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 third quarter 2024 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 a Decoagro 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 Third Quarter Results Conference. We have already committed $96 million to shareholder distribution. This includes $35 million in cash dividends, on top of the $61 million that we have already invested in share repurchases year to date. As we distribute cash to shareholders, we also continue investing in attractive growth projects, such as growing the size of our sugarcane plantation in Brazil and strengthening our rice operations. Moreover, during the quarter, we repurchased $84 million of our global nodes, thus reinforcing our balance sheet structure. Moving on to the results, consolidated adjusted EBITDA during the quarter reached $119 million, whereas year-to-date amounted to $341 million. Starting with our rice operations, all the investments done through the years, such as the acquisitions of the assets in Uruguay, seed genetics, machinery, all these have materialized into record results. We have become a relevant player within the sector with a quick speed of reaction to respond to market opportunities. In Dairy, our continuous focus on enhancing efficiencies across the whole value chain, together with the development of higher value added products, are the main drivers towards the growth in results. Now we are in the middle of the planting activities for our 2024-25 campaign, which are being conducted with good soil moisture conditions and at a good pace for both crops and rice businesses. We have our teams fully focused on this and we are in an excellent situation to maximize yields in all our productions for the next harvest season now let's move into our sugar ethanol and energy business despite the challenging weather conditions our crashing volume remains ahead versus the previous year and more relevant we accomplished a 55 percent sugar mix during the quarter thanks to our industrial efficiencies we continue to expect a slight year-over-year increase in crushing and consequently a new record in sugar production furthermore we were able to secure new areas at attractive terms and even plant gain during the optimal window, thus enhancing its productivity potential for next harvest seasons. Before passing the word to Emilio, a quick update on the ESG. In line with our energy transition strategy, we secured and attractive financing from FINEPI to construct two biodigesters that will enable us to increase our biomethane production five times by 2027. This in turn will enable us to cut down carbon emissions while reducing costs. To conclude, I would like to thank our teams. Despite these challenging events, we continue generating good returns and value for our shareholders thanks to their hard work and dedication. 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 increased to $457 million during the third quarter, while on an accumulated basis, we're up to over $1.1 billion. This was mostly explained by higher volume sold of most of our products, which in turn fully offset the lower prices for some of the commodities that we produce. However, adjusted EBITDA reached $111 million during the quarter, making a 29% decline versus the prior year, mostly due to an uneven year-over-year comparison. During the third quarter of 2023, we completed a farm sale which booked $30 million in adjusted EBITDA, whereas no farm sales were conducted during the current period. Excluding this, our quarterly performance was down by 12% versus the same period of last year, explained by lower results in our sugar, ethanol, and energy business. On a year-to-date basis, adjusted VTA stood at $341 million. Despite an outperformance of our rice and dairy businesses, lower results were driven by the aforementioned decline in our sugar, ethanol, and energy operations. 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 6% 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 after having experienced better weather conditions throughout our latest harvest season. Let's move to slide seven with the operational performance of our sugar, ethanol and energy business. Crushing volumes during the quarter amounted to 4 million tonnes, making a 10% year-over-year decline. This is fully explained by the dry weather experience during the first nine months of the year, which translated into a reduction in yields and thus into lower crushing. Nevertheless, this was partially offset by an increasing sourcing of third-party cane, thanks to opportunities that arose from nearby areas. On an accumulated basis, total crushing volume reached 10.2 million tonnes, 6% higher compared to the same period of last year, due to greater sugarcane availability given our expansion planting activities and third-party cane. In terms of mix, we continue to maximize sugar production, given its attractive premium over ethanol. Within our ethanol production, we are maximizing the production of hydrous ethanol, as demand for this type of ethanol has been significantly increasing and gaining market share, offering the better much. If required, we can always dehydrate our ethanol at any time. Let's please turn to slide eight, where we described sales conducted throughout the periods. Net sales amounted to $227 million in the quarter, while year-to-date, it reached $502 million. As you can see on the top left chart, the increase in volume sold of sugar fully offset the decline in prices. As explained in prior releases, Lower sugar prices have come down versus the levels seen during 2023 due to a stronger pace of milling in Brazil, which resulted in higher sugar supply. The same trend can be seen for our ethanol sales conducted during the respective periods. We strategically sold our production to profit from spikes in price, even though selling prices in US dollar terms continue to be below the previous year on greater production. Consequently, we continue holding on to our ethanol inventories to profit from better prices in the upcoming quarters. Our stocks represent 49% of our year-to-date ethanol production. Moving on to energy, we focus on complying with our long-term energy contracts. However, lower prices and a weaker Brazilian real drove the decline in sales. Regarding carbon credits, we have already sold over 400,000 ceballos at an average price of $15 per ceballo, making a total of $6 million in net sales. 