(Name, Telephone, E-Mail and/or Facsimile number
and Address of Company Contact Person)
Securities registered or to be registered pursuant
to Section 12(b) of the Act:
Securities registered or to be registered pursuant
to Section 12(g) of the Act:
Securities for which there is a reporting obligation
pursuant to Section 15(d) of the Act:
The number of outstanding shares of each of
the issuer’s classes of capital stock
Indicate by check mark if the registrant
is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act
If this report is an annual or transition
report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
Indicate by check mark whether the Registrant
(1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Indicate by check mark whether the registrant
has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted
and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter
period that the registrant was required to submit and post such files). (*)
(*) This requirement does not apply to the registrant
in respect of this filing.
Indicate by check mark whether the registrant is
a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See
definition of “large accelerated filer," accelerated filer,” and "emerging growth company"
in Rule 12b-2 of the Exchange Act. (Check one):
Indicate by check mark which basis of accounting the registrant
has used to prepare the financial statements included in this filing:
If “Other” has been checked in response to the
previous question, indicate by check mark which financial statement item the Registrant has elected to follow:
This annual report contains
forward-looking statements that are based on our current expectations, assumptions, estimates and projections about us and our
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 this annual report relate to, among others:
These forward-looking
statements involve various risks and uncertainties. Although we believe that our expectations expressed in these forward-looking
statements are reasonable, our expectations may turn out to be incorrect. Our actual results could be materially different from
our expectations. In light of the risks and uncertainties described above, the estimates and forward-looking statements discussed
in this annual report might not occur, and our future results and our performance may differ materially from those expressed in
these forward-looking statements due to, including, 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 this annual report relate only to events or information as of the date on which the statements are made. We undertake 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.
In this annual report,
unless otherwise specified or if the context so requires:
As part of a corporate
reorganization (the “Reorganization”), Adecoagro, a Luxembourg corporation under the form of a
société
anonyme
, was formed as a holding company for IFH for the purpose, among others, of facilitating the initial public offering
(the “IPO”) of our common shares, completed on January 28, 2011. Before the IPO, Adecoagro had not engaged in any business
or other activities except in connection with its formation and the Reorganization. For an additional discussion of the Reorganization,
see “Item 4. Information on the Company—A. History and Development of the Company—History.”
During 2011, we contributed
the net proceeds of the IPO to increase our interest in IFH from 98% to 98.64%. During 2012, we issued, in a series of transactions,
1,654,752 shares to certain limited partners of IFH in exchange for their residual interest in IFH, totaling 1.3595%, thereby increasing
our interest in IFH to approximately 100%.
The consolidated financial
statements as of December 31, 2016, 2015 and 2014, and for the years then ended (hereinafter, the “Consolidated Financial
Statements”) included in this annual report have been prepared in accordance with IFRS. All IFRS effective at the time of
preparing the Consolidated Financial Statements have been applied.
To supplement our Consolidated
Financial Statements, which are prepared and presented in accordance with IFRS, we use the following non-IFRS financial measures
in this annual report:
In this section, we provide
an explanation and a reconciliation of each of our non-IFRS financial measures to their most directly comparable IFRS measures
of each non-IFRS measure. The presentation of these financial measures is not intended to be considered in isolation or as a substitute
for, or superior to, financial information prepared and presented in accordance with IFRS.
We use non-IFRS measures
to internally evaluate and analyze financial results. We believe these non-IFRS financial measures provide investors with useful
supplemental information about the liquidity and financial performance of our business, enable comparison of financial results
between periods where certain items may vary independent of business performance, and enable comparison of our financial results
with other public companies, many of which present similar non-IFRS financial measures.
There are limitations
associated with the use of non-IFRS financial measures as an analytical tool. In particular, many of the adjustments to our IFRS
financial measures reflect the exclusion of items, such as depreciation and amortization, changes in fair value and the related
income tax effects of the aforementioned exclusions, that are recurring and will be reflected in our financial results for the
foreseeable future. In addition, these measures may be different from non-IFRS financial measures used by other companies, limiting
their usefulness for comparison purposes.
We present Adjusted Consolidated
EBITDA, Adjusted Segment EBITDA, Adjusted Consolidated EBIT and Adjusted Segment EBIT in this annual report as supplemental measures
of performance of our company and of each operating segment, respectively, that are not required by, or presented in accordance
with IFRS. Our Adjusted Consolidated EBITDA equals the sum of our Adjusted Segment EBITDA for each of our operating segments.
We define “Adjusted Consolidated EBITDA” as (i) consolidated net profit (loss) for the year, as applicable, before
interest expense, income taxes, depreciation and amortization, foreign exchange gains or losses, other net financial expenses;
and (ii) adjusted by profit or loss from discontinued operations; and (iii) adjusted by gains or losses from disposals of non-controlling
interests in subsidiaries whose main underlying asset is farmland which are reflected in our Shareholders Equity under the line
item”: ”Reserve from the sale of non-controlling interests in subsidiaries.” We define “Adjusted Segment
EBITDA” for each of our operating segments as (i) the segment’s share of consolidated profit (loss) from operations
before financing and taxation for the year, as applicable, before depreciation and amortization; and (ii) adjusted by profit or
loss from discontinued operations; and (iii) adjusted by gains or losses from disposals of non-controlling interests in subsidiaries
whose main underlying asset is farmland, which are reflected in our Shareholders Equity under the line item: “Reserve from
the sale of non-controlling interests in subsidiaries.”
We believe that Adjusted
Consolidated EBITDA and Adjusted Segment EBITDA are important measures of operating performance for our company and each operating
segment, respectively, because they allow investors and others to evaluate and compare our consolidated operating results and to
evaluate and compare the operating performance of our segments, respectively,
including our return on capital and operating efficiencies, from period to period by removing the impact of our capital structure
(interest expense from our outstanding debt), asset base (depreciation and amortization), tax consequences (income taxes), foreign
exchange gains or losses and other financial expenses. In addition, by including the gains or losses from disposals of non-controlling
interests in subsidiaries whose main underlying asset is farmland, investors can also evaluate the full value and returns generated
by our land transformation activities. Other companies may calculate Adjusted Consolidated EBITDA and Adjusted Segment EBITDA differently,
and therefore our Adjusted Consolidated EBITDA and Adjusted Segment EBITDA may not be comparable to similarly titled measures used
by other companies. Adjusted Consolidated EBITDA and Adjusted Segment EBITDA are not measures of financial performance under IFRS,
and should not be considered in isolation or as an alternative to consolidated net profit (loss), cash flows from operating activities,
segment’s profit from operations before financing and taxation and other measures determined in accordance with IFRS. Items
excluded from Adjusted Consolidated EBITDA and Adjusted Segment EBITDA are significant and necessary components to the operations
of our business, and, therefore, Adjusted Consolidated EBITDA and Adjusted Segment EBITDA should only be used as a supplemental
measure of our company’s operating performance, and of each of our operating segments, respectively. We also believe Adjusted
Consolidated EBITDA and Adjusted Segment EBITDA are useful for securities analysts, investors and others to evaluate the financial
performance of our company and other companies in the agricultural industry. These non-IFRS measures should be considered in addition
to, but not as a substitute for or superior to, the information contained in either our statements of income or segment information.
Our Adjusted Consolidated
EBIT equals the sum of our Adjusted Segment EBITs for each of our operating segments. We define “Adjusted Consolidated EBIT”
as (i) consolidated net profit (loss) for the year, as applicable, before interest expense, income taxes, foreign exchange gains
or losses and other net financial expenses; and (ii) adjusted by profit or loss from discontinued operations; and (iii) adjusted
by gains or losses from disposals of non controlling interests in subsidiaries whose main underlying asset farmland. We define
“Adjusted Segment EBIT” for each of our operating segments as the segment’s share of (i) consolidated profit
(loss) from operations before financing and taxation for the year, as applicable; and (ii) adjusted by profit or loss from discontinued
operations; and (iii) adjusted by gains or losses from disposals of non-controlling interests in subsidiaries whose main underlying
asset is farmland, which are reflected in our Shareholders Equity under the line item: “Reserve from the sale of non-controlling
interests in subsidiaries.” We believe that Adjusted Consolidated EBIT and Adjusted Segment EBIT are important measures of
operating performance, for our company and each operating segment, respectively, because they allow investors and others to evaluate
and compare our consolidated operating results and to evaluate and compare the operating performance of our segments, from period
to period by including the impact of depreciable fixed assets and removing the impact of our capital structure (interest expense
from our outstanding debt), tax consequences (income taxes), foreign exchange gains or losses and other financial expenses. In
addition, by including the gains or losses from disposals of non-controlling interests in subsidiaries whose main underlying asset
is farmland, investors can evaluate the full value and returns generated by our land transformation activities. Other companies
may calculate Adjusted Consolidated EBIT and Adjusted Segment EBIT differently, and therefore our Adjusted Consolidated EBIT and
Adjusted Segment EBIT may not be comparable to similarly titled measures used by other companies. Adjusted Consolidated EBIT and
Adjusted Segment EBIT are not measures of financial performance under IFRS, and should not be considered in isolation or as an
alternative to consolidated net profit (loss), cash flows from operating activities, segment’s profit from operations before
financing and taxation and other measures determined in accordance with IFRS. Items excluded from Adjusted Consolidated EBIT and
Adjusted Segment EBIT are significant and necessary components to the operations of our business, and, therefore, Adjusted Consolidated
EBIT and Adjusted Segment EBIT should only be used as a supplemental measure of the operating performance of our company, and of
each of our operating segments, respectively. We also believe Adjusted Consolidated EBIT and Adjusted Segment EBIT are useful for
securities analysts, investors and others to evaluate the financial performance of our company and other companies in the agricultural
industry.
We define Adjusted Free
Cash Flow as (i) net cash generated from operating activities, less (ii) net cash used in investing activities, less (iii) interest
paid, plus (iv) proceeds from the sale of non-controlling interest in subsidiaries. We define Adjusted Free Cash Flow from Operations
as (i) net cash generated from operating activities less (ii) net cash used in investing activities, less (iii) interest paid,
plus (iv) proceeds from the sale of non-controlling interest in subsidiaries; plus (v) expansion capital expenditures.
Expansion capital expenditures
is defined as the required investment to expand current production capacity. We define maintenance capital expenditures as the
necessary investments in order to maintain the current level of productivity both at an agricultural and industrial level.
We believe Adjusted Free
Cash Flow is an important liquidity measure for the Company because it allows investors and others to evaluate and compare the
amount of cash generated by the Company to undertake growth investments, to fund acquisitions, to reduce outstanding financial
debt, and to provide a return to shareholders in the form of dividends and/or share repurchases, among other things.
We believe Adjusted Free
Cash Flow from Operations is an important liquidity metric for the Company because it allows investors and others to evaluate and
compare the amount of cash generated by the Company’s operations after paying for interests, taxes and maintenance capital
expenses. We believe this metric is relevant in evaluating the overall performance of our business.
Other companies may calculate
Adjusted Free Cash Flow and Adjusted Free Cash Flow from Operations differently, and therefore our formulation may not be comparable
to similarly titled measures used by other companies. Adjusted Free Cash Flow and Adjusted Free Cash Flow from Operations are not
measures of liquidity under IFRS, and should not be considered in isolation or as an alternative to consolidated, cash flows from
operating activities, net increase, (decrease) in cash and cash equivalents and other measures determined in accordance with IFRS
Net debt is defined as
the sum of non-current and current borrowings less cash and cash equivalents. This measure is widely used by management.
Management is consistently
tracking our leverage position and our ability to repay and service our debt obligations over time. We have therefore set a leverage
ratio target that is measured by net debt divided by Adjusted Consolidated EBITDA.
We believe that the ratio
net debt to Adjusted Consolidated EBITDA provides useful information to investors because management uses it to manage our debt-equity
ratio in order to promote access to capital markets and our ability to meet scheduled debt service obligations.
Our fiscal year begins
on January 1 and ends on December 31 of each year. However, our production is based on the harvest year for each of our crops and
rice. A harvest year varies according to the crop or rice and to the climate in which it is grown. Due to the geographic diversity
of our farms, the planting period for a given crop or rice may start earlier on one farm than on another, causing differences in
their respective harvesting periods. The presentation of production volume (tons) and product area (hectares) in this annual report,
in respect of the harvest years for each of our crops and rice, starts with the first day of the planting period at the first farm
to start planting on that harvest year and continues to the last day of the harvesting period of the respective crop or rice on
the last farm to finish harvesting that harvest year, as shown in the table below.
Product area for cattle
is presented on a harvest year basis given that land utilized for cattle operations is linked to our farming operations and use
of farmland during a harvest year. Production volumes for dairy and cattle operations are presented on a fiscal year basis. On
the other hand, production volumes and product area in our sugar, ethanol and energy business are presented on a fiscal year basis.
The financial results
for all of our products are presented on a fiscal year basis.
Weight units and measures used in agriculture vary according to
the crop and producing country. In order to permit comparability of our operating data with operating data from the international
markets, the following table sets forth key weight units and measures used in the agriculture industry:
This annual report includes
information provided by us and by third-party sources that we believe are reliable, including data related to the economic conditions
in the markets in which we operate. Unless otherwise indicated, information in this annual report concerning economic conditions
is based on publicly available information from third-party sources which we believe to be reasonable. The economic conditions
in the markets in which we operate may deteriorate, and those economies may not grow at the rates projected by market data, or
at all. The deterioration of the economic conditions in the markets in which we operate may have a material adverse effect on our
business, results of operations and financial condition and the market price of our common shares.
We have made rounding
adjustments to reach some of the figures included in this annual report. Accordingly, numerical figures shown as totals in some
tables may not be an arithmetic aggregation of the figures that preceded them.
PART I
|
|
Item 1.
|
Identity of Directors, Senior Management and Advisers
|
Not applicable.
|
|
Item 2.
|
Offer Statistics and Expected Timetable
|
Not applicable.
|
|
A.
|
SELECTED FINANCIAL DATA
|
The following selected
financial data as of December 31, 2016, 2015 and 2014 and for the three years in the period ended December 31, 2016 have been derived
from our Consolidated Financial Statements appearing elsewhere in this annual report on Form 20-F. The selected financial data
as of December 31, 2013 and 2012 and for the years ended December 31, 2013 and 2012 have been derived from our annual consolidated
financial statements as of December 31, 2014, 2013 and 2012 and for the three years in the period ended December 31, 2014, which
are not included herein. The Consolidated Financial Statements are prepared in accordance with IFRS. All IFRS effective at the
time of preparing the Consolidated Financial Statements have been applied.
The Consolidated Financial
Statements are prepared in accordance with IFRS. All IFRS effective at the time of preparing the Consolidated Financial Statements
have been applied.
You should read the information
contained in the following tables in conjunction with “Item 5. Operating and Financial Review and Prospects”, “Item
8. Financial Information”, “Item 18. Financial Statements” and the Consolidated Financial Statements and the
accompanying notes included elsewhere in this annual report.
|
|
§
|
Effects of the adoption of the amendments to IAS 41 and IAS 16
|
IASB amended IAS 16 “Property,
Plant and Equipment” and IAS 41 “Agriculture,” which distinguish bearer plants from other biological assets.
Bearer plants are used solely to grow produce over their productive lives and are considered to bear more resemblance to machinery
and equipment (IAS 16) than other biological assets (under IAS 41). Accordingly, they are now accounted for under IAS 16. However,
the agricultural produce growing on bearer plants remains within the scope of IAS 41 and is measured at fair value less cost to
sell. The amendments were applicable for our fiscal year ended December 31, 2016.
Our sugarcane and
coffee plantations qualify as bearer plants under the new definition in IAS 41. As required under IAS 8, “Accounting Policies,
Changes in Accounting Estimates and Errors”, we effected the change in accounting policy retrospectively. Consequently,
effective January 1, 2016, our sugarcane and coffee plantations were reclassified to property, plant and equipment, measured at
amortized cost and depreciated over their useful life on a straight-line basis. We adopted the transitional rule provided for
in the amendment, which allowed us to apply the fair value of bearer plants as their deemed cost as of January 1, 2014. Accordingly,
we revised the comparative amounts financial data for the years ended December 31, 2015 and 2014. Financial data for the years
ended December 31, 2013 and 2012 have not been revised, and are not comparable to financial data for the years 2016, 2015
and 2014.
For further information,
and an analysis of the impact of the adoption of IAS 41 and IAS 16 to our Consolidated Financial Statements please see Note 32.1
to our Consolidated Financial Statements.
|
|
|
As
of December 31,
|
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
2013(*)
|
|
|
2012(*)
|
|
|
|
|
(In thousands of $)
|
|
|
Statements of Income Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sale of goods and services rendered
|
|
|
869,235
|
|
|
|
674,314
|
|
|
|
722,966
|
|
|
|
644,624
|
|
|
|
604,700
|
|
|
Cost of goods sold and services rendered
|
|
|
(678,581
|
)
|
|
|
(557,786
|
)
|
|
|
(605,325
|
)
|
|
|
(491,578
|
)
|
|
|
(489,152
|
)
|
|
Initial recognition and changes in fair value of biological assets and agricultural produce
|
|
|
125,456
|
|
|
|
54,528
|
|
|
|
100,216
|
|
|
|
(39,123
|
)
|
|
|
16,643
|
|
|
Changes in net realizable value of agricultural produce after harvest
|
|
|
(5,841
|
)
|
|
|
14,691
|
|
|
|
3,401
|
|
|
|
12,875
|
|
|
|
16,004
|
|
|
Margin on manufacturing and agricultural activities before operating expenses
|
|
|
310,269
|
|
|
|
185,747
|
|
|
|
221,258
|
|
|
|
126,798
|
|
|
|
148,195
|
|
|
General and administrative expenses
|
|
|
(50,750
|
)
|
|
|
(48,425
|
)
|
|
|
(52,695
|
)
|
|
|
(53,352
|
)
|
|
|
(57,691
|
)
|
|
Selling expenses
|
|
|
(80,673
|
)
|
|
|
(70,268
|
)
|
|
|
(78,864
|
)
|
|
|
(68,069
|
)
|
|
|
(58,602
|
)
|
|
Other operating income, net
|
|
|
(8,297
|
)
|
|
|
31,066
|
|
|
|
11,977
|
|
|
|
49,650
|
|
|
|
31,097
|
|
|
Share of loss of joint ventures
|
|
|
-
|
|
|
|
(2,685
|
)
|
|
|
(924
|
)
|
|
|
(219
|
)
|
|
|
-
|
|
|
Profit from operations before financing and taxation
|
|
|
170,549
|
|
|
|
95,435
|
|
|
|
100,752
|
|
|
|
54,808
|
|
|
|
62,999
|
|
|
Finance income
|
|
|
7,957
|
|
|
|
9,150
|
|
|
|
7,291
|
|
|
|
7,234
|
|
|
|
11,538
|
|
|
Finance costs
|
|
|
(165,380
|
)
|
|
|
(116,890
|
)
|
|
|
(86,472
|
)
|
|
|
(98,916
|
)
|
|
|
(66,654
|
)
|
|
Financial results, net
|
|
|
(157,423
|
)
|
|
|
(107,740
|
)
|
|
|
(79,181
|
)
|
|
|
(91,682
|
)
|
|
|
(55,116
|
)
|
|
Profit / (Loss) before income tax
|
|
|
13,126
|
|
|
|
(12,305
|
)
|
|
|
21,571
|
|
|
|
(36,874
|
)
|
|
|
7,883
|
|
|
Income tax (expense) / benefit
|
|
|
(9,387
|
)
|
|
|
7,954
|
|
|
|
(10,535
|
)
|
|
|
9,277
|
|
|
|
5,436
|
|
|
Profit / (Loss) for the year from continuing operations
|
|
|
3,739
|
|
|
|
(4,351
|
)
|
|
|
11,036
|
|
|
|
(27,597
|
)
|
|
|
13,319
|
|
|
Profit / (Loss) for the year from discontinued operations (1)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,767
|
|
|
|
(4,040
|
)
|
|
Profit / (Loss) for the year
|
|
|
3,739
|
|
|
|
(4,351
|
)
|
|
|
11,036
|
|
|
|
(25,830
|
)
|
|
|
9,279
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Attributable to:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity holders of the parent
|
|
|
2,039
|
|
|
|
(5,593
|
)
|
|
|
11,116
|
|
|
|
(25,828
|
)
|
|
|
9,397
|
|
|
Non-controlling interest
|
|
|
1,700
|
|
|
|
1,242
|
|
|
|
(80
|
)
|
|
|
(2
|
)
|
|
|
(118
|
)
|
|
Earnings/(Loss) per share from continuing and discontinued operations attributable to the equity holders of the parent during the year:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings/(loss) per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
From continuing operations
|
|
|
0.017
|
|
|
|
(0.046
|
)
|
|
|
0.092
|
|
|
|
(0.226
|
)
|
|
|
0.111
|
|
|
From discontinued operations
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
0.014
|
|
|
|
0.034
|
|
|
Diluted earnings/(loss) per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
From continuing operations
|
|
|
0.017
|
|
|
|
(0.046
|
)
|
|
|
0.091
|
|
|
|
(0.226
|
)
|
|
|
0.111
|
|
|
From discontinued operations
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
0.014
|
|
|
|
0.034
|
|
(1)
Our joint venture (equity method) investment in La Lacteo, was disposed on June 2013 and it was reflected as discontinued operations.
(*)
2013 and 2012 figures have not been revised (to give effect to the adoption of the amendments of IAS 41 and IAS 16 See “Effects
of the adoption of the amendments to IAS 41 and IAS 16.”
|
|
|
For
the Year Ended December 31,
|
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
2013(*)
|
|
|
2012(*)
|
|
|
Cash Flow Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash generated from operating activities
|
|
|
255,401
|
|
|
|
145,186
|
|
|
|
120,151
|
|
|
|
102,080
|
|
|
|
67,823
|
|
|
Net cash used in investing activities
|
|
|
(122,014
|
)
|
|
|
(125,051
|
)
|
|
|
(300,472
|
)
|
|
|
(161,536
|
)
|
|
|
(300,215
|
)
|
|
Net cash generated from financing activities
|
|
|
(181,682
|
)
|
|
|
92,413
|
|
|
|
73,289
|
|
|
|
104,671
|
|
|
|
133,508
|
|
|
Other Financial Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted Segment EBITDA (unaudited)(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Crops
|
|
|
27,462
|
|
|
|
33,211
|
|
|
|
36,671
|
|
|
|
36,720
|
|
|
|
34,313
|
|
|
Rice
|
|
|
11,698
|
|
|
|
6,274
|
|
|
|
14,198
|
|
|
|
12,902
|
|
|
|
4,943
|
|
|
Dairy
|
|
|
5,717
|
|
|
|
6,356
|
|
|
|
9,663
|
|
|
|
9,801
|
|
|
|
(2,402
|
)
|
|
All Other segments
|
|
|
9,085
|
|
|
|
677
|
|
|
|
686
|
|
|
|
1,347
|
|
|
|
4,280
|
|
|
Farming subtotal
|
|
|
53,962
|
|
|
|
46,518
|
|
|
|
61,218
|
|
|
|
60,770
|
|
|
|
41,134
|
|
|
Ethanol, sugar and energy
|
|
|
265,044
|
|
|
|
167,180
|
|
|
|
200,441
|
|
|
|
115,239
|
|
|
|
97,505
|
|
|
Land transformation
|
|
|
-
|
|
|
|
23,980
|
|
|
|
25,508
|
|
|
|
28,172
|
|
|
|
27,513
|
|
|
Corporate
|
|
|
(20,957
|
)
|
|
|
(21,776
|
)
|
|
|
(23,233
|
)
|
|
|
(23,478
|
)
|
|
|
(25,442
|
)
|
|
Adjusted Consolidated EBITDA (unaudited)(1)
|
|
|
298,049
|
|
|
|
215,902
|
|
|
|
263,934
|
|
|
|
180,703
|
|
|
|
140,710
|
|
|
|
(1)
|
See
“Presentation of Financial and Other Information” for the definitions of
Adjusted Segment EBITDA and Adjusted Consolidated EBITDA and the reconciliation in the
table below.
|
|
|
|
As
of December 31,
|
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
2013
(*)
|
|
|
2012(*)
|
|
|
|
|
(In thousands of $)
|
|
|
Statement of Financial Position Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Biological assets
|
|
|
145,404
|
|
|
|
111,818
|
|
|
|
124,736
|
|
|
|
292,144
|
|
|
|
298,136
|
|
|
Inventories
|
|
|
111,754
|
|
|
|
85,286
|
|
|
|
117,106
|
|
|
|
108,389
|
|
|
|
95,321
|
|
|
Property, plant and equipment, net
|
|
|
802,608
|
|
|
|
696,889
|
|
|
|
991,581
|
|
|
|
790,520
|
|
|
|
880,897
|
|
|
Total assets
|
|
|
1,455,766
|
|
|
|
1,355,394
|
|
|
|
1,646,164
|
|
|
|
1,711,476
|
|
|
|
1,777,955
|
|
|
Non-current borrowings
|
|
|
430,304
|
|
|
|
483,651
|
|
|
|
491,324
|
|
|
|
512,164
|
|
|
|
354,249
|
|
|
Total borrowings
|
|
|
635,396
|
|
|
|
723,339
|
|
|
|
698,506
|
|
|
|
660,131
|
|
|
|
539,133
|
|
|
Share Capital
|
|
|
183,573
|
|
|
|
183,573
|
|
|
|
183,573
|
|
|
|
183,573
|
|
|
|
183,331
|
|
|
Equity attributable to equity holders of the parent
|
|
|
664,091
|
|
|
|
520,084
|
|
|
|
769,638
|
|
|
|
854,304
|
|
|
|
1,025,978
|
|
|
Non-controlling interest
|
|
|
7,582
|
|
|
|
7,335
|
|
|
|
7,589
|
|
|
|
45
|
|
|
|
65
|
|
|
Number of shares
|
|
|
122,382
|
|
|
|
122,382
|
|
|
|
122,382
|
|
|
|
122,382
|
|
|
|
122,221
|
|
(*) 2013 and 2012 figures have not
been revised to give effect to the adoption of the amendments of IAS 41 and IAS 16 See”Effects of the adoption of the amendments
to IAS 41 and IAS 16.”
The following tables show
a reconciliation of Adjusted Segment EBITDA to our segments’ profit / (loss) from operations before financing and taxation,
the most directly comparable IFRS financial measure, and a reconciliation of Adjusted Consolidated EBITDA to our net profit (loss)
for the year, the most directly comparable IFRS financial measure.
|
|
|
As of December 31, 2016
|
|
|
|
|
Crops
|
|
|
Rice
|
|
|
Dairy
|
|
|
All other
segments
|
|
|
Farming
Subtotal
|
|
|
Sugar,
Ethanol
and
Energy
|
|
|
Land
Trans-
formation
|
|
|
Corporate
|
|
|
Total
|
|
|
|
|
(In thousands of $)
|
|
Adjusted Segment EBITDA
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit/(Loss) from
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operations Before Financing and Taxation
|
|
|
26,093
|
|
|
|
8,932
|
|
|
|
4,753
|
|
|
|
8,893
|
|
|
|
48,671
|
|
|
|
142,835
|
|
|
|
-
|
|
|
|
(20,957
|
)
|
|
|
170,549
|
|
|
Adjusted Segment EBIT (unaudited)(1)
|
|
|
26,093
|
|
|
|
8,932
|
|
|
|
4,753
|
|
|
|
8,893
|
|
|
|
48,671
|
|
|
|
142,835
|
|
|
|
-
|
|
|
|
(20,957
|
)
|
|
|
170,549
|
|
|
Depreciation and amortization
|
|
|
1,369
|
|
|
|
2,766
|
|
|
|
964
|
|
|
|
192
|
|
|
|
5,291
|
|
|
|
122,209
|
|
|
|
-
|
|
|
|
-
|
|
|
|
127,500
|
|
|
Adjusted Segment EBITDA (unaudited)(1)
|
|
|
27,462
|
|
|
|
11,698
|
|
|
|
5,717
|
|
|
|
9,085
|
|
|
|
53,962
|
|
|
|
265,044
|
|
|
|
-
|
|
|
|
(20,957
|
)
|
|
|
298,049
|
|
|
Reconciliation to Profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit for the year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,739
|
|
|
Income tax expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,387
|
|
|
Interest expense, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40,527
|
|
|
Foreign exchange, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19,062
|
|
|
Other financial results, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
97,834
|
|
|
Adjusted Consolidated EBIT (unaudited)(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
170,549
|
|
|
Depreciation and amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
127,500
|
|
|
Adjusted Consolidated EBITDA (unaudited)(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
298,049
|
|
|
|
(1)
|
See
“Presentation of Financial and Other Information” for the definitions of
Adjusted Segment EBIT, Adjusted Consolidated EBIT, Adjusted Segment EBITDA and Adjusted
Consolidated EBITDA.
|
|
|
|
As of December 31, 2015
|
|
|
|
|
Crops
|
|
|
Rice
|
|
|
Dairy
|
|
|
All other
segments
|
|
|
Farming
Subtotal
|
|
|
Sugar,
Ethanol
and
Energy
|
|
|
Land
Trans-
formation
|
|
|
Corporate
|
|
|
Total
|
|
|
|
|
(In thousands of $)
|
|
Adjusted Segment EBITDA
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit/(Loss) from
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operations Before Financing and Taxation
|
|
|
30,784
|
|
|
|
3,287
|
|
|
|
4,900
|
|
|
|
401
|
|
|
|
39,372
|
|
|
|
69,925
|
|
|
|
7,914
|
|
|
|
(21,776
|
)
|
|
|
95,435
|
|
|
Adjusted Segment EBIT (unaudited)(1)
|
|
|
30,784
|
|
|
|
3,287
|
|
|
|
4,900
|
|
|
|
401
|
|
|
|
39,372
|
|
|
|
69,925
|
|
|
|
7,914
|
|
|
|
(21,776
|
)
|
|
|
95,435
|
|
|
Depreciation and amortization
|
|
|
2,427
|
|
|
|
2,987
|
|
|
|
1,456
|
|
|
|
276
|
|
|
|
7,146
|
|
|
|
97,255
|
|
|
|
-
|
|
|
|
-
|
|
|
|
104,401
|
|
|
Reserve from the sale of non-controlling interests in subsidiaries (2)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
16,066
|
|
|
|
-
|
|
|
|
16,066
|
|
|
Adjusted Segment EBITDA (unaudited)(1)
|
|
|
33,211
|
|
|
|
6,274
|
|
|
|
6,356
|
|
|
|
677
|
|
|
|
46,518
|
|
|
|
167,180
|
|
|
|
23,980
|
|
|
|
(21,776
|
)
|
|
|
215,902
|
|
|
Reconciliation to Profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss for the year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,351
|
)
|
|
Income tax (benefit)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7,954
|
)
|
|
Interest expense, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
49,491
|
|
|
Foreign exchange, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23,423
|
|
|
Other financial results, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
34,826
|
|
|
Reserve from the sale of non-controlling interests in subsidiaries (2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,066
|
|
|
Adjusted Consolidated EBIT (unaudited)(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
111,501
|
|
|
Depreciation and amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
104.401
|
|
|
Adjusted Consolidated EBITDA (unaudited)(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
215,902
|
|
|
|
(1)
|
See
“Presentation of Financial and Other Information” for the definitions of
Adjusted Segment EBIT, Adjusted Consolidated EBIT, Adjusted Segment EBITDA and Adjusted
Consolidated EBITDA.
|
|
|
(2)
|
This
corresponds to an equity line item in our consolidated statements of financial position.
See “Presentation of Financial and Other Information” for the definitions
of Adjusted Segment EBIT, Adjusted Consolidated EBIT, Adjusted Segment EBITDA and Adjusted
Consolidated EBITDA.
|
|
|
|
As of December 31, 2014
|
|
|
|
|
Crops
|
|
|
Rice
|
|
|
Dairy
|
|
|
All other
segments
|
|
|
Farming
Subtotal
|
|
|
Sugar,
Ethanol
and
Energy
|
|
|
Land
Trans-
formation
|
|
|
Corporate
|
|
|
Total
|
|
|
|
|
(In thousands of $)
|
|
Adjusted Segment EBITDA
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit/(Loss) from
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operations Before Financing and Taxation
|
|
|
34,745
|
|
|
|
10,937
|
|
|
|
8,112
|
|
|
|
288
|
|
|
|
54,082
|
|
|
|
69,903
|
|
|
|
-
|
|
|
|
(23,233
|
)
|
|
|
100,752
|
|
|
Adjusted Segment EBIT (unaudited)(1)
|
|
|
34,745
|
|
|
|
10,937
|
|
|
|
8,112
|
|
|
|
288
|
|
|
|
54,082
|
|
|
|
69,903
|
|
|
|
-
|
|
|
|
(23,233
|
)
|
|
|
100,752
|
|
|
Depreciation and amortization
|
|
|
1,926
|
|
|
|
3,261
|
|
|
|
1,551
|
|
|
|
398
|
|
|
|
7,136
|
|
|
|
130,538
|
|
|
|
-
|
|
|
|
-
|
|
|
|
137,674
|
|
|
Reserve from the sale of non-controlling interests in subsidiaries (2)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
25,508
|
|
|
|
-
|
|
|
|
25,508
|
|
|
Adjusted Segment EBITDA (unaudited)(1)
|
|
|
36,671
|
|
|
|
14,198
|
|
|
|
9,663
|
|
|
|
686
|
|
|
|
61,218
|
|
|
|
200,441
|
|
|
|
25,508
|
|
|
|
(23,233
|
)
|
|
|
263,934
|
|
|
Reconciliation to Profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit for the year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,036
|
|
|
Income tax expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,535
|
|
|
Interest expense, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
47,847
|
|
|
Foreign exchange, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,246
|
|
|
Other financial results, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22,088
|
|
|
Reserve from the sale of non-controlling interests in subsidiaries (2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,508
|
|
|
Adjusted Consolidated EBIT (unaudited)(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
126,260
|
|
|
Depreciation and amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
137,674
|
|
|
Adjusted Consolidated EBITDA (unaudited)(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
263,934
|
|
|
|
(1)
|
See
“Presentation of Financial and Other Information” for the definitions of
Adjusted Segment EBIT, Adjusted Consolidated EBIT, Adjusted Segment EBITDA and Adjusted
Consolidated EBITDA.
|
|
|
(2)
|
This
corresponds to an equity line item in our consolidated statements of financial position.
See “Presentation of Financial and Other Information” for the definitions
of Adjusted Segment EBIT, Adjusted Consolidated EBIT, Adjusted Segment EBITDA and Adjusted
Consolidated EBITDA.
|
|
|
|
As of December 31, 2013 (*)
|
|
|
|
|
Crops
|
|
|
Rice
|
|
|
Dairy
|
|
|
All other
segment
|
|
|
Farming
Subtotal
|
|
|
Sugar,
Ethanol
and
Energy
|
|
|
Land
Trans-
formation
|
|
|
Corporate
|
|
|
Total
|
|
|
|
|
(In thousands of $)
|
|
Adjusted Segment EBITDA
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit/(Loss) from
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operations Before Financing and Taxation
|
|
|
34,549
|
|
|
|
8,171
|
|
|
|
6,714
|
|
|
|
(7,238
|
)
|
|
|
42,196
|
|
|
|
7,918
|
|
|
|
28,172
|
|
|
|
(23,478
|
)
|
|
|
54,808
|
|
|
Profit from discontinued operations
|
|
|
-
|
|
|
|
-
|
|
|
|
1,767
|
|
|
|
-
|
|
|
|
1,767
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,767
|
|
|
Initial recognition and changes in fair value of “long term” biological assets(l) (unrealized)
|
|
|
-
|
|
|
|
-
|
|
|
|
234
|
|
|
|
8,121
|
|
|
|
8,355
|
|
|
|
47,341
|
|
|
|
-
|
|
|
|
-
|
|
|
|
55,696
|
|
|
Adjusted Segment EBIT (unaudited)(2)
|
|
|
34,549
|
|
|
|
8,171
|
|
|
|
8,715
|
|
|
|
883
|
|
|
|
52,318
|
|
|
|
55,259
|
|
|
|
28,172
|
|
|
|
(23,478
|
)
|
|
|
112,271
|
|
|
Depreciation and amortization
|
|
|
2,171
|
|
|
|
4,731
|
|
|
|
1,086
|
|
|
|
464
|
|
|
|
8,452
|
|
|
|
59,980
|
|
|
|
-
|
|
|
|
-
|
|
|
|
68,432
|
|
|
Adjusted Segment EBITDA (unaudited)(2)
|
|
|
36,720
|
|
|
|
12,902
|
|
|
|
9,801
|
|
|
|
1,347
|
|
|
|
60,770
|
|
|
|
115,239
|
|
|
|
28,172
|
|
|
|
(23,478
|
)
|
|
|
180,703
|
|
|
Reconciliation to Profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss for the year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(25,830
|
)
|
|
Initial recognition and changes in fair value of “long term” biological assets(l) (unrealized)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
55,696
|
|
|
Income tax benefit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(9,277
|
)
|
|
Interest expense, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
42,367
|
|
|
Foreign exchange, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21,087
|
|
|
Other financial results, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28,228
|
|
|
Adjusted Consolidated EBIT (unaudited)(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
112,271
|
|
|
Depreciation and amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
68,432
|
|
|
Adjusted Consolidated EBITDA (unaudited)(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
180,703
|
|
|
|
(1)
|
Long-term
biological assets are sugarcane, coffee, dairy and cattle.
|
|
|
(2)
|
See
“Presentation of Financial and Other Information” for the definitions of
Adjusted Segment EBIT, Adjusted Consolidated EBIT, Adjusted Segment EBITDA and Adjusted
Consolidated EBITDA.
|
(*)
2013 and 2012 figures have not been revised to give effect to the adoption of the amendments of IAS 41 and IAS 16 See”Effects
of the adoption of the amendments to IAS 41 and IAS 16.”
|
|
|
As of December 31, 2012 (*)
|
|
|
|
|
Crops
|
|
|
Rice
|
|
|
Dairy
|
|
|
All other
segments
|
|
|
Farming
Subtotal
|
|
|
Sugar,
Ethanol
and
Energy
|
|
|
Land
Trans-
formation
|
|
|
Corporate
|
|
|
Total
|
|
|
|
|
(In thousands of $)
|
|
Adjusted Segment EBITDA
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit/(Loss) from
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operations Before Financing and Taxation
|
|
|
32,240
|
|
|
|
1,120
|
|
|
|
857
|
|
|
|
889
|
|
|
|
35,106
|
|
|
|
25,822
|
|
|
|
27,513
|
|
|
|
(25,442
|
)
|
|
|
62,999
|
|
|
Loss from discontinued operations
|
|
|
-
|
|
|
|
-
|
|
|
|
(4,040
|
)
|
|
|
-
|
|
|
|
(4,040
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(4,040
|
)
|
|
Initial recognition and changes in fair value of “long term” biological assets(l) (unrealized)
|
|
|
-
|
|
|
|
-
|
|
|
|
(115
|
)
|
|
|
2,615
|
|
|
|
2,500
|
|
|
|
24,783
|
|
|
|
-
|
|
|
|
-
|
|
|
|
27,283
|
|
|
Adjusted Segment EBIT (unaudited)(2)
|
|
|
32,240
|
|
|
|
1,120
|
|
|
|
(3,298
|
)
|
|
|
3,504
|
|
|
|
33,566
|
|
|
|
50,605
|
|
|
|
27,513
|
|
|
|
(25,442
|
)
|
|
|
86,242
|
|
|
Depreciation and amortization
|
|
|
2,073
|
|
|
|
3,823
|
|
|
|
896
|
|
|
|
776
|
|
|
|
7,568
|
|
|
|
46,900
|
|
|
|
|
|
|
|
|
|
|
|
54,468
|
|
|
Adjusted Segment EBITDA (unaudited)(2)
|
|
|
34,313
|
|
|
|
4,943
|
|
|
|
(2,402
|
)
|
|
|
4,280
|
|
|
|
41,134
|
|
|
|
97,505
|
|
|
|
27,513
|
|
|
|
(25,442
|
)
|
|
|
140,710
|
|
|
Reconciliation to Profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit for the year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,279
|
|
|
Initial recognition and changes in fair value of “long term” biological assets(l) (unrealized)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27,283
|
|
|
Income tax benefit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,436
|
)
|
|
Interest expense, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,423
|
|
|
Foreign exchange losses, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26,080
|
|
|
Other financial results, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,613
|
|
|
Adjusted Consolidated EBIT (unaudited)(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
86,242
|
|
|
Depreciation and amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
54,468
|
|
|
Adjusted Consolidated EBITDA (unaudited)(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
140,710
|
|
|
|
(1)
|
Long-term
biological assets are sugarcane, coffee, dairy and cattle.
|
|
|
(2)
|
See
“Presentation of Financial and Other Information” for the definitions of
Adjusted Segment EBIT, Adjusted Consolidated EBIT, Adjusted Segment EBITDA and Adjusted
Consolidated EBITDA.
|
(*)
2013 and 2012 figures have not been revised to give effect to the adoption of the amendments of IAS 41 and IAS 16 See”Effects
of the adoption of the amendments to IAS 41 and IAS 16.”
|
Adjusted Free Cash Flow
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
2013
(*)
|
|
|
2012(*)
|
|
|
Net cash generated from operating activities
|
|
|
255,401
|
|
|
|
145,186
|
|
|
|
120,151
|
|
|
|
102,080
|
|
|
|
67,823
|
|
|
Net cash used in investing activities
|
|
|
(122,014
|
)
|
|
|
(125,051
|
)
|
|
|
(300,472
|
)
|
|
|
(161,536
|
)
|
|
|
(300,215
|
)
|
|
Interest paid
|
|
|
(48,400
|
)
|
|
|
(48,438
|
)
|
|
|
(48,899
|
)
|
|
|
(45,972
|
)
|
|
|
(34,587
|
)
|
|
Proceeds from the sale of non-controlling interest in subsidiaries
|
|
|
-
|
|
|
|
21,964
|
|
|
|
49,343
|
|
|
|
-
|
|
|
|
-
|
|
|
Expansion Capital expenditures reversal (unaudited)
|
|
|
48,295
|
|
|
|
87,956
|
|
|
|
237,277
|
|
|
|
166,494
|
|
|
|
294,586
|
|
|
Adjusted Free Cash Flow from Operations (unaudited)
|
|
|
133,282
|
|
|
|
81,617
|
|
|
|
57,400
|
|
|
|
61,066
|
|
|
|
27,607
|
|
|
Expansion Capital expenditures (unaudited)
|
|
|
(48,295
|
)
|
|
|
(87,956
|
)
|
|
|
(237,277
|
)
|
|
|
(166,494
|
)
|
|
|
(294,586
|
)
|
|
Adjusted Free Cash Flow (unaudited)
|
|
|
84,987
|
|
|
|
(6,339
|
)
|
|
|
(179,877
|
)
|
|
|
(105,428
|
)
|
|
|
(266,979
|
)
|
|
Indebtedness
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
2013
(*)
|
|
|
2012(*)
|
|
|
Net Debt (unaudited)
|
|
|
476,828
|
|
|
|
524,445
|
|
|
|
584,711
|
|
|
|
427,984
|
|
|
|
320,324
|
|
|
Net Debt / Adjusted Consolidated EBITDA (unaudited)
|
|
|
1.60
|
x
|
|
|
2.43
|
x
|
|
|
2.22
|
x
|
|
|
2.37
|
x
|
|
|
2.28
|
x
|
|
Reconciliation - Net Debt
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
2013
(*)
|
|
|
2012(*)
|
|
|
Net Debt (unaudited)
|
|
|
476,828
|
|
|
|
524,445
|
|
|
|
584,711
|
|
|
|
427,245
|
|
|
|
320,324
|
|
|
Cash and cash equivalents
|
|
|
158,568
|
|
|
|
198,894
|
|
|
|
113,795
|
|
|
|
232,147
|
|
|
|
218,809
|
|
|
Total Borrowings
|
|
|
635,396
|
|
|
|
723,339
|
|
|
|
698,506
|
|
|
|
659,392
|
|
|
|
539,133
|
|
(*) 2013 and 2012 figures have not
been adjusted to give effect to the adoption of the amendments of of IAS 41 and IAS 16. Please see Note 32.1 to our Consolidated
Financial Statements.
Reconciliation of Adjusted Free Cash Flow to Net (decrease)/increase
in Cash and Cash Equivalents
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
2013
|
|
|
2012
|
|
|
Adjusted Free Cash Flow (unaudited)
|
|
|
84,987
|
|
|
|
(6,339
|
)
|
|
|
(179,877
|
)
|
|
|
(105,428
|
)
|
|
|
(266,979
|
)
|
|
Net cash generated from financing activities
|
|
|
(181,682
|
)
|
|
|
92,413
|
|
|
|
73,289
|
|
|
|
104,671
|
|
|
|
133,508
|
|
|
Interest Paid
|
|
|
48,400
|
|
|
|
48,438
|
|
|
|
48,899
|
|
|
|
45,972
|
|
|
|
34,587
|
|
|
Proceeds from the sale of minority interest in subsidiaries
|
|
|
-
|
|
|
|
(21,964
|
)
|
|
|
(49,343
|
)
|
|
|
-
|
|
|
|
-
|
|
|
Net (decrease)/increase in cash and cash equivalents
|
|
|
(48,295
|
)
|
|
|
112,548
|
|
|
|
(107,032
|
)
|
|
|
45,215
|
|
|
|
(98,884
|
)
|
Reconciliation of Adjusted Free Cash Flow from operations to
Net (decrease)/increase in Cash and Cash Equivalents
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
2013
|
|
|
2012
|
|
|
Adjusted Free Cash Flow from operations (unaudited)
|
|
|
133,282
|
|
|
|
81,617
|
|
|
|
57,400
|
|
|
|
61,066
|
|
|
|
27,607
|
|
|
Net cash generated from financing activities
|
|
|
(181,682
|
)
|
|
|
92,413
|
|
|
|
73,289
|
|
|
|
104,671
|
|
|
|
133,508
|
|
|
Interest Paid
|
|
|
48,400
|
|
|
|
48,438
|
|
|
|
48,899
|
|
|
|
45,972
|
|
|
|
34,587
|
|
|
Proceeds from the sale of minority interest in subsidiaries
|
|
|
-
|
|
|
|
(21,964
|
)
|
|
|
(49,343
|
)
|
|
|
-
|
|
|
|
-
|
|
|
Expansion Capital Expenditures (unaudited)
|
|
|
(48,295
|
)
|
|
|
(87,956
|
)
|
|
|
(237,277
|
)
|
|
|
(166,494
|
)
|
|
|
(294,586
|
)
|
|
Net (decrease)/increase in cash and cash equivalents
|
|
|
(48,295
|
)
|
|
|
112,548
|
|
|
|
(107,032
|
)
|
|
|
45,215
|
|
|
|
(98,884
|
)
|
|
|
B.
|
CAPITALIZATION AND INDEBTEDNESS
|
Not Applicable.
|
|
C.
|
REASONS FOR THE OFFER AND USE OF PROCEEDS
|
Not Applicable.
Investing in our common
shares involves a high degree of risk. Before making an investment decision, you should carefully consider the information contained
in this annual report, particularly the risks described below, as well as in our consolidated financial statements and accompanying
notes. Our business activities, cash flow, financial condition and results of operations could be materially and adversely affected
by any of these risks. The market price of our common shares may decrease due to any of these risks or other factors, and you may
lose all or part of your investment. The risks and uncertainties not presently known to us or that we currently deem immaterial
may also affect our business operations.
Risks Related to Our Business and Industries
Unpredictable weather conditions, pest
infestations and diseases may have an adverse impact on agricultural production.
The occurrence of severe
adverse weather conditions, especially droughts, hail, floods or frost or diseases are unpredictable and may have a potentially
devastating impact on agricultural production and may otherwise adversely affect the supply and price of the agricultural commodities
that we sell and use in our business. Adverse weather conditions may be exacerbated by the effects of climate change. The effects
of severe adverse weather conditions may reduce yields of our agricultural activities. Additionally, higher than average temperatures
and rainfall can contribute to an increased presence of pest and insects that may adversely impact our agricultural production.
We experienced drought
conditions during the first half of 2013 in the countries where we operate, which resulted in a reduction of approximately 21%
to 31% in our yields for the 2012/2013 harvest, for corn and soybean, compared with our historical averages. The actual yields
following the drought generated a decrease in Initial Recognition and Changes in Fair Value of Biological Assets and Agricultural
Produce in respect of corn, soybean and the remaining crops of $5.9 million, $16.6 million and $2.7 million, respectively, for
the year ended December 31, 2013. See “Item 5.—Operating and Financial Review and Prospects—Trends and Factors
Affecting Our Results of Operations—(i) Effects of Yield Fluctuations”.
The occurrence and effects
of disease and plagues can be unpredictable and devastating to agricultural products, potentially rendering all or a substantial
portion of the affected harvests unsuitable for sale. Our agricultural products are also susceptible to fungus and bacteria that
are associated with excessively moist conditions. Even when only a portion of the production is damaged, our results of operations
could be adversely affected because all or a substantial portion of the production costs have been incurred. Although some diseases
are treatable, the cost of treatment is high, and we cannot assure you that such events in the future will not adversely affect
our operating results and financial condition. Furthermore, if we fail to control a given plague or disease and our production
is threatened, we may be unable to supply our main customers, which could affect our results of operations and financial condition.
Our sugar production depends
on the volume and sucrose content of the sugarcane that we cultivate or that is supplied to us by growers located in the vicinity
of our mills. Both sugarcane yields and sucrose content depend primarily on weather conditions such as rainfall and temperature,
which vary. Weather conditions have historically caused volatility in the ethanol and sugar industries. Future weather patterns
may reduce the amount of sugarcane that we can harvest or purchase, or the sucrose content in such sugarcane, and, consequently,
the amount of sugar and ethanol we can produce in any given harvest. Any reduction in production volumes could have a material
adverse effect on our operating results and financial condition.
As a result, we cannot
assure you that future severe adverse weather conditions or pest infestations will not adversely affect our operating results and
financial condition.
Fluctuation in market prices for our
products could adversely affect our financial condition and results of operations.
Prices for agricultural
products and by-products, including, among others, sugar, ethanol, and grains, like those of other commodities, have historically
been cyclical and sensitive to domestic and international changes in supply and demand and can be expected to fluctuate significantly.
In addition, the agricultural products and by-products we produce are traded on commodities and futures exchanges and thus are
subject to speculative trading, which may adversely affect us. The prices that we are able to obtain for our agricultural products
and by-products depend on many factors beyond our control including:
|
|
·
|
prevailing world commodity prices, which historically have been subject to significant fluctuations
over relatively short periods of time, depending on worldwide demand and supply;
|
|
|
·
|
changes in the agricultural subsidy levels of certain important producers (mainly the U.S. and
the European Union (“E.U.”) and the adoption of other government policies affecting industry market conditions and
prices;
|
|
|
·
|
changes to trade barriers of certain important consumer markets (including China, India, the U.S.
and the E.U.) and the adoption of other governmental policies affecting industry market conditions and prices;
|
|
|
·
|
changes in government policies for biofuels;
|
|
|
·
|
world inventory levels, i.e., the supply of commodities carried over from year to year;
|
|
|
·
|
climatic conditions and natural disasters in areas where agricultural products are cultivated;
|
|
|
·
|
the production capacity of our competitors; and
|
|
|
·
|
demand for and supply of competing commodities and substitutes.
|
Further, because we may
not hedge 100% of the price risk of our agricultural products, we may be unable to have minimum price guarantees for all of our
production and are, therefore, exposed to risks associated with the prices of agricultural products and their volatility. We are
subject to fluctuations in prices of agricultural products that could result in our receiving lower prices for our agricultural
products than our production costs.
In addition, there is
a strong relationship between the value of our land holdings and market prices of the commodities we produce, which are affected
by global economic conditions. A decline in the prices of grains, sugar, ethanol, or related by-products below their current levels
for a sustained period of time could significantly reduce the value of our land holdings and materially and adversely affect our
financial condition and results of operations.
Ethanol prices are correlated to the
price of sugar and are becoming closely correlated to the price of oil, so that a decline in the price of sugar will adversely
affect both our ethanol and sugar businesses, and a decline in the price of oil may adversely affect our ethanol business.
A vast majority of ethanol
in Brazil is produced at sugarcane mills that produce both ethanol and sugar. Because sugarcane millers are able to alter their
product mix in response to the relative prices of ethanol and sugar, this results in the prices of both products being directly
correlated, and the correlation between ethanol and sugar may increase over time. In addition, sugar prices in Brazil are determined
by prices in the world market, resulting in a correlation between Brazilian ethanol prices and world sugar prices. Accordingly,
a decline in sugar prices would have an adverse effect on the financial performance of our ethanol and sugar businesses.
Currently, gasoline prices
in Brazil are set by the Brazilian government through Petrobras. Because flex-fuel vehicles, which have become popular in Brazil,
allow consumers to choose between gasoline and ethanol at the pump rather than in the showroom, ethanol prices are now becoming
increasingly correlated to gasoline prices and, consequently, oil prices. Therefore, a decline in oil prices or a decision by Petrobras
to lower gasoline prices would have an adverse effect on the financial performance of our ethanol and sugar business.
The expansion of our business through
acquisitions poses risks that may reduce the benefits we anticipate from these transactions.
As part of our business
strategy, we have grown through acquisitions. We plan to continue growing by acquiring other farms and production facilities throughout
South America. We believe that the agricultural industry and agricultural activity in the region are highly fragmented and that
our future consolidation opportunities will continue to be significant to our growth. However, our management is unable to predict
whether or when any prospective acquisitions or strategic alliances will occur, or the likelihood of a certain transaction being
completed on favorable terms and conditions. In addition, we are unable to predict the effect that changes in Argentine or Brazilian
legislation regarding foreign ownership of rural properties could have in our business. See “—Risks Related to Argentina—Argentine
law concerning foreign ownership of rural properties may adversely affect our results of operations and future investments in rural
properties in Argentina” and “—Risks Related to Brazil—Recent changes in Brazilian rules concerning foreign
investment in rural properties may adversely affect our investments.” Our ability to continue to expand our business successfully
through acquisitions depends on many factors, including our ability to identify acquisitions or access capital markets at an acceptable
cost and negotiate favorable transaction terms. Even if we are able to identify acquisition targets and obtain the necessary financing
to make these acquisitions, we could financially overextend ourselves, especially if an acquisition is followed by a period of
lower than projected prices for our products.
Acquisitions also expose
us to the risk of successor liability relating to actions involving an acquired company, its management or contingent liabilities
incurred before the acquisition. The due diligence we conduct in connection with an acquisition, and any contractual guarantees
or indemnities that we receive from the sellers of acquired companies, may not be sufficient to protect us from, or compensate
us for, actual liabilities. Any material liability associated with an acquisition could adversely affect our reputation and results
of operations and reduce the benefits of the acquisition.
To support the acquisitions
we hope to make, we may need to implement new or upgraded strategies, systems, procedures and controls for our operations and will
face risks, including diversion of management time and focus and challenges associated with integrating new managers and employees.
Our failure to integrate new businesses successfully could adversely affect our business and financial performance.
We may be unable to realize
synergies and efficiency gains from our recent acquisitions in the timeframe we anticipate or at all, because of integration or
other challenges. In addition, we may be unable to identify, negotiate or finance future acquisitions, particularly as part of
our international growth strategy, successfully or at favorable valuations, or to effectively integrate these acquisitions or joint
venture businesses with our current businesses. Any future joint ventures or acquisitions of businesses, technologies, services
or products might require us to obtain additional equity or debt financing, which may not be available on favorable terms, or at
all. Future acquisitions and joint ventures may also results in unforeseen operating difficulties and expenditures, as well as
strain on our organizational culture.
A significant increase in the price of
raw materials we use in our operations, or the shortage of such raw materials, could adversely affect our results of operations.
Our production process
requires various raw materials, including primarily fertilizer, pesticides and seeds, which we acquire from local and international
suppliers. We do not have long-term supply contracts for most of these raw materials. A significant increase in the cost of these
raw materials, especially fertilizer and agrochemicals, a shortage of raw materials or the unavailability of these raw materials
entirely could reduce our profit margin, reduce our production and/or interrupt the production of some of our products, in all
cases adversely affecting the results of our operations and our financial condition.
For example, we rely on
fertilizers and agrochemicals, many of which are petro-chemical based. In our Farming business, fertilizers and agrochemicals represented
approximately 30% of our total cost of production (including manufacturing and administrative expenses) for the 2015/2016 harvest
year. In our Sugar, Ethanol and Energy business, fertilizers and agrochemicals represented 11% of our cost of production (including
manufacturing and administrative expenses) for 2016. Worldwide production of agricultural products has increased significantly
in recent years, increasing the demand for agrochemicals and fertilizers. This has resulted, among other things, in increased prices
for agrochemicals and fertilizers.
Increased energy prices and frequent
interruptions of energy supply could adversely affect our business.
We require substantial
amounts of fuel oil and other resources for our harvest activities and transport of our agricultural products. During the 2015/16
harvest year, fuel represented 9% of the cost of production (including manufacturing and administrative expenses) of our Farming
business. In our Sugar, Ethanol and Energy business, fuel represented 8% of our cost of production (including manufacturing and
administrative expenses) for the 2015/16 harvest year. We rely upon third parties for our supply of energy resources used in our
operations. The prices for and availability of energy resources may be subject to change or curtailment, respectively, due to,
among other things, new laws or regulations, imposition of new taxes or tariffs, interruptions in production by suppliers, imposition
of restrictions on energy supply by government, worldwide price levels and market conditions. Over the last few years, the Argentine
government has taken certain measures in order to reduce the use of energy during peak months of the year by frequently cutting
energy supply to industrial facilities and large consumers to ensure adequate supply for residential buildings. For example, certain
of our industrial facilities have been subject to a quota system whereby electricity cuts occur on a work shift basis, resulting
in our facilities being shut down during certain work shifts. Also, the Macri administration in Argentina has declared a state
of emergency with respect to the national energy system until December 31, 2017. The state of emergency will allow the Macri administration
to take any action to ensure the supply of energy. A revision to the current subsidy policies has also been announced by the Macri
administration. While some of our facilities utilize different sources of energy, such as firewood and liquefied natural gas, and
have attempted to stock their required supplies ahead of higher demand periods, we cannot assure you that we will be able to procure
the required energy inputs at acceptable prices. If energy supply is cut for an extended period of time and we are unable to find
replacement sources at comparable prices, or at all, our business and results of operations could be adversely affected.
We depend on international trade and economic and other conditions
in key export markets for our products.
Our operating results
depend largely on economic conditions and regulatory policies for our products in major export markets. The ability of our products
to compete effectively in these export markets may be adversely affected by a number of factors that are beyond our control, including
the deterioration of macroeconomic conditions, volatility of exchange rates, the imposition of greater tariffs or protectionist
policies or other trade barriers or other factors in those markets, such as regulations relating to chemical content of products
and safety requirements. The European Union, for example, limits the import of genetically modified organisms, or “GMOs.”
See “Some of the agricultural commodities and food products that we produce contain genetically modified organisms.”
Due to the growing participation
in the worldwide agricultural commodities markets by commodities produced in South America, South American growers, including us,
are increasingly affected by the measures taken by importing countries in order to protect their local producers. Measures such
as the limitation on imports adopted in a particular country or region may affect the sector’s export volume significantly
and, consequently, our operating results.
If the sale of our products into a particular
importing country is adversely affected by trade barriers or by any of the factors mentioned above, the relocation of our products
to other consumers on terms equally favorable could be impaired, and our business, financial condition and operating results may
be adversely affected.
A worldwide economic downturn could weaken demand for our
products or lower prices.
The demand for the products
we sell may be affected by international, national and local economic conditions that are beyond our control. Adverse changes in
the perceived or actual economic climate, such as higher fuel prices, higher interest rates, stock and real estate market declines
and/or volatility, more restrictive credit markets, higher taxes, and changes in governmental policies could reduce the level of
demand or prices of the products we produce. We cannot predict the duration or magnitude of this downturn or the timing or strength
of economic recovery. If a downturn were to continue for an extended period of time or worsen, we could experience a prolonged
period of decreased demand and prices. In addition, economic downturns have and may adversely impact our suppliers, which can result
in disruptions in goods and services and financial losses.
Our business is seasonal, and our results may fluctuate significantly
depending on the growing cycle of our crops.
As with any agricultural
business enterprise, our business operations are predominantly seasonal in nature. The harvest of corn, soybean and rice generally
occurs from January to May. Wheat is harvested from December to January. Cotton is harvested from June to August, but requires
processing which takes approximately two to three months. Our operations and sales are affected by the growing cycle of our crops
process and the timing of our harvest sales. In addition, our sugar and ethanol business is subject to seasonal trends based on
the sugarcane growing cycle in the center-south region of Brazil. Although, we operate under a “non-stop” or “continuous”
harvest model which allows us to crush sugarcane year round, the annual sugarcane harvesting period in the center-south region
of Brazil begins in March/April and ends in November/December. This creates price fluctuations which result in fluctuations in
our sugar and ethanol inventories, usually peaking in December to take advantage of higher prices during the traditional off-season
(i.e., January through April), and a degree of seasonality in our gross profit. Seasonality could have a material adverse effect
on our business and financial performance. In addition, our quarterly results may vary as a result of the effects of fluctuations
in commodities prices, production yields and costs. Therefore, our results of operations have varied significantly from period
to period and are likely to continue to vary, due to seasonal factors.
Our dairy cattle are vulnerable to diseases.
Diseases among our dairy
cattle herds, such as mastitis, tuberculosis, brucellosis and foot-and-mouth disease, can have an adverse effect on the productivity
of our dairy cows. Outbreaks of cattle diseases may also result in the closure of certain important markets to our cattle-derived
products. Although we abide by national veterinary health guidelines, including laboratory analyses and vaccination, to control
diseases among our herds, especially foot-and-mouth disease, we cannot assure you that future outbreaks will not occur. A future
outbreak of diseases among our cattle herds could adversely affect our milk sales and operating results and financial condition.
Furthermore, outbreaks,
or fears of outbreaks, of any of these or other animal diseases may lead to cancellation of orders by our customers and, particularly
if the disease has the potential to affect humans, or create adverse publicity that may have a material adverse effect on consumer
demand for our products. Moreover, outbreaks of animal disease may result in foreign governmental action to close export markets
to some or all of our products, which may result in the destruction of some or all of these animals.
We face significant competition from Brazilian
and foreign producers, which could adversely affect our financial performance.
We face strong competition
from other producers in our domestic market and from foreign producers in our export markets. The market for commodities is highly
fragmented. Small producers can also be important competitors, some of which operate in the informal economy and are able to offer
lower prices by meeting lower quality standards. Competition from other producers is a barrier to expanding our sales in the domestic/foreign
market. With respect to exports, we compete with other large, vertically integrated producers that have the ability to produce
quality products at low cost, as well as with foreign producers.
The Brazilian markets,
in particular, are highly price-competitive and sensitive to product substitution. Even if we remain a low-cost producer, customers
may seek to diversify their sources of supply by purchasing a portion of the products they need from producers in other countries,
as some of our customers in key export markets have begun to do. We expect that we will continue to face strong competition in
all of our markets and anticipate that existing or new competitors may broaden their product lines and extend their geographic
scope. Any failure by us to respond to product, pricing and other moves by competitors may negatively affect our financial performance.
Our current insurance coverage may not
be sufficient to cover our potential losses.
Our production is,
in general, subject to different risks and hazards, including adverse weather conditions, fires, diseases and pest
infestations, other natural phenomena, industrial accidents, labor disputes, changes in the legal and regulatory framework
applicable to us, environmental contingencies and other natural phenomena. Our insurance currently covers only part of the
losses we may incur and does not cover losses on crops due to hail storms, fires or similar risks. Furthermore, although we
maintain insurance at levels that are customary in our industry, certain types of risks may not be covered by the policies we
have for our industrial facilities. Additionally, we cannot guarantee that the indemnification
paid by the insurer due to the occurrence of a casualty covered by our policies will be sufficient to entirely compensate us for
the damages suffered. Moreover, we may not be able to maintain or obtain insurance of the type and amount desired at reasonable
costs. If we were to incur significant liability for which we were not fully insured, it could have a materially adverse effect
on our business, financial condition and results of operations.
In addition, even where
we incur losses that are ultimately covered by insurance, we may incur additional expenses to mitigate the loss, such as shifting
production to another facility. These costs may not be fully covered by our insurance.
A reduction in market demand for ethanol
or a change in governmental policies reducing the amount of ethanol required to be added to gasoline may adversely affect our business.
Government authorities
of several countries, including Brazil and certain states of the United States, currently require the use of ethanol as an additive
to gasoline. Commencing in March 2015, the Brazilian Government increased the required blend of anhydrous ethanol to gasoline from
25% to 27%. The increase in the ethanol blend rate is expected to create an additional demand for anhydrous ethanol in the order
of approximately 800 thousand cubic meters of anhydrous per year.
Approximately 40% of all
fuel ethanol in Brazil is consumed in the form of anhydrous ethanol blended with gasoline; the remaining 60% of fuel ethanol is
consumed in the form of hydrous ethanol, which is mostly used to power flex-fuel vehicles. Flex-fuel vehicles have the flexibility
to run either on gasoline (blended with anhydrous ethanol) or hydrous ethanol. In the United States, almost all gasoline sold contains
10% ethanol. The European Union aims for 10% of the energy used in the transport sector to derive from renewable energy sources
by 2020, without specific targets for certain renewable energy sources and without intermediate targets, to be determined by each
Member State. As an example, in Sweden the ethanol blending ratio is 5%, which is the same mandate for other non-European countries,
such as Argentina, Canada and India. Other countries such as Colombia, South Africa, Thailand and China have a 10% biofuel blending
mandate. In addition, flex-fuel vehicles in Brazil are entitled to a tax benefit in the form of a lower tax rate on manufactured
products (Imposto sobre Produtos Industrializados) and therefore are currently taxed at lower levels than gasoline-only vehicles,
which has contributed to the increase in production and sale of flex-fuel vehicles. Many of these policies and incentives stem
from, and are mostly driven by, climate change concerns and the positive perceptions regarding the use of ethanol as a solution
to the climate change problem. If such concerns or perception were to change, the legal framework and incentive structure promoting
the use of ethanol may change, leading to a reduction in the demand for ethanol. In addition, any reduction in the percentage of
ethanol required in fuel blended with gasoline or increase in the levels at which flex-fuel vehicles are taxed in Brazil, or any
growth in the demand for natural gas and other fuels as an alternative to ethanol, lower gasoline prices or an increase in gasoline
consumption (versus ethanol), may cause demand for ethanol to decline and affect our business.
Growth in the sale and distribution of ethanol depends in
part on infrastructure improvements, which may not occur on a timely basis, if at all.
In contrast to the well-established
logistical operations and infrastructure supporting sugar exports, ethanol exports inherently demand much more complex preparation
and means of distribution, including outlets from our facilities to ports and shipping to other countries. Substantial infrastructure
development by persons and entities outside our control is required for our operations, and the ethanol industry generally, to
grow. Areas requiring expansion include, but are not limited to, additional rail capacity, additional storage facilities for ethanol,
increases in truck fleets capable of transporting ethanol within localized markets, expansion of refining and blending facilities
to handle ethanol, growth in service stations equipped to handle ethanol fuels, and growth in the fleet of flex-fuel vehicles.
Specifically, with respect to ethanol exports, improvements in consumer markets abroad are needed in the number and capacity of
ethanol blending industrial plants, the distribution channels of gasoline-ethanol blends and the chains of distribution stations
capable of handling fuel ethanol as an additive to gasoline. Substantial investments required for these infrastructure changes
and expansions may not be made or they may not be made on a timely basis. Any delay or failure in making the changes in or expansion
of infrastructure may hurt the demand for or prices of our products, prevent our products’ delivery, impose additional costs
on us or otherwise have a serious adverse effect on our business, operating results or financial status. Our business relies on
the continuing availability of infrastructure for ethanol production, storage
and distribution, and any infrastructure disruptions may have a material adverse effect on our business, financial condition and
operating results.
We may be harmed by competition from alternative fuels, products
and production methods.
Ethanol competes in the
biofuel market with other, established fuels such as biodiesel, as well as fuels that are still in the development phase, including
methanol and butanol from biomass. Alternative fuels could become more successful than ethanol in the biofuels market over the
medium or long term due to, for example, lower production costs, greater environmental benefits or other more favorable product
characteristics. In addition, alternative fuels may also benefit from tax incentives or other more favorable governmental policies
than those that apply to ethanol. Furthermore, our success depends on early identification of new developments relating to products
and production methods and continuous improvement of existing expertise in order to ensure that our product range keeps pace with
technological change. Competitors may gain an advantage over us by, for example, developing or using new products and production
methods, introducing new products to the market sooner than we do, or securing exclusive rights to new technologies, thereby significantly
harming our competitive position.
A substantial portion of our assets is farmland that is highly
illiquid.
We have been successful
in partially rotating and monetizing a portion of our investments in farmland. During the last thirteen years, we have executed
transactions for the purchase and disposition of land for over $688 million. Ownership of a significant portion of the land we
operate is a key part of our business model. However, agricultural real estate is generally an illiquid asset. Moreover, the adoption
of laws and regulations that impose limitations on ownership of rural land by foreigners in the jurisdictions in which we operate
may also limit the liquidity of our farmland holdings. See “—Risks Related to Argentina—Argentine law concerning
foreign ownership of rural properties may adversely affect our results of operations and future investments in rural properties
in Argentina” and “—Risks Related to Brazil—Recent changes in Brazilian rules concerning foreign investment
in rural properties may adversely affect our investments.” As a result, it is unlikely that we will be able to adjust our
owned agricultural real estate portfolio promptly in response to changes in economic, business or regulatory conditions. Illiquidity
in local market conditions may adversely affect our ability to complete dispositions, to receive proceeds generated from any such
sales or to repatriate any such proceeds.
We have entered into agriculture partnership agreements in
respect of a significant portion of our sugarcane plantations.
As of December 31, 2016,
approximately 93% of our sugarcane plantations were leased through agriculture partnership agreements, for periods of an average
of six to twelve years. We cannot guarantee that these agriculture partnerships will be renewed after their respective terms.
Even if we are able to renew these agreements, we cannot guarantee that such renewals will be on terms and conditions satisfactory
to us. Any failure to renew the agriculture partnerships or obtain land suitable for sugarcane planting in sufficient quantity
and at reasonable prices to develop our activities could adversely affect our results of operations, increase our costs or force
us to seek alternative properties, which may not be available or be available only at higher prices.
We may be subject to labor disputes from time to time that
may adversely affect us.
Our employees are represented by unions or
equivalent bodies and are covered by collective bargaining or similar agreements which are subject to periodic renegotiation. We
may not successfully conclude our labor negotiations on satisfactory terms, which may result in a significant increase in the cost
of labor or may result in work stoppages or labor disturbances that disrupt our operations. Cost increases, work stoppages or disturbances
that result in substantial amounts of raw product not being processed could have a material and adverse effect on our business,
results of operations and financial condition.
We may not possess all of the permits
and licenses required to operate our business, or we may fail to renew or maintain the licenses and permits we currently hold.
This could subject us to fines and other penalties, which could materially adversely affect our results of operations.
We are required to hold
a variety of permits and licenses to conduct our farming and industrial operations, including but not limited to permits and licenses
concerning land development, agricultural and harvesting activities, seed production, labor standards, occupational health and
safety, land use, water use and other matters. We may not possess all of the permits and licenses required for each of our business
segments. In addition, the approvals, permits or licenses required by governmental agencies may change without substantial advance
notice, and we could fail to obtain the approvals, permits or licenses required to expand our business. If we fail to obtain or
to maintain such permits or licenses, or if renewals are granted with onerous conditions, we could be subject to fines and other
penalties and be limited in the number or the quality of the products that we could offer. As a result, our business, results of
operations and financial condition could be adversely affected.
We are subject to extensive environmental
regulation, and concerns regarding climate change may subject us to even stricter environmental regulations.
Our activities are subject
to a broad set of laws and regulations relating to the protection of the environment. Such laws include compulsory maintenance
of certain preserved areas within our properties, management of pesticides and associated hazardous waste and the acquisition of
permits for water use and effluents disposal. In addition, the storage and processing of our products may create hazardous conditions.
We could be exposed to criminal and administrative penalties in addition to the obligation to remedy the adverse effects of our
operations on the environment and to indemnify third parties for damages.
In addition, pursuant
to Brazilian environmental legislation, the corporate entity of a company will be disregarded (such that the owners of the company
will be liable for its debts) if necessary to guarantee the payment of costs related to the recovery of environmental damages,
whenever the legal entity is deemed by a court to be an obstacle to reimbursement of damages caused to the quality of the environment.
We have incurred, and will continue to incur, capital and operating expenditures to comply with these laws and regulations. Because
of the possibility of unanticipated regulatory measures or other developments, particularly as environmental laws become more stringent,
the amount and timing of future expenditures required to maintain compliance could increase from current levels and could adversely
affect the availability of funds for capital expenditures and other purposes. Compliance with existing or new environmental laws
and regulations, as well as obligations in agreements with public entities, could result in increased costs and expenses.
Environmental laws and their enforcement are
becoming more stringent in Argentina and Brazil increasing the risk of and penalties associated with violations, which could impair
or suspend our operations or projects and our operations expose us to potentially adverse environmental legislation and regulation.
Failure to comply with past, present or future laws could result in the imposition of fines, third party claims, and investigation
by environmental authorities and the relevant public attorney office. For example, the perceived effects of climate change may
result in additional legal and regulatory requirements to reduce or mitigate the effects of our industrial facilities’ emissions.
Such requirements, if enacted, could increase our capital expenditures and expenses for environmental compliance in the future,
which may have a material and adverse effect on our business, results of operations and financial condition. Moreover, the denial
of any permit that we have requested, or the revocation of any of the permits that we have already obtained, may have an adverse
effect on our results of operations.
Some of the agricultural commodities
and food products that we produce contain genetically modified organisms.
Our soybean, corn and
cotton products contain GMOs in varying proportions depending on the year and the country of production. The use of GMOs in food
has been met with varying degrees of acceptance in the markets in which we operate. The United States, Argentina and Brazil, for
example, have approved the use of GMOs in food products, and GMO and non-GMO grain in those countries is produced and frequently
commingled during the grain origination process. Elsewhere, adverse publicity about genetically modified food has led to governmental
regulation limiting sales of GMO products in some of the markets in which our customers sell our products, including the European
Union. It is possible that new restrictions on GMO products will be imposed in major markets for some of our products or that our
customers will decide to purchase fewer GMO products or not buy GMO products at all, which could have a material
adverse effect on our business, results of operations, financial condition or prospects.
Increased regulation of food safety could
increase our costs and adversely affect our results of operations.
Our manufacturing facilities
and products are subject to regular local, as well as foreign, governmental inspections and extensive regulation in the food safety
area, including governmental food processing controls. We currently comply with all food safety requirements in the markets where
we conduct our business. We already incur significant costs in connection with such compliance and changes in government regulations
relating to food safety could require us to make additional investments or incur additional costs to meet the necessary specifications
for our products. Our products are often inspected by foreign food safety officials, and any failure to pass those inspections
can result in our being required to return all or part of a shipment, destroy all or part of a shipment or incur costs because
of delays in delivering products to our customers. Any tightening of food safety regulations could result in increased costs and
could have an adverse effect on our business and results of operations.
If our products become contaminated,
we may be subject to product liability claims, product recalls and restrictions on exports that would adversely affect our business.
The sale of food products
for human consumption involves the risk of injury to consumers. These injuries may result from tampering by third parties, bioterrorism,
product contamination or spoilage, including the presence of bacteria, pathogens, foreign objects, substances, chemicals, other
agents, or residues introduced during the growing, storage, handling or transportation phases.
We cannot be sure that
consumption of our products will not cause a health-related illness in the future or that we will not be subject to claims or lawsuits
relating to such matters. Even if a product liability claim is unsuccessful or is not fully pursued, the negative publicity surrounding
any assertion that our products caused illness or injury could adversely affect our reputation with existing and potential customers
and our corporate and brand image, and we could also incur significant legal expenses. Moreover, claims or liabilities of this
nature might not be covered by any rights of indemnity or contribution that we may have against others, which could have a material
adverse effect on our business, results of operations or financial condition.
IFRS accounting standards related to
biological assets require us to make numerous estimates in the preparation of our financial statements and therefore limit the
comparability of our financial statements to similar issuers using U.S. GAAP.
IAS 41 “Biological
Assets” requires that we measure our biological assets and agriculture produce at the point of harvest at fair value less
costs to sell. Therefore, we are required to make assumptions and estimates relating to, among other things, future agricultural
commodity yields, prices, and production costs extrapolated through a discounted cash flow method. For example, the value of our
biological assets generated initial recognition and changes in fair value of biological assets amounting to a $125,4 million gain
in 2016; $54.5 million gain in 2015 and a $100.2 million gain in 2014. The assumptions and estimates used to determine the fair
value of biological assets, and any changes to such prior estimates, directly affect our reported results of operations. If actual
market conditions differ from our estimates and assumptions, there could be material adjustments to our results of operations.
In addition, the use of such discounted cash flow method utilizing these future estimated metrics differs from generally accepted
accounting principles in the United States (“U.S. GAAP”). As a result, our financial statements and reported earnings
are not directly comparable to those of similar companies in the United States.
IASB amended IAS 16
“Property, Plant and Equipment” and IAS 41 “Agriculture,” which distinguish bearer plants from other biological
assets. Bearer plants are used solely to grow produce over their productive lives and are considered to bear more resemblance
to machinery and equipment (IAS 16) than other biological assets (under IAS 41). Accordingly, they are now accounted for under
IAS 16. However, the agricultural produce growing on bearer plants remains within the scope of IAS 41 and is measured at fair
value less cost to sell. The amendments were applicable for our fiscal year ended December 31, 2016.
Our sugarcane and
coffee plantations qualify as bearer plants under the new definition in IAS 41. As required under IAS 8, “Accounting Policies,
Changes in Accounting Estimates and Errors”, we effected the change in accounting policy retrospectively. Consequently, effective
January 1, 2016, our sugarcane and coffee plantations were reclassified to property, plant and equipment,
measured at amortized cost and depreciated over their useful life on a straight-line basis. We adopted the transitional rule provided
for in the amendment, which allowed us to apply the fair value of bearer plants as their deemed cost as of January 1, 2014. Accordingly,
we revised the comparative amounts financial data for the years ended December 31, 2015 and 2014. Financial data for the years
ended December 31, 2013 and 2012 have not been revised, and is not comparable to financial data for the years 2016, 2015 and 2014.
For further information,
and an analysis of the impact of the adoption of IAS 41 and IAS 16 to our Consolidated Financial Statements please see Note 32.1
to our Consolidated Financial Statements.
Certain of our subsidiaries have substantial
indebtedness which could impair their financial condition and decrease the amount of dividends we receive.
Certain of our subsidiaries
in Argentina and Brazil have a substantial amount of debt, which requires significant principal and interest payments. As of December
31, 2016, we had $635.4 million of debt outstanding on a consolidated basis, all of which was incurred by our subsidiaries and
not guaranteed by Adecoagro. Such indebtedness could affect our subsidiaries’ future operations, for example, by requiring
a substantial portion of their cash flows from operations to be dedicated to the payment of principal and interest on indebtedness
instead of funding working capital and capital improvements and other investments. The substantial amount of debt incurred by our
subsidiaries also imposes significant debt obligations, increasing their cost of borrowing to satisfy business needs and limiting
their ability to obtain additional financing.
The substantial level
of indebtedness borne by certain of our subsidiaries also affects the amount of cash available to them to pay as dividends, increasing
our vulnerability to economic downturns or other adverse developments relative to competitors with less leverage, and limiting
our ability to obtain additional financing on their behalf for working capital, capital expenditures, acquisitions or other corporate
purposes in the future. Moreover, by reducing the level of dividends we may receive, such indebtedness places limits on our ability
to make acquisitions or needed capital expenditures or to pay dividends to our shareholders.
The terms of the indebtedness of certain
of our subsidiaries impose significant restrictions on their operating and financial flexibility.
The debt instruments of
some of our subsidiaries contain customary covenants including limitations on their ability to, among other things, incur or guarantee
additional indebtedness; make restricted payments, including dividends and prepaying indebtedness; create or permit liens; enter
into business combinations and asset sale transactions; make investments, including capital expenditures; and enter into new businesses.
Some of these debt instruments are also secured by various collateral including mortgages on farms, pledges of subsidiary stock
and liens on certain facilities, equipment and accounts. Some of these debt instruments also contain cross-default provisions,
where a default on one loan by one subsidiary could result in lenders of otherwise performing loans declaring a default. These
restrictions could limit our subsidiaries’ ability to obtain future financing, withstand a future downturn in business or
the economy in general, conduct operations or otherwise take advantage of business opportunities that may arise. Moreover, by reducing
the level of dividends we may receive, this indebtedness places limits on our ability to make acquisitions or needed capital expenditures
or to pay dividends to our shareholders.
The financial ratio covenants
we are currently required to meet, some of which are measured on a combined basis aggregating results of the borrowing subsidiaries
and others which are measured on an individual debtor basis, include, among others, debt service coverage, minimum liquidity and
leverage ratios.
The failure by our subsidiaries
to maintain applicable financial ratios, in certain circumstances, would prevent them from borrowing additional amounts and could
result in a default under such indebtedness. If we or our subsidiaries are unable to repay those amounts, the affected lenders
could initiate bankruptcy-related proceedings or enforce their rights to the collateral securing such indebtedness, which would
have a material and adverse effect on our business, results of operations and financial condition.
Fluctuations in interest rates could
have a significant impact on our results of operations, indebtedness and cash flow.
As of December 31, 2016, approximately 33.8%
of our total debt on a consolidated basis was subject to fixed interest rates and 66.2% was subject to variable interest rates.
As of December 31, 2016, borrowings incurred by the Company’s subsidiaries in Brazil were repayable at various dates between
January 2017 and April 2024 and bear either fixed interest rates ranging from 2.5% to 9.0% per annum or variable rates based on
LIBOR or other specific base-rates plus spreads ranging from 4.13% to 17.52% per annum. At December 31, 2016, LIBOR (six months)
was 1.32%. Borrowings incurred by the Company´s subsidiaries in Argentina are repayable at various dates between January
2017 and November 2023 and bear either fixed interest rates ranging from 6.11% to 7.00% per annum. Significant interest rate increases
can have an adverse effect on our profitability, liquidity and financial position. Currently, our variable interest rate exposure
is mainly linked to the LIBOR rate plus specified spreads. If interest rates increase, whether because of an increase in market
interest rates or an increase in our own cost of borrowing, our debt service obligations for our variable rate indebtedness would
increase even though the amount of borrowings remains the same, and our net income could be adversely affected.
We occasionally use interest
rate swaps and forward interest rate contracts to reduce interest rate volatility and funding costs associated with certain debt
issues and to achieve a desired proportion of variable-versus fixed-rate debt, based on current and projected market conditions.
We have not applied hedge accounting to these transactions and may not do so in the future. Therefore, changes in the fair value
of these derivative instruments can result in a non-cash charge or gain being recognized in our financial results for a period
preceding the period or periods in which settlement occurs under the derivative instruments and interest payments are made. Changes
or shifts in interest rates can significantly impact the valuation of our derivatives and therefore could expose us to substantial
mark-to-market losses or gains if interest rates fluctuate materially from the time when the derivatives were entered into. Accordingly,
fluctuations in interest rates may impact our financial position, results of operations, and cash flows. See “Item 11. Quantitative
and Qualitative Disclosures About Market Risk”.
We may not be able to renew our credit
lines when they mature, depriving us of needed liquidity.
Certain of our subsidiaries
rely substantially on existing uncommitted credit lines to support their operations and business needs through the agricultural
harvest cycle. If we are unable to renew these credit lines, or if we cannot replace such credit lines with other borrowing facilities,
our financial condition and results of operations may be adversely affected.
There is a risk that we could be treated
as a U.S. domestic corporation for U.S. federal income tax purposes, which could materially increase our U.S. federal income tax
liability and subject any dividends we pay to U.S. federal withholding tax.
