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 November 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 NINE MONTH PERIOD
ENDED SEPTEMBER 30, 2018
 
On November 15, 2018 , the registrant issued a press release pertaining to its results of operations for the nine month period ended September 30, 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: November 15, 2018



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Financial & Operational Performance 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.
On a quarterly basis, Net Income reached $3.5 million, compared to a loss of $1.6 million. Positive results were mainly driven by a better economic performance in our Farming business, partially offset by higher accrued income taxes

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

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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" . Please refer to Market Overview section for more information.     

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. (Please refer to page 34 for a reconciliation of Adjusted Net Income to Profit/Loss).


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%
Please visit ir.adecoagro.com for the Cushman & Wakefield 2018 Appraisal Report. These appraisals are subject to change based on a host of variables and market conditions. Please also refer to page 66 of our Annual Report on Form 20-F for the methodology employed in the appraisals of our farmland by Cushman & Wakefield.



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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.
At the same time, we already commenced with marginal investments to build four additional ethanol tanks. This investment in the amount of BRL 21.2 million will allow us to increase total storage capacity by 80 thousand cubic meters, reaching a total capacity of 257 thousand cubic meters. This investment goes in line with our plan to further divert TRS into ethanol production during 2019. As a matter of fact, increasing ethanol production without complementing it with additional storage capacity would put us in a position in which we would be

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forced to sell ethanol during the peak of the harvest. The additional storage capacity, indeed, will allow us to postpone ethanol sales for 3 to 6 months and maximize sales during the inter-harvest season, profiting from higher seasonal prices.
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.

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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.


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Market Overview

Sugar prices continued the downward trend during 3Q18 and were, on average, 23% lower compared to the same period last year. When compared to 2Q18, prices were 9% lower. The large global surplus and the announcement from the Indian government of another subsidy package weighted heavily into prices, with Oct 18 futures trading as low as 9.90 c/lb by the end of September. Since then prices recovered impressively, trading above 14 c/lb for the first time since February this year. The recovery was result of production numbers being revised down in the EU, Thailand and India due to weather issues. The Center South of Brazil reducing sugar production by almost 10 mln mt, from last year, resulted in the Indian exports turning from a source of oversupply to a source of stability to balance the trade flows.
Ethanol market in the 3Q18 was influenced by its traditional seasonal downward movement, as a result of the substantial increase in the Center-South production. Lower prices, in turn, favored hydrous ethanol to remain competitive at the pumps, leading demand to reach record high levels. As a result, ethanol started to gain support  throughout the quarter, with prices increasing 23% from August to end-September. According to the ESALQ index, both hydrous and anhydrous prices in BRL were down on the quarter by 3% and 4%, respectively. However when compared to same period last year both prices are 10% up. As reported by UNICA, hydrous sales have exceeded expectations, increasing 31% versus previous quarter and 43% year-on-year, favoring a positive outlook for the inter-harvest period.
Energy spot prices in the southeast region of Brazil during 3Q18 were 12% higher than 3Q17. During July, energy prices were 505.18 BRL/MWh, 505.18 BRL/MWh in August and 472.75 BRL/MWh in September. Recent rains in October drove prices down to 271,83 BRL/MWh. Demand has been increasing to record levels and the seasonal peak is in the fourth quarter. Reservoirs decreased to 28,34% in September, 3% higher than the same period of 2017 (24,8%).




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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

2017/2018
2016/2017
Chg %
Soybean
58,119
55,237
5.2%

58,120
100.0%
127,782

2.2
2.9
(23.3)%
Soybean 2nd Crop
23,150
29,197
(20.7)%

23,150
100.0%
27,499

1.2
2.5
(52.2)%
Corn (1)
45,894
34,779
32.0%

44,417
96.8%
205,210

4.6
6.1
(24.4)%
Corn 2nd Crop
10,847
10,023
8.2%

10,613
97.8%
38,688

3.6
4.5
(19.1)%
Corn Silage
2,589
2,355
9.9%

2,589
100.0%
33,392

12.9
16.0
(19.2)%
Wheat (2)
36,533
38,009
(3.9)%

34,631
94.8%
78,640

2.3
3.0
(25.2)%
Sunflower
2,869
5,413
(47.0)%

2,869
100.0%
5,181

1.8
1.9
(3.3)%
Cotton
3,132
2,640
18.7%

3,132
100.0%
886

0.3
0.3
(8.7)%
Peanut
9,375
9,851
(4.8)%

9,375
100.0%
19,901

2.1
2.2
(2.5)%
Total Crops
192,507
187,504
2.7%

188,895
98.1%
537,181



n.a
Rice
40,289
39,728
1.4%

40,289
100.0%
276,693

6.9
5.9
16.2%
Total Farming
232,796
227,232
2.4%

229,184
98.4%
813,874




Owned Croppable Area
124,733
121,412
2.7%








Leased Area
72,115
64,245
12.2%








Second Crop Area
35,948
39,220
(8.3)%








Total Farming Area
232,796
224,877
3.5%









Milking Cows (Average Heads)

Milk Production (MM liters) (1)

Productivity (Liters per cow per day)
Dairy
3Q18
3Q17
Chg %

3Q18
3Q17
Chg %

3Q18
3Q17
Chg %
Milk Production
7,545
7,094
6.4%

26.1
24.5
6.3%

37.6
37.6
—%

As of the end of October 2018, we harvested 229.2 thousand hectares related to the last crop season 17/18 and produced 813.9 thousand tons of aggregate grains.

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2018/19 Harvest Year

Farming Production Data






Planting & Production
Planting Plan (hectares)  

2018/19 Planting Progress

2018/2019

2017/2018

Chg %


2018/2019

Chg %

Soybean
51,992

58,119

(10.5
)%

2,517

4.8
%
Soybean 2nd Crop
27,981

23,150

20.9
 %


%
Corn  (1)
45,358

45,894

(1.2
)%

10,480

23.2
%
Corn 2nd Crop
12,096

10,847

11.5
 %


%
Corn Silage
3,042

2,589

17.5
 %

2,030

66.7
%
Wheat  (2)
39,719

36,533

8.7
 %

39,678

99.9
%
Sunflower
4,250

2,869

48.1
 %

2,978

70.1
%
Cotton  
3,925

3,132

25.3
 %


%
Peanut
8,881

9,375

(5.3
)%

3,154

35.5
%
Total Crops
197,244

192,507

2.5
 %

60,836

30.8
%
Rice
40,000

40,289

(0.7
)%

18,361

45.9
%
Total Farming
237,244

232,796

1.9
 %

79,197

33.4
%
Owned Croppable Area
114,261

124,733

(8.4
)%



Leased Area
81,161

72,115

12.5
 %



Second Crop Area
41,822

35,948

16.3
 %



Total Farming Area
237,244

232,796

1.9
 %



(1) Includes chia.
(2) Includes barley.


Adecoagro began its planting activities for the 2018/19 harvest year. We expect to plant 237,244 hectares, 1.9% higher than the previous harvest season. This increase is expected to come primarily from a greater leased area, partially offset by a 8.4% decrease in owned land as a result of the sale of Rio de Janeiro and Conquista farms during 2Q18.

As of the end of October, 2018, a total of 79.2 thousand hectares or 33.4% of the target area has been seeded. We expect to continue planting rice up until mid-November, and corn and soybean until early January. The wheat crop has developed as expected and we are preparing for the start of harvest.


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Farming & Land Transformation Financial Performance
Farming & Land transformation business - Financial highlights





$ thousands
3Q18

3Q17

Chg %

9M18

9M17

Chg %

Gross Sales






     Farming
74,996

84,726

(11.5
)%
228,130

232,660

(1.9
)%
     Total Sales
74,996

84,726

(11.5
)%
228,130

232,660

(1.9
)%
Adjusted EBITDA  (1)












     Farming
20,391

6,942

193.7
 %
64,195

37,579

70.8
 %
     Land Transformation


n.a

36,227


n.a

     Total Adjusted EBITDA (1)
20,391

6,942

193.7
 %
100,422

37,579

167.2
 %
Adjusted EBIT (1)
 











     Farming
19,057

5,411

252.2
 %
59,483

32,916

80.7
 %
     Land Transformation


n.a

36,227


n.a

     Total Adjusted EBIT (2)
19,057

5,411

252.2
 %
95,710

32,916

190.8
 %
(1) Please see “Reconciliation of Non-IFRS measures” starting on page 31 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.
Adjusted EBITDA in the Farming and Land Transformation businesses was $20.4 million in 3Q18, $13.5 million higher compared to the same period last year. The improvement in financial performance is primarily the result of a $10.1 million and $5.0 million increase in results in our crops and rice businesses. This, was the result of enhanced operational efficiencies and the depreciation of the Argentine Peso, which resulted in a reduction of production costs. These positive results, were partially offset by the $1.6 million reduction in results in our dairy business, mainly explained by world dairy product prices.
On an accumulated basis, Adjusted EBITDA totaled $100.4 million, more than doubling last year´s results. This increase is mostly explained by (i) a $35.9 million increase in our Crops business, due to a higher margin recognition as a result of higher commodity prices in the local market coupled with a reduction in production costs, (ii) a $14.3 million increase in our Rice business, as a result of higher yields and lower production costs, measured in U.S dollar; and (iii) the sale of the farms during 2Q18. These positive effects were partially offset by a $5.7 million loss difference resulting from the mark-to-market of our crops hedging position.



