SLCE3.SASLCE3.SA
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Unknown Executive: Good morning, everyone, and welcome to SLC Agricola's Earnings Video Conference for the Third Quarter 2025. My name is Andre Vasconcellos. I am the Planning and Investor Relations Manager. Joining me today are our CEO, Aurelio Pavinato; and our CFO and IRO, Ivo Brum. It's a pleasure to be with you this morning. We would like to inform you that the conference is being recorded and will be available on the company's Investor Relations website where you can also find the presentation. [Operator Instructions] We would like to remind you that the information in this presentation and any statements made during the video conference regarding our business outlook, projections and operational and financial targets are the beliefs and assumptions of the company's management and are based on information currently available. Forward-looking statements are not performance guarantees. They involve risks, uncertainties and assumptions as they refer to future events and depend on circumstances that may or may not occur. Investors should note that general economic conditions, market factors and other operational elements may affect the company's future performance and lead to results that differ materially from those expressed here. Now, I would like to turn the floor over to our CEO, Aurelio Pavinato, to begin the presentation. Pavinato, please proceed.
Aurelio Pavinato: Thank you very much, Andre. Good morning. We thank everyone for joining SLC Agricola's 3Q '25 Earnings Video Conference. Please let's advance to Slide 4 to discuss the cotton market. The third quarter of 2025 was marked by stable cotton prices in both the international and Brazilian markets, hovering around $0.68 per pound, reflecting global supply and demand fundamentals. According to USDA data, global cotton consumption for the '25, '26 crop year is estimated at approximately 120 million bales compared with production of 118 million bales, resulting in a global supply-demand deficit of about 1 million bales. On the demand side, the spinning industry has been operating strategically, keeping inventories of raw materials and finished goods below historical averages. This behavior reduces future market liquidity and puts downward pressure on prices. The industry has scaled back amid growing risk aversion, driven by a tougher global backdrop of high interest rates, inflation and geopolitical tension. We believe that stabilizing inflation and the interest rate cuts now underway in the United States and Europe, both which are key textile consuming regions are fundamental steps towards improving business and consumer sentiment globally. Now let's move to Slide 5 to discuss soybeans. Soybean prices, both on the CBOT spot contract and the Paranagua basis showed significant volatility throughout the third quarter of 2025, while in Mexico, prices remained relatively stable. One of the main factors to watch right now is the progress of the U.S. soybean harvest. The country's planted area has fallen roughly 7% from 87 million acres to 81 million acres. And globally, supply is projected to exceed demand by about 2 million tons, one of the smallest surpluses in recent years. Now moving to Slide 6. We'll discuss corn. Corn prices on the CBOT spot contract and in the Brazilian domestic market fluctuated in divergent ways over 3Q '25. In Brazil, corn prices, in spite of some short-term declines, continued to find strong support from increasing domestic demand, fueled by the expansion of the corn ethanol industry. Globally, the corn market is currently balanced with production is now outstripping demand by only 5.7 million tons. Let's go now to Slide 8 to discuss our operational performance in the past crop year '24-'25. Soybean harvest was fully completed, reaching 3,960 kilograms per hectare, 21.4% above the previous year, virtually in line with budget and 9.4% above the national average. Cotton reached an average yield of 1,845 kilograms per hectare below both the plan and the national average, mainly due to drought conditions in Bahia. Second crop corn achieved a historical record yield of 8,243 kilograms per hectare, 9.3% above initial projections and above the national average as well. In Slide 9, we look at unit costs for the '24-'25 crop year, which due to higher productivity showed a significant drop compared to '23-'24. Soybean unit cost fell 27.4% in comparison to the previous crop year. Corn decreased 17.5%, while cotton averaging first and second crops rose 3% due to lower yields and higher use of crop protection inputs. In Slide 10, we will show you our current hedge position for the '24-'25 crop year. We have further advanced in our hedging positions for the '24-'25 crop year for soybeans. Including commitments, we locked in 99.7% of production and for corn, 96.4%. And for cotton -- now I'll turn it over to my colleague, Ivo Brum, to comment on our financial performance. Ivo, please continue.
