Exhibit 99.1
Operating and Financial Review and Prospects
OPERATING RESULTS
Trends and Factors Affecting Our Results of Operations
Our results of operations have been influenced and will continue to be influenced by the following factors:
(i) Effects of Yield Fluctuations
The occurrence of severe adverse weather conditions, especially droughts, hail, floods or frost, are unpredictable and may have a potentially devastating impact on agricultural production and may otherwise adversely affect the supply and prices of the agricultural commodities that we sell and use in our business. The effects of severe adverse weather conditions may also reduce yields at our farms. Yields may also be affected by plague, disease or weed infection and operational problems.
The following table sets forth our average crop, rice and sugarcane yields per hectare for the periods indicated:
2017/2018 | 2016/2017 | % Change | ||
Harvest Year (1) | Harvest Year (1) | 2017/2018 - 2016/2017 | ||
Corn (2) | 4.5 | 6.5 | (30.8 | )% |
Soybean | 2.0 | 3.1 | (35.5 | )% |
Soybean (second harvest) | 1.2 | 2.5 | (52.0 | )% |
Wheat (3) | 2.2 | 3.0 | (26.7 | )% |
Sunflower | 1.8 | 1.9 | (5.3 | )% |
Rice | 6.9 | 5.9 | 16.9 | % |
Sugarcane | 95.8 | 88.9 | 7.8 | % |
(1) | The table above sets forth current yields in respect of harvest years as of June 30. The portion of harvested area completed as of June 30, 2018 was 58.6% for corn, 100% for soybean first harvest, 100% for soybean second harvest, 100% for wheat, 100% for sunflower and 100% for rice. The portion of harvested area completed as of June 30, 2017 was 32.5% for corn, 92.1% for soybean first harvest, 93.2% for soybean second harvest, 100% for wheat, 100% for sunflower and 100% for rice. |
(2) | Includes sorghum, chia and peanut. |
(3) | Includes barley, rye, oats and chickpea. |
(ii) Effects of Fluctuations in Production Costs
We experience fluctuations in our production costs due to the fluctuation in the costs of (i) fertilizers, (ii) agrochemicals, (iii) seeds, (iv) fuel, (v) farm leases and (vi) labor. The use of advanced technology, however, allows us to increase our efficiency, in large part mitigating the fluctuations in production costs. Some examples of how the implementation of production technology has allowed us to increase our efficiency and reduce our costs include the use of no-till technology (also known as “direct sowing”, which involves farming without the use of tillage, leaving plant residues on the soil to form a protective cover which positively impacts costs, yields and the soil), crop rotation, second harvest in one year, integrated pest management, and balanced fertilization techniques to increase the productive efficiency in our farmland. Increased mechanization of harvesting and planting operations in our sugarcane plantations and utilization of modern, high pressure boilers in our sugar and ethanol mills has also yielded higher rates of energy production per ton of sugarcane milled.
(iii) Effects of Fluctuations in Commodities Prices
Commodity prices have historically experienced substantial fluctuations. For example, between January 1, 2018 and June 30, 2018, ethanol prices decreased by 15.0%, according to Escola Superior de Agricultura “Luiz de Queiroz” (“ESALQ”) data, sugar prices decreased by 21.8%, according to Intercontinental Exchange of New York (“ICE-NY”) data. Also, based on Chicago Board of Trade (“CBOT”) data, from January 1, 2018 to June 30, 2018, soybean prices decreased 9.8% and corn prices increased by 0.1%. Commodity price fluctuations impact our statement of income as follows:
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• | Initial recognition and changes in the fair value of biological assets and agricultural produce in respect of unharvested biological assets undergoing biological transformation; |
• | Changes in net realizable value of agricultural produce for inventory carried at its net realizable value; and |
• | Sales of manufactured products and agricultural produce to third parties. |
The following graphs show the spot market price of some of our products since June 30, 2013 to June 30, 2018, highlighting the periods from January 1 to June 30, 2017 and January 1 to June 30, 2018:
(iv) Fiscal Year and Harvest Year
Our fiscal year begins on January 1 and ends on December 31 of each year. However, our production is based on the harvest year for each of our crops and rice. A harvest year varies according to the crop or rice plant and to the climate in which it is grown. Due to the geographic diversity of our farms, the planting period for a given crop or rice may start earlier on one farm than on another, causing differences for their respective harvesting periods. The presentation of production volume (tons) and production area (hectares) in this report in respect of the harvest years for each of our crops and rice starts with the first day of the planting period at the first farm to start planting in that harvest year to the last day of the harvesting period of the crop or rice planting on the last farm to finish harvesting that harvest year.
On the other hand, production volumes for dairy and production volume and production area for sugar, ethanol and energy business are presented on a fiscal year basis.
The financial results in respect of all of our products are presented on a fiscal year basis.
(v) Effects of Fluctuations of the Production Area
Our results of operations also depend on the size of the production area. The size of our own and leased area devoted to crop, rice and sugarcane production fluctuates from period to period in connection with the purchase and development of new
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farmland, the sale of developed farmland, the lease of new farmland and the termination of existing farmland lease agreements. Lease agreements are usually settled following the harvest season, from July to September in crops and rice, and from May to April in sugarcane. The length of the lease agreements are usually one year for crops, one to five years for rice and six to seven years for sugarcane. Regarding crops, the production area can be planted and harvested one or two times per year. As an example, wheat can be planted in July and harvested in December. Right after its harvest, soybean can be planted in the same area and harvested in April. As a result, planted and harvested area can exceed the production area during one year. The production area for sugarcane can exceed the harvested area in one year. Grown sugarcane can be left in the fields and then harvested the following year. The following table sets forth the production area for the periods indicated:
Six-month period ended June 30, | ||||||
2018 | 2017 | Chg (%) | ||||
(Hectares) | ||||||
Crops (1) | 153,970 | 145,474 | 5.8 | % | ||
Rice | 40,289 | 39,728 | 1.4 | % | ||
Sugar, Ethanol and Energy | 149,237 | 139,605 | 6.9 | % | ||
(1) Does not include second crop area or forage.
The increase in crop and rice production area in 2018 compared to 2017 was mainly driven by the transformation of underdeveloped hectares and by the increase in leased hectares due to higher projected margins. The increase in sugar, ethanol and energy production area in 2018 is explained by an increase in leased hectares that provide sufficient cane supply for the entire year.
(vi) Effect of Acquisitions and Dispositions
The comparability of our results of operations is also affected by the completion of significant acquisitions and dispositions. Our results of operations for earlier periods that do not include a recently completed acquisition or do include farming operations subsequently disposed of may not be comparable to the results of a more recent period that reflects the results of such acquisition or disposition. During the six-month period ended June 30, 2018 we sold two farms in Brazil, "Rio de Janeiro" and "Conquista", for a total consideration of $52.4 million for 9,300 hectares.
