AGRO Adecoagro SA

 

UNITED STATES 

SECURITIES AND EXCHANGE COMMISSION 

Washington, D.C. 20549

 

 

FORM 6-K

 

 

Report of Foreign Private Issuer 

Pursuant to Rule 13a-16 or 15d-16 under 

the Securities Exchange Act of 1934

 

For the month of November, 2014

 

Commission File Number 001-35052

 

 

Adecoagro S.A. 

(Translation of registrant’s name into English)

 

 

13-15 Avenue de la Liberté 

L-1931 Luxembourg  

R.C.S. Luxembourg B 153 681 

(Address of principal executive office)

 

 

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.

 

Form 20-F  x            Form 40-F  ¨

 

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):  ¨

 

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):  ¨

 

Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.

 

Yes  ¨             No  x

 

If “Yes” is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): 82-            .

 

UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS AS OF AND FOR

 

THE THREE MONTH PERIOD ENDED SEPTEMBER 30, 2014

 

Adecoagro S.A. (the “Company” or “Adecoagro”) is filing this report on Form 6-K for the purpose of providing a copy of the Company’s unaudited condensed consolidated financial statements as of and for the three month period ended September 30, 2014 (the “Consolidated Financial Statements”). This Form 6-K is incorporated by reference into the Company’s Registration Statement on Form F-3 filed on December 6, 2013 (File No. 333-191325) (the "Registration Statement"). The Consolidated Financial Statements are presented in U.S. Dollars and prepared in accordance with International Financial Reporting Standards.

 

The attachment contains forward-looking statements. The registrant desires to qualify for the “safe-harbor” provisions of the Private Securities Litigation Reform Act of 1995, and consequently is hereby filing cautionary statements identifying important factors that could cause the registrant’s actual results to differ materially from those set forth in the attachment.

 

The registrant’s forward-looking statements are based on the registrant’s current expectations, assumptions, estimates and projections about the registrant and its industry. These forward-looking statements can be identified by words or phrases such as “anticipate,” “believe,” “continue,” “estimate,” “expect,” “intend,” “is/are likely to,” “may,” “plan,” “should,” “would,” or other similar expressions.

 

The forward-looking statements included in the attached relate to, among others: (i) the registrant’s business prospects and future results of operations; (ii) weather and other natural phenomena; (iii) developments in, or changes to, the laws, regulations and governmental policies governing the registrant’s business, including limitations on ownership of farmland by foreign entities in certain jurisdictions in which the registrant operate, environmental laws and regulations; (iv) the implementation of the registrant’s business strategy, including its development of the Ivinhema mill and other current projects; (v) the registrant’s plans relating to acquisitions, joint ventures, strategic alliances or divestitures; (vi) the implementation of the registrant’s financing strategy and capital expenditure plan; (vii) the maintenance of the registrant’s relationships with customers; (viii) the competitive nature of the industries in which the registrant operates; (ix) the cost and availability of financing; (x) future demand for the commodities the registrant produces; (xi) international prices for commodities; (xii) the condition of the registrant’s land holdings; (xiii) the development of the logistics and infrastructure for transportation of the registrant’s products in the countries where it operates; (xiv) the performance of the South American and world economies; and (xv) the relative value of the Brazilian Real, the Argentine Peso, and the Uruguayan Peso compared to other currencies; as well as other risks included in the registrant’s other filings and submissions with the United States Securities and Exchange Commission.

 

These forward-looking statements involve various risks and uncertainties. Although the registrant believes that its expectations expressed in these forward-looking statements are reasonable, its expectations may turn out to be incorrect. The registrant’s actual results could be materially different from its expectations. In light of the risks and uncertainties described above, the estimates and forward-looking statements discussed in the attached might not occur, and the registrant’s future results and its performance may differ materially from those expressed in these forward-looking statements due to, inclusive, but not limited to, the factors mentioned above. Because of these uncertainties, you should not make any investment decision based on these estimates and forward-looking statements.

 

The forward-looking statements made in the attached relate only to events or information as of the date on which the statements are made in the attached. The registrant undertakes no obligation to update any forward-looking statements to reflect events or circumstances after the date on which the statements are made or to reflect the occurrence of unanticipated events.

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 

Adecoagro S.A.
By		/s/ Carlos A. Boero Hughes
Name:		Carlos A. Boero Hughes
Title:		Chief Financial Officer and
		Chief Accounting Officer

 

Date: November 12, 2014

 

 

 

Adecoagro S.A.

 

Condensed Consolidated Interim Financial Statements as of September 30, 2014 and for the nine-month periods ended September 30, 2014 and 2013

 

Legal information

 

Denomination: Adecoagro S.A.

 

Legal address: Vertigo Naos Building, 6, Rue Eugène Ruppert, L-2453, Luxembourg

 

Company activity: Agricultural and agro-industrial 

Date of registration: June 11, 2010 

Expiration of company charter: No term defined 

Number of register (RCS Luxembourg): B153.681 

Capital stock: 122,381,815 common shares (of which 1,909,713 are treasury shares)

 

Majority shareholder: Quantum Partners LP 

Legal address: 1300 Thames St. 5^th FL, Baltimore MD 21231-3495, United States of America 

Parent company activity: Investing 

Capital stock: 25,910,004 common shares

 

Adecoagro S.A. 

Condensed Consolidated Interim Statements of Financial Position 

as of September 30, 2014 and December 31, 2013 

(All amounts in US$ thousands, except shares and per share data and as otherwise indicated)

 

						September 30,				December 31,
		Note				2014				2013
						(unaudited)
ASSETS
Non-Current Assets
Property, plant and equipment			6				805,755				790,520
Investment property			7				7,461				10,147
Intangible assets			8				23,817				27,341
Biological assets			9				289,136				225,203
Investments in joint ventures							3,302				3,179
Deferred income tax assets			19				51,109				48,368
Trade and other receivables			11				51,703				53,252
Other assets							626				707
Total Non-Current Assets							1,232,909				1,158,717
Current Assets
Biological assets			9				27,058				66,941
Inventories			12				149,010				108,389
Trade and other receivables			11				161,978				141,180
Derivative financial instruments			10				9,618				4,102
Cash and cash equivalents			13				196,792				232,147
Total Current Assets							544,456				552,759
TOTAL ASSETS							1,777,365				1,711,476
SHAREHOLDERS EQUITY
Capital and reserves attributable to equity holders of the parent
Share capital			15				183,573				183,573
Share premium			15				932,936				939,072
Cumulative translation adjustment							(359,773	)			(311,807	)
Equity-settled compensation							15,829				17,352
Cash flow hedge							(34,298	)			(15,782	)
Other reserves							—				(161	)
Reserve from the sale of non controlling interests in subsidiaries							25,508				—
Treasury shares							(2,866	)			(961	)
Retained earnings							58,550				43,018
Equity attributable to equity holders of the parent							819,459				854,304
Non controlling interest							7,646				45
TOTAL SHAREHOLDERS EQUITY							827,105				854,349
LIABILITIES
Non-Current Liabilities
Trade and other payables			17				2,415				2,951
Borrowings			18				580,070				512,164
Deferred income tax liabilities			19				45,198				57,623
Payroll and social security liabilities			20				1,227				1,458
Derivatives financial instruments			10				7,847				—
Provisions for other liabilities			21				2,310				2,293
Total Non-Current Liabilities							639,067				576,489
Current Liabilities
Trade and other payables			17				67,377				92,965
Current income tax liabilities							1,109				310
Payroll and social security liabilities			20				32,079				26,139
Borrowings			18				205,483				147,967
Derivative financial instruments			10				4,278				12,600
Provisions for other liabilities			21				867				657
Total Current Liabilities							311,193				280,638
TOTAL LIABILITIES							950,260				857,127
TOTAL SHAREHOLDERS EQUITY AND LIABILITIES							1,777,365				1,711,476

 

The accompanying notes are an integral part of these condensed consolidated interim financial statements.

 

 

Adecoagro S.A. 

Condensed Consolidated Interim Statements of Income 

for the nine-month and three-month periods ended September 30, 2014 and 2013 

(All amounts in US$ thousands, except shares and per share data and as otherwise indicated)

 

						Nine-months ended September 30								Three-months ended September 30
		Note				2014				2013				2014				2013
						(unaudited)
Sales of manufactured products and services rendered			22				330,700				280,596				140,963				101,175
Cost of manufactured products sold and services rendered			23				(221,902	)			(182,252	)			(95,807	)			(62,946	)
Gross Profit from Manufacturing Activities							108,798				98,344				45,156				38,229
Sales of agricultural produce and biological assets			22				175,225				194,252				61,803				75,314
Cost of agricultural produce sold and direct agricultural selling expenses			23				(175,225	)			(194,252	)			(61,803	)			(75,314	)
Initial recognition and changes in fair value of biological assets and agricultural produce			9				40,369				(20,807	)			509				(4,919	)
Changes in net realizable value of agricultural produce after harvest							1,210				9,865				2,914				5,327
Gross Profit/(Loss) from Agricultural Activities							41,579				(10,942	)			3,423				408
Margin on Manufacturing and Agricultural Activities Before Operating Expenses							150,377				87,402				48,579				38,637
General and administrative expenses			23				(39,239	)			(39,050	)			(15,605	)			(12,990	)
Selling expenses			23				(51,771	)			(45,751	)			(20,378	)			(17,442	)
Other operating (expense)/ income, net			25				15,051				21,516				17,435				1,462
Share of loss of joint ventures							(462	)			(41	)			(231	)			(5	)
Profit from Operations Before Financing and Taxation							73,956				24,076				29,800				9,662
Finance income			26				6,643				5,325				2,342				1,617
Finance costs			26				(59,644	)			(76,373	)			(20,464	)			(19,798	)
Financial results, net			26				(53,001	)			(71,048	)			(18,122	)			(18,181	)
Profit (Loss) Before Income Tax							20,955				(46,972	)			11,678				(8,519	)
Income tax (expense)/ benefit			19				(5,661	)			14,760				(432	)			2,421
Profit (Loss) for the Period from Continuing Operations							15,294				(32,212	)			11,246				(6,098	)
Profit for the Period from discontinued operations							—				1,767				—				—
Profit / (Loss) for the Period							15,294				(30,445	)			11,246				(6,098	)
Attributable to:
Equity holders of the parent							15,424				(30,437	)			11,355				(6,099	)
Non controlling interest							(130	)			(8	)			(109	)			1
Income / (Loss) per share from continuing and discontinued operations attributable to the equity holders of the parent during the period:
Basic earnings per share
From continuing operations							0.128				(0.263	)			0.094				(0.050	)
From discontinued operations							—				0.014				—				—
Diluted earnings per share
From continuing operations							0.127				(0.263	)			0.093				(0.050	)
From discontinued operations							—				0.014				—				—

 

The accompanying notes are an integral part of these condensed consolidated interim financial statements.

 

 

Adecoagro S.A. 