Ivo Brum: Good morning, everyone. Could we please turn to Slide 12, which highlights a few key points in our income statement. Net income for the quarter totaled BRL 2.1 billion, up 28% year-on-year, reflecting higher soybean and corn volumes sold. Year-to-date revenue reached BRL 6.3 billion, up 27%. Both quarterly and in the 9-month totals, we marked record highs. Our adjusted EBITDA in the quarter was BRL 531 million with a margin of 25.5%. Year-to-date adjusted EBITDA reached BRL 2 billion with a margin of 32.3%, consistent with historical performance. Net income for the quarter was a loss of BRL 14.5 million, a decrease of BRL 2.8 million versus the prior quarter. The variation reflected an increase of BRL 343 million and also higher SG&A expenses and other operating items totaling BRL 132.4 million, of which BRL 51 million were non-recurring linked to the sale of Sierentz' spin-off company, a negative financial result of BRL 126.6 million and an increase of BRL 81 million in income tax and social contribution taxes. The main factor behind the loss recognized on the sale of the Sierentz' spin-off was the inclusion in the spin-off of all historical development CapEx related to those areas. Since these amounts had been incurred in prior periods, they were not directly considered in the valuation of the transaction. Over the 9-month period, net income reached BRL 636 million, up 19.3% year-on-year. Cash generation was BRL 567 million in the quarter, while 9-month cash flow was BRL 1.5 billion, reflecting ongoing investments. Free cash flow was positive in the quarter, capturing the typical financial cycle moment between harvest cost payments and the '24-'25 crop and start of the corn and cotton billing. During the quarter, we paid the first installment for the Sierentz acquisition and received proceeds from the sale of the spin-off company to Terrus, resulting in a net outflow of BRL 268 million. For the year-to-date, key investments included BRL 180 million, final payment for the Paysandu farm, BRL 229 million, final acquisition of the minority stake at SLC LandCo, BRL 361 million Fazenda Paladino acquisition, BRL 95 million acquisition of Fazenda Unai, BRL 103 million minority stake in SLC Mit, BRL 268 million, first Sierentz Agro payment, net of Terrus proceeds and BRL 241 million relating to dividend payments for the fiscal year of 2024. On Slide 13, we look at our debt position. Adjusted net debt at the end of 3Q '25 stood at BRL 6.2 billion, up BRL 2.8 billion versus 2024. This increase is mainly due to strategic investments we made. The net debt over adjusted EBITDA ratio closed the period at 2.34x. On Slide 14, we look at the debt profile. Well, there was an evolution compared to 2Q '25 because our long debt share rose from 65% to 69% with an average maturity extending from 980 days to 1,168 days. On November 6, the Board approved a new share repurchase program of 10 million shares to be held in treasury for subsequent sale or cancellation. Now, I'll turn it over again to Pavinato to discuss the '25-'26 crop outlook.
Aurelio Pavinato: Well, let's turn to Slide 16 to discuss the outlook for the '25-'26 crop year. Planted area for this season will total 836,000 hectares, up 13.6% over '24-'25. Cotton area will grow 11.1%; soybeans, 14.2% and corn, 29.3%. We can now go to Slide 17 to talk about the planting of soybeans. Early soybean planting, which allows for subsequent cotton and second crop corn cultivation began on September 18. And by November 4, we had planted 62% of the area and the fields have been showing good development. On Slide 18, we look at the productivity and estimated yields for '25-'26. Company's expectations for crop potential are based on historical trends and consider its historical trend and also the maturity of the fields. We now go to Slide 19 to comment on costs per hectare. Total budgeted total cost per hectare stands at BRL 7,082 per hectare, up 9.7% from '24-'25. Final cost adjustments reflect the procurement of inputs now nearly completed. The main factors driving the increase are higher fertilizer volumes for soil nutrient replenishment and also improvements to our crop protection programs. Now moving to Slide 20. We discussed the current hedging position for '24-'25 and '25-'26. We have also made advances in the '25-'26 hedging. We have now 60.2% of soybean output fixed, 27.2% of cotton locked and 18.6% of corn. On Slide 21, we announced our sales forecast of seeds for 2026. Estimated seed sales to third parties, combined with internal use totaled 1,800,000 bags, up 28% year-on-year. Cotton seed sales, including internal consumption are projected at 157,000 bags, an increase of 8.3% in comparison to the previous year. On Slide 27, we revisit the irrigation project disposed on July 9, in which we shared the company's expectations regarding the growth of the irrigated area. In the '24-'25 season, the company had 16,025 hectares of irrigated area. For the current season, an additional 6,303 hectares will be implemented, totaling 19,385 hectares with irrigation. The goal is to reach 53,180 hectares in coming