(vii) Macroeconomic Developments in Emerging Markets
We generate nearly all of our revenue from the production of food and renewable energy in emerging markets. Therefore, our operating results and financial condition are directly impacted by macroeconomic and fiscal developments, including fluctuations in currency exchange rates, inflation and interest rate fluctuations, in those markets. The emerging markets where we conduct our business (including Argentina, Brazil and Uruguay) remain subject to such fluctuations.
(viii) Effects of Export Taxes on Our Products
Following the economic and financial crisis experienced by Argentina in 2002, the Argentine government increased export taxes on agricultural products. As of today, the only product that remains subject to export taxes is soybean and its derivatives. Soybean was subject to an export tax of 35.0% between 2002 and December 2015, when it was reduced to 30.0%. The government announced that beginning in January 2018 the export tax on soybean will be gradually reduced by 0.5% per month until the export tax rate reaches 18.0%.
As local prices are determined taking into consideration the export parity reference, any increase or decrease in export taxes would affect our financial results.
(ix) Effects of Foreign Currency Fluctuations
Each of our Argentine, Brazilian and Uruguayan subsidiaries use local currency as its functional currency. A significant portion of our operating costs in Argentina are denominated in Argentine Pesos and most of our operating costs in Brazil are denominated in Brazilian Reais. For each of our subsidiaries’ statements of income, foreign currency transactions are translated to local currency, as such subsidiaries’ functional currency, using the exchange rates prevailing as of the dates of the relevant specific transactions. Exchange differences resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognized in the statement of income under “finance income” or “finance costs,” as applicable. Our Consolidated Financial Statements are presented in U.S. dollars,
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and foreign exchange differences that arise in the translation process are disclosed in the consolidated statement of comprehensive income.
As of June 30, 2018, the Peso-U.S. dollar exchange rate was Ps. 28.9 per U.S. dollar as compared to Ps.16.6 per U.S. dollar as of June 30, 2017. As of June 30, 2018, the Real-U.S. dollar exchange rate was R$3.9 per U.S. dollar as compared to R$3.3 per U.S. dollar as of June 30, 2017.
The following graph shows the Argentine Peso-U.S. dollar rate and the Real-U.S. dollar rate of exchange for the periods since June 30, 2013 to June 30, 2018, highlighting the periods January 1 to June 30, 2017 and January 1 to June 30, 2018
Our principal foreign currency fluctuation risk involves changes in the value of the Brazilian Reais relative to the U.S. dollar. Periodically, we evaluate our exposure and consider opportunities to mitigate the effects of currency fluctuations by entering into currency forward contracts and other hedging instruments.
(x) Seasonality
Our business activities are inherently seasonal. We generally harvest and sell corn, soybean, rice and sunflower between February and August, and wheat from December to January. With the implementation of “continuous harvest”, sugarcane production is more stable during the year; however, the typical harvesting period in Brazil begins between April and May and ends between November and December. Sales of ethanol are generally concentrated during off-season to capture higher seasonal prices. Sales in other business segments, such as in our Dairy segment, tend to be more stable. However, milk sales are generally higher during the fourth quarter, when weather conditions are more favorable for production. As a result of the above factors, there may be significant variations in our results of operations from one quarter to another, since planting activities may be more concentrated in one quarter whereas harvesting activities may be more concentrated in another quarter. In addition,our quarterly results may vary as a result of the effects of fluctuations in commodity prices and production yields and costs related to the “Initial recognition and changes in fair value of biological assets and agricultural produce” line item. See “Item 5. Operating and Financial Review and Prospects—Critical Accounting Policies and Estimates—Biological Assets and Agricultural Produce” in our Form 20-F.
(xi) Land Transformation
Our business model includes the transformation of pasture and unproductive land into land suitable for growing various crops and the transformation of inefficient farms into farms suitable for more efficient uses through the implementation of advanced and sustainable agricultural practices, such as "no-till" technology and crop rotation. During approximately the first three to five years of the land transformation process of any given parcel, we must invest heavily in transforming the land, and, accordingly, crop yields during such period tend to be lower than crop yields once the land is completely transformed. After the transformation process has been completed, the land requires less investment, and crop yields gradually increase. As a result, there may be variations in our results from one season to the next according to the amount of land in the process of transformation.
Our business model also includes the identification, acquisition, development and selective disposition of farmlands or other rural properties that after implementing agricultural best practices and increasing crop yields we believe have the potential to appreciate in terms of their market value. As a part of this strategy, we purchase and sell farms and other rural properties from time to time. Please see also “Risk Factors—Risks Related to Argentina-Argentine law concerning foreign ownership of rural properties may adversely affect our results of operations and future investments in rural properties in Argentina” and “Risk Factors
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—Risks Related to Brazil—Changes in Brazilian rules concerning foreign investment in rural properties may adversely affect our investments.” included in “Item 3. Risk Factors” in our Form 20-F.
The results included in the Land Transformation segment are related to the acquisition and disposition of farmland businesses and not to the physical transformation of the land. The decision to acquire and/or dispose of a farmland business depends on several market factors that vary from period to period, rendering the results of these activities in one financial period when an acquisition of disposition occurs not directly comparable to the results in other financial periods when no acquisitions or dispositions occurred.
(xii) Capital Expenditures and Other Investments
Our capital expenditures during the last two years consisted mainly of expenses related to (i) transforming and increasing the productivity of our land, (ii) planting sugarcane and (iii) expanding and upgrading our production facilities in concordance to our five year plan. Capital expenditures (including both maintenance and expansion) totaled $118.2 million for the six-month period ended June 30, 2018 in comparison to $107.2 million in the same period of 2017. See also “—Capital Expenditure Commitments.”
(xiii) Effects of Corporate Taxes on Our Income
We are subject to a variety of taxes on our results of operations. The following table shows the income tax rates in effect for 2018 in each of the countries in which we operate:
Tax Rate (%) | |
Argentina(1) | 30 |
Brazil(2) | 34 |
Uruguay | 25 |
____________
(1) | During 2017, the Argentine Goverment introduced changes in the income tax. The income tax rate will be reduced to 30% for the years 2018 and 2019, and to 25% from 2020 onwards. A new tax on dividends is created with a rate of 7% for the years 2018 and 2019, and 13% from 2020 onwards. |
(2) | Including the Social Contribution on Net Profit (CSLL) |
Critical Accounting Policies and Estimates
The Company’s critical accounting policies and estimates are consistent with those described in Note 33 to the Audited Consolidated Financial Statements included in our Form 20-F.