We acquired approximately
98% of IFH, a holding company, which was a partnership for U.S. federal income tax purposes organized under the laws of Delaware,
immediately prior to our IPO, in exchange for our common shares. Under U.S. Internal Revenue Code section 7874(b), we would be
treated as a U.S. domestic corporation if we were deemed to have acquired substantially all of the assets constituting the trade
or business of a U.S. domestic partnership and former members of IFH were deemed to own at least 80% of our common shares by reason
of the transfer of those trade or business assets (ignoring common shares issued in our IPO for purposes of the 80% threshold).
Although we and our subsidiaries conduct no direct business activity in the United States and we believe that our acquisition of
IFH should not be subject to the rules above, those rules are unclear in certain respects and there is limited guidance on the
application of the rules to partnership acquisitions. Accordingly, we cannot assure you that the U.S. Internal Revenue Service
(“IRS”) will not seek to assert that we are a U.S. domestic corporation, which assertion if successful could materially
increase our U.S. federal income tax liability and require us to withhold tax from any dividends we pay to holders of our common
shares who are not United States persons within the meaning of U.S. Internal Revenue Code section 7701(a)(30). See “Item
10. Additional Information—E. Taxation” .
We may be classified by the IRS as a
“passive foreign investment company” (a “PFIC”), which may result in adverse tax consequences for U.S.
investors.
We believe that we will
not be a PFIC for U.S. federal income tax purposes for our current taxable year and do not expect to become one in the foreseeable
future. Whether the Company will be a PFIC for the current or future tax year will depend on the Company’s assets and
income over the course of each such tax year and, as a result, cannot be predicted with certainty as of the date of this Form 20-F. Under
circumstances where the cash is not deployed for active purposes, our risk of becoming
a PFIC may increase. If we were treated as a PFIC for any taxable year during which a U.S. investor held common shares, certain
adverse tax consequences could apply to such U.S. investor. A U.S. taxpayer who holds stock in a foreign corporation during any
year in which such corporation qualifies as a PFIC may mitigate such negative tax consequences by making certain U.S. federal income
tax elections, which are subject to numerous restrictions and limitations. Holders of the Company’s common shares are urged
to consult their own tax advisors regarding the acquisition, ownership, and disposition of the Company’s common shares. See
“Material U.S. Federal Income Tax Considerations for U.S. Holders—Passive Foreign Investment Company (“PFIC”)
Rules”.
Risks associated with the Countries in which we operate
We operate our business in emerging markets.
Our results of operations and financial condition are dependent upon economic conditions in those countries in which we operate,
and any decline in economic conditions could harm our results of operations or financial condition.
All of our operations
and/or development activities are in South America. As of December 31, 2016, based on total asset value, 26.9% of our assets were
located in Argentina, 69.2% in Brazil and 3.8% in Uruguay. Adjusting our farmland book value by the market value derived from the
Cushman and Wakefield independent farmland appraisal, the allocation would result in a 50.3% value attributable to Argentina, a
47.0% value attributable to Brazil and a 2.7% value attributable to Uruguay. During the year ended December 31, 2016, 49.8% of
our consolidated sales of goods and services rendered were attributable to our Brazilian operations, 18.9% were attributable to
our Argentine operations and 31.4% were attributable to our Uruguayan operations. In the future we expect to have additional operations
in the South American countries in which we now operate or in other countries with similar political, economic and social conditions.
Many of these countries have a history of economic instability or crises (such as inflation or recession), government deadlock,
political instability, civil strife, changes in laws and regulations, expropriation or nationalization of property, and exchange
controls which could adversely affect our business, financial condition and results of operations.
In particular, fluctuations
in the economies of Argentina and Brazil and actions adopted by the governments of those countries have had and may continue to
have a significant impact on companies operating in those countries, including us. Specifically, we have been affected and may
continue to be affected by inflation, increased interest rates, fluctuations in the value of the Argentine Peso and Brazilian Real
against foreign currencies, price and foreign exchange controls, regulatory policies, business and tax regulations and in general
by the political, social and economic scenarios in Argentina and Brazil and in other countries that may affect Argentina and Brazil.
The economies of the countries in which
we operate may be adversely affected by the deterioration of other global markets.
Financial and securities
markets in the countries in which we operate are influenced, to different degrees, by the economic and market conditions in other
countries, including other South American and emerging market countries and other global markets. Although economic conditions
in these countries may differ significantly from economic conditions in the countries in which we operate, investors’ reactions
to developments in these other countries, such as the recent developments in the global financial markets, may substantially affect
the capital flows into, and the market value of securities of issuers with operations in, the countries in which we operate. A
crisis in other emerging market countries could dampen investor enthusiasm for securities of issuers with South American operations,
including our common shares. This could adversely affect the market price for our common shares, as well as make it difficult for
us to access capital markets and obtain financing for our operations in the future, on acceptable terms or under any conditions.
A significant deterioration
in the economic growth of any of the main trading partners of Brazil or Argentina could have a material impact on the trade balance
of those countries and could adversely affect their economic growth and that of other countries in the region.
Governments have a high degree of influence
in the economies in which we operate, which could adversely affect our results of operations or financial condition.
Governments in many of
the markets in which we currently, or may in the future operate frequently intervene in their respective economies and occasionally
make significant changes in monetary, credit, industry and other policies and regulations. Government actions to control inflation
and other policies and regulations have often involved, among other measures, price controls, currency devaluations, capital controls
and limits on imports. We have no control over, and cannot predict what measures or policies governments may take in the future.
The results of operations and financial condition of our businesses may be adversely affected by changes in governmental policy
or regulations in the jurisdictions in which they operate that impact factors such as:
|
|
•
|
exchange and capital control policies;
|
|
|
•
|
liquidity of domestic capital and lending markets;
|
|
|
•
|
liquidity and solvency of the financial system;
|
|
|
•
|
limitations on ownership of rural land by foreigners;
|
|
|
•
|
developments in trade negotiations through the World Trade Organization or other international organizations;
|
|
|
•
|
environmental regulations;
|
|
|
•
|
tax laws, including royalties and the effect of tax laws on distributions from our subsidiaries;
|
|
|
•
|
restrictions on repatriation of investments and on the transfer of funds abroad;
|
|
|
•
|
expropriation or nationalization;
|
|
|
•
|
import/export restrictions or other laws and policies affecting foreign trade and investment;
|
|
|
•
|
price controls or price fixing regulations;
|
|
|
•
|
restrictions on land acquisition or use or agricultural commodity production; and
|
|
|
•
|
other political, social and economic developments, including political, social or economic instability, in or affecting the
country where each business is based.
|
Uncertainty over whether governments will implement
changes in policy or regulation affecting these or other factors in the future may contribute to economic uncertainty and heightened
volatility in the securities markets, which may have a material and adverse effect on our business, results of operations and financial
condition.
Currency exchange rate fluctuations relative
to the U.S. dollar in the countries in which we operate our businesses may adversely impact our results of operations and financial
condition.
We operate exclusively
outside the United States, and our businesses may be impacted by significant fluctuations in foreign currency exchange rates. Our
exposure to currency exchange rate fluctuations results from the currency translation adjustments required in connection with the
preparation of our Consolidated Financial Statements. The currency exchange exposure stems from the generation of revenues and
incurrence of expenses in different currencies and the devaluation of local currency revenues impairing the value of investments
in U.S. Dollars. While the Consolidated Financial Statements presented herein are, and our future Consolidated Financial Statements
will be, presented in U.S. dollars, the financial statements of our subsidiaries are prepared using the local currency as the functional
currency and translated into U.S. dollars by applying: (i) a year-end exchange rate for assets and liabilities; and (ii) an average
exchange rate for the year for income and expenses. Resulting exchange differences arising from the translation to our presentation
currency are recognized as a separate component of equity. Currencies in Argentina and Brazil have fluctuated significantly against
the U.S. dollar in the past. Accordingly, fluctuations in exchange rates relative to the U.S. dollar could impair the comparability
of our results from period to period and have a material adverse effect on our results of operations and financial condition.
The Argentine Peso depreciated
8.08% against the U.S. dollar in 2011, 14.4% in 2012, 32.5% in 2013, 31.2% in 2014, 52.1% in 2015 and 21.9% in 2016, based on the
official exchange rates published by the Argentine Central Bank. In the past years, the Argentine government imposed restrictions
on the purchase of foreign currency (see “—Risks Related to Argentina—Exchange controls could restrict the inflow
and outflow of funds in Argentina.”) which measures gave rise to an unofficial market where the U.S. dollar traded at a different
market value than reflected in the official Argentine Peso – U.S. Dollar exchange rate. Following national elections in Argentina
in 2015, the newly elected Macri administration (the “Macri
Administration”) changed the currency policy and lifted almost all of the restrictions on the purchase of foreign currency
while at the same time officially depreciating the Argentine Peso, practically eliminating the gap between the official and unofficial
exchange rates that coexisted during the previous years. We cannot predict future fluctuations in the exchange rate of the Argentine
Peso or whether the Argentine government will change its currency policy.
The Brazilian currency
has historically suffered frequent fluctuations. As a consequence of inflationary pressures, in the past, the Brazilian government
has implemented various economic plans and adopted a number of exchange rate policies, including sudden devaluations, periodic
mini-devaluations during which the frequency of adjustments has ranged from daily to monthly, floating exchange rate systems, exchange
controls and dual exchange rate markets. Formally the value of the Real against foreign currencies is determined under a free-floating
exchange rate regime, but in fact the Brazilian government is currently intervening in the market, through currency swaps and trading
in the spot market, among other measures, every time the currency exchange rate is above or below the levels that the Brazilian
government considers appropriate, taking into account, inflation, growth, the performance of the Real against the U.S dollar in
comparison with other currencies and other economic factors. Periodically, there are significant fluctuations in the value of the
Real against the U.S. dollar. The Real depreciated 12.37% against the U.S. dollar in 2011, 9.90% in 2012, 15.13% in 2013, 12.52%
in 2014, 49.04% in 2015, and in 2016 the Real appreciated 16,54% against U.S. dollar.
Future fluctuations in the value of the local
currencies relative to the U.S. dollar in the countries in which we operate may occur, and if such fluctuations were to occur in
one or a combination of the countries in which we operate, our results of operations or financial condition could be adversely
affected.
Inflation in some of the countries in
which we operate, along with governmental measures to curb inflation, may have a significant negative effect on the economies of
those countries and, as a result, on our financial condition and results of operations.
In the past, high levels
of inflation have adversely affected the economies and financial markets of some of the countries in which we operate, particularly
Argentina and Brazil, and the ability of their governments to create conditions that stimulate or maintain economic growth. Moreover,
governmental measures to curb inflation and speculation about possible future governmental measures have contributed to the negative
economic impact of inflation and have created general economic uncertainty. As part of these measures, governments have at times
maintained a restrictive monetary policy and high interest rates that has limited the availability of credit and economic growth.
A portion of our operating
costs in Argentina are denominated in Argentine Pesos and most of our operating costs in Brazil are denominated in Brazilian Reais.
Inflation in Argentina or Brazil, without a corresponding Peso or Real devaluation, could result in an increase in our operating
costs without a commensurate increase in our revenues, which could adversely affect our financial condition and our ability to
pay our foreign currency denominated obligations.
After several years of
price stability in Argentina, the devaluation of the Peso in January 2002 imposed pressures on the domestic price system that generated
high inflation throughout 2002. In 2003, inflation decreased significantly and stabilized. However, in recent years, encouraged
by the pace of economic growth, according to the Instituto Nacional de Estadisticas y Censos, or “INDEC” (Argentine
Statistics and Census Agency), the consumer price index increased by 9.5% in 2011, 10.8% in 2012, and 10.9% in 2013; while the
wholesale price index increased 10.3% in 2009, 14.6% in 2010, 12.7% in 2011, 13.1% in 2012, 14.7% in 2013 and 28.3% in 2014. The
accuracy of the measurements of the INDEC has been questioned in the past, and the actual consumer price index and wholesale price
index could be substantially higher than those indicated by the INDEC. See “—Risks Related to Argentina—Official
data regarding inflation may be unreliable.”
In February 2014 the INDEC
modified the methodology for the calculation of the consumer price index (“CPI”) and the gross domestic product. Under
the new calculation methodology, the CPI increased by 23.9% in 2014 and 11.9% as of October 2015 (for the first nine months of
2015). However, opposition lawmakers reported an inflation rate of 38.5% and 27.5%, respectively. In December 2015, the Macri administration
appointed a former director of a private consulting firm to manage the INDEC. The new director initially suspended the publication
of any official data prepared by INDEC and implemented certain methodological reforms and adjusted certain indices based on those
reforms. In January 25, 2016, INDEC published two alternative measures of the CPI for the year 2015, 29.6% and 31.6%, which were based on
data from the City of Buenos Aires and the Province of San Luis. After implementing these methodological reforms in June 2016,
the INDEC resumed its publication of the consumer price index. According to INDEC, Argentina´s rate of inflation for May,
June, July, August, September, October, November and December 2016 was 4.2%, 3.1%, 2%, 0.2%, 1.1%, 2.4%, 1.6% and 1.2%, respectively.
Brazil has historically
experienced high rates of inflation. Inflation, as well as government efforts to curb inflation, has had significant negative effects
on the Brazilian economy, particularly prior to 1995. Inflation rates were 7.8% in 2007 and 9.8% in 2008, compared to deflation
of 1.7% in 2009, inflation of 11.3% in 2010, inflation of 5.1% in 2011, inflation of 7.8% in 2012, inflation of 5.5% in 2013, inflation
of 3.7% in 2014, inflation of 10.5% in 2015, and 7.2% accumulated in the year ended on December 31, 2016, as measured by the General
Market Price Index (Indice Geral de Preços — Mercado), compiled by the Getúlio Vargas Foundation (Fundação
Getúlio Vargas). A significant proportion of our cash costs and our operating expenses are denominated in Brazilian Reais
and tend to increase with Brazilian inflation. The Brazilian government’s measures to control inflation have in the past
included maintaining a tight monetary policy with high interest rates, thereby restricting the availability of credit and reducing
economic growth. This policy has changed in the last two years, when the Brazilian government decreased the interest rate by 525
basis points. Subsequently, the high inflation, arising from the lower interest rate, and the intention to maintain this rate at
low levels, led the Brazilian government to adopt other measures to control inflation, such as tax relief for several sectors of
the economy and tax cuts for the products included in the basic food basket. These measures were not sufficient to control the
inflation, which led the Brazilian government to reinstate a tighter monetary policy. As a result, interest rates have fluctuated
significantly. The Special System for Settlement and Custody (Sistema Especial de Liquidação e Custódia, or
“SELIC”) interest rate in Brazil at year-end was 13.25% in 2006, 11.25% in 2007, 13.75% in 2008, 8.75% in 2009, 10.75%
in 2010, 11.0% in 2011, and 7.25% in 2012, 10.0% in 2013, 11.75% in 2014, 14.25% in 2015 as determined by the Comitê de Política
Monetária, or COPOM. In the quarter ended on December 31, 2016, the SELIC was 13.75%.
Argentina and/or Brazil
may experience high levels of inflation in the future, which may impact domestic demand for our products. Inflationary pressures
may also weaken investor confidence in Argentina and/or Brazil, curtail our ability to access foreign financial markets and lead
to further government intervention in the economy, including interest rate increases, restrictions on tariff adjustments to offset
inflation, intervention in foreign exchange markets and actions to adjust or fix currency values, which may trigger or exacerbate
increases in inflation, and consequently have an adverse impact on us. In an inflationary environment, the value of uncollected
accounts receivable, as well as of unpaid accounts payable, declines rapidly. If the countries in which we operate experience high
levels of inflation in the future and price controls are imposed, we may not be able to adjust the rates we charge our customers
to fully offset the impact of inflation on our cost structures, which could adversely affect our results of operations or financial
condition.
Depreciation of the Peso
or the Real relative to the U.S. Dollar or the Euro may also create additional inflationary pressures in Argentina or Brazil that
may negatively affect us. Depreciation generally curtails access to foreign financial markets and may prompt government intervention,
including recessionary governmental policies. Depreciation also reduces the U.S. Dollar or Euro value of dividends and other distributions
on our common shares and the U.S. Dollar or Euro equivalent of the market price of our common shares. Any of the foregoing might
adversely affect our business, operating results, and cash flow, as well as the market price of our common shares.
Conversely, in the short
term, a significant increase in the value of the Peso or the Real against the U.S. Dollar would adversely affect the respective
Argentine and/or Brazilian government’s income from exports. This could have a negative effect on gross domestic product
(“GDP”) growth and employment and could also reduce the public sector’s revenues in those countries by reducing
tax collection in real terms, as a portion of public sector revenues are derived from the collection of export taxes.
Disruption of transportation and logistics
services or insufficient investment in public infrastructure could adversely affect our operating results.
One of the principal disadvantages
of the agricultural sector in the countries in which we operate is that key growing regions lie far from major ports. As a result,
efficient access to transportation infrastructure and ports is critical to the growth of agriculture as a whole in the countries
in which we operate and of our operations in particular. Improvements in transportation infrastructure are likely to be required
to make more agricultural production accessible to export terminals at competitive prices. A substantial portion of agricultural
production in the countries in which we operate is currently transported by truck, a means of transportation significantly more
expensive than the rail transportation available to U.S. and other international producers. Our dependence on truck transportation
may affect our position as a low-cost producer so that our ability to compete in the world markets may be impaired.
Even though road and rail
improvement projects have been considered for some areas of Brazil, and in some cases implemented, substantial investments are
required for road and rail improvement projects, which may not be completed on a timely basis, if at all. Any delay or failure
in developing infrastructure systems could reduce the demand for our products, impede our products’ delivery or impose additional
costs on us. We currently outsource the transportation and logistics services necessary to operate our business. Any disruption
in these services could result in supply problems at our farms and processing facilities and impair our ability to deliver our
products to our customers in a timely manner.
Risks Related to Argentina
Argentine economic and political conditions
and perceptions of these conditions in the international market may have a direct impact on our business and our access to international
capital and debt markets, and could adversely affect our results of operations and financial condition.
A significant portion
of our operations, properties and customers are located in Argentina. The Argentine economy has experienced significant volatility
in recent decades, characterized by periods of low or negative growth, high and variable levels of inflation and currency devaluation.
Between 2001 and 2003 Argentina experienced a period of severe political, economic and social crisis. In 2002, the enactment of
Law No. 25,561 (the “Public Emergency Law”) ended more than a decade of uninterrupted Peso/dollar parity, and the value
of the Peso against the U.S. dollar has fluctuated significantly since then.
Although general economic
conditions in Argentina recovered after the 2001-2003 period of severe economic crisis, a period of significant economic uncertainty
followed. This is mainly because the economic growth was initially dependent on a significant devaluation of the Argentine Peso,
a high excess production capacity resulting from a long period of deep recession and high commodity prices. The rise in these prices
has contributed to the increase in Argentine exports since the third quarter of 2002 and to high government tax revenues from export
taxes. However, the reliance on the export of certain commodities has caused the Argentine economy to be more vulnerable to price
fluctuations. The global economic crisis of 2008 led to a period of economic decline, accompanied by political and social unrest,
inflationary and Peso depreciation pressures and lack of consumer and investor confidence. The lingering economic crises in Europe,
including the financial crisis in Greece, Spain, Italy and Portugal, the international demand for Argentine products, the stability
and competitiveness of the Peso against foreign currencies, confidence among consumers and foreign and domestic investors, the
stability and level of inflation and the future political uncertainties, among other factors, may also affect the development of
the Argentine economy.
Since 2011, the economic
conditions have continued to deteriorate, due to, among other things, the rise of inflation, the continued demand for salary increases,
the growth of the fiscal deficit, the required payments to be made on public debt, the reduction of industrial growth, the recession
and the increase of the capital outflows from Argentina. The foregoing prevailing economic conditions forced the Argentine government
to adopt different measures, including the tightening of foreign exchange controls, the elimination of subsidies to the private
sector and the proposals for new taxes. See “—Risks Related to Argentina—Changes in the Argentine tax laws may
adversely affect the results of our operations”.
Since the beginning of
2015, international commodity prices for Argentina’s primary commodity exports have declined, which has had an adverse effect
on Argentina’s economic growth. A continued decline in the international prices for Argentina’s main commodity exports
could have a direct negative effect on our business, results of operation and financial condition, as well as on Argentina’s
economy.
According to the INDEC,
Argentina’s GDP, in real terms, grew by 9.2% in 2010, 8.9% in 2011, 1.9% in 2012, 5.6% in 2013 and 0.5% in 2014. The GDP
for the first two quarters of 2015 grew by 1.1% and 2.3%, respectively, compared to the same periods in 2014. See “—Risks
related to Argentina—Official data regarding inflation may be unreliable” and “—Risks Associated with the
Countries in which We Operate—Inflation in some of the countries in which we operate, along with governmental measures to
combat inflation, may have a significant negative effect on the economies of those countries and, as a result, on our financial
condition and results of operations”. The INDEC originally reported a GDP for 2013 equal to 5.6%. However, in February 2014
the INDEC modified the methodology for the calculation of the GDP and released a new GDP index for 2013, equal to 3.00% and 0.5%
for 2014. Because of the implementation of certain methodological reforms by the Macri administration and the adjustment of certain
indices based on these reforms, the INDEC also revised the GDP data from 2004 through 2015. Among other adjustments, in calculating
GDP for 2004, the INDEC made changes to the composition of GDP that resulted in a negative adjustment of approximately 12% for
that year. To calculate real GDP for subsequent years based on the revised 2004 GDP, the INDEC used deflators that are consistent
with its revised methodology to calculate inflation. By previously understating inflation, the INDEC had overstated economic growth
in real terms. The adjustments made by the INDEC lead to a determination of real GDP growth of 48.6% for the period of 2004 to
2015, as opposed to 65% growth in real terms for the same period resulting from the information used prior to June 2016. We cannot
assure you that any future official information regarding GDP will be reliable or whether the GDP will increase or remain stable
in the future.
In the recent past, social
and political tension and high levels of poverty and unemployment have persisted and in recent months industrial activity and consumption
has diminished considerably. The deterioration of the economy significantly increased the social and political turmoil, including
civil unrest, riots, looting, nationwide protests, strikes and street demonstrations. Due to the high levels of inflation and devaluation,
employers both in the public and private sectors are experiencing significant pressure from organized labor unions and their employees
to further increase salaries. See “—Risks related to Argentina—The Argentine government may order salary increases
to be paid to employees in the private sector, which would increase our operating costs”.
In addition, during the
recent past the Argentine Central Bank’s reserves have suffered a substantial decrease mainly as a consequence of the increasing
need to import energy and payments of sovereign debt. The reduction of the Argentine Central Bank’s reserves may weaken Argentina’s
ability to overcome economic deterioration. This could inhibit the ability of the Argentine Central Bank to adopt measures to curb
inflation and could adversely affect Argentina’s economic growth and public finances.
Presidential, congressional
and state government elections were held during 2015 (with the majority of such elections occurring in October 2015). Presidential
elections were won by the opposing political party, led by Mauricio Macri, after conducting the first run-off in Argentine history.
The elected government, in office since December 10, 2015, has announced and adopted several significant economic and policy reforms:
|
|
·
|
INDEC Reforms: On January 8, 2016, based on the determination that the INDEC has failed to produce
reliable statistical information, particularly with respect to the CPI, GDP, poverty and foreign trade data, the Macri administration
declared the national statistical system and the INDEC in a state of administrative emergency. As a result, the INDEC ceased publishing
certain key statistical data until a rearrangement of its technical and administrative structure is finalized. In June 2016, the
INDEC resumed its publication of the CPI. As of the date of this annual report, the INDEC has begun publishing certain revised
data, including GDP, foreign trade and balance of payment statistics, although it remains in a state of administrative emergency.
See “—Risks related to Argentina—Official data regarding inflation may be unreliable”.
|
|
|
·
|
Foreign Exchange Reforms: The elected government has also introduced substantial changes to the
foreign exchange restrictions, reversing most of the restrictions adopted since 2011, thus providing greater flexibility and access
to the foreign exchange market. See “—Risks related to Argentina—Exchange controls could restrict the inflow
and outflow of funds in Argentina”.
|
|
|
·
|
Foreign trade reforms. The Macri administration eliminated export duties on wheat, corn, beef and
regional products, and reduced the duty on soybeans from 35% to 30%. Further, the 5% export duty on most industrial and mining
exports was eliminated.
|
|
|
·
|
Primary Balance. The Macri administration announced its intention to reduce the primary deficit
in part by eliminating public services subsidies currently in effect.
|
|
|
·
|
Infrastructure state of emergency and reforms. The Macri administration issued Resolution No. 6/2016
of the Ministerio de Energía y Minería de la Nación (National Ministry of Energy and Mining) and Resolution
No. 1/2016 of the Ente Nacional Regulador de la Electricidad (National Electricity Regulatory Agency), through which the Macri
administration announced the elimination of some energy subsidies currently in effect and a substantial increase in electricity
rates. Additionally, the government declared a state of emergency with respect to the national electrical system, which is expected
to remain effective until December 31, 2017. Under this state of emergency, the Macri administration will be permitted to take
actions designed to guarantee the supply of electricity.
|
We cannot predict the
impact that these policies or any future polices implemented by the Macri administration or any other national government will
have on the Argentine economy as a whole or on our business, results of operation or financial condition, in particular. Moreover,
there is uncertainty as to when and if other measures announced during the presidential campaign will be implemented. Some of the
measures proposed by the Macri administration may also generate political and social opposition, which may in turn prevent the
new government from adopting such measures as proposed. In addition, political parties opposed to the new government retained a
majority of the seats in the Argentine Congress in the recent elections, which will require the new government to seek political
support from the opposition for its economic proposals and creates further uncertainty in the ability of the new government to
pass measures. Political uncertainty in Argentina relating to the measures to be taken by the Macri administration in respect of
the Argentine economy could lead to volatility in the market prices of securities of Argentine companies.
A continued deterioration
of the economic, social and/or political conditions may adversely affect the development of the Argentine economy and force the
Macri administration to adopt future policies including forced renegotiation or modification of existing contracts, suspension
of the enforcement of creditors’ rights, new taxation policies, including royalty and tax increases and retroactive tax claims,
and changes in laws and policies affecting foreign trade and investment and salary increases, and/or the provision of additional
employee benefits. Any such economic, social and/or political conditions and/or measures could materially affect our business,
results of operations and financial condition.
The economy of Argentina may be affected
by its government’s limited access to financing from international markets.
The Argentine economy
has experienced significant instability in the past decades, including devaluations, high inflation, and prolonged periods of reduced
economic growth, which have led to payment defaults on Argentina’s foreign debt and multiple downgrades in Argentina’s
foreign debt rating with attendant restrictions on Argentina’s ability to obtain financing in the international markets.
Argentina’s 2001
sovereign default and its failure to fully restructure its sovereign debt and negotiate with the holdout creditors has limited
and may continue to limit Argentina’s ability to access international financing. In 2005, Argentina completed the restructuring
of a substantial portion of its indebtedness and settled all of its debt with the IMF. Additionally, in June 2010, Argentina completed
the restructuring of a significant portion of the defaulted bonds that were not exchanged in the 2005 restructuring. As a result
of debt exchanges carried out in 2005 and 2010, Argentina restructured approximately 93% of its defaulted debt that was eligible
for restructuring. However, holdout bondholders that declined to participate in the restructuring, filed lawsuits against Argentina
in several countries, including the United States. Since late 2012, rulings from courts in the United States favorable to holdout
bondholders aggravated investors’ concerns regarding investment in the country.
In November 2012, the
United States District Court for the Southern District of New York in re: “NML Capital, Ltd. v. Republic of Argentina”,
ratified and amended the injunction order issued in February 2012, which held that Argentina violated the pari
passu clause with respect to the bondholders that had not participated in the sovereign debt restructuring in 2005 and 2010.
Pursuant to such ruling, Argentina was required to pay 100% of the amounts due to the plaintiffs, simultaneously with the payment
of the amounts due on the next maturity date of the bonds to the bondholders who participated in the debt restructuring. In June
2014, the U.S. Supreme Court denied Argentina’s petition for a writ of certiorari of the U.S. Second Circuit Court
of Appeals’ ruling affirming the U.S. District Court’s judgment. Later that month, the U.S. District Court ruled that
funds deposited with the Bank of New York Mellon, the trustee which manages payments for Argentina's bonds issued in the 2005 and
2010 debt restructuring, could not be delivered to the holders of restructured debt in the absence of a prior agreement with the
holdout bondholders. In June 2015, the U.S. District Court granted partial summary judgment to a group of “me-too”
plaintiffs in 36 separate lawsuits, finding that, consistent with the previous ruling of such court, Argentina violated the pari
passu clause in the bonds issued to the “me-too” bondholders.
In February 2016, the
Macri administration entered into settlement agreements with certain holdout bondholders to settle these claims, which were subject
to the approval of the Argentine Congress and the lifting of the pari passu injunctions. In March 2016, after the U.S.
District Court agreed to vacate the pari passu injunctions subject to certain conditions, the Argentine Congress ratified
these settlement agreements through Law No. 27,249 and repealed the provisions of the so called Lock Law No. 26,017 and the Sovereign
Payment Law No. 26,984, which prohibited Argentina from offering holdout bondholders more favorable terms than those offered in
the 2005 and 2010 debt restructuring. In recent months, the Argentine national government has reached settlement agreements with
holders of a significant portion of the defaulted bonds and has repaid the majority of the holdout creditors with the proceeds
of a US$16.5 billion international offering of 3-year, 5-year, 10-year and 30-year bonds on April 22, 2016. Although the size of
the claims involved has decreased significantly, litigation initiated by bondholders that have not accepted Argentina’s settlement
offer continues in several jurisdictions.
Additionally, foreign
shareholders of several Argentine companies have filed claims with the ICSID alleging that the emergency measures adopted by the
Argentine national government since the crisis in 2001 and 2002 differ from the just and equal treatment standards set forth in
several bilateral investment treaties to which Argentina is a party. ICSID has ruled against Argentina with respect to many of
these claims.
Litigation involving holdout
creditors, claims with ICSID and other claims against the Argentine national government, resulted and may result in material judgments
against the government, lead to attachments of or injunctions relating to Argentina’s assets, or could cause Argentina to
default under its other obligations, and such events may prevent Argentina from obtaining favorable terms or interest rates when
accessing international capital markets or from accessing international financing at all. Our ability to obtain U.S. dollar-denominated
financing has been adversely impacted by these factors. During 2014, 2015 and 2016, it became increasingly difficult for Argentine
companies to obtain financing in U.S. dollars, and loans in local currencies carry significantly higher interest rates. The termination
of the injunctions issued by the United States courts preventing bondholders from receiving their interest payments on the bonds
issued pursuant to the 2005 and 2010 exchange offers, and the related subsequent events, have paved the way for the Argentine national
government to regain access to the international capital markets. Nonetheless, Argentina’s ability to obtain international
or multilateral private financing or direct foreign investment may be limited, which may in turn impair its ability to implement
reforms and public policies to foster economic growth. In addition, Argentina’s ongoing litigation with the remaining holdout
creditors as well as ICSID and other claims against the Argentine national government, or any future defaults of its financial
obligations, may prevent us from accessing the international capital markets or cause the terms of any such transactions less favorable
than those provided to companies in other countries in the region, potentially impacting our financial condition.
Without access to international
private financing, Argentina may not be able to finance its obligations, and financing from multilateral financial institutions
may be limited or not available. This could also inhibit the ability of the Argentine Central Bank to adopt measures to curb inflation
and could adversely affect Argentina’s economic growth and public finances, which could, in turn, adversely affect our operations
in Argentina, our financial condition or the results of our operations.
The lack of financing for Argentine companies
may have an adverse effect on the results of our operations in Argentina and on the market price of our common shares.
The prospects for Argentine
companies accessing financial markets are limited in terms of the amount of the financing available and the conditions and costs
of such financing. The default on the Argentine sovereign debt and the global economic crisis has significantly limited the ability
of Argentine companies to access international financial markets.
In addition, in November
2008, the Argentine Congress passed a law eliminating the private pension fund system and transferring all retirement and pension
funds held by the pension fund administrators (
Administradoras de Fondos de Jubilaciones y Pensiones
, or “AFJPs”)
to the National Social Security Administrative Office (
Administración Nacional de la Seguridad Social
). Because the
AFJPs had been the major institutional investors in the Argentine capital markets, the nationalization of the pension fund system
has led to a reduction of the liquidity available in the local Argentine capital markets. As of December 31, 2016, our subsidiaries
in Argentina have relied on local Argentine financing for 28.5% of our total indebtedness. Lack of access to international or domestic
financial markets could affect the projected capital expenditures for our operations in Argentina and, therefore, may have an adverse
effect on the results of our operations in Argentina and on the market price of our common shares.
Argentine law concerning foreign ownership
of rural properties may adversely affect our results of operations and future investments in rural properties in Argentina.
Law No. 26,737, passed
by the Argentine Congress in December 2011, and its implementing regulation Decree No. 274/2012, as amended and supplemented by
Decree No. 820/2016 dated as of February 28, 2012 and of June 30, 2016, respectively, impose limits on the ownership or possession
of rural land by foreign legal entities or certain foreign individuals.
Law No. 26,737 and its
implementing regulation require that, “foreign ownership” of rural land may not exceed 15% of the total amount of rural
land in the Argentine territory calculated also in relation to the territory of the Province, Department or Municipality where
the relevant lands are located. For purposes of the law, “foreign ownership” means the ownership (whether by acquisition,
transfer, assignment of rights or otherwise) over rural land by: (i) foreign individuals, regardless of whether they are Argentine
residents or not; (ii) legal entities where foreign individuals or entities own, whether directly or indirectly, a number of votes
sufficient to prevail in the local entity´s decision-making process. It is presumed that foreign legal entities where more
than 51% of the stock is directly or indirectly owned by foreign individuals or entities are subject to Law No. 26,737; (iii) companies
that issue bonds (a) convertible in stock representing 51% or more of the company’s stock upon conversion and (b) whose holders
are foreign individuals or entities; (iv) trusts whose beneficiaries are foreign individuals or entities, as defined pursuant to
(i) and (ii) above; (v) joint ventures in which foreign entities or individuals hold a participating interest higher than those
set forth by the law; (vi) foreign public law-governed legal entities; and (vii) simple associations or de facto corporations in
which foreigners hold shares in the percentage set forth by the new law in relation to corporations or which are controlled by
foreigners.
Law No. 26,737 created
a National Registry of Rural Land (
Registro Nacional de Tierras Rurales
) in charge of the enforcement of the provisions
of the law and registry of rural land.
Any modification to the
capital stock of companies that own or possess rural land, by public or private instrument, that implies a direct or indirect change
of control, must be reported to the National Registry of Rural Land within 30 days from the date of such modification.
In addition, foreign entities
or individuals of the same nationality may not own more than 4.5% of rural land in Argentina and a single foreign entity or individual
may not own more than 1,000 hectares in the “core area”, or the “equivalent surface”, as determined by
the Interministerial Council of Rural Land (Consejo Interministerial de Tierras Rurales) in accordance with the provinces’
proposal, specifying districts, sub-regions or areas and taking into consideration the location of the land, the proportion of
the land area in respect of the total territory of the relevant Province, Department or Municipality and, the quality of the land
for use and exploitation. The “equivalent surface” regime may be modified by the Interministerial Council of Rural
Lands (Consejo Interministerial de Tierras Rurales) taking into account possible changes in the quality of the land or the growth
of urban populations. Pursuant to Decree No. 274/2012, as amended and supplemented by Decree No. 820/2016 the departments that
comprise the “core area” are: Marcos Juarez
and Union in the Province of Córdoba; Belgrano, San Martin, San Jeronimo, Iriondo, San Lorenzo, Rosario, Constitución,
Caseros and General Lopez in the Province of Santa Fe; and the districts of Leandro N. Alem, General Viamonte, Bragado, General
Arenales, Junin, Alberti, Rojas, Chivilcoy, Chacabuco, Colon, Salto, San Nicolas, Ramallo, San Pedro, Baradero, San Antonio de
Areco, Exaltacion de La Cruz, Capitan Sarmiento, San Andres de Giles, Pergamino, Arrecifes and Carmen de Areco in the Province
of Buenos Aires.
Foreign legal entities
or individuals may not own rural land that contain or are located beside permanent and significant bodies of water to be determined
by the Federal Hydrological Council (
Consejo Hídrico Federal
) and may also include hydrological works and projects
considered strategic and of public interest.
Acquisition of rural land
will not be deemed as an “investment” under bilateral investment treaties signed by the Argentine Republic, since rural
land is deemed as “a non-renewable natural resource”.
The regulatory decrees
of Law No. 26,737 provide that no previous authorization certificate is required for certain operations such as (i) the transfer
of the property or possession rights over real estate properties that were located in an “Industrial Area” or an “Industrial
Park”, independently from the acquirer’s nationality, (ii) any modification to the capital stock of companies that
own or possess rural land, by public or private instrument, when such modification implies a direct or indirect change of control,
provided that such change of control is not made in favor of a new foreign legal entity or individual; and (iii) creation of certain
real property rights over the rural land, such as easements.
Upon the issue of Decree
No. 820/2016, the effects of Law No. 26,737 have been somewhat mitigated, by setting forth a term of 90 days during which the foreign
legal entity or individual that has exceeded the allowed limit of ownership of rural land must reduce their current ownership to
the legal limit by (i) transferring or causing any of its controlled legal entities to transfer the amount of rural land that exceeds
the legal limit, or (ii) modifying or causing any of its controlled legal entities to modify the type of exploitation awarded to
rural lands owned by such foreign legal entity, or (iii) transferring its participation to legal entities that are considered compliant
pursuant to the terms of Law No. 26,737.
Law No. 26,737 initially
stated that, even though no vested rights could be affected as a result of the application of such law, any act in violation of
its provisions would be considered null and void. Decree No. 820/2016 clarified this situation and established that the foreign
entities or individuals who owned rural land in excess to the allowed limit of ownership when the Law No. 26,737 came into effect
(i) are not obliged to transfer such rural land in excess, and (ii) in the event of transfer of rural lands acquired before Law
No. 26,737 was in force, they can acquire the equivalent to such transferred rural land, provided the legal limits established
to the type of exploitation and location. Hence, the application of laws regarding foreign ownership of rural lands does not have
an adverse effect on the current rural land owned by our Argentine subsidiaries. However, our Argentine subsidiaries may be prevented
from acquiring additional rural land in Argentina, which may adversely affect our financial condition and results of our operations.
Our results of operations may be adversely
affected by high and possibly increasing inflation in Argentina.
In the past, inflation
has materially undermined the Argentine economy and the government’s ability to create conditions that would permit stable
growth. High inflation may also undermine Argentina’s foreign competitiveness in international markets and adversely affect
economic activity and employment, as well as our business and results of operation. In particular, the profit margin on our services
is impacted by the increase in our costs in providing those services, which is influenced by wage inflation in Argentina, as well
as other factors.
According to data published
by the INDEC, the CPI increased 23.9% in 2014 and 11.9% as of October 2015 (for the first nine months of year 2015). In November
2015, the INDEC suspended the publication of the CPI. According to the most recent publicly available information based on data
from the Province of San Luis, the CPI grew by 31.6% in 2015 and by 31.4% in 2016. According to the most recent publicly available
information based on data from the City of Buenos Aires, the CPI grew by 29.6% in 2015 and by 41.0% in 2016. After implementing
certain methodological reforms and adjusting certain macroeconomic statistics based on these reforms, in June 2016 the INDEC resumed
its publication of the CPI. According to the INDEC, Argentina’s rate of inflation for May, June, July, August, September,
October, November and December 2016 was 4.2%, 3.2%, 2.2%, 0.2%, 1.3%, 2.6%, 1.8% and 1.2%, respectively. Private estimates, on
average, refer to annual rates of inflation substantially in excess of those published by the INDEC. For example,
opposition lawmakers in Argentina reported an inflation rate of 41%, 25.0% and 38.5% for the years ended December 31, 2016,
2015 and 2014, respectively.
Uncertainty surrounding
future inflation rates may have an adverse impact for Argentina in the long-term credit market.
The INDEC implemented
certain methodological reforms and adjusted certain indexes based on these reforms The lack of accuracy in the INDEC’s indexes
could result in a further decrease in confidence in Argentina’s economy, which could, in turn, have an adverse effect on
our ability to access the international credit markets at acceptable market rates to be able to finance our operations and growth.
See “—Risks Related to Argentina—Official data regarding inflation may be unreliable” and —
“The economy of Argentina may be affected by its government’s limited access to financing from international markets”
—.
Inflation rates could escalate, and there is
uncertainty regarding the effects that the measures taken, or that may be taken, by the Macri administration to control inflation
could have. If inflation remains high or continues to increase, Argentina’s economy may be negatively impacted and our results
of operations could be materially adeversely affected.
Official data regarding inflation may
be unreliable.
Since 2007, the inflation
index determined by INDEC has been the subject of widespread criticism and extensive discussions in connection with analysis of
the Argentine economy. The intervention of the former Argentine government in the INDEC in 2007 and the change in the way the inflation
index was measured have resulted in disagreements between the former Argentine government and private consultants as to the actual
annual inflation rate. The former Argentine government imposed fines on private consultants reporting inflation rates higher than
the INDEC data. As a result, private consultants typically shared their data with Argentine lawmakers who opposed the previous
government, and who released such data from time to time. The widespread disagreements had the negative effect of eroding public
confidence in Argentina’s economy.
Reports published by the
International Monetary Fund (“IMF”) in the past state that their staff uses alternative measures of inflation for macroeconomic
surveillance, including data produced by private sources, which have shown considerably higher inflation rates than those published
by the INDEC since 2007. The IMF has also criticized Argentina for not taking sufficient remedial measures to address the quality
of its official data, including inflation and GDP data, as required under the Articles of Agreement of the IMF.
In February 2014, the INDEC
released a new inflation index, known as National Urban Consumer Price Index (
Índice de Precios al Consumidor Nacional
Urbano
) that measured the prices of goods across the country and replaced the previous index that only measured inflation in
the urban sprawl of the City of Buenos Aires. Pursuant to these calculations, such new consumer price index rose 23.9% in 2014
and 11.9% during the ten-month period ended October 31, 2015. Even though the new methodology brought inflation statistics closer
to those estimated by private sources, material differences between recent official inflation data and private estimates remained
during 2015. The lack of accuracy in the INDEC’s indices could result in a further decrease in confidence in Argentina’s
economy, which could, in turn, have an adverse effect on our ability to access the international credit markets at market rates
to finance our operations and growth.
Government intervention in Argentina
may have a direct impact on our prices and sales.
The Argentine government
has in the past set certain industry market conditions and prices. In March 2002, the Argentine government fixed the price for
milk after a conflict among producers and the government. In 2005, the Argentine government adopted measures in order to increase
the domestic availability of beef and reduce domestic prices. The export tax rate was increased and a minimum weight requirement
for animals to be slaughtered was established. In March 2006, sales of beef products to foreign markets were temporarily suspended
until prices decreased. Furthermore, in 2007 the Argentine government significantly increased export tax rates on exports of crops.
A number of restrictions were also imposed on the grain and oilseed markets that essentially limited the access of traders to exports,
resulting in a disparity between domestic and world prices. In March 2012, the Undersecretary of Transport created an “indicative
price” for the transportation of grains by road fixed on a quarterly basis. The actual price paid for the road transportation
of grains cannot be lower than 5% or higher than 15% of the “indicative price” fixed for the applicable period. In
some cases, the imposition of this “indicative price” would produce increases in our transportation
costs. In addition, on April 9, 2013, the Secretary of Commerce issued a resolution that established a fixed price for selling
liquid hydrocarbons for a six months period. The fixed price would be the highest selling price on the date of issuance of the
resolution, in certain regions of the country. Notwithstanding the April 9 resolution, YPF (the Argentine government-controlled
oil and gas company) implemented gas price increases that were matched by other oil companies. Due to the increase in the price
of the wheat, on July 4, 2013, the Secretary of Commerce issued a resolution mandating wheat producers and distributors to sell
their stocks to satisfy the domestic demand, seeking to reduce the wheat price. On January 2014, the Secretary of Commerce launched
a new program of price controls called Precios Cuidados. Producers and suppliers committed to fixed prices for more than 300 basic
products subject to review on a quarterly basis. As of the date hereof, one of our rice products sold under the trademark “Molinos
Ala” is subject to this program. Violation of the program may result in sanctions, including fines of up to AR$5,000,000.
The Argentine government
may pursue other expropriations or similar interventions such as the one relating to YPF. See “—Risks related to Argentina—The
economy of Argentina may be affected by its government’s limited access to financing from international markets.” On
December 27, 2012 the Argentine Congress passed Law N° 26,831, known as the new Capital Markets Law, which modifies the public
offer regime set forth by Law No. 17,811 as amended. On August 1, 2013 Decree No. 1023/2013, which regulates the Capital Markets
Law, was enacted.
The Capital Markets Law
modifies the applicable regime of the Capital Markets, including local Stock Exchange and commodities markets, and of the agents
and also the powers conferred to the Argentine Securities Commission (
Comisión Nacional de Valores
) (“CNV”).
The main amendments introduced refer to the increase in the power of intervention by the CNV over the Exchange Markets and agents
entitling the CNV to appoint supervisors with the ability to veto listed companies´ board decisions, and even disband the
board of directors for a period of 180 days; and suspend the activities of agents and markets, without prior notice, when the CNV
determines that a breach of applicable regulations has occurred. Also the new Capital Markets Law introduces new and more stringent
requirements for agents to obtain authorization to operate in the markets which may result in a reduction of the current number
of authorized agents operating in the grain markets. In November, 2016, the Argentine executive branch sent a bill to the Argentine
Congress to reform the current Capital Markets Law No. 26,831 which, among other changes, proposes the abrogation of these interventionist
powers granted to the CNV and generally seeks to modernize the entire regulatory framework applicable to the Argentine Capital
Markets, incorporating current international practices to further its development. However, as of the date of this annual report,
such bill has not yet been passed.
Moreover, the Argentine
government may increase its level of intervention in certain areas of the economy. For example, on May 3, 2012 the Argentine Congress
passed Law No. 26,741 providing for the expropriation of 51% of the share capital of YPF, S.A. (“YPF”), the largest
Argentine oil and gas company in Argentina, represented by an identical stake of Class D shares owned, directly or indirectly,
by Repsol S.A., a Spanish integrated oil and gas company. This particular measure also sparked a strong international condemnation
and had a significant negative impact on foreign direct investment in Argentina as well as further impaired the already limited
access to international capital and debt markets. In response to the nationalization of YPF by the Argentine government, the European
Union Commission threatened with the imposition of commercial sanctions (
i.e.
unilateral tariff preferences to Argentina).
However, during February 2014, the Argentine government and Repsol S.A. agreed to a compensation of $5,000 million payable in Argentine
sovereign bonds to compensate Repsol S.A. for the seizure of the YPF shares.
Furthermore, on April
1, 2014 the Argentine Tax Federal Authority (“Administración Federal de Ingresos Públicos – AFIP”)
issued Resolution No. 3,593/14 which established a “Systematic Registration of Movements and Grains Stocks Regime”
(“Régimen de Registración Sistemática de Movimientos y Existencias de Granos”) pursuant to which
all persons involved in the commercialization and manufacturing of grains and dairy products registered with the
Registro Único
de Operadores de la Cadena Agroindustrial
(“RUCA” for its acronym in Spanish) must report the stock and stock variations
(including locations, transport between the producer´s facilities, etc.) of all grains and other agricultural products (other
than those to be applied to sowing) held in inventory or through third parties.
On April 16, 2015, the
Argentine Congress passed a law approving the government takeover of the passenger and cargo railways, which became owned by a
State-owned company called Ferrocarriles Argentinos Sociedad del Estado. This law is another example of intervention
by the Argentine government and may result in higher transportation costs for our products and operations.
Expropriations and other
interventions by the Argentine government such as the one relating to YPF can have an adverse impact on the level of foreign investment
in Argentina, the access of Argentine companies to the international capital markets and Argentina’s commercial and diplomatic
relations with other countries. In the future, the level of governmental intervention in the economy may continue, which may have
adverse effects on Argentina’s economy and, in turn, our business, results of operations and financial condition.
Although many of the above
measures were adopted or announced by the former Argentine government, we cannot assure you that the Macri administration will
not interfere or increase its intervention by setting prices or regulating other market conditions. Accordingly, we cannot assure
you that we will be able to freely negotiate the prices of all our Argentine products in the future or that the prices or other
market conditions that the Macri administration might impose will allow us to freely negotiate the prices of our products, which
could have a material and adverse effect on our business, results of operations and financial condition.
Government measures to preempt or respond
to social unrest may adversely affect the Argentine economy and our business.
Argentina has experienced
significant social and political turmoil, including civil unrest, riots, looting, nationwide protests, strikes and street demonstrations.
Despite Argentina’s economic recovery and relative stabilization, social and political tension and high levels of poverty
and unemployment continue. Currently, Argentina is facing national protests, including a general massive strike and several protests
during 2017.
Future government policies
to preempt, or in response to, social unrest may include expropriation, nationalization, forced renegotiation or modification of
existing contracts, suspension of the enforcement of creditors’ rights, new taxation policies, including royalty and tax
increases and retroactive tax claims, and changes in laws and policies affecting foreign trade and investment. Such policies could
destabilize the country and adversely and materially affect the Argentine economy, and thereby our business, results of operations
and financial condition.
The Argentine government may order salary increases to be
paid to employees in the private sector, which would increase our operating costs.
In the past, the Argentine
government has passed laws, regulations and decrees requiring companies in the private sector to increase wages and provide specified
benefits to employees, and may do so again in the future. Argentine employers, both in the public and private sectors, have experienced
significant pressure from their employees and labor organizations to increase wages and to provide additional employee benefits.
Due to the high levels of inflation, employees and labor organizations are demanding significant wage increases. In August 2012,
the Argentine government established a 25% increase in minimum monthly salary to 2,875 Argentine pesos, effective as of February
2013. The Argentine government increased the minimum salary to 3,300 Argentine pesos in August 2013, to 3,600 Argentine pesos in
January 2014, to 4,400 Argentine pesos in September 2014, to 4,716 in January 2015, to 5,588 Argentine pesos in August 2015, to
6,060 Argentine pesos in January 2016, to 6,810 Argentine pesos in June 2016 and 7,560 Argentine pesos in September 2016. Recently,
the INDEC published data regarding the evolution of salaries in the private and public sectors, which reflects approximately 32.91%
and 32.58% salary increases in the private and public sectors, respectively, for the period from November 2015 through December
2016.
Due to the high levels
of inflation, employers both in the public and private sectors are experiencing significant pressure from organized labor and their
employees to further increase salaries. During 2016 organized labor unions agreed with employers’ associations on salary
increases between 27% and 37%. Headcount in Argentina represents the 15.4% of the total headcount of the Company, Accordingly,
if, as a result of such measures, future salary increases in Argentine peso exceed the pace of the devaluation of the Argentine
pesos, they could have a material and adverse effect on our expenses and business, results of operations and financial condition.
An increase in export and import duties
and controls may have an adverse impact on our sales.
Since 2002, the Argentine
government has imposed duties on the exports of various primary and manufactured products, including some of our products. During
the last ten years, such export taxes have undergone significant increases, reaching a maximum of
35% in the case of soybean. As of December 2015, the Macri administration eliminated farm export duties on corn, wheat and local
products, while soy export taxes were reduced by 5% to 30% and 27% for most soybean products. Notwithstanding these measures, we
cannot provide assurances or make predictions as to the impact this measure will have on our business, results of operations and
financial condition.
On January 2, 2017, the
Macri administration enacted a further reduction of the export duties on soybean and soybean products, including a monthly 0.5%
cut on the export duties rate starting on January 2018 and until December 2019 has been set.
Pursuant to a resolution
of the AFIP since February 2012, prior to the execution of any purchase order or similar document, Argentine importers were required
to file before the AFIP a “Prior Import Statement” (Declaración Jurada Anticipada de Importación) providing
information on future imports. Compliance with this requirement would be verified by the Argentine Customs upon arrival of the
goods into Argentina and it was mandatory for the authorization of the payment of the purchase price by the Argentine financial
entities. Even though this was intended merely as an information regime, it was considered to be used for purposes of restricting
imports into Argentina. The Macri administration has adopted a similar regime that replaced the former Prior Import Statement system
by the Import Monitoring System (Sistema Integral de Monitoreo de Importaciones or “SIMI”). Under this new system,
importers are required to submit certain information electronically through the SIMI application which, once approved, will be
valid for 180 calendar days. The imposition of this regime may restrict the imports of goods and the import and export of services
of our Argentine subsidiaries which may adversely affect our financial conditions or results of operations.
The Macri administration
has also enacted an import licensing regime that includes automatic and non-automatic licensing for imports. Automatic import licensing
provides that the importer is only required to submit information through the SIMI as well as provide other certification related
to the imported goods. Non-automatic licensing provides that the authorities have a 10-day period to either approve or reasonably
reject the import license requested based on its effect on local businesses, in addition to the other import requirements that
the goods be subject to (SIMI, certifications, etc). The prior administration had imposed a similar regime regarding the “import”
and “export” of service (
Declaración Jurada Anticipada de Servicios
or “DJAS” for its acronym
in Spanish) in order to control and restrict payments made by Argentine residents on services provided by foreign services, but
it was deregulated recently by the Macri administration.
We cannot assure you that
there will not be further increases in the export taxes or that other new export taxes or quotas will not be imposed. Imposition
of new export taxes or quotas or a significant increase in existing export taxes or the application of export quotas or burdensome
licensing requirements could adversely affect our financial condition or results of operations.
Exchange controls could restrict the
inflow and outflow of funds in Argentina.
In 2001 and 2002, the
Argentine government implemented a number of monetary and currency exchange control measures that included restrictions on the
withdrawal of funds deposited with banks and stringent restrictions on the outflow of foreign currency from Argentina, including
for purposes of paying principal and interest on debt and distributing dividends as well as the purchase of foreign currency and
on the transfer of funds from Argentina.
Although some of these
restrictions were subsequently eased, in June 2005, the Argentine government issued Decree No. 616/2005, which established new
controls on capital inflows that could result in reduced availability of international credit, including the requirement, subject
to certain exceptions, that 30% of all funds remitted to Argentina remain deposited in a domestic financial institution for 365
days in a non-interest bearing account. In addition, since the second half of 2011, the Argentine government increased certain
controls on the incurrence of foreign currency-denominated indebtedness, the acquisition of foreign currency and foreign assets
by local residents. For example, the Argentine Central Bank adopted regulations that (i) shortened the period for a borrower to
convert foreign currency-denominated indebtedness into Argentine pesos, (ii) shortened a borrower’s window of access to the
local foreign exchange market in connection with a prepayment of scheduled interest payments in respect of foreign currency-denominated
indebtedness and (iii) suspended the ability of local residents to access the local exchange market for the acquisition of foreign
currency.
In December 2015, the
Macri administration introduced substantial changes to the foreign exchange restrictions, reversing most of the measures adopted
since 2011 and providing greater flexibility and access to the foreign exchange market. See “—Risks related to Argentina—Argentine
economic and political conditions and perceptions of these conditions in the international market may have a direct impact on our
business and our access to international capital and debt markets, and could adversely affect our results of operations and financial
condition” in this section.
Notwithstanding the measures,
adopted by the Macri administration, which lifted virtually all exchange and capital controls (except for the obligation of Argentine
exporters of goods to repatriate to the FX Market foreign currency proceeds from export transactions, such as receivables relating
to the exportation of goods, which are required to be settled through the foreign exchange Market), the Argentine government may
impose or increase exchange controls or transfer restrictions in the future in response to capital flight or a significant depreciation
of the Argentine peso. These restrictions and requirements, and any additional exchange controls and transfer restrictions in the
future that may be adopted by the Argentine government, could adversely affect our financial condition and the results of our operations,
or the market price of our common shares. In addition, other exchange controls could in the future impair or prevent the conversion
of anticipated dividends, distributions, or the proceeds from any sale of equity holdings in Argentina, as the case may be, from
Argentine pesos into U.S. dollars and the remittance of the U.S. dollars abroad. These restrictions and controls could interfere
with the ability of our Argentine subsidiaries to make distributions in U.S. dollars to us and thus our ability to pay dividends
in the future.
Changes in the Argentine tax laws may adversely affect the
results of our operations.
On September 23, 2013,
Law No. 26,893 amending the Income Tax Law was enacted. According to the amendments the distribution of dividends became subject
to withholding income tax at a rate of 10% unless dividends were distributed to Argentine corporate entities and the income derived
from sale, exchange or disposition of shares and other securities not trading in or listed in capital markets and securities
exchanges is subject to income tax at a rate of 15% provided the gains are recognized by Argentine resident individuals. The withholding
tax rate for the sale, exchange or disposition of shares and other securities when gains are recognized by a foreign beneficiary
is, at the option of the non-Argentine resident seller, 13.5% on the gross amount or 15% on the net amount derived from the transaction.
However, as of the date of this report, regulations that define the calculation methodology for the 15% rate on the net amount
have not been enacted. Accordingly, the 13.5% rate is normally applied.
On July 22, 2016, Argentina
published Law No. 27,260 in the Argentine Official Gazette, which makes significant changes to the Argentine tax laws and establishes
new tax regimes as the “Voluntary and extraordinary disclosure regime of national and foreign currency holding and other
assets, within Argentina and abroad” (Tax Amnesty) and a moratorium for tax, social security and customs obligations.
In addition, the 10% withholding
tax established by Law No. 26,893 that was applied by companies on the distribution of dividends and profits was abrogated. Therefore,
dividend distributions are not subject to income tax withholding apart from the so-called “equalization tax” which
applies if the dividends distributed exceed the net accumulated taxable income of the distributing corporation.
Furthermore, compliant
taxpayers are able to obtain an exemption from Personal Assets Tax payable by Argentine resident companies as substitute taxpayers
on the participation held by their foreign shareholders and Argentine individual shareholders until fiscal year 2018 inclusive.
The applicable tax on shares and other equity participations in Argentine companies is 0.25% on the net worth value of the company.
Regarding the other tax on wealth, the Minimum Presumed Income Tax for fiscal years to be initiated as from January 1, 2019 has
been abrogated.
On December 27, 2016 the
Argentine Official Gazette published Law No. 27,346 that introduced important amendments to the Income Tax Law. The law creates
a new tax levied on financial speculation trades (commonly known as “USD Futures Market Trades”) to be applied one-time
only on the profits obtained by any person. Thus, gross income derived from “positive price differences” arising from
the buying or selling of USD Futures Market Trades will be taxed at an additional 15% tax rate.
In addition, Law No. 27,346
also modifies the Value Added Tax Law and creates the figure of substitute taxpayer for the payment of the tax corresponding to
foreign residents who render services in Argentina. Substitute taxpayers will assess and pay for value-added tax corresponding
to the act, even in the cases in which it is impossible to withhold that tax from the foreign resident. Also, the tax paid will
be considered as a tax credit if in favor of the substitute taxpayer.
Risks Related to Brazil
Brazilian economic and political conditions
and perceptions of these conditions in international markets have a direct impact on our business and our access to international
capital and debt markets, which could adversely affect our results of operations and financial condition.
A significant portion
of our operations, properties and customers are located in Brazil. Accordingly, our financial condition and results of operations
are substantially dependent on economic conditions in Brazil. The Brazilian economy has experienced significant volatility in recent
decades, characterized by periods of low or negative growth, high and variable levels of inflation and currency devaluation. Brazil’s
GDP, in nominal terms, grew by 6.1% in 2007, 5.1% in 2008, decreased 0.1% in 2009, increased 7.5% in 2010, increased 3.9% in 2011,
increased 1.9% in 2012, increased 3.0% in 2013, increased 0.1% in 2014 and decreased 3.8% in 2015. We cannot assure you that GDP
will increase or remain stable in the future. Future developments in the Brazilian economy may affect Brazil’s growth rates
and, consequently, the consumption of sugar, ethanol, and our other products. As a result, these developments could impair our
business strategies, results of operations and financial condition.
Historically, Brazil’s
political situation has influenced the performance of the Brazilian economy, and political crisis have affected the confidence
of investors and the general public, which has resulted in economic deceleration and heightened volatility in the securities issued
abroad by Brazilian companies. Future developments in policies of the Brazilian government and/or the uncertainty of whether and
when such policies and regulations may be implemented.
Changes in Brazilian tax laws may have
a material adverse impact on the taxes applicable to our business and may increase our tax burden.
The Brazilian government
frequently implements changes to the Brazilian tax regime that may affect us and our clients. These changes include changes in
prevailing tax rates and, occasionally, imposition of temporary taxes, the proceeds of which are earmarked for designated Brazilian
government purposes. Some of these changes may result in increases in our tax payments, which could adversely affect industry profitability
and increase the prices of our products, restrict our ability to do business in our existing and target markets and cause our financial
results to suffer.
Currently Brazil is tackling
an economic recession and the Government is adopting fiscal adjustment measures. Any fiscal adjustment is complex and involves
radical and unpopular measures. The Minister of Finance has also been raising the possibility of increasing or creating new taxes.
For example, the Brazilian government may reduce or increase at any time through a presidential decree the rates of the tax levied
on financial operations, such as credit transactions (“IOF/Credit”), foreign exchange transactions (“IOF/Exchange”),
derivative securities transactions (“IOF/Securities”), among other taxable events. On March, 30, 2017, a presidential
decree was published in order to introduce a 0,38% rate of the IOF/Credit on some loan transactions, such as credits provided by
cooperatives, which were previously subject to a zero percent rate.
It is also common for
taxpayers to file suits for the declaration that a certain tax is illegal or unconstitutional. casein such cases where the final
decision is favorable to taxpayers, a situation that occurs very frequently. Accordingly, the Brazilian Government may propose
changes in the tax legislation in order to increase rates or to create new taxes..
The effects of these changes
and any other change that could result from the enactment of additional legislation cannot be quantified. We cannot assure you
that we will be able to maintain our projected cash flow and profitability following any increases in Brazilian taxes applicable
to us and our operations.
Widespread corruption and fraud relating
to ownership of real estate may adversely affect our business, especially our land transformation business.
Under Brazilian Legislation,
real property ownership is normally transferred by means of a transfer deed, and subsequently registered at the appropriate Real
Estate Registry Office under the corresponding real property record. There are uncertainties, corruption and fraud relating to
title ownership of real estate in Brazil, mostly in rural areas. In certain cases, the Real Estate Registry Office may register
deeds with errors, including duplicate and/or fraudulent entries, and, therefore, deed challenges frequently occur, leading to
judicial actions. Property disputes over title ownership are frequent in Brazil, and, as a result, there is a risk that errors,
fraud or challenges could adversely affect us.
As an example, the Instituto
Nacional de Colonização e Reforma Agrária (“INCRA”) conducted an investigation to determine the
falsehood of the Certificado de Cadastro do Imóvel Rural (“CCIR”) delivered to us by the former owner of Rio
de Janeiro Farm (the “Farm”) in January 2005 when we acquired the Farm. The INCRA also conducted another investigation
related to the
cadeia dominial
of the Farm to determine the correct chain of ownership through the successive transfers
of ownership of the Farm, for the purpose of confirming that the
destaque publico
occurred, which refers to the transfer
of land ownership from the State to a private owner, or that the State does not have an interest in claiming the ownership of the
Farm. INCRA found no irregularity that could jeopardize the acquisition deed or affect the ownership of Rio de Janeiro Farm.
Social movements and the possibility
of expropriation may affect the normal use of, damage, or deprive us of the use of or fair value of, our properties.
Social movements, such
as Movimento dos Trabalhadores Rurais Sem Terra and Comissão Pastoral da Terra, are active in Brazil and advocate land reform
and mandatory property redistribution by the Brazilian government. Land invasions and occupations of rural areas by a large number
of individuals is common practice for these movements, and, in certain areas, including those in which we have invested or are
likely to invest, police protection and effective eviction proceedings are not available to land owners. As a result, we cannot
assure you that our properties will not be subject to invasion or occupation by these groups. A land invasion or occupation could
materially impair the normal use of our lands or have a material adverse effect on our results of operations, financial condition
or the value of our common shares. In addition, our land may be subject to expropriation by the Brazilian government. Under Article
184 of the Brazilian Constitution, the Brazilian government may expropriate land that is not in compliance with mandated local
“social functions”. A “social function” is defined in Article 186 of the Brazilian Constitution as (i)
rational and adequate exploitation of land; (ii) adequate use of natural resources available and preservation of the environment;
(iii) compliance with labor laws; and (iv) exploitation of land to promote welfare of owners and employees. If the Brazilian government
decides to expropriate any of our properties, our results of operations may be adversely affected, to the extent that potential
compensation to be paid by the Brazilian government may be less than the profit we could make from the sale or use of such land.
Disputing the Brazilian government’s
(*)
expropriation of land is usually time-consuming and the outcomes of such challenges
are uncertain. In addition, we may be forced to accept public debt bonds, which have limited liquidity, as compensation for expropriated
land instead of cash.
Recent changes in Brazilian rules concerning
foreign investment in rural properties may adversely affect our investments.
Brazilian Federal Law
No. 5,709, effective October 7, 1971 (“Law 5709”) established certain restrictions on the acquisition of rural property
by foreigners, including that (i) foreign investors may only acquire rural properties in which agricultural, cattle-raising, industrial
or colonization projects are going to be developed as approved by the relevant authorities; (ii) the total rural area to be acquired
by a foreign investor cannot exceed one quarter of the surface of the municipality where it is located, and foreigners with the
same nationality may not own, cumulatively, more than 10% of the surface of the municipality in which it is located; and (iii)
the acquisition or possession (or any in rem right) by a foreigner of rural property situated in an area considered important to
national security (i.e. land located at or near the Brazilian border) must be previously approved by the General Office of the
National Security Council (Secretaria-Geral do Conselho de Segurança Nacional). Pursuant to Article 23 of Law No. 8,629,
of February 25, 1993 (“Law 8629”), the restrictions mentioned in items (i) and (ii) above established by Law 5709 are
also applicable for rural lease agreements executed by foreigners. “Parcerias Agrícolas” (agriculture partnerships
agreements) have not been subject to these restrictions. Although, a broader interpretation of the existing regulations could have also included these agreements within
the limitations for foreigners, the Federal General Attorney’s Office (“AGU”) on October 8, 2012 issued a legal
opinion 005/2012, pursuant to which the AGU confirmed the understanding that the “Parcerias Rurais” are not subject
to the restrictions or limitations of Law 5709. In addition, pursuant to Law 8629, the acquisition or lease by a foreigner of a
rural property exceeding 100 módulos de exploração indefinida – “MEI,” a measurement unit
defined by the Regional Superintendence of the National Institute of Colonization and Land Reform (Superintendencia Regional do
Instituto Nacional de Colonizaçao e Reforma Agrária – “INCRA”) must be previously approved by the
Brazilian National Congress. Law 5709 also establishes that the same restrictions apply to Brazilian companies that are directly
or indirectly controlled by foreign investors. Any acquisition or lease of rural property by foreigners in violation of the terms
of Law 5709 would be considered null and void under Brazilian law.
Since the enactment of
the Brazilian Constitution in 1988, the consensus view was that the restrictions imposed by Federal Law 5709 on the acquisition
or lease of rural property above-mentioned did not apply to Brazilian companies controlled by foreigners, pursuant to legal opinion
No. GQ-22, issued by the AGU in 1994, which was ratified by legal opinion No. GQ-181, also issued by the AGU in 1998. The Brazilian
Constitution and its amendments, in particular Constitutional Amendment No. 6, of August 15, 1995, provides that (i) no restrictions
on the acquisition of rural land in Brazil should apply to Brazilian companies; and (ii) any company incorporated and headquartered
in Brazil and controlled by foreign investors must receive the same treatment as any other company incorporated and headquartered
in Brazil and controlled by Brazilian investors. However, the Brazilian Justice National Council issued an Official Letter on July
13, 2010 addressed to all the Brazilian local State Internal Affairs Bureaus in order for them to adopt procedures within sixty
(60) days and instruct the local State Notary and Real Estate Registry Offices to observe the restrictions of the Brazilian law
on the acquisitions of rural land by Brazilian companies with foreign equity holders. Thereafter, on August 19, 2010, the AGU revised
its prior opinion, and published a new legal opinion which: (i) revoked the AGU’s legal opinions No. GQ-22 and GQ-181; and
(ii) confirmed that Brazilian entities controlled by foreigners should be subject to the restrictions described above, and transactions
entered into by foreigners in connection with the acquisition of rural properties would be subject to approval from INCRA, the
Ministry of Agrarian Development and the Brazilian National Congress, when applicable. This revised opinion was ratified by the
President of Brazil and published in the Official Gazette of the Federal Executive on August 23, 2010, becoming effective as of
such date. We believe that the acquisitions of rural properties by Brazilian companies directly or indirectly controlled by foreigners
registered in the appropriate real estate registry prior to August 23, 2010 are not affected by the AGU’s legal opinion.
As a confirmation of such understanding, pursuant to the Joint Normative Ruling N. 1 issued on September 27, 2012 by the Ministries
of: (i) Agricultural Development; (ii) Agriculture, Cattle-raising and Supply; (iii) Industry Development and Foreign Commerce;
and (iv) Tourism (the “Joint Normative Ruling N. 1”); and the Normative Ruling/IN INCRA No.76, issued on August 23,
2013, a Brazilian company controlled by foreign individuals or companies which acquired or leased rural properties, by means of
an act or agreement entered into from June 7, 1994 and August 22, 2010, may register such property before the National System of
Rural Registry (Sistema Nacional de Catastro Rural-SNCR), without any administrative sanction. However, as of said date, the acquisition
and leasing of rural land in Brazil, including through corporate transactions, will be subject to the above-mentioned restrictions,
and will require several additional layers of review and approvals, which may be discretionary (including the approvals from INCRA,
Ministry of Agrarian Development and the Brazilian National Congress, when applicable), burdensome and time consuming. Additionally,
the Joint Normative Ruling N. 1 sets forth the administrative procedures applicable to requests for authorization for the acquisition
or lease of rural properties by foreign investors pursuant to Law 5709. Under the Joint Normative Ruling, in order to obtain the
authorization for the acquisition or lease of rural properties, foreign investors must present a project proposal to the INCRA,
containing: (i) the rationale for the relationship between the property to be acquired or leased and the project size; (ii) physical
and financial schedule of the investment and implementation of the project; (iii) use of official credit (governmental funds) for
the total or partial finance of the project; (iv) logistic viability of the execution of the project and, in case of an industrial
project, proof of compatibility between the local industrial sites and the geographic location of the lands; and (v) proof of compatibility
with the criteria established by the Brazilian Ecological and Economical Zoning (Zoneamento Ecológico Económico do
Brasil – ZEE), relating to the location of the property.
While we conduct our operations
in Brazil through local subsidiaries, we would be considered a foreign controlled entity within the meaning of the restrictions
described above. Therefore, if we are not able to comply with these restrictions and obtain the required approvals in connection
with future acquisitions or lease transactions, our business plan, contemplated expansion in Brazil and results of operations will
be adversely affected.
Furthermore, there is
currently proposed legislation under review in the Brazilian National Congress regarding the acquisition of rural land by Brazilian
companies controlled by foreign holders, which if approved may further limit and restrict the investments of companies with foreign
equity capital in rural land in Brazil. Such further restrictions, if adopted, may place more strain on our ability to expand our
operations in Brazil.
The Brazilian government has exercised,
and continues to exercise, significant influence over the Brazilian economy, which, combined with Brazilian political and economic
conditions, may adversely affect us.
We may be adversely affected by the following factors, as well as
the Brazilian government’s response to these factors:
|
|
•
|
economic and social instability;
|
|
|
•
|
increase in interest rates;
|
|
|
•
|
exchange controls and restrictions on remittances abroad;
|
|
|
•
|
restrictions and taxes on agricultural exports;
|
|
|
•
|
exchange rate fluctuations;
|
|
|
•
|
volatility and liquidity in domestic capital and credit markets;
|
|
|
•
|
expansion or contraction of the Brazilian economy, as measured by GDP growth rates;
|
|
|
•
|
allegations of corruption against political parties, elected officials or other public officials, including allegations made
in relation to the ”Car Wash Operation” (
Operação Lava-Jato)
investigation;
|
|
|
•
|
government policies related to our sector;
|
|
|
•
|
fiscal or monetary policy and amendments to tax legislation; and
|
|
|
•
|
other political, diplomatic, social or economic developments in or affecting Brazil.
|
Historically, the Brazilian
government has frequently intervened in the Brazilian economy and has occasionally made significant changes in economic policies
and regulations, including, among others, the imposition of a tax on foreign capital entering Brazil (IOF tax), changes in monetary,
fiscal and tax policies, currency devaluations, capital controls and limits on imports. The administration is currently facing
domestic pressure to retreat from the current macroeconomic policies in an attempt to achieve higher rates of economic growth.
In addition, the Brazilian government is proposing the creation of a tax on financial transactions, including wire transfers, (the
so-called “CPMF”) in order to improve the fiscal situation of the country. We cannot predict which policies will be
adopted by the Brazilian government and whether these policies will negatively affect the economy or our business or financial
performance.
The Brazilian economy
has been experiencing a slowdown – GDP growth rates were 7.5%, 3.9%, 1.9%, 2.7%, and 0.1% in 2010, 2011, 2012, 2013 and 2014,
respectively and GDP decreased 3.8% in 2015. Inflation, unemployment and interest rates have increased more recently and the Brazilian
Real has weakened significantly in comparison to the U.S. dollar. The market expectations for the years 2016 and 2017 is that the
Brazilian economy will continue to slow down and GDP will decrease. Our results of operations and financial condition may be adversely
affected by the economic conditions in Brazil.
Allegations of political corruption against
the Brazilian government and the Brazilian legislative branch could create economic and political instability.
In the past, members of
the Brazilian government and of the Brazilian legislative branch have faced allegations of political corruption. As a result, a
number of politicians, including senior federal officials and congressmen, resigned and/or have been arrested. Currently, several
members of the Brazilian executive and legislative branches of government are being investigated as a result of allegations of
unethical and illegal conduct identified by the Car Wash Operation (
Operação Lava-Jato
) being conducted by
the Office of the Brazilian Federal Prosecutor. . On April 17th, 2016 the impeachment process of the Brazilian President was approved
by the House of Representatives and, on August 31st, 2016 the process was approved by Senate. The Brazilian President was replaced
by the Vice-President until a new election is held in 2018. The new President has been trying to implement political and economic
reforms related to labor and social security matters, and other measures targeting higher economic rates of growth and employment.
We cannot predict which policies will be adopted by the new Brazilian government and whether these policies will negatively affect
the economy and our business or results of operations.
Additionally, the potential outcome of investigations
and proceedings related to the Car Wash Operation (
Operação Lava-Jato
) is unknown, but they have already had
an adverse impact on the general market perception of the Brazilian economy and the conclusion of these proceedings or further
allegations of illicit conduct could have additional adverse effects in the Brazilian economy. In this sense, the political crisis
could worsen the economic conditions in Brazil, which may adversely affect our results of operations and financial condition.
Moreover, the economic
and political crisis have resulted in the downgrading of the country’s long-term credit rating from the three major rating
companies, placing Brazil back in speculative investment grade level (“junk”). Standard & Poor's downgraded Brazil
to BB with a negative outlook in February 2016; , Fitch Ratings downgraded to BB with a negative outlook, in May 2016 , while Moody’s
maintained its Ba2 rating, changing its outlook from negative to stable in March 2017. According to Moody’s, this improvement
is based on a more stabilized and predicted macroeconomic environment. However, the new Brazilian administration is still facing
domestic pressure to repair the economy and achieve higher rates of economic growth. We cannot predict which policies will be adopted
by the Brazilian government and whether these policies will negatively affect the economy or our business or financial performance..
Restrictions on
the movement of capital out of Brazil may impair our abilityto receive payments from our Brazilian Subsidiaries and restrict their
ability to make payments in U.S. dollars.
In the past, the Brazilian
economy has experienced balance of payment deficits and shortages in foreign exchange reserves, and the Brazilian government has
responded by restricting the ability of Brazilian or foreign persons or entities to convert
reais
into foreign currencies.
The Brazilian government may institute a restrictive exchange control policy in the future. Any restrictive exchange control policy
could prevent or restrict our Brazilian Subsidiaires’ access to U.S. dollars, and consequently their ability to meet their
U.S. dollar obligations and may adversely affect our financial condition and results of operations.
Our business in Brazil is subject to
governmental regulation.
Our Brazilian operations
are subject to a variety of national, state, and local laws and regulations, including environmental, agricultural, health and
safety and labor laws. We invest financial and managerial resources to comply with these laws and related permit requirements.
Our failure to do so could subject us to fines or penalties, enforcement actions, claims for personal injury or property damages,
or obligations to investigate and/or remediate damage or injury. Moreover, if applicable laws and regulations, or the interpretation
or enforcement thereof, become more stringent in the future, our capital or operating costs could increase beyond what we currently
anticipate, and the process of obtaining or renewing licenses for our activities could be hindered or even opposed by the competent
authorities.
We are also subject to
laws and regulations imposed in Brazil and its agencies, including (i) the National Agency of Petroleum, Natural Gas and Biofuels
(
Agência Nacional do Petróleo
,
Gás Natural e Biocombustível(“ANP”)
) and by
the Brazilian Electricity Regulatory Agency (
Agência Nacional de Energia Elétrica
) (“ANEEL”) on
account of our production of sugarcane, ethanol and electric energy (ii) the Ministry of Agriculture, Breeding Cattle and Supply
(
Ministerio da Agricultura
,
Pecuaria e Abastecimento(“MAPA”)
), on account of our agricultural, sugarcane
and ethanol production activities. If an adverse final decision is issued in an administrative process, we could be exposed to
penalties and sanctions derived from the violation of any of these laws and regulations, including the payment of fines, and, depending
on the level of severity applied to the infraction, the closure of facilities and/or stoppage of activities and the cancellation
or suspension of the registrations, authorizations and licenses, which may also result in temporary interruption or discontinuity
of activities in our plants, and adversely affect our business, financial status, and operating results.
Government laws and regulations in Brazil
governing the burning of sugarcane could have a material adverse impact on our business or financial performance.
In Brazil, a relevant
percentage of sugarcane is currently harvested by burning the crop, which removes leaves in addition to eliminating insects and
other pests. The states of São Paulo, Minas Gerais and Mato Grosso do Sul, among others, have established laws and regulations
that limit and/or entirely prohibit the burning of sugarcane and there is a likelihood that increasingly stringent regulations
will be imposed by those states and other governmental agencies in the near future.
Such limitations arise
from a Brazilian Federal Decree that set forth the complete elimination of the harvest by burning the crop until 2018 in areas
where it is possible to carry out mechanized harvest. In the state of Minas Gerais, the deadline imposed by the State Government
for the elimination of the harvest by burning the crop is 2014, for areas with declivity lower than 12%, and for areas with declivity
higher than 12%, they are subject to an additional term at the discretion of the State Environmental Agency, on a case by case
basis. Nevertheless, in the state of Mato Grosso do Sul, the current deadline is 2018 for the elimination of harvest by burning
the crop for areas where mechanized harvest can be carried out, as per the Brazilian Federal Decree.
We currently make significant
investments to comply with these laws and regulations. Although our plans for the implementation of mechanized harvesting are underway,
with 97.7% of our sugarcane harvest mechanized during the 2015-2016 harvest, the strengthening of these laws and regulations or
the total prohibition of sugarcane burning would require us to increase our planned investment in harvesting equipment, which,
in turn, would limit our ability to fund other investments. In addition, the state of São Paulo has imposed an obligation
on growers to dedicate a certain percentage of land used for sugarcane cultivation for native or reclaimed forest area. The cost
of setting aside this land is difficult to predict and may increase costs for us or our sugarcane suppliers. As a result, the costs
to comply with existing or new laws or regulations are likely to increase, and, in turn, our ability to operate our plants and
harvest our sugarcane crops may be adversely affected.
Risks Related to a Luxembourg Company
We are a Luxembourg corporation (“société
anonyme”) and it may be difficult for you to obtain or enforce judgments against us or our executive officers and directors
in the United States.
We are organized under
the laws of the Grand Duchy of Luxembourg. Most of our assets are located outside the United States. Furthermore, most of our directors
and officers and experts reside outside the United States, and most of their assets are located outside the United States. As a
result, you may find it difficult to effect service of process within the United States upon these persons or to enforce outside
the United States judgments obtained against us or these persons in U.S. courts, including judgments in actions predicated upon
the civil liability provisions of the U.S. federal securities laws. Likewise, it may also be difficult for you to enforce in U.S.
courts judgments obtained against us or these persons in courts located in jurisdictions outside the United States, including actions
predicated upon the civil liability provisions of the U.S. federal securities laws. It may also be difficult for an investor to
bring an action in a Luxembourg court predicated upon the civil liability provisions of the U.S. federal securities laws against
us or these persons. Luxembourg law provides shareholders the right to bring a derivative action on behalf of the Company only
in limited circumstances and subject to conditions only admit, shareholders’ right to bring a derivative action on behalf
of the company.
Service of process within
Luxembourg upon the Company may be possible, provided that The Hague Convention on the Service Abroad of Judicial and Extrajudicial
Documents in Civil or Commercial Matters of November 15, 1965 is complied with. As there is no treaty in force on the reciprocal
recognition and enforcement of judgments in civil and commercial matters between the United States and the Grand Duchy of Luxembourg,
courts in Luxembourg will not automatically recognize and enforce a final judgment rendered by a U.S. court. The enforceability
in Luxembourg courts of judgments entered by U.S. courts will be subject prior any enforcement in Luxembourg to the procedure and
the conditions set forth in particular in the Luxembourg procedural code, which conditions may include the following (subject to
court interpretation which may evolve):
|
|
•
|
the judgment of the U.S. court is final and duly enforceable (
exécutoire
) in the
United States;
|
|
|
•
|
the U.S. court had jurisdiction over the subject matter leading to the judgment (that is, its jurisdiction
was established in compliance both with Luxembourg private international law rules and with the applicable domestic U.S. federal
or state jurisdictional rules);
|
|
|
•
|
the U.S. court has applied to the dispute the substantive law which would have been applied by
Luxembourg courts;
|
|
|
•
|
the judgment was granted following proceedings where the counterparty had the opportunity to appear,
and if it appeared, to present a defense;
|
|
|
•
|
the U.S. court has acted in accordance with its own procedural laws; and
|
|
|
•
|
the judgment of the U.S. court does not contravene Luxembourg international public policy.
|
Under our articles of
incorporation, we indemnify and hold our directors harmless against all claims and suits brought against them, subject to limited
exceptions. Under our articles of incorporation, to the extent allowed or required by law, the rights and obligations among or
between us, any of our current or former directors, officers and company employees and any current or former shareholder will be
governed exclusively by the laws of Luxembourg and subject to the jurisdiction of the Luxembourg courts, unless such rights or
obligations do not relate to or arise out of their capacities as such. Although there is doubt as to whether U.S. courts would
enforce such provision in an action brought in the United States under U.S. securities laws, such provision could make the enforcement
of judgments obtained outside Luxembourg more difficult as to the enforcement against our assets in Luxembourg or jurisdictions
that would apply Luxembourg law.
You may have more difficulty protecting
your interests than you would as a shareholder of a U.S. corporation.
Our corporate affairs are governed by our articles
of incorporation and by the laws governing joint stock companies organized under the laws of the Grand Duchy of Luxembourg as well
as such other applicable local law, rules and regulations. The rights of our shareholders and the responsibilities of our directors
and officers under Luxembourg law are different from those applicable to a corporation incorporated in the United States. There
may be less publicly available information about us than is regularly published by or about U.S. issuers. Also, Luxembourg regulations
governing the securities of Luxembourg companies may not be as extensive as those in effect in the United States, and Luxembourg
law and regulations in respect of corporate governance matters may not be as protective of minority shareholders as state corporation
laws in the United States. Therefore, you may have more difficulty protecting your interests in connection with actions taken by
our directors and officers or our principal shareholders than you would as a shareholder of a corporation incorporated in the United
States.
You may not be able to participate in
equity offerings, and you may not receive any value for rights that we may grant.
