ADECOAGRO S.A. 2026 Q2 Earnings Call

Good morning, and thank you for joining Adecoagro's first half 2026 results conference. Consolidated adjusted EBITDA marked new records, reaching $258 million year to date and $173 million during the second quarter, reflecting the earnings potential and scale that our well-diversified agro-industrial platform now has. In fertilizers, stronger operational performance during the quarter resulted in higher production volumes, while higher prices and cost efficiencies supported further margin expansion. Given higher than expected prices during the first half, we expect the annual performance from this segment to be above our initial projections. In Brazil, the sugarcane plantation is in excellent conditions. The investments and work done over the years to improve cane productivity are paying off as weather conditions have normalized. Sugarcane availability is now driving the crushing volume growth. This is also one of the reasons why we view the acquisition of Carapó Mill as highly accretive.

We believe this asset will enable us to organically expand our sugar and ethanol operations by milling the surplus cane that our cluster currently has, while further strengthening our presence in the region. As we capture the operational synergies, we see potential to unlock value by increasing the crushing and consequently reinforcing our position among the lowest cost producers in the industry. Given its earnings potential, this expansion does not alter our deleveraging progress, nor our target net debt to EBITDA for the full year. In food and agriculture, stronger productivity enabled higher cost dilution. Raw milk production has improved, supporting higher processed volume in our industries. As the new crop is being commercialized, margins should improve, supported by a more efficient cost structure. To conclude, I would like to express my gratitude to all the teams in Adecoagro.

It is because of their commitment that we continue to achieve new milestones despite the different commodity cycles which we navigate. Thanks to our shareholders for their continued support. Now I will let Emilio walk you through the numbers of the period.

Thank you, Mariano. Good morning, everyone. Please now turn to page 4 with a summary of our consolidated financial results. As a reminder, we are presenting our numbers on a pro forma basis, assuming our fertilizers business had been part of Adecoagro since the beginning of 2025. We believe this provides a more meaningful year-over-year comparison. Gross sales totaled $535 million during the second quarter, while on an accumulated basis, they reached $928 million. Despite higher revenues in our fertilizers segment, overall revenues remain in line across both periods, reflecting mixed prices and volume dynamics across our product portfolio. Adjusted EBITDA set new high records. The main driver was the strong performance of our fertilizers business, which benefited from higher production, stronger pricing, and operational efficiencies.

Such performance more than compensated for the softer results in sugar, ethanol, and energy and food and agriculture businesses, which I will discuss in a moment. Let's move to slide 6 and review the financial and operational performance of the sugar, ethanol, and energy segment. Despite experiencing above average rainfall, particularly in May, we crushed 3.5 million tons of cane during the quarter, up 3% compared to the same period of last year. This continues the positive trend we have seen since the start of the year. Cane yields have recovered thanks to the better moisture conditions. Although TRS levels remain below last year's, they have been improving steadily throughout the year. In terms of product mix, we continue to maximize ethanol production given its attractive premium over sugar. As a result, we reached 78% ethanol mix year to date. By comparison, during the first half of 2025, we maximized sugar production.

This shift highlights one of the key advantages of our industrial assets, the flexibility to quickly change production toward the product offering the highest marginal contribution. On the cost side, production costs were negatively impacted by the appreciation of the Brazilian real. Excluding the FX effect, our year-to-date production cost in local currency remained in line with the previous year. Turning to sales, the decline we saw this quarter was mainly driven by lower sugar prices and lower sugar volumes sold, reflecting the change in our production mix. For ethanol, lower sales volumes were actually part of our commercial strategy. Following the sharp decline in domestic ethanol prices caused by higher market supply, we decided to start building inventories rather than selling at current market prices.

