Adecoagro S.A. Q3 2025 earnings call

Good morning, and thank you for joining Adecoagro's 2025 third quarter results conference. Consolidated adjusted EBITDA during the quarter reached $115 million, while year-to-date it amounted to $206 million. In Brazil, we achieved an all-time quarterly crushing record of 4.9 million tons and even produced 40% more ethanol than the previous year as we switched our production maximization, giving premium commanded over sugar. Now, cane productivity has improved as we completed the harvest of all the frost-impacted cane, thus with lower productivity. Going forward, and assuming normal weather, crushing volume should improve as we have greater cane availability, leading to a greater cost dilution. In Argentina and Uruguay, the challenging price-cost scenario continues to pressure results across our businesses. In crops, we are undergoing planting activities for the new campaign, reducing approximately 30% our leased area and adjusting our crops mix to improve margins.

In rice, export prices of the long rice are still looking for a support level given the greater supply. Therefore, our decision is to reduce the long grain rice and to increase the mix of varieties. In dairy, cow productivity and processing volumes have achieved a new record. We continue to prioritize the domestic market with the production of fluid milk and value-added products. In early September, we signed an agreement to acquire a 50% stake in Profertil, the largest producer of granular urea in South America. Profertil is one of the lowest-cost producers within this industry, and it is strategically located in a net importing region with access to competitively priced natural gas. It is run by a highly experienced management team and has consistently generated cash through the years.

YPF, Argentina's largest oil and gas producer, owns a 50% stake, and together with ACA, we will be jointly acquiring the balance. Closing is expected before year-end and subject to YPF's 90-day right of refusal. To conclude, I would like to thank all the people in Adecoagro. I know that this year has been one of the toughest, but we need to remain focused on efficiency and on being the lowest-cost producer to overcome this challenging context. Thanks to our shareholders for their support, and now I will let Emilio walk you through the numbers of the quarter.

Thank you, Mariano. Good morning, everyone. Please turn to page four with a summary of our consolidated financial results. Gross sales totaled $323 million during the third quarter, making a 29% year-over-year decline due to lower volumes and prices across our different operations. Despite this, adjusted EBITDA improved versus the prior year to $115 million on greater results from our sugar, ethanol, and energy business. On a year-to-date basis, sales and adjusted EBITDA stood at $1 billion and $206 million, respectively. Lower consolidated results were mainly explained by a combination of lower global prices and higher costs in US dollar terms. Now, please turn to slide five. Regarding our production figures, on the bottom right chart, we can see that crushing volume in our sugar, ethanol, and energy business was 4% lower compared to the same period of last year.

The year-over-year gap reported in the previous release has decreased by the crushing record achieved during the third quarter, which we will get into more detail shortly. In the case of the farming business, total production saw a 13% year-over-year increase explained by higher planted area, as well as record productivity in our rice operations. Let's move to slide seven with the operational performance of our sugar, ethanol, and energy business. During the period, we achieved a new quarterly crushing record of 4.9 million tons and a 20% year-over-year increase. This was explained by the acceleration of our harvesting pace, which in turn enabled us to crush all the sugarcane that was hit by the frost event experienced by the end of June. Our average yield and TRS content declined compared to the previous year, explained by the impact of the frost in the sugarcane harvested.

On a year-to-date basis, we have already milled 9.8 million tons of sugarcane. Despite the strong quarterly performance, we concluded the period with an accumulated crushing slightly below the previous year due to the combination of dry weather followed by rainy days experienced during the first half of the year, which consequently slowed our crushing pace. Despite this, we still foresee annual crushing volume in line with the previous year, assuming normal weather conditions until the end of the year. In terms of mix, we switched our strategy to maximize ethanol production during the third quarter, given the better margins compared to sugar. We reached 58% ethanol mix compared to 45% the previous year when we were maximizing sugar.

This clearly reflects the high level of flexibility of our mills as we maximized sugar production throughout the first semester and then switched to ethanol due to its attractive premium as global sugar prices started to decline. Let's please turn to slide eight, where we describe sales conducted throughout the period. Net sales amounted to $131 million during the quarter, while year-to-date they reached $433 million. Despite the increase in ethanol production, lower sales during the quarter were explained by a decline in volume sold. Throughout the period, we strategically conducted our sales to profit from better prices. For the last year, we had our tanks full and had to sell our daily production. Ethanol sales were 8% higher year-to-date thanks to our commercial strategy to sell our 2024 inventories once prices recovered.

