Adecoagro S.A.

Good morning, ladies and gentlemen, and thank you for waiting. At this time, we would like to welcome everyone to ADECOagro's second quarter 2024 results conference call. Today with us we have Mr. Mariano Bosch, CEO, Mr. Emilio Ñeco, 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 remarks are completed, there will be a question and answer section. At that time, further instructions will be provided. 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 factors 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 Agro's 2024 Second Quarter Research Conference. Before going into the highlights of each business, I would like to make some comments on our shareholders' distribution. As of this date, we have exceeded in $16 million our minimum distribution policy. So far, we invested $51.4 million to repurchase 5.2 million shares, equal to 4.9% of the company's equity, and also committed $35 million in cash dividends. with the first installment being already paid. Furthermore, our board of directors approved the renewal of our buyback program, which enabled us to repurchase up to an additional 5% of the company's equity up to year end. Consequently, we expect to continue allocating cash in share repurchases during the second half of the year. This clearly shows our commitment towards sharing results with our shareholders. While we continue investing in growth projects with attractive IRRs and maintaining our depth levels. Now, moving on the results, Consolidated adjusted EBITDA during the quarter reached $140 million, 3% higher year over year, whereas year to date amounted to $230 million, that is 2% higher than last year. Starting with our sugar, ethanol, and energy business, the investments done in expansion planting are paying off. Given the good cane availability, we have crushed more, produced more, while our unitary costs remained unchanged. Despite the lower than average rainfall received, having ample cane availability has become a competitive advantage for us. Although sugar continues to be the best product, ethanol prices are also recovering. Still so, the lower than expected yields and the year-over-year decrease in selling prices were the main drivers towards the decline in adjusted EBITDA generation for this business. In our farming business, adjusted EBITDA generation almost doubled during the first semester versus prior year. This was possible thanks to our decision to expand our rice footprint into Uruguay and its consolidation to our already vertically integrated operation. This, in turn, has placed us as a relevant player in the region, always with the focus of being the low-cost producer. In crops, normal weather conditions after experiencing the worst drought in Argentina's history are the main explanations towards the better results, even though these are lower than expectations due to the decline in international prices. Lastly, in dairy, We continue to consolidate our position in both the domestic and export market with the development of our high value added products, leading to better results each quarter. Before passing the word to Emilio, a brief update on ESG. In mid-May, we published our 2023 integrated report in which we reinforced our commitment towards reducing our carbon intensity by 2030. Moreover, an in-depth description of our sustainable production model is also available, together with our ESG strategy and practices. To conclude, I would like to express my gratitude to all our people across ADECO Agro for their hard work. I am convinced that we have the right people and that we are following the right strategy to generate good returns and value for our existing shareholders. 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 $398 million during the second quarter, while on an accumulated basis, it reached $651 million. Although volume sold for most of our products represented a significant year-over-year increase, results were partially offset by lower prices for some of the commodities that we produce. That being said, adjusted EBITDA reached $140 million during the quarter, whereas year-to-date, it stood at $230 million. Higher results during the quarter were driven by the sale of La Fecuaria Farm, booked within our crops segment as well as to an outperformance of our dairy segment. This in turn partially offset the lower results in our rice and sugar, ethanol and energy operations. Now please turn to slide five regarding our production figures in the bottom right charts we can see that crushing volumes in our sugar, ethanol, and energy business were up 21% versus the same period of last year. Higher crushing translates into higher volume and better dilution of fixed costs. In our farming division, the increase in the production of grains was explained by a significant recovery in yields on normal weather conditions during the development of our crops, as well as to higher planted area. Let's move to slide seven with the operational performance of sugar, ethanol, and energy business. Crossing volumes amounted to 4 million tons during the quarter and 6.1 million tons on an accumulated basis. The increase in crushing was mainly driven by greater sugarcane availability, thanks to our expansion planting activities and higher effective milling days due to the dry weather experience year-to-date. Regarding productivity, TRS per hectare remain in line versus the prior presenting a slight decrease in yields. In terms of mix, we continued to maximize sugar production, given its attractive premium over ethanol. Within our ethanol production, we were maximizing the production of hydrous ethanol, as demand for this type of ethanol has been significantly increasing and gaining market share, offering the better margin. If required, we can dehydrate our ethanol at any time. Let's please turn to slide 8, where we describe sales conducted throughout the periods. Net sales amounted to $172 million during the quarter, while year-to-date reached $275 million. As you can see on the top left chart, the decrease in the selling price of sugar was mostly due to lower global prices driven by a stronger pace of milling in Brazil during the first half of the year. In the case of ethanol, selling prices continued below the previous year on greater supply. Having said this, volume sold throughout the quarter was timely done to profit from spikes in prices. Moreover, we continue holding to our ethanol inventories to profit from better prices in the future. This represents 84% of our year-to-date ethanol production. Moving on to energy, we focused on complying with our long-term energy contracts. However, lower prices and a weaker Brazilian REI dropped the decline in sales. Regarding carbon credits, we have already sold over 240,000 Ceballos at an average price of $17 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 $107 million during the second quarter and $159 million for the first half of the year. Despite presenting year-over-year gains in the mark-to-market of our commodity hedge position, results were offset by year-over-year losses in the mark-to-market of our