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Adecoagro´s Adjusted EBITDA reached $102.1 million during 3Q20, 9.2% higher year-over-year

·11 min read

LUXEMBOURG, Nov. 12, 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 third quarter ended September 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 33 for a definition and reconciliation to IFRS of the Non - IFRS measures used in this earnings release.

Main highlights for the period:

  • Total Adjusted EBITDA(3) during 3Q20 was 9.2% higher than in the same period of last year driven by a 54.5% increase in the Farming segment and a 1.5% increase in the Sugar, Ethanol & Energy segment.

  • Adjusted Net Income reached $37.8 million during 3Q20, 25.3% higher year-over-year and stood at $101.5 million during 9M20, more than doubling 9M19's figure.

Financial & Operational Highlights

  • In the Sugar, Ethanol & Energy business we crushed 4.4 million tons during 3Q20, 49.9% or 1.4 million tons higher than in 2Q20, successfully making up for the lower volume crushed during the first semester of the year. Higher crushing was driven by (i) greater cane availability following our decision to temporarily slow down our crushing pace during 2Q20 in light of the Covid-19 pandemic, which allowed us to transfer cane into the second semester of the year and benefit from the better price outlook; (ii) favorable weather and (iii) recovered market liquidity. September marked the lowest year-over-year reduction in Otto-cycle fuel sales since the beginning of the pandemic, standing at 1.9% as reported by UNICA. At the same time, anhydrous ethanol sales recovered to pre-pandemic volumes driven by increased demand from the Northeast region of Brazil as currency depreciation favored domestic ethanol over U.S. imports. Moreover, during 3Q20 hydrous ethanol prices measured in BRL were 16.0% higher than during the previous quarter, anhydrous ethanol traded 18.0% higher in BRL and sugar prices measured in U.S. dollars were 14.1% higher than during 2Q20. Energy spot prices display a positive outlook, having tripled between September and October driven by the dry weather in the Center-South regions of Brazil, as reported by CCEE. Accordingly, we believe that the dry weather will result in a longer interharvest period in Brazil and thus, put further pressure on prices. However, times are still uncertain. We are following closely the recurrence of Covid-19 cases in the Northern hemisphere, being mindful that the S&E industry could be impacted if the situation were to replicate in Brazil.

  • During 3Q20 we diverted 44% of TRS to sugar production, compared to 13% during the same period of last year, showing our high degree of asset flexibility. In addition, we increased our anhydrous ethanol mix from 31% in 3Q19 to 41%. Adjusted EBITDA in our Sugar, Ethanol & Energy business reached $86.4 million in 3Q20, 1.5%, or $1.3 million higher compared to 3Q19. Net sales decreased by 13.1%, on account of lower average selling prices measured in U.S. dollars of sugar, ethanol and energy (although average prices of sugar and ethanol increased in BRL) and lower volumes of ethanol and energy sold. However, this drop was fully offset by (i) the higher volume of sugar sold; (ii) a lower cost of production driven by the combined effect of 0.7 million tons of higher crushing volume that allowed us to dilute fixed costs, and the depreciation of the Brazilian Real that further contributed to reduce costs measured in U.S dollars; (iii) higher mark-to-market of our biological assets, especially for harvested sugarcane, on the account of currency depreciation; and (iv) lower general and administrative expenses both due to currency depreciation as well as enhanced efficiencies and savings from our cost reduction initiatives.

  • Adjusted EBITDA for the Farming and Land Transformation businesses reached $20.7 million in 3Q20, $7.3 million or 54.5% higher year-over-year. The increase in financial performance is fully attributed to the Farming business, since no farm sales were conducted during the quarter. The Rice business accounted for $5.6 million year-over-year increase in Adjusted EBITDA, coupled with $2.5 million from the Dairy business, partially offset by a reduction of $1.3 million year-over-year in Adjusted EBITDA from our Crops business mainly driven by the negative impact in the mark-to-market of our forward and derivative position generated by the increase in commodity prices.

