U.S. Markets closed

Edited Transcript of AGRO earnings conference call or presentation 16-Nov-18 2:00pm GMT

Q3 2018 Adecoagro SA Earnings Call

Luxembourg Dec 26, 2018 (Thomson StreetEvents) -- Edited Transcript of Adecoagro SA earnings conference call or presentation Friday, November 16, 2018 at 2:00:00pm GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* Carlos A. Boero Hughes

Adecoagro S.A. - CFO

* Mariano Bosch

Adecoagro S.A. - Co-Founder, CEO & Director

* Renato Junqueira Santos Pereira

Adecoagro S.A. - Director of Sugar & Ethanol Operations

================================================================================

Conference Call Participants

================================================================================

* Antonio Costa Barreto

Itaú Corretora de Valores S.A., Research Division - Research Analyst

* Danniela Chambô Eiger

BofA Merrill Lynch, Research Division - Associate

* Gustavo Allevato

Santander Investment Securities Inc., Research Division - Research Analyst

* Lucas Ferreira

JP Morgan Chase & Co, Research Division - Analyst

* Roberto G. Browne

Morgan Stanley, Research Division - Research Associate

================================================================================

Presentation

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

Good morning, ladies and gentlemen, and thank you for waiting. At this time, we would like to welcome everyone to Adecoagro's Third Quarter 2018 Results Conference Call.

Today with us, we have Mr. Mariano Bosch, CEO; and Mr. Charlie Boero Hughes, CFO; and Mr. Juan Ignacio Galleano, Investor Relations Manager. We'd like to inform you that this event is being recorded. (Operator Instructions) Before proceeding, let me mention that forward-looking statements are based on the beliefs and assumptions of Adecoagro's management and on the 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 will turn the conference over to Mr. Mariano Bosch, CEO. Mr. Bosch, you may begin your conference.

--------------------------------------------------------------------------------

Mariano Bosch, Adecoagro S.A. - Co-Founder, CEO & Director [2]

--------------------------------------------------------------------------------

Good morning, and thank you for joining Adecoagro 2018 third quarter results conference. As you have seen in our release, we are having a very strong year, both from a financial and operational perspective. Once again, we are convinced that this was mainly achieved by the constant enhancement of our agricultural and industrial operations. We have been in higher productivity and consequently reducing unitary production costs. At the same time, we cannot disregard the good work of our logistics and commercial teams, allowing us to capture above-average prices. Starting with the Sugar, Ethanol and Energy business, rains have made us reduce the milling pace when compared to last year. However, this represents only performance of crushing activity since higher rains favored cane development, reason why we expect yields to increase. In addition, this enables us to secure cane availability.

Moving now to the economic performance. We continue maximizing the production of ethanol in order to profit from higher ethanol-related prices. On a year-to-date basis, 72% of the TRS revenue went to ethanol, making us the producers with the highest degree of liquidity in the production mix.

Continuing that, during 2018, ethanol traded at the 30% average premium to sugar, which represents a clear competitive advantage compared to other players as we are making a more efficient use of our fixed assets. At the same time, total cost of production marked on 18% reduction year-over-year further contributing to the recent profitability. After our expansion project, sugarcane availability is the critical factor, especially for our continuous harvest system. We have successfully secured 70% of the total hectares needed to fully supply the 3 million tons of growth of cropping capacity. More importantly, terms and conditions were maintained, in some cases even improved.

Moving to our Farming and Land Transformation business, all of our teams are fully focused on the planting of the 2018, '19 harvest year. Crops are developing in excellent conditions. However, we are entering into the months where yields for most of our crops are refined. Regarding the dairy business, we continue delivering strong operational results. Cow productivity continues with extremely high productivity even catering for the new operational challenges that arise as we populate our first free-stall facility. At the same time, we are advancing well in the acquisition of the 2 strategically located dairy processing facilities. As we have highlighted, they will sooner join with our existing operations, allowing us to diversify sales into both local and export markets, maximizing margin contribution. We are on the right track to conclude our fiscal year 2018 with good returns on cash flows. As always, we remain focused in execution to further enhance efficiencies. I would like to finish by reiterating my gratitude to all the operational and management team. After all, it is thanks to their daily efforts on hard work that we have become one of the low-cost producers of food and renewable energy. Now I will let Charlie walk you through the numbers of the quarter.

