Adecoagro S.A.

Société anonyme

13-15 Avenue de la Liberté

L-1931 Luxembourg

R.C.S. Luxembourg B 153 681

+352 2689-8213

 

( Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices )

 

Corporation Service Company

1180 Avenue of the Americas, Suite 210

New York, NY 10036

(800) 927-9801

 

( Name, address, including zip code, and telephone number, including area code, of agent for service )

 

 

Approximate date of commencement of proposed sale to the public :  As soon as practicable after the effective date of this registration statement.

 

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box.   o

 

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.   o

 

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.   o

 

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.   o

 

 

 

TABLE OF CONTENTS

 

 

 

 

 

We have not authorized anyone to provide any information other than that contained or incorporated by reference in this prospectus or in any free writing prospectus prepared by or on behalf of us or to which we have referred you. We take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. This document may only be used where it is legal to sell these securities. The information in this document may only be accurate as of the date of this document. Our business, financial condition, results of operations and prospects may have changed since then.

 

 

 

 

This prospectus has been prepared on the basis that all offers of common shares will be made pursuant to an exemption under the Prospectus Directive, as implemented in member states of the European Economic Area, or EEA, from the requirement to produce a prospectus for offers of the common shares. Accordingly, any person making or intending to make any offer within the EEA of common shares which are the subject of the offering contemplated in this prospectus should only do so

in circumstances in which no obligation arises for the sellers of the common shares or any of the underwriters to produce a prospectus for such offer. Neither the sellers of the common shares nor the underwriters have authorized, nor do they authorize, the making of any offer of common shares through any financial intermediary, other than offers made by the underwriters which constitute the final offering of common shares contemplated in this prospectus.

 

 

The distribution of this prospectus and the offering and sale of the common shares in certain jurisdictions may be restricted by law. Persons who receive this prospectus must inform themselves about and observe any such restrictions. This prospectus does not constitute an offer of, or an invitation to purchase, any of the common shares in any jurisdiction in which such offer or invitation would be unlawful.

 

PROSPECTUS SUMMARY

		Year Ended December 31, 2009
Key Metrics		Farming				Sugar, Ethanol & Energy				Land Transformation
Owned Hectares(1)			259,914				13,221				—
Leased Hectares			47,709				40,385				—
Total Planted Hectares(2)			188,015				49,470				—
Production(3)			Crops, Rice, Coffee: 618,723 tons				Sugar: 52,968 tons				11,255 hectares	(4)
			Milk: 47.5 million liters				Ethanol: 132,492 m3
							Energy: 128,291 MWh
Sales (in thousands)(5)			$216,016				$97,587				$18,839

(1)		Owned hectares in Farming business includes land used for productive activities (crops, rice, coffee, cattle), land which is potentially croppable and land set aside as legal reserve and other reserves.
(2)		Includes owned and leased land planted (including second harvest) with crops, rice and coffee during the 2009/2010 harvest year.
(3)		Production in tons of crops, rice and coffee during the 2009/2010 harvest year, and in liters of raw milk, tons of sugar, cubic meters of ethanol and MWh of energy for the period indicated. See “Presentation of Financial and Other Information.”
(4)		Consists of undeveloped/undermanaged land put into production.
(5)		Sales in Land Transformation business represents capital gain from the sale of one of our farms.

	•	Farming Business:   We believe we are one of the largest owners of productive farmland in South America. As of September 30, 2010, we owned 274,663 hectares (excluding sugarcane farms) of farmland in Argentina, Brazil and Uruguay, of which 121,723 hectares are croppable, 18,909 hectares are being evaluated for transformation, 79,645 hectares are suitable for raising beef cattle and are mostly leased to a third party beef processor, constituting a total of 220,277 productive hectares, and 54,387 hectares are legal land reserves pursuant to local regulations or other land reserves. As of September 30, 2010, we held leases or had entered into agriculture partnerships for an additional 37,687 croppable hectares. We own the facilities and have the resources to store and condition 100% of our crop and rice production. We do not depend on third parties to condition our production for sale. Our farming business is subdivided into four main business areas:

		Nine Months Ended
		September 30,				Year Ended December 31,
Sales		2010				2009				2008				2007
		(In thousands of $)
Crops(1)			90,008				92,029				95,987				59,293
Rice(2)			45,436				69,350				56,925				26,422
Coffee			4,668				14,265				15,948				7,267
Dairy(3)			10,043				11,894				14,821				17,841
Cattle(4)			4,127				28,478				9,357				7,258
Total			154,282				216,016				193,038				118,081

 

Production		2009/2010 Harvest Year				2008/2009 Harvest Year				2007/2008 Harvest Year
Crops (tons)(5)			524,890				317,582				351,787
Rice (tons)(6)			91,723				94,968				98,577
Coffee (tons)(7)			2,110				2,412				3,028
Total			618,723				414,962				453,392

 

		Nine Months Ended
		September 30,				Year Ended December 31,
		2010				2009				2008				2007
Dairy (thousands of liters)(8)			29,299				47,479				43,110				34,592
Cattle (tons)(4)(9)			246				4,149				7,229				6,632

 

Planted Area		2009/2010 Harvest year				2008/2009 Harvest year				2007/2008 Harvest year
		(In hectares, including second harvest)
Crops(10)			168,241				139,518				107,027
Rice			18,142				17,258				14,820
Coffee(11)			1,632				1,632				1,632
Cattle(12)			87,392				106,375				124,635

(1)		Includes soybeans, corn, wheat, sunflower and cotton, among others.
(2)		Sales of processed rice, including rough rice purchased from third parties and processed in our facilities.
(3)		Sales of raw milk and whole milk powder produced in 2007 pursuant to an agreement with a third party.
(4)		In December 2009, we sold 55,543 head of cattle to a third party. The third party currently leases grazing land from us to raise and fatten the cattle, and our payments under the lease are tied to the market price of beef. See “Business — Farming — Cattle Business.”
(5)		Crop production does not include 52,482 tons, 52,960 tons and 53,398 tons of forage produced in the 2009/2010, 2008/2009 and 2007/2008 harvest years, respectively.
(6)		Expressed in tons of rough rice produced on owned and leased farms.
(7)		As of September 30, 2010, the coffee harvest was ongoing and stood at 91% completion.
(8)		Raw milk produced at our dairy farms.
(9)		Measured in tons of live weight. Production is the sum of the net increases (or decreases) during a given period in “live weight” of each head of beef cattle.
(10)		Includes 4,561 hectares, 5,382 hectares and 4,454 hectares used for the production of forage during the 2009/2010, 2008/2009 and 2007/2008 harvest years, respectively.
(11)		Reflects the size of our coffee plantations, which are planted only once every 18 to 20 years.
(12)		Comprised of land devoted to raising beef cattle, which, since December 2009, is mostly leased to a third party. See “Business — Farming — Cattle Business.”

	•	Sugar, Ethanol and Energy Business:   We believe we are a growing and efficient producer of sugar and ethanol in Brazil. We cultivate and harvest sugarcane which is then processed in our own mills to produce sugar, ethanol and electric energy. As of September 30, 2010, our overall sugarcane plantation consisted of 54,352 hectares, planted over both own and leased land. We currently own and operate two sugar and ethanol mills, Usina Monte Alegre (“UMA”) and Angélica Agroenergia (“Angélica”), with a total crushing capacity of 5.2 million tons of sugarcane per year.

		Nine Months Ended
		September 30,				Year Ended December 31,
Sales		2010				2009				2008				2007
		(In thousands of $)
Sugar			49,979				26,143				20,495				17,133
Ethanol			64,536				62,811				29,385				7,289
Energy			9,847				8,216				—				—
Total (1)			124,604				97,587				51,171				24,422

(1)		Includes sales of sugarcane and other miscellaneous items to third parties of $242 thousand during the first nine months of 2010 and $417 thousand and $1,291 thousand during 2009 and 2008, respectively.

		Nine Months Ended
		September 30,				Year Ended December 31,
Production		2010				2009				2008				2007
Sugar (tons)			166,001				52,968				67,772				72,372
Ethanol (cubic meters)			134,086				132,492				70,067				29,375
Energy (MWh exported)			100,079				128,291				—				—

		Nine Months
		Ended
		September 30,		Year Ended December 31,
Other Metrics		2010		2009		2008		2007
Sugarcane milled (% owned)		96%		94%		98%		100%
Sugarcane crushing capacity (millions of tons)		5.2		3.3		1.7		0.9
% Mechanized planting/harvesting operations — Consolidated		30% / 77%		53% /66%		80% / 32%		77% / 0%
% Mechanized planting/harvesting operations — Angélica mill		38% /100%		58% / 99%		100% / 99%		100% / NA

	•	Land Transformation Business:   We believe we are one of the leading companies in South America involved in the acquisition and transformation of land. We acquire farmlands we believe are underdeveloped or underutilized and, by implementing cutting-edge production technology and agricultural best practices, transform the land to be suitable for more productive uses, enhance yields and increase the value of the land. We promote sustainable land use through our land transformation activities, which seek to promote environmentally responsible agricultural production and a balance between production and ecosystem preservation. See “Business — Land Transformation.”

		Nine Months Ended
		September 30,				Year Ended December 31,
		2010				2009				2008				2007
Undeveloped/Undermanaged land put into production (hect.)			—				11,255				33,387				17,591
Ongoing transformation of croppable land (hect.)			122,006				110,751				80,720				66,562
Number of farms sold			—				1				3				2
Hectares sold			—				5,005				4,857				8,714
Capital gains from the sale of land ($ thousands)			—				18,839				15,201				33,114

	•	Unique and strategic asset base.   We own strategically located farmland and agro-industrial assets, increasing operating efficiencies and reducing operating and logistical costs. Our diversified asset base creates valuable synergies and economies of scale, including (i) the ability to transfer the technologies and best practices that we have developed across our business lines, (ii) the ability to apply value-adding land transformation strategies to farmland in connection with our farming and sugarcane operations, and (iii) a greater ability to negotiate more favorable terms with our suppliers and customers. Owning a significant portion of the land on which we operate is a key element of our business model.
	•	Low-cost production leveraging agro-ecological competitive advantages.   Each of the commodity products we grow is produced in regions where agro-ecological conditions provide competitive advantages and which, through the implementation of our efficient and sustainable production model, allow us to become one of the lowest cost producers.
	•	Standardized and scalable agribusiness model applying technological innovation .  We have consistently used innovative production techniques to ensure that we are at the forefront of technological improvements and environmental sustainability standards in our industry. We are

		implementing an agribusiness model that consists of specializing our workforce and defining standard protocols to track crop development and control production variables, thereby enhancing management decision-making. We further optimize our agribusiness model through the effective implementation and constant adaptation of a portfolio of advanced agricultural and information technologies and best practices tailored to each region in which we operate and commodity we produce, allowing us to improve our crop yields, reduce operating costs and maximize margins in a sustainable manner.

	•	Unique diversification model to mitigate cash flow volatility .  We pursue a unique multi-tier diversification strategy to reduce our exposure to production and market fluctuations that may impact our cash flow and operating results. We seek geographic diversification, thereby lowering our risk exposure to weather-related losses and contributing to stable cash flows. Additionally, we produce a variety of products, which lowers our risk exposure to potentially depressed market conditions of any specific product. Moreover, we process and transform a portion of our agricultural commodities into branded retail products, reducing our commodity price risk and our reliance on the standard market distribution channels for unprocessed products.
	•	Expertise in acquiring farmland with transformation and appreciation potential.   During the last eight years, we have executed transactions for the purchase and disposition of land for over $425 million and sold 22,083 hectares of developed land, generating capital gains of approximately $95 million. We believe we have a superior track record and have positioned ourselves as a key player in the land business in South America. We have developed a methodology to assess farmland and to appraise its potential value with a high degree of accuracy and efficiency by using information generated through sophisticated technology, including satellite images, rain and temperature records, soil analyses, and topography and drainage maps.
	•	Experienced management team, knowledgeable employees and strong shareholder base.   Our people are our most important asset. We have an experienced senior management team with an average of more than 20 years of experience working in our sector and a solid track record of implementing and executing large-scale growth projects. The strength of our human capital and proven track record has allowed us to raise capital from sophisticated investors and retain a strong and diversified shareholder base, including an affiliate of Soros Fund Management, LLC, an affiliate of HBK Investments L.P., an affiliate of Ospraie Management, LLC, a wholly owned subsidiary of Qatar Holding LLC and Stichting Pensioenfonds Zorg en Welzijn, among others.

	•	Expand our farming business through organic growth, leasing and strategic acquisitions.   We will continue to seek opportunities for organic growth, target attractive acquisition and leasing opportunities and strive to maximize operating synergies and achieve economies of scale in each of our four main farming business areas.
	•	Consolidate our sugar and ethanol cluster in the state of Mato Grosso do Sul, Brazil.   Our main strategy for our sugar and ethanol business is to build our cluster in Mato Grosso do Sul, Brazil, through the construction of Ivinhema, our second greenfield project. See “Business — Sugar, Ethanol and Energy — Our Mills.” The consolidation of the cluster, which upon completion will have a planned total crushing capacity of 10.3 million tons per year, will generate important synergies, operating efficiencies and economies of scale. Additionally, we plan to continue to monitor closely the Brazilian sugar and ethanol industries and may pursue selective acquisitions that provide opportunities to increase our economies of scale, operating synergies and profitability.
	•	Further increase our operating efficiencies while maintaining a diversified portfolio .  We intend to continue to focus on improving the efficiency of our operations and maintaining a low-cost structure to

		increase our profitability and protect our cash flows from commodity price cycle risk. In addition, we intend to mitigate commodity price cycle risk and minimize our exposure to weather related losses by (i) maintaining a diversified product mix and vertically integrating production of certain commodities and (ii) geographically diversifying the locations of our farms.

	•	Continue to implement our land transformation strategy.   We plan to continue to enhance the value of our owned farmland and future land acquisitions by making them suitable for more profitable agricultural activities, thereby seeking to maximize the return on our invested capital in our land assets.

	•	Favorable agro-ecological conditions.   Favorable climatic and geographical conditions, highly productive soils, stable temperatures, adequate rainfall levels throughout the year, plentiful availability of water resources and abundant solar energy create some of the most optimal conditions for farming in the world, even allowing for the harvesting of two crops in the same year in some regions.
	•	High potential for production growth.   Farmland is available at attractive prices relative to other regions in the world, and we believe that much of the vast areas of land available in the region are ripe for development and present opportunities for transformation and associated appreciation.
	•	Low production cost.   The ability to farm larger plots of land allows for economies of scale to effectively further reduce operating costs, leading to logistical efficiencies, and has allowed for the adoption and implementation of productive technology in farming and agricultural manufacturing processes.
	•	Qualified labor pool.   South America has access to a vast pool of qualified human resources with strong technical skills and academic backgrounds in the agricultural field.

*		Does not account for an immaterial amount of shares required to be owned by other persons pursuant to Maltese law.
†		2% is owned pro rata among existing shareholders in amounts corresponding to their ownership of the Company. The 2% ownership held by current members of IFH does not carry any preferential treatment.

	•	Unpredictable weather conditions such as droughts or severe rains, pest infestations and diseases may have an adverse impact on crop production, and may reduce the volume and sugar content of the sugarcane that we grow and harvest.
	•	We may be exposed to material losses due to volatile prices of agricultural products since we do not fully hedge our agricultural products price risk. We also may not be able to realize gains related to price appreciation on hedged positions.
	•	A substantial portion of our assets is farmland that is highly illiquid. Therefore, our ability to monetize our farmland portfolio or to realize appreciation on transformed properties may be limited.
	•	Certain of our subsidiaries in Argentina, Brazil and Uruguay have substantial indebtedness ($403.2 million in the aggregate as of September 30, 2010) which could affect our operations by requiring a substantial portion of their cash from operations to be dedicated to the payment of principal and interest instead of working capital. Certain of our subsidiaries have breached certain financial ratios under their relevant indebtedness agreements in the past which has resulted in an increase in the interest rates charged going forward.
	•	Our business is seasonal, and our revenues may fluctuate significantly and vary between quarterly periods depending on the growing cycle of our crops.

