Adecoagro SA (AGRO) 2016 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 2016 results conference call. Today with us we have Mr. Mariano Bosch, CEO; Mr. Charlie Boero Hughes, CFO; and Mr. Hernan Walker, Investor Relations Manager. (Operator Instructions).

Before proceeding let me mention that forward-looking statements are based on the beliefs and assumptions of Adecoagro's management and on information currently available to the Company. They involve risks, uncertainties and assumptions because they relate to future events and therefore depend on circumstances that may or may not occur in the future.

Investors should understand that general economic conditions, industry conditions and other operating factors could also affect the future results of Adecoagro and could cause results to differ materially from those expressed in such forward-looking statements. Now I will turn the conference over to Mr. Mariano Bosch, CEO. Mr. Bosch, you may begin your conference.

Good morning and thank you for joining us today. We are very pleased to present 2016 financial and operational results. Fourth quarter delivered very strong results posting a very important year for the Company. Indeed, 2016 was transformative for Adecoagro as we accomplished the goals set in our strategy: generating strong financial operational performance and positioned our business for future growth.

Furthermore, we exceeded our revenue and margin target, delivered positive free cash flow for the first time after nearly a decade of heavy investment and ended up reducing our debt.

In our sugar, ethanol and energy business, we are very proud to inform that we crushed full capacity, reaching the 10 million tons of sugar cane that we originally planned when we started the project back in 2006. This is a consequence of the commitment and undertaking of the Company during the last 10 years. This important milestone could not be reached without the alignment and [maturation] of our agriculture and industrial teams.

Crushing at full capacity, as I just highlighted, is particularly important in this industry in order to dilute fixed cost and enhance margins and returns. In this line, our (inaudible) cost of production continued to decrease.

Moving to our farming and land transformation business, we are presenting again a solid performance. In our rice operations, we were able to reduce operating costs as a result of higher agriculture and operational efficiencies resulting in higher margin. Moreover, we are expanding our export market as a result of the negotiations pursued by the new administration in our network to promote the sector and enhance competitiveness.

Regarding the (inaudible) business, (inaudible) continued to increase reaching 37 liters per cow per day on a yearly basis. Despite being a very difficult year for the [same] sector in Argentina, we were able to deliver good financial results which put us in an excellent position from now on considering the new price scenario.

All in all on a consolidated basis, we delivered strong financial results which have strengthened our balance sheet positioning our core business for future growth. We are currently analyzing many [accredited] growth opportunities that would allow us to continue generating value on (inaudible) returns for all of our shareholders.

Specifically, I would like to briefly mention the ones that we are currently undertaking on the sugar, ethanol and energy segment. We are commencing an expansion of 3 million tons of crushing for the next five years. We believe that this growth pace will enable us to maintain and even enhance our efficiency, guaranteeing low cost of production while at the same time increasing our return.

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

Thank you, Mariano. Good morning, everyone. Let's start on page 4. As shown on the chart to the left, effective milling days increased by 51% in the fourth quarter. At the same time, our milling volume per day increased by 15% as a result of the ramp up of the Ivinhema mill and higher operational efficiencies across harvesting, logistics and milling operations.

As a result of these two factors, we were able to crush a total of 3.1 million tons in the fourth quarter of 2016, 74% above last year. On a full-year basis due to the early commencement of the harvest as part of the continued harvest model that we implemented since the beginning of the year, coupled with the ramp up of the Ivinhema mill, sugarcane crushing has increased by 33% year-over-year.

Let's now move to page 5 where I would like to highlight our agricultural productivity. As you can see in the top charts, our sugar cane yields in the fourth quarter reached 91 tons per hectare, 4% below last year. At the same time, TRS per ton of cane increased 6%. As a result of these two factors, TRS per hectare increased 2% in the fourth quarter of 2016 compared to the fourth quarter of 2015.

As you can see on the bottom charts, full-year 2016 productivity improvements are in the same line. TRS per hectare has also increased 2% year-over-year. As explained in previous quarters, these productivity gains are a result of our focus on improving our agricultural operations. Some examples of efficiency enhancements include the effective implementation of pest control, collection of specific cane varieties for the region, extension of the sugarcane growth cycle and implementation of GPS controlled sensors and (inaudible).