--------------------------------------------------------------------------------

Carlos A. Boero Hughes, Adecoagro S.A. - CFO [3]

--------------------------------------------------------------------------------

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 chart, the third quarter was affected by excess rains. As a matter of fact, rains reached 323 millimeters, 58% higher compared to the third quarter of 2017. On a year-to-date basis, rains during 2018 were more aligned with our 10-year average. I would like to remind everyone that sugarcane cannot be harvested when the soil is wet because the heavy combines and cracks 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. The excess rains during the quarter resulted in significant delays and disruptions in harvesting and crushing operation.

It is reflected in the 17% reduction in effective milling days. Sugarcane milling, as a result, reached 3.3 million tons, 20% lower year-over-year. It is important to highlight that the sugarcane, which was not harvested remains grown in our fields and is scheduled to be harvested during the upcoming quarters with high yields at TRS content. On a yearly basis, however, sugarcane milling increased by 7%, driven by higher sugarcane availability together with higher operational efficiencies in all of our mills as a result of the industrial crushing capacity enhancement in Angelica mill.

Please turn to Page 6 where I would like to highlight our agricultural productivity. We remain fully focused on agricultural productivity since we understand that it is amongst the main drivers for becoming a low-cost producer. Over 70% of total production costs are related to sugarcane production at the field. As a result, sugarcane yields in the first 9 months of 2018 reached 90 tons per hectare, 7% higher year-over-year. In addition to the enhanced agricultural efficiencies, higher yields were explained by adequate weather conditions during the first semester of 2018, which favored cane development. TRS content reached a 129 kilos per ton, slightly above the previous year. The combination of these 2 effects resulted in TRS production per hectare of 11.5 tons, 8% higher than last year's 9-month period.

Let's move ahead to Slide 7, where I would like to discuss our production mix. As you can see in the top-left chart, anhydrous and hydrous ethanol in r Mato Grosso do Sul traded at an average price of $0.141 and $0.131 per pound sugar equivalent, which represents a 30% and 21% premium to sugar, respectively. In this scenario, all our efforts were focused on maximizing ethanol production since day 1 to benefit from higher relative prices.

Results are evident. On a year-to-date basis, 72% of our TRS production was diverted towards ethanol explaining the 54% increase in ethanol production year-over-year as you can see in the top-right chart. As a result of this strategy, ethanol accounted for 62% of the total year-to-date EBITDA generation in Sugar, Ethanol and Energy business, while sugar accounts only for 20%. This explains why our EBITDA and cash generation are more resilient to downward sugar prices.

Let's move ahead to Slide 8. As you may see in the top-right chart, average energy prices reached BRL 494 per megawatt hours in the third quarter of 2018, marking a 13% increase year-over-year. As it is shown in the top-left chart, levels of water stored in reservoirs are low compared to the previous year, thus reducing our energy supply stemming from hydroelectric sources. It's worth remembering that hydroelectric energy represents almost 80% of Brazilian energy metrics. To profit from high prices, we maximized energy production. In this line, lower crushing activity was partially offset by the large bagasse availability carried over from the previous quarter, coupled with enhanced efficiencies at an industry level. This explains, at the same time, the 15% increase in cogeneration efficiencies.

Let's please turn to Slide 9, where I would like to discuss quarterly sales. On a quarterly basis, due to our strategic decision to maximize ethanol production, selling volumes increased 109%, reaching 169,600 cubic meters. Ethanol total sales, however, is low by 75%, fully explained by the lower average selling price. In the effect, as a result of the 25% depreciation of the Brazilian real, ethanol prices measured in U.S. dollars decreased by 15%. It's worth highlighting that compared to the same period of last year, we are executing a more aggressive carry strategy aiming to profit from higher prices during the inter-harvest season.

In the case of energy, selling volumes reach 278,000-megawatt hour, marking a 16% decrease. It is mainly explained by lower crushing activities, partially offset by bagasse inventories carried from the first semester; enhanced efficiencies, coupled with; a commercial effort to maximize energy sales in order to capture higher selling prices.

We expect prices to remain at attractive levels despite the recent drop in spot prices, in the wake of increasing demand and lower levels of water reservoirs in the south-east region of Brazil.

