20-F: Lavoro Faces Deepening Losses, Restructures Debt Amid Crisis

Lavoro Limited reported a substantial increase in losses and negative Adjusted EBITDA for fiscal year 2025, alongside significant operational restructuring and a court-ratified out-of-court reorganization plan for its Brazilian subsidiary.

Summary

• Lavoro Limited reported a loss for the year of R$2,883.9 million for fiscal year 2025, a significant increase from R$785.0 million in fiscal year 2024.
• Revenue decreased by 30.6% to R$6,517.3 million in fiscal year 2025 from R$9,392.3 million in fiscal year 2024.
• Adjusted EBITDA turned negative, reaching R$(472.8) million in fiscal year 2025, compared to a positive R$263.2 million in fiscal year 2024.
• Net Debt increased to R$1,599.9 million in fiscal year 2025 from R$1,131.1 million in fiscal year 2024, with the Net Debt/Adjusted EBITDA Ratio becoming negative at -3.4x.
• The Brazil Ag Retail segment's revenue decreased by 40.9% due to a sudden tightening of inventory financing conditions and product shortages.
• Gross margin declined to 13.9% in fiscal year 2025 from 14.2% in fiscal year 2024, primarily due to product availability issues, an unfavorable sales mix, and lower selling prices in Brazil Ag Retail.
• Sales, general and administrative expenses increased by 78.3% to R$2,433.0 million, largely driven by R$848.2 million in impairment losses on assets and a R$191.6 million increase in allowance for expected credit losses.
• Lavoro Brazil's Out-of-Court Reorganization Plan (EJ Plan), covering approximately R$2.5 billion in supplier obligations, was ratified by the court on November 25, 2025.
• The company received Nasdaq non-compliance notices for delayed filings of its interim financial information for December 31, 2024, and its annual report on Form 20-F for June 30, 2025, but submitted a plan to regain compliance by December 29, 2025.
• Material weaknesses were identified in internal control over financial reporting related to IT general controls, entity and process level controls, and the financial statement close process.
• The number of stores decreased by 24.2% to 169, RTVs by 15.1% to 935, and total employees by 21.0% to 2,975 in fiscal year 2025.
• The company sold a 53.3% equity interest in Triagro Participações S.A. (which owns the Crop Care Companies) to Patria Investments Limited funds for approximately R$400 million in cash on December 15, 2025.

Sentiment

Score: 2

Explanation: The company is in severe financial distress, marked by substantial losses, negative EBITDA, and a significant working capital deficit. Operational contraction, Nasdaq non-compliance, and internal control weaknesses indicate a highly challenging environment, despite ongoing restructuring efforts and asset sales.

Positives

• The Out-of-Court Reorganization Plan (EJ Plan) for Lavoro Brazil was ratified by the court, providing a structured framework for debt rescheduling and ensuring continuity of inventory supply.
• A waiver of the right to declare early maturity for Agribusiness Receivables Certificates (CRA) was approved, reclassifying the outstanding debt to non-current liabilities.
• New financing agreements totaling R$376 million were secured subsequent to June 30, 2025, providing additional capital.
• The sale of a majority equity interest in Triagro Participações S.A. for R$400 million in cash improves the company's capital base and liquidity.
• The company maintains geographic diversification across Brazil, Colombia, Ecuador, and Uruguay, which serves as a risk mitigant against localized adverse events.
• A highly skilled and technical salesforce (RTVs) provides agronomic advisory services, fostering customer trust and loyalty.
• The company has implemented a cybersecurity risk management program across its operating subsidiaries, achieving scores exceeding the recommended NIST CSF target.
• Socio-environmental assessment processes are in place, monitoring 30,000 farmers and over 100,000 rural properties to prevent illegal deforestation and ensure legally sourced commodities.