Condensed Consolidated Interim Statements of Comprehensive Income 

for the nine-month and three-month periods ended September 30, 2014 and 2013 

(All amounts in US$ thousands, except shares and per share data and as otherwise indicated)

 

		Nine-months ended September 30								Three-months ended September 30
		2014				2013				2014				2013
		(unaudited)
Profit (Loss) for the Period			15,294				(30,445	)			11,246				(6,098	)
Other comprehensive income:
Exchange differences on translating foreign operations			(64,064	)			(86,086	)			(61,272	)			(19,430	)
Cash flow hedge			(18,522	)			(4,132	)			(21,915	)			(4,132	)
Other comprehensive loss for the period			(82,586	)			(90,218	)			(83,187	)			(23,562	)
Total comprehensive loss income for the period			(67,292	)			(120,663	)			(71,941	)			(29,660	)
Attributable to:
Equity holders of the parent			(66,883	)			(120,644	)			(71,614	)			(29,655	)
Non controlling interest			(409	)			(19	)			(327	)			(5	)
Total comprehensive income attributable to owners of the parent arising from:
Continuing operations			(66,883	)			(122,411	)			(71,614	)			(29,655	)
Discontinued operations			—				1,767				—				—

 

The accompanying notes are an integral part of these condensed consolidated interim financial statements.

 

Adecoagro S.A. 

Condensed Consolidated Interim Statements of Changes in Shareholders’ Equity 

for the nine-month periods ended September 30, 2014 and 2013 

(All amounts in US$ thousands, except shares and per share data and as otherwise indicated)

 

		Attributable to equity holders of the parent
		Share Capital (Note 15)				Share Premium				Cumulative Translation Adjustment				Equity- settled Compensation				Cash flow hedge				Other reserves				Treasury shares				Retained Earnings				Subtotal				Non Controlling Interest				Total Shareholders’ Equity
Balance at January 1, 2013			183,331				940,332				(182,929	)			17,952				—				(349	)			(6	)			67,647				1,025,978				65				1,026,043
Loss for the period			—				—				—				—				—				—				—				(30,437	)			(30,437	)			(8	)			(30,445	)
Other comprehensive income:
-Items that may be reclassified subsequently to profit or loss:
Exchange differences on translating foreign operations			—				—				(86,077	)			—								—				—				—				(86,077	)			(9	)			(86,086	)
Cash flow hedge			—				—				—				—				(4,130	)			—				—				—				(4,130	)			(2	)			(4,132	)
Other comprehensive income for the period			—				—				(86,077	)			—				(4,130	)			—				—				—				(90,207	)			(11	)			(90,218	)
Total comprehensive income for the period			—				—				(86,077	)			—				(4,130	)			—				—				(30,437	)			(120,644	)			(19	)			(120,663	)
Employee share options (Note 16)
- Value of employee services			—				—				—				51				—				—				—				—				51				—				51
- Exercised			—				—				—				—				—				—				—				—				—				—				—
- Forfeited			—				—				—				(858	)			—				—				—				858				—				—				—
Restricted shares (Note 16):																			—
- Value of employee services			—				—				—				2,786				—				—				—				—				2,786				—				2,786
- Vested			242				2,721				—				(3,152	)			—				179				10				—				—				—				—
- Forfeited			—				—				—				—				—				8				(8	)			—				—				—				—
Purchase of own shares(Note 15 )			—				(335	)			—				—				—				—				(83	)			—				(418	)			—				(418	)
Disposal of interest in joint ventures			—				—				684				—				—				—				—				—				684				—				684
Balance at September 30, 2013 (unaudited)			183,573				942,718				(268,322	)			16,779				(4,130	)			(162	)			(87	)			38,068				908,437				46				908,483

 

The accompanying notes are an integral part of these condensed consolidated interim financial statements.

 

Adecoagro S.A. 

Condensed Consolidated Interim Statements of Changes in Shareholders’ Equity 

for the nine-month periods ended September 30, 2014 and 2013 (continued)

(All amounts in US$ thousands, except shares and per share data and as otherwise indicated)

 

						Attributable to equity holders of the parent
		Share Capital (Note 15)				Share Premium			Cumulative Translation Adjustment				Equity-settled Compensation				Cash flow hedge  (*)				Other reserves				Treasury shares				Reserve from the sale of non controlling interests in subsidiaries (Note 14)				Retained Earnings				Subtotal				Non Controlling Interest				Total Shareholders’ Equity
Balance at January 1, 2014			183,573				939,072				(311,807	)			17,352				(15,782	)			(161	)			(961	)			—				43,018				854,304				45				854,349
Profit (Loss) for the period			—				—				—				—				—				—				—				—				15,424				15,424				(130	)			15,294
Other comprehensive income:
-  Items that may be reclassified subsequently to profit or loss:
Exchange differences on translating foreign operations			—				—				(63,791	)			—				—				—				—				—				—				(63,791	)			(273	)			(64,064	)
Cash flow hedge			—				—				—				—				(18,516	)			—				—				—				—				(18,516	)			(6	)			(18,522	)
Total comprehensive income for the period			—				—				(63,791	)			—				(18,516	)			—				—				—				15,424				(66,883	)			(409	)			(67,292	)
Employee share options (Note 16)
- Value of employee services			—				—				—				308				—				—				—				—				—				308				—				308
- Exercised			—				844				—				(290	)			—				—				184				—				—				738				—				738
- Forfeited			—				—				—				(108	)			—				—				—				—				108				—				—				—
Restricted shares (Note 16):
- Value of employee services			—				—				—				2,620				—				—				—				—				—				2,620				—				2,620
- Vested			—				3,444				—				(4,053	)			—				160				446				—				—				(3	)			—				(3	)
- Forfeited			—				—				—				—				—				1				(1	)			—				—				—								—
Purchase of own shares  (Note 15)			—				(10,424	)			—				—				—				—				(2,534	)			—				—				(12,958	)			—				(12,958	)
Sale of non controlling interests in subsidiaries (Note 14)			—				—				15,825				—				—				—				—				25,508				—				41,333				8,010				49,343
Balance at September 30, 2014 (unaudited)			183,573				932,936				(359,773	)			15,829				(34,298	)			—				(2,866	)			25,508				58,550				819,459				7,646				827,105

 

(*) Net of 9,764 of Income Tax.

The accompanying notes are an integral part of these condensed consolidated interim financial statements.

 

Adecoagro S.A. 

Condensed Consolidated Interim Statements of Cash Flows 

for the nine-month periods ended September 30, 2014 and 2013 

(All amounts in US$ thousands, except shares and per share data and as otherwise indicated)

 

 

		Note				September 30,   2014				September 30,   2013
						(unaudited)
Cash flows from operating activities:
Profit for the period							15,294				(30,445	)
Adjustments for:
Income tax expense/(benefit)			19				5,661				(14,760	)
Depreciation			23				66,680				50,741
Amortization			23				333				274
Gain from disposal of farmland and other assets			25				—				(5,082	)
Gain from of disposal of other property items			25				(788	)			(413	)
Gain from disposal of subsidiary							—				(1,967	)
Equity settled share-based compensation granted			24				2,928				2,837
(Gain)/Loss from derivative financial instruments and forwards			25, 26				(13,868	)			5,494
Interest and other expense, net			26				37,863				33,387
Initial recognition and changes in fair value of non harvested biological assets (unrealized)							1,830				36,704
Changes in net realizable value of agricultural produce after harvest (unrealized)							5,258				70
Provision and allowances							65				848
Share of loss from joint venture							462				41
Foreign exchange gains, net			26				6,889				16,201
Cash flow hedge – transfer from equity			26				5,062				—
Discontinued operations							—				(1,767	)
Subtotal							133,669				92,163
Changes in operating assets and liabilities:
Increase in trade and other receivables							(37,948	)			(20,236	)
Increase in inventories							(62,709	)			(51,201	)
Decrease in biological assets							27,739				38,802
Decrease in other assets							81				632
Decrease/(Increase) in derivative financial							6,539				(428	)
Decrease in trade and other payables							(15,743	)			(5,711	)
Increase in payroll and social security liabilities							9,548				6,660
Increase/(Decrease) in provisions for other liabilities							555				(374	)
Net cash generated in operating activities before interest and taxes paid							61,731				60,307
Income tax paid							(363	)			(306	)
Net cash generated from operating activities							61,368				60,001

 

The accompanying notes are an integral part of these condensed consolidated interim financial statements. 

 

Adecoagro S.A. 

Condensed Consolidated Interim Statements of Cash Flows  

for the nine-month periods ended September 30, 2014 and 2013 (continued) 

(All amounts in US$ thousands, except shares and per share data and as otherwise indicated)

 

		Note				September 30,   2014				September 30,   2013
						(unaudited)
Cash flows from investing activities:
Continuing operations:
Purchases of property, plant and equipment							(155,829	)			(95,210	)
Purchases of intangible assets			8				(772	)			(1,326	)
Purchase of cattle and non current biological assets planting cost							(82,220	)			(69,889	)
Interest received			26				5,735				4,740
Payment of seller financing arising on subsidiaries acquired							(684	)			(1,555	)
Investments in joint ventures							(1,360	)			(4,164	)
Proceeds from sale of farmland and other assets							—				7,048
Proceeds from sale of property, plant and equipment							993				2,470
Proceeds from disposal of subsidiaries							1,318				10,998
Proceeds from sales of financial assets							—				13,066
Discontinued operations							—				5,100
Net cash used in investing activities							(232,819	)			(128,722	)
Cash flows from financing activities:
Proceeds from equity settled share-based compensation exercised							735				—
Proceeds from long-term borrowings							173,666				255,894
Payments of long-term borrowings							(81,341	)			(53,326	)
Net proceeds from the sale of minority interest in subsidiaries							49,897				—
Net increase/(decrease) in short-term borrowings							48,170				(52,225	)
Interest paid							(32,798	)			(23,384	)
Purchase of own shares							(12,992	)			(418	)
Net cash generated from financing activities							145,337				126,541
Net (decrease)/increase in cash and cash equivalents							(26,114	)			57,820
Cash and cash equivalents at beginning of period							232,147				218,809
Effect of exchange rate changes on cash and cash equivalents							(9,241	)			(16,100	)
Cash and cash equivalents at end of period							196,792				260,529

 

 

1.

General information

 

Adecoagro S.A. (the "Company" or "Adecoagro") is the Group’s ultimate parent company and is a société anonyme (stock corporation) organized under the laws of the Grand Duchy of Luxembourg. Adecoagro is a holding company primarily engaged through its operating subsidiaries in agricultural and agro-industrial activities. The Company and its operating subsidiaries are collectively referred to hereinafter as the "Group". These activities are carried out through three major lines of business, namely, Farming; Sugar, Ethanol and Energy and Land Transformation. Farming is further comprised of three reportable segments, which are described in detail in Note 5 to these condensed consolidated interim financial statements.

 

Adecoagro is a public company listed in the New York Stock Exchange as a foreign registered company under the symbol of AGRO.

 

These condensed consolidated interim financial statements have been approved for issue by the Board of Directors on November 7, 2014.

 

2.