Sugar sales volumes reached 158,000 tons, 51% lower year-over-year. Average net selling prices reached $0.118 per ton, 21% lower compared to the third quarter of 2017. Lower prices are primarily explained by the global supply and demand of dynamics. As a result, net sales reached $43 million, 61% lower compared to the same period of last year.

Let's please turn to Slide 10, where I would like to discuss production costs. As shown in the table, total production costs excluding depreciation and amortization in third quarter of 2018 marked an 18% reduction on a per unit basis. This decrease was explained by enhanced agricultural efficiencies that contributed to reduced harvest costs; lower sugar prices which resulted from the reduction of Consecana price and thus lower agricultural partnership costs; and a reduction in the share of third-party cane. Unit costs, measured in U.S. dollars, were further reduced by the year-over-year depreciation of the Brazilian real.

Finally to conclude with the Sugar, Ethanol and Energy business, please turn to Slide 11, where I would like to discuss financial performance. Adjusted EBITDA for the 9-month period of 2018 reached $193 million, 16% higher compared to last year's same period. The main drivers for the increase are explained by a reduction cost of production coupled with an increase of other operating income. This positive effect was partially offset by a decrease in sales.

It's worth to note that adjusted EBITDA margin net of third-party commercialization, went from 36.1% in the first 9 months of 2017 to 58.6% in the first 9 months of 2018. On a quarterly basis, adjusted EBITDA in the third quarter of 2018 was $64 million, 14% lower compared to the third quarter of 2017. Adjusted EBITDA was positively affected by 18% reduction in total production costs on a per unit basis as a result of enhanced agricultural and industrial efficiencies, coupled with the depreciation of the Brazilian real, $14.2 million higher gains derived from the mark-to-market of our commodity hedge position.

These positive effects were offset by lower sales coupled with a $16.2 million loss from the fair value of our unharvested cane.

I would now like to move on to the Farming business. Please direct your attention to Slide 13. At the end of the third quarter of 2018, Adecoagro began its planning activities for the 2018 and '19 harvest year. We expect to plant 237,000 hectares, 1.9% higher than the previous harvest season. This increase is expected to come primarily from a greater leased area, partially offset by an 8.4% decrease in owned land as a result of the sale of Rio de Janeiro and Conquista farms during the second quarter of 2018. As of the end of October of 2018, a total of 79.2 thousand hectares or 33.4% of the target area has been seeded. We expect to continue planting rice until mid-November, and corn and soybean until early January. The wheat crop has developed as expected and we are preparing for the start of harvest.

Let's move to Page 14, where I would like to walk you through the financial performance of our Farming and Land Transformation business. As you may see on the chart, on a year-to-date basis, adjusted EBITDA for the Farming business totaled a $100 million, marking a 167% increase year-over-year. The result is mainly explained by the performance of our Crops and Rice business, coupled with the sale of Rio de Janeiro and Conquista farms. Higher margin recognition as a result of higher commodity prices in the local markets, coupled with a reduction in production costs explained the $13.9 million increase in our Crops business. As for our Rice business, we registered a $14.3 million increase as a result of 17% increase in agricultural yields, coupled with lower production costs measured in U.S. dollars. The sale of Rio de Janeiro and Conquista farms during the second quarter of 2018, in turn, contributed with a $36.2 million in capital gains.

Let's now turn to Page 16, which shows the evolution of Adecoagro's consolidated operational financial performance. On a consolidated basis, net sales in the first 9 months of 2018 reached $557 million, 13% lower year-over-year. This, as we had already seen, is mainly explained by a combination of lower sugar and energy selling volumes, coupled with lower sugar and ethanol prices measured in U.S. dollars. Adjusted EBITDA, in turn, totaled $279 million, marking a 49% increase compared to the same period of last year. Positive results were achieved in all of our businesses. As previously explained, the good performance of our Crops and Rice businesses were primarily the result of enhanced agricultural and industrial efficiencies, coupled with lower production costs measured in the U.S. dollars. As for our Sugar, Ethanol and Energy business, positive results were driven by higher crushing volumes, which allowed us to dilute fixed costs, coupled with the gain derived from the mark-to-market of our commodity hedge positions.