As a result, we finished the quarter with about 41% of our year-to-date ethanol production stored in inventory, positioning us to capture stronger margins once prices recover. This follows the strategy we implemented during the first quarter when we sold inventories and current production while prices were at their peak ahead of the new harvest. Overall, adjusted EBITDA reached $53 million during the quarter and $94 million year to date. The decline compared to last year reflects lower sales as well as lower Consecana prices in the mark-to-market valuation of our biological assets, particularly harvested cane. Looking ahead, crushing is progressing as planned, and we are still on track to achieve our full-year target. We continue to expect low double-digit growth in crushing volumes this year, supported by greater cane availability. Now, let's turn to slide 8 to discuss our fertilizers operations.

Urea production increased 22% year-over-year, driven by higher plant utilization and importantly, zero downtime during the quarter. As a result, year to date, urea production reached 617,000 tons, remaining well above last year's level, which was impacted by 31 days of downtime due to adverse weather conditions that disrupted gas supply, as discussed on previous calls. On the commercial side, results benefited from a significant increase in international urea prices. Following the escalation of the conflict in the Middle East, a region responsible for roughly 30% of global urea trade, prices reached nearly $800 per ton during the quarter. As we executed sales throughout the period, we were able to progressively capture the surge in prices. Accordingly, adjusted EBITDA more than doubled both in the quarter and on a year-to-date basis. In addition, higher production volumes together with operational efficiencies, drove a meaningful expansion in margins.

Although urea prices have moderated from the peaks reached in April and May, we still expect full-year EBITDA from this segment to be above our original projections. This outlook is supported by higher prices captured in the first half of the year, while most of our cost structure remained fixed. Please move to page 10, where we describe the performance of our food and agriculture segment. As of the end of July, we harvested 92% of the planted area, achieving yields above the prior campaign and producing more than 1.1 million tons of crops. We expect to complete the harvest season during this month and have already begun planting activities of our winter crops for the next season. In dairy, processing volumes increased compared to last year, driven by higher raw milk production at our free stall facilities due to better cow productivity.

Looking at financial performance, year to date, results still reflect lower commodity prices across much of our portfolio, along with higher costs in USD terms. That said, if we focus on the quarter itself, both revenues and adjusted EBITDA improved year-over-year, supported by higher production volumes and a gradual recovery in margins as we begin sales of the new harvest. We expect margins to continue improving over the next few quarters as the benefits of our cost reduction initiatives become more visible. In dairy, we also expect to continue growing processed milk volumes, supported by the launch of new products under our consumer brands. Let's move to slide 12 and review our capital allocation strategy, starting with expansion CapEx. Year to date, our largest capital deployment was the final payment of approximately $400 million related to the acquisition of Profertil, which was completed during the previous quarter.

At the same time, we continued investing in a number of attractive organic growth opportunities across our businesses. These investments include the expansion of our sugarcane plantations and biomethane operations in Brazil, as well as additional agricultural machinery and new cheese packaging line at our Morteros dairy facility. Before moving on, I would like to highlight that these figures do not include the acquisition of Carapó Mill, which remains subject to customary closing conditions. We expect the transaction to close in the coming weeks, with the purchase price paid in cash at closing. Given the estimated earnings contribution from the asset, we do not expect the acquisition to affect our deleveraging targets for year-end. Now let's move to page 13, where we present our debt profile.

As we typically experience at this point of the year, net debt tends to peak due to the seasonal working capital requirements associated with our agricultural operations. If we exclude that seasonal effect, as well as the $58 million increase in readily marketable inventories during the quarter, net debt would already be below 2025 year-end levels. On a pro forma basis, net leverage stood at 3 times, which remains consistent with our deleveraging path and reflects the stronger earnings generation we are seeing across the operations, despite the seasonality in cash needs and our commercial strategy to hold inventories for some of our products in anticipation of better pricing opportunities. Looking forward, we continue to expect leverage to decline as EBITDA generation increases. On the liquidity side, our ratio improved to 1.9 times compared to 1.2 times in the previous quarter, demonstrating our ability to comfortably meet short-term obligations.