Operating Segments
IFRS 8 “Operating Segments” requires an entity to report financial and descriptive information about its reportable segments, which are operating segments or aggregations of operating segments that meet specified criteria. Operating segments are components of an entity about which separate financial information is available that is evaluated regularly by the chief operating decision maker (“CODM”) in deciding how to allocate resources and in assessing performance. The CODM evaluates the business based on the differences in the nature of its operations, products and services. The amount reported for each segment item is the measure reported to the CODM for these purposes.
The Company operates in three major lines of business, namely, Farming; Sugar, Ethanol and Energy; and Land Transformation.
•The Company’s ‘Farming’ business is comprised of four reportable segments:
• | The Company’s ‘Crops’ segment consists of planting, harvesting and sale of grains, oilseeds and fibers (including wheat, corn, soybeans, cotton and sunflowers, among others), and to a lesser extent the provision of grain warehousing/conditioning, handling and drying services to third parties and the purchase and sale of crops produced by third parties. Each underlying crop in this segment does not represent a separate operating segment. Management seeks to maximize the use of the land through the cultivation of one or more type of crops. Types and surface amount of crops cultivated may vary from harvest year to harvest year depending on several factors, some of them out of the Group´s control. Management is focused on the long-term performance of the productive land, and to that extent, the performance is assessed considering the aggregated combination, if any, of crops planted in the land. A single manager is responsible for the management of operating activity of all crops rather than for each individual crop. |
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• | The Company’s ‘Rice’ segment consists of planting, harvesting, processing and marketing of rice; |
• | The Company’s ‘Dairy’ segment consists of the production and sale of milk; |
• | The Company’s ‘All other segments’ segment consists of the aggregation of the remaining non-reportable operating segments, which do not meet the quantitative thresholds for disclosure and for which the Group’s management does not consider them to be of continuing significance, namely, Coffee and Cattle. |
•The Company’s ‘Sugar, Ethanol and Energy’ segment consists of cultivating sugarcane which is processed in owned sugar mills, transformed into ethanol, sugar and electricity and marketed;
•The Company’s ‘Land Transformation’ segment comprises the (i) identification and acquisition of underdeveloped and undermanaged farmland businesses; and (ii) realization of value through the strategic disposition of assets (generating profits).
•The Company’s ‘Corporate’ segment comprises certain other activities of a holding function nature not allocable to the segments
The following table presents selected historical financial and operating data solely for the periods indicated below as it is used for our discussion of results of operations. In respect of production data only as of June 30, 2018, we have not yet completed the 2017/2018 harvest year crops. The harvested tons presented correspond to the harvest completed as of June 30, 2018.
Six-month period ended June 30, | ||||||
2018 (Unaudited) | 2017 (Unaudited) | Chg (%) | ||||
(In thousands of $) | ||||||
Sales | ||||||
Farming Business | 153,134 | 147,934 | 3.5 | % | ||
Crops | 80,512 | 84,896 | (5.2 | )% | ||
Soybean (1) | 48,911 | 40,764 | 20.0 | % | ||
Corn (2) | 21,379 | 32,223 | (33.7 | )% | ||
Wheat (3) | 6,204 | 10,523 | (41.0 | )% | ||
Sunflower | 983 | 438 | 124.4 | % | ||
Cotton Lint | 0 | 46 | N/A | |||
Other crops (4) | 3,035 | 902 | 236.5 | % | ||
Rice (5) | 56,211 | 43,278 | 29.9 | % | ||
Dairy | 15,607 | 19,322 | (19.2 | )% | ||
All other segments (6) | 804 | 438 | 83.6 | % | ||
Sugar, Ethanol and Energy Business | 218,352 | 246,687 | (11.5 | )% | ||
Sugar | 52,278 | 121,801 | (57.1 | )% | ||
Ethanol | 143,697 | 104,966 | 36.9 | % | ||
Energy | 22,279 | 19,875 | 12.1 | % | ||
Other (7) | 98 | 45 | 117.8 | % | ||
Total | 371,486 | 394,621 | (5.9 | )% | ||
Land Transformation (8) | 36,227 | — | N/A | |||
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2017/2018 | 2016/2017 | |||||
Harvest Year (9) (Unaudited) | Harvest Year (9) (Unaudited) | Chg (%) | ||||
Production | ||||||
Farming Business | ||||||
Crops (tons) (10) | 399,652 | 465,047 | (14.1 | )% | ||
Soybean (tons) | 144,602 | 225,795 | (36.0 | )% | ||
Corn (tons) (2) | 171,706 | 113,624 | 51.1 | % | ||
Wheat (tons) (3) | 77,913 | 115,336 | (32.4 | )% | ||
Sunflower (tons) | 5,181 | 10,112 | (48.8 | )% | ||
Cotton Lint (tons) | 250 | 179 | 39.7 | % | ||
Rice (11) (tons) | 276,693 | 234,818 | 17.8 | % | ||
Six-month period ended June 30, | ||||||
2018 (Unaudited) | 2017 (Unaudited) | Chg (%) | ||||
Processed rice (12) (tons) | 135,507 | 121,096 | 11.9 | % | ||
Dairy (13) (thousand liters) | 47,366 | 43,517 | 8.8 | % | ||
Sugar, Ethanol and Energy Business | ||||||
Sugar (tons) | 141,342 | 202,455 | (30.2 | )% | ||
Ethanol (cubic meters) | 303,726 | 149,414 | 103.3 | % | ||
Energy (MWh) | 301,430 | 269,779 | 11.7 | % | ||
Land Transformation Business (hectares traded) | — | — | – | |||
2017/2018 | 2016/2017 | |||||
Harvest Year (Unaudited) | Harvest Year (Unaudited) | Chg (%) | ||||
(Hectares) | ||||||
Planted Area | ||||||
Farming Business (14) | ||||||
Crops | 195,965 | 190,348 | 3.0 | % | ||
Soybean | 81,269 | 84,499 | (3.8 | )% | ||
Corn (2) | 66,115 | 54,612 | 21.1 | % | ||
Wheat (3) | 36,533 | 38,008 | (3.9 | )% | ||
Sunflower | 2,869 | 5,413 | (47.0 | )% | ||
Cotton | 3,132 | 2,640 | 18.6 | % | ||
Forage | 6,047 | 5,177 | 16.8 | % | ||
Rice | 40,289 | 39,728 | 1.4 | % | ||
Total Planted Area | 236,254 | 230,076 | 2.7 | % | ||
Second Harvest Area | 35,948 | 39,698 | (9.4 | )% | ||
Leased Area | 72,115 | 64,245 | 12.2 | % | ||
Owned Croppable Area (15) | 122,144 | 120,956 | 1.0 | % | ||
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2018 | 2017 | Chg (%) | ||||
Sugar, Ethanol and Energy Business | ||||||
Sugarcane plantation | 149,237 | 139,605 | 6.9 | % | ||
Owned land | 9,145 | 9,145 | 0.0 | % | ||
Leased land | 140,092 | 130,460 | 7.4 | % | ||
(1) | Includes soybean, soybean oil and soybean meal. |
(2) | Includes sorghum, chia and peanuts. |
(3) | Includes barley. |
(4) | Includes seeds and farming services. |
(5) | Sales of processed rice including rough rice purchased from third parties and processed in our own facilities, rice seeds and services. |
(6) | All other segments include our cattle business which primarily consists of leasing land to a third party based on the price of beef. See “Item 4. Information on the Company—B. Business Overview—Cattle Business.” in our Form 20-F. |
(7) Includes operating leases and other services.
