Adecoagro Q2 2023 Earnings Call Transcript

Quartr
Provided by Quartr
August 18, 2023

There are 8 speakers on the call.

Operator

Morning, ladies and gentlemen, and thank you for waiting. At this time, we would like to welcome everyone to Adecoagro's 2nd Quarter 2023 Results Conference Call. Today with us, we have Mr. Mariano Bosch, CEO Mr. Emilio Nyaco, CFO Mr.

Operator

Renato Junquerra Pereira, Sugar, Ethanol and Energy VP and Mrs. Victoria Cabejmo, Investor Relations Officer. We would like to inform you that this event is being Cortez, and all participants will be in 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.

Operator

Before proceeding, Let me mention that forward looking statements are based on the beliefs and assumptions of Adecoagros management and not 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 Adecoagro and could cause results to differ materially from those expressed in such forward looking statements. Call. Now I'll turn the conference over to Mr.

Operator

Mariano Bosch, CEO. Mr. Bosch, you may begin your conference.

Speaker 1

Good morning, and thank you for joining Adecoagro's 2023 Second Quarter Results Conference. As you may have seen in the report, we are presenting very good results despite the extreme drought that impacted some of our operations. Our adjusted EBITDA was 15% higher compared to last year. It is in times like this when we can clearly show and monetize the benefits of being diversified and focus on achieving efficiencies in our whole value chain. We are very excited about how our sugar ethanol and energy business is performing.

Speaker 1

The development of our sugarcane plantation is really good and we expect to increase crushing volumes by 15% compared to 2022. We have a large flexibility to shift production and we are using it to maximize sugar production. We have about 25% of this year's sugar production and almost all of our next year's still unhedged and very well positioned to continue to capture solid prices. 30% of our expected annual ethanol production is stored in our tons to be sold in the following quarters. This decision to carry forward ethanol is already proving to be a good one as prices are expected to increase following the increase in gasoline prices and the auto cycle growth.

Speaker 1

The reason why our sugarcane plantation is in great shape is because of our focus on achieving efficiencies as I mentioned before. Throughout the past years, We have put a special focus on our farming activities. As a result, we are reaching incredible levels of TRS content per hectare. For example, we implemented Muda Prebrotada or Pressed Sprouted Seedling through the multiplication of Medistem, which is a technology only used by us. This enables us to reproduce cane varieties that are better adapted to our region at a much faster pace and replace the older varieties.

Speaker 1

We even built a factory that now produces 26,000,000 muda every year. We are using 2 line harvester, which not only reduces diesel consumption per ton, but also soil contraction, leading to better years of sugarcane. We use biological pesticides to control plates. We use drones and artificial intelligence to monitor our plantation and apply herbicides only in the areas with weed infestation, among many other examples. These innovations are good not only for our productivity levels, but also reduce our costs per ton and improve our carbon footprint.

Speaker 1

Another good example of this is our production of biomethan, which we are already using to power more than 130 vehicles replacing diesel consumption. We are very happy with the region where we are located with our sugarcane plantation and our mills, the work that we did and the potential that we still have ahead. Now let's move into our farming business in Argentina and Uruguay. In our crops business, as we mentioned in the past releases, we experienced an unprecedented drop. Our results in this segment are a reflection of this.

Speaker 1

Now we are focused on the 'twenty three, 'twenty four campaign where we are starting fresh with no long term impact in our earnings potential from the drought. We have already started planting activities and we have good expectations for the new crops with a favorable El Nino forecast. In our daily business, Last year, we finished populating our 4 free stores. Productivity per cow came marginally down as we navigated the challenges of operating at full capacity. This year, productivity is at record levels, reaching almost 38 liters per cow per day on average.

Speaker 1

In terms of prices, there is a mixed performance, but We have the flexibility to adapt to the context. In the case of our rice business, The decision we made last year to set a foot in Uruguay by acquiring 4 rice meals strategically located is already paying off. In Argentina, even after the dry year, we managed to do very well. We own and operate 1 of the largest fully integrated rice operations in the world under a sustainable production model where we develop our own seed genetics and produce varieties customized to our clients' needs. We are building, crafting relationships with clients all over the world and consolidating as a leader of this market, offering high quality rice and full production traceability coming from Uruguay and Argentina.

