Good morning, ladies and gentlemen, and thank you for waiting. At this time, we would like to welcome everyone to Adecoagro's Second Quarter of 2020 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. [Operator Instructions]. Before proceeding, let me mention that forward-looking statements are based on the beliefs and assumptions of Adecoagro's management and on information currently available to the company. They involve risks, uncertainties and assumptions because they relate to future events and therefore, depend on circumstances that may or may not occur in the future. Investors should understand that general economic conditions, industry conditions and other operating factors could also affect the future results of Adecoagro and could cause results to differ materially from those expressed in such forward-looking statements. Now I'll turn the conference over to Mr. Mariano Bosch, CEO. Mr. Bosch, you may begin your conference.

Good morning, and thank you for joining Adecoagro's second quarter results conference. As we all know, this quarter was marked by the spread of coronavirus disease and the global economic slowdown. In such difficult times, our main concern was to continue running all our operations, while ensuring the safety of our people by imposing strict protocols to provide a hygienic and secure working environment. After all the measures taken, we were able to continue operating all our businesses on a regular basis in spite of the pandemic. We were in a solid position to cope this challenging macroeconomic context, thanks to having a diversified broad portfolio. The quality of our assets, the flexibility to adapt to changing scenarios and our constant focus on being local producers, all this has allowed us to maintain profitability even under current circumstances. It has not been easy, but all the hard work put by our teams in the field every day have paid off. In our Sugar, Ethanol and Energy business, the impact of the disease led to a significant drop in the demand and prices of ethanol and energy, presenting a very challenging scenario for the industry. We rapidly reassessed our strategy to adjust to the new context. Starting by switching our product mix towards maximizing sugar, which traded at a premium to the ethanol. Indeed, we diverted 54% of the TRS to sugar production compared with 25% during the second quarter of 2019. In addition to this, we reduced our crushing base, sized down our operations in tandem with a lower volume, implemented cost reduction initiatives and postponed uncommitted expenses. Our rapid response, especially under such a sudden change in market conditions, allowed us to continue selling our products with the highest marginal contribution and make a more efficient use of our…

Thank you, Mariano. Good morning, everyone. Please turn to Page 4. Where I would first like to take a moment to comment on how the dynamics of the Brazilian Sugar, Ethanol and Energy business have been impacted during the second quarter of 2020, as it will be instrumental to understand the decisions we've made throughout the quarter. During this period, Brazilian ethanol business experienced a decrease in prices and demand, mainly explained by the fall in international oil prices, as can be seen in the top left chart, caused by the oversupply of oil generated by the geopolitical conflict between Russia and the Kingdom of Saudi Arabia. This translated into a decrease in the price of ethanol due to the correlation they maintained as can be seen in the top right chart. And by the reduction of people circulation in Brazil as a protective measure in response to the COVID-19, which lead to a natural decline in the demand for fuels and biofuels, such as ethanol, as can be seen in the bottom left chart. The impact of these factors caused the industry to experience a challenging second quarter of the year. April was defined by uncertainty regarding the extent of COVID-19 impact. Indeed, estimates pointed to a 50% year-over-year decrease in demand for ethanol. Actual figures, although less negative, still painted a challenging scenario. On a year-over-year comparison, ethanol demand in Brazil declined 28.6%. Ethanol prices experienced a 25% decrease and international oil prices experienced a sharp decline as well. In addition, ethanol stock levels were high due to carryover from 2019. Mills across Brazil switched their mix to maximize sugar, which presented higher relative prices, thus limiting the supply of ethanol. During May, international gasoline prices experienced a recovery, and there was a 21.8% month-over-month increase in demand…

[Operator Instructions]. The first question comes from Pedro Soares from BTG Pactual.

I have two questions here on my side. But the first one on sugar and ethanol. Could you provide a bit more color on your sugar hedge strategy going forward? We saw hedges for the current crop ramping up this quarter, right? So we're still a little bit below than what we imagined it would be. So it would be nice to hear how this been evolving already in July, August? And also and maybe even more important, it will be interesting to hear about hedges for the next crop with the 2021, '22 harvest as well. We've been seeing a lot of discussions on how Brazilian millers have been accelerating hedges for the next year as well. But the thing is that Adeco hasn't started yet. So should we take from that, that you guys are confident that there is still room for sugar prices to go much beyond where we are today, at current sugar price levels? Any color would be great there. And the second one on your capital allocation. CapEx is obviously down year-to-date, probably due to all of the initiatives taken, as you guys said, by the company to address the pandemic and its impacts. But also, there is a part of this reduction, which is probably related to the fact you guys were already entering the final phase of your 5-year expansion plan, right? So how much of this reduction should we assume as a recurring basis? And it would be nice to have a sense of what should be the cruising speed for CapEx for the next quarters for the group as a whole?

