Q3 2020 Adecoagro SA Earnings Call
Good morning, ladies and gentlemen, and thank you for waiting on.
This time, we would like to welcome everyone to adequate growth third quarter 2020 results conference call.
Today with US we have Mr. Mariano Bosch CEO Mr., Charlie Boero Hughes, CFO and Mr. on Ignacio Galliano Investor Relations manager.
We would like true form you that this event is being recorded and all participants will be in listen only mode. During the company presentation.
After the company's remarks are completed there will be a question and answer section.
At that time further instructions will be given.
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Before proceeding, but he mentioned that forward looking statements are based on the beliefs and assumptions.
Adequate for growth management and on information currently available to the company.
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 other adequate growth 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 on thank you for joining other glide on 20 blend the set of quarter for me such call for its Nick.
The company has been performing really well despite the button.
Although what operations out of working on that very strict throughout the quarter to guarantee the safety on where people are on contract.
We are seeing signs so bosch had an economic recovery, but we cannot we'd love to see the pandemic is far from over.
Moving on to that resets so for this assay.
You know what shuler on energy business.
Our strategy, we had no during the second quarter debt on Wednesday blends de <unk>.
No no our crashing base he liked all step on net me.
That's true transfer she's looking into the second semester it off the year on benefit.
Benefit from better pricing.
I think once it went on the great that a day now that really de using debt that water that we weren't able to maximize I went crashing base, reaching 4.4 million tons at record high for the quarter.
And on the same time capture how you price itself should work on day one.
Also in this quarter, we divested the 44% of that yeah risk on that to show up for election.
On Yeah, we said the Boston during the same period of last year.
These.
The board of Syn <unk> Penney.
<unk> for next year really be off on what assets.
It will be important for but did you I thought the space.
Especially on the other.
The changes in the market outlook for <unk>.
I went flexi V D D well social scene, you know whatever you need to increase on what a mix. So on how you're going to see it on on the breast meat from eat high prices on.
Recovered the money.
In fact during the third quarter debt.
For the 1% on the ethanol produced one on hydro compared to the 71 produced in the same videos on 2019.
We have brought blah no that we were the first company to standard commercial lighting got him on credit under that no. Other you brought up.
So far.
We have sold 245 cents on than average price on 41, but at least for Civeo.
We are optimistic about that he made on men on increasing the we'd be all such market for lighting now are these shannon so youll see something done.
Our city needs have been 75 deletion she'll iOS.
And what I want to leave.
Score, which Lisa if they don't then portion.
I think sub debt in any given year, well, we would maximize ethanol production on what it means good brother Youssef my job saving on their 50 felt on do we need that's all for <unk>.
Which we saw us in the right to issue approximately one maybe on see value.
Moving well what part of me on London for makes on B T.
I would I just see they'd be you both during the war that on.
Yes the day.
Where more than 54 cents per year, you know what do you.
Yes, you have proof of that guidance, how do they shut off they find their planned investments. We made you know what a crops rice on day D.V. I see.
Well that we thought what focus on efficiencies.
I would have been up processing facility, the leaching full capacity I.
Oh, what do they do processing facility he put election on records during the peak on they've been day me.
Oh, what rights means but avoid plan on snack facilities allow us to offer value other brands with higher margins.
Our study channel on these on facilities on different bleed through or what are the day quality and reduce handling costs.
Just as much as having I don't see that us on how to best there.
Well defend product sales.
He said just if you have something that make us proud of the work we are doing on excited and well what is coming next.
Let me also point out that that would be since he's having a strong focus on export market.
Which is very favorable in these current context.
On the Britain thing.
On a thought what are the themes on a fully focused on on the blending activities for the 20 blend D. Twentytwenty one how to best here.
So for growth outside of developing on that it would soil on weather conditions.
We hope that day, where continues to be favorable over the coming month that'd be repeated the wage most of the units out of the fine.
I see every September Cushman, and Wakefield conducted on independent appraisal of our lump on for deal on my view did in line with last year.
