UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549  
 

FORM 6-K  
 

Report of Foreign Private Issuer
Pursuant to Rule 13a-16 or 15d-16
of the Securities Exchange Act of 1934
For the month of May 2018
Commission File Number: 001-35052  
 

Adecoagro S.A.
(Translation of registrant’s name into English)
 
 

Vertigo Naos Building 6,
Rue Eugene Ruppert,
L-2453, Luxembourg
Grand Duchy of Luxembourg
(Address of principal executive offices)  

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F:
Form 20-F   x             Form 40-F   ¨
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):
Yes   ¨             No    x
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):
Yes   ¨             No    x
Indicate by check mark whether by furnishing the information contained in this Form, the Registrant is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934:
Yes   ¨             No    x
If “Yes” is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): N/A  
 





 
ANNOUNCEMENT OF RESULTS OF OPERATIONS FOR THE THREE MONTH PERIOD
ENDED MARCH 31, 2018
 
On May 14, 2018 , the registrant issued a press release pertaining to its results of operations for the three month period ended March 31, 2018 (the “Release”). Registrant hereby furnishes the attached copy of the Release to the Securities and Exchange Commission. The financial and operational information contained in the Release is based on audited consolidated financial statements presented in U.S. dollars and prepared in accordance with International Financial Reporting Standards.
 
The attachment contains forward-looking statements. The registrant desires to qualify for the “safe-harbor” provisions of the Private Securities Litigation Reform Act of 1995, and consequently is hereby including cautionary statements identifying important factors that could cause the registrant’s actual results to differ materially from those set forth in the attachment.
 
The registrant’s forward-looking statements are based on the registrant’s current expectations, assumptions, estimates and projections about the registrant and its industry. These forward-looking statements can be identified by words or phrases such as “anticipate,” “believe,” “continue,” “estimate,” “expect,” “intend,” “is/are likely to,” “may,” “plan,” “should,” “would,” or other similar expressions.
 
The forward-looking statements included in the attached relate to, among others: (i) the registrant’s business prospects and future results of operations; (ii) weather and other natural phenomena; (iii) developments in, or changes to, the laws, regulations and governmental policies governing the registrant’s business, including limitations on ownership of farmland by foreign entities in certain jurisdictions in which the registrant operate, environmental laws and regulations; (iv) the implementation of the registrant’s business strategy; (v) the registrant’s plans relating to acquisitions, joint ventures, strategic alliances or divestitures; (vi) the implementation of the registrant’s financing strategy and capital expenditure plan; (vii) the maintenance of the registrant’s relationships with customers; (viii) the competitive nature of the industries in which the registrant operates; (ix) the cost and availability of financing; (x) future demand for the commodities the registrant produces; (xi) international prices for commodities; (xii) the condition of the registrant’s land holdings; (xiii) the development of the logistics and infrastructure for transportation of the registrant’s products in the countries where it operates; (xiv) the performance of the South American and world economies; and (xv) the relative value of the Brazilian Real, the Argentine Peso, and the Uruguayan Peso compared to other currencies; as well as other risks included in the registrant’s other filings and submissions with the United States Securities and Exchange Commission.
 
These forward-looking statements involve various risks and uncertainties. Although the registrant believes that its expectations expressed in these forward-looking statements are reasonable, its expectations may turn out to be incorrect. The registrant’s actual results could be materially different from its expectations. In light of the risks and uncertainties described above, the estimates and forward-looking statements discussed in the attached might not occur, and the registrant’s future results and its performance may differ materially from those expressed in these forward-looking statements due to, inclusive, but not limited to, the factors mentioned above. Because of these uncertainties, you should not make any investment decision based on these estimates and forward-looking statements.
  
The forward-looking statements made in the attached relate only to events or information as of the date on which the statements are made in the attached. The registrant undertakes no obligation to update any forward-looking statements to reflect events or circumstances after the date on which the statements are made or to reflect the occurrence of unanticipated events.
  

 
 
 




SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
 
Adecoagro S.A.
 
 
 
By /s/ Carlos A. Boero Hughes
 
 
 
Name: Carlos A. Boero Hughes
 
 
 
Title: Chief Financial Officer and Chief Accounting Officer





Date: May 14, 2018





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Financial & Operational Performance Highlights
Adjusted EBITDA of our Sugar, Ethanol & Energy business in 1Q18 reached $48.0 million, $17.7 million or 58.6% higher than 1Q17. Results were mainly driven by (i) a 16% increase in milling per hour, offsetting the 10% decrease in effective milling days as a result of rainfalls, (ii) the maximization of ethanol production (87% of TRS went towards ethanol), which enabled us to profit from significantly higher relative prices. Indeed, anhydrous and hydrous ethanol traded at cts/lb20.4 and cts/lb19.1 sugar equivalent during the quarter, implying a 40% premium to sugar, (iii) a $13.1 million increase driven by the mark-to-market of our hedging derivatives position; and (iv) lower production costs as a result of higher crushing volumes and enhanced operating efficiencies. The offsetting effect of lower sugar prices were twofold. On the one hand, it resulted in lower sales revenues while on the other, it implied a lower margin recognition of our unharvested biological asset, captured in the Changes in Fair Value line.
Adjusted EBITDA for the Farming and Land Transformation businesses in 1Q18 was $18.8 million, slightly below 1Q17. Results were primarily explained by a $2.7 million lower gain in our Crops business partially offset by a $1.9 million higher gain in our Rice business.
In our Crops business, results were mainly explained by lower registered and projected yields as a result of the dry weather that has been affecting Argentina since the beginning of the year. At the same time, soybean and corn prices in the local market increased significantly during the quarter resulting in: (i) a higher margin recognition of our unharvested biological asset; and (ii) a negative mark-to-market of our commodity hedge position.
As for the Rice business, higher results were explained by the enhancements in farming margins, which are captured in the Changes in Fair Value line, driven by productivity gains (yields were 15.9% higher compared to the previous harvest year); coupled with the depreciation of the Argentine peso.
Net Income in 1Q18 was a $8.5 million, $2.6 million or 43.0% higher compared to 1Q17. This increase is explained by a $17.2 million increase in Adjusted EBITDA; partially offset by (i) a $6.8 million increase in depreciation and amortization charges, coupled with (ii) a $7.9 million increase in financial losses.
Strategy Execution
5-Year Plan Update
Cluster Expansion: The expansion of the cluster in Mato Grosso do Sul is moving forward according to plan. As previously announced, investments in Angelica mill are completed and the mill has reached a nominal crushing capacity of 1,050 tons/hour. Investments in Ivinhema mill are advancing well and we expect to conclude them during the next quarter. The expansion of our sugarcane to supply the additional nominal crushing capacity is also advancing well.

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The expansion of the cluster will generate important efficiency gains and cost dilution. Even at current forward sugar prices, this project is highly accretive and generates returns well above our cost of capital.
Dairy Business: The construction of free stall #3 is almost fully completed. We expect to soon start populating the facility and start operating activities by August. By the end of the year, we target to operate at 45% of total capacity. The free stall will be populated with cows of our own breed to avoid sanitary issues and guarantee high quality milk. As a result, the ramp up pace is mainly determined by the biological reproductive cycle of the cow herd. By mid-2019, we expect to be operating at full capacity. Free stall #4 is under construction and will be populated with cows in 2019.
Rice Business: We expect to conclude the investments of the packaging machine for branded white rice and the expansion of finished goods storage capacity during the second quarter. This will allow us to improve our rice processing and distribution, enhancing margins.
SanCor - Investment Proposal
On     March 23, Adecoagro submitted an investment proposal to partner with SanCor, one of the largest milk processors in Argentina. The offer remains subject to the full compliance of specific conditions, including but not limited to the restructuring of its fiscal and financial liabilities; and the negotiations of definitive agreements. We are currently in the due-diligence phase, ensuring the fulfillment of all the necessary conditions to make this deal accretive for existing shareholders.
Share Repurchase Update
Since January 1, we purchased 1,6 million shares equivalent to 1.4% of outstanding shares or $15.4 million, at an average price per share of $9.39
We expect to continue our share repurchases under the program during 2018 subject to the already committed investments in our expansion projects.
Farmland sales at strong premium to independent appraisal
In May 2018, we signed sale agreements for Rio de Janeiro and Conquista farms, located in western Bahia and Tocantins, respectively. The farms total 9,300 of croppable hectares and the selling price for both farms was $53.0 million (70% in cash), representing a 37% premium to Cushman and Wakefield´s independent farmland appraisal dated September 30, 2017. At the agreed selling price, we estimate that we would record capital gains in excess of $35.0 million, which would be recognized in the second quarter 2018. The sale of the farms remains subject to the completion of due-diligence.

