Good morning, ladies and gentlemen. And thank you for waiting. At this time, we would like to welcome everyone to Adecoagro's First Quarter 2022 Results Conference Call. Today with us we have Mr. Mariano Bosch, CEO, and Mr. Charlie Boero Hughes, CFO. 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 section. At this 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, 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. Now, I'll turn the call over to Mr. Mariano Bosch, CEO. Mr. Bosch, you may begin your conference.

Good morning and thank you for joining Adecoagro's 2022 first quarter results conference. First and before going into the results of our operations during the quarter, I would like to mention that the last month, our annual shareholder meeting approved a cash dividend distribution of 35 million in two installments. That this approximately $0.32 per share. This is a new milestone that Adecoagro has achieved. In a couple of days and for the first time in our history, we will be making the payment of the dividends first installment in the amount of $17.5 million. At the same time, we continue buying shares and then our buyback program and in line with our distribution policy. Now, getting into the highlights of the quarter, I would like to start with the sugar, ethanol, and energy business. The first quarter is always the most valuable in terms of how much gain is crashed. Depending on weather conditions. As we had anticipated in our past conferences, we took advantage of less availability of cane, and decided not to crush cane all year round and make a short inter-harvest period that finished in mid-March and perform maintenance tasks. As a result, the [Indiscernible] during the quarter was slow. However, I would say on maybe that generation stood at solid levels. We were well positioned to profit from the attractive prices, especially of ethanol, thanks to our strategy to carry forward our inventories for this time of the year. We ended the first quarter with a tank full of ethanol and captured spectacular prices at the beginning of the second quarter. In April, we sold all of our remaining ethanol inventories and our daily production at an average price of 26.4 per pound of sugar equivalent, that means 35% higher than the price of sugar.…

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 top tables, rains in our cluster during the first three months of the year, were 31.3% lower than during the same period of last year and 18.6% below the 10-year average. Nevertheless, rainfalls during March and April were above-average, favoring the recovery of our sugarcane plantation. Our cluster in Mato Grosso do Sul normally operates based on our continuous harvest model. These means that subject to weather going normal, we can harvest and crush cane around even during the first quarter of the year, which is the traditional interharvest period of Brazil's sugar and ethanol industry. As we already knew, and had anticipated in several opportunities, the adverse weather conditions observed in 2021 caused a reduction in sugarcane availability towards year-end and beginning of 2022. As a result, in December 2021, we entered into an interharvest period until mid-March 2022 when we resumed activities. Thus, our crushing volumes decreased 86.9% year-over-year, reaching 272,000 tons. All of our hectares have already been planted and will be harvested at a later date to allow them to further recover. We expect to make up for the slow start in the following quarters and reach a crushing volume in line with last year. Please jump to page 5 where I would like to walk you through our agricultural productivity. As we were expecting during the first three months of the year, yields were down 40.9% year-over-year, reaching 44 tons per hectare. Whereas TRS per ton decreased 11% to a 100 kilograms per ton. As a result, the TRS production per hectare was 47.4% lower than last year. This decline is fully related to the fact that we…

Ladies and gentlemen, at this time, the floor is open for questions. If you have a question, [Operator Instructions]. Questions will be taken in the order in which they were received. We do ask that when you pose your question that you pick up your handset to provide optimum sound quality. Please hold while we poll for questions. And our first question today comes from Guilherme Palhares from Bank of America. Please go ahead with your question.

Good morning, everyone. Thank you for taking my question. Two questions from our side actually. The first one in the sugar and ethanol [Indiscernible] business. We are just trying to understand a bit the strategy in terms of the [Indiscernible] of this season. So what do you expect in terms of the balance of sugar and ethanol, given that the company focused mostly on ethanol in this first quarter? And the second question is regarding the costs for the farming business in 2022 and 2023 season. What do you expect looking at the current fertilizer prices and the inflation that we are seeing terms of both labor and other items like diesel and fuel now [Indiscernible]?