Basis of preparation and presentation

 

The information presented in the accompanying condensed consolidated interim financial statements (“interim financial statements”) as of September 30, 2014 and for the nine-month periods ended September 30, 2014 and 2013 is unaudited and in the opinion of management reflect all adjustments necessary to present fairly the financial position of the Group as of September 30, 2014, results of operations and cash flows for the nine month periods ended September 30, 2014 and 2013. All such adjustments are of a normal recurring nature. In preparing these accompanying interim financial statements, management has made certain estimates and assumptions that affect reported amounts in the financial statements and disclosures of contingencies. Actual results may differ from those estimates. The results for interim periods are not necessarily indicative of annual results.

 

These interim financial statements have been prepared in accordance with IAS 34, ‘Interim financial reporting’ and they should be read in conjunction with the annual financial statements for the year ended 31 December 2013, which have been prepared in accordance with IFRSs.

 

The accounting policies adopted in the preparation of the interim financial statements are consistent with those followed in the preparation of the Group’s annual consolidated financial statements for the year ended December 31, 2013.

 

A complete list of standards, amendments and interpretations to existing standards published but not yet effective for the Group is described in Note 2.1 to the annual financial statements. None of those standards have a material impact on the information to be presented in the financial statements.

 

During the nine months ended September 30, 2014, the IASB published new standards that would have an impact on the Group when they become effective:

 

In May 2014, the IASB issued IFRS 15, "Revenue from contracts with customers", which sets out the requirements in accounting for revenue arising from contracts with customers and which is based on the principle that revenue is recognized when control of a good or service is transferred to the customer. IFRS 15 must be applied annual periods beginning on or after January 1, 2017, with earlier application permitted. This standard is not effective for the financial year beginning January 1, 2014 and has not been early adopted. The Group has not yet assessed the potential impact that the application of these standards may have on the Group's financial condition or results of operations.

 

In June 2014, the IASB issued amendments to IAS 16 “Property, plant and equipment” and IAS 41 “Agriculture”, in relation to bearer plants. The amendments define a bearer plant and exclude them from the scope of IAS 41 and include them within the scope of IAS 16. The amendments shall be applied for annual periods beginning on or after January 1, 2016, with earlier application permitted. The Group is currently analyzing the resulting effects on the presentation of the Group’s results of operations, financial position or cash flows.

 

2.

Basis of preparation and presentation (continued)

 

In July 2014 the IASB published the final version of IFRS 9 Financial Instrument which replaces earlier versions of IFRS 9 and completes the IASB’s project to replace IAS 39 Financial Instruments: Recognition and Measurement. The package of improvements introduced by IFRS 9 includes a logical model for classification and measurement, a single, forward-looking ‘expected loss’ impairment model and a substantially-reformed approach to hedge accounting. The IASB has previously published versions of IFRS 9 that introduced new classification and measurement requirements (in 2009 and 2010) and a new hedge accounting model (in 2013). IFRS 9 is effective for annual periods beginning on or after 1 January 2018. The Group has not yet assessed the potential impact that the application of these standards may have on the Group's financial condition or results of operations. The Group has not yet assessed the potential impact that the application of this standard may have on the Group's financial condition or results of operations.

 

Seasonality of operations

 

The Group’s business activities are inherently seasonal. The Group generally harvest and sell its grains (corn, soybean, rice and sunflower) between February and June, with the exception of wheat, which is harvested from December to January. Coffee and cotton are different in that while both are typically harvested from June to August, they require a conditioning process which takes about two to three months. Sales in other business segments, such as in Dairy business segments, tend to be more stable. However, the sale of milk is generally higher during the fourth quarter, when the weather is warmer and pasture conditions are more favorable. The sugarcane harvesting period typically begins April/May and ends in November/December. This creates fluctuations in sugar and ethanol inventory, usually peaking in December to cover sales between crop harvests (i.e., January through April). As a result of the above factors, there may be significant variations in the results of operations from one quarter to another, as planting activities may be more concentrated in one quarter whereas harvesting activities may be more concentrated in another quarter. In addition, quarterly results may vary as a result of the effects of fluctuations in commodities prices, production yields and costs on the determination of initial recognition and changes in fair value of biological assets and agricultural produce.

 

3.

Financial risk management

 

Risk management principles and processes

 

The Group continues to be exposed to several risks arising from financial instruments including price risk, exchange rate risk, interest rate risk, liquidity risk and credit risk. A thorough explanation of the Group´s risks and the Group´s approach to the identification, assessment and mitigation of risks is included in Note 3 to the annual financial statements. There have been no changes to the Group´s exposure and risk management principles and processes since December 31, 2013 and refers readers to the annual financial statements for information.

 

However, the Group considers that the following tables below provide useful information to understand the Group´s interim results for the nine month period ended September 30, 2014. These disclosures do not appear in any particular order of potential materiality or probability of occurrence.

 

3.

Financial risk management (continued)

 

·

Exchange rate risk

 

The following tables show the Group’s net monetary position broken down by various currencies for each functional currency in which the Group operates at September 30, 2014. All amounts are shown in US dollars.

 

	September 30, 2014
	(unaudited)
	Functional currency
Net monetary position (Liability)/ Asset	Argentine  Peso	Brazilian   Reais	Uruguayan Peso	US Dollar	Total
Argentine Peso	(2,701)	—	—	—	(2,701)
Brazilian Reais	—	(390,529)	—	—	(390,529)
US Dollar	(58,356)	(253,820)	9,593	92,906	(209,677)
Uruguayan Peso	—	—	(131)	—	(131)
Total	(61,057)	(644,349)	9,462	92,906	(603,038)

 

The Group’s analysis shown on the tables below is carried out based on the exposure of each functional currency subsidiary against the US dollar. The Group estimated that, other factors being constant, a 10% appreciation of the US dollar against the respective functional currencies for the period ended September 30, 2014 would have decreased the Group’s Profit Before Income Tax for the period. A 10% depreciation of the US dollar against the functional currencies would have an equal and opposite effect on the income statement.

 

	September 30, 2014
	(unaudited)
	Functional currency
Net monetary position	Argentine   Peso	Brazilian   Reais	Uruguayan Peso	US Dollar	Total
Argentine Peso	—	—	—	—	—
Brazilian Reais	—	—	—	—	—
US Dollar	(5,836)	(25,382)	959	—	(30,259)
Uruguayan Peso	—	—	—	—	—
(Decrease) or increase in Profit Before Income Tax	(5,836)	(25,382)	959	—	(30,259)

 

Hedge Accounting - Cash Flow Hedge

 

Effective July 1, 2013, the Group formally documented and designated cash flow hedging relationships to hedge the foreign exchange rate risk of a portion of its highly probable future sales in US dollars using a portion of its borrowings denominated in US dollars, currency forwards and foreign currency floating-to-fixed interest rate swaps.

 

The Company expects that the cash flows will occur and affect profit or loss between 2014 and 2020.

 

For the period ended September 30, 2014, a total amount before income tax of US$ 33.341 was recognized in other comprehensive income and an amount of US$ 5,055 loss was reclassified from equity to profit or loss within “Financial results, net”.

 

3.

Financial risk management (continued)

 

·

Interest rate risk

 

The following table shows a breakdown of the Group’s fixed-rate and floating-rate borrowings per currency denomination and functional currency of the subsidiary issuing the loans (excluding finance leases) at September 30, 2014 (all amounts are shown in US dollars):

 

	September 30, 2014
	(unaudited)
	Functional currency
Rate per currency denomination	Argentine   Peso	Brazilian   Reais	Uruguayan Peso		Total
Fixed rate:
Argentine Peso	6,720	—		—	6,720
Brazilian Reais	—	256,760		—	256,760
US Dollar	32,822	40,731		—	73,553
Subtotal Fixed-rate borrowings	39,542	297,491		—	337,033
Variable rate:
Brazilian Reais	—	166,253		—	166,253
US Dollar	32,298	249,346		—	281,644
Subtotal Variable-rate borrowings	32,298	415,599		—	447,897
Total borrowings as per analysis	71,839	713,090		—	784,930
Finance leases	623	—		—	623
Total borrowings at September 30, 2014	72,463	713,090		—	785,553

 

3.

 

 

At September 30, 2014, if interest rates on floating-rate borrowings had been 1 % higher (or lower) with all other variables held constant, Profit Before Income Tax for the period would decrease as follows:

 

	September 30, 2014
	(unaudited)
	Functional currency
Rate per currency denomination	Argentine  Peso	Brazilian   Reais	Uruguayan Peso	Total
Variable rate:
Brazilian Reais	—	(1,663)	—	(1,663)
US Dollar	(323)	(2,493)	—	(2,816)
(Decrease) or increase in Profit Before Income Tax	(323)	(4,156)	—	(4,479)

 

·	Credit risk

 

As of September 30, 2014, 4 banks accounted for more than 80% of the total cash deposited (Rabobank, HSBC,Banco do Brasil and Indusval).

 

3.

Financial risk management (continued)

 

·

Derivative financial instruments

 

The following table shows the outstanding positions for each type of derivative contract as of September 30, 2014:

 

§

Futures / Options

 

		September 30, 2014
Type of		Quantities (thousands)  (**)		Notional		Market		(Loss)/ Profit  (*)
derivative contract				amount		Value Asset/ (Liability)
						(unaudited)		(unaudited)
Futures:
Sale
Corn		242		37,148		5,133		5,133
Soybean		179		55,158		2,819		2,819
Sugar		153		133,826		782		782
Ethanol		2		804		(39)		(39)
Options:
Buy put
Corn		24		289		327		38
Sell put
Corn		11		(99)		(110)		(11)
Total		611		227,126		8,912		8,722

 

(*) Included in line "Gain from commodity derivative financial instruments" Note 25. 

(**) All quantities expressed in tons except otherwise indicated.

 

Commodity future contract fair values are computed with reference to quoted market prices on future exchanges.

 

§

Other derivative financial instruments

 

As of September 30, 2014, the Group has floating-to-fixed interest rate swap, foreign currency fixed-to-floating interest rate swap and foreign currency floating-to fixed interest rate swap agreements, which were also outstanding as of December 31, 2013.

 

During the periods ended September 30, 2014 and 2013, the Group entered into several currency forward contracts with Brazilian banks in order to hedge the fluctuation of the Brazilian Reais against US Dollar for a total notional amount of US$ 8.5 million and US$ 12.5 million, respectively. The currency forward contracts entered in 2014 had maturity date in December 2014, while those entered in 2013 had maturity dates ranging between December 2013 and June 2014. The outstanding contracts resulted in the recognition of a loss/gain amounting to US$ 0.6 million in 2014 and of a gain amounting to US$ 2.6 million in 2013.. Gain and losses on currency forward contracts are included within “Financial results, net” in the statement of income.

 

4.

Critical accounting estimates and judgments

 

The Group's critical accounting policies are also consistent with those of the audited annual financial statements for the year ended December 31, 2013 described in Note 4.

 

Impairment testing

 

At the date of each statement of financial position, the Group reviews the carrying amounts of its property, plant and equipment and finite lived intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent, if any, of the impairment loss. Where the asset does not generate cash flows that are independent from other assets, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. The Group’s property, plant and equipment items generally do not generate independent cash flows.

