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Adecoagro maintains stability amid market shifts By Investing.com

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Adecoagro (AGRO), a leading agricultural company, reported its first-quarter 2024 results with a consolidated adjusted EBITDA of $90 million, holding steady compared to the previous year. Despite a decline in sugar prices affecting its sugar, ethanol, and energy segment’s year-over-year EBITDA, the company’s farming operations saw a significant recovery in yields, which helped to offset the impact of lower international commodity prices. Adecoagro also highlighted a strong capital allocation strategy, including a share buyback program and a commitment to growth, while maintaining a solid debt position.

Key Takeaways

  • Consolidated adjusted EBITDA remained consistent at $90 million year-over-year.
  • Record results in sugar, ethanol, and energy sectors due to expansion and efficiency.
  • Farming operations EBITDA increased by $25 million, with crops and rice segments performing well.
  • Dividend distribution of $35 million announced, with a $17.5 million installment in May.
  • Share repurchase of $27 million completed, reflecting confidence in the company’s value.
  • Net debt reduced by 23% to $639 million, and liquidity ratio improved to 2.9 times.
  • Company acquired rice mills in Argentina and Uruguay, with $29 million invested in expansion CapEx.

Company Outlook

  • Adecoagro plans to increase cane planting and sees growth opportunities in its sugar, ethanol, and energy business.
  • The company anticipates lower sugar and ethanol prices but expects increased production and diversification to balance the impact.
  • Adecoagro is consolidating its presence in Argentina and Uruguay through strategic asset acquisitions.

Bearish Highlights

  • Decline in sugar prices has led to a decrease in year-over-year EBITDA for the sugar segment.
  • Global supply constraints in the rice market due to adverse weather conditions.
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Bullish Highlights

  • Improved yields in farming operations have led to a considerable increase in EBITDA.
  • The company is optimistic about the ethanol market and may shift production to capitalize on favorable conditions.
  • Brazil’s new fuel law aligns with Adecoagro’s long-term strategy, potentially benefiting its biofuel segment.

Misses

  • The company is currently below the sugar price, which may affect profitability in the short term.

Q&A Highlights

  • Adecoagro is prepared to surpass its distribution policy, potentially increasing shareholder returns through buybacks.
  • The company remains cautious about unknown factors like weather and commodity prices.
  • Adecoagro is the first in the industry to adjust its production mix due to a tax rebate, indicating a strategic advantage.

Adecoagro’s earnings call reflected a business navigating market fluctuations with strategic investments and operational efficiencies. While the company faces challenges such as volatile commodity prices and global supply issues, its proactive measures in capital allocation and debt reduction showcase a commitment to long-term growth and shareholder value. Adecoagro’s approach to overcoming these hurdles, including diversifying its production and seizing market opportunities, positions it to remain competitive in the dynamic agricultural sector.

InvestingPro Insights

Adecoagro’s (AGRO) latest financial performance and strategic initiatives have caught the attention of investors and analysts alike. The company’s share repurchase activity and management’s confidence in its stock is a strong signal to the market. According to InvestingPro Tips, management has been aggressively buying back shares, highlighting their belief in the company’s intrinsic value. Additionally, the company’s high shareholder yield is another positive indicator, suggesting that investors could benefit from both dividends and share price appreciation.

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From a valuation standpoint, Adecoagro is currently trading at a low earnings multiple, with a P/E Ratio (Adjusted) for the last twelve months as of Q1 2024 standing at 4.89. This could imply that the stock is undervalued relative to its earnings potential. The company also boasts a strong free cash flow yield, as suggested by InvestingPro Tips, which is a testament to its ability to generate cash and potentially fund further growth or return capital to shareholders.

Looking at the real-time data provided by InvestingPro, Adecoagro has a market capitalization of $1090M USD, and its Price / Book ratio for the last twelve months as of Q1 2024 is 0.8, which could indicate that the stock is potentially undervalued compared to its net assets. Furthermore, the company’s liquid assets exceed short-term obligations, providing financial stability and flexibility.

