Good morning, ladies and gentlemen, and thank you for waiting. At this time, we would like to welcome everyone to Adecoagro's Fourth Quarter 2018 Results Conference Call. Today with us, we have Mr. Mariano Bosch, CEO; Mr. Charlie Boero Hughes, CFO; and Mr. Juan Ignacio Galleano, Investor Relations Manager. 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 presentations. After the Company’s remarks are completed, there will be a question-and-answer section. At that 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, it depends 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 would like to turn the conference over to Mr. Mariano Bosch, CEO. Mr. Bosch, you may begin your conference.

Good morning, and thank you for joining Adecoagro's 2018 fourth quarter results conference. We are very pleased to present our 2018 financial and operational results. As you may all be aware, 2018 has been a challenging year. On the one hand, the harvest in Argentina was affected by one of the worst droughts in the last 50 years. On the other hand, sugar prices traded at their lowest levels for the last 5 years. In this scenario, however, we delivered strong results in all of our businesses. This was only possible thanks to our continuous focus on efficiencies and in being the lowest cost per user. Starting with Sugar, Ethanol & Energy business. As part of our 5-year plan, we reached total crushing of 11.4 million tons, that's 11% higher than the previous year, continuing to reduce our cost of production. As a matter of fact, that cost was $0.094 per pound, one of the lowest in the industry. At the same time, we continued maximizing the production of ethanol during the fourth quarter in order to profit from higher ethanol-related prices. On the full year basis, 74% of total TRS produced went to ethanol, making us one of the producers with a highest degree of flexibility. Considering that, during 2018 ethanol traded at a 25%, 30% average premium to sugar. This is a clear competitive advantage as we are maximizing returns. As for our expansion project, sugarcane availability is the critical factor. In this line, 90% of the total hectors needed to fully supply the 3 million tons of growth of crushing capacity have been successfully secured. More importantly, terms and conditions were maintained and in some cases, even improved. So we see that possibility to continue reducing our cost of production. Moving now to our Farming and Land…

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 you can see on the left side of the chart, rainfalls in the fourth quarter of 2018 were only 7% lower than the previous year. However, rains were evenly distributed last year. Indeed, rains in November and December were significantly lower compared to the fourth quarter of 2017. This allowed us to accelerate the pace of milling, profiting from higher cane availability as we have been actively engaged in planting operations over the past 3 years as part of our 5-year growth plan. I would like to remind everyone that sugarcane cannot be harvested when the soil is wet because the heavy combines and trucks may damage the sugarcane roots and the soil, negatively affecting future yields. Let's move to Page 5 to see the impact on our crushing activities. Total sugarcane crushed during the fourth quarter of 2018 reached 2.7 million tons, marking a 25% increase compared to the fourth quarter of 2017. This was mainly explained by 23% increase in effective milling days as a result of better weather conditions, coupled with enhanced operational efficiencies. On a yearly basis, sugarcane milling increased by 11%, driven by higher sugarcane availability, together with higher operational efficiencies in all of our mills as a result of industrial crushing capacity enhancement in Angelica mill coupled with a 5% increase in effective milling days. Please turn to Page 6, where I would like to highlight agriculture at the fields. We remain fully focused on agricultural productivity since we understand that it's one of the most important drivers for becoming a low-cost producer. Over 70% of total production costs are related to sugarcane production at the field. As a result,…

Thank you. The floor is now open for questions. [Operator Instructions] The first question today comes from Danniela Eiger with Bank of America. Please go ahead.

I have two questions, the first on sugar and ethanol business. I wanted to ask you if you can comment on your outlook for the next season in terms of yields given the, how the weather has evolved in the beginning of the year here in Brazil? And also in terms of the mix, should we expect you to continue maximizing ethanol in which a mix similar to what we saw in 2018? That is my first question. And the second question, just wanted to do a follow-up on your comments, Mariano, regarding free cash flow, just to make sure I understand. For 2019, we should still expect some limited cash flow regeneration as you should deliver the pick of your investment cycle of your 5-year plan, and in 2020 we should start to see a stronger free cash flow regeneration, is that it? And also, regarding the potential change on your distribution policy, that would, if that is indeed changed, we should, would see dividend payments already in 2020.

Danniela, thank you for your questions. I'm going to take the last part of your question and then Renato will get into details on the first part of your question regarding yields and mix. So regarding the cash flow generation, you are absolutely correct, 2019 is a year where we are doing most of the CapEx of the 5-year plan, so we finished most of the CapEx of the 5-year Plan. So the cash flow generation will be strong in 2020. So regarding when is it that we are analyzing the way on how to pay this cash flow to our shareholders and how is it that we are going to be implementing is what we are currently discussion, we are currently discussing. We are discussing this between the senior management and board, and we'll figure out how is it that we are going to be paying this strong cash flow generation in 2020. And we start that same year or how and how to pay, this is a discussion that is happening this year. Then on the yields and the mix for this current year, Renato can you answer Danniela's question, please?