Turning to slide 6, I would now like to focus on sugar and ethanol production. As shown on the top charts, both sugar and ethanol production increased significantly, 161% and 43% respectively. This is (inaudible) the fact that, as previously discussed, effective milling days surged to 67 days, 51% higher year-over-year.

(Inaudible) production mix during the quarter was slanted towards sugar production and sugar prices were on average 23% higher relative to ethanol prices. Measured in TRS equivalents, production increased 87% in the fourth quarter of 2016 compared to the fourth quarter of 2015. On a full-year basis, production measured in TRS equivalent have increased 32% mainly explained by the [43%] increase in sugarcane milling.

Let's move ahead to slide 7. As you may see in the table, production cost per ton of sugarcane crushed measured in dollars decreased by 13% in the fourth quarter. This has been the result of an ongoing process of efficiency enhancements and fine tuning across the entire production process seeking to become the local producer of sugar and ethanol in Brazil. On a full-year basis, unit production costs have also decreased by 5%.

Next, please turn to slide 8 where I would like to discuss sales. Sugar prices continued trending higher in the quarter trading 42% higher than a year ago driven by a global sugar deficit expected for 2017. As explained earlier, we maximized sugar production during the quarter to capture these attractive prices. Sugar sales volume reached 341,000 tons, 39% higher year-over-year. Average realized prices increased by 51% resulting in net [cash] flows of 110% year-over-year.

In the case of ethanol, despite trading at a discount to sugar, hydrous and anhydrous prices were 33% and 29% higher than last year respectively [afforded] primarily by higher oil prices and high sugar mix. Our ethanol sales volume was essentially flat year-over-year as a result of lower production mix. However, sales were [appropriately] affected by higher ethanol prices and appreciation of the real in the quarter resulting in a 38% increase in realized prices and net sales.

Turn now to slide 9 to discuss energy production and sales. As you can see from the top left chart, we achieved an outstanding 27% increase in our cogeneration efficiency ratio reaching 83 kilowatt hours per ton of (inaudible). As a result exported energy increased 121%, reaching 258,000 megawatt hours as it can be seen in the top right chart. It's worth noting that as we enter into third-party sales agreements, total sales volume for the quarter resulted in 480,000 megawatt hours.

Finally, in terms of sales, despite a 64% decrease in average selling price measured in dollars, total net sales reached $21.3 million [marking] 195% year-over-year. This is mainly explained by an increase in production coupled with the increase in third-party sales.

Finally, to conclude with the sugar, ethanol and energy business, I would like to focus on slide 10. Here we can see the overall financial performance of the sugar, ethanol and energy business. As we just explained, as a result of the increase in sugar and ethanol prices and the 39% increase in sugar [crushing] volumes, net sales marked an 81% quarter-over-quarter. Adjusted EBITDA in the fourth quarter of 2016 reached $112 million, a 123% higher than the fourth quarter of 2015.

The main factors contributing to the enhanced financial performance in the quarter were a 74% increase in sugarcane milling coupled with higher sugar and ethanol prices, higher agricultural productivity and efficiency gains in our industrial and cane logistics operations, and a $16.2 million gain from the mark-to-market effects of our sugar hedge position.

These effects were partially offset by a $24.8 million non-cash loss from the fair value of our unharvested (inaudible) [implantation], or in other words the sugarcane we will be harvesting over the next 12 months. This reduction is driven by lower estimated prices and is compared to the previous quarter.

On a cumulative basis adjusted EBITDA for 2016 grew by 59% reaching $265 million. Adjusted EBITDA margin, excluding third-party sales, reached 55%. These results are primarily explained by a 33% increase in crushing volumes coupled with a 19% increase in TRS sold as a result of the early start of the harvest due to the implementation of the continued harvest (inaudible), higher sugar and ethanol realized prices and lower production costs as a result of operational enhancements and devaluation of the Brazilian Real.

Results were partially offset by a $6.7 million loss generated by the mark-to-market of our sugar hedge position and a $7.9 million non-cash loss from the fair value of our sugarcane planting.

Let's now move to page 12 where I would like to focus on the current status of the 2016 and 2017 harvest year planting plan. As of today, planting activities have been completed and we successfully planted 225,000 hectares, 7% higher compared to the previous harvest year. The current conditions of our crops are very good and humidity levels are excellent.

