Good morning, ladies and gentlemen, and thank you for waiting. At this time, we would like to welcome everyone to Adecoagro's First Quarter 2020 Results Conference Call. Today with us, we have Mr. Mariano Bosch, CEO; Mr. Charlie Boero Hughes, CFO; and Mr. Juan Ignacio Galleano, Investor Relations Manager.

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 session. At that time further instructions will be given.

[Operator Instructions] Before proceeding, let me mention that forward-looking statements are based on the beliefs and assumptions of Adecoagro's management and on information currently available to the Company.

They involve risks and uncertainties and assumptions because they relate to future events, 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 of Adecoagro, and could cause results to differ materially from those expressed in such forward-looking statements. At this time, I'd like to turn the conference call over to Mariano Bosch, CEO. Mr.

Bosch, you may begin your conference..

Good morning and thank you for joining Adecoagro's results conference. Before entering into the analysis of the results of the first quarter of 2020, I would like to firstly use this opportunity to inform you about how our company has been developing under the current conditions.

Coronavirus COVID-19 disease has spread across the world at a tremendous speed affecting the health of general population, and in particular those who are vulnerable, such circumstances that led to the countries to impose sooner or later mandatory lockdowns and the closing of borders.

In these difficult times, our number one concern is the safety of our people. That is why very early on, we constituted a special committee, which outlined an action plan to preserve the health of our employees and guarantee hygienic and safe working conditions in all of our facilities.

Safety measures and protocols have been specially designed for each activity and have been quickly activated. An intense educational and communication program was put together which contributed to the awareness of the current situation and development of new habits.

We are proud of the commitment of our people and their trust with Adecoagro's approach to pandemic and a testimony of it is their willingness to come to work every. We believe this joint effort and team spirit will help us overcome this tough situation.

We, food and energy producers are part of the selected group of companies that have not stopped the breaking in those jurisdictions where total lockdown is imposed. The activities we carry out are considered essential and because of this, all of our operations are running without any disruption.

In our farming business, the price of commodities has been impacted with soy and corn experiencing a fall, while rice and peanuts, which are the crops in which we are increasing our volumes remained stable, that's why Argentina and Uruguay are on budget.

In Brazil, the demand and price of ethanol have been significantly affected causing a negative impact in our sugar and ethanol business. To face this situation, we quickly reassessed our strategy and adapted to the new scenario. Sugar is now the product with the highest marginal contribution.

So, we switched our production mix, from the full ethanol to maximizing sugar reaching close to 60% of sugar of the total TRS we process. This high degree of flexibility constitutes one of our most important competitive advantages, especially under such a sudden change in the market outlook conditions.

Just as important as our flexibility is our constant focus on increasing operational efficiencies and maintaining our costs low. Being a local producer is in our DNA, and now more relevant than ever, allowing us to sell our production at a profit even on the currency emphasis.

In addition to our excellent work at an operational level, we have a very healthy balance sheet with an average life of six years for our debt and a 1.3x liquidity ratio as of today.

We believe in the importance of having a strong cash position in this line we have successfully reduced roughly $40 million of our CapEx plan and cost structure across all of our businesses without compromising the production of coming years.

We continue to focus in maintaining an efficient operation and periodically re-access our expenditures to make a prudent allocation of our capital. In addition to what I just described, we have a year full of challenges ahead of us.

However, we feel confident that, we have the right teams and that we are following the right strategy to overcome the situation and generate good returns for our existing shareholders.

I am convinced that, if we remain focused in our low cost strategy and follow closely our liquidity and day-to-day operation, we will safely sail through this storm and capture the results as soon as the world starts to normalize again.

Now, I will let Charlie walk you through the numbers of the quarter, which have been very good both from a financial and operational point of view..

Thank you, Mariano, good morning everyone. As Mariano mentioned, the safety of our people is our main concern.

I would like to take a brief moment to walk you through some of the measures we adopted as well as activating safety measures and protocols tailored for each activity, we have adopted general measures across all our facilities, which include body temperature controls, mandatory social distancing in the workplace, reduction of maximum capacity at lunch and dining rooms, transportation cars, increased sanitary barriers and periodic clothes changing and cleaning, set aside risk groups, home office for corporate office employees, monitory quarantine for travelers and those who have close contact with travelers and/or symptomatic persons and develop an intense capacitation and communication program including local authorities.

Now let's move to Page 5 with a brief analysis on the rains in Mato Grosso do Sul. As seen on the top charts, rains in our cluster in Mato Grosso do Sul during the three month period of 2020, we are 12.7% below the same period of last year and 28.4% below the 10 year average. The distribution of rainfalls however was not even throughout the quarter.