For those interested in a deeper dive into Adecoagro’s financial health and future prospects, there are additional InvestingPro Tips available, which can be accessed with the coupon code PRONEWS24 for an extra 10% off a yearly or biyearly Pro and Pro+ subscription. This comprehensive analysis includes seven more tips, offering a detailed perspective on the company’s performance and outlook.

Remember, investing is always accompanied by risk, and it’s essential to consider all available information when making investment decisions. Adecoagro’s recent performance and market data present an intriguing case for investors looking at the agricultural sector.

Full transcript – Adecoagro SA (NYSE:) Q1 2024:

Operator: Good morning, ladies and gentlemen, and thank you for waiting. At this time, we would like to welcome everyone to Adecoagro’s First Quarter 2024 Results Conference Call. Today with us, we have Mr. Mariano Bosch, CEO; Mr. Emilio Gnecco, CFO; Mr. Renato Junqueira Pereira, Sugar, and Energy VP; and Mrs. Vitoria 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. After the company’s remarks are completed, there will be a question-and-answer section. At this time, further instructions will be given. 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.

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Mariano Bosch: Good morning, and thank you for joining the Adecoagro’s 2024 first quarter results conference. Consolidated adjusted EBITDA during the quarter reached $90 million, in line with our previous year. Our sugar, ethanol, and energy business reported a crashing record figure for the first quarter ever since we set foot in Brazil. This was possible thanks to all the investments done in expansion planting to have good cane availability. In fact, we were one of the only players harvesting and producing sugar we continued to command an attractive premium over ethanol during the quarter. Having in place a continuous harvest model enabled us to crush cane year around and to constantly supply new products to the market, especially during Brazil’s inter-harvest period, without mentioning that the higher the milling, the lower our cost of production. Despite this outstanding operational performance, the decrease in the forward curve of sugar prices was the main driver towards the year-over-year decline in adjusted EBITDA degeneration for this particular segment. Moving to our farming operations, the outperformance in all three operating segments shows the daily effort and hard work of our teams towards maximizing yields and still being the low cost producer. In crops, normal weather conditions translated into a significant recovery in yields, consequently into results, despite the lower international prices for soy, corn, and wheat. We are currently in the middle of the harvest season, therefore yields are still being defined, but we know that we are on track towards a normal operating year for this segment. Furthermore, having in place a sustainable integrated business model in our rice operation enabled us to capture an important year-over-year increase in the average selling price, as we were the only rice producers with available production when stocks were limited. This is so since we have flexibility to cater to both the domestic and export market with our high value added products. In the dairy segment, the significant recovery in crop yields led to a reduction in the cost of feed of our dairy cow, which is one of the main cost components for this business. Moreover, we continue working on product development for the domestic and export markets and taking advantage of our flexibility to supply both markets with our daily portfolio. Before passing the word to Emilio, a brief update on our distribution policy. On April 17, our Annual Shareholder meeting approved a total cash dividend distribution of $35 million. And in addition to this, we continue buying back shares under our program. We have already repurchased 2.6 million shares equal to 2.4% of the company’s equity. As you may see, we are committed to our distribution policy, while we continue investing in growth projects with attractive IRRs and maintaining our debt levels. To conclude, I would like to reiterate my gratitude to all our employees, contractors, and stakeholders for their hard work and commitment. Now, I will let Emilio walk you through the numbers of the quarter.