The end of the planting season was slightly delayed with the heavy rain falls during January and early February. Excess rains caused flooding and damages in specific regions of Argentina, especially in the Northwest of Buenos Aires province and Northwest provinces. However, our farms were only marginally affected. As a result of excess humidity, we reduced our planting plan by approximately 5,000 hectares or 2% of expected planting area.

Despite these minimal area losses, most of the planted crops have developed above expectations and rain has guaranteed a very good supply of water in the soil, which will be vital for crop flowering and development in the coming months.

Let's move to page 13 where I would like to walk you through the financial performance of our farming business. As you may see on the bottom chart, on a yearly basis adjusted EBIT for the farming business was $48.7 million, 24% higher year-over-year. This increase is mainly explained by higher margins in our crops and rice businesses driven by the elimination of export taxes, export control and enhanced by the devaluation of the Argentine peso.

Regarding the rice business, adjusted EBIT reached $8.9 million compared to $3.3 million in the fourth quarter of 2015. This growth is mainly explained by higher sales volumes and improved operational performance in our rice production operations, the year-over-year devaluation of the Argentine peso which has reduced our production cost and a 7.7 million increase in the rice margin captured by the change in the fair value of the biological assets. This reflects the agricultural enhancements that we have implemented over the last year.

Regarding the crops business, operating margins were 20% stronger driven by the elimination of the export taxes, export controls and devaluation of the Argentine peso. On the left reported adjusted EBIT was 15% lower year-over-year. This is explained by a $9 million loss resulting from the mark-to-market of our commodity hedge position driven by (inaudible) in international soybean and corn prices compared to our $16 million gain in 2015.

Adjusted EBIT for all other segments during 2016 was $8.9 million of which $8.1 million in response to the settlement of an arbitration dispute with a third party regarding the early termination of lease agreements related to our [cattle] land. Under the terms of the agreement, Adecoagro collected $9 million in 2016.

Let's now turn to page 15 which shows the evolution of Adecoagro's consolidated operational and financial performance. On a consolidated basis, net sales increased 30% year-over-year from $649 million in 2015 to $841 million in 2016. Adjusted EBITDA grew from $216 million in 2015 to $298 million in 2016. Adjusted EBITDA margin in 2016 was 35.4% compared to 33.3% in 2015. Adjusted EBITDA margin excluding third-party (inaudible) grew from 36.1% to 41.7%.

The growth in revenues, EBITDA and margins is explained by the increase in sugarcane milling which contributed in fixed cost dilution, higher prices in dollar terms for most of the commodities we produce, and lower production costs in the farming and sugar and ethanol businesses due to enhanced agricultural and industrial operations coupled with a depreciation of the Argentine peso and the Brazilian Real.

Let's move on to page 16. As a result of the strong operational and financial performance described in the previous slide, coupled with the conclusion of our heavy (inaudible) cycle initiated in 2006, Adecoagro has become free cash flow positive in 2016. This is a milestone year for the Company and puts us in a strong financial and liquidity position. Internally we track and measure to non-GAAP cash flow measures.

Free cash flow from operations represents the net cash generated from our operating activities after paying interest, taxes and working capital and maintenance CapEx. Maintenance CapEx is mainly related to the sugar and ethanol business and includes the renewal of sugar (inaudible) and regulation of ag machinery and the mill equipment. We generated $133 million of free cash flow from operations in 2016.

We also track free cash flow. We define free cash flow as cash flow from operations after expansion CapEx. (inaudible) the cash we can use to continue growing, deleveraging or returning to our shareholders. We generated $85 million of free cash flow in 2016.

We believe the solid growth in adjusted EBITDA and free cash flow is a strong indication of the quality of the assets we have built, the focus and dedication of our operating teams seeking to maximize productivity and efficiency and the benefit of our determination to be the lowest cost producer for each of our products and our commitment to generating sustainable long-term returns for our shareholders.

Let's go to slide 17. As you may see on the top left chart, our gross investment as of December 31, 2016 stands at $635 million while net debt stands at $477 million. I would like to highlight that our net debt decreased by $163 million compared to the third quarter of 2016 and by $47 million compared to a year ago. (inaudible) as a result of the positive free cash flow generated during 2016 which was used to continue our deleveraging process.

a combination of decreasing debt coupled with growing adjusted EBITDA has resulted in a net debt to adjusted EBITDA ratio of currently 1.6 times compared to 2.4 a year ago. I'd like to mention that 68% of our debt remains in the long-term including (inaudible) at very competitive rates, as you can see on the bottom left chart.

