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 first quarter 2024 results conference call. Today with us, we have Mr. Mariano Bosch, CEO, Mr. Emilio Onyeko, 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 Agro's 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 ADECO 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 ADECOagro's 2024 First Quarter Results Conference. Consolidated adjusted EBITDA during the quarter reached $90 million, in line with our previous year. Our sugar, ethanol, and energy business reported a crashing record figure for the first quarter ever since we set foot in Brazil. This was possible thanks to all the investments done in expansion planting to have good cane availability. In fact, we were one of the only players harvesting and producing sugar over ethanol during the quarter. Having in place a continuous harvest model enabled us to crush cane year round and to constantly supply new products to the market, especially during Brazil's inter-harvest period, without mentioning that the higher the milling, the lower our cost of production. Despite this outstanding operational performance, the decrease in the forward curve of sugar prices was the main driver towards the year-over-year decline in adjusted EBITDA generation for this particular segment. Moving to our farming operations, the outperformance in all three operating segments shows the daily effort and hard work of our teams towards maximizing yields and still being the low cost producer. In crops, normal weather conditions translated into a significant recovery in yields, consequently into results despite the lower international prices for soy, corn and wheat. We are currently in the middle of the harvest season, therefore yields are still being defined, but we know that we are on track towards a normal operating year for this segment. Furthermore, having in place a sustainable integrated business model in our rice operation enabled us to capture an important year-over-year increase in the average selling price, as we were the only rice producers with available production when stocks were limited. This is so since we have flexibility to cater to both the domestic and export market with our high value added products. In the dairy segment, The significant recovery in crop yields led to a reduction in the cost of feed of our dairy cows, which is one of the main cost components for this business. Moreover, we continue working on product development for the domestic and export markets and taking advantage of our flexibility to supply both markets with our dairy portfolio. Before passing the word to Emilio, a brief update on our distribution policy. On April 17th, our annual shareholder meeting approved a total cash dividend distribution of $35 million. And in addition to this, we continue buying back shares under our program. We have already repurchased 2.6 million shares equal to 2.4% of the company's equity. As you may see, we are committed to our distribution policy while we continue investing in growth projects with attractive IRRs and maintaining our debt levels. To conclude, I would like to reiterate my gratitude to all our employees, contractors, and stakeholders for their hard work and commitment. 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 $254 million during the first quarter, 3% higher year over year. This was mostly explained by greater sugarcane crush, which enabled us to increase our sugar production and execute sales at solid prices. In addition, our rice operations reported an 83% year-over-year increase in the average selling price, driven by limited supply both in the export and domestic markets. Adjusted EVDA reached $90 million in line with the previous year. The outperformance of all the three of our farming businesses fully offset the decline reported in the sugar, ethanol, and energy business, which was explained by a loss in our biological assets driven by a reduction of sugar and ethanol price. Now please turn to slide five. Regarding our production figures, in the bottom right chart, we can see that crushing volumes in our sugar, ethanol, and energy business were up 47% versus the same period of last year, Higher crushing translates into higher production volume, thus increasing sales and diluting costs. Total production in our farming division reported a 19% year-over-year increase, explained by a fully recovering yields after normal weather conditions experienced during the development of our crops, as well as to higher planted area. Let's move to slide seven with the operational performance of our sugar, ethanol, and energy business. During the first quarter of 2024, crushing volume amounted to 2.2 million tons, an all-time record for our first quarter milling figure. This was mainly explained by greater sugarcane availability due to the expansion planting activities carried out over the past years. Regarding productivity, TRS per hectare remained in line versus last year, as TRS content presented a 5% year-over-year improvement, reaching 117 kilograms per ton, while yields amounted to 70 tons per hectare. In terms of mix, we diverted as much as 49% of our TRS to sugar in line with our strategy to maximize production of the product with the highest marginal contribution, taking advantage of the high degree of flexibility of our mills. Within our ethanol production, 91% was hydrous compared to 29% in the previous year, as demand for this type of ethanol has been significantly increasing and gaining market share, offering the better margin. Let's please turn to slide eight, where we describe sales conducted throughout the period. net sales amounted to $103 million during the quarter, making a 7% increase compared to the same period of last year. This was driven by higher sugar sales on higher prices and volume, which fully offset the overall reduction in ethanol sales due to the decline in selling prices. As you can see on the top left chart, our average selling price of sugar reached 23.8 cents per pound, thanks to our hedging strategies, which allow us to capture the rally in global sugar prices. Moreover, selling volumes amounted to 120,000 tons due to the increase in production versus the prior year as a result of the higher milling. In the case of ethanol, selling volumes were up 11% versus the prior year on higher demand of hydrous ethanol, whereas the average selling price decreased 30% year over year. Lower prices were explained by higher inventory levels carried into the inter-harvest period, which resulted in more supply of ethanol in the market. Although the average selling price of energy increased by 2% compared to the prior year, selling volumes were down 13% as we prioritized the volume contracted and saved our bagasse for more profitable alternatives. Regarding carbon credits, we sold over 80,000 Ceballos at an average price of $19 per Ceballo. Please go to page 9 where we would like to present the financial performance of the sugar, ethanol, and energy business. Adjusted EBITDA amounted to $52 million in the first quarter, 32% lower than the same period of last year. Despite the year-over-year increase in milling and sales, results were negatively impacted by a year-over-year loss in the mark-to-market of our biological assets, as the outlook of sugar prices is lower compared to last year, coupled with higher freight costs on higher sugar sales. Finally, to conclude with the sugar, ethanol, and energy business, please turn to slide 10, where we would like to briefly talk about the current outlook. Rainfalls received over the last few weeks continue to favor the productivity of our plantation. 