SLC Agricola SA

BOVESPA:SLCE3

Earnings Call Transcript 2021-Q2

[Operator]

Good morning, ladies and gentlemen, and thank you for waiting. At this time, we would like to welcome everyone to SLC Agrícola Second Quarter of 2021 Earnings Conference Call. Today, we have with us Mr. Aurelio Pavinato, CEO; and Mr. Ivo Marcon Brum, CFO and Investor Relations Officer.

We would like to inform you that this event is being recorded. [Operator Instructions]

Also today's live webcast, both audio and slide show may be accessed through SLC Agrícola website at ri.slcagricola.com.br in the Investor Relations section by clicking on the banner Webcast Second Quarter 2021.

The following presentation is also available to download on the webcast platform. The following information is available in thousands of Brazilian reals and in IFRS, except when otherwise indicated.

Before proceeding, let me mention that forward-looking statements are based on beliefs and assumptions of SLC Agrícola management and on information currently available to the company. They involve risks, uncertainties and assumptions because they relate to future events and therefore, depends on circumstances that may or may not occur in the future. Investors should understand the general economic conditions, industry conditions and other operating factors could also affect the future results of the company and could cause results to differ materially from those expressed in such forward-looking statements.

Now I will turn the conference over to Mr. Aurelio Pavinato, CEO, you may proceed.

[Aurelio Pavinato, executive]

Hello. Thank you for participating in SLC Agrícola's earnings conference call for the second quarter of 2021.

Let's turn to Slide 1, please -- to Slide 3, please. On August 2, we announced through our material fact note the conclusion of all corporate acts related to the business combination with Terra Santa via the incorporation of shares in Terra Santa by SLC Agrícola.

With the conclusion of this important transaction and as already announced, there is a potential to expand our planted area by around 145,000 hectares as of the '21/'22 crop year. And this is further complemented by the incorporation of Agrícola Xingú, which also was concluded and which will add another 43,000 hectares in potential planted area to our portfolio as of the next crop year.

Both transactions are aligned with our strategic pillar of asset-light growth and involves areas already developed and located close to our existing units and have long-term leasing agreements. We truly believe that the successful execution of our strategy reflects the [indiscernible] formed by people, technology and processes.

In this context, it's important to note that the key focus of our management have been integrating the people coming from the business combination, and we are very satisfied with the results so far.

Let's go to Slide 5, which shows our operational performance in the '20/'21 crop year. For soybean, for the fourth straight year, we set a new yield record, which is aligned with our current strategy of focusing on maximizing operation -- operating efficiency. The yield was [ 5.8% ] higher than our initial projection and 12.5% higher than the national average based on CONAB's estimate in July.

In cotton, as of July 30, we've had harvested 38% of the total area. Meanwhile, the estimated yield for cotton lint is 1,821 kilograms per hectare, down 1.7% from the initial forecast, but 3.7% higher than in the previous crop year and 4% higher above the national average based on July estimates from CONAB.

Lastly, for second crop corn, with 67% of the area harvested as of July 30, the estimated yield is 22.5% below the initial forecast at 5.9 tons per hectare. Even so, the result is 25% above the national average for second crop corn, published by CONAB. The lower yield for corn is mainly due to the irregular distribution of precipitation in March and April, especially at farms in the state of Mato Grosso do Sul.

Let's go now to Slide 7. Turning to the commodities market and starting with cotton for the '21/'22 crop year, a deficit in the supply/demand balance is expected. For the second year in a row, we have kept cotton prices between $0.80 and $0.90 per pound. The expectation of higher cotton consumption with greater parity on the uncertainties provoked by the pandemic is a fact that has been supporting the expectation of cotton demand surpassing 123 million bales in the '21/'22 crop year according to the USDA, which would be a new record.

For soybean, after prices on Chicago Board of Trade surpassed the $16.5 per bushel, prices corrected which currently stands at around $13.5 per bushel, which is significantly higher than the average prices over the last 5 years.

The market is currently focused on the weather in the United States where extreme and exceptional drought condition for certain crops could limit production and consequently, the country's soybean supply. However, for the current cycle of '21/'22, the supply/demand balance should after 2 straight years of deficit register a slight surplus of around 4 million tones, which is still must be confirmed by crop performance in the United States as well as by the results of planting operations in the Southern Hemisphere, which have yet to begin.

Lastly, in the case of corn, international prices in the second quarter of '21 also underwent a correction due to the U.S. weather market, although the drought still remains a factor to be monitored. In Brazil, however, corn price found more support due to local supply/demand dynamics, mainly the effect from the significantly lower production of second corn crop -- crop of corn, which also led to corn imports from Argentina.

In the global scenario, the difference in supply and demand should result in a surplus of 90 million tons after 4 straight cycles of deficit. I will now pass the call over to my colleague, Ivo Brum, our CFO and IRO, who will go over our financial performance in the quarter.

[Ivo Brum, executive]

Hello, everyone. Let's turn to Slide 9, please. which shows the highlights of our income statement for the second quarter of 2021. Net revenue grew by 85% in the quarter and by 57% in the first 6 months against the same period of 2020. The main drivers of the revenue growth were the higher unit price invoiced for all crops and the higher volume invoiced of cotton and soybean.

Adjusted EBITDA in both the second quarter and the year-to-date set record highs. In the quarter, adjusted EBITDA was BRL 505 million with adjusted EBITDA margin of 48%, representing growth of [ 248% ] year-over-year. In the year-to-date, the adjusted EBITDA was BRL 777 million, with adjusted EBITDA margin expanding by 14.2 percentage points to 41.6%.

The strong growth in the adjusted EBITDA in both periods also reflected in the higher pricing volumes invoiced as well as the effective control of the cost per hector and the good operational performance, especially for soybean.

Net income grew by 134% in the year-to-date and by [ 125% ] in the quarter compared to the prior year periods.

In addition, to the factors mentioned above, the performance of net income also reflected the dynamics of the recognition of the large assets given the expectation of higher margin compared to the last crop year for the portion of the harvest yet to be invoiced.

To conclude this section, Slide 10 shows our debt position. We ended the first half of 2021 with adjusted net debt of BRL 1.4 billion. It represents an increase of BRL 694 million in correlation to the end of 2020.

Net debt was affected mainly by the higher working capital needs, which in turn were influenced by the higher payments of the agriculture inputs for 2020 crop year. Note that an increase in debt in this period of the year is expected given the cash conversion cycle of the business. The net debt EBITDA ratio ended the period at 0.99x. I will now pass the call back over to Pavinato, who will comment on the outlook for 2021/'22 crop year.

[Aurelio Pavinato, executive]

Thank you, Ivo. Let's turn to Slide 12, please. I want to conclude by saying that we had already purchased most of the inputs needed for the '21/'22 crop year. And as you can see in the table, we already have sold a significant percentage of our estimated production at a price above those of the [indiscernible] in '21.

This percentage already incorporated the estimated production through the hedges of Terra Santa and Agrícola Xingú. This scenario leaves us with optimism on the outlook for the new crop year and on the -- continuing to deliver very good results.

Thank you. Let's now open the call for the questions-and-answer session.

[Operator]

[Operator Instructions] Thank you. This concludes today's presentation. You may disconnect your line at this time, and have a nice day.