Speaker 1

Now We have a huge opportunity in front of us. There is a lack of water in many rice producing countries of the world And they are cutting their rice exports. This means that there will be a very clear need for South American rice Having operations in Argentina and Uruguay, we are uniquely positioned to benefit from this. Another thing we are very enthusiastic about is the work we are doing in the ESG front. We have been working on emphasizing the sustainability profile of our production models and monetizing them.

Speaker 1

The sale of carbon credits in Brazil is the most obvious example, but we also have several certification for our products and processes and clients willing to pay a premium for them. Sustainability is part of our DNA. Everyday we work to develop sustainable production models in the interior of the countries where we operate. In our integrated ESG report, we show with great details how we do this. I invite all of you who are interested to read it.

Speaker 1

We have a very positive outlook ahead. Also, We are complying with our distribution policy. We recently distributed dividends and we continue repurchasing shares, always maintaining our debt leverage below 2x EBITDA. To conclude, I want to thank our teams. This year started off with many challenges, but with your hard work and commitment to efficiency.

Speaker 1

We now have a very positive outlook ahead of us. I feel confident that we will continue to generate good returns and value to our shareholders. Now, I I will let Emilio walk you through the numbers of the quarter.

Speaker 2

Thank you, Mariano. Good morning, everyone. Let's start on Page 4 with a summary of our consolidated financial results. Gross sales total $407,000,000 during the Q2, making a 6% year over year increase, while on an accumulated basis, It reached $654,000,000 11% higher than the previous year. This was mostly explained by our commercial decision to favor sugar production and execute sales at solid prices, coupled with higher average selling prices in our rice division.

Speaker 2

Consequently, adjusted EBITDA expanded to $136,000,000 during the quarter, whereas year to date it stood at $226,000,000 15% 10% higher than its respective previous periods. Please turn to Slide 5 for our broader view of our consolidated financial figures. As you can see on the bottom right chart, crushing volumes in our Sugar, Ethanol and Energy business were up 42% on a year to date basis on account of greater sugarcane availability and solid productivity indicators. On the other hand, total production in our Farming division reported a 27% year over year reduction, mostly explained by crops due to the effects of an unprecedented drought in Argentina, which impacted area and volume produced. Let's move ahead to Slide 7 with the operational performance of our Sugar, Ethanol and Energy business.

Speaker 2

Crushing volume amounted to 3,600,000 tons during the Q2, making a 9% increase versus the prior year. This was mostly driven by solid productivity indicators enhanced by good precipitations registered during the 1st 6 months of the year. DUS, agricultural productivity indicators such as yields presented a year over year improvement from 60 to 78 tons per hectare in the quarter, while TRS content increased from 119 to 126 kilograms per ton. In terms of mix, we diverted as much as 48% of our TRS to sugar production, in line with our strategy to maximize production of the product with the highest marginal contribution. Within our ethanol production, 70% was anhydrous and to further profit from the premium that this ethanol commanded, We dehydrated over 22,000 cubic meters of hydrocephanol stored in our tanks.

Speaker 2

On a year to date basis, crushing volume reached 5,100,000 tons, 42% higher year over year. This is explained by a significant improvement in yields and TRS content as well to the greater sugarcane availability, which enabled us to resume our continuous harvest model during the Q1 of 2023. As mentioned before, production mix stood at 48% sugar in line with the quarter. As shown in the bottom right chart, while we maximize sugar production throughout the 1st semester to profit from the rally in global sugar prices. The opposite was observed last year as ethanol prices reached record levels in Brazil.

Speaker 2

This proves the high degree of flexibility of our mills. Please turn to Slide 8, where we would like to describe our sales throughout the year. Net sales amounted to $179,000,000 during the quarter and $274,000,000 in the 1st semester, making a 9% and 18% increase compared to the previous year, respectively. In both cases, this was driven by higher sugar sales on higher production and prices, which fully offset the year over year reduction in ethanol teams. As you can see on the top left chart, selling volumes of sugar amounted to 317,000 tons year to date, as our mix decision favored sugar production to capture the price premium over ethanol.