years. Irrigation will help mitigate climate risks, maximize land use through second crop production, increase land value and boost yields and stability in a sustainable way. Now let's turn to Slide 25, in which we'll discuss the business strategy of the deal announced yesterday on a material fact, the association between SLC Agricola and the private equity investment funds managed by BTG Pactual. The objectives are to monetize farmland at market value, maximize operational efficiency through irrigation projects and establish agricultural partnership contracts. The remuneration of the partner is 19% of our agricultural output and the term of the agreement, 18 years. which later can be renewed every 3 years. Finally, we go to Slide 26, in which we'll take a look at the structure of this deal. Special purpose entities will be created with SLC Agricola holding 50.01% and the private equity investment funds FIPs managed by Banco BTG Pactual with 49.99%. SLC Agricola will contribute Fazenda, Piratini and its irrigation infrastructure at market value. The funds will invest BRL 1.33 billion, of which BRL 914 million will be paid upfront at the closing and BRL 119 million upon completion of the Piratini's irrigation project expected for the second half of 2026. Using these proceeds, the SPEs will acquire Fazenda Paladino from SLC Agricola for BRL 723 million, paying BRL 361 million upfront and BRL 361 million in March 2026. Besides that, the SPEs will also purchase irrigation infrastructure at Piratini and Paladino for BRL 86 million and BRL 27 million, respectively. Remaining funds will go towards project implementation at the SPEs. The land-owning SPEs will sign rural partnership agreements with SLC Agricola for grain and fiber cultivation, with sharing of production outcomes. SPE remuneration will be equivalent to around 19% of agricultural output from the partner areas. The initial contract term is 18 years, automatically renewable every 3 years. On the next slide, Slide 27, we look at the irrigation project and farm locations in this deal. Fazenda Piratini is located in Jaborandi and Fazenda Paladino is located in Sao Desiderio, both in the state of Bahia. The 2 farms together have a first crop area of 39,523 hectares, with plans to irrigate 27,934 hectares, adding both will reach 67,457 hectares of planted area with a growth of 71%, an expansion of 71% in our irrigated area. Projects include monitoring of the Urucuia Aquifer, the use of artesian wells and efficient pumping systems to reduce losses and increase efficiency. Thank you very much. And now we'll open our Q&A.
Unknown Executive: [Operator Instructions] So, here's our first question from Mr. Lucas Ferreira. He is from JPMorgan.
Lucas Ferreira: I have questions about this transaction announced yesterday with the FIPs, with the private equity investment funds. I would like to understand if this transaction is just something for use for leveraging your balance sheet or if it -- if there is room for a larger partnership in the future? It's clear that you want to accelerate your irrigation project. And the second question is really -- well, since this is quite a complex deal, part of the production will be with the FIPs later, with the funds later. Did you consider Piratini based on your annual valuation? And what can you share in relation to the implicit cost of this deal with the sharing of volumes later down the road?
Aurelio Pavinato: Thank you very much, Lucas, for this question. Yes, Lucas, let me try to give you more details on the deal. So, we have contributed the Piratini farm at the appraisal value. So this is what we contributed in addition to the irrigation systems we had implemented as late as last year. So now the SPEs will own the land. They will own the infrastructure and also the irrigation system. And SLC Agricola will run the 2 farms. With the funding we have obtained, we are going to acquire the Paladino farm. So when we consolidate both of them, we'll have 50% and the funds will have 50%. So as if we had sold half of each farm, so we'll continue to own 50% of Piratini and 50% of the Paladino farm. This is the rationale, right? Our contribution is the Piratini farm. And the investors' contribution is the money, the money we'll use to buy Paladino that we had acquired from Mitsui just a couple of months ago. So, we are incorporating it in the deal. And the SPEs will be doing additional investments in irrigation. So with this, we can accelerate our irrigation project and also accelerate value creation in the farms. They are now, of course, going to start producing irrigated crops. We're going to have 2 crops a year instead of 1 like today with much more stability. So in our understanding, we will add value without contributing any funding. So, this is the mathematical equation behind this deal. We are unlocking value from our real estate assets. We are using our real estate to unlock value and accelerate irrigation investment, adding value to our agricultural output. And the 19%, this is the rationale in which we have adequate return for both investors and ourselves.