Last but not least let's move to page 18. We are happy to announce that we will continue expanding our cluster in Mato Grosso do Sul. We've begun building our 10 million ton cluster in Mato Grosso do Sul in 2006. We finished the construction in 2015 and operated at full capacity in 2016 for the first time.

In addition, we have successfully implemented the nonstop or continuous harvest production system during 2016 which has allowed us to increase our normal capacity by 10%. The new organic growth project consists of expanding the cluster's crushing capacity by 30 million tons or 30%.

The cluster will grow from 10 million to 13 million tons. It will be achieved by marginal investment in the Angelica and Ivinhema mills to eliminate specific bottlenecks in the crushing and production processes. This project will be implemented over the next five years and total CapEx is estimated at $166 million or $52 per ton. This includes planting 51,000 hectares of sugarcane supplied to new capacity.

We believe this project represents a very exciting use of our capital and will allow us to continue generating strong returns and consolidate as one of the lowest-cost producers. Thank you for your time. We are now open for questions.

(Operator Instructions). Antonio Barreto, Itau.

Thanks for the question. My first question is about the CapEx of the announced expansion. They total $166 million. I saw that you divided in two phases. Phase 1 would be 55% of the CapEx. But how should we think of how we distribute this CapEx over the next years? If you can give us guidance of, on a year-by-year basis, how we should allocate this CapEx it would be extremely helpful.

Thank you, Antonio. I'm going to ask Charlie to answer your question.

Hi, Antonio. Basically we will be investing in 2017 in increasing the industrial capacity mainly in expanding the planting sugarcane area, $51 million. So I would say that 55% of the investment will be done in between 2017 and 2019 and the rest until 2022.

Yes, but just as follow up on that, because that's pretty much the division that you guys made on the earnings release between Phase 1 and Phase 2. But I think what interests me is between -- in the Phase 1 for example, what is it going to be between 2017, 2018 and 2019 because it could make a lot of fronts for cash flow estimates?

It will be (inaudible), Antonio. I don't know if that answers your question.

Yes, it does. Thank you. And my second question is about the perspectives of productivity in 2017. I saw that you guys finished 2016 within a 98 tons per hectare productivity (inaudible) in the sugar and ethanol business. And I was wondering because we know that you guys had a lot of (inaudible) summer the [canibizada] cane in the last year.

And what are the prospectives for that in 2017? How much could that affect your productivity? And in case you increase the crushing capacity already in 2017, how much cane from third parties will you need to fuel your capacity there in 2017?

Thank you for your question. I want to take the opportunity that we have (inaudible) business here with us in the call so I'm going to ask Renato Junqueira, our Head of Sugar & Ethanol business, here with us on the call. So I'm going to ask Renato to answer your question.

Thank you, Antonio. Our 2016 [UTEs] were above average due to the high level of rains in the last quarter of 2015 and first quarter of 2016. Therefore it will be difficult to repeat the same UTE seen last year. But we are also expecting a higher TRS content which should partially offset the UTE reduction. However, it's too early to predict an exact number and we are not changing our total crushing estimates.

And regarding the sugarcane from third parties, we have been talking to some of the third parties that (inaudible) that are in (inaudible) situation close to [RMU] and we are buying some of that came, but we don't think it's necessary to reach the capacity that is planted.

All right. Just one additional comment and one of those (inaudible) is you guys are expanding to 3 million tons and we know that you are planting your own sugarcane. But do you think it's going to be enough? When you look at the -- when the project is going to be concluded in five, six years, is it going to be enough to have the same share of owned cane that you currently have, around 90%?

We think we will have the same share of our own cane. In the long term, we might have some more share of (inaudible) at the beginning of the project. And we think that we are going to crush 10.5 million tons in 2018. And then we expect to grow the crushing 500,000 tons per year until we reach the final project in 2023.

All right, thank you.

Javier Martinez, Morgan Stanley.

So we have (inaudible) through the cycle; we have low and cheap leverage (inaudible) ridiculously low if you talk about the loan to value. Do you have the capacity to invest in my calculation at $20 per ton ex-gains or -- it's a no brainer probably generate (inaudible) I don't know, about 30%?

