Adecoagro (AGRO) 20-F/A 2016 FY Annual report (foreign) (amended)

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 20 F/A

☐ REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

☒ ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED ON DECEMBER 31, 2016

OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM                TO OR                

☐ SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Date of event requiring this shell company report

COMMISSION FILE NUMBER: 001-35052

Adecoagro S.A.

(Exact name of Registrant as specified in its charter)

N/A

(Translation of Registrant’s name into English)

Grand Duchy of Luxembourg

(Jurisdiction of incorporation or organization)

Vertigo Naos Building, 6, Rue Eugène Ruppert, L - 2453 Luxembourg

Tel: +352.2644.9372

(Address of principal executive offices)

Gorka Fernandez Matute

Vertigo Naos Building, 6, Rue Eugène Ruppert, L - 2453 Luxembourg

Email:gorka.fernandezmatute@intertrustgroup.com

Tel: +352.2644.9372

(Name, Telephone, E-Mail and/or Facsimile number and Address of Company Contact Person)

Securities registered or to be registered pursuant to Section 12(b) of the Act:

Title of Each Class	Name of Each Exchange on Which Registered
Common Shares	New York Stock Exchange

Securities registered or to be registered pursuant to Section 12(g) of the Act: None

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None

The number of outstanding shares of each of the issuer’s classes of capital stock as of December 31, 2016:

121,143,497 Common Shares, par value $1.50 per share

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act

Yes☒No☐

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

Yes☐No☒

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.

Yes☒No☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). (*)

Yes ☐No☐

(*) This requirement does not apply to the registrant in respect of this filing.

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See definition of “large accelerated filer," accelerated filer,” and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer☒	Accelerated filer ☐	Non-accelerated filer ☐
		Emerging growth company☐

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing: U.S. GAAP ☐ International Financial Reporting Standards as issued by the International Accounting Standards Board ☒Other ☐

If' “Other" has been checked in response to the previous question, indicate by check mark which financial statement item the Registrant has elected to follow: Item 17 ☐Item 18☐

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐No ☒

EXPLANATORY NOTE

This Form 20-F/A amends our Annual Report on Form 20-F for the year ended December 31, 2016 (the “Annual Report”), as filed with the U.S. Securities and Exchange Commission (the “Commission”) on April 28, 2017 (the “Original Filing”) and is being filed solely to correct a typographical error with respect to the date of Price Waterhouse & Co. S.R.L.’s audit report (the “PwC audit report”) contained in the Annual Report. The originally signed PwC audit report bears the date April 27, 2017. However, the PwC audit report as filed was dated inadvertently as of April 24, 2017. Although we have re-filed the entire PwC audit report and financial statements, for clarity, this amendment is limited in scope to the correction of the typographical error in the date of the PwC audit report and does not amend, update, or change any other items or disclosures contained in the Original Filing.

Other than as expressly set forth above, this amendment does not, and does not purport to, amend, restate, or update the information contained in the Annual Report, or reflect any events that have occurred after the Annual Report was filed.  As a result, our Annual Report, as amended hereby, continues to speak as of the initial filing date of our Annual Report and should not be understood to mean that any statements contained herein have been updated to reflect developments as of any date subsequent to April 28, 2017.

This Form 20-F/A consists solely of a cover page, this explanatory note, the PwC audit report and our financial statements, the updated auditors’ consent, updated certifications of our principal executive officer and our principal financial officer, and a signature page. The only change in these certifications from the certifications of the Company’s principal executive officer and principal financial officer filed as exhibits to the Original Filings is their date.

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Item 18. Financial Statements.

See pages F-1 through F-90 of this annual report.

