Adecoagro SA (AGRO) 2012 Q4 法說會逐字稿

Good morning, ladies and gentlemen, and thank you for waiting. At this time, we would like to welcome everyone to Adecoagro's Fourth Quarter Results Conference Call. Today with us, we have Mr. Mariano Bosch, CEO, Mr. Charlie Boero Hughes, CFO, and Mr. Hernan Walker, Investor Relations Manager.

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 section. (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 will turn the conference over to Mr. Mariano Bosch, CEO. Mr. Bosch, you may begin your conference.

Good morning, everyone, and thank you for joining our call. We have completed the 2012 year and we are proud of how our teams responded to the challenges presented.

In the sugar, ethanol, and energy business, our strong operating performance during the fourth quarter allows us to finish 2012 with more cash gain than 2011. As a result of this increase and the improved efficiencies in the operations of our mill, Adecoagro was able to reduce production costs which allowed us to keep EBITDA margins at similar levels than 2011 despite the lower sugar and ethanol prices.

I would also like to highlight that the construction phase of the Ivinhema Mill has finished. The plant was successfully completed during November and December of last year and the mill is now ready to start milling operations.

With Ivinhema coming online, we expect to start taking advantage of the synergies provided by the [process] and continue decreasing our cost of production.

Our culture has been in expanding our sugarcane plantation. We were able to plant over 23,000 hectares in 2012, reaching a total plantation site of over 85,000 hectares, which represents an increase of 31% compared to last year.

We would also like to mention that we have ended the year with the approval of the BNDES loan which has secured the financing of all the growth of the process.

Moving to the farming and land transformation business, we have completed the 2012 with a performance in line with the past year. The 2012/'13 harvest year is on tract. Planting was done in an adequate and timely manner and crops are now in their growth phase.

Different weather patterns have affected our crops in different ways. As you may have heard, some planting regions of Argentina have suffered a drought during January and February of 2013, which mainly affected the soybean and corn crops.

On the other hand, the irrigated rice crop has been developing in good shape. Water availability and (inaudible) have been optimal and we expect to have a much better year compared to 2012.

This prove how product and geographic diversification allow us to mitigate risks. Also 2012 has been a strong year for our land transformation business. We have been able to put into production almost 9,000 hectares. This is a value creation process in which under (inaudible) land is transformed into its highest production capabilities.

In addition, I would like to highlight that we have continued executing our strategy of selling a portion of our fully mature land every year. The sales of San Jose and Santa Regina farm were both completed at a 31% and 11% premium to the independent appraisal respectively. We believe these transactions confirm the value of our farmland.

Lastly, we have been able to obtain various sustainability certifications during 2012. Our sugar and ethanol production was certified under the Bonsucro and LCFS standards. While our soybean production was certified under RTRS and 2BS scheme. These levels allow us to enter new markets and obtain price premiums, which is another proof of how sustainability and long-term profitability go hand-in-hand.

Now I would like to ask Charlie to walk you through the main operating and financial highlights of the quarter. Charlie, please go ahead.

Thank you, Mariano.

And good morning, everyone. Starting on page two, I would like to go over the operating performance of the sugar, ethanol, and energy business. As you may see on the top chart, in the fourth quarter of 2012 we crushed 1.4 million tons of sugarcane at the Angelica and UMA mills, almost double of what was billed in the same period of 2011.

Despite the delays and harvest we experienced during the first semester of 2012, favorable weather conditions in the second semester allowed us to crush all of the sugarcane available in our field. As a result, all of our sugarcane mills during 2012 are reached 4.5 million tons of cane, 8% higher than 2011. This growth was driven by the expansion of our sugarcane plantation.

In the lower chart, we may observe in the bar on the far right that the 2012 production mix was quite balanced between sugar and ethanol however the quarterly bars clearly illustrate how are our production mix is fluctuated during the year favoring the production of the commodity that provided the highest margins at a moment in time.

