Earnings Call
Adecoagro S.A. (AGRO)
Earnings Call Transcript - AGRO Q2 2025
Operator, Operator
Good morning, ladies and gentlemen, and thank you for waiting. At this time, we would like to welcome everyone to Adecoagro's Second Quarter 2025 Results Conference Call. Today with us, we have Mr. Mariano Bosch, CEO; Mr. Emilio Gnecco, CFO; Mr. Renato Junqueira Pereira, Sugar, Ethanol and Energy VP; and Mrs. Victoria Cabello, Investor Relations Officer. 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. 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 conference over to Mr. Mariano Bosch, CEO. Mr. Bosch, you may begin your conference.
Mariano Bosch, CEO
Good morning, and thank you for joining Adecoagro's 2025 Second Quarter Results Conference. Consolidated adjusted EBITDA during the quarter reached $55 million, while year-to-date amounted to $91 million. From the very beginning, we know that commodity prices and weather risks are significant risks in our space. Therefore, throughout the years, we set our minds on becoming the lowest-cost producer while also diversifying our operations across geographies and products. We understood that this combination, along with the investment made to consolidate our asset base, would act as a natural hedge against these events and enable us to continue delivering results to our shareholders. These are the years when our sustainable production models are truly put to the test, together with our efforts in enhancing day-to-day efficiencies to overcome challenging scenarios like this one. In our Sugar, Ethanol and Energy business in Brazil, weather has not been favorable. We experienced extreme dry weather and even a cold front in June in our operations. Despite this, our strategy of increasing year after year the size of our plantation to secure cane availability enables us to have our crushing forecast in line with the previous year. The same goes for the investment made to have a larger operational flexibility to produce both sugar and ethanol and storage capacity, which today grants us commercial flexibility to switch between products to always get the better margin and to stop production if needed. Moving to our Farming business in Argentina and Uruguay, we are focusing on the efficiencies in every stage of the value chain. In rice, prices have significantly come down, but our work on seed genetics allows us to offer customized price varieties at premium prices and access new markets, which in turn enables us to partially offset the drop in global prices. In dairy, thanks to our growing market presence, we are increasing the processing volumes in the industries while we continue working on expanding our product portfolio to access new destinations. In the case of crops, we are finalizing a very challenging campaign in terms of prices and costs. Now our focus is on the upcoming season, where our main goal is to improve the margins of each of our crops. Consequently, we are reducing our leased area by approximately 30%. Before passing the word to Emilio, a brief comment on the Memorandum of Understanding that we signed with Tether. We are analyzing the possibility of using a portion of our energy production for Bitcoin mining. We are excited about this potential innovative project as it proves how cutting-edge technology and the agribusiness industry can join forces to maximize the value of our assets and production. Lastly, an update on sustainability. In mid-May, we published our 2024 integrated report, in which we explained how in our sector, sustainability is fully aligned with profitability. I would like to express my gratitude to all the people across Adecoagro. These are the moments where our hard work and commitment make a difference and allow us to be the lowest-cost producers at all times. I am convinced that we have the right people and that we are following the right strategy to generate good returns and value for our shareholders. Now I will let Emilio walk you through the numbers of the quarter.