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Crops Segment
Crops - Highlights









metric
3Q18
3Q17
Chg %
9M18
9M17
Chg %
Gross Sales
$ thousands
34,804
59,201
(41.2)%
115,316
144,097
(20.0)%


 tons
145,997
264,539
(44.8)%
465,864
667,414
(30.2)%


$ per ton
238.4
223.8
6.5%
247.5
215.9
14.6%
Adjusted EBITDA
$ thousands
12,786
2,628
386.5%
36,990
23,052
60.5%
Adjusted EBIT
$ thousands
12,481
2,280
447.4%
35,888
22,012
63.0%
Planted Area  
hectares
192,507
185,149
3.97%
192,507
185,149
4.0%

Adjusted EBITDA in our Crops segment was $ 37.0 million in 9M18, 60.5% higher compared to the same period of last year. This is mainly explained by a $10.6 million increase in Changes in Fair Value of Biological Assets and Agricultural Produce and Changes in Net Realizable Value, which reflects the margin recognized throughout the biological growth cycle and harvest of our crops. Higher margins are explained by (i) enhanced operating efficiencies, (ii) lower production costs, measured in U.S dollars, as a result of the depreciation of the Argentine Peso; and (iii) higher commodity prices in the local market as the drought in Argentina during the first quarter resulted in lower grain production putting pressure on supply and therefore, increasing domestic prices. These positive effects were partially offset by the $5.7 million negative mark-to-market of our crops hedge position.


11

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 Crops - Changes in Fair Value Breakdown - as of September 30, 2018
9M18
metric
Soy
Soy 2nd Crop
Corn
Corn 2nd Crop
Wheat
Sunflower
Cotton
Peanut

Total











2017/18 Harvest Year










Total Harvested Area
Hectares
54,768

23,030

44,777

11,549

35,519

2,863

3,132

9,375

185,013

Area harvested in previous periods
Hectares




34,213




34,213

Area harvested in current period
Hectares
54,768

23,030

44,777

11,549

1,306

2,863

3,132

9,375

150,800

Changes in Fair Value 9M18 from harvested area 2017/18 (i)
$ thousands
10,349

2,804

10,995

1,916

672

55

(61
)
85

26,814

2018/19 Harvest Year










Total Planted Area
Hectares


8,734


39,374

2,034



50,142

Area planted in initial growth stages
Hectares









Changes in Fair Value 9M18 from planted area 2018/19 (ii)
$ thousands



716




716

Total Changes in Fair Value in 9M18 (i+ii)
$ thousands
10,349

2,804

10,995

1,916

1,388

55

(61
)
85

27,530

The table above shows the gains or losses from crop production generated during 9M18. A total of 185,013 hectares were harvested in the 2017/18 crop. As of September 30, 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 $ 27.5 million , compared to $13.6 million generated during the same period last year. As explained above, the main drivers for the increase in margins are (i) higher operating efficiencies, (ii) higher domestic prices; coupled with (iii) lower costs of production, measured in USD.
Planting activities related to the new 2018/19 crop are underway. We planted 39.7 thousand hectares of wheat, 10.5 thousand of corn, 3.0 thousandof sunflower, 2.5 thousand of soybeans and 3.2 thousand hectares of peanuts . Abundant rainfalls during this and the previous quarter have provided good soil humidity, necessary for planting activities.
As shown in the table below, crops sales year-to-date reached $ 115.3 million , 20.0% below last year, primarily explained by lower selling volumes as a consequence of the drought that hit the country early in the year, significantly impacting achieved yields.


12

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Crops - Gross Sales Breakdown











Amount ($ '000)

Volume

$ per unit
Crop
3Q18
3Q17
Chg %

3Q18
3Q17
Chg %

3Q18
3Q17
Chg %
Soybean
21,297
26,213
(18.8)%
 
71,942
86,408
(16.7)%

296
303
(2.4)%
Corn  (1)
9,910
23,784
(58.3)%

66,042
158,609
(58.4)%

150
150
0.1%
Wheat  (2)
1,279
555
130.5%

6,397
4,078
56.9%

200
136
46.9%
Sunflower
471
2,494
(81.1)%

1,616
7,905
(79.6)%

291
315
(7.6)%
Cotton Lint
264
(100.0)%

148
(100.0)%

n.a
1,784
n.a
Others
1,847
5,891
(68.6)%


7,391





Total
34,804
59,201
(41.2)%

145,997
264,539
(44.8)%





Crops - Gross Sales Breakdown











Amount ($ '000)

Volume

$ per unit
Crop
9M18
9M17
Chg %

9M18
9M17
Chg %

9M18
9M17
Chg %
Soybean
70,209
66,977
4.8%

216,738
229,151
(5.4)%

324
292
11%
Corn  (1)
31,289
55,296
(43.4)%

201,322
348,917
(42.3)%

155
158
(2)%
Wheat (2)
7,483
11,078
(32.5)%

43,204
72,673
(40.5)%

173
152
14%
Sunflower
1,454
2,932
(50.4)%

4,599
9,109
(49.5)%

316
322
(2)%
Cotton Lint
310
(100.0)%

173
(100.0)%

n.a
1,792
n.a
Others
4,881
7,504
(35.0)%


7,391





Total
115,316
144,097
(20.0)%

465,864
667,414
(30.2)%





(1) Includes sorghum
(2) Includes barley


13

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Rice Segment

Rice - Highlights








metric
3Q18

3Q17

Chg %

9M18

9M17

Chg %

Gross Sales
$ thousands
31,271

16,218

92.8
 %
87,482

59,497

47.0
 %
   Gross Sales of White Rice
thousand tons (1)
84

47

79.1
 %
219

163

34.4
 %
$ per ton
277

281

(1.2
)%
286

288

(0.8
)%
$ thousands
23,324

13,183

76.9
 %
62,621

46,959

33.4
 %
   Gross Sales By-products
$ thousands
7,947

3,035

161.8
 %
24,861

12,537

98.3
 %
Adjusted EBITDA
$ thousands
6,755

1,692

299.2
 %
21,211

6,907

207.1
 %
Adjusted EBIT
$ thousands
6,024

781

671.3
 %
18,521

4,110

350.6
 %
Area under production  (2)

40,289

39,728

1.4
 %
40,289

39,728

1.4
 %








Rice Mills







Total Processed Rough Rice
thousand tons (1)
80

65

22.8
 %
212

183

15.8
 %
Ending stock
thousand tons (1)
83

78

6.7
 %
83

78

6.7
 %

(1) Of rough rice equivalent.
(2) Areas under production correspond to the 2017/18 and 2016/17 harvest.
 
Due to the seasonality and growth cycle of the rice crop, Adjusted EBITDA generation during the second half of the year is usually driven by sales of processed rice and by-products, net of selling expenses and overhead costs.
Rice sales during 3Q18 reached $ 31.3 million , 92.8% higher than 3Q17. This was attributable to the 79.1% increase in selling volumes. Rough rice was available and enhanced efficiencies at the industry level, allowed us to increase processing operations. Total sales were partially offset by a slight reduction in average selling prices. This decrease, is explained by the change in selling mix and the reduction in selling prices for the domestic market measured in USD . During 3Q18 78.0% of total selling volumes were diverted to the export market compared to the 68% in 3Q17. That margins in the export market are higher than in the domestic one since selling costs are considerable lower. This coupled with the cost dilution in USD, explain the almost 4.0x increase in 3Q18 EBITDA year-over-year.
On a cumulative basis adjusted EBITDA was $ 21.2 million , $ 14.3 million or 207.1% higher than 9M17. This is mainly explained by: (i) higher margins in our agricultural operations driven by higher yields and lower production costs as a result of the depreciation of the Argentine Peso; coupled with a better mill out ratio of white rice (less broken) due to high quality of our rough rice.

14

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Dairy Segment

Dairy - Highlights








metric
3Q18
3Q17
Chg %
9M18
9M17
Chg %
Gross Sales
$ thousands  (1)
8,549
8,931
(4.3)%
24,176
28.253
(14.4)%

million liters  (2)
25.4
24.1
5.5%
69.8
73.1
(4.5)%

$ per liter  (3)
0.30
0.34
(13.0)%
0.31
0.36
(14.0)%
Adjusted EBITDA
$ thousands
1,183
2,801
(57.8)%
6,140
7,616
(19.4)%
Adjusted EBIT
$ thousands
900
2,559
(64.8)%
5,296
6,879
(23.0)%
Milking Cows
Average Heads
7,545
7,094
6.4%
7,429
6,901
7.7%
Cow Productivity
Liter/Cow/Day
37.6
37.6
—%
36.2
36.1
0.3%
Total Milk Produced
million liters
26.1
24.5
6.3%
73.5
68.1
7.9%
(1) Includes (i) $0.50 million from sales of culled cows in 3Q18 and $0.77 million in 3Q17, (ii) $0.06 million from sales of cream in 3Q18, (iii) $3.0 million from sales of powder milk in 3Q18; and (v) $0.51 million from electricity sales in 3Q18
(2) Selling volumes includes 7.4 million liters of milk destined towards powder milk production in 3Q18.
(3) Sales price includes the sale of fluid milk and whole milk powder and excludes cattle, electricity, cream and whey sales.     