Hi, Guilherme, good morning. Thank you for your question. I'm going to ask Renato to answer the first part of your question regarding sugar and ethanol. And then I'm going to take the one in farming and land transformation.

High, Guilherme. Thank you for our question. We remain very positive for both prices of sugar and ethanol. We think that the total TRS produced by Brazil is not going to increase compared to last year. So we think that there's going to be a lot of competition between sugar and ethanol for the same TRS in the sugarcane, which gives a lot of support for both products. So it's not clear in this interest of Brazil, which meets the news, we will decide to prioritize. In our case, I think it's a little bit different because we [Indiscernible] that will have the tax rebates. [Indiscernible] tax rebates, which gives us an advantage to produce ethanol. It's already happened in the first quarter that we produce 97% of ethanol, just 3% just multiply the yeast to start the season. And we think you keep maximizing ethanol, and that's one of the reasons that we are flexible in terms of hedging to give us possibility to keep the prioritizing the product, which is more profitable.

Thank you, Renato. And then going into the second part of your question regarding the cost -- the total cost of farming and land reformation, I would like to specifically mention that we are producing these in the areas where worldwide are of more efficient. So within our sustainable production model, we are using very small amounts of inputs regarding what we are producing. And that's part of the essence of our strategy since we started with it. So that's why there is increasing prices that you can see of 100% or even more than 100% is the last two years in fertilizers or some of the [Indiscernible] inputs like herbicides and in our particular case because of using really small amount on producing in our systems is that we have an overall increase and including the herbicides, fertilizers, and the sale of around 20% from '21 to '22 campaign. And when we think on '22 campaigns to '23 campaign, that is a campaign that we are preparing now there, we are estimating another 15% increase. So going to the answer specifically your question, I would say 20% or around 20% on '22. Fifteen percent more in '23. And those are the overall costs. When we look at the prices of our different products, or the different commodities, or products that we are producing that increase depends on each one of the product. But it's way higher than these increasing costs. The only exception that we pointed out in the presentation is with the rice, where the increasing prices have not yet occurred. We are very confident that these price is already increasing and will continue to increase because it follows the other commodities, but it takes some time to follow the rest of the commodities.

Very clear thinking.

Okay. Thank you, Guilherme.

Our next question comes from Thiago Duarte, from Banco BTG Pactual. Please go ahead with your question.

Thank you. Good morning Mariano, Charlie, Renato, everyone. Yes, I have one question I think to Renato on the sugar, ethanol energy business. Just trying to build up the -- you expect the same amount of cane crushing this year versus last year, but just trying to build up on how that should take place in terms of harvested area and yields. Because last year, you guys managed to maintain the crushing volume in spite of lower yields because you had a much higher, a much larger harvested area. So just wondering how you see the area versus yields playing out this year, so that you can reach the same roughly 11 million tons of cane this year. Thank you.

Good morning, Thiago and thank you for your question. Renato you want to address.

Yes.

The answer.

Hi, Thiago and thank you for your question. We think that the use does year is going to be up between 5 and 7% higher than last year. Is going to change our lots during the year. As we mentioned here, the first quarter, yields were very low because we prioritized areas that has to be replanted. 80% of the areas harvest in the first quarter was more than 50 and 60 carts. And we think that the sugarcane is going to improve a lot in the second semester because are not going to have any residual impact from the frost of last year. So we think that we're going to speed up the bases, the end just to compliment complement. We had a very good rains in March and April, which will help the yields for next year. And for, sorry, for the next -- for the second semester. And also, we have planted a lot of sugarcane that's going to be a harvest in the second semester. So, it's going to be a lot of difference between the [Indiscernible] in the first and the second semester. Now we think that we're going to have a challenge to crush the whole sugarcane because we have started the campaign later on. So crushing is going to be a very key point in the second semester. But we feel comfortable that we're going to achieve, crushing is likely higher than last year, especially in the third and fourth Q, because we're going to take a part of the harvest that we use in the planting operation to help supply more sugarcane to the mill. We think that we're going to achieve a total crushing likely higher than last year.