We continue with our strategy to said about the for what a mature farm land on the premium thought what evaluations as was the case, we that blocked off for the other legal farming Argentina.
I would like to remember on that that was a five year plan in its final stages.
I recently on despite Delphine pandemic. This year, we will be free cash flow positive on.
Become every other turning point in the company.
To conclude.
I would like to express my gratitude.
Two.
On the operation on.
On management teams.
It's impressive Nick on me Ben on how to their for off all of our PBM during these difficult times.
I am convinced that we were following the right strategy to generate good returns on values for that would exceed 10 show on this.
Why did we refrain our discipline on being low cost producer for us.
Enhancing on what efficiencies on.
Taking care of our people.
I will let Charlie walk you through the numbers I'll say a quarter.
Thank you Marty I know good morning, everyone, let's start on page four with a brief analysis of the race you My daughter, so soon.
As seen on the adult charts range you know what got started using the third quarter of 2020 were only 4.7 per cent below the 10 year average, but almost 2.5 times higher compared to the third quarter of 2019.
The increased rainfall was concentrated in a handful of days rather than being distributed throughout the quarter.
Which enabled us to rapidly receiving crushing activities can be seen in the following slide.
I would like to briefly comment on the weather in the center South region for Brazil.
The region, which accounts for approximately 85% of Brazilian issue I can production has been experiencing great weather for up relaunch very free period of time.
We believe that this would result in a longer then you baiding into how this period and will lead to a tight supply and demand scenario by year end, which you turn will put pressure on prices.
It's worth highlighting that we will continue to grow cash gain you round on produce both sugar and ethanol do you need to harvest feared this.
This is because we are based in a region that has a different weather dynamic and because we agreed on direct continues harvest model.
Let's continue with the slide five where I would like to discuss our she working crushing.
During the third quarter for 2020 on total of 4.4 million tons of sugarcane were crushed.
19.1% or 700000 tons higher than the same period of last year.
Indeed during July we reached a record of 1.7 million tons of sugarcane crushed.
The increase in gross she was favored by.
Greater cane availability for doing our decision to temporarily slow down our crushing b student the second quota for 2020 in light of the Cobi 19 pandemic.
On advantages whether to carry on harvesting activities.
It's efficiencies on the industry level recent de de net 20.4% year over year increase in a meeting for Dee on us they enabled us to crush on higher volume in 1.1% lower effectively meeting days.
On a year to date basis I do too.
8.6 million tons of sugarcane crushed.
This represents a decrease of 5.1% or 500000 tons compared to the same period of last year. However, milling per day increased by 5.6% year over year, which shows a significant recovery from the slow first semester.
Please jump to page six where I would like to walk you through our agriculture productivity.
During the quarter. She working is reached.
81 tons per hectare, 20% higher compared to the third quarter of 2019.
The year over year GAAP is fully explained by 29 genes weather dynamic indeed, yeah adverse weather conditions that he total class to last year negatively impacted usually the third quarter of two any 19, that's most of that obviously day area well scale below optimal growth stage on.
However, trs content in the third quarter during the 19, well she line without 142 kilograms per ton registered in the current quarter.
This is explained by the fact that the impact in the Trs content driven by 29 piece dry weather was observed during the fourth quarter for 2019, not the third.
The combination of these two effects, we saw did in Trs production for picked up 11.6 tons, 19.3% higher year over year.
Year to date yields reached 78 tons per hectare on Trs content 130 kilograms per tonne, resulting in net Trs production per hectare book 10.2 tons.
So Europe on seven per cent higher year over year.
Let's move ahead to slide seven where I would like to discuss our production mix.
As you can see in the top left chart during the third quarter of 2020 on hydrous and anhydrous ethanol you might do it also soon traded on an average price of 11.8 on 10.8 cents for punctuated equivalent representing a 4.1% and 20.3% discount.
Sure on respectively.
However, current prices it is on recovery compared to the previous quarter up 2020, when they traded at a 10.39 0.5 cents for upon respectively.