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Market Overview
Sugar prices during 1Q18 were, on average, 7% lower than 4Q17 and 19% lower year-over-year. Sugar prices continued the uptrend during the first week of January, trading as high as 15.37 c/lb. However, the rally was short lived and prices collapsed to 13.00 c/lb by mid-January. The decrease was the result of higher production estimations in India, Thailand and the EU. Lower sugar production in CS of Brazil will not be enough to resolve the surplus. Prices partially recovered in February, reaching 14.00 c/lb, and traded within a 100 points range for most of the month. However, India and Thailand revised their production numbers higher once again. Indian production is now expected to reach 31 million tons, a sharp increase of over 2 million tons from the last forecast. In addition, Thailand production has also been revised up by 2 million tons. Going forward, prices are expected to remain under pressure. Longer term, the low price environment should reduce cane/beet planted area from October 2019. Also, low prices are aggravating the fragile financial situation of many Brazilian sugar mills, which eventually should result in lower cane planting and future cane yields.
Ethanol market in 1Q18 was marked by a sharp increase in prices, supported by stronger demand and higher oil prices. According to the Esalq index, hydrous prices increased 12,4% and anhydrous 8,7% versus previous quarter. Compared to 1Q17 hydrous presented an improvement of 11,3% and anhydrous 6,6%. As reported by UNICA, hydrous sales during 1Q18 were 39,6% higher than 1Q17, but 11,5% below previous quarter. Despite the expectations of higher ethanol production in the next Center-South harvest, current demand and higher international gasoline prices should continue to support prices throughout 2018.
Energy spot prices in the southeast region of Brazil during 1Q18 were 26% higher than 1Q17. In January, energy prices were 180.07 BRL/MWh and increased to 188.79 BRL/MWh in February and to 219.23 BRL/MWh in March. Prices decreased during the first week of April but is already back to levels above 130BRL/MWh. Weather forecast indicates rainfall levels at the historical average to next weeks. Consumption is increasing as the economy is recovering. The level of the southeast reservoirs increased to 44.59% at the end of March, 5% higher than the same period of 2017 (39.35%).
Soybean prices increased 10.5% during 1Q18 and were on average 5.9% lower year-over-year. Corn prices increased 10.6% in the quarter and were on average 4.2% lower than a year ago. Prices were mostly driven by the drought in Argentina. The US dollar continued to depreciate over the last three months supporting grain prices and making US exports more competitive on the global market. In early April, China threatened with reciprocal 25% tariffs on US Soybeans, that would come into effect as early as June. CBOT prices saw increased volatility , and Brazilian premiums soared on the news, but then both reversed as investors realized that these are so far only threats, that China cannot easily replace US imports, and non-Chinese buyers opportunistically switched to cheaper US soybeans.


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Operational Performance
2017/18 Harvest Year
Farming Production Data
Planting & Production
Planted Area (hectares)

2017/18 Harvested Area

Yields (Tons per hectare) (3)

2017/18
2016/17
Chg %

Hectares
% Harvested
Production

2017/18
2016/17
Chg %
Soybean
58,120
55,237
5.2%

34,872.0
60.0%
93,457

2.7
3.8
(29.5)%
Soybean 2nd Crop
23,254
29,197
(20.4)%

6,976.0
30.0%
11,231

1.6
3.4
(52.6)%
Corn (1)
45,964
38,790
18.5%

40,908.0
89.0%
257,720

6.3
6.7
(6.0)%
Corn 2nd Crop
10,847
10,023
8.2%

—%

—%
Wheat (2)
36,533
38,009
(3.9)%

36,529.7
100.0%
79,624

2.2
3.0
(28.2)%
Sunflower
2,869
5,413
(47.0)%

2,166.0
75.5%
3,600

1.7
1.8
(8.7)%
Cotton
3,132
2,640
18.7%

—%

—%
Peanut
9,375
5,840
60.5%

—%

—%
Corn Silage
2,749
2,171
26.6%

2,749.0
100.0%
37,689

13.7
27.3
(49.8)%
Total Crops
192,842
187,320
2.9%

124,201
64.4%
483,322




Rice
40,279
39,728
1.4%

35,701
88.6%
245,630

6.9
5.9
15.9%
Total Farming
233,121
227,048
2.4%

159,901
68.6%
728,952




Owned Croppable Area
124,912
123,431
1.2%








Leased Area
72,157
64,223
12.4%








Second Crop Area
36,052
39,393
(8.5)%








Total Farming Area
233,121
227,048
2.7%









Milking Cows (Average Heads)

Milk Production (MM liters) (1)

Productivity (Liters per cow per day)
Dairy
1Q18
1Q17
Chg %

1Q18
1Q17
Chg %

1Q18
1Q17
Chg %
Milk Production
7,302
6,774
7.8%

23.3
21.6
7.8%

35.5
35.5
—%

(1) Includes sorghum.
(2) Includes barley.
(3) Yields for 2017/18 season are partial yields related to the harvested area as of April 30, 2018. Yields for 2016/17 reflect the full harvest season.

As of January 31, 2018, Adecoagro´s planting activities for the 2017/18 harvest year were completed. Our total planted area reached 233,121 hectares, 2.7% higher compared to the previous harvest year. Adecoagro’s owned croppable area, increased by 1.2%. Leased area, which is driven by return on invested capital, has increased by 12.4% compared to the 2016/17 harvest year. Second crop area, (mostly wheat followed by a soybean 2nd crop) decreased by 8.5%.

As of the end of April 2018, harvest operations for most of our crops were well underway, with 64.4% of total area already harvested. On a consolidated basis, yield performance has been variable depending on the region. Broadly

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speaking, early crops in certain regions of Humid Pampas were the least affected by the dry weather as a result of adequate soil moisture. Crops in the northern regions of Argentina were severely affected by the lack of rains. Rice yields were highly benefited by the dry weather resulting in higher yields and better quality, proving the advantages of product diversification as a strategy to mitigate weather risk.

Crops Update
Soybean: As of the end of April, we harvested 60% of the soybean crop. So far, yields reached 2.7 tons per hectare. As we start harvesting the farms in the north-east region, we expect yields to slightly decline.
Corn: Nearly 41,000 hectares of corn were harvested, representing 89% of total planted area. Most of it was an early corn variety. Consequently, as already explained, the crop was not much affected by the dry weather and yields were in line with the previous harvest year.
Corn Silage: As of the end of April, we successfully harvested 2,749 hectares of corn silage, 26.6% higher compared to the previous harvest year. In the coming years, we expect the production of corn silage to increase in tandem with our milking cows.
Sunflower: The harvest of the sunflower crop began in late December 2017. As of the end of April 2017, 75.5% of sunflower had been harvested yielding an average of 1.7 tons per hectare, in line with the previous harvest season.
Rice: As of the end of April, 88.6% of total planted area was already harvested. Dry weather coupled with a longer exposure to solar radiation allowed the crop to properly develop resulting in a 15.9% higher yields compared to the previous harvest.
Farming & Land Transformation Financial Performance
Farming & Land transformation business - Financial highlights



$ thousands
1Q18
1Q17
Chg %
Gross Sales



     Farming
57,656
55,439
4.0%
     Total Sales
57,656
55,439
4.0%
Adjusted EBITDA  (1)



     Farming
18,831
19,651
(4.2)%
     Land Transformation
—%
     Total Adjusted EBITDA (1)
18,831
19,651
(4.2)%
Adjusted EBIT (1)



      Farming
16,987
18,126
(6.3)%
     Land Transformation
—%
(1)
Please see “Reconciliation of Non-IFRS measures” starting on page 21 for a reconciliation of Adjusted EBITDA and Adjusted EBIT to Profit/Loss. Adjusted EBITDA is defined as consolidated profit from operations before financing and taxation, depreciation and amortization plus the gains or losses from disposals of non-controlling interests in subsidiaries. Adjusted EBIT is defined as consolidated profit from operations before financing and taxation plus the gains or losses from disposals of non-controlling interests in subsidiaries. Adjusted EBITDA margin and Adjusted EBIT margin are calculated as a percentage of net sales.