Okay, thank you, Pedro, for your questions. I'm going to answer first your second -- the second part of your question, and then I will pass to Renato to answer the -- your first question. So regarding this capital allocation and the less CapEx that you are seeing, that's part of our structural plan as we've been talking since 3, 4, 5 -- 3, 4 years ago of our 5-year plan. 2020 was the year where we were finishing our 5-year plan. So most of the growth investments that we did in this 5-year plan, is finishing in 2020. So this is structural regarding our focus and what we've been doing and what we are focusing today. So that's something that we should continue to see. Then going to the -- to your first question regarding sugar and ethanol and the hedges. I'm going to ask Renato to give you more color on this, please.

Hi Pedro, we are positive for sugar prices, and this is because there are some countries that are important suppliers of sugar that are facing some problems. So we have dry weather in Thailand. We have the yellow virus in European Union and we have a draught in Brazil that can be partly compensated by the high TRS, but not fully compensated. On the other hand, we have increased demand from China, Pakistan and Indonesia. Demand that no one was expecting. And if you consider that the demand for ethanol will recover next year. This is going to reduce part of the 10 million tons of sugar that Brazil had this year. So we have been progressively increasing our hedging according to the opportunity that we have as we had in the 2 last weeks. So far, we have currently hedged 80% of the 2020 season at $0.123 per pound and 16% of the 2021 crop at $0.127 per pound.

Next question comes from Lucas Ferreira from JPMorgan.

My first question on the -- on sugar and ethanol. Your strategy of doing sort of a lower crushing in the first quarter of the season, I think was very different from what we saw in general for the Center-South, which actually had a very strong start of the season. So wondering what was the strategy there? And I suppose that obviously, the crushing is accelerating a lot. So wondering if that changes anything for the full year? If you can comment on this? And the second question was about the land sale in Argentina. If you can quickly discuss with us the valuation of this land relative to the typical assessments and the appraisal you guys do every year. And if you still expect to sell more land this year? How is the liquidity of the market? Do you think that was kind of just a one-off thing? Or you feel that the market is improving and that could open opportunities for you to do more land sale in the next few quarters?

Thank you, Lucas, for your question. Renato will give you more color or will give you the color on the -- your first question and why we took that strategy. So Renato, can you go in deep there, and then I will take the land sales again.

Okay. Thank you, Lucas. As a consequence of last year's dry weather, we have reduced the crushing pace in the second quarter. And considering the impact of the COVID-19 and ethanol demand and price, we thought it was an appropriate time to do it, giving more time to the sugar cane development and to reduce our harvesting costs, adopting the MP 936. We think it was a good decision as ethanol price and sugarcane yields improved and we'll revert to those measures, reaching an all time monthly crushing in sugar production record in July, as was already mentioned. The sugarcane yield has also recovered to the levels much higher than the same period of last year. And I think this strategy is different from most of other mills in Brazil because Mato Grosso do Sul has its own weather dynamics. This is the reason we have the continuous harvest model. So we have not been affected by the draught that is currently occurring in other regions right now. We had a dry weather in Mato Grosso do Sul last year, which also affected the first semester sugarcane yields. However, the normal range we had this year, we will have a better second semester with certainly better yields than the same period of last year. Different from last year, we will have a slow first semester and an intense second semester in terms of production, as we have already seen in July.

Thank you, Renato. Lucas, and also regarding your question of the land sale. As we mentioned, the land sale, has been at a price that is 23% above the Cushman valuation, that is an independent valuation that is being done every year. But more relevant or the more relevant thing is that we are seeing that the market has become much more active. We are receiving visits to our farms from different interested parties and we believe that this trend will continue during the next semester. So we will continue seeking for executing more sale.

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

So the first one I have is in regards to your strategy to accelerate the crushing rates in the second half. I'm just wondering here trying to do some back of the envelope math. But what kind of -- what level of ethanol are you expecting to reach in the second half in order for your strategy to be successful? And secondly, do you see the fact that a lot of the Center-South mills might end the crop here earlier, do you see any upside risk to the ethanol price because of that? And secondly -- and sorry, the second question is in regards to the land sale. You only sold a very small part of the farm, right? Is this an area which you were not using? Or are you going to have to do any kind of leases in other regions or even do asset sale-leaseback in the area that you sold? I'm just wondering here the rationale to sell this land right now, the small part of the land right now. And the third one, if I may, is in regards to capital allocation, it seems given the current scenario that this year, it will still be a difficult year for you to pay dividends. Is there any kind -- do you have any views of when we could start to see shareholder returns as a dividend payout, when could we expect that to happen?

