Adecoagro : 4Q16 Earnings Release

4Q16 | 2016

Conference Call

March 17, 2017 11 a.m. (US EST)

12 p.m. Buenos Aires time 12 p.m. São Paulo time

4 p.m. Luxembourg time

Tel: +1 (844) 836-8746

Luxembourg, March 16, 2017 - Adecoagro S.A. (NYSE: AGRO, Bloomberg: AGRO US, Reuters: AGRO.K), one of the leading agricultural companies in South America, announced today its results for the full year and fourth quarter period ended on December 31, 2016. The financial information contained in this press release is based on audited consolidated 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 30 for a definition and reconciliation of the Non - IFRS measures used in this report.

Financial & Operating Performance

$ thousands

Gross Sales

(1)

Participants calling from the US

Tel: +1 (412) 317-2501

Participants calling from other countries

Net Sales

Adjusted EBITDA (2)

Farming & Land Transformation 6,629 35,490 (81.3%) 53,962 70,498 (23.5%) Sugar, Ethanol & Energy 112,067 50,355 122.6% 265,044 167,180 58.5%

Hernan Walker

IR Manager

Email

ir@adecoagro.com

Website

www.adecoagro.com

than 4Q15.

Full year 2016 Adjusted EBITDA was $298.0 million, 38.0% above the previous year.

Delivered positive cash in 2016. Free Cash Flow(4) from Operations in 2016 was $133.3 million, while Free Cash Flow(4) was $84.9 million.

1. Net Sales are calculated as Gross Sales net of sugar, ethanol and energy sales taxes.

2. Please see "Reconciliation of Non-IFRS measures" starting on page 30 for a reconciliation of Adjusted EBITDA and Adjusted EBIT to Profit/Loss. Adjusted EBITDA is defined as consolidated profit from operations before financing and taxation, depreciation, amortization plus the gains or losses from disposals of non-controlling interests in subsidiaries. Adjusted EBIT is defined as consolidated profit from operations before financing and taxation plus the gains or losses from disposals of non- controlling interests in subsidiaries. Adjusted EBITDA margin and Adjusted EBIT margin are calculated as a percentage of net sales.

3. Adjusted EBITDA margin excluding third party commercialization activities is defined as the consolidated Adjusted EBITDA net of the Adjusted EBITDA generated by the commercialization of third party sugar, grains and energy, divided by consolidated net sales net of those generated by the commercialization of third party sugar, grains and energy. We net 3rd party commercialization results to highlight the margin generated by our own production. Third party commercialization

4. Please see "Reconciliation of Non-IFRS measures" starting on page 30 for a reconciliation of Free Cash Flow to Cash and cash equivalents at end of period. Free Cash Flow is defined as Net cash generated from operating activities plus net cash used in investing activities, plus interest paid. Net Cash Flow from Operations is defined as Free Cash Flow excluding expansion capex.

Financial and Operational Performance

Sugar, Ethanol & Energy

The Sugar, Ethanol & Energy business delivered outstanding operational and financial performance in the fourth quarter of 2016. The combination of dry weather, availability of sugarcane and operational efficiency enabled our mills to crush 3.1 million tons of sugarcane, 73.8% higher than 4Q15. In addition, improved sugarcane productivity resulted in a 1.8% increase in TRS per hectare. These factors have contributed to significant growth both in production and sales volumes and dilution of fixed costs.

Adjusted EBITDA in 4Q16 reached $112.1 million, 122.6% higher than 4Q15. Adjusted EBITDA margin grew from 35.0% to 43.2%, while Adjusted EBITDA margin excluding third party commercialization activities(1) grew from 39.5% to 48.4%. In addition to the operational enhancements described above, financial performance was improved by (i) a 51.0% and 36.4% increase in sugar and ethanol average realized selling prices, respectively; (ii) a 13.1% decrease in unitary production costs; and (iii) a $16.2 million gain from the mark-to-market effect of our sugar hedge position compared to a $9.7 million loss in 4Q15. Results were partially offset by a $24.8 million loss from changes in fair value of unharvested sugarcane (to be harvested in the next twelve months), as a result of slightly lower sugar futures prices and lower estimated sugarcane productivity as our plantation stabilizes.

