Adecoagro S.A. — FY2018 Form 20-F
Reporting period: Year ended December 31, 2018; this is an annual report, not a standalone 2018 fourth-quarter filing. Financial statements are audited and prepared under IFRS in U.S. dollars. Comparative figures reflect the retrospective change for investment-property accounting, but do not make the 2018 adoption of Argentina hyperinflation accounting directly comparable with prior years.
Business context and key financial metrics
Adecoagro is a South American agro-industrial company operating in Argentina, Brazil and Uruguay. Its activities span crops, rice, dairy, sugar, ethanol, energy and farmland transformation. Unless noted, amounts below are U.S. dollars.
| Metric | FY2018 | FY2017 | Change / context |
|---|---|---|---|
| Sales | $793.2 million | $933.2 million | Down 15.0% |
| Margin on manufacturing and agricultural activities before operating expenses | $198.6 million | $238.5 million | Down 16.8%; approximately 25.0% of sales versus 25.6% |
| Profit from operations before financing and tax | $156.5 million | $129.6 million | Up 20.8%; approximately 19.7% of sales versus 13.9% |
| Net income (loss) | $(23.2) million | $15.0 million | Loss attributable to sharply higher net financial costs |
| Net loss attributable to parent shareholders | $(24.6) million | $13.2 million | Basic loss per share $(0.211), versus earnings of $0.109 |
| Adjusted Consolidated EBITDA | $314.7 million | $276.3 million | Up 13.9%; non-IFRS measure |
| Net cash from operating activities | $218.5 million | $237.1 million | Down 7.8% |
| Cash and cash equivalents | $273.6 million | $269.2 million | At December 31 |
| Total borrowings / net debt | $862.1 million / $588.5 million | $818.0 million / $548.8 million | Net debt to adjusted EBITDA: 1.87x versus 1.98x |
Material changes and segment performance
- Sugar, ethanol and energy: Sales declined 16.3% to $510.9 million. Sugar sales fell 58.0% to $128.4 million as sugar production dropped 39.3% to 344,137 tons and selling prices weakened. Ethanol sales rose 34.4% to $324.7 million; production increased 55.5% to 675,001 cubic meters. Segment adjusted EBITDA was $238.3 million, down from $247.3 million.
- Farming: Sales fell 12.5% to $282.3 million. Crop sales declined 21.2%, principally reflecting drought-reduced soybean and corn yields and lower corn volumes; rice sales rose 10.3% to $95.4 million, supported by higher yields and sales volumes. Dairy sales declined 20.8% to $29.7 million despite milk production rising 8.8% to 101.3 million liters, as Argentine-peso depreciation reduced reported milk prices.
- Land transformation: Two Brazilian farm sales covering 9,300 hectares generated $36.2 million of reported gains. Other operating income also included gains on commodity derivatives and investment-property fair-value changes.
- Other operating income rose to $104.2 million from $43.8 million, helping lift operating profit despite lower sales and biological-asset gains.
Cash flow, debt and liquidity
- Investing activities used $174.9 million; reported purchases of property, plant and equipment were $207.1 million. The filing’s narrative gives differing capital-expenditure totals, so the exact company-defined capital-expenditure figure is not clear from the supplied text.
- Financing activities used $20.9 million. The company raised $318.1 million of short-term borrowings and repaid $190.6 million; it also paid $50.0 million of interest and repurchased $15.7 million of shares.
- Current borrowings were $143.6 million, while the filing separately reports $143.4 million of short-term debt. The company said working capital would be sufficient for the next 12 months and expected to roll over some short-term debt, but depends in part on continued access to credit lines.
- The $500 million 6.0% senior notes mature in 2027. About 83.9% of debt was fixed-rate and 16.1% variable-rate. The company reported compliance with debt covenants at year-end.
- Adjusted free cash flow was negative $18.2 million, versus positive $7.2 million in 2017; adjusted free cash flow from operations was $79.9 million, versus $78.0 million. These are non-IFRS measures and include company-specific adjustments.
Outlook, accounting changes, risks and unusual items
- Accounting changes: From July 1, 2018, the company applied IAS 29 to Argentine operations because Argentina met the hyperinflation criteria. The reported income statement included an $81.9 million net gain from inflation effects on monetary items, alongside substantial foreign-exchange losses. The company also adopted a farmland revaluation model, increasing property, plant and equipment by $545.1 million and deferred tax liabilities by $139.2 million; the net revaluation surplus was recorded in equity. These changes materially affect year-over-year comparisons.
- Unusual financial impact: Net financial results were a loss of $180.8 million, versus a loss of $119.6 million. Foreign-exchange losses were $183.2 million, versus $38.7 million, largely reflecting sharp depreciation of the Argentine peso and depreciation of the Brazilian real. The inflation-related gain partly offset these losses.
- Operating risks: Argentina’s 2018 drought reduced crop yields; lower rainfall and sugar-price assumptions also contributed to a $37.8 million unrealized loss on unharvested sugarcane. Commodity prices, weather, currencies, inflation, export taxes, transport costs, regulation and access to financing remain key risks. Brazilian road-freight minimum-price rules may increase transport costs.
- Management plans: The company expected its third dairy facility to reach full capacity by end-2019 and planned further dairy, rice and peanut-processing development. A second phase to expand Ivinhema sugarcane crushing capacity was planned for 2019–2022, with full capacity targeted in 2023. These are operational plans, not consolidated earnings guidance; the filing provides no clear numerical FY2019 revenue or profit guidance.
- Subsequent events: In 2019, the company acquired the remaining 50% of CHS Agro for nominal consideration, a peanut-processing facility for $10 million, and two dairy plants and brands for $47 million. It also sold the Alto Alegre farm for $16.6 million, with most proceeds payable in installments and a reported gain of $9.3 million.
- The company reported $3.6 million of provisions for legal proceedings and said it was not engaged in material litigation. It disclosed, among other matters, a Brazilian tax claim of approximately $3.4 million and a farm-sale-related claim of approximately $39.5 million; management considered the risk of adverse outcomes remote.
Most important facts for investors to verify
- Reconcile the 2018 foreign-exchange losses, IAS 29 monetary gain and segment-to-IFRS adjustments; understand their cash and non-cash components.
- Review the independent farmland valuations, valuation assumptions and deferred-tax consequences of the new revaluation model.
- Confirm the reported debt, short-term maturities, committed credit availability, covenant headroom and ability to refinance working-capital facilities.
- Assess whether normalized operating cash flow can fund the planned capital program, given negative adjusted free cash flow and differing capital-expenditure totals in the filing.
- Track crop recovery after drought, sugar/ethanol mix and prices, dairy-facility ramp-up, and execution and funding of planned capacity expansions and acquisitions.
- Check subsequent-event purchase prices and payment terms, farm-sale proceeds, material legal contingencies, and the company’s differing share-count disclosures.