Adecoagro - Q4 2022

Transcript

Operator (participant)

Good morning, ladies and gentlemen, and thank you for waiting. At this time, we would like to welcome everyone to Adecoagro's fourth quarter 2022 results conference call. Today with us we have Mr. Mariano Bosch, CEO, Mr. Emilio Gnecco, CFO, and Mr. Renato Junqueira Pereira, Sugar, Ethanol, and Energy VP, and Victoria Cabello, Investor Relations Officer. We would like to inform you that this event is being recorded and all participants will be in listen-only mode during the company's presentation. After the company's remarks are completed, there will be a question-and-answer check section. At this time, further instructions will be given. Before proceeding, let me mention that forward-looking statements are based on 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. I'll turn the conference over to Mr. Mariano Bosch, CEO. Mr. Bosch, you may begin your conference.

Mariano Bosch (Co-Founder and CEO)

Good morning, thank you for joining Adecoagro's 2022 fourth quarter results conference. 2022 was a challenging year for the company. We faced cost pressure in all our segments and weather challenges in Argentina and Uruguay, where our farming operation is based. Despite such unfavorable conditions, we delivered strong financial results and generated adjusted EBITDA in line with 2021. This was possible thanks to our focus on efficiency, our operational flexibility, and our very well-executed commercial strategy that allowed us to profit from opportunities in the domestic and export markets. A clear example of this is that we captured record prices of over $0.26 per pound in sugar equivalent in more than 20% of our ethanol sales. Since we started our growth plan, our goal was to generate positive cash flows and share results with our shareholders.

I'm happy that we achieved what we proposed and are now in that situation. 2022 was the first year of our formal distribution policy, but the second consecutive year where we distributed more than 40% of the cash generated while keeping our debt levels below two times EBITDA. We paid out $35 million in cash dividend, which equals $0.32 per share approx. In addition, we invested $37 million in our buyback program, repurchasing more than 4% of the equity of the company. Between dividends and buyback, we distributed 47% of the net cash from operations generated in 2021, exceeding the 40% minimum established in our policy. This equals a distribution yield of more than 7%.

Now, based on the results we are presenting today, during 2023, we will distribute a minimum of $57 million, of which $35 million will again be via cash dividends and the balance via buyback. Now some words regarding the outlook for 2023. Here, I want to separate two very different situations. One is Argentina and Uruguay, and another is Brazil. As you may know, the dry weather experienced in Argentina and Uruguay during 2022 has extended its effects into 2023. Crop production at national level is experiencing considerable losses. In our case, being diversified in terms of crop produced and geography gives us the flexibility to make some adjustment to our planting plans towards more resilient crops for this situation. However, the weather scenario is still adverse.

We expect yields in our crop business to be lower compared to the past harvest season. Let me be clear on this. Our crop business is responsible for less than 10% of the company's EBITDA and is only one out of three segments that makes up our farming operations. In the case of our rice business, we expect better results compared to last year. Higher prices and better mix of higher value added products will offset any impact on yield that might be observed in some of our farms. In the case of dairy, although the cost of cow feed will increase, we expect results in line with last year because of the more stable nature of this business. Now, more than ever, we have to continue focus on maintaining an efficient operation in all our businesses and periodically reassessing our cost structure and expenditures.

Brazil is in a very different situation. We have a very positive outlook for our sugar ethanol and energy business, which accounts for the majority of the company's EBITDA generation. Over the years, we have expanded our sugarcane plantation area and it is currently in an excellent condition. Productivity indicators are solid. Sugar prices are trading above $0.20 per pound, and we have a very good operational and commercial flexibility. We operate based on a continuous or nonstop harvest model. We are one of the few crushing and the only player producing sugar in Brazil today. Weather going normal, we expect our crushing volumes in 2023 to be around 15% higher than in 2022, and this in turn, will result in a reduction in our unitary cash cost. One brief comment on the ESG.