To conclude, please turn to Slide 17. Take a look at our net position. As you may see in the left chart, our gross indebtedness as of September 30, 2018, stands at $815 million, while net debt stands at $634 million constantly lower quarter-over-quarter and 8.3% higher year-over-year. The increase in net debt from a yearly perspective is primarily explained by our investment program. It's important to highlight that due to the growth in adjusted EBITDA, however, net debt ratio reached 1.73x, 11.3% lower year-over-year. I'd like to mention that our debt is very well structured in the long term with an average maturity of over 6 years. Thank you very much for your time. We are now open to questions.

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

The floor is now open for questions. (Operator Instructions) And our first question comes from Danniela Eiger with Bank of America Merrill Lynch.

--------------------------------------------------------------------------------

Danniela Chambô Eiger, BofA Merrill Lynch, Research Division - Associate [2]

--------------------------------------------------------------------------------

I have 2 questions on sugar and ethanol. The first one is regarding ethanol prices outlook. We are seeing all big players in the industry here in Brazil carrying inventories to the inter-harvest season in the hopes of selling it at higher prices due to seasonality. And although ethanol demand remain at peak levels, we are seeing continuous cuts on gasoline prices by Petrobras, which are still not reflected at -- on prices, right? So how are you seeing this risk in terms of profitabilities for the sugar and ethanol division? And my second question is on your announcement on the investment of additional ethanol starch capacity. Can we understand that, that will lead you to continue increasing your production mix towards ethanol in the next season? And if so, do you need to make any additional investments to increase your flexibility or you still have some extra room to expand it?

--------------------------------------------------------------------------------

Mariano Bosch, Adecoagro S.A. - Co-Founder, CEO & Director [3]

--------------------------------------------------------------------------------

Okay, Danniela, thank you for your question, a very interesting one. I want to ask Renato to -- that is our Head of Sugar, Ethanol and Energy business to answer both of your questions, and I will add something if they needed. So, Renato, do you want to take that question, please?

--------------------------------------------------------------------------------

Renato Junqueira Santos Pereira, Adecoagro S.A. - Director of Sugar & Ethanol Operations [4]

--------------------------------------------------------------------------------

Okay. Thanks for the question. First, regarding the ethanol price, ethanol market has been under pressure due to the weaker gasoline price at the refineries. However, we keep the positive view, as lower gasoline price at the refineries were not passed to the front yet, contributing to maintain ethanol competitors and parent close to 63%. Also hydrous demand continues to reach the record highs as shown by UNICA in their last year reports. And also longer inter-crop period and the lack of leftover sugarcane should lead to a tighter market, especially in the Q1. For all these reasons, we believe that even with awards gathered in our outlook, ethanol price have room to improve and to lead parent close to 7%. It's important to highlight that despite the drop in ethanol, hydrogen multiples pursue, it is still above $0.15 per pound and anhydrous $0.16 per pound in sugar equivalents. Regarding the second part of your question, which relates to the ethanol investment, since we had actually such a high ethanol mix, higher than we expected, we plan to finish this year with a mix close to 75%. Our starch generation decreased so in order to avoid selling ethanol at the peak of season, we have been building 4 new plants, which will increase our storage capacity about 23%. And regarding the ethanol mix for next year, we have been doing some small adjustments in Ivinhema mill that we believe that we will increase the mix to close to 8%. But, of course, it depends on the weather and TRS content of the sugarcane. The investment to increase the mix is very small, it's more like adjustments in our own process.

--------------------------------------------------------------------------------

Mariano Bosch, Adecoagro S.A. - Co-Founder, CEO & Director [5]

--------------------------------------------------------------------------------

Very clear, Renato, I have nothing to add. Danniela?

--------------------------------------------------------------------------------

Operator [6]

--------------------------------------------------------------------------------

And our next question comes from Gustavo Allevato with Banco Santander.

--------------------------------------------------------------------------------

Gustavo Allevato, Santander Investment Securities Inc., Research Division - Research Analyst [7]

--------------------------------------------------------------------------------

So I have 2 questions regarding capital allocation. The first one regarding the dairy business. How much would be the acquisition of the 2 specific assets that the company is seeking in Argentina? Second point here is, how much you'd be investing the CapEx increases in ethanol starch production by 23% as Renato mentioned in the previous question? And the third and the last question is regarding dividends. So I know the company doesn't have a dividend policy, but when can -- when investors can expect to receive dividends given the company levering's quite stable and investment term has reached more than 60%. So going forward, the company should generate a lot of cash. So when can we expect a dividend for the shareholders?