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Adjusted EBITDA (2) in the Farming and Land Transformation businesses was $18.8 million in 1Q18, $0.8 million lower than 1Q17. The 4.2% decrease is primarily attributed to the $2.7 million loss in our Crops business mostly due to mark-to-market of our hedges, partially offset by higher margins in our Rice business.
In the case of the Crops business, local prices for soybean and corn increased by 17.0% as a consequence of the drought suffered in Argentina. Mark-to-market effect of our commodity hedge position, resulted in a $10.4 million lower gain than 1Q17
Regarding the Rice business, higher margins were explained by the increase in productivity in our farm operations coupled with lower costs in dollar terms, as a result of the depreciation of the Argentine peso. Dry weather coupled with a longer exposure to solar radiation allowed the rice to properly develop resulting in a 15.9% higher yields compared to the previous harvest. This evidence the benefits derived from both product and geographic diversification.

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Crops Segment
Crops - Highlights
 
 
 
 
 
 
metric
1Q18
1Q17
Chg %
Gross Sales
 
$ thousands
33,701
25,196
33.8%
 
 
thousand tons
158
138
14.5%
 
 
$ per ton
213
183
16.2%
Adjusted EBITDA
$ thousands
9,849
12,520
(21.3)%
Adjusted EBIT
$ thousands
9,388
12,185
(23.0)%
Planted Area  (1)
hectares
190,093
185,149
2.7%
(1) Does not include second crop planted area.
Adjusted EBITDA in our Crops segment was $9.8 million in 1Q18, 21.3% lower compared to the same period of last year. As a result of the crops and geographic diversification we were able to significantly mitigate the impact of the drought. At the same time, and as a direct consequence of the dry weather, soybean and corn prices in the domestic market increased by 16% and 17%, respectively. The combination of these two factors, coupled with the depreciation of the Argentine Peso, resulted in a $6.0 million increase in Changes in Fair Value of Biological Assets, which reflects the margin recognized throughout the biological growth cycle and harvest of our crops. This result was partially offset by a $10.4 million lower gain from the mark-to-market effect of our commodity hedge position. This hedge was more than offset by Changes in Fair Value of crops in the field (next section).

 Crops - Changes in Fair Value Breakdown
  1Q18
metric
Soy
Soy 2nd Crop
Corn
Corn 2nd Crop
Wheat
Sunflower
Cotton
Peanut
Total
2017/18 Harvest Year










Total Planted Area
Hectares
58,120
23,254
45,964
10,847
36,533
2,869
3,132
9,375
190,094
Area planted in initial growth stages
Hectares
485
485
Area planted with significant biological growth
Hectares
43,714
23,254
34,534
10,847
458
3,132
9,375
125,314
Changes in Fair Value 3M18 from planted area 2017/18 (i)
$ thousands
4,321
36
7,265
752
2
81
(1,956)
10,501
Area harvested in previous periods
Hectares
35,226
35,226
Area harvested in current period
Hectares
13,921
11,430
1,306
2,412
29,069
Changes in Fair Value 3M18 from harvested area 2017/18 (ii)
$ thousands
4,783
2,310
30
283
7,406
Total Changes in Fair Value in 3M18 (i+ii)
$ thousands
9,104
36
9,575
752
30
285
81
(1,956)
17,907

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The table above shows the gains or losses from crop production generated during 1Q18. A total of 190,094 hectares were planted in the 2017/18 crop. As of March 31, 2018, total Changes in Fair Value, which reflects the margin of both the crops that have already been harvested and the expected margin of those that are still on the ground with significant biological growth, was $17.9 million, compared to $11.9 million generated during the same period last year. As explained above, the main drivers for the increase in margins are higher commodity prices at harvest, coupled with lower costs of production, measured in USD.
As shown in the table below, crops sales in 1Q18 reached $33.7 million, 33.8% above last year, primarily explained by an increase in average selling prices, coupled with higher soybean and corn volumes.
Crops - Gross Sales Breakdown
 
Amount ($ '000)
 
Volume
 
$ per unit
Crop
1Q18
1Q17
Chg %
 
1Q18
1Q17
Chg %
 
1Q18
1Q17
Chg %
Soybean
11,716
5,362
118.5%

38,722
16,668
132.3%

303
322
(5.9)%
Corn  (1)
13,615
9,414
44.6%

85,283
56,242
51.6%

160
167
(4.2)%
Wheat  (2)
4,435
9,700
(54.3)%

32,279
63,507
(49.2)%

137
153
(10.5)%
Sunflower
710
422
68.2%

2,153
1,193
80.5%

330
354
(6.8)%
Others
3,225
298
982.2%







Total
33,701
25,196
33.8%

158,437
137,610
15.1%




(1) Includes sorghum (2) Includes barley
Rice Segment
Rice - Highlights





metric
1Q18
1Q17
Chg %
Gross Sales
$ thousands
15,348
19,260
(20.3)%
      Sales of white rice
thousand tons (1)
29.0
60.0
(51.6)%
$ per ton
333
274
21.7%
$ thousands
9,672
16,415
(41.1)%
      Sales of By-products
$ thousands
5,676
2,845
99.5%
Adjusted EBITDA
$ thousands
6,783
4,732
43.3%
Adjusted EBIT
$ thousands
5,745
3,810
50.8%
Area under production (2)
hectares
40,279
39,728
1.4%





Rice Mills




Total Procesed Rough Rice
thousand tons (1)
46.8
56.7
(17.4)%
Ending stock
thousand tons (1)
144.0
114.6
25.7%
(1) Of rough rice equivalent.
(2) Areas under production correspond to the 2014/15 and 2013/14 harvest.

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Financial performance of our Rice segment during 1Q18 is primarily explained by the harvest of the 2017/18 rice crop and to a lesser extent by the sales of processed rice and by-products.

In our farm operations we successfully harvested 35,701 hectares of rice with an average yield of 6.9 tons per hectare, 15.9% higher compared to the 2016/17 harvest. The rice harvest resulted in Changes in Fair Value of $10.6 million, compared to $6.0 million last season. The 76% increase in farming margins, captured in the Changes in Fair Value line, is explained by the increase in productivity coupled with lower costs in dollar terms, as a result of the depreciation of the Argentine peso.

Rice sales during 1Q18 reached $15.3 million, 20.3% lower than 1Q17. This decrease was explained by the postponement in a shipment to Iraq. As a result, the mix of domestic sales was larger compared to 1Q17, explaining the 21.7% increase in average selling price.
Dairy Segment
Dairy - Highlights





metric
1Q18
1Q17
Chg %
Gross Sales
$ thousands  (1)
8,263
10,812
(23.6)%

million liters  (2)
22.8
27.6
(17.4)%

$ per liter  (3)
0.32
0.36
(11.2)%
Adjusted EBITDA
$ thousands
2,304
2,278
1.1%
Adjusted EBIT
$ thousands
2,000
2,040
(2.0)%
Milking Cows
Average Heads
7,302
6,774
7.8%
Cow Productivity
Liter/Cow/Day
35.5
35.5
—%
Total Milk Produced
million liters
23.3
21.6
7.8%
(1) Includes (i) $0.54 million from sales of culled cows in 1Q18 and $0.73 million in 1Q17; and (ii) $0.05 million from sales of whey 1Q17
(2) Selling volumes includes 6.4 million liters of milk destined towards powder milk production in 1Q17
(3) Sales price includes the sale of fluid milk and whole milk powder and excludes cattle and whey sales

Our Dairy operation continues to deliver strong operational and financial performance. Milk production reached 23.3 million liters in 1Q18, 7.8% higher year-over-year, fully explained by the increase in the cow herd.
Adjusted EBITDA in the quarter reached $2.3 million, in line with 1Q17. Higher milk production and lower costs in USD as a result of the depreciation of the Argentine peso, were partially offset by lower average selling prices.
We expect to keep enhancing efficiencies as we start operating our third free-stall and leveraging our industrial assets.