	•	Engineering, construction and regulatory risks, such as obtaining the necessary permits and licenses, may create delays in or the suspension of the construction of our Ivinhema mill and/or significantly increase the amount of our expected investments.
	•	A reduction in market demand for ethanol or a change in governmental policies reducing the amount of ethanol required to be added to gasoline in Brazil may adversely affect our business.
	•	Environmental laws are becoming more stringent in Argentina and Brazil. Therefore our capital expenditures for environmental compliance could increase in the future, and we may be subject to denial or revocation of existing environmental permits, adversely affecting the result of our operations.
	•	IFRS accounting standards require us to make numerous estimates in the compilation and preparation of our financial results and limit the comparability of our financial statements to similar issuers using U.S. GAAP.
	•	There is a risk that we could be treated as a U.S. domestic corporation for U.S. federal income tax purposes, which could materially increase our U.S. federal income tax liability and subject any dividends we pay to U.S. federal withholding tax.
	•	Recent changes in Brazilian rules and proposed legislation concerning foreign investment in rural properties may adversely affect our investments.

		We intend to use (i) approximately $230 million of the net proceeds from this offering and, assuming it is consummated, the Al Gharrafa Transaction to finance the construction of Ivinhema, our new sugar and ethanol mill in Brazil, (ii) approximately $145 million for potential investments in the acquisition of farmland and capital expenditures required in the expansion of our farming business, and (iii) the remainder, if any, for working capital and general corporate purposes. See “Use of Proceeds.”
		We will not receive any proceeds from the sale of our common shares by the selling shareholders.
Share Capital Before and After Offering and the Al Gharrafa Transaction		Our issued and outstanding share capital consists of 79,999,985 common shares as of the date of this prospectus. Assuming an offering price of $14.00 per share, immediately after the offering and, assuming it is consummated, the Al Gharrafa Transaction, we will have 108,869,032 common shares issued and outstanding, assuming no exercise of the underwriters’ over-allotment option. If the underwriters exercise their over-allotment option in full, we will have 113,154,746 common shares issued and outstanding.
Voting Rights		Holders of our common shares are entitled to one vote per common share in all shareholders’ meetings. See “Description of Share Capital — Voting Rights.”
Dividends		We currently have no plans to pay dividends following the completion of this offering because we expect to retain our earnings for use in the development and expansion of our business. See “Dividend Policy.”
Lock-up Agreements		We have agreed with the underwriters, subject to certain exceptions, not to sell or dispose of any common shares or securities convertible into or exchangeable or exercisable for any common shares during the period commencing on the date of this prospectus until 180 days after the completion of this offering. Our selling shareholders, members of our board of directors, our executive officers and our non-selling shareholders have agreed to similar lock-up restrictions. See “Underwriting.”
Transfer Agent		The Bank of New York Mellon (operating with the service name BNY Mellon Shareowner Services).
Listing		We have applied to list our common shares on the New York Stock Exchange under the symbol “AGRO”.
Risk Factors		See “Risk Factors” beginning on page 20 and the other information included in this prospectus for a discussion of factors you should consider before deciding to invest in our common shares.

 

SUMMARY HISTORICAL FINANCIAL DATA

		For the Nine Months Ended
		September 30,								For the Year Ended December 31,
		2010				2009				2009				2008				2007
Cash Flow Data:
Net cash used in operating activities			(27,089	)			(80,870	)			(86,299	)			(52,453	)			(68,041	)
Net cash used in investing activities			(77,473	)			(55,798	)			(73,894	)			(157,489	)			(246,905	)
Net cash generated from financing activities			85,786				142,941				156,047				213,200				292,353
Other Financial Data:
Adjusted Segment EBITDA (unaudited) (2)
Crops			24,845				10,965				21,120				34,040				27,216
Rice			579				11,578				13,244				13,966				2,014
Dairy			1,543				(365	)			484				(2,159	)			1,051
Coffee			90				(3,034	)			(3,550	)			(1,693	)			(3,440	)
Cattle			2,807				(2,099	)			1,525				(761	)			(1,188	)
Farming subtotal			29,864				17,045				32,823				43,393				25,653
Ethanol, sugar and energy			26,758				(23,800	)			(26,903	)			(6,979	)			(10,146	)
Land transformation			—				—				18,839				15,201				33,114
Corporate			(15,649	)			(17,120	)			(22,262	)			(23,077	)			(11,435	)
Adjusted Consolidated EBITDA			40,973				(23,875	)			2,497				28,538				37,186

(1)		Consists of two components: (i) the cost of our sold agricultural produce and/or biological assets as appropriate plus (ii) in the case of agricultural produce, the direct costs of selling, including but not limited to, transportation costs, export taxes and other levies. The cost of our agricultural produce sold represents the recognition as an expense of our agricultural produce held in inventory valued at net realizable value. The cost of our biological assets and/or agricultural produce sold at the point of harvest represents the recognition as an expense of our biological assets and/or agricultural produce measured at fair value less costs to sell, generally representing the applicable quoted market price at the time of sale. Accordingly, the line item “Sales of agricultural produce and biological assets” is equal to the line item “Cost of agricultural produce plus direct agricultural selling expenses.” See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Policies and Estimates — Biological Assets and Agricultural Produce.”
(2)		See “Presentation of Financial and Other Information” for the definition of Adjusted EBITDA and “Selected Consolidated Financial Data” for the reconciliation of Adjusted EBITDA to IFRS measures.

		As of September 30,								As of December 31,
		2010
		Pro Forma				2010				2009				2008				2007
		(Unaudited)
		(In thousands of $)
Statement of Financial Position Data :
Biological assets			124,635				124,635				230,454				125,948				102,562
Inventories			87,718				87,718				57,902				61,221				58,036
Property, plant and equipment, net			751,418				751,418				682,878				571,419				538,017
Total assets			1,279,914				1,279,914				1,269,174				1,028,234				945,047
Non-current borrowings			265,361				265,361				203,134				4,099				62,090
Total borrowings			403,219				403,219				306,781				228,313				159,925
Equity attributable to equity holders of the parent			658,594				672,035				757,076				593,019				567,674
Non controlling interest			13,516				75				80				45,409				49,191

 

SUMMARY HISTORICAL FINANCIAL AND OPERATING DATA

		Nine Months Ended
		September 30,								Year Ended December 31,
Sales		2010				2009				2009				2008				2007
		(In $ thousands)
Farming Business			154,282				151,530				216,016				193,038				118,081
Crops			90,008				69,255				92,029				95,987				59,293
Soybean(1)			55,028				38,548				44,116				39,025				26,829
Corn			22,323				10,539				14,654				22,547				11,186
Wheat			3,621				3,697				10,218				15,407				8,310
Sunflower			3,499				3,073				5,517				5,615				1,096
Cotton			2,108				9,093				11,905				5,813				6,941
Other crops(2)			3,429				4,305				5,619				7,580				4,931
Rice(3)			45,436				54,495				69,350				56,925				26,422
Coffee			4,668				8,591				14,265				15,948				7,267
Dairy(4)			10,043				9,172				11,894				14,821				17,841
Cattle(5)			4,127				10,017				28,478				9,357				7,258
Sugar, Ethanol and Energy Business(6)			124,604				58,601				97,587				51,171				24,422
Sugar			49,979				15,483				26,143				20,495				17,133
Ethanol			64,536				37,725				62,811				29,385				7,289
Energy			9,847				5,016				8,216				—				—
Total			278,886				210,131				313,603				244,209				142,503
Land Transformation Business(7)			—				—				18,839				15,201				33,114

 

		2009/2010				2008/2009				2007/2008
Production		Harvest Year				Harvest Year				Harvest Year
		(In thousands, except for electricity)
Farming Business
Crops (tons)(8)			524,890				317,582				351,787
Soybean (tons)			241,848				96,982				90,724
Corn (tons)			180,613				115,900				153,751
Wheat (tons)			49,592				41,556				61,951
Sunflower (tons)			17,193				22,128				15,841
Cotton (tons)			1,068				9,218				15,748
Other crops (tons)(2)			34,576				31,799				13,772
Rice(9) (tons)			91,723				94,968				98,577
Coffee (tons)(10)			2,110				2,412				3,028

		Nine Months Ended
		September 30,				Year Ended December 31,
		2010				2009				2008				2007
Processed rice(11) (tons)			64,809				108,858				81,804				86,980
Dairy(12) (thousands of liters)			29,299				47,479				43,110				34,592
Cattle (tons)(5)(13)			246				4,149				7,229				6,632
Sugar, Ethanol and Energy Business
Sugar (tons)			166,001				52,968	(14)			67,772				72,372
Ethanol (cubic meters)			134,086				132,492	(14)			70,067				29,375
Energy (MWh exported)			100,079				128,291	(14)			—				—
Land Transformation Business (hectares traded)			—				5,005				4,857				8,714

 

		2009/2010				2008/2009				2007/2008
Planted Area		Harvest Year				Harvest Year				Harvest Year
		(In hectares, including second harvest)
Farming Business(15)
Crops(16)			168,241				139,518				107,027
Soybean			87,522				63,973				47,408
Corn			27,720				20,200				24,189
Wheat			21,728				18,917				15,792
Sunflower			14,784				16,539				7,775
Cotton			425				3,159				3,478
Other crops(2)			11,501				11,348				3,930
Forage			4,561				5,382				4,454
Rice			18,142				17,258				14,820
Coffee(17)			1,632				1,632				1,632
Total Planted Area			188,015				158,468				123,480
Second Harvest Area			29,119				29,150				25,352
Leased Area			47,709				13,645				14,264
Owned Croppable Area(18)			111,187				115,613				83,864
Cattle Area(19)			87,392				106,375				124,635
Total Productive Area			198,640				221,988				208,499

 

		Nine Months Ended
		September 30,				Year Ended December 31,
		2010				2009				2008				2007
Sugar, Ethanol and Energy Business
Sugarcane plantation			54,352				49,470				32,616				22,378
Owned land			9,098				9,085				3,369				1,366
Leased land			45,267				40,385				29,247				21,012
Land Transformation Business
Undeveloped/Undermanaged land put into production (hectares)			—				11,255				33,387				17,591

(1)		Includes soybean, soybean oil and soybean meal.
(2)		Includes barley, rapeseed and sorghum and farming services.
(3)		Sales of processed rice including rough rice purchased from third parties and processed in our own facilities, rice seeds and services.

(4)		Sales of raw milk and whole milk powder produced in 2007 pursuant to an agreement with a third party.
(5)		In December 2009, we sold 55,543 head of cattle to a third party. The third party currently leases grazing land from us to raise and fatten the cattle, and our payments under the lease are tied to the market price of beef. See “Business — Farming — Cattle Business.”
(6)		Includes sales of sugarcane and other miscellaneous items to third parties of $242 thousand and $377 thousand during the first nine months of 2010 and the first nine months of 2009, respectively and $417 thousand and $1,291 thousand during 2009 and 2008, respectively.
(7)		Represents capital gains from the sale of land.
(8)		Crop production does not include 52,482 tons, 52,960 tons and 53,398 tons of forage produced in the 2009/2010, 2008/2009 and 2007/2008 harvest years, respectively.
(9)		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.
(10)		As of September 30, 2010, the coffee harvest was ongoing and stood at 91% completion.
(11)		Includes rough rice purchased from third parties and processed in our own facilities. Expressed in tons of processed rice (1 ton of processed rice is approximately equivalent to 1.6 tons of rough rice).
(12)		Raw milk produced at our dairy farms.
(13)		Measured in tons of live weight. Production is the sum of the net increases (or decreases) during a given period in live weight of each head of beef cattle we own.
(14)		Year ended December 31, 2009 production accounts for certain of the sugarcane crop harvested in January 2010 due to a delay in the harvesting process which typically concludes in November/December of each year.
(15)		Includes hectares planted in the second harvest.
(16)		Includes 4,561 hectares, 5,382 hectares and 4,454 hectares used for the production of forage during the 2009/2010, 2008/2009 and 2007/2008 harvest years, respectively.
(17)		Reflects the size of our coffee plantations, which are planted only once every 18 to 20 years.
(18)		Does not include potential croppable areas being evaluated for transformation.
(19)		Comprised of land devoted to raising beef cattle, which is mostly leased to a third party. See “Business — Farming — Cattle Business.”

RISK FACTORS

 

Investing in our common shares involves a high degree of risk. Before making an investment decision, you should carefully consider the information contained in this prospectus, particularly the risks described below, as well as in our financial statements and accompanying notes. Our business activities, cash flow, financial condition and results of operations could be materially and adversely affected by any of these risks. The market price of our common shares may decrease due to any of these risks or other factors, and you may lose all or part of your investment. The risks described below are those that we currently believe may materially affect us.

 

Risks Related to Our Business and Industries

 

Unpredictable weather conditions, pest infestations and diseases may have an adverse impact on agricultural production and may reduce the volume and sucrose content of sugarcane that we can cultivate and purchase in a given harvest.

 

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 price of the agricultural commodities that we sell and use in our business. Adverse weather conditions may be exacerbated by the effects of climate change. The effects of severe adverse weather conditions may reduce yields of our agricultural products. Additionally, higher than average temperatures and rainfall can contribute to an increased presence of insects. Commencing during the middle of 2008 and lasting until the middle of 2009, the areas in which we operate suffered one of the worst droughts of the last 50 to 70 years, which resulted in a reduction of approximately 15% to 40% of our agricultural production per hectare, depending on the affected commodity, compared with our historical averages. In addition, the Pampas Húmedas region in Argentina, where certain of our farms are located, is currently experiencing a drought. If the drought continues, the results of operations of our crops business could be materially and adversely affected.

 

The occurrence and effects of disease and plagues can be unpredictable and devastating to agricultural products, potentially rendering all or a substantial portion of the affected harvests unsuitable for sale. Our agricultural products are also susceptible to fungus and bacteria that are associated with excessively moist conditions. Even when only a portion of the production is damaged, our results of operations could be adversely affected because all or a substantial portion of the production costs have been incurred. Although some diseases are treatable, the cost of treatment is high, and we cannot assure you that such events in the future will not adversely affect our operating results and financial condition. Furthermore, if we fail to control a given plague or disease and our production is threatened, we may be unable to supply our main customers, which could affect our results of operations and financial condition.

 

Our sugar production depends on the volume and sucrose content of the sugarcane that we cultivate or that is supplied to us by growers located in the vicinity of our mills. Both sugarcane yields and sucrose content depend primarily on weather conditions such as rainfall and temperature, which vary. Weather conditions have historically caused volatility in the ethanol and sugar industries. Future weather patterns may reduce the amount of sugarcane that we can harvest or purchase, or the sucrose content in such sugarcane, and, consequently, the amount of sugar we can recover in any given harvest. Any reduction in the volume of sugar recovered could have a material adverse effect on our operating results and financial condition.

 

As a result, we cannot assure you that future severe adverse weather conditions or pest infestations will not adversely affect our operating results and financial condition.

 

Fluctuation in market prices for our products could adversely affect our financial condition and results of operations.