Item 19. Exhibits

Exhibit Number	Description
1.1	Amended and Restated Articles of Association of Adecoagro S.A. dated April 20,2016 , previously filed as exhibit 1.1 to the Company’s Annual Report on Form 20-F filed with the Securities and Exchange Commission on April 28, 2017 (“Form 20-F”) and incorporated by reference herein.
4.1	Loan Agreement, dated December 19, 2008, between Adeco Agropecuaria S.A., Pilagá S.R.L. and Inter-American Development Bank, previously filed as exhibit 10.1 to the Company’s registration statement on Form F-1 (File No. 333-171683) filed with the Securities and Exchange Commission on January 13, 2011 (“Form F-1”) and incorporated by reference herein.
4.2	First Amendment Offer to Loan Agreement, dated February 20, 2009, between Adeco Agropecuaria S.A., Pilagá S.R.L. and Inter- American Development Bank, previously filed as exhibit 10.2 to the Company’s registration statement on Form F-1 and incorporated by reference herein.
4.3	Second Amendment Offer to Loan Agreement, dated December 29, 2009, between Adeco Agropecuaria S.A., Pilagá S.R.L. and Inter- American Development Bank, previously filed as exhibit 10.3 to the Company’s registration statement on Form F-1 and incorporated by reference herein.
4.4	Third Waiver Request to Loan Agreement, dated March 30, 2010, between Adeco Agropecuaria S.A., Pilagá S.R.L. and Inter-American Development Bank, previously filed as exhibit 10.4 to the Company’s registration statement on Form F-1 and incorporated by reference herein.
4.5	Fourth Amendment Offer to Loan Agreement, dated May 14, 2010, between Adeco Agropecuaria S.A., Pilagá S.R.L. and Inter- American Development Bank, previously filed as exhibit 10.5 to the Company’s registration statement on Form F-1 and incorporated by reference herein.
4.6	Fifth Amendment Offer to Loan Agreement, dated November 8, 2010, between Adeco Agropecuaria S.A., Pilagá S.R.L. and Inter- American Development Bank, previously filed as exhibit 10.37 to the Company’s registration statement on Form F-1 and incorporated by reference herein.
4.7	Amendment Offer to Loan Agreement, dated March 24, 2011, between Adeco Agropecuaria S.A., Pilagá S.R.L. and Inter-American Development Bank, previously filed as Exhibit 4.7 to the Company’s annual report on Form 20-F for the year ended December 31, 2011 and incorporated herein by reference.
4.8	Amendment Offer 02/2011 to Loan Agreement, dated November 9, 2011, between Adeco Agropecuaria S.A., Pilagá S.A. and Inter- American Development Bank, previously filed as Exhibit 4.8 to the Company’s annual report on Form 20-F for the year ended December 31, 2011 and incorporated herein by reference.
4.9	Senior Secured Loan Facility, dated July 28, 2010, between Angélica Agroenergia Ltda. and Deutsche Bank AG, London Branch, previously filed as exhibit 10.6 to the Company’s registration statement on Form F-1 and incorporated by reference herein.
4.10	Export  Prepayment  Financing  Agreement,  dated  July  13,  2007,  between  Angélica  Agroenergia  Ltda.  and  a  syndicate  of  banks, previously filed as exhibit 10.7 to the Company’s registration statement on Form F-1 and incorporated by reference herein.
4.11	First Amendment to Export Prepayment Financing Agreement, dated March 4, 2010, between Angélica Agroenergia Ltda. and a syndicate of banks, previously filed as exhibit 10.8 to the Company’s registration statement on Form F-1 and incorporated by reference herein.
4.12	English translation of Financing Agreement through BNDES Repasse, dated February 1, 2008, between Adeco Brasil Participações S.A. and a syndicate of banks, previously filed as exhibit 10.9 to the Company’s registration statement on Form F-1 and incorporated by reference herein.
4.13	English translation of First Amendment to Financing Agreement BNDES Repasse, dated July 1, 2008, between Angélica Agroenergia Ltda. and a syndicate of banks, previously filed as exhibit 10.10 to the Company’s registration statement on Form F-1 and incorporated by reference herein.
4.14	English  translation  of  Second  Amendment  to  Financing  Agreement  BNDES  Repasse,  dated  March  4,  2010,  between  Angélica Agroenergia Ltda. and a syndicate of banks, previously filed as exhibit 10.11 to the Company’s registration statement on Form F-1 and incorporated by reference herein.
4.15	English translation of Credit Facility, dated July 30, 2010, between Angélica Agroenergia Ltda. and Banco do Brasil S.A., previously filed as exhibit 10.12 to the Company’s registration statement on Form F-1 and incorporated by reference herein.
4.16	Unit Issuance Agreement, dated February 16, 2006, between International Farmland Holdings LLC and Usina Monte Alegre S.A., previously filed as exhibit 10.13 to the Company’s registration statement on Form F-1 and incorporated by reference herein.