Pursuant to Luxembourg
corporate law, existing shareholders are generally entitled to preemptive subscription rights in the event of capital increases
and issues of shares against cash contributions. However, under our articles of incorporation, the board of directors has been
authorized to waive, limit or suppress such preemptive subscription rights until the fifth anniversary of the publication of the
authorization granted to the board in respect of such waiver by the general meeting of shareholders. The current authorization
was renewed by decision of the shareholder meeting held on April 20, 2016 and is valid until April 20, 2021.
|
|
Item 4.
|
Information on the Company
|
|
|
A.
|
HISTORY AND DEVELOPMENT OF THE COMPANY
|
General Information
Adecoagro is a Luxembourg
société anonyme
(a joint stock company). The Company’s legal name is “Adecoagro S.A.” Adecoagro
was incorporated on June 11, 2010 and on October 26, 2010 all the outstanding shares of Adecoagro were acquired by IFH.
On October 30, 2010, the
members of IFH transferred pro rata approximately 98% of their membership interests in IFH to Adecoagro in exchange for common
shares of Adecoagro. On January 28, 2011, Adecoagro completed the IPO of its shares listed on the New York Stock Exchange (“NYSE”).
The shares are traded under the symbol “AGRO.” In a series of transactions during 2012, we transferred shares of Adecoagro
to certain limited partners of IFH in exchange for their residual interest in IFH increasing our interest in IFH to approximately
100%.
On March 27, 2015, Adecoagro
commenced a series of transactions for the purpose of transfering the domicile of Adecoagro LP to Luxembourg. In connection with
the Adecoagro LP redomiciliation, Adecoagro merged IFH into Adecoagro LP (Delaware) with Adecoagro LP (Delaware) as the surviving
entity and on April 1, 2015 Adecoagro GP S.à r.l., a
société à responsibilitié limitée
organized under the laws of Luxembourg, became he general partner of Adecoagro LP on April 1, 2015. Also on April 1, 2015, Adecoagro
completed the redomiciliation of Adecoagro LP (Delaware) out of Delaware to Luxembourg and Adecoagro LP without dissolution or
liquidation, continued its corporate existence as Adecoagro LP S.C.S., a
société en commandite simple
organized
under Luxembourg law, effective April 2, 2015. For a detailed description of the Adecoagro LP redomiciliation please see “Corporate
Development” below.
Adecoagro is registered
with the Luxembourg Registry of Trade and Companies under number B153681. Adecoagro has its registered office at 6, Rue Eugène
Ruppert, L-2453, Luxembourg, Grand Duchy of Luxembourg. Our telephone number is (+352) 264491.
History
In September 2002, we
commenced our operations with the acquisition of 100% of the equity interests of Pecom Agropecuaria S.A., an Argentine corporation
(
sociedad anónima
), and we rapidly became one of the largest agricultural companies in Argentina. Totaling more than
74,000 hectares of farmland, this acquisition represented one of the largest stock purchase transactions in South America in 2002.
In connection with the acquisition, Pecom Agropecuaria S.A. changed its name to Adeco Agropecuaria S.A. (“Adeco Agropecuaria”).
Adeco Agropecuaria was the platform from which we executed our expansion plans, including the acquisition of additional land and
the diversification of our business activities.
In 2004, we began our
regional expansion and acquired a farm in Uruguay (approximately 5,086 hectares) and three farms in Western Bahia Brazil (20,419
hectares). In 2005, we continued the expansion of our crop business in Argentina with the acquisitions of La Agraria S.A. (approximately
4,857 hectares) and Establecimientos El Orden S.A. and Cavok S.A. (approximately 15,157 hectares) and Las Horquetas farm (2,086
hectares).
In 2005, we acquired our
first sugar and ethanol mill, Usina Monte Alegre S.A. (“UMA”), with a crushing capacity of 0.9 million tons of sugarcane
per year at that time. UMA became our platform for expansion in the Brazilian sugar and ethanol sector.
In 2006 and 2007, we continued
our land portfolio expansion and vertical integration through the acquisitions of Pilagá S.A. (formerly Pilagá S.R.L.
and before that, Pilagá S.A.G.), one of the largest and oldest agriculture companies in Argentina, with more than 88,000
hectares and two rice processing facilities, and one additional farm of approximately 2,400 hectares in Argentina and two farms
of approximately 4,000 hectares in Brazil for the production of crops. Also, in December 2007, we acquired Bañado del Salado
S.A., Agro Invest S.A. and Forsalta S.A., with more than 43,000 hectares for crop production in Argentina, and one farm in Uruguay
of approximately 3,177 hectares.
During 2007, we also began
the expansion of our dairy business in Argentina. After five years of research, we began the construction of a “free-stall”
dairy facility with a capacity to milk 3,000 cows.
In Brazil, during 2007,
we began the construction of a sugarcane cluster in Mato Grosso do Sul with a projected 10.0 million tons of sugarcane crushing
capacity. Angelica was the first greenfield mill we built from inception, with a nominal crushing capacity of 4.0 million tons.
We also bought approximately 13,000 hectares of farmland for the planting of sugarcane to supply the mill. Angelica began operating
during August 2008, and reached full operational capacity during April 2010.
Additionally, in August
2010, we acquired Dinaluca S.A., an agricultural company consisting of a farm located in the province of Corrientes, Argentina,
and with more than 14,000 hectares for crop production in Argentina. Further, between August and November 2011, we acquired: (i)
Compañía Agroforestal de Servicios y Mandatos S.A., an agricultural Argentine company owning more than 4,900 hectares
of land in the province of Santiago del Estero, (ii) Simoneta S.A., an agricultural Argentine company owner of more than 4,600
hectares of land in the province of La Pampa, and (iii) 3,400 hectares of land for crop production in the province of San Luis,
Argentina.
During 2012, we began
the construction of our second free stall dairy facility in Argentina, with a capacity of 3,500 milking cows.
On February 26, 2013,
Adecoagro formed CHS Agro S.A., a joint venture with a leading farmer-owned energy, grains and foods company based in the United
States. We hold 50% interest in CHS Agro. CHS Agro will build a sunflower processing facility located in the city of Pehuajo, Province
of Buenos Aires, Argentina. The facility will process blackoil and confectionary sunflower into speciatly products such as in-shell
seeds and oil seeds, which will be entirely exported to markets in Europe and the Middle East. The joint venture will grow confectionary
sunflower on leased farms, while blackoil sunflower will be originated from third parties. As of December 31, 2014, we and CHS
Inc. have made individual capital contributions to CHS Agro of approximately US$ 4 million each.
During March 2013, we
began the construction of the second greenfield project in our sugarcane cluster in Mato Grosso do Sul. The Ivinhema mill, with
5.0 million tons of sugarcane crushing capacity and located 45 km south of Angelica, would consolidate our cluster, generating
important synergies and economies of scale, improving operational margins and Adjusted Free Cash Flow. Ivinhema was built in two
phases: the first phase with 2.0 million tons of capacity was completed during April 2012 and the second phase, with 3.0 million
tons of crushing capacity was completed during mid 2015.
Corporate Development
On October 30, 2010, as
part of the corporate reorganization, referred to herein as the Reorganization, AFI Ltd., a subsidiary of IFH LLC and the parent
of Adecoagro LLC, distributed its interest in Adecoagro LLC to IFH LLC and commenced a process of dissolution, making IFH LLC the
direct parent of Adecoagro LLC. Thereafter, our shareholders transferred pro rata 98% of their membership interests in IFH LLC
to Adecoagro (a corporation organized under the laws of the Grand Duchy of Luxembourg with no prior holdings or operations, formed
for the purpose, among others, of facilitating our IPO) in exchange for 100% of the common shares of Adecoagro.
In connection with the
Reorganization, Adecoagro converted IFH LLC from a limited liability company to IFH LP, a Delaware limited partnership. owned 2%
by our shareholders, approximately 98% by Adecoagro, in each case as limited partners, and the remainder by Ona Ltd., a newly formed
Maltese corporation, as its general partner. Adecoagro LLC was also converted to Adecoagro LP, a Delaware limited partnership,
owned approximately 100% by IFH LP as limited partner, and the remainder by Toba Ltd., a newly formed Maltese corporation, as its
general partner.
On January 28, 2011, we
successfully completed our initial public offering of our shares listed on the NYSE and on February 2, 2011 we issued 28,405,925
shares, at a price of US$11 per share. The shares trade under the symbol “AGRO.”
On February 2, 2011, we
also issued and sold to Al Gharrafa Investment Company (“Al Gharrafa”), a wholly owned subsidiary of Qatar Holding
LLC and one of our shareholders, 7,377,598 common shares at a purchase price of $10.65 per share, which is equal to the price per
common share paid by the underwriters of our initial public offering of the Company, pursuant to an agreement
entered into on January 6, 2011. In addition, on February 11, 2011, we issued 4,285,714 shares when the over-allotment option was
exercised by the underwriters in our IPO.
During 2012, the Company
issued in a series of transactions 1,654,752 shares to certain limited partners of IFH in exchange for their residual interest
in IFH increasing Adecoagro’s interest in IFH to approximately 100%.
On February 5, 2013, we
completed an underwritten secondary offering of 13.9 million common shares of Adecoagro offered by our shareholder, HBK Master
Fund LP at a price per share to the public of $8.00 pursuant to an effective shelf registration statement on Form F-3 filed with
the SEC. On February 13, 2013, HBK Master Fund LP sold an additional 2.1 million common shares of Adecoagro pursuant to the overallotment
option it granted to the underwriter in the secondary offering.
On March 27, 2015, Adecoagro
commenced a series of transactions for the purpose of transferring the domicile of Adecoagro LP to Luxembourg. In connection with
the Adecoagro LP redomiciliation, Adecoagro merged IFH LP into Adecoagro LP with Adecoagro LP (Delaware) as the surviving entity.
In connection with this merger, all of the assets and liabilities of IFH L.P. vested in Adecoagro LP (Delaware), Ona Ltd became
its general partner and Toba Ltd became a wholly owned subsidiary of Adecoagro LP (Delaware). In connection with the transactions
completed on March 27, 2015, Ona Ltd. assigned its general partnership interest in Adecoagro LP to Adecoagro GP S.a.r.l.,
a
societe responsibilitie limitee
organized under the laws of Luxembourg, on April 1, 2015. Also on April 1, 2015, Adecoagro
completed the redomiciliation of Adecoagro LP (Delaware) out of Delaware to Luxembourg and Adecoagro LP, without dissolution or
liquidation, continued its corporate existence as Adecoagro LP S.C.S.,
a societe en commandite simple
organized under Luxembourg
law, effective April 2, 2015. Since that date the affairs of Adecoagro LP S.C.S. have been governed by its by-laws and Luxembourg
law.
On March 21, 2016, we
completed an underwritten secondary offering of 12.0 million shares of Adecoagro offered by our shareholders, Quantum Partner LP
and Geosor Corporation, at a price per share to the public of $11.7 pursuant to an effective shelf registration statement on Form
F-3 filed with the SEC. In connection with this offering, the selling shareholders granted the underwriter the right to purchase
up to 1,800,000 additional common shares exercisable once at any time within 30 days after March 21,2016. On April 20, 2016, the
underwriter elected to purchase an additional 350,000 common shares at a price of 11.40 per common share.
Set forth below is a corporate
structure as of April 20, 2017.
Principal Capital Expenditures
Capital expenditures totaled
$133.2 million, $149.8 million and $306.8 million for the years ended December 31, 2016, 2015 and 2014, respectively.
For a discussion of our
capital expenditures and future projections, see “Item 5. Operating and Financial Review and Prospects—B. Liquidity
and Capital Resources—Capital Expenditure Commitments.”
Our Company
We are a leading agricultural
company in South America, with operations in Argentina, Brazil and Uruguay. We are currently involved in a broad range of businesses,
including farming crops and other agricultural products, dairy operations, sugar, ethanol and energy production and land transformation.
Our sustainable business model is focused on (i) a low-cost production model that leverages growing or producing each of our agricultural
products in regions where we believe we have competitive advantages, (ii) reducing the volatility of our returns through product
and geographic diversification and use of advanced technology, (iii) benefiting from vertical integration in key segments of the
agro-industrial chain, (iv) acquiring and transforming land to improve its productivity and realizing land appreciation through
strategic dispositions, and (v) implementing sustainable production practices and technologies focused on long-term profitability.
As of December 31, 2016,
we owned a total of 246,139 hectares, comprised of 19 farms in Argentina, 11 farms in Brazil and one farm in Uruguay. In addition
we own and operate several agro-industrial production facilities including three rice processing facilities in Argentina, two dairy
facilities with approximately 6,880 milking cows in Argentina, 11 grain and rice conditioning and storage plants in Argentina,
and three sugar and ethanol mills in Brazil with a sugarcane crushing capacity of 11.2 million tons.
We believe that we are:
|
|
•
|
one of the largest owners of productive farmland in South America, with more than 203,620 owned
productive hectares as of December 31, 2016 (excluding legal land reserves pursuant to local regulations and other land reserves)
located in Argentina, Brazil and Uruguay, producing a wide range of agricultural products.
|
|
|
•
|
a leading producer of grains and oilseeds in South America. During the 2015/2016 harvest year,
we harvested 172,976 hectares (including 55,895 leased hectares and 32,896 second crop hectares) and produced 586,556 tons of grains,
including soybeans, corn, wheat, sunflower and cotton;
|
|
|
•
|
one of the largest producers of rough (unprocessed) rice in the world, planting 37,580 hectares
(including 1,700 leased hectares) and producing 220,758 tons during the 2015/2016 harvest year, which accounted for 21% of the
total Argentine production according to the
Confederacion de Molinos Arroceros del Mercosur
(“Conmasur”). We
are also a large processor and exporter of white rice (processed) in Argentina, accounting for 19%
of total white rice
production capacity in Argentina and 22% of total Argentine white rice exports during 2016, according to
Camara de Industriales
Arroceros de Entre Ríos (Federacion de Entidades Arroceras)
.
|
|
|
•
|
a leading dairy producer in South America in terms of our cutting-edge technology, productivity
per cow and grain conversion efficiencies, producing approximately 92.4 million liters of fluid milk during 2016.
|
|
|
•
|
a growing producer of sugar and ethanol in Brazil, where we currently own three sugar and ethanol
mills, with an aggregate installed capacity of 11.2 million tons per year and full cogeneration capacity (the generation of electricity
from sugarcane bagasse, the fiber portion of sugarcane that remains after the extraction of sugarcane juice) of 232 MW as of December
31, 2016. Our operation is highly integrated, meaning that 91% of the sugarcane crushed at our mills is supplied from our own plantations.
As of December 31, 2016, our sugarcane plantation consisted of 134,591 hectares; and,
|
|
|
•
|
one of the leading companies in South America involved in the acquisition and transformation of
undermanaged land to more productive uses, generating higher cash yields. Between 2006 and 2015 we consistently sold a portion
of our fully mature farmland every year. In aggregate, we have sold over 77,000 hectares generating capital gains of approximately
$205 million.
|
We are engaged in three
main businesses:
Farming Business
:
As of December 31, 2016 we owned 232,848 hectares (excluding sugarcane farms) of farmland in Argentina, Brazil and Uruguay, of
which 121,615 hectares are croppable, 11,227 hectares are being evaluated for transformation, 60,713 hectares are suitable for
raising beef cattle and are mostly leased to third party cattle farmers, constituting a total of 193,555 productive hectares, and
39,293 hectares are legal land reserves pursuant to local regulations or other land reserves. During the 2015/2016 harvest year
we held leases or have entered into agriculture partnerships for an additional 57,595 croppable hectares. We own the facilities
and have the resources to store and condition 100% of our crop and rice production. We do not depend on third parties to condition
our production for sale. Our farming business is subdivided into four main businesses:
|
|
•
|
Crop business
: We produce a wide range of agricultural commodities including soybeans, corn,
wheat, sunflower and cotton, among others. In Argentina, our farming activities are conducted mainly in the Argentine humid pampas
region, where agro-ecological conditions are optimal for low-cost production. Since 2004, we have expanded our operations throughout
the center-west region of Uruguay and the western part of the state of Bahia, Brazil, as well as in the northern region of Argentina.
During the 2015/2016 harvest year, we planted approximately 172,976 hectares of crops, including second harvests, producing 586,772
tons of grains, including soybeans, wheat, corn, sunflower and cotton. We also planted an additional 4,718 hectares where we produced
over 136,797 tons of forage that we used for cow feed in our dairy operation. During the current 2016/17 harvest year, we planted
approximately 184,988 hectares of crops, including second harvest, and also planted an additional 3,808 hectares of forage.
|
|
|
•
|
Rice business
: We own a fully-integrated rice operation in Argentina. We produce irrigated
rice in the northeast provinces of Argentina, where the availability of water, sunlight, and fertile soil results in one of the
most ideal regions in the world for producing rice at low cost. We believe that we are one of the largest producers of rough (unprocessed)
rice in Argentina, producing 220,758 tons during the 2015/2016 harvest year, which accounted for 21% of the total Argentine production
according to Conmasur. We own three rice mills that process our own production, as well as rice purchased from third parties. We
produce different types of white and brown rice that are sold both in the domestic Argentine retail market and exported. During
the current 2016/17 harvest year, we planted 39,728 hectares of rice.
|
|
|
•
|
Dairy business
: We believe that we are a leading dairy producer in South America in terms
of our utilization of cutting-edge technology, productivity per cow and grain conversion efficiencies. Through the production of
fluid milk, we are able to transform forage and grains into value-added animal protein. We believe that our “free-stall”
dairies in Argentina are the first of their kind in South America and allows us to optimize our use of resources (land, dairy cow
feed and capital), increase our productivity and maximize the conversion of forage and grain into fluid milk. We produced approximately
92.4 million liters of fluid milk during 2016, with a daily average of 6,880 milking cows, delivering an average of 36.7 liters
of milk per cow per day.
|
|
|
•
|
All Other Segments business
: Our all other segments business consists of leasing pasture
land to cattle farmers in Argentina and leasing our coffee plantation in the Rio de Janeiro farm, located in Western Bahia, Brazil,
to a third party. We lease over 27,216 hectares of pasture land which is not suitable for crop production to third party cattle
farmers.
|
The following
table sets forth, for the periods indicated, certain data relating to our farming business:
|
|
|
Year
Ended December 31,
|
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
Sales
|
|
(In
thousands of $)
|
|
|
Crops(l)
|
|
|
142,124
|
|
|
|
154,741
|
|
|
|
177,662
|
|
|
Rice(2)
|
|
|
96,562
|
|
|
|
84,668
|
|
|
|
103,682
|
|
|
Dairy
|
|
|
32,897
|
|
|
|
32,981
|
|
|
|
32,968
|
|
|
All Other Segments (3)
|
|
|
960
|
|
|
|
1,302
|
|
|
|
1,525
|
|
|
Total
|
|
|
272,543
|
|
|
|
273,692
|
|
|
|
315,837
|
|
|
Production
|
|
2015/2016
Harvest
Year
|
|
|
2014/2015
Harvest
Year
|
|
|
2013/2014
Harvest
Year
|
|
|
Crops (tons)(4)
|
|
|
583,639
|
|
|
|
627,824
|
|
|
|
643,354
|
|
|
Rice (tons)(5)
|
|
|
220,758
|
|
|
|
180,149
|
|
|
|
205,489
|
|
|
Total
|
|
|
804,397
|
|
|
|
807,973
|
|
|
|
848,843
|
|
|
|
|
Year
Ended December 31
|
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
Dairy (thousands of liters)(6)
|
|
|
92,395
|
|
|
|
88,556
|
|
|
|
79,468
|
|
|
|
|
2016/2017
Harvest
Year
|
|
|
2015/2016
Harvest
Year
|
|
|
2014/2015
Harvest
Year
|
|
|
2013/2014
Harvest
Year
|
|
|
Planted Area
|
|
(In
hectares, including second harvest)
|
|
|
Crops (7)
|
|
|
190,847
|
|
|
|
172,976
|
|
|
|
194,271
|
|
|
|
185,954
|
|
|
Rice
|
|
|
39,607
|
|
|
|
37,580
|
|
|
|
35,328
|
|
|
|
36,604
|
|
|
|
(1)
|
Includes
soybeans, corn, wheat, sunflower and cotton, among others.
|
|
|
(2)
|
Sales
of processed rice, including rough rice purchased from third parties and processed in
our facilities.
|
|
|
(3)
|
All Other
Segments encompasses our remaining interests in the beef Cattle and Coffee businesses.
Our beef cattle business consists of over 61 thousand hectares of pasture land that is
not suitable for crop production and as a result is leased to third parties for cattle
grazing activities. We lease the coffee production rights with respect to our Rio de
Janeiro coffee plantation.
|
|
|
(4)
|
Crop production
does not include 136,797 tons, 102,527 tons, and 89,081 tons of forage produced in the
2015/2016, 2014/2015 and 2013/2014 harvest years, respectively.
|
|
|
(5)
|
Expressed
in tons of rough rice produced on owned and leased farms
.
As of December 31, 2016,
the 2015/16 harvest year of rice harvest had not began.
|
|
|
(6)
|
Fluid
milk produced at our dairy farms.
|
|
|
(7)
|
Includes
4,718 hectares, 4,999 hectares and 3,141 hectares, used for the production of forage
during the 2015/16, 2014/2015, and 2013/2014 harvest years, respectively.
|
Sugar
,
Ethanol
and Energy Business:
We cultivate and harvest sugarcane which is then processed in our own mills to produce sugar, ethanol
and energy. As of December 31, 2016, our total sugarcane plantation consisted of 134,591 hectares, planted mainly over leased land.
We currently own and operate three sugar and ethanol mills, UMA, Angélica and Ivinhema, with a total crushing capacity of
11.2 million tons of sugarcane per year as of December 31, 2016. UMA is a small but efficient mill located in the state of Minas
Gerais, Brazil, with a sugarcane crushing capacity of 1.2 million tons per year, full cogeneration capacity and an associated sugar
brand with strong presence in the regional retail market (
Açúcar Monte Alegre
). We plant and harvest 99.5%
of the sugarcane milled at UMA, with the remaining 0.4% acquired from third parties. Angélica and Ivinhema are two new,
modern mills, which we built in the state of Mato Grosso
do Sul, Brazil, with current sugarcane crushing capacities of 4.8 and 5.3 million tons per year, respectively. Both mills are located
45 km apart, and form a cluster surrounded by one large sugarcane plantation. Angelica and Ivinhema are equipped with high pressure
steam boilers and turbo-generators with the capacity to use all the sugarcane bagasse by-product to generate electricity. Approximately
33% of the electricity generated is used to power the mill and the excess electricity is sold to the local power grid, resulting
in the mills having full cogeneration capacity.
For the year ended December
31, 2016, we crushed 11.1 million tons of sugarcane. Our mills produce both sugar and ethanol, and accordingly, we have some flexibility
to adjust our production (within certain capacity limits that generally vary between 40% and 60%) between sugar and ethanol, to
take advantage of more favorable market demand and prices at given points in time. For the year ended December 31, 2016 we produced
701,060 tons of sugar and 422,395 cubic meters of ethanol.
As of December 31, 2016,
our overall sugarcane plantation consisted of 134,591 hectares of sugarcane in the states of Mato Grosso do Sul and Minas Gerais,
Brazil, of which 9,748 hectares of sugarcane were planted on owned land, and 124,843 hectares were planted on land leased from
third parties under long term agreements.
The following table sets
forth, for the periods indicated, certain data relating to our sugar, ethanol and energy business:
|
Sales
|
|
Year
Ended December 31,
|
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
|
(In thousands of $)
|
|
|
Sugar
|
|
|
330,895
|
|
|
|
177,801
|
|
|
|
174,459
|
|
|
Ethanol
|
|
|
211,451
|
|
|
|
176,150
|
|
|
|
165,870
|
|
|
Energy
|
|
|
53,995
|
|
|
|
46,671
|
|
|
|
66,800
|
|
|
Other
|
|
|
351
|
|
|
|
-
|
|
|
|
-
|
|
|
Total
|
|
|
596,692
|
|
|
|
400,622
|
|
|
|
407,129
|
|
|
Production
|
|
Year
Ended December 31
|
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
Sugar (tons)
|
|
|
701,060
|
|
|
|
464,929
|
|
|
|
413,687
|
|
|
Ethanol (cubic meters)
|
|
|
422,395
|
|
|
|
361,001
|
|
|
|
299,810
|
|
|
Energy (MWh exported)
|
|
|
751,037
|
|
|
|
553,090
|
|
|
|
445,705
|
|
|
|
|
Year
Ended December 31
|
|
|
Other Metrics
|
|
2015
|
|
|
2015
|
|
|
2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sugarcane milled (% owned)
|
|
|
91
|
%
|
|
|
89
|
%
|
|
|
89
|
%
|
|
Sugarcane crushing capacity (millions of tons)
|
|
|
11.2
|
|
|
|
10.2
|
|
|
|
7.2
|
|
|
% Mechanized harvesting operations — Consolidated
|
|
|
98
|
%
|
|
|
97
|
%
|
|
|
97
|
%
|
|
% Mechanized /harvesting operations — Cluster
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
Land Transformation
Business:
We acquire farmlands we believe are underdeveloped or underutilized and, by implementing cutting-edge production
technology and agricultural best practices, transform the land to be suitable for more productive uses, enhance yields and increase
the value of the land. During the fifteen-year period since our inception, we have effectively put into production 173,801 hectares
of land that was previously undeveloped or undermanaged. During 2016, we put into production 4,274 hectares and in addition continued
the transformation process of over 131,363 hectares we own. We realize and capture land transformation value through the strategic
disposition of assets that have reached full development potential. We believe that the rotation of our land portfolio allows us
to re-allocate capital efficiently, maximizing our return on invested capital. Our current owned land portfolio consists of 246,139
hectares, distributed throughout our operating regions as follows: 85% in Argentina, 14% in Brazil, and 1% in Uruguay. Between
2006 and 2015, we sold 20 of our fully mature farms, generating capital gains of approximately $205 million.
We promote sustainable
land use through our land transformation activities, which seek to promote environmentally responsible agricultural production
and a balance between production and ecosystem preservation. We do not operate in heavily wooded areas or wetland areas.
From time to time, the
company seeks to recycle its capital by disposing of a portion of its fully developed farms. This allows the company to monetize
the capital gains generated by its land transformation activities and allocate its capital to acquire land with higher transformation
potential or to deploy it in other businesses, thereby enhancing the return on invested capital. Please see also “—Risks
Related to Argentina—Recent Changes in Argentine law concerning foreign ownership of rural properties may adversely affect
our results of operations and future investments in rural properties in Argentina” and “—Risks Related to Brazil—
Recent changes in Brazilian rules concerning foreign investment in rural properties may adversely affect our investments.”
The following table sets
forth, for the periods indicated, certain data relating to our land transformation business:
|
|
|
Year
Ended December 31,
|
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
Undeveloped/Undermanaged land put into production (hectares)
|
|
|
4,274
|
|
|
|
2,790
|
|
|
|
2,580
|
|
|
Ongoing transformation of croppable land (hectares)
|
|
|
131,363
|
|
|
|
127,428
|
|
|
|
122,041
|
|
|
Number of farms sold
|
|
|
-
|
|
|
|
3
|
(1)
|
|
|
2
|
(1)
|
|
Hectares sold
|
|
|
-
|
|
|
|
10,905
|
|
|
|
12,887
|
|
|
Capital gains from the sale of land ($ thousands) (1)
|
|
|
-
|
|
|
|
23.900
|
|
|
|
25,600
|
|
(1) Includes
the sale of non-controlling interests in farmland companies
Our Strengths
We believe the following
are our competitive strengths:
|
|
•
|
Unique and strategic asset base.
We own strategically located farmland and agro-industrial
assets in Argentina, Brazil and Uruguay. We engage in continuous improvement of our operations and practices, resulting in the
reduction of operating costs and an increase in productivity, ultimately enhancing the value of our properties and generating capital
gains. Our operations also benefit from strategically located industrial facilities throughout Argentina and Brazil, increasing
operating efficiencies and reducing operating and logistical costs. We are vertically integrated where economics and returns are
attractive, where the efficiency of our primary operation is significantly enhanced, or where lack of a competitive market results
in the absence of a transparent price determination mechanism. Our diversified asset base creates valuable synergies and economies
of scale, including (i) the ability to transfer the technologies and best practices that we have developed across our business
lines, (ii) the ability to apply value-adding land transformation strategies to farmland in connection with our farming and sugarcane
operations, and (iii) a greater ability to negotiate more favorable terms with our suppliers and customers.
|
Owning a significant
portion of the land on which we operate is a key element of our business model.
|
|
•
|
Low-cost production leveraging agro-ecological competitive advantages.
Each of the commodity
products we grow is produced in regions where agro-ecological conditions provide competitive advantages and which, through the
implementation of our efficient and sustainable production model, allow us to become one of the lowest cost producers.
|
|
|
•
|
Our grain and oilseed production is based in the Argentine humid pampas region where soil fertility,
regular rainfalls, temperate climate, availability of land and proximity to ports contribute to the reduced use of fertilizers
and agrochemicals, high productivity and stable yields and efficient logistics, ultimately resulting in one of the lowest costs
per ton of grain produced and delivered.
|
|
|
•
|
Our rice operation is located in the northeast provinces of Argentina, one of the best rice farming
regions in the world due to plentiful sunlight, abundant availability of water for low cost irrigation and large potential for
expansion.
|
|
|
•
|
Our cotton production is focused in western Bahia, Brazil. This region is excellent for producing
high quality cotton fiber due to its ideal climate, well drained soils and high altitude.
|
|
|
•
|
Our dairy operation is situated in the Argentine humid pampas region, where cow feed (grains, oilseeds
and forage) is efficiently and abundantly produced at a low cost and climate and sanitary conditions are optimal for cow comfort,
which enhances productivity, cow reproduction rates and milk quality.
|
|
|
•
|
We produce sugarcane in the center-south region of Brazil, where the combination of soil and climate
result in high sugarcane productivity and quality, resulting in one of the lowest production costs in the world, significantly
lower than other major sugar producing regions, including India, China, the United States, the United Kingdom, France and Germany.
|
|
|
•
|
Standardized and scalable agribusiness model applying technological innovation.
We have
consistently used innovative production techniques to ensure that we are at the forefront of technological improvements and environmental
sustainability standards in our industry. We are implementing an agribusiness model that consists of specializing our workforce
and defining standard protocols to track crop development and control production variables, thereby enhancing management decision-making.
We further optimize our agribusiness model through the effective implementation and constant adaptation of a portfolio of advanced
agricultural and information technologies and best practices tailored to each region in which we operate and commodity we produce,
allowing us to improve our crop yields, reduce operating costs and maximize margins in a sustainable manner.
|
|
|
•
|
In our farming business, we use “no-till” technology as the cornerstone of our crop
production and have been able to implement this technique in areas within our production regions where it had not been used before.
Furthermore, we also utilize crop rotation, second harvests, integrated pest management, balanced fertilization, water management
and mechanization. Additionally, we use the innovative silo bag storage method, utilizing large polyethylene bags with a capacity
of 180-200 tons which can be left on the field for 12 months, resulting in low-cost, scalable and flexible storage on the field
during harvest, which we believe allows us to expand our crop storage capacity at a low cost, generate important logistic and freight
savings by moving our production in the off-season when freight fares are lower, and time the entry of our production into the
market at optimal price points. See “—Operations and Principal Activities—Farming—Storage and Conditioning.”
|
|
|
•
|
In our dairy business, we believe that we were the first company in South America to implement
the “free-stall” production system, resulting in more efficient conversion of feed to fluid milk and higher production
rates per cow compared to our peers in the region.
|
|
|
•
|
In our sugar, ethanol and energy business, our sugarcane cluster, constituted by the Ivinhema and
Angélica mills (i) has a highly mechanized planting and harvesting operation, which has increased our sugarcane production,
reduced our operating costs and contributed to environmental sustainability by eliminating the need to burn the sugarcane before
harvest; (ii) has the capacity to use all the bagasse (a by-product of the sugar and ethanol production process) that is produced,
with almost no incremental cost, to cogenerate 216 MW of clean and renewable electricity; (iii) has the capacity of processing
50,400 tons of sugarcane per day and (iv) has the ability to recycle by-products such as filter cake and vinasse by using them
as fertilizers in our sugarcane fields, as well as recycling water and other effluents, generating important savings in input costs
and protecting the environment.
|
|
|
•
|
Unique diversification model to mitigate cash flow volatility.
We pursue a unique multi-tier
diversification strategy to reduce our exposure to production and market fluctuations that may impact our cash flow and operating
results. We seek geographic diversification by spreading our portfolio of farmland and agro-industrial assets across different
regions of Argentina, Brazil and Uruguay, thereby lowering our risk exposure to weather-related losses and contributing to stable
cash flows. Additionally, we produce a variety of products including soybeans, corn, wheat, sunflower, cotton, barley, sorghum,
rice, fluid milk, sugar, ethanol and energy, which lowers our risk exposure to potentially depressed market conditions of any specific
product. Moreover, through vertical integration in the rice, dairy, sugar, ethanol and energy businesses, we process and transform
a portion of our agricultural commodities into branded retail products, reducing our commodity price risk and our reliance on the
standard market distribution channels for unprocessed products. Finally, our commercial committee defines our commercial policies
based on market fundamentals and the consideration of logistical and production data to develop a customized sale/hedge risk management
strategy for each product.
|
|
|
•
|
Expertise in acquiring farmland with transformation and appreciation potential.
Since our
inception in 2002, we have executed transactions for the purchase and disposition of land for over $688 million and sold over 77,000
hectares of developed land, generating capital gains of approximately $205 million. We believe we have a superior track record
and have positioned ourselves as a key player in the land business in South America. Our business development team has gained extensive
expertise in evaluating and acquiring farmland throughout South America and has a solid understanding of the productivity potential
of each region and of the potential for land transformation and appreciation. To date, we have analyzed over 11 million hectares
of farmland spread throughout the regions in which we operate and other productive regions in the world. We have developed a methodology
to assess farmland and to appraise its potential value with a high degree of accuracy and efficiency by using information generated
through sophisticated technology, including satellite images, rain and temperature records, soil analyses, and topography and drainage
maps. Our management team has gained extensive experience in transforming and maximizing the appreciation potential of our land
portfolio through the implementation of our agribusiness techniques described above. We also have an extensive track record of
rotating our asset portfolio to generate capital gains and monetize the transformation and appreciation generated through our land
transformation activities and agricultural operations.
|
|
|
•
|
Experienced management team, knowledgeable employees.
Our people are our most important
asset. We have an experienced senior management team with an average of more than 20 years of experience working in our sector
and a solid track record of implementing and executing large scale growth projects such as land transformations, greenfield developments
of industrial plants, and integrating acquisitions within our organization. Recruiting technically qualified employees at each
of our farms and operating sites is a main focus of our senior management and a key to our success.
|
Our Business Strategy
We intend to maintain our
position as a leading agricultural company in South America by expanding and consolidating each of our business lines, creating
value for our shareholders. The key elements of our business strategy are:
|
|
•
|
Consolidate our sugar and ethanol cluster in the state of Mato Grosso do Sul, Brazil.
Our
main strategy for our sugar and ethanol business is to consolidate our cluster in Mato Grosso do Sul, Brazil, through the expansion
of our Ivinhema and Angelica mills, which as of December 2016 reached a nominal capacity of 11.2 million tons per year and are
expected to reach 14.2 million tons by 2023. See “—Sugar, Ethanol and Energy—Our Mills.” The consolidation
of the cluster will generate important synergies, operating efficiencies and economies of scale such as (i) a reduction in the
average distance from the sugarcane fields to the mills, generating important savings in sugarcane transportation expenses; (ii)
reduction in our total fixed costs per ton of sugarcane milled; and (iii) a large sugarcane plantation supplying two mills, allowing
for non-stop harvesting. We believe that our sugarcane cluster in Mato Grosso do Sul will allow us to become one of the most efficient
and low cost producers of sugar, ethanol and energy in Brazil. Additionally, we plan to continue to monitor closely the Brazilian
sugar and ethanol industries and may pursue selective acquisitions that provide opportunities to increase our economies of scale,
operating synergies and profitability.
|
|
|
•
|
Expand our farming business through organic growth
,
leasing and strategic acquisitions.
We will continue to seek opportunities for organic growth, target attractive acquisition and leasing opportunities and strive
to maximize operating synergies and achieve economies of scale in each of our three main farming business areas (crops, rice and
dairy). We plan to continue expanding and consolidating our crop production throughout South America. We also intend to continue
expanding our rice segment in terms of production and processing capacity, consolidating our leading position in Argentina and
increasing our presence throughout Brazil, Uruguay and other regions, to become a leading regional player. We also plan to increase
our current milk production using the “free-stall” model.
|
|
|
•
|
Further increase our operating efficiencies while maintaining a diversified portfolio.
We
intend to continue to focus on improving the efficiency of our operations and maintaining a low-cost structure to increase our
profitability and protect our cash flows from commodity price cycle risk. We seek to maintain our low-cost platform by (i) making
additional investments in advanced technologies, including those related to agricultural, industrial and logistical processes and
information technology, (ii) improving our economies of scale through organic growth, strategic acquisitions, and more efficient
production methods, and (iii) fully utilizing our resources to increase our production margins. In addition, we intend to mitigate
commodity price cycle risk and minimize our
exposure to weather related losses by (i) maintaining a diversified product mix and vertically integrating production of certain
commodities and (ii) geographically diversifying the locations of our farms.
|
|
|
•
|
Continue to implement our
land transformation strategy.
We plan to continue to enhance the value of our owned
farmland and future land acquisitions by making them suitable for more profitable agricultural
activities, thereby seeking to maximize the return on our invested capital in our land
assets. In addition, from time to time we expect to continue rotating our land
portfolio through strategic dispositions of certain properties in order to realize and
monetize the transformation and appreciation value created by our land transformation
activities. We also plan to leverage our knowledge and experience in land asset- management
to identify superior buying and selling opportunities.
|
Operations and Principal Activities
Farming
Our Farming business line
is divided into three main reportable operating businesses, namely crops, rice and dairy. We conduct our farming operations primarily
on our own land and, to a lesser extent, on land leased from third parties. During harvest year 2015/2016 our farming operations
were conducted on a total of 210,556 hectares of land, of which we own 146,070 hectares (excluding sugarcane farms) and we leased
the remaining 64,486 hectares from third parties. The following table sets forth our production volumes for each of our farming
business lines.
|
|
|
Harvest
Year
|
|
|
|
|
2015/2016
|
|
|
2014/2015
|
|
|
2013/2014
|
|
|
Crops (tons)(1)
|
|
|
583,639
|
|
|
|
627,385
|
|
|
|
643,354
|
|
|
Rice (tons)(2)
|
|
|
220,758
|
|
|
|
180,149
|
|
|
|
205,489
|
|
|
|
|
Year
Ended December 31,
|
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
Dairy (thousands of liters)(3)
|
|
|
92,395
|
|
|
|
88,556
|
|
|
|
79,468
|
|
|
|
(1)
|
As of
the date of this annual report, the harvest of soybean, corn, sunflower, cotton and rice
pertaining to the 2016/2017 harvest year is ongoing. The only crop which has been almost
fully harvested in the current 2016/17 harvest year is wheat, with a total production
of 102,950 tons.
|
|
|
(2)
|
Expressed
in tons of rough rice.
|
Crops Business (Grains, Oilseeds and Cotton)
Our agricultural production
is mainly based on planting, growing and harvesting crops over our owned croppable area. During the 2015/2016 harvest year, we
planted crops over a total area of approximately 172,976 hectares, including our owned land, land leased from third parties and
hectares planted in second harvests. During mid 2016 we began the planting of crops pertaining to the 2016/17 harvest year, which
was concluded during the first quarter of 2016, with a total planted area of 191,647 hectares. Our main products include soybean,
corn, wheat, sunflower, and cotton. Other products, such as sorghum and barley, among others, are sown occasionally and represent
only a small percentage of total sown land.
The following table sets
forth, for the harvest years indicated, the planted hectares for our main products:
|
|
|
Harvest
Year
|
|
|
|
|
2015/2016
|
|
|
2014/2015
|
|
|
2013/2014
|
|
|
Product Area
|
|
(In hectares)
|
|
|
Soybeans(l)
|
|
|
88,377
|
|
|
|
96,476
|
|
|
|
82,980
|
|
|
Corn(2)
|
|
|
42,657
|
|
|
|
40,044
|
|
|
|
51,324
|
|
|
Wheat(3)
|
|
|
32,396
|
|
|
|
37,020
|
|
|
|
29,412
|
|
|
Sunflower
|
|
|
9,547
|
|
|
|
12,314
|
|
|
|
12,880
|
|
|
Cotton
|
|
|
-
|
|
|
|
3,160
|
|
|
|
6,217
|
|
|
Forage(4)
|
|
|
4,788
|
|
|
|
4,999
|
|
|
|
3,141
|
|
|
Total
|
|
|
177,765
|
|
|
|
194,013
|
|
|
|
185,954
|
|
(1)
Includes soybean first crop and second crop planted area.
(2) Includes sorghum crop and peanut.
(3) Includes barley crop.
(4) Forage includes corn silage, wheat
silage and alfafa used for cow feed in our dairy operation.
The following table sets forth, for the harvest
years indicated, the production volumes for our main products
|
|
|
Harvest
Year
|
|
|
|
|
2016/17
|
|
|
2015/2016
|
|
|
2014/2015
|
|
|
2013/2014
|
|
|
Crop Production(1)
|
|
(In tons)
|
|
|
Soybeans(2)
|
|
|
-
|
|
|
|
237,681
|
|
|
|
285,914
|
|
|
|
218,608
|
|
|
Corn(2)
|
|
|
7,538
|
|
|
|
248,269
|
|
|
|
232,763
|
|
|
|
318,381
|
|
|
Wheat
|
|
|
115,265
|
|
|
|
82,167
|
|
|
|
84,609
|
|
|
|
77,086
|
|
|
Sunflower(2)
|
|
|
470
|
|
|
|
15,521
|
|
|
|
21,762
|
|
|
|
23,161
|
|
|
Cotton lint(2)
|
|
|
-
|
|
|
|
-
|
|
|
|
2,336
|
|
|
|
6,118
|
|
|
Total(2)
|
|
|
123,273
|
|
|
|
583,638
|
|
|
|
627,384
|
|
|
|
643,354
|
|
(1) Does not
include 136,797, 102,527, and 89,081 tons of forage produced in the 2015/16, 2014/2015, and 2013/2014, harvest years respectively.
(2) As of the
date of this annual report, the harvest of soybean, corn, sunflower and cotton pertaining to the 2016/17 harvest year is ongoing.
The only crop which has been fully harvested is wheat.
The following table below sets forth, for the periods indicated,
the sales for our main products:
|
|
|
Year
Ended December 31,
|
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
Sales
|
|
(In
thousands of $)
|
|
|
Soybeans
|
|
|
63,797
|
|
|
|
75,361
|
|
|
|
79,515
|
|
|
Corn (l)
|
|
|
48,502
|
|
|
|
41,924
|
|
|
|
69,720
|
|
|
Wheat (2)
|
|
|
18,191
|
|
|
|
16,750
|
|
|
|
8,849
|
|
|
Sunflower
|
|
|
7,275
|
|
|
|
12,659
|
|
|
|
10,016
|
|
|
Cotton
|
|
|
1,434
|
|
|
|
3,317
|
|
|
|
9,081
|
|
|
Other crops (3)
|
|
|
2,925
|
|
|
|
4,730
|
|
|
|
481
|
|
|
Total
|
|
|
142,124
|
|
|
|
154,741
|
|
|
|
177,662
|
|
(1) Includes
sorghum.
(2)
Includes barley.
(3)
Includes other crops and farming services.
Soybeans
Soybeans are an annual
legume widely grown due to their high content of protein (40%) and oil (20%). They have been grown for over 3,000 years in Asia
and, more recently, have been successfully cultivated around the world. The world’s top producers of soybeans currently are
the United States, Brazil, Argentina, China and India. Soybeans are one of the few plants that provide a complete protein supply
as they contain all eight essential amino acids. About 85% of the world’s soybeans are processed, or “crushed,”
annually into soybean meal and oil. Approximately 98% of soybean meal is further processed into animal feed, with the balance used
to make soy flour and proteins. Approximately 85% of the oil content of soybeans is consumed as edible oil and the rest is used
for industrial products such as fatty acids, soaps and biodiesel. We sell our soybeans mainly to crushing and processing industries,
which produce soybean oil and soybean meal used in the food, animal feed and biofuel industries.
We grow soybeans in Argentina,
Brazil and Uruguay. In the 2013/2014 harvest year, we planted a total area of 82,980 hectares of soybeans, producing a total of
218,608 tons representing 45% of our total crop planted area that year, and 34% of our total crop production. In the 2014/15 harvest
year, we planted a total area of 96,476 hectares of soybeans, producing a total of 285,914 tons representing 51% of our total crop
planted area that year, and 46% of our total crop production. In the 2015/16 harvest year, we planted a total area of 88,377 hectares
of soybean, producing a total of 237,681 tons representing 51% of our total crop planted area that year, and 41% of our total crop
production.
Soybeans comprised, 11%,
11%, and 7% of our total consolidated sales in 2014, 2015, and 2016 respectively
Corn
Corn is a cereal grown
around the world and is one of the world’s most widely consumed foods. The main component of corn grain is starch (72% to
73% of grain weight), followed by proteins (8% to 11%). Corn grain is directly used for food and animal feed (beef, swine and poultry
meat production and dairy). Corn is also processed to make food and feed ingredients (such as high fructose corn syrup, corn starch
and lysine), or industrial products such as ethanol and polylactic acid (PLA). Oil, flour and sugar are also extracted from corn,
with several uses in the food, medicine and cosmetic industries. Additionally, there are specific corn types used for direct human
consumption such as popcorn and sweet corn.
We grow corn in Argentina,
Brazil and Uruguay. In the 2013/2014 harvest year, we planted a total area of approximately 51,212 hectares of corn, including
the second harvest, producing a total of 318,381 tons of corn representing 28% of our total planted area that year, and 49% of
our total crop production. In the 2014/2015 harvest year, we planted a total area of approximately 39,099 hectares of corn, including
the second harvest, producing a total of 230,386 tons of corn representing 21% of our total planted area that year, and 37% of
our total crop production. In the 2015/2016 harvest year, we planted a total area of approximately 42,657 hectares of corn, including
the second harvest, producing a total of 248,269 tons of corn representing 25% of our total crop planted area that year, and 43%
of our total crop production.
Corn comprised 10% of our
consolidated sales in 2014, 6% of our consolidated sales in 2015, and 6% of our consolidated sales in 2016.
Wheat
Wheat is the world’s
largest cereal-grass crop. Unlike other cereals, wheat grain contains a high amount of gluten, the protein that provides the elasticity
necessary for excellent bread making. Although most wheat is grown for human consumption, other industries use small quantities
to produce starch, paste, malt, dextrose, gluten, alcohol, and other products. Inferior and surplus wheat and various milling byproducts
are used for livestock feed. We sell wheat to exporters and to local mills that produce flour for the food industry.
We grow wheat in Argentina
and Uruguay. In the 2014/2015 harvest year we planted a total area of approximately 37,020 hectares of wheat, producing a total
of 84,610 tons of wheat. In the 2015/2016 harvest year, we planted a total area of approximately 32,393 hectares of wheat, producing
a total of 82,156 tons of wheat. In the current 2016/2017 harvest year, we planted a total area of approximately 37,998 hectares
of wheat, producing a total of 102,950 tons of wheat.
Wheat comprised 1% of our
total consolidated sales in 2014, 2% of our total consolidated sales in 2015, and 2% of our total consolidated sales in 2016.
Sunflower
There are two types of
sunflower, the most important in terms of volume being the oilseed sunflower, which is primarily grown for the oil extracted from
the seed. Sunflower oil is considered one of the top three oils for human consumption, due to its high oil content (39-49%) and
its oil composition (90% of oleic and linoleic oil). The other type of sunflower is the confectionary sunflower, which is used
for direct human consumption. Sunflower seeds are an exceptional source of vitamin E, omega-6 fatty acids, dietary fiber and minerals.
We grow both types of sunflower.
We grow sunflower in Argentina
and Uruguay. In the 2013/2014 harvest year, we planted a total area of approximately 12,880 hectares of sunflower producing a total
of 23,161 tons of sunflower representing 7% of our total crop planted area that year, and 4% of our total crop production. In the
2014/2015 harvest year, we planted a total area of approximately 12,314 hectares of sunflower producing a total of 21,762 tons
of sunflower representing 7% of our total crop planted area that year, and 3% of our total crop production. In the 2015/2016 harvest
year, we planted a total area of approximately 9,547 hectares of sunflower producing a total of 15,521 tons of sunflower representing
6% of our total crop planted area that year, and 3% of our total crop production.
Sunflower comprised 1%
of our total consolidated sales in 2014, 2% in 2015, and 1% in 2016.
Cotton
Cotton is the world’s
most popular natural fiber. The cotton fiber is made primarily into yarns and threads for use in the textile and apparel sectors.
Clothing accounts for approximately 60% of cotton consumption. Cotton is also used to make home furnishings, such as draperies
(the third major end use), or professional garments (about 5% of cotton fiber demand). The cottonseed is used in animal feeding
or crushed in order to separate its three products — oil, meal and hulls. Cottonseed oil is used primarily for cooking oil
and salad dressing. In recent years, there has been a growing demand for cotton oil for biodiesel production.
We plant upland cotton,
the most common type of cotton planted and processed around the world. We produce and sell cotton lint and cotton seed.
We grow cotton in northern
Argentina and in the western part of Bahia, Brazil. In the 2013/2014 harvest year, we planted a total area of approximately 6,217
hectares of cotton producing a total of 6,118 tons of cotton lint, representing 3% of our total planted crop area that year, and
1% of our total crop production. In the 2014/2015 harvest year, we planted a total area of approximately 3,160 hectares of cotton
producing a total of 2,344 tons of cotton lint, representing 2% of our total planted crop area that year, and 0.4% of our total
crop production. We did not plant any cotton in the 2015/16 harvest year.
Cotton comprised 1% of
our total consolidated sales in 2014, 0.5% of our total consolidated sales in 2015 and 0% of our total consolidated sales in 2016.
Forages
In addition to the above
mentioned crops, we are engaged in the production of forage in Argentina, including corn silage, wheat silage, soybean silage and
alfalfa silage. We use forage as cow feed in our dairy operation. During the 2015/2016 harvest year, we planted 4,718 hectares
of forage and produced 136,797 tons of forage.
Crop Production Process
Our crop production process
is directly linked to the geo-climatic conditions of our farms and our crop cycles, which define the periods for planting and harvesting
our various products. Our crop diversification and the location of our farms in various regions of South America enable us to implement
an efficient planting and harvesting system throughout the year, which includes second harvests in many cases. Our production process
begins with the planting of each crop. After harvesting, crops may go
through a processing phase where the grain or seeds are cleaned and dried to reach the required market standards.
For additional discussion
of our harvest years and the presentation of production and product area information in this annual report, see “Presentation
of Financial and Other Information—Fiscal Year and Harvest Year.”
Rice Business
Rice is the main food staple
for about half of the world’s population. Although it is cultivated in over 100 countries and on almost every continent,
90% of the world’s rice is grown and consumed in Asia. Globally, rice is the most important crop in terms of its contribution
to human diets and production value. There are three main types of rice: short grain, medium grain and long grain rice. Each one
has a different taste and texture. We produce long grain rice and Carolina double rice, a variety of medium grain rice.
We conduct our rice operation
in the northeast of Argentina, which is one of the most efficient locations in the world for producing rice at a low cost. This
is a result of optimum natural agronomic conditions, including plentiful sunlight, abundant availability of water for low cost
irrigation and large quantities of land. The use of public water for artificial irrigation is governed by provincial regulations
and is subject to the granting of governmental permits. We currently have permits for the use of water in our production of rice
in the provinces of Corrientes and Santa Fe. Maintenance of our permits is subject to our compliance with applicable laws and regulations,
which is supervised by the corresponding governmental authority (
e.g.
, the Ministry of Water, Public Services and Environment
(
Ministerio de Agua
,
Servicios Publicos y Medio Ambiente
), in the province of Santa Fe, and the Water Institute of
the Province of Corrientes (
Instituto Correntino del Agua
).
The following table sets
forth, for the harvest years indicated, the total number of planted rice hectares we owned and leased as well as the overall rough
rice we produced:
|
|
|
Harvest
Year
|
|
|
Rice Product Area & Production
|
|
2016/2017
|
|
|
2015/2016
|
|
|
2014/2015
|
|
|
2013/2014
|
|
|
Owned planted area (hectares)
|
|
|
38,028
|
|
|
|
35,865
|
|
|
|
32,104
|
|
|
|
33,231
|
|
|
Leased planted area (hectares)
|
|
|
1,700
|
|
|
|
1,700
|
|
|
|
3,224
|
|
|
|
3,100
|
|
|
Total rice planted (hectares)
|
|
|
39,728
|
|
|
|
37,565
|
|
|
|
35,328
|
|
|
|
36,331
|
|
|
Rough rice production (tons) (1)
|
|
|
-
|
|
|
|
220,758
|
|
|
|
180,149
|
|
|
|
205,489
|
|
|
|
(1)
|
As of the date of this annual report,
the harvest of rice pertaining to the 2016/2017 harvest year is ongoing.
|
We grow rice on four
farms we own and two farms we lease, all located in Argentina. In the 2014/2015 harvest year, we planted a total area of approximately
35,328 hectares of rice, producing a total of 180,149 tons, representing 16% of our total planted area that year, and 22% of our
total farming production. In the 2015/2016 harvest year, we planted a total area of approximately 37,580 hectares of rice, producing
a total of 220,758 tons, representing 18% of our total planted area that year, and 27% of our total farming production. In the
current 2016/2017 harvest year, we planted a total of 39,728 hectares of rice, which have not been fully harvested as of the date
of this report.
Production Process
The rice production cycle
lasts approximately five to six months, beginning in September of each year and ending in April of the following year. Rice planting
continues until November, followed by treatment of the rice, which lasts approximately three months, until January. In February
we begin harvesting, which lasts until April. After harvesting, the rice is ready for processing.
We process rice in our
three rice mills in Argentina, where we are able to process our entire rice crop and utilize our excess milling capacity to process
rough rice we purchase from third party growers.
At the mill, we clean the
rice to remove all impurities. We then put it through a dryer to remove excess moisture from the grains. Proper drying results
in increased storage life, prevents deterioration in quality and leads to optimum milling. Once dried, the rice grain,
now known as rough rice or paddy rice, is ready for storage. We store rice in elevators or in silo bags until milling. During the
milling process, the rough rice goes through a de-husking machine that removes the husk from the kernel. The rice that is obtained
after this process is known as brown rice and is ready for human consumption. Brown rice becomes white rice after it is polished
to remove the excess bran.
The main objective of the
milling process is to remove the husk and the bran, preserving the quality of the whole grain. Although the process is highly automated
and uses advanced technology, some rice grains are broken in the process. The percentage of broken rice depends on a number of
factors such as the crop development cycle at the farm, the variety of the grain, the handling and the industrial process. Average
processing of rough rice results in 58% white rice, 11% broken rice and 31% rice husk and bran which is sold for use as cattle
feed or floor bedding in the poultry business.
|
|
|
Year
Ended December 31,
|
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
Processed Rice Production
|
|
(In
tons)
|
|
|
Rough rice processed — own
|
|
|
206,794
|
|
|
|
131,861
|
|
|
|
188,307
|
|
|
Rough rice processed — third party
|
|
|
16,382
|
|
|
|
38,618
|
|
|
|
29,084
|
|
|
Total rough rice processed
|
|
|
223,176
|
|
|
|
170,479
|
|
|
|
217,391
|
|
|
|
|
Year
Ended December 31,
|
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
Processed Rice Sales
|
|
(In thousand of $)
|
|
|
Total Sales
|
|
|
96,681
|
|
|
|
84,668
|
|
|
|
103,682
|
|
Rice comprised 14% of our total consolidated sales in 2014, 13%
in 2015 and 11% in 2016.
Rice Seed Production
In our rice seed facility
in Argentina, we are involved in the genetic development of new rice varieties adapted to local conditions to increase rice productivity
and quality to improve both farm production as well as the manufacturing process. In connection with these efforts, we have entered
into agreements with selected research and development institutions such as the National Institute of Agriculture Technology (
Instituto
Nacional de Tecnología Agropecuaria
, or “INTA”) in Argentina, the Latin American Fund for Irrigated Rice
(
Fondo Latinoamericano para Arroz de Riego
, or “FLAR”) and Latin American Rice Hybrids (Híbridos de Arroz
para América Latina, or “HIAAL”) in Colombia, the Santa Catarina State Agricultural Research and Rural Extension
Agency (
Empresa de pesquisa Agropecuária e Extensão Rural de Santa Catarina
, or “EPAGRI”) in Brazil
and
Badische Anilin- und Soda-
Fabrik (“Basf”) in Germany. Our own technical team is continuously testing and
developing new rice varieties. Our first rice seed variety, Ita Caabo 105, was released to the market in 2008. In 2011 we released
our second variety Ita Caabo 110, and at the beginning of 2014 we released our third variety, Ita Caabo 107. We are currently experimenting
with a wide range of varieties to continue improving our productivity. These seeds are both used at our farms and sold to rice
farmers in Argentina, and eventually in Brazil, Uruguay and Paraguay. We are also developing, alongside Basf, a herbicide-tolerant
rice variety to assist in the control of harmful weeds.
Dairy Business
We conduct our dairy operation
in our farms located in the Argentine humid pampas region. This region is one of the best places in the world for producing fluid
milk at a low cost, due to the availability of grains and forages produced efficiently and at low cost, and favorable weather
for cow comfort and productivity. Our dairy operation consists of two free-stall dairy facilities with a total capacity of approximately
6,880 milking cows.
The following table sets
forth, for the periods indicated below, the total number of our dairy cows, average daily milk production per cow and our total
milk production:
|
|
|
Year
Ended December 31,
|
|
|
Dairy Herd & Production
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
Total dairy herd (head)
|
|
|
7,618
|
|
|
|
7,824
|
|
|
|
7,396
|
|
|
Average milking cows
|
|
|
6,880
|
|
|
|
6,658
|
|
|
|
6,440
|
|
|
Average daily production (liters per cow)
|
|
|
36.7
|
|
|
|
36.3
|
|
|
|
33.8
|
|
|
Total production (thousands of liters)
|
|
|
92,395
|
|
|
|
88,556
|
|
|
|
79,468
|
|
|
|
|
Year
Ended December 31
|
|
|
Dairy Sales
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
|
(In thousands of $)
|
|
|
Sales
|
|
|
32,897
|
|
|
|
32,981
|
|
|
|
32,968
|
|
As of December 31, 2016,
2015 and 2014, we owned a dairy herd of 7,618 7,824, and 7,396 head, respectively, including 6,880, 6,658, and 6,440 milking cows,
respectively, with an average production of 36.7, 36.4; and 33.8 liters per cow per day, respectively.
Dairy comprised 5% of our total consolidated sales in 2014and 2015
and 4% in 2016
Production Process
We wean calves during the
24 hours subsequent to birth and during the next 60 days raise them on pasteurized milk and high protein meal. Male calves are
fed concentrates and hay for an additional 30 days in the farm before they are sent to our feedlot to be fattened for sale. Young
heifers remain in open corrals during the next 13 months where they are fed with concentrates and forage until they are ready for
breeding. Calving occurs nine months later. Heifers are subsequently milked for an average of 320 days. Dairy cows are once again
inseminated during the 60- to 90-day period following calving. This process is repeated once a year for a period of six or seven
years. The pregnancy rate for our herd is between 85% and 90% per year.
Each cow in our dairy herd
is mechanically milked three times a day. The milk obtained is cooled to less than four degrees centigrade in order to preserve
its quality and is then stored in a tank. Milk is delivered to large third party milk processing facilities on a daily basis by
tank trucks. We feed our dairy cows mainly with corn and alfalfa silages, some grass and corn grain, supplemented as needed with
soybean by-products, hay, vitamins and minerals.
We have invested in technology
to improve the genetics of our cows, animal health and feeding in order to enhance our milk production. These investments include
top quality imported semen from genetically improved North American Holstein bulls, agricultural machinery and devices, use of
dietary supplements and modern equipment to control individual milk production and cooling. Our feeding program is focused on high
conversion of feed into milk, while maintaining cows in good health and comfort. We have also invested in technology and know-how
so as to increase our forage production and utilization.
In 2007, we began the construction
of an advanced “free-stall” dairy in Argentina, which we believe was the first of its kind in South America, and started
operating in March 2008. This new technology allows large- scale milk production at increased efficiency levels. Our free-stall
dairy model consists of 3,000 cows confined inside a large barn where they are free to move within the indoor corrals. We feed
our cows specific protein rich diets composed of corn grain and silage and milk them three times a day, using a milking mechanism
consisting of an 80-cow rotary platform, which milks an average of 500 cows per hour. Having proved the success of our model we
built a second free stall diary in 2011 and started operations during August 2012.
Implementation of the
free-stall system allows us to position ourselves as a key player in the dairy industry and will boost our agricultural and industrial
integration presence in the South American agricultural sector. By eliminating cow grazing, we reduce the amount of land utilized
for milk production, which frees up more land for our agricultural and land development activities. Cow productivity (measured
in liters of milk produced per day) using the free-stall system increases by over 50% compared to traditional grazing systems.
These productivity gains are because the free-stall system significantly improves the conversion rate of animal feed to milk,
resulting in an approximate 40% increase in the conversion ratio, or the production of 1.4 liters of milk for each 1 kg of animal
feed as compared to the average of 1 liter of milk for each 1 kg of feed associated with the usual grazing model.
This increased productivity
and conversion rate are mainly due to improved cow comfort and an enhanced diet quality. We assess cow comfort through the engagement
of expert consultants, who recommended designing beds covered with sand. The sand plays a significant role in helping cows to rest
comfortably. Additionally, we installed a cooling system to increase cow comfort as well.
This system relies on water sprinklers and ventilation fans located all over the facility to create a controlled, cool atmosphere,
which improves cow comfort as the Holstein herd is originally adapted to cold regions. Additionally, we manage diet quality by
adapting our feeding regime based on the various feeding stages in the lifetime of each cow. The actual feeding is fully mechanized,
and we carefully control the harvesting and storage of feed. The control of all productivity variables, such as reproduction, health
and operations, supports efficiency gains through standardized processes. Finally, the physical concentration of the animals facilitates
efficient overall management of the dairy business.
In terms of the environment,
the free-stall model allows for a better effluent treatment, which includes a sand-manure separator stage, a decantation pool and
an anaerobic lagoon. All these processes help to decrease the organic matter content of the effluent and deliver a cleaner output.
The final treated effluent is used to fert-irrigate crops adjacent to the dairy operation. Accordingly, we transform dairy waste
into a high value-added by-product, which reduces fertilizer usage. During the end of 2016, we began the construction of a bio-digester
in our free-stall operation. This plant will capture methane gas from manure to co-generate electricity. This project will allow
us to improve our manure treatment process and reduce CO2 emissions, and co-generate sufficient electricity to power our dairy
operations and supply approximately 9,145 MWh of excess electricity to the local power grid. We received a grant from Sustainable
Energy and Climate Change Initiative from the Inter-American Development Bank (SECCI) in order to carry out the pre-feasibility
assessment. We have also received a grant from the “Agencia Nacional de Promoción Científica y Tecnologica”,
an agency which promotes technological innovation, to partially fund the investment. In July 2016, we participated of Argentina’s
“RenovAr” renewable energy auction and entered into a 20-year contract to supply up to 9,145 MWh per year at an average
price of USD 158.92 per MWh.
The free-stall dairy is expected to allow us
to become an efficient large-scale milk producer and optimize the use of our resources (land, cattle and capital) through the standardization
of processes. Process standardization provides high operational control and allows us to scale-up our production efficiently and
quickly.
All Other Segments
All Other Segments encompasses
our cattle and coffee businesses. In December 2009, we strategically decided to sell almost all of our cattle herd — other
than our dairy cows — to Quickfood S.A. (now “Marfrig Argentina S.A.”), an Argentine company and a subsidiary
of the Brazilian company, Marfrig Alimentos S.A. (“Marfrig”), for a purchase price of $14.2 million. Additionally,
we entered into a 10-year lease agreement under which Marfig Argentina S.A. leases grazing land from us to raise and fatten cattle.
In September 2013, Marfrig Argentina S.A. notified us of their intention
to early terminate in the fourth quarter of 2013 the lease agreements of the approximately 63,000 hectares of grazing land subject
to the 10-year lease agreement. The termination of the lease agreement was effective in the fourth quarter of 2013. We commenced
an arbitration proceeding against Marfrig Argentina and Marfrig Alimentos in 2014 claiming unpaid invoices and indemnification
for early termination for US$ 23,000,000. See “Item8. Financial Information – Legal and Administrative Proceedings”.
We currently own 60,713
hectares of cattle grazing land located mainly in the Argentine provinces of Corrientes, Santa Fe and Buenos Aires. In 2016 we
entered into lease agreements with third party cattle farmers for a total area of 27,216 hectares.
During May 2013, Adecoagro
entered into an agreement to sell the Mimoso farm 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, we entered into an
agreement whereby the buyer will operate and make use of 728 hectares of existing coffee trees in our Rio de Janeiro farm for an
8-year period. The total consideration for this transaction was $24 million, of which $6.0 million were collected as of December
31, 2013 and the balance to be paid in three annual installments in 2014, 2015 and 2016. Pursuant to the terms of the agreement,
we will retain ownership of the coffee trees, which are expected to have an estimated useful life of 8 years in respect of the
Rio de Janeiro farm after expiration of the agreement. We do not expect our coffee business to generate sales in future periods.
Storage and Conditioning
Our storage and conditioning
facilities in the farming business allow us to condition, store and deliver our products with no third-party involvement. All our
crop storage facilities are located close to our farms, allowing us to (i) reduce storage and conditioning costs; (ii) reduce freight
costs since we only commence moving the product once the final destination is determined, whether locally or to a port, (iii) capitalize
on fluctuations in the prices of commodities; and (iv) improve commercial performance by mixing grains to avoid discounts due to
sub-standard quality.
We own five conditioning
and storage facilities for grains and oilseeds, with a total built storage capacity of 28,800 tons. Our largest storage facility,
with a capacity of 18,700 tons, is located in the province of Santa Fe, Argentina, in the town of Christophersen. It has a railway
loading terminal, providing logistical flexibility and savings. We also own in Argentina three rice mills, which account for over
116,854 tons of total storage capacity, and two additional storage and conditioning facilities for rice handling, with a total
storage capacity of 5,700 tons.
Set forth below is our
storage capacity as of December 31, 2016:
|
Storage Capacity
|
|
Nominal
|
|
|
Crops (tons)
|
|
|
28,806
|
|
|
Rice (tons)
|
|
|
116,854
|
|
In addition, we use silo
bags to increase our storage capacity at low cost. Silo bags are an efficient low-cost method for grain storage. As crops are harvested,
they are placed inside large polyethylene bags that can be left in the fields for approximately 12 months without damaging the
grain. Each silo bag can hold up to 180 to 200 tons of product, depending on the type of grain. During the 2015/2016 harvest year,
we stored approximately 27% of our grain production through silo bags.
Silo bags offer important
operational and logistic advantages, such as (i) low cost storage; (ii) flexible and scalable capacity that is adapted based on
production and commercial strategy; (iii) harvest efficiencies since the bags are filled on the field allowing for a non-stop harvest
operation regardless of any logistical setbacks; (iv) logistic efficiencies leading to lower freight since grains are transported
during the off-season when truck fares are lower; (v) increased ability to monitor quality and identify different grain qualities,
since grains are stored in relatively small amounts (200 tons) and easily monitored, maximizing our commercial performance; and
(vi) better use of our drying capacity throughout the year. Silo bags are commercially accepted. Grains stored in silo bags can
be sold in the market, and if such grains are to be delivered post harvest, we charge storage costs. Additionally, we can store
grains to be used as seed during the following season (soybeans, rice and wheat), achieving quality seed management. We have expanded
the use of silo bags from Argentina to our operations in Brazil and Uruguay.
Grain conditioning facilities
at our farms allow our trade desk to optimize commercialization costs and to achieve commercial quality standards and avoid price
discounts. These facilities are operated to dry, clean, mix and separate different qualities of each grain in order to achieve
commercial standards. By mixing different batches of a same grain type, differentiated by quality parameters such as moisture,
percentage broken, and percentage damaged, among others, we can achieve commercial standards without having to discount a lower-quality
stand-alone batch. Efficient management of these facilities results in a lower cost for grain conditioning and a better achievable
price.
Set forth below is our drying capacity as of
December 31, 2016:
|
Drying Capacity
|
|
Nominal
|
|
|
Crops (tons/day)
|
|
|
2,400
|
|
|
Rice (tons/day)
|
|
|
5,300
|
|
Some grains such as soybeans,
wheat and rice, can be used for seed during the next planting season. We produce almost 97% of the seed used for planting these
crops in our fields. The seed is stored in silo bags and/or grain facilities, where it can be processed, classified, and prepared
for planting during next crop season. A deep survey and monitoring process is carried out in order to evaluate, control and deliver
high quality seed to our farms.
The rest of our seed requirements
are purchased from seed suppliers in order to incorporate new enhanced varieties into our planting plan.
Marketing, Sales and Distribution
Crops
In Argentina, grain prices
are based on the market prices quoted on Argentine grain exchanges, such as the
Bolsa de Cereales de Buenos Aires
and the
Bolsa de Cereales de Rosario
, which use as a reference the prevailing prices in international grain exchanges (including
CBOT and ICE-NY). In Uruguay, local prices are based on an export parity (during harvest) or import parity in the case of post-harvest
sales, which, in each case, take into account the prices and costs associated with each market. In Brazil, the grain market includes
the
Bolsa de Mercadorias e Futuros
(Brazilian Grain Exchange), which, as in Argentina, uses as a price reference the international
grain exchanges (including CBOT and ICE-NY). Prices are quoted in relation to the month of delivery and the port in which the product
is to be delivered. Different conditions in price, such as terms of storage and shipment, are negotiated between us and the end
buyer. We negotiate sales with the top traders and industrial companies in our markets. We also engage in hedging positions by
buying and selling futures and options in commodities exchanges, including the Chicago Board of Trade, the New York Board of Trade,
BM&FBOVESPA and the
Mercado a Término de Buenos Aires
(MATBA).
Soybeans:
Our soybean crop is
sold to local companies and is ultimately exported or diverted to the crushing industry. Approximately 56% of the soybean crop
was hedged pre-harvest, by forward sales and sales in the futures markets. Harvest and post-harvest sales are a function of the
export market versus local premiums paid by crushers (oil, meal and biodiesel) and logistics considerations. Our five largest customers
comprised approximately 63% of our sales in the year ended December 31, 2016. In Argentina, the applicable export tax rate on soybeans
is 30%. There are no export taxes in Brasil and Uruguay.
During 2016 we sold more than 39,000 tons (approximately
16% of our production) certified by the Round Table on Responsible Soybean (“RTRS”), capturing premiums over market
value. RTRS is a civil organization that promotes responsible production, processing, and trading of soy on a global level. During
2012 and 2013 we also certified our silo plant in Argentina under 2BSvs (Biomass, Biofuels Sustainability Voluntary Scheme), based
on sustentability criteria of the European Directive 2009/28/EC.
Corn:
Approximately 85% of our
total production is exported, of which 26% are FOB sales, with the remainder destined for domestic use in the poultry and food
industry, and in our dairy operations. All of our Brazilian production is sold domestically for regional consumption. Approximately
40% of the corn crop was hedged pre-harvest. Approximately 3% of our corn production was destined for special products such as
corn seed and popcorn. Our four largest customers comprised approximately 50% of our sales in the year ended December 31, 2015.
Wheat:
Approximately % of our
production is destined for local market and 60% is exported. Quality segregation allows us to negotiate premiums with the millers
and export market. Brazil is the main importer of Argentine wheat. Our four largest customers comprised approximately 62% of our
sales in the year ended December 31, 2016.
Sunflower:
Our sunflower production
from Argentina is sold to local companies. Sales are made pursuant by production agreements of sunflower for confectionary, high
oil content sunflower and seed. Our three largest customers comprised 93% of our sales in the year ended December 31, 2016.
Rice:
Rough rice is available
for sale commencing after the harvest of each year. White rice availability is based on our milling capacity. 67% of our total
rice production is sold into the export market, with the remainder sold in Argentina in the retail market. We export approximately
21% of our exported volume to the Middle East, 73% to other Latin American countries, and the remainder is exported to Africa.
. We sell approximately 33% of our rice in the Argentine retail market through two brands we own that have a 15.9% market share.
Local rice prices are driven by regional supply demand and exchange rate in Brazil. Our five largest customers for rice comprised
approximately 67% of our sales in the year ended December 31, 2016.
Dairy
: During most of 2016, we
sold our entire fluid milk production to four dairy producers. These companies manufacture a range of consumer products sold in
Argentina and abroad. We negotiate the price of fluid milk on a monthly basis in accordance with domestic supply and demand with
these companies. The price of the milk we sell is mainly based on the percentage of fat and protein that it contains and the temperature
at which it is cooled. The price we obtain for our milk also rises or falls based on the content of bacteria and somatic cells.
Sugar, Ethanol and Energy
Sugarcane
Sugarcane is the most efficient
agricultural raw material used in the production of sugar and ethanol. Ethanol produced from sugarcane is highly regarded as an
environmentally friendly biofuel with the following characteristics.
|
|
•
|
Renewable:
Sugarcane ethanol, unlike coal or oil, which can be depleted, is produced
from sugarcane plants that grow back year after year, provided that they are replanted every six to eight years.
|
|
|
•
|
Sustainable:
Sugarcane only needs to be replanted every five to seven years, as a
semi-perennial crop. It can be harvested without uprooting the plant, and therefore its cultivation has less of an impact on the
soil and the surrounding environment. The mechanization of the harvesting and planting process further improves sustainable agricultural
management.
|
|
|
•
|
Energy Efficient:
Sugarcane is highly efficient in converting sunlight, water and
carbon dioxide into stored energy. The energy output of sugarcane is equal to nine times the energy input used in the production
process, whereas the energy output of corn ethanol is only about 1.9 to 2.3 times the energy input used in its production process.
|
|
|
•
|
Low Carbon Emissions:
Compared to gasoline, sugarcane ethanol reduces greenhouse
gases by more than 61%, which is the greatest reduction of any other liquid biofuel produced today in large quantities. Ethanol
made from sugarcane is deemed an advanced biofuel by the United States EPA.
|
|
|
•
|
Synergies:
The main raw material used in the production of electricity in sugar mills
is bagasse, which is a by-product of the sugarcane milling process, allowing for a renewable source of co- generated electricity.
|
Sugarcane is a tropical
grass that grows best in locations with stable, warm temperatures and high humidity, although cold and dry winters are an important
factor for the sucrose concentration of sugarcane. The climate and topography of the center-south region of Brazil is ideal for
the cultivation of sugarcane and accounts for approximately 85% of Brazil’s sugarcane production.
As of December 31, 2016,
our sugarcane plantations consisted of 134,591 hectares of sugarcane planted in the center-south region of Brazil. Approximately
93% of our sugarcane is planted over land leased through agricultural partnerships. Under these agreements, our partners lease
land to us for periods of between one and two sugarcane cycles, equivalent to periods of between 10 to 12 years, on which we cultivate
the sugarcane. Lease payments are based on the market value of the sugarcane set forth by the regulations of the State of Sao Paulo
Sugarcane, Sugar and Alcohol Growers Counsel (
Conselho dos Produtores de Cana-de-Açúcar, Açúcar
e Álcool do Estado de Sao Paulo
, or “Consecana”). We planted and harvested approximately 91% of the total
sugarcane we milled during 2016, with the remaining 9% purchased directly from third parties at prices also determined by the Consecana
system, based on the sucrose content of the cane and the prices of sugar and ethanol. The following table sets forth a breakdown
during the time periods indicated of the amount of sugarcane we milled that was grown on our owned and leased land or purchased
from third parties:
|
|
|
Year
Ended December 31,
|
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
Grown on our owned and leased land (tons)
|
|
|
10,164,671
|
|
|
|
7,396,926
|
|
|
|
6,418,274
|
|
|
Purchased from third parties (tons)
|
|
|
949,837
|
|
|
|
938,521
|
|
|
|
814,554
|
|
|
Total (tons)
|
|
|
11,114,508
|
|
|
|
8,335,447
|
|
|
|
7,232,828
|
|
Sugarcane Harvesting Cycle
The annual sugarcane harvesting
period in the center-south region of Brazil begins in April and ends in November/December of each year. In Mato Grosso do Sul,
where our cluster is located, the weather pattern is less seasonal than in Sao Paulo. Our wet season is dryer and our dry season
is more humid than traditional sugarcane regions. As a consequence of this weather pattern, the sugar content (TRS) gap between
the beginning and the end of the year compared to the peak of the harvest is much smaller than in Sao Paulo. This allows us to
grow and harvest sugarcane year round with a minimal impact on sugar content (TRS).
Since
the beginning of the 2016/17 harvest year we implemented a “non-stop” or “continuous harvest”strategy.
“Non-stop” or “continuous harvest” refers to a continuous operation where we harvest and crush sugarcane
year-round, without stopping during the traditional off-season. This new strategy will allow us to increase annual sugarcane milling
and sugar, ethanol and energy production by approximately 10%. Another benefit of the system is that we will be producing ethanol
in the off-season, when market prices usually are higher than prices at harvest. In addition, cogeneration efficiency is related
to harvested volumes and unrelated to TRS, enabling us to utilize our cogeneration potential during the whole year. Considering
that approximately 85% of total costs are fixed, this model will result not only in higher revenues but also in the dilution of
our fixed costs
.
We plant several sugarcane
varieties, depending on the quality of the soil, the local microclimate and the estimated date of harvest of such area. Once planted,
sugarcane can be harvested, once a year, up to six to eight consecutive years. With each subsequent harvest, agricultural yields
decrease. The plantations must be carefully managed and treated during the year in order to continue to attain sugar yields similar
to a newly-planted crop.
We believe we own one of
the most mechanized harvesting operations in Brazil. Our sugarcane harvesting process is currently 98% mechanized (100% at Angélica
and Ivinhema mills and 84% at UMA mill) and the remaining 2% is harvested manually. Mechanized harvesting does not require burning
prior to harvesting, significantly reducing environmental impact when compared to manual harvesting. In addition, the leaves that
remain on the fields after the sugarcane has been harvested mechanically create a protective cover for the soil, reducing evaporation
and protecting it from sunlight and erosion. This protective cover of leaves decomposes into organic material over time, which
increases the fertility of the soil. Mechanized harvesting is more time efficient and has lower costs when compared to manual harvesting.
Sugarcane is ready for harvesting when the crop’s sucrose content is at its highest level. Sucrose content and sugarcane
yield (tons of cane per hectare) are important measures of productivity for our harvesting operations. Geographical factors, such
as soil quality, topography and climate, as well as agricultural techniques that we implement, affect our productivity. Since most
sugar mills produce both sugar and ethanol in variable mixes, the industry has adopted a conversion index for measuring sugar and
ethanol production capacity, the Total Recoverable Sugar (“TRS”) index, which measures the amount of kilograms of sugar
per ton of sugarcane.
During the 2016 harvest,
our mills harvested sugarcane with an average TRS content of 127 kg/ton and an average yield of 98.0 tons of sugarcane per hectare.
Once the sugarcane is harvested,
it is transported to our mills for inspection and weighing. We utilize our own trucks and trailers for transportation purposes.
The average transportation distance from the sugarcane fields to the mills is approximately 28 kilometers at UMA and 33 kilometers
at Angélica and Ivinhema.
Our Mills
We currently own three
sugar mills in Brazil, UMA, Angélica and Ivinhema. Our mills produce sugar, ethanol and energy, and have the flexibility
to adjust the production mix between sugar and ethanol, to take advantage of more favorable market demand and prices at given points
in time. As of December 31, 2016, our sugar mills had a total installed crushing capacity of 11.2 million tons of sugarcane, of
which 10.0 million tons correspond to our sugarcane cluster in Mato Grosso do Sul, Brazil. As of December 31, 2016, we concluded
the 2016 harvest crushing an aggregate volume of 11.1 million tons of sugarcane.
The Usina Monte Alegre
mill (“UMA”) is located in the state of Minas Gerais, Brazil, and has a sugarcane crushing capacity of 1.2 million
tons per year, full cogeneration capacity and an associated sugar brand with strong presence in the regional retail market (
Açúcar
Monte Alegre
). We plant and harvest 99.5% of the sugarcane milled at UMA, with the remaining 0.5% acquired from
third parties. On December 31, 2016, UMA concluded its harvest operations for the 2016 season, crushing 1.1 million tons of sugarcane.
Angélica is an advanced
mill, which we built in the state of Mato Grosso do Sul, Brazil, with a total sugarcane crushing capacity of 4.8 million tons per
year. Angélica was completed in 2010 and is equipped with two modern high pressure boilers and three turbo-generators with
the capacity to use all the sugarcane bagasse by-product to generate approximately 96 MW of electricity that is used to power the
mill with an excess of 65MW available for sale to the power grid. Angélica has the flexibility to vary the product slate
between 60% to 40% for either product.
During mid 2011, we started
the construction of our third mill, Ivinhema, located in the state of Mato Grosso do Sul, approximately 45 kilometers south of
our existing Angelica mill, in order to complete our planned sugarcane cluster in that region. The construction of the first phase
of the Ivinhema mill was completed during the beginning of 2013 reaching 2.0 million tons of sugarcane crushing capacity, and milling
operations commenced on April 25, 2013. During early 2014, we began the construction of the second phase of the Ivinhema, adding
3.0 million tons of additional nominal crushing capacity. The investment consisted of expanding the milling equipment, building
a new fluidized bed boiler, two new electrical generators and expanding the sugar factory and ethanol distillery, as well as expanding
the sugarcane plantation and agricultural machinery.The construction was completed during mid 2015. Ivinhema now has a total milling
capacity of 5.3 million tons per year. The mill is equipped with state-of-the-art technology including full cogeneration capacity,
flexibility to produce sugar and ethanol and fully mechanized agricultural operations. Ivinhema has capacity to produce up to 330,000
tons of sugar, 264,000 cubic meters of ethanol and 360,000 MWh of energy sales to the grid.
During March 2017 we commenced
an expansion project to increase the crushing capacity of our cluster in Mato Grosso do Sul by 30% or 3.0 million tons, from 10.0
million tons to 13.0 million tons. The project will be implemented over the next five years and will be executed in two phases.
Phase 1 consists of expanding Angelica’s crushing capacity by 0.9 million tons throughout 2017 and 2018. We will expand crushing
capacity by 150 tons/hour by installing larger mill rollers in the first mill, and expanding the sugar centrifugation and ethanol
filtration processes. Crushing will grow gradually and reach full capacity by 2019. Phase 2 will consist of expanding Ivinhema’s
capacity by 2.1 million tons (400 tons/hour), between 2018 and 2022. This will be achieved by installing a new mill (#6) expanding
the sugarcane reception, juice treatment and sugar factory. Crushing will grow gradually and reach full capacity in 2023. Total
estimated capital expenditure is $166 million (52 USD/ton), of which 20% consists of industrial machinery and equipment, 15% of
agricultural equipment (harvesters, tractors, trucks) and 65% of sugarcane planting (51,000 hectares) to supply the new nominal
capacity. 55% of the capex will be deployed during 2017-2019, and 45% during 2020-2022.
We plant and harvest 91%
of the sugarcane milled at our cluster, with the remaining 9% acquired from third parties. On December 31, 2016, our sugarcane
cluster concluded its harvest operations for the 2016 season, crushing 10.0 million tons of sugarcane.