 

Prices for agricultural products and by-products, including, among others, sugar, ethanol, grains and coffee, like those of other commodities, have historically been cyclical and sensitive to domestic and international changes in supply and demand and can be expected to fluctuate significantly. In addition, the

agricultural products and by-products we produce are traded on commodities and futures exchanges and thus are subject to speculative trading, which may adversely affect us. The prices that we are able to obtain for our agricultural products and by-products depend on many factors beyond our control including:

 

 

For example, we reported a loss of $117.1 million in the nine-month period ended September 30, 2010 compared to a gain of $36.2 million in the same period in 2009 for our sugarcane business segment in the line item “Initial recognition and Changes in Fair Value of Biological Assets and Agricultural produce.” This loss was generated by a decrease in price estimates used in the discounted cash flow (“DCF”) model to determine the fair value of our sugarcane plantations. In the DCF model, the price of future harvested sugarcane is calculated based on estimates of sugar price derived from the No. 11 futures contract (“NY11”) quoted on the ICE-NY. Sugar price estimates decreased due to lower sugar market prices. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Nine-month period ended September 30, 2010 as compared to nine-month period ended September 30, 2009.”

 

Further, there is a strong relationship between the value of our land holdings and market prices of the commodities we produce, which are affected by global economic conditions. A decline in the prices of grains, coffee, sugar, ethanol, or related by-products below their current levels for a sustained period of time could significantly reduce the value of our land holdings and materially and adversely affect our financial condition and results of operations.

 

Ethanol prices are correlated to the price of sugar and are becoming closely correlated to the price of oil, so that a decline in the price of sugar will adversely affect both our ethanol and sugar businesses, and a decline in the price of oil may adversely affect our ethanol business.

 

A vast majority of ethanol in Brazil is produced at sugarcane mills that produce both ethanol and sugar. Because sugarcane millers are able to alter their product mix in response to the relative prices of ethanol and sugar, this results in the prices of both products being directly correlated, and the correlation between ethanol and sugar may increase over time. In addition, sugar prices in Brazil are determined by prices in the world market, so that there is a strong correlation between Brazilian ethanol prices and world sugar prices.

 

Because flex-fuel vehicles, which have become popular in Brazil, allow consumers to choose between gasoline and ethanol at the pump rather than in the showroom, ethanol prices are now becoming increasingly correlated to gasoline prices and, consequently, oil prices. We believe that the correlation among the three products will increase over time. Accordingly, a decline in sugar prices will have an adverse effect on the financial performance of our ethanol and sugar businesses, and a decline in oil prices may have an adverse effect on that of our ethanol business.

The expansion of our business through acquisitions poses risks that may reduce the benefits we anticipate from these transactions.

 

As part of our business strategy, we have grown primarily through acquisitions. We plan to continue growing by acquiring other farms and production facilities throughout South America. We believe that the agricultural industry and agricultural activity in Argentina and Brazil are highly fragmented and that our future consolidation opportunities will continue to be significant to our growth. However, our management is unable to predict whether or when any prospective acquisitions or strategic alliances will occur, or the likelihood of a certain transaction being completed on favorable terms and conditions. Our ability to continue to expand our business successfully through acquisitions depends on many factors, including our ability to identify acquisitions or access capital markets at an acceptable cost and negotiate favorable transaction terms. Even if we are able to identify acquisition targets and obtain the necessary financing to make these acquisitions, we could financially overextend ourselves, especially if an acquisition is followed by a period of lower than projected prices for our products.

 

Acquisitions also expose us to the risk of successor liability relating to actions involving an acquired company, its management or contingent liabilities incurred before the acquisition. The due diligence we conduct in connection with an acquisition, and any contractual guarantees or indemnities that we receive from the sellers of acquired companies, may not be sufficient to protect us from, or compensate us for, actual liabilities. Any material liability associated with an acquisition could adversely affect our reputation and results of operations and reduce the benefits of the acquisition.

 

To support the acquisitions we hope to make, we may need to implement new or upgraded strategies, systems, procedures and controls for our operations and will face risks, including diversion of management time and focus and challenges associated with integrating new managers and employees. Our failure to integrate new businesses successfully could adversely affect our business and financial performance.

 

Adverse conditions may create delays in or the suspension of the construction of our Ivinhema mill and/or significantly increase the amount of our expected investments.

 

As part of our strategy to increase our market share and increase our competitiveness through economies of scale, we are seeking to obtain the necessary licenses to start building the Ivinhema mill, which is expected to commence operations in 2013. See “Business — Sugar, Ethanol and Energy — Our Mills.” Through September 30, 2010, we have invested $38.4 million in this project through the purchase of industrial equipment and 8,363 hectares of land, and we estimate that we will need to invest an additional $690 million to complete the construction of Ivinhema ($230 million of which we expect to raise through the IPO). See “Business — Sugar, Ethanol and Energy — Our Mills.” We cannot assure you that we will be able to borrow the additional funds we will need to complete the project on acceptable terms, or at all.

 

The Ivinhema project involves various risks, including engineering, construction and regulatory risks, such as obtaining necessary permits and licenses as well as other significant challenges that can suspend the construction of the Ivinhema mill, hinder or delay the project’s scheduled completion date and successful operation or that can result in significant cost increases as well as foreign exchange risks associated with incurring costs in Brazilian Reais. In addition, the Ivinhema mill may not operate at projected capacity or may incur higher operating costs than estimated, and we may not be able to sell the ethanol produced by the Ivinhema mill at competitive prices. If (1) construction is delayed or suspended, (2) we are required to invest more than the budgeted amount to complete the project, (3) we are unable to borrow the funds needed to complete the project on acceptable terms, or at all, (4) we fail to operate the mill or operate it at a lower capacity than we anticipate or (5) we are unable to sell all of the ethanol produced by the mill, our results of operations and financial condition will be materially adversely affected.

 

A significant increase in the price of raw materials we use in our operations, or the shortage of such raw materials, could adversely affect our results of operations.

 

Our production process requires various raw materials, including fertilizer, pesticides and seeds, which we acquire from local and international suppliers. We do not have long-term supply contracts for most of these

raw materials. A significant increase in the cost of these raw materials, especially fertilizer and agrochemicals, a shortage of raw materials or the unavailability of these raw materials entirely could reduce our profit margin, reduce our production and/or interrupt the production of some of our products, in all cases adversely affecting the results of our operations and our financial condition.

 

For example, we rely on fertilizers and agrochemicals, many of which are petro-chemical based. As of September 30, 2010, fertilizers and agrochemicals constituted approximately 15% of our cost of production for the 2009/2010 harvest. Worldwide production of agricultural products has increased significantly in recent years, increasing the demand for agrochemicals and fertilizers. This has resulted, among other things, in increased prices for agrochemicals and fertilizers.

 

Increased energy prices and frequent interruptions of energy supply could adversely affect our business.

 

We require substantial amounts of fuel oil and other resources for our harvest activities and transport of our agricultural products. Purchases of fuel constituted approximately 11% of our cost of production as of September 30, 2010. We rely upon third parties for our supply of energy resources used in our operations. The prices for and availability of energy resources may be subject to change or curtailment, respectively, due to, among other things, new laws or regulations, imposition of new taxes or tariffs, interruptions in production by suppliers, imposition of restrictions on energy supply by government, worldwide price levels and market conditions. Over the last few years, the Argentine government has taken certain measures in order to reduce the use of energy during peak months of the year by frequently cutting energy supply to big companies and consumers. For example, certain of our industrial facilities have been subject to a quota system whereby electricity cuts occur on a work shift basis, resulting in our facilities being shut down during certain work shifts. While some of our facilities utilize different sources of energy, such as firewood and liquefied natural gas, and have attempted to stock their required supplies ahead of higher demand periods, we cannot assure you that we will be able to procure the required energy inputs at acceptable prices. If energy supply is cut for an extended period of time and we are unable to find replacement sources at comparable prices, or at all, our business and results of operations could be adversely affected.

 

We depend on international trade and economic and other conditions in key export markets for our products.

 

Our operating results depend largely on economic conditions and regulatory policies for our products in major export markets. The ability of our products to compete effectively in these export markets may be adversely affected by a number of factors that are beyond our control, including the deterioration of macroeconomic conditions, volatility of exchange rates, the imposition of greater tariffs or other trade barriers or other factors in those markets, such as regulations relating to chemical content of products and safety requirements. Due to the growing participation in the worldwide agricultural commodities markets by commodities produced in South America, South American growers, including us, are increasingly affected by the measures taken by importing countries in order to protect their local producers. Measures such as the limitation on imports adopted in a particular country or region may affect the sector’s export volume significantly and, consequently, our operating results.

 

As of April 1, 2010, China has implemented a ban on the import of soybean oil with exceeding amounts of hexane residue, a chemical used in the extraction of soybean oil from oilseeds. This ban has effectively forced us and other Argentine soybean oil producers who utilize hexane out of the market for Chinese imports, impacting the price we can obtain for our soybean oil production. Similarly, the European Union has a zero tolerance policy with respect to the import of genetically modified organisms, or GMOs. See “Some of the agricultural commodities and food products that we produce contain genetically modified organisms.” While the recent drought in Europe has led to the relaxation of these restrictions for certain products, we cannot assure you that we will continue to be able to export any of our products with GMOs to the European Union. If the sale of our products into a particular importing country is adversely affected by trade barriers or by any of the factors mentioned above, the relocation of our products to other consumers on terms equally favorable could be impaired, and our business, financial condition and operating results may be adversely affected.

Our business is seasonal, and our revenues may fluctuate significantly depending on the growing cycle of our crops.

 

As with any agricultural business enterprise, our business operations are predominantly seasonal in nature. The harvest of corn, soybean and rice generally occurs from January to May. Wheat is harvested from December to January. Coffee and cotton are harvested from June to August, but require processing which takes approximately two to three months. Our operations and sales are affected by the growing cycle of the crops we process and the timing of our harvest sales. In addition, our sugar and ethanol business is subject to seasonal trends based on the sugarcane growing cycle in the center-south region of Brazil. The annual sugarcane harvesting period in the center-south region of Brazil begins in April and ends in December. This creates fluctuations in our inventory, usually peaking in December to cover sales between crop harvests ( i.e. , January through April), and a degree of seasonality in our gross profit. Seasonality could have a material adverse effect on our business and financial performance. In addition, our quarterly results may vary as a result of the effects of fluctuations in commodities prices, production yields and costs. Therefore, our results of operations have varied significantly from period to period and are likely to continue to vary, due to seasonal factors.

 

Our dairy and beef cattle are vulnerable to diseases.

 

Diseases among our cattle herds, such as mastitis, tuberculosis, brucellosis and foot-and-mouth disease, can have an adverse effect on the productivity of our dairy cows. Outbreaks of cattle diseases may also result in the closure of certain important markets to our cattle-derived products. Although we abide by national veterinary health guidelines, including laboratory analyses and vaccination, to control diseases among our herds, especially foot-and-mouth disease, we cannot assure you that future outbreaks of cattle diseases will not occur. A future outbreak of diseases among our cattle herds could adversely affect our milk sales and operating results and financial condition.

 

Our current insurance coverage may not be sufficient to cover our potential losses.

 

Our production is, in general, subject to different risks and hazards, including adverse weather conditions, fires, diseases and pest infestations, other natural phenomena, industrial accidents, labor disputes, changes in the legal and regulatory framework applicable to us, environmental contingencies and other natural phenomena. Our insurance currently covers only part of the losses we may incur and does not cover losses on crops due to hail storms, fires or similar risks. Furthermore, although we maintain insurance at levels that are customary in our industry, certain types of risks may not be covered by the policies we have for our industrial facilities. Additionally, we cannot guarantee that the indemnification paid by the insurer due to the occurrence of a casualty covered by our policies will be sufficient to entirely compensate us for the damages suffered. Moreover, we may not be able to maintain or obtain insurance of the type and amount desired at reasonable costs. If we were to incur significant liability for which we were not fully insured, it could have a materially adverse effect on our business, financial condition and results of operations.

 

We may be exposed to material losses due to volatile prices of agricultural products since we do not fully hedge our agricultural products price risk. We also may not be able to realize gains related to price appreciation for hedged positions.

 

Because we do not hedge 100% of the price risk on our agricultural products, we are unable to have minimum price guarantees for all of our production and are, therefore, exposed to significant risks associated with the prices of agricultural products and their volatility. We are subject to fluctuations in prices of agricultural products that could result in our receiving lower prices for our agricultural products than our production costs. Further, as a commodities producer, we naturally have a long position in agricultural products, which increases our risk of loss if prices of agricultural products decrease. If the prices of agricultural products in respect of which we have entered into hedges increase beyond the prices specified in our various hedging agreements, we would lose some or all of the value of any such increase in prices.

We are also subject to exchange rate risks with respect to hedges we have entered into for our agricultural products because our futures and options positions are valued in U.S. dollars while a portion of our production costs are in the currencies of the countries in which we operate. In addition, if severe weather conditions or any other disaster causes lower production than that which we have already sold in the market, we may suffer material losses in the repurchase of sold contracts.

 

A reduction in market demand for ethanol or a change in governmental policies reducing the amount of ethanol required to be added to gasoline may adversely affect our business.

 

Government authorities of several countries, including Brazil and certain states of the United States, currently require the use of ethanol as an additive to gasoline. Since 1997, the Conselho Interministerial do Açúcar e Álcool (the “Sugar and Alcohol Interministerial Council”) of Brazil has set the required blend of anhydrous ethanol to gasoline (currently 25% ethanol to 75% gasoline by volume).

 

Approximately 32% of all fuel ethanol in Brazil is used to fuel automobiles that run on a blend of anhydrous ethanol and gasoline; the remaining 68% of fuel ethanol is used in flex-fuel vehicles powered by hydrous ethanol alone. Five districts in China require the addition of 10% ethanol to gasoline. Japan is discussing requiring the addition of 3% of ethanol to gasoline and increasing the requirement to 20% by 2030, and nine states and four union territories in India require the addition of 5% of ethanol to gasoline. Other countries have similar governmental policies requiring various blends of anhydrous ethanol and gasoline. In addition, flex-fuel vehicles in Brazil are currently taxed at lower levels than gasoline-only vehicles, which has contributed to the increase in production and sale of flex-fuel vehicles. Many of these policies and incentives stem from, and are mostly driven by, climate change concerns and the positive perceptions regarding the use of ethanol as a solution to the climate change problem. If such concerns or perception were to change, the legal framework and incentive structure promoting the use of ethanol may be revised, leading to a reduction in the demand for ethanol. In addition, any reduction in the percentage of ethanol required in fuel blended with gasoline or increase in the levels at which flex-fuel vehicles are taxed in Brazil, or any growth in the demand for natural gas and other fuels as an alternative to ethanol, lower gasoline prices or an increase in gasoline consumption (versus ethanol), may cause demand for ethanol to decline and affect our business.

 

Growth in the sale and distribution of ethanol depends in part on infrastructure improvements, which may not occur on a timely basis, if at all.

 

In contrast to the well-established logistical operations and infrastructure supporting sugar exports, ethanol exports inherently demand much more complex preparation and means of distribution, including outlets from our facilities to ports and shipping to other countries. Substantial infrastructure development by persons and entities outside our control is required for our operations, and the ethanol industry generally, to grow. Areas requiring expansion include, but are not limited to, additional rail capacity, additional storage facilities for ethanol, increases in truck fleets capable of transporting ethanol within localized markets, expansion of refining and blending facilities to handle ethanol, growth in service stations equipped to handle ethanol fuels, and growth in the fleet of flex-fuel vehicles. Specifically, with respect to ethanol exports, improvements in consumer markets abroad are needed in the number and capacity of ethanol blending industrial plants, the distribution channels of gasoline-ethanol blends and the chains of distribution stations capable of handling fuel ethanol as an additive to gasoline. Substantial investments required for these infrastructure changes and expansions may not be made or they may not be made on a timely basis. Any delay or failure in making the changes in or expansion of infrastructure may hurt the demand for or prices of our products, prevent our products’ delivery, impose additional costs on us or otherwise have a serious adverse effect on our business, operating results or financial status. Our business relies on the continuing availability of infrastructure, and any infrastructure disruptions may have a material adverse effect on our business, financial condition and operating results.

 

We may be harmed by competition from alternative fuels, products and production methods.