Emilio Federico Gnecco, CFO
Thank you, Mariano. Good morning, everyone. Please turn to Page 4 with a summary of our consolidated financial results. Sales totaled $392 million during the second quarter, while on an accumulated basis, they reached $716 million. Higher volumes sold across all our operations more than offset the lower prices seen for most of our products on a year-to-date basis. Adjusted EBITDA marked a 60% year-over-year decline in both periods, reaching $55 million during the quarter and $91 million year-to-date. Lower results were mainly explained by losses in our biological assets in line with our Sugar, Ethanol and Energy businesses on lower production, as well as in our crops and rice operations on lower prices. In addition, results were also negatively impacted by higher costs in U.S. dollar terms in our farming division, together with one-off expenses incurred by the company in connection with Tether's standard offer. Now please turn to Slide 5. Regarding our production figures on the bottom right chart, we can see that crushing volume in our Sugar, Ethanol and Energy business was 20% lower year-over-year due to a combination of less effective milling days during the second quarter and a selective slower milling pace adopted during the first months of the year. On the other hand, total production in our farming business reported a 12% year-over-year increase, explained by higher planted area as well as a record productivity in our rice operations. In the case of crops, harvesting activities are almost complete for the 2024, '25 season, and the average yield obtained was below our initial expectations. We will describe this in more detail during the presentation. Let's move to Slide 7 with the operational performance of our Sugar, Ethanol and Energy business. After experiencing below-average rainfall during 2024 and early 2025, the rainfall received during April aided our sugarcane yields. Nevertheless, the distribution of rains led to a reduction in effective milling days and consequently, a decrease in our crushing volumes during the quarter, which totaled 3.4 million tons. Although productivity indicators remain below the prior year due to the lagging effect of the dry weather explained earlier, this saw a significant improvement versus the first quarter of 2025 as anticipated. On a year-to-date basis, we have already crushed 4.9 million tons of cane, 20% less than the same period of last year. This was due to a selective slower crushing done in early 2025, focused on cane with limited growth potential and a rainy second quarter that consequently slowed down our crushing pace. In terms of mix, we continue to maximize sugar production throughout the year given its attractive premium. Within our ethanol production, we are maximizing the production of hydrous ethanol, given the better margin. Let's please turn to Slide 8, where we describe sales conducted throughout the period. Net sales amounted to $183 million during the quarter, while year-to-date, they reached $302 million. The overall increase in sales was fully explained by our commercial strategy to sell our carryover stock of ethanol from last year as well as our daily production to profit from the recovery in prices and clear out our storage capacity. Consequently, we have already sold 320,000 cubic meters of ethanol at an average net selling price close to BRL 2,700 per cubic meter, 18% higher year-over-year. Regarding sugar, the combination of lower prices and the decline in production given the lower crushing were the main drivers toward the decline in sales year-to-date. Nevertheless, we were able to profit from the sale of bagged VHP during the quarter, which commanded a premium over spot prices. In the case of energy, higher selling prices more than offset the decline in volume exported driven by the lower milling year-to-date. Regarding carbon credits, we sold over 390,000 CBios at an average price of $10 per CBios, reaching $4 million in revenues. Please go to Page 9, where we would like to present the financial performance of the Sugar, Ethanol and Energy business. Adjusted EBITDA amounted to $68 million during the second quarter and $98 million for the first half of the year, despite presenting higher sales. Results were mainly offset by year-over-year losses in the mark-to-market of our biological assets on lower volume of harvested cane, together with year-over-year losses in the mark-to-market of our commodity hedge position. To conclude with the Sugar, Ethanol and Energy business, please turn to Slide 10 where we would like to briefly talk about the current outlook. As explained in prior releases, our sugarcane plantation has gone through different weather events throughout the last 1.5 years. However, our annual crushing forecast remains unchanged, due to our continuous harvest model that enabled us to flexibly advance or delay harvesting activities, together with higher cane availability due to the expansion planting made during the last years as well as to higher sourcing of third-party cane. This in turn will result in flat to slightly higher cash costs versus the previous year. From a commercial point of view, we are optimistic about both sugar and ethanol prices for the upcoming months as we still have the flexibility to switch our maximization strategy to always produce the product that offers the highest marginal contribution. In the case of sugar, we still have a portion of our 2025 sugar production still unhedged and no commitments for the next year in order to profit from any upside in spot prices as the global supply and demand balance continues to rely on Brazil's production. In ethanol, inventory levels are considerably below the prior year and the industry continues to prioritize sugar production due to its premium. On the demand side, parity at the pump continues to favor ethanol consumption and new demand has emerged with the implementation of the E30 