Our Main Products
The following table sets
forth a breakdown of our production volumes by product for the years indicated:
|
|
|
Year
Ended December 31,
|
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sugar (tons)
|
|
|
701,060
|
|
|
|
464,929
|
|
|
|
413,687
|
|
|
Ethanol (cubic meters)
|
|
|
422, 395
|
|
|
|
361,001
|
|
|
|
299,810
|
|
|
Energy (MWh exported)
|
|
|
751,037
|
|
|
|
553,090
|
|
|
|
445,705
|
|
The following table sets
forth our sales for each of the sugarcane by-products we produce for the years indicated:
|
|
|
Year
Ended December 31,
|
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
|
(In thousands of $)
|
|
|
Sugar
|
|
|
330,895
|
|
|
|
177,801
|
|
|
|
174,459
|
|
|
Ethanol
|
|
|
211,451
|
|
|
|
176,150
|
|
|
|
165,870
|
|
|
Energy
|
|
|
53,995
|
|
|
|
46,671
|
|
|
|
66,800
|
|
|
Other
|
|
|
351
|
|
|
|
-
|
|
|
|
-
|
|
|
Total
|
|
|
596,692
|
|
|
|
400,622
|
|
|
|
407,129
|
|
Sugar
As of December 31, 2016
our sugar production capacity was approximately 3,500 tons per day which, in a normal year of 6,819 hours of milling, results in
an annual sugar maximum production capacity of over 994,408 tons of sugar. The increased capacity is the result of enhanced operational
efficiencies and the completion of the second phase of the Ivinhema mill. In 2016, we produced 701,060 tons of sugar, compared
to 464,929 tons of sugar in 2015 and 413,687 tons of sugar in 2014.
We produce two types of
sugar: very high polarization (“VHP”) standard raw sugar and white crystal sugar. VHP sugar, a raw sugar with a 99.3%
or higher sucrose content, is similar to the type of sugar traded in major commodities exchanges, including the standard NY11 contract.
The main difference between VHP sugar and NY11 raw sugar is the sugar content of VHP sugar, and it therefore commands a price premium
over NY11 raw sugar. Crystal sugar is a non-refined white sugar (color 150 ICUMSA) produced directly from sugarcane juice.
Sugar sales comprised 22%
of our total consolidated sales in 2014, 26% of our total consolidated sales in 2015 and 38% of our total consolidated sales in
2016.
Ethanol
As of December 2016, our
ethanol production capacity was approximately 2,900 cubic meters per day which, in a normal year of 6,819 hours of milling, results
in maximum annual production capacity of over 823,938 cubic meters of ethanol. The increased capacity is the result of enhanced
operational efficiencies and the completion of the second phase of the Ivinhema mill. In 2014 we produced 299,810 cubic meters
of ethanol, compared to 361,001 cubic meters in 2015 and 445,395 cubic meters in 2016.
We produce and sell two
different types of ethanol: hydrous ethanol and anhydrous ethanol (as further described in “—Production Process—Ethanol”).
Ethanol sales comprised 23% of our total consolidated sales in 2014, 26% of our total consolidated sales in 2015 and 22% of our
total consolidated sales in 2016.
Cogeneration
We generate electricity from sugarcane bagasse
(the fiber portion of sugarcane that remains after the extraction of sugarcane juice) in our three mills located in Brazil. As
of December 31, 2016, total installed cogeneration capacity reached 232MW, of which 162MW are available for resale to third parties
after supplying our mills’ energy requirements. The ability to generate electricity from the by-product of the sugarcane
crushing process on a large enough scale to fully power a mill with excess electricity being available is referred to as having
full cogeneration capacity. Our three mills are duly licensed by the Agência Nacional de Energia Elétrica (“ANEEL”)
to generate and sell electricity. During the year ended December 31, 2016 , 2015 and 2014 we sold 1,028,323 MWh, 607,532 MWh and
445,705 MWh to the local electricity market, comprising 5%, 13%, 8% of our consolidated sales respectively.
Production Process
Sugar.
There
are essentially five steps in the sugar manufacturing process. First, we crush the sugarcane to extract the sugarcane juice. We
then treat the juice to remove impurities. The residue is used to make an organic compost used as fertilizer in our sugarcane fields.
The juice is then boiled until the sugar crystallizes, and sugar is then separated from the molasses (glucose which does not crystallize)
by centrifugation. The resulting sugar is dried and sent to storage and/or packaging. We use the molasses in our production of
ethanol.
Ethanol.
Ethanol is produced through the fermentation of sugarcane juice or diluted molasses. Initially, we process the sugarcane
used in ethanol production the same way that we process it for sugar production. The molasses resulting from this process is
mixed with clear juice and then with yeast in fermentation vats, and the resulting wine has an ethanol content of
approximately 8% to 10%. After the fermentation is complete, the yeast is separated for recycling in the ethanol production
process. We distill the wine to obtain hydrous ethanol. In order to produce anhydrous ethanol, hydrous ethanol undergoes a
dehydration process in a molecular sieve. The liquid remaining after these processes is called vinasse, which we further
process to make liquid organic fertilizer that we use in our sugarcane plantations.
Cogeneration.
Sugarcane is composed of water, fibers, sucrose and other sugars and minerals. When the sugarcane goes through the milling process,
we separate the water, sugar and minerals from the fibers or sugarcane bagasse. Bagasse is an important sub-product of sugarcane,
and it is used as fuel for the boilers in our mills. Sugarcane bagasse is burned in our state-of-the-art boilers to produce high
pressure steam (67 atm) which is used in our high-efficiency turbo-generators to generate electricity to power our mills. The excess
electricity, about 66% of production, is sold to the national power grid.
The following flow chart
demonstrates the sugar, ethanol and cogeneration production process:
Historically, the energy
produced by Brazilian mills has not been price competitive when compared to the low-cost Brazilian hydro-electricity, which accounts
for almost 90% of the country’s electricity matrix. Consequently, the majority of the groups in the sugar and ethanol sector
have not invested in expanding their energy generation for sale, and the majority of the mills were constructed with less efficient,
low-pressure boilers. Since 2000, the Brazilian economy has experienced significant growth, which in turn has resulted in increased
demand for energy.
However, hydro- and thermo-electricity
have not been able to keep pace for the following reasons: (1) new hydro-electric plants are located in regions (such as the Amazon)
distant from consumption centers; (2) significant lead-time is required to construct new hydro- and thermo-electric plants; (3)
significant investments are required for transmission lines, pipelines (for natural gas used in thermo-electric plants) and barges;
(4) significant environmental costs are associated with both types of electricity generation; and (5) prices for fuel (natural
gas) used in the generation of thermo-electricity have increased resulting in greater dependence on Bolivia (Brazil’s principal
natural gas supplier). As a result, energy prices in Brazil have been increasing, and alternative sources, such as the electricity
from the cogeneration of sugarcane bagasse, have become increasingly competitive and viable options to satisfy the increasing energy
demands. Sugarcane bagasse cogeneration is particularly competitive since sugarcane-based electricity is generated following the
sugarcane harvest and milling which occurs during the dry season in Brazil, when hydroelectric generation is at its lowest levels.
The main advantages
of energy generated by sugarcane bagasse are:
|
|
•
|
It is a clean and renewable energy;
|
|
|
•
|
It complements hydropower, the main source of Brazilian energy, as it is generated during the sugarcane
harvest period (April to December) when water reservoirs are at their lowest level;
|
|
|
•
|
It requires a short period of time to start operations; and
|
|
|
•
|
It requires only a small investment in transmission lines when plants are located close to consumer
centers.
|
As of December 2016, our
total installed cogeneration capacity at our cluster and UMA mill was 216MW and 16MW respectively, of which 150MW and 12MW are
available to sell to the market.
We believe that there is
a high potential for growth in the generation of electricity, and we are prepared to make investments to the extent economically
viable.
Storage and Conditioning
Our sugar and ethanol storage
and conditioning facilities are located at our mill sites and allow us to deliver our products when they are ready to be commercialized
with no third-party involvement. Having such facilities at mill sites allows us to (i) reduce storage and conditioning costs; (ii)
reduce freight costs since we only commence moving the product once the final destination is determined, whether locally or to
a port; and (iii) capitalize on fluctuations in the prices of sugar and ethanol.
|
Nominal Storage Capacity
|
|
Cluster
|
|
|
UMA
|
|
|
Total
|
|
|
Ethanol (cubic meters)
|
|
|
160,000
|
|
|
|
27,000
|
|
|
|
187,000
|
|
|
Sugar (tons)
|
|
|
155,000
|
|
|
|
36,400
|
|
|
|
191,400
|
|
Marketing, Sales and Distribution
Sugar:
We
sell sugar both in the domestic and the international markets at prices that depend on our price parity calculation, which considers
each market’s price and the associated costs. Prices for the sugar we sell in Brazil are set, using an index calculated by
the Agriculture College of the University of São Paulo (
Escola Superior de Agricultura Luiz de Queiroz
, or “ESALQ”),
with a premium in the state of Minas Gerais due to the use of our regional brand, “Monte Alegre,” the market leader
in the southern part of that state. Prices for the sugar we export are set in accordance with international market prices. International
prices for raw sugar are established in accordance with the NY11 futures contracts. Our largest six customers for sugar comprised
approximately 95% of our sales in the period ended December 31, 2016.
Ethanol:
Almost all of our ethanol sales are in the domestic Brazilian market given the increasing demand generated from the increase in
flex-fuel vehicles in Brazil and better ethanol parity at the gas stations. Around 37% of our ethanol sales are made through formal
agreements. The remaining volumes are sold through daily sale orders through specialized brokerage firms that act in the ethanol
domestic market, whose role is to intermediate the sale of ethanol between the ethanol producers and the domestic ethanol distribution
companies, the prices for these transactions are set using the ESALQ and the futures and commodity exchange of the BM&FBOVESPA
indices for ethanol as a reference. Our largest eight customers by volume comprised approximately 74% of our sales in the period
ended December 31, 2016.
Cogeneration:
We also sell electricity co-generated at our sugar and ethanol mills to local electricity commercialization companies and directly
to the spot market. Sales are made in the spot market with brokers, through government auctions, to distributors and through long-term
contracts. Our largest four customers comprised 72% of our sales revenues in the period ended December 31, 2016.
The Brazilian energy agency,
ANEEL, has organized yearly auctions for alternative energy and for renewable sources at favored rates. As a hedging strategy,
we sell the electricity production of our mills through long-term contracts adjusted for inflation by reference to the National
Index of Consumer Prices (“IPCA”).
In 2009, UMA entered into
a 10-year agreement with CEMIG for the sale of approximately 46,200 MWh during the harvest periods each year (May to November
of each year) at a rate of R$ 233.93 per megawatt hour in 2015. In 2009, Angélica sold energy in a public auction carried
out by Camara de Comercialização de Energia Elétrica (“CCEE”), Angélica entered into a
15-year agreement with CCEE for the sale of 87,600 MWh per year at a rate of R$232.10 per MWh (price for year 2015). In August
2010, Angélica participated in a public auction, whereupon Angélica entered into a second 15-year agreement with
CCEE starting in 2011, for the sale of 131,400 MWh per year at a rate of R$206.30 per MWh (price for year 2015). The delivery period
for the first auction is May to December and for the second the delivery period starts in April and ends in November of each year.
The rates under both agreements are adjusted annually for inflation by reference to the IPCA. In August 2013, Ivinhema sold 87,600
MWh in an auction carried out by CCEE at R$146.08 per MWh. This volume will start to be delivered in 2018 and its price is adjusted
annually by IPCA.
Land Transformation
Land transformation is
an important element of our business model and a driver of value creation. Through land transformation, we optimize land use and
increase the productive potential and value of our farmland. Our land transformation model consists of changing the use of underutilized
or undermanaged agricultural land to more profitable cash generating agricultural activities, such as turning low cash-yielding
cattle pasture land into high cash-yielding croppable land, allowing profitable agricultural activities, such as crop, rice and
sugarcane production.
Since our inception, we
have successfully identified multiple opportunities for the acquisition of undeveloped or undermanaged farmland with high potential
for transformation. During the fourteen-year period since our inception, we have effectively put into production over 169,317 hectares
that were previously undeveloped or inefficiently managed and are undergoing the transformation process.
The land transformation
process begins by determining the productive potential of each plot of land. This will vary according to soil properties, climate,
productive risks, and the available technology in each specific region. Before commencing the transformation process, we perform
environmental impact studies to evaluate the potential impact on the local ecosystem, with the goal of promoting environmentally
responsible agricultural production and ecosystem preservation, thereby supporting sustainable land use. We do not operate in heavily
wooded areas or primarily wetland areas.
The transformation process
for underdeveloped and undermanaged land requires us to make initial investments during a period of one to up to three years, and
the land reaches stable productive capability the third to seventh year following commencement of the land transformation activities.
We are engaged in three
different categories of the land transformation process, which are defined by the previous use of the land:
(i) Undeveloped
land (savannahs and natural grasslands): This is the most drastic transformation phase since it demands both physical and chemical
transformation of the soil. First, the land is mechanically cleared to remove native vegetation. The soil is then mechanically
leveled for agricultural operations: in the case of land being transformed for rice production, this process involves heavy land
movements and systematization required for irrigation and drainage channels, roads and bridges. In the case of land destined for
sugarcane plantations, land movements will also be necessary for the construction of terraces to prevent the excess of water runoff.
Certain soils must be chemically treated and corrected by incorporating nutrients such as limestone, gypsum and phosphorous, as
is the case of the Brazilian ‘Cerrado’. Soil correction is not required in Argentina or Uruguay due to the natural
fertility of the soil. Pesticides and fertilizers are then applied to the soil in preparation for planting. In the case of land
destined for crop production (grains and oilseeds), soybean, which is sometimes referred to as a colonizing crop, is usually planted
during the first years due to its resistance to pests, weeds and extreme weather and soil conditions. Thereafter, the land will
enter into a crop rotation scheme to reduce the incidence of plague and disease and to balance soil nutrients. In the case of rice
and sugar cane, which are produced in a monoculture system, there is no colonizing crop or rotation involved. Intensive plague
and weed controls and additional soil correction will take place during these first three to five years. Land productivity or yields,
measured in tons of soybean or other crops per hectare, will be initially low and will gradually increase year by year. During
the first five to seven years, the yields will increase at high and sustained rates. After the seventh year we consider the land
developed as yield volatility is reduced and growth is only achievable at marginal rates. Since our inception in 2002, we have
put into production 67,892 hectares of undeveloped land into productive croppable land.
(ii) Undermanaged
or underutilized farmland (cultivated pastures and poorly managed agriculture): This transformation process is lighter than the
one described above since it does not require the initial mechanical clearing of vegetation or land leveling. Only in the case
of land being prepared for rice production will leveling be required for efficient flood-irrigation. The transformation of cattle
pastures or poor agriculture in the Brazilian ‘Cerrado’ will begin with soil correction and soil tillage in preparation
for planting of the first soybean or sugarcane crop. The process will then continue as described in the case above. Land productivity
or crop yields will grow at high rates during the first three to five years of the transformation process and will then commence
to stabilize and grow at marginal rates, at which point we consider the land developed. Since our inception in 2002 we have put into production
101,425 hectares of undermanaged or underutilized farmland into croppable land.
(iii) Ongoing
transformation of croppable land: The application of efficient and sustainable crop production technologies and best practices
such as “no-till”, crop rotations, integrated pest and weed management and balanced fertilization, among others, incrementally
increases soil quality and land productivity over time, maximizing return on invested capital and increasing the land value of
our properties. Our entire farmland portfolio is constantly undergoing this phase of land transformation. During the 2015/2016
harvest year, we operated 131,363 hectares of own developed farmland which were enhanced by the use of best productive practices
and technology.
In each of these categories
of transformation, the metric the company uses to track the level and analyze the progress of the transformation process is the
level and tendency of crop yields and the number of years the land has been under crop production. Consequently, the process of
land transformation is evidenced by the results of the activities within our other business segments, primarily our crops, rice
and sugarcane segments. Accordingly the costs associated with the transformation process described above are allocated within these
other business segments. As a result, there may be variations in our results from one season to the next according to the amount
of farmland undergoing transformation and the amount of land sold and our ability to identify and acquire new farmland.
Our land transformation
segment seeks not only to profit from crop and rice cultivation, but also from the opportunistic disposition of successfully transformed
farmland. We strategically sell farms that have reached productive maturity with marginal potential for further productivity increases
(years three to seven after commencing the land transformation process) to realize and monetize the capital gains arising from
the land transformation process. Land transformation proceeds are in turn reinvested in the purchase of strategic farmland with
potential for transformation and appreciation. The rotation of our land portfolio allows us to allocate capital efficiently. Since
2006 we have had a solid track record of selling farmland and achieving profitable returns. During the last eleven years, we have
sold 20 farms, generating capital gains of approximately $205 million.
These capital gains are
generated by three main factors:
(i) the acquisition
of land at opportunistic prices below the market value or fair value of the land;
(ii) the land
transformation and ongoing land transformation process described above enhances the productivity and profitability of land, ultimately
increasing the value of the land; and
(iii) general
market appreciation of land driven by increase in commodity prices and supply and demand dynamics in the land market. In this regard,
during the last 30 years, since 1977, farmland prices in Argentina’s core production region have increased an average of
8.1% per year according to data published by
Margenes Agropecuarios
. The value of the farms we sold between 2006 and 2015
as well as our overall land portfolio, has been positively impacted by this external factor.
We believe we are one of
the most active players in the land business in South America. Since our inception in 2002, we have executed transactions for the
purchase and sale of land for over $688 million. Our business development team is responsible for analyzing, selecting, acquiring
and selling land. The team has gained extensive expertise in evaluating and acquiring farmland throughout South America, and has
a solid understanding of the productivity potential of each region and of the potential for land transformation and appreciation.
Since 2002, the team has analyzed over 11 million hectares of farmland with a total value of approximately $16 billion. We have
developed a methodology to analyze investment opportunities, taking into account price, transformation potential, productive model,
financial projections, and investment requirements, among others. Our analysis also employs advanced information technology, including
the use of satellite images, rain and temperature records, soil analyses, and topography and drainage maps. From time to time,
we may leverage our favorable position in and knowledge of the land market to engage in opportunistic buying and selling transactions.
The following table sets
forth our acquisitions and divestitures since our inception:
|
|
|
Acquisition
|
|
|
Divestitures
|
|
|
Total
Land Holdings
|
|
|
Year Ended December
31,
|
|
(In
hectares)
|
|
|
2002
|
|
|
74,898
|
|
|
|
—
|
|
|
|
74,898
|
|
|
2003
|
|
|
—
|
|
|
|
—
|
|
|
|
74,898
|
|
|
2004
|
|
|
34,659
|
|
|
|
—
|
|
|
|
109,557
|
|
|
2005
|
|
|
22,262
|
|
|
|
—
|
|
|
|
131,819
|
|
|
2006
|
|
|
5,759
|
|
|
|
3,507
|
|
|
|
134,071
|
|
|
2007
|
|
|
113,197
|
|
|
|
8,714
|
|
|
|
239,274
|
|
|
2008
|
|
|
43,783
|
|
|
|
4,857
|
|
|
|
278,200
|
|
|
2009
|
|
|
—
|
|
|
|
5,005
|
|
|
|
273,195
|
|
|
2010
|
|
|
14,755
|
|
|
|
5,086
|
|
|
|
282,864
|
|
|
2011
|
|
|
12,992
|
|
|
|
2,439
|
|
|
|
293,417
|
|
|
2012
|
|
|
—
|
|
|
|
9,475
|
|
|
|
283,942
|
|
|
2013
|
|
|
—
|
|
|
|
14,176
|
|
|
|
269,838
|
|
|
2014
|
|
|
—
|
|
|
|
12,887
|
|
|
|
257,036
|
|
|
2015
|
|
|
—
|
|
|
|
10,905
|
|
|
|
246,139
|
|
|
2016
|
|
|
—
|
|
|
|
—
|
|
|
|
246,139
|
|
Our Farms
Appraisal of Farms.
In September 2016, in order to assess the market value of rural properties in Brazil, Argentina and Uruguay, we requested an appraisal
by Cushman & Wakefield Argentina S.A., independent real estate valuation firm knowledgeable about the agriculture industry
and the local real estate market. As part of these appraisals, the value of each of our properties was determined using the sales
comparison approach taking into account current offerings and prices buyers had recently paid for comparable sites, adjusted for
the differences between comparable properties and the subject property to arrive at an estimate of the value. The major elements
of comparison used to value the properties included the property rights conveyed, the financial terms incorporated into the transaction,
the conditions or motivations surrounding the sale, changes in market conditions since the sale, the location of the real estate
and the physical characteristics of the property.
The above mentioned valuations
assumed good and marketable title to subject properties, which were assumed to be free and clear of all liens and encumbrances.
The valuation did not include site measurements and no surveys of the subject properties were undertaken. In addition, the valuations
also assumed (a) responsible ownership and competent management of the subject properties; (b) there were no hidden or unapparent
conditions of the subject properties, subsoil or structures that render the subject properties more or less valuable; (c) full
compliance with all applicable federal, state and local zoning and environmental regulations and laws and (d) all required licenses,
certificates of occupancy and other governmental consents were or can be obtained and renewed for any use on which the value opinion
contained in the appraisals is based. Unless otherwise stated in the appraisals, the existence of potentially hazardous or toxic
materials that may have been used in the construction or maintenance of the improvements or may be located at or about the subject
properties was not considered in arriving at the appraisal of value. These materials (such as formaldehyde foam insulation, asbestos
insulation and other potentially hazardous materials) may adversely affect the value of the subject properties.
Cushman & Wakefield
has informed us their assessment of the market value of our farmland as of September 30, 2016. According to Cushman &
Wakefield, the market value of our farmland totaled $936.1 million, out of which $809.8 million correspond to the market value
of our farmland in Argentina and Uruguay, and the remaining $126.3 million correspond to the market value of our farmland in Brazil.
Net of non-controlling interests in certain Argentine farms, the market value of our farmland totaled $760.2 million. These valuations
are only intended to provide an indicative approximation of the market value of our farmland property as of September 30,
2016 based on then current market conditions. This information is subject to change based on many variables and market conditions.
|
Farm
|
|
State,
Country
|
|
Gross
Size
(Hectares)
|
|
|
Current
Use
|
|
El Meridiano
|
|
Buenos Aires, Argentina
|
|
|
6,302
|
|
|
Grains
|
|
Las Horquetas
|
|
Buenos Aires, Argentina
|
|
|
2,086
|
|
|
Grains & Cattle
|
|
San Carlos
|
|
Buenos Aires, Argentina
|
|
|
4,215
|
|
|
Grains
|
|
Huelen
|
|
La Pampa, Argentina
|
|
|
4,633
|
|
|
Grains
|
|
La Carolina(2)
|
|
Santa Fe, Argentina
|
|
|
4,306
|
|
|
Grains & Cattle
|
|
El Orden(2)
|
|
Santa Fe, Argentina
|
|
|
3,506
|
|
|
Grains & Cattle
|
|
La Rosa
|
|
Santa Fe, Argentina
|
|
|
4,087
|
|
|
Grains & Cattle
|
|
San Joaquín
|
|
Santa Fe, Argentina
|
|
|
37,273
|
|
|
Rice, Grains & Cattle
|
|
Carmen
|
|
Santa Fe, Argentina
|
|
|
10,021
|
|
|
Grains
|
|
Abolengo
|
|
Santa Fe, Argentina
|
|
|
7,473
|
|
|
Grains
|
|
Santa Lucia
|
|
Santiago del Estero, Argentina
|
|
|
17,495
|
|
|
Grains & Cattle
|
|
El Colorado
|
|
Santiago del Estero, Argentina
|
|
|
4,960
|
|
|
Grains
|
|
La Guarida (1)
|
|
Santiago del Estero, Argentina
|
|
|
7,880
|
|
|
Grains & Cattle
|
|
La Garrucha (1)
|
|
Salta, Argentina
|
|
|
1,839
|
|
|
Grains
|
|
Los Guayacanes (1)
|
|
Salta, Argentina
|
|
|
3,693
|
|
|
Grains
|
|
Ombú
|
|
Formosa, Argentina
|
|
|
18,321
|
|
|
Grains & Cattle
|
|
Oscuro
|
|
Corrientes, Argentina
|
|
|
33,429
|
|
|
Rice, Grains & Cattle
|
|
Itá Caabó
|
|
Corrientes, Argentina
|
|
|
22,888
|
|
|
Rice, Grains & Cattle
|
|
Alto Alegre
|
|
Tocantins, Brazil
|
|
|
6,082
|
|
|
Grains & Cotton
|
|
Conquista
|
|
Tocantins, Brazil
|
|
|
4,415
|
|
|
Grains & Cotton
|
|
Rio de Janeiro
|
|
Bahia, Brazil
|
|
|
10,012
|
|
|
Grains & Cotton
|
|
Bela Manhã
|
|
Mato Grosso do Sul, Brazil
|
|
|
381
|
|
|
Sugarcane
|
|
Ouro Verde
|
|
Mato Grosso do Sul, Brazil
|
|
|
679
|
|
|
Sugarcane
|
|
Don Fabrício
|
|
Mato Grosso do Sul, Brazil
|
|
|
3,302
|
|
|
Sugarcane
|
|
Takuarê
|
|
Mato Grosso do Sul, Brazil
|
|
|
489
|
|
|
Sugarcane
|
|
Agua Branca
|
|
Mato Grosso do Sul, Brazil
|
|
|
1,614
|
|
|
Sugarcane
|
|
Nossa Senhora Aparecida
|
|
Mato Grosso do Sul, Brazil
|
|
|
540
|
|
|
Sugarcane
|
|
Sapálio
|
|
Mato Grosso do Sul, Brazil
|
|
|
6,140
|
|
|
Sugarcane
|
|
Carmen (Agua Santa)
|
|
Mato Grosso do Sul, Brazil
|
|
|
146
|
|
|
Sugarcane
|
|
La Pecuaria
|
|
Duranzo, Uruguay
|
|
|
3,177
|
|
|
Grains
|
|
Doña Marina
|
|
Corrientes, Argentina
|
|
|
14,755
|
|
|
Rice
|
|
Total
|
|
|
|
|
246,139
|
|
|
|
(1) On June 2014,
we completed the sale of a 49.0% interest in Global Anceo S.L.U and Global Hisingen S.L.U, two Spanish subsidiaries that owned
La Guarida, La Garrucha and Los Guayacanes farms.
(2) On December
2015, we completed the sale of a 49% interest in Global Acamante S.L.U, Global Calidon S.L.U, Global Carelio S.L.U, and Global
Mirabilis S.L.U, whose main underlying assets are El Orden and La Carolina
A substantial portion of our assets consists
of rural real estate. The agricultural real estate market in Brazil, Argentina and Uruguay is particularly characterized by volatility
and illiquidity. As a result, we may experience difficulties in immediately adjusting our portfolio of rural properties in response
to any alterations in the economic or business environments. The volatility of the local market could affect our ability to sell
and receive the proceeds from such sales, which could give rise to a material adverse effect on our business, results of operations
and financial condition. See “Item 3. Key Information—D. Risk Factors—Risks Related to Our Business and Industries—A
substantial portion of our assets is farmland that is highly illiquid.”
Land Leasing and
Agriculture Partnerships.
We enter into operating lease agreements based on criteria regarding the quality and projected
profitability of the property, as well as our production and yield objectives in the short or medium term. Generally, we become
aware of farms available for lease directly through the owners of farms near our farms and in some cases through regional brokers.
We tend to be more open
to leasing farmland for sugarcane production than for our farming businesses, where we own the majority of the land that we farm.
We lease land for our sugarcane production primarily because leases in this sector are long term, lasting between one or two sugarcane
cycles (with each cycle lasting generally 6 years), which allows us to implement and reap the productivity
benefits of our land transformation strategies. Sugarcane lease payments are established in terms of tons of sugarcane per hectare,
depending on the productivity of the land in terms of tons per hectare and sucrose content per hectare and also on the distance
from the land to the mill. Sugarcane prices are based on the market value of the sugarcane set forth by the regulations of the
State of Sao Paulo Sugarcane, Sugar and Alcohol Growers Counsel (Conselho dos Produtores de Cana-de-Açúcar, Açúcar
e Álcool do Estado de Sao Paulo, or “Consecana”). Given the strategic location of our mills in the region and
the inherent inefficiency of growing crops other than sugarcane in this region, we expect to be able to renew our leases for the
sugarcane farmland with minimal issues.
With respect to our farming
business, the initial duration of lease agreements is generally one harvest year. Leases of farmland for production of grains include
agreements with both fixed and variable lease payments in local currency or U.S. dollars per hectare.
Land Management.
We manage our land through an executive committee composed of a country manager, regional manager, farm manager and members of
the Technology Adecoagro Group (“TAG”) that meet on a monthly basis. We delegate individual farm management to farm
managers, who are responsible for farm operations and receive advisory support from TAG to analyze and determine the most suitable
and efficient technologies to be applied. Our executive committee establishes commercial and production rules based on sales, market
expectations and risk allocation, and fulfilling production procedures and protocols.
Following an acquisition
of property, we make investments in technology in order to improve productivity and to increase its value. Occasionally when we
purchase property, a parcel of the property is sub-utilized or the infrastructure may be in need of improvement, including traditional
fencing and electrical fencing, irrigation equipment and machinery, among other things.
Property, Plant and Equipment
In addition to our farmland,
we also own the following principal industrial facilities:
|
Facility
|
|
Province, Country
|
|
Relevant
Operational
Data
|
|
Current Use
|
|
“Christophersen”
|
|
Santa Fe, Argentina
|
|
18,700 tons of storage capacity.
2,400 tons per day of drying
Capacity
|
|
Seedbed and stockpiling plant (1)
|
|
|
|
|
|
|
|
|
|
“Semillero Itá Caabó”
|
|
Corrientes, Argentina
|
|
|
|
Rice genetic improvement program
|
|
|
|
|
|
|
|
|
|
“Molino Ala — Mercedes”
|
|
Corrientes, Argentina
|
|
Installed capacity of 4,682 tons
of white rice monthly, and husk
rice drying capacity of 2,400 tons
per day
|
|
Rice processing and drying plant
|
|
|
|
|
|
|
|
|
|
“Molino Ala — San Salvador”
|
|
Entre Ríos, Argentina
|
|
Installed capacity of 5,208 tons
of white rice monthly, and husk
rice drying capacity of 1,100 tons
per day
|
|
Rice processing and drying plant
|
|
|
|
|
|
|
|
|
|
Molino Franck
|
|
Santa Fe, Argentina
|
|
Processing capacity of 5,617 tons
of white rice monthly, and husk
rice drying capacity of 1,600 tons
per day
|
|
Rice processing and drying plant
|
|
|
|
|
|
|
|
|
|
“Angélica Agroenergía”
|
|
Mato Grosso do Sul, Brazil
|
|
Installed milling capacity of
4.7 million tons of
sugarcane annually, 330,000 tons
of VHP sugar and over 264,000
cubic meters of ethanol, and
over 260,000 MWh
|
|
Sugar and ethanol mill producing hydrated ethanol, anhydrous ethanol and VHP sugar. Sells energy to local network
|
|
|
|
|
|
|
|
|
|
“Ivinhema Agroenergía”
|
|
Mato Grosso do Sul, Brazil
|
|
Installed milling capacity of
5.3 million tons of
sugarcane annually, 330,000 tons
of VHP sugar, 330,000
cubic meters of ethanol, and
over 360,000 MWh
|
|
Sugar and ethanol mill producing hydrated ethanol and VHP sugar. Sells energy to local network
|
|
|
|
|
|
|
|
|
|
“Usina Monte Alegre”
|
|
Minas Gerais, Brazil
|
|
Present milling capacity of 1.2
million tons of sugarcane
annually, 130,000 tons of VHP
and white sugar and over
52,000 cubic meters of ethanol
and 54,000 MWh
|
|
Sugar mill producing VHP and white sugar and hydrated ethanol. Sells energy to local network
|
|
|
(1)
|
Classification
of wheat and soybean seeds.
|
For additional information
regarding our property, plant and equipment, see Note 6 of the Consolidated Financial Statements.
Customers
We sell manufactured and
agricultural products to a large base of customers. The type and class of customers may differ depending on our business segments.
For the year ended December 31, 2016 more than 60% of our sales of crops were sold to 13 well-known customers (both multinational
or local) with good credit history. Of these customers, our biggest three customers represented almost 24% of our sales and the
remaining ten represented approximately 36% of our net sales in the course of that year.
In the Sugar, Ethanol and Energy segment, sales
of ethanol were concentrated in 8 customers, which represented 74% of total sales of ethanol for the year ended December 31, 2016.
Approximately 95% of our sales of sugar were concentrated in 4 well-known traders for the year ended December 31, 2016. The remaining
10%, which mainly relates to “crystal sugar”, were dispersed among several customers. In 2016, energy sales are 72%
concentrated in 4 major customers.
Competition
The farming sector is highly
fragmented. Although we are one of South America’s leading producers, due to the atomized nature of the farming sector, our
overall market share in some of the industries in which we participate is insubstantial. Our production volume, however, improves
our ability to negotiate favorable supply, transportation and delivery logistics with our suppliers, third-party transporters,
ports and other facilities, and customers. Although competition in agriculture varies considerably by product and sector, in general,
there are a large number of producers, and each one of them controls only a small portion of the total production. Therefore individual
producers often have little influence on the market and cause little or no effect on market prices as a result of their individual
strategies, explaining why producers are price takers and not price makers. In many cases, the price is established in international
market exchanges. As the majority of agricultural products are commodities, which stifles product differentiation, the principal
competition factors are cost of production and volume efficiency gains. In addition, agricultural producers face strong foreign
competition, and with this competition the factors are often more difficult to identify.
The majority of farming
producers in developed countries can rely on specific protectionist policies and subsidies from their governments in order to maintain
their position in the market. In general, we have been able to obtain discounts for the acquisition of supplies and excess prices
for our production in the farming sector. In this sector, we view SLC Agrícola S.A., BrasilAgro — Companhia Brasileira
de Propriedades Agrícolas, Sollus Agrícola, Radar Propriedades Agrícolas, Cresud SACIF y A, MSU S.A. and Los
Grobo Agropecuaria, among others, as our competitors. We also compete in Argentina with retailers of agricultural products, including
other branded rice products, such as Molinos Río
de la Plata S.A., Dos Hermanos S.H., Sagemüller S.A. and Cooperativa Arroceros Villa Elisa Ltda.
The sugar and ethanol industries
are highly competitive. In Brazil, we compete with numerous small-and medium-sized sugar and ethanol producers. Despite increased
consolidation, the Brazilian sugar and ethanol industries remain highly fragmented, with more than 436 sugar mills. Some of the
largest industry players with whom we compete are Cosan Ltd., Grupo São Martinho S.A., Açúcar Guarani S.A.,
Louis Dreyfus Commodities Brasil S.A., ETH Bioenergia S.A., Bunge, Grupo Zillo Lorenzetti, Grupo Carlos Lyra S.A. and Grupo Irmãos
Biaggi. We also face competition from international sugar producers, such as those in the U.S. and the European Union, where local
regulators have historically implemented tariffs, agriculture subsidies and/or other governmental incentive programs, of which
some remain, to protect local sugar producers from foreign competition. The following table describes the Brazilian competitive
landscape:
|
|
|
Brazil
|
|
|
Number of Mills
|
|
|
389
|
|
|
Sugarcane crushed (million tons)
|
|
|
641.2
|
|
|
Ethanol Production (million cubic meters)
|
|
|
27.4
|
|
|
Sugar Production (million tons)
|
|
|
36.5
|
|
Source: Ministry
of Agriculture & CONAB
With respect to farmland,
there have historically been few companies competing to acquire and lease farmland for the purpose of benefiting from land appreciation
and optimization of yields in different commercial activities. However, we believe that new companies, may become active players
in the acquisition of farmland and the leasing of sown land, which would add competitors to the market in coming years.
Supplies and Suppliers
Our principal supplies
for our farming business are seeds, fertilizers, pesticides and fuel, which represented for the year ended December 31, 2016, 14%,
13%, 22% and 11%, respectively, of our total direct expenditures (including leasing costs).Further, these supplies represented
50% of our total production costs for 2016. As we use direct sowing in 99% of our planted area, without requiring soil preparation,
fuel represents only 9% of the total cost of production for 2016.
Our principal supplies
for our sugar, ethanol and energy business are diesel, lubricants and fertilizers, which collectively represented 19% of our total
expenditures incurred in the sugar, ethanol and energy business for 2016. Further, these supplies represented 31% of our total
production cost for 2016. We have an extensive network of suppliers for each of our business segments and for each required input
within each segment, resulting in lower reliance on any particular supplier. Our ten largest suppliers account for 31% of our total
expenditures for supplies in 2016. While we value the relationships we have developed with each of our suppliers given the quality
we have come to expect, we do not consider any single supplier to be key to our production.
We have been able to obtain
lower prices particularly due to the volume that derives from our large-scale operations.
Seasonality
Our business activities
are inherently seasonal. We generally harvest and sell our grains (corn, soybean, rice and sunflower) between February and August,
with the exception of wheat, which is harvested from December to January. Cotton is a unique in that while it is typically harvested
from June to August, it requires processing which takes about two to three months to complete. Sales in our dairy business segment
tend to be more stable. However, milk production is generally higher during the fourth quarter, when the weather is more suitable
for production. Although our cluster is currently operating under a “non-stop” or “continuous” harvest
and without stopping during traditional off-season, the rest of the sector in Brazil is still primarily operating with large off-season
periods from December/January to March/April. The result of large off-season periods is fluctuations in our sugar and ethanol sales
and in our inventories, usually peaking in December to take advantage of higher prices during the traditional off-season period
(i.e., January through April). As a result of the above factors, there may be significant variations in our financial results from one quarter to another.
In addition our quarterly results may vary as a result of the effects of fluctuations in commodities prices, production yields
and costs on the determination of changes in fair value of biological assets and agricultural produce. See “Item 5. Operating
and Financial Review and Prospects—A. Operating Results—Critical Accounting Policies and Estimates—Biological
Assets and Agricultural Produce.”
Sustainability
Our production model is
based on sustainability standards that seek to produce food and renewable energy on a long-term basis by preserving the natural
resources involved in the production process. The sustainable approach to farming requires taking into account economic, social
and environmental factors adapted to local circumstances. Natural resources are the main foundation of our activities, with land
being the most relevant natural resource in our operations. We have developed a sustainable land use strategy that considers factors
beyond the requirements of local law and regulations. There are ecosystems that we do not consider appropriate for the use of agricultural
development, such as heavy forests and key wetlands, and there are others that we evaluate using (savannahs, natural grasses, bush
land, lowlands) only after carrying out an environmental impact assessment. In addition to such evaluations, we analyze the agricultural
potential of the land in respect of the soil, the climate, crop productivity and available technology, among other factors. We
then consolidate our analysis into a land transformation plan, which includes the best land use option and implements best practices
such as the “no-till” technology, crop rotations, integrated pest and weed management, balanced fertilization, responsible
pesticide usage and water management. All these best practices aim to increase resource efficiency and to decrease the risk of
contamination and waste production and are consolidated into an environmental management plan, which includes biodiversity management
when applicable. We aim to properly implement our sustainable production model to enhance land productivity and therefore increase
land value.
Standardized and Scalable Agribusiness Model
We are developing an agribusiness
model that allows us to engage in large-scale farming activities in an efficient and sustainable manner. Our agribusiness model
consists of developing a specialized workforce and defining standard protocols to track crop development and control production
variables, thereby enhancing efficient decision making and facilitating continuous improvement. This approach allows us to grow
in scale and execute our expansion plan and efficiently manage various production units spread across different regions by effectively
replicating our productive model. Process standardization also helps us assure compliance with local law and regulations and reduce
social and environmental risks.
We continue to develop
and implement crop protocols. The purpose of these protocols is to coordinate and consolidate the knowledge on crop management
for each area in order to standardize the implementation of these protocols. The protocols contain all the technical information
for managing crops. This information is constantly reviewed by agricultural teams and their advisors, making it possible to preserve
the technical knowledge of the company and at the same time improve agricultural production and make decisions pursuant to the
company’s guidelines. Based on the results of the application of these protocols, we conduct an annual review of the techniques
used and their results. This evaluation is done by means of crop campaign analysis, in which all teams review and discuss the last
harvest year’s productive performance and the technological package for the new harvest year.
When processes and protocols
are defined they can be audited and certified by qualified third parties. Adecoagro is currently in the process of certifying its
crop production in Argentina under ISO 9001. We are also working to implement ISO 14001 and OHSAS 18001 in some operating units.
In order to achieve efficient
scales of production, we have redesigned our field sizes by removing useless cattle infrastructure such as fencing. Larger fields
reduce the overlapping of farmworks, enhancing operating efficiency, reducing the use of inputs and achieving agronomic timing
(planting or harvesting on time). The goal is to reduce operative time and to improve efficiency in the use of inputs. Large-scale
production also requires the implementation of advanced technology such as GPS (Global Positioning System), GIS (Geographic Information
System) and modern machinery as well.
We are also adopting Operational
Protocols and Procedures in our industrial facilities to improve control of processing variables. In the case of our rice mills,
we have certified Good Manufacturing Practices, and in some cases, HACCP (Hazard Analysis and Critical Control Points) standard.
When market conditions
provide pricepremiums for certified grains or oilseeds, we evaluate the feasibility of implementing specific certifications. Some
examples of this are RTRS (Round Table on Responsible Soybeans) and EPA (Environmental Protection Agency, US) certifications for
Sustainable Soybeans in Argentina. In Brazil, we are certifying sugar-based products for EPA and Bonsucro certifications.
Contractors
Contractors play a significant
role in our farming business model. We seek to outsource most of the typical farmwork, such as planting, spraying and harvesting.
Outsourcing allows us to reduce our investments in heavy machinery and equipments such as tractors or harvesters, enhancing the
efficient allocation of our capital in our core productive activities.
The contractor model in
the Argentine humid pampas region has existed for over fifty years and has developed into a highly competitive market. Contractors
have gained extensive expertise and skill in the management of agricultural machinery and have access to modern advanced technology.
We seek to develop win-win relationships with our contractors by considering them as part of our production team and providing
constant technical training and support through our GTA (as defined below) activities. We strive to have a number of contractors
associated with each farm to generate competition and allow benchmarking to enhance operational efficiency and ensure high-quality
service.
In regions where this
model is not fully developed, we use a mixed system where we hire the most experienced contractors in the region and we also operate
our own machinery. We promote the development of new contractors by providing training and selling them our used machinery. We
also promote the movement of selected contractors from developed regions into new marginal regions by offering them an opportunity
to grow their businesses. In other regions where there is no established contractor system or there is specific farmwork (rice
land leveling for instance), we own majority of the machinery. In our Sugar, Ethanol and Energy business, we own or lease and operate
all the agricultural equipment and machinery needed for sugarcane planting and harvesting operations. Our main goal is to achieve
high-quality farmworks, both when selecting any contractor and when using our own machinery. In Brazil we partially employ the
contractor model only for specific tasks such as grain harvesting, land leveling, and aerial spraying among others.
Adecoagro Technical Group (Grupo Tecnico Adecoagro “GTA”)
The GTA is an internal
group formed by agronomists, farm managers, external advisors, contractors, trainees and suppliers, whose main goal is to excel
in production management by providing constant technical education and analysis regarding production technologies. Although the
GTA is focused on developing such knowledge under common criteria for the whole company, it also considers different production
systems, such as crops, rice and dairy in Argentina and Uruguay, crops in western Bahia, Brazil and sugarcane in Minas Gerais and
Mato Grosso do Sul, Brazil. In order to achieve their goals, the group meets every 20 days to analyze and discuss technical aspects
of the farming production processes.
The GTA participates in
the design of the most efficient and productive land use strategies, the definition of the optimal crop production mix for each
farm and region, and supervises and evaluates the implementation of the most profitable and sustainable technologies to be adapted
and applied in each region. Additionally, the GTA promotes specific external training courses, facilitates participation in external
technical groups, organizes technical farm tours, offers support in establishing the crop planting plan and delivers a full-season
analysis for each crop annually. This analysis is essential in order to allow technical improvements to be implemented for the
following crop season.
Since the GTA is involved
in different regions, it plays a relevant role in spreading best practices among productive regions, including “no-till”
in lesser-developed areas. In order to evaluate and adapt the proper technologies locally, a vast network of test plots in agrochemicals,
seeds, and farm-works are being carried out under specific technical guidelines. Such development is performed to make the necessary
technological adjustments in respect of fertilizer levels, choice of the best product varieties for each crop, determination of
the best planting periods and improvement in crop management
and agricultural mechanization, resulting in higher yields coupled with reduced costs.
In order to continually
improve our technical development, we participate in specialized industry groups, such as CREA and AAPRESID, with which we share
values and goals. “CREA” is a 50-year-old farmers’ association focused on developing and supporting technical
excellence with local farmers. “AAPRESID” is a technical association of highly innovative farmers specializing in no-till
development. We participate in certain CREA and AAPRESID discussion groups in which we share and evaluate common technical matters.
We take advantage of their vast network of test plots and we constantly exchange technological knowledge for implementation in
our farms.
In addition, the GTA is
focusing its resources on pursuing improvements trough implementing advanced techniques such as variable inputs usage by type of
soil based on precision agriculture technology, intensification techniques relating to soil occupation times and diversified crop
rotations, adjusting “no-till” in rice production, developing sugarcane production technologies involving agricultural
mechanization and minimum tillage, and developing cotton production technologies involving “no-till” and crop rotation
among others.
By implementing all these
education programs and development activities, the GTA provides to the company a network that focuses on the fine-tuning and optimization
of the efficiencies throughout all the production processes of each business line.
Technology and Best Practices
We have consistently used
innovative production techniques to ensure that we are at the forefront of technological improvements and standards in our industry.
For example, we use the “no-till” technology and “crop rotation” to improve our crop yields. We also practice
the use of “second harvests” or double cropping where conditions permit, allowing us to plant and harvest a second
crop from the same farmland in the same harvest year. Our crop production model is based on balanced fertilization, integrated
pest and weed management and crop intensification. We use the innovative silo bag storage method in our rice and crop businesses
allowing us to time the entry of our rice production into the market at optimal price points. Additionally, we believe we were
the first company in South America to implement the innovative “free-stall” infrastructure in dairy operations resulting
in increased fluid milk production compared to our peers. The free-stall method is a model that provides for better control over
production variables by confining dairy cows into large barns. Those barns are equipped with state-of-the-art technology to enhance
cow-comfort conditions, such as sand beds, water-spray cooling system and fans. In addition, installations are equipped with indoor
corrals and a mechanical advanced milking system on a rotary platform, allowing us to utilize production efficiencies and thereby
increase milk production volumes while maximizing our land use and resulting in significantly higher conversion rates of animal
feed into milk.
Our sugarcane harvesting
is 98% mechanized, which has significantly improved operating efficiency, therefore reducing operating costs. We have modern facilities
in the sugar and ethanol business including advanced sugar and ethanol mills with high-pressure boilers and that achieve one of
the highest ratios of energy produced per ton of cane milled, according to the Cane Technology Center Benchmark program. Our Angélica
sugar plant was the first continuously operative facility in Brazil, requiring no production stoppages between sugar batches.
No-Till
“No-till”
is the cornerstone of our crop production technology and the key to maintaining and even increasing the value and productivity
of our land assets. “No-till” — often called zero tillage or direct sowing — is a technology developed
more than 30 years ago to grow crops from year to year without disturbing the soil through tillage, and arose as an opposition
to conventional tillage.
Conventional farming
consists of using plows to turn and till the soil to remove weeds, mix in soil additives such as fertilizers, and prepare the
surface for seeding. Soil tillage leads to unfavorable effects such as soil compaction, loss of organic matter, degradation of
soil components, death or disruption of microorganisms, evaporation of soil humidity and soil erosion where topsoil is blown or
washed away by wind or rain.
“No-till” farming avoids
these negative effects by excluding the use of tillage. The “no-till” technology consists of leaving crop plant
residues on the surface of the soil after harvesting a crop. These residues form a mulch or permanent cover protecting the
soil from erosion risks caused by heavy rains and strong winds. This protective cover also helps natural precipitation and
irrigation water infiltrate the soil effectively while decreasing water loss from evaporation. Absence of tillage helps
prevent soil compaction, allowing the soil to absorb more water and roots to grow deeper into the soil. Furthermore,
“no-till” reduces the emergence of weeds and enhances biological processes that positively impact soil
properties, conserving and even improving the presence of organic matter and microorganisms and associated nutrients
(nitrogen, phosphorous, etc).
The combination of these
advantages results in important cost reductions due to a lower use of inputs, mainly diesel, fertilizers and pesticides, and higher
crop yields, thus increasing the profitability of our business. These benefits are achieved in the medium to long term, resulting
in a continuous increase of land productivity and thus its value. From an operational standpoint, “no-till” facilitates
the conditions to perform most of the operations on time such as planting, spraying and harvesting, which enhances the development
of large-scale operations and specially improves the probability of planting each crop at the optimum moment.
Crop Rotation
Crop rotation is the practice
of growing a series of dissimilar types of crops in the same area in sequential seasons. Crop rotation allows us to better control
the buildup of harmful weeds and reduces the incidence of plagues and diseases that often occur when the same commodity is continuously
cropped. Crop rotation also allows us to balance the fertility demands of various crops to avoid the excessive depletion of soil
nutrients, contributing to a more efficient use of fertilizers and a sustainable use of herbicides and pesticides. Crop rotation
results in increased yields and reduced production costs, providing a high rate of return. Our crop rotation model is tailored
to each of our farming regions based on climatic and soil conditions. For example, in Argentina’s Humid Pampas, our three-year
crop rotation cycle involves the planting of a wheat crop followed by a soybean double-crop in the first year, a corn crop in the
second year, and a soybean crop in the third year. In Brazil, we pursue a crop rotation that includes corn, soybeans and cotton.
Second Harvest — Double Cropping
Second harvest, also known
as “double cropping”, is the practice of consecutively producing two crops on the same land within the same growing
year. Double cropping is possible only in regions with long growing seasons, which is determined mainly by climate conditions such
as rain and temperature. Double cropping allows us to increase the profitability of our land, diversify our production and commercial
risk and enhance operational efficiencies through a better utilization of machinery, freight, labor and other resources, resulting
in a dilution of our fixed costs. Double cropping has important agronomical advantages as well, such as having crops on the land
for a longer period of time, which, enhanced by “no-till” and crop rotation practices results in the improvement of
the physical and chemical properties of the soil in the long term. We implement and adapt different double cropping systems for
each of our productive regions in Argentina and Uruguay, with the most frequent being wheat/soybean, wheat/corn, sunflower/soybean,
corn/soybean and sunflower/corn.
Integrated Pest Management (IPM)
Integrated pest management
(“IPM”) involves a deep analysis of agronomical, economical and environmental aspects with the goal of determining
the most efficient way to control the pests. It simultaneously achieves three main goals: (i) enhancing crop productivity, (ii)
reducing use of pesticides and (iii) decreasing the risk of agrochemical contamination. The first stage of IPM is to train the
people who will be involved in pesticide usage. The pesticide to be applied is selected considering local regulations (only locally
approved pesticides are used) and the minimum resulting environmental risks due to its chemical classification. Additionally, when
selecting biotechnologically developed crops, we evaluate the potential reduction of pesticide uses that may be achieved. The doses
of pesticides are defined by vendor recommendations and adjusted through agronomical expertise (specific to a crop and a pest).
The timing of pesticide application is based on economic threshold that takes into account the crop situation (growing stage, climate
conditions), the potential damage of the pest (type, population, growing stage), the presence of “beneficial” pests,
and finally, the price relationship between grains and pesticides. We also use biological pest controls by breeding and releasing
natural enemies of the relevant pest, as is the case with the borer plague in sugarcane. The relevance of the pest is measured
by implementing specific scouting methodologies, which are adapted to large-scale farming. Scouting is carried out by trained employees
who supervise all the fields on a weekly basis. The pesticide doses are applied by high-tech machinery, the majority of which is
outsourced. IPM machinery is accurately calibrated to increase
its application efficiency and to reduce any potential contamination risk. Climate conditions are taken into account, as well,
in determining the optimal timing for spraying, to avoid drifting, evaporation and leakage risks.
Balanced Fertilization
Balanced fertilization
consists of determining an optimum use of fertilizers at the proper grades and in the proper amounts to supply the correct ratio
of nutrients and to ensure that the soil will sustain high crop yields over time, consequently decreasing contamination risks.
At the beginning of each crop season, we perform extensive soil studies in each of our farms to monitor the amount of organic matter,
nitrogen, phosphorus and potassium levels in each field. Based on this analysis and considering the potential yield for each field,
the crop rotation, and relative prices between fertilizers and agricultural products, we determine the optimum amount of fertilizer
to be applied in order to maximize the economic response of the crop.
Water management
Since crops need sufficient
water to achieve their potential yields, we are engaged in techniques aimed to increase the efficiency of water usage and at the
same time decrease soil erosion risks. In that regard, “no-till” presents strong advantages since it improves rainfall
infiltration and increases the soil’s water storage capacity. In areas that may be subject to excess water, we are developing
terraces, soil leveling and other techniques intended to decrease runoff and erosion risks. In some of the jurisdictions in which
we operate, the use of water for irrigation requires obtaining special permits. For certain irrigated crops such as rice, we focus
on the design and operation of rainwater harvesting, collecting water from rain in semi-natural reservoirs destined for future
irrigation. In addition, we have developed a water recycle system for each farm where excess of water (derived from drainage and
rainfalls) can be reused, instead of being drained out of the farm. Channels to conduct the water and drain the fields are developed
by experts in order to deliver water in the most efficient manner. We are also developing the zero grade level system in some of
our rice farms to increase productivity and reduce production costs. This technique involves a precise leveling of the land based
on GPS and Laser technology. When fields are accurately leveled, water irrigation requirements are reduced, thus lowering the cost
of labor and energy. Efficient management of irrigation results in a positive impact on yields. Additionally, as the fields can
be larger, there are some operational benefits that can be achieved by reducing machinery working times. Other crops such corn
seed and, sunflower seed are irrigated by highly efficient pivot spraying systems. This type of irrigation system allows us to
distribute water uniformly throughout the field, improving the use of water in terms of total millimeters per year. We conduct
soil moisture sampling to define the best moment and amount of water to be used for irrigation in each plot.
Mechanization
We incorporate all available
mechanization technology into our business that is cost-effective. We believe that by employing mechanization technology we improve
our operating efficiency and are better able to reach desired economies of scale in our operations. Mechanization also enables
us to adopt new associated technologies faster and hastens our development efforts. In our farming business, we are using cutting-edge
mechanized technology for planting, spraying, harvesting and irrigating and for soil preparation and management. We also employ
advanced mechanization technology in our logistics and product processing operations, including transportation, drying operations
and grain sorting and storage. We are in the process of developing mechanization technology to benefit our other businesses, such
as sugarcane planting, which traditionally have not benefitted from such mechanization.
Synergies
The technologies we employ
are very closely linked, and the joint implementation of a number of them will result in positive synergies for our entire production
system. For example, implementation of the “no-till” technology can be enhanced by crop rotations, due to the positive
biological effects generated by the different types of roots from each crop in the soil. Benefits of integrated pest management
are improved when combined with the “no-till” and crop rotation strategies, since the crop stubble that remains on
the soil can be a barrier to some plagues, and because some other pests are specific to a particular crop and the crop rotation
can be sufficient to control them. We consider these synergies when we develop our crop seeding schedule.
Information Technology
We employ the World Class
ERP Oracle eBusiness Suite to standardize and integrate our processes throughout the company and improve controls and information
accuracy and consolidation. The Oracle eBusiness Suite allows us to fulfill our local accounting and fiscal needs while facilitating
operational coordination across our geographic areas and lines of business, reducing our operational costs and minimizing duplication
of administrative efforts. It also provides our management with consolidated results in a timely manner. In addition, our integrated
security plan includes an offsite safeguarded system that guarantees business continuity.
Environmental Responsibility
We are developing a production
model that reflects a strong commitment to the environment. Our responsibility to the environment begins with complying with local
regulations. Natural resources such as land, water and biodiversity are taken into account when we evaluate both the development
of a new production project and the operation of an on-going one. In that regard, we are constantly evaluating best practices to
be implemented in our operations. See “—Technology and Best Practices.” In order to be better stewards of the
environment, we are in the process of developing and implementing environmental management plans for our operations. Those plans
involve different stages, which are mainly educating our own and outsourced staff, monitoring ecological parameters, preventing
negative effects, and correcting deviations. With respect to pesticide contamination risks, we are implementing a responsible pesticide
use program, which includes personnel training, personnel protection elements, application recommendations, pesticide selection
criteria, pesticide handling and storage and after-use pesticide packages management (which are specifically cleaned, collected
and stored for recycling purposes under third parties’ programs)
.
Additionally, in some
regions where biodiversity matters are relevant, we are implementing biodiversity management plans, which mainly consists of periodically
monitoring flora and fauna, detecting significant variations of their populations, and proposing measures to reduce any potential
threats to local species. As a result, we are implementing some practices such as prohibiting hunting on our farms in Argentina,
developing environmental private protection areas (where natural vegetation is protected by implementing sustainable production
practices). As environmental matters require specific expertise and an understanding of complex relationships, we are entering
into cooperative arrangements and agreements with educational institutions
.
We are also developing relationships with well
recognized environmental non-governmental organizations, such as The Nature Conservancy.
In Brazil, one of our
main environmental focuses is compliance with the applicable provisions of the Brazilian Forestry Code (
Código Forestal
)
.
Accordingly, we analyze and identify all natural areas inside our own farms and inside leased areas, and make a development plan
that defines actions for their preservation. Some examples of these activities are the reforestation of Permanent Preservation
Areas (
Áreas de Preservación Permanente
) and Legal Reserve Areas (
Áreas de Reserva Legal
), for
which we are producing seedlings of more than 70 native species to reforest those areas. We are strongly committed to the preservation
of forests, and we only develop areas for farming if they were previously used for agricultural purposes or for pasture. We do
not operate in forests, wetlands or areas with high biodiversity value.We concern ourselves with the protection of riverbanks and
surrounding areas of streams and springs, as they are important for soil conservation and as refuges for native fauna. In that
regard, we are implementing periodic monitoring of wildlife and native flora as well. We have a partnership with The Nature Conservancy
(“TNC”), an international environmental non-governmental organization, to organize the environmental preservation of
areas of ecological importance by acquiring such areas to replace reserve areas on our own land and land we lease, through a reserve
compensation scheme developed by TNC and adopted by the regional environmental authorities. This program will allow us to protect
larger blocks of critical ecosystems instead of having smaller reserve areas in each farm, while allowing us to use areas in our
farms that were previously developed and would have lesser environmental value as reserve areas.
We are also developing
bio-gas production from manure in our free-stall dairy operation in Argentina as another emissions reduction program. This project
contemplates the capture of methane gas from adequately managed manure of dairy cows, which will be used to co-generate electricity.
We received a grant from Sustainable Energy and Climate Change Initiative from the Inter-American Development Bank (SECCI) in order
to carry out the pre-feasibility assessment. We have also received a grant from the “Agencia Nacional de Promoción
Científica y Tecnologica”, an agency which promotes technological innovation, to partially fund the investment. In
July 2016, we participated of Argentina’s “RenovAr” renewable energy auction and entered into a 20-year contract
to supply up to 9,145 MWh per year at an average price
of USD 158.92 per MWh. At UMA, we have implemented a pilot plant that produces biogas from vinasse, developed in partnership with
Efficiencia, a subsidiary of Companhia Energética de Minas Gerais (“CEMIG”). The technology developed during
this project will allow us to generate additional energy from vinasse while maintaining the fertilizer recycling potential of UMA.
We are currently evaluating alternatives to replicate this pilot project in our Cluster in Mato Grosso do Sul (Brazil). These emission
reduction projects could also generate extra income from carbon credits under specific programs.
Social Programs
Apart from complying with
local labor regulations, we seek to promote the personal and professional development of our employees by offering them an adequate
working environment with proper health and safety protections. We aim to develop a transparent relationship with local authorities.
Finally, one of our main goals is to contribute positively to the social development of the communities in which we operate, creating
new jobs, preserving the environment, providing training opportunities through our internship program and assisting with social
development. In order to implement our social development programs, we analyze the areas in which we operate and give special attention
to education and poverty rates, possible alliances with other social actors, and potential synergies with local government programs.
In addition to social development programs, we contribute to community organizations in each area where we operate, such as hospitals,
schools, daycare centers and fire stations, among others. We also have a voluntary matching program where Adecoagro matches each
donation from our employees at a 2:1 ratio.
Education
Our sugarcane and rice
operations have a very important economic impact in the communities where we are located, and we have developed a Social Action
Program in the various municipalities. In 2005, we started a partnership with Cimientos in Corrientes, Santa Fe and Entre Rios
in Argentina, through which we have awarded 45 educational programs in 133 urban and rural schools located close to our rice operations.
These programs benefit 20,860 students. Cimientos is a non-profit organization that promotes equal educational opportunities for
children and youth from low-income families in Argentina. In 2016 we started another program together with CONCIENCIA (a local
NGO) in which we support our employees’ children to complete their education. This new program began in Salta near to Los
Guayacanes, and 16 children participated.
Additionally, we have
partnered with Fundação Bradesco in Mato Grosso do Sul, Brazil, working with the local municipalities of Angélica
and Ivinhema to re-train teachers at their schools, aiming to improve the performance of public schools to a level of regional
excellence. We also have partnerships to encourage the habit of reading through the training of teachers of municipal schools
as storytellers and investment in libraries.
Nutrition
In Argentina, we work
in partnership with Conin Foundation, which fights malnourishment in children, focusing its actions in three main aspects: education,
assistance and research. In 2016, we donated nearly 6 tons of powdered milk and 1 ton of processed rice. We also work in partnership
with the Argentine Food Bank Network, to whom we are currently donating approximately 15 tons of processed rice. This network operates
in 17 cities and is a nonprofit distribution enterprise that serves the community by acquiring donated food and making it available
to people who are hungry through a network of community agencies. These agencies include school feeding programs, food pantries,
soup kitchens, hospices, substance abuse clinics, after-school programs and other nonprofit organizations. Additionally, we have
been contributing food to Solidagro, an alliance between rural corporate institutions and civic organizations that seek to solve
famine and malnutrition problems, since 2007. We are also collaborating with selected soup kitchen initiatives such as Caritas
Christophersen, San Gregorio Foundation and Mercedes City Soup Kitchen.
Additionally, in 2016
we agreed on a new campaign together with a basketball club in the province of Corrientes, Argentina. The campaign was called “
Festejá
cada punto vale triple”
(Celebrate, each point is worth triple). With this campaign for each point the basketball team
scores during this season, Adecoagro will donate 3 kilos of rice to the Conin Foundation centers located within the province of
Corrientes. In December 2016, we provided 4.6 tons of rice to these centers.
In Brazil, we support
several local schools, kindergartens, homes for the elderly and APAEs (local associations to support seriously deficient in the
community) with financial investment and training to improve social management. Because of these initiatives, ABRINQ Foundation
as Child Friendly Company certified the Monte Alegre unit.
Internship Program
The purpose of our internship
program is to promote the development of highly qualified professionals for the community by providing first-time work experience,
good quality training and access to highly technology-oriented operations. We seek to facilitate interns’ future access to
the job market while detecting potential key employees. The interns actively participate in the TAG training program, which includes
monthly technical meetings, external training and farm tours. In order to accomplish these goals we promote institutional relationships
with local and international universities and high schools. Over 310 interns have participated in our program during the last 14
years, of which 82 were subsequently incorporated into our teams.
Material Agreements
For a description of the
material agreements relating to our indebtedness, please see “Item 5.—Operating and Financial Review and Prospects—B.
Liquidity and Capital Resources—Indebtedness and Financial Instruments.”
Intellectual Property
As of March 22, 2017,
our corporate group owned 24 trademarks registered with the Argentine National Intellectual Property Institute and had 3 trademarks
in the process of registration. Also, Adeco Brasil and UMA owned 16 trademarks registered with the Brazilian National Industrial
Property Institute (“INPI”), and had submitted 5 trademark registration requests, all of which are currently being
challenged by third parties or were initially denied by INPI.
In Argentina, we are required
to renew our trademark registrations when they expire at the end of their respective terms. Under the Argentine Trade and Service
Marks Law No. 22,362, the term of duration of a registered trademark is 10 years from its issue date, and a trademark may be indefinitely
renewed for equal periods thereafter if, within the five-year period prior to each expiration, the trademark was used in the marketing
of a product, in the rendering of a service or as the designation of an activity.
In Brazil, title to a
trademark is acquired only once its valid registration has been issued by the INPI. During the registration process, the person
requesting the trademark merely has an expectation of the right to use the trademark to identify its products or services. Under
Law No. 9,279, of May 14, 1996 (the Brazilian Industrial Property Law), the holder of a trademark has the right to its exclusive
use throughout Brazil. The term of duration of a registered trademark is 10 years from its issue date, and a trademark may be indefinitely
renewed for equal periods thereafter. Within a five-year period from the issue date, the owner has an obligation to use the trademark
in the marketing of a product, in the rendering of a service or as the designation of an activity. If the owner does not use the
trademark within such five-year period, it may be subject to a forfeiture process, upon request of any third party with legitimate
interest in the trademark. The same forfeiture process may occur if the owner fails to use the trademark for any five-year period,
continuously. If the trademark is declared forfeited, the trademark rights are terminated.
Insurance
The type and level of
insurance coverage we obtain is determined based on consultation with leading insurance brokers. We carry policies with leading
U.S., European, and local insurance companies, and we are currently insured against a variety of risks, including losses and damages
relating to our plants, equipment and buildings. We believe our level of insurance coverage is customary and appropriate for a
company of our size and with respect to our activities. Our insurance currently covers only part of the losses we may incur and
does not cover losses on crops due to hail storms, fires or similar risks.
Legal and Administrative Proceedings
In the ordinary course
of business, we are subject to certain contingent liabilities with respect to existing or potential claims, lawsuits and other
proceedings, including those involving tax, social security, labor lawsuits and other matters. We accrue liabilities when it is
probable that future costs will be incurred and such costs can be reasonably estimated. See “Item 8. Financial Information—A.
Consolidated Statements and Other Financial Information—Legal and Administrative Proceedings.”
Environmental Regulations and Compliance
Our businesses in the
various emerging market countries in which we operate are subject to comprehensive national, state and municipal laws and regulations
relating to the preservation and protection of the environment to which those businesses must adhere. These laws and regulations
require some of our businesses to obtain permits or licenses that have to be renewed periodically in order to allow us to continue
to operate. If such permits or licenses lapse or are not renewed or if we fail to obtain any required environmental licenses and
permits, or if we do not comply with any other requirements or obligations established under the applicable environmental laws
and regulations, we may be subject to fines or criminal sanctions and might face partial or total suspension of our operations
and suspension or cancellation of our environmental licenses and permits. In addition, our businesses which hold debt from banks,
and multilateral lenders in particular, are typically required to adhere to environmental standards that exceed those of the country
in which the business operates (
e.g.
, World Bank standards).
We are currently either
in compliance with or are in the process of applying for permits that would put us in compliance with all applicable environmental
laws and material environmental licenses and permits. On June 10, 2014, we applied for the renewal of the operational license for
the Angélica mill to mill up to 4 million tons of sugarcane per year. On April 24, 2015, we obtained an installation license
(
licença de instalação
) for the Ivinhema mill, to mill up to 5 million tons of sugarcane per year.
On July 23, 2015, we obtained the operational license (
licença de operação
) from IMASUL authorizing
us to mill up to 5 million tons of sugarcane per year. In July 6, 2016, we applied for an update of the operational license for
the Ivinhema mill to mill up to 6.2 million tons. In addition to the installation and operational license, the Ivinhema mill must
obtain other permits including licenses for water capture and use of controlled products, among others. Failure to obtain the necessary
environmental licenses may prevent us from operating the Ivinhema mill or may subject us to sanctions.
Our operating businesses
have the required environmental monitoring, equipment and procedures, and we utilize third-party contractors to conduct regular
environmental audits. Our environmental expenses relate to consultants we use to perform environmental impact studies for our development
projects and control and monitoring procedures. However, as environmental regulations are expected to become more stringent in
some of the countries where we operate, our environmental compliance costs are likely to increase due to the cost of compliance
with any future environmental regulations. While we are not aware of any material environmental liabilities related to our ongoing
operations, we may be subject to cleanup costs, which we do not expect to be material.
Regulation and Control of Agri-Food Production in Argentina
The National Office of
Agricultural Commerce Control (
Oficina Nacional de Control Comercial Agropecuario
, or “ONCCA” for its acronym
in Spanish) created on November 27, 1996, as a decentralized entity of the Ministry of Agriculture was the agency responsible for
controlling the commercialization and manufacturing of agricultural livestock, meat and dairy products in Argentina.
In February 25th, 2011
the ONCCA was dissolved pursuant to Decree No. 192/2011 and the faculties previously held by the ONCCA were transferred to the
former Ministry of Agriculture (now Ministry of Agroindustry).
Decree No. 32/2016, (modified
by Decree 1145/16) changed the organigram for the Ministry of Agriculture and also determined its powers and competences. Pursuant
to the aforesaid decree, the Sub-Secretariat of Commercial Agriculture Control was created within the Ministry of Agroindustry
with the purpose of regulating the registry, matriculation, and control of all activities related to the commercialization and
industrialization of agri-food and agroindustry chains.
Under applicable regulations,
all persons involved in the commercialization and manufacturing of grains and dairy products must be registered with the Sole
Registry of the Agro-Industrial Chain (
Registro Único de Operadores de la Cadena Agroindustrial
or “RUCA”
for its acronym in Spanish), which provides for registration of any individual or company involved in the trade and industrialization
of agri-food products in the markets for grains, livestock and dairy products and their by-products and/or derivatives. This registration
must be renewed each year. Grain producers must stock grains at facilities and must keep a record of the grain stock stored at
such facilities. Failure to register with the RUCA, or cancellation of such registration, will lead to sanctions, including monetary
fines, the termination of operating activities and closure of facilities and/or deregistration for up to 5 years.
On April 1, 2014 the AFIP
issued Resolution No. 3,593/14 which established a “Systematic Regristration of Movements and Grains Stocks Regime”
(
Régimen de Registración Sistemática de Movimientos y Existencias de Granos
) by which all persons involved
in the commercialization and manufacturing of grains and dairy products registered with the RUCA must report the stock and stock
variations (including locations, transport between the producer´s facilities, etc.) of all grains and other agricultural
products (other than those to be applied to sowing) held in their own or other third party´s name.
In the event of a violation
of any of the applicable regulations, sanctions may be imposed, including fines and suspension or cancellation of the registration,
which would result in the immediate cessation of activities and closure of facilities.
|
|
C.
|
ORGANIZATIONAL STRUCTURE
|
Corporate Structure
We are a corporation
organized under the laws of the Grand Duchy of Luxembourg under the form of a
société anonyme
. As of
April 20, 2017, we held approximately 100% of the interests in Adecoagro LP S.C.S., a
société en commandite simple
organized under Luxemburg law with a de minimis remaining interest owned by Adecoagro GP
S.à r.l, a société
à responsibilitié limitée
organized under Luxemburg law and our substantially wholly-owned subsidiary.
Adecoagro LP S.C.S. is a holding company with operating subsidiaries owning farmland and facilities throughout Argentina, Brazil
and Uruguay. For a diagram of our Organizational structure as of April 20, 2017, please see “Item 4. Information
on the Company – A. History and Development of the Company – History.”
As of April 20,
2017, our principal shareholders were Al Gharrafa Investment Company, Stichting Pensioenfonds Zorg en Welzijn, Jennison
Associates Bienville Capital Management LLC and EMS Capital LP. See “Item 7. Major Shareholders and Related
Party Transactions—A. Major Shareholders.”
|
|
D.
|
PROPERTY, PLANTS AND EQUIPMENT
|
See “—B. Business
Overview—Land Transformation—Our Farms”; “—Property, Plant and Equipment.”
|
|
Item 4B.
|
Unresolved Staff Comments
|
Not applicable.
|
|
Item 5.
|
Operating and Financial Review and Prospects
|
Overview
We are engaged in agricultural,
manufacturing and land transformation activities. Our agricultural activities consist of harvesting certain agricultural products,
including crops (soybeans, corn, wheat, etc.), rough rice, and sugarcane, for sale to third parties and for internal use as inputs
in our various manufacturing processes, and producing fluid milk. Our manufacturing activities consist of (i) selling manufactured
products, including processed rice, sugar, ethanol and energy, among others, and (ii) providing services, such as grain warehousing
and conditioning and handling and drying services, among others. Our land transformation activities consist of the acquisition
of farmlands or businesses with underdeveloped or underutilized agricultural land and implementing production technology and agricultural
best practices to enhance yields and increase the value of the land. Please see also "Risk Factors-Risks Related to Argentina-
Argentine law concerning foreign ownership of rural properties may adversely affect our results of operations and future investments
in rural properties in Argentina" and "Risk Factors-Risks Related to Brazil- Recent changes in
Brazilian rules concerning foreign investment in rural properties may adversely affect our investments."
We are organized into
three main lines of business: farming; land transformation; and sugar, ethanol and energy. These lines of business consist of six
reportable operating segments, which are evaluated by the chief operating decision-maker based upon their economic characteristics,
the nature of the products they offer, their production processes and their type and class of customers and distribution methods.
Our farming business is comprised of four reportable operating segments: Crops, Rice, Dairy, and All Other Segments. Each of our
Sugar, Ethanol and Energy and Land Transformation lines of business is also a reportable operating segment. Please see –
Operating Segments” for a discussion of our six operating reportable segments.
There are significant
economic differences between our agricultural and manufacturing activities. Some of our agricultural activities generally do not
involve further manufacturing processes, including those within the crops, dairy and All Other Segments. Our other agricultural
activities in the rice and sugar, ethanol and energy segments generally involve further manufacturing processes, comprising our
manufacturing activities. The table below sets forth our agricultural and manufacturing activities by segment.
|
Segment
|
|
Agricultural
Product
|
|
Manufactured
Product and Services Rendered
|
|
Crops
|
|
Soybean Corn Wheat Sunflower Cotton
|
|
Grain drying and conditioning
|
|
|
|
|
|
|
|
Rice
|
|
Rough rice
|
|
White rice and brown rice
|
|
|
|
|
|
|
|
Dairy
|
|
Fluid milk
|
|
Processed milk, and dairy products
|
|
|
|
|
|
|
|
Sugar, Ethanol and Energy
|
|
Sugarcane
|
|
Sugar, Ethanol and Energy
|
Manufacturing Activities
The gross profit of our
manufacturing activities is a function of our sales of manufactured products and services rendered and the related costs of manufacturing
those products or delivering those services. We recognize an amount of revenue representing the actual dollar amount collected
or to be collected from our customers. Our principal costs consist of raw materials, labor and social security expenses, maintenance
and repairs, depreciation, lubricants and other fuels, among others. We obtain our raw materials principally from our own agricultural
activities and, to a lesser extent, from third parties.
Agricultural Activities
Our agricultural activities
involve the management of the biological transformation of biological assets into agricultural produce for sale to third parties,
or into agricultural products that we use in our manufacturing activities. We measure our biological assets and agricultural produce
in accordance with lAS 41 "Agriculture." lAS 41 requires biological assets to be measured on initial recognition and
at each balance sheet date at their fair value less cost to sell, with changes in fair value recognized in the statement of income
as they occur. As market prices are generally not available for biological assets while they are growing, we use the present value
of expected net cash flows as a valuation technique to determine fair value, as further discussed below in "-Critical Accounting
Policies and Estimates." ln addition, agricultural produce at the point of harvest is measured at fair value less cost to
sell, which is generally determined by reference to the quoted market price in the relevant market. Consequently, the gains and
losses arising on initial recognition and changes in fair value of our biological assets and the initial recognition of our agricultural
produce at the point of harvest are accounted for in the statement of income in the line item "lnitial recognition and changes
in fair value of biological assets and agricultural produce."
After agricultural produce
is harvested, we may hold it in inventory at net realizable value up to the point of sale, which includes market selling price
less direct selling expenses, with changes in net realizable value recognized in the statement of income when they occur. When
we sell our inventory, we sell at the prevailing market price and we incur direct selling expenses.
We generally recognize
the agricultural produce held in inventory at net realizable value with changes recognized in the statement of income as they occur.
Therefore, changes in net realizable value represent the difference in value from the last measurement through the date of sale
on an aggregated basis.
We consider gains and
losses recorded in the line items of the statement of income "lnitial recognition and changes in fair value of biological
assets and agricultural produce" and "Changes in net realizable value of agricultural produce after harvest" to
be realized only when the related produce or manufactured product is sold to third parties and, therefore, converted into cash
or other financial assets. Therefore, "realized" gains or losses mean that the related produce or product has been sold
and the proceeds are included in revenues for the year. Please see “ –Critical Accounting Policies and Estimates –
Biological Assets and Agricultural Produce” for a discussion of the accounting treatment, financial statement, presentation
and disclosure related to our agricultural activities.
Land Transformation
The Land Transformation
segment includes two types of operations. The first relates to the acquisition of farmlands or businesses with underdeveloped or
underutilized agricultural land (land which we have identified as capable of being transformed into more productive farmland by
enhancing yields and increasing its future value). When we acquire a farmland business for an acquisition price below its estimated
fair value, we recognize an immediate gain (a "purchase bargain gain"). The land acquired is recognized at its fair value
at the acquisition date and is subsequently carried at cost under the cost model in IAS 16.
The second type of operation
undertaken within this segment relates to the realization of value through the strategic disposition of assets (i.e. farmland)
that may have reached full development potential. Once we believe certain land has reached full growth potential, we may decide
to realize such incremental value through the disposition of the land.
The results of these two
activities (purchase bargain gains as a result of opportunistic acquisitions of businesses with underdeveloped or underutilized
land below fair market value, and gains on dispositions reflecting the ultimate realization of cash value on dispositions of transformed
farmlands) are included separately in the Land Transformation segment.
Land transformation activities
themselves are not reflected in this segment; rather, they are reflected in all of our other agricultural activities in other segments.
The results of our land transformation strategy are realized as a separate activity upon disposition of transformed farmlands and
other rural properties.
A.
OPERATING
RESULTS
Adoption of the amendments of
IAS 14 and IAS 16
IASB amended IAS 16 “Property,
Plant and Equipment” and IAS 41 “Agriculture,” which distinguish bearer plants from other biological assets.
Bearer plants are used solely to grow produce over their productive lives and are considered to bear more resemblance to machinery
and equipment (IAS 16) than other biological assets (under IAS 41). Accordingly, they are now accounted for under IAS 16. However,
the agricultural produce growing on bearer plants remains within the scope of IAS 41 and is measured at fair value less cost to
sell. The amendments were applicable for our fiscal year ended December 31, 2016.
Our sugarcane and
coffee plantations qualify as bearer plants under the new definition in IAS 41. As required under IAS 8, “Accounting Policies,
Changes in Accounting Estimates and Errors”, we effected the change in accounting policy retrospectively. Consequently, effective
January 1, 2016, our sugarcane and coffee plantations were reclassified to property, plant and equipment, measured at amortized
cost and depreciated over their useful life on a straight-line basis. We adopted the transitional rule provided for in the amendment,
which allowed us to apply the fair value of bearer plants as their deemed cost as of January 1, 2014. Accordingly, we revised the
comparative amounts financial data for the years ended December 31, 2015 and 2014. Financial data for the years ended December
31, 2013 and 2012 have not been revised, and is not comparable to financial data for the years 2016, 2015 and 2014.
For further information,
and an analysis of the impact of the adoption of IAS 41 and IAS 16 to our Consolidated Financial Statements please see Note 32.1
to our Consolidated Financial Statements.
Trends and Factors Affecting Our Results of Operations
Our results of operations
have been influenced and will continue to be influenced by the following factors:
(i) Effects of Yield Fluctuations
The occurrence of severe
adverse weather conditions, especially droughts, hail, floods or frost, are unpredictable and may have a potentially devastating
impact on agricultural production and may otherwise adversely affect the supply and prices of the agricultural commodities that
we sell and use in our business. The effects of severe adverse weather conditions may also reduce yields at our farms. Yields may
also be affected by plague, disease or weed infection and operational problems.
The following table sets
forth our average crop, rice and sugarcane yields, expressed in tons per hectare, for the periods indicated:
|
|
|
2015/2016
|
|
|
2014/2015
|
|
|
2013/2014
|
|
|
%
Change
|
|
|
|
|
Harvest
|
|
|
Harvest
|
|
|
Harvest
|
|
|
2015/2016 -
|
|
|
2014/2015 -
|
|
|
|
|
Year
(1)
|
|
|
Year
(1)
|
|
|
Year
(1)
|
|
|
2014/2015
|
|
|
2013/2014
|
|
|
Corn (2)
|
|
|
5.8
|
|
|
|
5.9
|
|
|
|
6.2
|
|
|
|
(1.7
|
%)
|
|
|
(4.8
|
%)
|
|
Soybean
|
|
|
2.8
|
|
|
|
3.2
|
|
|
|
2.9
|
|
|
|
(12.5
|
%)
|
|
|
10.3
|
%
|
|
Soybean (second harvest)
|
|
|
2.4
|
|
|
|
2.5
|
|
|
|
1.9
|
|
|
|
(4.0
|
%)
|
|
|
31.6
|
%
|
|
Cotton lint
|
|
|
-
|
|
|
|
0.7
|
|
|
|
1.0
|
|
|
|
N/A
|
|
|
|
(30.0
|
%)
|
|
Wheat (3)
|
|
|
2.5
|
|
|
|
2.3
|
|
|
|
2.6
|
|
|
|
8.7
|
%
|
|
|
(11.5
|
%)
|
|
Sunflower
|
|
|
1.6
|
|
|
|
1.8
|
|
|
|
1.8
|
|
|
|
(11.1
|
%)
|
|
|
0.0
|
%
|
|
Rice
|
|
|
5.9
|
|
|
|
5.1
|
|
|
|
5.6
|
|
|
|
15.7
|
%
|
|
|
(8.9
|
%)
|
|
Sugarcane (4)
|
|
|
98.2
|
|
|
|
93.0
|
|
|
|
80.8
|
|
|
|
5.6
|
%
|
|
|
15.1
|
%
|
(1) This column reflects
the full harvest season.
(2) Includes sorghum and
peanut.
(3) Includes barley.
(4) Does not consider harvested
area for planting activities.
(ii) Effects of Fluctuations
in Production Costs
We experience fluctuations
in our production costs due to the fluctuation in the costs of (i) fertilizers, (ii) agrochemicals, (iii) seeds, (iv) fuel and
(v) farm leases. The use of advanced technology, however, allows us to increase our efficiency, in large part mitigating the fluctuations
in production costs. Some examples of how the implementation of production technology has allowed us to increase our efficiency
and reduce our costs include the use of no-till technology (also known as “direct sowing”, which involves farming without
the use of tillage, leaving plant residues on the soil to form a protective cover which positively impacts costs, yields and the
soil), crop rotation, second harvest in one year, integrated pest management, and balanced fertilization techniques to increase
the productive efficiency in our farmland. Increased mechanization of harvesting and planting operations in our sugarcane plantations
and utilization of modern, high pressure boilers in our sugar and ethanol mills has also yielded higher rates of energy production
per ton of sugarcane milled.
(iii) Effects of Fluctuations
in Commodities Prices
Commodity prices have
historically experienced substantial fluctuations. For example, based on Chicago Board of Trade (“CBOT”) data, from
January 1, 2016 to December 31, 2016, soybean prices increased 14.4% and corn prices decreased by 1.9%. Also, between January 1,
2016 and December 31, 2016, ethanol prices increased by 8.2% according to Escola Superior de Agricultura “Luiz de Queiroz”
(“ESLAQ”) data, and sugar prices increased by 28.0%, according to Intercontinental Exchange of New York (“ICE-NY”)
data. Commodity price fluctuations impact our statement of income as follows:
|
|
•
|
Initial recognition and changes in the fair value of biological assets and agricultural produce
in respect of not harvested biological assets undergoing biological transformation;
|
|
|
•
|
Changes in net realizable value of agricultural produce for inventory carried at its net realizable
value; and
|
|
|
•
|
Sales of manufactured products and sales of agricultural produce and biological assets sold to
third parties.
|
The following graphs show
the spot market price of some of our products for the periods indicated:
(iv) Fiscal Year and Harvest
Year
Our fiscal year begins
on January 1 and ends on December 31 of each year. However, our production is based on the harvest year for each of our crops and
rice. A harvest year varies according to the crop or rice plant and to the climate in which it is grown. Due to the geographic
diversity of our farms, the planting period for a given crop or rice may start earlier on one farm than on another, causing differences
for their respective harvesting periods. The presentation of production volume (tons) and production area (hectares) in this annual
report in respect of the harvest years for each of our crops and rice starts with the first day of the planting period at the first
farm to start planting in that harvest year to the last day of the harvesting period of the crop or rice planting on the last farm
to finish harvesting that harvest year.
