Adecoagro S.A. — Form 20-F Summary
Reporting period: Fiscal year ended December 31, 2017, with comparisons to 2016 and 2015. This is an annual report, not a standalone fourth-quarter filing. Financial statements are prepared under IFRS and audited by Price Waterhouse & Co. S.R.L.; the auditor gave an unqualified opinion. Management and the auditor reported effective internal control over financial reporting at year-end.
Business context
Adecoagro operates agricultural and agro-industrial businesses in Argentina, Brazil and Uruguay, spanning crops, rice, dairy, sugar, ethanol, electricity and farmland transformation. Brazil generated 58.5% of 2017 sales, Argentina 23.0% and Uruguay 18.5%. Sugar, ethanol and energy generated about 65% of consolidated sales.
Key financial metrics
| Metric (US$ millions, except per-share data and ratios) | 2017 | 2016 | Change |
|---|---|---|---|
| Sales | 933.2 | 869.2 | +7.4% |
| Margin on manufacturing and agricultural activities before operating expenses | 238.5 | 310.3 | -23.1% |
| Profit from operations | 125.3 | 170.5 | -26.5% |
| Net financial results | (119.6) | (157.4) | Loss narrowed |
| Net income | 11.7 | 3.7 | More than tripled |
| Net income attributable to parent shareholders | 10.0 | 2.0 | |
| Basic / diluted EPS | $0.083 / $0.082 | $0.017 / $0.017 | |
| Net cash from operating activities | 237.1 | 255.4 | -7.2% |
| Net cash used in investing activities | (188.3) | (122.0) | Higher investment |
| Net cash from / (used in) financing activities | 70.2 | (181.7) | |
| Cash and cash equivalents at year-end | 269.2 | 158.6 | |
| Total borrowings | 818.0 | 635.4 | +28.7% |
| Net debt | 548.8 | 476.8 | +15.1% |
| Net debt / adjusted consolidated EBITDA | 1.98x | 1.60x |
Profit from operations equaled approximately 13.4% of sales, down from 19.6% in 2016. Adjusted consolidated EBITDA, a non-IFRS measure, was $276.3 million versus $298.0 million; its margin was about 29.6% versus 34.3%. The company reported adjusted free cash flow of $7.2 million, down from $85.0 million, after expansion capital expenditures. The filing reports 2017 capital expenditures of $199.6 million.
Current assets were $689.5 million and current liabilities $282.4 million at year-end (current ratio about 2.4). Management stated working capital should be sufficient for the next 12 months, while noting reliance on credit facilities and operating cash flows to manage funding needs.
Material changes and operating drivers
- Sales increased, led by crops (+38.8% to $197.2 million), particularly higher corn volumes, and sugar, ethanol and energy (+2.3% to $610.6 million). Dairy sales rose 14.1% to $37.5 million, supported by higher milk prices and volumes.
- Rice sales fell 10.4% to $86.5 million as the company postponed sales and built inventory, expecting better prices in the first half of 2018.
- Operating profit declined as costs grew faster than sales and the biological-asset fair-value gain fell to $63.2 million from $125.5 million. Selling and administrative expenses also rose.
- Profit improved despite lower operating profit because net financial losses narrowed. The 2016 comparison included a larger reclassification of cash-flow hedge losses from equity; 2017 also included $10.8 million of prepayment-related expenses and higher foreign-exchange losses.
- Cash increased after issuing $500 million of 6.0% senior notes due 2027. Proceeds were used in part to refinance Brazilian subsidiary debt. The company also repurchased $38.4 million of its shares.
- Weather affected production: Argentina experienced drought from November 2017, with the eventual crop impact not yet clear in the filing. In Brazil, above-average late-year rainfall disrupted sugarcane harvesting; cane yield fell 13.3% to 85.1 tons per hectare and crushing volume fell 7.9%.
Outlook, risks and unusual items
- Investment plans: Management outlined approximately $50 million over four years for two additional dairy free-stall facilities, $6 million for rice-processing and distribution improvements, and $11 million over 12 months for two grain storage and conditioning facilities. The sugar-and-ethanol plan targets a 30% increase in nominal crushing capacity in phases, with completion extending to 2023.
- Near-term operating outlook: Management said dairy free-stall #3 was progressing and expected to begin stocking cows by July 2018, with operations targeted at 40% of capacity by year-end. It expected to complete rice investments in the first half of 2018 and one grain facility by year-end. These are plans and targets, not guaranteed outcomes.
- SanCor proposal: A March 2018 investment proposal to partner with Argentine dairy processor SanCor had cooperative-member approval but remained subject to restructuring and refinancing conditions and final documentation.
- Key risks: Weather, crop disease, commodity-price volatility, foreign exchange and inflation in Argentina and Brazil, energy and logistics constraints, foreign-ownership limits on rural land, environmental and licensing requirements, and customer concentration. Approximately 88.2% of debt was fixed-rate and 11.8% variable-rate.
- Contingencies: The company recorded $4.9 million of provisions for legal matters. It disclosed an approximately $29.7 million claim by former farm owners and an approximately $5.5 million Brazilian excise-tax dispute; neither was provisioned based on counsel’s view that an unfavorable outcome was remote. Management stated it knew of no material pending claims expected to materially affect results.
- Accounting sensitivity: IFRS fair-value measurement of biological assets depends on estimates of yields, prices, costs and discount rates. These gains are not necessarily cash realized in the period. Management concluded Argentina did not meet IAS 29 hyperinflation criteria for the periods presented, but will reassess.
- No specific numerical consolidated earnings or revenue guidance is provided. The filing cautions that forward-looking statements are subject to substantial risks and uncertainties.
Important facts for investors to verify
- Assess how the Argentina drought affected the 2017/18 harvest, crop valuations and cash generation after year-end.
- Reconcile reported cash-flow measures: the filing gives adjusted free cash flow from operations of $78.0 million in one table and $79.0 million in a separate reconciliation.
- Review debt maturities, refinancing assumptions, covenant headroom, available credit lines and the collateral securing subsidiary borrowings.
- Test the sensitivity of earnings and asset values to biological-asset assumptions, commodity prices, currency movements and sugarcane yields; distinguish fair-value gains from realized cash returns.
- Confirm progress, funding and returns for the dairy, rice, grain-storage and sugar-mill expansion plans, and whether the SanCor proposal satisfies its outstanding conditions.
- Monitor the disclosed legal claims and the company’s assessment of their likelihood and potential financial impact.