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Performance in 2017

We enhanced business management in 2017 so as to continue our sustainable growth

Economic and financial performance

From the point of view of management accounting, the group considers four operating sectors: ICT, Agribusiness, Tourism and Services. In the case of economic and financial consolidation, because of accounting criteria the Tourism sector is not factored in, as it is a joint venture with a 50% market share.

In 2017, we maintained our operational efficiency programs, optimizing the management of the business and adjusting the portfolio in pursuit of sustainable growth. In the ICT sector, net revenue was up by 6.7%, and net income by 25.1%. In the consolidated group figures, there was a reduction of 10,2% with a net loss of R$ 84 million, against a net income of R$ 152 million the previous year, driven by the negative results from the agribusiness sector because of low margins both on sales to overseas markets (soybean and corn commodities) and to the domestic market (soybean meal and oil). Below and on the following pages we list the key highlights of our performance in 2017. A full version of our financial statements can be found on the Algar website.

Net operating revenue

The Algar group posted net revenue of R$ 4,502 million in 2017, 10% less than in 2016. The reduction of R$ 509 million can be attributed to the Agribusiness sector, which showed a retraction of R$ 718 million (-31.5%), partially offset by the R$ 171 million increase in the ICT sector. The ICT sector’s share of consolidated revenue rose from 51% to 60%. On the other hand, the share of the Agribusiness sector dropped from 45% to 35%.

The excellent results in the ICT sector are primarily due to the growth strategy, which includes geographical expansion, a revised services portfolio and products and offers that enables us to enhance satisfaction and loyalty. In the Agribusiness sector, however, the results are due to the more challenging scenario on the overseas market, with tough competition.

Costs of products sold and services rendered

Consolidated costs stood at R$ 3,279 million in 2017, representing 72.8% of net income, 4.1 percentage points lower than in 2016. In the ICT sector, there was a reduction of 2.0 p.p. because of the on-going digital transformation, in addition to the operational efficiency programs. The Agribusiness sector saw an increase of 1.8 p.p., primarily due to higher raw material costs and pressure on the overseas market.

Adjusted EBITDA and EBITDA margin

Note: for the purposes of consolidation on the balance sheet of Algar S.A., this indicator is subject to adjustments that reflect the impact of soybean and foreign exchange hedging in agribusiness.

 

Consolidated cash generation from operations as measured by EBITDA stood at R$ 663.9 million in 2017, down by 18% when compared to the R$ 811 million posted in 2016.

Only the ICT sector showed growth, thanks to optimization of costs and higher operational efficiency. However, the indicator for the Agribusiness sector was negative, reducing the Group’s EBITDA. So, the EBITDA margin in 2017 was 14.7%, 1.5 percentage point lower than in 2016.

R$ millions 2015 2016 2017
Financial revenue 721 610 508
Financial Expenses (1,014) (892) (790)
Financial result (293) (282) (283)

In 2017, the result between financial revenue and expenses was a net expense of R$ 283 million, in line with the R$ 282 million in 2016, reflecting lower interest rates, notwithstanding higher indebtedness.

Net income and net margin

The Algar group showed negative net income, after factoring in the participation in Tourism booked as equity accounting, of R$ 84.3 million in 2017, against net income of R$ 152 million in 2016, this reduction arising from the negative results of Algar Agro – R$ 192.5 million.

To reverse the negative operating results, commencing in 2018 Algar Agro will focus its operations on the domestic market, where the margins are better because of the value added by the processing of soybean meal and oil and because of the federal and state fiscal incentives. In addition, the Company has restructured its operations and administration areas to reduce and optimize its costs and expenses, having also sold its holdings in Algar Farming to Algar S/A at market price.

The ICT and Tourism sectors showed positive results of R$ 230 million and R$ 32 million, respectively.

Indebtedness

  Loans Debentures Total
R$ millions

ST

LT Total ST LT Total
2017
ICT 88 102 190 226 1,150 1,376 1,566
Agribusiness 1,150 303 1,453 1,453
Services 27 47 74 74
Total 1,265 452 1,717 226 1,150 1,376 3,093
2016
ICT 136 191 327 202 898 1,100 1,427
Agribusiness 1,052 354 1,405 1,405
Services 5 20 25 25
Total 1,193 564 1,758 202 898 1,100 2,858

 

  2017
Gross debt profile (R$ millions)
Loans Debentures Total
Short Term 1,265 226 1,491
1 to 2 years (2019) 293 223 516
2 to 3 years (2020) 70 99 169
Beyond 3 years (post-2020) 89 829 917
Total 1,717 1,376 3,093

The consolidated gross debt at December 31, 2017 amounted to R$ 3,093 million, 8% up against the end of 2016. However, net indebtedness rose by less, from R$ 2,509 million to R$ 2,612 million in the same period, thanks to the increase in consolidated cash.

Investments

Our investments in 2017 stood at R$ 627.3 million, against R$ 621 million disbursed the previous year. 87% of this amount was allocated to the ICT sector, channeled to expansion – including the Monet cable – and to network modernization, operations maintenance and the expansion of the ICT Customer Management and Services Management business. The investments in Agribusiness, of around R$ 44.3 million, were channeled, for example, to improving the logistics infrastructure, energy co-generation projects, operational efficiency and to the installation of crop pivot irrigation systems.

 

 

Value Added Statement (VAS)

The Statement of Value Added (SVA) shows the economic value created by the Company’s businesses, including amounts received from third parties, such as financial revenue and equity pick-up, in addition to showing how those amounts are shared with society.

In 2017, the total value added by our activities was R$ 2,518 million, against R$ 2,486 million in 2016. The ratio of value added to gross revenue for the year 2016 was 45.8%, which means that for every R$ 1 of gross revenue, Algar S.A. allocated R$ 0.46 to society. The biggest portion was channeled to the employees and the government.

VAS – in million of R$ 2015 2016 2017
Revenue 5,625 5,973 5,499
  Sales of goods and services 5,543 5,826 5,371
  Other revenue 136 183 17
  Provision for impairment losses (54) (37) (37)
Inputs purchased from third parties (includes: ICMS, IPI, PIS and COFINS taxes) (3,409) (3,766) (3,142)
  Costs of goods sold and services rendered (2,600) (2,658) (2,062)
  Materials, energy, third-party services and others (809) (1,107) (1,080)
 Gross value added 2,216 2,207 2,357
  Depreciation and amortization (309) (348) (363)
Net value added by the entity 1,907 1,859 1,994
Value added received in transfer 734 627 524
  Financial revenue 721 610 508
  Equity pick-up 13 17 17
Value added received in transfer 2,641 2,486 2,518

 

VAS – in million of R$ 2015 2016 2017
Total to be distributed 2,641 2,486 2,518
  Personnel 1,051 1,166 1,183
  Taxes, fees and contributions 746 884 1,036
  Interest and leases 643 283 290
  Leases 87 94
  Dividends and interest on own capital 45 32
  Net income for the year 155 120 (84)

 

VAS (%) 2015 2016 2017
Total to be distributed 6,641 2,486 2,518
  Employees 40% 47% 47%
  Government 28% 36% 41%
 Remuneration of third-party capital* 24% 11% 15%
 Shareholders 2% 1%
  Net income for the year 6% 5% -3%
*includes Interest and Leases
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