Adecoagro S.A.

Good morning, ladies and gentlemen, and thank you for waiting. At this time, we would like to welcome everyone to ADECO Agro's fourth quarter 2023 results conference call. Today with us, we have Mr. Mariano Bosch, CEO, Mr. Emilio Nieco, CFO, Mr. Renato Junqueira Pereira, Sugar, Ethanol, and Energy VP, and Mrs. Victoria Cabello, Investor Relations Officer. We would like to inform you that this event is being recorded and all participants will be in a listen-only mode during the company's presentation. After the company's remarks are completed, there will be a question and answer section. At that time, further instructions will be given. Before proceeding, let me mention that forward-looking statements are based on the beliefs and assumptions of ADECO Agros Management and on information currently available to the company. They involve risks, uncertainties, and assumptions because they relate to future events and therefore depend on circumstances that may or may not occur in the future. Investors should understand that general economic conditions, industry conditions, and other operating factors could also affect the future results of AVECO Agro and could cause results to differ materially from those expressed in such forward-looking statements. Now, I'll turn the conference over to Mr. Mariano Bosch, CEO. Mr. Bosch, you may begin your conference.

Good morning and thank you for joining ADECO Agros 2023 fourth quarter research conference. We are presenting all time records in gross sales, adjusted EBITDA and net cash flow operations. Despite having experienced the worst drought in Argentina's history, these accomplishments were possible because of The investment made through the years to grow our production capability, strengthen our asset base and teams. The synergies achieved across all our businesses. Our continuous focus on efficiency and being the low cost producer. Our geographic and product diversification. our flexibility to shift across markets and products. These results made us reduce our net debt by more than $150 million, while we continued investing in growth projects with attractive IRRs and also distributing to shareholders via dividends and buybacks. Based on the results presented, And according to our distribution policy, this year we will distribute at least $70 million in new records for the company. Some brief comments on ESG. As food and renewable energy producers, taking care of the natural resources and the environment is in our DNA. Throughout the years, we have developed sustainable production models in each of the places where we operate. We expect to achieve our newly disclosed 2030 decarbonization targets by reinforcing these models and investing in new technologies with attractive financial returns like the biomethane. In Brazil, our Angelic Amil has recently received the CORSIA certification, which guarantees that our ethanol can be used for sustainable aviation fuel production, a potential new market for our ethanol production. In our daily segment, our second biodigestor is injecting renewable electricity to the local grid by using cow manure as an input. This is a clear example of how circular economy model works. From this manure, we also produce biofertilizer, which is then used in our crop farms and later produced cow feed. The ESG awards received during the year are another proof of the work and communication of our best practices. Now, looking ahead, we are very enthusiastic about the outlook of all our operating segments. Normal weather conditions in Argentina and Uruguay have favored the planting and development of over 270,000 hectares of grains and rice. In the case of crops, yields are being defined and we feel confident that production will go back to normal levels. consequently showing a significant recovery in adjusted VDA in 2024. Furthermore, our rice mills in Argentina and Uruguay are continuously processing and turning our rice production into higher value added products for our clients distributed all over the world. Having in place a fully integrated business model enables us to offer high quality rice at attractive prices. In the meanwhile, in Brazil, we are crushing cane and producing sugar thanks to our continuous harvest model. And we foresee to continue increasing our milling compared to the 2023 record crushing, assuming weather evolving normally. To conclude, I want to thank our teams for the hard work and effort. Although we had a difficult start to the year, we achieved these results and the output remains very positive. Thank you to our shareholders for your continued support. Now, I will let Emilio walk you through the numbers of the quarter.