Negatives

• The company reported a significant increase in loss for the year, reaching R$2,883.9 million in fiscal year 2025, up from R$785.0 million in fiscal year 2024.
• Revenue decreased substantially by 30.6% to R$6,517.3 million in fiscal year 2025.
• Adjusted EBITDA turned negative at R$(472.8) million in fiscal year 2025, indicating a severe decline in operational profitability.
• Net Debt increased to R$1,599.9 million, and the Net Debt/Adjusted EBITDA Ratio became negative, highlighting increased leverage and financial distress.
• The Brazil Ag Retail segment experienced a 40.9% decrease in revenue, primarily due to tightened inventory financing and product shortages.
• Gross margin declined to 13.9% in fiscal year 2025, impacted by product availability constraints, an unfavorable sales mix, and lower selling prices.
• Sales, general and administrative expenses surged by 78.3%, largely due to R$848.2 million in impairment losses on assets and a R$191.6 million increase in allowance for expected credit losses.
• A R$205.7 million valuation allowance was recognized against deferred income tax assets in Brazil Ag Retail due to insufficient evidence of future taxable profits.
• The company received non-compliance notices from Nasdaq for delayed financial filings, indicating potential governance and reporting issues.
• Material weaknesses were identified in internal control over financial reporting, posing risks to financial statement accuracy and fraud prevention.
• Operational footprint significantly contracted, with a 24.2% reduction in stores, 15.1% in RTVs, and 21.0% in total employees.
• The number of active clients decreased by 6.9% to 71,818 in fiscal year 2025.
• New tax assessment notices totaling R$97 million and labor claims of R$10 million were classified as possible losses subsequent to year-end.

Risks

• Global market and economic conditions, including geopolitical risks, may adversely affect the business.
• Operating results are highly dependent on and fluctuate based on business and economic conditions and governmental policies affecting the agricultural industry.
• The business is highly seasonal and affected by adverse weather conditions and other factors beyond control, causing sales and operating results to fluctuate significantly.
• Climate change may have an adverse effect on agribusiness in Latin America and on the company.
• Lack of control over customer activities and their environmental practices could harm reputation and sales.
• Operating in a competitive market, inability to compete effectively could harm financial results.
• Failure to retain existing customers or attract new ones, including through store openings and geographic expansion, could adversely affect the business.
• Dependence on a well-regarded brand, and any failure to maintain, protect, and enhance it would harm the business.
• Inability to effectively manage operations and cost structure during periods of flat or declining revenue could harm the business.
• Operating results and metrics may fluctuate, and the company may continue to generate losses, causing the market price of Ordinary Shares to decline.
• Ability to implement and realize expected benefits of the extrajudicial reorganization plan (EJ Plan) is subject to significant risks and uncertainties.
• Adverse outcomes in legal proceedings could subject the company to substantial damages and adversely affect results of operations and profitability.
• Exposure to costs and risks associated with increased or changing laws and regulations, including data privacy, security, and protection.
• Operations are subject to various health and environmental risks associated with production, handling, transportation, storage, and commercialization.
• Environmental, health, safety, and food/agricultural input laws and regulations may become more stringent, increasing compliance costs.
• Uncertainty around the Soy Moratorium and evolving deforestation rules may restrict sourcing and adversely affect the business, results, cash flows, and reputation.
• Liability for labor charges and disbursements if sales representatives are considered employees.
• Changes in tax laws, incentives, benefits, and regulations may adversely affect the company.
• Subject to anti-corruption, anti-bribery, and anti-money laundering laws and regulations.
• Significant presence in Latin American countries exposes the company to adverse economic or political conditions.
• Developments and perceptions of risks in other countries (emerging markets, US, Europe) may harm Latin American economies and the share price.
• Governments in Latin America exercise significant influence over national economies, which could harm the company.
• Infrastructure and workforce deficiency in Latin America may impact economic growth.
• Increased costs as a result of operating as a public company.
• Potential for write-downs, restructuring, impairment, or other charges that could negatively affect financial condition and share price.
• Concentration of ownership by Lavoro Original Shareholders (86.3%) limits other shareholders' ability to influence corporate matters.
• As a foreign private issuer, the company has different disclosure and Nasdaq corporate governance standards than U.S. domestic registrants.
• The Ordinary Shares registered for resale represent a substantial percentage of outstanding shares, and sales could cause the market price to decline significantly.
• Limited public float and trading volume for Ordinary Shares may make it difficult to sell shares and cause price volatility.
• Failure to satisfy Nasdaq listing requirements could lead to delisting.
• Difficulty in protecting interests and limited ability to protect rights through U.S. courts due to incorporation in the Cayman Islands and operations outside the U.S.
• No anticipated dividends in the foreseeable future.
• Anti-takeover provisions in governing documents may discourage third-party acquisitions.
• Granting of share incentives may result in increased share-based compensation expenses.
• As a controlled company, the company relies on exemptions from certain Nasdaq corporate governance requirements, affording less protection to shareholders.
• Judgments of Brazilian courts to enforce obligations with respect to Ordinary Shares will be payable only in reais.
• The Registrant may be or become a PFIC, which could result in adverse U.S. federal income tax consequences to U.S. Holders.