On the other hand, production volumes for dairy
and production volume and production area for sugar, ethanol and energy business are presented on a fiscal year basis.
The financial results
in respect of all of our products are presented on a fiscal year basis. See ̶ “Year ended December 31, 2016 as compared
to year ended December 31, 2015”. ̶
(v) Effects of Fluctuations
of the Production Area
Our results of operations
also depend on the size of the production area. The size of our own and leased area devoted to crop, rice and sugarcane production
fluctuates from period to period in connection with the purchase and development of new farmland, the sale of developed farmland,
the lease of new farmland and the termination of existing farmland lease agreements. Lease agreements are usually settled following
the harvest season, from July to June in crops and rice, and from May to April in sugarcane. The length of the lease agreements
are usually one year for crops, one to five years for rice and five to six years for sugarcane. Regarding crops, the production
area can be planted and harvested one or two times per year. As an example, wheat can be planted in July and harvested in December.
Right after its harvest, soybean can be planted in the same area and harvested in April. As a result, planted and harvested area
can exceed the production area during one year. The production area for sugarcane can exceed the harvested area in one year. Grown
sugarcane can be left in the fields and then harvested the following year. The following table sets forth the production area for
the periods indicated:
|
|
|
Period ended December 31,
|
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
|
|
|
|
Hectares
|
|
|
|
|
|
Crops (1)
|
|
|
140,080
|
|
|
|
148,899
|
|
|
|
152,777
|
|
|
Rice
|
|
|
37,580
|
|
|
|
35,328
|
|
|
|
36,603
|
|
|
Sugar, Ethanol and Energy
|
|
|
134,591
|
|
|
|
129,299
|
|
|
|
124,412
|
|
(1) Does not include second crop and
forage area.
The decrease in the crop
production area in 2016 compared to 2015 was mainly driven by the sale in November 2015 of La Cañada farm (3,399 hectares)
and the transformation of owned land that was put under rice production. The increase in sugar, ethanol and energy production area
in 2016 is explained by an increase in leased hectares..
(vi) Effect of Acquisitions
and Dispositions
The comparability of our
results of operations is also affected by the completion of significant acquisitions and dispositions. Our results of operations
for earlier periods that do not include a recently completed acquisition or do include farming operations subsequently disposed
of may not be comparable to the results of a more recent period that reflects the results of such acquisition or disposition.
(vii) Macroeconomic Developments
in Emerging Markets
We generate nearly all
of our revenue from the production of food and renewable energy in emerging markets. Therefore, our operating results and financial
condition are directly impacted by macroeconomic and fiscal developments, including fluctuations in currency exchange rates, inflation
and interest rate fluctuations, in those markets. The emerging markets where we conduct our business (including Argentina, Brazil
and Uruguay) remain subject to such fluctuations.
(viii) Effects of Export
Taxes on Our Products
Following the economic
and financial crisis experienced by Argentina in 2002, the Argentine government increased export taxes on agricultural products,
mainly on soybean and its derivatives, wheat, rice and corn. Soybean was subject to an export tax of 35.0%, wheat was subject to
an export tax of 23.0%, rough rice was subject to an export tax of 10.0%, processed rice was subject to an export tax of 5.0%,
corn was subject to an export tax of 20.0% and sunflower was subject to an export tax of 32.0%. Since December 2015, all of the
export taxes mentioned above have been removed, except for soybean, for which the export tax has been reduced to 30.0%.
As local prices are determined
taking into consideration the export parity reference, any increase or decrease in export taxes would affect our financial results.
(ix) Effects of Foreign
Currency Fluctuations
Each of our Argentine,
Brazilian and Uruguayan subsidiaries uses local currency as its functional currency. A significant portion of our operating costs
in Argentina are denominated in Argentine Pesos and most of our operating costs in Brazil are denominated in Brazilian Reais. For
each of our subsidiaries’ statements of income, foreign currency transactions are translated into the local currency, as
such subsidiaries’ functional currency, using the exchange rates prevailing as of the dates of the relevant specific transactions.
Exchange differences resulting from the settlement of such transactions and from the translation at year-end exchange rates of
monetary assets and liabilities denominated in foreign currencies are recognized in the statement of income under “finance
income” or “finance costs,” as applicable. Our Consolidated Financial Statements are presented in U.S. dollars,
and foreign exchange differences that arise in the translation process are disclosed in the consolidated statement of comprehensive
income.
As of December 31, 2016,
the Peso-U.S. dollar exchange rate was Ps.15.89 per U.S. dollar as compared to Ps.13.04 and Ps.8.55 per U.S. dollar as of December
31, 2015 and 2014, respectively. As of December 31, 2016, the Real-U.S. dollar exchange rate was R$3.26 per U.S. dollar as compared
to R$3.90 and R$2.66 per U.S. dollar as of December 31, 2015 and 2014, respectively.
The following graph shows
the Real-U.S. dollar rate of exchange for the periods indicated:
|
Argentinean Peso/ U.S. Dollar
|
Brazilean Reais/U.S. Dollar
|
|
|
|
|
|
Our principal foreign currency fluctuation
risk involves changes in the value of the Brazilian Reais relative to the U.S. dollar. Periodically, we evaluate our exposure and
consider opportunities to mitigate the effects of currency fluctuations by entering into currency forward contracts and other hedging
instruments.
(x) Seasonality
Our business activities
are inherently seasonal. We generally harvest and sell corn, soybean, rice and sunflower between February and August, and wheat
from December to January. Cotton is unique in that while it is typically harvested from May to July, it requires a conditioning
process that takes about two to three months before being ready to be sold. Sales in other business segments, such as in our Dairy
segment, tend to be more stable. However, milk sales are generally higher during the fourth quarter, when weather conditions are
more favorable for production. With the implementation of “continuous harvest”, sugarcane production is more stable
during the year; however, the typical harvesting period in Brazil begins between April and May and ends between November and December.
As a result of the above factors, there may be significant variations in our results of operations from one quarter to another,
since planting activities may be more concentrated in one quarter whereas harvesting activities may be more concentrated in another
quarter. In addition our quarterly results may vary as a result of the effects of fluctuations in commodity prices and production
yields and costs related to the “Initial recognition and changes in fair value of biological assets and agricultural produce”
line item. See “—Critical Accounting Policies and Estimates—Biological Assets and Agricultural Produce”.
(xi) Land Transformation
Our business model includes
the transformation of pasture and unproductive land into land suitable for growing various crops and the transformation of inefficient
farms into farms suitable for more efficient uses through the implementation of advanced and sustainable agricultural practices,
such as "no-till" technology and crop rotation. During approximately the first three to five years of the land transformation
process of any given parcel, we must invest heavily in transforming the land, and, accordingly, crop yields during such period
tend to be lower than crop yields once the land is completely transformed. After the transformation process has been completed,
the land requires less investment, and crop yields gradually increase. As a result, there may be variations in our results from
one season to the next according to the amount of land in the process of transformation.
Our business model also
includes the identification, acquisition, development and selective disposition of farmlands or other rural properties that after
implementing agricultural best practices and increasing crop yields we believe have the potential to appreciate in terms of their
market value. As a part of this strategy, we purchase and sell farms and other rural properties from time to time. Please see also
"Risk Factors ̶ Risks Related to Argentina-Argentine law concerning foreign ownership
of rural properties may adversely affect our results of operations and future investments in rural properties in Argentina"
and "Risk Factors ̶ Risks Related to Brazil- Recent changes in Brazilian rules concerning foreign investment in rural
properties may adversely affect our investments." included in “Item 3 Risk Factors.”
The results included in
the Land Transformation segment are related to the acquisition and disposition of farmland businesses and not to the physical transformation
of the land. The decision to acquire and/or dispose of a farmland business depends on several market factors that vary from period
to period, rendering the results of these activities in one financial period when an acquisition of disposition occurs not directly
comparable to the results in other financial periods when no acquisitions or dispositions occurred.
(xii) Capital Expenditures
and Other Investments
Our capital expenditures,
which consists of maintenance capital expenditures and expansion capital expenditures, during the last three years consisted mainly
of expenses related to (i) acquiring land, (ii) transforming and increasing the productivity of our land, (iii) planting sugarcane
and (iv) expanding and upgrading our production facilities. Our capital expenditures incurred in connection with such activities
were $306.8 million for the year ended December 2014; $149.8 million for the year ended December 2015 and $133.2 million for the
year ended December 2016. See also " ̶ Capital Expenditure Commitments."
(xiii) Effects of Corporate
Taxes on Our Income
We are subject to a variety
of rates over income taxes on our results of operations. The following table shows the income tax rates in effect for 2016 in each
of the countries in which we operate:
|
|
|
Tax
Rate (%)
|
|
|
Argentina
|
|
|
35
|
|
|
Brazil(1)
|
|
|
34
|
|
|
Uruguay
|
|
|
25
|
|
|
|
(1)
|
Including
the Social Contribution on Net Profit (CSLL).
|
Critical Accounting Policies and Estimates
We prepare our Consolidated
Financial Statements in accordance with IFRS. The critical accounting policies are policies important to the portrayal of a company’s
financial condition and operating results, and which require management to make difficult and subjective judgments that are inherently
uncertain. Based on this definition, we have identified the following significant accounting policies as critical to the understanding
of our Consolidated Financial Statements. The preparation of our Consolidated Financial Statements requires management to make
estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of expenses during the reporting periods. The principal area where
our management is required to make significant judgments about estimates where actual results could differ materially from such
estimates is in the carrying amount of our biological assets. These estimates and judgments are subject to an inherent degree of
uncertainty. We believe that the estimates and judgments upon which we rely are reasonable based upon information available to
us at the time that these estimates and judgments are made. We continually evaluate our judgments, estimates and assumptions. To
the extent there are material differences between these estimates and actual results, our Consolidated Financial Statements will
be affected.
The Company's critical
accounting policies and estimates are consistent with those described in Note 32.1 to our Consolidated Financial Statements.
Biological Assets
and Agricultural Produce
Before harvest, our crops
are biological assets. Subsequent to harvest, biological transformation ceases and the harvested crops meet the definition of agricultural
produce under IAS 41 “Biological Assets.” As prescribed by IAS 41, we measure growing crops which have not attained
significant biological growth at cost less any impairment losses, which approximates fair value. Capitalized expenses for growing
crops include land preparation expenses and other direct production expenses incurred during the sowing period including costs
of labor, fuel, seeds, agrochemical and fertilizer, among others. We measure biological assets (at initial recognition, when the
biological asset has attained significant biological growth, and at each subsequent measurement reporting date) and agricultural
produce at the point of harvest at fair value less selling costs. The objective of the fair value model under IAS 41 is to recognize
gains and losses arising from such measurements gradually over the asset’s life rather than only on sale or realization.
IAS 41 prescribes, among other things, the accounting treatment for biological assets during the period of growth, degeneration,
production and procreation, and for the initial measurement of agricultural produce at the point of harvest.
We account for agricultural
produce after harvest as inventory, as further described below.
The following table sets
forth the way in which we value biological assets and agricultural produce for each of our principal products:
|
|
|
Biological Asset
|
|
|
|
|
|
|
|
No
significant
biological
growth
|
|
Significant
biological
growth
|
|
Agricultural Produce
|
|
Manufactured Product
|
|
|
|
|
|
|
|
|
|
|
|
Crops
|
|
Crop from planting to approximately 60 days following planting
|
|
Crop, from approximately 60 days after planting up to the moment of harvest (total period of approximately 3 to 5 months).
|
|
Harvested crop (soybean, corn, wheat, etc.)
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
Rice
|
|
Rice plant from planting to approximately 60 days following planting
|
|
Rice plant, from approximately 60 days after planting up to the moment of harvest (total period of approximately 3 to 4 months).
|
|
Harvested rough rice
|
|
Processed Rice (white rice)
|
|
|
|
|
|
|
|
|
|
|
|
Dairy
|
|
Dairy cow is considered a biological asset from birth/purchase to death or sale.
|
|
Fluid milk
|
|
N/A
|
|
|
|
|
|
|
|
|
|
Cattle
|
|
Beef cattle are considered a biological asset from birth/purchase to death or sale.
|
|
N/A
|
|
N/A
|
|
|
|
|
|
|
|
|
|
Sugar, ethanol and energy
|
|
The produce derived from the sugarcane from planting or after harvest up to approximately 30 days following planting
|
|
The produce derived from the sugarcane, from approximately 30 days after planting until harvest (total period of 10 to 14 months)
|
|
Sugarcane
|
|
Sugar, ethanol and energy
|
|
|
|
|
|
|
|
|
|
|
|
Valuation Criteria
|
|
Cost, which approximates fair value less accumulated impairment losses, if any. For dairy and cattle, fair value less estimated cost to sell.
|
|
Fair value (using discounted cash flow valuation) less cost to sell.
|
|
Net realizable value, except for rough rice and milk which are valued at cost.
|
|
Cost
|
Gains and losses that
arise from measuring biological assets at fair value less selling costs and measuring agricultural produce at the point of harvest
at fair value less selling costs are recognized in the statement of income in the period in which they arise as “Initial
recognition and changes in fair value of biological assets and agricultural produce.” We value our inventories of agricultural
produce after harvest at net realizable value, except for rough rice, which is valued at cost.
When an active market
exists for biological assets, we use the quoted market price in the most relevant market as a basis to determine the fair value
of our biological assets, as in the case of cattle. For other biological assets where there is neither an active market nor market-determined
prices during the growth cycle, we determine their fair value through the use of DCF valuation techniques. Therefore, we generally
derive the fair value of our growing biological assets from the expected cash flows of the related agricultural produce. The DCF
method requires the input of highly subjective assumptions, including observable and unobservable data. Generally, the estimation
of the fair value of biological assets is based on models or inputs that are not observable in the market, and the use of unobservable
inputs is significant to the overall valuation of the assets. Various factors influence the availability of observable inputs,
including, but not limited to, the type of asset and its location, climate changes and the technology used, among others.
Unobservable inputs are
determined based on the best information available, for example, by reference to historical information regarding past practices
and results, statistical and agronomical information and other analytical techniques. Changes in the assumptions underlying such
subjective inputs can materially affect the fair value estimate and impact our results of operations and financial condition from
period to period.
The DCF method requires
the following significant inputs to project revenues and costs:
|
|
•
|
Production area in hectares;
|
|
|
•
|
Estimated crop and rice yields;
|
|
|
•
|
Estimated sucrose content (Total Recoverable Sugar or TRS) for sugarcane;
|
|
|
•
|
Estimated costs of harvesting and other costs to be incurred until the crops and rice reach maturity
(mainly costs of pesticides, herbicides and spraying);
|
|
|
•
|
Estimated transportation costs;
|
In contrast to biological
assets whose fair value is generally determined using the DCF method, we typically determine the fair value of our agricultural
produce at the point of harvest using market prices.
Market prices used in
the DCF model are determined by reference to observable data in the relevant market (e.g., for crops and sugar). Harvesting costs
and other costs are estimated based on historical and statistical data. Yields are estimated by our agronomic engineers based on
several factors, including the location of the farmland, soil type, environmental conditions, infrastructure and other restrictions
and growth at the time of measurement. Yields are subject to a high degree of uncertainty and may be affected by several factors
out of our control, including but not limited to extreme or unusual weather conditions, plagues and other diseases. Discount rates
reflect current market assessments of the assets involved and the time value of money.
As of December 31, 2016,
the impact of a reasonable 5% increase (decrease) in estimated yields, with all other variables held constant, would result in
an increase (decrease) in the fair value of the our plantations less cost to sell of $9.5 million ( for 2015 the fair value was
$7.5 million) for sugarcane. As of December 31, 2016, the impact of a reasonable 20% increase (decrease) in estimated yields, with
all other variables held constant, would result in an increase (decrease) in the fair value of our plantations less cost to sell
of $2.3 million (for 2015 this fair value was $2.7 million) for crops and $6.6 million (2015: $6.9 million) for rice.
The key assumptions discussed
above are highly sensitive. Reasonable shifts in assumptions including but not limited to increases or decreases in prices, costs
and discount rates used would result in a significant increase or decrease to the fair value of biological assets. Estimates of
production in themselves are dependent on various assumptions, in addition to those described above, including but not limited
to several factors such as location, environmental conditions and other restrictions.
Changes in these estimates could materially impact on estimated production, and could therefore affect estimates of future cash
flows used in the assessment of fair value.
The valuation models and
their assumptions are reviewed annually, or quarterly if warranted, and, if necessary, adjusted. During the years ended December
31, 2014, 2015 and 2016, we made no changes to the models.
The aggregate gains and
losses arising during a period on initial recognition and from the changes in fair value less costs to sell of biological assets
is affected by the way we treat our harvesting and production costs for accounting purposes. Since IAS 41 does not provide guidance
on the treatment of these costs, we generally capitalize all costs directly involved with the management of biological assets.
These costs may include labor, planting, fertilizers, agrochemicals, harvesting, irrigation and feeding, among others. Then, the
cost of the biological asset is adjusted periodically by the re-measurement of the biological asset at fair value less cost to
sell. For example, before significant biological growth is attained, costs and expenses are capitalized as biological assets, and
once biological assets reach significant biological growth we adjust biological assets to fair value less cost to sell. Accordingly,
capitalized biological assets are adjusted periodically at fair value less cost to sell. At the point of harvest, we recognize
the agricultural produce at fair value less cost to sell. The periodic adjustments in fair value less cost to sell reflect period
to period gains or losses. After agricultural produce is harvested, we may hold it in inventory at net realizable value up to the
point of sale, which includes market selling price less direct selling expenses, with changes in net realizable value recognized
in the statement of income as incurred. When we sell our inventory, we sell at the prevailing market price and we incur direct
selling expenses.
We generally recognize
the agricultural produce of crops held in inventory at net realizable value with changes recognized in the statement of income
as they occur. Therefore, changes in net realizable value represent the difference in value from the last measurement through the
date of sale on an aggregated basis.
We consider gains and
losses recorded in the line items of the statement of income “Initial recognition and changes in fair value of biological
assets and agricultural produce” and “Changes in net realizable value of agricultural produce after harvest”
to be realized only when the related produce or manufactured product is sold to third parties and, therefore, converted into cash
or other financial assets. Therefore, “realized” gains or losses means that the related produce or product has been
sold and the proceeds are included in revenues for the year.
The sale of agricultural
produce is revenue as defined in IAS 18. However, IAS 41 does not provide guidance on the presentation of revenues and costs arising
from the selling of biological assets and agricultural produce. Due to the lack of guidance in IAS 41 and based on IAS 1, “Presentation
of financial statements,” we present, as a matter of accounting policy, our sales of biological assets and agricultural produce
and their respective costs within the lines items “Sales of goods and services rendered” and “Cost of goods and
services rendered”. See Notes 4 and 5 to our Consolidated Financial Statements for a breakdown of sales and costs for goods
sold and services rendered. The sale of agricultural produce and biological assets represents the consideration received or receivable
for the sale to third parties based generally on the applicable quoted market prices of the respective produce or biological asset
in the relevant markets at the point of sale. At the point of sale, our agricultural produce is measured at net realizable value,
which reflects the sale price less the direct cost to sell, and our biological assets are measured at fair value less cost to sell,
in each case, using the applicable quoted market prices in the relevant markets.
Based on the foregoing,
the profit of our agricultural produce is recognized under the line ítems “Initial recognition and changes in fair
value of biological assets and agricultural produce” and “Changes in net realizable value of agricultural produce after
harvest”. When the agricultural produce is sold to third parties we do not record any additional profit as the gain
or loss had already been recognized.
The profit of our manufactured
products is recognized when they are sold. The cost of manufactured products includes, among others, the cost of agricultural produce
transferred internally at fair market value (i.e. harvested sugarcane, rough rice, fluid milk, etc).
Operating Segments
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 Company operates in
three major lines of business, namely, Farming; Sugar, Ethanol and Energy; and Land Transformation.
|
|
·
|
The Company’s
‘Farming’
business
is comprised of four reportable segments:
|
|
|
·
|
The Company’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 and handling and drying services to third parties. Each underlying crop in this 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 Company’s
‘Rice’
segment consists of planting, harvesting, processing
and marketing of rice;
|
|
|
·
|
The Company’s
‘Dairy’
segment consists of the production and sale of fluid
milk and other dairy products,
|
|
|
·
|
The Company’s
‘All Other Segments’
segment consists of the aggregation
of the remaining non-reportable operating segments, which do not meet the quantitative thresholds for disclosure and for which
the Company’s management does not consider them to be of continuing significance, namely, Coffee and Cattle.
|
|
|
·
|
The
Company’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 Company’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 Company’s
‘Corporate’
segment
comprises certain other activities of a holding function nature not allocable to the segments
|
The following table presents
selected historical financial and operating data solely for the periods indicated as of December 31, 2016 as it is used for our
discussion of results of operations.
|
|
|
Year ended December 31,
|
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
Sales
|
|
(
In thousands of $)
|
|
|
Farming Business
|
|
|
272,543
|
|
|
|
273,692
|
|
|
|
315,837
|
|
|
Crops
|
|
|
142,124
|
|
|
|
154,741
|
|
|
|
177,662
|
|
|
Soybean(1)
|
|
|
63,797
|
|
|
|
77,432
|
|
|
|
79,515
|
|
|
Corn (2)
|
|
|
48,502
|
|
|
|
41,924
|
|
|
|
69,720
|
|
|
Wheat (3)
|
|
|
18,191
|
|
|
|
16,750
|
|
|
|
8,819
|
|
|
Sunflower
|
|
|
7,275
|
|
|
|
12,659
|
|
|
|
10,016
|
|
|
Cotton Lint
|
|
|
1,434
|
|
|
|
3,317
|
|
|
|
9,081
|
|
|
Other crops(4)
|
|
|
2,925
|
|
|
|
2,659
|
|
|
|
511
|
|
|
Rice(5)
|
|
|
96,562
|
|
|
|
84,668
|
|
|
|
103,682
|
|
|
Dairy
|
|
|
32,897
|
|
|
|
32,981
|
|
|
|
32,968
|
|
|
All other segments (6)
|
|
|
960
|
|
|
|
1,302
|
|
|
|
1,525
|
|
|
Sugar, Ethanol and Energy Business
|
|
|
596,692
|
|
|
|
400,622
|
|
|
|
407,129
|
|
|
Sugar
|
|
|
330,895
|
|
|
|
177,801
|
|
|
|
174,459
|
|
|
Ethanol
|
|
|
211,451
|
|
|
|
176,150
|
|
|
|
165,870
|
|
|
Energy
|
|
|
53,995
|
|
|
|
46,671
|
|
|
|
66,800
|
|
|
Other (7)
|
|
|
351
|
|
|
|
0
|
|
|
|
0
|
|
|
Total
|
|
|
869,235
|
|
|
|
674,314
|
|
|
|
722,966
|
|
|
Land Transformation (8)
|
|
|
-
|
|
|
|
23,980
|
|
|
|
25,508
|
|
|
|
|
2016/2017
|
|
|
2015/2016
|
|
|
2014/2015
|
|
|
2013/2014
|
|
|
|
|
Harvest
|
|
|
Harvest
|
|
|
Harvest
|
|
|
Harvest
|
|
|
Production
|
|
Year
|
|
|
Year
|
|
|
Year
|
|
|
Year
|
|
|
Farming Business
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Crops (tons)(9)
|
|
|
103,927
|
|
|
|
583,639
|
|
|
|
627,385
|
|
|
|
643,354
|
|
|
Soybean (tons )
|
|
|
N/A
|
|
|
|
237,681
|
|
|
|
285,914
|
|
|
|
218,608
|
|
|
Corn (tons) (2)
|
|
|
N/A
|
|
|
|
248,269
|
|
|
|
232,763
|
|
|
|
318,381
|
|
|
W heat (tons) (3)
|
|
|
103,927
|
|
|
|
82,167
|
|
|
|
84,609
|
|
|
|
77,086
|
|
|
Sunflower (tons )
|
|
|
N/A
|
|
|
|
15,521
|
|
|
|
21,762
|
|
|
|
23,161
|
|
|
Cotton Lint (tons)
|
|
|
N/A
|
|
|
|
-
|
|
|
|
2,336
|
|
|
|
6,118
|
|
|
Rice(10) (tons )
|
|
|
N/A
|
|
|
|
220,758
|
|
|
|
180,149
|
|
|
|
205,489
|
|
|
|
|
Year ended December 31,
|
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
Processed rice(12) (tons)
|
|
|
229,905
|
|
|
|
176,456
|
|
|
|
225,535
|
|
|
Dairy(13) (thousand liters)
|
|
|
92,395
|
|
|
|
88,556
|
|
|
|
79,468
|
|
|
Sugar, Ethanol and Energy Business
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sugar (tons)
|
|
|
701,060
|
|
|
|
464,929
|
|
|
|
413,687
|
|
|
Ethanol (cubic meters)
|
|
|
422,395
|
|
|
|
361,001
|
|
|
|
299,810
|
|
|
Energy (MWh)
|
|
|
751,037
|
|
|
|
553,090
|
|
|
|
442,706
|
|
|
Land Transformation Business (hectares traded)
|
|
|
-
|
|
|
|
10,905
|
|
|
|
12,887
|
|
|
|
|
2016/2017
|
|
|
2015/2016
|
|
|
2014/2015
|
|
|
2013/2014
|
|
|
|
|
Harvest
|
|
|
Harvest
|
|
|
Harvest
|
|
|
Harvest
|
|
|
Planted Area
|
|
Year
|
|
|
Year
|
|
|
Year
(18)
|
|
|
Year
(18)
|
|
|
|
|
|
|
|
(Hectares)
|
|
|
|
|
|
Farming Business(13)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Crops
|
|
|
196,057
|
|
|
|
178,491
|
|
|
|
193,683
|
|
|
|
186,214
|
|
|
Soybean
|
|
|
88,673
|
|
|
|
88,377
|
|
|
|
96,476
|
|
|
|
82,980
|
|
|
Corn (2)
|
|
|
56,081
|
|
|
|
42,657
|
|
|
|
40,044
|
|
|
|
51,212
|
|
|
Wheat (3)
|
|
|
37,998
|
|
|
|
32,396
|
|
|
|
37,020
|
|
|
|
29,411
|
|
|
Sunflower
|
|
|
5,454
|
|
|
|
9,547
|
|
|
|
12,314
|
|
|
|
12,880
|
|
|
Cotton
|
|
|
2,640
|
|
|
|
-
|
|
|
|
3,160
|
|
|
|
6,217
|
|
|
Forage
|
|
|
5,210
|
|
|
|
5,514
|
|
|
|
4,669
|
|
|
|
3,514
|
|
|
Rice
|
|
|
39,607
|
|
|
|
37,580
|
|
|
|
35,328
|
|
|
|
36,603
|
|
|
Total Planted Area (14)
|
|
|
235,664
|
|
|
|
216,071
|
|
|
|
229,011
|
|
|
|
222,817
|
|
|
Second Harvest Area
|
|
|
42,359
|
|
|
|
32,896
|
|
|
|
40,115
|
|
|
|
29,923
|
|
|
Leased Area
|
|
|
65,226
|
|
|
|
57,595
|
|
|
|
60,056
|
|
|
|
55,797
|
|
|
Owned Croppable Area(15)
|
|
|
122,870
|
|
|
|
120,065
|
|
|
|
124,172
|
|
|
|
133,584
|
|
|
|
|
Year
ended December 31,
|
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
Sugar, Ethanol and Energy
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Business
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sugarcane plantation
|
|
|
134,591
|
|
|
|
129,299
|
|
|
|
124,412
|
|
|
Owned land
|
|
|
9,145
|
|
|
|
9,145
|
|
|
|
9,145
|
|
|
Leased land
|
|
|
125,446
|
|
|
|
120,154
|
|
|
|
115,267
|
|
|
|
(1)
|
Includes
soybean, soybean oil and soybean meal.
|
|
|
(2)
|
Includes
sorghum and peanut.
|
|
|
(4)
|
Includes
seeds and farming services.
|
|
|
(5)
|
Sales
of processed rice including rough rice purchased from third parties and processed in
our own facilities, rice seeds and services.
|
|
|
(6)
|
All other segments include
our cattle business which primarily consists of leasing land to a third party based on the price of beef. See “Item 4. Information
of the Company – B. Business Overview – Cattle Business” .
|
|
|
(7)
|
Includes
operating leases and other services.
|
|
|
(8)
|
Represents
capital gains from the sale of land, of which $16,066 thousands in 2015 and $25,508 thousands
in 2014, represent the results from the sale of non-controlling interests in subsidiaries.
See Note 16 of our Consolidated Financial Statements for details
|
|
|
(9)
|
Crop production
does not include tons of forage produced.
|
|
|
(10)
|
For 2016/17
crop production N/A stands for none/insignificant harvest as of December 31, 2016.
|
|
|
(11)
|
Expressed
in tons of rough rice produced on owned and leased farms. The rough rice we produce,
along with additional rough rice we purchase from third parties, is ultimately processed
and constitutes the product sold in respect of the rice business.
|
|
|
(12)
|
Includes
rough rice purchased from third parties and processed in our own facilities. Expressed
in tons of processed rice (1 ton of processed rice is approximately equivalent to 1.6
tons of rough rice).
|
|
|
(13)
|
Fluid
milk produced at our dairy farms.
|
|
|
(14)
|
Includes
hectares planted in the second harvest.
|
|
|
(15)
|
Does
not include forage area.
|
|
|
(16)
|
Does
not include potential croppable areas being evaluated for transformation or forage.
|
Year ended December 31, 2016 as compared
to year ended December 31, 2015
The following table sets
forth certain financial information with respect to our consolidated results of operations for the periods indicated.
In order to facilitate the understanding of
our Consolidated Financial Statements, we have changed the format of the presentation of our income statement. During the forth
quarter of 2016, we aggregate our sales in a single line item titled “Sales of goods and services rendered”. Likewise,
the corresponding cost has also been aggregated and presented as a single line item titled “Cost of goods sold and services
rendered”. The breakdown of sales is now included in Note 4 to the Consolidated Financial Statements. The comparative figures
have been retrospectively changed accordingly.
|
|
|
2016
|
|
|
2015(*)
|
|
|
|
|
(In
thousands of $)
|
|
|
Sales of goods and services rendered
|
|
|
869,235
|
|
|
|
674,314
|
|
|
Cost of goods sold and services rendered
|
|
|
(678,581
|
)
|
|
|
(557,786
|
)
|
|
Initial recognition and Changes in fair value of biological assets and agricultural produce
|
|
|
125,456
|
|
|
|
54,528
|
|
|
Changes in net realizable value of agricultural produce after harvest
|
|
|
(5,841
|
)
|
|
|
14,691
|
|
|
Margin on Manufacturing and Agricultural Activities Before Operating Expenses
|
|
|
310,269
|
|
|
|
185,747
|
|
|
General and administrative expenses
|
|
|
(50,750
|
)
|
|
|
(48,425
|
)
|
|
Selling expenses
|
|
|
(80,673
|
)
|
|
|
(70,268
|
)
|
|
Other operating income, net
|
|
|
(8,297
|
)
|
|
|
31,066
|
|
|
Share of loss of joint ventures
|
|
|
-
|
|
|
|
(2,685
|
)
|
|
Profit from Operations Before Financing and Taxation
|
|
|
170,549
|
|
|
|
95,435
|
|
|
Finance income
|
|
|
7,957
|
|
|
|
9,150
|
|
|
Finance costs
|
|
|
(165,380
|
)
|
|
|
(116,890
|
)
|
|
Financial results, net
|
|
|
(157,423
|
)
|
|
|
(107,740
|
)
|
|
Profit / (Loss) Before Income Tax
|
|
|
13,126
|
|
|
|
(12,305
|
)
|
|
Income tax (Benefit) / Expense
|
|
|
(9,387
|
)
|
|
|
7,954
|
|
|
Profit / (Loss) for the Year
|
|
|
3,739
|
|
|
|
(4,351
|
)
|
(*): Comparative figures have been
adjusted to reflect the adoption of the amendments of IAS 41 and IAS 16 (see Selected financial data Effects of the adoption of
the amendments of IAS 41 and IAS 16 and footnote 21.1 to our Consolidated Financial Statements)
Sales of Goods and Services Rendered
|
|
|
Crops
|
|
|
Rice
|
|
|
Dairy
|
|
|
All
other
segments
|
|
|
Sugar,
Ethanol and
Energy
|
|
|
Total
|
|
|
|
|
(In
thousands of $)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
142,124
|
|
|
|
96,562
|
|
|
|
32,897
|
|
|
|
960
|
|
|
|
596,692
|
|
|
|
869,235
|
|
|
2015
|
|
|
154,741
|
|
|
|
84,668
|
|
|
|
32,981
|
|
|
|
1,302
|
|
|
|
400,622
|
|
|
|
674,314
|
|
Sales of goods and services
rendered increased 28.9%, from $ 674.3 million in 2015 to $ 869.2 million in 2016, primarily as a result of:
|
|
•
|
a $196.1 million increase in our Sugar, Ethanol and Energy segment, mainly due to: (i) a 23.1%
increase in the volume of sugar and ethanol sold, measured in TRS
(1)
, from 1.3 million tons in 2015 to 1.6 million tons
in 2016; (ii) a 23.2% increase in the price of ethanol, from $433.4 per cubic meter in 2015 to $534.1 per cubic meter in 2016;
(iii) a 29.6% increase in the price of sugar, from $297.2 per ton in 2015 to $385.1 per ton in 2016; and (iv) a 66.7% increase
in volume of energy sold, from 0.6 million MWh in 2015 to 1.0 million MWh in 2016; partially offset by a 31.6% decrease in energy
prices, from $76.8 per MWh in 2015 to $52.5 per MWh in 2016. The increase in volume of sugar and ethanol sold was due to the 33.7%
increase in sugarcane milled, from 8.3 million tons in 2015 to 11.1 million tons in 2016; partially offset by (i) a 3.6% decrease
in the TRS content in sugarcane, from 132.0 kilograms per ton in 2015 to 127.3 kilograms per ton in 2016; and (ii) an increase
in inventories in 2016 of 76.1 thousand tons measured in TRS compared to a decrease in inventories in 2015 of 83.6 thousand tons
measured in TRS. The increase in energy sold was due to: (a) an increase in sugarcane milled; (b) the 356.2% increase in energy
sold from third parties, from 63.2 thousand MWh in 2015 to 288.3 thousand Mwh in 2016; and (c) a 1.8% increase in the cogeneration
efficiency, from 66.4 KWh per ton crushed in 2015 to 67.6 KWh per ton crushed in 2016. The increase in sugarcane milled, is explained
by (i) a 30.8% increase in milling days, from 182 days in 2015 to 238 days in 2016, due to the implementation of non-stop harvest
season; and (ii) an increase in sugarcane supply. The increase in sugarcane supply was caused by: (a) a 31.1% increase in the harvested
area from 82.3 thousand hectares in 2015 to 107.9 thousand hectares in 2016 due to our focus on planting during 2015 to expand
our sugarcane plantation and ensure sugarcane supply; (b) a 5.6% increase in sugarcane yields from 93.0 tons per hectare in 2015
to 98.2 tons per hectare in 2016 due to improvements in production practices and good weather; and (c) a 1.2% increase in sugarcane
purchased to third parties, from 938.5 thousand tons in 2015 to 950.0 thousand tons in 2016.
|
The following
figure sets forth the variables that determine our Sugar and Ethanol sales:
|
|
(1)
|
On average, one metric ton of sugarcane contains 140 kilograms of TRS (Total Recoverable Sugar). While a mill can produce either
sugar or ethanol, the TRS input requirements differ between these two products. On average, 1.045 kilograms of TRS equivalent are
required to produce 1.0 kilogram of sugar, while the amount of TRS required to produce 1 liter of ethanol is 1.691 kilograms
|
The following
figure sets forth the variables that determine our Energy sales:
The following
table sets forth the breakdown of sales of manufactured products for the periods indicated.
|
|
|
Period
ended December 31,
|
|
|
Period
ended December 31,
|
|
|
Period
ended December 31,
|
|
|
|
|
2016
|
|
|
2015
|
|
|
Chg
%
|
|
|
2016
|
|
|
2015
|
|
|
Chg
%
|
|
|
2016
|
|
|
2015
|
|
|
Chg
%
|
|
|
|
|
(in million of $)
|
|
|
|
|
|
(in thousand units)
|
|
|
|
|
|
(in dollars per unit)
|
|
|
|
|
|
Ethanol (M3)
|
|
|
211.5
|
|
|
|
176.2
|
|
|
|
20.0
|
%
|
|
|
395.9
|
|
|
|
406.4
|
|
|
|
(2.6
|
%)
|
|
|
534.2
|
|
|
|
433.6
|
|
|
|
23.2
|
%
|
|
Sugar (tons)
|
|
|
330.9
|
|
|
|
177.8
|
|
|
|
86.1
|
%
|
|
|
859.4
|
|
|
|
598.3
|
|
|
|
43.6
|
%
|
|
|
385.0
|
|
|
|
297.2
|
|
|
|
29.5
|
%
|
|
Energy (MWh)
|
|
|
54.0
|
|
|
|
46.7
|
|
|
|
15.6
|
%
|
|
|
1.028.3
|
|
|
|
607.8
|
|
|
|
69.2
|
%
|
|
|
52.5
|
|
|
|
76.8
|
|
|
|
(31.7
|
%)
|
|
Others
|
|
|
0.4
|
|
|
|
-
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
|
|
|
596.8
|
|
|
|
400.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
•
|
A $12.6 million decrease in our Crops segment mainly driven by (i) a 1.5% decrease in soybean prices,
from $265.7 per ton in 2015 to $261.7 per ton in 2016; a 22.4% decrease in wheat prices, from $181.0 per ton in 2015 to $140.4
per ton in 2016; and a 21.1% decrease in sunflower prices, from $492.2 per ton in 2015 to $388.3 per ton in 2016; and (ii) a 14.1%
decrease in the volume of soybean sold, from 283.8 thousand tons in 2015 to 243.8 thousand tons in 2016; and a 27.1% decrease in
the volume of sunflower sold, from 25.8 thousand tons in 2015 to 18.8 thousand tons in 2016. These decreases were partially offset
by: (a) a 10.1% increase in corn prices, from $149.4 per ton in 2015 to $164.6 per ton in 2016; (b) a 5.1% increase in the volume
of corn sold, from 280.4 thousand tons in 2015 to 294.7 thousand tons in 2016; and a 39.7% increase in the volume of wheat sold,
from 92.8 thousand tons in 2015 to 129.6 thousand tons in 2016. The decrease in volume sold was mainly due to: (i) a decrease in
soybean and sunflower yields, from 3.0 tons per hectare in 2015 to 2.7 tons per hectare in 2016 for soybean, and from 1.8 tons
per hectare in 2015 to 1.6 tons per hectare in 2016 for sunflower due to the above average yields achieved in 2015 as a consequence
of the favourable weather conditions; and (b) a decrease in the area destined to soybean that was switched to corn due to better
expected margins and crop rotation. This was partially offset by an inventories sell-off in 2016 in comparison to an inventories
build-up in 2015.
|
The following table sets forth the breakdown
of sales for the periods indicated.
|
|
|
Year
ended December 31,
|
|
|
Year
ended December 31,
|
|
|
Year
ended December 31,
|
|
|
|
|
2016
|
|
|
2015
|
|
|
%
Chg
|
|
|
2016
|
|
|
2015
|
|
|
%
Chg
|
|
|
2016
|
|
|
2015
|
|
|
%
Chg
|
|
|
|
|
(In millions of $)
|
|
|
|
|
|
(In thousands of tons)
|
|
|
|
|
(In $ per ton)
|
|
|
|
|
|
Soybean
|
|
|
63.8
|
|
|
|
75.4
|
|
|
|
(15.4
|
%)
|
|
|
243.8
|
|
|
|
283.8
|
|
|
|
(14.1
|
%)
|
|
|
261.7
|
|
|
|
265.7
|
|
|
|
(1.5
|
%)
|
|
Corn (1)
|
|
|
48.5
|
|
|
|
41.9
|
|
|
|
15.8
|
%
|
|
|
294.7
|
|
|
|
280.4
|
|
|
|
5.1
|
%
|
|
|
164.6
|
|
|
|
149.4
|
|
|
|
10.1
|
%
|
|
Wheat (2)
|
|
|
18.2
|
|
|
|
16.8
|
|
|
|
8.3
|
%
|
|
|
129.6
|
|
|
|
92.8
|
|
|
|
39.7
|
%
|
|
|
140.4
|
|
|
|
181.0
|
|
|
|
(22.4
|
%)
|
|
Sunflower
|
|
|
7.3
|
|
|
|
12.7
|
|
|
|
(42.5
|
%)
|
|
|
18.8
|
|
|
|
25.8
|
|
|
|
(27.1
|
%)
|
|
|
388.3
|
|
|
|
492.2
|
|
|
|
(21.1
|
%)
|
|
Others
|
|
|
4.3
|
|
|
|
7.9
|
|
|
|
(45.6
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
142.1
|
|
|
|
154.7
|
|
|
|
(8.1
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Includes
sorghum, pop corn and peanut.
|
|
|
•
|
a $11.9 million increase in our Rice segment, mainly due to: (i) a 46.7% increase in the volume
of white rice sold measured in tons of rough rice, from 201.4 thousand tons in 2015 to 295.4 thousand tons in 2016; and (ii) a
11.4% increase in the sale of by products from $10.5 million in 2015 to $11.7 million in 2016. This increase is explained by: (a)
a 15.7% increase in yields, from 5.1 tons per hectare in 2015 to 5.9 tons per hectare in 2016; (b) a 5.3% increase in the area
under production from 37.6 thousand hectares to 39.6 thousand hectares; (c) an increase in inventories, measured in tons of rough
rice, of 40.6 thousand tons in 2015 compared to a decrase in inventories of 41.9 thousand tons in 2016. The increase in volumes
sold was partially offset by a decrease of 22.0% in the price of white rice, from $368.1 per ton of rough rice equivalent in 2015
to $287.2 per ton of rough rice equivalent in 2016.
|
|
|
•
|
Our Dairy segment remained essentially unchanged, a 18.2% decrease in fluid milk prices from $0.33
per liter in 2015 to $0.27 per liter in 2016 was offset by (i) a 4.4% increase in the amount of liters of fluid milk sold, from
85.7 million liters in 2015 to 89.5 million liters in 2016; and (ii) a 325.0% increase in the volume of powder milk sold, from
0.4 thousand tons in 2015 to 1.7 thousand tons in 2016. The increase in the amount of liters sold is attributable to (a) a 3.3%
increase in our milking cow herd driven by enhanced reproduction efficiencies at our two free-stall dairy facilities from an average
of 6,658 heads in 2015 to an average of 6,880 heads in 2016; and (b) by a 0.8% increase in cow productivity, from 36.4 liters per
day per cow in 2015 to 36.7 liters per day per cow in 2016 due to operating efficiencies.
|
The profit of our agricultural produce is recognized
under the line ítems “Initial recognition and changes in fair value of biological assets and agricultural produce”
and “Changes in net realizable value of agricultural produce after harvest”. When the agricultural produce is sold
to third parties we do not record any additional profit as the gain or loss had already been recognized.
The profit of our manufactured products is
recognized when they are sold. The cost of manufactured products includes, among others, the cost of agricultural produce transferred
internally at fair market value (i.e. harvested sugarcane, rough rice, fluid milk, etc).
Cost of Goods Sold and Services Rendered
|
|
|
Crops
|
|
|
Rice
|
|
|
Dairy
|
|
|
All
other
segments
|
|
|
Sugar,
Ethanol and
Energy
|
|
|
Total
|
|
|
|
|
(In
thousands of $)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
(141,731
|
)
|
|
|
(83,574
|
)
|
|
|
(32,571
|
)
|
|
|
(212
|
)
|
|
|
(420,493
|
)
|
|
|
(678,581
|
)
|
|
2015
|
|
|
(154,287
|
)
|
|
|
(69,075
|
)
|
|
|
(33,030
|
)
|
|
|
(603
|
)
|
|
|
(300,791
|
)
|
|
|
(557,786
|
)
|
Cost of goods sold and
services rendered increased 21.7%, from $557.8 million in 2015 to $678.6 million in 2016. This increase was primarily due to:
|
|
•
|
a $119.7 million increase in our Sugar, Ethanol and Energy segment mainly due to: (i) the 19.4%
increase in volume of sugar and energy sold measured in TRS; and (ii) a 16.3% increase in the fair market value of the harvested
sugarcane transferred from the field to the industry.
|
|
|
•
|
a $14.5 million increase in our Rice segment mainly due to the 46.7% increase in the volume sold.
This was partially offset by (i) a 18.4% decrease in unitary costs, from $340.6 per ton of rough rice equivalent in 2015 to $ 277.8
per ton of rough rice equivalent in 2016, mainly due to the Argentine Peso depreciation and to operational improvements in our
rice mills.
|
Initial Recognition and Changes in Fair Value of Biological
Assets and Agricultural Produce
|
|
|
Crops
|
|
|
Rice
|
|
|
Dairy
|
|
|
All
other
segments
|
|
|
Sugar,
Ethanol and
Energy
|
|
|
Total
|
|
|
|
|
(In
thousands of $)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
48,790
|
|
|
|
10,498
|
|
|
|
5,476
|
|
|
|
(13
|
)
|
|
|
60,705
|
|
|
|
125,456
|
|
|
2015
|
|
|
11,561
|
|
|
|
2,822
|
|
|
|
7,542
|
|
|
|
(181
|
)
|
|
|
32,784
|
|
|
|
54,528
|
|
Initial recognition and
changes in fair value of biological assets and agricultural produce increased from $54.5 million in 2015 to $125.5 million in 2016,
primarily due to:
|
|
•
|
a $37.2 million increase in our Crops segment mainly
due to:
|
|
|
-
|
a $37.7 million increase in the recognition at fair value
less cost to sell of crops at the point of harvest, from a gain of $10.5 million in 2015 to a gain of $48.2 million in 2016, mainly
due to the increase in margins as a result of the removal of export taxes and the depreciation of the Argentine Peso, which dilutes
our costs in terms of dollars per hectare.
|
|
|
-
|
This was partially offset by, a $0.5 million decrease
in the recognition at fair value less cost to sell for non-harvested crops, from $1.1 million in 2015 to $0.6 million in 2016,
explained by lower projected soybean and corn prices.
|
|
|
-
|
Of the $48.8 million gain of initial recognition and
changes in fair value of biological assets and agricultural produce for 2016, $5.8 million represent the unrealized portion, as
compared to the $2.2 million unrealized gain of the $11.6 million of initial recognition and changes in fair value of biological
assets and agricultural produce in 2015.
|
|
|
•
|
a $27.9 million increase in our Sugar, Ethanol and Energy segment, mainly due to:
|
|
|
-
|
The changes in the recognition at fair value less cost
to sell of sugarcane at the point of harvest increased from $24.5 million in 2015 to $60.4 million in 2016 due to higher sugar
prices which increased the fair market value of the harvested sugarcane.
|
|
|
-
|
This was partially offset by a $8.0 million decrease
in the recognition at fair value less cost to sell of non-harvested sugarcane, from $8.3 million in 2015 to $0.3 million in 2016,
mainly explained by above average expected yields as of December 2015.
|
|
|
-
|
Of the $60.7 million gain of initial recognition and
changes in fair value of biological assets and agricultural produce for 2016, $60.4 million represents the realized portion, as
compared to the $24.5 million unrealized portion of the $32.8 million loss of initial recognition and changes in fair value of
biological assets and agricultural produce in 2016.
|
|
|
•
|
a $7.7 million increase in our Rice segment mainly due to :
|
|
|
-
|
a $7.6 million increase in the recognition at fair value
less cost to sell of the rice at the point of harvest, from $2.6 million in 2015 to $10.2 million in 2016 mainly due to: (i) a
15.7% increase in yields; and (ii) the increase in area under production; and (iii) the depreciation of the Argentine Peso which
impacts our costs.
|
|
|
-
|
Of the $10.5 million gain of initial recognition and
changes in fair value of biological assets and agricultural produce for 2016, $8.2 million gain represents the realized portion,
as compared to the $2.2 million gain realized portion of the $2.8 million gain of initial recognition and changes in fair value
of biological assets and agricultural produce in 2015.
|
|
|
•
|
a $2.1 million decrease in our Dairy segment mainly due to:
|
|
|
-
|
a $3.3 million decrease in the recognition at fair value
less cost to sell of fluid milk, from $7.5 million in 2015 to $4.2 million in 2016, mainly due to the 18.2% decrease in fluid
milk prices.
|
|
|
-
|
Of the $5.5 million gain of initial recognition and changes
in fair value of biological assets and agricultural produce for 2016, $4.2 million gain represents the realized portion of such
gain, as compared to the $7.5 million realized gain portion of the $7.5 million gain in initial recognition and changes in fair
value of biological assets and agricultural produce in 2015.
|
Changes in Net Realizable Value of Agricultural Produce after
Harvest
|
|
|
Crops
|
|
|
Rice
|
|
|
Dairy
|
|
|
All
other
segments
|
|
|
Sugar,
Ethanol and
Energy
|
|
|
Total
|
|
|
|
|
(In
thousands of $)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
(5,841
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(5,841
|
)
|
|
2015
|
|
|
14,691
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
14,691
|
|
Changes in net realizable
value of agricultural produce after harvest is mainly composed by: (i) profit or loss from commodity price fluctuations during
the period of time the agricultural produce is in inventory, which affects its fair value; (ii) profit or loss from the valuation
of forward contracts related to agricultural produce in inventory; and (iii) profit from direct exports. Changes in net realizable
value of agricultural produce after harvest increased from $3.4 million in 2014 to $14.7 million in 2015. This increase is mainly
explained by the steep depreciation of the Argentine Peso in 2015 that impacted positively on the valuation of our inventories
which are recorded in their functional currency, compared to the negative impact of higher soybean prices on our valuation of forward
contracts in 2016.
General and Administrative Expenses
|
|
|
Crops
|
|
|
Rice
|
|
|
Dairy
|
|
|
All
other
segments
|
|
|
Sugar,
Ethanol
and Energy
|
|
|
Corporate
|
|
|
Total
|
|
|
|
|
(In
thousands of $)
|
|
|
2016
|
|
|
(2,770
|
)
|
|
|
(3,373
|
)
|
|
|
(983
|
)
|
|
|
(290
|
)
|
|
|
(22,648
|
)
|
|
|
(20,686
|
)
|
|
|
(50,750
|
)
|
|
2015
|
|
|
(3,987
|
)
|
|
|
(3,136
|
)
|
|
|
(1,451
|
)
|
|
|
(74
|
)
|
|
|
(18,301
|
)
|
|
|
(21,476
|
)
|
|
|
(48,425
|
)
|
Our general and administrative
expenses increased 5.0%, from $48.4 million in 2015 to $50.8 million in 2016, mainly explained by the appreciation of the Brazilean
Real.
Selling Expenses
|
|
|
Crops
|
|
|
Rice
|
|
|
Dairy
|
|
|
All
other
segments
|
|
|
Sugar,
Ethanol
and Energy
|
|
|
Corporate
|
|
|
Total
|
|
|
|
|
(In
thousands of $)
|
|
|
2016
|
|
|
(5,692
|
)
|
|
|
(11,583
|
)
|
|
|
(752
|
)
|
|
|
(49
|
)
|
|
|
(62,518
|
)
|
|
|
(79
|
)
|
|
|
(80,673
|
)
|
|
2015
|
|
|
(5,672
|
)
|
|
|
(12,592
|
)
|
|
|
(663
|
)
|
|
|
(49
|
)
|
|
|
(50,729
|
)
|
|
|
(563
|
)
|
|
|
(70,268
|
)
|
Selling expenses increased
14.8%, from $70.3 million in 2015 to $80.7 million in 2016. The $11.8 million increase in our Sugar, Ethanol and Energy segment
is mainly explained by the increase in sugar and ethanol sales.
Other Operating Income, Net
|
|
|
Crops
|
|
|
Rice
|
|
|
Dairy
|
|
|
All
other
segments
|
|
|
Sugar,
Ethanol and
Energy
|
|
|
Land
Transformation
|
|
|
Corporate
|
|
|
Total
|
|
|
|
|
(In
thousands of $)
|
|
|
2016
|
|
|
(8,787
|
)
|
|
|
402
|
|
|
|
686
|
|
|
|
8,497
|
|
|
|
(8,903
|
)
|
|
|
-
|
|
|
|
(192
|
)
|
|
|
(8,297
|
)
|
|
2015
|
|
|
16,422
|
|
|
|
600
|
|
|
|
(479
|
)
|
|
|
6
|
|
|
|
6,340
|
|
|
|
7,914
|
|
|
|
263
|
|
|
|
31,066
|
|
Other operating income,
net decreased 126.7% from a $31.1 million gain in 2015 to a $8.3 million loss in 2016, primarily due to:
|
|
•
|
a $25.2 million decrease in our Crops segment mainly explained by the mark-to-market effect of
outstanding hedge positions, which was negatively affected by the increase in futures prices during 2016.
|
|
|
•
|
a $7.9 million decrease in our Land Transformation segment due to the sale in 2015 of “La
Cañada”, a 3,399 hectare farm located in the province of San Luis, Argentina, for a total consideration of $12.6 million.
|
|
|
•
|
a $15.2 million decrease in our Sugar, Ethanol & Energy segment mainly explained by the mark-to-market
effect of outstanding hedge positions; which were negatively affected by the increase in sugar futures prices in 2016, in contrast
to positive effect due to the drecrease of the mentioned future prices in 2015
|
This was partially offset by:
|
|
•
|
a
$8.4 million increase in all other segments, that mainly is related to the settlement of an arbitration dispute with Marfrig Argentina
SA, subsidiary of Marfrig Alimentos SA. The settlement compensates Adecoagro for unpaid invoices and provides indemnification
for early termination of lease agreements for cattle grazing activities.
|
Share of Loss of Joint Ventures
|
|
|
Crops
|
|
|
Rice
|
|
|
Dairy
|
|
|
All
other
segments
|
|
|
Sugar,
Ethanol
and
Energy
|
|
|
Land
Transformation
|
|
|
Corporate
|
|
|
Total
|
|
|
|
|
(In
thousands of $)
|
|
|
2016
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
2015
|
|
|
(2,685
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,685
|
)
|
Our share of loss of
Joint Ventures totaled a loss of $2.7 million in 2015 to zero in 2016. The result in 2015 is explained by the 50% interest that
we hold in CHS AGRO, a joint venture with CHS Inc., dedicated to the processing of confectionary sunflower. In 2016, as the share
of losses in the joint venture equals or exceeds the carrying amount of the investment, we discontinue applying the equity method,
the investment is reduced to zero and we no longer record additional losses.
Financial Results, Net
Net financial losses increased
46.1% from a loss of $107.7 million in 2015 to a loss of $157.4 million in 2016. This was due to: (i) the $32.7 million loss that
was reclassified from Equity to the “Financial Result, net” line item in 2015, compared to the $85.2 million loss that
was reclassified in the same period in 2016. Please see “—Hedge Accounting—Cash Flow Hedge” described on
Note 3 to our Consolidated Financial Statements.
The following table sets forth the breakdown of financial results
for the periods indicated.
|
|
|
Year
ended December 31,
|
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
(In
$ thousand)
|
|
|
%
Change
|
|
|
Interest income
|
|
|
7,671
|
|
|
|
8,201
|
|
|
|
-6.5
|
%
|
|
Interest expense
|
|
|
(48,198
|
)
|
|
|
(49,491
|
)
|
|
|
-2.6
|
%
|
|
Foreign exchange losses, net
|
|
|
(19,062
|
)
|
|
|
(23,423
|
)
|
|
|
-18.6
|
%
|
|
Cash flow hedge – transfer from equity
|
|
|
(85,214
|
)
|
|
|
(32,700
|
)
|
|
|
160.6
|
%
|
|
Loss / Gain from interest rate /foreign exchange rate derivative financial instruments
|
|
|
(5,694
|
)
|
|
|
(4,437
|
)
|
|
|
28.3
|
%
|
|
Taxes
|
|
|
(2,719
|
)
|
|
|
(3,358
|
)
|
|
|
-19.0
|
%
|
|
Other Income/(Expenses)
|
|
|
(4,208
|
)
|
|
|
(2,532
|
)
|
|
|
66.2
|
%
|
|
Total Financial Results
|
|
|
(157,424
|
)
|
|
|
(107,740
|
)
|
|
|
46.1
|
%
|
Income Tax (expense) / benefit
For the year ended December
31, 2016, we recognized a consolidated income tax expense of $9.4 million on gain before income taxes of $13.1 million. For the
comparable 2015 period, we recognized a consolidated income tax benefit of $8.0 million on loss before income taxes of $12.3 million.
The effective tax rates were 71.5% for the year ended December 31, 2016 due to nondeductible expenses, mainly related to losses
from derivatives in Uruguay and some financial expenses in Brazil. For the year 2015 the effective benefit rate was higher than
the theoretical income tax rate due to the non taxable gains of derivative financial instruments of approximately $17 million in
Uruguay.
Profit / (Loss) for
the Year
As a result of the foregoing,
our net result for the year increased from a loss of $4.3 million in 2015 to a gain of $3.7 million in 2016.
Year ended December 31, 2015 as compared
to year ended December 31, 2014
The following table sets
forth certain financial information with respect to our consolidated results of operations for the periods indicated.
|
|
|
2015
(*)
|
|
|
2014
(*)
|
|
|
|
|
(In
thousands of $)
|
|
|
Sales of goods and services rendered
|
|
|
674,314
|
|
|
|
722,966
|
|
|
Cost of goods sold and services rendered
|
|
|
(557,786
|
)
|
|
|
(605,325
|
)
|
|
Initial recognition and Changes in fair value of biological assets and agricultural produce
|
|
|
54,528
|
|
|
|
100,216
|
|
|
Changes in net realizable value of agricultural produce after harvest
|
|
|
14,691
|
|
|
|
3,401
|
|
|
Margin on Manufacturing and Agricultural Activities Before Operating Expenses
|
|
|
185,747
|
|
|
|
221,258
|
|
|
General and administrative expenses
|
|
|
(48,425
|
)
|
|
|
(52,695
|
)
|
|
Selling expenses
|
|
|
(70,268
|
)
|
|
|
(78,864
|
)
|
|
Other operating income, net
|
|
|
31,066
|
|
|
|
11,977
|
|
|
Share of loss of joint ventures
|
|
|
(2,685
|
)
|
|
|
(924
|
)
|
|
Profit from Operations Before Financing and Taxation
|
|
|
95,435
|
|
|
|
100,752
|
|
|
Finance income
|
|
|
9,150
|
|
|
|
7,291
|
|
|
Finance costs
|
|
|
(116,890
|
)
|
|
|
(86,472
|
)
|
|
Financial results, net
|
|
|
(107,740
|
)
|
|
|
(79,181
|
)
|
|
(Loss) / Profit Before Income Tax
|
|
|
(12,305
|
)
|
|
|
21,571
|
|
|
Income tax Expense / (Benefit)
|
|
|
7,954
|
|
|
|
(10,535
|
)
|
|
(Loss) / Profit for the Year
|
|
|
(4,351
|
)
|
|
|
11,036
|
|
(*): Comparative figures have been
revised to reflect the adoption of the amendments of IAS 41 and IAS 16 (see Selected financial data Effects of the adoption of
the amendments of IAS 41 and IAS 16).
Sales of Goods and Services Rendered
|
|
|
Crops
|
|
|
Rice
|
|
|
Dairy
|
|
|
All
other
segments
|
|
|
Sugar,
Ethanol
and Energy
|
|
|
Total
|
|
|
|
|
(In
thousands of $)
|
|
|
2015
|
|
|
154,741
|
|
|
|
84,668
|
|
|
|
32,981
|
|
|
|
1,302
|
|
|
|
400,622
|
|
|
|
674,314
|
|
|
2014
|
|
|
177,662
|
|
|
|
103,682
|
|
|
|
32,968
|
|
|
|
1,525
|
|
|
|
407,129
|
|
|
|
722,966
|
|
Sales of goods and services
rendered decreased 6.7%, from $723.0 million in 2014 to $674.3 million in 2015, primarily as a result of:
|
|
•
|
A $22.9 million decrease in our Crops segment mainly driven by (i) a general decrease in the price
of grains sold: soybean decreased 24.7%, from $352.8 per ton in 2014 to $265.5 per ton in 2015, corn decreased 20.0%, from $186.8
per ton in 2014 to $149.5 per ton in 2015, and wheat decreased 17.2%, from $218.0 per ton in 2014 to $180.4 per ton in 2015; (ii)
a 24.9% decrease in the volume of corn sold, from 373.3 thousand tons in 2014 to 280.4 thousand tons in 2015, as a result of a
3.4% decrease in corn yields, from 5.9 in 2014 to 5.7 in 2015; and (iii) a decrease in the planting area for corn that was switched
to soybean due to better expected margins. These decreases were partially offset by (a) a 18.5% increase in soybean volume sold
due to higher soybean yields, from 2.7 tons per hectare in 2014 to 3.2 in 2015, for soybean first crop and from 1.7 in 2014 to
2.5 in 2015 for soybean second crop; and (b) an increase in the volume of wheat sold, from 40.5 tons in 2014 to 92.8 in 2015, as
a result of higher stocks carried from previous periods.
|
The following table sets forth the breakdown of sales for the periods
indicated.
|
|
|
Period
ended December 31,
|
|
|
Period
ended December 31,
|
|
|
Period
ended December 31,
|
|
|
|
|
2015
|
|
|
2014
|
|
|
%
Chg
|
|
|
2015
|
|
|
2014
|
|
|
%
Chg
|
|
|
2015
|
|
|
2014
|
|
|
%
Chg
|
|
|
|
|
(In millions of $)
|
|
|
|
|
|
(In thousands of tons)
|
|
|
|
|
|
(In $ per ton)
|
|
|
|
|
|
Soybean
|
|
|
75.4
|
|
|
|
79.5
|
|
|
|
(5.2
|
%)
|
|
|
283.8
|
|
|
|
225.4
|
|
|
|
25.9
|
%
|
|
|
265.7
|
|
|
|
352.7
|
|
|
|
(24.7
|
%)
|
|
Corn (1)
|
|
|
41.9
|
|
|
|
69.7
|
|
|
|
(39.9
|
%)
|
|
|
280.4
|
|
|
|
373.3
|
|
|
|
(24.9
|
%)
|
|
|
149.4
|
|
|
|
186.7
|
|
|
|
(20.0
|
%)
|
|
Wheat (2)
|
|
|
12.7
|
|
|
|
8.8
|
|
|
|
44.3
|
%
|
|
|
92.8
|
|
|
|
40.5
|
|
|
|
129.1
|
%
|
|
|
136.9
|
|
|
|
217.3
|
|
|
|
(37.0
|
%)
|
|
Sunflower
|
|
|
7.9
|
|
|
|
10.0
|
|
|
|
(21.0
|
%)
|
|
|
25.8
|
|
|
|
24.0
|
|
|
|
7.5
|
%
|
|
|
306.2
|
|
|
|
416.7
|
|
|
|
(26.5
|
%)
|
|
Others
|
|
|
16.8
|
|
|
|
9.7
|
|
|
|
73.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
154.7
|
|
|
|
177.7
|
|
|
|
(12.9
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Includes sorghum, popcorn
and peanut.
(2) Includes barley
|
|
•
|
a $19.0 million decrease in our Rice segment, mainly due to: (i) a 9.7% decrease in the price per
ton of rough rice equivalent, from $358.2 in 2014 to $323.6 in 2015; and (ii) a 25.0% decrease in the volume of white rice sold
measured in tons of rough rice, from 236.1 thousand tons in 2014 to 177.1 thousand tons in 2015, mainly explained by: (a) a decrease
of 13.6% in yields from 5.9 tons per hectare in 2014 to 5.1 tons per hectare in 2015; (b) a 5.8% decrease in purchases of rough
rice to third parties, from 41.6 tons in 2014 to 39.2 tons in 2015 due to the decrease in the margin of processing rough rice from
third parties; and (c) a higher inventory build-up from 10.2 thousand tons of rough rice in 2014 compared to 35.9 thousand tons
of rough rice in 2015. This was partially offset by a 6.3% increase in area, from 35.3 thousand hectares in 2014 to 37.6 thousand
hectares in 2015.
|
|
|
•
|
a $6.5 million decrease in our Sugar, Ethanol and Energy segment, mainly due to: (i) a 20.0% decrease
in sugar prices from $371.3 per ton in 2014 to $297.2 per ton in 2015; (ii) a reduction in ethanol prices of 22.9%, from $562.0
per cubic meter in 2014 to $433.4 per cubic meter in 2015; and (iii) a 49.1% decrease in energy prices from $150.9 per MWh in 2014
to $76.8 in 2015. The decrease in ethanol and energy prices was mainly caused by the depreciation of the Brazilean Real. The fall
in prices was partially offset by: (i) a 32.6% increase in the volume of sugar and ethanol sold, measured in TRS
(1)
,
from 990.1 thousand tons in 2014 to 1,312.5 thousand tons in 2015; and (ii) a 37.3% increase in volume of energy sold, from 442.7
thousand MWh in 2014 to 607.8 thousand MWh in 2015. The increase in volume of sugar and ethanol sold was due to (a) a 15.3% increase
in sugarcane milled, from 7.2 million tons in 2014 to 8.3 million tons in 2015; (b) a 1.1% increase in the TRS content
in sugarcane, from 130.5 kilograms per ton in 2014 to 132.0 kilograms per ton in 2015; and (c) a higher inventory decreased, measured
in TRS, from 14.8 thousand tons in 2014 compared to 68.0 thousand tons in 2015. The increase in the volume of energy sold was mainly
due to (a) the increase in sugarcane milled; and (b) an increase in the cogeneration efficiency ratio measured in KWh per ton of
sugarcane crushed, from 61.6 in 2014 to 66.4 in 2015. The increase in the sugarcane milled is due to: (i) the increase in daily
milling resulting from the completion of Ivinhema mill in May 2015; (ii) a 15.1% increase in sugarcane yields from 80.8 tons per
hectare in 2014 to 93.0 tons per hectare in 2015; (iii) a 15.2% increase in sugarcane purchased to third parties, from 814.6 thousand
tons in 2014 to 938.5 thousand tons in 2015; and (iv) the expansion of our sugarcane plantation, which allowed a higher harvested
area, from 124.4 thousand hectares in 2014 to 129.3 hectares in 2015.
|
The following
table sets forth the breakdown of sales of manufactured products for the periods indicated.
|
|
|
Period
Ended December 31,
|
|
|
Period
Ended December 31,
|
|
|
Period
Ended December 31,
|
|
|
|
|
2015
|
|
|
2014
|
|
|
Chg
%
|
|
|
2015
|
|
|
2014
|
|
|
Chg
%
|
|
|
2015
|
|
|
2014
|
|
|
Chg
%
|
|
|
|
|
(in million of $)
|
|
|
|
|
|
(in thousand units)
|
|
|
|
|
|
(in dollars per unit)
|
|
|
|
|
|
Ethanol (M3)
|
|
|
176.2
|
|
|
|
165.9
|
|
|
|
6.2
|
%
|
|
|
406.4
|
|
|
|
295.1
|
|
|
|
37.7
|
%
|
|
|
433.5
|
|
|
|
562.1
|
|
|
|
(22.9
|
%)
|
|
Sugar (tons)
|
|
|
177.8
|
|
|
|
174.5
|
|
|
|
1.9
|
%
|
|
|
598.3
|
|
|
|
469.9
|
|
|
|
27.3
|
%
|
|
|
297.2
|
|
|
|
371.4
|
|
|
|
(20.0
|
%)
|
|
Energy (MWh)
|
|
|
46.6
|
|
|
|
66.8
|
|
|
|
(30.2
|
%)
|
|
|
607.8
|
|
|
|
442.7
|
|
|
|
37.3
|
%
|
|
|
76.7
|
|
|
|
150.9
|
|
|
|
(49.2
|
%)
|
|
TOTAL
|
|
|
400.6
|
|
|
|
407.2
|
|
|
|
(1.6
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
•
|
Our Dairy segment remained essentially unchanged, mainly due to: (i) a 38.3% decrease in the volume
of powder milk sold, from 770.5 tons in 2014 to 475.5 tons in 2015; (ii) a 21.1% decrease in powder milk prices, from $3.8 thousand
per ton in 2014 to $3.0 thousand per ton in 2015; and (iii) a 13.2% decrease in fluid milk prices, from $0.38 per liter in 2014
to $0.33 per liter in 2015. These decreases were offset by a 18.4% increase in the amount of liters of fluid milk sold, from 72.8
million liters in 2014 to 86.2 million liters in 2015 as a result of: (i) a 3.4% increase in our milking cow herd, from an average
of 6,440 heads in 2014 to an average of 6,658 heads in 2015, driven by enhanced reproductive indicators at our two free-stall dairy
facilities; and (ii) a 7.7% increase in cow productivity, from 33.8 liters per day per cow in 2014 to 36.4 liters per day per cow
in 2015 due to enhanced operating efficiencies.
|
The profit of our agricultural produce is recognized
under the line ítems “Initial recognition and changes in fair value of biological assets and agricultural produce”
and “Changes in net realizable value of agricultural produce after harvest”. When the agricultural produce is sold
to third parties, we do not record any additional profit as the gain or loss had already been recognized.
The profit of our manufactured products is
recognized when they are sold. The cost of manufactured products includes, among others, the cost of agricultural produce transferred
internally at fair market value (i.e. harvested sugarcane, rough rice, fluid milk, etc).
Cost of Goods Sold and Services Rendered
|
|
|
Crops
|
|
|
Rice
|
|
|
Dairy
|
|
|
All
other
segments
|
|
|
Sugar,
Ethanol
and Energy
|
|
|
Total
|
|
|
|
|
(In
thousands of $)
|
|
|
2015
|
|
|
(154,287
|
)
|
|
|
(69,075
|
)
|
|
|
(33,030
|
)
|
|
|
(603
|
)
|
|
|
(300,791
|
)
|
|
|
(557,786
|
)
|
|
2014
|
|
|
(177,473
|
)
|
|
|
(84,199
|
)
|
|
|
(33,034
|
)
|
|
|
(842
|
)
|
|
|
(309,777
|
)
|
|
|
(605,325
|
)
|
Cost of goods sold and
services rendered decreased 7.8%, from $605.3 million in 2014 to $557.8 million in 2015. This decrease was primarily due to:
|
|
•
|
a $15.1 million decrease in our Rice segment mainly due to: (i) the decrease of 25.0% in the volume
sold partially offset by an 11.7% increase in our unitary cost from $346.8 per ton of rough rice in 2014 to $387.5 per ton of rough
rice in 2015 due to the appreciation in real terms of the Argentine Peso; during the year the steep depreciation of the Argentine
Peso occurred in December 2015.
|
|
|
•
|
a $9.0 million decrease in our Sugar and Ethanol segment due to a lower unitary cost of product
sold due to a 46.6% depreciation of the Brazilean Real during 2015.
|
Initial Recognition and Changes in Fair
Value of Biological Assets and Agricultural Produce
|
|
|
Crops
|
|
|
Rice
|
|
|
Dairy
|
|
|
All
other
segments
|
|
|
Sugar,
Ethanol
and Energy
|
|
|
Total
|
|
|
|
|
(In
thousands of $)
|
|
|
2015
|
|
|
11,561
|
|
|
|
2,822
|
|
|
|
7,542
|
|
|
|
(181
|
)
|
|
|
32,784
|
|
|
|
54,528
|
|
|
2014
|
|
|
40,267
|
|
|
|
8,559
|
|
|
|
9,891
|
|
|
|
(10
|
)
|
|
|
41,509
|
|
|
|
100,216
|
|
Initial recognition and
changes in fair value of biological assets and agricultural produce decreased from $100.2 million in 2014 to $54.5 million in 2015,
primarily due to:
|
|
•
|
a $28.7 million decrease in our Crops segment mainly
due to:
|
|
|
-
|
a $30.7 million decrease in the recognition at fair value
less cost to sell of crops at the point of harvest, from a gain of $41.2 million in 2014 to a gain of $10.5 million in 2015, mainly
due to the decrease in commodity prices.
|
|
|
-
|
a $2.0 million increase in the recognition at fair value
less cost to sell for non-harvested crops, from a loss of $0.9 million in 2014 to a gain of $1.1 million in 2015, explained by:
(i) higher projected corn yields as of December due to favourable weather forecast; (ii) and lower costs due to the operating
efficiencies gained coupled with the depreciation of the Argentine Peso.
|
|
|
-
|
Of the $11.6 million gain of initial recognition and
changes in fair value of biological assets and agricultural produce for 2015, $2.2 million represents the unrealized portion,
as compared to the $2.8 million unrealized gain of the $40.3 million of initial recognition and changes in fair value of biological
assets and agricultural produce in 2014.
|
|
|
•
|
a $8.7 million decrease in our Sugar, Ethanol and Energy segment, mainly due to:
|
|
|
-
|
a $2.4 million decrease in the recognition at fair value
less cost to sell of non-harvested sugarcane, from $10.7 million in 2014 to $8.3 million in 2015, mainly generated by a decrease
in projected prices for harvested sugarcane as of December 2015.
|
|
|
-
|
a $6.4 million decrease in the recognition at fair value
less cost to sell of sugarcane at the point of harvest, from $30.9 million in 2014 to $24.5 million in 2015, mainly generated
by a decrease in sugar prices.
|
|
|
-
|
Of the $32,8 million gain of initial recognition and
changes in fair value of biological assets and agricultural produce for 2015, $8.3 million represent the unrealized portion, as
compared to the $10.7 million unrealized portion of the $41.5 million of initial recognition and changes in fair value of biological
assets and agricultural produce in 2014.
|
|
|
•
|
a $5.7 million decrease in our Rice segment mainly due to :
|
|
|
-
|
a $9.5 million decrease in the recognition at fair value
less cost to sell of rice at the point of harvest, from a gain of $12.2 million in 2014 to a gain of $2.7 million in 2015 mainly
due to; (i) the 14.6% decrease in yields; and (ii) the higher costs in 2015 due to the strengthening of local currency; partially
offset by the increase in area under production.
|
|
|
-
|
a $3.7 million increase in the recognition at fair value
less cost to sell of biological assets planted as of December 2015, from a loss of $3.5 million to a gain of $0.2 million in 2015
due to the lower projected costs due to the depreciation of the Argentine peso.
|
|
|
-
|
Of the $2.8 million gain of initial recognition and changes
in fair value of biological assets and agricultural produce for 2015, $2.2 million gain represents the realized portion, as compared
to the $10.9 million gain realized portion of the $8.6 million gain of initial recognition and changes in fair value of biological
assets and agricultural produce in 2014.
|
|
|
•
|
a $2.3 million decrease in our Dairy segment mainly due to:
|
|
|
-
|
a $1.3 million decrease in the recognition at fair value
less cost to sell of fluid milk, from a gain of $8.8 million in 2014 to a gain of $7.5 million in 2015, mainly due to the 13.2%
decrease in fluid milk prices.
|
|
|
-
|
Of the $7.5 million gain of initial recognition and changes
in fair value of biological assets and agricultural produce for 2015, $7.5 million gain represents the realized portion of such
gain, as compared to the $8.8 million realized gain portion of the $9.9 million gain in initial recognition and changes in fair
value of biological assets and agricultural produce in 2014.
|
Changes in Net Realizable Value of Agricultural Produce after
Harvest
|
|
|
Crops
|
|
|
Rice
|
|
|
Dairy
|
|
|
All
other
segments
|
|
|
Sugar,
Ethanol
and Energy
|
|
|
Total
|
|
|
|
|
(In
thousands of $)
|
|
|
2015
|
|
|
14,691
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
14,691
|
|
|
2014
|
|
|
3,401
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,401
|
|
Changes in net realizable
value of agricultural produce after harvest is mainly composed of: (i) profit or loss from commodity price fluctuations during
the period of time the agricultural produce is in inventory, which affects its fair value; (ii) profit or loss from the valuation
of forward contracts related to agricultural produce in inventory; and (iii) profit from direct exports. Changes in net realizable
value of agricultural produce after harvest increased from $3.4 million in 2014 to $14.7 million in 2015. This increase is mainly
explained by the steep depreciation of the Argentine Peso in 2015 that impacted positively the valuation of our inventories which
are recorded in their functional currency.
General and Administrative Expenses
|
|
|
Crops
|
|
|
Rice
|
|
|
Dairy
|
|
|
All
other
segments
|
|
|
Sugar,
Ethanol
and Energy
|
|
|
Corporate
|
|
|
Total
|
|
|
|
|
(In
thousands of $)
|
|
|
2015
|
|
|
(3,987
|
)
|
|
|
(3,136
|
)
|
|
|
(1,451
|
)
|
|
|
(74
|
)
|
|
|
(18,301
|
)
|
|
|
(21,476
|
)
|
|
|
(48,425
|
)
|
|
2014
|
|
|
(4,343
|
)
|
|
|
(3,218
|
)
|
|
|
(1,554
|
)
|
|
|
(166
|
)
|
|
|
(22,054
|
)
|
|
|
(21,360
|
)
|
|
|
(52,695
|
)
|
Our general and administrative
expenses decreased 8.2%, from $52.7 million in 2015 to $48.4 million in 2016, mainly explained by the depreciation of the Brazilean
Real.
Selling Expenses
|
|
|
Crops
|
|
|
Rice
|
|
|
Dairy
|
|
|
All
other
segments
|
|
|
Sugar,
Ethanol
and Energy
|
|
|
Corporate
|
|
|
Total
|
|
|
|
|
(In
thousands of $)
|
|
|
2015
|
|
|
(5,672
|
)
|
|
|
(12,592
|
)
|
|
|
(663
|
)
|
|
|
(49
|
)
|
|
|
(50,729
|
)
|
|
|
(563
|
)
|
|
|
(70,268
|
)
|
|
2014
|
|
|
(4,201
|
)
|
|
|
(14,367
|
)
|
|
|
(596
|
)
|
|
|
(29
|
)
|
|
|
(57,815
|
)
|
|
|
(1,856
|
)
|
|
|
(78.864
|
)
|
Selling expenses decreased
10.9%, from $78.9 million in 2014 to $70.3 million in 2015. The $7.1 million decrease in our Sugar, Ethanol and Energy segment
is mainly explained by the impact of the depreciation of the Brazilean Real in our freight expenses. The $1.8 million decrease
in our Rice segment is explained by lower volumes of white rice sold.
Other Operating Income, Net
|
|
|
Crops
|
|
|
Rice
|
|
|
Dairy
|
|
|
All
other
segments
|
|
|
Sugar,
Ethanol
and Energy
|
|
|
Land
Transformation
|
|
|
Corporate
|
|
|
Total
|
|
|
|
|
(In
thousands of $)
|
|
|
2015
|
|
|
16,422
|
|
|
|
600
|
|
|
|
(479
|
)
|
|
|
6
|
|
|
|
6,340
|
|
|
|
7,914
|
|
|
|
263
|
|
|
|
31,066
|
|
|
2014
|
|
|
356
|
|
|
|
480
|
|
|
|
437
|
|
|
|
(190
|
)
|
|
|
10,911
|
|
|
|
-
|
|
|
|
(17
|
)
|
|
|
11,977
|
|
Other operating income,
net increased 159.2% from $12.0 million gain in 2014 to $31.1 million in 2015, primarily due to:
|
|
•
|
a $16.0 million increase in our Crops segment mainly explained by the mark-to-market effect of
outstanding hedge positions.
|
|
|
•
|
a $7.9 million increase in our Land Transformation segment due to the sale in of “La Cañada”,
a 3,399 hectare farm located in the province of San Luis, Argentina, for a total consideration of $12.6 million.
|
|
|
•
|
a $4.6 million decrease in our Sugar, Ethanol & Energy segment mainly explained by the mark-to-market
effect of outstanding hedge positions; which were negatively affected by a trend of rising prices starting in the fourth quarter
of 2015, which was lower than the increase in 2014.
|
Share of Loss of Joint Ventures
|
|
|
Crops
|
|
|
Rice
|
|
|
Dairy
|
|
|
All
other
segments
|
|
|
Sugar,
Ethanol
and Energy
|
|
|
Land
Transformation
|
|
|
Corporate
|
|
|
Total
|
|
|
|
|
(In
thousands of $)
|
|
|
2015
|
|
|
(2,685
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,685
|
)
|
|
2014
|
|
|
(924
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(924
|
)
|
Our share of loss of Joint Ventures increased
from a loss of $0.9 million in 2014 to a $2.7 million loss in 2015. This loss in mainly explained by the nominal depreciation of
the Argentine Peso that impacts on the value of CHS AGRO´s dollar denominated debt.
Financial Results, Net
Our financial results,
net decreased from a loss of $79.2 million in 2014 to a loss of $107.7 million in 2015, primarily due to: (i) a $23.4 million mainly
non-cash loss in 2015, compared to a $9.2 million non-cash loss in 2014, mostly generated by the impact of the Brazilean Real fluctuation
on our dollar denominated debt. Additionally, during the period a $32.7 million loss was reclassified from Equity to the “Financial
Result, net” line item in 2015, in comparison with the $12.0 million loss that was reclassified in 2014. Please see “—Hedge
Accounting—Cash Flow Hedge” described on Note 3 to our Consolidated Financial Statements; and (ii) $4.4 million loss
in 2015 compared to a $3.2 million loss in 2014, primarily resulting from the mark to market of our currency hedge derivatives.
The loss was partially offset by lower interest expenses, from a loss of $54.9 million in 2014 to $49.5 million in 2015.
The following table sets
forth the breakdown of financial results for the periods indicated.
|
|
|
Year
ended December 31, 2015
|
|
|
|
|
2015
|
|
|
2014
|
|
|
|
|
|
|
|
(In
$ thousand)
|
|
|
%
Change
|
|
|
Interest income
|
|
|
8,201
|
|
|
|
7,068
|
|
|
|
16.0
|
%
|
|
Interest expense
|
|
|
(49,491
|
)
|
|
|
(54,915
|
)
|
|
|
-9.9
|
%
|
|
Foreign exchange losses, net
|
|
|
(23,423
|
)
|
|
|
(9,246
|
)
|
|
|
153.3
|
%
|
|
Cash flow hedge – transfer from equity
|
|
|
(32,700
|
)
|
|
|
(12,031
|
)
|
|
|
171.8
|
%
|
|
Loss from interest rate /foreign exchange rate derivative financial instruments
|
|
|
(4,437
|
)
|
|
|
(3,232
|
)
|
|
|
37.3
|
%
|
|
Taxes
|
|
|
(3,358
|
)
|
|
|
(3,731
|
)
|
|
|
-10.0
|
%
|
|
Other Income/(Expenses)
|
|
|
(2,532
|
)
|
|
|
(3,094
|
)
|
|
|
-18.2
|
%
|
|
Total Financial Results
|
|
|
(107,740
|
)
|
|
|
(79,181
|
)
|
|
|
36.1
|
%
|
Income Tax (expense) / benefit
For the year ended December
31, 2015, we recognized a consolidated income tax benefit of $8.0 million on loss before income taxes of $12.3 million. For the
comparative 2014 year, we recognized a consolidated income tax expense of $10.5 million on gain before income taxes of $21.6 million.
The effective tax rates were 64.6% and 48.8% for the years ended December 31, 2015 and 2014 respectively. For the year 2015 the
effective benefit rate was higher than the theoretical income tax rate due to the non taxable gains of derivative financial instruments
of approximately $17 million in Uruguay. The 2014 year was impacted mainly by a tax loss carryforward not recognized in Brazil
during 2014 due to projections by the Company about the possibility to apply this tax loss carryforward in the future.