In the second quarter and throughout most of the third quarter we maximize the production of sugar but during the end of the third quarter our production mix shifted towards maximizing our highest ethanol production in order to take advantage of the higher margins obtained by anhydrous ethanol compared to sugar.

The high flexibility of our mills has allowed us to quickly respond to the volatility of commodity markets and therefore maximized EBITDA generation.

On slide three, you may observe the production of sugar, ethanol, and energy. As a result of the 90% increase in sugarcane, production volumes have significantly increased in the fourth quarter of 2012 compared it to the fourth quarter of 2011.

On an annual basis, the 8% increase in sugarcane crushed coupled with a 4.6% increase in [TRS] (inaudible) resulted in a 14% increase although sugar and ethanol volumes on the other hand despite the increase in sugarcane milling, energy production increased by 2%.

The charts on slide four shows sales volumes and average debt selling prices during the quarter and full year for each of the products we produce. As a result of the increase in sugarcane milling and the changes in the production mix, sugar sales volume increased 6% year-over-year, hydrous ethanol sales volume and decreased 16% and anhydrous ethanol volume increased 105%.

[While energy] sales volumes were practically flat year-over-year. Average net selling prices for each of our products mentioned in dollar terms were lower in 2012 compared to 2011. Sugar price fell 10%, hydrous and then all fell 17%, anhydrous ethanol prices dropped 34% and [co-gen] prices were 17% lower.

Our average price for anhydrous ethanol was $90 per cubic meter higher than that of hydrous ethanol. This price premium explains why we maximized anhydrous ethanol production during most of the year. This premium was obtained in part by our sustainability certification which allows us to export ethanol into the US market as an advanced biofuel. Over 36% of the anhydrous ethanol produced was exported to the US in 2012.

Let's turn to slide five where we will find the summary of the financial performance of the sugar, ethanol and energy business. In the upper charts, you may see how as a result of the strong increase in sugarcane crushed during the fourth quarter of 2012, gross sales and adjusted EBITDA increased by 18% and 87% respectively. In addition, EBITDA margins were boosted from 29% to 43% driven by the higher capacity utilization.

On an annual basis, adjusted EBITDA in 2012 totaled $97.5 million, 11% below 2011, while EBITDA margin was 36%, 5 percentage points below 2011. This decrease is primarily explained by lower sugar and ethanol prices in 2012 as explained in the previous page.

Lower prices were partially offset by an increase in operational deficiencies and synergies resulting from the expansion of our sugarcane plantations which allows the Angelica mill to increase its capacity utilization from 79% in 2011 to 88% to 2012.

As you may see on page six, and during 2012, we planted a total of 23,400 hectares of sugarcane, 72% above the area planted in 2011. Over 87% of the planted area corresponds to the expansion of our plantation in order to supply sugarcane to the Ivinhema mill, which will begin milling operations this year.

The increase in planted area year-over-year was accomplished as a result of a larger and [control] team and higher planting efficiencies. As of December 31st of 2012, our sugarcane plantation consisted of 85,653 hectares representing a 31% increase year-over-year. This growth will allow us to make full utilization of nominal capacity next harvest season.

On slide seven, I would like to give you an update on the Ivinhema (inaudible) project. The construction of the first phase of the mill which has 2 million tons of nominal capacity has been completed on schedule and below budget.

In November and December, we have performed operational milling tests with positive results. Ivinhema will be ready to start milling mid April producing sugar, ethanol, and electricity.

As of December 31st, 2012, we have invested a total of $290 million in the construction of the industrial site, purchase of machinery and sugarcane plantation. We expect to deploy an additional $410 million over the next five years in order to complete the construction of the mill reaching 6.3 million tons of capacity by 2017.

I would like to highlight that BNDES, the Brazilian Development Bank has shown its support to Ivinhema. On December 27, 2012, BNDES approved a BRL680 million loan to finance the expansion of Ivinhema. The loan has a 10 year tenor and a two-year grace period and builds an average interest rate of 4.14% in reals.