Speaker 2

Consequently, our average selling prices increased 9% during the 1st semester and we benefited from an excellent sugar prices. In the case of ethanol, The decrease in volumes sold was driven by reduction in ethanol production coupled with our commercial decision to increase our carryover stocks. The year over year comparison does not see fair. During the Q2 of 2022, we took advantage of a market opportunity that ethanol offer and sold ethanol at very attractive prices. As explained in prior releases, last year, We sold most of our ethanol volumes at prices as high as $0.26 per pound equivalent, taking advantage of a shortage in supply cost of a delayed start of harvesting activities in Brazil.

Speaker 2

It is worth highlighting that this year, we also benefited from a peak in demand and sold 52% of our ethanol volume there, capturing 12% above the average price of the quarter. Within the 132,000 cubic meters of anhydrous ethanol sold year to date, 22,000 cubic meters were order at an average price of $0.225 per pound equivalent, out of which 16,000 cubic meters were conducted during the Q2 at an average price of $0.208 per pound. This is so since we have the necessary certifications and industry capacity to meet product specifications. On an accumulated basis, energy selling volumes increased 13% compared to the prior year, even though its average selling price decreased by 10% due to lower energy spot prices. Regarding carbon credits, year to date, we sold over 250,000 seballels, 34% lower than the previous year, at an average price of $18 per sevalo.

Speaker 2

This is explained by the lower year over year production and sale of ethanol, which led to a lower amount of carbon credits issued. 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 $117,000,000 and $194,000,000 during the second quarter and the first half of the year, respectively. In both cases, the increase in adjusted EBITDA was driven by higher net sales as well as gains in the mark to market of our harvested gain on higher crushing volume. However, results were partially offset by a year over year loss reported in the mark to market of our commodity hedge position.

Speaker 2

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 for the rest of the year. Assuming weather going normal, We expect our crushing volume in 2023 to be approximately 15% higher than in 2022, as we have sufficient sugarcane availability to use our industrial capacity. This in turn will result in a reduction of unitary costs due to better dilution of fixed costs. From our commercial point of view, sugar prices continue to be supported by strong fundamentals and are trading on average about $0.24 per pound. We are in an excellent position to profit from this scenario as we have 25% of our expected 2023 sugar production unhedged.

Speaker 2

And for 2024, 90% of our sugar position remains open. In the case of ethanol, we are taking advantage of our storage capacity to carry over production into the following quarters to profit from higher expected prices. We believe that ethanol will continue to play an important role in the energy transition matrix, not only in Brazil, but globally. And we believe Adecoagro will make its contribution. Now we would like to move on to the Farming business.

Speaker 2

Please go to Slide 12. As of The beginning of August 2023, we harvested 96% of the total area and produced over 800,000 tons of agricultural produce. The remaining hectares are expected to be fully harvested during the rest of this month. As anticipated, yields for most of our summer crops presented a significant decline compared to the previous campaign due to record drought that Argentina and Uruguay experienced as a consequence of La Nina weather event. Nevertheless, there have been positive developments impacting the price of some of our products, which help us to partially mitigate the weak performance at the farm level.

Speaker 2

The Azimuth government passed a resolution that allowed for the use of a preferential FX rate to convert the proceeds from sales of rice, soybean, corn, peanut and sunflower, which partially offset the decreasing yields. Also in the case of rice, India, the world's largest rice supporter, recently announced the ban of long grain rice exports to secure domestic supply. Thus, we expect to profit from this, thanks to our flexibility to sell into the export market and offer full product traceability. To conclude, we began planting activities for our next campaign, starting with wheat and other winter crops. We expect a positive outlook for the upcoming season, especially since the weather forecast is shifting to moderate Aeroninho pattern, which should allow for an improvement in soil moisture and recovery of water levels in the reservoirs, favoring the outlook for the 2023 2024 harvest season.

Speaker 2

On the following Page 13, we would like to present the financial performance of our Farming and Land Transformation businesses. Adjusted EBITDA totaled $24,000,000 in the quarter, making a 22% year over year increase. Year to date, adjusted EBITDA was $43,000,000 23% lower than the previous year. In both cases, This was explained by an outperformance of our rice and dairy divisions, which fully offset the poor performance of crops as expected due to the record drought caused by La Nina weather that affected yields. Starting with our crop business.