--------------------------------------------------------------------------------

Mariano Bosch, Adecoagro S.A. - Co-Founder, CEO & Director [8]

--------------------------------------------------------------------------------

Okay, Gustavo, thank you for your questions. I am going to go by pieces. On the dairy investment, these 2 plants plus 2 brands, as we have already informed, we've done an offer of $45 million for these 2 plants plus these 2 brands. These are strategic for us to enhance all our dairy production as of today. So this will allow us to either sell in the domestic market or in the export market and will also give us this flexibility that is needed in a business like this in Argentina. So that's why we think this is a very attractive investment opportunity and it is well in line with our 5-year plan that we have already shared in our Investor Day 2 months ago and that we've been sharing since some time now. So that is answering your first question. Then on the ethanol capacity, as we, I think, reported, this BRL 23 million is the cost of all these terms and are already in process, and will be ready to be used in the peak of next season as Renato was explaining. And because of this huge increase in our ethanol mix is that we needed, as Renato just explained, by this BRL 23 million, the only CapEx needed for this ethanol capacity increase, and as Renato also mentioned, there is no investment cap -- investment for continue increasing the ethanol mix. And then going to the third part of your question. Regarding dividend policy and the capital allocation, we've been showing -- and specifically, we've allocated a lot of time during our AGRO Day in New York that we have this 5- year plan, and we are in the middle of the investment cycle of this 5-year plan. And it's clear that we would be generating free cash flow from 2020 onwards. And the -- a lot of the relevant free cash flow from that time onwards. So that's why we are currently -- now we just started our discussions regarding this dividend policy. So this is a discussion that is going on within senior management, within the board, and of course, we will define a strategy for the dividend policy that we will have to revisit at our current dividend policies that we are not giving dividend. So that's why 2019 will be the year where we will be sharing our new revisited policy.

--------------------------------------------------------------------------------

Operator [9]

--------------------------------------------------------------------------------

And our next question comes from Lucas Ferreira with JP Morgan.

--------------------------------------------------------------------------------

Lucas Ferreira, JP Morgan Chase & Co, Research Division - Analyst [10]

--------------------------------------------------------------------------------

So during the capital allocation topic, I was just wondering if you -- how do you see this situation in Argentina with hyperinflation, and if you've seen some impact already of that situation in the consumption of milk, for instance? I am asking this to see if the company would be willing to -- even increasing the batch on the domestic market, taking profit of probably assets that are on sale right now. And if so, how could you fund these potential acquisitions and expansion in Argentina? If approved, land sale for instance, if you would increase the speed of, let's say, land divestments? On -- and if you can comment quickly on the liquidity of the land market in Argentina these days it would be helpful? And probably also commenting on the decision of marking to market the land prices in your book value that you started doing this quarter. That has something to do with this -- with the liquidity of the land market?

--------------------------------------------------------------------------------

Mariano Bosch, Adecoagro S.A. - Co-Founder, CEO & Director [11]

--------------------------------------------------------------------------------

Okay. We will answer the capital allocation first. And this general question about Argentina and the domestic market and the opportunities. We have a clear view that we will invest within our 5-year plan as we have expressed before. This opportunity that we are taking today of these 2 plants at well above the price of building them or what the market price would be is an opportunity that we are taking today but we are only taking this opportunity because it was in the 5-year plan that we decided it 2 years ago that while we were investing in producing more milk because of the natural conditions and the natural competitiveness that Argentina has to produce more milk is that we are taking advantage of these opportunities. It is because it is in line with what we've been projecting. And the opportunity is to -- also to export, and we will have the opportunity to export. We are looking more on how competitive Argentina is to produce and export milk rather than looking at the domestic market as a general thing. Of course, if the domestic market is more, we can also use the domestic market. So we are not doing it because of the situation of Argentina, we are doing it because it is strategically in line with our 5-year plan. So that's regarding the capital allocation as of to date. Then on the liquidity of the land market in Argentina, if we can comment here is the profitability of the land is higher now than pre-crisis of Argentina or pre this current situation of Argentina because the devaluation has more than offset the negative of the new export taxes. So in the overall business to date, the land profitability have increased compared to a year ago. We don't see that increase in land prices and we don't see a lot of liquidity in land prices because of all this situation in Argentina. So I would say that the liquidity land prices in Argentina is not high today. I would say that is relatively low. And regarding why is it that we included in the balance sheet the evaluation of our farms, I want to ask Charlie to answer that part of the question.