Our Dairy operation continues to deliver strong operational results. On a year-to-date basis, milk production reached 73.5 million , 7.9% higher compared to the same period of last year. This increase is primarily attributable to an 7.7% increase in our dairy cow herd, coupled with a slight increase in cow productivity.
Despite higher production volumes, Adjusted EBITDA reached $6.1 million , 19.4% lower year-over-year. This decrease is primarily explained by lower gross sales as a result of the 14.0% reduction in average selling prices, measured in U.S. dollar after the sharp depreciation of the Argentine peso. This negative effect was partialy offset by: (i) the reduction in unitary production cost as a result of enhanced operational efficiencies; and (iii) the $1.4 million derived from electricity sales.
We expect to keep enhancing efficiencies as we continue populating our third free-stall facility and achieve stable production.








15

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All Other Segments
All Other Segments - Highlights








metric
3Q18
3Q17
Chg %
9M18
9M17
Chg %
Gross Sales
$ thousands
344
375
(8.3)%
1,148
813
41.2%
Adjusted EBITDA
$ thousands
(333)
(180)
84.8%
(146)
4
n.a
Adjusted EBIT
$ thousands
(348)
(209)
66.3%
(222)
(85)
160.7%
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 EBITDA for All Other Segment during 3Q18 was a loss of $0.3 million.
Land transformation business
Land transformation - Highlights








metric
3Q18
3Q17
Chg %
9M18
9M17
Chg %
Adjusted EBITDA
$ thousands
n.a
36,227
n.a
Adjusted EBIT
$ thousands
n.a
36,227
n.a
Land sold
Hectares
n.a
9,300
n.a
Adjusted EBITDA for our Land Transformation business during 9M18 totaled $36.2, compared to a null result during 9M17.
During June 2018, we completed the sale of Rio de Janeiro and Conquista farms, located in western Bahia and Tocantins, respectively. The aggregate selling price reached $53.0 million for a total of 9,300 croppable hectares. The selling price represent a 37% premium to the latest Cushman and Wakefield´s independent appraisal, as of September 30, 2017.
Over the last 12 years, we have been able to generate gains of over $200 million by strategically selling at least one of our fully mature farms per year. Monetizing a portion our land transformation gains allows us to redeploy the capital into higher yielding activities, enabling us to continue growing and enhancing shareholder value.




16

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Operational Performance

Sugar, Ethanol & Energy - Selected Information



metric
3Q18
3Q17
Chg %
9M18
9M17
Chg %
Milling







Sugarcane Milled
tons
3,295,659
4,116,044
(19.9)%
8,611,975
8,040,480
7.1%
Own Cane
tons
3,005,049
3,529,781
(14.9)%
8,103,449
7,100,094
14.1%
Third Party Cane
tons
290,610
586,263
(50.4)%
508,526
940,386
(45.9)%
Production







TRS Equivalent Produced
tons
487,941
584,646
(16.5)%
1,151,316
1,050,732
9.6%
Sugar
tons
140,770
267,674
(47.4)%
282,474
470,129
(39.9)%
Ethanol
M3
200,390
178,363
12.3%
504,116
327,778
53.8%
Hydrous Ethanol
M3
133,070
97,773
36.1%
352,301
192,106
83.4%
Anhydrous Ethanol
M3
67,320
80,590
(16.5)%
151,815
135,672
11.9%
Sugar mix in production
%
33%
48%
(30.8)%
28%
47%
(40.1)%
Ethanol mix in production
%
67%
52%
28.3%
72%
53%
35.2%
Energy Exported (sold to grid)
MWh
252,781
273,804
(7.7)%
554,211
543,583
2.0%
Cogen efficiency (KWh sold per ton crushed)
KWh/ton
76.7
66.5
15.3%
64.4
67.6
(4.8)%
Agricultural Metrics







Harvested own sugarcane
tons
3,005,049
3,529,781
(14.9)%
8,103,449
7,100,094
14.1%
Harvested area
Hectares
37,015
44,059
(16.0)%
90,221
84,249
7.1%
Yield
tons/hectare
81.2
80.1
1.3%
89.8
84.3
6.6%
TRS content
kg/ton
143.3
137.7
4.1%
128.7
127.2
1.2%
TRS per hectare
kg/hectare
11,635
11,030
5.5%
11,563
10,722
7.8%
Mechanized harvest
%
98.3%
98.2%
0.1%
98.6%
98.3%
0.3%
Area







Sugarcane Plantation
hectares
151,597
142,133
6.7%
151,597
142,133
6.7%
Expansion & Renewal Area
hectares
8,095
7,503
7.9%
23,599
17,881
32.0%

Year-to-date, a total of 8.6 million tons of sugarcane were crushed, 7.1% higher compared to the same period of last year. Considering crushing volumes during the third quarter, the increase during the first nine months is entirely explained by what happened during the first half of the year.

On a quarterly basis, sugarcane milling marked a 19.9% decrease compared to 3Q17, reaching 3.3 million tons. This was mainly explained by the reduction in effective milling days due to weather related issues. A total of 323 mm of water fell during 3Q18 in the region, 57.9% higher compared to 3Q17.



17

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Production mix continued to favor ethanol to profit from higher relative prices. During the first nine months of the year, hydrous and anhydrous ethanol traded at a 29.0% and 34.5% premium to sugar. 72% of total TRS produced was slanted towards ethanol, compared to 53% in 9M17. This explains, the 53.8% increase in total ethanol production, reaching 504 thousand cubic meters. Sugar production totaled 282 thousand tons, 39.9% lower year-over-year.

In terms of agricultural productivity, sugarcane yields during the nine-month period reached 89.8 tons/ha, 6.6% higher than the previous year, while TRS content per ton of sugarcane reached 128.7 kg/ton. The combination of these two effects resulted in TRS production per hectare of 11.6 thousand , 7.8% higher year-over-year. Higher yields were mainly explained by: (i) above average rainfalls, which favored cane development; and (ii) a longer growth cycle for a greater proportion of the sugarcane harvested in 2018 than the sugarcane harvested in 2017.
Exported energy during the quarter totaled 252,781 MWh, marking a 7.7% decrease year-over-year. The 19.9% reduction in crushing volumes was partially offset by (i) the large bagasse availability carried over from the previous quarter; coupled with (ii) enhanced efficiencies at an industry level. This explains, at the same time, the 15.3% increase in cogeneration efficiency. On a year-to-date basis, total exported energy marked a slight increase, reaching 554,211 MWh.
As of September 30, 2018, our sugarcane plantation consisted of 151,597 hectares, 6.7% higher year-over-year. Sugarcane planting continues to be a key strategy to supply our mills with quality raw material at low cost. During 3Q18 we planted a total of 8,095 hectares of sugarcane. Of this total area, 2,361 hectares correspond to expansion areas planted to supply our growing milling capacity and 5,734 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.


18

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Financial Performance
Sugar, Ethanol & Energy - Highlights






$ thousands
3Q18
3Q17
Chg %
9M18
9M17
Chg %
Net Sales  (1)
127,228
170,451
(25.4)%
328,496
404,150
(18.7)%
Margin on Manufacturing and Agricultural Act. Before Opex
35,141
54,041
(35.0)%
103,907
101,848
2.0%
Adjusted EBITDA
63,976
74,341
(13.9)%
192,850
165,967
16.2%
Adjusted EBITDA Margin
50.3%
43.6%
15.3%
58.7%
41.1%
43.0%
Adjusted EBITDA Margin (net of third party commercialization)
54.8%
51.2%
7.2%
67.9%
48.0%
41.4%
(1) Net Sales are calculated as Gross Sales net of sales taxes.





Net sales in 3Q18 reached $ 127.2 million , $43.2 million or 25.4% lower than 3Q17. This decrease was primarily driven by the combination of lower sugar and energy selling volumes, coupled with lower sugar and ethanol prices, measured in USD. Ethanol prices in BRL increased by 4.2% during the quarter .
Adjusted EBITDA during 3Q18 was $ 64.0 million , 13.9% lower compared to 3Q17. Adjusted EBITDA was positively affected by: (i) a 14% reduction in total production costs, on a per unit basis, a a result of enhanced agricultural and industrial efficiencies, coupled with the depreciation of the Brazilian Real; (ii) $14.2 million higher gain derived from the mark-to-market of our commodity hedge position. These positive effects were offset by lower sales coupled with a $16.2 million loss from the fair value of the unharvested cane
On a cumulative basis, Adjusted EBITDA in 9M18 grew by 16.2% reaching $ 192.9 million . Main drivers for the increase are explained by a reduction in cost of production coupled with and increase of other operating income and partially offset by a decrease in sales.

19

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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)


3Q18
3Q17
Chg %

3Q18
3Q17
Chg %

3Q18
3Q17
Chg %
Sugar (tons) (2)
42,991
110,552
(61.1)%

158,121
320,612
(50.7)%

272
345
(21.2)%
Ethanol (cubic meters)
64,469
36,889
74.8%

169,588
81,123
109.1%

380
455
(16.4)%
Energy (Mwh) (3)
19,769
23,011
(14.1)%

277,658
328,887
(15.6)%

71
70
1.8%
TOTAL
127,228
170,451
(25.4)%









$ thousands


Units



($/unit)


9M18
9M17
Chg %

9M18
9M17
Chg %

9M18
9M17
Chg %
Sugar (tons) (2)
95,076
232,149
(59.0)%

318,330
606,654
(47.5)%

299
383
(22.0)%
Ethanol (cubic meters)
194,067
131,623
47.4%

424,140
268,199
58.1%

458
491
(6.8)%
Energy (Mwh) (3)
39,352
40,377
(2.5)%

581,787
647,009
(10.1)%

68
62
8.4%
TOTAL
328,496
404,150
(18.7)%








(1) Net Sales are calculated as Gross Sales net of ICMS, PIS, COFINS, INSS and IPI taxes.
 