January was particularly humid with no registered rains above the 10 year average level. The beginning of the milling activities in Mato Grosso was delayed until mid-February compared to milling for the first quarter of 2019 and third day of January due to availability caused by the adverse weather conditions hit our platform in 2019.

The fact that production stops were continues and program also allowed us to capitalize more costs during the winter harvest period. As can be seen in the bottom left chart, the delay milling activities resulted in a 48.9% year-over-year reduction in total days and at 21.5% reduction in effective milling days.

However, in order to capture the high ethanol prices observed during the quarter and aided by the right weather registered in March, we decided to speed up crushing activities.

This strategy is evidenced in the 24.2% year-over-year increase in milling per day and at the same time explains why total crushing during the first quarter of 2020 amounted to 1.3 million tons, only 2.5% below the first quarter of 2019, even factoring for the shorter harvest period.

Please turn now to Page 6 where we'd like to walk you through our agricultural productivity.

With the aim of capturing the high ethanol prices, but being mindful of securing clean availability for 2020, we maximized the harvest of hectares with no productivity potential, thus allowing the sugarcane with highest potential to continue rolling and recover from the impact of 2019 adverse weather conditions.

These derived in a negative impact in both yield and TRS content. Sugarcane yields during the quarter reached 65 tons per hectare, 29.6% lower year-over-year. In terms of sugar content, TRS during the quarter reached 98 kilograms per ton, 8.7% lower compared to the same period of last year.

The combination of these two effects resulted in TRS production per hectare of 6.4 tons 35.7% lower year-over-year. Let's move ahead to Slide 7 where I would like to discuss our production mix.

As you can see in the top left chart and anhydrous and hydrous ethanol in the Mato Grosso do Sul traded and an average price of $0.161 and $0.152 per pound sugar equivalent, marking a 17.5% and 11.2% premium to sugar respectively. In this context, all our efforts were focused on maximizing ethanol production.

As can be seen on the top right chart, during the first quarter, we diverted 95% of our TRS production to ethanol.

I would like to insist that this high degree in flexibility constitutes one of our most important competitive advantages, since it allows us to make a more efficient use of our fixed assets and sell the product with the highest margin contribution.

As a result of this strategy, during the first quarter of the year, ethanol accounted for 62% of total EBITDA generation in the sugar, ethanol and energy business considering other operating income while sugar accounted for 36. Let's please turn to Slide 8 where I would like to discuss quarterly sales.

As you can see in the top left chart, ethanol sales volumes decreased by 18.9% year-over-year.

This is mainly explained by the lockdown that took place in Brazil from the second half of March, and by the lower volumes available for sale on the account of a reduction in ethanol production coupled with lower inventories carried from the previous quarter.

This was partially offset by average selling prices which increased by 3.8%, reaching $0.163 per pound, marking a significant premium to sugar. All in all, net ethanol sales reached $52.2 million 16.8% lower compared to the same period of last year.

In the case of energy, selling volumes reached a 160,000 megawatt hour marking at 23.4% decrease year-over-year explained by our strategy to carry the gas in light of the low energy prices, which averaged $39 per megawatt hour, 34.3% lower compared to the same period of last year.

Overall, net sales were 49.7% lower compared to the first quarter of 2019, reaching $4.2 million. Sugar sales volumes during the quarter reached 8.9 million tons, 72.2% lower year-over-year on the account of the full maximization of ethanol production, coupled with lower crushing activities and lower inventors carried from the previous quarter.

Average net setting prices reached $0.136 per pound, 9.9% lower compared to the same period of last year. As a result, net sugar sales reached $2.8 million, 73.4% lower year-over-year. Finally to conclude with a sugar, ethanol and energy business. Please turn to Slide 9, where I would like to discuss financial performance.

Adjusted EBITDA during the first quarter of 2020 was $40.9 million, 31.2% higher compared to the same period of last year. This was mostly explained by the $16.8 million gain from the mark-to-market of our commodity hedge position, which fully offset the reduction in gross margin. Additionally, selling expenses were also reduced.

This was so because a lower freight costs due to lower sales of sugar, lower energy distribution expenses, but mostly due to lower sales taxes paid on ethanol which are included under selling expenses, driven by the lower year-over-year volume. I would now like to move on to farming business, please direct your attention to Slide 11.

During the second half of 2019, we began our planting activities for the 2019 and 2020 harvest year. Planting activities continued throughout early 2020. And as of the date of the report, we have seeded a total of 230,000 hectares.

