LUXEMBOURG, May 21, 2019 /PRNewswire/ -- Adecoagro S.A. (NYSE: AGRO, Bloomberg: AGRO US, Reuters: AGRO.K), a leading agricultural company in South America, announced today its results for the first quarter of 2019.
Main highlights for the period:
- 1Q19 Adjusted EBITDA was $58.3 million, marking a 5.9% decrease year-over-year. Adjusted EBITDA margin net of 3rd party commercialization, reached 37.1%.
- Gross sales reached $162.1 million in 1Q19, 4.2% higher year-over year.
- 1Q19 Adjusted Net Income was $11.7 million or 38.9% lower compared to 1Q18.
Financial & Operational Highlights
- In our Sugar, Ethanol & Energy business, Adjusted EBITDA reached $31.2 million in 1Q19, marking a $16.8 million decrease year-over-year. Adjusted EBITDA was positively affected by: (i) the full maximization of ethanol production (97% total TRS produced was diverted to ethanol, an all-time record), allowing us to profit from higher relative prices (hydrous and anhydrous ethanol traded at a 21.7% and 24.4% premium to sugar during 1Q19, respectively), (ii) the high level of cogeneration efficiency (73.2 KWh per ton crushed) which allowed us to maximize energy sales, capturing attractive prices during the quarter (prices reached as high as BRL/MWh 450 in February); and (iii) the dilution of total production costs, on a per ton basis thanks to the enhancements in agricultural and industrial efficiencies, and the depreciation of the Brazilian reais. These positive effects were fully offset by lower crushing activities, coupled with the $26.3 million difference registered from the mark-to-market effect of our commodity hedge position. However, this also resulted in a $14.3 million higher gain from the mark-to-market of our biological asset.
- Adjusted EBITDA for the Farming and Land Transformation businesses reached $31.9 million in 1Q19, $13.1 million or 69.6% higher year-over-year. The improvement in financial performance is primarily explained by higher margins in our Rice and Dairy businesses, coupled with the completion of the sale of Alto Alegre farm, which contributed $9.4 million to EBITDA.
In the case of the Rice business, higher margins were explained by (i) cost dilution following the depreciation of the Argentine Peso, (ii) higher selling volumes since we not only processed 15.0 million additional tons of rough rice (50.8% increase), but also carried stocks from the previous quarter; coupled with (iii) the ongoing enhancement in agricultural and industrial efficiencies.
Regarding our Dairy business, higher selling volumes and average prices were responsible for the increase in financial performance. Indeed, as a result of the shortage of raw milk due to weather related issues, prices increased margins. At our confined free stall system, milk production was not affected allowing us to fully profit from higher prices.
- Net Income in 1Q19 was a loss of $2.2 million, compared to a $10.9 million gain recorded in the same period of last year. EBITDA generation was offset by: (i) the $27.8 million non-cash loss derived from the revaluation of our U.S. dollar denominated financial debt, measured in local currency; coupled with (ii) a $1.0 million loss resulting from the application of IAS 21: "The Effects of Changes in Foreign Exchange Rates." (for more information, please refer to financial note 3 "Segment Information")
- Adjusted Net Income, a concept we introduced in 2018 to more accurately provide a proxy cash metric, which excludes, by definition, (i) any non-cash result derived from bilateral exchange variations, (ii) any 3 revaluation result from the hectares held as investment property, (iii) any inflation accounting result; and includes (iv) any gains or losses from disposals of non-controlling interests in subsidiaries whose main underlying asset is farmland (the latter is already included in Adj. EBITDA) and (v) revaluation surplus of farmland sold. We believe Adjusted Net Income is a more appropriate metric to reflect the Company´s performance. In 1Q19, Adjusted Net Income reached $14.5 million, $4.7 million or 24.6% lower compared to 1Q18. (Please refer to page 33 for a reconciliation of Adjusted Net Income to Profit/Loss).
5 –YearPlan Update – Cluster Expansion
- The expansion of our cluster in Mato Grosso do Sul is proceeding according to plan. A total of 50,057 hectares have been secured for planting so far, representing 93.5% of the total hectares needed to fully supply the three million tons of additional crushing capacity. Planting operations are also well underway with 26,778 hectares that already having been planted now and now available. We feel confident that we will be able to plant the remaining hectares through 2020 and 2021, subject to weather conditions.