I would now like to walk you through the main highlights of the farming and land transformation business. On slide eight, you may see our planting activities for that 2012-13 harvest year as shown in the top chart our own corruptible area has grown consistently over the last five years reaching a total of 131,000 hectares in the current harvest season, 8,000 hectares or seven% above the previous harvest. This growth is mainly driven by our land transformation activities and land acquisitions.

During 2012, Adecoagro transformed into production approximately 9,000 hectares of land which roughly 5,000 were transformed to land suitable for rice production and 4,000 was transformed into land suitable for the production of all crops, that is soybean, corn, and wheat.

Growing crops and owned land is our main focus in [this] area that contributes the highest EBITDA per hectare and risk adjusted returns. In addition to the home planted area, we have planted 54,000 hectares over leased land and 34,000 hectares of second crop area. This area was reduced by 7.5 thousand hectares. It is an opportunistic business driven by returns.

Up second crop area was reduced by 14.2 thousand hectares as a result of higher than expected margins for planting soy first crop compared to the expected margins of planting wheat followed by soybean second crop. Overall, we have planted 219,000 hectares, 5.9% below the previous harvest year. We believe this expansion plant will allow us to maximize margins and returns.

On the bottom part of the slide, you'll find a table with planted area on a crop by crop basis. The most significant increase in the soybean first crop, which grew at the expense of a reduction of wheat and soybean second crop.

This was the result of higher expected margins per hectare for soybean first crop compared to the expected margin from wheat (inaudible) soybean crop. Our rice planted area continued its growth trend reaching 35.2 thousand hectares 11.9% higher than the previous season.

As explained earlier, this is the result of our land transformation. Other changes in the crop mix are mainly driven by our crop rotation strategy which seeks to maximize the long-term productivity and quality of the soil.

Let's move to slide nine where we can see the evolution of monthly rainfalls in our farm located in Venado Tuerto in the (inaudible). The green part represent the current harvest year and the orange bars we present the historical average.

As you may notice, rainfalls were abundant from September through November of 2012. Despite planting delays in some regions of Argentina, planting in general was done in a timely manner and such humidity conditions for the initial growth pace of the crops were good.

However, in January through mid-February of 2013 the main productive regions of Argentina suffered a drought. The lack of rainfall negatively impacted normal development of some crops. Soybean first crop was the most affected crop with the drought took place during this crop development and rain (inaudible) phase when the plants water requirements is at its peak. Soybean second crop on corn planted in December and have also been partially affected by lack of rain.

Moving onto slide 10, I would like to walk you through the financial highlights of the farming business of for 2012 compared to 2011. Starting on the left, we may see the financial performance of our crop segments. As a result of our 22.5% increase in planted area year-over-year and higher commodity prices, crop sales for the segment came in 33% of 2011.

However, adjusted EBITDA for the segment decreased from $42.6 million to $34.3 million. This lower year-over-year performance is primarily explains by lower crop yields as a result of the summer drought as explained during the previous quarters.

Moving on to the right, you may observe that our rice segment has underperformed compared it to the previous years. At the lack of adequate climactic conditions during the previous half year, in addition to low national rice prices reduced our adjusted EBITDA of to $4.9 million.

Nevertheless, climactic conditions during the current harvest year have been very good. We have already harvested 65% of the rice area. This has have been in line with our expectations are significantly above the previous harvest season.

In the case of our (inaudible) affected, mix production has increased by 7.2% compared to 2011. However, adjusted EBITDA was (inaudible) and below our expectations due to low economic prices and high feed costs as a result of the increase in corn prices.

On a consolidated basis, sales for the farming business increased by $52 million as a result of the increase in production while adjusted EBITDA decreased by $17 million primarily as a result of the climactic difficult experience during the previous harvest year and the losses generated by the mark to market of hedge instruments.

Let's go on to slide 11. During 2012, Adecoagro completed the sale of two farms namely San Jose and Santa Regina. San Jose is a 7,630 hectare farm which was purchased by Adecoagro in 2002 for a total of $0.7 million. At that time, the farm was being used exclusively for cattle grazing.