Yes. So regarding the yields, similar to the rest of the Center-South region, the yields were negatively impacted by drier weather in December and January. However, in February and March, rains have returned to its historical level, so improving our sugarcane fields outlook. Therefore, we expect yields between 85 tons and 90 tons per hectare, considering normal weather conditions from now on. Regarding the mix, we should keep maximizing it on our, in our views. As in our view, ethanol should continue to be the most profitable in '19. The combination of rising demand and stagnant production should lead to a tight S&D scenario consequent to results in the high historic levels compared to '18. Furthermore, as the average portion of our ethanol volumes come from Mato Grosso do Sul, the tax rebate provided by the state should keep us maximizing ethanol. As a matter of comparison, hydrous in Mato Grosso do Sul is currently equivalent to $0.16 per pound and anhydrous to $0.17 per pound, premium was 29% and 37% over sugar, respectively. It's important to highlight that our ethanol flexibility is higher compared to the average of the Center-South. In 2018, we were able to reach 75% ethanol mix while the Center-South average was 65%.

That's super clear. And if I could only do a follow-up on the first question. You mentioned about distribution and how about share buybacks? Are you also looking into that as you wouldn't need to change anything like approve any policy change, right?

Yes, Danniela. We are also looking into that. That's why I'm talking about returning capital to shareholders. So we are analyzing what would be our new policy in terms of dividends and buybacks and that's, of course, is both analyzed when we are making this discussion.

[Operator Instructions] The next question comes from Javier Martinez with Morgan Stanley. Please go ahead.

Hi good morning Mariano and Charlie. Sorry to keep asking again about the dividend. In my numbers, you are going to be able to generate more than 20% free cash flow yield soon and with low risk. So Mariano, what is the discussion? What is the -- so I don't understand what is the -- so can you give us some color on the nature of the discussion, on the points of the discussion? Why do we have a discussion -- do we have any risk that you announce a new expansion plan in 1, 2 years? Or you are going to pay dividends to the shareholders?

No. It's clear that we are going to return capital to our shareholders. That is absolutely clear, and there is no discussion about that. So what we are discussing is how is it that we are going to implement that and at what time, at what point of 2020. So in 2020, we are going to be and we are very confident that we are going to be in a strong cash position. So assuming that in 2020 we are in that strong cash position, we are going to be returning capital to our shareholders. That's no discussion about. The discussion is how to implement this policy, how much dividend, how much buyback and how to structure that. That's the discussion that is within our company today, including board and senior management.

Okay. So you are coming with a proposal to the board probably for April this year, and we will know we have a decision on this probably after April, that's the idea?

We don't know exactly when is it that we are going to be clarifying what our policy is going to be. I would like to -- we have a clear view that 2019 is where we need to finish our 5-year plan. And so on '19, there is no major decision to be taken. So by the end of '19, we should know exactly how is it that we are going to distribute dividends or buybacks or both in 2020. So that's why I don't see a hurry to -- for that to happen in April of this year. I think by the third quarter of this year, we should be clarifying to the market exactly how is that we are going to be returning capital to our shareholders.

Okay, clear. Thank you, Mariano. A question now on SanCor. So now that you have the actual...

SanCor has nothing -- just to clarify, SanCor has nothing to do with that. Is it Javier?

Yes, yes, yes.

So the question about the dairy plants, if you want to ask any question about the dairy plants or dairy segment, happy to answer, and we are very happy to talk about the dairy segment.

Yes, agree. So it's a parallel question. It's a new question. It's on the -- I'm trying to understand, I mean, how fast and how far the generation of synergies is going to be happening on SanCor? So I'm trying to understand if SanCor already going to generate incremental EBITDA in 2019 so to try to -- because it's a new business and so we have less visibility on that. So how EBITDA is going to be impacted by -- if you can give us some color on that will be helpful. Thank you.

Yes, of course. That's, again to clarify, we never thought about the impact on SanCor. SanCor is a different company. We didn't acquire SanCor. That's a totally different company.

No, what I'm talking, not about SanCor, I'm talking about the plants, about the...

Okay. Now we are talking. Okay, so we are talking about 2 plants and as we explained in my introduction, I think Charlie's detailed explanation on how this work has synergized and what is the profitability that we expect from these 2 plants in the synergy with the rest of the dairy segment. We expect to generate about 20% return, 20% to 25% return on the CapEx that we are investing today. We are investing this $45 million that if we include some additional CapEx or working capital, we actually are talking about the round $50 million. So if we are expecting to get 20% to 25%, we are expecting to reach to between $10 million to $12 million or $15 million of EBITDA once stabilized. We expect to stabilize this in 2, 3 years. That's the timing on when we expect to stabilize and to generate this type of EBITDA. How is it that this will impact in 2019 and '20? In '19, we can expect that this is the takeover moment, the transition year. So in '19, we shouldn't expect a lot of results. But in 2020, it's clear that we should expect more near the stabilized number. So 2019 is the year where we are starting and we don't want to compromise, and we are being very conservative on this 2019 year. But in 2020, we should be more near the stabilized place than what is going to be 2019.