 

Goodwill on acquisition is initially measured at cost being the excess of the cost of the business combination over the Group’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities. As of the acquisition date, any goodwill acquired is allocated to the cash-generating unit (‘CGU’) expected to benefit from the business combination.

 

Following initial recognition, goodwill is measured at cost less any accumulated impairment losses. Goodwill is tested for impairment annually, or more frequently if events or changes in circumstances indicate that the carrying amount may be impaired. The impairment review requires management to undertake certain judgments, including estimating the recoverable value of the CGU to which the goodwill relates, based on either fair value less costs-to-sell or the value-in-use, as appropriate, in order to reach a conclusion on whether it deems the goodwill is impaired or not.

 

For purposes of the impairment testing, each CGU represents the smallest identifiable group of assets that generate cash inflows that are largely independent of the cash inflows from other assets or group of assets.

 

Farmlands may be used for different activities that may generate independent cash flows. When farmlands are used for single activities (i.e. crops), these are considered as one CGU. Generally, each separate farmland business within Argentina and Uruguay are treated as single CGUs. Otherwise, when farmland businesses are used for more than one segment activity (i.e. crops and cattle or rental income), the farmland is further subdivided into two or more CGUs, as appropriate, for purposes of impairment testing. For its properties in Brazil, management identified a farmland together with its related mill as separate CGUs.

 

Based on these criteria, management identified a total amount of thirty-eight CGUs as of September 30, 2014 and forty-one CGUs as of September 30, 2013.

 

As of September 30, 2014 and 2013, due to the fact that there were no impairment indicators, the Group only tested those CGUs with allocated goodwill in Argentina, Brazil and Uruguay.

 

CGUs tested based on a fair-value-less-costs-to-sell model at September 30, 2014 and 2013:

 

As of September 30, 2014, the Group identified 10 CGUs in Argentina and Uruguay (2013: 10 CGUs) to be tested based on this model (all CGUs with allocated goodwill). Estimating the fair value less costs-to-sell is based on the best information available, and refers to the amount at which the CGU could be bought or sold in a current transaction between willing parties. In calculating the fair value less costs-to-sell, management may be assisted by the work of external advisors. When using this model, the Group applies the “sales comparison approach” as its method of valuing most properties. This method relies on results of sales of similar agricultural properties to estimate the value of the CGU. This approach is based on the theory that the fair value of a property is directly related to the selling prices of similar properties.

 

4.

Critical accounting estimates and judgments (continued)

 

Fair values are determined by extensive analysis which includes current and potential soil productivity of the land (the ability to produce crops and maintain livestock) projected margins derived from soil use, rental value obtained for soil use, if applicable, and other factors such as climate and location. Farmland ratings are established by considering such factors as soil texture and quality, yields, topography, drainage and rain levels. Farmland may contain farm outbuildings. A farm outbuilding is any improvement or structure that is used for farming operations. Outbuildings are valued based on their size, age and design.

 

Based on the factors described above, each farm property is assigned different soil classifications for the purposes of establishing a value. Soil classifications quantify the factors that contribute to the agricultural capability of the soil. Soil classifications range from the most productive to the least productive.

 

The first step to establishing an assessment for a farm property is a sales investigation that identifies the valid farm sales in the area where the farm is located.

 

A price per hectare is assigned for each soil class within each farm property. This price per hectare is determined based on the quantitative and qualitative analysis mainly described above.

 

4.

The results are then tested against actual sales, if any, and current market conditions to ensure the values produced are accurate, consistent and fair.

 

The following table shows only the 10 CGUs (2013: 10 CGUs) where goodwill was allocated at each period end and the corresponding amount of goodwill allocated to each one:

 

CGU / Operating segment / Country		September 30,   2014				September 30,   2013
La Carolina / Crops / Argentina			20				30
La Carolina / Cattle / Argentina			76				111
El Orden  / Crops / Argentina			75				109
El Orden  / Cattle / Argentina			43				63
La Guarida / Crops / Argentina			1,152				1,677
La Guarida / Cattle / Argentina			182				265
Los Guayacanes / Crops / Argentina			929				1,349
Doña Marina / Rice / Argentina			3,275				4,765
Huelen / Crops / Argentina			3,669				5,339
El Colorado / Crops / Argentina			1,852				2,694
Closing net book value of goodwill allocated to CGUs tested (Note 8)			11,273				16,402
Closing net book value of PPE items and other assets allocated to CGUs tested			55,014				80,385
Total assets allocated to CGUs tested			66,287				96,787

 

Based on the testing above, the Group determined that none of the CGUs, with allocated goodwill, were impaired at September 30, 2014 and 2013.

 

CGUs tested based on a value-in-use model at September 30, 2014 and 2013:

 

As of September 30, 2014, the Group identified 3 CGUs (2013: 3 CGUs) in Brazil to be tested base on this model (all CGUs with allocated goodwill). In performing the value-in-use calculation, the Group applied pre-tax rates to discount the future pre-tax cash flows. In each case, these key assumptions have been made by management reflecting past experience and are consistent with relevant external sources of information, such as appropriate market data. In calculating value-in-use, management may be assisted by the work of external advisors.

 

4.

Critical accounting estimates and judgments (continued)

 

The key assumptions used by management in the value-in-use calculations which are considered to be most sensitive to the calculation are:

 

Key Assumptions		September 30,   2014		September 30,   2013
Financial projections		Covers 4 years for UMA		Covers 4 years for UMA
		Cover 8 years for AVI		Covers 8 years for AVI
Yield average growth rates		0-3%		0-3%
Future pricing increases		3% per annum		3% per annum
Future cost increases		3% per annum		3% per annum
Discount rates		7%		7,65%
Perpetuity growth rate		4,5%		4,5%

 

Discount rates are based on the risk-free rate for U.S. government bonds, adjusted for a risk premium to reflect the increased risk of investing in South America and Brazil in particular. The risk premium adjustment is assessed for factors specific to the respective CGUs and reflects the countries that the CGUs operate in.

 

The following table shows only the 3 CGUs where goodwill was allocated at each period end and the corresponding amount of goodwill allocated to each one:

 

CGU/ Operating segment		September 30,   2014				September 30,   2013
AVI / Sugar, Ethanol and Energy			6,479				7,121
UMA / Sugar, Ethanol and Energy			2,430				2,671
UMA (f.k.a. Alfenas Café Ltda) / Coffee			913				1,017
Closing net book value of goodwill allocated to CGUs tested (Note 8)			9,822				10,809
Closing net book value of PPE items and other assets allocated to CGUs tested			609,266				559,332
Total assets allocated to 3 CGUs tested			619,088				570,141

 

Based on the testing above, the Group determined that none of the CGUs, with allocated goodwill, were impaired at September 30, 2014 and 2013.

 

Management views these assumptions as conservative and does not believe that any reasonable change in the assumptions would cause the carrying value of these CGU’s to exceed the recoverable amount.

 

5.

Segment information

 

IFRS 8 “Operating Segments” requires an entity to report financial and descriptive information about its reportable segments, which are operating segments or aggregations of operating segments that meet specified criteria. Operating segments are components of an entity about which separate financial information is available that is evaluated regularly by the chief operating decision maker (“CODM”) in deciding how to allocate resources and in assessing performance. The CODM evaluates the business based on the differences in the nature of its operations, products and services. The amount reported for each segment item is the measure reported to the CODM for these purposes.

 

The Group operates in three major lines of business, namely, Farming; Sugar, Ethanol and Energy; and Land Transformation. As from January 1, 2014 the Group’s management does not consider its Coffee and Cattle businesses to be of continuing significance and they do not meet the quantitative threshold for disclosure. The Coffee and Cattle businesses are now presented within “Farming – All Other Segments” and prior year disclosures have been recast to conform to this presentation.

 

5.

Segment information (continued)

 

• The Group’s ‘Farming’ line of business is further comprised of three reportable segments:

§

The Group’s ‘Crops’ Segment consists of planting, harvesting and sale of grains, oilseeds and fibers (including wheat, corn, soybeans, cotton and sunflowers, among others), and to a lesser extent the provision of grain warehousing/conditioning, handling and drying services to third parties, and the purchase and sale of crops produced by third parties crops. Each underlying crop in the Crops segment does not represent a separate operating segment. Management seeks to maximize the use of the land through the cultivation of one or more type of crops. Types and surface amount of crops cultivated may vary from harvest year to harvest year depending on several factors, some of them out of the Group´s control. Management is focused on the long-term performance of the productive land, and to that extent, the performance is assessed considering the aggregated combination, if any, of crops planted in the land. A single manager is responsible for the management of operating activity of all crops rather than for each individual crop.

 

§

The Group’s ‘Rice’ Segment consists of planting, harvesting, processing and marketing of rice;

 

§

The Group’s ‘Dairy’ Segment consists of the production and sale of raw milk;

 

§

The Group’s ‘All Other Segments’ column consists of the aggregation of the remaining non-reportable operating segments, which do not meet the quantitative thresholds for disclosure and for which the Group's management does not consider them to be of continuing significance as from January 1, 2014, namely, Coffee and Cattle.

 

• The Group’s ‘Sugar, Ethanol and Energy’ Segment consists of cultivating sugarcane which is processed in owned sugar mills, transformed into ethanol, sugar and electricity and marketed;

• The Group’s ‘Land Transformation’ Segment comprises the (i) identification and acquisition of underdeveloped and undermanaged farmland businesses; and (ii) realization of value through the strategic disposition of assets (generating profits).

The measurement principles for the Group’s segment reporting structure are based on the IFRS principles adopted in the interim financial statements. Revenue generated and goods and services exchanged between segments are calculated on the basis of market prices.

 

Total segment assets and liabilities are measured in a manner consistent with that of the condensed consolidated interim financial statements. These assets and liabilities are allocated based on the operations of the segment and the physical location of the asset. The Group’s investment in the joint venture CHS S.A. is allocated to the ‘Crops’ segment.

 

The following table presents information with respect to the Group’s reportable segments. Certain other activities of a holding function nature not allocable to the segments are disclosed in the column ‘Corporate’.

 

5.