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All Other Segments
All Other Segments - Highlights
 
 
 
 
 
metric
1Q18
1Q17
Chg %
Gross Sales
$ thousands
344
171
101.2%
Adjusted EBITDA
$ thousands
(105)
121
—%
Adjusted EBIT
$ thousands
(146)
91
—%
All Other Segments primarily encompasses our cattle business. Our cattle segment consists of pasture land that is not suitable for crop production due to soil quality and is leased to third parties for cattle grazing activities.
Adjusted EBIT for All Other Segment during 1Q18 was a loss of $0.1 million, in line with 1Q17.
Land transformation business
In May 2018, we signed sale agreements for Rio de Janeiro and Conquista farms, located in western Bahia and Tocantins, respectively. The farms total 9,300 of croppable hectares and the selling price for both farms was $53.0 million (70% in cash), representing a 37% premium to Cushman and Wakefield´s independent farmland appraisal dated September 30, 2017. At the agreed selling price, we estimate that we would record capital gains in excess of $35.0 million, which would be recognized in the second quarter 2018. The sale of the farms remains subject to the completion of due-diligence.






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Operational Performance

Sugar, Ethanol & Energy - Selected Information
 
metric
1Q18
1Q17
Chg %
Milling
 
 
 
 
Sugarcane Milled
tons
1,523,835
1,460,668
4.3%
Own Cane
tons
1,510,103
1,238,748
21.9%
Third Party Cane
tons
13,732
221,920
(93.8)%
Production
 



Sugar
tons
20,363
59,684
(65.9)%
Ethanol
M3
89,983
61,081
47.3%
Hydrous Ethanol
M3
74,555
40,819
82.7%
Anhydrous Ethanol
M3
15,427
20,263
(23.9)%
TRS Equivalent Produced
tons
173,233
166,247
4.2%
Sugar mix in production
 
13%
38%
(66.1)%
Ethanol mix in production
 
87%
62%
41.3%
Energy Exported (sold to grid)
MWh
72,918
104,969
(30.5)%
Cogen efficiency (KWh sold per ton crushed)
KWh/ton
47.9
71.9
(33.4)%
Agricultural Metrics
 



Harvested own sugarcane
tons
1,510,103
1,238,748
21.9%
Harvested area
Hectares
14,064
13,166
6.8%
Yield
tons/hectare
107.4
94.1
14.0%
TRS content
kg/ton
108.0
110.0
(1.7)%
TRS per hectare
kg/hectare
11,601
10,353
12.1%
Mechanized harvest
%
99.8%
99.9%
(0.1)%
Area
 



Sugarcane Plantation
hectares
145,518
136,384
6.7%
Expansion & Renewal Area
hectares
5,534
5,513
0.4%

Rains in our cluster in Mato Grosso do Sul during the first quarter were 19% above the 10-year average, resulting in a 10% reduction in effective milling days compared to 1Q17. This effect was more than offset by higher crushing capacity at Angelica mill, coupled with enhanced operating efficiencies at a farm and industrial level. In fact, milling per hour reached 1,833 tons, 16% higher than 1Q17, allowing us to increase sugarcane crushing by 4.3%. This is in contrast to drought conditions in other path of CS Brasil.

Production mix in the quarter shifted significantly towards ethanol to profit from higher relative prices, reaching 87% of total TRS, an all-time record. During the quarter, hydrous and anhydrous ethanol prices traded at a 41% and 46% premium to sugar, respectively. As a result, ethanol production increased 47.3% year-over-year to 89.9

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thousand cubic meters while sugar production was significantly down by 65.9% to 20.4 thousand tons due to lower prices.
Our cogeneration efficiency ratio was 47.9 KWh/ton, 33.4% lower year-over-year. The reduction is mainly explained by: (i) the adopted strategy to redirect steam to maximize sugarcane crushing, (ii) one of our boilers was under maintenance works; (iii) that energy consumption in Angelica is now higher as a result of the increase in crushing capacity; and (iv) ethanol production consumes more energy. It´s worth noting that the bagasse that was left over will be carried and burnt during the next quarter.
In terms of agricultural productivity, sugarcane yields reached 107.4 tons/ha, 14.0% higher year-over-year. Higher yields were mainly explained by abundant rainfalls in 4Q17 and during 1Q18 favoring cane development; coupled with our continuous focus on improving agricultural operations. Examples include: (i) effective implementation of pest controls, (ii) utilization of best cane varieties for the region, (iii) harvesting the cane at its optimum growth cycle; and (iv) the renewal of the sugarcane plantation.
As of March 31, 2018, our sugarcane plantation consisted of 145,518 hectares, marking a 6.7% growth year-over-year. Sugarcane planting continues to be a key strategy to supply our mills with quality raw material at low cost. During 1Q18 we planted a total of 5,534 hectares of sugarcane. Of this total area, 1,901 hectares correspond to expansion areas planted to supply our growing milling capacity and 3,633 hectares correspond to areas planted to renew old plantations with newer and high-yielding sugarcane, thus allowing us to maintain the productivity of our plantation.
Financial Performance
Sugar, Ethanol & Energy - Highlights
 
 
 
$ thousands
1Q18
1Q17
Chg %
Net Sales (1)
90,310
104,422
(13.5)%
Margin on Manufacturing and Agricultural Act. Before Opex
21,176
21,724
(2.5)%
Adjusted EBITDA
47,988
30,264
58.6%
Adjusted EBITDA Margin
53.1%
29.0%
83.3%
Adjusted EBITDA Margin (net of third party commercialization)
60.8%
33.2%
83.1%
(1) Net Sales are calculated as Gross Sales net of sales taxes.
Net sales in 1Q18 reached $90.3 million, $14.1 million or 13.5% lower than 1Q17. This decrease was primarily driven by the combination of: (i) a 48.8% decrease in sugar selling volumes coupled with a 19.0% decrease in average selling prices; and (ii) a 42.9% reduction in energy volumes, (iii) weather related reduction in crushing hours.
Adjusted EBITDA during 1Q18 was $48 million, marking a 58.6% increase compared to 1Q17. Adjusted EBITDA was positively affected by: (i) a 4.3% increase in sugarcane crushing, contributing to enhancements in industrial efficiencies ; (ii) higher average selling prices and selling volumes for ethanol; and (iii) a 13.2 million higher result

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from the mark-to-market effect of our commodity hedge position. These positive effects were partially offset by a $11.8 million higher loss resulting from the mark-to-market of our unharvested biological asset, as a result of lower sugar prices.
The table below reflects the breakdown of net sales for the Sugar, Ethanol & Energy business.
Sugar, Ethanol & Energy - Net Sales Breakdown (1)
 
$ thousands
 
Units
 
($/unit)
 
1Q18
1Q17
Chg %
 
1Q18
1Q17
Chg %
 
1Q18
1Q17
Chg %
Sugar (tons) (2)
19,464
46,878
(58.5)%
 
54,395
106,169
(48.8)%
 
358
442
(19.0)%
Ethanol (cubic meters)
66,862
51,931
28.8%
 
116,899
94,880
23.2%
 
572
547
4.5%
Energy (Mwh) (3)
3,984
5,612
(29.0)%
 
71,764
125,670
(42.9)%
 
56
45
24.3%
TOTAL
90,310

104,422

(13.5)%
 
 
 
 
 
 
 
 
(1) Net Sales are calculated as Gross Sales net of ICMS, PIS, COFINS, INSS and IPI taxes.
(2) Includes commercialization of third party sugar: 12.0k tons ($31.5m) in 1Q18 and 13.5k tons ($27.9m) in1Q17
(3) Includes commercialization of energy from third parties.