(2) Includes commercialization of third party sugar: 22.3k tons ($8.5m) in 3Q18 and 72.7k tons ($26.0.8m) in 3Q17; 82.1k tons ($32.4m) in 9M18 and 149.6k tons ($60.6m) in 9M17
(3) Includes commercialization of energy from third parties.




On a quarterly basis, ethanol selling volumes increased 109.1% . This increase reflects our strategic decision to maximize ethanol production to profit from higher relative prices. Hydrous and anhydrous ethanol traded, during the nine-month period, at a 29.0% and a 34.5% premium to VHP sugar. Measured in U.S. dollars, ethanol prices decreased 16.4% year-over-year, less than the 25% depreciation of the Brazilian Real. Compared to the same period of last year, we are executing a more aggressive carry strategy aiming to profit from higher prices during the inter-harvest season.
In the case of energy, selling volumes reached 277,658 MWh, a 15.6% decrease. This is mainly explained by lower crushing activities; partially offset by (i) bagasse inventories carried from the first semester, (ii) enhanced efficiencies, coupled with (iii) a commercial effort to maximize energy sales in order to capture higher selling prices. We expect prices to remain at attractive levels, despite the recent drop in spot prices, in the wake of increasing demand and lower levels of water reservoirs in the south-east region of Brazil.
Sugar sales volumes reached 158,121 tons, 50.7% lower year-over-year. Average realized selling prices reached $254/ton, 21.2% lower compared to 3Q17. Lower prices are primarily explained by global supply and demand. In the case of India, for instance the government has officially announced its subsidies policies for exports and cane production, and on top of that it has increased its export quota from 3 to 5 million tons. As a result, net sales reached $ 43.0 million , 61.1% lower compared to the same period of last year.


20

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Sugar, Ethanol & Energy - Total Production Costs
 
 
 
 
 
Total Cost (´000)
 
Total Cost per Pound (cts/lbs)
 
3Q18
3Q17
Chg %
 
3Q18
3Q17
Chg %
Industrial costs
27,428
42,228
(35)%
 
2.8
3.5
(22.1)%
Industrial costs
21,132
25,021
(15.5)%
 
2.1
2.1
1.3%
Cane from 3rd parties
6,296
17,207
(63.4)%
 
0.6
1.4
(56.1)%
Agricultural costs
70,155
93,914
(25.3)%
 
7
7.9
(10.4)%
Harvest costs
30,068
40,065
(25)%
 
3
3.4
(10)%
Cane depreciation
17,027
22,158
(23.2%)
 
1.7
1.9
(7.8)%
Agricultural Partnership Costs
9,419
17,078
(44.8)%
 
0.9
1.4
(33.8)%
Maintenance costs
13,640
14,612
(6.7)%
 
1.4
1.2
12%
Total Production Costs
97,583
136,142
(28.3)%
 
9.8
11.4
(14)%
Depreciation & Amortization
(39,736)
(51,689)
(23.1%)
 
(4)
(4.3)
(7.8%)
Total Production Costs (excl. D&A)
57,847
84,452
(31.5)%
 
5.8
7.1
(17.8)%
 
 
 
 
 
 
 
 
Sugar, Ethanol & Energy - Total Production Costs
 
 
 
 
 
Total Cost (´000)
 
Total Cost per Pound (cts/lbs)
 
9M18
9M17
Chg %
 
9M18
9M17
Chg %
Industrial costs
64,720
78,255
(17.3)%
 
2.8
3.3
(16.6)%
Industrial costs
53,677
51,961
3.3%
 
2.3
2.4
(4.7)%
Cane from 3rd parties
11,043
26,295
(58.0)%
 
0.5
1.2
(61.3)%
Agricultural costs
191,182
199,734
(4.3)%
 
8.2
9.3
(11.7)%
Harvest costs
77,351
83,520
(7.4)%
 
3.3
3.9
(14.5)%
Cane depreciation
45,091
42,112
7.1%
 
1.9
2.0
(1.2)%
Agricultural Partnership Costs
25,646
32,273
(20.5)%
 
1.1
1.5
(26.7%)
Maintenance costs
43,093
41,828
3.0%
 
1.8
1.9
(4.9)%
Total Production Costs
255,902
277,989
(7.9)%
 
10.9
12.6
(13.0)%
Depreciation & Amortization
(106,355)
(104,723)
1.6%
 
(4.5)
(4.9)
(6.3%)
Total Production Costs (excl. D&A)
149,547
173,266
(13.7)%
 
6.4
7.7
(17.2)%
As shown in the table above, total production costs excluding depreciation and amortization fell a 17.2%, on a per unit basis. This decrease was explained by: (i) enhanced agricultural efficiencies that contributed to reduce harvest costs, (ii) lower sugar prices which resulted in a reduction in Consecana price and thus, in our agricultural partnership costs; and (iii) a reduction in the share of third party cane. Unit costs, measured in U.S. dollars, were further reduced by the year-over-year depreciation of the Brazilian Real.

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Sugar, Ethanol & Energy - Changes in Fair Value
 
 


$ thousands
3Q18
3Q17
Chg %

9M18
9M17
Chg %
Sugarcane Valuation Model current period
54,575
68,865
(20.8)%

54,575
68,865
(20.8%)
Sugarcane Valuation Model previous period
70,785
71,017
(0.3)%

93,177
82,380
13.1%
Total Changes in Fair Value
(16,210)
(2,152)
653.1%

(38,603)
(13,515)
185.6%


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 $2.3 million loss. This loss is mainly attributable to a decrease in Consecana price as a result of sugar price dynamics. On a year to date basis, there was a $ 38.6 million loss in line with the explanation for the quarter.
Corporate Expenses

Corporate Expenses






$ thousands
3Q18
3Q17
Chg %
9M18
9M17
Chg %
Corporate Expenses
(4,726)
(5,999)
(21.2)%
(14,686)
(16,329)
(10.1)%
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 3Q18 were $ 4.7 million , 21.2% lower compared to 3Q17, mainly as a result of the depreciation of the Brazilian Real and the Argentine peso.


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Other Operating Income
Other Operating Income






$ thousands
3Q18

3Q17

Chg %

9M18

9M17

Chg %

Gain from the sale of subsidiaries
123


n.a.

36,350


n.a.

Gain / (Loss) from commodity derivative financial instruments
19,840

2,080

853.8
 %
51,982

40,833

27.3
 %
Gain from disposal of other property items
(160
)
89

(279.8
)%
(217
)
(529
)
(59.0
)%
Net Gain from FV Adjustement in Investment Property
2,465

1,753

40.6
 %
18,457

3,634

407.9
 %
Other
(111.313
)
976

n.a.

1,206

(904
)
n.a.

Total
37,891

5,015

656
 %
107,520

43,034

149.8
 %
Other Operating Income on a year-to-date basis reported a gain of $ 107.5 million , 149.8% or $64.5 million higher than the same period of last year. This increase is mainly attributable to the proceeds from the sale of Rio de Janeiro and Conquista farms coupled with a higher gain derived from the mark-to-market of our sugar hedge position.



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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.

Commodity Hedge Position - as of September 30, 2018


Consolidated Hedge Position
Farming

Avg. FAS Price
CBOT FOB

Volume  (1)
USD/Ton
USD/Bu
2017/2018 Harvest season



Soybeans
146,372
278.5
994.5
Corn
106,765
162.8
476.1
2018/2019 Harvest season



Soybeans
17,965
288.0
994.5
Corn
106,765
162.8
476.1





Consolidated Hedge Position
Sugar, Ethanol & Energy

Avg. FOB Price
ICE FOB

Volume  (1)
USD/Unit
Cents/Lb
2018/2019 Harvest season (2017/18 for ethanol)



Sugar (tons)
363,626
380.6
17.3
Ethanol (m3)
369,452
434.5
n.a
Energy (MW/h)  
751,015
71.1
n.a
2019/2020 Harvest season (2018/19 for ethanol)



Sugar (tons)
147,320
328.0
14.9
Ethanol (m3)
-
-
-
Energy (MW/h)  
477,478
64.2
n.a



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Financial Results
Financial Results






$ thousands
3Q18

3Q17

Chg %

9M18

9M17

Chg %

Interest Expenses, net
(7,381
)
(10,730
)
(31.2
)%
(30,543
)
(31,507
)
(3.1
)%
Cash Flow Hedge - Transfer from Equity
(519
)
(7,369
)
(93.0
)%
(7,846
)
(10,689
)
(26.6
)%
FX (Losses), net
(62,932
)
(6,627
)
 n.m

(188,204
)
(18,510
)
 n.m

Gain/loss from derivative financial Instruments
923

143

545.5
 %
(5,836
)
(2,052
)
184.4
 %
Taxes
(13
)
(972
)
(98.7
)%
(2,081
)
(2,276
)
(8.6
)%
Inflation accounting effects
50,370


 n.a.

50,370


 n.a.

