Good morning, ladies and gentlemen, and thank you for waiting. At this time, we would like to welcome everyone to Adecoagro's Second Quarter 2019 Results Conference Call. Today, with us, we have Mr. Mariano Bosch, CEO; and Mr. Charles Boero Hughes, CFO; and Mr. Juan Ignacio Galleano, Investors Relations Manager. We would like to inform you that this event is being recorded. [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, 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 the 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. Now I'd like to turn the conference over to Mr. Mariano Bosch, CEO. Mr. Bosch, you may begin your conference.

Good morning, and thank you for joining Adecoagro's 2019 Second Quarter Results. We had strong operational results during the second quarter in most of our businesses. In our Sugar, Ethanol and Energy business, we continue maximizing ethanol production, reaching 80% on a year-to-date basis, making us the producer with the highest degree of flexibility in the production mix. This represents a clear competitive advantage compared to other players in the industry and put us in a very good position to maximize returns considering ethanol pricing dynamics going forward. Cogeneration efficiency at the same time further contributed to generate positive results. Indeed, we reached as much as 71 kilowatt hour per ton crushed, an all-time record. Total production cost continued to reduce even factoring the lower yields as a result of adverse weather conditions. Weather conditions have been particularly dry during this year. This, on the one hand, has allowed us to accelerate the crushing pace, making up the delay during the first quarter. And on the other hand, this has been detrimental to the proper development of the cane, reason why productivity dealers or yields per hectare are going down. However, thanks to the efficiencies attained on the industry level, we were able to offset higher agricultural costs, resulting in a reduction in total cost of production. As you all may be aware, a frost hit Brazil during July, affecting 20% of our total cane area. Thanks to our rapid response, we were able to mitigate the effect. At the same time, we strategically decided to slow down the milling pace for the rest of the year in order to produce only ethanol. In fact, given the constructive price scenario for the second half of the year, we are confident that most of the effect of the frost will be…

Thank you, Mariano. Good morning, everyone. Let's start on Page 4 with a brief analysis on the rains in Mato Grosso do Sul. As seen on the chart, rains in our cluster in Mato Grosso do Sul during the first semester of 2019 were 35% below the 10-year average and 26% below the same period of last year. Furthermore, during the second quarter of 2019, rains were 65% lower than the 10-year average, allowing us to accelerate the pace of crushing as it can be seen in the following slide. Let's continue with Slide 5, where I would like to discuss our sugarcane crushing. Year-to-date, a total of 5.4 million tons of sugarcane have been crushed, 1.3% higher than the first 6 months of 2018. Considering crushing volumes during the first quarter of 2019 were lower than those of the first quarter of 2018, the increase during the first half of the year is fully explained by the second quarter dynamics. As a matter of fact, effective milling days during the quarter reached 75 days, marking a 5.1% increase year-over-year. Please jump now to Page 6, where I would like to walk you through our agricultural productivity. As a consequence of the dry weather during the first 6 months of 2019, sugarcane yields during the second quarter reached 85 tons per hectare, 11.3% lower than the second quarter of 2018. In terms of sugar content, TRS during the quarter reached 127 kilograms per ton, 2.1% higher compared to the same period of last year. The combination of those 2 effects resulted in TRS production per hectare of 10.5 tons, 7.8% 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, during the second quarter of…

[Operator Instructions] Our first question today comes from Fernanda Cunha with Citibank.

So the first one that I have is regarding to your production cost and more specifically to maintenance CapEx. When we look at your running rates for CapEx, you spent nearly around 70% of your total budget at least, the $240 million, $250 million budget that you mentioned in the last call. I would like to understand mostly if we're going to have -- if we're going to see any CapEx overrun for this year. Also, what could we be looking at recurring maintenance CapEx? It seems that it has actually -- running rate, it's actually higher in the Sugar and Ethanol business. And then going to your leverage, it seems that you're going to end the year at a net debt-to-EBITDA ratio of 2.5, maybe slightly higher than that. What can we be thinking in terms of capital allocations and potentially a dividend policy announced by the year-end?

Fernanda, thank you for your questions. And on the maintenance CapEx regarding the production cost, most of that is in our Sugar, Ethanol and Energy business. So I would like Renato to explain where we are -- or that of part your question, and then I will continue with the other part.

Thank you for your question, Fernanda. The largest part of the maintenance CapEx was expensed in the first half of the year, so it is a matter of anticipation. Therefore, we expect to reduce the CapEx during the second semester, finish 2019 with a total CapEx lower than last year.