Sugar sales volumes in 1Q18 reached 54.4 thousand tons, 48.8% lower year-over-year, as a result of our strategic decision to maximize ethanol production. Average realized selling prices during the quarter reached $358/ton, 19.0% lower compared to 1Q17. As a result, net sales reached $19.5 million, 58.5% lower, compared to 1Q17.
Ethanol sales volumes increased 23.2% compared to the same quarter of last year. Ethanol prices traded to the highest premium to VHP sugar over the last 10 years. As a result, selling volumes increased 23.2% to capture higher relative margins.
In the case of energy, selling volumes reached 71.8 thousands MWh, marking a 42.9% decrease. This is fully explained by i) the decrease in production as a result of the execution of maintenance works in our boilers; coupled with ii) the increase in crushing capacity as a result of the investment made, in Angelica mill resulting in more energy requirements, thus lowering the export ratio.

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Sugar, Ethanol & Energy - Total Production Costs

Total Cost (´000)

Total Cost per Ton ($/ton)

1Q18
1Q17
Chg %

1Q18
1Q17
Chg %
Industrial costs
10,054
12,739
(21.1)%

6.6
8.7
(24.4)%
Industrial costs
9,639
7,500
28.5%

6.3
5.1
23.5%
Cane from 3rd parties
414
5,239
(92.1)%

30.2
23.6
28.0%
Agricultural costs
44,690
39,313
13.7%

29.6
31.7
(6.7)%
Harvest costs
14,639
13,614
7.5%

9.7
11.0
(11.8)%
Cane depreciation
8,009
7,418
8.0%

5.3
6.0
(11.7)%
Leasing costs
6,884
4,557
51.1%

4.6
3.7
24.3%
Maintenance costs
15,158
13,724
10.4%

10.0
11.1
(9.9)%
Total Production Costs
54,743
52,051
5.2%

35.9
35.6
0.8%
Depreciation & Amortization
(22,649)
(16,124)
40.5%

(14.9)
(11.0)
35.5%
Total EBITDA Production Costs (excl. D&A)
32,094
35,927
(10.7)%

21.1
24.6
(14.2)%
As shown in the table above, total production costs per ton crushed during 1Q18 remained virtually flat year-over-year. Agricultural costs marked a 6.7% reduction mainly as a result of enhanced efficiencies coupled with higher crushing volumes. These effects were offset by higher depreciation costs as a result of the ongoing capital expenditures (related to the industry and the sugarcane planting). Indeed, total EBITDA production costs per ton marked a 14.2% reduction compared to 1Q17.
Sugar, Ethanol & Energy - Changes in Fair Value
$ thousands
1Q18
1Q17
Chg %
Sugarcane Valuation Model current period
84,982
81,406
4.4%
Sugarcane Valuation Model previous period
93,177
82,380
13.1%
Total Changes in Fair Value
(8,195)
(974)
741.4%

Total Changes in Fair Value of Unharvested Biological Assets (what is currently growing on the fields and will be harvested during the next 12 months) represented an $8.2 million loss. This is mainly attributable to the decrease in sugar prices, partially offset by higher sugarcane yields as a result of good weather conditions.
Corporate Expenses

Corporate Expenses



$ thousands
1Q18
1Q17
Chg %
Corporate Expenses
(4,879)
(5,158)
5.4%

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Adecoagro’s corporate expenses include items that have not been allocated to a specific business segment, such as executive officers and headquarter staff, certain professional fees, travel expenses, and office lease expenses, among others. As shown in the table above, corporate expenses for 1Q18 were $4.9 million, 5.4% lower compared to 1Q17, mainly as a result of the depreciation of the Brazilian Real and the Argentine peso.
Other Operating Income
Other Operating Income



$ thousands
1Q18
1Q17
Chg %
Gain from commodity derivative financial instruments
19,790

16,274

21.6
%
Gain / (Loss) from disposal of other property items
120

(557
)
%
Other
(974
)
(2,445
)
60.2
%
Total
18,936

13,272

42.7
%
Other Operating Income in 1Q18 reported a gain of $18.9 million, 42.7% higher than 1Q17. The increase is primarily explained by a $20.0 million gain derived from the mark-to-market of our commodity hedge position, mainly related to sugar compared to $16.2 million gain of 1Q17.
Commodity Hedging
Adecoagro’s financial performance is affected by the volatile price environment inherent to agricultural commodities. The company uses forward and derivative markets to mitigate swings in commodity prices by locking-in margins and stabilizing cash flows.
The table below shows the average selling price of our hedged production volumes, including volumes that have already been invoiced and delivered, forward contracts with fixed-price and volumes hedged through derivative instruments.

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Commodity Hedge Position - as of March 31, 2018
 
 
 
 
Consolidated Hedge Position
Farming
 
Avg. FAS Price
CBOT FOB
 
Volume  
USD/Ton
USD/Bu
2016/2017 Harvest season
 
 
 
Soybeans
136,190
283
1,047.9
Corn
90,653
173
449.8
2017/2018 Harvest season
 
 
 
Soybeans
17,680
296.2
1,042.9
Corn
-
-
-
 
 
 
 
 
Consolidated Hedge Position
Sugar, Ethanol & Energy
 
Avg. FOB Price
ICE FOB
 
Volume  
USD/Unit
Cents/Lb
2018/2019 Harvest season
 
 
 
Sugar (tons)
399,135
367.9
16.7
Ethanol (m3)
62,673
543.0
n.a
Energy (MW/h)  
594,206
70.3
n.a
2019/2020 Harvest season
 
 
 
Sugar (tons)
114,300
336.6
15.3
Ethanol (m3)
-
-
n.a
Energy (MW/h)  
459,958
72.6
n.a
Financial Results
Financial Results



$ thousands
1Q18
1Q17
Chg %
Interest Expenses, net
(11,167)
(11,831)
5.6%
Cash Flow Hedge - Transfer from Equity
(2,101)
666
—%
FX (Losses), net
(9,348)
(3,684)
(153.7)%
Gain from derivative financial Instruments
(1,458)
(1,703)
14.4%
Taxes
(1,050)
(517)
(103.1)%
Other Expenses, net
(87)
(261)
66.7%
Total Financial Results
(25,211)
(17,330)
(45.5)%

Our financial results in 1Q18 was a loss of $25.2 million, compared to a loss of $17.3 million in 1Q17.

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These results are primarily composed of interest expense and foreign exchange losses, as described below:

(i)
Net interest expense in 1Q18 was 11.2 million, 5.6% below the previous quarter. This difference is mainly explained by an increase in interest income, resulting mainly from short term cash investments in Brazil.

(ii)
Foreign exchange losses (composed of “Cash Flow Hedge – Transfer from Equity” (1) and “Fx Gain/Loss” line items) reflect the impact of foreign exchange variations on our net dollar denominated debt. Foreign exchange losses totaled $9.3 million in 1Q18, $5.7 million higher compared to 1Q17. This is explained by the 5% and 3% depreciation of the Brazilian Real and the Argentine Peso, respectively.
(1)
Effective July 1, 2014, Adecoagro 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 and foreign currency forward contracts. Cash flow hedge accounting permits that gains and losses arising from the 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 same periods during which the future sales occur, thus allowing for a more appropriate presentation of the results for the period reflecting Adecoagro's Risk Management Policy.