We are very excited about the progress made in our biogas project, which transforms vinasse into biogas to be used in the production of energy and in the conversion into biomethane to replace diesel consumption. We have already adapted 13 vehicles and expect to test their performance in the upcoming days. This is one of the many examples of the initiatives we are working on that results in an improved sustainability profile at the same time that it reduces our costs. Together with our ESG committee that oversees all of our developments, we continue enhancing our sustainable production models. To conclude, we have a year full of challenges ahead of us. I feel confident that if we remain focused on reducing costs and follow closely our day-to-day operations, we will continue to generate good returns and value for our shareholders.

Now, I will let Emilio walk you through the numbers of the quarter.

Emilio Gnecco (CFO)

Thank you, Mariano. Good morning, everyone. Let's start on page five with a brief note on the rains in Mato Grosso do Sul. As you can see on the chart, during 2022, rains in our cluster presented a 9% increase compared to last year. Good precipitation levels throughout the year favor the development of our sugarcane plantation and improved its productivity outlook, as we will see in the next slides. Let's move ahead to slide six, where we would like to describe our sugarcane crushing. In the last quarter of 2022, crushing volumes amounted to 3.2 million tons, driven by good cane availability and solid productivity indicators. Compared to last quarter of 2021, we increased our crushing by 1.9 million tons.

This increase was mostly explained by 2021's lower effective milling days and weaker cane productivity as a consequence of the frost that impacted Brazil's productive areas during 2021. Consequently, despite our continuous harvest model, during December 2021 and March 2022, we decided to enter into an interharvest period and perform maintenance works in our mills to allow our sugarcane recover from the frost effects. On an annual basis, crushing volume reached 10.5 million tons, making a decrease of only 0.5 million tons compared to 2021, despite the late start of our crushing activities. Our next page, number seven, we show our agriculture productivity indicators.

Sugarcane yields during the last quarter of 2022 were 24% higher compared to the same period of last year, reaching 81 tons per hectare and TRS content presented a 12% improvement, amounting for 134 kg per ton. Looking at the full year picture, sugarcane yields gradually improved throughout the year, going from 44 tons per hectare in the first quarter until reaching solid levels in the fourth quarter as we expected. TRS content reached 131 kg per ton, making a 2% increase year-over-year. Let's move ahead to slide eight, where we have our production mix. As always, our production strategy constantly switches to always produce a product that offers the highest marginal contribution. Provided the high degree of flexibility of our mills.

During the quarter, on average, anhydrous ethanol in Mato Grosso do Sul traded at 19.6 cents per pound, 2% premium to sugar, whereas hydrous ethanol traded at 17.9 cents per pound, 7% discount to sugar. We diverted as much as 56% of our TRS to ethanol production. At the same time, we took advantage of our capacity to dehydrate ethanol already stored in our tanks. In total, we produced 93% of anhydrous ethanol that we sold domestically and exported to Europe at very attractive prices. Production mix for the full year favored ethanol in 65% compared to 62% in 2021. Anhydrous ethanol during the year amounted to 66% of total ethanol production compared to 45% during last year.

Let's please turn to slide nine, where we would like to describe our selling volumes and average selling prices by product. As you can see on the left chart, ethanol reported a 17 increase in selling volumes to 552,000 cubic meters, mostly driven by anhydrous ethanol sales, which increased by 49%. Moreover, average selling prices went up by 14% year-over-year to $0.22 per pound. This was thanks to our commercial strategy of cleaning out our tanks at the peak of prices, enabling us to sell 23% of our volume at prices over $0.26 per pound equivalent. Also, having the necessary certifications to export to Europe and the industrial capacity to meet product specifications granted us the flexibility to sell into the domestic markets and also export markets. We will go into more detail in the following slide.

In the case of sugar, average selling prices were up 10% compared to 2021, even though volumes sold were down 20% due to lower production. It is worth highlighting that sugar continued to trade at stable levels throughout the quarter, driven by a strong global demand. Energy selling volumes were down 24% versus 2021 due to our commercial decision to use our bagasse to dehydrate ethanol rather than to produce energy and sell it at low spot prices. Regarding carbon credits in 2022, we sold 551,000 CBIOs, 9% higher than previous year, at an average price of $18 per CBio, having captured peaks as high as $40 per CBio. On page 10, we would like to make a special remarks of our anhydrous ethanol sales strategy.