Unknown Executive: Now let's continue with Isabella Simonato, Bank of America.
Isabella Simonato: Well, I would like to know about the cotton cost performance in the '24-'25 crop year. There was a revision of realized costs. So, could you please shed some light on the drivers behind this performance? And if you could also give us some flavor on the '24-'25 crop that is still to be sold in the '26 fiscal year? I think that this will give us a clear understanding of the picture.
Unknown Executive: Can I answer? Isabella, in fact, the cost of the '24-'25 crop year was under the impact of the climate issues in Bahia, and we applied more crop protection inputs. Of course, this raised costs. When we analyze costs, it's important to compare the costs with the budgeted dollar exchange rate at the time. So, part of the inputs were more expensive, but at the same time, we had an offset with revenue. This actually was balance of our hedging. There was no loss of margin. So, we have to factor the exchange rate variation as well. This is what explains the difference in costs. And by the way, Isabella, that's why our realized cost '24-'25 was above budget. And when we look at the budget, we see an increase of 9.7% in comparison to the budget. But in comparison to the realized, it's a much lower increase. So, we are delivering the results in '24 and '25. So the increase in cost is 9.7% for us. But in comparison with the actual this year, it's a much lower difference, 4%, not 9% of increased costs in the comparison between those 2 years. And also, in terms of volume, we want to deliver at least 45% of the volume produced '24-'25 until the end of the year. The harvest was completed in August. We started processing. So the volume carried over in this quarter is not significant. Most of the volume will be recorded in the fourth quarter, in fact.
Unknown Executive: Now, our next question from Mr. Henrique, Bradesco BBI.
Henrique Brustolin: There are 2 areas I would like to explore. Firstly, on the deal, the first point is how easy it is to replicate this model in the future, creating partnerships to finance expansion and also the installation of irrigation systems? And also with the BRL 836 million for SLC, what changes in the way we consider your capital allocation strategy from now on? The reason I'm asking is because you were incorporating the transactions to deleverage, but this gives you some room in the balance sheet to expand acreage and also to implement irrigation systems. So, should we consider this? Also in relation to cotton this quarter, when we look at the cotton margin, unit margin where there was a 3% increase and the unit cost also changed. How recurring -- is there a recurrent effect on the margin for cotton like this quarter? I know that it was a mix of farms that could be the reason, but how representative it is as a recurring factor from now on?
Aurelio Pavinato: Thank you very much, Henrique. Let me talk about the deal and expansion. Well, we were really -- we had a long negotiation. And well, the future is yet to come. Nobody knows what could happen. But the model we created is a first for us. So if it's successful, it will open doors for rolling out the replication of this deal, this deal that we created with the funds. Okay. Ivo, would you like to discuss capital allocation?
Ivo Brum: Yes. It's just like you said, Henrique, this created an important opportunity to continue growing if opportunities arise. We won't buy as many assets. We'll focus on leases. There is a working capital and CapEx and also machinery. There are some constraints, but this positions us on a good platform for growth. Now speaking of cotton, we had loss of margin in cotton this quarter resulting from -- well, of course, the mix of farms. In this quarter, specifically, we harvested in Bahia and Bahia, of course, we had an early harvest in August and the margin specifically for Bahia was smaller because we didn't have as big as an output. And so there is an expectation that margins will improve because we'll have now Mato Grosso harvesting. So, we should not consider this margin as the average for the entire harvest this quarter.
Unknown Executive: Our next question is from Matheus Enfeldt, UBS.