Indebtedness

Net Debt Breakdown
 
 
 
 
 
$ thousands
1Q18
4Q17
Chg %
1Q17
Chg %
Farming
171,714
138,792
23.7%
152,849
12.3%
Short term Debt
131,343
90,058
45.8%
95,527
37.5%
Long term Debt
40,371
48,734
(17.2)%
57,322
(29.6)%
Sugar, Ethanol & Energy
611,714
633,638
(3.5)%
642,981
(4.9)%
Short term Debt
52,592
64,840
(18.9)%
134,686
(61.0)%
Long term Debt
604,225
614,326
(1.7)%
508,295
10.0%
Total Short term Debt
183,935
154,898
18.7%
230,213
(20.1)%
Total Long term Debt
644,596
663,060
(2.8)%
565,617
14.0%
Gross Debt
828,531
817,958
1.3%
795,830
4.1%
Cash & Equivalents
183,775
269,761
(31.9)%
231,321
(20.6)%
Net Debt
644,756
548,197
17.6%
564,509
14.2%
EOP Net Debt / Adj. EBITDA LTM
2.2x
1.98x
11.1%
2.23x
(1.3)%

Adecoagro’s net debt as of 1Q18 was $644.8 million, 14.2% and 17.6% higher than 1Q17 and 4Q17, respectively.
As of March 31, 2018 , outstanding debt related to our Farming business was $171.7 million , increasing 23.7% or $32.9 million year-over-year. From a seasonality point of view, the first quarter has the highest working capital requirements, since all of our crops are planted and most costs incurred, but only a small amount of the crops are harvested and sold. As we continue harvesting throughout the second and third quarter we expect to reduce working capital invested and debt. On a year-over-year basis, debt increased by 12.3% or $18.8 million.

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In the Sugar and Ethanol business, debt as of March 31, 2018 fell by 4.9% or $31.3 million year-over-year. As previously explained, the bond proceeds will be used for the prepayment of financial debt in Brazil. This explains the decrease in gross debt during 1Q18.
Cash and equivalents as of March 31, 2018, stood at $183.8 million, 31.9% lower than 4Q17, as we financed working capital needs and capital expenditures during the quarter.
Capital Expenditures & Investments
Capital Expenditures & Investments
$ thousands
1Q18
1Q17
Chg %
Farming & Land Transformation
7,121
3,694
92.8%
Expansion
6,642
2,467
169.2%
Maintenance
479
1,227
(60.9)%
Sugar, Ethanol & Energy
55,617
54,843
1.4%
Maintenance
38,888
45,289
(14.1)%
Planting
10,779
12,659
(14.8)%
Industrial & Agricultural Machinery
28,109
32,630
(13.9)%
Expansion
16,729
9,554
75.1%
Planting
7,022
5,608
25.2%
Industrial & Agricultural Machinery
9,707
3,947
146.0%
Total
62,738
58,537
7.2%
Adecoagro’s capital expenditures during 1Q18 totaled $62.7 million, 7.2% higher than in 1Q17.
The Sugar, Ethanol and Energy business accounted for 88.6% or $55.6 million of total capex. Expansion capex reached $16.7 million, mainly as a result of the investments related to the increase in nominal crushing capacity, and to new sugarcane hectares planted to supply the growing industrial capacity. Maintenance capex reached $38.9 million, 14.1% lower year-over-year. The decrease is explained by the fact we anticipated part of the maintenance expenses during 4Q17, as a result of the abundant rainfalls suffered during the quarter.
Farming & Land Transformation businesses accounted for 11.4% or $7.1 million of total capex in 1Q18. The increase is mainly driven by the expansion capex in the Dairy business. During the quarter, we finalized the construction of our third free stall and is now ready to operate. By the end of the year, we expect to operate at a 45% of total capacity.
 



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Inventories
End of Period Inventories
 
 
 
 
Volume
 
thousand $
Product
Metric
1Q18
1Q17
% Chg
 
1Q18
1Q17
% Chg
Soybean
tons
38,218
52,154
(26.7)%

11,315
3,562
217.7%
Corn  (1)
tons
38,739
27,675
40.0%

4,857
3,589
35.3%
Wheat  (2)
tons
23,837
29,848
(20.1)%

4,100
3,662
12.0%
Sunflower
tons
1,468
7,645
(80.8)%

475
2,790
(83.0)%
Rough Rice (3)
tons
46,960
29,571
58.8%

9,639
6,153
56.7%
Sugar
tons
12,046
30,434
(60.4)%

3,134
8,615
(63.6)%
Ethanol
m3
41,394
44,623
(7.2)%

17,451
21,812
(20.0)%
Total
 
202,663
221,949
(8.7)%

50,970
50,183
1.6%
(1) Includes sorghum.
(2) Includes barley.
(3) Expressed in rough rice equivalent

Variations in inventory levels between 1Q18 and 1Q17 are attributable to changes in (i) production volumes resulting from changes in planted area, (ii) production mix between different crops and in yields obtained, (ii) different percentage of area harvested during the period, and (iii) commercial strategy or selling pace for each product.

















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Forward-looking Statements
This press release 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,” “forecast”, “believe,” “continue,” “estimate,” “expect,” “intend,” “is/are likely to,” “may,” “plan,” “should,” “would,” or other similar expressions.
The forward-looking statements included in this press release relate to, among others: (i) our business prospects and future results of operations; (ii) weather and other natural phenomena; (iii) developments in, or changes to, the laws, regulations and governmental policies governing our business, including limitations on ownership of farmland by foreign entities in certain jurisdictions in which we operate, environmental laws and regulations; (iv) the implementation of our business strategy, including the expansion of our sugarcane cluster in Mato Grosso do Sul and other current projects; (v) our plans relating to acquisitions, joint ventures, strategic alliances or divestitures; (vi) the implementation of our financing strategy and capital expenditure plan; (vii) the maintenance of our relationships with customers; (viii) the competitive nature of the industries in which we operate; (ix) the cost and availability of financing; (x) future demand for the commodities we produce; (xi) international prices for commodities; (xii) the condition of our land holdings; (xiii) the development of the logistics and infrastructure for transportation of our products in the countries where we operate; (xiv) the performance of the South American and world economies; and (xv) the relative value of the Brazilian Reais, the Argentine Peso, and the Uruguayan Peso compared to other currencies; as well as other risks included in the registrant’s other filings and submissions with the United States Securities and Exchange Commission.
These forward-looking statements involve various risks and uncertainties. Although 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 press release might not occur, and our future results and our performance may differ materially from those expressed in these forward-looking statements due to, inclusive, but not limited to, the factors mentioned above. Because of these uncertainties, you should not make any investment decision based on these estimates and forward-looking statements.
The forward-looking statements made in this press release related only to events or information as of the date on which the statements are made in this press release. 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.

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Reconciliation of Non-IFRS measures
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 press release:
Adjusted EBITDA
Adjusted EBIT
Adjusted EBITDA margin
Net Debt
Net Debt to Adjusted EBITDA
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. 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 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.

Adjusted EBITDA, Adjusted EBIT & Adjusted EBITDA margin
We define Adjusted EBITDA for each of our operating segments as the segment’s share of consolidated profit from operations before financing and taxation for the year or period, as applicable, before depreciation and amortization and adjusted by profit or loss from discontinued operations and 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 minority interests in subsidiaries.”
We define Adjusted EBIT for each of our operating segments as the segment’s share of consolidated profit from operations before financing and taxation for the year or period, as applicable, adjusted by profit from discontinued operations and 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 “Reserve from the sale of minority interests in subsidiaries.”



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We believe that Adjusted EBITDA and Adjusted EBIT are for the Company and each operating segment, respectively important measures of operating performance 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 evaluate the full value and returns generated by our land transformation activities. Other companies may calculate Adjusted EBITDA and Adjusted EBIT differently, and therefore Adjusted EBITDA and Adjusted EBIT may not be comparable to similarly titled measures used by other companies. Adjusted EBITDA and Adjusted EBIT are not measure 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, profit from operations before financing and taxation and other measures determined in accordance with IFRS.
We define Adjusted EBITDA margin as Adjusted EBITDA to net sales. We consider that the presentation of adjusted EBITDA margin provides useful information on how successfully we operate our Company and enhances the ability of investors to compare profitability between segments, periods and with other public companies.
Reconciliation of both Adjusted EBITDA and Adjusted EBIT starts on page 24.