So why are you doing this and 5 years? This is because of the lifecycle of the cane? Is it not possible to speed up that process, A? B, is this compatible with dividend? Are we going to see some dividend? You know that this has been a recurring debate and people are asking for that.

I know that you are looking for other opportunities, but are we getting closer to the point where you decide to pay some dividend? I think it's compatible one thing with the other. Can you please give us some color on those?

Sure, Javier. Thanks for the question. The first question on why is that the price, I think you are right. In the returns we can achieve with it and this marginal growth is very important for our sugar ethanol and energy business and the returns are pretty high in this investment.

The growth is only, as Renato explained, because the main limiting factor is the sugarcane availability and the sugarcane land availability and that's what we have been growing, that's what's available in our region and that's the main difference of our region and that's why we can continue growing because that land is available. But if we want to grow quicker or faster than that we may end up losing some of the benefits that we currently own like the prices of the leases of the land, etc., etc.

So we don't want to lose the efficiency and in order to maintain all these efficiencies and cost efficiencies that's the best pace of growth that we are projecting. Can we do it faster? If we can we will do it, but that's what we are [projecting] today.

And then for the second part of your question, I'm going to answer more or less within the same way of thinking that we've been doing it before. We are always looking for the best use of our capital so the number 1 point is that we wanted to strengthen our balance sheet. That's where we are getting to the place where we really feel comfortable -- we really feel comfortable as you just mentioned.

This level of debt will depend always on the returns on the growth projects we are analyzing and we are really analyzing very different growth projects. I think the more [clear] is the one we just announced because we know exactly all the [reasons] and we are (inaudible) the fact that we are doing it. But we are [announcing] many other differences within the same segment where we are.

Argentina has some opportunities, all these changes in Argentina; the administration in Argentina is generating some opportunities. But we think we can achieve some interesting growth projects. But as we are always very disciplined, we will be always comparing this with giving back the margins to the shareholders.

So getting back the money through dividends or share buyback is always open and is always within our discussion -- present in the discussion where we are analyzing these different growth opportunities. So as we always said, we will continue to be disciplined in our deployment of capital with a focus on returns on investment capital.

Thank you, Mariano. And talking about these potential uses of capital, we know that you are (inaudible), and we know that you have proved that you have done a fantastic job. So can you frame that a little bit? So apparently with the news in the media that some of the things you were looking at in chicken is not there anymore. So can you frame a little bit the kinds of things you are looking for, or the kinds of projects you are analyzing so for us to have a framework on what may happen going forward?

Yes, sure and we are going to share the way -- our way of thinking especially. first of all is we are very keen on the same businesses where we have. All the marginal returns on the same businesses that we currently own are in general higher with where we see higher returns and lower risks. So that's the more obvious or where we think there is a higher probability on things to [up here] or where we can deploy some capital.

And then of course within the sector and within transforming vegetable proteins into animal proteins, that's something that makes sense for us, but there are a lot of things that have to be clear for us in order to invest or to deploy capital in something new and different what are -- relatively different to our current businesses.

So in order to summarize, on rice, dairy and crops we may see some things with more clarity. And with the other things you've seen in the press, the press talks whatever they want to talk, but it's not the reality of what goes on in the Company. So it will depend -- we need to feel really comfortable that we have a competitive advantage and we can be the low cost producer and competitive worldwide with whatever business within the sector that we are getting into.

Very clear. And Mariano, one last one if I may. So when you announced this potential use of the capital and you are looking for land or farm opportunities in Argentina, have we already seen an improvement in the liquidity in the land market? Are you seeing any trend already there? Or we have a lack of -- so we have a feeling that land has to increase in value a lot, but we don't have actual data. So probably you are now very close to those markets. What is your sense about liquidity and value of the land in Argentina?

Okay, good question. In terms of liquidity, we don't see a lot of liquidity going on in the market neither in Argentina, nor Brazil, Uruguay or Paraguay. So liquidity is still low. And regarding pricing, specifically in Argentina, we've seen improved returns in terms of yields that the land generates.

So because of that we expect that that should be reflected in prices. And that's why we haven't sold the farm in the last quarter as we just reported. Whether can we buy or not or sell will depend on the returns and we are always going to continue to be disciplined either buying or selling. So we are pursuing opportunities but we cannot assign any probability to doing or not to do it.

Very clear. Congratulations (inaudible).

[Betina Roczo], Bank of America.