Matheus Enfeldt: Well, my first question is about the soybean productivity and the '25-'26 harvest. We are tracking rainfall on your farms, and it seems that in October, rainfall was a little below expectations and also quite below the historical record, which was last year. So, did your yield consider this? Did you consider the effect of climate for this year? Or is there any reason to be concerned in relation to rainfall? And also the second question on cotton, Pavinato. Could you give us some insight on the potential for Brazil to continue adding cotton acreage? Well, some analysts are saying that cotton acreage will reduce next year. Do you see an opportunity for expanding cotton acreage in Brazil? And also, there was an expectation of conversion of additional areas to cotton in future years. Are you thinking of following up on this plan, increasing cotton, especially considering the price levels we are witnessing today?
Aurelio Pavinato: Thank you very much, Matheus. Matheus, in Mato Grosso this year, well, in September, it rained above the historical average. So it was very good rainfall at just the right time. In October, we didn't get much rain in Mato Grosso. So, there are some farms that were some -- under some rain deficit and others not. So when we look at the overall picture in Mato Grosso, it's fine. We have some farms with great potential and some fields not more than 5% to 10% that suffered with the rainfall deficit in October. So in November, the rain cycle resumed as normal. So it will depend on November and December. If it rains as expected, we are looking at very good yields in Mato Grosso. So, this is the summary, right? So the Mato Grosso farms are going well. And in the other farms, Maranhao and Bahia, it's now raining. So, we are expecting that our project will be met. This is a La Nina year, very similar to last year. So, we expect normal rains in coming months in the Northeast with a very good crop. About cotton now. In recent years, Brazil has really secured a strong foothold in this market. Brazil today is responsible for 14% of the world's output. We represent 30% of the exports. Something that 30 years ago -- well, we used to import cotton, and we were completely irrelevant in this market, in cotton market. And in the interval, consumption really didn't change much. So in fact, we were occupying the position of other players. And why? Because Brazil is very competitive. Our yields in Brazil in cotton is the best in the world. So when we think of Brazil, we are really a strong player. So the price levels today are low. They are not really encouraging the expansion of planted areas. So, we are seeing some downward revisions in planted areas, especially among the new entrants. They are now suffering more. Now, those who have stable operations will maintain their planted area. But in the average, we'll see a reduction in the planted area in Brazil, which is convenient, especially considering the slowdown in demand. Well, demand is growing very slowly. It's really inching little by little. We are now going to reach BRL 169 million bales of consumption. So when prices are lower like they are now, this encourages some pickup in demand. So at SLC, we analyze the data really farm by farm to see what crop is more profitable in each farm. But at this price level, we probably won't be stepping up on the gas in terms of new projects. We are going to wait for the price moves to really make our decisions. We want to maximize the use of the assets we have today. Cotton is a long cycle crop with a long financial cycle as well. So with high interest rates, you shouldn't really allocate much capital in CapEx and working capital, which is something cotton is very demanding about. So, you have to think of how much we're going to grow in 1.5 years. So, this is our vision on the expansion of the cotton area. Now the irrigation project in Bahia is aimed at planting first crops, soybeans and cotton in 3/4 of the area for the second crop. So, we're going to expand in Bahia cotton as second crop, which is the cheaper and the more efficient cotton. And that's why we see now the second crop in Mato Grosso for cotton expanding now and also in Bahia, but supported by irrigation.
Matheus Enfeldt: Justa quick follow-up, Pavinato, if I may. This idea of waiting a little bit for the cotton expansion, does it also apply to the Sierentz areas that you had been planning to start planting cotton on in 2 or 3 years?
Aurelio Pavinato: In fact, we now have 3 farms. We have one farm where we are building a cotton farm in -- [ right besides it ]. So we're going to have -- and the other farm has a great potential for soybean and second crop corn. So we'll calculate -- make the -- crunch the data. And probably in this case, we're going to delay the investment in cotton in the second Maranhao farm. As for the Parana farm, we never thought of planting cotton there, just soybean and corn. This combination of high interest rates and low prices is discouraging. Now if interest rates go down, then maybe it will make sense to plant cotton because to invest paying 15% a year in interest rate is a weighty consideration in any investment.
Unknown Executive: Our next question is from Gabriel Barra, Citi.