 

Ethanol competes in the biofuel market with other, established fuels such as biodiesel, as well as fuels that are still in the development phase, including methanol and butanol from biomass. Alternative fuels could

become more successful than ethanol in the biofuels market over the medium or long term due, for example, to lower production costs, greater environmental benefits or other more favorable product characteristics. In addition, alternative fuels may also benefit from tax incentives or other favorable governmental treatment, from which they may benefit at the expense of ethanol. Furthermore, our success depends on early identification of new developments relating to products and production methods and continuous expansion and preservation of our existing expertise in order to ensure that our product range keeps pace with technological change. Competitors may gain an advantage over us by, for example, developing or using new products and production methods, introducing new products to the market sooner than we do, or securing exclusive rights to new technologies, thereby significantly harming our competitive position.

 

A substantial portion of our assets is farmland that is highly illiquid.

 

We have been successful in partially rotating and monetizing a portion of our investments in farmland. During the last eight years, we have executed transactions for the purchase and disposition of land for over $425 million. Owning of a significant portion of the land we operate is a key part of our business model. However, agricultural real estate is generally an illiquid asset. As a result, it is unlikely that we will be able to adjust our owned agricultural real estate portfolio promptly in response to changes in economic and business conditions. Illiquidity in local market conditions may adversely affect our ability to complete dispositions, to receive proceeds generated from any such sales or to repatriate any such proceeds.

 

We lease or have agriculture partnerships relating to a significant portion of our sugarcane plantations.

 

Currently, approximately 83% of our area of sugarcane plantations is leased or is subject to agriculture partnership agreements, for periods of an average of six to twelve years. We cannot guarantee that these leases or agriculture partnerships will be renewed after their respective terms. Even if we are able to renew these agreements, we cannot guarantee that such renewals will be on terms and conditions satisfactory to us. Any failure to renew the leases or agriculture partnerships or obtain land suitable for sugarcane planting in sufficient quantity and at reasonable prices to develop our activities could adversely affect our results of operations, increase our costs or force us to seek alternative properties, which may not be available or be available only at higher prices.

 

We may be subject to labor disputes from time to time that may adversely affect us.

 

Our employees are represented by unions or equivalent bodies and are covered by collective bargaining or similar agreements which are subject to periodic renegotiation. We may not successfully conclude our labor negotiations on satisfactory terms, which may result in a significant increase in the cost of labor or may result in work stoppages or labor disturbances that disrupt our operations. For example, a short-lived strike at UMA in 2009 resulted in a plant stoppage which, when coupled with the adverse weather conditions during the harvest season, resulted in a reduction of 16,000 tons of sugarcane that otherwise would have been milled during the 2009 fiscal year, with an estimated impact of less than $100,000 to our operating results. Cost increases, work stoppages or disturbances that result in substantial amounts of raw product not being processed could have a material and adverse effect on our business, results of operations and financial condition.

 

We are subject to extensive environmental regulation, and concerns regarding climate change may subject us to even stricter environmental regulations.

 

Our activities are subject to a broad set of laws and regulations relating to the protection of the environment. Such laws include compulsory maintenance of certain preserved areas within our properties, management of pesticides and associated hazardous waste and the acquisition of permits for water use and effluents disposal. In addition, the storage and processing of our products may create hazardous conditions. We could be exposed to criminal and administrative penalties in addition to the obligation to remedy the adverse affects of our operations on the environment and to indemnify third parties for damages. Environmental laws and their enforcement are becoming more stringent in Argentina and Brazil increasing the risk of and penalties associated with violations, which could impair or suspend our operations or projects (e.g.,

the Ivinhema mill licensing), and our operations expose us to potentially adverse environmental legislation and regulation. Failure to comply with past, present or future laws could result in the imposition of fines, third party claims, and investigation by the environmental authorities and competent public attorney office. For example, the perceived effects of climate change may result in additional legal and regulatory requirements to reduce or mitigate the effects of our industrial facilities’ emissions. Such requirements, if enacted, could increase our capital expenditures and expenses for environmental compliance in the future, which may have a material and adverse effect on our business, results of operations and financial condition. Moreover, the denial of any permit that we have requested, or the revocation of any of the permits that we have already obtained, may have an adverse effect on our results of operations.

 

Some of the agricultural commodities and food products that we produce contain genetically modified organisms.

 

Our soybean, corn and cotton products contain GMOs in varying proportions depending on the year and the country of production. The use of GMOs in food has been met with varying degrees of acceptance in the markets in which we operate. The United States, Argentina and Brazil, for example, have approved the use of GMOs in food products, and GMO and non-GMO grain in those countries is produced and frequently commingled during the grain origination process. Elsewhere, adverse publicity about genetically modified food has led to governmental regulation limiting sales of GMO products in some of the markets in which our customers sell our products, including the European Union. It is possible that new restrictions on GMO products will be imposed in major markets for some of our products or that our customers will decide to purchase fewer GMO products or not buy GMO products at all, which could have a material adverse effect on our business, results of operations, financial condition or prospects.

 

If our products become contaminated, we may be subject to product liability claims, product recalls and restrictions on exports that would adversely affect our business.

 

The sale of food products for human consumption involves the risk of injury to consumers. These injuries may result from tampering by third parties, bioterrorism, product contamination or spoilage, including the presence of bacteria, pathogens, foreign objects, substances, chemicals, other agents, or residues introduced during the growing, storage, handling or transportation phases.

 

We cannot be sure that consumption of our products will not cause a health-related illness in the future or that we will not be subject to claims or lawsuits relating to such matters. Even if a product liability claim is unsuccessful or is not fully pursued, the negative publicity surrounding any assertion that our products caused illness or injury could adversely affect our reputation with existing and potential customers and our corporate and brand image, and we could also incur significant legal expenses. Moreover, claims or liabilities of this nature might not be covered by any rights of indemnity or contribution that we may have against others, which could have a material adverse effect on our business, results of operations or financial condition.

 

We may be adversely affected by unfavorable outcomes in pending legal proceedings.

 

We are involved in a significant number of tax, civil and labor proceedings, which we estimate involve claims against us aggregating $0.9 million in Argentina and $28.6 million in Brazil, and as to which, at September 30, 2010, we recorded a provision totaling $0.4 million in Argentina and $3.7 million in Brazil (including judicial deposits in an aggregate amount of $0.8 million in Brazil). We cannot predict whether we will prevail in these or other proceedings, or whether we will have to pay significant amounts, including penalties and interest, as payment for our liabilities, which would materially and adversely impact our business and financial performance.

 

Our principal shareholders have the ability to direct our business and affairs, and their interests could conflict with yours.

 

As of the date of this prospectus, our principal shareholders are the beneficial owners of 22.4% of our common shares (after giving effect to this offering and, assuming it is consummated, the Al Gharrafa

Transaction (see “Business — Offering Transactions and Sale to Al Gharrafa Investment Company”)). As a result of this significant influence over us, our principal shareholders may be able to elect a majority of the members of our board of directors, direct our management and determine the result of substantially all resolutions that require shareholders’ approval, including fundamental corporate transactions and the payment of dividends by us. The interests of our principal shareholders may differ from, and could conflict with, those of our other shareholders.

 

Our internal controls over financial reporting may not be effective and our independent registered public accounting firm may not be able to certify as to their effectiveness, which could have a significant and adverse effect on our business and reputation.

 

Since we adopted IFRS in 2006 and prepared our first IFRS financial statements in 2008, we have had to face many challenging and complex accounting and financial reporting issues, including ongoing controls remediation and systems re-engineering and development. As a private company, except pursuant to contractual obligations, we were not required to produce annual or quarterly periodic reporting in the past. Improving internal control over financial reporting and mitigating the risks presented by significant deficiencies and other control deficiencies in our financial reporting processes continue to be top priorities. In the course of preparing our financial statements for the years ended December 31, 2009 and 2008 and our interim financial statements for the nine months ended September 30, 2010, we identified several significant deficiencies related to internal control issues, on which management has taken action as further explained below, primarily the need for improvement in our information technology general controls and the need to enhance monitoring controls within financial operations and reporting functions. Some of these issues persisted throughout 2009 and continued to present challenges for us in 2010. While we believe we have made progress in the remediation of internal control issues that have been identified, these will continue to pose significant risks to our financial reporting process until fully remediated.

 

As we continue our remediation activities, we may identify additional internal control issues. As part of this remediation plan, we began a more comprehensive review of our internal control environment in order to be ready to comply with Section 404 of the Sarbanes Oxley Act of 2002 for the 2011 annual filing. This review included an assessment of the design and effectiveness of our internal control environment under the COSO framework, an initiative to improve information technology general controls, and remedial actions needed to address any issues identified in the course of these reviews. This review is expected to continue throughout 2010 and 2011 and contemplates the implementation of several planned system enhancements to our accounting, financial reporting and operational infrastructure. We believe that this process will provide consistency in evaluations and verification of the appropriateness and completeness of our remediation activities. We will regularly monitor and report on our remediation progress to senior management, our board of directors, our external auditors and to the market, if material weaknesses are identified.

 

We intend to evaluate our internal controls over financial reporting in order to allow management to report on, and our independent registered public accounting firm to attest to, our internal controls over financial reporting, as required by Section 404 of the Sarbanes-Oxley Act of 2002, as amended, and rules and regulations of the SEC thereunder, which we refer to as “Section 404.” The process of documenting and testing our internal control procedures in order to satisfy the requirements of Section 404 requires annual management assessments of the effectiveness of our internal controls over financial reporting and a report by our independent registered public accounting firm addressing these assessments. Based on our current internal control issues, during the course of our testing, we may identify other significant deficiencies of which we are not currently aware.

 

If we are not able to implement the requirements of Section 404 in a timely manner or with adequate compliance, our independent registered public accounting firm may not be able to certify as to the effectiveness of our internal controls over financial reporting and we may be required to incur costs in improving our internal controls.

 

In addition, if we fail to achieve and maintain an effective internal control environment, we could suffer material misstatements in our financial statements and fail to meet our reporting obligations, which would likely cause investors to lose confidence in our reported financial information. This could in turn limit our

access to capital markets and possibly, harm our results of operations, and lead to a decline in the trading price of our common shares.

 

The historical and pro forma financial information in this prospectus may not accurately predict our costs of operations in the future.

 

The historical financial information in this prospectus does not reflect the added costs we expect to incur as a public company. In preparing our pro forma financial information, we have given effect to the Reorganization described in “Business — Corporate Structure and Reorganization,” the Reverse Stock Split described in “Summary — Recent Developments” and the acquisition of all of the outstanding shares of Dinaluca. For more information regarding historical financial information prior to the Reorganization and pro forma financial information, see “Selected Consolidated Financial Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the Audited Annual Consolidated Financial Statements and the Audited Interim Consolidated Financial Statements included elsewhere in this prospectus.

 

IFRS accounting standards require us to make numerous estimates in the compilation and preparation of our financial results and limit the comparability of our financial statements to similar issuers using U.S. GAAP.

 

IFRS accounting standards for agricultural companies require that we make assumptions and estimates relating to, among other things, future agricultural commodity yields, prices, and production costs extrapolated through a discounted cash flow method. For example, the value of our biological assets with a production cycle lasting more than one year ( i.e. , sugarcane, coffee and cattle) generated initial recognition and changes in fair value of biological assets amounting to $52.9 million for the year ended December 31, 2009 (2008: $25 million; 2007: $4.9 million). For 2009, an amount of $29.8 million (2008: $29.6 million; 2007: $14.8 million) was solely attributable to price changes (see note 10 to the Audited Annual Consolidated Financial Statements). In addition, the impact of price estimates on our results is evidenced most recently in our sugarcane business due to changes in the market price of sugar. For example, we reported a loss of $117.1 million in the nine-month period ended September 30, 2010 compared to a gain of $36.2 million in the same period in 2009 for our sugarcane business segment in the line item “Initial recognition and Changes in Fair Value of Biological Assets and Agricultural produce” due principally to the decrease in the market price of sugar. These assumptions and estimates, and any changes to such prior estimates, directly affect our reported results of operations. If actual market conditions differ from our estimates and assumptions, there could be material adjustments to our results of operations. In addition, the use of such discounted cash flow method utilizing these future estimated metrics differs from generally accepted accounting principles in the United States (“U.S. GAAP”). As a result, our financial statements and reported earnings are not directly comparable to those of similar companies in the United States.

 

Proposed new IFRS standards and amendments may have a significant effect on our financial statements.

 

The International Accounting Standards Board (IASB) generally reviews its own existing standards to enhance their clarity and consistency. Recently, the IASB published an exposure draft on leases, which would transform lease accounting from the existing accounting model to one under which a lessee’s rights and obligations under all leases, existing and new, would be capitalized on the balance sheet. These changes are especially relevant to companies that are significant users of real estate. A standard in final form is expected in mid 2011, and could require adoption as early as 2012.

 

We currently lease a significant amount of farmland and may increase the amount of leased land in the future based on our business needs. The adoption of the above-mentioned standard as currently drafted may have a significant impact on our operating results, financial ratios, and potentially our debt covenants. We are currently in the process of analyzing the potential impact of the issuance of this proposed standard. There can be no assurance as to the date of final completion of the standard or whether the final standard will be substantially equivalent to the current draft form.

We have a history of operating losses and negative cash flows, which may continue and adversely affect our ability to meet our business and growth objectives.

 

We have incurred losses and recorded negative cash flows in recent years. Our cash flow from operations have been significantly affected by the start-up costs associated with our overall investments to expand our Sugar, Ethanol and Energy business segment in Brazil. Although our net cash used in operating activities has decreased from $(80.9) million in September 2009 to $(27.1) million in September 2010, and although we anticipate our Brazilian operations to become profitable once the Angélica mill achieves full capacity and with the completion of our sugarcane cluster project, it is possible that we will record losses and negative cash flows in some future periods, and we cannot assure you that our losses will not increase in the future or, in the event that we do have profits, that we will be able to sustain our operating cash flow.

 

In the recent past, we have financed our business operations and expansion plans with debt and equity issuances since our cash flow from operations was insufficient to provide the necessary capital to fund our operations and investment plans. As of September 30, 2010, we have recorded an accumulated $418.7 million in cash from subscriptions for new equity capital from accredited private investors since 2007. In addition, during the same period we incurred $328.7 million in net short-term and long-term loans. We have a need for working capital to fund our operations and investment plans. If we are unable to receive new equity investments or obtain loans, we will not be able to fund our capital expenditures as originally planned and we will be required to change our business plans. Our current cash reserves and net cash flow from operations expected during the near future will be insufficient to fund our investment plans. We expect to fund these requirements with further investments in the form of debt, cash flow from operations, disposition of transformed farmland and/or subsidiaries or equity capital such as through this IPO. We cannot assure you, however, that we will be able to identify a financing source or sources, and if we do, whether the terms of such financing will be acceptable or commercially reasonable.

 

Certain of our subsidiaries have substantial indebtedness which could impair their financial condition and decrease the amount of dividends we receive.

 

Certain of our subsidiaries in Argentina and Brazil have a substantial amount of debt, which requires significant principal and interest payments. As of September 30, 2010, we had $403.2 million of debt outstanding on a consolidated basis, all of which was incurred by our subsidiaries and not guaranteed by Adecoagro S.A. Such indebtedness could affect our subsidiaries’ future operations, for example, by requiring a substantial portion of their cash flow from operations to be dedicated to the payment of principal and interest on indebtedness instead of funding working capital and other business purposes, making it more difficult for them to satisfy all of their debt obligations, increasing their cost of borrowing to satisfy business needs and limiting their ability to obtain additional financing.

 

The substantial level of indebtedness borne by certain of our subsidiaries also affects the amount of cash available to them to pay as dividends, increasing our vulnerability to economic downturns or other adverse developments relative to competitors with less leverage; and limiting our ability to obtain additional financing on their behalf for working capital, capital expenditures, acquisitions or other corporate purposes in the future.