During the quarter, the European export market remained an attractive outlet for anhydrous ethanol production. In this line, our commercial strategy during the quarter focused on the commercialization of sugar and the export of anhydrous ethanol, which amounted to 41,000 cubic meters at an average price of $751 per cubic meter or $0.204 per pound equivalent. At the same time, we built inventory of hydrous ethanol either to be sold at higher prices at a later stage or be converted into anhydrous ethanol. On a full year basis, anhydrous ethanol sales were 66% higher compared to 2021 on higher volumes sold abroad at more attractive selling prices than in the domestic market.

Exports amounted to 123,000 cubic meters at an average price of $762 per cubic meter or $0.208 per pound equivalent. Please move to page 11, where we would like to walk you through our overall sales. Net sales amounted to $198 million during Q4 2022, making a 26% increase compared to the same period of last year. This increase was driven by higher selling volume and price of sugar, coupled with higher selling volume of anhydrous ethanol. On a full year basis, net sales amounted to $593 million, 13% higher year-over-year. As explained, this was driven by 37% higher ethanol sales, which fully offset the 12% reduction in sugar sales and 31% in energy.

CBio sales in turn reached $10 million in 2022 compared to the $4 million reported in 2021. On the following slide, number 12, we explain our cash cost. Total cash cost reflects how much it costs us to produce one pound of sugar and ethanol in sugar equivalent. Maintenance CapEx is included in the calculation since it is a recurring investment necessary to maintain the productivity of the sugarcane plantation. As we are calculating sugar and ethanol costs, energy is considered a by-product and thus deducted from total costs. As for the tax recovery line, it includes ICMS tax rebate incentive that the state of Mato Grosso do Sul granted us until 2032. Total cash costs on a per unit basis in 2022 increased by 25% compared to the previous year, reaching 13.1 cents per pound of sugar equivalent.

This is explained by a 21% year-over-year increase in total production cost due to lower dilution of fixed costs from lower crushing volume, coupled with higher cost of inputs, diesel, and salaries, among others. Moreover, there was first a 12% year-over-year increase in maintenance CapEx driven by higher renewal area of our sugarcane plantation, in addition to an increase in cost of inputs for such planting renewal. Second, a 24% year-over-year reduction in energy cogeneration as we use our bagasse to dehydrate our hydro stocks. Third, a 14% year-over-year reduction in tax recovery due to lower ethanol sales into the domestic market. All our power efforts are devoted to further enhance efficiencies to continue reducing total cash costs. As we continue ramping up our operations in our cluster, cash costs shall go down as more fixed costs will be diluted.

Please go to page 13, where we present the financial performance of the sugar, ethanol, and energy business. Adjusted EBITDA during the fourth quarter was $101 million, 56% higher year-over-year. This was explained by the increase in sales and by a $13 million year-over-year increase in the mark-to-market of our harvested cane on higher crushing volume. Results were partially offset by higher costs. On an annual basis, adjusted EBITDA amounted to $374 million, 12% higher year-over-year. This was explained by higher net sales and year-over-year gains in the mark-to-market of our commodity hedge position and of our unharvested cane as the productivity outlook has improved. Results were partially offset by increasing costs, as we described before.

To conclude with sugar, ethanol, and energy business, please turn to slide 14, where we would like to briefly talk about the current outlook for 2023. We have entered into 2023 with good sugarcane availability and solid productivity indicators. As expected, this has enabled us to resume our continuous harvest model. As highlighted by Mariano a few minutes ago, we are one of the very few sugar, ethanol, and energy producers in Brazil currently conducting harvesting and crushing activities, and for sure, the only one producing sugar. Being able to crush year-round, even during the traditional inter-harvest period, is one of our main competitive advantages.