biological assets on lower expected yields coupled with declining net 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. Assuming normal weather for the remaining six months of the year, we focus on increasing annual crushing volume versus 2023, given good harvest space and cane availability. From a commercial point of view, The evolution of sugar prices will mostly depend on Brazil's crushing volume for the rest of the year, as well as on its industrial flexibility to reach the total annual production expected by the market. We have approximately 30% of our expected 2024 sugar production still unhedged, while the balance was committed at an average price close to 23 cents per pound. In the case of ethanol, demand remains strong, given its attractive price versus gasoline, consequently absorbing new supply and supporting the recovery in prices. We expect to sell our inventories over the following quarters, as we believe ethanol prices have room to continue increasing due to the current low parity at the pump, as well as to the sugar max scenario in Brazil. Now we would like to move on to the farming business. Please go to slide 12. By the end of July, we harvested 98% of the total area and produced over 1 million tons of agriculture produced. The remaining hectares are expected to be fully harvested during the rest of this month. As anticipated, most of our crops presented a significant year-over-year increase in productivity, given the normal weather conditions experienced, as opposed to last year, which was affected by La Niña weather events. In the case of late corn, our production in the northern region was negatively impacted by pseudoplasma. Consequently, our average yield reached 5.2 tons per hectare. below our initial expectations. We are planning on reducing corn area during the 2024-25 season to lower our exposure and switch to other more suitable crops. Moving on to rice, during this harvest season, we obtained an average yield of 6.1 tons per hectare. yields were negatively impacted by the excessive rainfalls received by the end of the planting window, which led to a portion of our hectares being planted outside the optimal period. Moreover, these precipitations continued throughout summertime, reducing yield potential. However, prices more than offset the reduction in production. In dairy, The increase in total raw milk production is explained by better cow productivity as we continue enhancing efficiencies in our free sales. At the industry level, we continue working on product development for the domestic and export market, offering higher value-added products as well as commodity-sized products, and being present across different price tiers with our consumer product brands. To conclude, we began planting activities for our next campaign, starting with wheat and other winter crops. The soil has recovered its moisture, enabled us to conduct our planting activities within the optimal window and to expand our planting area to the northern region, which was not included in prior seasons. On the following page 13, we present the financial performance of our farming business. Adjusted EBITDA for the farming business totaled $38 million during the quarter, whereas year-to-date amounted to $82 million. Higher results year-to-date are mainly explained by an outperformance in all three segments. Adjusted EBITDA for our crop segment amounted to $15 million, reflecting the sale of La Pecuaria Farm, which was completed in April 2024. On a year-to-date basis, adjusted BDA was $20 million. The year-over-year growth was mainly explained by this farm sale, as well as to greater yields during the 2023-24 harvest campaign. Focusing solely on our crops' results, although we saw a significant year-over-year recovery in production, Results were also negatively impacted by lower international prices for our main products, as well as to higher costs in U.S. dollar terms. Moving on to the rice segment, the year-over-year decline in adjusted VTA during the quarter was mainly explained by lower sales, coupled with higher costs in U.S. dollar terms. However, on an accumulated basis, adjusted EBITDA grew by over 50%, mostly explained by year-over-year gains reported in the market of our biological assets on higher prices. Lastly, adjusted EBITDA in our daily segment totaled $11 million during the period, whereas year-to-date, reached $18 million. Results were positively impacted by higher sales on higher prices as we improve the mix of higher value added products and maximize the production of fuel milk for the domestic market. Let's now turn 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 during the previous year via a combination of cash dividends and share repurchase. As of today, we have already committed $86 million, $16 million more than our minimum distribution policy. From this amount, $35 million in dividends were approved The first installment, $17.5 million, was paid in May, representing approximately $0.17 per share, whereas the second installment shall be payable during November in an equal cash amount. In addition, we have already repurchased $51 million in shares under our buyback program, which represents approximately 4.9% of the company's equity. Going forward, we expect to continue with our share repurchase. To do so, our Board of Directors approved the renewal of our buyback program to repurchase up to an additional 5% of the company's equity until year-end. Please turn to page 16 for a broader view of our debt position. Net debt amounted to $632 million, making a 26% decrease compared to the same period of last year. This was explained by the financial strategy carried out in Argentina during the previous year, as well as to better results from operations, which translates into higher cash. As shown in our financial figures, the decline in net debt was done without disattending our distribution policy and growth projects. As of June 30, 2024, our liquidity ratio reached 2.9 times, showing the company's full capacity to repay short-term debt with its cash balances, whereas our net leverage ratio was 1.3 times, 0.6 times lower compared to the same period of the previous year. Subsequent to the end of the quarter, we announced a cash tender offer for up to $100 million of our senior notes due in 2027, out of which $83.6 million were accepted by the early tender date. This is an example of our disciplined and constant search for liability management opportunities to better finance our operations at attractive rates while continuing adding value to shareholders. On the following slide, we describe our CAPEX program. Expansion CAPEX represented $17 million during the quarter and $45 million on an accumulated basis. In Brazil, we continue increasing our sugarcane plantation and investing in our biogas unit in Ibinema Mill, where our biomethane production takes place. In our farm and business, we invested on minor industrial improvements in our two-day processing facilities, as well as in new harvesters for our rice operations. Thank you very much for your time. We're now open to questions.