(8) Represents capital gain from the sale of land.
(9) The table reflects the production in respect of harvest years as of June 30.
(10) | Crop production does not include tons 28,100 and 128,151 tons of forage produced as of March 31, in the 2017/2018 and 2016/2017 harvest years, respectively. |
(11) | Expressed in tons of rough rice produced on owned and leased farms. The rough rice we produce, along with additional rough rice we purchase from third parties, is ultimately processed and constitutes the product sold in respect of the rice business. |
(12) | Includes rough rice purchased from third parties and processed in our own facilities. Expressed in tons of rough rice (1 ton of processed rice is approximately equivalent to 1.6 tons of rough rice). |
(13) | Raw milk produced at our dairy farms. |
(14) | Includes hectares planted in the second harvest. |
(15) | Does not include potential croppable areas being evaluated for transformation and does not include forage area. |
Six-month period ended June 30, 2018 as compared to six-month period ended June 30, 2017
The following table sets forth certain financial information with respect to our consolidated results of operations for the periods indicated.
Six-month period ended June 30, | ||
2018 (Unaudited) | 2017 (Unaudited) | |
(In thousands of $ ) | ||
Sales of goods and services rendered | 371,486 | 394,621 |
Cost of goods sold and services rendered | (285,495) | (335,309) |
Initial recognition and Changes in fair value of biological assets and agricultural produce | 35,508 | 22,702 |
Changes in net realizable value of agricultural produce after harvest | 7,348 | 3,193 |
Margin on Manufacturing and Agricultural Activities Before Operating Expenses | 128,847 | 85,207 |
General and administrative expenses | (29,884) | (28,501) |
Selling expenses | (39,644) | (37,077) |
Other operating income, net | 69,629 | 36,138 |
Profit from Operations Before Financing and Taxation | 128,948 | 55,767 |
Finance income | 4,843 | 5,222 |
Finance costs | (169,689) | (45,410) |
Financial results, net | (164,846) | (40,188) |
(Loss) / Profit Before Income Tax | (35,898) | 15,579 |
Income tax expense | 13,424 | (5,811) |
(Loss) / Profit for the Period | (22,474) | 9,768 |
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Sales of Goods and Services Rendered
Six-month period ended June 30, | Crops | Rice | Dairy | All other segments | Sugar, Ethanol and Energy | Total |
(In thousands of $) | ||||||
2018 (Unaudited) | 80,512 | 56,211 | 15,607 | 804 | 218,352 | 371,486 |
2017 (Unaudited) | 84,896 | 43,278 | 19,322 | 438 | 246,687 | 394,621 |
Sales of manufactured products and services rendered decreased 5.9%, from $394.6 million during the six-month period ended June 30, 2017 to $371.5 million during the same period in 2018, primarily as a result of:
• a $28.3 million decrease in our Sugar, Ethanol and Energy segment, mainly due to: (i) a 23.4% decrease in the price of sugar, from $425.8 per ton during the six-month period ended June 30, 2017 to $326.3 per ton during the same period in 2018; (ii) a 3.0% decrease in the volume of sugar and ethanol sold, measured in TRS(*), from 615.3 thousand tons during the six-month period ended June 30, 2017 to 597.0 thousand tons during the same period in 2018; and (iii) a 4.4% decrease in the volume of energy sold, from 318.1 MWh during the six-month period ended June 30, 2017 to 304.1 MWh during the same period in 2018. The decrease in volume of sugar and ethanol sold was mainly due to: (a) a 22.2% decrease in commercialization of third parties sugar, from 77.0 thousand tons in the six-month period ended June 30, 2017 to 59.9 thousand tons during the same period in 2018; and (b) to an inventories build-up, of 122.7 thousand tons in 2018 compared to an inventories sell-off of 55.9 thousand tons measured in TRS in 2017; These decreases were partially offset by a 35.9% increase in milling, from 3.9 million tons during the six-month period ended June 30, 2017 to 5.3 million tons during the same period in 2018. The decrease in the volume of energy sold was due to (a) a 17.5% decrease in cogeneration efficiency, from 68.7 KWh per ton during the six-month period ended June 30, 2017 to 56.7 KWh per ton during the same period in 2018, which was primarily due to the fact that: (i) energy consumption in Angelica is now higher as a result of the increase in crushing capacity; (ii) during 2018 we adopted a strategy to redirect steam to maximize sugarcane crushing and also, we are producing a higher mix of ethanol, that consumes more energy; and (b) a 93.8% reduction in the commercialization of energy purchased from third parties, from 48 thousand MWh in the six-month period ended June 30, 2017 to 3 thousand MWh in the same period in 2018. These decreases were partially offset by: (i) a 0.6% increase in the price of ethanol, from $561.1 per cubic meter during the six-month period ended June 30, 2017 to $564.5 per cubic meter during the same period in 2018; and (ii) a 17.3% increase in energy prices, from $62.5 per MWh during the six-month period ended June 30, 2017 to $73.3 per MWh during the same period in 2018.
The following chart sets forth the variables that determine our Sugar and Ethanol sales:
(*) On average, one metric ton of sugarcane contains 140 kilograms of TRS (Total Recoverable Sugar). While a mill can produce either sugar or ethanol, the TRS input requirements differ between these two products. On average, 1.045 kilograms of TRS equivalent are required to produce 1.0 kilogram of sugar, while the amount of TRS required to produce 1 liter of ethanol is 1.691 kilograms.
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The following chart sets forth the variables that determine our Energy sales:
The following table sets forth the breakdown of sales of manufactured products for the periods indicated.