Segment information (continued)

 

Segment analysis for the nine-month period ended September 30, 2014 (unaudited)

 

	Farming										Sugar, Ethanol and Energy		Land Transformation		Corporate		Total
	Crops		Rice		Dairy		All Other Segments		Farming subtotal
Sales of manufactured products and services rendered	141		73,183		2,493		1,137		76,954		253,746		—		—		330,700
Cost of manufactured products sold and services rendered	—		(57,421)		(2,364)		(615)		(60,400)		(161,502)		—		—		(221,902)
Gross Profit from Manufacturing Activities	141		15,762		129		522		16,554		92,244		—		—		108,798
Sales of agricultural produce and biological assets	152,127		1,940		21,158		—		175,225		—		—		—		175,225
Cost of agricultural produce sold and direct agricultural selling expenses	(152,127)		(1,940)		(21,158)		—		(175,225)		—		—		—		(175,225)
Initial recognition and changes in fair value of biological assets and agricultural produce	43,857		12,012		6,931		(3)		62,797		(22,428)		—		—		40,369
Changes in net realizable value of agricultural produce after harvest	1,210		—		—		—		1,210		—		—		—		1,210
Gross Profit / (loss) from Agricultural Activities	45,067		12,012		6,931		(3)		64,007		(22,428)		—		—		41,579
Margin on Manufacturing and Agricultural Activities Before Operating Expenses	45,208		27,774		7,060		519		80,561		69,816		—		—		150,377
General and administrative expenses	(3,266)		(2,370)		(1,166)		(136)		(6,938)		(16,771)		—		(15,530)		(39,239)
Selling expenses	(3,413)		(11,393)		(464)		(24)		(15,294)		(35,348)		—		(1,129)		(51,771)
Other operating (loss)/income, net	11,358		(14)		80		(13)		11,411		3,495		—		145		15,051
Share of loss of joint ventures	(462)		—		—		—		(462)		—		—		—		(462)
Profit / (loss) from Operations Before Financing and Taxation	49,425		13,997		5,510		346		69,278		21,192		—		(16,514)		73,956
Reserve from the sale of non controlling interests in subsidiaries	—		—		—		—		—		—		25,508		—		25,508
Depreciation and amortization	(1,493)		(2,469)		(1,162)		(311)		(5,435)		(61,578)		—		—		(67,013)
Initial recognition and changes in fair value of biological assets (unrealized)	(1,588)		17		—		—		(1,571)		(11,343)		—		—		(12,914)
Initial recognition and changes in fair value of agricultural produce (unrealized)	11,484		3,918		—		—		15,402		(4,318)		—		—		11,084
Initial recognition and changes in fair value of biological assets and agricultural produce (realized)	33,961		8,077		6,931		(3)		48,966		(6,767)		—		—		42,199
Changes in net realizable value of agricultural produce after harvest (unrealized)	(5,258)		—		—		—		(5,258)		—		—		—		(5,258)
Changes in net realizable value of agricultural produce after harvest (realized)	6,468		—		—		—		6,468		—		—		—		6,468
Property, plant and equipment, net	127,469		44,671		15,915		8,432		196,487		609,268		—		—		805,755
Investment property	—		—		—		7,461		7,461		—		—		—		7,461
Goodwill	7,674		3,275		—		1,243		12,192		8,903		—		—		21,095
Biological assets	14,788		11,914		7,928		2,100		36,730		279,464		—		—		316,194
Investment in joint ventures	3,302		—		—		—		3,302		—		—		—		3,302
Inventories	45,519		21,630		2,784		—		69,933		79,077		—		—		149,010
Total segment assets	198,752		81,490		26,627		19,236		326,105		976,712		—				1,302,817
Borrowings	62,508		18,532		5,022		1,838		87,900		697,653		—		—		785,553
Total segment liabilities	62,508		18,532		5,022		1,838		87,900		697,653		—		—		785,553

5.

Segment information (continued)

 

Segment analysis for the nine-month period ended September 30, 2013 (unaudited)

 

	Farming										Sugar, Ethanol and Energy		Land Transformation		Corporate		Total
	Crops		Rice		Dairy		All Other Segments		Farming subtotal
Sales of manufactured products and services rendered	372		76,196		—		2,715		79,283		201,313		—		—		280,596
Cost of manufactured products sold and services rendered	—		(63,904)		—		(69)		(63,973)		(118,279)		—		—		(182,252)
Gross Profit from Manufacturing Activities	372		12,292		—		2,646		15,310		83,034		—		—		98,344
Sales of agricultural produce and biological assets	168,652		2,070		22,475		1,055		194,252		—		—		—		194,252
Cost of agricultural produce sold and direct agricultural selling expenses	(168,652)		(2,070)		(22,475)		(1,055)		(194,252)		—		—		—		(194,252)
Initial recognition and changes in fair value of biological assets and agricultural produce	18,550		5,985		5,124		(7,628)		22,031		(42,838)		—		——		(20,807)
Changes in net realizable value of agricultural produce after harvest	9,744		—		—		121		9,865		—		—		—		9,865
Gross Profit/ (Loss) from Agricultural Activities	28,294		5,985		5,124		(7,507)		31,896		(42,838)		—		—		(10,942)
Margin on Manufacturing and Agricultural Activities Before Operating Expenses	28,666		18,277		5,124		(4,861)		47,206		40,196		—		—		87,402
General and administrative expenses	(3,137)		(3,461)		(776)		(866)		(8,240)		(14,548)		—		(16,262)		(39,050)
Selling expenses	(5,144)		(11,929)		(336)		(488)		(17,897)		(27,693)		—		(161)		(45,751)
Other operating loss, net	6,742		390		20		(297)		6,855		7,686		6,919		56		21,516
Share of loss of joint ventures	(41)		—		—		—		(41)		—		—		—		(41)
Profit/ (Loss) from Operations Before Financing and Taxation	27,086		3,277		4,032		(6,512)		27,883		5,641		6,919		(16,367)		24,076
Profit from discontinued operations	—		—		(1,767)		—		(1,767)		—		—		—		(1,767)
Depreciation and amortization	1,618		3,675		776		355		6,424		44,591		—		—		51,015
Initial recognition and changes in fair value of biological assets (unrealized)	1,205		74		(234)		(7,419)		(6,374)		(29,709)		—		—		(36,083)
Initial recognition and changes in fair value of agricultural produce (unrealized)	1,472		3,607				(124)		4,955		(5,576)		—		—		(621)
Initial recognition and changes in fair value of biological assets and agricultural produce (realized)	15,873		2,304		5,358		(85)		23,450		(7,553)		—		—		15,897
Changes in net realizable value of agricultural produce after harvest (unrealized)	(70)		—		—		—		(70)		—		—		—		(70)
Changes in net realizable value of agricultural produce after harvest (realized)	9,814		—		—		121		9,935		—		—		—		9,935
Property, plant and equipment, net	181,617		63,354		21,445		4,239		270,655		559,351		—		—		830,006
Investment property	—		—		—		13,194		13,194		—		—		—		13,194
Goodwill	11,206		4,766		—		1,455		17,427		9,784		—		—		27,211
Biological assets	17,501		14,328		10,542		3,101		45,472		215,875		—		—		261,347
Investment in joint ventures	—		—		—		3,771		3,771		—		—		—		3,771
Inventories	25,792		30,428		2,769		223		59,212		80,970		—		—		140,182
Total segment assets	236,116		112,876		34,756		25,983		409,731		865,980		—		—		1,275,711
Borrowings	76,002		52,782		13,195		—		141,979		539,004		—		—		680,983
Total segment liabilities	76,002		52,782		13,195		—		141,979		539,004		—		—		680,983

 

6.

Property, plant and equipment

 

Changes in the Group’s property, plant and equipment in the nine-month periods ended September 30, 2014 and 2013 were as follows:

 

	Farmlands		Farmland improvements		Buildings and facilities		Machinery, equipment, furniture and  fittings		Computer equipment		Vehicles		Work in progress		Total
Nine-month period ended September  30, 2013
Opening net book amount.	284,281		8,517		148,886		212,641		1,593		1,740		223,239		880,897
Exchange differences	(37,569)		(1,182)		(14,851)		(17,959)		(134)		(236)		(19,226)		(91,157)
Additions	—		143		6,126		38,599		1,043		126		55,361		101,398
Transfers	(12)		220		82,453		112,240		22		(8)		(194,915)		—
Disposals	(5,380)		—		(408)		(2,201)		(17)		(26)		—		(8,032)
Disposals of subsidiaries	(2,018)		—		(392)		—		—		—		—		(2,410)
Reclassification to non-income  tax credits (*)	—		—		(694)		745		—		—		—		51
Depreciation (Note 23)	—		(1,513)		(10,895)		(37,091)		(873)		(369)		—		(50,741)
Closing net book amount	239,302		6,185		210,226		306,974		1,634		1,227		64,459		830,006
At September 30, 2013 (unaudited)
Cost	239,302		12,566		274,119		494,561		5,029		4,283		64,459		1,094,319
Accumulated depreciation	—		(6,381)		(63,894)		(187,587)		(3,395)		(3,056)		—		(264,313)
Net book amount	239,302		6,185		210,225		306,974		1,634		1,227		64,459		830,006
Nine-month period ended September 30, 2014
Opening net book amount	216,843		8,852		206,462		297,910		1,690		1,184		57,579		790,520
Exchange differences	(37,626)		(1,931)		(15,171)		(15,814)		(160)		(244)		(7,038)		(77,984)
Additions	—		—		16,586		60,661		1,444		241		83,049		161,981
Transfers	—		90		17,285		10,901		29		—		(28,305)		—
Disposals	—		—		(10)		(703)		(7)		(29)		—		(749)
Reclassification to non-income  tax credits (*)	—		—		(251)		(969)		—		—		(1,452)		(2,672)
Reclassification from investment property	388		—		—		—		—		—		—		388
Depreciation (Note 23)	—		(1,212)		(16,382)		(47,207)		(676)		(252)		—		(65,729)
Closing net book amount	179,605		5,799		208,519		304,779		2,320		900		103,833		805,755
At September 30, 2014 (unaudited)
Cost	179,605		13,905		292,931		552,723		6,680		4,313		103,833		1,153,990
Accumulated depreciation	—		(8,106)		(84,412)		(247,944)		(4,360)		(3,413)		—		(348,235)
Net book amount	179,605		5,799		208,519		304,779		2,320		900		103,833		805,755

 

(*) Brazilian federal tax law allows entities to take a percentage of the total cost of the assets purchased as a tax credit, As of December 31, 2013, ICMS tax credits were reclassified to trade and other receivables.

 

6.

Property, plant and equipment (continued)

 

An amount of US$ 60,367 and US$ 45,594 of depreciation are included in “Cost of manufactured products sold and services rendered” for the nine-month periods ended September 30, 2014 and 2013, respectively. An amount US$ 4,420 and US$ 4,772 of depreciation are included in “General and administrative expenses” for the nine-month periods ended September 30, 2014 and 2013, respectively. An amount of US$ 942 and US$ 375 of depreciation are included in “Selling expenses” for the nine-month periods ended September 30, 2014 and 2013, respectively

 

As of September 30, 2014, borrowing costs of US$ 3,923 (September 30, 2013: US$ 8,960) were capitalized as components of the cost of acquisition or construction of qualifying assets.

 

Certain of the Group’s assets have been pledged as collateral to secure the Group’s borrowings and other payables. The net book value of the pledged assets amounts to US$ 23,089 as of September 30, 2014.

 

As of September 30, 2014 included within property, plant and equipment balances are US$ 661 related to the net book value of assets under finance leases.

 

7.

Investment property

 

Changes in the Group’s investment property in the nine-month periods ended September 30, 2014 and 2013 were as follows:

 

		September 30, 2014				September 30, 2013
		(unaudited)
Beginning of the period			10,147				15,542
Reclassification to property, plant and  equipment			(388	)			—
Exchange differences			(2.298	)			(2,348	)
End of the period			7,461				13,194
Cost			7,461				13,194
Accumulated depreciation			—				—
Net book amount			7,461				13,194

 

The following amounts have been recognized in the statement of income in the line “Sales of manufactured products and services rendered”:

 

		September 30, 2014				September 30, 2013
		(unaudited)
Rental income			1,134				2,914

 

As of September 30, 2014, the fair value of investment property was US$ 57 million (2013: US$ 67 million).