In light of the improved outlook on prices on the you know the to take advantage of the favorable weather I'm keen availability.
Our strategy during the quarter was to make seamless crashing.
Our efforts were focused on maximizing she'll go on the product with the highest margin for the contribution.
Indeed, we operated I wish you a teaching at full capacity throughout the quarter, we thought Trs content of 142 kilograms per ton the maximum volume that could be persist into sugar was 44%. This represents an increase of almost four times compared to the third quarter for 2019.
When we diverted only 13% of theorists tissue book reduction.
I would like to insist that this high degree inflexibility constitutes one of the our most important competitive advantages seize it allow us to make us more efficient use of our fixed assets.
On sell the product with highest marginal contribution.
In terms so fast on all during the quarter, we diverted 56% of the IRS to the ethanol distillery compared to 87% during the same period of last year when our strategy was to maximize these products.
We also increased our mix of on on hydrous ethanol to benefit from the higher prices on demand from 30.7% in the third quarter of 2019 to 40.7 per cent this quarter.
Year to date sure accounted for 39 been focusing on totally be D.A. generation issue, where it's on an energy business considering other operating income why that's on an accounted for 51.7%.
Let's please turn to slide eight where I would like to discuss quarterly sales.
As you can see on the Douglas chart during the third quarter for 22 any insight on sales volumes decreased by 40% year over year. This is explained by a decrease in the volume available for sale cost by on 26.4% reduction in ethanol production since the garden makes us a lower it.
Incidence and some other compared to the you said quota for the 19 and so do you one per cent lower inventories girdwood from the previous quarter as production mix shift to shoot for maximization the peak of the pandemic.
In addition, the decreases in instant on sales volume is also explained by almost a 10% increase in kyrie in relative terms to benefit from higher expected prices.
Average selling prices for ethanol, where or how you are measured in Riyadh is lowering U.S. dollars standing at 12.1 cents per pound short equivalent representing on 21% year over year reduction.
On account of the lower setting volumes lower average prices in us dollars net asset on sales during the quarter amounted to 37.6 million, 53.8% lower year over year.
In spite of the lower results I would like to mention once again that the ethanol prices experienced a recovery throughout the third quarter compared to the second quarter of 2020 on so did domestic ethanol sales, which increased 26% according to Utica.
In fact sales so by anhydrous ethanol.
Our free pandemic levels. She is the lower gasoline consumption caused by that looked on was fully offset by an increase demand from the northeast region of Brazil on.
Import parity fever domestic consumption.
This increase in demand coupled with a lower supply from the center South region should lead to a tight supply and demand seen are you by year end.
In the case of energy, sending volumes reached 311000 megawatt hour, marking a 8.4% year over year decrease.
Average selling prices were lower both measured in reality as well on us in U.S dollars standing and 35.9 dollars per megawatt hour, implying a 33.9% decrease compared to the same period of last year.
However, great weather in the center South region, Brazil, coupled with the economic recovery contributed to an improved outlook for energy prices evidenced in on increase or more than three times between September on a tool only known net sales growth.
Total 2020 were 11.2 million, 39.4% lower compared to the previous quarter.
She will seize volume during the quarter more than doubled compared to the third quarter of 2019 standing at 250000 tons revealed by an increase in production mix and volume.
Average selling prices in U.S. dollars fell by 18.7% to 11.6 cents per pound due to the fact that the price also includes for work on drugs fixed in previous periods.
On the known the higher selling volume offset the decrease in prices, resulting in net usage of 64 million in the third quarter for 20, 22.1 times higher year over year.
Finally to conclude with the sugar ethanol and energy business. Please turn to slide nine where I would like to discuss financial performance.
Adjusted EBITDA for doing that the third quarter of two any 20 was 86.4 million.
1.5% higher compared to the same period of last year.
This was explained by enhanced efficiencies, which allowed us to reduce costs.
Greater fixed cost dilution on account of the higher crushing volume on the depreciation of the Brazilian real which positively impacted costs expenses on the mark to market of our biologic on acid, especially harvested sugarcane.