Six-month period ended June 30, | ||||||||||||
2018 | 2017 | Chg % | 2018 | 2017 | Chg % | 2018 | 2017 | Chg % | ||||
(Unaudited) | ||||||||||||
(In millions of $) | (In thousands units) | (In dollars per unit) | ||||||||||
Ethanol (M3) | 143.7 | 105.0 | 36.9 | % | 254.6 | 187.1 | 36.1 | % | 564.5 | 561.1 | 0.6 | % |
Sugar (tons) | 52.3 | 121.8 | (57.1 | )% | 160.2 | 286.0 | (44.0 | )% | 326.3 | 425.8 | (23.4 | )% |
Energy (MWh) | 22.3 | 19.9 | 12.1 | % | 304.1 | 318.1 | (4.4 | )% | 73.3 | 62.5 | 17.3 | % |
Total | 218.3 | 246.7 | (11.5 | )% | ||||||||
• | a $4.4 million decrease in our Crops segment mainly driven by: (i) a 28.9% decrease in the volume of corn sold, from 190.3 thousand tons in the six-month period ended June 30, 2017 to 135.3 thousand tons in the same period in 2018; (ii) a 46.3% decrease in the volume of wheat sold, from 68.6 thousand tons during the six-month period ended June 30, 2017 to 36.8 thousand tons in the same period in 2018; and (iii) a 6.5% decrease in corn prices, from $169.2 per ton in the six-month period ended June 30, 2017 to $158.2 per ton in the same period in 2018. The decrease in the volume of corn sold was mainly due to a 30.8% decrease in yields, from 6.5 tons per hectare during the six month-period ended June 30, 2017 to 4.5 tons per hectare during the same period in 2018, that was mainly driven by the drought that impacted Argentina during the first months of 2018. The decrease in the volume of wheat sold, was mainly due to a 32.4% decrease in wheat production, from 115.3 thousand tons during the six-month period ended June 30, 2017 to 77.9 thousand tons during the same period in 2018. These decreases were partially offset by a 18.1% increase in the price of soybean sold, from $285.9 per ton during the six-month period ended June 30, 2017 to $337.7 per ton during the same period in 2018, this was due to an increase in local Argentinean prices due to the lack of supply caused by the severe drought. |
Six-month period ended June 30, | ||||||||||||
2018 | 2017 | Chg % | 2018 | 2017 | Chg % | 2018 | 2017 | Chg % | ||||
(Unaudited) | ||||||||||||
(In millions of $) | (In thousands of tons) | (In $ per ton) | ||||||||||
Soybean | 48.9 | 40.8 | 19.9 | % | 144.8 | 142.7 | 1.5 | % | 337.7 | 285.9 | 18.1 | % |
Corn (1) | 21.4 | 32.2 | (33.5 | )% | 135.3 | 190.3 | (28.9 | )% | 158.2 | 169.2 | (6.5 | )% |
Wheat (2) | 6.2 | 10.5 | (41.0 | )% | 36.8 | 68.6 | (46.4 | )% | 168.5 | 153.1 | 10.1 | % |
Others | 4.0 | 1.4 | 185.7 | % | ||||||||
Total | 80.5 | 84.9 | (5.2 | )% | ||||||||
____________
(1) Includes sorghum.
(2) Includes barley.
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• | a $3.7 million decrease in our Dairy segment mainly caused by (i) a 13.9% decrease in fluid milk prices from $0.36 per liter in the six-month period ended June 30, 2017 to $0.31 per liter in the same period in 2018; and (ii) 87.5% decrease in the sale of powder milk, from the sale of 800 tons at $3,325 per ton during the six-month period ended June 30, 2017 to the sale of 100 tons at $3,239 per ton during the same period in 2018. The decrease in the volume of powder milk sold was mainly due to an inventories build up of 308 tons during the six-month period ended June 30, 2018 compared to nill during the same period in 2017. These decreases were partially offset by: (a) a 2.3% increase in the volume of fluid milk sold, from 42.6 million liters during the six-month period ended June 30, 2017 to 43.6 million liters during the same period in 2018, this is attributable to a 8.3% increase in the size of the milking cow herd in order to supply our new free stall 3, from an average of 6,805 heads in the six-month period ended June 30, 2017 to an average of 7,371 heads in the same period in 2018; and (b) the sale of 4.6 thousand MWh during the six-month period ended June 2018 compared to nill during the same period in 2017, from our biodigester which transforms cows' effluents into electricity. |
This was partially offset by:
• | a $12.9 million increase in our Rice segment, mainly due to: (i) a 13.0% increase in the volume of white rice sold measured in tons of rough rice, from 123.0 thousand tons during the six-month period ended June 30, 2017 to 139.0 thousand tons during the same period in 2018; and (ii) a 148.4% increase in the sale of by products, from $6.2 million during the six-month period ended June 30, 2017 to $15.4 million during the same period in 2018. The increase in the volume of white rice sold is, mainly due to a 16.9% increase in rice yields, from 5.9 tons per hectare during the six-month period ended June 30, 2017 to 6.9 tons per hectare during the same period in 2018. This increase was partially offset by a 2.6% decrease in the price of white rice sold, from $301.2 per ton during the six-month period ended June 30, 2017 to $293.4 per ton during the same period in 2018; |
Cost of Goods and Services Rendered
Six-month period ended June 30, | Crops | Rice | Dairy | All other segments | Sugar, Ethanol and Energy | Total |
(In thousands of $) | ||||||
2018 (Unaudited) | (80,589) | (46,273) | (14,979) | (540) | (143,114) | (285,495) |
2017 (Unaudited) | (84,692) | (37,702) | (18,988) | (175) | (193,752) | (335,309) |
In the case of our agricultural produce sold to third parties (i.e. soybean, corn, wheat and fluid milk), the value of Cost of Goods and Services Rendered is equal to the value of Sales and Services Rendered. The profit of these products is fully recognized under the line items “Initial recognition and changes in fair value of biological assets and agricultural produce” and “Changes in net realizable value of agricultural produce after harvest.” When the agricultural produce is sold to third parties we do not record any additional profit as the gain or loss has already been recognized.
In the case of our manufactured products sold to third parties (i.e. sugar, ethanol, energy and white rice), the profit is recognized when they are sold. The Cost of Goods and Services Rendered of these products includes, among others, the cost of the agricultural produce (i.e. harvested sugarcane and rough rice), which is the raw material used in the industrial process and is transferred internally from the farm to the industry at fair market value.