Speaker 2

Adjusted EBITDA amounted to $313,000 $509,000 during the Q2 and 1st semester of the year, Pedi. As previously explained, results were mainly impacted by the reduction in yields, coupled with a genuine increase in costs in U. S. Dollar terms as a reduction in planted area versus the previous season. Adjusted EBITDA in our rice business was $15,000,000 during the 2nd quarter $27,000,000 on an accumulated basis, Despite a reduction in yields compared to the previous campaign and higher costs in U.

Speaker 2

S. Dollar terms, adjusted EBITDA was higher year over year. This was driven by an increase in both volume and average selling prices due to a better mix of higher added value products as well as the use of the preferential exchange rate mentioned above among other factors. Moving on to the dairy business, adjusted EBITDA totaled $10,000,000 41% higher than prior year, while year to date it stood at $16,000,000 making a 15% year over year increase. Results were explained by higher average selling prices as we produce more fluid milk for the domestic market, which offered the highest marginal contribution during these periods, coupled with our continuous focus on achieving efficiencies now vertically integrated operation.

Speaker 2

Results were partially offset by higher costs, including cost of fee of our dairy cuts. In the case of land transformation, although no farm sales were concluded, results reflect the mark to market of an account receivable corresponding to the latest sale of farms in Brazil, which tracks the evolution of soybean prices. Let's now turn to Page 15, where we would like to present our capital allocation strategy. In 2022, we generated $141,000,000 of net cash from operations. According to our distribution policy, we are committed to a minimum distribution of 40% of the cash generated during the previous year via combination of cash dividends and share repurchases.

Speaker 2

In terms of dividends, on May 24, we paid $17,500,000 in cash dividends, representing approximately $0.16 per share, which corresponds to the first installment of our non annual cash dividend. The second shall be payable in or about November in an equal cash amount, resulting in an annual cash dividend of $35,000,000 In addition, we have already repurchased $14,000,000 in shares year to date, which represents approximately 1.6% of the company's equity. Moving on to the debt position. Our net debt increased 3% compared to the same period of last year, amounting to $852,000,000 This was explained by the financing of our working capital requirements, mainly related to advanced purchases of agricultural inputs at attractive prices in order to take advantage of low cost of capital. Furthermore, the Brazilian real appreciated 8% versus the prior year, consequently impacting our debt denominated in such currency.

Speaker 2

As of June 30, 2023, our liquidity ratio reached 1.3 times, showing the company's full capacity to repay short term debt with its cash balances, whereas our net leverage ratio was 1.9 times in line with the previous year. To conclude, 29% of total CapEx invested throughout the quarter was expansion project. Investments on this front were mostly related to continue increasing our sugarcane plantation as well as other complementary projects such as the construction of our second bio digester in Brazil to increase our biogas production, which later is converted into biomethane and is used to replace our diesel consumption. In our Farming division, We are finalizing the construction of our 2nd biodigester in our dairy business, which will be using cow manure as an input to generate renewable energy, project that is aligned with our sustainability committee. Thank you very much for your time.

Speaker 2

We are now open to questions.

Operator

Thank you. The floor is now open for questions. If you have a question, please write it down in the Q and A section or click on raise hand for audio questions. Please remember that your company's name should be visible for your question to be taken. We do ask that when you pose your question that you pick your headset to provide optimum sound quality.

Operator

Please hold while we pull for questions. The first question is from Thiago Duarte from BTG Pactual. Your microphone is open.

Speaker 3

Hi. Hello, Adriano and Emilio Renato and the rest of the team, thanks for the opportunity. Yes, I have two points I wanted to address with Renato on the sugar and ethanol business. And Then one final question, if I may, to Mariano and Emilio on capital allocation. So to Renato first.

Speaker 3

And, Atul, can you talk a little bit about the possibilities that you have for increasing or enhancing even further the flexibility to sort of move away from depressed ethanol prices in Brazil right now. So I'm basically asking If you guys are planning or is there any possibility for increasing the capacity of producing sugar even more and the maximization that you have in place right now. And also, if you could talk a little bit more about the opportunities for exporting ethanol even more than you have been doing. So I see that you guys captured pretty interesting export prices on the ethanol business, but the volumes are still not that representative considering the total ethanol volumes there. So If you could elaborate on whether there is room for, as I said, increasing sugar mix and increasing or you think there is room to increasing ethanol price ethanol export volumes even further.

