy. So this exchange ratio will continue to be a sensitive topic. We're going to focus on productivity and focus on a lower level of investments, so that we can have the use of the smallest -- the lowest amount of resources.

And in the second semester, as it is all mentioned, we're going to have a short transition of the El Niño phenomenon in the second semester of last year to a La Niña probable phenomenon where our prognosis is about 65%, it's a little premature, but this is a sign that's relatively positive so that in the second semester, we can start seeing some variables that are a little more positive for agribusiness in Brazil. And what does this represent when it comes to focus or priorities for AgroGalaxy.

Well, let's head to the next slide. It doesn't change our priorities. Our priorities are still the same. In 2024, we'll be able to reap in the full year a big part of the actions and interventions that took place in 2023, that provided savings when it comes to expenses and profitability. So in 2024, we'll be able to reap during most of the year, a big part of the efforts made in 2023, an ongoing effort in profitability and margin management with reduction in the portfolio, focus on the growth of products that can bring better margins and some work with the efficiency with the local commercial team and team on the field to increase the productivity of our technical sales reps and also the gross profits generated by each of these technical commercial reps and increase adherence in prices which are still some priorities in AgroGalaxy in 2024.

Naturally, as I mentioned in the previous slide, we'll have a big focus on risk management still in a context where we are performing some adjustments productivity in the receivables management, working closely with our commercial team and our credit teams so we can anticipate the difficult conversations. And this will allow us to have more precise conversations, constructive conversations with our suppliers upfront in the beginning of the harvest in '24 and '25.

And finally, about the working capital. We have a focus on our stocks, keeping up healthy levels, as you mentioned in the beginning of the presentation. We'll keep a strategy of really looking at our portfolio more than to the forecast. And naturally, throughout the year, we should start involving this a little slower, but we're going to try to preserve low stocks, healthy stocks and AgroGalaxy is currently in a position where when you consider the replenishment, we'll probably have access with suppliers to stock costs and replenishment costs that are pretty low, which will allow us to continue -- to contribute to an improvement in margins. So these are our priorities for 2024, as I mentioned a few minutes ago, the same priorities we have in 2023, kind of involving different efforts to keep up with this positive journey to have a more agile company that's closer to farmers and more efficient and, of course, more productive, and thus keeping up with our farmers in Brazil that really need to have an offering. They can allow them to have more productivity. So I'll pass the word to Flavia, so we can head to our Q&A session.

[Eron Martins, executive]

Well, before we get into Q&A, not sure if everyone can hear me, but I think it's important to highlight one point that's not on the balance sheet. But me and you in the last 30 days had a real intense process to go to the field, and we participated in different meetings and sessions with our commercial teams in Mato Grosso do Sul and Minas and we see that what's most important in 2023, probably, it's not on our balance sheet, unfortunately, is the team at AgroGalaxy. So the AgroGalaxy team understood the challenge in 2023 and really understanding the different movements. So we are 500 people less in AgroGalaxy from 2022 all the way here. So it's not easy to go from 2,500 people and dropped to 2,000 people. There's an impact in the climate, of course, we had the opportunity to have beer with the team and have a barbecue, and we knew that -- and we discovered that the team is really in alignment with what we're presenting here. So I think we can see the spare that we've been searching for. So we have a productivity per technical rep. It's about 9 million per commercial technical reps. So it's a really important number if you compare with other numbers disclosed in the market, and this makes a big difference.

Having a team that's loyal and having a team that's really tied to the game, really is important. So having a team that's strong with a quicker structure allows us to have the necessary comfort to deliver and work with the different challenges we have in 2024. And now, Flavia, feel free to get into the Q&A and will be available to answer.

[Flavia Alves Costa, executive]

[Operator Instructions] We'll get to our first question, which is from Pedro Luis from XP.

[Pedro Luis Fonseca, analyst]

Congratulations on the efficiency gains and how you've been working with the waivers. I wanted to mention some points. The first point is about the end of the partnership with Barter. Did you already -- you explained a bit of this rationale, but can you give us some more details on how the company expects to benefit from the end of this partnership. And I saw some vehicles and some news media. Other partnerships were also ended. So I wanted to also talk about these other issues. So you can give us some more granularity?