Thank you, Mariano. Good morning, everyone. Let's start on page four with a summary of our consolidated financial results. Gross sales totaled $400 million during the fourth quarter, 5% higher year over year, while adjusted EBITDA reached $96 million, 9% down versus the same period of last year. On an annual basis, gross sales amounted to $1.4 billion and adjusted EBITDA was $477 million, making a 7% and 10% increase respectively versus the prior year, as well as an all-time record for the company. These results were mostly explained by an outperformance of the sugar, ethanol and energy business on greater cane productivity, which enabled us to increase our sugar production and execute sales at solid prices. Results were also positively impacted by solid returns from our rice segment on higher average selling prices and the sale of a farm in September. This, in turn, fully offset the decline reported in the crops production explained by the effects of an unprecedented drought event and higher costs in dollars. Now, please turn to slide five. As you can see on the upper right chart, we generated $176 million of net cash from operations in 2023, 24% higher than the prior year. The increase in cash generation was driven by an outstanding operational performance. Investments carried out throughout the past years across all our operations, along with an action plan, we change to reduce expenses and generate savings and other initiatives have paid off. Regarding our production figures in the bottom right chart, we can see that crushing volumes in our sugar, ethanol and energy business were up 19% versus 2022. higher crushing translates into higher production volume, increasing sales and diluting costs. This was mostly possible thanks to the implementation of innovative agricultural techniques, such as pre-sprited seeding, which enabled us to reproduce sugarcane varieties that have better growth development in our region, both in yields and TRS content. On the other hand, Total production in our farming division reported at 29% year-over-year reduction, fully explained by the reduction in yields and planted area in our crop segment because of La Niña weather event. Let's move to slide seven with the operational performance of our sugar, ethanol, and energy business. During the fourth quarter, crushing volume reached 2.9 million tons. 7% lower versus the prior year due to higher rainfalls received compared to the same period of last year. Regarding productivity, yields reached 82 tons per hectare, whereas TRS content amounted to 127 kilograms per ton. In terms of mix, we diverted as much as 52% of our TRS to sugar in line with our strategy to maximize production of the product with the highest marginal contribution. Within our ethanol production, 72% was hydrous, as demand for this type of ethanol had been significantly increasing and gaining market share, offering the better margin. On a full year basis, Crashing volume reached 12.5 million tons, 19% higher year over year, and a record for our mills. This is mostly explained by a significant improvement in agricultural productivity indicators, including a 20% year over year increase in yields to 80 tons per hectare, as well as to greater sugarcane availability. As commented before, production mix stood at 52% sugar and 48% ethanol. This resulted in a sugar production of 806,000 tons in 2023, making a new record for our mills, as well as a year-over-year increase of over 300,000 tons. As shown in the bottom right chart, while we maximize sugar production during the whole year to profit from the rally in global sugar prices, last year we maximized ethanol during the first semester and switched to sugar during the second half as ethanol prices decreased. This proves the high degree of flexibility of our mills. Let's please turn to slide eight, where we describe our sales conducted throughout the year. Net sales amounted to $229 million during the quarter and $700 million on a year-over-year basis, making a 16% increase compared to the previous year in both cases. This was driven by higher sugar sales on higher production and prices, which fully offset the overall reduction in ethanol sales. As you can see on the top left chart, Selling volumes of sugar amounted to 796,000 tons during the full year, as our mixed decision favored sugar production to capture the significant price premium over ethanol. Consequently, our average selling price increased 24% versus the prior year. In the case of ethanol, we made the commercial decision to reduce sales and build stocks as prices decreased, anticipating high supply levels. Year over year sales comparison is only indicative, since we ran a completely opposite strategy during 2022, maximizing ethanol production, taking advantage of very attractive prices. That being said, During 2023, the export market opened a window of opportunity and we sold 54,000 cubic meters at an average price of $637 per cubic meter. This is so since we have the necessary certifications and industry capacity to meet products' specifications. On an accumulated basis, energy selling volumes increased 18% compared to the prior year, but the average selling price decreased by 9% due to low energy spot prices. Regarding Cameroon credits, we sold over 440,000 Ceballos during the year, amounting to $8 million in sales. Despite representing an 8% year-over-year increase in the selling price, the declining volume sold is explained by lower volumes of Ceballos issued on lower ethanol sales. On the following slide, we explain our cash cost. Total cash cost reflects on a cash basis how much it costs to produce one pound of sugar and ethanol in sugar equivalent. On a per unit basis, our cash cost amounted to 13.9 cents per pound of sugar equivalent, 6% higher than in the prior year. This is mainly explained by first a 20% year-over-year increase in SG&A expenses on account of higher freight costs due to our commercial decision to produce more sugar and profit from higher relative prices. And second, maintenance capex was 5% higher than in 2022 due to the appreciation of the Brazilian Real as well as a higher renewal area and planting costs versus the prior year. However, note that we were able to better dilute our production costs thanks to the year-over-year increase in milling volumes, diminishing the increase in total cash cost. All of our efforts are devoted to further enhance efficiencies to continue reducing it. As we continue ramping up operations in our cluster, cash cost will resume its downward trend. Please go to page 10, where we would like to present the financial performance of the sugar, ethanol, and energy business. Adjusted EBITDA amounted to $87 million during the fourth quarter, 14% lower than the same period of last year. Despite the increasing net sales and the gains reported in the mark-to-market of our commodity hedge position, lower adjusted VTA generation was driven by a year-over-year loss in the mark-to-market of our biological assets. On a full year basis, adjusted VTA reached $396 million, presenting a 6% increase versus last year and a new record for this business unit, mostly explained by the increasing net sales. Finally, to conclude with the sugar, ethanol, and energy business, please turn to slide 11, where we would like to briefly talk about the current outlook. We have entered 2024 with good sugarcane availability, and we are currently one of the few players in Brazil crushing and producing sugar. Being able to crush year-round, even during the traditional