Thank you, Renato. And then regarding what you can expect on capital allocation, I want to continue with what we have already expressed in our previous 2 quarters. We've been explaining that we have this 5-year plan. With that, we are almost done. So we have no major CapEx going forward on this 5-year plan that we explained in our Investor Day. So it's clear that from now on, we start decreasing this net debt that you are mentioning. We've always expressed that we want to be within 2x EBITDA. So regarding capital allocation, as we've said before, 2020 is the year where we become free cash flow positive, where we immediately become to decrease the debt. And then we will have to decide how we return the capital to our shareholders, whether dividend, whether buyback and how we see that -- we make that policy going forward. But as I explained before, that's something that we can expect us to talk about it by the end of this year or beginning of next year when we have this clear visibility on how free cash flow positive becomes. And as I mentioned before, it's being discussed with the senior management and Board. Is it clear, Fernanda?

Yes. Yes. If I may just follow up on maintenance CapEx, especially the Sugar, Ethanol business. When we look -- at least in the last call, you mentioned that around 80% to 90% of your costs are in BRL. We've seen -- if we put first half of 2019 against last year, there has been a BRL devaluation of over 19%, but your overall production costs only came down around 2.5%. Can you explain then how much exact -- I mean I really always thought that actually maintenance CapEx would have actually come down on a running basis, and it doesn't seem like that. So if you could just give more color on this, I would appreciate.

Okay. I'm going to make a quick comment on this, and then Renato may add something. The BRL depreciation had a positive effect. But as we mentioned in the call, we are having lower yields and so that has an impact on the agricultural costs. So the agricultural costs went up in terms of the Brazilian. They're not enough on the depreciation of the -- there was not enough depreciation of the real to offset that part and then you've seen the benefits on the industrial cost. So that's basically why you are seeing the numbers we are seeing today. I don't know if Charlie or Renato wants to add something.

So Fernanda, basically, as Mariano was saying, we do have the benefit of the devaluation of the real impacting on our industrial costs basically. But that was more than offset by the increase in agricultural costs mainly coming from having to harvest more hectares as a consequence of having lower yields in order to continue supplying with cane to the facilities.

The next question comes from Gustavo Allevato with Banco Santander.

So I have 2 questions. The first one, I'd like to understand better the impacts of the frost that happened in the beginning of July in your crop. So if you can expect like eventually lower productivity or even higher costs for the second half. And the second question's regarding the company's production for second half as well. So if that could price this mix, could it make sense to maximize ethanol production or eventually start to increase sugar production during the recent correction on the price? And if I might -- if I may, can I do like a third question regarding the Argentina's operations? Just to understand impact of the increase in dairy price that was announced the other day. So how can you -- what's the impact that you can expect for company's results in third quarter?

Okay. Thank you, Gustavo, very much for your questions. Renato will explain the impact of the frost and also some of this -- what are we doing regarding on the ethanol and sugar mix. So Renato, can you go through that question, please?

Thank you for your question, Gustavo. As Mariano mentioned, approximately 20% of our sugarcane fields were impacted by the frost. We're reducing the expected yields for the current year and the beginning of 2020. Because of the frosts and the drier-than-normal weather, we have reduced our crushing estimates about 5%, which means we should have a total production similar to last year. The negative of -- the negative impact of the lower crushing will be offset by the higher ethanol production and by a project to gain efficiency and to reduce cost that was recently implemented. In fact, we have been producing 15% more ethanol than our daily nominal capacity, which should add an additional 70,000 cubic meters in our year production, generating an extra $8.5 million. This was a result of operational adjustments with minor investments such as increasing the alcoholic level of the fermentation tanks and storage of molasses to produce ethanol when the mill is not operating. In addition, we will slow down the crushing pace in the coming quarters to maximize ethanol and take more advantage of ethanol premium over sugar that is currently closer to 8 -- 5%. Regarding the efficiency project, we expect savings of more than $15 million in 2019. It includes the plant reduction cost by the increase of MPB [ order ] technology. Actually, we expect to produce 2/3 of our next year operating using this methodology, which should produce products in our biofactory. Also, we had an in-house fertilizer blender that we have been mixing our own fertilizer formula and applying each blended with the concentrated vinasse. Regarding the 2020 impact, we should have a slow first quarter and then speed up the crushing pace, sufficient to crush about 10% more sugarcane compared to this year. However, it is too early to say and it depends on weather conditions from now on. Regarding the second part of the question, the ethanol mix, really we expect to increase even further our ethanol mix as ethanol should continue to be the most profitable product. The combination of rising demand, stagnant production, lowering the imports is leading to a tight S&D scenario, consequently resulting in a higher pricing -- prices compared to 2018. In Mato Grosso do Sul, where our plant is located, both hydrous and anhydrous are currently traded at a premium of more than 25% over sugar. And we are going to take advantage of all the adjustments in production that I just mentioned to you.

Thank you, Renato, very much for your questions (sic) [ answers ]. Gustavo, on the second part of your question, what was specifically your question around Argentina that I couldn't understand?