And if I may head on to a follow up question on that, how do you see your costs playing out this year? Because I understand that these better yields is going to be very positive in terms of diluting your costs. At the same time, there is this cost inflation across the whole industry. So if you could comment a little bit on how you see your unitary costs or cost per ton or per hectare playing out this year will be nice as well.

Yes. I think that the big increase in costs happen to anyone's harvest. Actually, we had the increase in costs of approximately 40% for this year. We think that the cost is going to increase around 10%, which is basically the inflation that we have in Brazil. I'm talking in [Indiscernible] not considering the effect of the exchange rates. And of course, the improve in yields is helping to dilute those costs that we are considering. I think fertilizer, we are in a very good position because we are producing a lot of bio-fertilizer. Actually, 48% of our fertilizer needs is produced with our own products. We are basically self-sufficient in [Indiscernible]. I's a big problem in Brazil today. We are comfortable that you are going to have a cost approximately 10% or the increasing cost is going to be only 10% aligned with inflation.

That's very helpful. Thank you Renato and Mariano.

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

Thank you very much. First question maybe to Renato as well, so if you can talk about you're still pre -op in terms of hedges, especially for sugar. What's your outlook there, should you think you should be speeding up the hedging a little bit. India coming with a very large crop ahead. So are you still comfortable to keep hedges at these levels or you guys should be speeding up a little bit the hedging. What's the -- can you discuss a little bit this commercial strategy, for both ethanol and sugar if you can. And -- and the second question more overall to probably Charlie, if you can discuss the CAPEX expectation for the full-year for both sugar and ethanol and crops, how much you guys expect to spend, both in terms of for maintenance and expansion CAPEX for this year. Thank you.

Okay. Thank you, Luca. Renato, do you want to answer the first part of the question?

Yes. Thanks for question, Lucas. As I said before, I think we are going to have a very good competition between sugar and ethanol for the same TRS of the sugarcane. So we are positive that both product will be in a positive scenario. We want to maintain very flexible to use our flexibility as better as possible. I think being the first Q, we showed how our flexibility can help. We produced 97% of ethanol. Regarding India that you mentioned, I think everyone is already expecting India exporting 9 million tons of sugar. And even in these scenario, Brazil has to produced 32 million tons of sugar in order to the market to be on balance. And we think this competition that I mentioned between sugar and ethanol, there is a big risk that Brazil is going to produce less than 32 million tons of sugar. So we think that there's an analysis is very positive. And since this analysis is very positive, we want to be flexible to maximize the products, which is more profitable. And in addition, we have price floor in ethanol, because we are able to export ethanol to Europe. We are one of the few mills in Brazil that can export ethanol to Europe, because we have the Bonsucro certification and possibly 20% of our production. And also, we have peneira molecular, which the equipment that produce anhydrous ethanol. It is very efficient and can produce a very high anhydrous ethanol degree, which is required by the European markets. It gives a floor on price closer to -- [Indiscernible] closer to any two cents per pound.

Thank you, Renato. And Lucas regarding the expectation for CapEx and maintaining CapEx, I would start saying that today our priority is complying with our distribution policy. As you know, we have these 40% of the net cash from operation, that is $152 million so at least we are going to distribute that $55 million in dividends and the rest in buybacks. So within that priority in mind is that of course, we continue with our ongoing growth projects that are these organic growth that is happening in the sugar and ethanol with the planting, and we are planting new hectares and that is what is mainly thriving our growth CapEx and that will continue depending on the area that we are or have the ability to lease and plant. So that will drive the expansion growth, on top of some small investment in different part of the operation that generates very good synergies and thus, returns all of them above 25% IRR as an example. And then whether we can expect higher, lower maintenance CapEx and expansion CapEx. On the maintenance CapEx, it depends also on the FX and that the cost. So, in general, the maintenance CapEx will continue in line but affected by the 10% inflation [Indiscernible] and will depend on how we finalize with the FX. So that's the answer regarding CapEx.