Speaker 3

And the second on biomethane, It's very interesting what you guys are doing in terms of producing more biogas and biomethane and using that as a replacement of diesel. Can you talk a little bit of the economics, how the cost of biomethane compares to the cost of diesel? I don't know if you can talk about unit economics there to so you can get a sense. I get the decarbonization impact, but also I would love to hear a little bit of the economic impact of that. And finally, to I think to Mariano and Emilio, If you could talk a little bit about capital allocation now, right?

Speaker 3

Because you guys are heading to a nice year After all, in terms of margin expansion in sugar and ethanol, good rice prices, we think There seems to be a good prospect in terms of cash flow generation. The expansion of CapEx, you mentioned in the presentation a few projects that you have ongoing. But it feels like you're either going to be paying more paying out dividends and repurchasing a lot of shares or you might have new projects in place. So if you could talk elaborate a little bit more on that, What we should expect now that the company is deleveraging apparently even faster than we thought before. Thank you.

Speaker 1

Hi, Thiago. Thank you very much for your question. I think, as you mentioned, Renato will address your 3 main points on the sugar and ethanol, and then we will take the capital allocation. Renato?

Speaker 4

Hi, Thiago. Thank you for your question. Regarding sugar production, I think first it's important to highlight that we have been producing a lot of sugar this year with the existing capacity. In July, we have reached our monthly sugar production record. After we have produced 116,000 tons of sugar in a month, which is 12% higher than the last record.

Speaker 4

We have been able to produce more sugar than our installed of factory capacities. Actually, in July August, we are producing 18% more than our installed capacity. So So we are producing a lot of sugar this year. And I think it's also important to mention that the sugar came in the 3rd quarter very rich. GRS lab of Glauhinau is higher than 150 kilograms per ton.

Speaker 4

So that's what we are doing regarding sugar. Regarding expand our capacity next year, we think that we're still having some bottlenecks that we can remove out of the sugar process, especially the bottlenecks in the evaporation. So we believe that we can produce more sugar by investing in those bottlenecks, removing the bottlenecks. Where sugarcane content is lower than it's now. And then we could, I would say, Add approximately 40,000 tons of sugar for next year.

Speaker 4

Regarding ethanol, What we are doing, we are exploring our production. Today, we have more than 2 160,000,000 liters of ethanol in our tanks. And we think that the growth of the OTOZ cycle, which is growing In a faster pace than everybody was predicting. Actually, I think that the growth of the auto side is close to 11%. And also the increase that Petrobras announced in that read in the gasoline price The competitiveness of Eitanaw and De Bruyne in a very good position.

Speaker 4

I think the price rate today It's close to 61%, 62%. So we think there is a lot of room for ethanol for the price of ethanol to increase, especially when the Brazilian season starts to get close to the end and then we will be selling the jet now at higher price. Regarding the mid term, I think we are very optimistic about the project. Today, we our production cost of net plan is close to unit plan is close to 2 Hey, I it's per 2 kilometer, which is equivalent to 1 liter of diesel. So it's including depreciation.

Speaker 4

So it replaces diesel that was today BRL4.5 BRL4.8 per region. Of course, we are producing we have we are putting to produce much more duneetan than we can use in our fleet. So at some point, you have to sell during the time to grow with some buyers. And then we're analyzing the best option to do this.

Speaker 1

Thank you, Renato. Thiago, regarding the capital allocation, the first point I want to make is that We need to be to have clarity that we started a very challenging year. Now we are very optimistic on our future results, but we have to understand that we are changing that situation as we speak. So it is important to understand that we maintain our distribution policy. That is the most important thing.

Speaker 1

And also we want to be below 2 times EBITDA net debt to EBITDA. So assuming both things, as you've seen, there are very specific projects and very synergetic projects in the sugar and ethanol business and some of them in the rice and some of them in the dairy. But We don't see any large specific project that will change our policy that is the most important thing that we have ahead.

