LUXEMBOURG, Nov. 15, 2018 /PRNewswire/ -- Adecoagro S.A.
(NYSE: AGRO, Bloomberg: AGRO US,
Reuters: AGRO.K), a leading agricultural company in South America, announced today its results for
the third quarter of 2018.
Main highlights for the period:
- Adecoagro reported Adjuested EBITDA of $79.6 million in 3Q18, marking a 5.8% increase
compared to 3Q17.
- Net Income was $3.5 million in
3Q18, $5.1 million higher compared to
3Q17.
- Adjusted Net Income was $14.1
million in 3Q18, $3.5 million
higher compared to 2Q17.
Financial & Operational Highlights
Adjusted EBITDA for our Sugar, Ethanol & Energy business
reached $64.0 million in 3Q18,
$10.4 million million or 13.9% lower than 3Q17. Adjusted
EBITDA was positively affected by: (i) a 14.0% reduction in total
production costs, on a per unit basis, as a result of enhanced
agricultural and industrial efficiencies, coupled with the
depreciation of the Brazilian Real, (ii) a $14.2 million higher gain derived from the
mark-to-market of our commodity hedge position; and (iii) our
ethanol maximization strategy (66.9% of total TRS produced),
enabling us to profit from higher relative prices. Indeed,
anhydrous and hydrous ethanol traded at 14.1 cts/lb and 13.1 cts/lb
sugar equivalent during the quarter, 30.1% and 20.6% premiums to
sugar respectively. These positive effects were offset by (i) lower
sales, driven by the combination of lower sugar and energy selling
volumes, coupled with lower sugar and ethanol prices, measured in
U.S. dollar (prices measured in local currency increased by 2.4%
year-over-year); coupled with (ii) a $16.2
million loss from the fair value of the unharvested cane,
mainly explained by lower sugar prices.
Year-to-date, Adjusted EBITDA totaled $192.9 million million, marking a 16.2% increase compared
to the same period of last year. The main drivers for the increase
were (i) a 13.0% reduction in total production costs mainly
explained by higher crushing volumes which allowed us to dilute
fixed costs, coupled with the 13.1% depreciation of the Brazilian
Real; (ii) $19.0 million higher gain
derived from the mark-to-market of our commodity hedge
position.
- Adjusted EBITDA in our Farming and Land Transformation
businesses was $20.4 million in 3Q18,
$13.5 million higher year-over-year.
This increase is mainly attributable to the performance of both our
Crops and Rice businesses. Enhanced operational efficiencies and
the depreciation of the Argentine Peso, which allowed us to further
reduce total cost of production, were responsible for the
$10.1 and $5.0
million increase in our Crops and Rice businesses´ EBITDA,
respectively.
On a year-to-date basis, Total Adjusted EBITDA grew by 167.2%,
reaching $100.4 million. Once again,
the performance of our Crops and Rice businesses were responsible
for the increase. Higher margin recognition as a result of higher
commodity prices in the local market coupled with a reduction in
production costs, explain the $13.9
million increase in our Crops business. As for our Rice
business, we registered a $14.3
million increase, as a result of a 17% increase in
agricultural yields, coupled with lower production costs, measured
in U.S dollar. In addition, the increase in EBITDA is partially
explained by the sale of Rio de
Janeiro and Conquista farms during 2Q18, which contributed
with $36.2 million in capital
gains.
- Net Income on a year-to-date basis was a loss of $19.0 million, compared to a $9.5 million gain recorded in the same period of
last year. Higher EBITDA generation, as a result of better economic
performance was offset by: (i) the $196.1
million non-cash loss derived from the revaluation of our
U.S dollar denominated financial debt, measured in local currency;
coupled with (ii) a $22.6 million
loss resulting from the application of IAS 21: "The Effects of
Changes in Foreign Exchange Rates" .
- Adjusted Net Income, by definition, excludes: (i) any non-cash
result derived from bilateral exchange variations, (ii) any
revaluation result from the hectares held as investment property,
(iii) any inflation accounting result; and includes (iv) any gains
or losses from disposals of non-controlling interests in
subsidiaries whose main underlying asset is farmland (the latter is
already included in Adj. EBITDA). We believe Adjusted Net Income is
a more appropriate metric to reflect the Company´s performance.
During the first nine months of the year, Adjusted Net Income
reached $108.2 million, $73.1 million higher compared to 9M17.