The Rice business reported $6.1 million in Adjusted EBITDA, 13x higher year-over-year, with the increase mostly driven by (i) an increase in demand coupled with higher average selling prices both in the domestic and export market, as global consumer demand moved from food service to grocery and from the outside of the stores to the center aisles; and (ii) lower cost in dollar terms as a result of the depreciation of the Argentine peso and enhanced efficiencies at the farm and industry level.

  • Net Income in 3Q20 resulted in a gain of $20.3 million, compared to a loss of $30.3 million recorded during the same period of last year. The $50.6 million increase is mainly explained by a lower FX loss coupled with the year-over-year increase in EBITDA generation. Indeed, in the case of Argentina, not only did currency depreciation present a nominal decrease from 35.6% during 3Q19 to 8.1% during 3Q20, but also the portion of our debt subject to depreciations has been reduced, as we increased the mix of domestic currency. Year-to-date the $36.9 million decrease in Net Income is mainly explained by a 39.9% nominal depreciation of the Brazilian Real primarily during the first semester of the year.

  • Adjusted Net Income in 3Q20 reached $37.8 million, $7.6 million higher than in 3Q19. Adjusted Net Income excludes, (i) any non-cash result derived from bilateral exchange variations; (ii) any revaluation resulting 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.

Strategy Execution

RenovaBio´s Carbon Credit Trade Picks up

  • Due to the impact of the Covid-19 pandemic on fuel markets, the Brazilian Ministry of Mines and Energy communicated during 2Q20 that it would revise the targets for carbon credits (CBios) to be purchased by fuel distributors under the RenovaBio program. At the beginning of September the new goals were announced, cutting by 50% the target for 2020 to 14.5 million CBios. As the announcement provided obligated parties with clarity regarding the volume to be acquired, CBio trading in the Brazilian stock exchange started to increase, successfully reverting the slow start observed in April, when trading officially began. As of the end of October, 12.3 million CBios were made available for sale, of which 7.2 million have already been acquired by obligated parties, according to UNICA. Average trading prices experienced an upward trend since the new targets were informed, and currently stand at 62 BRL/CBio, climbing from as low as 20 BRL/CBio. We are optimistic regarding the increased liquidity for the certificates, and expect more attractive prices in the future, as similar carbon credit certificates trade at $20 U.S. dollars in other developed markets.

Our three mills have been certified by ANP to issue CBios and were awarded an average score of 1.4 CBios/m3 sold, placing us in the top 10%. This means that in a year of full ethanol maximization our mills could produce as much as 750 thousand m3 of ethanol, which would give us the right to issue approximately 1 million CBios considering our current score. Scoring, however, can be improved with any investment that increases sustainability in operations. As of the end of October, we sold 230 thousand CBios at an average price of 40.4 BRL/CBio. The margin generated is captured in our Adjusted EBITDA under the Other Operating Income line. However, since most sales were carried out during 4Q20, the impact of CBio sale during this quarter is negligible.

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.

Independent Farmland Appraisal Report

  • As of September 30, 2020, Cushman & Wakefield (C&W) updated its independent appraisal of Adecoagro's farmland. Adecoagro's subsidiaries held 224,820 hectares net of minority interests, valued at $712.5 million. On a comparable basis, accounting for the sale of 811 hectares of Abolengo farm during June, 2020, current valuation is in line with last year's. We continue to see opportunities for land sales in Argentina, since it is a dollar-linked asset, and remain optimistic about the possibility of closing an additional sale by year end 2020.

Please visit ir.adecoagro.com for the Cushman & Wakefield 2020 Appraisal Report. These appraisals are subject to changes based on a host of variables and market conditions. Please also refer to page 81 of our Annual Report on Form 20-F, for the year ended December 31, 2019 for the methodology employed in the appraisals of our farmland by Cushman & Wakefield.

Non-Gaap Financial Measures: For a full reconciliation of non-gaap financial measures please refer to page 33 of our 3Q20 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 3Q20 earnings release, please access ir.adecoagro.com. A conference call to discuss 3Q20 results will be held on November 13, 2020 with a live webcast through the internet:

Conference Call

November 13, 2020
9 a.m. (US EST)
11 a.m. Buenos Aires
11 p.m. Sao Paulo
2 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: 10148312

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.