 

The terms of the indebtedness of, and past breaches of financial ratio covenants by, certain of our subsidiaries impose significant restrictions on their operating and financial flexibility.

 

The debt instruments of certain of our subsidiaries contain customary covenants including limitations on their ability to, among other things, incur or guarantee additional indebtedness; make restricted payments, including dividends and prepaying indebtedness; create or permit certain liens; enter into business combinations and asset sale transactions; make investments, including capital expenditures; and enter into new businesses. Certain of these debt instruments are also secured by various collateral including mortgages on certain farms, pledges of subsidiary stock and liens on certain facilities, equipment and accounts. Certain of these debt instruments also contain cross-default provisions, where a default on one loan by one subsidiary could result in lenders of otherwise performing loans declaring a default on the otherwise performing loans. For more information regarding the covenants, collateral, and cross-default provisions of our subsidiaries’

indebtedness, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources — Indebtedness.” These restrictions could limit our subsidiaries’ ability to obtain future financing, withstand a future downturn in business or the economy in general, conduct operations or otherwise take advantage of business opportunities that may arise. Moreover, by reducing the level of dividends we may receive, such indebtedness places limits on our ability to make acquisitions or needed capital expenditures or to pay dividends to our shareholders.

 

The terms of certain of our subsidiaries’ debt instruments contain financial ratio covenants, limitations on their levels of debt and capital expenditures and requirements on maintaining various levels of EBITDA. During 2008, 2009 and again in the first quarter of 2010, certain of our operating subsidiaries in Argentina and Brazil breached certain financial ratio covenants under their debt instruments, and subsequently entered with the lenders into amendments to redefine the terms of such financial ratio covenants. The financial ratio covenants we are currently required to meet, some of which are measured on a combined basis aggregating results of the borrowing subsidiaries and others which are measured on an individual debtor basis, include, among others, debt service coverage, minimum liquidity and leverage ratios. For detailed information regarding the financial ratio covenants, limitations on levels of debt and capital expenditures and requirements on EBITDA, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources — Indebtedness.”

 

The failure by our subsidiaries to maintain applicable financial ratios, in certain circumstances, would prevent them from borrowing additional amounts and could result in a default under such indebtedness. If we or our subsidiaries are unable to repay those amounts, the affected lenders could initiate bankruptcy-related proceedings or enforce their rights to the collateral securing such indebtedness, which would have a material and adverse effect on our business, results of operations and financial condition. For detailed information regarding the terms of our subsidiaries’ indebtedness, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources — Indebtedness.”

 

Fluctuations in interest rates could have a significant impact on our results of operations, indebtedness and cash flow.

 

As of September 30, 2010, approximately 69% of our total financial debt was subject to variable interest rates and 31% was subject to fixed interest rates. As of September 30, 2010, the variable-rate interest bearing indebtedness of our Argentine subsidiaries had a rate of LIBOR plus 5%, and the variable-rate interest bearing indebtedness of our Brazilian subsidiaries had a rate of LIBOR or other country-specific rates such as the Taxa de Juros de Longo Prazo (“TJLP”) or Certificado de Depósito Interbancario (“CDI”) plus spreads ranging between 2.6% and 8.6%. Significant interest rate increases can have an adverse effect on our profitability, liquidity and financial position. Currently, our variable interest rate exposure is mainly linked to the LIBOR rate plus specified spreads. If interest rates increase, whether because of an increase in market interest rates or an increase in our own cost of borrowing, our debt service obligations for our variable rate indebtedness would increase even though the amount of borrowings remained the same, and our net income could be adversely affected. See also “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Quantitative and Qualitative Disclosures About Market Risks.”

 

We occasionally use interest rate swaps and forward interest rate contracts to reduce interest rate volatility and funding costs associated with certain debt issues and to achieve a desired proportion of variable- versus fixed-rate debt, based on current and projected market conditions. We have not applied hedge accounting to these transactions and may not do so in the future. Therefore, changes in the fair value of these derivative instruments can result in a non-cash charge or gain being recognized in our financial results for a period preceding the period or periods in which settlement occurs under the derivative instruments and interest payments are made. Changes or shifts in interest rates can significantly impact the valuation of our derivatives and therefore could expose us to substantial mark-to-market losses or gains if interest rates fluctuate materially from the time when the derivatives were entered into. Accordingly, fluctuations in interest rates may impact our financial position, results of operations, and cash flows. See also “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Quantitative and Qualitative Disclosures About Market Risks.”

We may not be able to renew our credit lines when they mature, depriving us of needed liquidity.

 

Certain of our subsidiaries rely substantially on existing credit lines to support their operations and business needs through the agricultural harvest cycle. If we are unable to renew these credit lines when they expire, or if we cannot replace such credit lines with other borrowing facilities, our financial condition and results of operations may be adversely affected.

 

There is a risk that we could be treated as a U.S. domestic corporation for U.S. federal income tax purposes, which could materially increase our U.S. federal income tax liability and subject any dividends we pay to U.S. federal withholding tax.

 

We acquired approximately 98% of IFH, a holding company which is a partnership for U.S. federal income tax purposes organized under the laws of Delaware, immediately prior to the IPO in exchange for our stock. Under U.S. Internal Revenue Code section 7874(b), we would be treated as a U.S. domestic corporation if we were deemed to have acquired substantially all of the assets constituting the trade or business of a U.S. domestic partnership and former members of IFH were deemed to own at least 80% of our stock by reason of the transfer of those trade or business assets (ignoring stock issued in this IPO for purposes of the 80% threshold). Although we and our subsidiaries conduct no direct business activity in the United States and our U.S. tax counsel is of the opinion that our acquisition of IFH should not be subject to the rules above, those rules are unclear in certain respects and there is limited guidance on the application of the rules to partnership acquisitions. Accordingly, we cannot assure you that the IRS will not seek to assert that we are a U.S. domestic corporation, which assertion if successful could materially increase our U.S. federal income tax liability and require us to withhold tax from any dividends we pay. See “Taxation.”

 

Risks Associated with the Countries in which We Operate

 

We operate our business in emerging markets. Our results of operations and financial condition are dependent upon economic conditions in those countries in which we operate, and any decline in economic conditions could harm our results of operations or financial condition.

 

All of our operations and/or development activities are in South America. As of September 30, 2010, based on the net book value of our combined investment property and property, plant and equipment, approximately 34% of our assets were located in Argentina, 63% in Brazil and 3% in Uruguay. During the same period, 48% of our combined sales of manufactured products and services rendered and sales of agricultural produce and biological assets were attributable to our Argentine operations, 50% were attributable to our Brazilian operations and 2% were attributable to our Uruguayan operations. We sell our products and produce and offer services to a large base of customers across the countries in which we operate. On a consolidated basis, the customers for our crops business are primarily located in Argentina, where more than 56% of our crop sales are concentrated in six crop exporters. Our customers for our cattle business are dispersed throughout Argentina and the customer for our dairy business is usually our joint venture company La Lácteo S.A. Our customers for our ethanol and sugar businesses are mainly concentrated in a few customers located in Brazil. We expect that in the future we will have additional operations in the South American countries in which we now operate or in other countries with similar political, economic and social conditions. Many of these countries have a history of economic instability or crises (such as inflation or recession), government deadlock, political instability, civil strife, changes in laws and regulations, expropriation or nationalization of property, and exchange controls which could adversely affect our business, financial condition and results of operations.

 

In particular, fluctuations in the economies of Argentina and Brazil and actions adopted by the governments of those countries have had and may continue to have a significant impact on companies operating in those countries, including us. Specifically, we have been affected and may continue to be affected by inflation, increased interest rates, fluctuations in the value of the Argentine Peso and Brazilian Real against foreign currencies, price and foreign exchange controls, regulatory policies, business and tax regulations and in general by the political, social and economic scenarios in Argentina and Brazil and in other countries that may affect Argentina and Brazil.

The economies of the countries in which we operate may be adversely affected by the deterioration of other global markets.

 

Financial and securities markets in the countries in which we operate are influenced, to different degrees, by the economic and market conditions in other countries, including other South American and emerging market countries and other global markets. Although economic conditions in these countries may differ significantly from economic conditions in the countries in which we operate, investors’ reactions to developments in these other countries, such as the recent developments in the global financial markets, may substantially affect the capital flows into, and the market value of securities of issuers with operations in, the countries in which we operate. A crisis in other emerging market countries could dampen investor enthusiasm for securities of issuers with South American operations, including our common shares. This could adversely affect the market price for our common shares, as well as make it difficult for us to access capital markets and obtain financing for our operations in the future, on acceptable terms or under any conditions.

 

A significant deterioration in the economic growth of any of the main trading partners of Brazil or Argentina could have a material impact on the trade balance of those countries and could adversely affect their economic growth.

 

In 2008, the global financial crisis had an adverse impact on global economic conditions. Even though by the end of 2009 and beginning of 2010 the world economies showed certain signs of recovery, it is yet uncertain how the current financial crisis will impact the countries in which we operate, which could include a reduction in exports, a decline in tax revenues and a reduced ability to access international capital markets.

 

Governments have a high degree of influence in the economies in which we operate, which could adversely affect our results of operations or financial condition.

 

Governments in many of the markets in which we currently or may in the future operate frequently intervene in their respective economies and occasionally make significant changes in monetary, credit, industry and other policies and regulations. Government actions to control inflation and other policies and regulations have often involved, among other measures, price controls, currency devaluations, capital controls and limits on imports. We have no control over, and cannot predict, what measures or policies governments may take in the future. The results of operations and financial condition of our businesses may be adversely affected by changes in governmental policy or regulations in the jurisdictions in which they operate that impact factors such as:

 

 

 

Uncertainty over whether governments will implement changes in policy or regulation affecting these or other factors in the future may contribute to economic uncertainty and heightened volatility in the securities markets, which may have a material and adverse effect on our business, results of operations and financial condition.

 

Currency exchange rate fluctuations relative to the U.S. dollar in the countries in which we operate our businesses may adversely impact our results of operations and financial condition.

 

We operate exclusively outside the United States, and our businesses may be impacted by significant fluctuations in foreign currency exchange rates. Our exposure to currency exchange rate fluctuations results from the translation exposure associated with the preparation of our consolidated financial statements, the transaction exposure associated with generating revenues and incurring expenses in different currencies and the devaluation of local currency revenues impairing the value of investments in U.S. dollars. While the consolidated financial statements presented herein are, and our future consolidated financial statements will be, presented in U.S. dollars, the financial statements of our subsidiaries are prepared using the local currency as the functional currency and translated into U.S. dollars by applying: (i) a period-end exchange rate for assets and liabilities; and (ii) an average exchange rate for the period for income and expenses. Resulting exchange differences arising from the translation to our presentation currency are recognized as a separate component of equity. Currencies in Argentina and Brazil have fluctuated significantly against the U.S. dollar in the past. Accordingly, fluctuations in exchange rates relative to the U.S. dollar could impair the comparability of our results from period to period and have a material adverse effect on our results of operations and financial condition.

 

After reaching a high of Ps.3.87 per $1 in June 2002, the exchange rate of the Peso to the Dollar has remained relatively stable. However, the increasing level of inflation is generating pressure for further depreciation of the Peso. The Peso depreciated 2.27% against the U.S. dollar in 2007, 9.49% in 2008 and 10.40% in 2009. It is impossible to predict future fluctuations in the exchange rate of the Argentine Peso or whether the Argentine government will change its currency policy.

 

The Brazilian currency has historically suffered frequent fluctuations. As a consequence of inflationary pressures, in the past, the Brazilian government has implemented various economic plans and adopted a number of exchange rate policies, including sudden devaluations, periodic mini-devaluations during which the frequency of adjustments has ranged from daily to monthly, floating exchange rate systems, exchange controls and dual exchange rate markets. Currently, the value of the Real against foreign currencies is determined under a free-floating exchange rate regime. Periodically, there are significant fluctuations in the value of the Real against the U.S. dollar. The Real appreciated 16.9% against the U.S. dollar in 2007, depreciated 31.6% in 2008 and appreciated 25.4% in 2009. Against the euro, the Real appreciated 7.5% in 2007, depreciated 24.1% in 2008 and appreciated 22.6% in 2009. On March 31, 2010, the Real/U.S. dollar exchange rate was R$1.781 per U.S. dollar, and the Real/euro exchange rate was R$2.41 per euro, as reported by the Central Bank of Brazil. We cannot predict whether the Brazilian Central Bank will continue to let the Real float freely. Accordingly, it is not possible to predict what impact the Brazilian government’s exchange rate policies may have on us. We cannot assure you that the Brazilian government will not in the future impose a band within which the Real/U.S. dollar exchange rate could fluctuate or set a fixed exchange rate, nor can we predict what impact such an event might have on our financial condition or results of operations.

 

Future fluctuations in the value of the local currencies relative to the U.S. dollar in the countries in which we operate may occur, and if such fluctuations were to occur in one or a combination of the countries in which we operate, our results of operations or financial condition could be adversely affected. For additional information regarding currency fluctuations, see “Exchange Rates.”

Inflation in some of the countries in which we operate, along with governmental measures to combat inflation, may have a significant negative effect on the economies of those countries and, as a result, on our financial condition and results of operations.

 

In the past, high levels of inflation have adversely affected the economies and financial markets of some of the countries in which we operate, particularly Argentina and Brazil, and the ability of their governments to create conditions that stimulate or maintain economic growth. Moreover, governmental measures to curb inflation and speculation about possible future governmental measures have contributed to the negative economic impact of inflation and have created general economic uncertainty. A 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. Inflation in Argentina or Brazil, without a corresponding Peso or Real devaluation could result in an increase in our operating costs without a commensurate increase in our revenues, which could adversely affect our financial condition and our ability to pay our foreign denominated obligations.

 

After several years of price stability in Argentina, the devaluation of the Peso in January 2002 imposed pressures on the domestic price system that generated high inflation throughout 2002. In 2003, inflation decreased significantly and stabilized. However, since 2004, encouraged by the pace of economic growth, according to the Instituto Nacional de Estadísticas y Censos (Argentine Statistics and Census Agency, or “INDEC”), the consumer price index increased by 6.1% in 2004, 12.3% in 2005, 9.8% in 2006, 8.5% in 2007, 7.2% in 2008 and 7.7% in 2009; while the wholesale price index went up 7.9% in 2004, 10.6% in 2005, 7.2% in 2006, 14.6% in 2007, 8.8% in 2008 and 10.3% in 2009. The accuracy of the measurements of the INDEC is in doubt, and the actual consumer price index and wholesale price index could be substantially higher than those indicated by the INDEC. For example, according to a research center of the University of Buenos Aires, School of Economics, the consumer price index increased by 10.7% (rather than 9.8%) in 2006, 25.7% (rather than 8.5%) in 2007, 23.0% (rather than 7.2%) in 2008 and 15.0% (rather than 7.7%) in 2009. See “— Risks Related to Argentina — There are concerns about the accuracy of the INDEC’s measurements.”

 

Brazil has historically experienced high rates of inflation. Inflation, as well as government efforts to curb inflation, had significant negative effects on the Brazilian economy, particularly prior to 1995. Inflation rates were 7.7% in 2007 and 9.8% in 2008, compared to deflation of 1.7% in 2009, as measured by the General Market Price Index ( Índice Geral de Preços — Mercado ), compiled by the Getúlio Vargas Foundation ( Fundação Getúlio Vargas ). A significant proportion of our cash costs and our operating expenses are denominated in Reais and tend to increase with Brazilian inflation. The Brazilian government’s measures to control inflation have in the past included maintaining a tight monetary policy with high interest rates, thereby restricting the availability of credit and reducing economic growth. As a result, interest rates have fluctuated significantly. The Special System for Settlement and Custody ( Sistema Especial de Liquidação e Custódia , or “SELIC”) interest rate in Brazil at year-end was 13.25% in 2006, 11.25% in 2007, 13.75% in 2008 and 8.75% in 2009, as determined by the COPOM. If inflation in Brazil increases, the Brazilian government may choose to increase the SELIC interest rate.