Hi, thanks for the questions. My first question is regarding your thoughts on sugar prices. Even though there is the impact of seasonality in the recent decline of prices, questions on whether [India] imports to increase or not has impacted prices as well. So what's your view on supply/demand and prices for the next crop? And do you think that could be lower than expected? Thanks.

Thank you, Betina. I'm going to ask Marcelo Sanchez, our Commercial Director, to answer this question.

Good morning. As you pointed out, India has considerably maintained the prices supported within the last five to six months and current condition of course is pointing to a recovery of a [correction] for 2018. And that's for sure we should (inaudible) prices. However, this assumption considers normal weather and conditions and therefore are very vulnerable to weather issues, then pricing is already showing that for 2018, I think that prices are level considering all those questions and [considering where the market is] normal.

Okay, thank you. Do you see any [possible] impact on the El Nino for the next crop as we have seen some news ratings concerning it?

That could be the case. So far pricing is considering normal weather. Of course, if El Nino happens to be developing, and of course it's going to be impacting next monsoons in then India and Thailand, the case would be that prices would be supported (inaudible).

Okay, thank you.

[Joao Pedro], Bradesco.

First of all, congratulations on the results. Very solid set of results. My first question is a little bit of follow-up to one of my colleague's questions on nonorganic strategy. So are you seeing opportunities to expand into the southeast with your sugar and ethanol operation? We have been hearing that there are some assets out there in the market.

And about your financial position right now, do you seek to decrease your current leverage or are you comfortable with working with a higher leverage level maybe around 2 times? And lastly, could you talk a little bit about your farming operation in Brazil? 98% of your EBITDA in this quarter was (inaudible) from sugar and ethanol.

So what do you think you're good to focus more on sugar and ethanol here Brazil? Do you see possibility maybe of just (inaudible) some assets in the farming business? So a little bit of color on that? Great, thanks.

Thank you for your question. I'm going to answer from the last part of your question. As I mentioned, we are looking at things at the sugar and ethanol business and we are increasing with this growth project that we are presenting when we compare sugar and ethanol and the rest of the farming land and formation business. We like to compare that at the EBIT level and at the EBIT level the farming and land and formation is more relevant in terms of percentage. But of course sugar and ethanol has become the most important business in our whole operation.

If we continue in this disciplined way of analyzing our growth opportunities, we continue to look for best returns. And looking for best returns we are also open to continue growing on the sugar and ethanol or the other businesses. So within the sugar and ethanol, and you were asking about the M&A opportunities in the southern region, of course, we've been traveling all around the southern areas. We've been looking at many, many mills that are for sale in Brazil. But we are only interested in the ones where we really believe we can be the low cost producers or within the low cost producers.

For us, one of the key things on understanding this business is the sugarcane availability. So it is very important for us what's the potential of the area of the sugarcane availability and we've seen many mills for sale where that was a problem. So we are not interested in those types of things.

In order to summarize, are we open for M&A? Yes, we are looking at things and we think we can take an opportunity. But on very, very few ones and where we feel very sure that we can be the low-cost producer and very competitive.

That's great, thank you. Could you just talk a little bit about your costs right now in terms of dollar cents per pound and why do you think it's the level that you guys -- your target level in terms of this metric?

I'm going to ask Charlie to answer this question and also to complement on your first question regarding our debt level.

I would say that for 2016 our cash cost was $0.085 per pound; 2017 obviously will depend on the volumes we crush and the effects on our capital variables, but we will be aligned with the 2016 figures.

In terms of the debt, as we said, we are comfortable in terms of the debt level that we have on ongoing operations. But as we have a strong balance sheet, that put us in a position that we will be able to raise more debt if it happens that we need more money to grow either through M&A or we have a very good opportunity to grow organically.

Okay, guys. That's great, thank you very much.

[Nicholas Lagdalois], AFP Habitat.

I have a couple of questions. The first one, it's about your growth opportunities. You mentioned and you are focused on (inaudible) generation. But what kind of industries are you targeting? You mentioned the poultry business. What about the cattle growing business?

Can you give us like a brief overview of your strategy, your view on those markets? How do you see your competitive advantages? How do you see right now Argentina advantages in those markets? And my second question it's about the net leverage. What is your target? Many thanks.

Okay, Charlie will answer the last question on that debt leverage. I think he has already explained something.