Net Debt & Net Debt to Adjusted EBITDA
Net debt is defined as the sum of long- and short-term debt less cash and cash equivalents. This measure is widely used by management and investment analysts and we believe it shows the financial strength of the Company
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 EBITDA.
We believe that this metric provides useful information to investors because management uses it to manage our debt-equity ratio in order to promote access to debt financing instruments in the capital markets and our ability to meet scheduled debt service obligations.    
Reconciliation - Net Debt
 
 
 
 
$ thousands
 
1Q18

 
1Q17

Total Borrowings
 
828,531

 
795,830

Cash and Cash equivalents
 
183,775

 
231,321

Net Debt
 
644,756

 
564,509



26

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Adjusted EBIT & Adjusted EBITDA Reconciliation to Profit/Loss - 1Q18
$ thousands
 
Crops
Rice
Dairy
Others
Farming
 
Sugar, Ethanol & Energy
 
Land Transformation
 
Corporate
 
 Total
Sales of manufactured products and services rendered
 
33,701

15,348

8,263

344

57,656

 
97,911

 

 

 
155,567

Cost of manufactured products sold and services rendered
 
(33,996
)
(16,457
)
(8,040
)
(220
)
(58,713
)
 
(62,235
)
 

 

 
(120,948
)
Initial recog. and changes in FV of BA and agricultural produce
 
17,894

10,622

2,250

(185
)
30,581

 
(14,500
)
 

 

 
16,081

Gain from changes in NRV of agricultural produce after harvest
 
(691
)



(691
)
 

 

 

 
(691
)
Gross Profit from Agricultural Activities
 
16,908

9,513

2,473

(61
)
28,833

 
21,176

 

 

 
50,009

General and administrative expenses
 
(905
)
(1,310
)
(391
)
(40
)
(2,646
)
 
(7,651
)
 

 
(4,875
)
 
(15,172
)
Selling expenses
 
(1,401
)
(2,593
)
(60
)
(43
)
(4,097
)
 
(12,219
)
 

 
(10
)
 
(16,326
)
Other operating income, net
 
(5,214
)
135

(22
)
(2
)
(5,103
)
 
24,033

 

 
6

 
18,936

Share of gain/(loss) of joint ventures
 





 

 

 

 

Profit from Operations Before Financing and Taxation
 
9,388

5,745

2,000

(146
)
16,987

 
25,339

 

 
(4,879
)
 
37,447

Reserve from the sale of minority interests in subsidiaries
 





 

 

 

 

Adjusted EBIT
 
9,388

5,745

2,000

(146
)
16,987

 
25,339

 

 
(4,879
)
 
37,447

(-) Depreciation PPE
 
461

1,038

304

41

1,844

 
22,649

 

 

 
24,493

Adjusted EBITDA
 
9,849

6,783

2,304

(105
)
18,831

 
47,988

 

 
(4,879
)
 
61,940

Reconciliation to Profit/(Loss)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Adjusted EBITDA
 
 
 
 
 
 
 
 
 
 
 
 
 
61,940

Reserve from the sale of minority interests in subsidiaries
 
 
 
 
 
 
 
 
 

(+) Depreciation PPE
 
 
 
 
 
 
 
 
 
 
 
 
 
(24,493
)
(+) Financial result, net
 
 
 
 
 
 
 
 
 
 
 
 
 
(25,211
)
(+) Income Tax (Charge)/Benefit
 
 
 
 
 
 
 
 
 
 
 
 
 
(3,704
)
Profit/(Loss) for the Period
 
 
 
 
 
 
 
 
 
 
 
 
 
8,532




27

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Adjusted EBIT & Adjusted EBITDA Reconciliation to Profit/Loss - 1Q17
$ thousands
 
Crops
Rice
Dairy
Others
Farming
 
Sugar, Ethanol & Energy
 
Land Transformation
 
Corporate
 
 Total
Sales of manufactured products and services rendered
 
25,196

19,260

10,812

171

55,439

 
110,652

 

 

 
166,091

Cost of manufactured products sold and services rendered
 
(25,136
)
(17,436
)
(10,485
)
(56
)
(53,113
)
 
(86,249
)
 

 

 
(139,362
)
Initial recog. and changes in FV of BA and agricultural produce
 
11,897

6,022

1,941

184

20,044

 
(2,679
)
 

 

 
17,365

Gain from changes in NRV of agricultural produce after harvest
 
(227
)



(227
)
 

 

 

 
(227
)
Gross Profit from Agricultural Activities
 
11,730

7,846

2,268

299

22,143

 
21,724

 

 

 
43,867

General and administrative expenses
 
(673
)
(1,125
)
(239
)
(43
)
(2,080
)
 
(6,865
)
 

 
(5,072
)
 
(14,017
)
Selling expenses
 
(1,032
)
(3,085
)
(239
)
(4
)
(4,360
)
 
(11,606
)
 

 
(48
)
 
(16,014
)
Other operating income, net
 
2,160

174

250

(161
)
2,423

 
10,887

 

 
(38
)
 
13,272

Share of gain/(loss) of joint ventures
 





 

 

 

 

Profit from Operations Before Financing and Taxation
 
12,185

3,810

2,040

91

18,126

 
14,140

 

 
(5,158
)
 
27,108

Reserve from the sale of minority interests in subsidiaries
 





 

 

 

 

Adjusted EBIT
 
12,185

3,810

2,040

91

18,126

 
14,140

 

 
(5,158
)
 
27,108

(-) Depreciation PPE
 
335

922

238

30

1,525

 
16,124

 

 

 
17,649

Adjusted EBITDA
 
12,520

4,732

2,278

121

19,651

 
30,264

 

 
(5,158
)
 
44,757

Reconciliation to Profit/(Loss)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Adjusted EBITDA
 
 
 
 
 
 
 
 
 
 
 
 
 
44,757

Reserve from the sale of minority interests in subsidiaries
 
 
 
 
 
 
 
 
 

(+) Depreciation PPE
 
 
 
 
 
 
 
 
 
 
 
 
 
(17,649
)
(+) Financial result, net
 
 
 
 
 
 
 
 
 
 
 
 
 
(17,330
)
(+) Income Tax (Charge)/Benefit
 
 
 
 
 
 
 
 
 
 
 
 
 
(3,811
)
Profit/(Loss) for the Period
 
 
 
 
 
 
 
 
 
 
 
 
 
5,967









28

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Condensed Consolidated Statement of Income
Statement of Income
 
 
 
 
 
$ thousands
1Q18

 
1Q17

 
Chg %

 
 
 
 
 
 
Sales of goods and services rendered
155,567

 
166,091

 
(6.3
)%
Cost of goods sold and services rendered
(120,948
)
 
(139,362
)
 
(13.2
)%
Initial recognition and changes in fair value of biological assets and agricultural produce
16,081

 
17,365

 
(7.4
)%
Changes in net realizable value of agricultural produce after harvest
(691
)
 
(227
)
 
204.4
 %
Margin on manufacturing and agricultural activities before operating Expenses
50,009

 
43,867

 
14.0
 %
General and administrative expenses
(15,172
)
 
(14,017
)
 
8.2
 %
Selling expenses
(16,326
)
 
(16,014
)
 
1.9
 %
Other operating income, net
18,936

 
13,272

 
42.7
 %
Profit from operations
37,447

 
27,108

 
38.1
 %
Finance income
3,006

 
2,112

 
42.3
 %
Finance costs
(28,217
)
 
(19,442
)
 
45.1
 %
Financial results, net
(25,211
)
 
(17,330
)
 
45.5
 %
Profit before income tax
12,236

 
9,778

 
25.1
 %
Income tax expense
(3,704
)
 
(3,811
)
 
(2.8
)%
Profit for the period
8,532

 
5,967

 
43.0
 %


29

HEADER.JPG

Condensed Consolidated Interim Statement of Cash Flow

Statement of Cashflows
 
 
 
 
 
 
$ thousands
 
1Q18

 
1Q17

 
Chg %

 
 
 
 
 
 
 
Cash flows from operating activities:
 
 
 
 
 
 
Profit for the period
 
8,532

 
5,967

 
43.0
 %
Adjustments for:
 
 
 
 
 
 
Income tax benefit
 
3,704

 
3,811

 
(2.8
)%
Depreciation
 
24,228

 
17,458

 
38.8
 %
Amortization
 
265

 
191

 
38.7
 %
(Gain) / Loss from of disposal of other property items
 
(120
)
 