And my second question is about volume. So we had a bit of a difficulty here with analyzing how the sector's volumes have been as a whole. And so when you look at these considering the company's vision, how has the market share been performing for AgroGalaxy this year? In the beginning of 2024, as we get close to the closing of the period, we'd like to have this vision on the market share. And -- so about the expenses -- the sales expenses, we see significant improvements. And in the fourth quarter, you guys had sales expenses of BRL 140 million and now in 2023, BRL 17 million. So my question is what was changing -- what was pushing this upwards? And how are you changing these now in expenses with sales. And if you look at '24, do you think we can expect a level that's close to what we saw in the fourth quarter of '23? These are the main points.

[Axel Labourt, executive]

Okay. Thanks, Pedro. I'll take the first 2 ones. And Eron you can take the last one, okay.

Well, no, great question Pedro, thanks for that. The partnerships, the first point that I think is worth mentioning is to give you a little more context on the situation up until 2022 AgroGalaxy had more than 200 suppliers. And so -- this is an amount of suppliers that's very big. Now this does not allow us to have scale gains or in a very blatant way doesn't allow us to have conversations or a constructive relationship at the frequency we would like them to be. But this amount of suppliers is a consequence of a period, the growth and a very favorable context, which I think is natural. But when things change, they change from '22 to '23, and the focus becomes efficiency or the focus becomes the margins. We really need to rationalize a bit of this and consider optimizing the amount of suppliers.

So naturally, when we prioritize the suppliers, we look at different issues such as partnerships not only throughout the good moments, but also going through the more challenging moments and for us, 2023 was really proof of our character because we had to have some difficult conversations. We had a lot of friction with suppliers and -- the ones that were more understanding flexible understood the challenge we had in the agribusiness of this new phase in the cycle and that the problem was not necessarily AgroGalaxy. AgroGalaxy was actually anticipating some of these initiatives. And so these conversations led to very positive relationships and other relationships that naturally did not evolve very well. So this decision is a decision involving a rationalization. And so I'm going to mention that this should be ongoing and we should see the amount of supplies throughout the cycle permanently.

Today, we have most of the suppliers between what we -- with how we mentioned this in 2023. And these suppliers have led to spectacular support for AgroGalaxy in 2023. As Eron mentioned, we had most of these encounter strategically in each of the new business units for distribution in Brazil and all of these suppliers are supporting us. So today, I can guarantee that AgroGalaxy has one of the most broad portfolios and most competitive portfolios in the market. Naturally, in some of the decisions with suppliers we chose to work with, you have a lower impact, of course, and one of the ones you mentioned, the impact in 2022 was less than 5% of the revenue. So we are really making the anticipated decisions not only when it comes to expenses and margins, but also when it comes to the portfolio and supplier strategy and these announcements on the lead to some noise, but they allow us to start 2024 with the structure for sales and commercial structure in alignment with the priorities of which suppliers are going to work with throughout this new harvest of 2024 and 2025.

[Eron Martins, executive]

Okay. I think on my side, first, the adjustments that we performed in the administrative and commercial areas, we used the [ saint ] culture, which basically is what really direct us and it really impacts our variable sales expenses. We didn't do any kind of one-shot operations, everything was structural, so that we can have this repeating itself in '24, '25 and '26. So our expense structure today, if anything happens with the levels of billing that's similar to happened in '23, we have a good perspective that this won't be repeated. And this would allow us to go through this year without having to discuss the covenant. So if we demonstrate this improvement in the levels of losses of customers so the indicators historically of how much we're able to work with the renegotiations with our customers really improved, and this affects us positively as well.

And so what's behind all of this in the improvement of the historical rates of loss reductions is really involved in renegotiating considering the levels of guarantees. And really, in some cases, mortgaging or selling, but we also need to recognize that we had a movement that I discussed with you guys in the second and third quarters, which were also some processes to make some of our customers that we're not paying have a bad credit. So that's a bit bitter, but it was a necessary measure. So we know that there's still a fact we need to consider the effect in the restructuring in February. And with all of this, we understand that we're really prepared to have these challenging years because in 2024, we hope will be better than '23.

[Axel Labourt, executive]

So about the question that Pedro presented, Pedro the numbers are still being looked at. And we don't -- in all of the portfolios, we don't have market numbers or especially data about the link towards distribution. But what I can say is that generally when you look at the numbers shared with the industry and especially not necessarily related to this resale business, but the industry, we can see that we're at a level that's pretty similar to the market.