Milk Processing Facilities Investment Update
- Right after taking full control of the two milk processing facilities we acquired, all the efforts were focused in obtaining the necessary permits and certifications to produce and commercialize our dairy products. That took almost two months and by the end of March we started to fully operate the plants. In the meantime, we started to make the necessary maintenance works to fine tune the operation and enhance industrial efficiencies. At the same time we started developing commercial relationships with raw milk suppliers and potential customers.
Currently, we are operating at half of the targeted capacity and already reached break-even. The shortage of raw milk in Argentina, resulted in high domestic prices. As a result, all the milk is diverted to our Chivilcoy facility to produce fluid milk for the domestic market. It´s worth remembering that the acquisition enabled us with the flexibility to sell into the domestic and export market, based on relative profitability.
Based on our initial performance, we feel optimistic in achieving the targeted ROIC and we are confident that this transaction will be accretive for our existing shareholders.
Farmland sale at premium to independent appraisal:
- As previously announced in our 4Q18 release, during January 2019, we completed the sale of Alto Alegre farm, located in Tocantins, for $16.8 million. The selling price represents a 33% premium to the latest Cushman and Wakefield´s independent appraisal, as of September 30, 2018.
Changes to Leases Accounting – IFRS 16:
- In January 2016, the International Accounting Standards Board (IASB) amended IAS 17 Leases, to be effectively implemented as of January 2019. The previous lease accounting focused on identifying when a lease arrangement was, pursuant of its terms, equivalent to the purchase of the underlying asset. If that was the case, the agreement was treated as financial lease and booked accordingly. Otherwise, it was deemed as an operating lease and remained off-balance sheet.
Under the new standard, the main focus is placed on whether the lessee has control over the underlying asset. If this is the case, the agreements must be capitalized by recognizing the present value of the lease payments. At the same time, a financial obligation must also be registered. In the case of Adecoagro, mainly land leasing agreements in our Sugar, Ethanol & Energy business , must be treated as financial leases given (i) that the Company controls key managerial decisions over the assets; and (ii) it´s long term nature (over 12 months period).
The direct financial effects of fully applying IFRS 16 are as follows:
- Increase in both assets and liabilities by the present value of projected lease payments.
- Increase in EBITDA. The leasing costs are now replaced by depreciation expenses which are, by definition, excluded from EBITDA calculation. At the same time, interest expense is now recognized. As a way to maintain the proxy cash nature of the metric, we decided to include the depreciation expenses stemming from the capitalization of the lease payments in the calculation of Adj. EBITDA.
- The adoption of the IFRS 16 does not impact the Company´s cash position
- We define Adjusted Net Income as (i)( Profit/(Loss) of the period year, plus (ii) any non cash finance costs resulting from foreign exchange losses for such period, which breakdown composed both Exchange Differences and Cash Flow Hedge Transfer from Equity, net of the related income tax effects plus (iii) gains or losses from disposals of non controlling interests in subsidiaries whose main underlying asset is farmland, which are relieved in our Shareholders Equity under the line item. "Reserve from the sale of non-controlling interests in subsidiaries plus (iv) the reversal of the aforementioned income tax effect, plus (v) the inflation accounting effects, plus (vi) the revaluation results from the hectares hold as investment property and plus (vii) the revaluation surplus of the farmland sold.
Non-Gaap Financial Measures: For a full reconciliation of non-gaap financial measures please refer to page 26 of our 1Q19 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 1Q19 earnings release, please access ir.adecoagro.com. A conference call to discuss 1Q19 results will be held on May 22, 2019 with a live webcast through the internet:
May 22, 2019
9 a.m. (US EST)
10 a.m. Buenos Aires
10 p.m. Sao Paulo
3 p.m. Luxembourg
Participants calling from the US: Tel: +1 (844) 435-0324
Participants calling from other countries: Tel: +1 (412) 317-6366
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: 10130989
Investor Relations Department
Charlie Boero Hughes
Juan Ignacio Galleano
Email: [email protected]
Tel: +54 (11) 4836-8624
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 1.9 million tons of agricultural products including sugar, ethanol, bio-electricity, milled rice, corn, wheat, soybean and dairy products, among others.
SOURCE Adecoagro S.A.