 

Argentina and/or Brazil may experience high levels of inflation in the future, which may impact domestic demand for our products. Inflationary pressures may also weaken investor confidence in Argentina and/or Brazil, curtail our ability to access foreign financial markets and lead to further government intervention in the economy, including interest rate increases, restrictions on tariff adjustments to offset inflation, intervention in foreign exchange markets and actions to adjust or fix currency values, which may trigger or exacerbate increases in inflation, and consequently have an adverse impact on us. In an inflationary environment, the value of uncollected accounts receivable, as well as of unpaid accounts payable, declines rapidly. If the countries in which we operate experience high levels of inflation in the future and price controls are imposed, we may not be able to adjust the rates we charge our customers to fully offset the impact of inflation on our cost structures, which could adversely affect our results of operations or financial condition.

 

Depreciations of the Peso or the Real relative to the U.S. dollar or the euro may also create additional inflationary pressures in Argentina or Brazil that may negatively affect us. Depreciations generally curtail access to foreign financial markets and may prompt government intervention, including recessionary governmental policies. Depreciations also reduce the U.S. dollar or euro value of dividends and other

distributions on our shares and the U.S. dollar or euro equivalent of the market price of our shares. Any of the foregoing might adversely affect our business, operating results, and cash flow, as well as the market price of our common shares.

 

Conversely, in the short term, a significant increase in the value of the Peso or the Real against the U.S. dollar would adversely affect the respective Argentine and/or Brazilian government’s income from exports. This could have a negative effect on gross domestic product (“GDP”) growth and employment and could also reduce the public sector’s revenues in those countries by reducing tax collection in real terms, as a portion of public sector revenues are derived from the collection of export taxes.

 

Disruption of transportation and logistics services or insufficient investment in public infrastructure could adversely affect our operating results.

 

One of the principal disadvantages of the agricultural sector in the countries in which we operate is that key growing regions lie far from major ports. As a result, efficient access to transportation infrastructure and ports is critical to the growth of agriculture as a whole in the countries in which we operate and of our operations in particular. Improvements in transportation infrastructure are likely to be required to make more agricultural production accessible to export terminals at competitive prices. A substantial portion of agricultural production in the countries in which we operate is currently transported by truck, a means of transportation significantly more expensive than the rail transportation available to U.S. and other international producers. Our dependence on truck transportation may affect our position as a low-cost producer so that our ability to compete in the world markets may be impaired.

 

Even though road and rail improvement projects have been considered for some areas of Brazil, and in some cases implemented, substantial investments are required for road and rail improvement projects, which may not be completed on a timely basis, if at all. Any delay or failure in developing infrastructure systems could reduce the demand for our products, impede our products’ delivery or impose additional costs on us. We currently outsource the transportation and logistics services necessary to operate our business. Any disruption in these services could result in supply problems at our farms and processing facilities and impair our ability to deliver our products to our customers in a timely manner.

 

Risks Related to Argentina

 

Argentine economic and political conditions and perceptions of these conditions in the international market may have a direct impact on our business and our access to international capital and debt markets, and could adversely affect our results of operations and financial condition.

 

A significant portion of our operations, properties and customers are located in Argentina. The Argentine economy has experienced significant volatility in recent decades, characterized by periods of low or negative growth, high and variable levels of inflation and currency devaluation. Between 2001 and 2003 Argentina experienced a period of severe political, economic and social crisis. In 2002, the enactment of Law No. 25,561 (the “Public Emergency Law”) ended more than a decade of uninterrupted Peso/Dollar parity, and the value of the Peso against the U.S. Dollar has fluctuated significantly since then. See “Exchange Rates.”

 

Although general economic conditions in Argentina have recovered significantly during the past years, there is uncertainty as to whether this growth is sustainable. This is mainly because the economic growth was initially dependent on a significant devaluation of the Argentine Peso, a high excess production capacity resulting from a long period of deep recession and high commodity prices. The global economic crisis of 2008 has led to a sudden economic decline, accompanied by political and social unrest, inflationary and Peso depreciation pressures and lack of consumer and investor confidence. According to the INDEC, Argentina’s GDP, in real terms, grew by 8.7% in 2007, 6.8% in 2008 and 0.9% in 2009. See “There are concerns about the accuracy of the INDEC’s measurements” and “Risks Associated with the Countries in which We Operate — Inflation in some of the countries in which we operate, along with governmental measures to combat inflation, may have a significant negative effect on the economies of those countries and, as a result, on our financial condition and results of operations” in this section. We cannot assure you that GDP will increase or remain stable in the future. Even though during the last quarter of 2009 and the first half of 2010

the Argentine economy has begun to slightly overcome the economic slowdown, there is uncertainty as to whether Argentina may regain economic growth. The recent economic crisis in Europe, beginning with the financial crisis in Greece, Spain, Italy and Portugal, the international demand for Argentine products, the stability and competitiveness of the Peso against foreign currencies, confidence among consumers and foreign and domestic investors, a stable and relatively low rate of inflation and the future political uncertainties, among other factors, may affect the development of the Argentine economy.

 

The economy of Argentina may be affected by its government’s limited access to financing from international markets.

 

Argentina has very limited access to foreign financing. As of December 31, 2001, Argentina’s total public debt amounted to $144.5 billion. In 2002, Argentina defaulted on over $81.8 billion in external debt to bondholders. In addition, since 2002, Argentina suspended payments on over $15.7 billion in debt to multilateral financial institutions ( e.g. International Monetary Fund and the Paris Club) and other financial institutions. In 2006, Argentina cancelled all its outstanding debt with the International Monetary Fund totalling approximately $9.5 billion, and through various exchange offers made to bondholders between 2004 and 2010, restructured over $74 billion of the defaulted debt. As of June 30, 2010, the Argentine government was still in default with respect of over $7 billion of debt to bondholders. As of such date, Argentina’s total public debt amounts to $156.7 billion (excluding the debt in default to bondholders). Argentina is currently negotiating the cancellation of all its outstanding debt with the Paris Club, amounting to $5.9 billion as of June 30, 2010.

 

Due to the lack of access to the international capital markets, the Argentine government continues to use the Argentine Central Bank’s foreign-currency reserves for the payment of Argentina’s current debt, which could result in additional attachments or injunctions relating to assets of the Argentine Central Bank or Argentina. In addition, the reduction of the Argentine Central Bank’s reserves may weaken Argentina’s ability to overcome economic deterioration in the future. Without access to international private financing, Argentina may not be able to finance its obligations, and financing from multilateral financial institutions may be limited or not available. This could also inhibit the ability of the Argentine Central Bank to adopt measures to curb inflation and could adversely affect Argentina’s economic growth and public finances, which could, in turn, adversely affect our operations in Argentina, our financial condition or the results of our operations.

 

The lack of financing for Argentine companies may have an adverse effect on the results of our operations in Argentina and on the market price of our common shares.

 

The prospects for Argentine companies accessing financial markets are limited in terms of the amount of the financing available and the conditions and costs of such financing. The default on the Argentine sovereign debt and the global economic crisis have significantly limited the ability of Argentine companies to access international financial markets.

 

In addition, in November 2008, the Argentine congress passed a law eliminating the private pension fund system and transferring all retirement and pension funds held by the pension fund administrators ( Administradoras de Fondos de Jubilaciones y Pensiones , or “AFJPs”) to the National Social Security Administrative Office ( Administración Nacional de la Seguridad Social , or “ANSES”). Because the AFJPs had been the major institutional investors in the Argentine capital markets, the nationalization of the pension fund system has led to a reduction of the liquidity available in the local Argentine capital markets. As of September 30, 2010, our subsidiaries in Argentina have relied on local Argentine financing for 8.1% of our total indebtedness. Lack of access to international or domestic financial markets could affect the projected capital expenditures for our operations in Argentina and, therefor, may have an adverse effect on the results of our operations in Argentina and on the market price of our common shares.

 

There are concerns about the accuracy of the INDEC’s measurements.

 

In January 2007, the INDEC modified its methodology used in calculating the consumer price index. At the same time, the Argentine government also replaced several key personnel at the INDEC, prompting

complaints of government interference from the technical staff at the INDEC. In addition, the IMF requested that the government clarify its inflation rates. In June 2008, the INDEC published a new consumer price index that eliminated nearly half of the items included in previous surveys and introduced adjustable weightings for fruit, vegetables and clothing, which have seasonal cost variations.

 

The new index has been criticized by economists and investors after its initial report found prices rising well below expectations. These events have affected the credibility of the consumer price index published by INDEC, as well as other indices published by INDEC that use the consumer price index in their calculation, including the poverty index, the unemployment index and real GDP. See “Risks Associated with the Countries in which We Operate — Inflation in some of the countries in which we operate, along with governmental measures to combat inflation, may have a significant negative effect on the economies of those countries and, as a result, on our financial condition and results of operations.”

 

If it is determined that it is necessary to correct the consumer price index and other INDEC indices, there could be a significant decrease in confidence in the Argentine economy, which could, in turn, have a materially adverse effect on our ability to access international credit markets at market rates to finance our operations.

 

Government intervention in Argentina may have a direct impact on our prices and sales.

 

The Argentine government has in the past set certain industry market conditions and prices. In March 2002, the Argentine government fixed the price for milk after a conflict among producers and the government. In 2005, the Argentine government adopted measures in order to increase the domestic availability of beef and reduce domestic prices. The export tax rate was increased and a minimum weight requirement for animals to be slaughtered was established. In March 2006, sales of beef products to foreign markets were temporarily suspended until prices decreased. Furthermore, in 2007 the Argentine government significantly increased export tax rates on exports of crops. A number of restrictions are also imposed on the grain and oilseed markets that essentially limit the access of traders to exports, resulting in a disparity between domestic and world prices. We cannot assure you that the Argentine government will not interfere in other areas by setting prices or regulating other market conditions. Accordingly, we cannot assure you that we will be able to freely negotiate the prices of all our Argentine products in the future or that the prices or other market conditions that the Argentine government might impose will allow us to freely negotiate the prices of our products, which could have a material and adverse effect on our business, results of operations and financial condition.

 

Government measures to preempt or respond to social unrest may adversely affect the Argentine economy and our business.

 

During the Argentine economic crisis in 2001 and 2002, Argentina experienced significant social and political turmoil, including civil unrest, riots, looting, nationwide protests, strikes and street demonstrations. Despite Argentina’s economic recovery and relative stabilization, social and political tension and high levels of poverty and unemployment continue. In 2008, Argentina faced nationwide strikes and protests from farmers due to increased export taxes on agricultural products, which disrupted economic activity and have heightened political tensions. Future government policies to preempt, or in response to, social unrest may include expropriation, nationalization, forced renegotiation or modification of existing contracts, suspension of the enforcement of creditors’ rights, new taxation policies, including royalty and tax increases and retroactive tax claims, and changes in laws and policies affecting foreign trade and investment. Such policies could destabilize the country and adversely and materially affect the Argentine economy, and thereby our business, results of operations and financial condition.

 

Disputes between the Argentine government and the agricultural sector may adversely affect the Argentine economy and our business.

 

In 2008, the Ministry of Economy and Public Finance issued a resolution which applied variable export tariffs ( retenciones móviles ) to the agricultural sector, thereby increasing the tariffs applicable to such exports.

The resolution caused a strong reaction by organizations and individuals related to the agricultural sector, who considered the increase a direct confiscation of their private property. This reaction was publicly evidenced by large-scale demonstrations all over the country, resulting in the largest agricultural strike in Argentina’s history, which included road blocks by strikers to prevent traffic of any freight related to agricultural production. As a consequence, markets reacted adversely, causing a recession in local demand and a disruption in the local financial markets. After a serious institutional crisis between the Argentine congress and the executive branch, the Argentine government issued decrees limiting the effectiveness of the original resolution. However, we cannot assure you that the government’s dispute with the agricultural sector will not resume or whether a similar reaction or conflict with the same sector will not arise. Although, to date, the dispute has not materially affected us, we cannot assure you that a similar dispute will not arise and, if it were to arise, that it will not have a material and adverse effect on our business, results of operations and financial condition in the future.

 

The Argentine government may order salary increases to be paid to employees in the private sector, which would increase our operating costs.

 

In the past, the Argentine government has passed laws, regulations and decrees requiring companies in the private sector to maintain minimum wage levels and provide specified benefits to employees and may do so again in the future. In the aftermath of the Argentine economic crisis, employers both in the public and private sectors have experienced significant pressure from their employees and labor organizations to increase wages and to provide additional employee benefits. Due to the high levels of inflation, the employees and labor organizations have begun again demanding significant wage increases. It is possible that the Argentine government could adopt measures mandating salary increases and/or the provision of additional employee benefits in the future. Any such measures could have a material and adverse effect on our business, results of operations and financial condition.

 

An increase in export duties and controls may have an adverse impact on our sales.

 

Since 2002, the Argentine government has imposed duties on the exports of various primary and manufactured products, including some of our products. During the last eight years, such export taxes have undergone significant increases, reaching a maximum of 35%. See “Regulatory and Environmental Overview — Argentina — Taxes — Export Taxes.” We cannot assure you that there will not be further increases in the export taxes or that other new export taxes or quotas will not be imposed. Imposition of new export taxes or quotas or a significant increase in existing export taxes or the application of export quotas could adversely affect our financial condition or results of operations.

 

Exchange controls could restrict the inflow and outflow of funds in Argentina.

 

In 2001 and 2002, the Argentine government implemented a number of monetary and currency exchange control measures that included restrictions on the withdrawal of funds deposited with banks and stringent restrictions on the outflow of foreign currency from Argentina, including for purposes of paying principal and interest on debt and distributing dividends.

 

Although most of these restrictions have been eased in some respects, some restrictions on transfer of funds from Argentina ( e.g. , to make payments of principal and interest) still remain in effect, and other controls on capital inflows have been established. Further, similar or new restrictions relating to the purchase of foreign currency and its transfer abroad for the payment of dividends, which were abolished in 2003, could be reinstated in the future and, if that were to occur, we may default in the payment of external debt obligations from Argentina, we may not be able to fund and/or finance our operations in Argentina, or we may not be able to distribute dividends from Argentina. This could adversely affect our financial condition and the results of our operations, or the market price of our common shares.

Risks Related to Brazil

 

Brazilian economic and political conditions and perceptions of these conditions in international markets have a direct impact on our business and our access to international capital and debt markets and could adversely affect our results of operations and financial condition.

 

A significant portion of our operations, properties and customers are located in Brazil. Accordingly, our financial condition and results of operations are substantially dependent on economic conditions in Brazil. The Brazilian economy has experienced significant volatility in recent decades, characterized by periods of low or negative growth, high and variable levels of inflation and currency devaluation. Brazil’s GDP, in real terms, grew by 6.1% in 2007, 5.1% in 2008 and decreased 0.2% in 2009. We cannot assure you that GDP will increase or remain stable in the future. Future developments in the Brazilian economy may affect Brazil’s growth rates and, consequently, the consumption of sugar, ethanol, and our other products. As a result, these developments could impair our business strategies, results of operations and financial condition.

 

Historically, Brazil’s political situation has influenced the performance of the Brazilian economy, and political crises have affected the confidence of investors and the general public, which has resulted in economic deceleration and heightened volatility in the securities issued abroad by Brazilian companies. Future developments in policies of the Brazilian government and/or the uncertainty of whether and when such policies and regulations may be implemented, all of which are beyond our control, could have a material adverse effect on us.