Profit / (Loss) for
the Year
As a result of the foregoing,
our net result for the year decreased from a gain of $11.0 million in 2014 to a loss of $4.4 million in 2015.
|
|
B.
|
LIQUIDITY AND CAPITAL RESOURCES
|
Our liquidity and capital
resources are and will be influenced by a variety of factors, including:
|
|
•
|
our ability to generate cash flows from our operations;
|
|
|
•
|
the level of our outstanding indebtedness and the interest that we are obligated to pay on such
outstanding indebtedness;
|
|
|
•
|
our capital expenditure requirements, which consist primarily of investments in new farmland, in
our operations, in equipment and plant facilities and maintenance costs; and
|
|
|
•
|
our working capital requirements.
|
Our principal sources
of liquidity have traditionally consisted of shareholders’ contributions, short and long term borrowings and proceeds received
from the disposition of transformed farmland or subsidiaries.
We believe that our working
capital will be sufficient during the next 12 months to meet our liquidity requirements.
Years ended December 31, 2016, 2015 and 2014
The table below reflects
our statements of Cash Flow for the fiscal years ended December 31, 2016, 2015 and 2014.
|
|
|
Year
ended December 31,
|
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
|
(in thousands
of $)
|
|
|
Cash and cash equivalents at the beginning of the year
|
|
|
198,894
|
|
|
|
113,795
|
(*)
|
|
|
232,147
|
(*)
|
|
Cash and cash equivalents at the end of the year
|
|
|
158,568
|
|
|
|
198,894
|
(*)
|
|
|
113,795
|
(*)
|
|
Net cash generated from operating activities
|
|
|
255,401
|
|
|
|
145,186
|
(*)
|
|
|
120,151
|
(*)
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
7,969
|
|
|
|
(27,449
|
)
|
|
|
(11,320
|
)
|
|
Net cash used in investing activities
|
|
|
(122,014
|
)
|
|
|
(125,051
|
)
|
|
|
(300,472
|
)
|
|
Net cash used / generated from financing activities
|
|
|
(181,682
|
)
|
|
|
92,413
|
|
|
|
73,289
|
|
(*) Comparative figures have been
revised to reflect the adoption of the amendments of IAS 41 and IAS 16 (see Selected financial data Effects of the adoption of
the amendments of IAS 41 and IAS 16).
Operating Activities
Year ended December 31, 2016
Net cash generated by
operating activities was $255.4 million for the year ended December 31, 2016. During this year, we generated a net income of $3.7
million that included non-cash charges relating primarily to depreciation and amortization of $127.5 million, interest and other
financial expenses, net of $44.7 million, $21.7 million loss from derivative financial instruments and forwards, $9.8 million gain
from the unrealized portion of “Initial recognition and changes in fair value of biological assets”, $19.1 million
foreign exchanges losses, and $85.2 million loss as a result of the reclassification from Equity to Financial Results, net in connection
with the cash flow hedge accounting.
In addition, other changes
in operating asset and liability balances resulted in a net decrease in cash of $51.5 million, primarily due to an increase in
trade and other receivables, an increase in inventories totaling $22.3 million, an increase in biological asset of $23.7 million,
and an increase of $17.9 million from derivative financial instruments. These effects were partially offset by an increase of $39.1
million in trade and other payables.
Year ended December 31, 2015
Net cash generated by
operating activities was $145.2 million for the year ended December 31,2015. During this year, we generated a net loss of $4.4
million that included non-cash charges relating primarily to depreciation and amortization of $104.4 million, interest and other
financial expenses, net of $43.8 million, $17.7 million of Gain from derivative financial instruments and forwards, $11.3 million
gain from the unrealized portion of “Initial recognition and changes in fair value of biological assets”, $23.4 million
of foreign exchange losses; and $32.7 million loss as a result of the reclassification from Equity to Financial Results, net in
connection with the cash flow hedge accounting.
In summary, the main drivers
for the cash flow generated by operating activities were the profits from operations of our Sugar, Ethanol business and the collections
from derivative positions.
Year ended December 31, 2014
Net cash generated by
operating activities was $120.2 million for the year ended December 31, 2014. During this year, we generated a net income of $11.0
million that included non-cash charges relating primarily to depreciation and amortization of $137.7 million, interest and other
financial expenses, net of $50.9 million, a gain of $12.6 million from the unrealized portion of the “Initial recognition
and changes in fair value of biological assets and agricultural produce”, $10.5 million of income tax expense, $9.2 million
of foreign exchange losses; and $12.0 million loss as a result of the reclassification from Equity to Financial Results, net in
connection with the adoption of cash flow hedge accounting under IAS39.
In addition, other changes
in operating asset and liability balances resulted in a net decrease in cash of $94.7 million, primarily due to an increase in
trade and other receivables (due to the buildup of working capital related to the expansion of Sugar and Ethanol operations, mainly
advances to suppliers and long term tax credits related to the construction of the Ivinhema mill), an increase in ethanol inventories
(as a consequence of the decision to capture better prices) totaling $34.8 million, and an increase in biological assets totaling
$38.2 million. These effects were partially offset by an increase of $17.1 million in liabilities.
Investing Activities
Year ended December 31, 2016
Net cash used in investing
activities totaled $122.0 million in the year ended December 31, 2016, primarily due to $74.2 million related to the renewal and
expansion of our sugarcane plantation; $58.3 million related to purchase of agricultural and industrial equipment. Net inflows
from investments activities were related to interest income of $7.7 million.
Year ended December 31, 2015
Net cash used in investing
activities totaled $125.1 million in the year ended December 31, 2015, primarily due to the purchases of property, plant and equipment
(mainly acquisitions of machinery, buildings and facilities for the completion of the second phase of Ivinhema mill), totaling
$97.7 million; $44.1 million in bearer plants related mainly to the expansion and replacement of our sugarcane plantation area
in Mato Grosso do Sul. Net inflows from investing activities were mainly related to the sale of La Cañada farm for an amount
of $12.6 million and to the interest income for an amount of $8.2 million.
Year ended December 31, 2014
Net cash used in investing
activities totaled $300.5 million in the year ended December 31, 2014, primarily due to the purchases of property, plant and equipment
(mainly acquisitions of machinery, buildings and facilities for the construction of the second phase of Ivinhema mill), totaling
$207.7 million; $98.0 million in bearer plants related mainly to the expansion of our sugarcane plantation area in Mato Grosso
do Sul. Net inflows from investing activities were related to interest income of $7.1 million.
Financing Activities
Year ended December 31, 2016
Net cash used in financing
activities was $181.7 million in the year ended December 31, 2016, primarily derived from net payment of borrowings in the amounts
of $125.2 million. During this period, interest paid totaled $48.4 million and purchases of own shares totaled $4.8 million.
Year ended December 31, 2015
Net cash provided by financing
activities was $92.4 million in the year ended December 31, 2015 primarily derived from the incurrence of new long and short term
loans, mainly for our Brazilian operations related to the Sugar and Ethanol cluster development of $299.3 million and $211.0 million,
respectively; and from the sale of non-controlling interest in subsidiaries for $22 million. All these effects were partially offset
by payments of long and short term borrowings for $165.5 million and $208.3 million, respectively. During this period, interest
paid totaled $48.4 million.
Year ended December 31, 2014
Net cash provided by financing
activities was $73.3 million in the year ended December 31, 2014 primarily derived from the incurrence of new long and short term
loans, mainly for our Brazilian operations related to the Sugar and Ethanol cluster development of $180.0 million and $152.2 million,
respectively; and from the sale of non-controlling interest in subsidiaries for $49.3 million. All these effects were partially
offset by payments of long and short term borrowings for $177.0 million and $70.2 million, respectively. During this period, interest
paid totaled $48.9 million. We also used $13.0 million in the repurchase of our own shares.
Cash and Cash Equivalents
Historically since our
cash flows from operations were insufficient to fund our working capital needs and investment plans, we funded our operations with
proceeds from short-term and long-term indebtedness and capital contributions from existing and new private investors. In 2011,
we raised $421.8 million from an Initial Public Offering (“IPO”) and simultaneous private placement. As of December
31, 2016, our cash and cash equivalents amounted to $158.6 million.
However, we may need additional
cash resources in the future to continue our investment plans. Also, we may need additional cash if we experience a change in business
conditions or other developments. We also might need additional cash resources in the future if we find and wish to pursue opportunities
for investment, acquisitions, strategic alliances or other similar investments. If we ever determine that our cash requirements
exceed our amounts of cash and cash equivalents on hand, we might seek to issue debt or additional equity securities or obtain
additional credit facilities or realize the disposition of transformed farmland and/or subsidiaries. Any issuance of equity securities
could cause dilution for our shareholders. Any incurrence of additional indebtedness could increase our debt service obligations
and cause us to become subject to additional restrictive operating and financial covenants, and could require that we pledge collateral
to secure those borrowings, if permitted to do so. It is possible that, when we need additional cash resources, financing will
not be available to us in amounts or on terms that would be acceptable to us or at all.
Indebtedness and Financial Instruments
The table below illustrates
the maturity of our indebtedness (excluding obligations under finance leases) and our exposure to fixed and variable interest rates:
|
|
|
As
of December 31,
|
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
Fixed rate:
|
|
|
|
|
|
|
|
|
|
Less than 1 year(l)
|
|
|
67,682
|
|
|
|
89,918
|
|
|
Between 1 and 2 years
|
|
|
43,630
|
|
|
|
31,096
|
|
|
Between 2 and 3 years
|
|
|
40,047
|
|
|
|
30,197
|
|
|
Between 3 and 4 years
|
|
|
21,857
|
|
|
|
22,497
|
|
|
Between 4 and 5 years
|
|
|
21,116
|
|
|
|
18,779
|
|
|
More than 5 years
|
|
|
20,239
|
|
|
|
34,492
|
|
|
Total fixed rate:
|
|
|
214,571
|
|
|
|
226,979
|
|
|
Variable rate:
|
|
|
|
|
|
|
|
|
|
Less than 1 year(l)
|
|
|
137,331
|
|
|
|
149,559
|
|
|
Between 1 and 2 years
|
|
|
150,517
|
|
|
|
109,488
|
|
|
Between 2 and 3 years
|
|
|
81,947
|
|
|
|
102,351
|
|
|
Between 3 and 4 years
|
|
|
18,457
|
|
|
|
79,341
|
|
|
Between 4 and 5 years
|
|
|
18,309
|
|
|
|
44,233
|
|
|
More than 5 years
|
|
|
14,083
|
|
|
|
11,109
|
|
|
Total variable rate:
|
|
|
420,644
|
|
|
|
496,081
|
|
|
Total:
|
|
|
635,215
|
|
|
|
723,060
|
|
|
|
(1)
|
The
Company plans to partially rollover its short term debt using new available lines of
credit, or on using operating cash flow to cancel such debt.
|
Borrowings incurred by
the Company’s subsidiaries in Brazil are repayable at various dates between January 2017 and April 2024 and bear either fixed
interest rates ranging from 2.50% to 9.0% per annum or variable rates based on LIBOR or other specific base-rates plus spreads
ranging from 4.13% to 17.52% per annum. At December 31, 2016 LIBOR (six months) was 1.32% (2015: 0.85%).
Borrowings incurred by
the Group´s subsidiaries in Argentina are repayable at various dates between January 2017 and September 2023 and bear either
fixed interest rates ranging from 6.11% and 7.00% per annum for those borrowings denominated in US dollar, and a fixed interest
rate of 9.90% and 28.75% per annum for those borrowings denominated in Argentine Pesos.
Brazilian Subsidiaries
The main loans of the Company’s Brazilian
Subsidiaries identified below are:
|
Bank
|
Grant Date
|
Nominal
amount
|
Capital outstanding as of December 31
|
Maturity date
|
Annual Interest Rate
|
|
2016
|
2015
|
|
(In millions)
|
Millions of
Reais
|
Millions of
equivalent
Dollars (12)
|
Millions of
equivalent
Dollars (12)
|
|
Banco Do Brasil (1)
|
October 2012
|
R$ 130.0
|
R$ 109.9
|
33.7
|
32.9
|
November 2022
|
2.94% with 15% of bonus performance
|
|
Itau BBA FINAME Loan (2)
|
December 2012
|
R$ 45.9
|
R$ 30.4
|
9.3
|
9.3
|
December 2022
|
2.50%
|
|
Itau BBA (3)
|
March 2013
|
R$ 75.0
|
R$ 18.8
|
5.8
|
9.3
|
March 2019
|
CDI + 3.20%
|
|
Banco do Brasil / Itaú BBVA Finem Loan (4)
|
September 2013
|
R$ 273.0
|
R$ 219.4
|
67.3
|
66.7
|
January 2023
|
6.87%
|
|
BNDES Finem Loan (5)
|
November 2013
|
R$ 215.0
|
R$ 163.9
|
50.3
|
48.9
|
January 2023
|
3.84%
|
|
ING / Rabobank / ABN / HSBC / Credit Agricole / Caixa Geral / Galena (6)
|
January 2015
|
US$ 160.0
|
-
|
98.0
|
160.0
|
December 2018
|
LIBOR 3M plus 4.40%
|
|
ING / Rabobank / Bladex / Credit Agricole / Votorantim / ABN (7)
|
August 2015
|
US$ 110.0
|
-
|
110.0
|
110.0
|
December 2019
|
LIBOR 3M plus 4.65%
|
|
Rabobank (8)
|
February 2016
|
US$ 40.0
|
-
|
40.0
|
-
|
March 2019
|
LIBOR 3M plus 3.50%
|
|
Tokyo-Mitsubishi (9)
|
August 2016
|
US$ 30.0
|
-
|
30.0
|
-
|
August 2019
|
6.25%
|
|
Bradesco (10)
|
July 2016
|
R$ 90.0
|
R$ 90.0
|
27.6
|
-
|
May 2019
|
CDI + 2.10%
|
|
Votorantim (11)
|
July 2016
|
US$ 15.0
|
-
|
15.0
|
-
|
June 2019
|
LIBOR 3M plus 4.60%
|
|
|
(1)
|
Collateralized
by (i) a first degree mortgage of the Carmen (Santa Agua) farm; (ii) a first degree mortgage
of the Sapálio farm; (iii) a first degree mortgage of the Takuare farm; and (iv)
liens over the Ivinhema mill and equipment.
|
|
|
(2)
|
Collateralized
by (i) a first degree mortgage of the Carmen (Santa Agua) farm; (ii) a first degree mortgage
of the Sapálio farm; (iii) a first degree mortgage of the Takuare farm; and (iv)
liens over the Ivinhema mill and equipment.
|
|
|
(3)
|
Collateralized
by power sales contract.
|
|
|
(4)
|
Collateralized
by (i) a first degree mortgage of the Carmen (Santa Agua) farm; (ii) a first degree mortgage
of the Sapálio farm; (iii) a first degree mortgage of the Takuare farm; (iv) liens
over the Ivinhema mill and equipment; and (v) power sales contract.
|
|
|
(5)
|
Collateralized
by (i) liens over the Ivinhema mill and equipment; and (ii) power sales contracts.
|
|
|
(6)
|
Collateralized
by (i) a first-degree mortgage of the Conquista, Alto Alegre, Dom Fabrício, Nossa
Senhora Aparecida, Água Branca, Ouro Verde and Bela Manhã farms, (ii) pledge
of sugarcane, and (iii) sales contracts.
|
|
|
(7)
|
Collateralized
by (i) a first-degree mortgage of the Rio de Janeiro farm, and (ii) sales contracts.
|
|
|
(8)
|
Collateralized
by sales contracts.
|
|
|
(9)
|
Collateralized
by sales contracts.
|
|
|
(10)
|
Collateralized
by pledge of ethanol.
|
|
|
(11)
|
Collateralized
by (i) power sales contract and (ii) sales contracts.
|
|
|
(12)
|
Reais
amounts converted to USD at the exchange retes of December 31, 2016 and 2015, (3.259
Reais per dollar and 3.905 Reais per dollar, respectively). Pessos amounts converted
to USD at the exchange retes of December 31, 2016 and 2015, (15.89 Pesos per dollar and
13,043 Pesos per dollar, respectively).
|
Argentinian Subsidiaries
The principal loan of Adeco Agropecuaria
S.A. and Pilaga S.A., our Argentinian Subsidiaries is:
|
Bank
|
Grant Date
|
Nominal
amount
|
Capital outstanding as of
December 31
|
Maturity date
|
Annual Interest Rate
|
|
2016
|
2015
|
|
(In millions)
|
(In millions)
|
(In millions)
|
|
IDB Tranche A (1)
|
Feb-09
|
US$ 20
|
US$ 6.15
|
US$ 8.7
|
Nov-18
|
6.11% per annum
|
|
IFC Tranche A (2)
|
Dic-16
|
US$ 25
|
US$ 25.00
|
-
|
Sep-21
|
4.3% plus LIBOR
|
|
IFC Tranche B (2)
|
Dic-16
|
US$ 25
|
US$ 25.00
|
-
|
Sep-23
|
4% plus LIBOR
|
(1): Collateralized
by property, plant and equipment with a net book value of US$ 24.77 million, by a mortgage over (i) Carmen and La Rosa farms which
are property of Adeco Agropecuaria S.A. and (ii) El Meridiano farm which is the property of Pilagá S.A.
(2): Collateralized
by a US$ 75 million mortgage over Carmen farm, which is property of Adeco Agropecuaria S.A.
The Company entered into
a floating to fix interest rate forward swap, fixing LIBOR at 1.25%, effective May 2012.
The abovementioned loans
contain customary financial covenants and restrictions which require us to meet pre-defined financial ratios, among other restrictions,
as well as restrictions on the payment of dividends. These financial ratios are measured considering the statutory financial statements
of the Argentinian Subsidiaries.
During 2016 and 2015 the Company was in compliance with
all financial covenants.
Short-term Debt
.
As of December 31, 2016,
our short term debt totaled $205.09 million.
We maintain lines of credit
with several banks in order to finance our working capital requirements. We believe that we will continue to be able to obtain
additional credit to finance our working capital needs in the future based on our past track record and current market conditions.
|
|
C.
|
RESEARCH AND DEVELOPMENT, PATENTS AND LICENSES, ETC.
|
With regards to our rice
seed production, in our rice seed facility in Argentina, we are involved in the genetic development of new rice varieties adapted
to local conditions to increase rice productivity and quality to improve both farm production as well as the manufacturing process.
In connection with these efforts, we have entered into agreements with selected research and development institutions such as INTA
in Argentina, FLAR and HIAAL in Colombia, EPAGRI in Brazil and Basf in Germany. In addition, our own technical team is continuously
testing and developing new rice varieties. Since 2008 we have developed and released three new own varieties of rice seed to the
market, , and we are currently in the final stages of releasing the fourth We have registered our own rice seed varieties with
the corresponding Argentine authorities; the National Institute of Seeds (Instituto Nacional de Semillas) (INASE) and National
Registry of Property of Seed Varieties (Registro Nacional de la Propiedad de Cultivares) (RNPC). In February 2014 the new rice
variety named ITÁ CAABÓ 107 was released to the market.
We use both these seeds
at our farms and sell them to rice farmers in Argentina, Brazil, Uruguay and Paraguay. We are also developing, in collaboration
with BASF, a herbicide-tolerant rice variety to assist in the control of harmful weeds.
In addition to traditional
R&D activities, since we are constantly looking to improve efficiencies in each of our businesses, we are also constantly researching
and analyzing all the available technologies that could be applied in our operations. In addition, we do not only select the best
technologies and techniques, but we are strongly involved in their adaptation to our specific
needs and local circumstances. Our internal research group is comprised of interdisciplinary teams (agronomists, veterinarians,
industrial engineers, technicians, finance and commercial). The group offers support to all business lines and through different
levels, from the optimization of current operations, evaluation of new technologies, development of new products, to the assessment
of a whole new production system.
Regarding our Sugar &
Ethanol business, we have effectively implemented state-of-the-art technologies such as high pressure boilers for high cogeneration
capacity, full mechanization of agricultural operations with online GPS tracking systems on all vehicles (trucks, combines, planters),
and concentrated Vinasse system among others. Additionally, Adecoagro Vale do Ivinhema S.A. and Methanum Engenharia Ambiental Ltda.
– ME have executed a joint venture agreement regulating the joint development of a new technology for the reuse of vinesse
for energy production in Ivinhema mill, which patent request has been already filed with INPI (For more details see “Sugar,
Ethanol and Energy” in “Operations and Principal Activities” Section).
In the case of the Rice
segment and in addition to the seed production activities, we are developing Zero Grade Level technology in our farms (see “Water
Management” in “Technology and Best Practices” Section for more details).
With regards to our Dairy
segment in Argentina, we have successfully adapted and implemented the Free Stall model in our operations. Additionally, we have
invested in technology to improve the genetics, health and feeding techniques of our cows in order to enhance our milk production
(See more details in “Dairy Business” in “Operations and Principal Activities” Section).
We do not own any registered patents, industrial
models or designs, apart from those described in the first paragraph of this section.
See “Item 5. Operating
and Financial Review and Prospects—A. Operating Results—Trends and Factors Affecting Our Results of Operations.”
|
|
E.
|
OFF-BALANCE SHEET ARRANGEMENTS
|
For any of the periods
presented, we did not have any off-balance sheet transactions, arrangements or obligations with unconsolidated entities or otherwise
that are reasonably likely to have a material effect on our financial condition, results of operations or liquidity.
|
|
F.
|
TABULAR DISCLOSURE OF CONTRACTUAL OBLIGATIONS
|
The following table summarizes
our significant contractual obligations and commitments as of December 31, 2016:
|
|
|
Less
than 1 year
|
|
|
Between
1
and 2 years
|
|
|
Between
2
and
5 years
|
|
|
Over
5
Years
|
|
|
Total
|
|
|
|
|
(in million of $)
|
|
|
Borrowings (1)
|
|
|
239,5
|
|
|
|
218,6
|
|
|
|
221,0
|
|
|
|
35,7
|
|
|
|
714,8
|
|
|
Leases and agricultural partnership
|
|
|
44,7
|
|
|
|
33,5
|
|
|
|
47,4
|
|
|
|
0,7
|
|
|
|
126,3
|
|
|
Total
|
|
|
284,2
|
|
|
|
252,1
|
|
|
|
268,4
|
|
|
|
36,4
|
|
|
|
841,1
|
|
(1)
Includes
interest
See section
entitled “Forward-Looking Statements” appearing on page iv in this annual report.
|
|
Item 6.
|
Directors, Senior Management and Employees
|
|
|
A.
|
DIRECTORS AND SENIOR MANAGEMENT (traer de Annual Report)
|
Board of Directors
The following table sets
forth information for our directors as of the date of this annual report:
|
Name
|
|
Position
|
|
Date of
appointment
|
|
Age
|
|
Year term
expires
|
|
Abbas Farouq Zuaiter
|
|
Chairman
|
|
2015
|
|
49
|
|
2018
|
|
Mariano Bosch
|
|
Director /CEO
|
|
2014
|
|
47
|
|
2017
|
|
Alan Leland Boyce
|
|
Director
|
|
2016
|
|
57
|
|
2019
|
|
Andrés Velasco Brañes
|
|
Director
|
|
2016
|
|
56
|
|
2019
|
|
Daniel González
|
|
Director
|
|
2014
|
|
47
|
|
2017
|
|
James David Anderson
|
|
Director
|
|
2014
|
|
59
|
|
2017
|
|
Guillaume Van der Linden
|
|
Director
|
|
2015
|
|
57
|
|
2018
|
|
Marcelo Sánchez
|
|
Director/CCO
|
|
2016
|
|
55
|
|
2017
|
|
Mark Schachter
|
|
Director
|
|
2015
|
|
37
|
|
2018
|
|
MarceloVieira
|
|
Director
|
|
2016
|
|
65
|
|
2017
|
|
Plínio Musetti
|
|
Director
|
|
2014
|
|
63
|
|
2017
|
Abbas Farouq Zuaiter,
Alan Leland Boyce, Guillaume van der Linden, Plínio Musetti, Mark Schachter, Andrés Velasco Brañes, Daniel
González and James David Anderson qualify as independent directors, and the other directors are not independent in accordance
with SEC rules.
A description of the main
tasks currently performed by each director as well as a description of each director’s employment history and education follows:
Abbas (“Eddy”)
Farouq Zuaiter. Mr. Zuaiter
has been a member of the Company’s board of directors since 2003. Mr. Zuaiter is Co-Founder
and Managing Member of Zuaiter Capital Holdings, LLC ("ZCH”), a Greenwich, CT. based private family office established
in 2013. Mr. Zuaiter currently serves as Chairman of the Board of Directors of Adecoagro, SA, and RoC Capital Management,
LLC; a Member of the Board of Directors of the Arab Bank plc (ARBK JR: www.arabbank.com) a Member of the Board of Directors
of The Capital Holdings Funds plc (LCHUS; www.capitalholdings.com) and a Member of the Board of Advisors of iMENA Group and Encore
Realty, LLC. Mr. Zuaiter Co-founded ZCH after he retired from Soros Fund Management, LLC (“SFM”) in 2013. During his
tenure at SFM, Mr. Zuaiter served initially as Chief Financial Officer and subsequently as Chief Operating Officer. He was a member
of the SFM’s Executive, Investment, Management, Capital Allocation and Risk Committees. SFM is a private investment firm
founded by Mr. George Soros. Prior to joining SFM, Mr. Zuaiter was a Partner in the Financial Services Practice of PricewaterhouseCoopers,
LLP (“PwC”). Mr. Zuaiter graduated with a BSBA in Finance and Accounting from Georgetown University where he currently
serves on the University’s Board of Advisors for the McDonough School of Business, and the University’s Board of Regents.
Mr. Zuaiter is an American citizen.
Mariano Bosch.
Mr.
Bosch co-founded Adecoagro in 2002 and has since been the Chief Executive Officer and a member of the Company’s board
of directors. From 1995 to 2002, Mr. Bosch served as the founder and Chief Executive Officer of BLS Agribusiness, an agricultural
consulting, technical management and administration company. Mr. Bosch is also currently a member of the advisory board of Teays
River Investments LLC, a farmland investment management firm in North America. Mr. Bosch has over 22 years of experience in agribusiness
development and agricultural production. He actively participates in organizations focused on promoting the use of best practices
in the sector, such as the Argentine Association of Regional Consortiums for Agricultural Experimentation (AACREA) and the Conservational
Production Foundation (Producir Conservando). He graduated with a degree in Agricultural Engineering from the University of Buenos
Aires. Mr. Bosch is an Argentine citizen.
Alan Leland Boyce.
Mr. Boyce is a co-founder of Adecoagro and has been a member of the Company’s board of directors since 2002. Since 2005,
Mr. Boyce has been the Chief Executive Officer of Absalon, a joint venture between Soros and the financial system of Denmark that
assists in organizing a standardized mortgage-backed securities market in Mexico. Mr. Boyce is co-founder and Chairman of Materra
LLC, a California based farming company with a focus on growing and exporting animal forage. Since 2007, he has also been a consultant
for Soros, where he works to implement the Danish mortgage system in the United States. Since 1985, Mr. Boyce has served as the
Chief Financial Officer of Boyce Land Co. Inc., a farmland management company that runs 10 farmland limited partnerships in the
U.S. Mr. Boyce formerly served as the director of special situations at Soros from 1999 to 2007, where he managed an asset portfolio
of the Quantum Fund and had principal operational responsibilities for the bulk of the fund’s investments in South America.
Mr. Boyce also served as managing director in charge of fixed-income arbitrage at Bankers Trust from 1986 to 1999, as senior managing
director for investment strategy at Countrywide Financial from 2007 to 2008, and worked at the U.S. Federal Reserve Board from
1982 to 1984. He graduated with a degree in Economics from Pomona College, and has a Master in Business Administration from Stanford
University. Mr. Boyce is an American citizen.
Andres Velasco Brañes.
Mr. Velasco has been a member of the Company’s board of directors since 2011. Mr. Velasco was the Minister of Finance
of Chile between March 2006 and March 2010, and a presidential candidate in Chile in 2013. He was also the president of the Latin
American and Caribbean Economic Association from 2005 to 2007. Prior to entering government, Mr. Velasco was Sumitomo-FASID Professor
of Development and International Finance at Harvard University’s John F. Kennedy School of Government, an appointment he
had held since 2000. From 1993 to 2000, he was Assistant and then Associate Professor of Economics and the director of the Center
for Latin American and Caribbean Studies at New York University. Currently Mr. Velasco serves as Professor of Practice in International
Development at Columbia University. He also performs consulting services on various economic matters rendering economic advice
to an array of clients, including certain of our shareholders. Mr. Velasco holds a Ph.D. in economics from Columbia University
and was a postdoctoral fellow in political economy at Harvard University and the Massachusetts Institute of Technology. He received
a B.A. in economics and philosophy and an M.A. in international relations from Yale University. Mr. Velasco is a Chilean citizen.
Daniel C. Gonzalez.
Mr. Gonzalez has been a member of the Company’s board of directions since April 16, 2014. Mr. Gonzalez holds a degree
in Business Administration from the Argentine Catholic University. He served for 14 years in the investment bank Merrill Lynch
& Co in Buenos Aires and New York, holding the positions of Head of Mergers and Acquisitions for Latin America and President
for the Southern Cone (Argentina, Chile, Peru and Uruguay), among others. While at Merrill Lynch, Mr. Gonzalez played a leading
role in several of the most important investment banking transactions in the region and was an active member of the firm’s
global fairness opinion committee. He remained as a consultant to Bank of America Merrill Lynch after his departure from the bank.
Previously, he was Head of Financial Planning and Investor Relations in Transportadora de Gas del Sur SA. Mr. Gonzalez is currently
the Chief Financial Officer of YPF Sociedad Anónima, where he is also a member of its Board of Directors. Mr Gonzalez is
also a member of the Board of Directors of Hidroeléctrica Piedra del Aguila S.A. Mr. González is an Argentine citizen.
James David Anderson.
Mr. Anderson has been a member of the Company’s board of directors since December 2016. Mr. Anderson currently serves
as board member of Green Plains Inc, a vertically integrated ethanol producer based in Omaha, Nebraska. Mr. Anderson served as
Chief Executive Officer and President of The Gavilon Group, a leading commodity management firm from October 2015 to February 2016,
and previously as Chief Operating Officer Agriculture and as Chief Operating Officer Fertilizer since March 2010. Mr. Anderson
also served as Chief Executive Office and a member of the board of directors of United Malt Holdings ("UMH"), a producer
of malt for use in the brewing and distilling industries, as Chief Executive Officer and member of the board of directors from
September 2006 to February 2010. Prior to that time, beginning in April 2003, he served as Chief Operating Officer and Executive
Vice President of CT Malt, a joint venture between ConAgra Foods and Tiger Brands of South Africa. Mr. Anderson's experience in
the agricultural processing and trading business also includes serving as Senior Vice President and President of ConAgra Grain
Companies. His career also includes lead trading positions with Ferruzzi USA and as an Operations Manager for Pillsbury Company.
Mr. Anderson has a Bachelor of Arts degree in Finance from the University of Wisconsin Platteville. Mr. Anderson is an American
citizen.
Guillaume van der Linden
Mr. van der Linden has been a member of the Company’s board of directors since 2009. Since 2007, Mr. van der Linden is a
senior investment manager at PGGM Vermogensbeheer B.V., responsible for investments in emerging markets credit. From 1993 to 2007,
Mr. van der Linden worked for ING Bank in various roles, including in risk management
and derivatives trading. From 1988 to 1993, Mr. van der Linden was employed as a management consultant for KPMG and from 1985 to
1988 as a corporate finance analyst for Bank Mees & Hope. Mr. van der Linden graduated with Masters degrees in Economics from
Erasmus University Rotterdam and Business Administration from the University of Rochester. Mr. van der Linden is a Dutch citizen.
Walter Marcelo Sanchez.
Mr. Sanchez has been a member of the Company’s board of directors since 2014. Mr. Sanchez is a co-founder of Adecoagro
and our Chief Commercial Officer for all operations in Argentina, Brazil and Uruguay and a member of Adecoagro’s Senior Management
since 2002. He coordinates the Commercial Committee and is responsible for the trading of all commodities produced by Adecoagro.
Mr. Sanchez has over 25 years of experience in agricultural business trading and market development. Mr. Sanchez has a degree in
Agricultural and Livestock Engineering from the University of Mar del Plata, Argentina. Mr. Sánchez is an Argentine citizen.
Mark Schachter.
Mr.
Schachter has been a member of the Company’s board of directors since 2009. Mr. Schachter has been a Managing Partner of
Elm Park Capital Management since 2010. From 2004 to 2010, he was a Portfolio Manager with HBK Capital Management where he was
responsible for the firm’s North American private credit activities. His responsibilities included corporate credit investments
with a primary focus on middle-market lending and other special situation investment opportunities. From 2003 to 2004, Mr. Schachter
worked for American Capital, a middle-market private equity and mezzanine firm and worked in the investment banking division of
Credit Suisse Group from 2001 to 2003. Mr. Schachter received a degree in Business Administration from the Ivey Business School
at the University of Western Ontario and completed the Program for Leadership Development at Harvard Business School. Mr. Schachter
is a Canadian citizen and has permanent American residence.
Marcelo Vieira.
Mr.
Vieira has been a member of the Company’s board of directors since November 2014. Mr. Vieira was the Director of Ethanol,
Sugar & Energy operations of Adecoagro. He is currently the President of Sociedade Rural Brasileira, the main agricultural
organization in Brazil, a member of the Board of União da Indústria de Cana-de-Açúcar (“UNICA”)
and a member of the Board of Instituto PensarAgro. He has managed agricultural and agribusiness company for over 40 years, including
Usina Monte Alegre, Alfenas Agricola and Alfenas Café. Mr.Vieira holds a degree in Mechanical Engineering from PUC University
in Río de Janeiro, Brazil, and a graduate degree in Food Industry Management and Marketing from University of London´s
Imperial College. Mr. Vieira is an Brazilian citizen.
Plínio Musetti.
Mr. Musetti has been a member of the Company’s board of directors since 2011 and an observer since 2010. Mr. Musetti is a
Managing Partner of Janos Holding responsible for long term equity investments for family offices in Brazil, following his role
as Partner of Pragma Patrimonio, since June 2010. From 2008 to 2009, Mr. Musetti served as the Chief Executive Officer of Satipel
Industrial S.A., leading the company’s initial public offering process, expansion plan and merger with Duratex S.A. From
2002 to 2008, Mr. Musetti served as a partner at JP Morgan Partners and Chief Executive Officer of Vitopel S.A. (JP Morgan Partners’
portfolio company) where he led its private equity investments in Latin America. From 1992 to 2002, Mr. Musetti served as the Chief
Executive Officer of Elevadores Atlas S.A. and Elevadores Atlas Schindler S.A., during which time he led the company’s operational
restructuring, initial public offering process and the sale to the Schindler Group. Mr. Musetti has also served as a Director of
Diagnósticos de America S.A. from 2002 to 2009. In addition, Mr. Musetti is currently serving as a Board member of Natura
Cosmeticos S.A., Portobello S.A. and RaiaDrogasil S.A. Mr. Musetti graduated in Civil Engineering and Business Administration from
Mackenzie University and attended the Program for Management Development at Harvard Business School in 1989. Mr. Musetti is a Brazilian
citizen.
Executive Officers
The following table shows
certain information with respect to our senior management as of the date of this annual report:
|
Name
|
|
Position
|
|
Year
Designated
|
|
Age
|
|
Mariano Bosch
|
|
Chief Executive Officer & Co-founder
|
|
2002
|
|
47
|
|
Carlos A. Boero Hughes
|
|
Chief Financial Officer
|
|
2008
|
|
51
|
|
Emilio F. Gnecco
|
|
Chief Legal Officer
|
|
2005
|
|
41
|
|
Walter Marcelo Sanchez
|
|
Chief Commercial Officer & Co-founder
|
|
2002
|
|
55
|
|
Renato Junqueira Santos Pereira
|
|
Director of Sugar and Ethanol Operations
|
|
2014
|
|
40
|
|
Mario José Ramón Imbrosciano
|
|
Director of Business Development
|
|
2003
|
|
47
|
|
Leonardo Berridi
|
|
Country Manager for Brazil
|
|
2004
|
|
57
|
|
Ezequiel Garbers
|
|
Country Manager for ARG/URU & Co-founder
|
|
2004
|
|
50
|
Mariano Bosch.
See “—Board of Directors.”
Carlos A. Boero Hughes.
Mr. Boero Hughes is our Chief Financial Officer, covering the company’s operations in Argentina, Brazil and Uruguay,
and a member of Adecoagro’s Senior Management since 2008. He began working at Adecoagro in August 2008 overseeing our finance
and administrative departments. Mr. Boero Hughes has over 25 years of experience in agricultural business and financial markets.
Prior to joining us, he was Chief Financial Officer for South America and Co-Chief Executive Officer for Noble Group LTD operations
in Argentina, Uruguay and Paraguay from October 2006 to July 2008. From 2003 to 2006, he worked at Noble Group LTD as Financial
Director for Argentina and Structure Finance Manager for South America. He worked at Citibank N.A. from 1997 to 2003 as Relationship
and Product Manager, focused in the agribusiness industry, and at Banco Privado de Inversiones S.A. as Relationship Manager. He
also worked for six years at Carlos Romano Boero S.A.I.C., a flour and dairy cow feed mill family company, as Commercial Manager,
Local Grain Elevator and Nursery Manager and finally as General Manager. Mr. Boero Hughes holds a degree in Business Administration
from the University of Buenos Aires and a Masters in Business Administration from the Argentine Catholic University. He also graduated
from INSEAD’s Executive Program in 2007.
Emilio Federico Gnecco.
Mr. Gnecco is our Chief Legal Officer for all operations in Argentina, Brazil and Uruguay and a member of Adecoagro’s
Senior Management since 2005. He is responsible for all legal and corporate matters and compliance. Before joining us, he was a
corporate law associate at the law firm of Marval, O’Farrell & Mairal for more than 8 years, where he specialized in
mergers and acquisitions, project finance, structured finance, corporate finance, private equity, joint ventures and corporate
law and business contracts in general. Mr. Gnecco was in charge of Adecoagro’s corporate matters including mergers and acquisitions
since our inception in 2002. Prior to that, he worked at the National Civil Court of Appeals of the City of Buenos Aires for four
years. Mr. Gnecco has a law degree from the University of Buenos Aires, where he graduated with honors.
Walter Marcelo
Sanchez.
See “—Board of Directors.”
Renato Junqueira Santos
Pereira.
Renato Junqueira Santos Pereira is the Director of our Sugar, Ethanol & Energy business and has been a member
of the senior management team since 2014. He began working at Adecoagro in 2010 as the Operations Manager for our Sugar, Ethanol
& Energy business and has vast experience in the Brazilian sugarcane industry. Before joining Adecoagro, he served as the CFO
of Moema Group, one of the largest sugarcane clusters in Brazil. His main responsibilities at Moema included designing the optimal
capital structure to finance the construction of five greenfield mills, preparing the company for an IPO and coordinating the M&A
process which culminated in a $1.5 billion dollar sale to Bunge Ltda. Previously, Mr. Pereira held responsibilities as Mill Director
and Agricultural Manager in Moema’s mills. He is an Agricultural Engineer from Universidade de Sao Paulo and holds an MBA
from the University of California, Davis.
Mario José Ramón
Imbrosciano.
Mr. Imbrosciano is the head of our Business Development Department for all operations in Argentina, Brazil and
Uruguay where he oversees all new business initiatives, and a member of Adecoagro’s Senior Management since 2003. He has
over 20 years of experience in farm management and agriculture production. Prior to joining Adecoagro, Mr. Imbrosciano was the
Chief Operating Officer of Beraza Hnos. S.C., a farming company that owns farms in the humid pampas region of Argentina. He was
in charge of production, commercialization and logistics for a 60,000 hectare operation. Mr. Imbrosciano has also worked as a private
consultant for various clients. Mr. Imbrosciano received a degree in Agricultural Production Engineering from the Argentine Catholic
University and holds a Masters in Business Administration from the Instituto de Altos Estudios (IAE) of the Austral University.
Leonardo Raúl
Berridi.
Mr. Berridi is our Country Manager for Brazil and, prior to the Reorganization, had been Adecoagro’s Country
Manager for Brazil since the beginning of its operations in Brazil and a member of Adecoagro’s Senior Management since 2004.
He coordinates all of our operations and human resources development activities in Brazil. Mr. Berridi has over 32 years of international
experience in agricultural business.
Prior to joining us, Mr. Berridi was Vice President
of Pago Viejo S.A., a company dedicated to agriculture production and dairy farming in the province of Buenos Aires, Argentina.
He also worked for Trans-Continental Tobacco Corporation as Chief Operating Officer of Epasa (Exportadora de Productos Agrarios
S.A.), a company dedicated to producing, processing and exporting tobacco in the north east and north west of Argentina, and Production
Manager of World Wide Tobacco España S.A. in the Caceres and Zamora provinces in Spain. Mr. Berridi holds a degree in Forestry
Engineering from the Universidad Nacional de La Plata.
Ezequiel Garbers.
Mr.
Garbers is the Country Manager for Argentina and Uruguay and a member of Adecoagro’s Senior Management and the Country Manager
since 2002. He coordinates all of our production and human resources development activities in Argentina and Uruguay. Mr. Garbers
has over 27 years of experience in agriculture production. Prior to joining Adecoagro, he was the Chief Operating Officer of an
agricultural consulting and investment company he co-founded, developing projects both within and outside of Argentina, related
to crop production and the cattle and dairy business. Mr. Garbers holds a degree in Agronomic Engineering from the University of
Buenos Aires and a Masters in Business Administration from the Instituto de Altos Estudios (IAE) of the Austral University.
Our managers supervise
our day-to-day transactions so as to ensure that all of our general strategic objectives are carried out, and they report to our
board of directors.
Compensation of Directors and Executive Officers
The compensation of the
Company’s directors is approved annually at the ordinary general shareholders’ meeting. For 2016, the aggregate compensation
earned by our directors amounted to a grant of up to a total of 35,883 restricted stock units and $550 thousand in cash. These
figures do not include Mr. Mariano Bosch’s and Mr. Walter Marcelo Sanchez´s compensation in cash nor in restricted
units, which they both declined. For year 2017, the aggregate compensation approved to be earned by our directors amounted to a
grant of up to a total of 37,098 restricted stock units and $550 thousand in cash. These figures do not include Mr. Mariano Bosch’s
and Mr. Walter Marcelo Sanchez´s compensation in cash nor in restricted units, which they both declined.
The aggregate compensation
package of our executive officers for year 2016 amounted to $4,804,581 in cash and 229,300 restricted stock units granted to our
senior management. These grants were made under the Adecoagro Amended and Restated Restricted Share and Restricted Stock Unit
Plan, as amended. See “—E. Share Ownership—Share Options and Restricted Share and Restricted Stock Unit Plan.”Annual
cash bonuses are designed to incentivize our named executive officers at a variable level of compensation based on the Company’s
financial and operating performance and each executive’s individual performance. Annual executive cash bonuses and stock
unit awards are impacted by seniority and individual executive performance. 70% of variable performance is related to achievement
of financial targets consisting of Adjusted EBITDA, Net Income, Adjusted Net Cash Flow from Operations, Cash Earnings and Return
on Invested Capital. The remaining 30% is based on the achievement of individual objectives and by evaluating each executive’s
level of proficiency in the following competencies: general characteristics, teamwork, professional competencies, environmental
and social commitment, problem solving and thinking skills and managerial skills. In the past, actual bonus amounts have been determined
shortly after fiscal year end. Our Chief Executive Officer presents the final calculation of the annual cash bonuses for our named
executives to the Compensation Committee of the board of directors. The Compensation Committee then reviews actual Company and
individual performance, and determines the amount payable consistent with the attainment of such individual’s performance
based on the above criteria.
We do not pay or set aside
any amounts for pension, retirement or other similar benefits for our officers and directors.
Pursuant to our articles
of incorporation, the board of directors must be composed of between three and eleven members. The number of directors is determined
and the directors are appointed at the general meeting of shareholders (except in case of a vacancy in the office of a director
because of death, retirement, resignation, dismissal, removal or otherwise, the remaining
directors may fill such vacancy and appoint a successor in accordance with applicable Luxembourg law).
Currently, the board of
directors has eleven members. The directors are appointed by the general meeting of shareholders for a period of up to three years;
provided, however, the directors shall be elected on a staggered basis, with one-third of the directors being elected each year
and provided further that such three year term may be exceeded by a period up to the annual general meeting held following the
third anniversary of the appointment. Directors may be removed with or without cause (
ad nutum
) by the general meeting of
shareholders by a simple majority of votes cast at a general meeting of shareholders. The directors are eligible for re-election
indefinitely.
There are no agreements
with majority shareholders, customers, suppliers or others governing the selection of any of the directors or members of senior
management. None of our non-executive directors has a service contract with us that provides for benefits upon termination of employment.
The board of directors
is empowered to manage Adecoagro and carry out our operations. The board of directors is vested with the broadest powers to manage
the business of the Company and to authorize and/or perform all acts of disposal, management and administration falling within
the purposes of Adecoagro and all powers not expressly reserved by Luxembourg law or by our articles of incorporation to the general
meeting of shareholders is within the competence of the board of directors.
Accordingly, within the
limitations established by Luxembourg law and in particular the Luxembourg law of August 10, 1915 on commercial companies (as amended)
and our articles of incorporation, the board of directors can take any action (by resolution or otherwise) it deems necessary,
appropriate, convenient or fit to implement the purpose of the Company, including without limitation:
|
|
a.
|
execute any acts or contracts on our behalf aimed at fulfilling our corporate purpose, including
those for which a special power of attorney is required;
|
|
|
b.
|
carry out any transactions;
|
|
|
c.
|
agree, establish, authorize and regulate our operations, services and expenses;
|
|
|
d.
|
delegate special tasks to directors, regulate the formation and operation of committees and fix
the remuneration and compensation of expenses of advisors and/or staff with special duties, with a charge to overhead;
|
|
|
e.
|
appoint, suspend or remove agents or employees, establish their duties, remuneration, and bonuses
and grant them the powers that it deems advisable;
|
|
|
f.
|
grant signature authorization to directors and officers, grant general or special powers of attorney,
including those to prosecute;
|
|
|
g.
|
call regular and special shareholders’ meetings and establish agendas, submit for the shareholders’
approval our inventory, annual report, balance sheet, statement of income and exhibits, propose depreciation, amortization and
reserves that it deems advisable, establish the amount of gains and losses, propose the distribution of earnings and submit all
this to the shareholders’ meeting for consideration and resolution;
|
|
|
h.
|
fix the date for the payment of dividends established by the shareholders’ meeting and make
their payment; and
|
|
|
i.
|
make decisions relating to the issuance, subscription or payment of shares pursuant to our articles
of incorporation and decision of the regular or special shareholders’ meetings.
|
As of the date of this
annual report, the board of directors has the following four committees: Audit Committee, Compensation Committee, Risk and Commercial
Committee and Strategy Committee. On May 13, 2011, the former Risk and Strategy Committee split into the current Risk and Commercial
Committee and the Strategy Committee. On April 4, 2017, the Board approved the creation of an
ad-hoc
committee named, the
Buyback Committee.
Audit Committee
The Company’s articles
of incorporation provide that the board of directors may set up an audit committee. The board of directors has set up an Audit
Committee composed by independent directors and has appointed, pursuant to board resolutions dated April 16, 2014, Mr. Plínio
Musetti (Chairman), Mr. Mark Schachter, Mr. Daniel González and Mr. Andrés Velasco Brañes, as members of its
audit committee.
The Company’s articles
of incorporation provide that the audit committee shall (a) assist the board of directors in fulfilling its oversight responsibilities
relating to the integrity of the Company’s financial statements, including periodically reporting to the board of directors
on its activity and the adequacy of the Company’s systems of internal controls over financial reporting; (b) make recommendations
for the appointment, compensation, retention and oversight of, and consider the independence of, the Company’s external auditors;
(c) review material transactions (as defined in the articles) between the Company or its subsidiaries with related parties (other
than transactions that were reviewed and approved by the independent members of the board of directors as defined in the articles
of the Company) or other governing body of any subsidiary of the Company or through any other procedures as the board of directors
may deem substantially equivalent to the foregoing) to determine whether their terms are consistent with market conditions or are
otherwise fair to the Company and its subsidiaries; and (d) perform such other duties imposed on it by the laws and regulations
of the regulated market(s) on which the shares of the Company are listed, applicable to the Company, as well as any other duties
entrusted to it by the board of directors.
In addition, the charter
of the audit committee sets forth, among other things, the audit committee’s purpose and responsibilities.
Compensation Committee
The Company has a Compensation
Committee that reviews and approves the compensation and benefits of the executive officers and other key employees, and makes
recommendations to the board of directors regarding principles for compensation, performance evaluation, and retention strategies.
It is responsible for administering our share option plans and our restricted share and restricted stock unit plan for executive
officers and other key employees. See “—E. Share Ownership—Share Options and Restricted Share and Restricted
Stock Unit Plan.” The committee has the discretion to interpret and amend the Plan, and delegate to the Chief Executive
Officer the right to award equity-based compensation to executive officers and other key employees. The committee meets at least
once a year and as needed on the initiative of the Chief Executive Officer or at the request of one of its members. The members
of the Compensation Committee, appointed pursuant to board resolutions dated April 16, 2014, are Mr. Guillaume van der Linden
(Chairman), Mr. Abbas Farouq Zuaiter and Mr. Daniel González.
Risk and Commercial Committee
The Company has a Risk
and Commercial Committee that has the duty to (i) make such inquiries as are necessary or advisable to understand and evaluate
material business risks and risk management processes as they evolve from time to time; (ii) review with the board of directors
and management the guidelines and policies to govern the process for assessing and managing risks; (iii) discuss and review with
the board of directors management’s efforts to evaluate and manage the Company’s business from a risk perspective;
(iv) request input from the board of directors, management and operating staff, as well as from outside resources, as it may deem
necessary; (v) discuss with the board of directors and management which elements of enterprise risk are most significant, the prioritization
of business risks, and make recommendations as to resource allocation for risk management and risk mitigation strategies and activities;
and (vi) oversee the development of plans for risk mitigation in any area which it deems to be a material risk to the Company;
and monitor management’s implementation of such plans, and the effectiveness generally of its risk mitigation strategies
and activities.
The committee meets at
least four times a year and as often as deemed necessary or appropriate in its judgment. The members of the Risk and Commercial
Committee appointed by the board meeting held on November 7, 2014 and March 14, 2017 are Mr. Alan Leland Boyce (Chairman), Mr.
James David Anderson, Mr. Marcelo Vieira and Mr. Andrés Velasco Brañes.
Strategy Committee
The Company’s Strategy
Committee has the duty to: (i) discuss and review with the board management’s identification and setting of strategic goals;
including potential acquisitions, joint ventures and strategic alliances and dispositions; (ii) make recommendations to the board
of directors as to the means of pursuing strategic goals; and (iii) review with the board management’s progress in implementing
its strategic decisions and suggest appropriate modifications to reflect changes in market and business conditions.
The committee meets at
least four times a year and as often as deemed necessary or appropriate in its judgment. The members of Strategy Committee appointed
by the board meetings held on May 13, 2011, November 11, 2011 and March 14, 2017 are Mr. Abbas Farouq Zuaiter (Chairman), Mr. Guillaume
van der Linden, Mr. Plínio Musetti and Mr. James David Anderson.
Buyback Committee
The Company’s Buy
Back Committee is an ad-hoc committee empowered with the execution and implementation of the Company’s Share Repurchase Program.
The Buyback Committee is responsible for the negotiation and determination of the purchase price, size and any other specific terms
and conditions of the transactions made under the Rule 10b-18, and also terms and conditions of privately negotiated transactions
which in all cases are subject to the terms and conditions of the Share Repurchase Program.
The committee meets once
every three months and/or at the request of any of its members as necessary.. The members of Buyback Committee appointed by the
meeting of the Board of Directors held on April 4, 2017 are currently Mr. Daniel González, Mr. Mark Schachter, Mr. Plínio
Musetti and Mr. Mariano Bosch.
Employees
On December 31, 2016,
we had 8,326 employees, of whom 95% were unionized. Approximately 5% of our workforce is comprised of temporary workers. We comply
with all labor laws. Historically, we have had a positive relationship with the trade unions.
The following table sets
forth our number of employees by each of our business segments:
|
|
|
As
of December 31,
|
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
Farming and Land Transformation
|
|
|
1,137
|
|
|
|
1,087
|
|
|
|
1,166
|
|
|
Sugar , Ethanol and Energy
|
|
|
6,428
|
|
|
|
6,262
|
|
|
|
6,182
|
|
|
Administrative
|
|
|
761
|
|
|
|
740
|
|
|
|
761
|
|
|
Total
|
|
|
8,326
|
|
|
|
8,089
|
|
|
|
8,109
|
|
We do not have any severance
agreements with our senior executive directors and managers.
Benefits
The benefits granted to
our employees follow the market standard, including health plans and Spanish, English and Portuguese language lessons. In some
cases, depending on the working location, we also provide meal, transportation, parking or financial aid for junior employees who
are still in college. For senior management, we also provide vehicles.
Share Ownership
The total number of shares
of the Company beneficially owned by our directors and executive officers, as of the date of this annual report, was 5,877,509
, which represents 4.72% of the total shares of the company. See table in “Item 7. Major Shareholders and Related Party Transactions”
for information regarding share ownership by our directors and executive officers.
Share Options and Restricted Share and Restricted Stock Unit
Plan
Adecoagro/IFH 2004 Stock Incentive Option Plan and Adecoagro/IFH
2007/2008 Equity Incentive Plan
The Company maintains
the Adecoagro/IFH 2004 Incentive Option Plan (formerly, the International Farmland Holdings, LLC 2004 Incentive Option Plan, and
referred to herein as the “2004 Plan”) and the Adecoagro/IFH 2007/2008 Equity Incentive Plan (formerly, the International
Farmland Holdings, LLC 2007/2008 Equity Incentive Plan, and referred to herein as the “2007/2008 Plan”). The 2004 Plan
and the 2007/2008 Plan are collectively referred to herein as the “Option Plans.” Initially, the Option Plans provided
for the grant of options to purchase ordinary units of IFH. In connection with the Reorganization, the Option Plans were amended
and restated to provide for the grant of options to purchase ordinary shares of the Company, and all then-outstanding options to
purchase IFH ordinary units were converted into options to purchase the Company’s ordinary shares.
The number of ordinary
shares reserved and available for issuance under the 2004 Plan and the 2007/2008 Plan are 1,641,085 and 1,658,002, respectively.
Shares subject to awards that become forfeited, cancelled, expired, withheld upon exercise, reacquired by the Company prior to
vesting or otherwise terminated will again be available for future awards under the Option Plans.
Administration and Eligibility
The Option Plans are administered
by the Compensation Committee of the Company’s board of directors (the “Committee”). The Committee has general
authority to, among other things, select individuals for participation, determine the time and amount of grants, and interpret
the plans and awards. The Committee determines the vesting requirements of the awards. The Option Plans require that the exercise
price of any future grants shall be no less than the greater of the fair market value of our ordinary shares on the date of grant
and the par value per ordinary share.
Individuals eligible to
receive options under the 2004 Plan include officers and employees, and under the 2007/2008 Plan include officers, employees, directors,
prospective employees and consultants.
Amendment and Termination
The board of directors
may amend or terminate the Option Plans in its discretion, and the Committee may amend any outstanding options in its discretion,
except participant consent will be needed if a participant’s rights are adversely affected. If not previously terminated
by the board of directors, the Option Plans will terminate on the 10th anniversary of its adoption. The 2004 Plan was amended to
extend the term to 20
th
anniversary of its adoption.
Granted Options
Under the 2004 Plan, as
of December 31, 2015, options to purchase 2,061,027 ordinary shares were granted and the weighted average exercise price of all
granted options was $6.67. Under the 2007/2008 Plan, as of the same date, options to purchase 1,700,675 ordinary shares were granted,
and the weighted average exercise price of all granted options was $13.07.
Outstanding options under
the 2004 Plan generally vest in three equal installments on the first three anniversaries of the date of grant, and options under
the 2007/2008 Plan generally vest in four equal installments on the first four anniversaries of the date of grant. Vesting under
each of the Option Plans is generally subject to the participant’s continued service as of each applicable vesting date,
and all options terminate 10 years from the date of grant.
Adecoagro S.A. Amended and Restated Restricted Share and Restricted
Stock Unit Plan
On November 11, 2011,
the Board of Directors of the Company approved the amendment and restatement of the Adecoagro S.A. Restricted Share Plan, now known
as the Amended and Restated Restricted Share and Restricted Stock Unit Plan (the “Plan).
The Plan provides for
awards of restricted shares or restricted stock units to employees, officers, members of the board of directors and other service
providers of the Company. The purpose of the Plan is to further align the interests of participants with those of the shareholders
by providing participants with long-term incentive compensation opportunities tied to the performance of the Company’s ordinary
shares.
On March 17, 2015 the
Plan was amended (known as the “Second Amended and Restated Restricted Share and Unit Plan”) to increase the number
of common shares available for issuance with respect to which awards may be made by 673,663 additional common shares and to provide
for the option to receive restricted units in lieu of cash in connection with the payment of compensation to directors of the Company.
Further, on March 15, 2016 and March 14, 2017, the Plan was amended (now known as the “Third Amended and Restated Restricted
Share and Unit Plan”) by the Board of Directors to increase the number of common shares available for issuance with respect
to which awards may be made by an aggregate 990,040 common shares. Currently, the maximum number of common shares with respect
to which awards may be made under the Plan is equal to 3,464,741 common shares inclusive of such Shares that are subject to outstanding
grants of Awards. To the extent any award under the Plan is canceled, expired, forfeited, surrendered settled in cash, or otherwise
terminated without delivery of shares the shares retained by or returned to the Company will again be available for future awards
under the Plan. The shares available for issuance as well as outstanding awards under the Plan are subject to adjustment in the
event of a reorganization, stock split, merger or similar change. Under the Plan, as of the date of this annual report, 2,210,768
ordinary shares had been issued to directors, senior management and employees.
Administration and Eligibility
The Plan is administered
by the Committee. The Committee has general authority to grant awards, determine the recipients of awards and prescribe the terms
of awards, as well as authority to interpret and apply the terms of the Plan and individual awards. The Committee determines the
amount and the vesting requirements of the awards.
Terms of Awards
A grant of restricted
shares represents ordinary shares that are issued subject to vesting requirements and transfer restrictions, as determined by the
Committee in its discretion. The vesting requirements may be based on the continued employment or service of the participant for
a specified time period or on the attainment of specified business performance goals established by the Committee. Subject to the
transfer restrictions and vesting requirements of the award, the participant will have the rights of a stockholder of the Company,
including voting rights and the right to receive dividends.
The number of restricted
shares or restricted stock units awarded to individuals each year will be based on Company performance. Once awarded, the restricted
shares or restricted stock units are subject to a service-based vesting schedule and vest in three equal annual installments on
the first three anniversaries of the date of grant, subject only to the participant’s continued service to the Company as
of each applicable vesting date. Restricted stock units are payable following the vesting of an award in shares.
Amendment and Termination
The board of directors
may amend, modify, suspend or terminate the Plan in its discretion, except participant consent will be needed if participants’
rights are adversely affected. If not previously terminated by the board of directors, the Plan will terminate on the 10th anniversary
of its adoption.
Share Options and Restricted Shares
The following tables set
forth the total number of ordinary and restricted shares to be issued upon exercise of the options to directors and executives
officers, the exercise price of the options awarded, the date of grant and the date of expiration, as of the date of this annual
report.
|
Stock Option Plans
|
|
Plan under
which awards
were granted
|
|
|
Number of
ordinary shares to
be issued upon
exercise of options
|
|
|
Range of Exercise prices
per ordinary share ($)
|
|
Range of Dates of Grant
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Directors and Executive Officers
|
|
|
|
|
|
|
|
|
|
|
|
Mariano Bosch
i
|
|
2004
|
|
|
*
|
|
|
$5.83 to $8.62
|
|
05/01/2004 to 07/01/2006
|
|
|
|
2007
|
|
|
*
|
|
|
$12.82 to $13.40
|
|
11/13/2007 to 01/30/2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carlos A. Boero Hughes
|
|
2004
|
|
|
*
|
|
|
$5.83 to $7.11
|
|
08/25/2008
|
|
|
|
2007
|
|
|
*
|
|
|
$12.82 to $13.40
|
|
08/25/2008 to 01/30/2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Emilio F. Gnecco
|
|
2004
|
|
|
*
|
|
|
$5.83 to $8.62
|
|
06/01/2007
|
|
|
|
2007
|
|
|
*
|
|
|
$12.82 to $13.40
|
|
11/13/2007 to 01/30/2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Walter Marcelo Sanchez
|
|
2004
|
|
|
*
|
|
|
$5.83 to $8.62
|
|
05/01/2004 to 07/01/2006
|
|
|
|
2007
|
|
|
*
|
|
|
$12.82 to $13.40
|
|
11/13/2007 to 01/30/2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mario José Ramón Imbrosciano
|
|
2004
|
|
|
*
|
|
|
$$5.83 to $8.62
|
|
05/01/2004 to 07/01/2006
|
|
|
|
2007
|
|
|
*
|
|
|
$12.82 to $13.40
|
|
11/13/2007 to 01/30/2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Leonardo Berridi
|
|
2004
2007
|
|
|
*
*
|
|
|
$$5.83 to $8.62
$12.82 to $13.40
|
|
05/01/2004 to 07/01/2006
11/13/2007 to 01/30/2009
|
|
Renato Junqueira Santos Pereira
|
|
2007
|
|
|
*
|
|
|
$13.40
|
|
08/30/2010
|
|
Marcelo Vieira
|
|
2007
|
|
|
*
|
|
|
$12.82 to $13.40
|
|
11/13/2007 to 01/30/2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Directors and Executive Officers as a group
|
|
|
|
|
2,926,424
|
(2)
|
|
|
|
|
|
|
*
|
Upon the exercise of all
options, would beneficially own less than 1% of total outstanding shares.
|
|
|
(1)
|
All share options have an
expiration date 10 years after date of grant. The expiration date of the 2004 plan was extended for ten additional years.
|
|
|
(2)
|
It includes 1,492,890 options
with a range of exercise prices per ordinary share from $5.83 to $8.62 and 1,433,534 options with a range of exercise prices per
ordinary share from $12.82 and 13.40.
|
|
Restricted
Share and Restricted
Stock Unit Plan
Directors
and
Executive Directors
|
|
Number of Restricted
Stock Units
|
|
|
Range of Dates of the Grant
|
|
Abbas Farouq Zuaiter
|
|
|
*
|
|
|
05/13/2014 to 05/15/2016
|
|
Alan Leland Boyce
|
|
|
*
|
|
|
05/13/2014 to 05/15/2016
|
|
Guillaume van der Linden
|
|
|
*
|
|
|
05/13/2014 to 05/15/2016
|
|
Plínio Musetti
|
|
|
*
|
|
|
05/13/2014 to 05/15/2016
|
|
Mark Schachter
|
|
|
*
|
|
|
05/13/2014 to 05/15/2016
|
|
Marcelo Vieira
|
|
|
*
|
|
|
04/01/2014 to 04/01/2016
|
|
Andrés Velasco Brañes
|
|
|
*
|
|
|
05/13/2014 to 05/15/2016
|
|
Anderson James
|
|
|
*
|
|
|
05/13/2014 to 05/15/2016
|
|
Daniel Gonzalez
|
|
|
*
|
|
|
05/13/2014 to 05/15/2016
|
|
Mariano Bosch
|
|
|
*
|
|
|
04/01/2015 to 04/01/2016
|
|
Carlos A. Boero Hughes
|
|
|
*
|
|
|
04/01/2015 to 04/01/2016
|
|
Mario José Ramón Imbrosciano
|
|
|
*
|
|
|
04/01/2015 to 04/01/2016
|
|
Leonardo Berridi
|
|
|
*
|
|
|
04/01/2015 to 04/01/2016
|
|
Renato Junqueira Santos Pereira
|
|
|
*
|
|
|
04/01/2015 to 04/01/2016
|
|
Emilio F. Gnecco
|
|
|
*
|
|
|
04/01/2015 to 04/01/2016
|
|
Ezequiel Garbers
|
|
|
*
|
|
|
04/01/2015 to 04/01/2016
|
|
Walter Marcelo Sanchez
|
|
|
*
|
|
|
04/01/2015 to 04/01/2016
|
|
|
|
|
|
|
|
|
|
Directors and Executive Officers as a group
|
|
|
332,368
|
|
|
|
|
|
*
|
Upon
receipt of common shares pursuant to plan, would beneficially own less than 1% of total
outstanding shares.
|
|
|
Item 7.
|
Major Shareholders and Related Party Transactions
|
The following table sets
forth the beneficial ownership of our shares for each person known to us to own beneficially at least 5% of our common shares and
our directors and executive officers, based on the information most recently available to the Company, as of April 26, 2017.
As of April 26, 2017,
we had 121,398,917 outstanding shares. Beneficial ownership is determined in accordance with the rules and regulations of the SEC.
In computing the number of shares beneficially owned by a person and the percentage ownership of that person, we have included
shares that the person has the right to acquire within 60 days from April 26, 2017, including through the exercise of any option,
warrant or other right or the conversion of any other security. These shares, however, are not included in the computation of the
percentage ownership of any other person.
|
|
|
Number
|
|
|
Percent
|
|
|
Principal Shareholders:
|
|
|
|
|
|
|
|
|
|
Al Gharrafa Investment Company (1)
|
|
|
15,983,265
|
|
|
|
13.2
|
%
|
|
Stichting Pensioenfonds Zorg en Welzijn (2)
|
|
|
15,381,385
|
|
|
|
12.7
|
%
|
|
Jennison Associates, LLC (3)
|
|
|
7,629,228
|
|
|
|
6.3
|
%
|
|
Bienville Capital Management, LLC (4)
|
|
|
6,516,322
|
|
|
|
5.4
|
%
|
|
EMS Capital LP (5)
|
|
|
6,087,458
|
|
|
|
5.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Directors and Executive Officers
|
|
|
|
|
|
|
|
|
|
Abbas Farouq Zuaiter
|
|
|
*
|
|
|
|
*
|
|
|
Alan Leland Boyce
|
|
|
*
|
|
|
|
*
|
|
|
Guillaume van der Linden
|
|
|
*
|
|
|
|
*
|
|
|
Mariano Bosch (6)
|
|
|
*
|
|
|
|
*
|
|
|
Plínio Musetti
|
|
|
*
|
|
|
|
*
|
|
|
Mark Schachter
|
|
|
*
|
|
|
|
*
|
|
|
Andrés Velasco Brañes
|
|
|
*
|
|
|
|
*
|
|
|
Daniel Gonzalez
|
|
|
*
|
|
|
|
*
|
|
|
Marcelo Vieira
|
|
|
*
|
|
|
|
*
|
|
|
James David Anderson
|
|
|
*
|
|
|
|
*
|
|
|
Carlos A. Boero Hughes
|
|
|
*
|
|
|
|
*
|
|
|
Emilio F. Gnecco
|
|
|
*
|
|
|
|
*
|
|
|
Walter Marcelo Sanchez
|
|
|
*
|
|
|
|
*
|
|
|
Mario José Ramón Imbrosciano
|
|
|
*
|
|
|
|
*
|
|
|
Leonardo Berridi
|
|
|
*
|
|
|
|
*
|
|
|
Ezequiel Garbers
|
|
|
*
|
|
|
|
*
|
|
|
Renato Junqueira
|
|
|
*
|
|
|
|
*
|
|
|
Total Directors and Executve Officers
|
|
|
5,771,417
|
|
|
|
4.64
|
%
|
|
|
*
|
Beneficially
owns less than 1% based on the total number of outstanding shares.
|
|
|
(1)
|
The address
of Al Gharrafa Investment Company is C/O Intertrust Corporate Services (Cayman) Limited,
190 Elgin Street, George Town, Grand Cayman, KY1-9005, Cayman Islands.
|
|
|
(2)
|
The address
of Stichting Pensioenfonds Zorg en Welzijn is P.O. BOX 4001 NL-3700 KA Zeist The Netherlands.
|
|
|
(3)
|
The
address of Jennison Associates LLC is 466 Lexington Avenue, New York, NY 10017.
|
|
|
(4)
|
The
address of Bienville Capital Management, LLC is 521 5
th
Avenue 35
th
floor, New York, NY 10175.
|
|
|
(5)
|
The
address of EMS Capital LP is 767 Fifth Avenue 46
th
floor, New York, NY 10153.
|
|
|
(6)
|
As
of April 1, 2016 Mariano Bosch, beneficially owned 963,393. As of April 26, 2017,
he benefitially owned 1,004,147.
|
As of April 26, 2017,
96,868,261 shares, representing 79.2% of our outstanding common shares were held by United States record holders.
|
|
B.
|
RELATED PARTY TRANSACTIONS
|
Share Purchase and Sale Agreement and UMA Right of First Offer
Agreement
In connection with the
Share Purchase and Sale Agreement, dated February 16, 2006. The IFH Parties also entered into a Right of First Offer Agreement
with Marcelo Weyland Barbosa Vieira, Paulo Albert Weyland Vieira, Mario Jorge de Lemos Vieira, and Corina de Almeida Leite, each
of which is a current indirect shareholder in IFH, (together the “UMA Members”), dated February 16, 2006, whereby the
IFH Parties agreed to grant the UMA Members a right of first offer to acquire the shares of UMA, or all or substantially all of
the assets of UMA, or the real property or plot of land where the commercial offices of UMA is currently located and which is currently
subject to a right-of-way and easement agreement granted to Mario Corina, Alfenas Agrícola Ltda. The rights granted to each
of the UMA Members, their permitted affiliates, assignees, successors or heirs under such agreement are only in effect for as long
as such entities hold such an equity interest in IFH or any of its affiliates.
Agriculture Partnership Agreements
Some of our agriculture
partnership agreements are entered into with certain minority shareholders of the Company, for a total of 9,946.66 hectares. For
the years ended December 31, 2014, 2012 and 2011, we recorded other net amount (payables) or receivables for payments in advance
amounting to $(0.5) million, ($0.5) million and $(0.3) million, respectively, and recognized expenses amounting to $4.2 million,
$3.1 million and $3.3 million, respectively, in connection with these agreements.
Registration Rights Agreement
In connection with the
Reorganization, we entered into a registration rights agreement providing holders of our issued and outstanding common shares on
January 28, 2011 (such holders being hereinafter referred to as the “Existing Investors” and such common shares subject
to the agreement being hereinafter referred to as the “Registrable Securities”) with certain rights to require us to
register their shares for resale under the Securities Act of 1933, as amended (“Securities Act”). Pursuant to the agreement,
if holders of a majority of the Registrable Securities notify us, no earlier than 180 days after the effective date of the registration
statement previously filed by us on Form F-1, we are required, subject to certain limitations, to file a registration statement
under the Securities Act in order to register the resale of the amount of ordinary shares requested by such holders. The underwriters
in such an offering will have the right, subject to certain limitations, to limit the number of shares included in such registration.
The Existing Investors have the right to require us to file one such registration. In addition, if we propose to register any of
our securities under the Securities Act, Existing Investors are entitled to notice of such registration and are entitled to certain
“piggyback” registration rights allowing such holders to include their common shares in such registration, subject
to certain restrictions. Furthermore, Existing Investors may require us to register the resale of all or a portion of their shares
on a registration statement on Form F-3 once we are eligible to use Form F-3. In an underwritten offering, the underwriters have
the right, subject to certain restrictions, to limit the number of Registrable Securities Existing Investors may include.
Shelf Registration Statement on Form F-3
The Company filed a shelf
registration statement on Form F-3 with the U.S. Securities and Exchange Commission (SEC) on September 23, 2013, which was declared
effective by the SEC on December 23, 2013. Pursuant to the Shelf Registration Statement, certain shareholders may offer and sell
from time to time, in one or more offerings, up to 55,821,281 common shares. The registration of the common shares for disposition
by the principal shareholders does not mean that the principal shareholders will actually offer or sell any of the shares. The
specifics of future offerings, if any, including the names of participating shareholders, the amount of shares to be offered and
the offering price, will be determined at the time of any such offerings and will be described in a prospectus supplement filed
at the time of any such offerings.
On March 21, 2016, we
completed an underwritten secondary offering of 12.0 million common shares of Adecoagro offered by our shareholders Quantum Partners
LP and Geosor Corpration, at a price per share to the public of $11.70 pursuant to the effective shelf registration statement described
in the previous paragraph.
Advisory Service Agreement
On November 18, 2014 Adecoagro
Vale do Ivinhema S.A., a Brazilian subsidiary of the company, executed an Advisory Service Agreement with Mirante Consultoria Ltda.,
an affiliate of Mr. Marcelo Vieira (director of the company) for a term of 12 months, and extended for four additional more months.
As consideration for the provision of advisory services under the agreement, Adecoagro Vale do Ivinhema S.A. paid Mirante Consultoria
Ltda. R$ 59,463 per month, which equals an aggregate amount of R$ 951,408 for the term of the agreement.
|
|
C.
|
INTERESTS OF EXPERTS AND COUNSEL
|
Not applicable.
|
|
Item 8.
|
Financial Information
|
|
|
A.
|
CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION.
|
See Item 18. Financial
Statements and page F-1 through F-85 for our Consolidated Financial Statements.
Legal and Administrative Proceedings
We are subject to several
laws, regulations and business practices of the countries in which we operate. In the ordinary course of business, we are subject
to certain contingent liabilities with respect to existing or potential claims, lawsuits and other proceedings, including those
involving tax, social security, labor lawsuits and other matters. We accrue liabilities when it is probable that future costs will
be incurred and such costs can be reasonably estimated. Currently, we are not engaged in any material litigation or arbitration
and no material litigation or claims are known to us to be pending or threatened against us which, either alone or on a combined
basis, may result in an adverse effect on our business, results of operations, or cash flows.
In Argentina and Brazil
we are engaged in several legal proceedings, including tax, social security, labor, civil, environmental, administrative and other
proceedings, for which we have established provisions in an aggregate amount of $3.8 million as of December 31, 2016. In addition,
there are currently certain legal proceedings pending in which we are involved for which we have not established provisions. In
the opinion of our management, the ultimate disposition of any threatened or pending matters, either individually or on a combined
basis, will not have a material adverse effect on our combined financial condition, liquidity, or results of operations other than
as described below.
The Brazilian government
filed a tax enforcement action against UMA to demand excise taxes (Imposto sobre Produtos Industrializados, or “IPI”),
or a federal value-added tax on industrial products, in the amount of approximately $5.5 million. We have obtained a favorable
initial decision from the lower court, which accepted our argument on procedural grounds based on the Brazilian government’s
loss of its procedural right to demand the IPI debts. Currently, the case is under review by an appellate court following the appeal
filed by the Brazilian government. We have not made any provision for this claim based on legal counsel’s view that the risk
of an unfavorable decision in this matter is remote . If this proceeding is decided adversely to us, our results of operations
and financial condition may be materially adversely affected.
José Valter Laurindo
de Castilhos, Companhia Rio de Janeiro Agropecuária Ltda. and other former owners of the Rio de Janeiro and Conquista Farms
have filed suit against us for the payment of a supplementary amount of approximately $29.7 million, as well as indemnity for moral
and material damages, as a result of the alleged breach of the purchase agreement entered into by the parties. The lower court
ruled in our favor, allowing us to keep possession of the Rio de Janeiro Farm. This decision has been appealed by Mr. Castilhos
to the Superior Court of Justice (“Superior Tribunal de Justiça”).
The Brazilian Superior Court of Justice determined that the case had no merit. This decision can be appealed by Mr. Castilhos.
We have not made any provision for this claim based on legal counsel’s view that the risk of an unfavorable decision in this
matter is remote. If this proceeding is decided adversely to us, our results of operations and financial condition may be materially
adversely affected.
The INCRA conducted an
investigation to determine the falsehood of the CCIR delivered to us by the former owner of Rio de Janeiro Farm (the “Farm”)
back in January 2005 when we acquired the Farm. The INCRA also conducted an investigation related to the
cadeia dominial
of the Farm to determine the correct chain of ownership through the successive transfers of ownership of the Farm, in order to
confirm that the
destaque publico
occurred or that the State does not have interest in claiming ownership. No irregularity
was found that could jeopardize the acquisition deed or affect the ownership of the Farm.
With respect to legal proceedings
in which the Company is a plaintiff, in September 2013, Marfrig Argentina S.A., (“Marfrig Argentina”), an Argentine
subsidiary of Marfrig Alimentos S.A. (“Marfrig Alimentos") a Brazilian Company, notified the Group of its intention
to early terminate the lease for grazing land agreement entered into with the Group in December 2009. The termination of the lease
agreement was effective in the fourth quarter of 2013. The Group filed an arbitration proceeding against Marfrig Argentina and
Marfrig Alimentos in 2014 seeking $23 million claiming, which include unpaid invoices for a total amount of $1.1 million and indemnification
up to $22.0 million for early termination of the grazing land lease.
On September 2016, the
parties settled the arbitration proceedings in the amount of US$ 9 million. As of December 31 2016 the Group collected US$ 7
million and as March 31, 2017 the Group has collected the remaining balance. This settlement, net of the unpaid invoices and other
expenses resulted in an income of US$ 8.5 million for the Group.
Dividend Policy
The amount and payment
of dividends will be determined by a simple majority vote at a general shareholders’ meeting, typically but not necessarily,
based on the recommendation of our board of directors. All shares of our capital stock rank
pari passu
with respect to the
payment of dividends. Pursuant to our articles of incorporation, the board of directors has the power to distribute interim dividends
in accordance with applicable Luxembourg law. Dividends may be lawfully declared and paid if our net profits and distributable
reserves are sufficient under Luxembourg law.
Under Luxembourg law,
at least 5% of our net profits per year must be allocated to the creation of a legal reserve until such reserve has reached an
amount equal to 10% of our issued share capital. If the legal reserve subsequently falls below the 10% threshold, at least 5% of
the annual net profits again must be allocated toward the reserve. The legal reserve is not available for distribution.
Adecoagro is a holding
company and has no material assets other than its ownership of partnership interests in Adecoagro LP SCS, in turn, is a holding
entity with no material assets other than its indirect ownership of shares in operating subsidiaries in foreign countries. If we
were to distribute a dividend at some point in the future, we would cause the operating subsidiaries to make distributions to Adecoagro
LP SCS, which in turn would make distributions to Adecoagro in an amount sufficient to cover any such dividends.
Our subsidiaries in Argentina
and Brazil are subject to certain restrictions on their ability to declare or pay dividends. See “Item 5. Operating and Financial
Review and Prospects—B. Liquidity and Capital Resources—Indebtedness and Financial Instruments”, and also see
“—Risks Related to our Business and Industries—Certain of our subsidiaries have substantial indebtedness which
could impair their financial condition and decrease the amount of dividends we receive.
Except as otherwise disclosed
in this annual report, there has been no undisclosed significant change since the date of the annual Consolidated Financial Statements.
|
|
Item 9.
|
The Offer and Listing
|
|
|
A.
|
OFFER AND LISTING DETAILS
|
Our common shares have
been listed on the NYSE under the symbol “AGRO” since January 28, 2011. As of the date of this report, our issued share
capital amounts to $183,572,723, represented by 122,381,815 (of which 1,238,318 were treasury shares as of December 31, 2016) shares
with a nominal value of $1.50 each. All issued shares are fully paid up.
The table below sets forth, for the period
indicated, the reported high and low closing prices for our common shares listed on the NYSE.
|
Full Financial Quarters Since Listing
|
|
High
|
|
|
Low
|
|
|
January 28, 2011 to March 31, 2011
|
|
$
|
13.50
|
|
|
$
|
11.00
|
|
|
Second Quarter 2011
|
|
|
13.47
|
|
|
|
10.27
|
|
|
Third Quarter 2011
|
|
|
11.97
|
|
|
|
8.62
|
|
|
Fourth Quarter 2011
|
|
|
9.72
|
|
|
|
7.42
|
|
|
Fiscal Year Ended December 31, 2011
|
|
|
13.50
|
|
|
|
7.42
|
|
|
First Quarter 2012
|
|
|
11.05
|
|
|
|
8.03
|
|
|
Second Quarter 2012
|
|
|
10.81
|
|
|
|
8.51
|
|
|
Third Quarter 2012
|
|
|
10.80
|
|
|
|
9.33
|
|
|
Fourth Quarter 2012
|
|
|
9.91
|
|
|
|
8.05
|
|
|
Fiscal Year Ended December 31, 2012
|
|
|
11.05
|
|
|
|
8.03
|
|
|
First Quarter 2013
|
|
|
9.56
|
|
|
|
7.69
|
|
|
Second Quarter 2013
|
|
|
7.94
|
|
|
|
6.05
|
|
|
Third Quarter 2013
|
|
|
7.65
|
|
|
|
6.22
|
|
|
Fourth Quarter 2013
|
|
|
8.37
|
|
|
|
7.46
|
|
|
Fiscal Year Ended December 31, 2013
|
|
|
9.56
|
|
|
|
6.05
|
|
|
First Quarter 2014
|
|
|
8.16
|
|
|
|
7.01
|
|
|
Second Quarter 2014
|
|
|
9.95
|
|
|
|
8.13
|
|
|
Third Quarter 2014
|
|
|
10.25
|
|
|
|
8.80
|
|
|
Fourth Quarter 2014
|
|
|
9.44
|
|
|
|
7.83
|
|
|
Fiscal Year Ended December 31, 2014
|
|
|
10.25
|
|
|
|
7.01
|
|
|
First Quarter 2015
|
|
|
11.10
|
|
|
|
7.75
|
|
|
Second Quarter 2015
|
|
|
10.57
|
|
|
|
9.17
|
|
|
Third Quarter 2015
|
|
|
9.46
|
|
|
|
7.59
|
|
|
Fourth Quarter 2015
|
|
|
12.45
|
|
|
|
8.11
|
|
|
Fiscal Year Ended December 31, 2015
|
|
|
12.45
|
|
|
|
7.59
|
|
|
First Quarter 2016
|
|
|
13.23
|
|
|
|
11.03
|
|
|
Second Quarter 2016
|
|
|
11.64
|
|
|
|
10.15
|
|
|
Third Quarter 2016
|
|
|
11.41
|
|
|
|
9.50
|
|
|
Fourth Quarter 2016
|
|
|
11.60
|
|
|
|
9.86
|
|
|
Fiscal Year Ended December 31, 2016
|
|
|
13.23
|
|
|
|
9.50
|
|
|
Last 6 Months
|
|
High
|
|
|
Low
|
|
|
|
|
|
|
|
|
|
|
November 2016
|
|
|
11.08
|
|
|
|
9.86
|
|
|
December 2016
|
|
|
10.74
|
|
|
|
9.99
|
|
|
January 2017
|
|
|
11.70
|
|
|
|
10.60
|
|
|
February 2017
|
|
|
12.71
|
|
|
|
11.72
|
|
|
March 2017
|
|
|
12.25
|
|
|
|
11.34
|
|
|
April 2017 (to April 26, 2017)
|
|
|
11.70
|
|
|
|
10.98
|
|
Not applicable.
Our common shares have
been listed on the NYSE under the symbol “AGRO” since January 28, 2011. See “—A. Offer and Listing Details.”
Not applicable.
Not applicable.
Not applicable.
|
|
Item 10.
|
Additional Information
|
Not applicable.
|
|
B.
|
MEMORANDUM AND ARTICLES OF ASSOCIATION
|
The following is a summary
of some of the terms of our common shares, based in particular on our articles of incorporation and the Luxembourg law of August
10, 1915 on commercial companies as amended by the law of August 10, 2016.
Adecoagro’s shares
are governed by Luxembourg law and its articles of incorporation. More information concerning shareholders’ rights can be
found in the Luxembourg law on commercial companies dated August 10, 1915, as amended by the law of 10 August 2016, as amended
from time to time, and the articles of incorporation.
The following is a summary
of the rights of the holders of our shares that are material to an investment in our common shares. These rights are set out in
our articles of association or are provided by applicable Luxembourg law, and may differ from those typically provided to shareholders
of U.S. companies under the corporation laws of some states of the United States. This summary does not contain all information
that may be important to you. For more complete information, you should read our updated articles of association, which are attached
as an exhibit to this annual report.
General
Adecoagro is a Luxembourg
société anonyme
(a joint stock company). The Company’s legal name is “Adecoagro S.A.” Adecoagro
was incorporated on June 11, 2010 and on October 26, 2010 all the outstanding shares of Adecoagro were acquired by IFH LLC.
