Adecoagro´s Adjusted Net Income reached $18.2 million during 2Q20, $17.3 million higher year-over-year

Rhea-AI Summary

Adecoagro S.A. (AGRO) reported its Q2 2020 results, showing an adjusted EBITDA of $40.2 million in its Farming & Land Transformation segment, up $29.7 million from Q2 2019, primarily due to the sale of a farm in Argentina. Despite a challenging sugar and ethanol market, the company adapted by increasing sugar production. The adjusted net income for Q2 2020 was $18.2 million, highlighting strong operational performance. However, a net loss of $12.1 million was recorded, attributed to non-cash losses related to currency debt revaluation.

Positive

• Adjusted EBITDA in Farming & Land Transformation was $40.2 million, up $29.7 million year-over-year.
• Adjusted EBITDA margin improved by 8.3% in Q2 2020.
• Secured a $100 million loan from IFC, strengthening cash position.
• Record production of sugar in July 2020, indicating operational recovery.

Negative

• Net loss of $12.1 million in Q2 2020 compared to a gain of $23.3 million in Q2 2019.
• Adjusted EBITDA in Sugar, Ethanol & Energy decreased by 44.4% year-over-year.

LUXEMBOURG, Aug. 13, 2020 /PRNewswire/ -- Adecoagro S.A. (NYSE: AGRO, Bloomberg: AGRO US, Reuters: AGRO.K), a leading agro-industrial company in South America, announced today its results for the second quarter ended June 30, 2020. The financial information contained in this press release is based on unaudited condensed consolidated interim financial statements presented in US dollars and prepared in accordance with International Financial Reporting Standards (IFRS) except for Non - IFRS measures. Please refer to page 34 for a definition and reconciliation to IFRS of the Non - IFRS measures used in this earnings release.

Main highlights for the period:

• Adjusted EBITDA(3) in the Farming & Land Transformation business in 2Q20 was $40.2 million, $29.7 million higher than in 2Q19. Results include a gain of $10.1 million derived from the sale of a farm in Argentina.
• Adjusted EBITDA margin year-over-year increased by 8.3% and 7.1% in 2Q20 and 6M20, respectively.

Financial & Operational Highlights

• During 2Q20 we have been able to continue operating our business on a regular basis in spite of the pandemic that spread through the region. Given the general slowdown of the economies and the decrease in prices, we have taken several strategic measures to mitigate the impact. We reassessed our cost structure, reduced SG&A expenses, put on hold uncommitted capital expenditures and raised short-term credit lines to strengthen our cash position, as part of an integral risk management program that includes a $100 million loan agreement with IFC.
  
  
• In the Sugar & Ethanol industry, ethanol experienced a decrease in price and demand mainly explained by (i) the fall in international oil prices which translated into a drop in the price of ethanol and (ii) the reduction of circulation of people in Brazil as a protective measure in response to Covid-19, leading to a natural decline in the demand for fuels and biofuels. The impact of these factors caused the ethanol industry to experience a challenging second quarter, and led us to reassess our strategy to adjust to the new scenario. Indeed, we diverted 54% of TRS production to sugar (compared with 25% during 2Q19), continuing with our strategy of maximizing the product with the highest marginal contribution; we implemented a cost reduction plan which included the temporary suspension of employees contemplated in MP 936/20; and we reduced our crushing by 1.1 million tons compared to 2Q19, which we expect to recover during the second semester. Indeed, during July we reached a record high of 1.7 million tons of sugarcane crushed as well as an all time record production of sugar. This improvement in our operations, coupled with a positive outlook in terms of productivity, will allow us to take advantage of the recovery in ethanol's fundamentals, as seen in an 11% month-over-month increase in demand and only a 9% year-over-year decrease.
  
  
• Adjusted EBITDA in our Sugar, Ethanol & Energy business reached $45.4 million in 2Q20, 44.4%, or $36.2 million lower to the same period of last year. This decrease is mainly explained by a 46.3% reduction in net sales driven by the lower average prices of sugar, ethanol and energy measured in U.S. dollars and the lower volumes of ethanol and energy sold. This decrease was partially offset by the higher volume of sugar sold, the lower cost of production and SG&A expenses, driven by the combined effect of our cost reduction plan, enhanced agricultural and industrial efficiencies, and the depreciation of the Brazilian Real that further contributed to reduce costs measured in U.S dollar.
  
  
• Adjusted EBITDA for the Farming and Land Transformation businesses reached $40.2 million in 2Q20, $29.7 million or four times higher year-over-year. The increase is attributable to the $10.1 million gain derived from the sale of a 811 hectare farm in Argentina, in addition to the improved performance of every segment in the Farming business as our competitive advantages placed us in a solid position to promptly adapt to the current scenario and capitalize on the increased demand for most food products.
  
  Adjusted EBITDA in the Crops business registered an increase of $14.0 million compared to 2Q19. Results were mostly driven by (i) a year-over-year increase in harvested area, led by 22 thousand hectares more corn generating a $4 million gain in Changes in Fair Value, and (ii) higher average prices despite the impact of the pandemic, as we leveraged on our structure to increase the participation of higher-value crops such as peanut and sunflower, which fit in with our traditional crops and enhance the profitability of the rotation. We have recently invested in a second blanching line in our peanut facility to be able to increase peanuts in the rotation.
  