mandate. Therefore, any decline in crushing volume could further pressure this tight scenario. Now we would like to move on to the Farming business. Please go to Slide 12. As of the beginning of August, we have harvested 97% of the total area and produced over 1.2 million tons of agricultural produce. The remaining hectares are expected to be fully harvested during the rest of this month. Despite the precipitation received from February onwards, some of our crops were impacted by periods of dry weather, high temperatures, excess rainfall, or even below-average temperatures. Therefore, average yields for this half-season ended up below our initial expectations and below historical average. In Rice, our work on seed genetics and the implementation of new technologies resulted in an average yield of 8 tons per hectare, a new record for this business. In the case of dairy, we are working on reversing the decline in cow productivity seen year-to-date. At the industry level, we continue to maximize the production of UHT milk for the domestic market, a product that offers the highest marginal contribution while developing our brand portfolio across several markets. To conclude, we began planting activities for our next campaign starting with wheat and other winter crops. We have foreseen a reduction in planted area of approximately 20,000 hectares versus the prior campaign due to our decision to reduce our exposure in the northern region of the country as well as to diminish the amount of leased area to improve crop margins. On the following Page 13, 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 amounted to $18 million. Starting with our Crops segment, the year-over-year decrease in results was mainly driven by an uneven year-over-year comparison as in April 2024, we sold La Pecuaria farm, generating $15 million in adjusted EBITDA. Furthermore, results were also impacted by lower international prices, lower-than-expected productivity, and higher costs in U.S. dollar terms, which combined continued to pressure margins during the period, mainly for our peanut production. Moving on to rice, the decline in adjusted EBITDA during both periods was mostly explained by the outlier prices reported the prior year coupled with higher costs in U.S. dollar terms, which in turn fully offset the record production at the farm level. Lastly, adjusted EBITDA generation in our dairy business was impacted by higher costs in U.S. dollar terms, despite the increase in volumes sold, our work towards improving the mix of higher value-added products and maximizing the production of fluid milk for the domestic market. Please turn to Page 15 for a broader view of our debt position. Net debt amounted to $699 million, 11% higher year-over-year. This was due to higher short-term borrowings raised to finance working capital in our farming business, given the lower results presented at a consolidated level. Consequently, our net leverage ratio stood at 2.3x, one turn more than the same period of last year. Despite the increase, we continue with our disciplined capital allocation strategy, which also includes investing in growth projects with attractive returns and distributing cash to shareholders while maintaining financial flexibility and a strong balance sheet. Subsequent to the end of the quarter, we completed the issuance of $500 million bond with a 7-year tenure and a 7.5% coupon. A portion of the proceeds was used to partially tender our 2027 Senior Notes totaling $150 million. This transaction improved our constant work towards anticipating our debt maturities and therefore, having most of our debt in the long term. As an example, the average life of our debt, which got extended from 2.5 years to 4.5 years. On the following slide, we describe our CapEx program. Expansion CapEx represented $23 million during the quarter and $53 million on an accumulated basis. In Brazil, expansion CapEx was mostly allocated to increasing our sugar cane planting size and expanding our harvesting equipment with the acquisition of two-row harvesters and grunner trucks and production capacity at San Salvador rice mill, along with some industrial improvements in our Monteros milk processing facility. Let's turn to Page 17, where we would like to present our shareholder distribution year-to-date. As of this date, we have already committed $45 million to shareholder distribution. From this amount, $35 million in dividends were approved; the first installment of $17.5 million was paid in May, representing approximately $0.175 per share, while the second installment will be payable during November in an equal cash amount. In addition, we have already repurchased $10 million in shares under our buyback program, representing approximately 1.1% of the company's equity.
Operator, Operator
Our first question comes from Gustavo Troyano with Itaú BBA.
Gustavo Troyano, Analyst
Actually, I have two points to explore with you. Both of them in the Sugar and Ethanol business. In the earnings report and also earlier in the call, you mentioned that we should expect similar crushing figures year-over-year for the full year despite the slower-than-anticipated start of the season, right? So I just wanted to catch up with you. What are the main drivers behind this expected crushing acceleration for the second half and in which direction do you believe there could be any symmetry here for crushing figures for the full year 2025? And the second question on sugar prices. You already mentioned that you are optimistic about both sugar and ethanol prices, but I just wanted to hear from you what are the main triggers or timing for us to see better sugar prices going forward? And you also mentioned in the earnings release that there are no hedging commitments for 2026 at this point. So I think it could be useful for us to understand a little bit of timing. So we can anticipate a little bit of when you intend to start these commitments for 2026.