Gabriel Coelho Barra: In fact, I have a question and a follow-up. When we think that the buyback program, the share buyback program you have just approved, I would like to give it more of a framework when we consider the liability of the company. We see that the amortization cycle from now on -- well, we still have a very comfortable position in terms of income. And the net, however, is a little higher than expected. And so I would like to combine this question with the following. So how do you view the buyback program in view of the deleveraging process of the company, especially now that this program has been approved? And the second point on capital allocation in the rolling of debt. Ivo has just talked about interest rates in Brazil and your debt still is correlated with the BRL and CDIs. So are you thinking of having issuance of a paper overseas? We see that the credit markets are a little more stressed out. So, what's your view on your liability management program? And at the risk of sounding repetitive, in relation to the deal, a very interesting point for me is the remuneration of SPE, which is different from the sale leaseback in bags of soybean. So if I understood it correctly, there is also an upside in terms of productivity and yield. So it's a win-win. So my question is, what do you expect in yield by implementing irrigation in both farms? Do you have an estimate? What could we expect in terms of increase of yield after irrigation?
Ivo Brum: Well, about the share buyback program, Gabriel, I think that -- I think that what's important in this deal is that we're going to bring the company to a leverage level we feel more comfortable with. Our Board discourage us from going over 2x, and we are now at 2.3x. So it's really our objective in deleveraging. And of course, we could go back to go to using other leases. But in terms of share buyback, since the shares are being traded at a very low price, it doesn't make sense to buy more land. So if we had, for example, an opportunity emerging of buying more land, we know that SLC is the best investment for our shareholders. So, we want to grow leases instead of owned land. So, this is what the share buyback program indicates. About issuance of a paper, well, we've been thinking of taking debt in USD. You'll see at the balance sheet that we have now some debt coming in dollars now related to the Sierentz acquisition. And we, of course, have to adjust this with our hedge accounting policy. And we think of taking short-term loans in dollars because long-term dollar debt is more difficult to manage. But this is what we're considering in terms of exposure to dollar. Okay. What about yield? Pavinato, you go.
Aurelio Pavinato: So, what is the rationale when we create a business plan thinking in the long term like this? If you look at our history, we have an EBITDA margin, a net margin, and this is the result of commodity price, production cost, exchange rate and yield. Those are the 4 variables that define this. And a long time, the productivity gains, the yield gains generated value, added value to whom? They add value to the entire chain. Well, Brazil has increased yields more than competitors. So, we are capturing some of this value and applying this to our operations. In 15 years' time, yields will be even more higher than the yields we have today, of course. But as a consequence, production costs will be higher in 15 years' time. Will our EBITDA margins be higher than now? No, we don't believe so. We'll be more competitive in the international markets, but our EBITDA margin will be similar to the one we have today, depending on how efficiently the operations are managed. So the partner will participate in the revenue, but not in the costs. So, maybe this is the bottom line of your question. We're going to transfer a percentage of the EBITDA margin to this part of the SPEs. And in the SPEs, we hold 50%, a 50% stake. So it actually goes back to us. This is the rationale. In fact, agricultural partnerships for us as agriculture operators is the sharing of the proceeds, but in a much more resilient way because we know that there are some years in which we experienced crop failures with low yields. And who suffers? The operator. The landowner will get just as much. But now when we have a real partnership, like in this case, if there is a climate event leading to crop failure, the partner shares the losses too. So considering the long-term plan to grow our lease areas, this agricultural partnership mitigates risks, in fact, because I will never pay in a lease a higher percentage than that even in years when the output is not so good. So in fact, the partner is now going to be exposed to both variables, not only to price. Today, lease -- when we lease based on bags per hectare, the partner is only exposed to price, not on anything else. So, this is what we believe will add value in a very fair way to both partners.
Gabriel Coelho Barra: I'm sorry. I think maybe I wasn't clear. It was about upside and downside. With high yields, your partners will also get more. So, I would like to know how much you can generate in terms of additional yield, thanks to irrigation? This was the focus of my question.
Aurelio Pavinato: Okay. Let me complement then. Well, today, we have one culture that sometimes has good yield and sometimes 70% to 80% of the potential. And the productivity of this farm is just at 90% of the potential. Now with irrigation, my yield will rise to 110%. So, I'm not going to lose any yield. So in terms of revenue, if today I get 100 in revenue, this will go to 220 with irrigation, 220, 230, this is the potential value generation with irrigation.