Owned croppable of area reached 106,000 acres 1.1% or 1,200,000 acres lower compared to the previous season while least area increased by 13%, reaching 97,000 acres. Let's move to Page 12 where I would like to walk you through the financial performance of our farming and land transformation businesses.

Adjusted EBITDA in the farming and land transformation businesses was $24.7 million, $7.3 million or 22.7% lower year-over-year. The decrease in financial performance is fully explained by the $9.4 million lower results derived from the absence of farm sales during the first quarter of the year, compared to 2019 when Alto Alegre farm was sold.

Excluding results from land transformation, adjusted EBITDA for the farming business was $2.1 million or 9.4% higher year-over-year.

The rice business generated $15.2 million in adjusted EBITDA on the account of high average prices, both in the domestic and export markets, as well as high yields due to enhanced agricultural and industrial efficiencies.

The $1.2 million year-over-year increase was mainly explained by cost dilution following the depreciation of the Argentine peso and lower selling expenses due to a higher participation effects for market on the sales mix, which are supposed to domestic sales don't require to incur in packaging costs, among others.

The crops business generated and adjusted EBITDA of $6.3 million during the quarter 15.6% higher year-over-year. This increase is mainly explained by higher selling volumes and the higher mark-to-market of our biological assets which fully offset lower average grain prices.

The dairy business generating an adjusted EBITDA of $3.2 million, mainly explained by the higher production and selling volumes driven by an almost 20% increase in our dairy cow herd and attained efficiencies in the ramp up of our industrial operations.

Let's now turn to Page 14, which shows the evolution of Adecoagro's consolidated operational and financial performance. Net sales during the first three months of 2020 reached a $151 million, 1.5% lower year-over-year.

This is mainly explained by the lower selling volumes in the sugar, ethanol and energy business coupled with the lower prices of sugar and energy measured in U.S. dollars. Adjusted EBITDA totaled $61 million, marking up 4.7% increase compared to the same period of last year or 24.8% excluding land transformation.

The $9.4 million lower results in our land transformation business was fully offset by the higher adjusted EBITDA in the sugar, ethanol and energy business, mostly on the account of the higher mark-to-market gains of our commodity hedge position in addition To currency depreciation which allowed to dilute costs.

To conclude, please turn to Slide 15 to take a look at our net debt position. As you may see, in the bottom left chart, our gross indebtedness as of March the 31 of 2020 stood at $947 million, 2.2% lower compared to December 31, 2019. While our cash and equivalent to that $235 million, 18.9% lower.

Net debt amounted to $711 million marking a 4.9% increase compared to the previous quarter, mainly explained by the higher working capital requirement that from a seasonality point of view normally takes place in the first quarter, partially offset by the depreciation of the Brazilian Real, which generated a positive net effect of $10 million..

As you can observe in the first quarter of 2019, net debt amounted to $729 million, showing that the trend of reducing that debt year-over-year continues. Net debt ratio reached 2.31 times 4.1% higher compared to the fourth quarter of 2019.

At the same time, our liquidity ratio which is calculated as cash and equivalents plus marketable inventories divided by short term debt reached 1.35 times as of March the 31, of 2020, 1.15 times not accounting for inventories.

Any value above 1 point shows the full capacity of the Company to repay certain debt with cash balance without raising external capital. We consider our balance sheet to be in solid position considering not only the adequate debt levels but also its long term tenure, which an average maturity of over 6 years.

In spite of our non-guidance policy, I would like to take a moment to comment on a few points going forward. In light of the publicly known macroeconomic events, we have been reassessing our cost structure across all our businesses as well as our capital expenditures.

And we have put in hold many and committed expenses, being mindful that it will not jeopardize productivity going forward. We will continue to follow closely our day-to-day operations, all the while looking for ways to further enhance efficiencies.

On this note, I would like to highlight that our continued focus on being low cost producers enabling us sooner the profit even at current known prices. With regards to our liquidity position, we believe that no more than ever, cash is king.

As part of our risk management policy and anticipation of the maturity of working capital lines, we successfully rolled $17 million in Argentina in short-term lines and raised roughly another $50 million in Brazil to strengthen our cash position. In addition to this, we are very well advanced in negotiations to raise an additional $100 million.

In these uncertain times, the fact that we were able to promptly raise these lines speaks to the bank's confidence in us and how highly committed we are. Thank you very much for your time. We are now open to questions..

Thank you. The floor is now open for questions. [Operator Instructions] And our first question comes from Isabella Simonato from Bank of America. Please go ahead with your question..