  The Rice business reported a $5.2 million increase in Adjusted EBITDA, mostly driven by an increase in demand both in the domestic and export market as countries built buffer stocks and increased their food consumption in response to the pandemic. This, in addition to the higher prices observed in the export market and the increase in the sales mix of higher margin products such as parboiled rice.
  
  
• Net Income in 2Q20 resulted in a loss of $12.1 million, compared to a gain of $23.3 million recorded during the same period of last year. The $35.3 million decrease is primarily explained by the non-cash loss derived from the revaluation of our U.S. dollar denominated financial debt, measured in local currency.
  
  
• Adjusted Net Income by definition excludes, (i) any non-cash result derived from bilateral exchange variations, (ii) any 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). We believe Adjusted Net Income is a more appropriate metric to reflect the Company´s performance. Adjusted Net Income in 2Q20 reached $18.2 million, $17.3 million higher compared to 2Q19, mainly explained by $42.0 million higher FX loss quarter-over-quarter and the sale of a farm in 2Q20.

Strategy Execution

Farmland sale at premium to independent appraisal

• In June 2020, we completed the sale of a plot of 811.7 hectares in the Province of Santa Fe, Argentina, for a selling price of $12.1 million, a 21.3% premium to the latest Cushman and Wakefield´s independent appraisal dated September 30, 2019.

• The transaction generated an EBITDA of $10.1 million of which $2.1 million represented a gain before tax included in the line item "Other operating income" and $8.0 million as a reclassification of Revaluation Surplus to Retained Earnings Before Income Tax, reflected in the Statements of Changes in Shareholders Equity.

$100 million loan granted by multilateral institution

• Not only from an operational point of view did we adapt our strategy in response to the pandemic. We also worked on continue improving our capital structure and liquidity position in light of such an uncertain economic scenario. We began the year with a cash position of $290 million and throughout the first half of the year we reassessed our cost structure, put on hold uncommitted capital expenditures and raised short term credit lines as a precautionary measure to strengthen our cash position and to secure our financial obligations and working capital needs.
  
  In June 2020 as part of an integral risk management strategy, we entered into a $100 million loan agreement with the International Finance Corporation (IFC), member of the World Bank Group, to support our Argentine operations. Securing a $100 million loan facility is a major achievement given the current global economic situation, and is only possible because of our hard work, solid reputation and the trust worthy stable outlook of our business. This also validates our strong commitment to environmental sustainability. The financing package includes a $17.8 million IFC Green Loan tranche, which is aligned with the Green Loan Principles of the Loan Market Association, and represents the first IFC Green Loan in the real economy in Argentina and in the dairy and animal protein sector globally. The loan's tenor is eight years, including a two-year grace period, and it will enable us to extend the average life of our debt to over six years.

Pioneers in carbon credit commercialization

• In June 2020 we officially became the first company to commercialize carbon credits (CBio) under the RenovaBio program, marking a milestone in Brazil's biofuel policy. We are proud to have kickstarted Brazil's CBio trade through the sale of 100 carbon credits at a price of R$50/CBio (~USD 10/CBio). Being environmentally responsible is central to what we do. RenovaBio is fully aligned with our values of sustainability, efficiency and innovation, and we remain fully committed to continue working towards achieving greener operations and further improving our mills' score, which already positioned us in the top 10%.
  
  RenovaBio is a program designed by the Brazilian government to cut carbon emission in the country by establishing a mechanism that taxes fossil fuel consumption while subsidizing the production of renewable energy. Under this program, a carbon credit market is established in which sellers of fossil fuels have to acquire a mandatory quota of CBios, which is defined based on the amount of non-renewable fuels sold by them in the prior year. The issuers of CBios are biofuel producers whose mills have been certified and awarded a score based on how "green" their mill operation is. CBios are financial instruments traded on Brazil's B3 platform, with prices based on the supply of and demand for those credits. The RenovaBio program was officially launched on December 24th, 2019. The official trading of CBios in the Brazilian stock exchange started on April 27th, 2020 and the first sale of CBios took place on June 12th, 2020.

Non-Gaap Financial Measures: For a full reconciliation of non-gaap financial measures please refer to page 34 of our 2Q20 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 2Q20 earnings release, please access ir.adecoagro.com. A conference call to discuss 2Q20 results will be held on August 14, 2020 with a live webcast through the internet:

Conference Call

August 14, 2020
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: 10145631

Investor Relations Department
Charlie Boero Hughes
CFO

Juan Ignacio Galleano
IRO
Email: ir@adecoagro.com
Tel: +54 (11) 4836-8624 

About Adecoagro:
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.

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SOURCE Adecoagro S.A.

FAQ

What was Adecoagro's adjusted EBITDA for Q2 2020?

Adecoagro's adjusted EBITDA for Q2 2020 was $40.2 million.

How much net income did Adecoagro report in Q2 2020?

Adecoagro reported a net loss of $12.1 million in Q2 2020.

What impact did the pandemic have on Adecoagro's operations?

Despite the pandemic, Adecoagro continued operations and implemented cost reduction strategies.

What was the primary reason for Adecoagro's net loss in Q2 2020?

The net loss was primarily due to non-cash losses from currency debt revaluation.

How did Adecoagro's sugar production change in July 2020?

In July 2020, Adecoagro achieved a record sugarcane production of 1.7 million tons.