Other Expenses, net
(1,080
)
(2,194
)
(50.8
)%
(1,338
)
(2,903
)
(53.9
)%
Total Financial Results
(20,632
)
(27,749
)
(25.6
)%
(185,478
)
(67,937
)
173
 %

Our net financial results in 3Q18 presented a loss of $20.6 million , compared to a loss of $27.7 million in the same period of last year. The financial results loss is primarily composed of (i) foreign exchange losses, (ii) net interest expenses; and (iii) inflation accounting effects as described below:
(i)
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 dollar denominated monetary assets and liabilities. As a result of the sharp depreciations experienced by the Argentina Peso and Brazilian Real (43.0% and 3.8%, respectively) during 3Q18, foreign exchange losses stood at $63.5 , marking a $49.5 higher loss compared to 3Q17. It´s worth highlighting that these results are non-cash in nature and represent no equity loss, in US dollar.

(ii)
Interest expenses: our net interest expenses in 3Q18 were $7.4 million , 25.6% lower year-over-year. This difference is mainly explained by the depreciation of the Brazilian Real, coupled with a lower average debt compared to 3Q17.

(iii)
Inflation accounting effects reflect the results derived from the exposure of our net monetary position to inflation. In this line, monetary assets generate a loss when exposed to inflation while monetary liabilities generate a gain, every time inflation reduces the owed balance, in real terms. During 3Q18, since we had a negative net monetary position (monetary liabilities were higher than monetary assets), we registered a $50.4 million gain.

(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.

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Indebtedness
Net Debt Breakdown





$ thousands
3Q18
2Q18
Chg %
3Q17
Chg %
Farming
179,813
177,307
1.4%
165,989
8.3%
Short term Debt
94,446
86,210
9.6%
115,946
(18.5)%
Long term Debt
85,367
91,097
(6.3)%
50,043
70.6%
Sugar, Ethanol & Energy
635,319
633,614
0.3%
641,301
(0.9)%
Short term Debt
71,633
59,212
21.0%
67,226
6.6%
Long term Debt
563,686
574,402
(1.9)%
574,075
(1.8)%
Bond Proceeds at Holding
 n.a
301,587
(100.0)%
Total Short term Debt
166,079
145,422
14.2%
183,172
(9.3)%
Total Long term Debt
649,053
665,498
(2.5)%
925,705
(29.9)%
Gross Debt
815,132
810,920
0.5%
1,108,877
(26.5)%
Cash & Equivalents
180,829
144,708
25.0%
523,175
(65.4)%
Net Debt
634,303
666,212
(4.8)%
585,702
8.3%
EOP Net Debt / Adj. EBITDA LTM
1.73x
1.83x
(5.9)%
1.95x
(11.3)%

Adecoagro’s consolidated gross debt as of 3Q18 stood at $ 815.1 million , 26.5% lower year-over-year. As of September 30 th ,2017, $ 301.6 million out of the $500 million bond proceeds remained in our cash balance. $251.6 million were subsequently used to keep refinancing our existing debt and extending debt maturity.
Net debt as of 3Q18 was $ 634.3 million , 4.8% lower and 8.3% higher than 2Q18 and 3Q17, respectively. Adjusted by the excess cash balance from the bond proceeds as of September 30 th 2017; the $48.6 million increase in net debt from a yearly perspective is primarily driven by a $7.8 million higher gross debt, mainly explained by our investment program, coupled with a $40.8 million reduction in cash & equivalents mainly as a result of lower sales proceeds from crops sales as a consequence of lower selling volumes because of the drought,
Due to the growth in Adjusted EBITDA, however, Net debt ratio (Net debt / LTM Adj. EBITDA) reached 1.73x , 11.3% lower year-over-year.

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Capital Expenditures & Investments

Capital Expenditu res & Investments






$ thousands
3Q18
3Q17
Chg %
9M18
9M17
Chg %
Farming & L and Transformation
22,664
4,575
395.4%
33,700
11,935
182.4%
Expansion
21,100
3,165
566.8%
30,856
7,853
292.9%
Maintenance
1,564
1,410
10.9%
2,844
4,082
(30.3)%
Sugar, Ethanol & Energy
91,380
32,168
184.1%
131,484
131,229
0.2%
Maintenance
70,637
18,741
276.9%
98,717
99,224
(0.5)%
Planting
31,239
16,833
85.6%
45,658
40,001
14.1%
Industrial & Agricultural Machinery
39,398
1,908
1,964.9%
53,058
59,223
(10.4)%
Expansion
20,744
13,427
54.5%
32,768
32,005
2.4%
Planting
13,303
7,946
67.4%
24,965
21,606
15.5%
Industrial & Agricultural Machinery
7,441
5,481
35.7%
7,802
10,399
(25.0)%
Total
114,045
36,743
210.4%
165,184
143,164
15.4%
Adecoagro’s capital expenditures during during 9M18 totaled $ 165.2 million , 15.4% higher compared to the same period of last year.
The Sugar, Ethanol and Energy business accounted for 79.6% or $ 131.5 million of total capex. Expansion capex reached $ 32.8 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, in turn, reached $ 98.7 million million, in line with the previous year.
Farming & Land Transformation businesses accounted for 20.5% or $ 33.7 million of total capex in 9M18. The increase is mainly driven by the expansion capex in the Dairy and Rice businesses. We completed the construction of our third free stall last quarter and during this quarter we started operating and populating it. In our Rice business, the main projects that account for the increase are the construction of the parboil plant and a packaging machine. With these investments, we expect to enhance industrial efficiencies and capture higher margins.

 




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Inventories
End of Period Inventories
 
 
 
 
Volume
 
thousand $
Product
Metric
3Q18
3Q17
% Chg
 
3Q18
3Q17
% Chg
Soybean
tons
67,138
96,735
(30.6)%

17,139
24,162
(29.1)%
Corn  (1)
tons
96,454
56,965
69.3%

11,847
7,207
64.4%
Wheat  (2)
tons
7,770
15,127
(48.6)%

1,775
2,143
(17.2)%
Sunflower
tons
2,180
16
n.m.

735
6
n.m.
Rough Rice (3)
tons
25,333
54,287
(53.3)%

3,060
11,633
(73.7)%
Sugar
tons
52,892
66,080
(20.0)%

11,433
17,139
(33.3)%
Ethanol
m3
144,817
135,771
6.7%

47,817
70,469
(32.1)%
Total
 
397,056
424,982
(6.6)%

94,255
132,757
(29.0)%
(1) Includes sorghum.
(2) Includes barley.
(3) Expressed in rough rice equivalent

Variations in inventory levels between 3Q18 and 3Q17 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.



















28

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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
Adjusted Net Income

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 believe these non-GAAP 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 allow for greater transparency with respect to key metrics used by management for financial and operational decision making and as a means to evaluate period-to-period.
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 and exchange differences generated by the net liability monetary position in USD in the countries where the functional currency is the local currency, 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, excluding the revaluation result of the hectares hold as investment property, 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

30

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line item “Reserve from the sale of minority interests in subsidiaries.” Revaluation results from the farmland held as Property, Plant & Equipment
We define “Adjusted Consolidated EBITDA” 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.
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 39.

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.    

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Reconciliation - Net Debt
 
 
 
 
 
 
 
 
 
 
$ thousands
 
3Q18

 
2Q 18

 
% Chg

 
3Q17

 
% Chg

Total Borrowings
 
815,132

 
810,920

 
0.5
 %
 
1,108,877

 
(26.5
)%
Cash and Cash equivalents
 
180,829

 
144,708

 
25.0
 %
 
523,175

 
(65.4
)%
Net Debt
 
634,303

 
666,212

 
(4.8
)%
 
585,702

 
8.3
 %
Adjusted Net Income
We define Adjusted Net Income as (i) Profit/ (Loss) of the period/year before net gain from fair value adjustments of investment property land; plus (ii) any non-cash finance costs resulting from foreign exchange gain/losses for such period, which are composed by both Exchange Differences and Cash Flow Hedge Transfer from Equity, included in Financial Results, net, in our statement of income; net of the related income tax effects, plus (iii) 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”, plus (iv) the reversal of the aforementioned income tax effect, plus (v) any inflation accounting effect; plus (vi) the net increase in value of sold farmland, which has been recognized in either Revaluation surplus or Retained earnings, net of the related income tax effect.
We believe that Adjusted Net Income is an important measure of performance for our company allowing investors to properly assess the impact of the results of our operations in our Equity. In effect, results arising from the revaluation effect of our net monetary position held in foreign currency in the countries where our functional currency is the local currency do not affect the Equity of the Company, when measured in foreign / reporting currency. Conversely, the tax effect resulting from the aforementioned revaluation effect does impact the Equity of the Company, since it reduces/increases the income tax to be paid in each country; which is why we decided to add back the income tax effect to the Adjusted Net Income considering this tax effect.
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 include the full value and returns generated by our land transformation activities.
Other companies may calculate Adjusted Net Income differently, and therefore our Adjusted Net Income may not be comparable to similarly titled measures used by other companies. Adjusted Net Income is not a measures of financial performance under IFRS, and should not be considered in isolation or as an alternative to consolidated net profit (loss). This non-IFRS measure should be considered in addition to, but not as a substitute for or superior to, the information contained in our financial statements.