Unknown Executive: Our next question is from Thiago Duarte, BTG.
Thiago Duarte: I have a question about the gains to be obtained with irrigation, but from a different angle. Pavinato, what's the cost associated with the building of infrastructure for irrigating 1 hectare, right, especially considering what this -- the comparison between the irrigated land and the dry farmed area? I would like to know what would be the return considering the market conditions of today?
Aurelio Pavinato: Let me answer this question, please, Thiago. Well, including all of the infrastructure that you need, electrical bidding, et cetera, BRL 25,000 per hectare, this is the cost, okay, for you to generate this additional revenue. Actually, I would even think that it's -- I think that the gains will be even higher because it's cotton second crop, right, so with even higher unit revenue. Yes, yes, you're right, in fact, Thiago. If you consider only yield, it's 230. But if you consider cotton, yes, because I have 1 year -- soybean 1 year cotton. In 2 years, 8,000 and 20,000 with cotton. So, 30,000 in a 2-year period. But now the 30,000 will be generated in addition to the higher yield per year. So in the same year, both crops with much higher yields. And in the case of cotton in Bahia cotton with irrigation, well, it's been very good and really surprisingly good. And with lower risk because there won't be any crop failure. You become the rainmaker.
Thiago Duarte: Yes. Perfect. This is very clear. Now, my second question. This has been already discussed, right, the project and the budgeted costs for next year, growth of 9.7% or 4% if we consider the effective cost for '24-'25. Could you please explain more about the increased costs? Really trying to break down what is volume and what is cost because I'm under the impression that part of the cost hike is associated with the need for greater soil correction. So is this part of the picture, this one-off effect with the land that you're adding, especially when we consider the costing base for next year?
Unknown Executive: Perfect. Thiago, in fact, our budget for '24-'25 was defined, but we had to use more crop protection, especially in cotton in some of the varieties and we ended up spending more than expected. Now in '25-'26, crop protection, again, we have prepared the budget, adding additional products, and we have now a package of crop protection for '25, '26. As for fertilizers, we are applying fertilizer in a more efficient way, and this not only in the newly added land in this scenario where fertilizer prices, for example, phosphorus and potash, we bought more cheaply than last year, and our fertilizer package didn't really see any increase in costs. A very small variation of 2% to 3% in dollar. In BRL, the prices didn't go up. We made good purchases for '25-'26. So we were -- we planned our fertilization program in a more efficient way. So, we really were trying to find out why the costs. It's really our planning that is leading to this increase, especially in the dollar-based accounts, which are the inputs. In BRL line items, we have inflation in services. This is what also drives costs up. So, this is the summary. This is what justifies the increase of costs in the '25-'26 crop year versus '24-'25. We are compensating this with higher yields, actually outstripping the target for this year. And there's an offset also because the prices in BRL, we have some hedging in that are favorable to us. So, we will be able to deliver higher profitability rates. This will also depend on yield. Yield will be the determining factor in the '25-'26 crop year.
Thiago Duarte: Okay. But this -- you said that it's actually more volume per hectare than price that is causing the effect, right? And is this volume a one-off thing? Or is it something different? I would like to understand how recurrent this effect is.
Unknown Executive: I'll answer. If prices continue low, volume will go down in the following crop year. If prices rebound, maybe it won't go down. So it's correlated with commodity prices and how much we invest.
Unknown Executive: Our next question is from Mr. Leonardo Alencar from XP.
Leonardo Alencar: Congratulations on the results. And by the way, I would like to go back to the deal, if I may. Pavinato, you said that this is something that was an elaborated deal. It took a long time to prepare. But well, considering that part of the attractiveness of this deal lies on the fact that you had recently acquired some land that required irrigation. But if we think of other occasions that could lead to this unlocking of the land value at the appraisal level, would it make sense for you to think of different sharing schemes because you mentioned that this model -- you could have another lease model where the leasing partner would also share the risks. So, do you think that -- does it make sense to you? And in addition to this, a quick follow-up on SG&A, where there was an increase. You talked about the freight for corn because of Sierentz. Is this a one-off thing? Or will there be more impacts coming in the future?