Following acquisition, Adecoagro implemented a sustainable production model that allowed it to grow real crops over part of the farm and to increase the productivity of the pastors used for cattle grazing. The farm was sold a fully developed 10 years later $9.3 million operating an internal rates of return of 31.8% mostly driven by an increase in the farm productivity and domestic beef prices.

The selling price was 31.4% higher in (inaudible) and weight goods independent operational dated September 2011 for [7 million]. Santa Regina is a 3,618 hectare farm which was purchased by the Adecoagro in 2002 for a total of $2.3 million.

The farm has 3200 hectares of cropable land which have been transformed and are currently used to produce corn soybean and wheat. The selling price of the 51% stake sold was a $13 million. 11% of Cushman and Wakefield's independent operations late in September 2012.

After accounting for the purchase price, transformation capital expenditures, operational cash flows, and assuming price, this investment is generated an internal rate of return of 34.2%.

The book value of Santa Regina was $3.1 million. Therefore, this transaction resulted in $19.4 million of operating profit recorded in the fourth quarter of 2012 with the following breakdown.

A $9 million gain corresponding to the sale of 51% stake of Santa Regina and a $10.4 million gain corresponding to the fair valuation of Adecoagro remaining 48% interest in Santa Regina according to IFRS accounting rules.

As you may see on the bottom chart, Adecoagro has been able to consistently sell between one and three of its fully mature farms during the last seven years and has generated capital gains for over 132 million.

We believe it's important to highlight that all of the sales were done at a premium to Cushman & Wakefield's appraisal performance each year. Going forward we expect to continue executing (inaudible) in order to relocate capital efficiently and to give comfort to our shareholders regarding the net asset value of our farm portfolio.

Page 12 it shows the evolution of Adecoagro's consolidated operational and financial performance during the last five years. Consolidated adjusted EBITDA for 2012 stands at $140.7 million compared to $150.1 million in 2011.

As discussed during the previous slides, this is primarily explained by first, lower sugar and ethanol prices, [secondary] results generated by a mark to market of our expectations and third lower yields obtained in our farming business.

All of these were partially offset by a $10.6 million increase in our land transformation business. We expect Adecoagro's production volumes and financial performance to continue growing in line or with the tendencies of the last five years mainly driven by the transformation and acquisition of farmland, the construction of the Ivinhema Mill, and the increase in operational efficiencies in each business.

Finally, let's go on to page 13. Our net debt as of December 31st, 2012 has increased to $320.3 million compared to $285.6 million on September 30 of 2012. This increase was driven by a $30.1 million increase in total debt and a $4.6 million decrease in cash.

Primarily to finance our capital expenditures we (inaudible) mill. In addition, the long-term portion of our debt increased from 60% in the third quarter of 2012 to 66% in the fourth quarter of 2012.

The increase in the duration of our debt was the result of long-term debt being raised in order to finance the CapEx and working capital needs of the Ivinhema Mill.

Thank you for your time. We are now open to questions.

Thank you. The floor is now open for questions. (Operator Instructions).

The first question comes from Fernando Ferreira with Bank of America. Please go ahead.

Thank you and good morning everyone. I have two questions. First, if you can comment on what the plan is for CapEx in 2013. And then the second question, despite the drought in Argentina that you're saying, but in the next few months, do you think that you're going to have some sort of benefit from all of the logistics issues that we are seeing in Brazil and China recently canceling a large buy order from Brazil do you think this is going to benefit somehow your farming business in Argentina? Thank you.

Hi, Fernando, it's Mariano. Thank you for your question. I'm going to ask Charlie to answer your question regarding our CapEx plan for 2013 and Marcela Sanchez regarding the potential benefits or the logistic issues in Brazil. Charlie, please can you please answer regarding the CapEx plan for 2013?

Yes, sure. Hi Fernando how are you doing. We are expecting to spend about $250 million in the sugar and ethanol business mainly in the Ivinhema construction and in addition we are expected to continue developing land by spending $6 million on the land transformation.

Marcelo?