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Adjusted Net Income






$ thousands
3Q18

3Q17

Chg %

9M18

9M17

Chg %

Net Income
3,496

(1,644
)
n.a

(18,978
)
9,535

n.a

Foreign exchange losses, net
62,932

6,627

850
 %
188,204

18,510

917
 %
Cash flow hedge - transfer from equity
519

7,369

(93
)%
7,846

10,689

(27
)%
Income tax effect on Exchange Differences and Cash Flow Hedge
(19,992
)
(4,616
)
333
 %
(62,588
)
(9,392
)
566
 %
Inflation Accounting Effects
(50,370
)

n.a

(50,370
)

n.a

Revaluation Result - Investment Property
(2,465
)
(1,753
)

(18,457
)
(3,634
)

Reverse of Income tax effect on Exchange Differences and Cash Flow Hedge
19,992

4,616

333
 %
62,588

9,392


Adjusted Net Income
14,112

10,599

33
 %
108,245

35,100

208
 %

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Adjusted EBIT & Adjusted EBITDA Reconciliation to Profit/Loss - 3Q18
$ thousands
 
Crops
Rice
Dairy
Others
Farming
 
Sugar, Ethanol & Energy
 
Land Transformation
 
Corporate
 
 Total
Sales of manufactured products and services rendered
 
34,804

31,271

8,577

344

74,996

 
137,957

 

 

 
212,953

Cost of manufactured products sold and services rendered
 
(34,860
)
(19,764
)
(7,998
)
(221
)
(62,844
)
 
(94,437
)
 

 

 
(157,281
)
Initial recog. and changes in FV of BA and agricultural produce
 
3,757

489

763

(460
)
4,549

 
(8,379
)
 

 

 
(3,830
)
Gain from changes in NRV of agricultural produce after harvest
 
7,236




7,236

 

 

 

 
7,236

Gross Profit from Agricultural Activities
 
10,937

11,996

1,342

(337
)
23,937

 
35,141

 

 

 
59,078

General and administrative expenses
 
(1,071
)
(985
)
882

(9
)
(1,183
)
 
(6,146
)
 

 
(4,652
)
 
(11,981
)
Selling expenses
 
(1,504
)
(4,952
)
(216
)
(1
)
(6,673
)
 
(19,126
)
 

 
(67
)
 
(25,866
)
Other operating income, net
 
4,120

(35
)
(1,109
)

2,976

 
14,371

 

 
(7
)
 
17,340

Share of gain/(loss) of joint ventures
 





 

 

 

 

Profit from Operations Before Financing and Taxation
 
12,482

6,024

899

(347
)
19,057

 
24,240

 

 
(4,726
)
 
38,571

Reserve from the sale of minority interests in subsidiaries
 





 

 

 

 

Adjusted EBIT
 
12,482

6,024

899

(347
)
19,057

 
24,240

 

 
(4,726
)
 
38,571

(-) Depreciation PPE
 
305

731

283

15

1,334

 
39,736

 

 

 
41,070

Adjusted EBITDA
 
12,787

6,755

1,182

(332
)
20,391

 
63,976

 

 
(4,726
)
 
79,641

Reconciliation to Profit/(Loss)
 
 
 
 
 
 
 
 
 
 
 
 
 

Adjusted EBITDA
 
 
 
 
 
 
 
 
 
 
 
 
 
79,641

Reserve from the sale of minority interests in subsidiaries
 
 
 
 
 
 
 
 
 

(+) Depreciation PPE
 
 
 
 
 
 
 
 
 
 
 
 
 
(41,070
)
(+) Financial result, net
 
 
 
 
 
 
 
 
 
 
 
 
 
(20,632
)
(+) Revaluation Result - Investment Property
 
 
 
 
 
 
 
 
 
 
 
 
 
2,465

(+) Income Tax (Charge)/Benefit
 
 
 
 
 
 
 
 
 
 
 
 
 
(10,889
)
(+) Translation Effect (IAS 21)
 
 
 
 
 
 
 
 
 
 
 
 
 
(6,019
)
Profit/(Loss) for the Period
 
 
 
 
 
 
 
 
 
 
 
 
 
3,496




34

HEADERWORKIVA.JPG

Adjusted EBIT & Adjusted EBITDA Reconciliation to Profit/Loss - 3Q17
$ thousands
 
Crops
Rice
Dairy
Others
Farming
 
Sugar, Ethanol & Energy
 
Land Transformation
 
Corporate
 
 Total
Sales of manufactured products and services rendered
 
59,201

16,219

8,931

375

84,726

 
178,262

 

 

 
262,988

Cost of manufactured products sold and services rendered
 
(58,663
)
(12,431
)
(8,933
)
(149
)
(80,176
)
 
(126,714
)
 

 

 
(206,890
)
Initial recog. and changes in FV of BA and agricultural produce
 
(3,892
)
432

2,898

(407
)
(969
)
 
2,493

 

 

 
1,524

Gain from changes in NRV of agricultural produce after harvest
 
4,843




4,843

 

 

 

 
4,843

Gross Profit from Agricultural Activities
 
1,489

4,220

2,896

(181
)
8,424

 
54,041

 

 

 
62,465

General and administrative expenses
 
(767
)
(1,105
)
(246
)
(42
)
(2,160
)
 
(7,866
)
 

 
(5,956
)
 
(15,982
)
Selling expenses
 
(2,304
)
(2,320
)
(199
)
14

(4,809
)
 
(22,840
)
 

 
(32
)
 
(27,681
)
Other operating income, net
 
3,862

(14
)
108


3,956

 
(683
)
 

 
(11
)
 
3,262

Share of gain/(loss) of joint ventures
 





 

 

 

 

Profit from Operations Before Financing and Taxation
 
2,280

781

2,559

(209
)
5,411

 
22,652

 

 
(5,999
)
 
22,064

Reserve from the sale of minority interests in subsidiaries
 





 

 

 

 

Adjusted EBIT
 
2,280

781

2,559

(209
)
5,411

 
22,652

 

 
(5,999
)
 
22,064

(-) Depreciation PPE
 
348

911

243

29

1,531

 
51,689

 

 

 
53,220

Adjusted EBITDA
 
2,628

1,692

2,802

(180
)
6,942

 
74,341

 

 
(5,999
)
 
75,284

Reconciliation to Profit/(Loss)
 
 
 
 
 
 
 
 
 
 
 
 
 

Adjusted EBITDA
 
 
 
 
 
 
 
 
 
 
 
 
 
75,284

Reserve from the sale of minority interests in subsidiaries
 
 
 
 
 
 
 
 
 

(+) Depreciation PPE
 
 
 
 
 
 
 
 
 
 
 
 
 
(53,220
)
(+) Financial result, net
 
 
 
 
 
 
 
 
 
 
 
 
 
(27,749
)
(+) Revaluation Result - Investment Property
 
 
 
 
 
 
 
 
 
 
 
 
 
1,753

(+) Income Tax (Charge)/Benefit
 
 
 
 
 
 
 
 
 
 
 
 
 
2,288

(+) Translation Effect (IAS 21)
 
 
 
 
 
 
 
 
 
 
 
 
 

Profit/(Loss) for the Period
 
 
 
 
 
 
 
 
 
 
 
 
 
(1,644
)


35

HEADERWORKIVA.JPG

Adjusted EBIT & Adjusted EBITDA Reconciliation to Profit/Loss - 9M18
$ thousands
 
Crops
Rice
Dairy
Others
Farming
 
Sugar, Ethanol & Energy
 
Land Transformation
 
Corporate
 
 Total
Sales of manufactured products and services rendered
 
115,316

87,482

24,184

1,148

228,130

 
356,309

 

 

 
584,439

Cost of manufactured products sold and services rendered
 
(115,449
)
(66,037
)
(22,977
)
(761
)
(205,225
)
 
(237,551
)
 

 

 
(442,776
)
Initial recog. and changes in FV of BA and agricultural produce
 
27,530

13,192

6,263

(456
)
46,529

 
(14,851
)
 

 

 
31,678

Gain from changes in NRV of agricultural produce after harvest
 
14,584




14,584

 

 

 

 
14,584

Gross Profit from Agricultural Activities
 
41,980

34,637

7,471

(70
)
84,018

 
103,907

 

 

 
187,925

General and administrative expenses
 
(3,111
)
(3,443
)
(611
)
(59
)
(7,224
)
 
(20,181
)
 

 
(14,460
)
 
(41,865
)
Selling expenses
 
(4,499
)
(12,920
)
(417
)
(91
)
(17,927
)
 
(47,456
)
 

 
(127
)
 
(65,510
)
Other operating income, net
 
1,518

247

(1,147
)
(2
)
616

 
50,225

 
36,227

 
(99
)
 
86,969

Share of gain/(loss) of joint ventures
 





 

 

 

 

Profit from Operations Before Financing and Taxation
 
35,888

18,521

5,296

(222
)
59,483

 
86,495

 
36,227

 
(14,686
)
 
167,519

Reserve from the sale of minority interests in subsidiaries
 





 

 

 

 

Adjusted EBIT
 
35,888

18,521

5,296

(222
)
59,483

 
86,495

 
36,227

 
(14,686
)
 
167,519

(-) Depreciation PPE
 
1,102

2,690

844

76

4,712

 
106,355

 

 

 
111,067

Adjusted EBITDA
 
36,990

21,211

6,140

(146
)
64,195

 
192,850

 
36,227

 
(14,686
)
 
278,586

Reconciliation to Profit/(Loss)
 