557

 
n.a

Equity settled share-based compensation granted
 
1,345

 
1,429

 
(5.9
)%
(Gain) from derivative financial instruments
 
(16,572
)
 
(14,571
)
 
13.7
 %
Interest and other expense, net
 
11,225

 
12,024

 
(6.6
)%
Initial recognition and changes in fair value of non harvested biological assets (unrealized)
 
(9,296
)
 
(5,843
)
 
59.1
 %
Changes in net realizable value of agricultural produce after harvest (unrealized)
 
(910
)
 
174

 
n.a

Provision and allowances
 
29

 
68

 
(57.4
)%
Foreign exchange gains, net
 
9,348

 
3,684

 
153.7
 %
Cash flow hedge – transfer from equity
 
2,101

 
(666
)
 
n.a

Subtotal
 
33,879

 
24,283

 
39.5
 %
 
 
 
 
 
 
 
Changes in operating assets and liabilities:
 
 
 
 
 
 
Increase in trade and other receivables
 
(32,399
)
 
(20,864
)
 
55.3
 %
(Increase) / Decrease in inventories
 
(17,801
)
 
2,276

 
n.a

Decrease in biological assets
 
9,332

 
2,616

 
256.7
 %
Decrease / (Increase) in other assets
 
6

 
(17
)
 
n.a

Decrease in derivative financial instruments
 
12,579

 
8,066

 
56.0
 %
Decrease in trade and other payables
 
(13,699
)
 
(28,522
)
 
(52.0
)%
Increase in payroll and social security liabilities
 
3,690

 
3,860

 
(4.4
)%
(Decrease) / Increase in provisions for other liabilities
 
(221
)
 
111

 
n.a

Net cash generated in operating activities before interest and taxes paid
 
(4,634
)
 
(8,191
)
 
(43.4
)%
Income tax paid
 
(131
)
 
(278
)
 
(52.9
)%
Net cash generated from operating activities
(4,765
)
 
(8,469
)
 
(43.7
)%
 
 
 
 
 
 
 
Cash flows from investing activities:
 
 
 
 
 
 
Continuing operations:
 
 
 
 
 
 
Purchases of property, plant and equipment
 
(62,418
)
 
(58,535
)
 
6.6
 %
Purchases of intangible assets
 
(456
)
 
(101
)
 
351.5
 %
Purchase of cattle and non current biological assets
 
(1,464
)
 

 
n.a

Interest received
 
2,463

 
1,422

 
73.2
 %
Proceeds from sale of property, plant and equipment
 
508

 
222

 
128.8
 %
Net cash used in investing activities
 
(61,367
)
 
(56,992
)
 
7.7
 %
 
 
 
 
 
 
 
Cash flows from financing activities:
 
 
 
 
 
 
Proceeds from long-term borrowings
 
8,728

 
149,801

 
(94.2
)%
Payments of long-term borrowings
 
(6,074
)
 
(45,567
)
 
(86.7
)%
Proceeds from short-term borrowings
 
39,335

 
52,604

 
(25.2
)%
Payment of short-term borrowings
 
(23,934
)
 
(2,021
)
 
1,084.3
 %
Interest paid
 
(21,035
)
 
(10,046
)
 
109.4
 %
Payment of derivatives financial instruments
 
(190
)
 
(2,704
)
 
(93.0
)%
Purchase of own shares
 
(13,492
)
 
(1,230
)
 
996.9
 %
Dividends paid to non-controlling interest
 
(1,195
)
 
(659
)
 
81.3
 %
Net cash generated from financing activities
 
(17,857
)
 
140,178

 
n.a

Net increase/(decrease) in cash and cash equivalents
 
(83,989
)
 
74,717

 
n.a

Cash and cash equivalents at beginning of period
 
269,195

 
158,568

 
69.8
 %
Effect of exchange rate changes on cash and cash equivalents
 
(1,431
)
 
(1,964
)
 
(27.1
)%
Cash and cash equivalents at end of period
 
183,775

 
231,321

 
(20.6
)%

30

HEADER.JPG

Condensed Consolidated Interim Balance Sheet

Statement of Financial Position
 
 
 
 
 
 
$ thousands
 
March 31, 2018
 
December 31, 2017
 
Chg %

ASSETS
 
 
 
 
 
 
Non-Current Assets
 
 
 
 
 
 
Property, plant and equipment
 
852,159

 
820,931

 
3.8
 %
Investment property
 
2,102

 
2,271

 
(7.4
)%
Intangible assets
 
16,850

 
17,192

 
(2.0
)%
Biological assets
 
11,639

 
11,276

 
3.2
 %
Deferred income tax assets
 
39,586

 
43,437

 
(8.9
)%
Trade and other receivables
 
21,462

 
22,107

 
(2.9
)%
Other assets
 
522

 
535

 
(2.4
)%
 
 
 
 
 
 
 
Total Non-Current Assets
 
944,320

 
917,749

 
2.9
 %
Current Assets
 
 
 
 
 
 
Biological assets
 
138,815

 
156,718

 
(11.4
)%
Inventories
 
136,614

 
108,919

 
25.4
 %
Trade and other receivables
 
180,036

 
150,107

 
19.9
 %
Derivative financial instruments
 
12,058

 
4,483

 
169.0
 %
Cash and cash equivalents
 
183,775

 
269,195

 
(31.7
)%
Other assets
 
25

 
30

 
(16.7
)%
Total Current Assets
 
651,323

 
689,452

 
(5.5
)%
TOTAL ASSETS
 
1,595,643

 
1,607,201

 
(0.7
)%
 
 
 
 
 
 
 
SHAREHOLDERS EQUITY
 
 
 
 
 
 
Capital and reserves attributable to equity holders of the parent
 
 
 
 
 
 
Share capital
 
183,573

 
183,573

 
 %
Share premium
 
897,536

 
908,934

 
(1.3
)%
Cumulative translation adjustment
 
(545,834
)
 
(541,545
)
 
0.8
 %
Equity-settled compensation
 
19,185

 
17,852

 
7.5
 %
Cash flow hedge
 
(28,311
)
 
(24,691
)
 
14.7
 %
Reserve for the sale of non contolling interests in subsidiaries
 
41,574

 
41,574

 
 %
Treasury shares
 
(9,061
)
 
(6,967
)
 
30.1
 %
Retained earnings
 
67,897

 
60,984

 
11.3
 %
Equity attributable to equity holders of the parent
 
626,559

 
639,714

 
(2.1
)%
Non controlling interest
 
6,576

 
5,417

 
21.4
 %
TOTAL SHAREHOLDERS EQUITY
 
633,135

 
645,131

 
(1.9
)%
 
 
 
 
 
 
 
LIABILITIES
 
 
 
 
 
 
Non-Current Liabilities
 
 
 
 
 
 
Trade and other payables
 
823

 
827

 
(0.5
)%
Borrowings
 
643,845

 
663,060

 
(2.9
)%
Deferred income tax liabilities
 
8,526

 
10,457

 
(18.5
)%
Payroll and social security liabilities
 
1,373

 
1,240

 
10.7
 %
Provisions for other liabilities
 
3,877

 
4,078

 
(4.9
)%
Total Non-Current Liabilities
 
658,444

 
679,662

 
(3.1
)%
 
 
 
 
 
 
 
Current Liabilities
 
 
 
 
 
 
Trade and other payables
 
83,747

 
98,423

 
(14.9
)%
Current income tax liabilities
 
774

 
503

 
53.9
 %
Payroll and social security liabilities
 
30,150

 
27,267

 
10.6
 %
Borrowings
 
184,686

 
154,898

 
19.2
 %
Derivative financial instruments
 
2,321

 
552

 
320.5
 %
Provisions for other liabilities
 
2,386

 
765

 
211.9
 %
Total Current Liabilities
 
304,064

 
282,408

 
7.7
 %
TOTAL LIABILITIES
 
962,508

 
962,070

 
 %
TOTAL SHAREHOLDERS EQUITY AND LIABILITIES
 
1,595,643

 
1,607,201

 
(0.7
)%

31
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