LUXEMBOURG, May 15, 2017 /PRNewswire/ -- Adecoagro S.A. (NYSE: AGRO, Bloomberg: AGRO US, Reuters: AGRO.K), one of the leading agricultural companies in South America, announced today its results for the first quarter of 2017.
Main highlights for the period:
- Adecoagro recorded Adjusted EBITDA(1) of $44.8 million in 1Q17, representing a 3.6% increase compared to 1Q16.
- Gross sales in 1Q17 reached $166.1 million, 36.7% higher year-over-year
- Net income in 1Q17 stands at $6.0 million, $3.2 million higher than 1Q16.
Mariano Bosch, Adecoagro's Chief Executive Officer, said, "The first quarter was a great start to 2017 for Adecoagro as a direct result of our continued execution on our strategic plan, enhancing productivity, and deepening our focus on sustainability across each of our core businesses. Our outlook for 2017 remains positive, despite persistent macroeconomic challenges. To that end, we continue to evaluate ways to strategically deploy our capital to position our business for future growth while maintaining margins and generating cash flow and generating ROIC well in excess of our cost of capital. Accordingly, we are making significant progress on increasing our milling and crushing capacity in our Sugar, Ethanol & Energy business, and now, in light of the improved regulatory framework and outlook for the agribusiness sector in Argentina, we have identified several growth opportunities across our farming operations."
Financial & Operational Highlights
- Adjusted EBITDA in our Sugar, Ethanol & Energy business in 1Q17 reached $30.3 million, $8.2 million higher than 1Q16. Results were mainly driven by (i) higher sugar, ethanol and energy sales volumes (5.4%, 13.0% and 89.3%, respectively); (ii) higher realized prices (57.9%, 18.5% and 27.0% higher, respectively); and (iii) a $14.2 million gain derived from the mark-to-market effect of our sugar hedge position. These positive effects were partially offset by (iv) an increase in unitary production costs mainly explained by an increase in third party sugarcane purchases and the appreciation of the BRL; and (v) a $2.7 million loss from changes in fair value of our sugarcane plantation, mainly resulting from lower projected sugar prices and BRL appreciation.
Rains in our cluster in Mato Grosso do Sul during November 2016 through March 2017 were 25% below the 10-year average. Therefore, we decided to fine-tune our harvest schedule in order to maximize sugarcane productivity throughout the year. As a result, we decided to slowdown the pace of crushing during the first quarter, and only crush: (i) our own sugarcane that has grown to 16-18 months in age; and (ii) sugarcane purchased from third-parties. This strategy will allow our traditional 12-month sugarcane to grow an additional 2 or 3 months, and benefit from normalized rains during March and April. At the same time, any down time was used to conduct "off-season" maintenance of industrial equipment, agricultural machinery and sugarcane replanting. Despite our decision to decelerate the milling pace, we were able to crush a total of 1.5 million tons during 1Q17, essentially in line with last year.
Despite dry weather during the summer months, sugarcane yields during the quarter reached 94.1 tons/ha, significantly above the 5-year average yield for Brazil's center-south region. This is explained by our focus on enhancing sugarcane quality and treatment. Yields fell 8.0% compared to our yields in 1Q16 as a result of above average rainfalls during November 2015 through February 2016. In terms of sugar content, TRS during the quarter increased to 110.0 kg/ton, 2.6% higher than 1Q16.
- Adjusted EBITDA in our Farming business in 1Q17 was $19.7 million, 25% lower than 1Q16. This decrease is primarily temporal in nature due to different planting/harvesting cycles, which can vary due to crop rotations, seed varieties and weather. Therefore we expect stronger performance in the Crops and Rice businesses in the upcoming quarters as these seasonality issues are reversed.
In the case of soybean and corn, excess rains during January and February have delayed the seeding of the crops. The crops are developing normally and yield potential has not been affected, but margin recognition has been skewed towards the second and third quarters. Regarding the rice crop, despite a 16.5% increase in yields, margins were negatively affected by (i) higher harvesting expenses due to setbacks caused by rains; and (ii) a 21.1% decrease in white rice sales due to schedule of shipments, partially offset by a 14.6% increase in white rice prices. Consequently, as we ramp up sales volumes during the upcoming quarters we expect to offset the reduction in margins reported in the current quarter. In terms of foreign exchange, our costs of production in Argentina have been negatively affected in dollar terms as a result of the appreciation of the Argentine peso in real terms.
These negative effects were partially offset by (i) a $1.9 million increase in our Dairy business driven by solid productivity and rising milk prices; and (ii) a $1.6 million gain derived from the mark-to-market effect of our soybeans and corn hedge derivatives.