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Emilio Gnecco: Thank you, Mariano. Good morning everyone. Let’s start on page four with a summary of our consolidated financial results. Gross sales totaled $254 million during the first quarter, 3% higher year-over-year. This was mostly explained by greater sugar cane crush, which enabled us to increase our sugar production and execute sales at solid prices. In addition, our rice operations reported a 83% year-over-year increase in the average selling price, driven by limited supply both in the export and domestic markets. Adjusted EBITDA reached $90 million in line with the previous year. The outperformance of all the three of our farming businesses fully offset the decline reported in the sugar, ethanol, and energy business, which was explained by a loss in our biological assets driven by a reduction of sugar and ethanol price. Now please turn to slide five. Regarding our production figures, in the bottom right chart, we can see that crushing volumes in our sugar, ethanol, and energy business were up 47% versus the same period of last year. Higher crushing translates into higher production volume, thus increasing sales and diluting costs. Total production in our farming division reported a 19% year-over-year increase, explained by a fully recovering years after normal weather conditions experienced during the development of our crops, as well as to higher planted area. Let’s move to slide seven, with the operational performance of our sugar, ethanol and energy business. During the first quarter of 2024, crushing volume amounted to 2.2 million tons, an all-time record for our first quarter million figure. This was mainly explained by greater sugarcane availability, due to the expansion planting activities carried out over the past years. Regarding productivity, TRS per hectare remained in line versus last year as TRS content presented a 5% year-over-year improvement, reaching 117 kilograms per ton, while yields amounted to 70 tons per hectare. In terms of mix, we diverted as much as 49% of our TRS to sugar in line with our strategy to maximize production of the product with the highest marginal contribution, taking advantage of the high degree of flexibility of our mils. Within our ethanol production 91% was hydrous, compared to 29% in the previous year, as demand for this type of ethanol has been significantly increasing and gaining market share, offering the better margin. Let’s please turn to slide eight, where we describe sales conducted throughout the period. Net sales amounted to $103 million during the quarter, making a 7% increase compared to the same period of last year. This was driven by higher sugar sales on higher prices and volume, which fully offset the overall reduction in ethanol sales, due to the decline in selling prices. As you can see on the top left chart, our average selling price of sugar reached $23.8 per pound, thanks to our hedging strategy, which allowed us to capture the rally in global sugar prices. Moreover, selling volumes amounted to 120,000 tons due to the increase in production versus the prior year as a result of the higher milling. In the case of ethanol, selling volumes were up 11% versus the prior year on higher demand of hydrous ethanol, whereas the average selling price decreased 30% year-over-year. Lower prices were explained by higher inventory levers carried into the inter-harvest period, which resulted in more supply of ethanol in the market. Although the average selling price of energy increased by 2%, compared to the prior year, selling volumes were down 13% as we prioritized the volume contracted and saved our bagasse for more profitable alternatives. Regarding carbon credits, we sold over 80,000 CBios at an average price of $19 per CBio. 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 $52 million in the first quarter, 32% lower than the same period of last year. Despite the year-over-year increase in milling and sales, results were negatively impacted by a year-over-year loss in the market-to-market of our biological assets as the outlook of sugar prices is lower, compared to last year, coupled with higher freight costs and higher sugar sales. Finally, to conclude with the sugar-ethanol energy business, please turn to slide 10, where we would like to briefly talk about the current outlook. Rainfalls received over the last few weeks continue to favor the productivity of our plantation. Assuming weather going normal, we expect to increase our crushing volume versus 2023 as we have sufficient sugarcane availability to use our industrial capacity. This in turn will result in a reduction of in unitary cash costs due to better dilution of fixed costs. From a commercial point of view, the evolution of sugar prices will mostly depend on Brazil’s production and logistics. We have approximately 40% of our expected 2024 sugar production still ahead, while the balance was committed at an average price close to $0.24 per pound. In the case of ethanol, by the beginning of April, prices recovered 30%, compared to the lowest levels reported in early 2024. Consequently, we sold over 80,000 cubic meters of ethanol at an average price of $566 per cubic meter, profiting from the peaking prices partially clear our tanks. We believe ethanol prices have room to continue increasing due to the current low parity at the pump. Now, we would like to move on to the farming business. Please go to slide 12. We are currently undergoing