Thank you. Good morning, Mariano. Good morning, Charlie. Thank you for taking my questions. I'm sorry. I joined the call a little bit late. So I'm not sure if you comment about what I'm going to ask. But regarding the $40 million in cost that you mentioned you, you are planning to save, right.

Can you explain a little bit, where are the sources of savings? And do you think these will be permanent or at some point those will be reinvested again, I'm in the business and that's pretty much it?.

Mariano Bosch:.

I'm going to take your question and answer it. In most of this $40 million, I think that we are in some way delaying a part of the CapEx, this is planting.

So in order to reach the 30 million tons at some point in the 5 year plan, we will need to plant these additional factors then there are some industrial things in order to do more ethanol in our plants, that's what we are delaying today So, some of these things are delayed.

Then there are some others that are continue to improve and think that we are improvement that we are finding, because in this $40 million we are not taking into account nothing of the devaluation. Then you have another $40 million or $50 million that come through the cost savings that comes mainly from the devaluation.

That's basically a answer on your question..

[Operator Instructions] And our next question comes from Lucas Ferreira from JP Morgan. Please go ahead with your question..

My first question is in Argentina, if you have had any disruptions in terms of logistics for all your businesses doing the quarantine, if you guys saw any impact of the sort.

And then in Brazil, with this current effects of almost a six, if you can update us, what could be the -- your best expectation of your cost of production in cents per pound for -- considering only, right, including OpEx. And also in Brazil, if you can comment quickly on the updated mix you're expecting for the quarter.

Obviously, you're going to be producing much more sugar, and the expected working capital commitment for these movements towards more sugar..

Okay. Thank you, Lucas for your questions. So number one, in Argentina. In Argentina, today and as we speak, we are harvesting in optimum conditions. All our plants are performing at top productivity, maximum productivity. So, we are having no issue at all in terms of operations as of today.

And of course we solved many issues, there were many local mayors of different towns that were afraid that, that have issues. But as I mentioned at the beginning and then Charlie enforce again, we took a measures to take care of the safety of the people, and so they realized that we were more, even more careful than what was required.

So, that's why people feel safe, and because of this, we were able to operate in a 100% all the different levels of the operation. So I would say that, that Argentina today is operating at, its the best possible. And on top of that the harvest is being good, so we are collecting well.

So as of today, there hasn't been an issue in any of our people, nor the surrounding towns around our operation. So that's the answer for the third part of your question. Then in Brazil, that you ask different things.

First of all, in terms of FX, what the impact of the FX, the cost of production as we mentioned, there is an important saving there that is around the $50 million and saving because of the improvement of their costs are on the operational side, and that is a $100 in reals. On the CapEx part, that is most in the reals, on the renewal also in reals.

So, I would say that 90% or 95% of our costs are in reals, so that's why they impact these in terms of dollar directly impacted is in terms of dollar directly impacting there, there are a few things that these lets’ say 5% to 7% and depending on how you take into account that is the price of diesel that is $1.

But there is a huge a reduction in price of oil has made an impact, and then you have the price of the leases that is a consequence price that is affected by a portion issue, what that does has relation in dollar.

But this is a very small part of our costs because as we are the owners of the grain and we only pay the least, that's why the impact of the dollar in terms of cost is very, very low. So, that's the main impact of the effects in terms of cost of production in Brazil. You also asked about the update in their mix.

So with these as we mentioned in the first quarter 98% of the ethanol that was a 100% of ethanol until delay, that we had the same main reduction in the price of a -- in the price of oil, or in the price of ethanol. So I'm not saying they need that we change and we put 100% of a sugar production.

It's never 100% of sugar, when we are maximizing sugar, we are doing and we are measuring in a daily basis and in a weekly basis, around 65% of sugar production from that day onwards. So, between 60% to 65% of a sugar maximization or sugar mix is what we are currently doing in our operations. That's the updated mix.

So depending on how much we really going forward, that would be the final number of total sugar mix. And then in terms of the working capital a requirement, it's in line with what we've been doing what we are expecting now is to carry some of the ethanol.

So, we sold the ethanol in a few days ago and now we are storaging ethanol to find a better opportunity. The only thing in ethanol that we are selling is anhydrous ethanol. So, that's the working capital lease that is the usual just needs that we have every year, so we don't see a huge change there in terms of the working capital.

So, I think that to cover all your question, Lucas, if you have something else, let me know..

[Operator Instructions] And our next question comes from Fernanda Cunha from Citibank. Please go ahead with your question..

