Adecoagro SA Q3 FY2024 earnings call

Management Statement and Operational Highlights

• Shareholder Distribution: Committed $96 million to shareholder distribution, including $35 million in cash dividends and $61 million in share repurchases YTD. Also repurchased $84 million of global notes.
• Adjusted EBITDA: Consolidated adjusted EBITDA for the quarter was $111 million, YTD $341 million.
• Rice Operations: Record results due to investments in assets, seed genetics, machinery, becoming a relevant sector player.
• Dairy: Focus on enhancing efficiencies across the value chain and developing higher value-added products.
• Sugar, Ethanol and Energy: Despite challenging weather, crushing volume ahead of prior year, 55% sugar mix achieved, secured new areas for sugarcane plantation, and enhanced productivity potential. Secured financing for biodigestors to increase biomethane production by 2027.
• CapEx: Expansion CapEx was $26 million in the quarter, $72 million YTD, including investments in sugarcane plantation, biogas unit, farming machinery, and dairy warehouse development.

Segment Performance

• Sugar, Ethanol and Energy: Third quarter adjusted EBITDA was $100 million, with year-to-date (YTD) at $259 million. Crushing volumes in the quarter were 4 million tons, a 10% year-over-year decline, but YTD totaled 10.2 million tons, 6% higher than the same period last year. Net sales for the quarter were $227 million, with YTD at $502 million. Adjusted EBITDA for the segment YTD was $259 million.
• Farming: Third quarter adjusted EBITDA for Farming was $17 million, with YTD at $99 million. Crops segment: Q3 adjusted EBITDA was $2 million (vs $29 million prior year due to farm sale in 2023), YTD $22 million. Rice segment: Q3 adjusted EBITDA lower due to higher costs in USD terms, but YTD reached $51 million. Dairy segment: Q3 adjusted EBITDA was $8 million, YTD $26 million, driven by higher sales and higher value-added products.

Guidance

• Sugar, Ethanol and Energy: Assuming normal weather, forecast slight increase in annual crushing vs 2023. Anticipate tighter global sugar supply-demand for coming months, still hedging part of 2024 sugar production, 2025 production open. Expect ethanol prices to improve, holding ethanol inventories which represent 49% of YTD production. Use stored bagasse to produce energy for the spoke market as prices recover.
• Farming: Starting planting activities for 2024-25 campaign with good soil moisture, expecting better yields than prior year due to improved planting conditions. Increasing winter crops area to over 45,000 hectares, expanding rice area in Argentina's Northeast, and enhancing dairy efficiencies and product development.

Risks

• Weather Conditions: Adverse weather can impact yields, crushing volumes, and crop development.
• Commodity Prices: Fluctuating sugar, ethanol, and crop prices can affect financial results.
• Currency Fluctuations: Weak Brazilian real and other currency movements can impact sales and costs.
• Market Dynamics: Global supply and demand shifts for commodities can affect pricing and profitability.

Question and Answer

Q: Discuss the parity of ethanol to gasoline prices and Adecoagro's view on timing and intensity for Q4 and early 2025, as well as impact of fires on sugar production.

A: Renato Pereira stated hydrous ethanol demand is high (close to 2 billion liters/month), parity at the pump is low, expecting ethanol prices to improve. For sugar, fires in key producing states in Brazil will impact next year's production, leading to a tight global market in the first half of 2025.

Q: Question about yields in Argentina, mix of crops.

A: Mariano Bosch mentioned better planting conditions this season compared to prior years, expecting better yields overall. Increasing peanuts (with good quality for European market) and sunflower (benefiting from oil price increases), with rice performing strongly due to integrated operations and special varieties.

Q: Question on CapEx and cost development.

A: Mariano Bosch noted focus on being a lowest-cost producer, expecting cost reduction in future production. CapEx in sugar/ethanol for sugarcane expansion and biogas units, rice for genetics and processing, and dairy for processing facilities, with IRRs 18-25% unlevered.