--------------------------------------------------------------------------------

Carlos A. Boero Hughes, Adecoagro S.A. - CFO [12]

--------------------------------------------------------------------------------

You know that our functional currency in Argentina is the peso. Every time we bought farms, we booked that farms at cost in Argentina pesos and kept fixed. As time passed by devaluation of the local currency for we made reconciliation, that made, in dollar terms, the farmland to decrease its book value, and we got to a stage where the valuation of the farmer was ridiculous. Actually, in the -- at the end of the second quarter, farmland valuation was $70 million and if we continue with that criteria at the end of the third quarter, it was going to be even lower. So taking advantage of our Cushman & Wakefield independent valuation that we disclosed every third quarter, we took the decision to change the criteria and to take the valuation coming from Cushman & Wakefield as a fair value. Although we've been selling most of the farms that we sold in the last 15 years have been sold at a higher price than Cushman. We understood our thing that it's this independent price. It's a good value to be considered to revalue our farmland in our balance sheet. That's why this -- now you would see that the book value of the farmland in our balance sheet is close to $800 million. And one clarification is that as this is a noncash reevaluation, although this shows and captures all the efforts on transforming land that we've been doing for the last years and some land appreciation that we got since we acquired the farms, we have changed the definition of our adjusted EBITDA in order to be conservative and not to include the gains coming from the revaluation of our farmland.

--------------------------------------------------------------------------------

Lucas Ferreira, JP Morgan Chase & Co, Research Division - Analyst [13]

--------------------------------------------------------------------------------

Mariano, if I may, just a follow-up on the previous question, and the regarding 5-year plan? If you can remind me what does the plan say about your, let's say, potential diversification in Argentina? I remember a couple of years ago, you considered diversifying and actually going a bit more vertical into even maybe like propanes or brandings or getting even closer to final consumer. Is that still the case if you would consider getting into propane, for instance?

--------------------------------------------------------------------------------

Mariano Bosch, Adecoagro S.A. - Co-Founder, CEO & Director [14]

--------------------------------------------------------------------------------

Yes, I am getting your point. I think we are clearly prioritizing within the 5-year plan. But, of course, sometimes we can look at things. But I don't expect something relevant going out of the 5-year plan. I think we are very focused on what we are doing today within the 5-year plan.

--------------------------------------------------------------------------------

Operator [15]

--------------------------------------------------------------------------------

And our next question comes from Antonio Barreto with Itaú BBA.

--------------------------------------------------------------------------------

Antonio Costa Barreto, Itaú Corretora de Valores S.A., Research Division - Research Analyst [16]

--------------------------------------------------------------------------------

Just one clarification on that point about the investment plan. When you look at your AGRO Day presentation, if I am not mistaken the dairy investment that you had planned over the next years was $70 million. So when we think about the $44 million that you guys are talking about to invest on the 2 plants by Suncor, we should add those $44 million to the $70 million that you mentioned on the AGRO Day or is that a part of the $70 million?

--------------------------------------------------------------------------------

Mariano Bosch, Adecoagro S.A. - Co-Founder, CEO & Director [17]

--------------------------------------------------------------------------------

Thank you very much for your question. This is -- in the $70 million it's already included. These are part of the $70 million, the $45 million that we are talking now. On top of the $45 million, we may invest some additional capital, working capital, that we think that the $70 million is today a conservative number, because we took advantage of this opportunity.

--------------------------------------------------------------------------------

Antonio Costa Barreto, Itaú Corretora de Valores S.A., Research Division - Research Analyst [18]

--------------------------------------------------------------------------------

All right That's clear. And my second question is about Sugar and Ethanol business. We have seen and you guys reported all the rains in the third quarter of the year. I would like to know if you have an update up into -- the quarter-to-date up into the middle of November. How have the rains been? And if you guys have any expectations that could change the crushing guidances. If I am not mistaken, on the AGRO Day, you mentioned 12 million tons for this year. So judging by the rain that you had seen up until November, is there a risk that this number will be lower in this year? And you're going to have more leftover kind disorder for 2019 to increase the crushing in 2019. So how do you guys see this breakdown between crushing in 2018 and '19 given all the rains that you guys have seen up until the middle of November?