Cost of manufactured products sold and services rendered decreased 14.9%, from $335.3 million during the six-month period ended June 30, 2017 to $285.5 million during the same period in 2018. This decrease was primarily due to:
• | a $50.6 million decrease in our Sugar, Ethanol and Energy segment, mainly due to: (i) the 2.9% decrease in the volume of sugar and ethanol sold measured in TRS; and (ii) a lower unitary cost in dollar terms due to the 35.5% increase in milling which dilluted fixed cost per ton, coupled with the depreciation of the Brazilian Real during the six-month period ended June 30, 2018 compared to the same period in 2017. |
• | a $4.0 million decrease in our Dairy segment mainly due to the decrease in Sales of Goods and Services Rendered. |
• | a $4.1 million decrease in our Crops segment mainly due to the increase in Sales of Goods and Services Rendered. |
Partially offset by:
• | a $8.6 million increase in our Rice segment, mainly due to the 19.9% increase in volume sold. |
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Initial Recognition and Changes in Fair Value of Biological Assets and Agricultural Produce
Six-month period ended June 30, | Crops | Rice | Dairy | All other segments | Sugar, Ethanol and Energy | Total |
(In thousands of $) | ||||||
2018 (Unaudited) | 23,773 | 12,703 | 5,500 | 4 | (6,472) | 35,508 |
2017 (Unaudited) | 17,343 | 5,796 | 4,528 | 163 | (5,128) | 22,702 |
Initial recognition and changes in fair value of biological assets and agricultural produce increased 56.4%, from $22.7 million during the six-month period ended June 30, 2017 to $35.5 million during the same period in 2018. The increase was mainly due to:
• | A $6.9 million increase in our Rice segment, due to an increase in the recognition at fair value less cost to sell of harvested rice at the point of harvest, from $5.8 million during the six-month period ended June 30, 2017 (of which $5.8 million were realized) to $12.7 million during the same period in 2018 (of which $12.7 million were realized), mainly explained by the 16.9% increase in yields, coupled with lower costs in dollar terms, due to the Argentine Peso depreciation. |
• | A $6.4 million increase in our Crops segment from $17.3 million during the six-month period ended June 30, 2017 (of which $9.9 million were unrealized) to $23.8 million during the same period in 2018 (of which $9.8 million were unrealized). This increase is primarily due to: |
- | an increase of $7.4 million in the recognition at fair value less cost to sell of crops at the point of harvest, from $16.6 million in the six-month period ended June 30, 2017 to $24.0 million in the same period in 2018, mainly due to lower production costs in dollar terms, due to the depreciation of the Argentine Peso, partially offset by lower grain production. |
• | a $1.0 million increase in our Dairy segment, mainly due to the increase in the recognition at fair value less cost to sell of fluid milk, from $4.5 million during the six-month period ended June 30, 2017 (of which $0.5 million were unrealized) to $5.5 million during the same period in 2018 (of which $1.8 million were unrealized), mainly due to the 8.3% increase in milking cows, partially offset by lower fluid milk prices. |
Partially offset by:
• | A $1.3 million decrease in our Sugar, Ethanol and Energy segment from a loss of $5.1 million during the six-month period ended June 30, 2017 (of which $17.4 million were unrealized) to a loss of $6.5 million during the same period in 2018 (which includes $14.0 million of unrealized losses). This decrease was mainly due to: |
- a $4.7 million decrease in the recognition at fair value less cost to sell of harvested sugarcane at the point of harvest, from $12.2 million during the six-month period ended June 30, 2017 to $7.5 million during the same period in 2018 due to the 17.8% decrease in sugarcane prices, from $24.2 per ton during the six-month period ended June 30, 2017 to $19.9 per ton during the same period in 2018; partially offset by a 32.3% increase in the sugarcane harvested area, from 40.2 thousand hectares to 53.2 thousand hectares, coupled with lower costs due to the depreciation of the Brazilean Real.
- partially offset by a $3.4 million increase in the recognition at fair value less cost to sell of non-harvested sugarcane, from a loss of $17.4 million during the six-month period ended June 30, 2017 to a loss of $14.0 million in the same period in 2018, mainly generated by the increase in planted area.
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Changes in Net Realizable Value of Agricultural Produce after Harvest
Six-month period ended June 30, | Crops | Rice | Dairy | All other segments | Sugar, Ethanol and Energy | Total | ||||
(In thousands of $) | ||||||||||
2018 (Unaudited) | 7,348 | — | — | — | — | 7,348 | ||||
2017 (Unaudited) | 3,193 | — | — | — | — | 3,193 | ||||
Changes in net realizable value of agricultural produce after harvest is mainly composed by: (i) profit or loss from commodity price fluctuations during the period of time the agricultural produce is in inventory, which impacts its fair value; (ii) profit or loss from the valuation of forward contracts related to agricultural produce in inventory; and (iii) profit from direct exports. Changes in net realizable value of agricultural produce after harvest increased 130.1%, from $3.2 million during the six-month period ended June 30, 2017 to $7.3 million during the same period in 2018. This result is mainly explained by the impact of the increase in local prices on the fair value of soybean and corn held inventories during the six-month period ended June 30, 2018.
General and Administrative Expenses
Six-month period ended June 30, | Crops | Rice | Dairy | All other segments | Sugar, Ethanol and Energy | Corporate | Total | |
(In thousands of $) | ||||||||
2018 (Unaudited) | (2,040) | (2,458) | (1,493 | ) | (50) | (14,035) | (9,808) | (29,884) |
2017 (Unaudited) | (1,401) | (2,279) | (496) | (88) | (13,984) | (10,253) | (28,501) | |
Our general and administrative expenses increased 4.9%, from $28.5 million during the six-month period ended June 30, 2017 to $29.9 million during the same period in 2018. The increase is mainly explained by one time only expenses, related to legal fees and consulting services, in our Dairy segment.
Selling Expenses
Six-month period ended June 30, | Crops | Rice | Dairy | All other segments | Sugar, Ethanol and Energy | Corporate | Total |
(In thousands of $) | |||||||
2018 (Unaudited) | (2,995) | (7,968) | (201) | (90) | (28,330) | (60) | (39,644) |
2017 (Unaudited) | (2,946) | (6,401) | (468) | (53) | (27,150) | (59) | (37,077) |
Selling expenses increased 6.9%, from $37.1 million during the six-month period ended June 30, 2017 to $39.6 million during the same period in 2018, mainly due to:
• | a $1.6 million increase in our Rice segment, due to a 10.1% increase in white rice sales. |
• | a $1.2 million increase in our Sugar, Ethanol and Energy segment, due to the 36.1% increase in our ethanol sales, from 187.1 thousand cubic meters during the six-month period ended June 30, 2017 to 254.6 thousand cubic meters during the same period in 2018. This was due to the increase in the ethanol production mix, from 55% during the six-month period ended June 30, 2017 to 77% during the same period in 2018. Ethanol has higher commercialization tax expenses than sugar. |
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Other Operating Income, Net
Six-month period ended June 30, | Crops | Rice | Dairy | All other segments | Sugar, Ethanol and Energy | Land Transformation | Corporate | Total | ||||||||
(In thousands of $) | ||||||||||||||||
2018 (Unaudited) | (2,602 | ) | 282 | (38 | ) | (2 | ) | 35,854 | 36,227 | (92 | ) | 69,629 | ||||
2017 (Unaudited) | 3,339 | 637 | 422 | (161 | ) | 31,919 | - | (18 | ) | 36,138 | ||||||
Other operating income increased 92.7%, from $36.1 million during the six-month period ended June 30, 2017 to $69.6 million during the same period in 2018, primarily due to:
• | a $36.2 million increase in Land Transformation segment due to the sale of "Rio de Janeiro" and "Conquista" farms, located in Brazil, for a total consideration of $53.0 million for 9,300 croppable hectares. |
•a $3.9 million increase in our Sugar, Ethanol & Energy segment mainly explained by the mark-to-market effect of our sugar hedge positions;
Partially offset by:
• | a $5.9 million decrease in our Crops segment due to the mark-to-market effect of our soybean and corn hedge positions. |
Other operating income, net of our Rice, Dairy, All other segments and Corporate segments remained essentially unchanged.
