Adecoagro S.A. — FY2019 Form 20-F
Reporting period: Year ended December 31, 2019; this is an annual report, not a standalone 2019 fourth-quarter filing. Figures are in U.S. dollars unless noted. Financial statements are prepared under IFRS and were audited by Price Waterhouse & Co. S.R.L.; the auditor issued an unqualified opinion and reported effective internal control over financial reporting.
Business context and key financial metrics
Adecoagro is a South American agro-industrial company operating in Argentina, Brazil and Uruguay across crops, rice, dairy, sugar, ethanol, energy and farmland transformation.
| Metric | FY2019 | FY2018 | Change / context |
|---|---|---|---|
| Sales | $887.1 million | $793.2 million | Up 11.8% |
| Margin on manufacturing and agricultural activities, before operating expenses | $286.4 million | $198.6 million | Up 44.2%; approximately 32.3% of sales in 2019 |
| Profit from operations | $121.4 million | $156.5 million | Down 22.4%; 2019 operating margin approximately 13.7% |
| Net profit (loss) | $0.3 million | $(23.2) million | Returned to slight consolidated profit; parent-company shareholders’ share was a $0.8 million loss |
| Adjusted consolidated EBITDA | $305.2 million | $314.7 million | Down 3.0%; non-IFRS measure |
| Cash from operating activities | $322.1 million | $218.5 million | Up 47.4% |
| Cash used in investing activities | $(248.7) million | $(174.9) million | Higher investment, including acquisitions and capacity expansion |
| Adjusted free cash flow | $(60.7) million | $(18.2) million | Adjusted free cash flow from operations was $68.3 million, down from $79.9 million |
| Cash and cash equivalents | $290.3 million | $273.6 million | At year-end |
| Total borrowings / net debt | $968.3 million / $678.0 million | $862.1 million / $588.5 million | Net debt / adjusted EBITDA rose to 2.22x from 1.87x |
| Lease liabilities | $216.4 million | — | Recognized following IFRS 16 adoption; prior period not restated |
Year-end current assets were $649.1 million and current liabilities $364.4 million. Capital expenditures were approximately $257 million, compared with about $220 million in 2018. Contractual obligations, including interest and lease financing costs, totaled $1.50 billion.
Material changes versus FY2018
- Sales growth was led by dairy, which rose to $83.8 million from $29.7 million following the acquisition of two milk-processing facilities and higher production, and by sugar, ethanol and energy, which rose to $531.8 million from $510.9 million. Crops sales increased to $166.4 million; rice sales increased to $101.2 million.
- Land-transformation income declined sharply: the company recorded $1.4 million from farmland disposals in 2019, versus $36.2 million in 2018. Other operating income overall fell from $104.2 million to a loss of $0.8 million, also reflecting less favorable commodity-hedge fair-value movements.
- Financial results improved to a net loss of $100.2 million from $180.8 million. Lower foreign-exchange losses and a larger inflation-accounting gain partly offset increased interest and lease-financing costs. Argentina’s peso depreciated 58.9% against the U.S. dollar during 2019; Argentine inflation was 53.8%.
- Adjusted EBITDA was broadly lower despite growth in the sugar, ethanol and energy business. Segment adjusted EBITDA was $253.1 million for sugar, ethanol and energy, $62.4 million for farming, $9.4 million for land transformation and negative $19.6 million for corporate.
- Cash from operations improved, but increased capital investment and lease payments drove adjusted free cash flow further negative. Net debt increased by $89.5 million, and leverage rose.
Operations, outlook and risks
- Drought in Mato Grosso do Sul during April and November 2019 reduced sugarcane yields and, according to management, reduced sugar, ethanol and energy operating profit by approximately $49.5 million. Sugarcane crushing fell 4.5% to 10.8 million tons; sugar output fell 38% to 213,256 tons, while ethanol output rose 12.1% to 756,494 cubic meters.
- Management said it was revising most planned 2020 capital expenditures in response to COVID-19 and heightened macroeconomic volatility. No quantified earnings or revenue guidance was provided. The filing said most operations were running without major disruption at the time, but ethanol demand in Brazil had fallen 60% since March 2020; the duration and financial impact were uncertain.
- COVID-19, lower commodity and oil prices, weather, currency movements, inflation, export taxes, changing regulation and supply-chain or logistics disruptions pose material risks. Argentine price caps and production/supply requirements affected processed rice and fluid milk; exchange controls may restrict currency access and transfers abroad.
- IFRS 16 was adopted from January 1, 2019 without restating comparatives, adding $238.1 million of right-of-use assets and $216.4 million of lease liabilities at year-end. Argentina remained subject to IAS 29 hyperinflation accounting, which also complicates period comparisons and segment-to-IFRS reconciliations.
- Biological-asset gains of $68.6 million are sensitive to estimated yields, prices, costs and discount rates, and are not equivalent to cash realized. Farmland values are also based on independent appraisals and Level 3 assumptions. The auditor identified both biological-asset valuation and impairment testing of Brazilian assets and goodwill as critical audit matters.
- The company reported $3.1 million of provisions for legal and administrative proceedings and stated it knew of no material pending litigation expected to adversely affect the group. Two disclosed Brazilian claims include a $4.4 million tax dispute and a former landowner claim of approximately $39.5 million; management considered an adverse outcome remote in each case.
Important facts for investors to verify
- Reconcile the small consolidated profit with the parent-company loss and assess how much operating cash generation depends on non-cash biological-asset valuation gains and inflation accounting.
- Review the maturity, currency, rate structure, covenants and collateral of borrowings, including $188.1 million of short-term debt, and the effect of lease liabilities under IFRS 16.
- Check the assumptions underlying biological-asset and farmland valuations, including sensitivity to yield, commodity prices, costs, exchange rates and discount rates.
- Track COVID-19 effects on ethanol demand and prices, 2020 capital spending, harvesting and processing operations, and the company’s liquidity and access to financing.
- Assess the sustainability of segment performance after the 2019 drought and the comparison with 2018’s unusually large farmland-disposal and hedge-related income.