 

8.

Intangible assets

 

Changes in the Group’s intangible assets in the nine-month periods ended September 30, 2014 and 2013 were as follows:

 

		Goodwill				Trademarks				Software				Others				Total
Nine-month period ended September 30,  2013
Opening net book amount			31,100				1,356				341				83				32,880
Exchange differences			(3,889	)			(43	)			(91	)			(7	)			(4,030	)
Additions			—				—				1,277				49				1,326
Amortization charge (i) (Note 23)			—				(125	)			(129	)			(20	)			(274	)
Closing net book amount			27,211				1,188				1,398				105				29,902
At September 30, 2013 (unaudited)
Cost			27,211				2,559				2,248				125				32,143
Accumulated amortization			—				(1,371	)			(850	)			(20	)			(2,241	)
Net book amount			27,211				1,188				1,398				105				29,902
Nine-month period ended September 30,  2014
Opening net book amount			24,869				1,129				1,343				—				27,341
Exchange differences			(3,774	)			(26	)			(163	)			—				(3,963	)
Additions			—				—				766				6				772
Amortization charge (ii) (Note 23)			—				(108	)			(223	)			(2	)			(333	)
Closing net book amount			21,095				995				1,723				4				23,817
At September 30, 2014 (unaudited)
Cost			21,095				2,500				2,855				135				26,585
Accumulated amortization			—				(1,505	)			(1,132	)			(131	)			(2,768	)
Net book amount			21,095				995				1,723				4				23,817

 

(i)    For the nine-month period ended September 30, 2013 an amount of US$ 129 and US$ 145 of amortization charges are included in “General and administrative expenses” and “Selling expenses”, respectively. There were no impairment charges for any of the periods presented.

 

(ii)   For the nine-month period ended September 30, 2014 an amount of US$ 223 and US$ 110 of amortization charges are included in “General and administrative expenses” and “Selling expenses”, respectively. There were no impairment charges for any of the periods presented.

 

The Group tests annually whether goodwill has suffered any impairment. The last impairment test of goodwill was performed as of September 30, 2014 (see Note 4).

 

9.

Biological assets

 

Changes in the Group’s biological assets in the nine-month periods ended September 30, 2014 and 2013 were as follows:

 

		September 30, 2014				September 30, 2013
		(unaudited)
Beginning of the period			292,144				298,136
Increase due to purchases			526				726
Initial recognition and changes in fair value of biological assets (i)			40,369				(20,807	)
Decrease due to harvest			(296,719	)			(267,375	)
Decrease due to disposals			(1,868	)			(10,600	)
Decrease due to sales of agricultural produce			(19,290	)			—
Costs incurred during the period			329,428				288,025
Exchange differences			(28,396	)			(26,758	)
End of the period year			316,194				261,347

 

(i)    Biological asset with a production cycle of more than one year (that is, sugarcane, coffee, dairy and cattle) generated ‘Initial recognition and changes in fair value of biological assets’ amounting to US$ (15,500) loss for the nine-month period ended September 30, 2014 (2013: US$ (45,342) loss). In 2014, an amount of US$ 27,550 gain (2013:
US$ (13,329) loss) was attributable to price changes, and an amount of US$ (43,050) loss (2013: US$ (32,013) loss) was mainly attributable to physical changes.

 

Biological assets as of September 30, 2014 and December 31, 2013 were as follows:

 

		September 30, 2014				December 31, 2013
		(unaudited)
Non-current
Cattle for dairy production			7,547				9,450
Other cattle			25				33
Sown land – coffee			2,100				1,944
Sown land – sugarcane			279,464				213,776
			289,136				225,203
Current
Other cattle			356				363
Sown land – crops			14,788				35,982
Sown land – rice			11,914				30,596
			27,058				66,941
Total biological assets			316,194				292,144

 

10.

Financial instruments

 

As of September 30, 2014, the financial instruments recognized at fair value on the statement of financial position comprise derivative financial instruments.

 

In the case of Level 1, valuation is based on unadjusted quoted prices in active markets for identical financial assets that the Group can refer to at the date of the statement of financial position. A market is deemed active if transactions take place with sufficient frequency and in sufficient quantity for price information to be available on an ongoing basis. Since a quoted price in an active market is the most reliable indicator of fair value, this should always be used if available. The financial instruments the Group has allocated to this level mainly comprise crop futures and options traded on the stock market. In the case of securities, the Group allocates them to this level when either a stock market price is available or prices are provided by a price quotation on the basis of actual market transactions.

 

Derivatives not traded on the stock market allocated to Level 2 are valued using models based on observable market data. For this, the Group uses inputs directly or indirectly observable in the market, other than quoted prices. If the financial instrument concerned has a fixed contract period, the inputs used for valuation must be observable for the whole of this period. The financial instruments the Group has allocated to this level mainly comprise interest-rate swaps and foreign-currency interest-rate swaps.

 

In the case of Level 3, the Group uses valuation techniques not based on inputs observable in the market. This is only permissible insofar as no observable market data are available. The inputs used reflect the Group’s assumptions regarding the factors, which market players would consider in their pricing. The Group uses the best available information for this, including internal company data. The Group does not have financial instruments allocated to this level for any of the periods presented.

 

The following tables present the Group’s financial assets and financial liabilities that are measured at fair value as of September 30, 2014 and their allocation to the fair value hierarchy:

 

		2014
			Level 1				Level 2				Level 3				Total
Assets
Derivative financial instruments			9,618				—				—				9,618
Total assets			9,618				—				—				9,618
Liabilities
Derivative financial instruments			(149	)			(11,976	)			—				(12,125	)
Total liabilities			(149	)			(11,976	)			—				(12,125	)

 

10.

Financial instruments (continued)

 

When no quoted prices in an active market are available, fair values (particularly with derivatives) are based on recognized valuation methods. The Group uses a range of valuation models for this purpose, details of which may be obtained from the following table:

 

Class		Pricing Method		Parameters		Pricing Model		Level		Total
Futures		Quoted price		—		—		1		9,252
Options		Quoted price		—		—		1		217
Interest-rate swaps		Theoretical price		Swap curve; Money market interest-rate curve		Present value method		2		(11,976)
										(2,507)

 

11.

Trade and other receivables, net

 

		September 30, 2014				December 31, 2013
		(unaudited)
Non current
Trade receivables			3,237				4,676
Trade receivables – net			3,237				4,676
Advances to suppliers			13,120				10,658
Income tax credits			7,014				7,058
Non-income tax credits (i)			14,997				13,941
Judicial deposits			2,742				2,706
Receivable from disposal of subsidiary			4,250				9,202
Cash collateral			2,519				451
Other receivables			3,824				4,560
Non current portion			51,703				53,252
Current
Trade receivables			47,994				46,326
Receivables from related parties (Note 28)			4,488				—
Less: Allowance for trade receivables			(398	)			(545	)
Trade receivables – net			52,084				45,781
Prepaid expenses			6,581				7,786
Advance to Suppliers			34,786				16,088
Income tax credits			5,977				5,519
Non-income tax credits (i)			41,454				43,700
Cash collateral			6,673				6,554
Receivable from disposal of subsidiary			4,710				6,174
Receivable with members			261				—
Other receivables			9,452				9,578
Subtotal			109,894				95,399
Current portion			161,978				141,180
Total trade and other receivables, net			213,681				194,432

 

(i) Includes US$ 2,672 reclassified from property, plant and equipment (December 31, 2013: US$ 383).

 

11.

Trade and other receivables, net (continued)

 

The fair values of current trade and other receivables approximate their respective carrying amounts due to their short-term nature. The fair values of non-current trade and other receivables approximate their carrying amount, as the impact of discounting is not significant.

 

The carrying amounts of the Group’s trade and other receivables are denominated in the following currencies (expressed in US dollars):

 

		September 30, 2014				December 31, 2013
		(unaudited)
Currency
US Dollar			39,553				30,054
Argentine Peso			45,178				50,512
Uruguayan Peso			1,185				520
Brazilian Reais			127,765				113,346
			213,681				194,432

 

As of September 30, 2014 trade receivables of US$ 9,566 (December 31, 2013: US$ 14,319) were past due but not impaired. The ageing analysis of these receivables is as follows:

 

		September 30, 2014				December 31, 2013
			(unaudited)
Up to 3 months			8,646				13,432
3 to 6 months			67				827
Over 6 months			853				60
			9,566				14,319

 

The creation and release of allowance for trade receivables have been included in ‘Selling expenses’ in the statement of income. Amounts charged to the allowance account are generally written off, when there is no expectation of recovering additional cash.

 

The other classes within other receivables do not contain impaired assets.

 

The maximum exposure to credit risk at the reporting date is the carrying value of each class of receivable mentioned above.

 

12.

Inventories

 

		September 30, 2014				December 31, 2013
		(unaudited)
Raw materials			38,556				37,859
Finished goods			100,010				67,689
Stocks held by third parties			10,106				2,824
Others			338				17
			149,010				108,389

 

The cost of inventories recognized as expense are included in ‘Cost of manufactured products sold and services rendered’ amounted to US$ 221,902 for the nine-month period ended September 30, 2014. The cost of inventories recognized as expense and included in ‘Cost of agricultural produce sold and direct agricultural selling expenses’ amounted to US$ 133,164 for the nine-month period ended September 30, 2014.

 

13.

Cash and cash equivalents

 

		September 30, 2014				December 31, 2013
		(unaudited)
Cash at bank and on hand			163,782				165,362
Short-term bank deposits			33,010				66,785
			196,792				232,147

 

14.

Disposals

 

Sale of 49% of interest in Global Anceo S.L.U. and Global Hisingen S.L.U.

 

In June, 2014, the Group sold 49% of its interest in Global Anceo S.L.U. and Global Hisingen S.L.U. The main underlying assets of such corporations are Guayacanes and La Guarida farms.

 

Sale price amounted US$ 50.5 million and US$ 49.4 million was collected as of the transaction´s day. As the Company did not lose control of its subsidiaries, this operation is classified as an equity’s transaction, and the margin of the operation was registered in Statement of Changes in Shareholders’ Equity under the line item “Reserve from the sale of non controlling interests in subsidiaries”. The transaction resulted in an increase of equity attributable to owners of the Company of US$ 25.5 million and also an increase in non-controlling interest of US$ 8.0 million.

 

Mimoso farm and coffee assets

 

In May 2013, the Group completed the sale of the Mimoso farm (through the sale of the Brazilian subsidiary Fazenda Mimoso Ltda,) and Lagoa do Oeste farm located in Luis Eduardo Magalhaes, Bahia, Brazil. The farms have a total area of 3,834 hectares of which 904 hectares are planted with coffee trees. In addition, the Group entered into an agreement whereby the buyer will operate and make use of 728 hectares of existing coffee trees in Adecoagro’s Rio de Janeiro farm during an 8-year period. Pursuant to the terms of the agreement, we will retain property to these coffee trees, which will still have an estimate useful life of 10 years upon the expiration of the agreement. The total consideration of this operation was a nominal amount of Brazilian Reais 49 million (US$ 24 million). This transaction resulted in a gain of US$ 5,7 million recorded in other operating income in the statement of income.