On October 30, 2010, the
members of IFH LLC transferred pro rata approximately 98% of their membership interests in IFH LLC to Adecoagro in exchange for
common shares of Adecoagro. In a series of transactions during 2012, we transferred shares of Adecoagro to certain limited partners
of IFH in exchange for their residual interest in IFH, increasing our interest in IFH to approximately 100%.
On January 28, 2011,
Adecoagro completed the IPO of its shares on the NYSE. The shares are traded under the symbol “AGRO.”
On March 27, 2015, Adecoagro
commenced a series of transactions for the purpose of transfering the domicile of Adecoagro LP to Luxembourg. In connection with
the Adecoagro LP redomiciliation, Adecoagro merged IFH into Adecoagro LP with Adecoagro LP as the surviving entity and Adecoagro
GP S.à r.l.,
a société à responsibilitié limitée
organized under the laws of
Luxembourg, became the general partner of Adecoagro LP on April 1, 2015. Also on April 1, 2015, Adecoagro completed the redomiciliation
of Adecoagro LP (Delaware) out of Delaware to Luxembourg and Adecoagro LP, without dissolution or liquidation, continued its corporate
existence as Adecoagro LP S.C.S.,
a société en commandite simple
organized under Luxembourg law, effective
April 2, 2015. For a detailed description of the Adecoagro LP redomiciliation please see “Item 4. Information on the Company—A.
History and Development of the Company—History. Since that date the affairs of Adecoagro LP S.C.S. have been governed by
its articles of association and Luxembourg law.
Adecoagro is registered
with the Luxembourg Registry of Trade and Companies under number B153681. Adecoagro has its registered office at 6 Rue Eugène
Ruppert, L-2453, Luxembourg, Grand Duchy of Luxembourg.
The corporate purpose
of Adecoagro, as stated in Article 4 of our articles of incorporation (Purpose Object), is the following: The object of Adecoagro
is the holding of participations, in any form whatsoever, in Luxembourg and foreign companies, or other entities or enterprises,
the acquisition by purchase, subscription, or in any other manner as well as the transfer by sale, exchange or otherwise of stock,
bonds, debentures, notes and other securities or rights of any kind including interests in partnerships, and the holding, acquisition,
disposal, investment in any manner (in), development, licensing or sub licensing of, any patents or other intellectual property
rights of any nature or origin as well as the ownership, administration, development and management of its portfolio. Adecoagro
may carry out its business through branches in Luxembourg or abroad.
Adecoagro may borrow in
any form and proceed to the issuance by private or public means of bonds, convertible bonds and debentures or any other securities
or instruments it deems fit.
In a general fashion it
may grant assistance (by way of loans, advances, guarantees or securities or otherwise) to companies or other enterprises in which
Adecoagro has an interest or which form part of the group of companies to which Adecoagro. belongs or any entity as Adecoagro may
deem fit (including up stream or cross stream), take any controlling, management, administrative and/or supervisory measures and
carry out any operation which it may deem useful in the accomplishment and development of its purposes.
Finally, Adecoagro can
perform all commercial, technical and financial or other operations, connected directly or indirectly in all areas in order to
facilitate the accomplishment of its purpose.
Share Capital
As of December 31, 2016
our issued share capital amounted to $183,572,722.50, represented by 122,381,815 shares in issue (of which 1,238,318 were treasury
shares) with a nominal value of $1.50 each. All issued shares are fully paid up.
As of December 31, 2016
there were 121,600,229 common shares outstanding.
We have an authorized
unissued share capital of $3,000,000,000, including the issued share capital as of December 31, 2016 of $183,572,722.50 and are
authorized to issue up to 2,000,000,000 shares of a nominal value of $1.50 each (taking into account the shares issued as of December
31, 2016) out of such authorized share capital. Our unissued share capital as of December 31, 2016 is $2,816,427,277.50.
Our articles of incorporation
authorize the board of directors to issue shares within the limits of the authorized un-issued share capital at such times and
on such terms as the board or its delegates may decide for a period ending on April 20, 2012 (unless it is extended,
amended or renewed and we currently intend to seek renewals and/or extensions as required from time to time). Accordingly, the
board may issue shares up to the number of authorized un-issued shares pursuant to the above until the latter date against contributions
in cash, contributions in kind or by way of incorporation of available reserves at such times and on such terms and conditions,
including the issue price, as the board of directors or its delegate(s) may in its or their discretion resolve and the general
meeting of shareholders has waived and has authorized the board of directors to waive, suppress or limit, any pre-emptive subscription
rights of shareholders provided for by law to the extent it deems such waiver, suppression or limitation advisable for any issue
or issues of shares within the authorized share capital. Further, on April 19, 2017 the extraordinary meeting of shareholders reduced
such authorization to 5 years; this is, until April 20, 2021, in line with the amendments to the Luxembourg law of August 10, 2015
on commercial companies as amended by the law of August 10, 2016.
Our authorized share capital
is determined (and may be increased, reduced or extended) by our articles of incorporation, as amended from time to time, by the
decision of our shareholders at an extraordinary general shareholders’ meeting with the necessary quorum and majority provided
for the amendment of our articles of incorporation. See “—Amendment to the Articles of Incorporation” and “—General
Meeting of Shareholders”.
Under Luxembourg law,
existing shareholders benefit from a preemptive subscription right on the issuance of shares for cash consideration. However, our
shareholders have, in accordance with Luxembourg law, authorized the board to suppress, waive or limit any preemptive subscription
rights of shareholders provided by law to the extent the board deems such suppression, waiver or limitation advisable for any issuance
or issuances of shares within the scope of our authorized unissued share capital. Such shares may be issued above, at or below
market value (down to zero) as well as by way of incorporation of available reserves and premium for a period ending on April 2021
(unless it is extended, amended or renewed and we currently intend to seek renewals and/or extensions as required from time to
time). Further, on April 19, 2017 the extraordinary meeting of shareholders reduced the authorized un-issued share capital and
related authorizations to five years; this is, until April 20, 2021, in line with the amendments to the Luxembourg law of August
10, 2015 on commercial companies as amended by the law of August 10, 2016.
Form and Transfer of shares
Our shares are issued
in registered form only and are freely transferable. Luxembourg law does not impose any limitations on the rights of Luxembourg
or non-Luxembourg residents to hold or vote our shares.
Under Luxembourg law,
the ownership of registered shares is evidenced by the inscription of the name of the shareholder, the number of shares held by
him or her in the register of shares of the Company. Each transfer of shares in the share register shall be effected by written
declaration of transfer to be recorded in the register of shares, such declaration to be dated and signed by the transferor and
the transferee, or by their duly appointed agents. We may accept and enter into the share register any transfer effected pursuant
to an agreement or agreements between the transferor and the transferee, true and complete copies of which have been delivered
to us.
We may appoint registrars
in different jurisdictions, each of whom may maintain a separate register for the shares entered in such register. We have appointed
Computershare as our New York registrar and transfer agent. The holders of our shares may elect to be entered in one of the registers
and to be transferred from time to time from one register to another register provided that our board of directors may however
impose transfer restrictions for shares that are registered, listed, quoted, dealt in, or have been placed in certain jurisdictions
in compliance with the requirements applicable therein. The transfer to the register kept at the Company’s registered office
may always be requested by a shareholder.
In addition, our articles
of incorporation provide that our shares may be held through a securities settlement system or a professional depository of securities.
Shares held in such manner have the same rights and obligations as shares recorded in our shareholder register(s) (subject to complying
with certain formalities). Shares held through a securities settlement system or a professional depository of securities may be
transferred in accordance with customary procedures for the transfer of securities in book-entry form.
Issuance of Shares
Pursuant to Luxembourg
law of August 10, 1915 on commercial companies as amended by the law of 10 August 2016, the issuance of shares in Adecoagro requires
the approval by the general meeting of shareholders at the quorum and majority provided for the amendment of our articles of incorporation.
See “—Amendment to the Articles of Incorporation” and “—General Meeting of Shareholders”.
The general meeting of shareholders may however approve an authorized unissued share capital and authorize the board of directors
to issue shares up to the maximum amount of such authorized unissued share capital for a maximum period of five years. The general
meeting may amend, renew or extend such authorized share capital and authorization to the board of directors to issue shares.
We have currently an authorized
unissued share capital of $3,000,000,000, including the issued share capital as of December 31, 2015 of $183,572,722.50, and are
authorized to issue up to 2,000,000,000 shares of a nominal value of $1.50 each (taking into account the shares already issued)
out of such authorized share capital. As of December 31, 2015 the un-issued share capital was $2,816,427,277.50. Our board has
been authorized to issue shares within the limits of the authorized un-issued share capital at such times and on such terms as
the board or its delegates may decide for a period ending on
April 20, 2021 (unless it is extended, amended or renewed and we currently intend to seek renewals and/or extensions as required
from time to time). Further, on April 19, 2017 the extraordinary meeting of shareholders reduced the authorized un-issued share
capital and related authorizations to 5 years; until April 20, 2021, in line with the amendments to the Luxembourg law of August
10, 1915 on commercial companies as amended by the law of August 10, 2016. Accordingly, the board may issue shares up to the total
number of authorized un-issued shares until the latter date against contributions in cash, contributions in kind or by way of incorporation
of available reserves at such times and on such terms and conditions, including the issue price, as the board of directors or its
delegate(s) may in its or their discretion resolve while waiving, suppressing or limiting, any pre-emptive subscription rights
of shareholders provided for by law to the extent it deems such waiver, suppression or limitation advisable for any issue or issues
of shares within the authorized share capital.
Our articles provide that
no fractional shares may be issued.
Our shares have no conversion
rights and there are no redemption or sinking fund provisions applicable to our common shares.
Preemptive Rights
Unless limited or cancelled
by the board of directors as described above, holders of our shares have a pro rata preemptive right to subscribe for any new shares
issued for cash consideration. Our articles provide that, in the event of an increase of the issued share capital by the board
of directors within the limits of the authorized un-issued share capital, preemptive rights can be waived, suppressed or limited
by the board of directors for a period ending on April 20, 2021. On April 19, 2017 the extraordinary meeting of shareholders reduced
such authorization to 5 years; until April 20, 2021, in line with the amendments to the Luxembourg law of August 10, 1915 on commercial
companies as amended by the law of August 10, 2016.
Repurchase of Shares
We cannot subscribe for
our own shares.
We may, however, repurchase
issued shares or have another person repurchase issued shares for our account, subject in particular to the following conditions:
|
|
•
|
the prior authorization of the general meeting of shareholders (at the quorum and majority for
ordinary resolutions), which authorization sets forth the terms and conditions of the proposed repurchase and in particular the
maximum number of shares to be repurchased, the duration of the period for which the authorization is given (which may not exceed
five years) and, in the case of repurchase for consideration, the minimum and maximum consideration per share, must have been obtained;
|
|
|
•
|
the repurchase may not reduce our net assets on a non-consolidated basis to a level below the aggregate
of the issued share capital and the reserves that we must maintain pursuant to Luxembourg law or its articles of incorporation;
and
|
|
|
•
|
only fully paid up shares may be repurchased.
|
The general meeting of
shareholders has authorized that the Company, and/or any wholly-owned subsidiary (and/or any person acting on their behalf), may
purchase, acquire, receive or hold shares in the Company under article 49-2 of the Luxembourg law of August 10, 1915, from time
to time up to 20% of the issued share capital, on the following terms and on such terms as referred to below and as shall further
be determined by the board of directors of the Company, such authorization being valid (subject to renewal) for a period of five
years from January 10, 2011. Such period was extended in the extraordinary meeting of shareholders held on April 20, 2016 for five
more years, ending on April 20, 2021.
Acquisitions may be made
in any manner including without limitation, by tender or other offer(s), buyback program(s), over the stock exchange or in privately
negotiated transactions or in any other manner as determined by the board of directors (including derivative transactions or transactions
having the same or similar economic effect than an acquisition).
In the case of acquisitions
for value:
(i) in the case
of acquisitions other than in the circumstances set forth under (ii), for a net purchase price being (x) no less than fifty per
cent of the lowest stock price and (y) no more than fifty per cent above the highest stock price, in each case being the closing
price, as reported by the New York City edition of the Wall Street Journal, or, if not reported therein, any other authoritative
source to be selected by the board of directors of the Company (hereafter, the closing price), over the ten (10) trading days preceding
the date of the purchase (or as the case may be the date of the commitment to the transaction);
(ii) in case
of a tender offer (or if deemed appropriate by the board of directors, a buyback program),
a. in case of
a formal offer being published, for a set net purchase price or a purchase price range, each time within the following parameters:
no less than fifty per cent of the lowest stock price and (y) no more than fifty per cent above the highest stock price, in each
case being the closing price over the ten (10) trading days preceding the publication date, provided however that if the stock
exchange price during the offer period fluctuates by more than 10%, the board of directors may adjust the offer price or range
to such fluctuations;
b. in case a
public request for sell offers is made, a price range may be set (and revised by the board of directors as deemed appropriate)
provided that acquisitions may be made at a price which is no less than fifty per cent of the lowest stock price and (y) no more
than fifty per cent above the highest stock price, in each case being the closing price over a period determined by the board of
directors provided that such period may not start more than five (5) trading days before the sell offer start date of the relevant
offer and may not end after the last day of the relevant sell offer period.
In addition, pursuant
to Luxembourg law the board of directors may repurchase shares without the prior approval of the general meeting of shareholders
if necessary to prevent serious and imminent harm to us or if the acquisition of shares has been made in view of the distribution
thereof to the employees.
A share repurchase program
was approved by the board of directors of the Company on September 12, 2013 to acquire up to 5% of the total outstanding share
capital of the Company to be held as treasury shares (the “Share Repurchase Program”). The Share Repurchase Program
was implemented in compliance with the authorization granted by the general meeting of shareholders of the Company, any applicable
law, rules or regulations described above and the following limits approved by the board of directors of the Company. The Share
Repurchase Program was approved for a period of 12 months from September 23, 2014 (the date of its announcement) or until reaching
the maximum number of shares authorized under the Share Repurchase Program, whichever occurs first. The Share Repurchase Program
was renewed by decision of the Board of Directors on August 11, 2015 and on August 9, 2016 for an additional period of 12 months,
ending on September 23, 2017 or until reaching the maximum number of shares authorized under the Program, whichever occurs first.
In April 4, 2017, the board of directors amended the Share Repurchase Program to include repurchases under Open Market Transactions,
in reliance on the “safe harbour” from liability for manipulation provided by Rule 10b-18 of the Securities Exchange
Act and in privately negotiated transactions.
Capital Reduction
The articles of incorporation
provide that the issued share capital may be reduced, subject to the approval by the general meeting of shareholders at the quorum
and majority provided for the amendment of our articles of incorporation. See “—Amendment to the Articles of Incorporation”
and “—General Meeting of Shareholders”.
General Meeting of Shareholders
In accordance with Luxembourg
law and our articles of incorporation, any regularly constituted general meeting of shareholders of Adecoagro represents the entire
body of shareholders of the Company. It shall have the broadest powers to order, carry out or ratify acts relating to the operations
of the Company.
The annual general meeting
of shareholders of Adecoagro as well as any other meetings of shareholders shall be held in the Grand Duchy of Luxembourg at such
place and time as indicated in the notice of the meeting.
Each of our shares entitles
the holder thereof to attend our general meeting of shareholders, either in person or by proxy, to address the general meeting
of shareholders, and to exercise voting rights, subject to the provisions of our articles of incorporation. Each share entitles
the holder to one vote at a general meeting of shareholders. There is no minimum shareholding required to be able to attend or
vote at a general meeting of shareholders.
A shareholder may act
at any general meeting of shareholders by appointing another person (who need not be a shareholder) as his proxy, which proxy shall
be in writing and comply with such requirements as determined by our board with respect to the attendance to the general meeting,
and proxy forms in order to enable shareholders to exercise their right to vote. All proxies must be received by us (or our agents)
no later than the day preceding the fifth (5th) working day before the date of the general meeting except if our board of directors
decides to change such time frame.
Our articles of incorporation
provide that in the case of shares held through the operator of a securities settlement system or depository, a holder of such
shares wishing to attend a general meeting of shareholders must receive from such operator or depository a certificate certifying
the number of shares recorded in the relevant account on the blocking date and certifying that the shares in the account shall
be blocked until the close of the general meeting. Such certificates should be submitted to us no later than the day preceding
the fifth working day before the date of the general meeting unless our board fixes a different period.
Our board of directors
may determine a date preceding a general meeting as the record date for admission to such general meeting. When convening a general
meeting of shareholders, we will publish the convening notice (which must be published at least fifteen days before the meeting)
in the
Recueil Électronique des Sociétés et Association
, and in a Luxembourg newspaper and in the case
the shares of the Company are listed on a regulated market, in accordance with the publicity requirements of such regulated market
applicable to the Company. If all of the shareholders are present or represented at a general meeting of shareholders, the general
meeting may be held without prior notice or publication. These convening notices must contain the agenda of the meeting and set
out the conditions for attendance and representation at the meeting.
All materials relating
to a general meeting of shareholders (including the notice) will be available at the website of Adecoagro at www.adecoagro.com
and will be filed with the SEC on Form 6-K. The information on our website is not incorporated by reference in, and does not constitute
a part of, this annual report.
Luxembourg law provides
that the board of directors is obliged to convene a general meeting of shareholders if shareholders representing, in the aggregate,
10% of the issued share capital so require in writing with an indication of the agenda. In such case, the general meeting of shareholders
must be held within one month of the request. If the requested general meeting of shareholders is not held within one month, shareholders
representing, in the aggregate, 10% of the issued share capital, may petition the competent president of the district court in
Luxembourg to have a court appointee convene the meeting. Luxembourg law provides that shareholders representing, in the aggregate,
10% of the issued share capital may request that additional items be added to the agenda of a general meeting of shareholders.
That request must be made by registered mail sent to the registered office at least five days before the holding of the general
meeting of shareholders.
Voting Rights
Each share of our shares
entitles the holder thereof to one vote at a general meeting of shareholders.
Luxembourg law distinguishes
between “ordinary” general meetings of shareholders and “extraordinary” general meetings of shareholders.
Extraordinary general
meetings of shareholders are convened to resolve in particular upon an amendment to the articles of incorporation and certain other
limited matters including those described below and are generally subject to the quorum and majority requirements described below.
All other general meetings of shareholders are ordinary general meetings of shareholders.
Ordinary General Meetings
of Shareholders
. At an ordinary general meeting of shareholders there is no quorum requirement, and resolutions are adopted
by a simple majority of the votes validly cast, irrespective of the number of shares represented. Abstentions are not considered
“votes”.
Extraordinary General
Meetings of Shareholders
. An extraordinary general meeting of shareholders convened for the purpose of in particular (a) an
increase or decrease of the authorized or issued share capital, (b) a limitation or exclusion of preemptive rights, (c) approving
a legal merger or de-merger of Adecoagro, (d) dissolution of the Company or (e) an amendment of the articles of incorporation must
generally have a quorum of at least 50% of our issued share capital except in limited circumstances provided for by Luxembourg
law. If such quorum is not reached, the extraordinary general meeting of shareholders may be reconvened, pursuant to appropriate
notification procedures, at a later date with no quorum requirement applying.
Irrespective of whether
the proposed actions described in the preceding paragraph will be subject to a vote at the first or a subsequent extraordinary
general meeting of shareholders, such actions are generally subject to the approval of at least two-thirds of the votes validly
cast at such extraordinary general meeting of shareholders (except in limited circumstances provided for by Luxembourg law). Abstentions
are not considered “votes”.
Appointment and Removal
of Directors
. Members of the board of directors may be elected by simple majority of the votes validly cast at any general
meeting of shareholders. Under the articles of incorporation, all directors are elected for a period of up to three years with
such possible extension as provided therein provided however the directors shall be elected on a staggered basis, with one third
(1/3) of the directors being elected each year and provided further that such three year term may be exceeded by a period up to
the annual general meeting held following the third anniversary of the appointment. Any director may be removed with or without
cause by a simple majority vote at any general meeting of shareholders. The articles of incorporation provide that in case of a
vacancy the board of directors may co-opt a director.
Neither Luxembourg law
nor our articles of incorporation contain any restrictions as to the voting of our shares by non-Luxembourg residents.
Amendment to the Articles of Incorporation
Luxembourg law requires
an extraordinary general meeting of shareholders to resolve upon an amendment to the articles of incorporation. The agenda of the
extraordinary general meeting of shareholders must indicate the proposed amendments to the articles of incorporation.
An extraordinary general
meeting of shareholders convened for the purpose of amending the articles of incorporation must generally have a quorum of at least
50% of our issued share capital. If such quorum is not reached, the extraordinary general meeting of shareholders may be reconvened
at a later date with no quorum according to the appropriate notification procedures. Irrespective of whether the proposed amendment
will be subject to a vote at the first or a subsequent extraordinary general meeting of shareholders, the amendment is generally
subject to the approval of at least two-thirds of the votes cast at such extraordinary general meeting of shareholders.
Any resolutions to amend
the articles of incorporation must be taken before a Luxembourg notary and such amendments must be published in accordance with
Luxembourg law.
Merger and Division
A merger by absorption
whereby a Luxembourg company, after its dissolution without liquidation transfers to another company all of its assets and liabilities
in exchange for the issuance to the shareholders of the company being acquired of shares in the acquiring company, or a merger
effected by transfer of assets to a newly incorporated company, must, in principle, be approved by an extraordinary general meeting
of shareholders of the Luxembourg company to be held before a notary. Similarly the de-merger of a Luxembourg company is generally
subject to the approval by an extraordinary general meeting of shareholders.
Liquidation
In the event of the liquidation,
dissolution or winding-up of Adecoagro, the assets remaining after allowing for the payment of all liabilities will be paid out
to the shareholders pro rata to their respective shareholdings. The decision to voluntarily liquidate, dissolve or wind-up require
the approval by an extraordinary general meeting of shareholders of the Company to be held before a notary.
No Appraisal Rights
Neither Luxembourg law
nor our articles of incorporation provide for any appraisal rights of dissenting shareholders.
Distributions
Subject to Luxembourg
law, each share is entitled to participate equally in distributions if and when if declared by the general meeting of shareholders
out of funds legally available for such purposes. Pursuant to the articles of incorporation, the general meeting of shareholders
may approve distributions and the board of directors may declare interim distribution, to the extent permitted by Luxembourg law.
Declared and unpaid distributions
held by us for the account of the shareholders shall not bear interest. Under Luxembourg law, claims for unpaid distributions will
lapse in our favor five years after the date such distribution has been declared.
Annual Accounts
Each year the board of
directors must prepare annual accounts, that is, an inventory of the assets and liabilities of Adecoagro together with a balance
sheet and a profit and loss account. The board of directors must also prepare, each year, consolidated accounts and management
reports on the annual accounts and consolidated accounts. The annual accounts, the consolidated accounts, the management report
and the auditor’s reports must be available for inspection by shareholders at the registered office of Adecoagro at least
8 calendar days prior to the date of the annual general meeting of shareholders.
The annual accounts and
the consolidated accounts, after approval by the annual general meeting of shareholders, will need to be filed with the Luxembourg
registry of trade and companies within one month after the approval and no more than seven months after the close of the financial
year.
Information Rights
Luxembourg law gives shareholders
limited rights to inspect certain corporate records 8 calendar days prior to the date of the annual general meeting of shareholders,
including the annual accounts with the list of directors and auditors, the consolidated accounts, the notes to the annual accounts
and the consolidated accounts, a list of shareholders whose shares are not fully paid-up, the management reports, the auditor’s
report and in case of amendments to the articles, the text of the proposed amendments and the draft of the resulting consolidated
articles.
Any registered shareholder
is entitled to receive a copy of the annual accounts, the consolidated accounts, the auditor’s reports and the management
reports free of charge 8 calendar days prior to the date of the annual general meeting of shareholders upon request.
Under Luxembourg law,
it is generally accepted that a shareholder has the right to receive responses to questions concerning items on the agenda for
a general meeting of shareholders, if such responses are necessary or useful for a shareholder to make an informed decision concerning
such agenda item, unless a response to such questions could be detrimental to our interests.
One or more shareholders
representing at least 10% of the share capital or 10% of the votes attached to all existing securities may ask the board of directors
written questions on one or more management operations (opérations de gestion) of the company and, as the case may be, of
subsidiaries it controls. In the latter case, the request must be assessed in view of the interest of the companies included within
the consolidation. In the absence of response within a period of one month, these shareholders may apply to the court for the appointment
of experts instructed to submit a report on the management operations targeted in the question.
Board of Directors
The management of Adecoagro
is vested in a board of directors. Our articles of incorporation provide that the board must comprise at least three members and
no more than eleven members. The number of directors is determined and the directors are appointed at the general meeting of shareholders
(except in case of a vacancy in the office of a director because of death, retirement,
resignation, dismissal, removal or otherwise, the remaining directors may fill such vacancy and appoint a successor in accordance
with applicable Luxembourg law).
The directors are appointed
for a period of up to three years; provided however the directors shall be elected on a staggered basis, with one-third of the
directors being elected each year and provided further that such three year term may be exceeded by a period up to the annual general
meeting held following the third anniversary of the appointment. Directors may be removed with or without cause (
ad nutum
)
by the general meeting of shareholders by a simple majority of votes cast at a general meeting of shareholders. The directors shall
be eligible for re-election indefinitely. The general shareholders’ meeting may dismiss one or more directors at any time,
with or without cause by a resolution passed by simple majority vote, irrespective of the number of shares present at such general
shareholders’ meeting.
Currently our board has
11 members (see “Item 6. Directors, Senior Management and Employees—A. Directors and Senior Management—Board
of Directors”). The board meets as often as required by our interests.
A majority of the members
of the board in office (and able to vote) present or represented at a board meeting constitutes a quorum, and resolutions are adopted
by the simple majority vote of the board members present or represented (and able to vote). The board may also take decisions by
means of resolutions in writing signed by all directors.
Our board may delegate
the daily management of the business of Adecoagro, as well as the power to represent Adecoagro in its day to day business, to individual
directors or other officers or agents of the Company (with power to sub-delegate). In addition the board of directors may delegate
the daily management of the business of Adecoagro, as well as the power to represent Adecoagro in its day to day business to an
executive or other committee as it deems fit. The board of directors shall determine the conditions of appointment and dismissal
as well as the remuneration and powers of any person or persons so appointed.
Currently the board of
directors has appointed the officers listed under “Item 6. Directors, Senior Management and Employees—A. Directors
and Senior Management.”
The board of directors
may (but shall not be obliged to unless required by law) establish one or more committees (including without limitation an audit
committee, a risk and commercial committee, a strategy committee and a compensation committee) and for which it shall, if one or
more of such committees are set up, appoint the members (who may be but do not need to be board members), determine the purpose,
powers and authorities as well as the procedures and such other rules as may be applicable thereto (subject as to the audit committee
as set forth therein).
Currently our board has
set up an audit committee. See “Item 6. Directors, Senior Management and Employees—C. Board Practices.” Our board
has set up a compensation committee. See “Item 6. Directors, Senior Management and Employees—C. Board Practices.”
Our board has set up a risk and commercial committee. See “Item 6. Directors, Senior Management and Employees—C. Board
Practices.” Our board has set up a strategy committee. See “Item 6. Directors, Senior Management and Employees—C.
Board Practices.”
No director or member
of any committee shall, solely as a result of being a director, be prevented from contracting with us, either with regard to his
tenure of any office or place of profit or as vendor, purchaser or in any other manner whatsoever, nor shall any contract in which
any director or member of any committee is in any way interested be liable to be avoided, in account of his position as director
or member of any committee nor shall any director or member of any committee who is so interested be liable to account for us or
the shareholders for any remuneration, profit or other benefit realized by the contract by reason of the director or member of
any committee holding that office or of the fiduciary relationship thereby established.
Any director or, as the
case may be, member of any committee having a direct or indirect interest in a transaction conflicting with our interest, which
has to be considered by the board of directors or the relevant committee, as the case may be, shall be obliged to advise the board
or the committee thereof and to cause a record of his statement to be included in the minutes of the meeting. He may not take part
in these deliberations nor in the vote of the resolution. At the next following general meeting or board of directors’ meeting,
before any resolution is put to vote, a special report shall be made on any transactions in which any of the directors or members
of any committee may have had an interest conflicting with our interest.
No shareholding qualification
for directors is required.
Directors and other officers,
past and present, are entitled to indemnification from us to the fullest extent permitted by law against liability and all expenses
reasonably incurred by him in connection with any claim, action, suit or proceeding in which he is involved by virtue of his being
or having been a director. We may purchase and maintain for any director or other officer insurance against any such liability.
No indemnification shall
be provided against any liability to us or our shareholders by reason of willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of his office. No indemnification will be provided in the event of a settlement
(unless approved by a court of competent jurisdiction or the board), nor will indemnification be provided in proceedings in which
that director or officer has been finally adjudicated to have acted in bad faith and not in the interest of the Company.
Transfer Agent and Registrar
The transfer agent and
registrar for our common shares is Computershare. The holders of our shares may elect to be entered in one of the registers and
to be transferred from time to time from one register to another register provided that our board of directors may however impose
transfer restrictions for shares that are registered, listed, quoted, dealt in, or have been placed in certain jurisdictions in
compliance with the requirements applicable therein. The transfer to the register kept in Luxembourg may always be requested by
a shareholder.
See “Item 4. Information
on the Company—B. Business Overview.”
In 1991, the Argentine
Convertibility Law established a fixed exchange rate according to which the Argentine Central Bank was statutorily obliged to sell
U.S. dollars to any individual at a fixed exchange rate of Ps.1.00 per $1.00. In 2001 Argentina experienced a period of severe
political, economic and social crisis, and on January 6, 2002, the Argentine congress enacted the Public Emergency Law abandoning
more than ten years of fixed Peso-U.S. dollar parity. After devaluing the Peso and setting the official exchange rate at Ps.1.40
per $1.00, on February 11, 2002, the Argentine government allowed the Peso to float. The shortage of U.S. dollars and their heightened
demand caused the Peso to further devaluate significantly in the first half of 2002. The Argentine Central Bank may indirectly
affect this market through its active participation. Due to the deterioration of the economic and financial situation in Argentina
during 2001 and 2002, in addition to the abandonment of the Peso-U.S. dollar parity, the Argentine government established a number
of monetary and currency exchange control measures, including a partial freeze on bank deposits, the suspension on payments of
its sovereign foreign debt, restrictions on the transfer of funds out of, or into, Argentina, and the creation of the Single Free
Foreign Exchange Market (“
Mercado Único y Libre de Cambios
”, or the “FX Market”) through
which all purchases and sales of foreign currency must be made. Although since 2003 these restrictions have been progressively
eased to some extent, as a consequence of the increase of the demand in Argentina for U.S. dollars and the capital flow out of
Argentina, the Argentine government imposed during 2011 some additional restrictions on the transfer of funds from Argentina and
reduced the time required to comply with the mandatory transfer of funds into Argentina.
Most foreign exchange
restrictions and restrictions on transfer of funds into and out of Argentina that had been enacted since 2011, were lifted by the
Macri administration in December 2016, reestablishing Argentine residents’ rights to purchase and remit outside of Argentina
foreign currency with no maximum amount and without specific allocation or prior approval.
In December 2015, in line
with the economic reforms implemented by the new administration, the Argentine Ministry of Treasury issued Resolution No. 3/2015
which eliminated the requirement to maintain a registered, non-transferable and non-interest bearing deposit by reducing the amount
of the deposit from 30% to 0%. Consequently, such deposit is no longer applicable to, among other transactions, foreign financial
debts, inflows of funds of non-residents and repatriations by residents. In addition, pursuant to Resolution No. 1-E/2017 dated
January 5, 2017, the minimum period of time (120 days) that proceeds from new financial indebtedness (incurred by residents granted
by foreign creditors) and portfolio investments of non residents were required to remain in Argentina pursuant to Resolution No. 3/2015 was reduced to zero.
The Argentine Ministry of Treasury is entitled to modify the percentage of and period that funds must be kept in Argentina when
a change in the macroeconomic situation so requires.
In addition, on August
6, 2016, the Argentine Central Bank issued Communication “A” 6037, which repealed most of the restrictions to purchase
currency and those relating to the inflow and outflow of funds into and from Argentina (except for the obligation of Argentine
exporters of goods and services to repatriate to the FX Market foreign currency proceeds from exportation transactions, such as
receivables relating to the exportation of goods, which shall also be settled through the foreign exchange market).
The following is a description
of the main aspects of the Argentine Central Bank’s regulations relating to the inflows and outflows of funds into and from
Argentina:
Inflows
Pursuant to Communication
“A” 5265 issued by the Argentine Central Bank, any financial debts incurred with foreign creditors by both the non-financial
and financial private sector had to be settled through the foreign exchange market. This requirement was eliminated by Communication
“A” 6037, which abrogated Communication “A” 5850, dated December 17, 2015, allowing Argentine borrowers
to keep proceeds outside of Argentina and eliminated the requirement to repatriate and exchange proceeds into pesos when repaying
debts through the MULC.
Pursuant to Resolution
No. 1-E/2017, the minimum period of 120 calendar days, imposed by Resolution No. 3/2015, that proceeds received from foreign financial
debt had to be kept in Argentina was reduced to zero.
Outflows
Communication “A”
6037 abrogated Communication “A” 5264 and partially abrogated Communication “A” 5265, together with their
amendments and supplementary regulations, specifically Communications “A” 5850, 5890 and 6011; which regulated, among
others, the requirements to access the FX Market to pay principal and interest services of foreign debts.
Currently, access to the
FX Market to pay interest accrued from the disbursement of funds is subject to verification by the relevant financial entities
that the borrower accessing the MULC has duly filed, as applicable, the statement of debt required by Communication “A”
3602, as amended from time to time, or the statement of direct investments provided by Communication “A” 4237, as amended
from time to time.
Pursuant to Resolution
No. 1-E/2017, the minimum period of 120 calendar days, imposed by Resolution No. 3/2015, that proceeds from financial external
indebtedness had to be kept in Argentina, was reduced to zero, notwithstanding whether or not the debt is repaid through the FX
Market. Additionally, access to the FX Market for payment of principal is subject to verification by the relevant financial entity
that the borrower has duly filed the statement of debt required by Communication “A” 3602, as amended from time to
time.
Communication “A”
6137, issued by the Argentine Central Bank on December 30, 2016, eliminated the requirement to repatriate and exchange funds obtained
from the exportation of services into Argentine pesos through the FX Market. Such requirement remains applicable only for exported
services included in the FOB (free on board) and/or CIF (cost insurance and freight) value of exported goods (which is not applicable
to the types of services exported by the company). Pursuant to Resolution No. 47-E/2017, the term established to comply with the
requirement of transferring into Argentina and selling for Pesos in the FX Market all foreign currency proceeds from exports of
goods was extended from five to ten years.
For additional information
regarding all current foreign exchange restrictions and exchange control regulations in Argentina, investors should consult their
legal advisors and read the applicable rules mentioned herein, as well as any amendments and complementary regulations, which are
available at the Argentine Ministry of Treasury’s website: www.economia.gob.ar, or the Argentine Central Bank’s
website: www.bcra.gob.ar.
MATERIAL LUXEMBOURG TAX CONSIDERATIONS
FOR HOLDERS OF COMMON SHARES
The following is a summary
discussion of certain Luxembourg tax considerations of the acquisition, ownership and disposition of your shares that may be applicable
to you if you acquire our shares. This does not purport to be a comprehensive description of all of the tax considerations that
may be relevant to any of the Company’s common shares, and does not purport to include tax considerations that arise from
rules of general application or that are generally assumed to be known to holders. This discussion is not a complete analysis or
listing of all of the possible tax consequences of such transactions and does not address all tax considerations that might be
relevant to particular holders in light of their personal circumstances or to persons that are subject to special tax rules.
It is not intended to be,
nor should it be construed to be, legal or tax advice. This discussion is based on Luxembourg laws and regulations as they stand
on the date of this annual report and is subject to any change in law or regulations or changes in interpretation or application
thereof (and which may possibly have a retroactive effect). Prospective investors should therefore consult their own professional
advisers as to the effects of state, local or foreign laws and regulations, including Luxembourg tax law and regulations, to which
they may be subject.
As used herein, a “Luxembourg
individual” means an individual resident in Luxembourg who is subject to personal income tax (impôt sur le revenu)
on his or her worldwide income from Luxembourg or foreign sources, and a “Luxembourg corporate holder” means a company
(that is, a fully taxable entity within the meaning of Article 159 of the Luxembourg Income Tax Law) resident in Luxembourg subject
to corporate income tax (impôt sur le revenu des collectivités) on its worldwide income from Luxembourg or foreign
sources. For purposes of this summary, Luxembourg individuals and Luxembourg corporate holders are collectively referred to as
“Luxembourg Holders”. A “non-Luxembourg Holder” means any investor in shares of Adecoagro other than a
Luxembourg Holder.
Tax regime applicable to realized capital
gains
Luxembourg Holders
Luxembourg resident individual holders
Capital gains realized
by Luxembourg resident individuals who do not hold their shares as part of a commercial or industrial business and who hold no
more than 10% of the share capital of the Company will only be taxable if they are realized on a sale of shares that takes place
before their acquisition or within the first six months following their acquisition.
Luxembourg resident corporate holders
Capital gains realized
upon the disposal of shares by a fully taxable resident corporate holder will in principle be subject to corporate income tax and
municipal business tax. The combined applicable rate (including an unemployment fund contribution) is 27.08% for the fiscal year
ending 2017 for a corporate holder established in Luxembourg-City. An exemption from such taxes may be available to the holder
pursuant to article 166 of the Luxembourg Income Tax Law subject to the fulfilment of the conditions set forth therein. The scope
of the capital gains exemption can be limited in the cases provided by the Grand Ducal Decree of December 21, 2001.
Non-Luxembourg Holders
An individual who is a non-Luxembourg Holder
of shares (and who does not have a permanent establishment, a permanent representative or a fixed place of business in Luxembourg)
will only be subject to Luxembourg taxation on capital gains arising upon disposal of such shares if such holder has (together
with his or her spouse and underage children) directly or indirectly held more than 10% of the capital of Adecoagro at any time
during the past five years, and either (i) such holder has been a resident of Luxembourg for tax purposes for at least 15 years
and has become a non-resident within the last five years preceding the realization of the gain, subject to any applicable tax treaty,
or (ii) the disposal of shares occurs within six months from their acquisition (or prior to their actual acquisition), subject
to any applicable tax treaty.
A corporate non-Luxembourg Holder (that is,
an entity within the meaning of Article 159 of the Luxembourg Income Tax Law), which has a permanent establishment, a permanent
representative or a fixed place of business in Luxembourg to which shares are attributable, will bear corporate income tax and
municipal business tax on a gain realized on a disposal of such shares as set forth above for a Luxembourg corporate holder. However,
gains realized on the sale of the shares may benefit from the full exemption provided for by Article 166 of the Luxembourg Income
Tax Law and by the Grand Ducal Decree of December 21, 2001 subject in each case to fulfilment of the conditions set out therein.
A corporate non-Luxembourg
Holder, which has no permanent establishment in Luxembourg to which the shares are attributable, will bear corporate income tax
on a gain realized on a disposal of such shares under the same conditions applicable to an individual non-Luxembourg Holder, as
set out above. In principle a corporate non-Luxembourg holders is only subject to taxation under (ii) above and not to taxation
under (i) above. This result obtains from the provision that when a corporate Luxembourg holder migrates abroad and becomes a corporate
non-Luxembourg holders, at that moment in time such holder is deemed liquidated for Luxembourg tax purposes and taxation applies
at the moment in time.
Tax regime applicable to distributions
Withholding tax
Distributions imputed for
tax purposes on newly accumulated profits are subject to a withholding tax of 15%. The rate of the withholding tax may be reduced
pursuant to double tax avoidance treaty existing between Luxembourg and the country of residence of the relevant holder, subject
to the fulfilment of the conditions set forth therein.
No withholding tax applies
if the distribution is made to (i) a Luxembourg resident corporate holder (that is, a fully taxable entity within the meaning of
Article 159 of the Luxembourg Income Tax Law), (ii) an undertaking of collective character which is resident of a Member State
of the European Union and is referred to by article 2 of the Council Directive of 2011/96 concerning the common fiscal regime applicable
to parent and subsidiary companies of different member states of November 20, 2011, (iii) a corporation or a cooperative company
resident in Norway, Iceland or Liechtenstein and subject to a tax comparable to corporate income tax as provided by the Luxembourg
Income Tax Law, (iv) an undertaking with a collective character subject to a tax comparable to corporate income tax as provided
by the Luxembourg Income Tax Law which is resident in a country that has concluded a tax treaty with Luxembourg, (v) a Luxembourg
permanent establishment of one of the afore-mentioned categories and (vi) a corporation company resident in Switzerland which is
subject to corporate income tax in Switzerland without benefiting from an exemption, provided that at the date of payment, the
holder holds or commits to hold directly or through a tax transparent vehicle, during an uninterrupted period of at least twelve
months, shares representing at least 10% of the share capital of Adecoagro or acquired for an acquisition price of at least EUR
1,200,000.
Luxembourg Holders
With the exception of a
Luxembourg corporate holders benefitting from the exemption referred to above, Luxembourg individual holders, and Luxembourg corporate
holders subject to Luxembourg corporation taxes, must include the distributions paid on the shares in their taxable income, 50%
of the amount of such dividends being exempted from tax. The applicable withholding tax can, under certain conditions, entitle
the relevant Luxembourg Holder to a tax credit.
Net wealth tax
Luxembourg Holders
Luxembourg net wealth tax
will not be levied on a Luxembourg Holder with respect to the shares held unless (i) the Luxembourg Holder is a legal entity subject
to net wealth tax in Luxembourg; or (ii) the shares are attributable to an enterprise or part thereof which is carried on through
a permanent establishment, a fixed place of business or a permanent representative in Luxembourg.
Net wealth tax is levied
annually at the rate depending on the amount the net wealth of enterprises resident in Luxembourg or, a reduced rate of 0.05% for
the portion of the net wealth exceeding EUR 500 million, as determined for net wealth tax purposes (i.e. 0.5% on an amount up to
EUR 500 million and 0.05% on the amount of taxable net wealth exceeding EUR 500 million). The shares may be exempt from net wealth
tax subject to the conditions set forth by Paragraph 60 of the Law of October 16, 1934 on the valuation of assets (
Bewertungsgesetz
),
as amended.
Non-Luxembourg Holders
Luxembourg net wealth tax will not be levied
on a non-Luxembourg Holder with respect to the shares held unless the shares are attributable to an enterprise or part thereof
which is carried on through a permanent establishment or a permanent representative in Luxembourg.
United States Federal Income Taxation of
the Company
Our business assets and
properties are located, and all of our employees and executives are based outside the United States. Our business is directly conducted
through operating companies organized under the laws of countries other than the United States. These non-U.S. operating companies
are indirectly owned by Adecoagro LP SCS, a holding company which is a societe commandite simple organized under the laws of Luxembourg.
As a partnership that is not engaged in a trade or business within the United States within the meaning of section 864 of the Internal
Revenue Code, Adecoagro LP SCS is not itself subject to U.S. federal net income taxes. We acquired approximately 98 percent of
Adecoagro LP SCS, predecessor company, IFH, prior to undertaking the IPO in exchange for our stock.
Under rules to prevent
expatriation of and by U.S. corporations and certain U.S. partnerships under Code section 7874(b), we would be treated as a U.S.
domestic corporation if for this purpose (i) we were deemed to have acquired substantially all of the assets constituting the trade
or business of a U.S. domestic partnership and (ii) former members of IFH were deemed to own at least 80% of our stock by reason
of the transfer of those trade or business assets (ignoring stock issued in the IPO for purposes of the 80% threshold) and (iii)
we were found not to conduct substantial business activities in Luxembourg. In that event, we would be subject to U.S. federal
net income tax on our worldwide income and dividends we pay would be subject to U.S. federal withholding tax at a 30% rate (subject
to reduction, to the extent the beneficial owner of the dividend is entitled to claim a reduced rate of withholding under an applicable
income tax treaty).
We believe that the restructuring
transactions executed prior to or in connection with the IPO should not be subject to section 7874(b). Accordingly, we do not believe
that we will be subject to U.S. taxation on a net income basis nor do we anticipate paying dividends subject to U.S. federal withholding
tax. However, the relevant rules are unclear in certain respects and there is limited guidance on the application of the rules
to acquisitions of partnerships or partnership assets constituting a trade or business. Accordingly, we cannot assure you that
the IRS will not seek to assert that we are a U.S. domestic corporation, which assertion if successful could materially increase
our U.S. federal income tax liability. Prospective holders who are non-United States persons should also note that, in that event,
we would be required to withhold tax from any dividends we pay to non-U.S. Holders (subject to any applicable income tax treaties
applicable to those non-U.S. Holders).
Shareholders are urged
to consult their own tax advisors about the possible application of section 7874. The remainder of this discussion assumes that
we are not treated as a U.S. corporation for U.S. federal income tax purposes.
Material U.S. Federal Income Tax Considerations
for U.S-. Holders
The following is a discussion
of the material U.S. federal income tax considerations relating to the purchase, ownership and disposition of our common shares.
This discussion applies only to beneficial owners of common shares that are “U.S. Holders” (as defined below), who
have purchase our common shares in the open market and that hold our common shares as “capital assets” for U.S. federal
income tax purposes (generally, property held for investment). This discussion is based on the U.S. Internal Revenue Code of 1986,
as amended, (the “Code”), final, temporary and proposed Treasury regulations,
administrative pronouncements and judicial decisions, all as currently in effect and all of which are subject to change (possibly
with retroactive effect) and to differing interpretations.
This discussion does not
address all U.S. federal income tax considerations that may be relevant to a particular holder based on its particular circumstances,
and you are urged to consult your own tax advisor regarding your specific tax situation. For example, the discussion does not address
the tax considerations that may be relevant to U.S. Holders in special tax situations, such as:
|
|
•
|
tax-exempt organizations (including private foundations);
|
|
|
•
|
brokers or dealers in securities or currencies and traders in securities that elect to mark to
market;
|
|
|
•
|
banks and financial institutions;
|
|
|
•
|
partnerships or other pass-through entities;
|
|
|
•
|
real estate investment trusts and regulated investment companies;
|
|
|
•
|
companies that accumulate earnings to avoid U.S. federal income tax;
|
|
|
•
|
persons who acquire common shares through the exercise of options or other compensation arrangements;
|
|
|
•
|
holders whose functional currency for U.S. federal income tax purposes is not the U.S. dollar or
that hold shares through non-U.S. brokers of other non-U.S. intermediaries;
|
|
|
•
|
certain former U.S. citizens or residents or U.S. expatriates;
|
|
|
•
|
holders that hold our common shares as part of a hedge, straddle or conversion or other integrated
transaction; or
|
|
|
•
|
holders that own, directly, indirectly, or constructively, 10% or more of the total combined voting
power of our common shares.
|
This discussion does not
address the alternative minimum tax consequences of owning common shares or the indirect consequences to holders of equity interests
in partnerships or other entities that own our common shares. Moreover, this discussion does not address the state, local and foreign
tax consequences of owning our common shares, or any aspect of U.S. federal tax law (such as the estate, generation-skipping and
gift tax) other than U.S. federal income taxation.
You are a “U.S.
Holder” if you are a beneficial owner of our common shares and you are, for U.S. federal income tax purposes:
|
|
•
|
an individual who is a citizen or resident of the United States;
|
|
|
•
|
a corporation, or any other entity taxable as a corporation, created or organized in or under the
laws of the United States or any State thereof, including the District of Columbia;
|
|
|
•
|
an estate, the income of which is subject to U.S. federal income taxation regardless of its source;
or
|
|
|
•
|
a trust (a) if a court within the United States is able to exercise primary supervision over its
administration and one or more U.S. persons have the authority to control all of its substantial decisions or (b) that has a valid
election in effect under applicable Treasury regulations to be treated as a U.S. person for federal income tax purposes.
|
If a partnership (or an
entity or arrangement treated as a partnership for U.S. federal income tax purposes) owns our common shares, the tax treatment
of a partner will generally depend upon the status of the partner and upon the activities of the partnership. A partnership that
owns our common shares, and partners in such a partnership, should consult their own tax advisors.
You should consult your
own tax advisor regarding the U.S. federal, state, local and non-U.S. income and other tax consequences of purchase, ownership
and disposition of our common shares in your particular circumstances.
Passive Foreign Investment Company (“PFIC”)
Rules
U.S. Holders generally
will be subject to a special, generally adverse tax regime that would differ in certain material respects from the tax treatment
described below if we are, or were to become, a PFIC for U.S. federal income tax purposes.
In general, we will be
a PFIC with respect to a U.S. Holder if, for any taxable year in which the U.S. Holder held our common shares, either (i) at least
75% of our gross income for the taxable year is passive income or (ii) at least 50% of the value (determined on the basis of a
quarterly average) of our assets is attributable to assets that produce or are held for the production of passive income. For this
purpose, passive income generally includes, among other things, dividends, interest, royalties, rents, annuities and gains from
assets that produce passive income. If a foreign corporation owns at least 25% by value of the stock of another corporation, the
foreign corporation is treated for purposes of the PFIC tests as owning its proportionate share of the assets of the other corporation,
and as receiving directly its proportionate share of the other corporation’s income.
Although the determination
of whether a corporation is a PFIC is made annually, and thus may be subject to change, we do not believe that we were a PFIC for
U.S. federal income tax purposes for our most recently completed taxable year, nor that we will be one for our current taxable
year. The remainder of this discussion assumes that we are not a PFIC.
Dividends
Distributions with respect
to our common shares (other than certain pro rata distributions of common shares) will, to the extent made from our current or
accumulated earnings and profits as determined under U.S. federal income tax principles, constitute dividends for U.S. federal
income tax purposes. We do not currently maintain calculations of our earnings and profits under U.S. federal income tax principles.
Unless and until these calculations are made, distributions should be presumed to be taxable dividends for U.S. federal income
tax purposes. As used below, the term “dividend” means a distribution that constitutes a dividend for U.S. federal
income tax purposes.
Cash dividends (including
amounts withheld on account of foreign taxes) paid with respect to our common shares generally will be includible in the gross
income of a U.S. Holder as ordinary income on the day on which the dividends are received by the U.S. Holder. Dividends with respect
to our common shares will not be eligible for the dividends received deduction allowed to corporations.
Subject to certain exceptions
for short-term and hedged positions, certain non-corporate U.S. Holders, including individuals, may be entitled to preferential
rates of taxation with respect to “qualified dividends” paid by qualified foreign corporations. A foreign corporation
will be treated as a qualified foreign corporation with respect to dividends paid by that corporation on common shares that are
readily tradable on an established securities market in the United States. As our shares are listed on the New York Stock Exchange,
we believe dividends paid by us will be eligible for these preferential rates. There can, however, be no assurance that our common
shares will be considered readily tradable on an established securities market in the future. Holders should consult their own
tax advisors regarding the availability of the preferential rates of taxation with respect to dividends in light of their own particular
situations, including related restrictions and special rules.
The amount of any cash
dividend paid in foreign currency will equal the U.S. dollar value of the dividend, calculated by reference to the exchange rate
in effect on the date the distribution is received, regardless of whether the payment is in fact converted to U.S. dollars at that
time. A U.S. Holder should not recognize any foreign currency gain or loss in respect of such distribution if such foreign currency
is converted into U.S. dollars on the date received. If the foreign currency is not converted into U.S. dollars on the date received,
however, gain or loss may be recognized upon a subsequent sale or other disposition of the foreign currency. Such foreign currency
gain or loss, if any, generally will be U.S.-source ordinary income or loss.
Dividends received by
most U.S. Holders will constitute foreign-source “passive category” income (“general category income” for
certain U.S. Holders) for U.S. foreign tax credit purposes. Subject to limitations under U.S. federal income tax law concerning
credits or deductions for foreign taxes and certain exceptions for short-term and hedged positions, a Luxembourg withholding tax
imposed on dividends described above under “Material Luxembourg Tax Considerations for Holders of Shares—Tax regime
applicable to distributions—Withholding tax” should be treated as a foreign income tax eligible for credit against
a U.S. Holder’s U.S. federal income tax liability (or at a U.S. Holder’s election, may be deducted in computing taxable
income if the U.S. Holder has elected to deduct all foreign income taxes for the taxable year). Special limitations on foreign
tax credits apply to dividends subject to the preferential rate of taxation for qualified dividends. The rules with respect to
foreign tax credits are complex and U.S. Holders are urged to consult their independent tax advisors regarding the availability
of the foreign tax credit under their particular circumstances.
Taxation of Capital Gains
Gain or loss realized
by a U.S. Holder on the sale, exchange or other taxable disposition of common shares will be subject to U.S. federal income taxation
as capital gain or loss in an amount equal to the difference between the amount realized (including the gross amount of the proceeds
before the deduction of any foreign tax) on the sale or other taxable disposition and such U.S. Holder’s adjusted tax basis
in the common shares. Capital gains of certain non-corporate U.S. Holders, including individuals, derived with respect to capital
assets held for more than one year generally are eligible for various reduced rates of taxation. The deductibility of capital losses
is subject to limitations under the Code.
Capital gain or loss,
if any, realized by a U.S. Holder on the sale, exchange or other taxable disposition of a common share generally will be treated
as U.S. source income or loss for U.S. foreign tax credit purposes. Consequently, in the case of a disposition of a common share
that is subject to Luxembourg or other foreign income tax imposed on the gain, the U.S. Holder may not be able to benefit from
the foreign tax credit for that foreign income tax (
i.e.
, because the income or loss on the disposition would be U.S. source).
Alternatively, the U.S. Holder may take a deduction for the foreign income tax if such holder does not take a credit for any foreign
income tax during the taxable year.
Medicare Contribution Tax on Unearned Income
Certain U.S. Holders that
are individuals, estates or trusts will be subject to a 3.8% tax on all or a portion of their “net investment income,”
which may include all or a portion of their dividend income and net gains from the disposition of common shares. Each U.S. holder
that is an individual, estate or trust is urged to consult its tax advisors regarding the applicability of the Medicare tax to
its income and gains in respect of its investment in the common shares.
Information Reporting and Backup Withholding
In general, dividends
on common shares, and payments of the proceeds of a sale, exchange or other taxable disposition of common shares, paid within the
U.S. or through certain U.S. related financial intermediaries to a U.S. Holder are subject to information reporting and may be
subject to backup withholding unless the holder is an exempt recipient or, in the case of backup withholding, provides an accurate
taxpayer identification number and certifies under penalty of perjury that the holder is a U.S. person and is not subject to backup
withholding.
Backup withholding is
not an additional tax. Any amounts withheld under the backup withholding rules generally will be allowed as a refund or a credit
against a U.S. Holder’s U.S. federal income tax liability, provided that the required information is timely furnished to
the IRS.
Certain U.S. Holders who
hold interests in “specified foreign financial assets” (as defined in Section 6038D of the Code) are generally required
to file an IRS Form 8938 as part of their U.S. federal income tax returns to report their ownership of such specified foreign financial
assets, which may include our common shares, if the total value of those assets exceeds certain thresholds. Financial assets that
are held through a U.S. financial institution are not subject to this reporting requirement. Investors who fail to report this
required information could become subject to substantial penalties. In addition, in the event a U.S. Holder that is required to
file IRS Form 8938 does not file such form, the statute of limitations on the assessment and collection of U.S. federal income
taxes of such holder for the related tax year may not close until three years after the date that the required information is filed.
U.S. Holders are encouraged to consult with their own tax advisors regarding their tax reporting obligations.
|
|
F.
|
DIVIDENDS AND PAYING AGENTS
|
Not applicable.
Not applicable.
We are required to file
annual and special reports and other information with the SEC. You may read and copy any documents filed by the Company at the
SEC’s public reference room at 100 F Street, N.E., Room 1580, Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330
for further information on the public reference room. The SEC also maintains a website at http://www.sec.gov which contains reports
and other information regarding registrants that file electronically with the SEC.
|
|
I.
|
SUBSIDIARY INFORMATION
|
Not applicable.
|
|
Item 11.
|
Quantitative and Qualitative Disclosures About Market Risk
|
In the normal course of
business, we are exposed to commodity price and interest rate risks, primarily related to our crop production activities and changes
in exchange rates and interest rates. We manage our exposure to these risks through the use of various financial instruments, none
of which are entered into for trading purposes. We have established policies and procedures governing the use of financial instruments,
specifically as they relate to the type and volume of such financial instruments. Our use of financial derivative instruments is
associated with our core business and is regulated by internal control policies. For further information on our market risks, please
see Note 2 to our Consolidated Financial Statements.
|
|
Item 12.
|
Description of Securities Other than Equity Securities
|
Not applicable.
Not applicable.
Not applicable.
|
|
D.
|
AMERICAN DEPOSITORY SHARES
|
Not applicable.
The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
(All amounts in US$ thousands,
except shares and per share data and as otherwise indicated)
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 3 to these consolidated 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 consolidated
financial statements have been approved for issue by the Board of Directors on March 14, 2017.
The Group’s activities
are exposed to a variety of financial risks. The Group’s overall risk management program focuses on the unpredictability
of financial markets and seeks to minimize the Group’s capital costs by using suitable means of financing and to manage and
control the Group’s financial risks effectively. The Group uses financial instruments to hedge certain risk exposures.
The Group’s
approach to the identification, assessment and mitigation of risk is carried out by a Risk and Commercial Committee, which focuses
on timely and appropriate management of risk.
The principal financial
risks are related to raw material price, end-product price, exchange rate, interest rate, liquidity and credit. This section provides
a description of the principal risks and uncertainties that could have a material adverse effect on the Group’s strategy,
performance, results of operations and financial condition. These risks do not appear in any particular order of potential materiality
or probability of occurrence.
The Group’s cash
flows, statement of income and statement of financial position are presented in US dollars and may be affected by fluctuations
in exchange rates. Currency risks as defined by IFRS 7 arise on account of monetary assets and liabilities being denominated in
a currency that is not the functional currency.
A significant majority
of the Group’s business activities is conducted in the respective functional currencies of the subsidiaries (primarily the
Brazilian Reais and the Argentine Peso). However, the Group may transact in currencies other than the respective functional currencies,
mainly the US dollars. As such, these subsidiaries may hold US dollar denominated monetary balances at each year-end as indicated
in the tables below.
The Group’s net
financial position exposure to the US dollar is managed on a case-by-case basis, partly by hedging certain expected cash flows
with foreign exchange derivative contracts.
The following tables
show the net monetary position of the respective subsidiaries within the Group categorized by functional currency. Non-US dollar
amounts are presented in US dollars for purpose of these tables.
The accompanying notes are an integral part of these consolidated financial statements.
(All amounts in US$ thousands,
except shares and per share data and as otherwise indicated)
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 hypothetical 10% appreciation/depreciation of the US dollar against the respective
functional currencies for the years ended December 31, 2016 and 2015 would have decreased/increased the Group’s
Profit
Before Income Tax
for the year. A 10% depreciation of the US dollar against the functional currencies would have an equal and
opposite effect on the income statement. A portion of this effect would have been recognized as other comprehensive income since
a portion of the Company’s borrowings was used as cash flow hedge of the foreign exchange rate risk of a portion of its highly
probable future sales in US dollars (see Hedge Accounting - Cash Flow Hedge below for details).
The tables above only
consider the effect of a hypothetical appreciation / depreciation of the US dollars on the Group’s net financial position.
A hypothetical appreciation / depreciation of the US dollar against the functional currencies of the Group’s subsidiaries
has historically had a positive / negative effect, respectively, on the fair value of the Group’s biological assets and the
end prices of the Group’s agriculture produce, both of which are generally linked to the US dollar.
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 accompanying notes are an integral part of these consolidated financial statements.
(All amounts in US$ thousands,
except shares and per share data and as otherwise indicated)
Principal amounts of
long-term borrowings (non-derivative financial instruments) and notional values of foreign currency forward contracts (derivative
financial instruments) were designated as hedging instruments. These instruments are exposed to Brazilian Reais/ US dollar foreign
currency risks related to operations in Brazil and Argentine Peso/US Dollar in Argentina, respectively. As of December 31, 2016
and 2015, approximately 18.1% and 28.4%, respectively, of projected sales qualify as highly probable forecast transactions for
hedge accounting purposes and were designated as hedged items.
The Group has prepared
formal documentation in order to support the designation above, including an explanation of how the designation of the hedging
relationship is aligned with the Group’s Risk Management Policy, identification of the hedging instrument, the hedged transactions,
the nature of the risk being hedged and an analysis which demonstrates that the hedge is expected to be highly effective. The Group
reassesses the prospective and retrospective effectiveness of the hedge on an ongoing basis comparing the foreign currency component
of the carrying amount of the hedging instruments and of the highly probable future sales.
Under cash flow hedge
accounting, effect of changes in foreign currency exchange rates on derivative and non-derivative hedging instruments not be immediately
recognized in profit or loss, but be reclassified from equity to profit or loss in the periods when the future sales occur, thus
allowing for a more appropriate presentation of the results for the period reflecting the strategy in the Group’s Risk Management
Policy.
The
Company expects that the cash flows will occur and affect profit or loss between 2017 and 2021.
For the year ended
December 31, 2016, a total amount before income tax of 67,683 gain (US$ 176,657 loss in 2015) was recognized in other comprehensive
income and an amount of US$ 85,214 loss (US$ 32,700 loss in 2015) was reclassified from equity to profit or loss within “Financial
results, net”.
Inflation in the costs
of raw materials and goods and services from industry suppliers and manufacturers presents risks to project economics. A significant
portion of the Group’s cost structure includes the cost of raw materials primarily seeds, fertilizers and agrochemicals,
among others. Prices for these raw materials may vary significantly.
Prices for commodities
products have historically been cyclical, reflecting overall economic conditions and changes in capacity within the industry, which
affect the profitability of entities engaged in the agribusiness industry. The Group combines different actions to minimize price risk.
A percentage of crops are to be sold during and post harvest period. The Group manages minimum and maximum prices for each commodity
as well as gross margin per each crop as to decide when and how to sell. End-product price risks are hedged if economically viable
and possible by entering into forward contracts with major trading houses or by using derivative financial instruments, consisting
mainly of crops and sugar future contracts, but also includes occasionally put and call options. A movement in end-product futures
prices would result in a change in the fair value of the end product hedging contracts. These fair value changes, after taxes,
are recorded in the statement of income.
Contract positions
are designed to ensure that the Group would receive a defined minimum price for certain quantities of its production. The counterparties
to these instruments generally are major financial institutions. In entering into these contracts, the Group has assumed the risk
that might arise from the possible inability of counterparties to meet the terms of their contracts. The Group does not expect
any material losses as a result of counterparty defaults. The Group is also obliged to pay margin deposits and premiums for these
instruments. These estimates represent only the sensitivity of the financial instruments to market risk and not the Group exposure
to end product price risks as a whole, since the crops and cattle products sales are not financial instruments within the scope
of IFRS 7 disclosure requirements.
The accompanying notes are an integral part of these consolidated financial statements.
(All amounts in US$ thousands,
except shares and per share data and as otherwise indicated)
The Group is exposed
to liquidity risks, including risks associated with refinancing borrowings as they mature, and that borrowing facilities are not
available to meet cash requirements. Failure to manage liquidity risks could have a material impact on the Group’s cash flow
and statement of financial position.
Prudent liquidity risk
management includes managing the profile of debt maturities and funding sources close oversight of cash flows projections, maintaining
sufficient cash, and ensuring the availability of funding from an adequate amount of committed credit facilities and the ability
to close out market positions. The Group's ability to fund its existing and prospective debt requirements is managed by maintaining
diversified funding sources with adequate available funding lines from high quality lenders; and reaching to have long-term financial
facilities.
As of December 31,
2016, cash and cash equivalents of the Group totaled U$S 158.6 million, which could be used for managing liquidity risk.
The tables below analyzes
the Group’s non-derivative financial liabilities and derivative financial liabilities into relevant maturity groupings based
on the remaining period at the statement of financial position to the contractual maturity date. The amounts disclosed in the table
are the contractual undiscounted cash flows and as a result they do not reconcile to the amounts disclosed on the statement of
financial position except for short-term payables when discounting is not applied.
The accompanying notes are an integral part of these consolidated financial statements.
(All amounts in US$ thousands,
except shares and per share data and as otherwise indicated)
The Group’s interest
rate risk arises from long-term borrowings at floating rates, which expose the Group to cash flow interest rate risk. Borrowings
issued at fixed rates expose the Group to fair value interest rate risk. The interest rate profile of the Group's borrowings is
set out in Note 26.
The Group occasionally
manages its cash flow interest rate risk exposure by using floating-to-fixed interest rate swaps. Such interest rate swaps have
the economic effect of converting borrowings from floating rates to fixed rates.
The following tables
show 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). These analyses are performed after giving effect to interest rate
swaps.
The accompanying notes are an integral part of these consolidated financial statements.
(All amounts in US$ thousands,
except shares and per share data and as otherwise indicated)
For the years ended
December 31, 2016 and 2015, if interest rates on floating-rate borrowings had been 1% higher with all other variables held constant,
the Group’s
Profit Before Income Tax
for the years would have decreased as shown below. A 1% decrease in interest
rates would have an equal and opposite effect on the income statement.
The sensitivity analysis
has been determined assuming that the change in interest rates had occurred at the date of the statement of financial position
and had been applied to the exposure to interest rate risk for financial instruments in existence at that date. The 100 basis point
increase or decrease represents management's assessment of a reasonable possible change in those interest rates, which have the
most impact on the Group, specifically the United States and Brazilian rates over the period until the next annual statement of
financial position date.
The Group’s exposures
to credit risk arise in certain agreements in relation to amounts owed for physical product sales, the use of derivative instruments,
and the investment of surplus cash balances. The Group is also exposed to political and economic risk events, which may cause non-payment
of foreign currency obligations to the Group.
The Group’s policy
is to manage credit exposure to trading counterparties within defined trading limits. All of the Group’s significant counterparties
are assigned internal credit limits.
The accompanying notes are an integral part of these consolidated financial statements.
(All amounts in US$ thousands,
except shares and per share data and as otherwise indicated)
The Group sells to
a large base of customers. Type and class of customers may differ depending on the Group’s business segments. For the years
ended December 31, 2016 and 2015, more than 95% and 95%, respectively, of the Group’s sales of crops were sold to 121 and
95 well-known customers (both multinational and local) with good credit history with the Group. In the Sugar, Ethanol and Energy
segment, sales of ethanol were concentrated in 35 and 25 customers, which represented 96 % and 96 % of total sales of
ethanol for the years ended December 31, 2016 and 2015, respectively. Approximately 71 % and 82 % of the Group’s
sales of sugar were concentrated in 20 and 13 well-known traders for the years ended December 31, 2016 and 2015, respectively.
The remaining 3 % and 18 %, which mainly relates to “crystal sugar”, were dispersed among several customers.
In 2016 and 2015, energy sales are 96 % and 96 % concentrated in 14 major customers. In the dairy segment, 85 %
and 92 % of the sales were concentrated in 14 and 14 well-known customers in 2016 and 2015, respectively.
No credit limits were
exceeded during the reporting periods and management does not expect any losses from non-performance by these counterparties. If
any of the Group’s customers are independently rated, these ratings are used. Otherwise, the Group assesses the credit quality
of the customer taking into account its financial position, past experience and other factors (see Note 18 for details). The Group
may seek cash collateral, letter of credit or parent company guarantees, as considered appropriate. Sales to customers are primarily
made by credit with customary payment terms. The maximum exposure to credit risk is represented by the carrying amount of each
financial asset in the statement of financial position after deducting any impairment allowance. The Group’s exposure of
credit risk arising from trade receivables is set out in Note 18.
The Group is exposed
to counterparty credit risk on cash and cash equivalent balances. The Group holds cash on deposit with a number of financial institutions.
The Group manages its credit risk exposure by limiting individual deposits to clearly defined limits. The Group only deposits with
high quality banks and financial institutions. As of December 31, 2016 and 2015, the total amount of cash and cash equivalents
mainly comprise cash in banks and short-term bank deposits. The Group is authorized to transact with banks rated “BBB+”
or higher. As of December 31, 2016 and 2015, 4 and 3 banks (primarily HSBC, Rabobank, Citibank and Banco do Brasil) accounted
for more than 85 % and 86 %, respectively, of the total cash deposited. The remaining amount of cash and cash equivalents
relates to cash in hand. Additionally, during the year ended December 31, 2016, the Group invested in fixed-term bank deposits
with mainly two banks (Banco do Brasil and Citibank) and also entered into derivative contracts (currency forward). The Group does
not have investment in securities or other financial instruments for which risk may have increased due to the financial credit
crisis. The Group’s exposure of credit risk arising from cash and cash equivalents is set out in Note 20.
The Group’s primary
objective for holding derivative financial instruments is to manage currency exchange rate risk, interest rate risk and commodity
price risk. The Group generally enters into derivative transactions with high-credit-quality counterparties and, by policy, limits
the amount of credit exposure to any one counterparty based on an analysis of that counterparty's relative credit standing. The
amounts subject to credit risk related to derivative instruments are generally limited to the amounts, if any, by which counterparty's
obligations exceed the obligations with that counterparty.
The Group arranged
interest rate swaps with HSBC and Itau in Brazil. The Group also entered into crop commodity futures traded in the established
trading markets of Argentina and Brazil through well-rated brokers. Management does not expect any counterparty to fail to meet
its obligations.
The accompanying notes are an integral part of these consolidated financial statements.
(All amounts in US$ thousands,
except shares and per share data and as otherwise indicated)
The Group’s objectives
when managing capital are to safeguard the Group’s ability to continue as a going concern in order to provide returns for
shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital. In
order to maintain or adjust the capital structure, it may adjust the amount of dividends paid to shareholders, return capital to
shareholders, issue new shares or by own shares or sell assets to reduce debt. Consistent with others in the industry, the Group
monitors capital on the basis of the gearing ratio. This ratio is calculated as total debt (including current and non-current borrowings
as shown in the consolidated statement of financial position, if applicable) divided by total capital. Total capital is calculated
as equity, as shown in the consolidated statement of financial position, plus total debt. During the year ended December 31,
2016, the strategy was to maintain the gearing ratio within 0.45 to 0.60, as follows:
(*) The prior years have been adjusted to reflect the Company’s
adoption of amendments to IAS 16 and IAS 41 as further described in Note 32.
As part of its business
operations, the Group uses a variety of derivative financial instruments to manage its exposure to the financial risks discussed
above. As part of this strategy, the Group may enter into derivatives of (i) interest rate to manage the composition of floating
and fixed rate debt; (ii) currency to manage exchange rate risk, and (iii) crop (future contracts and put and call options) to
manage its exposure to price volatility stemming from its integrated crop production activities. The Group’s policy is not
to use derivatives for speculative purposes.
Derivative financial
instruments involve, to a varying degree, elements of market and credit risk not recognized in the financial statements. The market
risk associated with these instruments resulting from price movements is expected to offset the market risk of the underlying transactions,
assets and liabilities, being hedged. The counterparties to the agreements relating to the Group’s contracts generally are
large institutions with credit ratings equal to or higher than BBB+. The Group continually monitors the credit rating of such counterparties
and seeks to limit its financial exposure to any one financial institution. While the contract or notional amounts of derivative
financial instruments provide one measure of the volume of these transactions, they do not represent the amount of the Group’s
exposure to credit risk. The amounts potentially subject to credit risk (arising from the possible inability of counterparties
to meet the terms of their contracts) are generally limited to the amounts, if any, by which the counterparties’ obligations
under the contracts exceed the Group’s obligations to the counterparties.
The accompanying notes are an integral part of these consolidated financial statements.
(All amounts in US$ thousands,
except shares and per share data and as otherwise indicated)
The following tables
show the outstanding positions for each type of derivative contract as of the date of each statement of financial position:
(*) Included in the line item “(Loss) / Gain
from commodity derivative financial instruments” of Note 8.
Commodity future contract fair values are
computed with reference to quoted market prices on future exchanges.
The accompanying notes are an integral part of these consolidated financial statements.
(All amounts in US$ thousands,
except shares and per share data and as otherwise indicated)
In July 2016 the Group's
subsidiary in Brazil, Adecoagro Vale do Ivinhema entered into a Reais 90 million (US$ 27.8 as of that date) loan with Bradesco.
The loan bears interest at a variable rate of CDI (an interbanking floating interest rate in USD) plus 2.1% per year. At same moment
and with same bank, the Company entered into a swap operation, which intention is to effectively convert the principal amount and
interest rate denominated in Reais, to a principal amount an interest rate denominated in US$, plus a fixed rate of 6.55 %.
The swap expires according to the due dates of the loan, until May 2019. As of December 31, 2016, the Group recorded a liability
of US$ 0.7 million representing the estimated fair value of the swap as of that date.
During the year ended
December 31, 2016, the Group entered into several currency forward contracts with Brazilian banks in order to hedge the fluctuation
of the Brazilian Reais against the US Dollar for a total aggregate amount of US$ 57.2 million. The currency forward contracts entered
in 2016 had maturity dates ranging between March 2016 and April 2017. The outstanding contracts resulted in a recognition of a
loss of US$ 16.9 million in 2016.
During the year ended
on December 31, 2016, the Group entered into several currency forward contracts with Argentinian banks in order to hedge the fluctuation
of the Argentinean peso against US Dollar for a total notional amount of US$ 30.2 million. The currency forward contracts maturity
date were in February 2016 and May 2017. The outstanding contracts resulted in the recognition of a loss amounting to US$ 0.3 million
in 2016.
During the year ended
on December 31, 2016, the Group entered into several currency forward contracts in order to hedge the fluctuation of the US Dollar
against Euro for a total notional amount of US$ 10.7 million. The currency forward contracts maturity date is March 2017.
The outstanding contracts resulted in the recognition of a gain amounting to US$ 0.6 million in 2016.
Gains and losses on
currency forward contracts are included within “Financial results, net” in the statement of income.
The accompanying notes are an integral part of these consolidated financial statements.
(All amounts in US$ thousands,
except shares and per share data and as otherwise indicated)
According to IFRS 8,
operating segments are identified based on the ‘management approach’. 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 Management committee in the case of the Company). This
classification is based on the differences in the nature of its operations, products and services. This approach stipulates external
segment reporting based on the Group’s internal organizational and management structure and on internal financial reporting
to the chief operating decision maker.
The Group operates
in three major lines of business, namely, Farming; Sugar, Ethanol and Energy; and Land Transformation. The Coffee and Cattle businesses
are now presented within “Farming – All Other Segments” because they not meet the quantitive threshold for disclosure.
The measurement principles
for the Group’s segment reporting structure are based on the IFRS principles adopted in the consolidated financial statements.
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’
.
The accompanying
notes are an integral part of these consolidated financial statements.
(All amounts in US$ thousands,
except shares and per share data and as otherwise indicated)
The accompanying
notes are an integral part of these consolidated financial statements.
(All amounts in US$ thousands,
except shares and per share data and as otherwise indicated)
The accompanying notes are an integral
part of these consolidated financial statements.
(All amounts in US$ thousands,
except shares and per share data and as otherwise indicated)
The accompanying
notes are an integral part of these consolidated financial statements.
(All amounts in US$ thousands,
except shares and per share data and as otherwise indicated)
Total segment assets
and liabilities are measured in a manner consistent with that of the consolidated 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 CHS Agro S.A. is allocated to the ‘Crops’ segment. Therefore, the Group’s share of profit or loss after income
taxes and its carrying amount are reported in this segment.
Total reportable segments’
assets and liabilities are reconciled to total assets as per the statement of financial position as follows:
The accompanying
notes are an integral part of these consolidated financial statements.
(All amounts in US$ thousands,
except shares and per share data and as otherwise indicated)
Non-current assets
and net revenue and fair value gains and losses are shown by geographic region. These are the regions in which the Group is active:
Argentina, Brazil and Uruguay.
The accompanying
notes are an integral part of these consolidated financial statements.
(All amounts in US$ thousands,
except shares and per share data and as otherwise indicated)
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 US$ 111.8 million as of December 31, 2016 (2015: US$ 62.4 million; 2014: US$ 31.5 million)
comprised primarily of 146,524 tons of sugar (US$ 59.5 million), 10,005 m3 of ethanol (US$ 4.5 million), 464,697 mwh
of energy (US$ 28.0 million), 23,179 tons of soybean (U$S 6.1 million), 31,598 tons of wheat (US$ 5.4 million),
and 52,918 tons of corn (US$ 8.1 million) which expire between February 2017 and December 2017.
The accompanying
notes are an integral part of these consolidated financial statements.
(All amounts in US$ thousands,
except shares and per share data and as otherwise indicated)
The accompanying
notes are an integral part of these consolidated financial statements.
(All amounts in US$ thousands,
except shares and per share data and as otherwise indicated)
The Group presented the statement of income
under the function of expense method. Under this method, expenses are classified according to their function as part of the line
items “cost of goods sold and direct agricultural selling expenses”, “general and administrative expenses”
and “selling expenses”.
The following table
provides the additional disclosure required on the nature of expenses and their relationship to the function within the Group:
The accompanying
notes are an integral part of these consolidated financial statements.
(All amounts in US$ thousands,
except shares and per share data and as otherwise indicated)
The accompanying
notes are an integral part of these consolidated financial statements.
(All amounts in US$ thousands,
except shares and per share data and as otherwise indicated)
The accompanying notes
are an integral part of these consolidated financial statements.
(All amounts in US$ thousands,
except shares and per share data and as otherwise indicated)
The accompanying
notes are an integral part of these consolidated financial statements.
(All amounts in US$ thousands,
except shares and per share data and as otherwise indicated)
Adecoagro is subject
to the applicable general tax regulations in Luxembourg.
The Group’s income
tax has been calculated on the estimated assessable taxable results for the year at the rates prevailing in the respective foreign
tax jurisdictions. The subsidiaries of the Group are required to calculate their income taxes on a separate basis according to
the rules and regulations of the jurisdictions where they operate. Therefore, the Group is not legally permitted to compensate
subsidiaries’ losses against subsidiaries’ income. The details of the provision for the Group’s consolidated
income tax are as follows:
The statutory tax rate in the countries
where the Group operates for all of the years presented are:
Deferred tax assets
and liabilities of the Group as of December 31, 2016 and 2015, without taking into consideration the offsetting of balances within
the same tax jurisdiction, will be recovered or settled as follows:
(i): Relates to the gain or loss before
income tax of cash flow hedge recognized in other comprehensive income amounting to US$ (67,683) for the year ended December 31,
2016 (2015: US$ 176,657; 2014: US$ 53,584); net of the reclassification from Equity to Income Statements of US$ (85,214) for the
year ended December 31, 2016 (2015: US$ (32,700); 2014: (12,031))
The accompanying
notes are an integral part of these consolidated financial statements.
(All amounts in US$ thousands,
except shares and per share data and as otherwise indicated)
The movement in the
deferred income tax assets and liabilities during the year, without taking into consideration the offsetting of balances within
the same tax jurisdiction, is as follows:
The accompanying notes are an integral
part of these consolidated financial statements.
(All amounts in US$ thousands,
except shares and per share data and as otherwise indicated)
Tax loss carry forwards
in Argentina and Uruguay generally expire within 5 years. Tax loss carry forwards in Brazil do not expire. However, in Brazil,
the taxable profit for each year can only be reduced by tax loss carry forward up to a maximum of 30 %.
In order to fully realize
the deferred tax asset, the Group will need to generate future taxable income in the countries where the tax loss carry forward
were incurred. Based upon the level of historical taxable income and projections for future taxable income over the periods in
which the deferred tax assets are deductible, management believes that as at December 31, 2016, it is probable that the Group will
realize all of the deferred tax assets in Argentina and some portion of the deferred tax assets in Brazil.
As of December 31,
2016, the Group’s tax loss carry forwards and their corresponding jurisdictions are as follows:
Deferred income tax
assets are recognized for tax loss carry-forwards to the extent that the realization of the related tax benefit through future
taxable profits is probable. The Group did not recognize deferred income tax assets of US$ 4.0 million in respect of losses
amounting to US$ 11.8 million that can be carried forward against future taxable income.
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:
The accompanying
notes are an integral part of these consolidated financial statements.
(All amounts in US$ thousands,
except shares and per share data and as otherwise indicated)
Basic earnings per share is calculated by
dividing the profit attributable to equity holders of the Group by the weighted average number of shares in issue during the period
excluding ordinary shares held as treasury shares (Note 22).
Diluted earnings per
share is calculated by adjusting the weighted average number of shares outstanding to assume conversion of all dilutive potential
shares. The Group has two categories of dilutive potential shares: equity-settled share options and restricted units. For these
instruments, a calculation is done to determine the number of shares that could have been acquired at fair value, based on the
monetary value of the subscription rights attached to outstanding share options. The number of shares calculated as above is compared
with the number of shares that would have been issued assuming the exercise of the equity-settled share options. As of December
31, 2016, there were 1,658 thousands (2015: 1,701 thousands; 2014: 1,729 thousands) share options/restricted units outstanding
that could potentially have a dilutive impact in the future but were antidilutive for the periods presented.
The accompanying
notes are an integral part of these consolidated financial statements.
(All amounts in US$ thousands,
except shares and per share data and as otherwise indicated)
Changes in the Group’s property, plant
and equipment in 2016 and 2015 were as follows:
The accompanying notes
are an integral part of these consolidated financial statements.
(All amounts in US$ thousands,
except shares and per share data and as otherwise indicated)
(*) 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, 2016 and 2015, ICMS tax credits were reclassified
to trade and other receivables.
The accompanying
notes are an integral part of these consolidated financial statements.
(All amounts in US$ thousands,
except shares and per share data and as otherwise indicated)
Depreciation is calculated
using the straight-line method to allocated their cost over the estimated usefull lives. Farmlands are not depreciated.
The assets’
residual values and useful lives are reviewed, and adjusted if appropriate, at each statement of financial position date.
Depreciation charges
are included in “Cost of production of Biological Assets”, “Cost of production of manufactures products”,
“General and administrative expenses”, “Selling expenses” and capitalized in “Property, plant and
equipment” for the years ended December 31, 2016, 2015 and 2014, respectively.
During the year ended
December 31, 2016, borrowing costs of US$ 4,654 (2015: US$ 7,684, 2014: US$ 6,864) were capitalized as components
of the cost of acquisition or construction for 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$ 575,882 as of December 31, 2016 (2015: US$ 416,393).
As of December 31,
2016, the fair value (level 3) of investment property was US$ 57 million (2015: US$ 55 million).
The accompanying notes are an integral
part of these consolidated financial statements.
(All amounts in US$ thousands,
except shares and per share data and as otherwise indicated)
The accompanying
notes are an integral part of these consolidated financial statements.
(All amounts in US$ thousands,
except shares and per share data and as otherwise indicated)
(i) Biological
asset with a production cycle of more than one year (that is dairy and cattle) generated “Initial recognition and changes
in fair value of biological assets” amounting to US$ 66,168 for the year ended December 31, 2016 (2015: US$ 40,145;
2014: US$ 51,390). In 2016, an amount of US$ 56,783 (2015: US$ 44,236; 2014: US$ 105,466) was attributable to price
changes, and an amount of US$ 9,385 (2015: US$ (4,091); 2014: US$ (54,076)) was attributable to physical changes.
The accompanying
notes are an integral part of these consolidated financial statements.
(All amounts in US$ thousands,
except shares and per share data and as otherwise indicated)
The accompanying
notes are an integral part of these consolidated financial statements.
(All amounts in US$ thousands,
except shares and per share data and as otherwise indicated)
The fair value less
estimated point of sale costs of agricultural produce at the point of harvest amounted to US$ 141,645 for the year ended December
31, 2016 (2015: US$ 81,108).
The following table
presents the Group´s biological assets that are measured at fair value at December 31, 2016 and 2015 (see Note 17 to
see the description of each fair value level):
The accompanying notes are an integral part of these consolidated financial statements.
(All amounts in US$ thousands, except shares and per share data and as otherwise indicated)
The following significant
unobservable inputs were used to measure the Group´s biological assets using the discounted cash flow valuation technique:
As of December 31,
2015, the impact of a reasonable 10 % increase (decrease) in estimated costs, with all other variables held constant, would
result in a decrease (increase) in the fair value of the Group’s plantations less cost to sell of US$ 9.1 million for
sugarcane, US$ 1.1 million for crops and US$ 2.8 million for rice.