Mariano Bosch, CEO
Thank you for your question. Renato can answer both of them. Renato?
Renato Junqueira-Santos Pereira, VP of Sugar, Ethanol and Energy
Thank you, Gustavo, for your question. Regarding the crushing, as Emilio mentioned, we had a difficult first quarter, especially because of last year's drought. The second quarter crushing was impacted by the rain in April. But afterwards, we have been crushing very well. Actually, in July, we crushed more than 1.5 million tons of sugarcane and we have been crushing a lot in August as well. Actually, we reached our daily record last week. So we have been crushing very fast. We think it is still possible to crush the same amount of sugarcane that we crushed last year. So we're going to be very similar to what we have crushed in the last few years. And we think that the yields in the last quarter are going to be much better than what we have been obtaining now and in the third quarter because of the frost we had. So that's why we are optimistic about reaching the same level of crushing. Regarding the price of sugar and ethanol, we are optimistic about both cases, especially in the short term. In the case of ethanol, the demand is still very strong. So hydrous demand is almost 2 billion liters per month. Parity is still favoring ethanol consumption; the parity at the pump is at 66%. We had the E30 addition in August, which represents approximately 700 million liters in additional demand. We think that the amount of sugarcane that Brazil will crush this year is going to be lower because we have been seeing lower TRS content and lower yields in all sugarcane areas in Brazil. Therefore, the mills in most areas are maximizing sugar, resulting in less ethanol supply. If you take the level of stocks today, it is 30% lower than the same quarter last year. That's why we think that the price of ethanol is going to increase. We are building inventories to sell our stocks more toward the end of the year. We think there is an upside between 5% and 10%, considering the current price levels. In the case of sugar, we are also optimistic. We think that the price of sugar is under pressure in the short term because of the fund's high short position and due to the Brazilian higher sugar mix. But as I mentioned, the TRS and the yields are lower than expected. Actually, the TRS per hectare is 15% lower than the same period last year. Therefore, we think that the amount of sugar that Brazil is going to produce is lower than initially expected. The world is still very dependent on Brazilian sugar, we think that the price is going to react, and we are going to see more opportunities to hedge our remaining part of the sugar for this year and also the sugar for next year. It is very important to mention that since the beginning of July, we are maximizing ethanol in Mato Grosso do Sul. If you consider the tax season in Mato Grosso do Sul and the appreciation of the Brazilian real, the parity for hydrous ethanol in Mato Grosso do Sul is close to $0.185 per pound. That's why we're maximizing ethanol. So we are optimistic about both products.
Operator, Operator
Our next question comes from Thiago Duarte with BTG.
Thiago Callegari L. Duarte, Analyst
Hey, hello, guys. Good morning, everybody. Yes, I have a question on Sugar and Ethanol and then a follow-up on Renato's comments just now. The question is about the quality of the cane; Renato just mentioned a few points about TRS per ton being lowered across the center south of Brazil. Trying to sort of add up to your guidance of keeping the cane crushing volumes flat this year relative to last year. If I understand correctly, the reason why you believe you're going to be able to crush as much as you did last year is because your harvest area is still significantly lower year-over-year, and then you expect to catch up. But obviously, this is compensated by the fact that yields are lower as well, right? So just to sort of clarify if that's the reasoning: you expect a higher area and lower yields for the full year of 2025 relative to 2024? Perhaps this explains why you're expecting unit costs to be flat or up this year relative to last year. That would be the first question. The follow-up is regarding the figure Renato just mentioned. You said that because of the tax incentives and the freight costs and everything, your ethanol equivalent, sugar equivalent price in Mato Grosso do Sul is over $0.18 a pound, right? My question to you on that is, how do you think that applies to not only other mills in Mato Grosso do Sul but also other mills located outside of São Paulo? Think of Minas Gerais or Goiás or even the state of Mato Grosso, which I believe face similar sugar and ethanol price equivalent trade-off as you guys. So my question is actually whether you think other mills will not be maximizing sugar in the second half of 2025 relative to ethanol because of the sugar price right now.