 

14.

Disposals (continued)

 

In June 2013, the Group completed the sale of the remaining 49% interest in Santa Regina S.A., a company whose main underlying asset is the Santa Regina farm. This transaction resulted in a gain of US$ 1.2 million recorded in other operating income in the statement of income.

 

15.

Shareholders’ contributions

 

		Number of shares (thousands)				Share capital and share premium
At January 1, 2013			122,220				1,123,663
Restricted shares issued (Note 16)			161				2,963
Purchase of own shares			—				(335	)
At September 30, 2013			122,381				1,126,291
At January 1, 2014			122,381				1,122,645
Employee share options exercised (Note 16)			—				844
Restricted shares vested			—				3,444
Purchase of own shares			—				(10,424	)
At September 30, 2014			122,381				1,116,509

 

Share Repurchase Program

 

On September 24, 2013, the Board of Directors of the Company has authorized a share repurchase program for up to 5% of its outstanding shares. The repurchase program has commenced on September 24, 2013 and will be reviewed by the Board of Directors after a 12-month period: repurchases of shares under the program are made from time to time in open market transactions in compliance with the trading conditions of Rule 10b-18 under the U.S. Securities Exchange Act of 1934, as amended, and applicable rules and regulations. The share repurchase program does not require Adecoagro to acquire any specific number or amount of shares and may be modified, suspended, reinstated or terminated at any time in the Company’s discretion and without prior notice. The size and the timing of repurchases will depend upon market conditions, applicable legal requirements and other factors. On August 12, 2014 the Board of directors decided to extend the program for a 12 month period.

 

As of September 30, 2014, the Company repurchased 2,343,846 shares under this program.

 

16.

Equity-settled share-based payments

 

The Group has set a “2004 Incentive Option Plan” and a “2007/2008 Equity Incentive Plan” (collectively referred to as “Option Schemes”) under which the Group grants equity-settled options to senior managers and selected employees of the Group´s subsidiaries. Additionally, in 2010 the Group has set a “Adecoagro Restricted Share and Restricted Stock Unit Plan” (referred to as “Restricted Share Plan”) under which the Group grants restricted shares, or restricted stock units to senior and medium management and key employees of the Group’s subsidiaries.

 

16.

Equity-settled share-based payments (continued)

 

(a)

Option Schemes

 

For the nine-month periods ended September 30, 2014 and 2013 the Group incurred US$ nil million for both periods, related to the options granted under the Option Schemes.

 

Movements in the number of equity-settled options outstanding and their related weighted average exercise prices under plans are as follows:

 

2004 Incentive Option Plan

 

				September 30, 2014								September 30, 2013
				Average exercise price per share				Options (thousands)				Average exercise price per share				Options (thousands)
	At January 1				6.67				2,061				6.68				2,100
	Forfeited				—				—				8.62				(21	)
	Exercised				—				(5	)			—				—
	Expired				5.83				(123	)			—				—
	At September 30				6.71				1,933				6.66				2,078

 

2007/2008 Equity Incentive Plan

 

				September 30, 2014								September 30, 2013
				Average exercise price per share				Options (thousands)				Average exercise price per share				Options (thousands)
	At January 1				13.07				1,751				13.06				2,013
	Forfeited				13.40				(22	)			13.08				(191	)
	At September 30				13.07				1,729				13.06				1,822

 

Options outstanding under the plans have the following expiry date and exercise prices:

 

2004 Incentive Option Plan

 

		Exercise price per share
				Shares (in thousands)
Expiry date (i):				September 30, 2014		September 30, 2013
May 1, 2024		5.83		577		674
May 1, 2025		5.83		553		553
May 1, 2026		5.83		136		173
February 16, 2026		7.11		110		110
October 1, 2026		8.62		557		569

 

(i)       On May 2014, the Board of directors decided to extend the expired date of the Plan.

 

 

16.

Equity-settled share-based payments (continued)

 

2007/2008 Equity Incentive Plan

 

		Exercise price per share
				Shares (in thousands)
Expiry date:				September 30, 2014		September 30, 2013
Dec 1, 2017		12.82		950		1,034
Jan 30, 2019		13.40		599		608
Nov 1, 2019		13.40		8		8
Jan 30, 2020		12.82		26		26
Jan 30, 2020		13.40		65		65
Jun 30, 2020		13.40		22		22
Sep 1, 2020		13.40		44		44
Sep 1, 2020		12.82		15		15

 

The following table shows the exercisable shares at period end under both the Adecoagro/ IFH 2004 Incentive Option Plan and the Adecoagro/ IFH 2007/ 2008 Equity Incentive Plan:

 

				Exercisable shares in thousands
	September 30, 2014				3,662
	September 30, 2013				3,855

 

(b)

Restricted Share and Restricted Stock Unit Plan

 

The Restricted Share and Restricted Stock Unit Plan were effectively established in 2010 and amended in November 2011 and is administered by the Compensation Committee of the Company. Awards under this plan vest over a 3-year period from the date of grant at 33% on each anniversary of the grant date. Participants are entitled to receive one common share of the Company for each restricted share or restricted unit issued. For the Restricted Share Plan there are no performance requirements for the delivery of common shares, except that a participant’s employment with the Group must not have been terminated prior to the relevant vesting date. If the participant ceases to be an employee for any reason, any unvested restricted share shall not be converted into common shares and the participant shall cease for all purposes to be a shareholder with respect to such shares.

 

On July 18, 2011, the Group issued and registered 427,293 restricted shares with a nominal value of US$ 1.5 which were granted under the Restricted Share Plan. While the restricted shares are not vested, they are recognized in “Other reserves”. Once they are vested, the reserve is reversed and a share premium is recognized. As of September 30, 2014, all the restricted shares were vested.

 

The restricted shares under the Restricted Share Plan were measured at fair value at the date of grant.

 

As of September 30, 2014, the Group recognized compensation expense US$ 2.6 million related to the restricted shares granted under the Restricted Share Plan (2013: US$ 2.8 million).

 

16.

Equity-settled share-based payments (continued)

 

Key grant-date fair value and other assumptions under the Restricted Share and Restricted Stock Unit Plan are detailed below:

 

Grant Date		Apr 1, 2011				Apr 1, 2011				May 13, 2011				Apr 1, 2012				May 15, 2012				Apr 1, 2013				May 15, 2013
Fair value			12.69				12.69				12.36				9.81				9.33				8.08				7.48
Possibility of ceasing employment before vesting			1.42	%			1.86	%			0	%			3	%			0	%			5	%			0	%

 

Movements in the number of restricted shares outstanding under the Restricted Share and Restricted Stock Unit Plan are as follows:

 

				Restricted shares  (thousands)				Restricted stock units  (thousands)				Restricted shares  (thousands)				Restricted stock units  (thousands)
				2014				2014				2013				2013
	At January 1				110				699				234				515
	Granted (1)				—				480				—				362
	Forfeited				(3	)			(21	)			(5	)			(10	)
	Vested				(107	)			(297	)			(119	)			(167	)
	At September 30				—				861				110				700

 

(1)

Approved by the Board of Directors of March 13, 2014 and the Shareholders Meeting of April 16, 2014.

 

17.

Trade and other payables

 

		September 30, 2014				December 31, 2013
		(unaudited)
Non-current
Payable from acquisition of property, plant and equipment (i)			2,084				2,605
Other payables			331				346
			2,415				2,951
Current
Trade payables			61,028				84,009
Advances from customers			1,111				2,900
Amounts due to related parties (Note 28)			—				1,069
Taxes payable			2,970				3,108
Payables from acquisitions of property, plants and equipment			530				—
Escrows arising on business combinations			389				1,030
Other payables			1,349				849
			67,377				92,965
Total trade and other payables			69,792				95,916

 

(i)

These trades payable are mainly collateralized by property, plant and equipment.

 

18.

Borrowings

 

		September 30, 2014				December 31, 2013
		(unaudited)
Non-current
Votoratim			1,758				3,388
ABC Brazil Loan			7,141				17,746
Bradesco Loan (*)			6,641				8,832
BNDES Loan Facility(*)			139,154				108,804
IDB Facility (*)			30,010				37,703
Ciudad de Buenos Aires Loan			14,286				14,286
Galicia Loan			445				1,150
Banco do Brazil Loan Facility (*)			76,114				82,997
Itaú BBA Facility (*)			40,345				44,327
Rabobank Loan (*)			31,237				32,482
ING/ABN/Bladex(*)			40,015				52,000
Rabobank, Syndicated Loan (*)			80,390				88,980
ING Bank N,V, Syndicated Loan (*)			82,452				—
Other bank borrowings			29,769				19,058
Obligations under finance leases			313				411
			580,070				512,164

 

Current
Bank overdrafts			349				5,750
BNDES Loan Facility (*)			19,484				8,695
IDB Facility (*)			16,458				15,388
Ciudad de Buenos Aires Loan			3,274				2,992
Galicia Loan			1,063				5,733
Banco do Brazil Loan Facility (*)			19,830				6,888
Rabobank Loan (*)			37,719				32,249
ITAU (*)			35,419				10,924
ABC Brazil Loan			10,574				10,027
Bradesco Loan (*)			4,356				5,932
Votoratim			2,768				7,310
ING/ABN/Bladex(*)			12,471				17,003
Rabobank, Syndicated Loan (*)			9,340				365
ING/HSBC/ICBC/BES/Bradesco/Hinduja/Bladex/BoC/Paschi (*)			15,806				—
Other bank borrowings			16,262				18,383
Obligations under finance leases			310				328
			205,483				147,967
Total borrowings			785,553				660,131

 

(*) The Group was in compliance with the related covenants under the respective loan agreements.

 

New loan – ING Bank N.V. Syndicated Loan

 

In March 2014, Adecoagro Vale do Ivinhema entered into a US$ 100.0 million loan with syndicate of banks, led by ING Bank N.V., due 2017. This syndicate loan bears an interest of LIBOR 3 months + 4.20% per annum. Certain covenants are measured on a combined basis aggregating the borrowing subsidiaries and others are measured on an individual basis.

 

18.

Borrowings (continued)

 

Financial ratios:

 

		2014		2015		2016
Net Bank Debt / EBITDA		[<] 4,5		[<] 5		[<] 4,5
Solvency Ratio		[>] 40%		[>] 40%		[>] 40%
Interest Coverage Ratio		[<] 2		[<] 2		[<] 2

 

As of September 30, 2014, total bank borrowings include collateralized liabilities of US$ 737,151 (December 31, 2013: US$ 625,533). These loans are mainly collateralized by property, plant and equipment sugarcane plantations, sugar export contracts and shares of certain subsidiaries of the Group.