 

Additionally, Brazilian presidential and parliamentary elections will take place in October 2010. In Brazil, the president has significant power to determine public policies and introduce measures affecting the Brazilian economy and companies such as ours. The new government, whether or not controlled by the current president’s political party, may seek to implement changes to existing public policies. For example, the current or future government may face pressure to reduce public investments (including investments in infrastructure), due to increasing inflation and public debt. This could have a material adverse impact on our Brazilian subsidiaries’ operations.

 

Changes in Brazilian tax laws may increase our tax burden.

 

The Brazilian government frequently implements changes to the Brazilian tax regime that may affect us and our customers. These changes include changes in prevailing tax rates and, occasionally, imposition of temporary taxes, the proceeds of which are earmarked for designated government purposes. Some of these changes may result in increases in our tax payments, which could adversely affect industry profitability and increase the prices of our products, restrict our ability to do business in our existing and target markets and cause our financial results to suffer. We cannot assure you that we will be able to maintain our projected cash flow and profitability following any increases in Brazilian taxes applicable to us and our operations.

 

Widespread corruption and fraud relating to ownership of real estate may adversely affect our business, especially our land transformation business.

 

Under Brazilian Legislation, real property ownership is normally transferred by means of a transfer deed, and subsequently registered at the appropriate Real Estate Registry Office under the corresponding real property record. There are uncertainties, corruption and fraud relating to title ownership of real estate in Brazil, mostly in rural areas. In certain cases, the Real Estate Registry Office may register deeds with errors, including duplicate and/or fraudulent entries, and, therefore, deed challenges frequently occur, leading to judicial actions. Property disputes over title ownership are frequent in Brazil, and, as a result, there is a risk that errors, fraud or challenges could adversely affect us.

 

Social movements and the possibility of expropriation may affect the normal use of, damage, or deprive us of the use of or fair value of, our properties.

 

Social movements, such as Movimento dos Trabalhadores Rurais Sem Terra and Comissão Pastoral da Terra , are active in Brazil and advocate land reform and mandatory property redistribution by the federal

government. Land invasions and occupations of rural areas by a large number of individuals is common practice for these movements, and, in certain areas, including those in which we have invested or are likely to invest, police protection and effective eviction proceedings are not available to land owners. As a result, we cannot assure you that our properties will not be subject to invasion or occupation by these groups. In addition, our land may be subject to expropriation by the federal government. Under the Brazilian legal system, the federal government may expropriate land that is not in compliance with mandated local “social functions” for purposes of land reform. “Social function” is described in the Brazilian Constitution as rational and adequate exploitation of land, adequate use of natural resources available and preservation of the environment, compliance with labor laws, and exploitation of land to promote welfare of owners and employees. If the Brazilian government decides to expropriate any of our properties, our results of operations may be adversely affected, to the extent that potential compensation to be paid by the federal government may be less than the profit we could make from the sale or use of such land. Disputing the federal government’s expropriation of land is usually time-consuming and the outcomes at such challenges are uncertain. In addition, we may be forced to accept public debt bonds, which have limited liquidity, as compensation for expropriated land instead of cash. A land invasion or occupation also could materially impair the normal use of our lands or have a material adverse effect on our results of operations, financial condition or the value of our common shares.

 

Recent changes in Brazilian rules concerning foreign investment in rural properties may adversely affect our investments.

 

Brazilian federal law establishes certain restrictions on the acquisition of rural property by foreigners, including that (i) foreign investors may only acquire rural properties in which agricultural, cattle-raising, industrial or colonization projects are going to be developed as approved by the relevant authorities; (ii) the total rural area to be acquired by a foreign investor cannot exceed one quarter of the surface of the municipality in which it is located, and foreigners with the same nationality may not own, cumulatively, more than 40% of the limited area; and (iii) the acquisition or possession (or any in rem right) by a foreigner of rural property situated in an area considered important to national security (a “Border Zone”) must be previously approved by the General Office of the National Security Council. The restrictions mentioned in items (i) and (ii) above are also applicable for rural lease agreements executed by foreigners. In addition, the acquisition or lease by a foreigner of a rural property exceeding 100 módulos de exploração indefinida (“MEI,” a measurement unit defined by the National Institute for Colonization and Agrarian Reform ( Instituto Nacional de Colonização e Reforma Agrária , or “INCRA”) in hectares for each region of the country) must be previously approved by the Brazilian National Congress. Brazilian federal law enacted in 1971 also establishes that the same restrictions apply to Brazilian companies that are controlled by foreign investors. Any acquisition of rural property by foreigners in violation of these terms would be considered null and void under Brazilian law.

 

However, the Brazilian Constitution enacted in 1988 and its amendments, in particular Constitutional Amendment No. 6, of August 15, 1995, set forth that (i) no restrictions on the acquisition of rural land in Brazil should apply to Brazilian companies; and (ii) any company incorporated and headquartered in Brazil and controlled by foreign investors must receive the same treatment as any other company incorporated and headquartered in Brazil and controlled by Brazilian investors. Since the enactment of the Brazilian Constitution in 1988, the interpretation had been that the restrictions imposed by federal law on the acquisition or lease of rural property above-mentioned did not apply to Brazilian companies controlled by foreigners, pursuant to the legal opinion issued by the Federal General Attorney’s Office (the “AGU”) in 1994, which was ratified in 1998. However, the Brazilian Justice National Council issued an Official Letter on July 13, 2010 addressed to all the Brazilian local State Internal Affairs Bureaus in order for them to adopt procedures within 60 days and instruct the local State Notary and Real Estate Registry Offices to observe the restrictions of the Brazilian law on the acquisitions of rural land by Brazilian companies with foreign equity holders. Thereafter, on August 19, 2010, the AGU revised its prior opinion, and published a new opinion confirming that Brazilian entities controlled by foreigners should be subject to the restrictions described above. This revised opinion was ratified by the President of Brazil and published in the Official Gazette of the Federal Executive on August 23, 2010, becoming binding as of such date. We therefore believe that the acquisitions of rural

properties by Brazilian companies controlled by foreigners registered in the appropriate real estate registry prior to August 23, 2010 will not be affected by this binding opinion. However, going forward, the acquisition and leasing of rural land in Brazil, including through corporate transactions, will be subject to the above-mentioned restrictions, and will require several additional layers of review and approvals which may be discretionary, burdensome and time consuming. While we conduct our operations in Brazil through local subsidiaries, we would be considered a foreign controlled entity within the meaning of the restrictions articulated above. Therefore, if we are not able to comply with these restrictions and obtain the required approvals in connection with future acquisitions, our business plan, contemplated expansion in Brazil and results of operations will be adversely affected.

 

Furthermore, there is currently proposed legislation under analysis in the Brazilian National Congress regarding the acquisition of rural land by Brazilian companies controlled by foreign holders, which if approved may further limit and restrict the investments of companies with foreign equity capital in rural land in Brazil. Such further restrictions may place more strain on our ability to expand our operations in Brazil.

 

For further information regarding Brazilian rules concerning foreign investment in rural properties see “Regulatory and Environmental Overview — Brazil — Sales and Ownership of Real Estate.”

 

The Brazilian government has exercised, and continues to exercise, significant influence over the Brazilian economy.

 

The Brazilian government frequently intervenes in the Brazilian economy and occasionally makes significant changes in policy and regulations. The Brazilian government’s actions to control inflation and other policies and regulations have often involved, among other measures, increases in interest rates, changes in tax policies, price controls, currency devaluations, capital controls and limits on exports and imports. We may be adversely affected by changes in policy or regulations involving or affecting factors such as:

 

 

Uncertainty over whether the Brazilian government will implement changes in policy or regulations affecting these or other factors in the future may contribute to economic uncertainty in Brazil and to heightened volatility in the Brazilian securities markets and securities issued abroad that are supported by Brazilian issuers. As a result, these uncertainties and other future developments in the Brazilian economy may adversely affect our business, financial condition and results of operations and may adversely affect the price of our common shares.

 

Our business in Brazil is subject to governmental regulation.

 

Our Brazilian operations are subject to a variety of national, state, and local laws and regulations, including environmental, agricultural, health and safety and labor laws. We invest financial and managerial resources to comply with these laws and related permit requirements. Our failure to do so could subject us to fines or penalties, enforcement actions, claims for personal injury or property damages, or obligations to investigate and/or remediate damage or injury. Moreover, if applicable laws and regulations, or the interpretation or enforcement thereof, become more stringent in the future, our capital or operating costs could

increase beyond what we currently anticipate, and the process of obtaining or renewing licenses for our activities could be hindered or even opposed by the competent authorities.

 

We are also subject to several laws and regulations, among others, imposed in Brazil by (i) the Agência Nacional do Petróleo, Gás Natural e Biocombustível (National Agency of Petroleum, Natural Gas and Biofuels, or “ANP”) and by the Agência Nacional de Energia Elétrica (Brazilian Electricity Regulatory Agency, or “ANEEL”) due to our production of sugarcane and ethanol and (ii) the Ministério da Agricultura, Pecúaria e Abastecimento (the Ministry of Agriculture, Breeding Cattle and Supply, or “MAPA”), due to our agricultural, sugarcane and ethanol production activities. If an adverse final decision is issued in an administrative process, we could be exposed to penalties and sanctions derived from the violation of any of these laws and regulations, including the payment of fines, and, depending on the level of severity applied to the infraction, the closure of facilities and/or stoppage of activities and the cancellation or suspension of the registrations, authorizations and licenses, which may also result in temporary interruption or discontinuity of activities in our plants, and adversely affect our business, financial status, and operating results.

 

Government laws and regulations in Brazil governing the burning of sugarcane could have a material adverse impact on our business or financial performance.

 

In Brazil, approximately 44% of sugarcane is currently harvested by burning the crop, which removes leaves in addition to eliminating insects and other pests. The state of São Paulo and some local governments have established laws and regulations that limit and/or entirely prohibit the burning of sugarcane and there is a likelihood that increasingly stringent regulations will be imposed by the state of São Paulo and other governmental agencies in the near future. We currently make significant investments to comply with these laws and regulations. Although our plans for the implementation of mechanized harvesting are underway, with 66% of our sugarcane harvest mechanized during the 2009-2010 harvest, the strengthening of these laws and regulations or the total prohibition of sugarcane burning would require us to increase our planned investment in harvesting equipment, which, in turn, would limit our ability to fund other investments. In addition, the state of São Paulo has imposed an obligation on growers to dedicate a certain percentage of land used for sugarcane cultivation for native or reclaimed forest area. The cost of setting aside this land is difficult to predict and may increase costs for us or our sugarcane suppliers. As a result, the costs to comply with existing or new laws or regulations are likely to increase, and, in turn, our ability to operate our plants and harvest our sugarcane crops may be adversely affected.

 

Any failure to comply with these laws and regulations may subject us to legal and administrative actions. These actions can result in civil or criminal penalties, including a requirement to pay penalties or fines, which may range from US$50 to US$50 million and can be doubled or tripled in case of recidivism, an obligation to make capital and other expenditures or an obligation to materially change or cease some operations.

 

Risks Relating to this Offering

 

There is no existing market for our shares, and we do not know whether one will develop to provide you with adequate liquidity. If our stock price fluctuates after this offering, you could lose a significant part of your investment.

 

Prior to this offering, there has not been a public market for our shares. If an active trading market does not develop, you may have difficulty selling any of our shares that you buy. We cannot predict the extent to which investor interest in our company will lead to the development of an active trading market on the New York Stock Exchange (the “NYSE”), or otherwise or how liquid that market might become. The initial public offering price for the shares will be determined by negotiations between us and the underwriters and may not be indicative of prices that will prevail in the open market following this offering. Consequently, you may not be able to sell our shares at prices equal to or greater than the price paid by you in this offering. In addition to the risks described above, the market price of our shares may be influenced by many factors, some of which are beyond our control, including:

 

 

 

In addition, the stock market in general has experienced substantial price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of particular companies affected. These broad market and industry factors may materially harm the market price of our shares, regardless of our operating performance. In the past, following periods of volatility in the market price of certain companies’ securities, securities class-action litigation has been instituted against these companies. Such litigation, if instituted against us, could adversely affect our financial condition or results of operations.

 

The initial public offering price per common share is substantially higher than our net tangible book value per common share immediately after the offering, and you will incur immediate and substantial dilution.

 

The initial public offering price per common share is substantially higher than our net tangible book value per common share immediately after the offering. As a result, you may pay a price per share that substantially exceeds the tangible book value of our assets after subtracting our liabilities. Investors who purchase common shares in the offering will be diluted by $4.68 per share after giving effect to the sale of common shares in this offering, the Reverse Stock Split and, assuming it is consummated, the Al Gharrafa Transaction. See “Business — Offering Transactions and Sale to Al Gharrafa Investment Company” and “Dilution.” If we grant options in the future to our employees, and those options are exercised, or if other issuances of common shares are made, there will be further dilution.

 

Sales of substantial amounts of our shares in the public market, or the perception that these sales may occur, could cause the market price of our shares to decline.

 

Sales of substantial amounts of our shares in the public market, or the perception that these sales may occur, could cause the market price of our shares to decline. This could also impair our ability to raise additional capital through the sale of our equity securities. Under our articles of incorporation, after giving effect to the Reverse Stock Split, we are authorized to issue up to 2,000,000,000 shares, of which 108,869,032 shares will be outstanding following this offering and, assuming it is consummated, the Al Gharrafa Transaction (see “Business — Offering Transactions and Sale to Al Gharrafa Investment Company”). Our selling shareholders, members of our board of directors, our executive officers and our non-selling shareholders will enter into lock-up agreements, pursuant to which they are expected to agree, subject to certain exceptions, not to sell or transfer, directly or indirectly, any shares for a period of 180 days from the date of this prospectus. However, certain of our existing shareholders have entered into, and will be entitled to the benefits of, a registration rights agreement. See “Common Shares Eligible for Future Sale — Registration Rights Agreement.” We cannot predict the size of future issuances of our shares or the effect, if any, that future sales and issuances of shares would have on the market price of our shares.

 

Transformation into a public company may increase our costs and disrupt the regular operations of our business.

 

This offering will have a significant transformative effect on us. Our business historically has operated as a privately owned company, and we expect to incur significant additional legal, accounting, reporting and other expenses as a result of having publicly traded common shares. We will also incur costs which we have not incurred previously, including, but not limited to, costs and expenses for directors’ fees, increased directors and officers insurance, investor relations, and various other costs of a public company.

We also anticipate that we will incur costs associated with corporate governance requirements, including requirements under the Sarbanes-Oxley Act of 2002, as amended, as well as rules implemented by the SEC and NYSE. We expect these rules and regulations to increase our legal and financial compliance costs and make some management and corporate governance activities more time-consuming and costly. These rules and regulations may make it more difficult and more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. This could have an adverse impact on our ability to recruit and bring on a qualified independent board. We cannot predict or estimate the amount of additional costs we may incur as a result of these requirements or the timing of such costs.

 

The additional demands associated with being a public company may disrupt regular operations of our business by diverting the attention of some of our senior management team away from revenue producing activities to management and administrative oversight, adversely affecting our ability to attract and complete business opportunities and increasing the difficulty in both retaining professionals and managing and growing our businesses. Any of these effects could harm our business, financial condition and results of operations.

 

As a foreign private issuer, we are permitted to, and we will, rely on exemptions from certain NYSE corporate governance standards applicable to U.S. issuers, including the requirement that a majority of an issuer’s directors consist of independent directors. This may afford less protection to holders of our common shares.