Strategy Execution
- Independent Farmland Appraisal Report: As of
September 30, 2018, Cushman &
Wakefield (C&W) updated its independent appraisal of
Adecoagro´s farmland. Adecoagro´s subsidiaries held 252,104
hectares valued by C&W at $846.7
million. Net of minority interests, Adecoagro´s land
portfolio consists of 231,712 hectares valued at $790.6 million. Without considering the sale of
farmland in Brazil, the total
value of our land portfolio reached $829.7
million, or 1.6%. Lower land prices in Uruguay following five years of low crop
prices- resulting in deterioration of crop margins-, explain the
decrease. At the same time, higher margins in Argentina - as a result of the sharp
depreciation of the Argentine Peso partially offset by the
reimplementation of export taxes - are not reflected in the
valuation of the farmland in Argentina because not many significant
transactions throughout the year materialized. Factoring the sale
of Rio de Janeiro and Conquista
farms, which together contributed with $38.5 in value, the year-over-year value decrease
totaled $54.1 million, or 6.0%
- Farmland Revaluation: As of September 30, 2018, the Company changed its
accounting policies for its farmland. It is now recognized at fair
value following the annual update of Cushman & Wakefield´s
independent appraisal. It´s worth highlighting that, before this
revaluation, farmland was booked at historical cost in local
currency. Accordingly, the book value ($69.1
million as of June 30th), did
not properly reflect the actual value of our farmland portfolio.
Higher margins, as a result of the ongoing implementation of best
practices and cutting edge technology - the essence of our land
transformation process - were reflected in the valuation.
Furthermore, every time the Argentine peso depreciated, we
registered a decrease in the Company´s Equity, measured in U.S.
dollar. For more information regarding the change in accounting
polices, please refer to page F-25 in our Financial Statements
From an accounting perspective, there is a distinction between the
hectares that are being leased to third parties from those that are
not. Leased land is generally not suitable for agriculture
production and is mainly used for cattle ranching, and is treated
as Investment Property (IP), while the others are treated as
Property, Plant & Equipment (PP&E). From an accounting
standpoint the revaluation results of hectares treated as PP&E
are not recorded in the Profit and Loss Account. Instead, they are
directly credited to "Revaluation Surplus" line in shareholder´s
equity - we registered a $422.9
million surplus, net of deferred taxes, as of September 30th. In contrast, those related to IP
are recorded in "Other Operating Income". We are not including this
revaluation results in the Adj. EBITDA or in the Adj. Net Income.
It´s worth remembering that results related to the sale of land are
registered under the Land Transformation segment. Please refer to
page 30 for a full definition of these concepts.
- 5-Year Plan Update: The expansion of our cluster in
Mato Grosso do Sul is proceeding
according to plan. A total of 33,000 hectares have been secured for
planting so far, representing 70.5% of the total hectares needed to
fully supply the 3 million tons of additional crushing capacity.
It´s worth noting that we managed to negotiate the existing terms
and conditions for all the new contracts. Low rates constitute one
of our main competitive advantages which allow us to be one of the
lowest and efficient sugar, ethanol and energy producers within the
space. Planting operations are also well underway. As a matter of
fact,17,500 hectares have already been planted. We feel very
confident that we will be able to lease the remaining hectares
throughout 2019. At an industry level, investments in Angelica, as
previously announced, are already done and the mill reached a
nominal crushing capacity of 1,050 tons/hour. As for Ivinhema mill,
investments to increase nominal crushing capacity up to 1,400
tons/hour, are well underway. We expect to conclude them during
2019.
- Milk Processing Facilities Investment Update: As of
September 12, 2018, Adecoagro
announced the withdrawal of its joint-venture offer to SanCor, and
submitted a new investment proposal to acquire two milk processing
plants and two trademarks. This new offer was formally approved by
the constituent member of the Cooperative on October 31. Closing, however, still remains
subject to the satisfaction of certain conditions precedent. The
transaction will allow us to benefit from synergies of our
efficient free stall production system, while at the same time
provide us with the necessary flexibility to divert sales into the
export and domestic market, based on relative profitability with a
view to generate attractive returns.
- Application of IAS 29 in financial reporting of Argentine
subsidiaries: As of 2Q18, Argentina´s 3-year accumulated
Consumer Price Index (CPI) exceeded 100%. As a result, all
necessary conditions set by IAS 29 "Financial Reporting in
Hyperinflationary Economies" to be deemed as a hyperinflationary
economy were met in Argentina.
Accordingly, financial statements of Argentinian Companies need to
comply with IAS 29 . This standard requires, as a way to overcome
the deficiencies of historical cost basis accounting in high
inflation economies, to restate all non-monetary items by applying
a general price index since the day they were booked. Many of the
historical numbers, under an inflationary scenario, are not
economically relevant as prices changed since they were incurred.
Figures are simply not additive as they embody different purchasing
power.
At the same time, the standard also requires that all items in the
statement of income be expressed in terms of the measuring unit
current at the end of the reporting period, consequently, results
of operation measured in Argentine Pesos for each monthly reporting
period are adjusted for inflation by the applicable monthly
inflation rate each month.