Speaker 3

All right. That's very clear. Thank you.

Operator

Next question is from Guilherme Paliaris Harris from Bank of America. Your microphone is open.

Speaker 5

Good morning, everyone. Thank you for Thank you for the question. I would like to explore a bit on the farming side, right? We are finally moving away from Bila And maybe going into a sense that it might look a bit better in terms of climate conditions. So a question that we have around that is regarding yields for the next year, right?

Speaker 5

Because we have the 3 years of money, actually, and We would like to have a bit of a sense whether you see yields normalizing already in the next harvest season or whether the depletion of the soil through 3 consecutive droughts could have an impact that would be long standing in terms of productivity for the commissima. So that's the question in terms of farming. And Another one in terms of dairy, we are seeing that the company is already beating its initial That's based in terms of the herd that you are managing, you see that herd continues to grow and whether you are reaching a new goal in terms of operational Just the sheer size of the operation of Terry, whether you see her continue to grow over year stabilizing on

Speaker 2

that level? Thank you. Call.

Speaker 1

Hi, Guilherme. Thank you for your question. Number 1, regarding The El Nino forecast and the yields expected for next season in crops, it's very clear that there is no effect on the past drought. So we are starting from scratch the new season. So we can expect normal yields going forward.

Speaker 1

Furthermore, with El Nino, we should expect above normal yields, but we are only using as a budget the normal yields for the 5 years the last 5 years average. That is regarding crops in general. Then to your specific questions on dairy, In the dairy cows, we are achieving and even going beyond the productivity levels, but This is within the same cow herd. We are not planning to increase our cow herd for now. We are simply increasing its productivity in a per cow basis.

Speaker 1

This increase in productivity also has to be Taking into account the new biomethan production that we start to produce by the end of this year so that we'll also increase our sales through the size of electricity generated by the biodigester. So those are the increases that They will happen in the dairy business. On top of this, also in the dairy business, we should see improvement through this investment and that we've done in the cheese factory that will also increase our total sales. But in terms of the CAGO productivity, it's only this increasing productivity per CAGO basis. Furthermore, there are some value added products in the domestic markets that we are also improving or achieving the market and that will also generate some additional profit on the daily business.

Speaker 5

Thank you, Mariano. That's very clear.

Operator

Next question is from Lucas Ferreira from JPMorgan. Your microphone is open.

Speaker 6

Hi, everyone. Good morning. Thanks for taking my questions. I have a few on Argentina. The first one on the rice business, You mentioned the India ban on exports.

Speaker 6

I was checking some important Asian markets. You see already rice prices increasing 30%, 50%, depends on the index you look. So my question is on the rice business, when you look at the marginal price You're selling, exporting right now. How much bigger this is versus the, let's say, the prices, the realized prices in the second quarter? So just We have a sense of sort of the size of the potential upside you could see in the 3rd or the 4th quarters in the rice business.

Speaker 6

The other question is more about Argentina macro. So if you can remind us, given the recent devaluation, Your net exposure to the currency, I mean, you obviously sell some local, but mostly is exports, but you have also the inputs So just wondering the net effect that you would expect on the devaluation. You mentioned the preferential rates, FX rate. So if that continues in this scenario, just wondering what to expect now with this new FX levels in your business? Thank you.

Speaker 1

Explained in our presentation. We are very optimistic. We see this advantage. We see that we are very well prepared from South America, from Argentina and Uruguay with this large operation that we have and the investment we did last year in getting into Uruguay. We are very well positioned to supply the world's market and these needs that the world has today.

Speaker 1

So how much this increase could be, we are increasing compared to the last year in relevant value in terms of prices. Regarding the last particularly increase in The Asian prices because of the ban of India, there is also an increase for next year and we feel more comfortable and we continue to benefit from that specific situation. But it is More important than that because we are developing these specific varieties to specific clients all over the world and that is giving us an advantage on top of the long grain rice that is The more commodity in the rice commercial business. So that is regarding rice. And then regarding the macro of Argentina and this recent devaluation, just to remind you, from Argentina, we export 70% or between 70% to 75% and 30% to 25% on the domestic market.