Hi, good morning, everyone. Thank you for taking my questions. I just had a follow-up with what was mentioned in the presentation, if I understood correctly, you're going to postpone part of it CapEx extension in the sugar, ethanol business to the end of those crop or for next crop year.

So I'm just wondering if you could give us -- if we're maintaining the initial guidance of the question rates for this year, which I recall correctly was around 11.7.

If there's any change on that, and how are you looking at roughly, what's the age of your sugarcane crop? And if you see any downside risk in case you delayed some of the CapEx in treatment and implanting for this year? Thank you..

Sorry. I had some difficulties on hearing the question.

Can you repeat for me?.

Sir, can you hear me well, now? Can you hear me well, now?.

Yes, I can hear you well now..

Okay, good. So I just have a follow-up on the presentation. You mentioned that there could be some delays or postponement in terms of the CapEx, the extension CapEx in the sugar, ethanol business, right. I'm just wondering if we should see any changes in the currency rates for this year.

And also if you could tell us, if you see any downside risks in some of your sugarcane age, if you could let us know how much it is right now, and if you see any downside risk on that? Thank you..

Okay. Yes, excellent. Thank you. Now, I will try to understand. These are the weekly decisions that we are taking. So, on this CapEx savings, it is something that we are expecting to lose, some of them we have already done or we are already doing. And then, we are expecting to continue doing in terms of sugarcane plantation.

So, depending on how the market evolves and how the price of Ethanol evolves, that would change because planting cane means something that we are doing everyday and every week. As of today, we are projecting that with these prices, we will be delaying some of our planting expansion and some of the renewals.

We are looking at every field and we know where we can have one more year or not depending on the field and what's the return on that specific placed. So, the decisions that we take every week is what ends up being the final number that occurs at the end of the year or what we are expecting today to happen.

So having said this, I would say to be more precise that we are projecting this year 11 million tons of total crashing, compared to the 11.7 that we were projecting before as you were asking. And for next year as we are delaying this year, we are projecting more or less in line with what we were projecting before.

So, that's why we are moving something from this year to the following year. Then for the following year that is 2022, we are delaying -- we are not planting during the same year, that's basically what we are projecting with this.

So, instead of reaching the $30 million in 2022, we may reach the million tons -- sorry, in 2023 that's conceptually what we are doing today is delaying a little bit the maximum capacity of a sugarcane milling for the two years from now..

Treat. Thanks. Good color.

Can you let us know what the age of your sugarcane?.

Yes. I don't have that number by -- I'm not sure Renato is in the in the line, but….

Yes, I am in the line, Mariano..

Okay.

Can you answer that, please?.

Fernanda, we have crushed all the sugarcane in the beginning of the year. Of course, those sugarcanes are the ones that have less potential to further development. So that, if you compare to last year, the use of those 15 16 -- sugarcane is approximately same.

Also, this year the age of the total sugarcane is younger than less than year considering the planting that we had done last year. So, it's something that we do just in the first quarter to give more time to the cane that have more potential to growth, and we're going to be crushing better sugarcane in the coming quarters..

Our next question comes from Lucas Ferreira from JP Morgan. Please go ahead with your question..

Hey, guys. If I may just a follow up moving on just to clarify something.

This -- the plan of crushing $11 million tons likely less than the previous expectation, is this because you guys are leaving some sugarcane to be crush for next year in field due to the maybe lower ethanol demands and lower profitability in ethanol or not just because you see less availability of cane due to lower planting, just to clarify?.

Lucas, considering the last year below average rainfall in Mato Grosso do Sul, our situation of cane at the beginning of the year, it was not the ideal. So for this reason, we had this load down the crushing at the beginning of the year to give more time to the sugarcane to develop to be crushed in the coming quarters.

And then by doing that, we are going to have more sugarcane for the remaining part of the year, and also next year. So we're going to have a better continuous harvest next year compared to this year to the current one.

And the only thing that we have changed and then the balance has changed as well is the fact that we are planting less sugarcane this year. So we're planting 8,000 hectors less sugarcane as a part of the cash saving program. So from these 8,000 hectors, 5,000 hectors is related to maintaining, planting and 3,000 hectors related to expansion planting..

And ladies and gentlemen, at this point we've reached the end of today's question-and-answer session. At this time, I'd like to turn the floor back over to Mr. Bosch for any closing remarks..

Now, once again, I just want to thank our teams for being fully committed. We are confident that we are in a good position to go through these difficult times. And I would also like to take the opportunity to thank our shareholders for being committed with our story and always providing support. So hope to see you all shortly. Take care..

Ladies and gentlemen, thank you. That concludes today's presentation. You may now disconnect your lines. Have a nice day..