Regarding sugar, the combination of lower prices and the declining production given the lower crushing and switching mix were the main drivers towards the declining sales. In the case of energy, the increase in sales was driven by higher selling prices year-over-year as we complied with our long-term contracts as well as profit from the peaks in spot prices. Regarding carbon credits, we sold over 560,000 cevallos at an average price of $9 per cevallo, reaching $5 million in revenues. Please go to page nine, where we would like to present the financial performance of the sugar, ethanol, and energy business. Adjusted EBITDA amounted to $120 million during the third quarter, making a 20% year-over-year increase. This was mostly explained by year-over-year gains in the mark-to-market of our biological assets, giving an improvement in yield coupled with gains in the mark-to-market of our commodity hedge position.

On an accumulated basis, adjusted EBITDA reached $218 million, 16% lower than the same period of last year. Now we would like to move on to the farming business. Please go to slide 11. By the end of October, we concluded harvesting activities related to our 2024-2025 harvest season, reaching 1.2 million tons of agriculture produced. Now we are in the middle of planting activities for our 2025-2026 campaign with 52% of the total area already seeded. As you may have seen, we reduced our planting plan by 22% compared to the prior season as we decided to diminish the amount of lease hectares, prioritizing the farms with higher productivity potential and therefore maximizing the margin per hectare in each of our crops. In rice, the declining planting area was driven by the challenging price scenario of the commodity as global prices continue to decline given the worldwide oversupply.

On the other hand, we are increasing our mix of premium varieties of a long grain white rice to offset the lower prices from the commodity type. In the case of dairy, not only did cow productivity improve versus the first semester, but it even achieved a new record at 39.1 liters of milk per cow per day during the quarter. At the industry level, we continue to maximize production of UHT milk for the domestic market, a product that offers the highest marginal contribution. On the following page 12, we present the financial performance of our farming business. Adjusted EBITDA for the farming business totaled $1 million during the quarter, whereas year-to-date it amounted to $19 million.

Starting with our crops segment, lower results were explained by lower international prices and higher costs in US dollars, both of which continued to pressure margins during the period and mainly for our peanut production. In rice, the decline in adjusted EBITDA during both periods was driven by lower sales given the outlier prices reported the previous year coupled with higher costs in US dollar terms. Lastly, adjusted EBITDA generation in our dairy business was impacted by higher costs and mixed performance in prices despite the increase in volume sold mainly from fluid milk for the domestic market. Please turn to page 14 with a broader view of our CapEx program. Expansion CapEx, excluding inorganic growth, represented $32 million during the quarter and $85 million on an accumulated basis. In Brazil, expansion CapEx was mostly allocated to increasing our sugarcane plantation size and the expansion of our biomethane production.

In our farming business, our main CapEx program consisted of the acquisition of agricultural machinery for our rice operations together with marginal investments in our Morteros milk processing facility to expand our product portfolio. Now, please turn to slide 15, where we would like to make a reference to the acquisition of Profertil. On September 8, we announced to the market that we signed an agreement to acquire Nutrien's 50% interest in Profertil, the largest producer of granular urea in South America, through an 80/20 partnership with Asociación Cooperativas Argentinas. The transaction was valued at approximately $600 million, out of which $96 million advance payment was made against the sign-up. The remaining 50% stake of Profertil is owned by YPF, Argentina's largest producer of oil and gas, who as of this day continues to hold the right of first refusal to purchase Nutrien's equity on the same terms and conditions.

This right expires at the beginning of December. Once and if the closing conditions are met, we will provide more details. As Mariano commented earlier, we firmly believe that by acquiring this state-of-the-art asset, we will be reducing the volatility of our results while diversifying operations across other value chains within the agro-industrial space, where we have shown a well-proven track record. On the following slide, we describe our debt evolution. Net debt amounted to $872 million, making a 35% year-over-year increase due to the lower consolidated results together with the $96 million advance payment made for Profertil's acquisition. Consequently, our net leverage ratio increased to 2.8x compared to the 1.5x reported in the same period of last year.

Going forward, and once we conclude the acquisition, we intend to reduce our leverage ratio as we implement cost-saving initiatives across all our operations together with a revision of our capital allocation strategy and expected operational results. Despite the increasing leverage, our liquidity ratio stood at 3.2x, showing the company's full capacity to repay short-term debt with its cash balance. Let's now turn to page 17, where we would like to present our shareholder distribution program. 2025 shareholder distribution amounted to $45 million. We repurchased $10 million in shares under our buyback program, equal to 1.1% of the company's equity. In addition, $35 million were distributed via cash dividends, with the last installment being paid in a few days on November the 19th, representing approximately an annual dividend per share of $0.35 and a dividend yield of 4%.

With the second final dividend payment, the company concludes its distribution policy for the year 2025. Thank you very much for your time. We will now open the call to questions.