While the sugar and ethanol industry in Brazil must rely on inventories carried over from the past year, we are able to supply new production into the market and maximize the product that offers the highest marginal contribution, which currently is sugar. Weather going normal, we expect our crushing volume in 2023 to be around 15% higher than in 2022 on account of better productivity outlook and greater sugarcane availability. This, in turn, will result in a reduction in unitary cash costs due to better dilution of fixed costs. From a commercial point of view, sugar prices are trading at solid levels, and there have been positive developments for ethanol prices. After being zeroed since mid-2022, Brazilian government recently announced a gradual return of federal tax, PIS/Cofins, on gasoline and ethanol as of March 1st, 2023.

This will aid in restoring ethanol competitiveness at the pump. We would like to move on to the farming business. Please go to slide 16. We ended up our 2021, 2022 harvest season with over 1.1 million tons of agricultural produce. For the new campaign that we are currently engaged in, we have completed planting activities in 267,000 hectares, marking a 6% decrease in planted area compared to the previous campaign. In this regard, we cannot help to mention that La Niña weather event has extended its effects during the beginning of 2023 and continues affecting production as of today. Almost all the productive regions of Argentina and Uruguay are experiencing losses in their summer crop productions.

Although we are diversified in terms of crops and geographical regions, due to the lack of soil moisture because of the drought, we had to adjust our planting calendar and reduce area. We are constantly reviewing the evolution of each crop and expect yields to be lower than the previous year. On the other hand, our rice and dairy businesses, which were less affected by the drought, have a much better output for the current campaign. On page 17, we would like to present the financial performance of our farming and land transformation businesses. Adjusted EBITDA amounted to $83 million for the full year, making a 33% year-over-year reduction.

The improved performance in our dairy business, driven by volume and better mix of higher value-added products, was fully offset by a lower contribution from our crops and rice businesses into the overall results. Results were mainly impacted by higher costs and mixed performance of yields and lower rice prices. In our crop business, adjusted EBITDA for the full year amounted to $27 million, marking a 48% year-over-year decrease. Results were mainly impacted by higher costs in dollar terms, driven by global inflation and uneven performance in yields, loss in the mark-to-market of our forward contracts, and higher selling expenses due to higher freight costs. Adjusted EBITDA in our rice business was $21 million, presenting a 49% decrease compared to 2021.

As explained in prior releases, results were mainly impacted by lower yields caused by the impact of La Niña in some of our rice farms and lower rice prices. EBITDA generation was also negatively impacted by higher costs in dollar terms. Moving on to the dairy business, adjusted EBITDA marked a year-over-year increase of 37% to $31 million for the full year. Higher results were explained by an increase in both volume and average prices as we increased the mix of higher value-added products, coupled with our continuous focus on achieving efficiencies in our vertically integrated operations. Results were partially offset by higher costs in dollar terms driven by the global inflationary environment.

In the case of land transformation, although no farm sales were concluded, results reflect the mark-to-market of an account receivable corresponding to the latest sale of farms in Brazil, which tracks the evolution of soybean prices. Let's now turn to page 19, which shows the evolution of Adecoagro's consolidated operational and financial performance. In 2022, gross sales exceeded $1.3 billion, presenting a 23% year-over-year increase, as well as a new record high for the company. Adjusted EBITDA reached $433 million, in line with 2021, despite higher global costs and a challenging weather scenario. At the same time, we marked the first year of our distribution policy announced back in November 2021. We distributed a total of $71.8 million or 47% of the net cash from operations generated in 2021.

This was executed via the repurchase of $36.8 million in shares, coupled with cash dividends in the amount of $35 million. In 2022, we generated $141 million of net cash from operations, which equals to a minimum distribution of $56.5 million during 2023. Pending approval of the annual general meeting, cash dividends will amount to $35 million to be paid in two installments of $17.5 million each on or about May and November of 2023. The balance will be distributed via buybacks and our dividends as the case may be. Year to date, we have already repurchased $5.5 million in shares. To conclude, please turn to slide 20 to take a look at our net debt position.