And regarding the logistic issues in Brazil could be impacting possibility in Argentina crop prices. I think it's a good point and we strongly believe that the logistic bottlenecking in Brazilian ports will be definitely strengthening our bases in Argentina mainly soybean and (inaudible) and we see that probably an increasing price by June or July this year.

Are you already seeing that right now on the market or do you think this is going to come in the next couple of months?

Yes the market has already been putting that into the prices in Argentina mainly in soybean. The price increased 3% regarding -- in comparison with the basic (inaudible) price today.

Perfect. Thank you.

Our next question comes from Rodrigo Mugaburu with Morgan Stanley. Please go ahead.

Hi, good morning. Hi, Mariano, hi Charlie. I have a follow-up question to the CapEx. Given the situation that we are seeing on the mills in Brazil, the stress mills, do you see had opportunities for M&A. If you found something, would you be open to analyze it or are you going to be more focused on the ramping up of Ivinhema?

On top of that, same thing for the farming business, do you see opportunity for land transformation in Brazil? Would you be open to that in 2013?

Hi, Rodrigo, this is Mariano. Regarding your first question whether we will potentially do M&A or continue the ramp up of Ivinhema, we are seeing things or opportunities on the M&A side of the mills in Brazil but we are always looking at our best returns.

Until now, we haven't found anything as attractive as continuing with the ramping up of Ivinhema, so the most attractive return that we still see is on the ramping up of Ivinhema and we are very positive on that.

If there is something as good as that or better than that, of course we would be looking and we are always looking at the market. So that is regarding the first part of your question.

And regarding farming and land affirmation in Brazil, we are looking at that. We are negotiating things there and we are keen that we will be able to close something but we are still always focused on the return on investment that that opportunity needs to give us in order to close.

Great. Thank you very much, Mariano.

Our next question comes from Thiago Duarte with BPG Actual. Go ahead.

Hello. Good morning everybody. I have three questions here. Number one, if you could quantify a little bit more about the yields in Argentina because of the drought and everything. I understand is that you should still improve year-over-year but if you could make it relative stage II 2011 just to understand how the impact of the drought will play out especially for soybean, as you mentioned.

My second question is back to the sugar and ethanol business, I understand that there is a big ramp-up for the Ivinhema mill going on this year. So just wondering if you could -- what sort of level of margins you guys are expecting, by knowing your hedging prices for sugar, prices of ethanol are improving as well, but you have this whole ramp-up, so I was wondering there is some sort of temporary impact on cost or something?

And my third question back to M&A, is about, if you guys are comfortable -- if you guys think that we should continue to assume the same level or the same pace of land monetization in Argentina as it has been in these past many years? Thank you very much.

Okay. Thank you, Thiago. I am going to address your three questions. Number one, on the yields in Argentina for next year -- this year compared to last year. I would say that the main impact is on three crops, three most important crops that we need to analyze in Argentina, soybean, rice and corn. In rice, we are better off than 2011, and till now what we are seeing of the crops and what we are starting harvesting, we are at least 15% above of last year. That is clear for rice, and we are much better off.

In corn and soybean, that is the ones that are mainly affected by the drought, because rice has not been affected at all. I would say that we are still better off than last year, and still better off in our -- how we see the crops till date, between 10% to 15% better than last year, but there is still remaining growth that will occur during March and April.

It is important to monitor how the temperatures are going in March and April, so it will depend on the temperatures of April. If it is a normal year or an average year, we should expect higher yields than last year. But we did have this part of the growth to be completed. So that would be your first question.

On the second question regarding the ramp-up of Ivinhema and how the margins are going to be affecting, I would clearly say that every year, we are improving our cost of production, and so, the margins according to prices.

But the most important thing is that, with this ramp-up, we are being more efficient every year, because of the improvement of each one of the operational efficiencies that we are ramping up, including harvesting, transportation cost, the distance to the mill this year, with the ramp-up of Ivinhema, the EBITDA to the mill, because of our sugarcane plantation, it will improve a lot, because we have been planting and securing the area around Ivinhema, with two mills, that is increasing, so I would say that there is a clear ramp-up or there is a clear improvement on overall cost of production for our three crops in the ramp-up of Ivinhema, and we expect that to continue improving.