inter-harvest period, is one of our main competitive advantages. Assuming weather going normal, we expect to increase our crushing volume versus 2023 as we have sufficient sugarcane availability to use our industrial capacity. This in turn will result in a reduction in unitary costs due to better dilution of feed costs as mentioned before. From a commercial point of view, sugar prices continue to be supported by strong fundamentals. We are in an excellent position to profit from this scenario, as we have 53% of our expected 2024 sugar production still unhashed. In the case of ethanol, parity at the pump currently stands at low 60%, pressured by greater inventory levels in Brazil, even though demand has significantly switched to this type of fuel. We believe ethanol prices have room to increase since less ethanol is expected to be produced during 2024-2025 harvest, explained by less cane being crushed in Brazil on account of drier weather and our players still maximizing sugar production, given its attractive premium. Now we would like to move on to the farming business. Please go to slide 13. For the new campaign that we are currently engaged in, we have completed planting activities in 279,000 hectares with a favorable weather outlook. This represents a 5% increase in planted area compared to the previous campaign. In this regard, we'd like to mention that weather in South America has shifted to El Niño after three consecutive years of dry weather. Rains registered throughout summertime allowed for an improvement in soil moisture and a recovery of water reservoirs in all of our productive regions. As of today, most of our crops are undergoing its yield definition phase, so the evolution of weather during the upcoming weeks will be key. We expect a full recovery in our crops production in 2024, while for our rice segment, we are forecasting better yields due to the full recovery in water reservoirs. On the following page 14, we present the financial performance of our farming business. Adjusted EBITDA for the farming business totaled $14 million during the quarter, making a 34% year-over-year increase while on an annual basis reached 103 million, 25% higher than the previous year. Full year results increase was mainly explained by an outperformance from our rice division coupled with the sale of El Meridiano farm, which in turn fully upset the weak performance of our crops and dairy segments. Before going into the results of each operating segment, I would like to comment that effective for our year-ended 2023, we have modified our internal reporting to refine the way we view our farming business and its interaction with the land transformation and cattle activities embedded within such operations. Previously, we reviewed the results of our land transformation strategy as a separate activity upon disposition of transformed farmlands and or other rural properties. As from the fourth quarter of 2023, we started allocating any profit from disposition of farmland or a bargain purchase gain as part of the farming activity where such farming belongs. Adjusted EBITDA for our crop segment amounted to a negative of $304,000 during the fourth quarter, while on an annual basis reached $27 million. The later figure reflects the sale of a Meridiano farm conducted in September 2023, which generated an adjusted EBITDA of $30 million previously booked in the land transformation sector. Crops production on a standalone basis, that is before the sale of the farm, concluded in a break-even adjusted EBITDA for both the quarter and full year results as expected. Results were mainly impacted by the reduction in yields, coupled with a genuine increase in cost in dollar terms. Adjusted EBITDA in our rice segment was $8 million during the fourth quarter and $48 million on an accumulated basis. The increase in both cases was driven by higher average selling prices due to a better mix of higher added value products and higher global prices, which in turn fully offset the reduction in yields and the increasing costs in dollar terms. Moving on to the daily segment, adjusted EBITDA totaled $6 million, 25% lower than the prior year, while on a full year basis, it stood at $28 million, making a 9% year-over-year reduction. Lower crop output increased corn silage prices, which is our main cow feed, driving the year-over-year decline in our dairy segment. However, cow productivity reached record levels and we leveraged from our industrial flexibility to continue producing the product with the highest marginal contribution. Let's now turn to page 16, where we would like to present our capital allocation strategy. According to our distribution policy, we are committed to a minimum distribution of 40% of the cash generated during the previous year via a combination of cash dividends and share repurchase. Throughout 2023, we distributed $61 million, or 43% of the net cash from operations generated in 2022. This was executed via cash dividends in the amount of $35 million, coupled with the repurchase of $26 million in shares. In 2023, we generated $176 million of net cash from operations. Consequently, our minimum 2024 pending the approval of the annual general meeting cash dividends will amount of 35 million dollars to be paid in two installments of 17.5 million dollars each additionally here today we have already repurchased 18 million dollars in shares which represents approximately 1.7 percent of the company's sales Please turn to slide 17 for a broader view of our debt position. Net debt amounted to $503 million, making a 26% decrease compared to the same period of last year and a 29% reduction quarter over quarter. This was explained by a significant reduction in the gross debt position, mainly in our farming business, thanks to very good operational results and the company's financial strategy carried out throughout the year that enabled us to take advantage of opportunities in Argentina's financial market and benefit from the sharp depreciation of the Argentine peso. As shown in our financial figures, the reduction in our net debt position was done without disattending our distribution policy and growth projects. As of December 31st, 2023, our liquidity ratio reached 2.8 times, showing the company's full capacity to repay shortened debt with its cash balances, whereas our net leverage ratio was 1.1 times, 0.5 times down compared to the previous year. On the following slide, we explain our CAPEX projects. 27% of total investments consisted of expansion projects. In Brazil, we continue increasing our sugar cane plantation and the expansion of our biomethane production to replace diesel consumption and explore other alternative uses. During 2023, we reviewed our CAPEX investments in our farming business to generate savings in a year of adverse weather in Argentina. Our main CAPEX program consisted of expanding our rice operations and finalizing the construction of our second biodigester in our dairy operation and the upgrade of our cheese factory line in Morteros facility. To conclude, I would like to thank our team for the extraordinary results delivered. As you know, and Mariano also mentioned when we opened the call, 2023 started as a very challenging year, but we were able to turn around the odds and deliver strong results, showing the company's resilience against adverse conditions based on great productive assets, diversification of products and regions, and last but not least, our people. Thank you very much for your time. We're now open to questions.