Adecoagro S.A. — FY2020 Form 20-F
Reporting period: Fiscal year ended December 31, 2020, with comparisons to FY2019 and FY2018. Although the request metadata says “2020 Q4,” this is an annual report, not a quarterly filing. Financial statements are prepared under IFRS and amounts below are U.S. dollars unless noted.
Business context
Adecoagro is a South American agro-industrial company operating in Argentina, Brazil and Uruguay. Its businesses include farming (crops, rice and dairy), sugar, ethanol and energy, and farmland transformation. COVID-19 affected demand and prices, particularly for Brazilian ethanol, but the company reported no major operating disruption overall.
Key financial metrics
| Metric | FY2020 | FY2019 | Change / context |
|---|---|---|---|
| Sales | $817.8m | $887.1m | Down 7.8% |
| Operating profit | $189.1m | $121.4m | Up 55.7%; approximate operating margin 23.1%, versus 13.7% |
| Adjusted consolidated EBITDA | $342.0m | $305.2m | Up 12.1%; non-IFRS measure |
| Net profit | $1.1m | $0.3m | Parent shareholders’ share was $0.4m, versus a $0.8m loss |
| Net financial results | $(175.7)m | $(100.2)m | Higher foreign-exchange losses were a major drag |
| Operating cash flow | $257.1m | $322.1m | Down $65.0m |
| Adjusted free cash flow | $51.9m | $(61.5)m | Improved; non-IFRS measure |
| Cash and cash equivalents | $336.3m | $290.3m | At year-end |
| Total borrowings | $971.1m | $968.3m | Net debt $634.8m, down from $678.0m; leverage 1.86x adjusted EBITDA, versus 2.22x |
Current assets were $766.6m and current liabilities $359.2m at year-end. Lease liabilities were $195.8m and are not included in the company’s stated net-debt calculation. Interest paid was $60.0m. Capital expenditures were approximately $166.7m, down from $256.9m in 2019.
Material changes versus FY2019
- Sugar, ethanol and energy sales fell 22.6% to $411.5m. Ethanol sales declined 46.8%, reflecting lower volumes and a 16.7% decrease in average price; sugar sales increased 75.1% as production shifted toward sugar. Segment adjusted EBITDA was broadly unchanged at $253.1m.
- Farming sales rose 14.3% to $406.3m, including a 59.2% increase in dairy sales as milk production and processing volumes expanded. Crop sales were nearly flat, while rice sales were also broadly stable.
- Biological-asset and agricultural-produce fair-value gains increased to $122.7m from $68.6m. This accounting gain contributed to operating results but is not equivalent to cash realized from sales.
- Net foreign-exchange losses rose to $109.3m from $25.8m, principally reflecting Brazilian real depreciation against U.S.-dollar debt. Net financial results consequently worsened.
- FY2020 net cash from operations fell despite higher operating profit, with working-capital movements—including increased receivables, inventories and biological assets—contributing to the decline.
Outlook, commentary and risks
- Outlook: The filing provides no formal earnings or financial guidance. Management describes continued plans to improve operating efficiency, expand farming and dairy, consolidate Brazilian sugar-and-ethanol operations, and monetize mature farmland selectively.
- Operations and weather: Drought in Minas Gerais in 2020 reduced Usina Monte Alegre milling by about 120,000 tons of cane and operating profit by approximately $5.1m; management warned it could also reduce 2021 yields there. Crop yields, commodity prices and seasonality remain significant sources of volatility.
- COVID-19: Lower mobility and oil prices initially reduced ethanol demand and prices. The company slowed crushing, cut costs and later accelerated operations in the second half. Management said the pandemic’s ultimate effects remained uncertain.
- Argentina and currency: Inflation, peso depreciation, exchange controls, export duties, price caps and supply obligations may affect costs, margins, cash repatriation and debt service. Argentine inflation was reported at 36.1% for 2020; the peso depreciated about 40.5% against the U.S. dollar.
- Brazil and regulation: Risks include currency volatility, changes to tax benefits, restrictions on foreign ownership of rural land, and environmental and operating regulation. Approximately 93.8% of sugarcane plantations were under agricultural partnership agreements, creating renewal and land-access risk.
- Debt and liquidity: Debt covenants restrict certain actions, including additional borrowing, dividends and investments. Short-term debt was $157.6m; management expected to roll over some short-term borrowings or repay them from operating cash flow. Management stated working capital should be sufficient for the next 12 months.
- Accounting and unusual items: IAS 41 fair-value estimates for biological assets rely on assumptions about yields, prices and costs; these estimates materially affect reported earnings. The company reclassified certain IAS 29-related equity and financial-result presentations, restating comparatives without changing total equity or net income. Prior-year comparisons also reflect IFRS 16 lease adoption in 2019.
- Legal and cyber matters: Provisions for legal matters totaled $4.4m in the audited statements. The filing also describes an approximately $3.7m Brazilian tax claim and a separate approximately $39.5m claim by former farm owners; management assessed the risk of an unfavorable outcome as remote for these matters. A January 2020 computer-virus incident disrupted corporate systems temporarily, but the company said production, financial and accounting systems were not compromised.
Most important facts for investors to verify
- Reconcile the reported net profit of $1.1m with the much higher operating profit and adjusted EBITDA, including the effects of financing costs, currency losses, taxes and biological-asset fair-value gains.
- Review cash conversion and working-capital movements, and distinguish IFRS cash flows from the company’s adjusted free-cash-flow measures.
- Check debt maturities, refinancing needs, covenant headroom, collateral and restrictions on subsidiary distributions; assess lease obligations separately from reported net debt.
- Assess sensitivity to agricultural yields, biological-asset valuation assumptions, commodity prices, foreign exchange and the continuing impact of COVID-19.
- Monitor the UMA drought’s potential effect on 2021 production, Argentine price and foreign-exchange controls, and the renewal terms of sugarcane land agreements.
- Review the stated legal contingencies and the auditor’s critical audit matters: Level 3 biological-asset valuation and impairment testing of Brazilian cash-generating units with goodwill.