On a full year basis, Adjusted EBITDA in 2016 grew 58.5% to $265.0 million. Adjusted EBITDA margin grew from 44.6% to 46.6%, while Adjusted EBITDA margin excluding third party commercialization(1) grew from 50.0% to 54.7%. This growth is primarily due to (i) a 33.3% increase in sugarcane crushing as a result of the "continuous harvest" model, which coupled with a higher sugar mix has resulted in a 50.8% growth in sugar production and an 43.6% increase in sugar sales volumes; (ii) higher sugar and ethanol average realized prices, up 29.6% and 25.5% respectively; and (iii) enhanced agricultural productivity complemented by the devaluation of the BRL, which resulted in a 4.6% dilution of production costs per ton of sugarcane crushed, year-over-year. Results were partially offset by (iv) a $7.9 million reduction in gains from changes in fair value of our unharvested sugarcane (to be harvested in the next 12 months), mainly as a result of slightly lower sugar futures prices and lower estimated sugarcane yields as a result of the stabilization of our plantation; and (vi) a $6.7 million loss from the mark-to-market effect of our sugar hedge position, compared to a $7.3 million gain in 2015.

Farming & Land Transformation

Adjusted EBITDA for the Farming business in 4Q16 was $6.6 million, marking a $4.9 million decrease compared to the same period of the previous year. This reduction is mainly explained by extraordinary gains generated in 4Q15 from the mark-to-market of grain inventories and commodity derivatives amounting to $6.1 million. Regarding our Land Transformation business, we did not sell any farms in 4Q16, compared to a $24.0 million gain from the sale of three farms in 4Q15.

1. Adjusted EBITDA margin excluding third party commercialization activities is defined as the consolidated Adjusted EBITDA net of the Adjusted EBITDA generated by the commercialization of third party sugar and energy, divided by consolidated net sales excluding of those generated by the commercialization of third party sugar and energy.

   2

   4Q16

   On a full year basis, Adjusted EBITDA for the Farming business was $53.9 million, marking a $7.4 million or 16.0% increase with respect to the same period of last year. This increase is mainly due to higher margins driven by the elimination of export taxes, export controls and enhanced by the devaluation of the Argentine peso. Margins were partially offset by the mark-to-market effect of our hedging position. In 2016, as a result of the rebound in international soybean and corn prices, our derivatives hedge position generated an $8.8 million loss, compared to a $16.4 million gain booked in 2015.

   Net income in 4Q16 was $11.9 million, $21.5 million higher than 4Q15. The 42.3% increase in Adjusted EBITDA was partially offset by (i) a $16.1 million increase in depreciation and amortization expenses; and

   (ii) a $12.6 million increase in accrued income taxes.

   Net Income in 2016 totaled $3.7 million, $8.1 million higher compared to the previous year. The growth in net income is attributed to the above explained factors which resulted in a $82.1 million increase in Adjusted EBITDA. This was partially offset by (i) a $23.1 million increase in depreciation and amortization expenses; (ii) a $49.7 million increase in non-cash foreign exchange losses resulting from the devaluation of the Argentine Peso and slightly offset by the appreciation of the Brazilian Real; and (iii) a $17.3 million increase in accrued income taxes.

   Strategy Execution

   Commencement of Positive Free Cash Flow Cycle

   The conclusion of our heavy capex cycle initiated in 2008, coupled with the ramp-up and consolidation of our operations, especially our Sugar, Ethanol & Energy cluster, have marked 2016 as milestone year for Adecoagro. After eight years of large investments, our operations have delivered $133.3 million of Free Cash Flow from Operations (FCF before expansion capex) and $84.9 million of Free Cash Flow in 2016.