So what was especially related to pricing, in most cases, we had a performance that was similar to the market. And I'd say that in those portfolios that were our main focus, which are the portfolios that provide greater gross margins, we're probably gaining market share. If we look at biologicals and specialties and in soy seeds, we -- within the channel, we had really positive growth, which allowed us to consider very efficient management and gain more gross margins. So the numbers are still being looked at and compared, but we really have signs that we're at levels that are similar in the market and some segments, specifically which are a focus for greater profitability, we'll probably see some positive advances.

[Pedro Luis Fonseca, analyst]

So thank you, Axel and Eron, very clear. Want to thank you for your transparency and granularity. Just a quick follow-up on the sales expenses when you insist on this point, in the company's vision, what was the main driver that levered this improvement in the efficiency of sales expenses? Would it be marketing? I know that these initiatives and the sales are allocated like this. But just so we can have more granularity about what led to this gain in benefits and also so that we can think about 2024 and so that's the only point I wanted to discuss.

[Eron Martins, executive]

So as a good retail operation, we need to consider our different initiatives for promotions. We had a TechAgro event as well. And what we are looking at is searching for support from these partners. So we're going to do whatever we can as events to bring the suppliers to support us. And so this also impacts this process, and we had 3 strategic sessions which practically were like [indiscernible] because we always have partners that also have the opportunity to disclose their brands and products and have access to the farmers in our network. So looking at this mechanic where good events are events that were subsidized also help pull out with the numbers.

[Flavia Alves Costa, executive]

Our next question is from Henrique from BTG.

[Henrique Brustolin, analyst]

We wanted to explore the breakeven for this year. So you mentioned this is already pretty well addressed, but the expense area, we already have pretty good inputs to work with. But basically, when we think about the retail inputs, what's the expectation you guys have for the year, we see a scenario with prices now compared to in a year-over-year comparison that are now more balanced. Stock origination also seems to be more competitive. So what has been your expectation for volumes? And also, if you could give us some details on the portfolio of orders on the field.

And then I also want to know about how you guys have been looking at and how you interpret the delinquency rates for accounts receivable. We saw a significant reduction in the short-term maturities. They had mentioned in the previous quarter that are more related to the trading, but especially when we look at the maturities with 180 days or more, how should we interpret these with the monetization potential?

[Eron Martins, executive]

Well, Axel will take the first question.

[Axel Labourt, executive]

Yes, for sure.

[Eron Martins, executive]

On the volume, and I'll get the second one.

[Axel Labourt, executive]

Well, Henrique. In the beginning of 2024, as we already mentioned previously, the behavior of farmers in regards to how they're buying seem similar in most of 2023 it's still hand-to-mouth and the levels of investments compared to '22 and 2021 naturally have been dropping to levels that allow them to have an exchange ratio that's a little more favorable than what we had in the first semester of last year, which was appeared with exchange ratios that were very adverse. And so we think that 2024 is not going to be different. So if farmers are going to buy a lot closer to their actual needs and trying to avoid 2 effects. First, buying something that they're not going to need, and the second point is trying to manage the working capital in a more efficient way, which is a scarce resource and expansive research. So in concrete terms, we can see the evolution of the business really similar to the second semester of 2023, which leads us to believe that naturally the negotiations are going to happen from hand-to-mouth and most of the volumes will take place in the second semester of the year accelerating the seasonality that you guys already know very well in our sector.

[Eron Martins, executive]

Okay. Now about accounts receivable, I think who works in agribusiness knows that as a reseller, you must have the gift to look at each person you're doing business with and handle each situation in an individualized way. You can't just have a campaign for anticipation for everyone providing 3% discount because you're going to give discounts to people that don't need it. You also shouldn't treat farmers ahead like some rapture due to climate conditions if they have a good history as well as possible farmers that systematically pay with delays. So what we did in AgroGalaxy in 2023, which is maybe a little different than what we did before was really getting to know each case, analyze each case. And we had some cases that we did not renegotiate. We just sent legally for discussion, but we had many cases where we went to experience the day-to-day life of the farmer, understand their [ kitty's ] pain points and renegotiate.