On a year-over-year basis, net debt was 10% higher compared to 2021. This was mainly explained by the financing of our working capital needs to secure our supply chain, along with higher costs of inputs, coupled with the financing of our CapEx. These working capital requirements are being financed by short-term borrowings in our farming division at attractive rates. Thus, short-term debt was $168 million higher compared to last year. Our liquidity ratio reached 1.7 times. This clearly shows the full capacity of the company to repay short-term debt with cash balance without raising external capital. We believe that our balance sheet is in a healthy position, not only based on the adequate overall debt levels, but also on the term of our indebtedness, most of which is in the long term.

Our net debt ratio was 1.6 times in this quarter, 24% lower than the previous quarter. Thank you very much for your time. We will now open the floor to questions.

Operator (participant)

The floor is now open to questions. If you have a question, please write it down in the Q&A section or click on raise hand for audio questions. Please remember that your company's name should be visible for question to be taken. We do ask that when you pose your question, that you pick it up your headset and provide optimal sound quality. Please hold while we poll for questions. Our first question comes from Henrique Brustolin. Mr. Henrique, your microphone is now open.

Henrique Brustolin (Analyst)

Hi, good morning, everyone. Thanks for taking my questions. I have two. The first one on the sugar and ethanol business. I just wanted to hear an update on how you are seeing the commercialization strategy for the year, right, when we put together current sugar prices, the return of federal taxes on fuels, and eventual opportunities that you see for exporting anhydrous ethanol. When you put it all together, right, how that should play out in terms of your production mixing in the sugar and ethanol business. More importantly, based on the prices that you are seeing and eventual opportunities for the year, how should we think about the unitary, right, realized selling price relative to what it was in 2022? That's the first one on the sugar and ethanol.

The second, in terms of capital allocation, right, leverage ratio is now below the two times threshold. There is more visibility on the sugar and ethanol business in general. I just wanted to hear a little bit in terms of how you are seeing the levels of CapEx for this year, and what should be the main projects that might come underway right now. Those are the two one. Thank you.

Mariano Bosch (Co-Founder and CEO)

Hi, Enrique. Thank you for your question. I'm gonna take your second question, and then I'm gonna pass the ball to Renato to go in detail on the first question. On the second question regarding capital allocation, as we've been telling in all our previous calls and as we explained clearly in our presentation, some minutes ago, we are maintaining our policy, so it's clear that 40% at minimum is gonna be distributed via dividend and buyback. With the rest, we still have very interesting projects. From there, you can expect CapEx going a little bit below last year or our current projection is some way below 2022. I want to separate here the two main views that we have.

Number one, for Argentina and Uruguay, as we just explained, we are going through some difficult situations. In this specific scenario, we are delaying some CapExes and making a lot of progress and detail and get it into the savings, every saving possible all along the chain, and we are doing a very interesting work there that we can go into more details. This is a situation where, for Argentina and Uruguay, you should expect less CapEx and less maintain a CapEx in this specific part of the company. When we go to the sugar, ethanol, and energy business, that things are going very well. The climate has gone to a normal level. Now, Renato, we can go into more details.

We have some very attractive projects that continue to synergize what we are currently having that makes us more sustainable, that makes us more efficient. This is on top on continued planting in this area that we are getting some interesting results in our planting or additional planting of sugarcane. Overall, in the sugar and ethanol business, you should expect a little bit more CapEx than in 2022, and less in the farming business. I will pass the ball to Renato to go into your first part on the question on the commercialization strategy, and also if you want to add anything on this sugar and ethanol CapEx specific.

Renato Junqueira Pereira (VP of the Sugar, Ethanol, and Energy Business)

Hi, Henrique. We are positive with the scenario of both sugar and ethanol. In sugar, our strategy is to take advantage of our continuous harvest model. We are currently harvesting in Mato Grosso do Sul to produce as much as sugar as possible. We are maximizing sugar now in the first quarter. Just as an example, we have already crushed more than 800,000 tons and produced more than 40,000 tons of sugar. We are producing and selling it against the March contract with very good prices on average between $0.20 and $0.22 per pound. We can now, we can also increase our sugar mix compared to last year. Last year, we finished the year with 35% sugar mix.