Financial Results, Net
Our financial results, net increased from a loss of $40.2 million during the six-month period ended June 30, in 2017 to a loss of $164.8 million during the same period in 2018. This was mainly due to: (i) the 954.2% increase in foreign exchange losses, from a loss of $11.9 million during the six-month period ended June 30, 2017 to a loss of $125.3 million during the same period in 2018, and the 120.7% decrease in cash flow hedge transferred to equity, from a loss of $3.3 million during the six-month period ended June 30, 2017 to a loss of $7.3 million during the same period in 2018, mainly due to the impact on our dollar denominated debt of the 55.3% and 17.0% depreciation of the Argentine Peso and the Brazilean Real during the six-month period ended June 30, 2018 compared to a 4.7% and 1.6% depreciation of the Argentine Peso and the Brazilean Real during the same period in 2017; and (ii) the 207.9% increase in the losses from derivative instruments, from a loss of $2.2 million during the six-month period ended June 30, 2017 to a loss of $6.8 million during the same period of 2018, mainly due to the negative mark-to-market effect of our Brazilean Real hedge positions.
The following table sets forth the breakdown of financial results for the periods indicated.
Six-month period ended June 30, | ||||
2018 (Unaudited) | 2017 (Unaudited) | % Change (Unaudited) | ||
(In $ thousands) | ||||
Interest income | 4,242 | 5,021 | (15.5 | )% |
Interest expense | (27,404) | (25,798) | (6.2 | )% |
Foreign exchange losses, net | (125,272) | (11,883) | (954.2 | )% |
Cash flow hedge – transfer from equity | (7,327) | (3,320) | (120.7 | )% |
Loss from interest rate /foreign exchange rate derivative financial instruments | (6,759) | (2,195) | (207.9 | )% |
Taxes | (2,068) | (1,304) | (58.6 | )% |
Other Expenses net | (258) | (709) | 63.6 | % |
Total Financial Results | (164,846) | (40,188) | (310.2 | )% |
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Income Tax expense
Current income tax benefit totaled a gain of $13.4 million during the six-month period ended June 30, 2018, which equates to a consolidated effective tax rate of 37.4%. For the same period in 2017, we registered an income tax loss of $5.8 million. In 2018, we recorded non-taxable income in the amount of $6.4 million, mainly related to a Complementary Law in Brazil, which allows the Company to consider as a non-taxable income the Government grant related to the ICMS tax. In 2017, the effective tax rate was 37.0% based on non-deductible expenses in Brazil and Uruguay for an amount of 0.7 million.
(Loss)/Profit for the period
As a result of the foregoing, our net income during the six-month period ended June 30, 2018 decreased $32.2 million, from a gain of $9.8 million during the same period in 2017 to a loss of $22.5 million in 2018.
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LIQUIDITY AND CAPITAL RESOURCES
Our liquidity and capital resources are and will be influenced by a variety of factors, including:
• | our ability to generate cash flows from our operations; |
• | the level of our outstanding indebtedness and the interest that we are obligated to pay on such outstanding indebtedness; |
• | our capital expenditure requirements, which consist primarily of investments in new farmland, in our operations, in equipment and plant facilities and maintenance costs; and |
• | our working capital requirements. |
Our principal sources of liquidity have traditionally consisted of shareholders’ contributions, short and long term borrowings and proceeds received from the disposition of transformed farmland or subsidiaries.
We believe that our working capital will be sufficient during the next 12 months to meet our liquidity requirements.
Six-month period ended June 30, 2018 and 2017
The table below reflects our statements of Cash Flow for the six-month period ended June 30, 2018 and 2017.
For the six-month period ended June 30, | |||
2018 | 2017 | ||
(Unaudited, in thousands of $) | |||
Cash and cash equivalent at the beginning of the period | 269,195 | 158,568 | |
Net cash generated from operating activities | 31,734 | 50,899 | |
Net cash used in investing activities | (108,016 | ) | (101,391) |
Net cash (used by)/generated from financial activities | (35,394 | ) | 118,963 |
Effect of exchange rate changes on cash and cash equivalent | (12,811 | ) | (7,105) |
Cash and cash equivalent at the end of the period | 144,708 | 219,934 | |
Operating Activities
Period ended June 30, 2018
Net cash generated by operating activities was $31.7 million for the six-month period ended June 30, 2018. During this period, we generated a net loss of $22.5 million that included non-cash charges relating primarily to depreciation and amortization of $70 million, losses from interest and other expenses, net of $23.1 million, losses from foreign exchange, net of $125.3 million and $7.3 million Cash Flow hedge transfer from Equity. All these effects were partially offset by a gain from the sale of subsidiaries of $36.2, a gain from derivative financial instruments of $25.1 million, gain from initial recognition and changes in fair value of non-harvested biological assets unrealized of $7.5 million and changes in net realizable value of agricultural produce after harvest unrealized of $7.9.
In addition, other changes in operating assets and liability balances resulted in a net decrease in cash of $83.4 million, primarily due to an increase of $82.5 million in inventories, an increase of $54.2 million in trade and other receivables, a decrease of $9.1 million in trade and other payables. All these effects were partially offset by a decrease of $27.6 million in derivative financial instruments and a decrease of $32.6 million in biological assets.
Period ended June 30, 2017
Net cash generated by operating activities was $50.9 million for the six-month period ended June 30, 2017. During this period, we generated a net profit of $9.8 million that included non-cash charges relating primarily to depreciation and amortization of $56.2 million, losses from interest and other expenses, net of $21.2 million and losses from foreign exchange, net of $11.9 million. All these effects were partially offset by a gain from derivative financial instruments of $36.6 million and initial recognition and changes in fair value of non-harvested biological assets unrealized of $2.4 million.