Hi, Nicholas. Yes, as we said, we are comfortable on the levels that we are reaching and we don't have a specific figure. I would say that in these ranges we feel comfortable, especially considering our debt structure which is almost two-third or 70% in long-term.

So I would say that this will depend on how we continue pursuing opportunities that have excellent returns that could make us take advantage of our low leverage and good balance sheet to raise a little more of debt to help us growth.

And regarding growth, as I mentioned before, the main things we are looking at in Argentina, as you're particularly asking about Argentina, is on the rice business where we see opportunities to continue growing with the same business where we are. Then on the dairy business where we also have a relatively small business but we see opportunities to continue growing there. We have a very specific model, that is the three-star model where we've achieved very interesting returns, and in a very difficult year for this specific sector in Argentina like 2016. We were able to make money and achieve reasonable returns.

So with today's price (inaudible) in that specific sector, we are seeing more attractive -- or we are getting much better returns and we are seeing much more attractive opportunities there. So that's where we are particularly looking at.

Then when you think on poultry or beef or those things, are we within our spectrum? So in terms of poultry or beef or those types of businesses, are things that are within the scope, but we need to find our competitive advantage. We need to feel that from Argentina we can be a low-cost producer for the whole world not only for the domestic market in Argentina.

So we need to understand many things in order to participate on one of these businesses and we need to understand exactly how we see that we are going to manage this. Manage businesses within the interior of the country is not an easy thing so we need to talk with the management team that is going to take care of those things.

So, there are many factors that we are always looking when we analyze these types of things. Can we do them? Yes, but on top of that we need to have clarity that we are going to obtain above 20% returns. So at the end of the day we have to find very attractive returns in order to look for things like that.

Okay, thank you very much.

(Operator Instructions). Tom Burke, Canaccord Genuity.

I'm calling from Montreal Canada and I can assure you that there's no competition in sugar production coming from Canada anytime soon, so you can stay calm on that one. Gentlemen, just on one component of the business that was not brought up today is the cogeneration and the energy sales. Obviously you had a big delta in Q4 on the exported energy, the efficiency ratio. Can you discuss that a little bit more at length and talk about where you can take that part of the business?

Yes, sure. Thank you, Tom. Particularly when we analyze the quarter we did some carry from the third quarter to the fourth quarter in terms of the (inaudible). So the portion of the sugarcane that is the (inaudible) is something we can carry some way from one quarter to the other. And because there were lower prices in the third quarter than we were foreseeing better prices for the fourth quarter is that we did discovery.

So particular for the quarter, the 80-something megawatt hour per ton is a little bit higher than what we can expect annually. And what we think annually we should expect 70 or around 70 to 75 megawatt hours per kilogram of cane.

So, that's basically what happened particularly this quarter. But as we always mention, a very important competitive advantage that our mills have this capacity and a very high capacity for the industry to produce electricity from (inaudible). So that's a very competitive, very important competitive advantage and the overall energy efficiencies of these brand-new classes are very important.

Okay, great. Thanks. I appreciate that. Great quarter, guys. Thanks.

[Jordan Celeste], [EMF].

Hi, it is [Edmond Safra]. I was wondering if you guys would consider selling some of your farms that are mature and well stabilized, irrespective of whether you have investment opportunities that meet the IRR target. So, just thinking about the big gap there is between the appraised value and where the stock trades.

Yes, we are always looking at potential buyer for the farms and when we achieve a price at which when we calculate future returns we achieve that price where the returns going forward are lower than a certain number and we can reallocate that money into something more accretive.

And when we think on reallocating that money into something more accretive of course, as I mentioned before, we have all these different opportunities where we are including dividends or buyback or all the certain others that you were mentioning.

Okay, thank you.

(Operator Instructions). And this concludes our question-and-answer session. At this time I would like to the floor back to Mr. Bosch for any closing remarks.

These are very important times for Adecoagro. We certainly reached an inflection point and the future looks very promising. As we look ahead, our strategic priorities are to further strengthen our balance sheet, deepen our focus on sustainability, managing our exposure to commodity cycles and seeking for growth opportunities.

I would like to finish by reiterating our gratitude to all the operational and management teams and the support of our stakeholders. Thanks to their daily effort and hard work we will become the low-cost producers of food and renewable energy, while at the same time generate value and attractive returns for all of our shareholders. Thank you for joining the call. I look forward to seeing you soon.

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