harvesting activities for most of our grains. As of the end of April, we harvested 47% of the total area and produce over 600,000 tons of agriculture produced. Normal weather conditions registered throughout the yield definition stage of all our crops, favored crop development and led to a full recovery in yields. In the case of late corn, the Northern region of Argentina has been negatively impacted by spiroplasma, a bacterium which is conducted by a leaf hopper. This bacterium reproduces under tropical conditions as in Brazil and Paraguay and recently spread to the Northern Argentina even the high humidity and temperatures registered. Thus, approximately 15% of our total corn production was impacted in line with the decline in Argentina’s total corn production. Regardless of that, we are still focusing yields in line with historical levers since our geographic diversification enabled us not only to mitigate weather risk, but also this type of diseases that may affect a given crop in a certain year. Lastly, we have already harvested 88% of our rice, reaching an average yield of 6.5 tons per hectare. Although it was a challenging campaign, due to the pollution of weather conditions throughout the different growth stages of our rice, we were able to obtain an improvement in yields. On the following page 13, we present the financial performance of our farming business. Adjusted EBITDA for the farming business totaled $44 million in the quarter, making a $25 million year-over-year increase. Higher results are mainly explained by an outperformance in all three segments. Before going into the results of each operating segment, I would like to briefly recall that we have modified our internal reporting to refine the way we view our farming business and its interaction with our land transformation activity. Consequently, we recast previously reported segment financial information. Adjusted EBITDA for our crops segment amounted to $5 million in the first quarter, making a $6 million year-over-year increase. This was fully driven by the recovery in yields, which resulted in a $15 million year-over-year gain in the mark-to-market of our biological assets. Subsequent to the end of the quarter, we completed the sale of the La Pecuaria farm located in the province of Durazno, Uruguay, for a selling price of $21 million collected in full at closing. This transaction generated an adjusted EBITDA of $15 million, which will be booked in our crop segment in the second quarter. Adjusted EBITDA in our rice segment was $33 million, $19 million more than the same period of last year. This was mainly explained by a $13 million year-over-year gain in the mark-to-market of our biological assets on a better campaign in terms of area, productivity and prices. Moreover, we were able to capture an average selling price of $433 per ton higher than the prior year, as we were the only rice producer with available stocks at the moment when rice supply was limited. Moving on to the dairy segment, adjusted EBITDA totaled $6 million, 5% higher than the prior year. Results were positively impacted by a year-over-year decline in our cost structure, mainly related to the cost of feed. As our in-house production recovered, lower crop output reported during the prior year due to the dry weather. Let’s turn now to page 15, where we would like to present our capital allocation strategy. According to our distribution policy, we are committed to a minimum distribution of 40% of the cash generated in the previous year via a combination of cash dividends and share repurchase. In 2023, we generated $176 million of net cash from operations. Consequently, our minimum distribution amounts to $70 million during the current year. In terms of dividends, a dividend distribution of $35 million was approved during our annual shareholder meeting held on April 17. First installment of $17.5 million will be paid on May 29 and represents approximately $0.17 per share, whereas the second installment shall be payable during November in an equal cash amount. In addition, we have already repurchased $27 million in shares under our buyback program, which represents approximately 2.4% of the company’s equity. Please turn to page 16 for a broader view of our debt position. Net debt amounted to $639 million, making a 23% decrease, compared to the same period of last year. This was explained by a significant reduction in the gross debt position as a result of our financial strategy carried out during 2023 and the first quarter of 2024, and also better results from operations. As shown in our financial figures, the reduction in our net debt position was done without disattending our distribution policy and growth projects. As of March 31 2024, our liquidity ratio reached 2.9 times, showing the company’s full capacity to repay short-term debt with its cash balances, whereas our net leverage ratio was 1.3 times, 0.6 times lower, compared to the previous year. On the following slide, we describe our capex problem. Expansion CapEx represented $29 million in the first quarter of 2024. In Brazil, we continue increasing our sugarcane plantation, investing in our biogas unit in Ivinhema mill, where our biomethane production takes place. In our farming business, we paid the third and final installment of the acquisition of Viterra’s rice mills in Argentina and Uruguay to expand our geographic footprint in rice portfolio. Thank you very much for your time. We’re now open to questions.