To properly assess the implications of adopting this new accounting
standard, it´s convenient to distinguish between the impact of
inflation accounting per se (IAS 29) and translation effects (IAS
21).
Inflation Accounting Effects
The impact of applying IAS 29 differs across the financial
statements, as follows:
The balance sheet measured in local currency, will increase with
the new standard. All non-monetary items (including equity) need to
be restated. This will result in an increase in shareholder´s
equity.
Margins measured in local currency, will be reduced since the
accrued cost will now be higher. Inventories are now booked at a
higher value. This will result in a reduction in EBITDA, measured
in local currency.
The impact on net income is less obvious. The effect will depend
on the Company´s monetary position. Since monetary assets and
liabilities are not adjusted by the general inflation index, they
are, by definition, exposed to inflation. In this line, if the
Company´s net monetary position is positive, i.e. more monetary
assets than liabilities, a negative result will be generated, other
things equal.
Translation Effects
The implications of the standard are quite different when
accounting for the translation effects. In paragraph 42, IAS 21
establishes that, "…all amounts shall be translated at the closing
rate at the date of the most recent statement of financial
position…" Under this standard, booked results, after adjusted for
inflation pursuant to IAS 29, must then be converted into U.S
dollar at the closing exchange rate for such monthly reported
period.
This conversion changes every prior reported monthly statement
of income in U.S dollar as each monthly amount is readjusted
under IAS 29 for inflation as described above and reconverted at
different exchange rates for each monthly reported period under IAS
21. As a result the impact of monthly inflationary
adjustments and monthly conversion adjustments vary the results of
operation month to month until year end.
Results in the following Earnings Release have been prepared
following the methodology applied for our Segment presentation in
our Financial Statements (IFRS 8 Operating Segments).We have
included results of operation based on monthly data that has been
adjusted for inflation and converted into US dollars (i.e. hard
currency) each month but not readjusted as described above under
IAS 29 and IAS 21. The Company believes that it is more useful and
accurate to remain results unaltered, once translated into hard
currency. For more information please refer to Financial Note #3
"Segment Information" in our Financial Statements for more
information.
(1)
|
Adjusted EBITDA is
defined as (i) consolidated net profit (loss) for the year, as
applicable, before interest expense, income taxes, depreciation and
amortization, net gain from fair value adjustments of investment
property land, foreign exchange gains or losses, other net
financial expenses; and (ii) adjusted by profit or loss from
discontinued operations if any; and (iii) adjusted by those items,
that do not impact profit and loss, but are recorded directly in
shareholders' equity, i.e., (x) the gains or losses from disposals
of non-controlling interests in subsidiaries whose main underlying
asset is farmland , reflected under the line item: "Reserve from
the sale of non-controlling interests in subsidiaries; and (y) the
net increase in value of sold farmland, which has been recognized
in either Revaluation surplus or retained
earnings.
|
Non-Gaap Financial
Measures: For a full reconciliation of non-gaap financial measures please refer to
page 30 of our 3Q18 Earnings Release found on Adecoagro's website
(ir.adecoagro.com)
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.
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
relate 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.
To read the full 3Q18 earnings release, please access
ir.adecoagro.com. A conference call to discuss 3Q18 results will be
held on November 16, 2018 with a live
webcast through the internet:
Conference Call
November 16, 2018
9 a.m. (US EST)
11 a.m. Buenos Aires
12 p.m. Sao
Paulo
3 p.m. Luxembourg
Participants calling from the US: Tel: +1 (844) 435-0324
Participants calling from other countries: Tel: +1 (412)
317-6366
Access Code: Adecoagro
Conference Call Replay
Participants calling from the US: Tel: +1 (877) 344-7529
Participants calling from other countries: Tel: +1 (412)
317-0088
Access Code: 10125664
Investor Relations Department
Charlie Boero Hughes
CFO
Juan Ignacio Galleano
IRO
Email: ir@adecoagro.com
Tel: +54 (11) 4836-8624
About Adecoagro:
Adecoagro is a leading agricultural
company in South America.
Adecoagro owns over 247 thousand hectares of farmland and several
industrial facilities spread across the most productive regions of
Argentina, Brazil and Uruguay, where it produces over 1.9 million
tons of agricultural products including sugar, ethanol,
bio-electricity, milled rice, corn, wheat, soybean and dairy
products, among others.
View original
content:http://www.prnewswire.com/news-releases/adecoagro-reported-adjusted-ebitda-of-79-6-million-in-3q18-and-278-6-million-for-9m18--5-8-and-48-8-higher-year-over-year-respectively-300751752.html
SOURCE Adecoagro S.A.