Year to date adjusted EBITDA stood at 172.7 million a 12.7 per cent decrease fully explained by the second quarter dynamics.
I would now like to move on to the farming business. Please direct your attention to slide 11 at the end of the third quarter up 2020, we'd be going on we're planting activities for the 2020 and 21 harvest year on there I think we'd weather conditions.
We expect to plant 266000, nektars, 11.4% higher than the previous harvest season.
This increase is mainly driven by an increase in wheat area and an expansion on 12000 hectors of peanuts surface area, almost doubling last year's planted area.
As for the end of October 2020, a total of 113000 EQT does for 42.4% on the target area has been cheated.
We expect to continue planting rise until mid November on corn and soybean until early January.
Let's move to page 12, where I would like to walk you through the financial performance of our farming and land transformation businesses year to date adjusted EBITDA in the farming and Entre for me some businesses reached 85.5 million fit.
53.3% or 29.7 million higher year over year.
The increase was driven by an improved year over year performance in every segment, but it was mostly explained by the dynamics of the second quarter during which we experienced an increase in demand for basic food products and we conducted a farm sales.
During the quarter of 2020.
Adjusted EBITDA for the farming and non proclamation businesses reached 20.7 million 7.3 million or 54.5% higher year over year being.
The increase was attributable to the farming business sees no pharmacies were conducting neither during the quarter nor in the third quarter for 2019.
The growth business generating an adjusted EBITDA of 8.2 million in the third quarter of 2020, 13.6% lower compared to the same period of last year.
This decrease is mainly explained by a decrease in selling volumes, which fully offset higher average prices.
On the increase in commodity prices, namely soybean and corn, which generated a negative impact in the mark to market of over there for you, but it is on a go forward contracts.
Conversely, the increase in commodity price has generated a positive impact in the mark to market of our biological assets, which partially offset the resellers, while the depreciation on the Argentine peso led to a dilution of costs in U.S. orders.
Adjusted EBITDA on the Rice business was 6.1 million during the third quarter 13 times higher year over year, driven by an increase in sales generated both by higher volumes on higher average prices in the domestic and export market and lower costs in dollar terms.
Suddenly sons of the depreciation on the Argentine peso and enhanced efficiencies of the farm on industry level.
Daily business generated an adjusted EBITDA of 6.4 million, mainly driven by.
Hi, setting volumes due to increased demand in the export market.
On achieved efficiencies, we're vertically integrated operations, including high productivity of the farm level on the flexibility of our industrial assets.
Let's now turn to page 14, which shows the evolution of other go out for this consolidated operational and financial performance.
On a year to date basis net sales reached 580 million and adjusted EBITDA for 244 million, 7.3% lower and 2.4 per cent higher year over year.
During the quarter net sales reached 232 million in line with last year, while adjusted EBITDA total 102 million, marking a 9.2% increase compared to the same period of last year.
To conclude please turn to slide 15 take a look on our net debt position as you may see in the volume That's chart. Our net debt as of September Thirtyth of 2020 reached 711 million 30.3 million or 4.1% lower than the previous quarter River.
On by 53 million reduction in gross debt, which amounted to 925 million five point of focus and lower than the previous quarter.
The reduction was mainly explained by higher cash generation during the year as we continue to ramp up on operations.
On a year over year basis, net debt was 5.6% lower compared to the third quarter of 2019 on account of higher cash and equivalents driven by a positive free cash flow during the last 12 months, which fully offset the higher gross debt.
We believe that our balance sheet is in a healthy position not only based on the adequate overall debt levels, but also on the term of our indebtedness with approximately 78%, having a long term 10 or.
As of September Thirtyth 2020, both our net debt ratio as well, so we'll liquidity ratio improved compared to the previous quarter. Indeed, our net debt ratio reached two point 29 times, 6.7% lower than the second quarter for 2020.
And 16.5% lower year over year on.
On the same time, our liquidity ratio, which is calculated EPS cash and equivalents plus marketable inventories divided by shorten dead reached one point for the nine times compared to one point 20 city during the second quarter.