Unknown Executive: Thank you, Leonardo, for your question. I'll start with the answer with the second one. Well, in fact, we've -- well, we've created this deal. It's a structure that work, but rolling out more deals like this will depend on opportunities that emerge. We were able to create this, and we think that expectations were met both on our side and the investor size, and this is not going to be automatically replicated. We need this good fit in terms of the value of the land, the value potential of the operation so that we can really create more similar deals. There's always potential to do more, but something that we have to think about in the long term.
Leonardo Alencar: Well, let me just explore that for a moment. If there is another partner on the table, do they share any other strategic value? Or is there demand from other partners that seek this type of deal or this is something that's very new and people prefer the traditional lease deals?
Unknown Executive: Well, think of an 8-year agreement. Nobody who is thinking of the short-term and short-term results would engage in something like this. So, this is the profile of the investor looking at deals like this. And that's why there's always a rationale and a strategy behind each deal, and it takes proper analysis and the commitment of long-term investors really to work out.
Leonardo Alencar: What about SG&A?
Unknown Executive: Well, there is an important difference in the way Sierentz would sell, would trade their commodities. They deliver at corn as well. So, there is a freight cost that could be better, but we need to factor in. There was also a super production of corn. This increased our storage costs and had an impact in our SG&A. And in administration, we had significant expenses related to the Sierentz deal that was also reported under this line. And yesterday, the deal also, we had to use auditors, consultants, attorneys. All of this adds to the expenses, but they are one-off expenses. They are not recurring in any way.
Unknown Executive: Now let's continue with Gustavo Troyano, Itau BBA.
Gustavo Troyano: Two points I would like to discuss with you. Firstly, we've talked about the SPEs and potential return. But what about the timing of these irrigation investments, specifically? You said that Paladino would be from '28 to 2030. But what is the step-by-step process to get there? Once approved in terms of water intake and electrical feeding, is this CapEx going to be disbursed all at once to understand what the curve looks like? And the second question about capital allocation. Can you tell us a little bit about future opportunities? We have talked about expansion in leases, expansion in irrigation. And I would love to hear from you, especially considering the growth of corn-based ethanol in Brazil, can you ride this wave either through a partnership with an industrial operator? We saw some of these deals taking place in Brazil. And in the relation between lease irrigation and potential of corn-based ethanol, what would you give priority to? Because, of course, there are lots of projects and limited capital. But I would like to know what's in your mind.
Unknown Executive: Thank you very much, Gustavo, for this question. The investment in irrigation in this project that we announced yesterday at Piratini, well, we have the water intake facilities and the power is already established. So, we are starting with the investment in 2026. So, cash generation and the creation of the SPEs. In Paladino, we have said '28 to -- from '28 to 2030. We have most of the water needed and all the licenses will probably get obtained very soon, but not -- we don't have yet the electrical feedings. So, that's why we consider that the investment will run as of 2028. And in the SPE cash generation, we will have the funding for those investments in 3 years or in 2 years. It depends on the decisions taken at the specific time. So, we are feeling comfortable with the design for this project and the meeting of the deadlines. About capital allocation, when you have several options to allocate your capital, it's always a good thing. You're not forced to choose just one way, right? And it really depends on the cost of capital. Right now, cost of capital is very expensive. So, we really have to think it over. And as we said before, irrigation, well, we're going to allocate capital because it makes sense. It is strategic because it will increase output, will increase yield. It will add stability and helps mitigate risks for the company. So, there is no doubt in our mind. And as for the other possibilities you've mentioned, well, there are possibilities. So, we're going to decide how to allocate our capital. So, maybe considering the share buyback program, maybe this is the best way to go especially because as the company grows and we start deleveraging below a level of 2x, then we'll be able to invest or make other investments, but buyback is always a good option, especially now that SLC is being traded at 50% of our NAV. But thinking of the long term, am I going to grow? Am I going to add value? Or am I going to buy my shares back? All of this has to be factored in.
Unknown Executive: Okay. So, this video earnings conference call on the third quarter 2025 is now closed. Our Investor Relations department will be happy to take any questions. We thank all participants and wish you a great day. Thank you.