Mariano Bosch, CEO
Regarding the first question, we think that the yield is going to be very similar to the yield that we had last year. The area is going to be a bit higher because we are going to acquire a bit less third-party sugarcane. It is going to be flat year-over-year. We think that the TRS content is going to be slightly lower than last year, especially because of the frost and the sugarcane that we have been crushing in July and August because when we have frost, we are obliged to harvest the sugarcane before the ideal period. That's the reason why the TRS content is lower. Regarding the second part of your question, we think that the mills that are in the same situation as we are — that have the same ICMS system and the same distance to the port — should do the same strategy that we are doing. I don't know precisely how much it represents, but I think it's rational to do what we are doing now, which is maximizing ethanol over sugar.
Renato Junqueira-Santos Pereira, VP of Sugar, Ethanol and Energy
Yes, I think this is a good point but it's difficult to say because we start maximizing sugar. Even in Gerais in our Minas Gerais, we are still maximizing sugar — so the final number will depend on how it progresses from now on. I think in Mato Grosso do Sul, when we have a full year maximizing ethanol, we have 7% of potential to produce ethanol this year considering what has already happened. We think that we're going to finish the year in Mato Grosso do Sul with 60% max ethanol.
Operator, Operator
Our next question comes from Lucas Ferreira with JPMorgan. You can open your microphone.
Lucas Ferreira, Analyst
I have two questions. The first one, still on the sugar and ethanol business. Renato, can you discuss a little bit in your view what will be the trigger for you to start hedging next season? In other words, do you expect that the sugar market should, at some point, react to what is in your view and several other sugar and ethanol producers’ view, a weaker cane quality coming into the season? So what's the time you think of moving ahead with the hedges independent of the scenario? In your view, what's the trigger for sugar prices to move from here? The second question is regarding if you can speak a little bit about how the Tether entering the group changed or not the way you think about strategy. You've already mentioned the MOU that you mentioned in the beginning. So how you think about the way you analyze projects, the scope of investments, or how that is helping in reshaping or not just the way you think about growth? If you can comment on that, that would be great. Thank you.
Mariano Bosch, CEO
Thank you, Lucas, for your question. Renato will answer the sugar and ethanol part, and then I will take the third question. Renato?
Renato Junqueira-Santos Pereira, VP of Sugar, Ethanol and Energy
As I mentioned before, we think that the sugar price could react in the short term considering the impact of the Brazilian crop, both in yield and TRS content. As I was mentioning, if you compare it to last year, we had less 15% TRS per hectare than last year. We think that the market didn't realize it yet. I think as UNICA is going to start to release the numbers for August and September, it is going to be clearer, and prices should react, and then we should accelerate our hedging for next year. It's important to mention that we have already hedged 5% of our next year position at $0.178 per pound. We did this last week. As I also mentioned earlier, we have the flexibility to change the mix towards ethanol much more quickly than other players. So we are always more open in terms of hedging than the other players because we have this, I would say, higher flexibility. If you take the same period of last year, we were in a position very similar or even lower than the hedge position that we have today.
Mariano Bosch, CEO
Lucas, regarding Tether and the new shareholder, as we expressed from the very beginning, we are very happy with them as a shareholder. We have already gone through two Board meetings. We have our new Board with five new members and three of the existing ones. They are supporting and enhancing the culture of the company, enhancing our discipline on capital allocation. All the projects we are looking for are aligned with organic growth. Emilio just expressed what projects we are following, what the returns are, and the level of synergies we're achieving with each one of them. Our focus continues to be on the daily aspects of the business; we are going through lower results than we projected as you can see in the returns. About the test on Bitcoin mining that we're doing, it is a test. This is 5% of the energy that we are generating in Mato Grosso do Sul. It's a clear test, but we are enthusiastic about the potential returns we can get there. They appear very attractive, but we need to see them in action, ensuring we achieve our targets.
Operator, Operator
Our next question comes from Matheus Enfeldt with UBS.