 

Section 303A of the NYSE Listing Rules requires listed companies to have, among other things, a majority of their board members be independent, and to have independent director oversight of executive compensation, nomination of directors and corporate governance matters. As a foreign private issuer, however, we are permitted to, and we will, follow home country practice in lieu of the above requirements. Luxembourg law, the law of our home country, does not require that a majority of our board to consist of independent directors or the implementation of a nominating and corporate governance committee, and our board may thus not include, or include fewer, independent directors than would be required if we were subject to the NYSE Listing Rule. Since a majority of our board of directors may not consist of independent directors as long as we rely on the foreign private issuer exemption to the NYSE Listing Rule, our board’s approach may, therefore, be different from that of a board with a majority of independent directors, and as a result, the management oversight of our Company may be more limited than if we were subject to the NYSE Listing Rule.

 

Risks Related to Investment in a Luxembourg Company

 

We are a Luxembourg corporation (“société anonyme”) and it may be difficult for you to obtain or enforce judgments against us or our executive officers and directors in the United States.

 

We are organized under the laws of the Grand Duchy of Luxembourg. Most of our assets are located outside the United States. Furthermore, most of our directors and officers and the experts named in this prospectus reside outside the United States, and most of their assets are located outside the United States. As a result, you may find it difficult to effect service of process within the United States upon these persons or to enforce outside the United States judgments obtained against us or these persons in U.S. courts, including judgments in actions predicated upon the civil liability provisions of the U.S. federal securities laws. Likewise, it may also be difficult for you to enforce in U.S. courts judgments obtained against us or these persons in courts located in jurisdictions outside the United States, including actions predicated upon the civil liability provisions of the U.S. federal securities laws. It may also be difficult for an investor to bring an action in a Luxembourg court predicated upon the civil liability provisions of the U.S. federal securities laws against us or these persons. Luxembourg law, furthermore, does not recognize a shareholder’s right to bring a derivative action on behalf of the company.

 

As there is no treaty in force on the reciprocal recognition and enforcement of judgments in civil and commercial matters between the United States and the Grand Duchy of Luxembourg, courts in Luxembourg will not automatically recognize and enforce a final judgment rendered by a U.S. court. The enforceability in Luxembourg courts of judgments entered by U.S. courts will be subject prior any enforcement in Luxembourg

to the procedure and the conditions set forth in the Luxembourg procedural code in its article 678, which conditions may include the following conditions:

 

 

Under our articles of incorporation, we indemnify and hold our directors harmless against all claims and suits brought against them, subject to limited exceptions. Under our articles of incorporation, to the extent allowed or required by law, the rights and obligations among or between us, any of our current or former directors, officers and company employees and any current or former shareholder will be governed exclusively by the laws of Luxembourg and subject to the jurisdiction of the Luxembourg courts, unless such rights or obligations do not relate to or arise out of their capacities as such. Although there is doubt as to whether U.S. courts would enforce such provision in an action brought in the United States under U.S. securities laws, such provision could make enforcing judgments obtained outside Luxembourg more difficult to enforce against our assets in Luxembourg or jurisdictions that would apply Luxembourg law.

 

You may have more difficulty protecting your interests than you would as a shareholder of a U.S. corporation.

 

Our corporate affairs are governed by our articles of incorporation and by the laws governing joint stock companies organized under the laws of the Grand Duchy of Luxembourg as well as such other applicable local law, rules and regulations. The rights of our shareholders and the responsibilities of our directors and officers under Luxembourg law are different from those applicable to a corporation incorporated in the United States. There may be less publicly available information about us than is regularly published by or about U.S. issuers. Also, Luxembourg regulations governing the securities of Luxembourg companies may not be as extensive as those in effect in the United States, and Luxembourg law and regulations in respect of corporate governance matters may not be as protective of minority shareholders as state corporation laws in the United States. Therefore, you may have more difficulty protecting your interests in connection with actions taken by our directors and officers or our principal shareholders than you would as a shareholder of a corporation incorporated in the United States.

 

You may not be able to participate in equity offerings, and you may not receive any value for rights that we may grant.

 

Pursuant to Luxembourg corporate law, existing shareholders are generally entitled to preemptive subscription rights in the event of capital increases and issues of shares against cash contributions. However, under our articles of incorporation, the board of directors has been authorized to waive, limit or suppress such preemptive subscription rights until the fifth anniversary of the publication of the authorization granted to the board in respect of such waiver by the general meeting of shareholders.

 

Certain Defined Terms

 

In this prospectus, unless otherwise specified or if the context so requires:

 

 

Financial Statements

 

Background

 

As part of a recent corporate reorganization (the “Reorganization”), Adecoagro S.A., a Luxembourg corporation under the form of a société anonyme , was formed as a holding company for IFH for the purpose, among others, of facilitating the initial public offering (the “IPO”) of our common shares as set forth in this prospectus. For an additional discussion of the Reorganization, see “Business — Corporate Structure and Reorganization.”

 

Since the Reorganization was limited to entities which were all under the control of the same shareholder group and was implemented in part to facilitate the IPO, this prospectus includes only the consolidated historical financial statements of Adecoagro S.A.’s predecessor, IFH (plus the pro forma information described below). Adecoagro S.A. has not engaged in any business or other activities except in connection with its formation and the Reorganization. All financial and other information herein relating to periods prior to the completion of the Reorganization is that of IFH and its subsidiaries. The Reorganization was completed on October 30, 2010. In accordance with IFRS, the Reorganization did not qualify as a business combination under common control; rather, it was a simple reorganization of the capital of IFH. As such, the Reorganization is a non-adjusting event under IAS 10 and will therefore be recognized retroactively in the consolidated financial statements of Adecoagro S.A. as of and for the year ended December 31, 2010.

 

On January 10, 2011, the board of directors of the Company voted in favor of a proposal to change the nominal value of the equity shares of the Company from the nominal value of $1 each to the nominal value of US$1.5 each, subject to approval of shareholders at a duly convened extraordinary general meeting of shareholders to be held on January 24, 2011, pursuant to Luxembourg law. Unless otherwise noted herein, all share information in respect of Adecoagro included in this prospectus has been presented as if the Reverse Stock Split of three shares for two shares (3:2) had already occurred. The unaudited pro forma consolidated statements of income data for the year-ended December 31, 2009 and the nine-month period ended September 30, 2010 have been adjusted as if the Reverse Stock Split had occurred as of January 1, 2009. The unaudited pro forma consolidated statement of financial position as of September 30, 2010 has been adjusted

as if the Reverse Stock Split had occurred as of September 30, 2010. The historical financial statements of IFH have not been impacted by the Reverse Stock Split.

 

Presentation of Financial Information for IFH

 

The Audited Annual Consolidated Financial Statements included in this prospectus, are prepared in accordance with IFRS as issued by the IASB, and the interpretations of the IFRIC. The Audited Interim Consolidated Financial Statements, included in this prospectus, are prepared in accordance with IFRS as issued by the IASB and the Interpretations of the IFRIC, including IAS 34. All IFRS issued by the IASB effective at the time of preparing the Audited Annual Consolidated Financial Statements and the Audited Interim Consolidated Financial Statements have been applied. IFH applied IFRS for the first time for the year ended December 31, 2008, which included comparative information for the years ended December 31, 2007 and 2006. Note 3 to the Audited Annual Consolidated Financial Statements contains the details of the transition to IFRS and application of IFRS 1, First Time Adoption of IFRS (“IFRS 1”).

 

The Audited Annual Consolidated Financial Statements include an unaudited pro forma consolidated statement of income column for the year ended December 31, 2009, which have been prepared to illustrate the consolidated results of operations as if the Reorganization and the Reverse Stock Split had been completed as of January 1, 2009.

 

The Audited Interim Consolidated Financial Statements include an unaudited pro forma consolidated balance sheet column as of September 30, 2010 and an unaudited pro forma consolidated statement of income column for the nine month period ended September 30, 2010, which have been prepared to illustrate the consolidated financial position and consolidated results of operations as if the Reorganization and the Reverse Stock Split had been completed as of September 30, 2010 with respect to the unaudited pro forma consolidated balance sheet and as of January 1, 2009 with respect to the unaudited pro forma consolidated statement of income.

 

The pro forma adjustments principally give effect to the following items:

 

(1) The recognition of the capital structure of Adecoagro based on 79,999,985 shares of common stock, the elimination of 475,652,189 membership units of IFH, the recognition of share premium as a result of the new capital structure, and the recognition of non-controlling interest as a 2% interest in IFH and its subsidiaries will not be held by Adecoagro.

 

(2) Unaudited pro forma loss per common share and unaudited pro forma weighted average shares outstanding for the nine month period ended September 30, 2010 and the year ended December 31, 2009 reflect the new capital structure of Adecoagro as set forth in footnote (1) above.

 

(3) Adecoagro will seek to rely on the participation exemption from tax on income pursuant to the laws of Luxembourg. Accordingly, the Group does not expect that the Reorganization will have a material effect on the tax liabilities of Adecoagro.

 

(4) The amendments to the stock options plans of IFH did not increase total fair value of the share-based payment arrangement or were otherwise beneficial to our employees. Accordingly, there is no impact in our financial position or results from operations as a result of the amendments of the stock option plans. See “Management — Share Options — Adecoagro/IFH 2004 Stock Incentive Option Plan and Adecoagro/IFH 2007/2008 Equity Incentive Plan.”

 

Unaudited Pro Forma Financial Information

 

This prospectus includes unaudited pro forma combined consolidated financial information in connection with the Reorganization, the Reverse Stock Split and the acquisition of Dinaluca, a company we acquired on August 23, 2010. See “Summary — Recent Developments.” The pro forma information presented gives effect to the Reorganization, the Reverse Stock Split and the acquisition of all of the outstanding shares of Dinaluca. The unaudited pro forma condensed consolidated statement of financial position is based on the historical statement of financial position of IFH, as adjusted to reflect the Reorganization and the Reverse Stock Split as

discussed in Note 1 to the Audited Interim Consolidated Financial Statements. The unaudited pro forma combined condensed consolidated statement of income combines the results of operations of IFH and Dinaluca for the year ended December 31, 2009 and for the nine month period ended September 30, 2010 as if the acquisition had occurred on January 1, 2009.

 

The acquisition of Dinaluca has triggered the significance test exceeding the 20% but not the 40% threshold under SAB 80 (Topic 1J of the Codification of Staff Accounting Bulletins), based on the income test outlined in Section 1-02(w) (3) of Regulation S-X, and has therefore triggered the requirement for the presentation of pre-acquisition audited financial statements covering a period of at least twenty-one months. Therefore, the pre-acquisition audited financial statements of Dinaluca as of June 30, 2010, 2009 and 2008 and for the years ended June 30, 2010 and 2009 are included in this prospectus.

 

Non-IFRS Financial Measures

 

We present Adjusted Consolidated EBITDA, Adjusted Segment EBITDA, Adjusted Consolidated EBIT and Adjusted Segment EBIT in this Prospectus as supplemental measures of performance of the Company and of each operating segment, respectively, that are not required by, or presented in accordance with IFRS. Our Adjusted Consolidated EBITDA equals the sum of our Adjusted Segment EBITDAs for each of our operating segments. We define Adjusted Consolidated EBITDA as consolidated net profit or loss for the year or period, as applicable, before interest expense, income taxes, depreciation and amortization, foreign exchange gains or losses, other net financial expenses and unrealized changes in fair value of our long-term biological assets, primarily our sugarcane and coffee plantations, and cattle stocks. We define Adjusted Segment EBITDA for each of our operating segments as the segment’s share of consolidated profit from operations before financing and taxation for the year or period, as applicable, before depreciation and amortization and unrealized changes in fair value of our long-term biological assets. We believe that Adjusted Consolidated EBITDA and Adjusted Segment EBITDA are for the Company and each operating segment, respectively important measures of operating performance because they allow investors and others to evaluate and compare our consolidated operating results and to evaluate and compare the operating performance of our segments, respectively, including our return on capital and operating efficiencies, from period to period by removing the impact of our capital structure (interest expense from our outstanding debt), asset base (depreciation and amortization), tax consequences (income taxes), unrealized changes in fair value of biological assets (a significant non-cash gain or loss to our consolidated statements of income following IAS 41 accounting), foreign exchange gains or losses and other financial expenses. Other companies may calculate Adjusted Consolidated EBITDA and Adjusted Segment EBITDA differently, and therefore our Adjusted Consolidated EBITDA and Adjusted Segment EBITDA may not be comparable to similarly titled measures used by other companies. Adjusted Consolidated EBITDA and Adjusted Segment EBITDA are not measures of financial performance under IFRS, and should not be considered in isolation or as an alternative to consolidated net profit (loss), cash flows from operating activities, segment’s profit from operations before financing and taxation and other measures determined in accordance with IFRS. Items excluded from Adjusted Consolidated EBITDA and Adjusted Segment EBITDA are significant and necessary components to the operations of our business, and, therefore, Adjusted Consolidated EBITDA and Adjusted Segment EBITDA should only be used as a supplemental measure of our operating performance of the Company, and of each of our operating segments, respectively. We also believe Adjusted Consolidated EBITDA and Adjusted Segment EBITDA are useful for securities analysts, investors and others to evaluate the financial performance of our company and other companies in the agricultural industry. These non-IFRS measures should be considered in addition to, but not as a substitute for or superior to, the information contained in either our statements of income or segment information.

 

Our Adjusted Consolidated EBIT equals the sum of our Adjusted Segment EBITs for each of our operating segments. We define Adjusted Consolidated EBIT as consolidated net profit or loss for the year or period, as applicable, before interest expense, income taxes, foreign exchange gains or losses, other net financial expenses and unrealized changes in fair value of our long-term biological assets, primarily our sugarcane and coffee plantations, and cattle stocks. We define Adjusted Segment EBIT for each of our operating segments as the segment’s share of consolidated profit from operations before financing and taxation for the year or period, as applicable, before unrealized changes in fair value of our long-term biological assets.

We believe that Adjusted Consolidated EBIT and Adjusted Segment EBIT are for the Company and each operating segment, respectively important measures of operating performance because they allow investors and others to evaluate and compare our consolidated operating results and to evaluate and compare the operating performance of our segments, from period to period by including the impact of depreciable fixed assets and removing the impact of our capital structure (interest expense from our outstanding debt), tax consequences (income taxes), unrealized changes in fair value of biological assets (a significant non-cash gain or loss to our consolidated statements of income following IAS 41 accounting), foreign exchange gains or losses and other financial expenses. Other companies may calculate Adjusted Consolidated EBIT and Adjusted Segment EBIT differently, and therefore our Adjusted Consolidated EBIT and Adjusted Segment EBIT may not be comparable to similarly titled measures used by other companies. Adjusted Consolidated EBIT and Adjusted Segment EBIT are not measures of financial performance under IFRS, and should not be considered in isolation or as an alternative to consolidated net profit (loss), cash flows from operating activities, segment’s profit from operations before financing and taxation and other measures determined in accordance with IFRS. Items excluded from Adjusted Consolidated EBIT and Adjusted Segment EBIT are significant and necessary components to the operations of our business, and, therefore, Adjusted Consolidated EBIT and Adjusted Segment EBIT should only be used as a supplemental measure of our operating performance of the Company, and of each of our operating segments, respectively. We also believe Adjusted Consolidated EBIT and Adjusted Segment EBIT are useful for securities analysts, investors and others to evaluate the financial performance of our company and other companies in the agricultural industry.

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, rice and coffee. A harvest year varies according to the crop, rice or coffee 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, rice or coffee may start earlier on one farm than on another, causing differences in their respective harvesting periods. The presentation of production volume (tons) and product area (hectares) in this prospectus in respect of the harvest years for each of our crops, rice and coffee starts with the first day of the planting period at the first farm to start planting that harvest year and continues to the last day of the harvesting period of the respective crop, rice or coffee on the last farm to finish harvesting that harvest year, as shown in the table below.

 

 

Product area for cattle is presented on a harvest year basis given that land utilized for cattle operations is linked to our farming operations and use of farmland during a harvest year, while production volumes for dairy and cattle operations are presented on a fiscal year basis. On the other hand, production volumes and product area in our 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.