- Net Income in 1Q17 was $6.0 million, $3.2 million higher than in 1Q16. Net income during the quarter was enhanced by stronger Adjusted EBITDA and improved financial results, and was partially offset by a $4.1 million increase in depreciation expenses resulting mainly from the expansion of our sugarcane plantation and the appreciation of the Brazilian Real.
- Sugar, Ethanol & Energy Expansion Update
The expansion of our cluster in Mato Grosso do Sul, as announced in our 4Q16 Earnings Release, is currently underway and being executed according to schedule.
The expansion of the Angelica mill is already complete. We have installed larger mill rollers and expanded the sugar centrifugation and ethanol filtration processes. Nominal crushing capacity has increased by 0.9 million, from 4.7 million tons per year to 5.6 million tons per year. Regarding the Ivinhema mill, we have already begun building the foundations for the new mill tandem (#6).
Regarding the expansion of our sugarcane plantation to supply the new milling capacity, we have already leased the necessary land scheduled to be planted in 2017 at prices according to budget. Planting activities are being executed as planned. We have succesfully planted 7.0 thousand hectares or 28% of the targeted area for 2017. In addition, depreciated agricultural machinery has already been renewed according to plan, which we expect will increase our harvest capacity by 10% year-over-year.
- Accretive Growth Projects in our Farming Business
In light of the improved regulatory framework and outlook for the agribusiness sector in Argentina, we have identified several growth opportunities across our farming operations. These investments will allow us to increase operational efficiency, reduce costs and enhance returns across our dairy, rice and crops segments. These projects are expected to generate ROIC well in excess of our cost of capital.
- Dairy business: our free-stall dairies #1 and #2 are fully ramped-up and delivering superior productivity. We are now ready to continue consolidating the operation and increase capacity. We plan to invest $50.0 million over the next four years to build free-stalls #3 and #4. This project will allow us to double production capacity, reaching over 185 million liters of fluid milk production per year and over 14 thousand milking cows. This investment is a unique opportunity to leverage on Argentina's competitive advantages in transforming vegetable protein into milk protein, our operational expertise and the positive outlook for global and local milk prices.
- Rice business: during the second half of the year we will be investing $6.0 million in various equipment and machines to improve our rice processing and distribuition, and increase the value of main by-products. These projects include: (i) a rice parboiling plant; (ii) a new packaging machine for branded white rice; (iii) expansion of finished goods storage capacity; (iv) a rice husk bailing press; and (v) a rice bran oil de-activation system. This will allow us to strengthen our brand in the local market and increase margins.
- Crops business: following the recent boost in Argentina's grain production volumes, specifically corn and wheat, certain regions are affected from lack of grain storage and conditioning capacity. This is generating bottlenecks and increasing logistics costs. In order to continue managing our production capacity efficiently, we will build two new storage and conditioning facilities located near the Rosario and Bahia Blanca ports. These assets will allow us to reduce our conditioning and logistics costs and enhance our commercial flexibility. Total investment is expected to reach $11.0 million over the next 12-months.
(1) Adjusted EBITDA is defined as consolidated profit from operations before financing and taxation, depreciation, 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.
Non-Gaap Financial Measures: For a full reconciliation of non-gaap financial measures please refer to page 22 of our 1Q17 Earnings Release found on Adecoagro's website (ir.adecoagro.com)
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.
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 relate 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.
To read the full 1Q17 earnings release, please access ir.adecoagro.com. A conference call to discuss 1Q17 results will be held on May 16, 2017 with a live webcast through the internet:
English Conference Call
May 16, 2016
9 a.m. (US EST)
10 a.m. Buenos Aires
10 a.m. Sao Paulo
3 p.m. Luxembourg
Participants calling from the US: Tel: +1 (844) 836-8746
Participants calling from other countries: Tel: +1 (412) 317-2501
Access Code: Adecoagro
Conference Call Replay
Participants calling from the US: Tel: +1 (877) 344-7529
Participants calling from other countries: Tel: +1 (412) 317-0088
Access Code: 10105830
Investor Relations Department
Charlie Boero Hughes
Email: [email protected]
Tel: +54 (11) 4836-8651
Adecoagro is a leading agricultural company in South America. Adecoagro owns over 247 thousand hectares of farmland and several industrial facilities spread across the most productive regions of Argentina, Brazil and Uruguay, where it produces over 1.7 million tons of agricultural products including sugar, ethanol, bio-electricity, milled rice, corn, wheat, soybean and dairy products, among others.
SOURCE Adecoagro S.A.