Speaker 1

So The evaluation in general is positive for our margins. Depends on when and how this evaluation Happens is more or less positive. We are well positioned to take advantage of this specific measure. Furthermore, we anticipated some acquisitions of inputs for this campaign that we are planting now and that I mentioned we were optimistic. And there we also took some advantage of have this Fertilizers and Chemicals already acquired and in our balance sheet that are dollar denominated cost within the total production.

Speaker 1

So I would say this is very positive for us in terms of our future results.

Speaker 6

Excellent. Thank you very much.

Operator

Once again to ask a question, you need to click on raise

Speaker 2

hand.

Operator

Next question is from Daniel Sasson from Itau BBA. Your microphone is open.

Speaker 1

Laniel, are you there? Daniel from Itau, I think it's not there. Daniel is saying his mic is not working. You may ask your question.

Speaker 2

Can you type your question in the prompt?

Speaker 7

Daniel Sasson from Itau. He's asking, I also have a question on innovative projects. Could you please give us some color if you're looking into the submarket for ethanol? Also on biomethane, do you see any potential to sell your technology To other mills in the medium to long term in exchange for royalties. And another question regarding your sugar division.

Speaker 7

Given the height in prices over the last couple of months, do you have plans to increase your sugar capacity? For how long do you think that prices would have to remain this high before we see the industry increasing capacity as a whole once again?

Speaker 1

Okay. I will ask Renato to answer the question regarding the sugar division and the expansion that He has already mentioned something, but he can be more precise on that. On this, Renato?

Speaker 4

Hi, Daniel. Thank you for your question. As I mentioned before, we have plans to increase our sugar production for next year by removing some bottlenecks that we have in the operation of the process. By doing this, we will be able to produce more sugar when the Hilara's content is lower, lower units in the Q3, for example. We have some potential to increase EBITDA,

Speaker 1

Okay. Thank you, Renato. We are hearing some noise on your microphone. So I'm going to take the question on the biomethane and the technology, if that could be sold to 3rd parties on exchange of royalties for that. That is clearly a possibility.

Speaker 1

But today, we are focusing on the execution of our own project. We have some specifics on our production system that include this continuous harvest model. So because of these reasons and that we use all the vineyards as a fertilizer, as a bio fertilizer and that we are concentrating the vineyards. So There are some specifics to our own project that makes us very profitable on developing these biodigesters on our own production system. So we are going to focus on the short term on our own And after that, we are going to analyze in more details this possibility of getting some money from the technology.

Speaker 1

Then you also asked about these new technologies like the sustainable aviation fuels. This is very interesting. The sustainable aviation fuels comes from oils and from ethanol. So both technologies are things that we are looking at. There are some petroleum companies that have asked about these potential possibilities.

Speaker 1

So we are simply looking at those, understanding how this will impact to this sector and whether there is any specific possibility for us regarding this. So we are Knowing what's going on and analyzing that, that's what we can share with you at this moment, Daniel.

Operator

This concludes the question and answer section. At this time, I would like to turn the floor back to Mr. Bosch for any closing remarks.

Speaker 1

Thank you all very much for participating and hope to see you all in our upcoming events.

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Key Takeaways

  • Adecoagro reported a 15% increase in adjusted EBITDA to $136 million in Q2 2023, driven by higher sugar sales and solid average prices despite an extreme drought impact.
  • The Sugar, Ethanol and Energy division saw a 9% rise in crushing volumes in Q2 and 42% year-to-date, with full-year crushing expected to be 15% above 2022 and 25% of 2023 sugar production unhedged.
  • Crops production dropped 27% year-over-year due to a record drought, but the rice and dairy segments outperformed—thanks to stronger rice export prices and record dairy productivity of 38 liters per cow per day.
  • Sustainability innovations—such as proprietary sprouted seedling technology, drone-enabled precision agriculture, biological pest control, and biomethane fueling over 130 vehicles—are lowering costs, boosting yields, and generating carbon credits.
  • The company maintains disciplined capital allocation, distributing at least 40% of free cash flow via dividends and share buybacks, keeping net debt below 2× EBITDA, and funding targeted expansion and renewable energy projects.
AI Generated. May Contain Errors.
Earnings Conference Call
Adecoagro Q2 2023
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