As of December 31,
2016, the impact of a reasonable 10 % increase (decrease) in estimated costs, with all other variables held constant, would
result in a decrease (increase) in the fair value of the Group’s plantations less cost to sell of US$ 10.8 million for
sugarcane, US$ 1.0 million for crops and US$ 2.7 million for rice.
The accompanying
notes are an integral part of these consolidated financial statements.
(All amounts in US$ thousands, except shares and per share
data and as otherwise indicated)
The table below lists
the Group’s investment in joint ventures for the years ended December 31, 2016, 2016 and 2015:
On February 26, 2013,
the Group formed CHS AGRO, a joint venture with CHS Inc. CHS Inc. is a leading farmer-owned energy, grains and foods company based
in the United States. The Group holds a 50 % interest in CHS AGRO. On October 2014, CHS AGRO finished its sunflower processing
plant in the city of Pehuajo, Province of Buenos Aires, Argentina.
The following amounts
represent the assets (including goodwill) and liabilities, and income and expenses of the joint ventures:
The shares in the
joint ventures were not publicly traded for any of the years presented.
There are no contingent
liabilities relating to the Group’s interest in the joint ventures, and no contingent liabilities of the ventures themselves.
According to the
laws of certain of the countries in which the Group operates, 5 % of the profit of the year is separated to constitute legal
reserves until they reach legal capped amounts (20 % of total capital). These legal reserves are not available for dividend
distribution and can only be released to absorb losses. The Group’s joint ventures have not reached the legal capped amounts.
The accompanying
notes are an integral part of these consolidated financial statements.
(All amounts in US$ thousands, except shares and per share data and as otherwise indicated)
Financial assets at
fair value through profit or loss are financial assets held for trading. A financial asset is classified in this category if acquired
principally for the purpose of selling in the short-term. Derivatives are also categorized as held for trading unless they are
designated as hedges. For all years presented, the Group’s financial assets at fair value through profit or loss comprise
mainly derivative financial instruments.
Loans and receivables
are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Loans and receivables
comprise “trade and other receivables” and “cash and cash equivalents” in the statement of financial position.
The following tables
show the carrying amounts of financial assets and financial liabilities by category of financial instrument and reconciliation
to the corresponding line item in the statements of financial position, as appropriate. Since the line items “Trade and other
receivables, net” and “Trade and other payables” contain both financial instruments and non-financial assets
or liabilities (such as other tax receivables or advance payments for services to be received in the future), the reconciliation
is shown in the columns headed “Non-financial assets” and “Non-financial liabilities”.
The accompanying
notes are an integral part of these consolidated financial statements.
(All amounts in US$ thousands, except shares and per share data and as otherwise indicated)
Liabilities carried
at amortized cost also included liabilities under finance leases where the Group is the lessee and which therefore have to be measured
in accordance with IAS 17. The categories disclosed are determined by reference to IAS 39. Finance leases are excluded from the
scope of IFRS 7. Therefore, finance leases have been shown separately.
Because of the short
maturities of most trade accounts receivable and payable, other receivables and liabilities, and cash and cash equivalents, their
carrying amounts at the closing date do not differ significantly from their respective fair values. The fair value of long-term
borrowings is disclosed in Note 26.
The accompanying
notes are an integral part of these consolidated financial statements.
(All amounts in US$ thousands, except shares and per share data and as otherwise indicated)
Income, expense,
gains and losses on financial instruments can be assigned to the following categories:
The accompanying
notes are an integral part of these consolidated financial statements.
(All amounts in US$ thousands, except shares and per share
data and as otherwise indicated)
IFRS 13 defines fair
value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market
participants at the measurement date. All financial instruments recognized at fair value are allocated to one of the valuation
hierarchy levels of IFRS 13. This valuation hierarchy provides for three levels. The allocation reflects which of the fair values
derive from transactions in the market and where valuation is based on models because market transactions are lacking. The level
in the fair value hierarchy is categorized in its entirety is determined on the basis of the lowest level input that is significant
to the fair value measurement in its entirety.
As of December 31,
2016 and 2015, 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. The financial instruments the Group has allocated to this level mainly comprise
crop futures and options traded on the stock market.
Derivatives not traded
on the stock market allocated to Level 2 are valued using models based on observable market data. 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 Group does not have financial instruments allocated to this level for any of the years presented.
The accompanying
notes are an integral part of these consolidated financial statements.
(All amounts in US$ thousands, except shares and per share data and as otherwise indicated)
The following tables
present the Group’s financial assets and financial liabilities that are measured at fair value as of December 31, 2016 and
2015 and their allocation to the fair value hierarchy:
There were no transfers within level 1
and 2 during the years ended December 31, 2016 and 2015.
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:
The accompanying
notes are an integral part of these consolidated financial statements.
(All amounts in US$ thousands, except shares and per share
data and as otherwise indicated)
(i) Includes US$ 1,499 (2015:
6,129) reclassified from Property, plant and equipment.
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 accompanying
notes are an integral part of these consolidated financial statements.
(All amounts in US$ thousands, except shares and per share data and as otherwise indicated)
The carrying amounts
of the Group’s trade and other receivables are denominated in the following currencies (expressed in US dollars):
As of December 31,
2016 trade receivables of US$ 14,641 (2015: US$ 7,542) were past due but not impaired. The ageing analysis of these
receivables indicates that 5,264 and 549 are over 6 months in 2016 and 2015, respectively.
The Group recognizes
an allowance for trade receivables when there is objective evidence that the Group will not be able to collect all amounts due
according to the original terms of the receivables.
Delinquency in payments
is an indicator that a receivable may be impaired. However, management considers all available evidence in determining when a receivable
is impaired. Generally, trade receivables, which are more than 180 days past due are fully provided for. However, certain receivables
180+ days overdue are not provided for based on a case-by-case analysis of credit quality analysis. Furthermore, receivables, which
are not 180+ days overdue, may be provided for if specific analysis indicates a potential impairment.
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 maximum exposure
to credit risk at the reporting date is the carrying value of each class of receivable mentioned above.
As of December 31,
2016, approximately 82% (2015: 73%) of the outstanding unimpaired trade receivables (neither past due not impaired) relate to sales
to 17 well-known multinational companies with good credit quality standing, including but not limited to Camara de Comercializacao
de Energia Electrica CCEE, Louis Dreyfus Commodities Suisse S.A.T, Alimport, Czarnikow Group Limited, Establecimientos Las Marias,
Mastellone Hnos.S.A., Bunge Agritrade S.A., ETG Commodities Ltd., among others. Most of these entities or their parent companies
are externally credit-rated. The Group reviews these external ratings from credit agencies.
The accompanying
notes are an integral part of these consolidated financial statements.
(All amounts in US$ thousands, except shares and per share data and as otherwise indicated)
The remaining percentage
as of December 31, 2016 and 2015 of the outstanding unimpaired trade receivables (neither past due nor impaired) relate to sales
to a dispersed large quantity of customers for which external credit ratings may not be available. However, the total base of customers
without an external credit rating is relatively stable.
New customers with
less than six months of history with the Group are closely monitored. The Group has not experienced credit problems with these
new customers to date. The majority of the customers for which an external credit rating is not available are existing customers
with more than six months of history with the Group and with no defaults in the past. A minor percentage of customers may have
experienced some non-significant defaults in the past but fully recovered.
(*) The prior years have been adjusted to reflect the Company’s
adoption of amendments to IAS 16 and IAS 41 as further described in Note 32.
In June, 2014, the
Group completed the sale of a 49 % interest in both Global Anceo S.L.U. and Global Hisingen S.L.U., companies which main underlying
assets are the Guayacanes and La Guarida farms, for an aggregate sale price of US$ 50.5 million. The net proceeds received as of
the transaction´s day amounted to US$ 49.3 million.
The accompanying
notes are an integral part of these consolidated financial statements.
(All amounts in US$ thousands, except shares and per share data and as otherwise indicated)
The sale of the respective
equity interests did not result in the loss of control of these companies and therefore the transactions were treated as equity
transactions for accounting purposes.The difference between the net proceeds received and the recognition of the non-controlling
interest was registered in Statement of Changes in Shareholders’ Equity under the line item “Reserve from the sale
of non-controlling interests in subsidiaries” for an amount of US$ 41.3 million (US$ 25.5 million in the column item “Reserve
from the sale of non-controlling interests in subsidiaries” and US$ 15.8 million in the column item “Cumulative Translation
Adjustment”) and also an increase in non-controlling interest of US$ 8.0 million.
In November 2015, the
Group completed the sale of “La Cañada”, a 3,399 hectare farm located in the province of San Luis, Argentina,
for a total consideration of US$ 12.6 million fully collected as of year-end. This transaction resulted in a gain of US$ 7.9 million
included within “Other operating income, net”.
In December, 2015,
the Group completed the sale of a 49 % interest in Global Acamante S.L.U., Global Calidon S.L.U., Global Carelio S.L.U. and
Global Mirabilis S.L.U., companies which main underlying assets are El Orden and La Carolina farms, for an aggregate sale price
of US$ 22.0 million, which were fully collected at the time of the transaction.
The sale of the respective
equity interests did not result in the loss of control of these companies and therefore. The difference between the net proceeds
received and the recognition of the non-controlling interest was registered in Statement of Changes in Shareholders’ Equity
under the line item “Reserve from the sale of non-controlling interests in subsidiaries” for an amount of US$ 19.9
million (US$ 16.1 million in the column item “Reserve from the sale of non-controlling interests in subsidiaries”
and US$ 3.9 million in the column item “Cumulative Translation Adjustment”) and also an increase in non-controlling
interest of US$ 2.0 million.
The accompanying
notes are an integral part of these consolidated financial statements.
(All amounts in US$ thousands, except shares and per share data and as otherwise indicated)
The share capital
of the Group is represented by common shares with a nominal value of US$ 1.5 per share and one vote each.
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 is reviewed by the Board of Directors after each 12-month period: repurchases
of shares under the program aremade 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. Also, on August 15, 2015 the Board of directors decided to extend the program for
another 12 months period.
As of December 31,
2016, the Company repurchased 2,840,825 shares under this program, of which 1,605,497 have been applied to some exercise of the
Company’s stock option plan and restricted stock units plan.
The accompanying
notes are an integral part of these consolidated financial statements.
(All amounts in US$ thousands, except shares and per share data and as otherwise indicated)
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 granted 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 stock units to senior and medium management
and key employees of the Group’s subsidiaries.
The fair value of the
options under the Option Schemes was measured at the date of grant using the Black-Scholes valuation technique.
As of the date of these
financial statements all options has already been vested and expensed. The Group recognized aggregate compensation expense of US$
nil for the year ended December 31, 2016 (2015: US$ nil; 2014: US$ 0.3 million) 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 the Adecoagro/ IFH 2004 Stock Incentive
Option Plan are as follows:
Options outstanding
at year end under this Plan have the following expiry date and exercise prices:
(i) On May 2014, the Board
of directors decided to extend the expired date of the Plan.
The accompanying
notes are an integral part of these consolidated financial statements.
(All amounts in US$ thousands, except shares and per share data and as otherwise indicated)
Movements in the number
of equity-settled options outstanding and their related weighted average exercise prices under the Adecoagro/ IFH 2007/2008 Equity
Incentive Plan are as follows:
Options outstanding
at year-end under the Adecoagro/ IFH 2007/2008 Equity Incentive Plan have the following expiry date and exercise prices:
The following table
shows the exercisable shares at year end under both the Adecoagro/ IFH 2004 Incentive Option Plan and the Adecoagro/ IFH 2007/
2008 Equity Incentive Plan:
The accompanying
notes are an integral part of these consolidated financial statements.
(All amounts in US$ thousands, except shares and per share data and as otherwise indicated)
The Restricted Share
and Restricted Stock Unit Plan was effectively established in 2010 and amended in November 2011. It is administered by the Compensation
Committee of the Company. Restricted shares or units under these 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 granted. 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 unit shall not be converted into common shares. The maximum number of ordinary
shares with respect to which awards may be made under the Plan is 2,474,701. The maximum numbers of ordinary shares is revised
annually.
At December 31, 2016,
the Group recognized compensation expense US$ 4.3 million related to the restricted stock units granted under the Restricted
Share Plan (2015: US$ 4.4 million).
The restricted shares
under the Restricted Share Plan were measured at fair value at the date of grant.
Key grant-date fair
value and other assumptions under the Restricted Share Plan are detailed below:
Movements in the number
of restricted shares outstanding under the Restricted Share Plan are as follows:
(1) Approved by the
Board of Directors of March 15, 2016 and the Shareholders Meeting of April 20, 2016
The accompanying
notes are an integral part of these consolidated financial statements.
(All amounts in US$ thousands, except shares and per share
data and as otherwise indicated)
According to the laws
of certain of the countries in which the Group operates, a portion of the profit of the year (5%) is separated to constitute legal
reserves until they reach legal capped amounts. These legal reserves are not available for dividend distribution and can only be
released to absorb losses. The legal limit of these reserves has not been met.
Legal and other reserves
amount to US$ 45,080 as of December 31, 2016 (2015: US$ 44,540) and are included within the balance of retained earnings in the
statement of changes in shareholders’ equity.
The Company may make
distributions in the form of dividends or otherwise to the extent that it has distributable retained earnings or
available distributable reserves (including share premium) that result from the Stand Alone Financial Statements prepared
in accordance with Luxembourg GAAP. No distributable retained earning result from the Stand Alone Financial Statements of the Company
as of December 31, 2015, but the Company has distributable reserves in excess of US$ 920,171.
The fair values of
current trade and other payables approximate their respective carrying amounts due to their short-term nature. The fair values
of non-current trade and other payables approximate their carrying amounts, as the impact of discounting is not significant.
The accompanying
notes are an integral part of these consolidated financial statements.
(All amounts in US$ thousands, except shares and per share
data and as otherwise indicated)
As of December 31,
2016, total bank borrowings include collateralized liabilities of US$ 525,663 (2015: US$ 669,109). 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:
Borrowings incurred
by the Group’s subsidiaries in Brazil are repayable at various dates between January 2017 and April 2024 and bear either
fixed interest rates ranging from 2.5 % to 9.0 % per annum or variable rates based on LIBOR or other specific base-rates
plus spreads ranging from 4.13 % to 17.52 % per annum. At December 31, 2016 LIBOR (six months) was 1.32 % (2015:
0.85 %).
Borrowings incurred
by the Group´s subsidiaries in Argentina are repayable at various dates between January 2017 and September 2023 and bear
either fixed interest rates ranging from 6.11 % and 7.00 % per annum for those borrowings denominated in US dollar, and
a fixed interest rate ranging from 9.90 % and 28.75 % per annum for those borrowings denominated in argentine pesos.
The accompanying
notes are an integral part of these consolidated financial statements.
(All amounts in US$ thousands, except shares and per share data and as otherwise indicated)
Brazilian Subsidiaries
The main loans of the Group’s
Brazilian Subsidiaries are:
|
Bank
|
Grant
Date
|
Nominal
amount
|
Capital
outstanding as of December 31
|
Maturity
date
|
Annual
Interest Rate
|
|
2016
|
2015
|
|
(In
millions)
|
Millions
of
Reais
|
Millions
of
equivalent
Dollars
|
Millions
of
equivalent
Dollars
|
|
Banco
Do Brasil (1)
|
October
2012
|
R$
|
130.0
|
R$
|
109.9
|
33.7
|
32.9
|
November
2022
|
2.94%
with 15% of bonus performance
|
|
Itau
BBA FINAME Loan (2)
|
December
2012
|
R$
|
45.9
|
R$
|
30.4
|
9.3
|
9.3
|
December
2022
|
2.50%
|
|
Itau
BBA (3)
|
March
2013
|
R$
|
75.0
|
R$
|
18.8
|
5.8
|
9.3
|
March
2019
|
CDI
+ 3.20%
|
|
Banco
do Brasil / Itaú BBVA Finem Loan (4)
|
September
2013
|
R$
|
273.0
|
R$
|
219.4
|
67.3
|
66.7
|
January
2023
|
6.87%
|
|
BNDES
Finem Loan (5)
|
November
2013
|
R$
|
215.0
|
R$
|
163.9
|
50.3
|
48.9
|
January
2023
|
3.84%
|
|
ING
/ Rabobank / ABN / HSBC / Credit Agricole / Caixa Geral / Galena (6)
|
January
2015
|
US$
|
160.0
|
|
-
|
98.0
|
160.0
|
December
2018
|
LIBOR
3M plus 4.40%
|
|
ING
/ Rabobank / Bladex / Credit Agricole / Votorantim / ABN (7)
|
August
2015
|
US$
|
110.0
|
|
-
|
110.0
|
110.0
|
December
2019
|
LIBOR
3M plus 4.65%
|
|
Rabobank
(8)
|
February
2016
|
US$
|
40.0
|
|
-
|
40.0
|
-
|
March
2019
|
LIBOR
3M plus 3.50%
|
|
Tokyo-Mitsubishi
(9)
|
August
2016
|
US$
|
30.0
|
|
-
|
30.0
|
-
|
August
2019
|
6.25%
|
|
Bradesco
(10)
|
July
2016
|
R$
|
90.0
|
R$
|
90.0
|
27.6
|
-
|
May
2019
|
CDI
+ 2.10%
|
|
Votorantim
(11)
|
July
2016
|
US$
|
15.0
|
|
-
|
15.0
|
-
|
June
2019
|
LIBOR
3M plus 4.60%
|
|
|
(1)
|
Collateralized by (i) a first degree mortgage of the Carmen (Santa Agua) farm; (ii) a first degree
mortgage of the Sapálio farm; (iii) a first degree mortgage of the Takuare farm; and (iv) liens over the Ivinhema mill and
equipment.
|
|
|
(2)
|
Collateralized by (i) a first degree mortgage of the Carmen (Santa Agua) farm; (ii) a first degree
mortgage of the Sapálio farm; (iii) a first degree mortgage of the Takuare farm; and (iv) liens over the Ivinhema mill and
equipment.
|
|
|
(3)
|
Collateralized by power sales contract.
|
|
|
(4)
|
Collateralized by (i) a first degree mortgage of the Carmen (Santa Agua) farm; (ii) a first degree
mortgage of the Sapálio farm; (iii) a first degree mortgage of the Takuare farm; (iv) liens over the Ivinhema mill and equipment;
and (v) power sales contract.
|
|
|
(5)
|
Collateralized by (i) liens over the Ivinhema mill and equipment; and (ii) power sales contracts.
|
|
|
(6)
|
Collateralized by (i) a first-degree mortgage of the Conquista, Alto Alegre, Dom Fabrício,
Nossa Senhora Aparecida, Água Branca, Ouro Verde and Bela Manhã farms, (ii) pledge of sugarcane, and (iii) sales
contracts.
|
|
|
(7)
|
Collateralized by (i) a first-degree mortgage of the Rio de Janeiro farm, and (ii) sales contracts.
|
|
|
(8)
|
Collateralized by sales contracts.
|
|
|
(9)
|
Collateralized by sales contracts.
|
|
|
(10)
|
Collateralized by pledge of ethanol.
|
|
|
(11)
|
Collateralized by (i) power sales contract and (ii) sales contracts.
|
The accompanying
notes are an integral part of these consolidated financial statements.
Adecoagro
S.A.
Notes to the Consolidated Financial Statements
(Continued)
(All amounts in US$ thousands, except shares
and per share data and as otherwise indicated)
|
|
26.
|
Borrowings (continued)
|
The abovementioned
loans contain certain customary financial covenants and restrictions which require us to meet pre-defined financial ratios, among
other restrictions, as well as restrictions on the payment of dividends. These financial ratios are measured considering the statutory
financial statements of the Brazilian Subsidiaries.
During 2016 and 2015 the Group was in
compliance with all financial covenants.
Argentinian Subsidiaries
The main loans of the Group’s
Argentinian Subsidiaries are:
|
Bank
|
Grant
Date
|
Nominal
amount
|
Capital
outstanding as of
December 31
|
Maturity
date
|
Annual
Interest Rate
|
|
2016
|
2015
|
|
(In millions)
|
(In millions)
|
(In
millions)
|
|
IDB
Tranche A (1)
|
Feb-09
|
US$
20
|
US$
6.15
|
US $
8.7
|
Nov-18
|
6.11%
per annum
|
|
IFC
Tranche A (2)
|
Dic-16
|
US$
25
|
US$
25.00
|
-
|
Sep-21
|
4.3%
plus LIBOR
|
|
IFC
Tranche B (2)
|
Dic-16
|
US$
25
|
US$
25.00
|
-
|
Sep-23
|
4%
plus LIBOR
|
(1): Collateralized
by property, plant and equipment with a net book value of US$ 24.77 million, by a mortgage over (i) Carmen and La Rosa farms which
are property of Adeco Agropecuaria S.A. and (ii) El Meridiano farm which is the property of Pilagá S.A.
(2): Collateralized
by a US$ 75 million mortgage over Carmen farm, which is property of Adeco Agropecuaria S.A.
The Group entered
into a floating to fix interest rate forward swap, fixing LIBOR at 1.25%, effective May 2012.
The abovementioned
loans contain certain customary financial covenants and restrictions which require us to meet pre-defined financial ratios, among
other restrictions, as well as restrictions on the payment of dividends. These financial ratios are measured considering the statutory
financial statements of the Argentinian Subsidiaries.
During 2016 and 2015 the Group was in compliance with
all financial covenants.
The carrying amounts
of the Group’s borrowings are denominated in the following currencies (expressed in US dollars):
|
|
|
2016
|
|
2015
|
|
Currency
|
|
|
|
|
|
|
|
|
|
US Dollar
|
|
|
437,307
|
|
|
|
526,710
|
|
|
Brazilian Reais
|
|
|
196,903
|
|
|
|
193,345
|
|
|
Argentine Peso
|
|
|
1,186
|
|
|
|
3,284
|
|
|
|
|
|
635,396
|
|
|
|
723,339
|
|
The accompanying
notes are an integral part of these consolidated financial statements.
Adecoagro
S.A.
Notes to the Consolidated Financial Statements
(Continued)
(All amounts in US$
thousands, except shares and per share data and as otherwise indicated)
|
|
27.
|
Payroll and social security liabilities
|
|
|
|
2016
|
|
2015
|
|
Non-current
|
|
|
|
|
|
|
|
|
|
Social security payable
|
|
|
1,235
|
|
|
|
1,236
|
|
|
|
|
|
1,235
|
|
|
|
1,236
|
|
|
Current
|
|
|
|
|
|
|
|
|
|
Salaries payable
|
|
|
7,351
|
|
|
|
4,755
|
|
|
Social security payable
|
|
|
3,063
|
|
|
|
2,766
|
|
|
Provision for vacations
|
|
|
12,109
|
|
|
|
9,877
|
|
|
Provision for bonuses
|
|
|
4,321
|
|
|
|
4,755
|
|
|
|
|
|
26,844
|
|
|
|
22,153
|
|
|
Total payroll and social security liabilities
|
|
|
28,079
|
|
|
|
23,389
|
|
|
|
28.
|
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.
The table below shows
the movements in the Group's provisions for other liabilities categorized by type of provision:
|
|
|
Labor, legal and
other claims
|
|
Onerous contracts
|
|
Total
|
|
At January 1, 2015
|
|
|
2,729
|
|
|
|
8
|
|
|
|
2,737
|
|
|
Additions
|
|
|
1,483
|
|
|
|
17
|
|
|
|
1,500
|
|
|
Used during year
|
|
|
(921
|
)
|
|
|
(1
|
)
|
|
|
(922
|
)
|
|
Exchange differences
|
|
|
(998
|
)
|
|
|
(4
|
)
|
|
|
(1,002
|
)
|
|
At December 31, 2015
|
|
|
2,293
|
|
|
|
20
|
|
|
|
2,313
|
|
|
Additions
|
|
|
3,447
|
|
|
|
57
|
|
|
|
3,504
|
|
|
Used during year
|
|
|
(2,174
|
)
|
|
|
(14
|
)
|
|
|
(2,188
|
)
|
|
Exchange differences
|
|
|
291
|
|
|
|
(31
|
)
|
|
|
260
|
|
|
At December 31, 2016
|
|
|
3,857
|
|
|
|
32
|
|
|
|
3,889
|
|
Analysis of total provisions:
|
|
|
2016
|
|
2015
|
|
Non current
|
|
|
3,299
|
|
|
|
1,653
|
|
|
Current
|
|
|
590
|
|
|
|
660
|
|
|
|
|
|
3,889
|
|
|
|
2,313
|
|
The Group is engaged
in several legal proceedings, including tax, labor, civil, administrative and other proceedings in Brazil, which qualified as contingent
liabilities for an aggregate claimed nominal amount of US$ 18.2 million and US$ 30.1 million as of December 31, 2016
and 2015, respectively.
The accompanying
notes are an integral part of these consolidated financial statements.
Adecoagro S.A.
Notes to the Consolidated Financial Statements
(Continued)
(All
amounts in US$ thousands, except shares and per share data and as otherwise indicated)
|
|
29.
|
Disclosure of leases and similar arrangements
|
The Group as
lessee
Operating leases:
The Group leases land
for crop cultivation in Argentina. The leases have an average term of a crop year and are renewable at the option of the lessee
for additional periods. Under the lease agreements, rent accrues generally at the time of harvest. Rent is payable at several times
during the crop year. Lease expense was US$ 6.8 million for the year ended December 31, 2016 (2015: US$ 10.8 million;
2014: US$ 12.8 million). Lease expense is capitalized as part of biological assets.
The Group also leases
various offices and machinery under cancellable operating lease agreements which involve no significant amount.
The future aggregate
minimum lease payments under cancellable operating leases are as follows:
|
|
|
2016
|
|
2015
|
|
No later than 1 year
|
|
|
5,311
|
|
|
|
5,370
|
|
|
Later than 1 year and no later than 5 years
|
|
|
2,294
|
|
|
|
141
|
|
|
|
|
|
7,605
|
|
|
|
5,511
|
|
Agriculture “partnerships”
(
parceria
by its exact term in Portuguese)
:
The Group enters
into contracts with landowners to cultivate sugarcane on their land. These contracts have an average term of 5 years.
Under these contracts,
the Group makes payments based on the market value of sugarcane per hectare (in tons) used by the Group in each harvest, with the
market value based on the price of sugarcane published by CONSECANA and a fixed amount of total recoverable sugar per ton. Lease
expense was US$ 64.9 million for the year ended December 31, 2016 (2015: US$ 53.41 million; 2014: US$ 65.0 million).
Lease expense is included in “Initial recognition and changes in fair value of biological assets and agricultural produce”
in the statement of income.
Finance leases:
Most of the leased
assets carried in the consolidated statement of financial position as part of a finance lease relate to long-term rental and lease
agreements for vehicles, machinery and equipment. Obligations under finance leasing totals US$ 181 and US$ 279 as of
December 31, 2016 and 2015, respectively.
The Group as lessor
Operating leases:
The Group acts as
a lessor in connection with an operating lease related to leased farmland, classified as investment property. The lease payments
received are recognized in profit or loss. The lease has a term of ten years.
The following amounts
have been recognized in the statement of income in the line “Sales goods and services rendered”:
|
|
|
2016
|
|
2015
|
|
2014
|
|
Rental income
|
|
|
954
|
|
|
|
1,302
|
|
|
|
1,523
|
|
The accompanying
notes are an integral part of these consolidated financial statements.
Adecoagro S.A.
Notes to the Consolidated Financial Statements
(Continued)
(All
amounts in US$ thousands, except shares and per share data and as otherwise indicated)
|
|
29.
|
Disclosure of leases and similar arrangements (continued)
|
The future minimum
rental payments receivable under cancellable leases are as follows:
|
|
|
2016
|
|
2015
|
|
No later than 1 year
|
|
|
494
|
|
|
|
940
|
|
|
Later than 1 year and no later than 5 years
|
|
|
988
|
|
|
|
1,185
|
|
|
|
|
|
1,482
|
|
|
|
2,125
|
|
On September 2013,
Marfrig Argentina S.A. (“Marfrig Argentina”), the argentine subsidiary of the Brazilian company Marfrig Alimentos S.A.
(“Marfrig Alimentos"), unilaterally early terminated the lease agreements for grazing land entered into with the Group
on December 2009. The termination of the lease agreements was effective in the fourth quarter of 2013, and on April 2014, the Group
filed an arbitration proceeding against Marfrig Argentina and Marfrig Alimentos claiming unpaid invoices for US$ 0.5 million
and indemnification for early termination. On September 2016, the Parties settled the arbitration proceedings in the amount of
US$ 9 million. As of December 31 2016 the group collected US$ 7 million and as of the date of this financial statements
the group has collected the full amount.
This settlement, net
of the unpaid invoices and other expenses resulted in an income of US$ 8.5 million reflected in the line item Other operating
income.
Finance leases:
The Group does not act as a lessor in
connection with finance leases.
The accompanying
notes are an integral part of these consolidated financial statements.
Adecoagro S.A.
Notes to the Consolidated Financial Statements
(Continued)
(All
amounts in US$ thousands, except shares and per share data and as otherwise indicated)
The following table details the subsidiaries
that comprised the Group as of December 31, 2016 and 2015:
|
|
|
|
|
|
|
2016
|
|
2015
|
|
|
|
Activities
|
|
Country of
incorporation
and operation
|
|
Ownership
percentage
held if not
100 %
|
|
Ownership
percentage
held if not
100 %
|
|
Details of principal subsidiary undertakings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating companies (unless otherwise stated):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adeco Agropecuaria S.A.
|
|
(a)
|
|
Argentina
|
|
|
-
|
|
|
|
-
|
|
|
Pilagá S.A.
|
|
(a)
|
|
Argentina
|
|
|
99.84
|
%
|
|
|
99.84
|
%
|
|
Cavok S.A.
|
|
(a)
|
|
Argentina
|
|
|
51
|
%
|
|
|
51
|
%
|
|
Establecimientos El Orden S.A.
|
|
(a)
|
|
Argentina
|
|
|
51
|
%
|
|
|
51
|
%
|
|
Bañado del Salado S.A.
|
|
(a)
|
|
Argentina
|
|
|
-
|
|
|
|
-
|
|
|
Agro Invest S.A.
|
|
(a)
|
|
Argentina
|
|
|
51
|
%
|
|
|
51
|
%
|
|
Forsalta S.A.
|
|
(a)
|
|
Argentina
|
|
|
51
|
%
|
|
|
51
|
%
|
|
Dinaluca S.A.
|
|
(a)
|
|
Argentina
|
|
|
-
|
|
|
|
-
|
|
|
Simoneta S.A.
|
|
(a)
|
|
Argentina
|
|
|
-
|
|
|
|
-
|
|
|
Compañía Agroforestal S.M.S.A.
|
|
(a)
|
|
Argentina
|
|
|
-
|
|
|
|
-
|
|
|
Energía Agro S.A.U.
|
|
(a)
|
|
Argentina
|
|
|
-
|
|
|
|
-
|
|
|
Adeco Agropecuaria Brasil Ltda.
|
|
(b)
|
|
Brazil
|
|
|
-
|
|
|
|
-
|
|
|
Adecoagro Vale do Ivinhema Ltda.
|
|
(b)
|
|
Brazil
|
|
|
-
|
|
|
|
-
|
|
|
Adecoagro Commodities Ltda.
|
|
(b)
|
|
Brazil
|
|
|
-
|
|
|
|
-
|
|
|
Usina Monte Alegre Ltda.
|
|
(b)
|
|
Brazil
|
|
|
-
|
|
|
|
-
|
|
|
Kelizer S.A.
|
|
(a)
|
|
Uruguay
|
|
|
-
|
|
|
|
-
|
|
|
Agroglobal S.A. (
f.k.a. Adecoagro Uruguay S.A.)
|
|
(a)
|
|
Uruguay
|
|
|
-
|
|
|
|
-
|
|
|
Holdings companies:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adeco Brasil Participações S.A.
|
|
-
|
|
Brazil
|
|
|
-
|
|
|
|
-
|
|
|
International Farmland Holdings LP
|
|
(d)
|
|
United States
|
|
|
-
|
|
|
|
-
|
|
|
Adecoagro LP S.C.S.
|
|
(e)
|
|
Luxembourg
|
|
|
-
|
|
|
|
-
|
|
|
Adecoagro GP S.a.r.l.
|
|
-
|
|
Luxembourg
|
|
|
-
|
|
|
|
-
|
|
|
Ladelux S.C.A.
|
|
-
|
|
Uruguay
|
|
|
-
|
|
|
|
-
|
|
|
Spain Holding Companies
|
|
(c)
|
|
Spain
|
|
|
-
|
|
|
|
-
|
|
(a) Mainly crops, rice, cattle
and others.
(b) Mainly sugarcane, ethanol and energy.
(c) Comprised by (1) wholly owned subsidiaries: Kadesh España
S.L.U.; Leterton España S.L.U.; Global Asterion S.L.U.; Global Acasto S.L.U.; Global Laertes S.L.U.; Global Seward S.L.U.;
Global Pindaro S.L.U.; Global Pileo S.L.U.; Peak Texas S.L.U.; Peak City S.L.U. and 51% controlled subsidiaries (see note 21):
Global Acamante S.L.U.; Global Carelio S.L.U.; Global Calidon S.L.U.; Global Mirabilis S.L.U. Global Anceo S.L.U.Global Hisingen
S.L.U.
(d) Merge without liquidation with Adecoagro L.P. in April 2015.
(e) The continuer from the merger between Adecoagro LP and International
Farmland Holdings LP.
The accompanying
notes are an integral part of these consolidated financial statements.
Adecoagro S.A.
Notes to the Consolidated Financial Statements
(Continued)
(All
amounts in US$ thousands, except shares and per share data and as otherwise indicated)
|
|
30.
|
Group companies (continued)
|
The percentage voting
right for each principal subsidiary is the same as the percentage of capital stock held. Issued share capital represents only ordinary
shares/ quotas, units or their equivalent. There are no preference shares or units issued in any subsidiary undertaking.
According to the
laws of certain of the countries in which the Group operates, 5 % of the profit of the year is separated to constitute legal
reserves until they reach legal capped amounts (20 % of total capital). These legal reserves are not available for dividend
distribution and can only be released to absorb losses. The Group’s joint ventures have not reached the legal capped amounts.
|
|
31.
|
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)/(equity)
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
|
2016
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mario Jorge de Lemos Vieira/
Cia
|
|
(i)
|
|
Cost of goods sold and services rendered (ii)
|
|
|
(42
|
)
|
|
|
(2,304
|
)
|
|
|
(2,854
|
)
|
|
|
-
|
|
|
|
-
|
|
|
Agropecuaria Monte Alegre/ Alfenas
|
|
|
|
Receivables from related parties (Note 18)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
172
|
|
|
|
300
|
|
|
Agricola Ltda/ Marcelo Weyland Barbosa
Vieira/ Paulo Albert Weyland Vieira
|
|
|
|
Payables (Note 25)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(701
|
)
|
|
|
(465
|
)
|
|
Directors and senior management
|
|
Employment
|
|
Compensation selected employess
|
|
|
(5,213
|
)
|
|
|
(7,528
|
)
|
|
|
(7,439
|
)
|
|
|
(17,355
|
)
|
|
|
(16,836
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CHS Agro
|
|
Joint venture
|
|
Purchases of goods
|
|
|
-
|
|
|
|
-
|
|
|
|
402
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
Receivables from related parties (Note 18)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
8,114
|
|
|
|
8,204
|
|
|
|
|
|
|
Payables from related parties (Note 25)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(451
|
)
|
|
|
-
|
|
|
|
|
|
|
Sales of goods
|
|
|
372
|
|
|
|
2,201
|
|
|
|
2,824
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
Services
|
|
|
87
|
|
|
|
110
|
|
|
|
70
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
Interest income
|
|
|
326
|
|
|
|
74
|
|
|
|
49
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(i)
|
Shareholders of the Company.
|
|
|
(ii)
|
Relates to agriculture partnership agreements (“parceria”).
|
The accompanying
notes are an integral part of these consolidated financial statements.
Adecoagro S.A.
Notes to the Consolidated Financial Statements
(Continued)
(All
amounts in US$ thousands, except shares and per share data and as otherwise indicated)
|
|
32.
|
Summary of significant accounting policies
|
The principal accounting
policies applied in the preparation of these consolidated financial statements are set out below. These policies have been consistently
applied to all the years presented, unless otherwise stated.
|
|
32.1
|
Basis of preparation and presentation
|
The consolidated financial
statements of the Group have been prepared in accordance with International Financial Reporting Standards (IFRS) of the International
Accounting Standards Board (IASB) and the Interpretations of the International Financial Reporting Interpretations Committee (IFRIC).
All IFRS issued by the IASB, effective at the time of preparing these consolidated financial statements have been applied.
The consolidated
financial statements have been prepared under the historical cost convention as modified by financial assets and financial liabilities
(including derivative instruments) at fair value through profit or loss and biological assets and agricultural produce at the
point of harvest measured at fair value.
In order to
facilitate the understanding of our Consolidated Financial Statements, we have changed the format of the presentation of our
income statement. During the fourth quarter of 2016, we aggregate our sales in a single line item titled “Sales of
goods and services rendered”. Likewise, the corresponding cost has also been aggregated and presented as a single line
item titled “Cost of goods sold and services rendered”. The breakdown of sales is now included in Note 4 to the
Consolidated Financial Statements. The comparative figures have been retroactively changed accordingly.
The preparation of
consolidated financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires
management to exercise its judgment in the process of applying the Group’s accounting policies. The areas involving a higher
degree of judgment or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements
are disclosed in Note 32.
(a) Standards,
amendments and interpretations to existing standards effective and adopted by the Group in 2015
The following standards,
amendments and interpretations to existing standards have been published and were mandatory for the Group as of January 1, 2015:
All the amendments
to the standards IAS 32, ‘Financial instruments: Presentation’ – Offsetting financial assets and financial liabilities,
IAS 36, ‘Impairment of assets’ – Recoverable amount disclosures for non-financial assets and IAS 39, ‘Financial
instruments: Recognition and measurement’ – Novation of derivatives and continuation of hedge accounting have been
analyzed by the Company. The application of these standards did not materially affect the Group’s financial position or results
of operations.
Other standards, amendments
and interpretations which are effective for the financial year beginning on 1 January 2015 are not material to the Group.
|
|
§
|
Effects of the adoption of the amendments of IAS 41 and IAS 16
|
In June 2014, the
IASB made amendments to IAS 16 Property, Plant and Equipment and IAS 41 Agriculture which distinguish bearer plants from other
biological assets. Bearer plants are solely used to grow produce over their productive lives and are seen to be similar to an item
of machinery. They will therefore now be accounted for under IAS 16. However, agricultural produce growing on bearer plants will
remain within the scope of IAS 41 and continue to be measured at fair value less cost to sell. The amendments shall be applied
for annual periods beginning on or after January 1, 2016, with earlier application permitted.
The Group’s
sugarcane and coffee plantations qualify as bearer plants under the new definition in IAS 41. As required under IAS 8, the change
in accounting policy applied retrospectively. As a consequence, the sugarcane planting and coffee plantations was reclassified
to property, plant and equipment and measured at amortized cost and depreciated over their useful life on straight-line basis,
effective January 1, 2016 and comparative figures retrospectively revised accordingly. The Group adopted the transitional rule
which allows companies to apply fair value of bearer plants as their deemed cost as of January 1, 2014.
However, agricultural
produce growing on sugarcane and coffee plantations will remain under the line biological asset and continue to be measured at
fair value less cost to sell.
The accompanying
notes are an integral part of these consolidated financial statements.
Adecoagro S.A.
Notes to the Consolidated Financial Statements
(Continued)
(All
amounts in US$ thousands, except shares and per share data and as otherwise indicated)
|
|
32.1
|
Basis of preparation and presentation (continued)
|
These amendments
resulted in changes in accounting policies and adjustments to the amounts and the results of the operations recognized in the financial
statements as of and for the years ended December 31, 2016 and 2015, as follows:
|
Statements of Income (extracts)
|
|
|
|
2015(Previously
stated)
|
|
Increase/
(Decrease)
|
|
2015
(Revised)
|
|
2014(Previously
stated)
|
|
Increase/
(Decrease)
|
|
2014
(Revised)
|
|
Cost of goods sold and services rendered
|
|
|
(505,693
|
)
|
|
|
(52,093
|
)
|
|
|
(557,886
|
)
|
|
|
(545,281
|
)
|
|
|
(60,044
|
)
|
|
|
(605,325
|
)
|
|
Change in fair value of biological assets
|
|
|
36,869
|
|
|
|
17,659
|
|
|
|
54,528
|
|
|
|
27,145
|
|
|
|
73,071
|
|
|
|
100,216
|
|
|
Profit / (Loss) before income tax
|
|
|
22,129
|
|
|
|
(34,434
|
)
|
|
|
(12,305
|
)
|
|
|
8,544
|
|
|
|
13,027
|
|
|
|
21,571
|
|
|
Income tax (expense) / benefit
|
|
|
(3,754
|
)
|
|
|
11,708
|
|
|
|
7,954
|
|
|
|
(6,106
|
)
|
|
|
(4,429
|
)
|
|
|
(10,535
|
)
|
|
Profit / (Loss)for the period
|
|
|
18,375
|
|
|
|
(22,726
|
)
|
|
|
(4,351
|
)
|
|
|
2,438
|
|
|
|
8,598
|
|
|
|
11,036
|
|
|
Attributable to:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity holders of the parent
|
|
|
17,133
|
|
|
|
(22,726
|
)
|
|
|
(5,593
|
)
|
|
|
2,518
|
|
|
|
8,598
|
|
|
|
11,116
|
|
|
Non-controlling interests
|
|
|
1,242
|
|
|
|
-
|
|
|
|
1,242
|
|
|
|
(80
|
)
|
|
|
-
|
|
|
|
(80
|
)
|
|
|
|
|
18,375
|
|
|
|
(22,726
|
)
|
|
|
(4,351
|
)
|
|
|
2,438
|
|
|
|
8,598
|
|
|
|
11,036
|
|
|
Basic earnings per share
|
|
|
0.142
|
|
|
|
(0.188
|
)
|
|
|
(0.046
|
)
|
|
|
0.021
|
|
|
|
0.071
|
|
|
|
0.092
|
|
|
Diluted earnings per share
|
|
|
0.140
|
|
|
|
(0.186
|
)
|
|
|
(0.046
|
)
|
|
|
0.021
|
|
|
|
0.070
|
|
|
|
0.091
|
|
|
|
|
31 December
2015 (Prev.
stated)
|
|
Increase/
(Decrease)
|
|
31 December
2015 (Revised)
|
|
1 January 2015
(Prev. stated)
|
|
Increase/
(Decrease)
|
|
1 January 2015
(Revised)
|
|
Biological assets
|
|
|
299,270
|
|
|
|
(187,452
|
)
|
|
|
111,818
|
|
|
|
341,232
|
|
|
|
(216,496
|
)
|
|
|
124,736
|
|
|
Property, plant and equipment
|
|
|
540,218
|
|
|
|
156,671
|
|
|
|
696,889
|
|
|
|
776,905
|
|
|
|
214,676
|
|
|
|
991,581
|
|
|
Deferred tax assets
|
|
|
60,857
|
|
|
|
7,887
|
|
|
|
68,744
|
|
|
|
45,597
|
|
|
|
(3,525
|
)
|
|
|
42,072
|
|
|
Inventories
|
|
|
77,703
|
|
|
|
7,583
|
|
|
|
85,286
|
|
|
|
104,919
|
|
|
|
12,187
|
|
|
|
117,106
|
|
|
Total assets
|
|
|
978,048
|
|
|
|
(15,311
|
)
|
|
|
962,737
|
|
|
|
1,268,653
|
|
|
|
6,842
|
|
|
|
1,275,495
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retained earnings
|
|
|
62,923
|
|
|
|
(14,128
|
)
|
|
|
48,795
|
|
|
|
45,644
|
|
|
|
8,598
|
|
|
|
54,242
|
|
|
Cumulative Translation Adjustment
|
|
|
(567,133
|
)
|
|
|
(1,183
|
)
|
|
|
(568,316
|
)
|
|
|
(395,804
|
)
|
|
|
(1,756
|
)
|
|
|
(397,560
|
)
|
|
Total equity
|
|
|
542,730
|
|
|
|
(15,311
|
)
|
|
|
(527,419
|
)
|
|
|
770,385
|
|
|
|
6,842
|
|
|
|
777,227
|
|
|
Cash flow (extracts)
|
|
|
|
31 December
2015 (Prev.
stated)
|
|
Increase/
(Decrease)
|
|
31 December
2015 (Revised)
|
|
1 January 2015
(Prev. stated)
|
|
Increase/
(Decrease)
|
|
1 January 2015
(Revised)
|
Net cash generated from
operating activities
|
|
|
153,914
|
|
|
|
(8,728
|
)
|
|
|
145,186
|
|
|
|
133,133
|
|
|
|
(12,982
|
)
|
|
|
120,151
|
|
|
Net cash used in investing activities
|
|
|
(133,779
|
)
|
|
|
8,728
|
|
|
|
(125,051
|
)
|
|
|
(313,454
|
)
|
|
|
12,982
|
|
|
|
(300,472
|
)
|
The accompanying
notes are an integral part of these consolidated financial statements.
Adecoagro S.A.
Notes to the Consolidated Financial Statements
(Continued)
(All
amounts in US$ thousands, except shares and per share data and as otherwise indicated)
|
|
32.1
|
Basis of preparation and presentation (continued)
|
(b) Standards,
amendments and interpretations to existing standards that are not yet effective
Below is a description
of the standards, amendments and interpretations issued by the IASB to existing standards that have been issued and are mandatory
for the Group’s fiscal periods beginning after January 1, 2015 and which have not been early adopted by the Group:
In May 2014, the IASB
issued IFRS 15, "Revenue from contracts with customers", which deals with revenue recognition and establishes principles
for reporting useful information to users of financial statements about the nature, amount, timing and uncertainty of revenue and
cash flows arising from an entity’s contracts with customers. Revenue is recognized when a customer obtains control of a
good or service and thus has the ability to direct the use and obtain the benefits from the good or service. The standard replaces
IAS 18 ‘Revenue’ and IAS 11 ‘Construction contracts’ and related interpretations. The standard is effective
for annual periods beginning on or after January 1, 2018 and earlier application is permitted. The Group has not yet assessed the
potential impact IFRS 15 may have on the financial position and results of operations of the Group.
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. It includes requirements on the classification and
measurement of financial assets and liabilities, as well as an expected credit losses model that replaces the current incurred
loss impairment model. The standard is effective for accounting periods beginning on or after January 1, 2018. Early adoption is
permitted. The Group has not yet assessed IFRS 9’s full impact on the financial position and results of operations of the
Group.
In September 2014,
the IASB issued the amendments to IFRS 10, “Consolidated financial statements” and IAS 28, “Investments in associates
and joint ventures”, which addresses an acknowledged inconsistency between the requirements of both standards in dealing
with the sale or contribution of assets between an investor and its associate or joint venture. These amendments must be applied
on annual periods beginning on or after January 1, 2016. The Group is currently assessing the impact these amendments may have
on the financial position and results of operations of the Group.
In January 2016, the
IASB finished its long-standing project on lease accounting and published IFRS 16, ‘Leases’, which replaces the current
guidance in IAS 17. This will require far-reaching changes in accounting by lessees in particular. The standard applies to annual
periods beginning on or after 1 January 2019, with earlier application permitted if IFRS 15, ‘Revenue from Contracts with
Customers’, is also applied. The Group has not yet assessed the potential impact IFRS 16 may have on the financial position
and results of operations of the Group.
There are no other
IFRSs or IFRIC interpretations that are not yet effective that would be expected to have a material impact on the Group.
The accompanying
notes are an integral part of these consolidated financial statements.
Adecoagro S.A.
Notes to the Consolidated Financial Statements
(Continued)
(All
amounts in US$ thousands, except shares and per share data and as otherwise indicated)
|
|
32.2
|
Scope of consolidation
|
The consolidated
financial statements include the results of the Company and all of its subsidiaries from the date that control commences to the
date that control ceases. They also include the Group’s share of the net income of its jointly-controlled entities on an
equity-accounted basis from the point at which joint control commences, to the date that it ceases.
(a)
Subsidiaries
Subsidiaries are
all entities over which the Group has control. The Group controls an entity when the Group is exposed to, or has rights to, variable
returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Subsidiaries
are fully consolidated from the date that control commences and deconsolidated from the date that control ceases.
The Group uses the
acquisition method of accounting to account for business combinations. The consideration transferred for the acquisition of a subsidiary
is the fair value of the assets transferred, the liabilities incurred and the equity interests issued by the Group. The consideration
transferred includes the fair value of any asset or liability resulting from a contingent consideration arrangement. Acquisition-related
costs are expensed as incurred. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination
are measured initially at their fair values at the acquisition date.
The Group recognizes
any non-controlling interest in the acquiree on an acquisition-by-acquisition basis either at fair value or at the non-controlling
interest’s proportionate share of the acquiree’s net assets.
The excess of the
consideration transferred, the amount of any non-controlling interest in the acquiree and the acquisition-date fair value of any
previous equity interest in the acquiree over the fair value of the identifiable net assets acquired is recorded as goodwill.
Inter-company transactions, balances and
unrealized gains on transactions between group companies are eliminated. Unrealized losses are also eliminated. Accounting policies
of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group.
(b) Changes
in ownership interests in subsidiaries without change of control
Transactions with
non-controlling interests that do not result in loss of control are accounted for as equity transactions – that is, as transactions
with the owners in their capacity as owners. The difference between the fair value of any consideration paid and the relevant share
acquired of the carrying value of net assets of the subsidiary is recorded in equity. Gains or losses on disposals to non-controlling
interests are also recorded in equity.
(c) Disposal
of subsidiaries
When the Group ceases
to have control any retained interest in the entity is re-measured to its fair value at the date when control is lost, with the
change in carrying amount recognized in profit or loss. The fair value is the initial carrying amount for the purposes of subsequently
accounting for the retained interest as an associate, joint venture or financial asset. In addition, any amount previously recognized
in other comprehensive income in respect of that entity is accounted for as if the Group had directly disposed of the related assets
or liabilities. This may mean that amounts previously recognized in other comprehensive income are reclassified to profit or loss.
(d) Joint
arrangements
Under IFRS 11, investments
in joint arrangements are classified as either joint operations or joint ventures depending on the contractual rights and obligations
each investor has rather than the legal structure of the joint arrangement.
The accompanying
notes are an integral part of these consolidated financial statements.
Adecoagro S.A.
Notes to the Consolidated Financial Statements
(Continued)
(All amounts in US$ thousands, except shares and per share data and as otherwise indicated)
|
|
32.2
|
Scope of consolidation (continued)
|
The Group has assessed
the nature of its joint arrangements and determined them to be joint ventures and value them under the equity method.
Under the equity
method of accounting, interests in joint ventures are initially recognized in the consolidated statement of financial position
at cost and adjusted thereafter to recognize the Group’s share of the post-acquisition of profits or losses and movements
in other comprehensive income, respectively. When the share of losses of an investee equals or exceeds the carrying amount of an
investment the Group discontinue applying the equity method, the investment is reduced to zero and does not record additional losses.
If the investee subsequently reports net income, the Group would resume applying the equity method only after its share of that
net income equals the share of net losses not recognized during the period the equity method was suspended.
Unrealized
gains on transactions between the Group and its joint ventures are eliminated to the extent of the Group’s interest in the
joint ventures. Unrealized losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred.
Accounting policies of the joint ventures have been changed where necessary to ensure consistency with the policies adopted by
the Group.
According to IFRS 8,
operating segments are identified based on the ‘management approach’. This approach stipulates external segment reporting
based on the Group’s internal organizational and management structure and on internal financial reporting to the chief operating
decision maker (the Management Committee in the case of the Company)
|
|
32.4
|
Foreign currency translation
|
(a) Functional
and presentation currency
Items included in the
financial statements of each of the Group’s entities are measured using the currency of the primary economic environment
in which the entity operates (‘the functional currency’). The consolidated financial statements are presented in US
dollars, which is the Group’s presentation currency.
(b) Transactions
and balances
Foreign currency transactions
are translated into the functional currency using the exchange rates prevailing at the dates of the transactions or valuation where
items are remeasured. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation
at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognized in the statement
of income, in the line Item “Finance income” or “Finance cost”, as appropriate.
(c) Group companies
The results and financial
position of all the Group entities (none of which has the currency of a hyper-inflationary economy) that have a functional currency
different from the presentation currency are translated into the presentation currency as follows:
|
|
·
|
assets and liabilities for each statement of financial position presented are translated at the
closing rate at the date of that statement of financial position;
|
|
|
·
|
income and expenses for each statement of income are translated at average exchange rates (unless
this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which
case income and expenses are translated at the rate on the dates of the transactions); and
|
|
|
·
|
all resulting exchange differences are recognized as a separate component of equity.
|
When a foreign operation
is partially disposed of or sold, exchange differences that were recorded in equity are recognized in the statement of income as
part of the gain or loss on sale.
Goodwill and fair value
adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated
at the closing rate.
The accompanying
notes are an integral part of these consolidated financial statements.
Adecoagro S.A.
Notes to the Consolidated Financial Statements
(Continued)
(All amounts in US$ thousands, except shares and per share data and as otherwise indicated)
|
|
32.5
|
Property, plant and equipment
|
Property, plant and
equipment is recorded at cost, less accumulated depreciation and impairment losses, if any. Historical cost comprises the purchase
price and any costs directly attributable to the acquisition. Under the definition of Property plant and equipment is included
the bearer plants, such as sugarcane and coffe trees.
Where individual
components of an item of property, plant and equipment have different useful lives, they are accounted for as separate items, which
are depreciated separately.
Subsequent costs
are included in the asset’s carrying amount or recognized as a separate asset, as appropriate, only when it is probable that
future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. The
carrying amount of the replaced part is derecognized. All other repairs and maintenance are charged to the statement of income
when they are incurred.
The depreciation
methods and periods used by the group are disclosed in Note 12.
Gains and losses
on disposals are determined by comparing the proceeds with the carrying amount and are recognized within “Other operating
income, net” in the statement of income.
Investment property
consists of farmland for rental or for capital appreciation and not used in production or for sale in the ordinary course of business,
and it is measured at cost less accumulated depreciation and any impairment losses if any.
The Group classifies
its leases at the inception as finance or operating leases. Leases are classified as finance leases whenever the terms of the lease
transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases
and charged to the statements of income in a straight-line basis over the period of the lease. Finance leases are capitalized at
the lease’s inception at the lower of the fair value of the leased property and the present value of the minimum lease payments.
The corresponding rental obligations, net of finance charges, are included as “Borrowings”
Goodwill represents
future economic benefits arising from assets that are not capable of being individually identified and separately recognized by
the Group on an acquisition. Goodwill on acquisition is initially measured at cost. being the excess of the consideration over
the fair value of the Group’s share of net assets of the acquired subsidiary undertaking at the acquisition date. Following
initial recognition, goodwill is measured at cost less any accumulated impairment losses. It is allocated to those cash generating
units expected to benefit from the acquisition for the purpose of impairment testing. Goodwill arising on the acquisition of subsidiaries
is included within “Intangible assets” on the statement of financial position. Goodwill arising on the acquisition
of foreign entities is treated as an asset of the foreign entity denominated in the local currency and translated at the closing
rate.
Goodwill is not amortized
but tested for impairment on an annual basis, or more frequently if there is an indication of impairment. Gains and losses on the
disposal of a Group entity include any goodwill relating to the entity sold (see Note 32.10).
The accompanying
notes are an integral part of these consolidated financial statements.
Adecoagro S.A.
Notes to the Consolidated Financial Statements
(Continued)
(All amounts in US$ thousands, except shares and per share data and as otherwise indicated)
|
|
32.9
|
Other intangible assets
|
Other intangible assets
that are acquired by the Group, which have finite useful lives, are measured at cost less accumulated amortization and impairment
losses, if any. These intangible assets comprise trademarks and computer software and are amortized in the statement of income
on a straight-line basis over their estimated useful lives estimated to be 10 to 20 years and 3 to 5 years, respectively.
|
|
32.10
|
Impairment of assets
|
Goodwill
For the purpose of
impairment testing, assets are grouped at the lowest levels for which there are separately identifiable cash flows, known as cash-generating
units. If the recoverable amount of the cash-generating unit is less than the carrying amount of the unit, the impairment loss
is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit
pro-rata on the basis of the carrying amount of each asset may in the unit. Impairment losses recognized for goodwill cannot be
reversed in a subsequent period. Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing
value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects
current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash
flows have not been adjusted (see Note 33 (a) for details).
Property, plant
and equipment and finite lived intangible assets
At each statement
of financial position date, the Group reviews the carrying amounts of its property, plant and equipment and other intangible assets
which have finite lives 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.
If the recoverable
amount of an asset or cash-generating unit is estimated to be less than its carrying amount, that carrying amount is reduced to
its recoverable amount. An impairment loss is recognized immediately in the statement of income.
Where an impairment
loss subsequently reverses, the carrying amount of the asset or cash-generating unit is increased to the revised estimate of its
recoverable amount, not to exceed the carrying amount that would have been determined had no impairment loss been recognized for
the asset or cash-generating unit in prior years. A reversal of an impairment loss is recognized immediately in the statement of
income.
Biological assets comprise
growing crops (mainly corn, wheat, soybeans, sunflower and rice), sugarcane, coffee and livestock (growing herd and cattle for
dairy production).
The Group distinguishes
between consumable and bearer biological assets, and between mature and immature biological assets. “Consumable” biological
assets are those assets that may be harvested as agriculture produce or sold as biological assets, for example livestock intended
for dairy production. “Bearer” biological assets are those assets capable of producing more than one harvest, for example
sugarcane or livestock from which raw milk is produced. “Mature” biological assets are those that have attained harvestable
specifications (for consumable biological assets) or are able to sustain regular harvests (for bearer biological assets). “Immature”
biological assets are those assets other than mature biological assets.
Costs are capitalized
as biological assets if, and only if, (a) it is probable that future economic benefits will flow to the entity, and (b) the cost
can be measured reliably. The Group capitalizes costs such as: planting, harvesting, weeding, seedlings, irrigation, agrochemicals,
fertilizers and a systematic allocation of fixed and variable production overheads that are directly attributable to the management
of biological assets, among others. Costs that are expensed as incurred include administration and other general overhead and unallocated
production overhead, among others.
The accompanying
notes are an integral part of these consolidated financial statements.
Adecoagro S.A.
Notes to the Consolidated Financial Statements
(Continued)
(All amounts in US$ thousands, except shares and per share data and as otherwise indicated)
|
|
32.11
|
Biological assets (continued)
|
Biological assets,
both at initial recognition and at each subsequent reporting date, are measured at fair value less costs to sell, except where
fair value cannot be reliably measured. Cost approximates fair value when little biological transformation has taken place since
the costs were originally incurred or the impact of biological transformation on price is not expected to be material.
Gains and losses
that arise on measuring biological assets at fair value less costs to sell and measuring agricultural produce at the point of harvest
at fair value less costs to sell are recognized in the statement of income in the period in which they arise in the line item “Initial
recognition and changes in fair value of biological assets and agricultural produce”.
Where there is an
active market for a biological asset or agricultural produce, quoted market prices in the most relevant market are used as a basis
to determine the fair value. Otherwise, when there is no active market or market-determined prices are not available, fair value
of biological assets is determined through the use of valuation techniques.
Therefore, the fair
value of biological assets is generally derived from the expected discounted cash flows of the related agricultural produce. The
fair value of the agricultural produce at the point of harvest is generally derived from market determined prices. A general description
of the determination of fair values based on the Company’s business segments follow:
Growing crops, for
which biological transformation is not significant, are measured at cost, which approximates fair value. Expenditure on growing
crops includes land preparation expenses and other direct expenses incurred during the sowing period including labor, seedlings,
agrochemicals and fertilizers among others.
Otherwise, biological
assets are measured at fair value less estimated point-of-sale costs at initial recognition and at any subsequent period. Point-of-sale
costs include all costs that would be necessary to sell the assets
The fair value of
growing crops excluding sugarcane and coffee is measured based on a formula, which takes into consideration the estimated crop
yields, estimated market prices and costs, and discount rates. Yields are determined based on several factors including location
of farmland, environmental conditions and other restrictions and growth at the time of measurement. Yields are multiplied by sown
hectares to determine the estimated tons of crops to be obtained. The tons are then multiplied by a net cash flow determined at
the future crop prices less the direct costs to be incurred. This amount is discounted at a discount rate, which reflects current
market assessments of the assets involved and the time value of money.
|
|
·
|
Growing herd and cattle:
|
Livestock are measured
at fair value less estimated point-of-sale costs, with any changes therein recognized in the statement of income, on initial recognition
as well as subsequently at each reporting period. The fair value of livestock is determined based on the actual selling prices
less estimated point-of-sale costs in the markets where the Group operates.
The agricultural produce growing on the coffee trees, are biological
assets, and are valued at fair value less cost to sell. Projected costs include maintenance, pruning, land leasing, harvesting
and coffee treatment. These estimates are discounted at an appropriate discount rate.
The accompanying
notes are an integral part of these consolidated financial statements.
Adecoagro S.A.
Notes to the Consolidated Financial Statements
(Continued)
(All amounts in US$
thousands, except shares and per share data and as otherwise indicated)
|
|
32.11.
|
Biological assets (continued)
|
Sugarcane planting
costs form part of Property plant and equipment. The agricultural produce growing on sugarcane is classified as biological assets
and are measured at fair value less cost to sell. The fair value of agricultural produce growing on sugarcane depends on the variety,
location and maturity of the plantation.
Agricultural produce
growing in the Sugarcane, for which biological growth is not significant, is valued at cost, which approximates fair value. Expenditure
on the agricultural produce growing in the sugarcane consists mainly of labor, agrochemicals and fertilizers among others. When
it has attained significant biological growth, it is measured at fair value through a discounted cash flow model. Revenues are
based on estimated yearly production volume (which will be destined to sugar, ethanol, energy and raw cane production) and the
price is calculated as the average of daily prices for sugar future contracts (Sugar #11 ICE-NY contracts) for a six months period.
Projected costs include maintenance and land leasing among others. These estimates are discounted at an appropriate discount rate
.
Inventories comprise
of raw materials, finished goods (including harvested agricultural produce and manufactured goods) and others.
Harvested agricultural
produce (except for rice and milk) are measured at net realizable value until the point of sale because there is an active market
in the produce, there is a negligible risk that the produce will not be sold and there is a well-established practice in the industry
carrying the inventories at net realizable value. Changes in net realizable value are recognized in the statement of income in
the period in which they arise under the line item “Changes in net realizable value of agricultural produce after harvest”.
All other inventories
(including rice and milk) are measured at the lower of cost and net realizable value. Cost is determined using the weighted average
method.
Financial assets are
classified in the following categories: at fair value through profit or loss and loans and receivables. The classification depends
on the purpose for which the financial assets were acquired. Management determines the classification of its financial assets at
initial recognition (see Note 17).
(a) Recognition
and measurement
Regular purchases and
sales of financial assets are recognized on the trade-date – the date on which the Group commits to purchase or sell the
asset. Financial assets not carried at fair value through profit or loss are initially recognized at fair value plus transaction
costs. Financial assets carried at fair value through profit or loss are initially recognized at fair value and transaction costs
are expensed in the statement of income. Financial assets are derecognized when the rights to receive cash flows from the investments
have expired or have been transferred and the Group has transferred substantially all risks and rewards of ownership. Financial
assets at fair value through profit or loss are subsequently carried at fair value. Loans and receivables are subsequently carried
at amortized cost using the effective interest method.
Gains or losses arising
from changes in the fair value of the “financial assets at fair value through profit or loss” category are presented
in the statement of income within “Other operating income, net” in the period in which they arise.
The accompanying
notes are an integral part of these consolidated financial statements.
Adecoagro S.A.
Notes to the Consolidated Financial Statements
(Continued)
(All amounts in US$ thousands, except shares and per share data and as otherwise indicated)
|
|
32.13
|
Financial assets (continued)
|
If the market for a
financial asset is not active (and for unlisted securities), the Group establishes fair value by using valuation techniques. These
include the use of recent arm’s length transactions, reference to other instruments that are substantially the same, discounted
cash flow analysis, and option pricing models, making maximum use of market inputs and relying as little as possible on entity-specific
inputs.
The Group assesses
at each statement of financial position date whether there is objective evidence that a financial asset or a group of financial
assets is impaired. Impairment testing of trade receivables is described in Note 32.15.
(
b)
Offsetting financial instruments
Financial assets and
liabilities are offset and the net amount reported in the statement of financial position when there is a legally enforceable right
to offset the recognized amounts and there is an intention to settle on a net basis, or realize the asset and settle the liability
simultaneously. This right must not be contingent on future events and must be enforceable in any case.
|
|
32.14
|
Derivative financial instruments and hedging activities
|
Derivatives are initially
recognized at fair value on the date a derivative contract is entered into and are subsequently remeasured at their fair value.
Commodity future contract fair values are computed with reference to quoted market prices on future exchanges markets. The fair
values of commodity options are calculated using year-end market rates together with common option pricing models. The fair value
of interest rate swaps has been calculated using a discounted cash flow analysis.
The Group manages
exposures to financial and commodity risks using hedging instruments that provide the appropriate economic outcome. The principal
hedging instruments used may include commodity future contracts, put and call options, foreign exchange forward contracts and interest
rate swaps. The Group does not use derivative financial instruments for speculative purposes.
The Group’s
policy is to apply hedge accounting to hedging relationships where it is both permissible under IAS 39, practical to do so and
its application reduces volatility, but transactions that may be effective hedges in economic terms may not always qualify for
hedge accounting under IAS 39. Any derivatives that the Group holds to hedge these exposures are classified as “held for
trading” and are shown in a separate line on the face of the statement of financial position. The method of recognizing gains
or losses on derivatives depends on whether the derivative is designated as a hedging instrument, and if so, the nature of the
item being hedged. Gains and losses on commodity derivatives are classified within “Other operating income, net”. Gains
and losses on interest rate and foreign exchange rate derivatives are classified within ‘Financial results, net’. The
Group designates certain derivatives as hedges of the foreign currency risk associated with highly probable forecast transactions
(cash flow hedge).
The Group documents
at the inception of the transaction the relationship between hedging instruments and hedged items, as well as its risk management
objectives and strategy for undertaking various hedging transactions. The Group also documents its assessment, both at hedge inception
and on an ongoing basis, of whether the instruments that are used in hedging transactions are highly effective in offsetting changes
in fair value or cash flows of hedged items.
Cash flow hedge
The effective portion
of the gain or loss on the instruments that are designated and qualify as cash flow hedges is recognized in other comprehensive
income. The gain or loss relating to the ineffective portion is recognized immediately in the statement of income within "Finance
income” or “Finance cost”, as appropriate.
The accompanying
notes are an integral part of these consolidated financial statements.
Adecoagro S.A.
Notes to the Consolidated Financial Statements
(Continued)
(All amounts in US$ thousands, except shares and per share data and as otherwise indicated)
|
|
32.14
|
Derivative financial instruments and hedging activities (continued)
|
Amounts accumulated
in equity are reclassified to profit or loss in the periods when the hedged item affects profit or loss. The gain or loss relating
to the effective portion is recognized in the statement of income within "Finance income” or “Finance cost”,
as appropriate.
When a hedging instrument
expires or is sold, or when a hedge no longer meets the criteria for hedge accounting, any cumulative gain or loss existing in
equity at that time remains in equity and is recognized when the forecast transaction is ultimately recognized in the statement
of income. When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was reported in equity
is immediately transferred to the statement of income.
|
|
32.15
|
Trade and other receivables and trade and other payables
|
Trade receivables are
recognized initially at fair value and subsequently measured at amortized cost using the effective interest method. In the case
of receivables, less allowance for trade receivables.
An allowance for trade
receivables is established when there is objective evidence that the Group will not be able to collect all amounts due according
to the original terms of the receivables. Such evidence includes significant financial difficulties of the debtor, probability
that the debtor will enter bankruptcy or financial reorganization, and default or delinquency in payments. Subsequent recoveries
of amounts previously written off are credited against selling expenses in the statement of income.
|
|
32.16
|
Cash and cash equivalents
|
Cash and cash equivalents includes cash in hand, deposits held
at call with banks and other short-term highly liquid investments with original maturities of three months or less. In the statements
of cash flows, interest paid is presented within financing cash flows and interest received is presented within investing activities.
Borrowings are initially
recognized at fair value, net of transaction costs incurred. Borrowings are subsequently measured at amortized cost using the effective
interest method. Borrowing costs are capitalized during the period of time that is required to complete and prepare the asset for
its intended use.
Provisions are recognized
when (i) the Group has a present legal or constructive obligation as a result of past events; (ii) it is probable that an outflow
of resources will be required to settle the obligation; and (iii) a reliable estimate of the amount of the obligation can be made.
Provisions are measured at the present value of the expenditures expected to be required to settle the obligation using a pre-tax
rate that reflects current market assessments of the time value of money and the risks specific to the obligation.
The Group enters
into contracts, which require the Group to sell commodities in accordance with the Group's expected sales. These contracts do not
qualify as derivatives. These contracts are not recognized until at least one of the parties has performed under the agreement.
However, when the contracts are onerous, the Group recognizes the present obligation under the contracts as a provision included
within “Provision and other liabilities” in the statement of financial position. Losses under these onerous contracts
are recognized within “Other operating income, net” in the statement of income.
The accompanying
notes are an integral part of these consolidated financial statements.
Adecoagro S.A.
Notes to the Consolidated Financial Statements
(Continued)
(All amounts in US$
thousands, except shares and per share data and as otherwise indicated)
|
|
32.20
|
Current and deferred income tax
|
The Group’s tax
benefit or expense for each year comprises the charge for current tax payable and deferred taxation attributable to the Group’s
operating subsidiaries. Tax is recognized in the statement of income, except to the extent that it relates to items recognized
directly in equity. In this case, the tax is also recognized in equity.
The current income
tax charge is calculated on the basis of the tax laws enacted at the date of the statement of financial position in the countries
where the Group’s subsidiaries operate and generate taxable income. Management periodically evaluates positions taken in
tax returns with respect to situations in which applicable tax regulation is subject to interpretation. It establishes provisions
where appropriate on the basis of amounts expected to be paid to the tax authorities.
Deferred income tax
is recognized, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and
their carrying amounts in the consolidated financial statements. However, the deferred income tax is not accounted for if it arises
from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction
affects neither accounting nor taxable profit or loss. Deferred income tax is determined using tax rates (and laws) effective in
the countries where the Group’s subsidiaries operate and generate taxable income.
Deferred income tax
assets are recognized only to the extent that it is probable that future taxable profit will be available against which the temporary
differences can be utilized.
Deferred income tax
is provided on temporary differences arising on investments in subsidiaries, except where the timing of the reversal of the temporary
difference is controlled by the Group and it is probable that the temporary difference will not reverse in the foreseeable future.
The Group is able to
control the timing of dividends from its subsidiaries and hence does not expect to remit overseas earnings in the foreseeable future
in a way that would result in a charge to taxable profit. Hence deferred tax is recognized in respect of the retained earnings
of overseas subsidiaries only to the extent that, at the date of the statement of financial position, dividends have been accrued
as receivable or a binding agreement to distribute past earnings in future has been entered into by the subsidiary.
The accompanying
notes are an integral part of these consolidated financial statements.
Adecoagro S.A.
Notes to the Consolidated Financial Statements
(Continued)
(All amounts in US$ thousands, except shares and per share data and as otherwise indicated)
|
|
32.21
|
Revenue recognition
|
The Group’s primary
activities comprise agricultural and agro-industrial activities.
The Group’s agricultural
activities comprise growing and selling agricultural produce. In accordance with IAS 41 “Agriculture”, cattle are measured
at fair value with changes therein recognized in the statement of income as they arise. Agricultural produce is measured at net
realizable value with changes therein recognized in the statement of income as they arise. Therefore, sales of agricultural produce
and cattle generally do not generate any separate gains or losses in the statement of income. See Notes 32.11 and 32.12 for additional
details.
The Group’s agro-industrial
activities comprise the selling of manufactured products (i.e. industrialized rice, milk-related products, ethanol, sugar, energy,
among others). These sales are measured at the fair value of the consideration received or receivable, net of returns and allowances,
trade and other discounts, and sales taxes, as applicable. Revenue is recognized when the significant risks and rewards of ownership
have been transferred to the buyer, recovery of the consideration is probable, the associated costs and possible return of goods
can be estimated reliably, and there is no continuing management involvement with the goods. Transfers of risks and rewards vary
depending on the individual terms of the contract of sale.
The Group also provides
certain agricultural-related services such as grain warehousing/conditioning and other services, e.g. handling and drying services.
Revenue from services is recognized as services are provided.
The Group leases owned
farmland property to third parties under operating lease agreements. Rental income is recognized on a straight-line basis over
the period of the lease.
The Group is a party
to a 10-year power agreement for the sale of electricity which expires in 2018. The delivery period starts in May and ends in November
of each year. The Group is also a party to two 15-year power agreements which delivery period starts in March and ends in December
of each year, these two agreements will expire in 2024 and 2025, respectively. Prices under all the agreements are adjusted annually
for inflation. Revenue related to the sale of electricity under these two agreements is recorded based upon output delivered.
The Group’s strategy
is to profit from land appreciation value generated through the transformation of its productive capabilities. Therefore, the Group
may seek to realize value from the sale of farmland assets and businesses.
Farmland sales are
not recognized until (i) the sale is completed, (ii) the Group has determined that it is probable the buyer will pay, (iii) the
amount of revenue can be measured reliably, and (iv) the Group has transferred to the buyer the risk of ownership, and does not
have a continuing involvement. Gains from “farmland sales” are included in the statement of income under the line item
“Other operating income, net”.
The accompanying
notes are an integral part of these consolidated financial statements.
Adecoagro S.A.
Notes to the Consolidated Financial Statements
(Continued)
(All amounts in US$ thousands, except shares and per share data and as otherwise indicated)
|
|
32.23
|
Assets held for sale and discontinued operations
|
When the Group intends
to dispose of, or classify as held for sale, a business component that represents a separate major line of business or geographical
area of operations, or a subsidiary acquired exclusively with a view to resale, it classifies such operations as discontinued.
The post tax profit or loss of the discontinued operations is shown as a single amount on the face of the statement of income,
separate from the other results of the Group. Assets and liabilities classified as held for sale are measured at the lower of carrying
value and fair value less costs to sell.
Non-current assets
and disposal groups are classified as held for sale if their carrying amount will be recovered through a disposal rather than through
continuing use. This condition is regarded as met only when management is committed to the sale (disposal), the sale (disposal)
is highly probable and expected to be completed within one year from classification and the asset is available for immediate sale
(disposal) in its present condition. The statements of income for the comparative periods are represented to show the discontinued
operations separate from the continuing operations.
Basic earnings per share is calculated
by dividing the net income for the year attributable to equity holders of the parent by the weighted average number of ordinary
shares outstanding during the year. Diluted net earnings per share is computed by dividing the net income for the period by the
weighted average number of ordinary shares outstanding, and when dilutive, adjusted for the effect of all potentially dilutive
shares, including share options, on an as-if converted basis.
|
|
32.25
|
Equity-settled share-based payments
|
The Group issues equity
settled share-based payments to certain directors, senior management and employees. Options under the awards were measured at fair
value at the date of grant. An expense is recognized to spread the fair value of each award over the vesting period on a straight-line
basis, after allowing for an estimate of the awards that will eventually vest. The estimate of the level of vesting is reviewed
at least annually, with any impact on the cumulative charge being recognized immediately.
|
|
32.26
|
Research and development
|
Research phase expenditure is expensed as
incurred. Development expenditure is capitalized as an internally generated intangible asset only if it meets strict criteria,
relating in particular to technical feasibility and generation of future economic benefits. Research expenses have been immaterial
to date. The Group has not capitalized any development expenses to date.
The accompanying
notes are an integral part of these consolidated financial statements.
Adecoagro S.A.
Notes to the Consolidated Financial Statements
(Continued)
(All amounts in US$
thousands, except shares and per share data and as otherwise indicated)
|
|
33.
|
Critical accounting estimates and judgments
|
Critical accounting
policies are those that are most important to the portrayal of the Group’s financial condition, results of operations and
cash flows, and require management to make difficult, subjective or complex judgments and estimates about matters that are inherently
uncertain. Management bases its estimates on historical experience and other assumptions that it believes are reasonable. The Group’s
critical accounting policies are discussed below.
Actual results could
differ from estimates used in employing the critical accounting policies and these could have a material impact on the Group’s
results of operations. The Group also has other policies that are considered key accounting policies, such as the policy for revenue
recognition. However, these other policies, which are discussed in the notes to the Group’s financial statements, do not
meet the definition of critical accounting estimates, because they do not generally require estimates to be made or judgments that
are difficult or subjective.
(a)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 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. 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. Generally,
each separate farmland within Argentina and Uruguay are treated as single CGUs, while in Brazil, management identified a farmland
together with its related mill as separate CGUs.
Based on these criteria,
management identified a total amount of 39 CGUs as of September 30, 2016 and thirty-eight CGUs as of September 30, 2015.
As of September 30,
2016 and 2015, there were no impairment indicators on the Company’s long lived assets. Therefore, 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, 2016 and 2015:
As of September 30,
2016, the Group identified 11 CGUs in Argentina and Uruguay (2015: 11 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.
The accompanying
notes are an integral part of these consolidated financial statements.
Adecoagro S.A.
Notes to the Consolidated Financial Statements
(Continued)
(All amounts in US$ thousands, except shares and per share data and as otherwise indicated)
|
|
33.
|
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.
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 11 CGUs (2015: 11 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,
2016
|
|
September 30,
2015
|
|
La Carolina / Crops / Argentina
|
|
|
40
|
|
|
|
64
|
|
|
La Carolina / Cattle / Argentina
|
|
|
13
|
|
|
|
22
|
|
|
El Orden/ Crops / Argentina
|
|
|
60
|
|
|
|
97
|
|
|
El Orden/ Cattle / Argentina
|
|
|
5
|
|
|
|
8
|
|
|
La Guarida / Crops / Argentina
|
|
|
405
|
|
|
|
658
|
|
|
La Guarida / Cattle / Argentina
|
|
|
330
|
|
|
|
536
|
|
|
Los Guayacanes / Crops / Argentina
|
|
|
511
|
|
|
|
830
|
|
|
Doña Marina / Rice / Argentina
|
|
|
1,803
|
|
|
|
2,930
|
|
|
Huelen / Crops / Argentina
|
|
|
2,020
|
|
|
|
3,283
|
|
|
El Colorado / Crops / Argentina
|
|
|
890
|
|
|
|
1,446
|
|
|
El Colorado / Cattle / Argentina
|
|
|
130
|
|
|
|
211
|
|
|
Closing net book value of goodwill allocated to CGUs tested (Note 14)
|
|
|
6,207
|
|
|
|
10,085
|
|
|
Closing net book value of PPE items and other assets allocated to CGUs tested
|
|
|
36,901
|
|
|
|
54,272
|
|
|
Total assets allocated to CGUs tested
|
|
|
43,108
|
|
|
|
64,357
|
|
Based on the testing
above, the Group determined that none of the CGUs, with allocated goodwill, were impaired at September 30, 2016 and 2015.
The accompanying
notes are an integral part of these consolidated financial statements.
Adecoagro S.A.
Notes to the Consolidated Financial Statements
(Continued)
(All amounts in US$ thousands, except shares and per share data and as otherwise indicated)
|
|
33.
|
Critical accounting estimates and judgments (continued)
|
CGUs tested
based on a value-in-use model at September 30, 2016 and 2015:
As of September 30,
2016, the Group identified 3 CGUs (2015: 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.
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,
2016
|
|
September 30,
2015
|
|
Financial projections
|
|
Covers 4 years for UMA
|
|
Covers 4 years for UMA
|
|
|
|
Cover 7 years for AVI
|
|
Cover 7 years for AVI
|
|
Yield average growth rates
|
|
0-1%
|
|
0-1%
|
|
Future pricing increases
|
|
3% per annum
|
|
1% per annum
|
|
Future cost increases
|
|
3% per annum
|
|
1% per annum
|
|
Discount rates
|
|
6.22%
|
|
6.5%
|
|
Perpetuity growth rate
|
|
2.%
|
|
2%
|
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,
2016
|
|
September 30,
2015
|
|
AVI / Sugar, Ethanol and Energy
|
|
|
4,892
|
|
|
|
3,997
|
|
|
UMA / Sugar, Ethanol and Energy
|
|
|
2,564
|
|
|
|
2,122
|
|
|
Closing net book value of goodwill allocated to CGUs tested (Note 14)
|
|
|
7,456
|
|
|
|
6,119
|
|
|
Closing net book value of PPE items and other assets allocated to CGUs tested
|
|
|
689,857
|
|
|
|
554,688
|
|
|
Total assets allocated to 3 CGUs tested
|
|
|
697,313
|
|
|
|
560,807
|
|
Based on the testing
above, the Group determined that none of the CGUs, with allocated goodwill, were impaired at September 30, 2016 and 2015.
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.
The accompanying
notes are an integral part of these consolidated financial statements.
Adecoagro S.A.
Notes to the Consolidated Financial Statements
(Continued)
(All
amounts in US$ thousands, except shares and per share data and as otherwise indicated)
|
|
33.
|
Critical accounting estimates and judgments (continued)
|
(b) Biological
assets
The nature of the Group’s biological assets and the basis
of determination of their fair value are explained under Note 32.11. The discounted cash flow model requires the input of highly
subjective assumptions including observable and unobservable data. Generally the estimation of the fair value of biological assets
is based on models or inputs that are not observable in the market and the use of unobservable inputs is significant to the overall
valuation of the assets. Unobservable inputs are determined based on the best information available, for example by reference to
historical information of past practices and results, statistical and agronomical information, and other analytical techniques.
Key assumptions include future market prices, estimated yields at the point of harvest, estimated production cycle, future cash
flows, future costs of harvesting and other costs, and estimated discount rate.
Market prices are
generally determined by reference to observable data in the principal market for the agricultural produce. Harvesting costs and
other costs are estimated based on historical and statistical data. Yields are estimated based on several factors including the
location of the farmland and soil type, environmental conditions, infrastructure and other restrictions and growth at the time
of measurement. Yields are subject to a high degree of uncertainty and may be affected by several factors out of the Group’s
control including but not limited to extreme or unusual weather conditions, plagues and other crop diseases, among other factors.
The key assumptions
discussed above are highly sensitive. Reasonable shifts in assumptions including but not limited to increases or decreases in prices,
costs and discount factors used would result in a significant increase or decrease to the fair value of biological assets. In addition,
cash flows are projected over a number of years and based on estimated production. Estimates of production in themselves are dependent
on various assumptions, in addition to those described above, including but not limited to several factors such as location, environmental
conditions and other restrictions. Changes in these estimates could materially impact on estimated production, and could therefore
affect estimates of future cash flows used in the assessment of fair value (see Note 15).
(c) Fair value
of derivatives and other financial instruments
Fair values of derivative
financial instruments are computed with reference to quoted market prices on trade exchanges, when available. The fair values of
commodity options are calculated using year-end market rates together with common option pricing models. The fair value of interest
rate swaps has been calculated using a discounted cash flow analysis.
(d) Income
taxes
The Group is subject
to income taxes in numerous jurisdictions. Significant judgment is required in determining the worldwide provision for income taxes.
There are many transactions and calculations for which the ultimate tax determination is uncertain. The Group recognizes liabilities
for anticipated tax audit issues based on estimates of whether additional taxes will be due. Where the final tax outcome of these
matters is different from the amounts that were initially recorded, such differences will impact the current and deferred income
tax assets and liabilities in the period in which such determination is made.
Deferred tax assets
are reviewed each reporting date and reduced to the extent that it is no longer probable that sufficient taxable income will be
available to allow all or part of the asset to be settled. Deferred tax assets and liabilities are not discounted. The ultimate
realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those
temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future
taxable income and tax planning strategies in making this assessment (see Note 10 for details).
The accompanying
notes are an integral part of these consolidated financial statements.
Adecoagro (NYSE:AGRO)
Historical Stock Chart
From Mar 2024 to Apr 2024
Adecoagro (NYSE:AGRO)
Historical Stock Chart
From Apr 2023 to Apr 2024