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In addition, other changes in operating assets and liability balances resulted in a net decrease in cash of $24.6 million, primarily due to an increase of $29.1 million in trade and other receivables, an increase of $29.7 million in inventories and a decrease of $33 million in trade and other payables. All these effects were partially offset by a decrease of $40.0 million in derivative financial instruments related to a gain generated by derivative instruments, mainly futures, in our Sugar, Ethanol and Energy segment and a decrease of $25.7 million in biological assets.
Investing Activities
Period ended June 30, 2018
Net cash used in investing activities totaled $108 million in the six-month period ended June 30, 2018. Capital expenditures totaled $118.2 million, with the following amounts directed as follows: (i) $47 million, to the renewal and expansion of our sugarcane plantation and (ii) $71.2 million, to the construction of our Free stall number 3, which started operating as of August 27, 2018, coupled with the purchase of agricultural and industrial equipment related to the ongoing investment in the expansion of crushing capacity in Ivinhema, partially offset by collections from farm sales of $5.2 million and interest gains of $4.2 million.
Period ended June 30, 2017
Net cash used in investing activities totaled $101.4 million in the six-month period ended June 30, 2017. Capital expenditures totaled $107.2 million, directed to (i) due to $36.8 million related to the renewal and expansion of our sugarcane plantation and (ii) $69.2 million related to the purchase of agricultural and industrial equipment, mainly related to the expansion of crushing capacity in Angeìlica, from 4.8 tons per hour to 5.7 tons per hour, partially offset by interest gains of $5.0 million.
Financing Activities
Period ended June 30, 2018
Net cash used in financing activities was $35.4 million in the period ended June 30, 2018, primarily derived from the incurrence of (i) a new $50.7 million long term loan with Rabobank which will be used to finance part of the capital expenditure plan; and (ii) a short term debt of $19.7 million to finance working capital. This effect was primarily offset by net payments of long term borrowings in the amounts of $62.9 million, $26.4 million of interest paid and $15.7 million of shares repurchased.
Period ended June 30, 2017
Net cash generated by financing activities was $118.9 million in the six-month period ended June 30, 2017, primarily derived from the incurrence of (i) a new syndicated long term loan with Rabobank and ING, among others, in the amounts of $149.8 million, the proceeds of which were mainly used to refinance long term borrowings and to finance capital expenditures mainly for our Sugar, Ethanol and Energy business; and (ii) a short term debt of $75.1 million to finance working capital. This effect was primarily offset by net payments of long term borrowings in the amounts of $103.7 million, $22.5 million of interest paid and $8.7 million of shares repurchased.
Senior Notes 2027
On September 21, 2017, the Company issued senior notes (the “Notes”) for US$ 500 million, at an annual nominal rate of 6%. The Notes will mature on September 21, 2027. Interest on the Notes are payable semi-annually in arrears on March 21 and September 21 of each year, beginning on March 21, 2018. The total proceeds nets of expenses was US$ 496.5 million.
Cash and Cash Equivalents
Historically, since our cash flows from operations were insufficient to fund our working capital needs and investment plans, we funded our operations with proceeds from short-term and long-term indebtedness and capital contributions from existing and new private investors. In 2011 we obtained $421.8 million from the IPO and the sale of shares in a concurrent private placement (See “Item 4. Information on the Company—A. History and Development of the Company” in our Form 20-F). As of June 30, 2018, our cash and cash equivalents amounted to $144.7 million.
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However, we may need additional cash resources in the future to continue our investment plans. Also, we may need additional cash if we experience a change in business conditions or other developments. We also might need additional cash resources in the future if we find and wish to pursue opportunities for investment, acquisitions, strategic alliances or other similar investments. If we ever determine that our cash requirements exceed our amounts of cash and cash equivalents on hand, we might seek to issue debt or additional equity securities or obtain additional credit facilities or realize the disposition of transformed farmland and/or subsidiaries. Any issuance of equity securities could cause dilution for our shareholders. Any incurrence of additional indebtedness could increase our debt service obligations and cause us to become subject to additional restrictive operating and financial covenants, and could require that we pledge collateral to secure those borrowings, if permitted to do so. It is possible that, when we need additional cash resources, financing will not be available to us in amounts or on terms that would be acceptable to us or at all.
Projected Sources and Uses of Cash
We anticipate that we will generate cash from the following sources:
• | operating cash flow; |
• | debt financing; |
• | the dispositions of transformed farmland and/or subsidiaries; and |
• | debt or equity offerings. |
We anticipate that we will use our cash:
• | for other working capital purposes; |
• | to meet our budgeted capital expenditures; |
• | to make investment in new projects related to our business; and |
• | to refinance our current debts. |
Indebtedness and Financial Instruments
The table below illustrates the maturity of our indebtedness (excluding obligations under finance leases) and our exposure to fixed and variable interest rates:
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June 30, 2018 | December 31, 2017 | |||
(unaudited) | ||||
Fixed rate: | ||||
Less than 1 year | 119,169 | 132,998 | ||
Between 1 and 2 years | 23,672 | 35,762 | ||
Between 2 and 3 years | 16,560 | 20,097 | ||
Between 3 and 4 years | 16,263 | 20,130 | ||
Between 4 and 5 years | 5,664 | 16,310 | ||
More than 5 years | 495,931 | 495,754 | ||
677,259 | 721,051 | |||
Variable rate: | ||||
Less than 1 year | 23,873 | 21,833 | ||
Between 1 and 2 years | 16,957 | 22,871 | ||
Between 2 and 3 years | 29,814 | 17,945 | ||
Between 3 and 4 years | 26,381 | 18,215 | ||
Between 4 and 5 years | 8,767 | 11,164 | ||
More than 5 years | 27,172 | 4,774 | ||
132,964 | 96,802 | |||
810,223 | 817,853 | |||
(1) | The Company plans to partially rollover its short term debt using new available lines of credit, or on using operating cash flow to cancel such debt. |
During 2018 and 2017 the Company was in compliance with all financial covenants.
Short-term Debt.
As of June 30, 2018, our short term debt totaled $143.2 million.
We maintain lines of credit with several banks in order to finance our working capital requirements. We believe that we will continue to be able to obtain additional credit to finance our working capital needs in the future based on our past track record and current market conditions.
Capital Expenditure Commitments
During the six-month period ended June 30, 2018, our capital expenditures totalled $118.2 million. Our capital expenditures consisted mainly of purchases of property, plant and equipment, mainly related to the renewal and expansion of our sugarcane plantation $47 million, and $71.2 million related to purchase of agricultural and industrial equipment, totaling $118.2 million.
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