We can achieve a mix close to 50% of taking advantage of the higher sugar price. We are still open in terms of hedging. Our position now, we have 40% of our production hedged at an average price of 19.4 cents per pound. In the ethanol, we are also optimist about the scenario. We are maximizing anhydrous ethanol. We can, if you consider our dehydration capacity, we can produce almost 100% of anhydrous. Anhydrous today in Mato Grosso do Sul is being traded at a price equivalent to 20 cents per pound, very close to sugar. We are also taking advantage of the export market.

We have just finished a transaction this week. The first transaction of the year exporting ethanol with a 10% premium over the internal anhydrous market. I think it's good to mention that to our potential to export anhydrous increased compared to last year, increased by 50%, so we can export 40% of our total ethanol production. We will do this according to the opportunities that we will see along the year.

Henrique Brustolin (Analyst)

That's very clear. Thanks very much.

Operator (participant)

Our next question comes from Mr. Guilherme Palhares. Mr. Guilherme, your mic is now open.

Guilherme Palhares (VP of Equity Research)

Good morning, everyone. Thank you for taking my questions. Just a follow-up. Renato, you already said that you are able to produce 100% of anhydrous ethanol. When you look in terms of the results, you see that there is some inventory of hydrous ethanol in the company right now, right? Can we expect that to be converted to anhydrous ethanol, or do you seek to continue to have some hydrous ethanol sales as well, given the tax benefits that we see on the market? One second question here is related just a clarification in terms of the outlook that you designed for the next year with 15% increase in terms of crushing. If you could go through in terms of what do you expect in terms of total sugar recoverable, right?

Looking at TRS content as well, would appreciate that. Thank you.

Renato Junqueira Pereira (VP of the Sugar, Ethanol, and Energy Business)

Okay. Thank you for your question. At this moment, we are thinking in producing 100% anhydrous ethanol using our bagasse as the price of energy is low at this moment. The spot price of energy is low. The best use of our bagasse is to get the hydrous ethanol and transform it in anhydrous. That's what we plan to do right now. If the hydrous price reacts in the future, we might change this view. The second part of the question, please, could you repeat?

Guilherme Palhares (VP of Equity Research)

Sure, Renato. It's basically just trying to understand the 15% higher crushing for next crop season, right? Can you go through in terms of the TRS content when you look in terms of total TRS production, where should we be looking at for the for the next crop seasons?

Renato Junqueira Pereira (VP of the Sugar, Ethanol, and Energy Business)

Yes. I think the weather is very good at this moment. The weather is good. The rainfall is very good in terms of volume and also distribution of rain. That's why we're expecting a recover of our sugarcane yields. Of course, last year was impacted by the frost. The yield that we had last year, was not normal. I think this recovery is expected. In terms of TRS, it depends a lot how the rains is going to be distributed along the year.

At this moment, we think that we're going to have 15% in TRS processes, which it takes into account both the use and the TRS content.

Guilherme Palhares (VP of Equity Research)

Great. Thank you, Renato.

Operator (participant)

Our next question comes from Ms. Larissa Pérez. Ms. Larissa, your mic is now open.

Larissa Pérez (Equity Research Associate)

Larissa, are you there? We can't hear.

Operator (participant)

It looks like Larissa has a technical problem. We'll keep with the next question from Santosh Seshadri. Your mic is now open.

Santosh Seshadri (Analyst)

Hi. Good morning, everyone. Thanks a lot for taking up my questions. Firstly, do you have any plans to accelerate your hedging positions for 2023 and possibly even into 2024, given that the sugar prices or the other crop prices might come down from the current levels? If you think that is not necessary, what would be the rationale for that? That's my first question. My second question would be on the cost. You mentioned about the potential dilution of cost on higher crushing volumes. Can you talk about your expectation for other input costs as well? For 2023, should we expect a flattish costs per unit or any further decline in cost? If you can quantify the impact, that would be great. Thank you.

Mariano Bosch (Co-Founder and CEO)

Okay, thank you for your question, Santosh. Renato, you want to take the sugar ethanol part of the question?