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 urinary cash costs due to better dilution of fixed costs. From a commercial point of view, the evolution of sugar prices will mostly depend on Brazil's production and logistics. We have approximately 40% of our expected 2024 sugar production still on hedge, while the balance was committed at an average price close to 24 cents per pound. In the case of ethanol, by the beginning of April, prices recovered 30% compared to the lowest levels reported in early 2024. Consequently, we sold over 80,000 cubic meters of ethanol at an average price of $566 per cubic meter, profiting from the peak in prices to partially clear our tanks. We believe ethanol prices have room to continue increasing due to the current low parity at the pump. Now, we would like to move on to the farming business. Please go to slide 12. We are currently undergoing harvesting activities for most of our grains. At the end of April, we harvested 47% of the total area and produced over 600,000 tons of agricultural produce. Normal weather conditions registered throughout the yield definition stage of all our crops favored crop development and led to a full recovery in yields. In the case of late corn, the northern region of Argentina has been negatively impacted by Pseudoplasma, a bacterium which is conducted by a leaf whopper. This bacterium reproduces under tropical conditions as in Brazil and Paraguay and recently spread to even the high humidity and temperatures register. Thus, approximately 15% of our total corn production was impacted in line with the design in Argentina's total corn production. Regardless of that, we are still focusing yields in line with historical levels since our geographic diversification enabled us not only to mitigate weather risk, but also this type of diseases that may affect a given crop in a certain year. Lastly, we have already harvested 88% of our rice, reaching an average yield of 6.5 tons per hectare. Although it was a challenging campaign due to the pollution of weather conditions throughout the different growth stages of our rice, we were able to obtain an improvement in yields. On the following page 13, we present the financial performance of our farming business. Adjusted EBITDA for the farm and business totaled $44 million in the quarter, making a $25 million year-over-year increase. Higher results are mainly explained by an outperformance in all three segments. Before going into the results of each operating segment, I would like to briefly recall that we have modified our internal reporting to refine the way we view our farm and business and its interaction with our land transformation activity. Consequently, we recasted previously reported segment financial information. Adjusted VTA for our crops segment amounted to $5 million in the first quarter, making a $6 million year-over-year increase. This was fully driven by the recovery in yields, which resulted in a $15 million year-over-year gain in the mark-to-market of our biological assets. Subsequent to the end of the quarter, we completed the sale of the La Pecuaria farm located in the province of Durazno, Uruguay, for a selling price of $21 million collected in full at closing. This transaction generated an adjusted VTA of $15 million, which will be booked in our crop segment in the second quarter. Adjustability in our rice segment was $33 million, $19 million more than the same period of last year. This was mainly explained by a $13 million year-over-year gain in the mark-to-market of our biological assets on a better campaign in terms of area, productivity, and prices. Moreover, we were able to capture an average selling price of $433 per ton higher than the prior year, as we were the only rice producer with available stocks at the moment when rice supply was limited. Moving on to the dairy segment, adjusted VTA totaled $6 million, 5% higher than the prior year. Results were positively impacted by a year-over-year decline in our cost structure, mainly related to the cost of feed, as our in-house production recovered lower crop output reported during the prior year due to the dry weather. Let's turn now to page 15, 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 in the previous year via a combination of cash dividends and share repurchase. In 2023, we generated $176 million of net cash from operations. Consequently, our minimum distribution amounts to $70 million during the current year. In terms of dividends, a dividend distribution of $35 million was approved during our annual shareholder meeting held on April 17. First installment of $17.5 million will be paid on May 29 and represents approximately 17 cents per share, whereas the second installment shall be payable during November in an equal cash amount. In addition, we have already repurchased $27 million in shares under our buyback program, which represents approximately 2.4% of the company's equity. Please turn to page 16 for a broader view of our debt position. Net debt amounted to $639 million, making a 23% decrease compared to the same period of last year. This was explained by a significant reduction in the gross debt position as a result of our financial strategy carried out during 2023 and the first quarter of 2024, and also better results from operations. 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 March 31st, 2024, our liquidity ratio reached 2.9 times, showing the company's full capacity to repay shortened debt with its cash balances, whereas our net leverage ratio was 1.3 times, 0.6 times lower compared to the previous year. On the following slide, we describe our CapEx program. Expansion CapEx represented $29 million in the first quarter of 2024. In Brazil, we continue increasing our sugarcane plantation, investing in our biogas unit in Ibeniama Mill, where our biomethan production takes place. In our farming business, we paid the third and final installment of the acquisition of Viterra's rice mills in Argentina and Uruguay to expand our geographic footprint in rice portfolio. Thank you very much for your time. We're now open to questions.