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Operator: Thank you. The floor is now open for questions. [Operator Instructions] Our first question comes from Henrique Brustolin with BTG.

Henrique Brustolin: Hi, hello everybody. Thanks for taking my questions. I have two, I think both of them for Renato in the sugar and ethanol business. The first, I would just like to hear a little bit more about how is — what’s your view behind what’s happening to sugar prices, right? We saw this sharp contraction in recent weeks. So how do you, what do you think is behind it and what do you expect for the remainder of the year when it comes to sugar, right? And the second one, also in sugar and ethanol, is how that changes the company’s perspective in terms of results for the year, right? We are seeing the hedging position was already pretty advanced. Ethanol prices are stronger at the margin, but the sugar curve is now lower, and on the other hand you also have, I think, a good perspective in terms of unitary costs. So if you could just discuss a little bit on how that changes or how is the view in terms of results for the whole crop season, even when compared to the previous one, I think it would be very helpful. Thank you.

Mariano Bosch: Hi Enrique, this is Mariano, thank you for your questions. The second question is talking about the impact on the results. It is important to understand that the sugar price, although we have already fixed 57% of the price at a much higher price than today’s prices, there is an impact on the biological assets. So that’s why the EBITDA is reduced and that’s what we explain in the numbers. For the full-year, the same concept would be there in terms of the biological asset impact. So we can expect on the whole sugar and ethanol business to be lower than the previous year, although there is an increase on production, efficiencies, et cetera, but we can also see an increase on the other crops that will probably compensate that reduction on the sugar and ethanol sector. So making this quick clarification on what we expect, I would like Renato to go deeper in terms of what’s our view on the price of sugar and what could happen one way or the other.

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Renato Junqueira Pereira: Hi Henrique. So I think it’s important to talk a little bit about the price of sugar and ethanol, because both are important to see how our price is going to be. So, starting with sugar, we think that with the perspective of Brazil, you produce 42 million tons, 43 million tons of sugar. The market projections have moved from a small deficit to a small surplus, but the stocks worldwide is still very low. Actually, the stock to use ratio is one of the lowest, I think it’s the lowest since 2011, and the supply is very dependent on the Brazil’s crop. So any news about the reductions in the Brazilian crop, any weather issue, it can trigger an increase in sugar price. We are — as Mariano mentioned, we are 57% hedged at [23.6 cents] (ph) per pound. And we are very optimistic about the ethanol or very constructive about the ethanol scenario in the short-term. So we think that it is very likely that we are going to change the mix in Mato Grosso do Sul at some point in the second semester. And we are very constructive with ethanol scenario, because we think that the supply of ethanol is going to be lower this year as the sugarcane crushing in Brazil is going to be lower than last year, which was a high crushing season, between 5% and 10% lower. I think the mix is going to be even more oriented to sugar 3% or 2% more than it was last year that was already very high, 49%. So as a result, the ethanol supply is going to be lower between 2 billion liters and 3 billion liters, which is much more than enough to compensate that small increase in the corn, ethanol increase. And the demand of ethanol has been very high. Actually, the ethanol demand increases 60% since January, and the part that depends is still at 65%, so very competitive — ethanol is still very competitive. Ethanol demand monthly, hydrous demand is reaching almost 2 billion liters of ethanol. So we think that the S&D of ethanol is very tight. So price has to move towards the 7% part to curb demand at some point. And in this situation, we are going to change the mix from sugar to ethanol, we believe.

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Henrique Brustolin: That’s very clear. Thanks very much.

Mariano Bosch: Thank you, Henrique.

Operator: Next question from Isabella Simonato with Bank of America.

Isabella Simonato: Hi, Mariano, Emilio. Good morning, thank you for the opportunity. I have two questions, first of all, on the rice business, right? We have been seeing a pretty big freezing prices, right? And even the prices that you guys delivered in Q1 calls a lot of the attention, but I would like to hear from you how do you see rice pricing dynamics right especially considering a potential impact in the South of Brazil. So if you could elaborate a little bit on the outlook for the rest of the year? I think would be quite helpful. And second question is on capital allocation, right? As you mentioned, you guys are finishing some CapEx right on sugar and ethanol and also on the rice business. So I was wondering what could we expect next right in terms of CapEx and potential investments, if there’s any? Thank you.