Renato Junqueira Pereira (VP of the Sugar, Ethanol, and Energy Business)

Regarding the cost, as it was mentioned here, we are expecting an increase in yield and volume of sugarcane processes close to 15%. That's why we are going to have fixed cost dilution. We have an important part of our cost is fixed, so when we have more volume and yield, there is a higher dilution which helps a lot the our total cash cost. In terms of fertilizer and diesel, we expect that the cost is going to be much lower than it was last year. The pressure of cost, the cost is gone. In the other hand, there are some costs that increased that offset parts of the decrease in diesel and fertilizer, which is labor and freight costs.

If you take everything into the equation, we expect the cash costs decreasing approximately 10%. Regarding the hedge, the future hedge, I think we are positive with the sugar outlook, even for 2024. It seems that there is a problem in several countries, Thailand, European Union, and especially India. India should not release additional export quota, the market today depends a lot on Brazilian exports. That's why we think... we think that Brazil is not going to produce sufficient to offset that decline, and not to mention some logistical constraint in the short term.

In 2023, we are taking advantage of the spikes of the market to hedge our position. In 2024, we are still open, waiting for the better opportunity to start to hedge our position.

Santosh Seshadri (Analyst)

Thank you.

Renato Junqueira Pereira (VP of the Sugar, Ethanol, and Energy Business)

Okay.

Mariano Bosch (Co-Founder and CEO)

Santosh, on the hedging of on all the Argentinian Uruguay production, it is an embedded market. There are many specifics of the commodities for the local market. We don't want to be in a very hedged position because we expect local market to continue going up through different things, including a special dollar for the soybean sales, et cetera, et cetera.

Operator (participant)

Thanks very much. That's helpful.

Mariano Bosch (Co-Founder and CEO)

Okay. We have this last question from Larissa from Itaú. Some of them have been answered, Victoria is gonna read one of the questions that is not fully answered yet.

Victoria Cabello (Investor Relations Officer)

In 2022, you crushed 10.5 million tons of sugarcane or 0.5 million tons less than the previous harvest year. In your release, you mentioned that the company remains confident about its ability to increase crushing volumes by 15% year-over-year. Can you give us some more color on how you plan to achieve this increase other than being benefited by better weather and greater availability of sugarcane? Are there any efficiency projects that we should know about?

Renato Junqueira Pereira (VP of the Sugar, Ethanol, and Energy Business)

Okay.

Mariano Bosch (Co-Founder and CEO)

Renato. Yeah.

Renato Junqueira Pereira (VP of the Sugar, Ethanol, and Energy Business)

Okay. As I was mentioning before, I think the weather, of course, has an impact, an important impact here, especially because of the comparison of last year that was very low. There are a lot of technologies and process that we are doing that we think that is going to increase our yields in the long run. I think a few examples of that is a good nutrition. I think it's important to remember that we are replacing 48% of our mineral fertilizer needs with organic fertilizer. We are self-sufficient in potassium, it helps a lot the yield of the sugarcane. We have also a very good plague and weed control.

We have been using drones to control weeds, and also a lot of biological control to control the most important plagues in sugarcane. For example, the stalk borer. We have adopted new varieties of sugarcane. In Mato Grosso do Sul, we have a biofactory that we produce 26 million of seeds, which is very important to release new varieties adapted to that particular region, which will eventually produce more sugarcane per hectare. Finally, we have been using a lot of two-row harvester machines. That's very important because we damage less the row of the sugarcane, improving the longevity and the yield of the ratoon sugarcane.

Those are few examples of technology and procedures that we are using that we think that is going to help a lot our yields in the longer run.

Mariano Bosch (Co-Founder and CEO)

Thank you, Renato.

Operator (participant)

Once again, if you have a question, please write it down in the Q&A section or click on raise hand for audio questions. Please hold while we poll for questions. Since there are no more other questions, 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 (Co-Founder and CEO)

Thank you everyone for participating. I hope to continue seeing you in our next events.

Operator (participant)

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