 
 
 
 
 
 
 
 
 
 
 
 

Adjusted EBITDA
 
 
 
 
 
 
 
 
 
 
 
 
 
278,586

Reserve from the sale of minority interests in subsidiaries
 
 
 
 
 
 
 
 
 

(+) Depreciation PPE
 
 
 
 
 
 
 
 
 
 
 
 
 
(111,067
)
(+) Financial result, net
 
 
 
 
 
 
 
 
 
 
 
 
 
(185,478
)
(+) Revaluation Result - Investment Property
 
 
 
 
 
 
 
 
 
 
 
 
 
18,457

(+) Income Tax (Charge)/Benefit
 
 
 
 
 
 
 
 
 
 
 
 
 
3,151

(+) Translation Effect (IAS 21)
 
 
 
 
 
 
 
 
 
 
 
 
 
(22,627
)
Profit/(Loss) for the Period
 
 
 
 
 
 
 
 
 
 
 
 
 
(18,978
)


36

HEADERWORKIVA.JPG

Adjusted EBIT & Adjusted EBITDA Reconciliation to Profit/Loss - 9M17
$ thousands
 
Crops
Rice
Dairy
Others
Farming
 
Sugar, Ethanol & Energy
 
Land Transformation
 
Corporate
 
 Total
Sales of manufactured products and services rendered
 
144,097

59,497

28,253

813

232,660

 
424,949

 

 

 
657,609

Cost of manufactured products sold and services rendered
 
(143,355
)
(50,133
)
(27,921
)
(324
)
(221,733
)
 
(320,466
)
 

 

 
(542,199
)
Initial recog. and changes in FV of BA and agricultural produce
 
13,451

6,228

7,426

(244
)
26,861

 
(2,635
)
 

 

 
24,226

Gain from changes in NRV of agricultural produce after harvest
 
8,036




8,036

 

 

 

 
8,036

Gross Profit from Agricultural Activities
 
22,229

15,592

7,758

245

45,824

 
101,848

 

 

 
147,672

General and administrative expenses
 
(2,168
)
(3,384
)
(742
)
(130
)
(6,424
)
 
(21,850
)
 

 
(16,209
)
 
(44,483
)
Selling expenses
 
(5,250
)
(8,721
)
(667
)
(39
)
(14,677
)
 
(49,990
)
 

 
(91
)
 
(64,758
)
Other operating income, net
 
7,201

623

530

(161
)
8,193

 
31,236

 

 
(29
)
 
39,400

Share of gain/(loss) of joint ventures
 





 

 

 

 

Profit from Operations Before Financing and Taxation
 
22,012

4,110

6,879

(85
)
32,916

 
61,244

 

 
(16,329
)
 
77,831

Reserve from the sale of minority interests in subsidiaries
 





 

 

 

 

Adjusted EBIT
 
22,012

4,110

6,879

(85
)
32,916

 
61,244

 

 
(16,329
)
 
77,831

(-) Depreciation PPE
 
1,040

2,797

737

89

4,663

 
104,723

 

 

 
109,386

Adjusted EBITDA
 
23052
6,907

7616
4

37579
 
165967
 

 
(16,329
)
 
187,217

Reconciliation to Profit/(Loss)
 
 
 
 
 
 
 
 
 
 
 
 
 
0
Adjusted EBITDA
 
 
 
 
 
 
 
 
 
 
 
 
 
187,217

Reserve from the sale of minority interests in subsidiaries
 
 
 
 
 
 
 
 
 

(+) Depreciation PPE
 
 
 
 
 
 
 
 
 
 
 
 
 
(109,386
)
(+) Financial result, net
 
 
 
 
 
 
 
 
 
 
 
 
 
(67,937
)
(+) Revaluation Result - Investment Property
 
 
 
 
 
 
 
 
 
 
 
 
 
3,634

(+) Income Tax (Charge)/Benefit
 
 
 
 
 
 
 
 
 
 
 
 
 
(3,993
)
(+) Translation Effect (IAS 21)
 
 
 
 
 
 
 
 
 
 
 
 
 

Profit/(Loss) for the Period
 
 
 
 
 
 
 
 
 
 
 
 
 
9,535








37

HEADERWORKIVA.JPG

Condensed Consolidated Statement of Income
Statement of Income
 
 
 
 
 
 
 
 
 
 
 
$ thousands
3Q18

 
3Q17

 
Chg %

 
9M18

 
9M17

 
Chg %

 
 
 
 
 
 
 
 
 
 
 
 
Sales of goods and services rendered
178,744

 
262,988

 
(32.0
)%
 
550,230

 
657,609

 
(16.3
)%
Cost of goods sold and services rendered
(129,954
)
 
(206,890
)
 
(37.2
)%
 
(415,449
)
 
(542,199
)
 
(23.4
)%
Initial recognition and changes in fair value of biological assets and agricultural produce
(23,369
)
 
1,524

 
(1,633.4
)%
 
12,139

 
24,226

 
(49.9
)%
Changes in net realizable value of agricultural produce after harvest
2,204

 
4,843

 
(54.5
)%
 
9,552

 
8,036

 
18.9
 %
Margin on manufacturing and agricultural activities before operating expenses
27,625

 
62,465

 
(55.8
)%
 
156,472

 
147,672

 
6.0
 %
General and administrative expenses
(9,428
)
 
(15,982
)
 
(41.0
)%
 
(39,312
)
 
(44,483
)
 
(11.6
)%
Selling expenses
(21,688
)
 
(27,681
)
 
(21.7
)%
 
(61,332
)
 
(64,758
)
 
(5.3
)%
Other operating income, net
37,892

 
5,015

 
655.6
 %
 
107,521

 
43,034

 
149.9
 %
Profit from operations before financing and taxation
34,401

 
23,817

 
44.4
 %
 
163,349

 
81,465

 
100.5
 %
Finance income
1,651

 
3,520

 
(53.1
)%
 
6,494

 
8,742

 
(25.7
)%
Finance costs
(72,653
)
 
(31,269
)
 
132.3
 %
 
(242,342
)
 
(76,679
)
 
216.0
 %
Other financial, results
50,370

 

 
 
 
50,370

 

 
 
Financial results, net
(20,632
)
 
(27,749
)
 
(25.6
)%
 
(185,478
)
 
(67,937
)
 
173.0
 %
(Loss)/Profit before income tax
13,769

 
(3,932
)
 
(450.2
)%
 
(22,129
)
 
13,528

 
(263.6
)%
Income tax benefit/(expense)
(10,273
)
 
2,288

 
(549.0
)%
 
3,151

 
(3,993
)
 
(178.9
)%
(Loss)/Profit for the period
3,496

 
(1,644
)
 
(312.7
)%
 
(18,978
)
 
9,535

 
(299.0
)%


38

HEADERWORKIVA.JPG

Condensed Consolidated Interim Statement of Cash Flow
Statement of Cashflows
 
 
 
 
 
 
 
 
 
 
 
$ thousands
3Q18

 
3Q17

 
Chg %

 
9M18

 
9M17

 
Chg %

 
 
 
 
 
 
 
 
 
 
 
 
Cash flows from operating activities:
 
 
 
 
 
 

 

 
 
(Loss)/Profit for the period
3,496

 
(1,644
)
 
(312.7
)%
 
(18,978
)
 
9,535

 
(299.0
)%
Adjustments for :
 
 
 
 
 
 

 

 
 
Income tax (benefit) /expense
10,273

 
(2,288
)
 
(549.0
)%
 
(3,151
)
 
3,993

 
(178.9
)%
Depreciation
42,582

 
52,971

 
(19.6
)%
 
112,056

 
108,721

 
3.1
 %
Amortization
278

 
249

 
11.6
 %
 
801

 
665

 
20.5
 %
Loss from disposal of other property items
160

 
(89
)
 
 %
 
217

 
529

 
 %
Gain from the sale of subsidiaries

 

 
 %
 
(36,227
)
 

 
 %
Net gain from the Fair value adjustment of Investment properties
(18,457
)
 
(1,753
)
 
(100.0
)%
 
(18,457
)
 
(3,634
)
 
(100.0
)%
Equity settled share-based compensation granted
1,208

 
1,417

 
(14.7
)%
 
3,752

 
4,224

 
(11.2
)%
Gain from derivative financial instruments
(21,009
)
 
(2,223
)
 
845.1
 %
 
(46,146
)
 
(38,781
)
 
19.0
 %
Interest and other expense, net
7,792

 
12,549

 
(37.9
)%
 
30,936

 
33,737

 
(8.3
)%
Initial recognition and changes in fair value of non harvested biological assets (unrealized)
15,100

 
5,949

 
153.8
 %
 
7,604

 
8,390

 
(9.4
)%
Changes in net realizable value of agricultural produce after harvest (unrealized)
(3,492
)
 
(2,595
)
 
34.6
 %
 
(11,355
)
 
(3,211
)
 
253.6
 %
Provision and allowances
669

 
375

 
78.4
 %
 
945

 
673

 
40.4
 %
Net gain of inflation effects on the monetary items
(50,370
)
 

 
 %
 
(50,370
)
 

 
 %
Foreign exchange losses, net
62,932

 
6,627

 
849.6
 %
 
188,204

 
18,510

 
916.8
 %
Cash flow hedge – transfer from equity
519

 
7,369

 
(93.0
)%
 
7,846

 
10,689

 
(26.6
)%
Subtotal
51,681

 
76,914

 
(32.8
)%
 
167,677

 
154,040

 
8.9
 %
 
 
 