This ratio shows the full capacity of the company to repay short term debt with the cash balance without racing externally capital. Thank.
Thank you very much for your time, we are now open to questions.
Thank you the floor is now open for questions.
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The first question is from.
Paul.
GAAP. Please go ahead.
Good morning, everyone. Thank you for kitchen question I, just want to pitch they not on your commodity hedging on old she'd become for me accelerating.
Volume hedged for the allow us prices.
For that for anything one the harvest season for the next one as well. So if you could provide some color on what is your rationale here.
And do you expect to continue that seem to be moving towards sugar, rather than asking on the comm crops as well. Thank you.
Thank God. Thank you, we let Matt for your question.
Then on the somebody on on I want to take your question and.
That's helpful I would like to mention that we have a hedging for these hedging policy and.
On templates.
How I would it could ups evolve on so high level of production on different commodities that we produce evolve on.
According to that the volume he said we started hedging their future production.
That's how what these contemplated in our hedging policy can be hedging policy fat Massimo on a minimum leverage in wage we move on.
According to our current views today, we have that he had a view on all the different commodity that we have for using that as you move.
Bullish view so according to be bullish view that we can discuss each one of the commodity does that he said basically.
We like the supply and demand.
For the east that we are hedging on that know what limits on the air quality that we currently have that they cannot strategy that we are taking each one of these say commodity.
Equally lead so let us on on Tuesday, the issue I'd say more of them and that's why we are making sure that on.
On also.
We didn't focus on on the on high growth say on all these whats paying more and that's why we had to maximizing on high growth in and the ethanol side.
On an LP E I don't know Jeremy you're on city.
Question on the concert or do you on modification.
That's very true.
Reminder.
I have a question. Please press Star then one.
The next question is from them.
Sure Marty on it.
Yes DC. Please go ahead.
Hi, Good morning, Thanks for taking up my question. So my question is best for you on your capital allocation policy.
Yeah be emphasizing on the debt off cash to shareholders a in the previous calls. So can you provide some color on how you are planning to execute that.
Are you thinking of any minimum threshold levels.
And since you're expecting positive cash flow by the end of this year is there any possibility of distributing dividends from current cash profits. Thank you.
[laughter].
Yeah.
Thank you for for your question on here I would like to mention on that.
He asked we would we'd been talking most of that revenue on GAAP basis, our five year plan has already been done.
Glenn Glenn I would expense on topic <unk> list on half done 29.
The trend will continue for Twentytwenty one.
The last I mentioned, then transaction despite the victim of the bundle we split between.
Would become a free cash flow positive for the first year, we started with this investment.
He said that mean volume.
Hey, I'm on on make their beginning okay by where we start to generate free cash flow on it to go away as you were saying.
So these pick on me nature, increasing besides odd decreasing GAAP, it well documented losses on where.
Hey.
We that auto we continue to to commit relative to.
Return on capital to shareholders. So in blend btwenty, one going directly to your expectation on assuming normal weather.
Non my weather conditions on current commodity.
But I think we.
We would be in a position to start returning some cash flow what share holder on the second half book, we see GAAP.
Yes.
Thank you that's clear.
This concludes our question and answer session. At this time I would like to turn the floor back to Mr. Bush for any closing remarks.
So before ending the call I just wanted to thank you on again for joining.
<unk> GAAP be 19 pandemic has introduced additional challenges to our businesses on even to our lives.
The company.
And I mean that people, who makes other glide path.
That's true for me.
On the level of that day.
[music].
And we feel absolutely proud of the way we have handled the current situation.
We just like I said before from <unk> five from old.
Our operations are in great shape to fulfill our strategy even in such a complex environment.
They market that book.
Looking for everything on.
On expect up then.
Attractive results in the short term.
Hope you all stay safe on so.
On the bakery on CRC, we wish you all a very nice on as the end of the year.
Thanks.
Thank you. This concludes today's presentation you may now disconnect. Your line at this time and have a nice day.