You can see in the past, how we have been improving, and that's more or less the same, how you can project or how we could potentially continue improving.

And then, the last part of the question regarding M&A and how the sales in the already transformed farm in Argentina or how that phase could potentially be? We do expect the same pace that we have been doing in the last seven years. So we have been around these $20 million generated off EBITDA in the last -- in average for the last seven years. We do expect to continue within the same pace.

That's very helpful. Just a follow-up on the second question, would you say that it's okay or it's reasonably conservative to say that you can make an EBITDA margin better than in 2011 for sugar and ethanol, 37%?

Of course. It will depend on the final prices and according so if price has an important effect there. So I would say that yes, we do, in terms of ethanol price, especially ethanol prices that are not fully locked as sugar. We should be there.

Thank you very much.

Our next question comes from Giovana Araujo with Itau BBA. Please go ahead.

Hi, good afternoon. My first question is about logistics. How do you see the logistics constraints in Brazil, affecting your sugar ethanol operations, so that's the first question?

And my second question is about the evolution of your leased area in Argentina. Should we see -- based on current returns, do you think that the trend is more for maintenance of the current leased area or should we see additional decrease going forward? Thank you.

Hi Giovana. I would ask Marcelo Sanchez to answer the first question regarding the logistics impacting in Brazil. For this one, it's our business, Marcelo?

Thank you, Giovana. I think that you are referring specifically to the logistic bottleneck in Brazil and not as the previous question regarding the positive effects that we might be seeing in Argentina.

Exactly.

We have been foreseeing the situation in the last three or four months. As you may remember, in our last call, we have been mentioning that Brazil will be suffering a huge bottleneck due to the extremely high volume of corn and soybean coming out every month of April, still on record figures, and after taking that into consideration, we have locked ourselves in several flow of volume of sugar, considering that.

Let's say, we have been contacting our space in the intermodal system at [CTA, Maringa] we have been evolving some of the sales in containers, from Paranagua, just taking into consideration that we could be making there, assuring premiums over the DHP and we tried from the beginning of this situation, we try to organize ourselves, as the flow of our production goes forward.

We have already logged place for more than 230,000 tons of sugar, that means we have the space already in place and considering that, I think that we won't be experiencing more trouble than what is expected in the market today.

Okay.

Thank you, Marcelo. On the second question Giovana, on what could you expect on the evolution of the lease area in Argentina, we are starting now on the renegotiations of the contract, that the renegotiation occurs until August.

So from now to August is where we will be defining that. With the increase, the (inaudible) rates that we ask for that business in Argentina today, we have increased that returns that, the IRR that we are asking for that business today. But there are being many opportunities.

So although we have increased the business we are asking, we may increase or not. We are seeing a lot of opportunities and many people are willing to lease the farms to us. We've being making an aim in the area. We have been slowly growing, last year we didn't. So next year, we can expect that slight growth or not, if the reason are not there. But we won't see a huge change. Maybe some 10% to 20% decrease, not more than that.

Okay. Thank you, Mariano.

The next question comes from Pedro Richards with Raymond James. Please go ahead.

Hi Mariano, Charlie and Marcelo. Thanks for the call. I have two questions.

First, regarding the sugarcane business in Brazil, if you can give an updated outlook on how will your sugarcane plantation reach the start of the harvest, and how much crushing capacity are you guys expecting to use this year, with the incorporation of Ivinhema, and if the sugar and ethanol production mix will continue to be that of the 4Q that you show in slide number two?

The second question on the farming business in Argentina, I wanted to understand the ability of farmers to hold the harvest and not sell immediately, expecting further depreciation of the peso, and also what is your forecast of the FX rate of the peso by the end of this year, considering the significant loss of competitiveness, as cost in pesos increase and with inflation and the prices are in dollar only at the depreciation rates? Thanks.