Mariano Bosch: Sure. Thank you, Isabella. On your first question regarding rice prices, that I think it is important to understand the international general rice prices and our particular increase in terms of rice prices. As we’ve been talking before, we have this model where we are developing the genetics to produce at the farms and then process at the mills and then sell it to our specific clients where we are developing this whole chain attending to the needs of our specific clients. That is important to understand that there is a portion of that increasing prices that is specific for the increasing, we call it quality, but is the selling the right price to the guy that is asking wherever in the world we are selling this rice. So that is a part of the answer or the increase in prices. There is another part of the increase in prices, this is very important in this quarter, that is the ability to sell in the domestic market and in the export market. So as there was a lack of rice in the region, we were able to capture a benefit in the domestic prices in terms of those prices. And going forward, we continue to see the strategy and we are working every time more with the strategy. And I think it was very important to develop the strategy what we did last year in increasing or two years ago in increasing and buying these Viterra assets of rice Uruguay and consolidate our whole footprint in Argentina and Uruguay to continue absolutely in line with this strategy. Furthermore, the global supply of rice of the region is being lower than the average and probably within the lowest of the last years in terms of the total production of South America. And this total production has been affected by, in general terms, lower yields than the average, because of the planting was late and then at the harvesting time it was too rainy so that happened to the overall area and on top of that we had this sad situation in Rio Grande do Sul, that is also, Rio Grande do Sul is a very important state in terms of the total supply of rice for the region. So we still don’t know how much this will affect, but there is some, of course, effect on this lack of supply. So that’s the overall concept for the rice business. I don’t know if you want to make any clarification. So going to your second question. Sorry Isabella…

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Isabella Simonato: No, no, I was going to say that it was clear. Thank you.

Mariano Bosch: Okay. So, going to the second part of your question and regarding capital allocation and CapEx, as Emilio explained pretty well in his last two slides of the presentation, we are complying with our distribution policy, while being very consistent there. And as you can see, we are well advanced in our buyback program and that has been the case because we saw an opportunity on buying back shares and the returns we are obtaining there and we may see that opportunity to continue to be there. So we’ll see, but there is a huge potential for increasing there or to go. The policy talks about the minimum, doesn’t talk about how much we can do. So that is one indication. And in the other part of the question regarding CapEx, we are seeing a very good opportunity in our old sugar, ethanol and energy business. And as Renato has been explaining so many times, the competitive advantages that we have there in the cluster that we are seeing today on how we’ve been harvesting during this inter-harvest period, we continue to grow there and we continue to see this growth path that we are going and today particularly you can see in the report that we’ve been planting more cane in the right moment that is in this first quarter. So we are happy with what we’ve been investing there and that can continue to happen, consolidating the full plantation of what we are doing. And on top of that, this law of fuel of the future that the Brazil has just passed or sorry it’s still to be passed in the Senate, but it has already been passed in the lower house. I think it’s very much aligned with what we are doing there in Mato Grosso do Sul, that gives us a lot of enthusiasm on the long-term view of what we are building there and how efficient we are being there and totally aligned with Brazil’s policy as a very long-term trend. So that’s why you can see those CapEx in sugar and ethanol continue to be there. And then particularly in the rice business, this also has been a very good investment what we did two years ago on this Viterra opportunity that we were talking. And now that is having small increases in terms of production that is the key as in sugarcane we talk about the sugar — in the sugar and ethanol business, we talk about sugarcane in the rice integrated business. The most important portion is the total production of rice. So producing rice is something important for us. And we are doing some growth there in terms of the total production of rice. So that is a CapEx that we’ll continue to see on this consolidation. And again, small synergetic projects in the whole chain of the rice business since the genetics till the final consumer that we always find small projects to continue improving there. Then, the whole daily system and the processing that is doing pretty well and this opportunity in the domestic market and some benefits that Argentina is having today in this particular business of daily. We can also see some improvements and small projects that continue to happen and continue to increase efficiency. All of them with very attractive returns. And when I talk about very attractive returns, I’m talking about above 20% and levered IRR is what we are getting there in all these projects. So that’s a quick summary on how we are seeing this total CapEx and capital allocation in general.

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Isabella Simonato: Thanks for the detailed explanation. Thank you.

Operator: [Operator Instructions] Our next question comes from Larissa Perez with Itau BBA.

Larissa Perez: Good morning Mariano, Emilio, Renato, Victoria, [Indiscernible]. Thank you for taking my questions. I actually have two follow-ups. The first one would be for Renato and it’s a follow-up on Henrique’s question. I was just wondering, it was mentioning that the company expects to increase sugarcane crushing this year and you were just explaining how this could have a material impact on unitary costs given the fixed cost dilution effect? So I was wondering if you could please give us some color on the size of this increase in crushing expected for this harvest and or in the drop in the unit costs expected for this harvest? That would be my first question for Renato. And my second question is for Mariano and it’s actually a follow-up on Isa’s question. You just mentioned that you have the policy to distribute at least 40% of your adjusted free cash flow from operations. I was just wondering under which circumstances would the company consider increasing distribution even further? Because as you said, 40% is just the minimum. So I was wondering what could make a Adeco distribute even more than 40%. Those would be my 2 two questions. Thank you so much.