Future Outlook

The company's strategy has shifted to focus on operational efficiency, cost discipline, balance sheet improvement, and a return to profitability, including right-sizing its footprint in core Brazilian regions. Inorganic growth is not a priority, but selective opportunities will be evaluated. The company intends to align governance and reporting processes with IFRS S2 Climate-related Disclosures within the next two years. The EJ Plan is expected to provide a sustainable framework for the recovery of Lavoro Brazil's commercial operations and financial position by improving cash flow visibility and operational planning.

Management Comments

• Management is responsible for the continuous identification and assessment of cybersecurity risks, implementation of mitigation measures, and maintenance of security programs.
• We believe Adjusted EBITDA and Adjusted EBITDA Margin to be useful metrics for the reader, as they are key indicators used internally by management to evaluate the performance of our day-to-day operations and provide additional information about trends in our operating performance.
• We believe that Net Debt/Adjusted EBITDA Ratio is an important measure to monitor leverage and evaluate our financial position.
• Our goal is to support our farmer clients across the crop cycle through our RTVs, generating value for farmers and, in turn, gaining their trust.
• Our geographic diversification across the continent serves as a critical risk mitigant for our operations, particularly in relation to adverse weather events and the seasonality of specific crops.
• We believe our scale and market position make us a valued partner to suppliers, and the majority support for the restructuring plan demonstrates the strength of these relationships.
• We believe that vertical integration through private label off-patent agrochemicals and specialty products is an important component of our long-term strategy to improve distribution margins.
• Our strategy has evolved in response to the significant operational and financial challenges we faced during fiscal year 2025.
• In the current environment, inorganic growth is not a priority; however, we may evaluate selective opportunities that meet clear operational and financial criteria and demonstrate integration feasibility.
• We believe that our current available cash equivalents and the cash flows from our operating activities will be sufficient to meet our working capital requirements and capital expenditures in the ordinary course of business for the next 12 months.
• We do not intend to rely on the receipt of proceeds from the exercise of Warrants to fund our liquidity and capital resource requirements.
• We plan to develop an appropriate climate management strategy within the next two years by adopting the TCFD framework.

Industry Context

The Latin American agricultural sector, particularly in Brazil, is a global powerhouse in grain production, but it is highly susceptible to global market and economic conditions, including commodity price volatility, and adverse climatic events. The industry is also experiencing increased competition and evolving regulatory landscapes, such as the EU Deforestation Regulation (EUDR) and the ongoing debate around Brazil's Soy Moratorium. Inflationary pressures in the region impact operational costs, while local currency depreciation can benefit grain exporters. The tightening of supplier inventory financing terms has broadly impacted the agricultural inputs industry in Brazil, leading to liquidity challenges for distributors like Lavoro.

Comparison to Industry Standards

• The company's cybersecurity program achieved an overall score of 3.65 for policy and 3.32 for practice based on NIST CSF frameworks, exceeding the recommended target score of 3.0 (Defined), indicating robust and consistent policies.
• The company intends to align its governance and reporting processes with IFRS S2 Climate-related Disclosures, issued by the ISSB, which is not yet mandatory in Brazil but is increasingly expected by international investors and global exchanges like Nasdaq.
• Brazil accounted for 8% of global grain production in 2020 and holds the largest available freshwater reserve globally, highlighting the country's significant agricultural potential compared to global benchmarks.
• The company's focus on small and medium-sized farmers (100-10,000 hectares) in Brazil addresses a segment representing approximately 65% of all agricultural land in the country, which is often underserved by direct agricultural input suppliers.

Management Changes

Corporate Governance

Legal Proceedings

• Provisions for probable losses from civil, tax, labor, and environmental contingencies amounted to R$13.957 million as of June 30, 2025.
• Contingencies with losses considered more likely than not amounted to R$278.315 million as of June 30, 2025.
• The Agrobiológica investigation, concerning the on-farm multiplication of bacteria for agricultural use, was formally closed in 2024 without penalties or findings of wrongdoing, following the enactment of Federal Law No. 15.070 regulating such practices.
• Subsequent to June 30, 2025, the company was notified of new tax assessment notices totaling approximately R$97 million, classified as possible loss.
• Subsequent to June 30, 2025, new labor claims totaling approximately R$10 million were classified as possible loss.