 
 
 
 
 
 
 
 
 
Changes in operating assets and liabilities:
 
 
 
 
 
 

 

 
 
Increase in trade and other receivables
(58,520
)
 
(19,475
)
 
200.5
 %
 
(112,738
)
 
(48,530
)
 
132.3
 %
Increase in inventories
12,769

 
(27,168
)
 
(147.0
)%
 
(69,716
)
 
(56,892
)
 
22.5
 %
Decrease in biological assets
5,333

 
(1,111
)
 
(580.0
)%
 
37,894

 
24,560

 
54.3
 %
Increase in other assets
(207
)
 
(231
)
 
(10.4
)%
 
(274
)
 
(207
)
 
32.4
 %
Decrease in derivative financial instruments
23,366

 
126

 
18,444.4
 %
 
51,023

 
40,136

 
27.1
 %
Decrease / (increase) in trade and other payables
32,358

 
13,048

 
148.0
 %
 
23,208

 
(19,942
)
 
(216.4
)%
Increase in payroll and social security liabilities
3,503

 
5,690

 
(38.4
)%
 
6,156

 
7,268

 
(15.3
)%
(Increase) / decrease in provisions for other liabilities
(17
)
 
517

 
(103.3
)%
 
(333
)
 
429

 
(177.6
)%
Net cash generated in operating activities before taxes paid
70,266

 
48,310

 
45.4
 %
 
102,897

 
100,862

 
2.0
 %
Income tax paid
(576
)
 
(595
)
 
(3.2
)%
 
(1,473
)
 
(2,248
)
 
(34.5
)%
Net cash generated from operating activities
69,690

 
47,715

 
46.1
 %
 
101,424

 
98,614

 
2.8
 %
 
 
 
 
 
 
 
 
 
 
 
 
Cash flows from investing activities:
 
 
 
 
 
 

 

 
 
 Purchases of property, plant and equipment
(39,549,000
)
 
(36,170
)
 
9.3
 %
 
(152,496
)
 
(142,223
)
 
7.2
 %
 Purchases of cattle and non current biological assets
(432
)
 
(426
)
 
1.4
 %
 
(3,547
)
 
(1,007
)
 
252.2
 %
 Purchases of intangible assets
(210
)
 
(814
)
 
(74.2
)%
 
(2,359
)
 
(1,390
)
 
69.7
 %
 Interest received
1,538

 
3,425

 
(55.1
)%
 
5,780

 
8,446

 
(31.6
)%
 Proceeds from sale of property, plant and equipment
487

 
1,061

 
100.0
 %
 
1,233

 
1,859

 
100.0
 %
 Proceeds from sale of subsidiaries
26,304,000

 

 
 %
 
31,511

 

 
 %
Net cash used in investing activities
(11,862
)
 
(32,924
)
 
(64.0
)%
 
(119,878
)
 
(134,315
)
 
(10.7
)%
 
 
 
 
 
 
 
 
 
 
 
 
Cash flows from financing activities:
 
 
 
 
 
 

 

 
 
Proceeds from equity settled share-based compensation exercise

 
39

 
 %
 

 
39

 
 %
Issuance of senior notes

 
496,151

 
 %
 

 
496,151

 
(100.0
)%
Proceeds from long-term borrowings
(13,512
)
 
40,622

 
(133.3
)%
 
37,217

 
230,391

 
(83.8
)%
Payments of long-term borrowings
13,033

 
(226,148
)
 
(105.8
)%
 
(49,834
)
 
(329,872
)
 
(84.9
)%
Proceeds from short-term borrowings
36,915

 
8,133

 
353.9
 %
 
179,127

 
92,728

 
93.2
 %
Payment of short-term borrowings
(29,121
)
 
(18,961
)
 
53.6
 %
 
(151,667
)
 
(28,492
)
 
432.3
 %
Payments of derivatives financial instruments
(1,588
)
 
55

 
 %
 
(1,230
)
 
(9,364
)
 
'

Interest paid
(17,123
)
 
(10,898
)
 
57.1
 %
 
(43,483
)
 
(33,438
)
 
30.0
 %
Purchase of own shares

 
(2,661
)
 
(100.0
)%
 
(15,725
)
 
(11,342
)
 
38.6
 %
Dividends paid to non-controlling interest

 

 
 %
 
(1,195
)
 
(1,506
)
 
(20.7
)%
Net cash (used)/generated from financing activities
(11,396
)
 
286,332

 
(104.0
)%
 
(46,790
)
 
405,295

 
(111.5
)%
Net decrease in cash and cash equivalents
46,432

 
301,123

 
(84.6
)%
 
(65,244
)
 
369,594

 
(117.7
)%
Cash and cash equivalents at beginning of period
144,708

 
219,934

 
(34.2
)%
 
269,195

 
158,568

 
69.8
 %
Effect of exchange rate changes and inflation on cash and cash equivalents
(10,312
)
 
2,118

 
(586.9
)%
 
(23,123
)
 
(4,987
)
 
363.7
 %
Cash and cash equivalents at end of period
180,828

 
523,175

 
(65.4
)%
 
180,828

 
523,175

 
(65.4
)%


39

HEADERWORKIVA.JPG

Condensed Consolidated Interim Balance Sheet

Statement of Financial Position
 
 
 
 
 
 
$ thousands
 
September 30, 2018
 
December 31, 2017
 
Chg %

ASSETS
 
 
 
 
 
 
Non-Current Assets
 
 
 
 
 
 
Property, plant and equipment
 
1,416,269

 
831,377

 
70.4
 %
Investment property
 
40,725

 
42,342

 
(3.8
)%
Intangible assets
 
24,191

 
17,192

 
40.7
 %
Biological assets
 
8,890

 
11,276

 
(21.2
)%
Deferred income tax assets    
 
22,541

 
30,808

 
 %
Trade and other receivables
 
22,747

 
22,107

 
2.9
 %
Other assets
 
646

 
535

 
20.7
 %
 
 
 
 
 
 
 
Total Non-Current Assets
 
1,536,009

 
955,637

 
60.7
 %
Current Assets
 
 
 
 
 
 
Biological assets
 
73,749

 
156,718

 
(52.9
)%
Inventories
 
159,712

 
108,919

 
46.6
 %
Trade and other receivables
 
198,950

 
150,107

 
32.5
 %
Derivative financial instruments
 
5,285

 
4,483

 
17.9
 %
Other assets
 
60

 
30

 
100.0
 %
Cash and cash equivalents
 
180,828

 
269,195

 
(32.8
)%
Total Current Assets
 
618,584

 
689,452

 
(10.3
)%
TOTAL ASSETS
 
2,154,593

 
1,645,089

 
31.0
 %
SHAREHOLDERS EQUITY
 
 
 
 
 
 
Capital and reserves attributable to equity holders of the parent
 
 
 
 
 
 
Share capital
 
183,573

 
183,573

 
 %
Share premium
 
900,503

 
908,934

 
(0.9
)%
Cumulative translation adjustment
 
(679,854
)
 
(552,604
)
 
23.0
 %
Equity-settled compensation
 
15,391

 
17,852

 
(13.8
)%
Cash flow hedge
 
(76,934
)
 
(24,691
)
 
211.6
 %
Treasury shares
 
(8,741
)
 
(6,967
)
 
25.5
 %
Revaluation surplus
 
398,096

 

 
 
Reserve from the sale of non-controlling interests in subsidiaries
 
41,574

 
41,574

 
 %
Retained earnings
 
244,998

 
106,209

 
130.7
 %
Equity attributable to equity holders of the parent
 
1,018,606

 
673,880

 
51.2
 %
Non-controlling interest
 
43,831

 
9,139

 
379.6
 %
TOTAL SHAREHOLDERS EQUITY
 
1,062,437

 
683,019

 
55.6
 %
LIABILITIES
 
 
 
 
 
 
Non-Current Liabilities
 
 
 
 
 
 
Trade and other payables
 
1,991

 
827

 
140.7
 %
Borrowings
 
649,761

 
663,060

 
(2.0
)%
Deferred income tax liabilities
 
158,391

 
10,457

 
1,414.7
 %
Payroll and social security liabilities
 
1,109

 
1,240

 
(10.6
)%
Derivatives financial instruments
 

 

 
 %
Provisions for other liabilities
 
2,971

 
4,078

 
(27.1
)%
Total Non-Current Liabilities
 
814,223

 
679,662

 
19.8
 %
Current Liabilities
 
 
 
 
 
 
Trade and other payables
 
77,143

 
98,423

 
(21.6
)%
Current income tax liabilities
 
1,111

 
503

 
120.9
 %
Payroll and social security liabilities
 
26,797

 
27,267

 
(1.7
)%
Borrowings
 
165,372

 
154,898

 
6.8
 %
Derivative financial instruments
 
6,820

 
552

 
1,135.5
 %
Provisions for other liabilities
 
690

 
765

 
(9.8
)%
Total Current Liabilities
 
277,933

 
282,408

 
(1.6
)%
TOTAL LIABILITIES
 
1,092,156

 
962,070

 
13.5
 %
TOTAL SHAREHOLDERS EQUITY AND LIABILITIES
 
2,154,593

 
1,645,089

 
31.0
 %

40
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