Mariano Bosch: Thank you Larissa for your question. I will ask Renato to go on more details on this crushing and then I will take the other one.

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Renato Junqueira Pereira: Hi Larissa, thank you for your question. So as it was mentioned, we have been investing in our sugarcane fields, growing our sugarcane fields. So that’s the reason we have a record crushing in the first quarter. We initially thought that we’re going to have a yield higher this year than last year, but since the weather is a bit drier now, we think the yields are going to be quite in line with the yields that we had last year. But due to the increase in area, we think that we are going to crush more cane than last year. I would say around 5%, the crush is going to be 5% higher than last year. And of course, it is going to help our costs. So we think that we have potential to decrease our costs between 5% and 10% as a consequence of the volume, because of the dilution. And also because there are some maybe some gains in price of sugarcane. [Bonsucro] (ph) is a little bit down. Even price of alternative crops in the region are down. So maybe leasing rates is going to be lower so we think that 5% to 10% decrease.

Mariano Bosch: Thank you, Renato. Larissa and to be more specific on what we’ve been talking about capital allocation and you mentioned about under what circumstances we can increase the distribution policy. You can see that in today’s circumstances, if we continue to do the same that we’ve been doing, we would of course surpass the distribution policy and distribute through buybacks more than what the policy requires. That is a very quick answer. But we still need to go the full-year ahead. The year has unknown things that on weather, on prices. So we still don’t know what our EBITDA is going to be this year. So of course, we also take into account that and how we are projecting our annual EBITDA that today we are projecting, as I mentioned at the beginning, very much in line with what we had last year. And we are also following very closely all our investment projects. We have room for both of them and the debt levels that you’ve seen today and as we’ve been decreasing in the last years the level of debt that we have, we are beyond, so we still have room for doing both of them. But that’s something that we make decisions as we go through the year.

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Larissa Perez: That’s super clear. Thank you, Renato. Thank you, Mariana.

Operator: [Operator Instructions] Our next question comes from Julia Rizzo with Morgan Stanley.

Julia Rizzo: Hi, hello everyone. Thank you for getting my question. Renato, I would love if you could share your view. It’s — now that sugar prices went down and the discount from ethanol to sugar have narrowed significantly. At what point it’s — you decide to switch, it’s no longer more interesting for you to stay max sugar and start to switch in your production to produce ethanol instead of sugar? If that changes also your outlook, your scenario for expecting higher ethanol prices likely on second-half of the year?

Renato Junqueira Pereira: Hi, Julia. Thank you for your question. As I mentioned, we are optimists about the ethanol perspective in the short-term, especially because of the supply that is lower, as it was mentioned. The demand is very, very high. So today in Mato Grosso do Sul, our ethanol equivalent, hydro-ethanol equivalent is $0.17 per pound. So we are still a bit below sugar parts. But we think the scenario of ethanol is going to keep improving. And we are going to reach the $0.18, $0.19 per pound at some point in the future. And then we will change the mix to produce as much as ethanol as possible in Mato Grosso do Sul. So this 57% that we have hedged in sugar is considering a max sugar scenario. So if you consider that we’re going to change the mix, this 57% is more than that. So I think that’s going to be the case in the near future.

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Julia Rizzo: But when do you think the industry will start to rethink the max sugar? What is the minimum discount for ethanol?

Renato Junqueira Pereira: Since you are in Mato Grosso do Sul and we have the IMS tax rebate, we are the first ones to switch mix, so the rest of the industry has 200 points of difference. So today we are at 17, the rest of the industry is close to 15.

Julia Rizzo: Okay, thank you very much, I appreciate that.

Operator: 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: Thank you everyone for participating on our call and hope to see you in our upcoming meetings.

Operator: Thank you. This does conclude today’s presentation. You may disconnect at this time and have a nice day.

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