Related Party Transactions

• Sales of products to non-controlling shareholders of acquired subsidiaries amounted to R$24.0 million in fiscal year 2025.
• Monitoring expenses paid to Patria and its affiliates for management support services in connection with acquisitions totaled R$7.5 million in fiscal year 2025.
• During fiscal year 2025, the company entered into significant transactions with related parties controlled by funds managed by Patria Investments, involving the purchase of agricultural inputs, commercial advances, and non-recourse assignments of receivables.
• R$743.4 million in trade receivables were transferred with no recourse to related parties controlled by Patria Investments to settle liabilities related to agricultural input acquisitions in fiscal year 2025.
• Subsequent to June 30, 2025, a new transaction related to the acquisition of agricultural inputs from related parties controlled by Patria Investments Ltd was entered into, amounting to R$165 million.
• On December 15, 2025, Lavoro Uruguay S.A. sold a 53.3% equity interest in Triagro Participações S.A. (which owns the Crop Care Companies) to certain funds managed by Patria Investments Limited for approximately R$400 million in cash.

Stakeholder Impact

• Shareholders face significant dilution risk from potential warrant exercises (if the share price recovers) and a potential decline in market price due to a substantial percentage of outstanding shares registered for resale.
• Shareholders' ability to influence corporate matters is limited due to Patria Investments Limited's beneficial ownership of approximately 86.3% of outstanding Ordinary Shares.
• Employees experienced a 21.0% reduction in headcount, alongside reductions in RTVs and stores, indicating workforce adjustments and operational streamlining.
• Customers (farmers) are impacted by the financial crisis, commodity price volatility, and adverse climatic conditions, with the EJ Plan aiming to stabilize supply and financial arrangements.
• Suppliers are directly affected by the EJ Plan, which restructures R$2.5 billion in trade payables and establishes new multi-year supply and financing frameworks.
• Creditors, particularly holders of Agribusiness Receivables Certificates, were impacted by covenant breaches, necessitating a waiver of early maturity and new escrow deposit requirements.

Next Steps

• Implement appropriate IT corrective measures and reassess the internal control framework regarding the SAP S/4 Hana ERP.
• Enhance the use of IT systems to reduce documentation and evidence retention efforts for proper execution.
• Review internal control matrices to improve their quality and effectiveness, ensuring compliance with Sarbanes-Oxley Act and COSO framework.
• Plan for timely remediation of control deficiencies and implement monitoring controls such as self-assessments and action plans.
• Develop an appropriate climate management strategy within the next two years by adopting the TCFD (Task Force on Climate-related Financial Disclosures) framework.
• Align governance and reporting processes with IFRS S2 Climate-related Disclosures, with initial implementation expected as early as 2026.
• Continue to monitor and refine cybersecurity and data privacy processes to align with evolving regulatory requirements and industry standards.
• Continue to make capital expenditures to support the expected growth of the business.
• The closure of retail operations comprising the North CGU in the Brazil Ag Retail segment is in progress.

Key Dates

Recommendation

The company is experiencing severe financial distress, evidenced by a substantial increase in net losses, negative Adjusted EBITDA, and a significant working capital deficit. Revenue and key operational metrics have declined sharply. While management is implementing restructuring plans and has completed an asset sale, the 'going concern' status is explicitly noted as having 'substantial doubt.' Material weaknesses in internal controls, Nasdaq non-compliance, and ongoing litigation risks further compound the negative outlook. The current market price of warrants being significantly below the exercise price suggests a lack of confidence in future appreciation. These factors collectively indicate a highly unfavorable investment profile, warranting a 'sell' recommendation.

Keywords

Agricultural Inputs, Brazil Ag Retail, Latam Ag Retail, Crop Care, SEC Filing, Form 20-F, Financial Results, Losses, Adjusted EBITDA, Net Debt, Restructuring, Out-of-Court Reorganization, EJ Plan, Nasdaq Compliance, Internal Controls, Impairment, Trade Receivables, Commodity Prices, Exchange Rates, Inflation, Latin America, Cayman Islands, Patria Investments, Share Price Volatility, Warrants, ESG, Cybersecurity, Deforestation, Soy Moratorium