Thanks, Charlie. But just a quick follow-up. Do you have at least a range of how much total invest -- expansion CapEx's you have this year in million dollars?

We should expect similar to what we have last year -- in line with last year.

Perfect. Thank you.

Once again, if you would like to ask a question, [Operator Instructions]. Our next question comes from Christian Audi from Santander. Please go ahead with your question.

Thank you so much. Hello, everybody. I wanted to go back for a second to the capital allocation topic. So you mentioned very clearly that your priority is dividends and buybacks. And then you also touched on CapEx expansion and maintenance. What I wanted to ask about is on the CapEx growth front, anything that you're seeing related to M&A that could be considered for this year. And then secondly, on the debt side, can you remind us, given all that's happening this market, what level of net EBITDA, you would feel comfortable with going forward? And I think the other questions were already answered. So yes, it was just related to how you prioritize your capital allocation among these different elements dividends, CapEx, stats, M&A. That would be very helpful, please. Thanks.

Okay. Thank you, Christian, very much for your question. Number one, we will be talking about the debt levels that which we feel comfortable. And we've been always talking about two times if below -- to be always below two times EBITDA net debt. So that's something that we continue to think, and we are very committed to these numbers. So you shouldn't expect to see higher number than what I just mentioned, these two times EBITDA and always below that number. Taking that into account, what we are expecting today is to continue with these as I just mentioned the small synergy projects all around our different existing businesses. I wouldn't expect any M&A outside with where we are currently making focus on our four lines of businesses. So I would be very clear there that we wouldn't expect anything there. Whether M&A within our existing businesses, of course, we always look at them. But we haven't seen anything attractive enough to create value to our shareholders. That's why we haven't entered into any of those things that we've been looking at.

Understood. And on the CapEx front, can you talk a little bit about new -- particularly in the sugar and ethanol front, any new products you may be looking into as potential areas of growth in the future, be it second-generation ethanol, bio-gas, etc?

Sorry. Thank you, Christian. I think as we've been talking about, where we are working is on our sustainable production models. So within this sustainable production model, we are seeing still more things to get into, so to be more sustainable. In the value of fertilizer front, we are increasing the amount of [Indiscernible] that we are transforming into bio-fertilizer. And we're also increasing the amount of methane that we are taking from the [Indiscernible] and using it as an energy generator. And that energy generator could be as replacing diesel that is one of the projects that we are involved in, and also creating more size of electricity. So there is where we are working in order to continue increasing our sustainability front and to generate more revenues coming from the current system that we have.

Great. And the last follow-up. Corn-ethanol, is that something that you think it's interesting from a strategic front of view.

Thank you for the question, Christian. We've been analyzing corn-ethanol many times. We think that the concept makes sense. But for us, particularly because of the region where we are, we think that the sugarcane is much more efficient than the corn. Because at the end of the day, we are taking ethanol out of the land and then out of our sustainable production model. So taking that into account, we think that we are much more efficient with the sugarcane than with the corn in this specific areas where we are.

Great. And the -- so and the very last one. So, you talked about seeking to your 40% of net cash, the ability given that you may continue to do so well, generating so much cash with high sugar and ethanol prices, your willingness to pay extraordinary dividends. Can you tell us a little bit about how you think about that, in other words, paying dividends in addition to the 40% that your formula calls for, please?

No, we've been -- we are committed to pay -- to distribute through dividends and buyback at least 40% of our net cash flow operation. Last year in 2021, we distributed 51% of our net cash from operations of previous year. So can we expect to distribute more or not? Yeah, we can't expect to distribute more because we've done it in the past. And we can do it going forward, but that will depend on these CapEx opportunities not always being below the two times net debt, EBITDA, etc. So all the criteria that we've been talking about.

Perfect. Very clear. Thank you so much.

[Operator Instructions] And ladies and gentlemen, this will conclude 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.

Thank you everyone for participating in the call. And see you in our upcoming event.

Thank you. This concludes today's presentation. You may now disconnect your lines.