 

The maturity of the Group's borrowings (excluding obligations under finance leases) and the Group's exposure to fixed and variable interest rates is as follows:

 

		September 30, 2014				December 31, 2013
		(unaudited)
Fixed rate:
Less than 1 year			95,821				56,932
Between 1 and 2 years			47,497				38,393
Between 2 and 3 years			44,403				37,762
Between 3 and 4 years			36,776				29,467
Between 4 and 5 years			28,510				27,803
More than 5 years			84,026				75,745
			337,033				266,102
Variable rate:
Less than 1 year			109,352				90,707
Between 1 and 2 years			139,072				107,392
Between 2 and 3 years			126,227				100,949
Between 3 and 4 years			42,761				54,212
Between 4 and 5 years			8,442				12,586
More than 5 years			22,043				27,444
			447,897				393,290
			784,930				659,392

The carrying amounts of the Group’s borrowings are denominated in the following currencies (expressed in US dollars):

 

		September 30, 2014				December 31, 2013
		(unaudited)
Currency
US Dollar			355,451				257,283
Brazilian Reais			423,013				372,058
Argentine Peso			7,089				30,775
Uruguayan Peso			—				15
			785,553				660,131

 

 

19.

Taxation

 

Taxes on income in the interim periods are accrued using the tax rate that would be applicable to expected total annual earnings.

 

		September 30, 2014				September 30, 2013
		(unaudited)
Current income tax			(805	)			(1,188	)
Deferred income tax			(4,856	)			15,948
Income tax (expense)/benefit			(5,661	)			14,760

 

There has been no change in the statutory tax rates in the countries where the Group operates since December 31, 2013.

 

Argentine law includes a 10% withholding tax on dividend distributions made by Argentine companies to individuals and foreign beneficiaries. As of September 30, 2014, the Company did not record any liability on retain earnings at their Argentine subsidiaries due to its dividend policy which defines that the Company intends to retain any future earnings to finance operations and the expansion of their business and does not intend to distribute or pay any cash dividends on our common shares in the foreseeable future.

 

The gross movement on the deferred income tax account is as follows:

 

		September 30, 2014				September 30, 2013
		(unaudited)
Beginning of period liability			(9,255	)			(39,998	)
Exchange differences			10,258				7,140
Disposal of subsidiary			—				185
Tax charge relating to cash flow hedge (i)			9,764				2,251
Income tax expense			(4,856	)			15,948
End of period asset/(liability)			5,911				(14,474	)

 

(i)         Relates to the gain or loss before income tax of cash flow hedge recognized in other comprehensive income, net of the amount reclassified from equity to profit and loss, amounting to US$ 28,285 for the nine-month period ended September 30, 2014.

 

The tax on the Group’s profit before tax differs from the theoretical amount that would arise using the weighted average tax rate applicable to profits of the consolidated entities as follows:

 

		September 30, 2014				September 30, 2013
		(unaudited)
Tax calculated at the tax rates applicable to profits in the respective countries			(6,184	)			16,769
Non-deductible items			(335	)			(1,915	)
Unused tax losses			(952	)			—
Income/(loss) not subject to tax			2,322				(217	)
Others (expense)/ benefit			(512	)			123
Income tax (expense)/benefit			(5,661	)			14,760

 

20.

Payroll and social security liabilities

 

		September 30, 2014				December 31, 2013
		(unaudited)
Non-current
Social security payable			1,227				1,458
			1,227				1,458
Current
Salaries payable			12,098				5,782
Social security payable			3,276				3,849
Provision for vacations			12,868				11,481
Provision for bonuses			3,837				5,027
			32,079				26,139
Total payroll and social security liabilities			33,306				27,597

 

21.

Provisions for other liabilities

 

The Group is subject to several laws, regulations and business practices of the countries where it operates, In the ordinary course of business, the Group is subject to certain contingent liabilities with respect to existing or potential claims, lawsuits and other proceedings, including those involving tax, labor and social security, administrative and civil and other matters. The Group accrues liabilities when it is probable that future costs will be incurred and it can reasonably estimate them. The Group bases its accruals on up-to-date developments, estimates of the outcomes of the matters and legal counsel experience in contesting, litigating and settling matters. As the scope of the liabilities becomes better defined or more information is available, the Group may be required to change its estimates of future costs, which could have a material effect on its results of operations and financial condition or liquidity. There have been no material changes to claimed amounts and current proceedings since December 31, 2013.

 

22.

Sales

 

		September 30, 2014				September 30, 2013
		(unaudited)
Sales of manufactured products and services rendered:
Ethanol			101,713				95,146
Sugar (*)			111,710				84,509
Rice (*)			71,668				74,357
Energy			40,323				21,348
Powder milk			2,493				—
Operating leases			1,213				2,914
Services			1,562				1,988
Others			18				334
			330,700				280,596
Sales of agricultural produce and biological assets:
Soybean (*)			71,039				66,228
Cattle for dairy production			1,868				1,740
Other cattle			—				616
Corn (*)			63,141				76,963
Cotton			3,689				3,810
Milk			19,290				20,735
Wheat			6,226				10,674
Coffee			—				439
Sunflower			6,796				8,021
Rice			1,117				—
Barley			1,049				1,294
Sorghum			72				2,154
Seeds			823				144
Others			115				1,434
			175,225				194,252
Total sales			505,925				474,848

 

(*) Includes sales of soybean, corn, rice, powder milk and sugar produced by third parties for an amount of US$ 11,482 ; US$ 13,121; US$ 91; US$ 119 and US$ 11,243 respectively.

 

Commitments to sell commodities at a future date

 

The Group entered into contracts to sell non financial instruments, mainly, sugar, soybean and corn through sales forward contracts. Those contracts are held for purposes of delivery the non financial instrument in accordance with the Group’s expected sales. Accordingly, as the own use exception criteria are met, those contracts are not recorded as derivatives.

 

The notional amount of these contracts is 159.5 million as of September 30, 2014 (2013: US$ 89.4 million) comprised primarily of 101,371 tons of sugar (US$ 76.3 million), 16,940 tons of corn (U$S 2.6 million) and 34,102 tons of soybean (U$S 9.7 million) which expire between October 2014 and April 2015.

 

23.

Expenses by nature

 

The following table provides the additional disclosure required on the nature of expenses and their relationship to the function within the Group:

 

		September 30, 2014				September 30, 2013
		(unaudited)
Cost of agricultural produce and biological assets sold			154,322				168,595
Raw materials and consumables used in manufacturing activities			124,109				105,657
Services			10,269				9,763
Salaries and social security expenses (Note 24)			45,586				40,316
Depreciation and amortization			67,013				51,015
Taxes (*)			2,796				3,520
Maintenance and repairs			8,211				6,426
Lease expense and similar arrangements(**)			1,762				1,842
Freights			33,671				29,336
Export taxes / selling taxes			22,765				24,887
Fuel and lubricants			6,425				5,049
Others			11,208				14,899
Total expenses by nature			488,137				461,305

 

(*) Excludes export taxes and selling taxes,

 

(**) Relates to various cancellable operating lease agreements for office and machinery equipment,

 

For the nine-month period ended September 30, 2014, an amount of US$ 221,902 is included as “cost of manufactured products sold and services rendered” (September 30, 2013: US$ 182,252); an amount of
US$ 175,225 is included as “cost of agricultural produce sold and direct agricultural selling expenses” (September 30, 2013: US$ 194,252); an amount of US$ 39,239 is included in “general and administrative expenses” (September 30, 2013: US$ 39,050); and an amount of US$ 51,771 is included in “selling expenses” as described above (September 30, 2013: US$ 45,751).

 

24.

Salaries and social security expenses

 

		September 30, 2014				September 30, 2013
		(unaudited)
Wages and salaries			32,500				28,789
Social security costs			10,158				8,690
Equity-settled share-based compensation			2,928				2,837
			45,586				40,316
Number of employees			8,239				7,683

 

25.

Other operating (loss)/income, net

 

		September 30, 2014				September 30, 2013
		(unaudited)
Gain from commodity derivative financial instruments			14,228				13,331
Loss from onerous contracts – forwards			(176	)			(276	)
Gain from disposal of  subsidiary			—				779
Gain from disposal of  financial assets			—				1,188
Gain from disposal of  other property items			788				413
Gain from disposal of  farmland  and other assets			—				5,082
Others			211				999
			15,051				21,516

 

26.

Financial results, net

 

		September 30, 2014				September 30, 2013
		(unaudited)
Finance income:
- Interest income			5,735				4,740
- Cash flow hedge – transfer from equity			—				266
- Gain from interest rate/foreign exchange rate derivative financial instruments			679				—
- Other income			229				319
Finance income			6,643				5,325
Finance costs:
- Interest expense			(42,314	)			(36,056	)
- Cash flow hedge – transfer from equity			(5,062	)			—
- Foreign exchange losses, net			(6,889	)			(16,467	)
- Loss from interest rate/foreign exchange rate derivative financial instruments			(863	)			(18,549	)
- Taxes			(3,003	)			(2,911	)
- Other expenses			(1,513	)			(2,390	)
Finance costs			(59,644	)			(76,373	)
Total financial results, net			(53,001	)			(71,048	)

 

27.

Disclosure of leases and similar arrangements

 

The Group as lessor - Operating leases

 

In September 2013, Marfrig Argentina S.A. (“Marfrig ARG”), an Argentine company subsidiary of the Brazilian company Marfrig Alimentos S.A. (today Marfrig Global Foods S.A.) (“Marfrig Brazil”) unilaterally early terminated the Master Agreement, including the lease agreements entered into with the Group on December 2009 for a ten-year term. Therefore, on April 21, 2014 the Group filed a lawsuit against Marfrig ARG and Marfrig Brazil claiming the indemnification set forth in the Master Agreement and unpaid invoices for aggregate of approximately US$ 22.5 million. The lawsuit was filed with the Court of Arbitration of the Stock Exchange Chamber of the City of Buenos Aires.

 

28.

Related-party transactions

 

The following is a summary of the balances and transactions with related parties:

 

Related party		Relationship		Description of transaction		Income (loss) included in the statement of income				Balance receivable (payable)
						September 30, 2014		September 30, 2013		September 30, 2014		December 31, 2013
						(unaudited)		(unaudited)		(unaudited)
Grupo La Lácteo		Joint venture		Sales of goods		—		7,432		—		—
				Purchases of goods		—		(25)		—		—
				Interest income		—		33		—		—
Mario Jorge de Lemos Vieira/ Cia Agropecuaria Monte Alegre/ Alfenas Agricola Ltda/ Marcelo Weyland Barbosa Vieira/ Paulo Albert Weyland Vieira		(i)		Receivables (Note 11)		—		—		261		(667)
				Cost of manufactured products sold and services rendered (ii)		(2,357)		—		—		—
CHS Agro				Services		31		—		—		—
				Sales of goods		1,290		—		—		—
		Joint venture
				Interest income		18		—		—		—
				Receivables (Note 11)		—		—		4,488		—
				Payables (Note 17)				—				(402)
Directors and senior management		Employment
				Compensation selected employees		(5,553)		(4,870)		(15,980)		(17,472)

 

(i) Shareholder of the Company. 

(ii) Relates to agriculture partnership agreements (“parceria”)