Okay. I will start answering your last question, and then we'll go in deep for the first -- to the -- to the other two questions. So regarding your last question of the capital allocation and when are we going to think about this, as we've been explaining in our the last years, I would say, today, that we are focusing on return capital to shareholders. That's how we've been approaching this 5-year plan that 2020. 2020, so this year that we are going through was going to be the year where we start to see the free cash flow neutral. And in 2021, we became really positive. So we've been always talking about 2021 as a year where we become free cash flow positive. Today, with this scenario of the pandemic and with this scenario that we are sailing pretty well, as Charlie explained in detail. We are focusing on today and the liquidity of today. So that is today's focus, but of course, you can see our projections, and 2021 should be a very good year. And in that moment, we should start discussing deeper how we see that we are going to return capital to our shareholders. So that is our view today on how are we approaching this. Then regarding the -- your second question on the land sale. Yes, it is a small part that was sold at a very attractive price. When we see that attractive price is where we think, going forward, of the return of the capital of that land. And so the IRR that we obtained going forward, maintaining that farm at that price was not enough attractive, and that's why we reallocate that capital to something else, and we sell that piece of land, 800 hectares in that area. We are leasing more than 30,000 hectares. So that is not really relevant in terms of our production mix on the crop production system that we have there. So that is someone willing to write that specific piece of the farm. And he was able to pay a price, that was interesting enough for us to make the decision to sell it. So that's how we approach. And that's why today, we are seeing this market, as I was saying before, that is much more active than what it was in the last 4 years. So that is regarding the farm side. And then I will ask Renato to explain more on this acceleration of -- on our view -- on our strategy of milling the sugarcane, Renato? And the level of the ethanol price expected, et cetera.

Thank you, Fernanda. So regarding the ethanol price, we think the outlook for ethanol has substantially improved through the quarter with oil prices bouncing back to $40 per barrel levels, better prospects for demand and lower production by the Center-South mills. From the peak of the restrictions in April, domestic prices have increased by almost 30% while demand improved 40% in July. In our analysis, the switch in mix towards sugar production will be responsible to reduce it [indiscernible] by almost 6 million cubic meters, and increase sugar in 10 million tons, which is a volume margin enough to offset the loss in demand that we are expecting. We expect a loss in demand between 10% and 12%, which is approximately 4 million cubic meters. For this region, we expect tight ethanol in this situation in the off-season, in part with gasoline moving from the current 64% to 7%, which should provide an upside in prices between 10% and 15%. And the fact that we have slowed down the crushing pace and have had normal range in the second quarter, has improved the sugarcane yields and crushing outlook for the second semester. This is as an example, the sugar cane that we crushed in July had more than 20% increase in yields compared to the same period of last year. Therefore, we are confident we are going to take advantage of those good price by the end of the year.

Next question comes from Santhosh Seshadri from HSBC.

Hi, good morning, this is Santhosh here on behalf of Alex Falcao. I'm not sure if my questions have already been answered. So I have a couple here, first, can you walk us through your outlook for the second half of the year, specifically for your farming and Land Transformation business? I'm just looking for some color in terms of how the seasonality and changes in sales pattern, if any, would shape up your first half versus second half EBITDA split? And can you also give some color on your resales or possibly your order book if possible? And my second question is on the cost side. You have done a very good job on the cost performance. Can you give us some color on how much of the cost reduction in the sugar business was a result of currency? And how much was due to your negotiation and other cost-saving initiatives?

Okay. Thank you for your questions. Regarding the Farming and Land Transformation, for the second semester, in order to understand the cycle of the farming and land transformation business. In this semester, we are finishing all the harvesting activities. So as Charlie explained in detail, we are at the end of all these harvesting activities that were very challenging because of the pandemic, but the yields that we obtained and the ability and the cost reductions and the efficiencies that we obtained all along the chain to grow to the domestic market or the export market and also the flexibility that we have in all this farming business, including milk, including peanuts and sunflowers, rice. That flexibility that we have to go to the domestic market and to the export market gave us a great possibility in this pandemic because at the beginning the domestic market was very strong. We took advantage of that, then the export markets improved, then we took advantage of the export market. So that is part of the strategy that we defined a couple of years ago that is really paying off today. We expect that the second semester will continue more or less on the same lines, while we think on all the sales of these things that we are harvesting and that we are finishing the harvesting. So the cash generation will continue to be in line with what we've been seeing this first half of the year. But then we are starting the new harvest time. So the second semester is where we are planting where we are preparing for our next cycle. And that is also going very well. Everything is very well prepared. Our contractors are ready. Our people say they are starting to plan. So we are very positive on how it's working and for the future of the whole farming and land transformation business is that we are seeing a very important improvement, and we expect to continue to see this. And then regarding the cost reduction on the sugar and ethanol business, I would say that in general terms, we continue to focus in reals to reduce costs, and that's something that is happening. The level of reducing costs in real is relatively small in terms of percentages. But while we are reducing costs in real, all the depreciation of the real is transforming to cost in dollars. So when we look at the day-to-day operations in Brazil is how to be more efficient with our costs in real terms, then all that is translated into dollars on the translation accounting. And I don't know, Renato, if you want to add something on this.

No, just to add that our cost in the reals. We are projecting costs in the reals this year close to BRL0.40 per pound.

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.

Thank you. And just before we end the call, I would like to especially thank all our stakeholders and really special thank for the people that is working on our fields, especially in these difficult times, and they are doing an amazing job. Now I would also like to remark that the pandemic is still there, and we need to continue focusing on maintaining every line of business, fully operational, and that we are constantly adapting and generating new preventing measures and raising our safety protocols and procedures to keep everyone in healthy conditions. So I hope you all stay safe and healthy. I look forward to talking to you in our next meetings.

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