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 $100 million during the third quarter and $259 million on a year-to-date basis. despite presenting an increase in net sales as well as 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 lower sugar and ethanol prices. 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 rest of the year, we focused a slight increase in our annual crushing figure versus 2023. Precipitations received throughout the month of October enhanced the recovery of the cane that will be harvested in the next quarters. From a commercial point of view, Sugar prices peaked by the end of the third quarter due to a decline in Brazil's cane productivity on the back of the aforementioned dry weather. Furthermore, fire events reported by the end of August in key producing states added pressure to the country's sugar production expectations. Consequently, we foresee a tighter global supply and demand scenario for the coming months reason why we still have a portion of our expected 2024 sugar production still in hedge and our 2025 production remains open. In the case of ethanol, demand continues strong given its attractive price versus gasoline, 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 improve due to the current low parity at the pump coupled with the beginning of the industry's inter-harvest season. To finalize with the sugar, ethanol and energy business, we are using our store-bought gas to produce energy to sell in the sport market as prices recover due to low levels of water reservoirs. Now, we would like to move on to the farming business. Please go to slide 12. By the end of October, we concluded harvesting activities related to our 2023-24 harvest season and produced over 1.1 million tons of agricultural produce. As of today, we are undergoing planting activities for our 2024-25 campaign with a week to moderate La Niña weather forecast until the year-end. It is important to highlight that for a correct crop development, rainfalls must occur from January onwards as that is the moment when most of our crops define their yields. Furthermore, we were able to expand our winter crops area to over 45,000 hectares in this new season due to better soil moisture conditions. In the case of rice, we were able to develop a new area in the northeast region of Argentina. In dairy, we continue enhancing efficiencies in our free stores, which are already at full capacity. At the industry level, we are working on product development for the domestic and export markets, while expanding our presence across different price tiers with our consumer product brands. On the following page of the team, we present the financial performance of our farming business. Adjusted EBITDA for the farming business totaled $17 million during the quarter, whereas year-to-date it amounted to $99 million. Starting with our crops segment, adjusted EBITDA amounted to $2 million in the third quarter, compared to at $29 million during the prior year. as the latter fully reflects the sale of a farm conducted in September 2023. On a year-to-date basis, adjusted VDA total $22 million, which includes the sale of La Pecuaria farm conducted in April 2024. Focusing solely in our crops results, the segment performed better than in 2023, as we saw significant year-over-year recovery in production. However, results were negatively impacted by lower international prices for our main products, as well as by higher costs in US dollar terms and lower than expected corn yields due to the impact of xyloplasma. Moving on to rice, despite increasing sales on better prices, lower adjusted EVTA during the quarter was mainly explained by higher costs in US dollar terms. On an accumulated basis, adjusted EBITDA reached $51 million, marking a new record for this sector. Results were driven by year-over-year gains reported in the mark-to-market of our biological assets on higher prices and higher planted area. Lastly, adjusted EBITDA in our dairy segment totaled $8 million during the period. whereas year-to-date reached $26 million. Results were positively impacted by higher sales on higher prices as we improved the mix of higher value-added products and maximized the production of fluid 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 must distribute a minimum 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 $96 million to shareholders' distribution, $26 million more than the minimum stated in our distribution policy. In terms of dividends, on November 27, we will make our second cash dividend payment of $17.5 million, which represents approximately 17.4 cents per share. The first installment was paid on May 29 in an equal cash amount, resulting in an annual cash dividend of $35 million. In addition, we have already repurchased over $61 million in shares under our BABA program, which represents approximately 5.7% of the company's equity. Going forward, we expect to continue with our share repurchase. Please turn to slide 16 for a broader view of our debt position. Net debt amounted to $646. dollars making a nine percent decrease compared to the same period of last year throughout the year we have been diligently reducing our gross debt and cash position in the most efficient manner while looking for opportunities to finance our operations at the lowest cost as shown in our financial figures this was achieved without this attending our distribution policy and growth projects As of September the 30th of 2024, our liquidity ratio reached 2.6 times, showing the company's full capacity to repay short-term debt with its cash balances, whereas our net leverage ratio was 1.5 times in line with the same period of last year. On the following slide, we describe our CAPEX program. Expansion CAPEX represents during the quarter and $72 million on an accumulated basis. In Brazil, we continue increasing our sugarcane plantation and investing in our biogas unit in Ibanema Mill, where our biomethane production takes place. In our farm and business, investments include the acquisition of agricultural machinery, such as seeders and harvesters, as well as the development of cropable area for rice production. and the construction of a new warehouse for our dairy products at our typical dairy processing facility. Thank you very much for your time. We are now open to questions.