Matheus Enfeldt, Analyst
If I could move forward to the crops business, particularly farming in general, we've seen pressure in margins coming particularly from cost in an environment where we're likely to see prices remain sideways for a good while, at least in our view. My question here is how you're seeing costs advance from here—if we could expect normalization into the second half of this year into 2026, if there are any developments on OpEx efficiency and CapEx efficiency that the company may look for given the tightness in the margins that we're seeing for the business. So those are my first questions. My second question, sort of a follow-up from the previous question on changes in strategy and the direction that the company is taking. I acknowledge that leverage is perhaps a bit higher than everyone was expecting. But are there opportunities for M&A in the sector, particularly in sugar and ethanol in Brazil, if this is the direction that the company could consider? If not in Brazil, then is there a preferred sector for inorganic growth that we could see at least being studied from here? Those are my two questions.
Mariano Bosch, CEO
Thank you, Matheus, for your question. On the farming in Argentina and Uruguay, I would like to divide it into the three business segments that we have. The dairy business, in that specific case, is not having the problem of prices and costs. So, that business is aligned with what was the previous year and is improving organically. Therefore, there is no issue in that specific business. Then on the second one, which is rice, there is a significant drop in terms of prices. Even though we have a very good low-cost production system for rice, and we have diversified as Emilio was explaining, the varieties to get better prices than the average price of long rice, overall prices are coming down, and we cannot do much regarding that. In terms of total costs, we are improving. That business seems relatively sustainable, and perhaps it may be slightly lower than the previous year, but for the following year, we can see it again at a similar level. The rice business as a whole is going through difficulties, but not that significant, although prices of long rice have gone down 50%. So that's a really relevant case. The crop segment is the one that is going through a challenging phase, specifically with soybean, corn, wheat, and peanuts. The more relevant one is peanut; the drop in prices of 40% in peanuts is adversely affecting the margins we are obtaining. These four crops are all in a specific rotation, and this segment is where we're currently showing the numbers for the campaign that is finishing. Now we are starting to plan the new campaign. For the new campaign, we started renegotiating leases of the land five months ago. So we're taking them down; we need to adjust costs and are working on reducing the total costs, where leases are one key element of cost reduction. Due to this reduction, we will be planting 30 to 35 hectares less than the previous year. This business is being reduced due to the results and returns we are getting. We're working to improve CapEx and OpEx efficiency; we've been investing more in CapEx and OpEx than crops in the last two years. Those investments are also helping us to lower our production costs or achieve positive margins even amidst price declines. Regarding your question about leverage, as you mentioned, we are increasing leverage. The primary increase is due to the reduction of EBITDA. We expect to end the year at around this 2x EBITDA, which is where we feel comfortable. We have always said that we don't want to be above that level. Despite this, we are analyzing potential inorganic growth opportunities because many assets are for sale in the Sugar and Ethanol space due to recent poor performance. We are growing organically, but we are also looking at potential acquisitions, ensuring that the returns of such endeavors are higher than our expected organic growth rates.
Operator, Operator
Our next question is from Isabella Simonato with Bank of America.
Isabella Simonato, Analyst
Hi. Good morning, everyone. Thank you for the call. Two questions. First, can you give a little bit more detail about the partnership to mine Bitcoin using your energy operations? Any disclosure on the terms, the length of the contract, and how this should essentially work? I think it's helpful to understand. And second, more on the shareholder structure; how is the company observing the recent stock liquidity? Is there anything in mind to eventually change that?
Mariano Bosch, CEO
Thank you, Isabella, for your question. Regarding the liquidity of the shares, the liquidity has been pretty reasonable. According to our history over the last 11 years as a public company, we are above the average trading volume that we've seen. So we are not seeing any issues regarding liquidity today. As for the details of the partnership for Bitcoin mining, this is a test. We are using 5% of the energy that we are producing, and while we want to make this happen, we lack clarity on the precise details of the agreement. However, we see this as a potential interest in selling our energy at an attractive price. Our calculations suggest selling at above $80 per megawatt-hour. This potential value motivates us to explore this further, but it remains contingent on various factors, and we need to see those conversions happening.
Operator, Operator
Thank you. This concludes the question-and-answer section. At this time, I would like to turn the floor back to Mr. Bosch for any closing remarks.
Mariano Bosch, CEO
Thank you all for joining the call. We hope to see you in our next meetings.
Operator, Operator
Thank you. This concludes today's presentation. You may now disconnect at this time, and have a nice day.