--------------------------------------------------------------------------------

Mariano Bosch, Adecoagro S.A. - Co-Founder, CEO & Director [19]

--------------------------------------------------------------------------------

Antonio, very good question. Thank you for it. Renato, can you go in detail on that answer, please?

--------------------------------------------------------------------------------

Renato Junqueira Santos Pereira, Adecoagro S.A. - Director of Sugar & Ethanol Operations [20]

--------------------------------------------------------------------------------

Okay. Thank you, Antonio. As Charlie mentioned, it rained more than average in August, September and October. That are usually drier months. As a result, we had a crushing delay, and we should be crushing approximately 5% less sugarcane than initially planned. However, it's important to highlight that the final crushing should be above 10% more than the ones crushed last year. And the wetter weather improved future sugarcane outlook, especially for the first quarter of 2019 when you'll be crushing as a part of our continual harvesting module. So we are going to decrease 5%, the number that you mentioned, approximately, depending on the weather that's now on and increase a little bit in the crushing for next year.

--------------------------------------------------------------------------------

Antonio Costa Barreto, Itaú Corretora de Valores S.A., Research Division - Research Analyst [21]

--------------------------------------------------------------------------------

So if I do the math on that, it's something close to 500,000 to 600,000 tons that you should not crush this year, but you should crush in the next? So is that how it works? So whatever this 5% number, we subtract from 2018, but we add to 2019 or there is some loss in the middle?

--------------------------------------------------------------------------------

Renato Junqueira Santos Pereira, Adecoagro S.A. - Director of Sugar & Ethanol Operations [22]

--------------------------------------------------------------------------------

Yes, we subtract this number so the math is right for this year. And you have, I would say, 90% of the number for next year.

--------------------------------------------------------------------------------

Mariano Bosch, Adecoagro S.A. - Co-Founder, CEO & Director [23]

--------------------------------------------------------------------------------

Just one, Antonio, always take into account that we are subject to daily rain so it will depend always on the climate from now till the end of the year and there is always variability there.

--------------------------------------------------------------------------------

Operator [24]

--------------------------------------------------------------------------------

(Operator Instructions) And our next question comes from Roberto Browne with Morgan Stanley.

--------------------------------------------------------------------------------

Roberto G. Browne, Morgan Stanley, Research Division - Research Associate [25]

--------------------------------------------------------------------------------

When you came up with your 5-year investment plan, the Argentine peso was at a different level, and the profitability in this field was also different. Now that you are able to improve and you are able to see this in the quarter, does it change the opportunities you see for the -- for your crops there? In other words, is the new profitability level bringing also new opportunities besides the one you already have there on your operations?

--------------------------------------------------------------------------------

Mariano Bosch, Adecoagro S.A. - Co-Founder, CEO & Director [26]

--------------------------------------------------------------------------------

Roberto, good comment. Yes, there may be within the crops business some additional opportunities. And within the crop business, we have soy, corn, wheat, sunflower and peanuts. So within these 5 different crops, there may be specific opportunities like increasing area in the peanuts, like increasing some areas on some specific sunflower or wheat or something. But we are in the middle of the planting season. So there is a little bit for this year and maybe something for the following year. That is included in the concept of this 5-year plan where we will be growing the crops and we think that there is an opportunity there.

--------------------------------------------------------------------------------

Operator [27]

--------------------------------------------------------------------------------

And this concludes the question-and-answer session. At this time, I'd like to turn the floor back over to Mr. Bosch for any closing remarks.

--------------------------------------------------------------------------------

Mariano Bosch, Adecoagro S.A. - Co-Founder, CEO & Director [28]

--------------------------------------------------------------------------------

Well, okay, thank you, everyone, for the call today. Thank you for participating. And to finish, I would like to reiterate my gratitude to all of our people. It depends on their daily effort with difficult climate, with cold weather, rainy seasons that they are working every day at the fields. And those are our most important people, so thanks to them and to their daily effort is that we are becoming the lowest-cost producers in each of our businesses. So I would like to reiterate our gratitude to all of them. So thank you all for coming.

--------------------------------------------------------------------------------

Operator [29]

--------------------------------------------------------------------------------

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