I just want to understand the impact of the price freeze that was announced yesterday for dairy products. So if -- how could it impact the company in the second half? What should the company do about that?

Okay. So you are asking specifically on the impact of the reductions of the VAT on the net sales of the dairy products. That was -- at least to the consumer, there is a reduction of 21% of the price that the consumer is paying in the supermarket. For us, there is no impact in our financials and in our taxes because we continue to sell to the supermarket with the 21% of the VAT. So the impact is specifically for the consumer. Because of this, we expect that the consumption may increase, and if the consumption increases, then there is a positive benefit for us as being part of these producers.

The next question comes from Pedro Soares with BTG Pactual.

I just wanted to make few quick questions here. The first one regarding the evolution of the RenovaBio. As I believe the program is expected to start in beginning of the year, it would be nice to hear and to have an update from you guys. At which stage Adecoagro is in regarding the certification of the program? If you guys could also share what you're expecting to be generated by the Cbios in the company's result the next year? And the second and last question here, I'd like to discuss about the recent primary election in Argentina and the recent price action and reaction of the stock. In our view here, we think the market has been pricing much more of an impact. We believe it's the actual exposure of your company, of Adecoagro to the country. So it would also be nice to hear your sense of that, if you guys agree and what you guys think it could be done in terms of message or also maybe actions regarding the company's structure that could be taken to maybe mitigate a little bit of that.

Okay. Thank you, Pedro, very much for your question. Renato, can you answer the first question regarding RenovaBio and where we are there?

Thank you for the question, Pedro. We're very optimistic about the program, RenovaBio program. As ethanol demand would need to increase more than 70% to meet decarbonization targets until 2028, which corresponds to more than 200 million tons of additional sugarcane. In Adecoagro's case, we expect to have all of our new certified by the end of September. And we are confident that given the efficiency of our mills with high cogeneration rates, high level of mechanization, vinasse concentration and with that, usage, we'll be able to be well positioned and get one of the lowest carbon emission rates in the industry, which will then generate positive results for the company for 2020. But it is still too early to give you a final number that we'll be generating with Cbios.

Thank you, Renato. Pedro, regarding Argentina, and as you mentioned, this is having a reduction on the stock. And as I said in the interaction, Argentina is 20% EBITDA and 30% EBIT. So I think it's important to have in mind the proportion of Argentina to Adecoagro as a whole. Then having maybe say, clarification, specifically in Argentina, all this situation generate some uncertainties and variability. Our company in Argentina, we are mainly producers of exportable goods, and those exportable goods generate dollars. On top of that, now we have more flexibility because part of what we produce can be diverted into the domestic market as you've seen in our milk business that we can shift from the export to the domestic or from the domestic to the export. So the same thing is in our Rice business. So included in this domestic market possibility is more flexibility, so we are mainly exporter -- we are producers of exporter goods. But in any case, there is any policy that benefits more the domestic market, we are flexing to maximize domestic market. But if the policies are to export more, today, for example, with an evaluation, the exports are more profitable in general, so we are maximizing the exports. Again, as we always mention and that is part of our DNA, we've been always focusing on cost of production. We are obsessed on us being the low-cost producers of any of these goods that we are producing. So that is very important. And that's why we feel we are very well prepared for different scenarios that can happen in Argentina.

[Operator Instructions] The next question is a follow-up from Fernanda Cunha with Citibank.

Just quickly wanted to understand. It seems like you're changing the commercial strategy for ethanol sales. You mentioned that now you're going to carry less inventory going forward. I just wanted to understand, is this because of some difficulty you're having in hedging the ethanol product? Or is it more because you're looking at a lower parity to gathering during the intercrop season?

Okay. Marcelo Sanchez will try to answer your question.

Thank you, Fernanda, for your question. I understand that you're referring to our inventories that were lower by the end of Q2. As we -- the reason for that is we've been able to sell at attractive price in April, but accelerating the pace of our crushing and higher ethanol mix, large inventories were built to be sold throughout the following quarters. And there's nothing changed in the hedging strategy. We have a different selling pace due to the amount of inventories that we accumulate.

Sorry, I was actually referring to a comment you made in the press release where you say going forward you intend to have a less aggressive carrying strategy.

Sorry, we were not getting exactly the point of the question. What we are saying is that we may be less aggressive going forward because we are seeing that the prices are already good in terms of the price of ethanol and -- as compared to sugar and the potential growth.

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

So to conclude, I would like to express my gratitude to all of our operational and management team and all the support we are having. And I think this focus on becoming the low-cost producers is still the focus we would like to maintain. And we will continue to talk with you in our next upcoming events.

Thank you. This concludes today's presentation. You may now disconnect your line at this time, and have a nice day.

Thank you.

Thank you.