   We believe the solid growth in Adjusted EBITDA and Free Cash Flow is a strong indication of (i) the quality of the assets we have built, (ii) the focus and dedication of our operating teams seeking to maximize productivity and efficiency, and (iii) the benefits of our determination to be the lowest-cost producers for each of the commodities we produce, and our commitment to generating sustainable long term returns for our shareholders.

   Free Cash Flow Summary
   $ thousands	2016	2015	Chg %
   Net cash generated from operating activities	255,401	145,186	75.9%
   Net cash used in investing activities	(122,014)	(125,051)	(2.4%)
   Interest paid	(48,400)	(48,438)	(0.1%)
   Proceeds from the sale of minority interest in subsidiaries	-	21,964
   Expansion Capex reversal	48,295	87,956	(45.1%)
   Free Cash Flow from Operations(1)	133,282	81,617	63%
   Expansion Capex(2)	(48,295)	(87,956)	(45.1%)
   Free Cash Flow(1)	84,987	(6,339)	n.a

   3

   4Q16

   Balance Sheet Optimization

   As discussed in previous quarters, one of our main goals during 2016 was to continue reducing our outstanding debt. As of December 31, 2016, our Net Debt was $476.8 million, 25.5% below 3Q16 and 9.1% below 4Q15. The combination of decreasing debt coupled with growing Adjusted EBITDA, has resulted in a Net Debt-to-Adjusted EBITDA ratio of 1.6x, compared to 2.4x a year ago.

   In addition, the fact that almost 70% of our debt is long term, mostly with multi-lateral banks such as IFC, IDB and BNDES, allows us to minimize refinancing risk and manage credit market volatility.

   Sugar, Ethanol & Energy: Cluster Expansion Plan

   The construction of the cluster was completed in 2015 and the "continuous" or "non-stop" harvest methodology has been successfully implemented during the course of 2016 and we are now operating at full capacity. Accordingly, our operating teams are focused on finding ways to continue maximizing efficiency and generating additional synergies and cost dilution. In this process, our teams have identified certain bottlenecks in our industrial operations that may be removed with minimal investments which will allow us to increase crushing volumes per hour and total capacity per year. We are now engaged in an organic growth project to address this expansion in production.

   The growth project consists of expanding the crushing capacity of our cluster by 3.0 million tons or 30%, from 10.0 million tons currently, to 13.0 million tons (from 11.2 million to 14.2 million on a consolidated basis). The project will be implemented during the next five years in two phases:

   • Phase 1 consists of expanding Angelica's crushing capacity by 0.9 million tons throughout 2017 and 2018. We will expand crushing capacity by 150 tons/hour by installing larger mill rollers in the first mill, and expanding the sugar centrifugation and ethanol filtration processes. Crushing will grow gradually and reach full capacity by 2019.

   • Phase 2 will consist of expanding Ivinhema's capacity by 2.1 million tons (400 tons/hour), between 2018 and 2022. This will be achieved by installing a new mill (#6) expanding the sugarcane reception, juice treatment and sugar factory. Crushing will grow gradually and reach full capacity in 2023.

   Total estimated capital expenditure is $166 million (52 USD/ton), of which 20% consists of industrial machinery and equipment, 15% of agricultural equipment (harvesters, tractors, trucks) and 65% of sugarcane planting (51,000 hectares) to supply the new nominal capacity. 55% of the capex will be deployed during 2017-2019, and 45% during 2020-2022.

   We are confident on our ability to execute this growth project according to plan. We believe that this organic expansion is highly accretive and an attractive use of our capital.

2. Please see "Reconciliation of Non-IFRS measures" starting on page 30 for a reconciliation of Free Cash Flow to Cash and cash equivalents at end of period

3. Expansion capex is defined as the necessary investment to expand current production capacity. Total Capex for 2016 and 2015 was $133.2 million and $149.8 million, respectively.

4. 4