Okay, thank you Peter. Marcelo Vieira, can you answer the first part of the question of the sugar production and the utilization capacity, and how we are seeing the sugarcane this year?

Yes, Mariano. Regarding the evolution of the plantations this year, we have had so far, weather that has been more or less normal. So we expect no damage impact, like we have seen in previous years. So the plantation looks fine.

We expect Angelica to operate to capacity this year, that's 4 million tons and Ivinhema, on the first year, we will be operating at 75% capacity, total capacity is 2 million tons, we will be crushing 1.5 million tons more or less. And also UMA in Minas Gerais is also operating at full capacity and plantation also looks fine.

Excellent. And the production mix?

Production mix should be similar to last year. We should start the season with good focus on ethanol, but we foresee no big difference from last year.

Thanks, Marcelo.

(Operator Instructions).

Okay Peter, regarding the second question on what's the ability of farmers to hold harvest, I think that is relatively easy with silo (inaudible), but depending on the financial situation of each farmer, we do have a clear case on how we are going to be selling, and part of our strategy would be to sell during the period where we are think we are going to obtain those better [rates] as Marcelo Sanchez was talking about, comparing to Brazil, so that's why we are organizing a sale if mostly from now till August. That is where we think we can obtain some premium bases coming out from Argentina. So that would be our strategy.

And regarding the FX that you were asking, market consensus is talking about six, and that could basically be the case on how this is going to be moving.

Next question comes from Ravi Jain with HSBC. Please go ahead.

Hi, good morning. Two questions on the sugar, ethanol front. Could you please discuss your views on the expected move by the Brazilian government to lower PIS/COFIN taxes on ethanol. Do we expect it to have any effect on the hydrous ethanol competitiveness?

And secondly, what is your outlook on ethanol exports to the US from Brazil in the coming harvest year?

Okay. Ravi, thank you for your question. I want to ask Marcelo Vieira to answer the first part of your question. Marcelo is in the [Unica] board and he has been discussing all these issues within the -- he has been involved in all the discussions. So I will ask him to answer this question.

Yes, regarding ethanol. The prospects look certainly better for this year. The government is focused on making ethanol viable and competitive to encourage new investments in the expansion, so we had so far this year, the increase in the mix to 35%, and we are going to have quite soon, the reduction in PIS/COFIN taxes and probably some reduction in labor taxes as well, for the whole industry.

So this will certainly increase the competitiveness of ethanol. Also, in the discussions with government are -- also strategies to encourage more production of energy from biomass, which also adds to the competitiveness and viability of the industry.

The main thing here is that the attitude of our government is definitely towards making new investments viable, and these measures are a first step and which should see even more incentives in the future.

Thank you, Marcelo. And I am going to ask Marcelo Sanchez to answer the second part of your question, regarding the competitiveness of the exports of ethanol to the US, how we see this for this year?

We are focusing 1.5 million cubic meters of exports to the US, in anhydrous and 700,000 in hydrous. But today, the average price is closed, and we expect that to open closer to the driving season in the US, that would be May-June, and we think that even though we are thinking it would be positive, I think that probably could be lower than last year.

Very helpful. Thank you so much.

(Operator Instructions).

We have no further questions. This concludes the question-and-answer session. At this time, I would like to turn the floor back over to Mr. Bosch for any closing remarks.

Okay. Thank you everyone for attending the call. I would like to add that we have just started 2013, a year in which we continue to grow and optimize our operations. We have many challenges ahead, and I comprehend that our teams will deliver results, that will translate into attractive return to our shareholders.

Before we end the call, I would like to invite you to participate in the Adecoagro Investor Day on April 25 and 26, when will hold the opening ceremony of the Ivinhema Mill, and also do site visits to the mills and sugarcane plantations, where you will have a chance to see our state-of-the-art operations and spend some time with management.

You would be receiving invitations by email over the next days. So please contact Hernan Walker at our IR Department to coordinate the visit. Looking forward to seeing you soon. Thank you for joining, and have a great day.

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