So part of the numbers you see are some renegotiations we had to be able to keep the good farmers working with us, producing with us because the way we'll pay off this is if we can really have a good new harvest. So when it comes to monetization, when we renegotiate, we try to support them with good guarantees through like some sale or mortgaging, but this all allows us to experience a good day-to-day harvest process and also handle the rest if it's applicable or not. So basically the success of this monetization is already pretty much set. By the way it was done. Now we can bury is, of course, the productivity of each one in the different individuals we're discussing. So AgroGalaxy has this advantage of like a natural hedge because we're present in 14 different states. So they're not the 14 states that suffered the El Niño effects that much. So we also have a policy where we don't want to concentrate too much of our customers. So we don't have customers that represent more than 1% or 2% of the company because our business is mid to small-sized and also because that gives us greater safety.

So I'd say we're working on monitoring the different productions and especially in those cases where we had renegotiations. So there were some renegotiations that we worked on and we didn't grant credit. Others we did get a bit of credit, but each one is being handled so that we can monetize this. So when we demonstrate our rates of historical losses, we can see that the strategy to look at each Tax ID or each individual negotiate this and a tailor-made approach has really worked well. Flavia, any other questions? We're close to the end here. We're near the end.

[Flavia Alves Costa, executive]

We do have one more question here, which is from Andres Santana. Actually, he's just asking us to talk about the sales process for the seed business.

[Axel Labourt, executive]

Yes, sure. I'll start that, and then Eron you can add on if I'm missing any important information. But basically, in 2023, we began this process to search for partners in this business unit. In 2023, we had strong evidence of the synergies that exist with having a channel close to the cement production. So, we had a year with an oversupply in soy seeds. We were able to grow in this channel with the Nova seeds which is our brand that we process and multiply in the Sementes Campeã and also some assessments and analysis in the portfolio team. And we believe that in the soy seeds and corn seeds segments, AgroGalaxy as a distribution channel that could double the share in the market that we have in these segments. So what we need to do is to make this a reality. We must continue to nurture the seed production and operation. It's a seeds market that is under consolidation. We are one of the 5 biggest seed producers in Brazil. We have less than 6% share. So over the last years, we had many announcements of acquisitions and we think that this wave of consolidation continues and being a partner that can be helping us to have redundancy that's close to AgroGalaxy and will help us accelerate our growth to try to duplify our market share. We understand that this is really the right movement and the most appropriate.

So the announcement in the market brought in many interested parties. It's still a little early to talk about any of this. So we're confident and convinced that this is the right movement to really take advantage of the market context and allow us to advance with this portfolio strategy.

[Eron Martins, executive]

Well, I think you really covered this. And the seed production had a really good year. So [ Sementera ] had a great year in 2023 and we had some initiatives here that really worked well. So first, the reinforcement of our management team. We had people that really understood the market dynamics and that were associated to a team that is very good, and we had a year of quality levels that were excellent in the [ Sementera ]. And this guidance Axel brought to focus in our portfolio and so our own products really made one of our best students in this class in 2023. But of course, it's quite natural that we would like to grow the business. So there's 2 ways to do this. One is with our own cash and our own resources, but you saw we continue to be very disciplined with our cash protection and expense protection, so that's why it really made sense to bring a partner that can help us accelerate this.

So we've already received questions like, oh, then you are not going to sell 100%. Well, we are working on the negotiation now. We're studying some proposals, looking at cases and saying that we can't sell 100%. We don't even have a mandate to work with like. So I think it really depends on how these negotiations will advance, but our focus right now is to really leverage the business, which is really working well and helps us accelerate so that we can reach this top 5 level of soy seed multipliers in the Brazilian market. Flavia, we're at 12, shall we close up. People are probably hungry for lunch.

[Flavia Alves Costa, executive]

Yes. So thanks, guys. The Q&A session is officially ended. Thank you so much for your participation. We are available through the IR department. So if you have any questions or possible comments, you can send this to our IR e-mail, and we are officially ending the session.

[Eron Martins, executive]

So before you end the call, this is your first call as our Investor Relations after Daniel left. So thank you so much for your support, and there are many other people that I need to thank for helping us in this process. It was great to count on your support to really share the information in a very transparent way to the market.

[Flavia Alves Costa, executive]

Thank you Eron. Thank you so much. Well, thanks, guys. Bye. Have a wonderful day. Thank you. Take care. Bye-bye.

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