So 2020, you have already positive EBITDA? 2019…

We do expect positive EBITDA in 2019 also. In 2019, we do expect positive EBITDA, but not relevant EBITDA as we do expect in 2020. And in 2021 and 2023 is where we expect to be stabilizing this business on the numbers that we just said.

Your next question comes from Juliana Oliveira with Bank of America.

So I want to understand the strategy on the higher cash position. Are you planning to use this cash increase to finance the 5-year plan? My concern is whether this use of cash could pressure leverage? That's it.

Thank you, Juliana. Charlie will answer your question.

Juliana, we have already spent the money to, for the acquisition of the 2 milking plants, and we don't expect that we will be increasing significantly our leverage level as this acquisition will be financed by the cash that we are generating at the operation keeping in mind that net cash from operation in 2018 is roughly $80 million. This is after paying taxes, working capital, maintenance CapEx and interests. So a part of that cash that we are generating at the operation will be used to finance our expansion CapEx, which is aligned and in compliance and on schedule and on budget with our 5-year growth plan. So we maintain our objective, our target to be at 2x net debt EBITDA ratio regarding our leverage levels.

[Operator Instructions] The next question comes from Fernanda Cunha with Citibank.

I have a question on the crop side. You mentioned on the press release that U.S. and China has, had a temporary truce, right, into trading tension. What can we expect in terms of prices in the next 6 months, please? And the second question is regarding ethanol hedge. We have been hearing from a lot of your peers that you have been accessing the market to hedge a slightly higher amount of ethanol, and I'm just wondering if you're following the same strategy? And how can we think of average prices for the next half year?

Fernanda, can you repeat the first part of your question on the release that we couldn't…

Yes.

Yes, that we couldn't understand well, what was the point of…

All right, sorry. No, you mentioned on the press release, right, a temporary truce on the trade tension between U.S. and China, and I'm just wondering, how you see that affecting crop prices in the next 6 months?

Okay, clear. Thank you. I'm going ask Marcelo Sanchez to answer this question.

Thank you, Fernanda. Yes, we have been witnessing the impact of U.S.-China tensions and the latest trade notification within the last month. That has impacted already the prices. Since -- if you remember since the last G20 in Argentina, when the prices had spiked in the way of 20%, then the movement on the pricing went ups and downs when the possibilities of the trade was closing to a positive outcome. And now, we are in the lows of the prices already in soybean and corn mainly -- besides that, would have been -- that soy prices have been affected because the inventories are in the highest level and that also has been adding to the growing prices. Of course, besides that, the farm position also has grown to a record short. And we think that in the next coming months that might be providing fuel to corn and soy prices, and we will be witnessing a rally if we have any weather event coming after the U.S. planting. That's basically what I can say about the impact on the trade.

And if I may just follow-up, when you say...

You mentioned something about changing ethanol, we're not doing so, that's not. Last year, we had a hedging strategy using the [indiscernible], but not this time so far. I mean, we are in a level of $0.16 per pound ethanol equivalent so far, then we are speeding up the sales. In terms of the economy strategy that took place that we carried out in the end of December, we enjoyed the rising prices occurred February onwards that allowed us to capture almost 12% in a month from tariff premiums, and our strategy now is to take advantage of corn prices that as Renato was saying, we are in Center-South, in Mato Grosso do Sul, we are obtaining $0.16 per pound sugar equivalent. And that's basically -- I don’t know if you have any questions.

Sorry, if I just may follow-up on this last question. I don't think I understood. So when you say you are speeding up the sales, it's regarding to the 2018-2019 crop, right? I'm asking if you're doing any kind of hedges for the next crop year? So if you're taking advantage of the prices right now to hedge for your next crop year?

No. We are not doing hedges on the ethanol for next year. Because this says that we are speeding up are part of the current strategy of the previous crop and part of what we are harvesting this year because remember we have this continuous harvest where during January, February and March, we are crushing, and we are doing 100% of ethanol because of these relative prices. So that's what we are selling today. That is part of this year also because of continuous harvest that we continue harvesting during summertime.

[Operator Instructions] This concludes the question-and-answer section. At this time, I would like to turn the floor black over to Mr. Bosch for any closing remarks.

Okay. Thank you for your questions. Thank you for your participation, and hope to see you in our upcoming events.

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