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4.17	Share Purchase and Sale Agreement, dated February 16, 2006, between International Farmland Holdings LLC and Usina Monte Alegre S.A., previously filed as exhibit 10.14 to the Company’s registration statement on Form F-1 and incorporated by reference herein.
4.18	Right of First Offer Agreement, dated February 16, 2006, between International Farmland Holdings LLC and Usina Monte Alegre S.A., previously filed as exhibit 10.15 to the Company’s registration statement on Form F-1 and incorporated by reference herein.
4.19	Supply Offer Letter for milk, dated November 7, 2007, between La Lácteo S.A. and Adeco Agropecuaria S.R.L., previously filed as exhibit 10.16 to the Company’s registration statement on Form F-1 and incorporated by reference herein.
4.20	Amendment to Supply Offer Letter for milk, dated February 1, 2010, between La Lácteo S.A. and Adeco Agropecuaria S.R.L., previously filed as exhibit 10.17 to the Company’s registration statement on Form F-1 and incorporated by reference herein.
4.21	Commercial Contract for sugar, dated March 23, 2010, between Angélica Agroenergia Ltda. and Bunge International Commerce Ltd., previously filed as exhibit 10.18 to the Company’s registration statement on Form F-1 and incorporated by reference herein.
4.22	Amendment to Commercial Contract for sugar, dated June 17, 2010, between Angélica Agroenergia Ltda. and Bunge International Commerce Ltd., previously filed as exhibit 10.19 to the Company’s registration statement on Form F-1 and incorporated by reference herein.
4.23	English  translation of  Consignment Contract,  dated  February  19,  2000,  between  Molinos  Ala  S.A. (currently  Pilagá S.R.L.)  and Establecimiento Las Marías S.A.C.I.F.A., previously filed as exhibit 10.20 to the Company’s registration statement on Form F-1 and incorporated by reference herein.
4.24	English translation of Sale Agreement, dated July8, 2009,between PilagáS.R.L.andGalicia Warrants S.A., previously filed as exhibit 10.21 to the Company’s registration statement on Form F-1 and incorporated by reference herein.
4.25	English translation of Mortgage, dated July 8, 2009, between Pilagá S.R.L. and Galicia Warrants S.A., previously filed as exhibit 10.22 to the Company’s registration statement on Form F-1 and incorporated by reference herein.
4.26	English  translation  of  Reserve  Power  Agreement,  dated  February  6,  2009,  between  Angélica  Agroenergia  Ltda.  and  Câmara  de Comercialização de Energia Elétrica, previously filed as exhibit 10.23 to the Company’s registration statement on Form F-1 and incorporated by reference herein.
4.27	English translation of Energy Purchase Contract, dated January 19, 2009, between Usina Monte Alegre Ltda. and Cemig Geração e Transmissão S.A., previously filed as exhibit 10.24 to the Company’s registration statement on Form F-1 and incorporated by reference herein.
4.28	English translation of Energy Distribution Contract, dated June 3, 2008 between Angélica Agroenergia Ltda. and Empresa Energética do Mato Grosso do Sul., previously filed as exhibit 10.25 to the Company’s registration statement on Form F-1 and incorporated by reference herein.
4.29	English translation of First Amendment to Energy Distribution Contract, dated April 6, 2009 between Angélica Agroenergia Ltda. and Empresa Energética do Mato Grosso do Sul., previously filed as exhibit 10.26 to the Company’s registration statement on Form F-1 and incorporated by reference herein.
4.30	English translation of Second Amendment to Energy Distribution Contract, dated May 1, 2010 between Angélica Agroenergia Ltda. and Empresa Energética do Mato Grosso do Sul., previously filed as exhibit 10.27 to the Company’s registration statement on Form F-1 and incorporated by reference herein.
4.31	English translation of Sale Agreement for cattle, dated December 14, 2009, between Adeco Agropecuaria S.A. and Quickfood S.A., previously filed as exhibit 10.29 to the Company’s registration statement on Form F-1 and incorporated by reference herein.
4.32	English translation of First Amendment to Sale Agreement for cattle, dated December 16, 2009, between Adeco Agropecuaria S.A. and Quickfood S.A., previously filed as exhibit 10.30 to the Company’s registration statement on Form F-1 and incorporated by reference herein.
4.33	English translation of Second Amendment to Sale Agreement for cattle, dated December 17, 2009, between Adeco Agropecuaria S.A. and Quickfood S.A., previously filed as exhibit 10.31 to the Company’s registration statement on Form F-1 and incorporated by reference herein.
4.34	English translation of Stock Purchase Agreement, dated August 23, 2010, between Kadesh Hispania, S.L., Leterton España, S.L. and Dinaluca S.A., previously filed as exhibit 10.32 to the Company’s registration statement on Form F-1 and incorporated by reference herein.
4.35	Form of Registration Rights Agreement between Adecoagro S.A. and certain shareholders, previously filed as exhibit 10.33 to the Company’s registration statement on Form F-1 and incorporated by reference herein.

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4.36	Second Amendment to Export Prepayment Financing Agreement, dated December 14, 2010, between Angélica Agroenergia Ltda. and a syndicate of banks, previously filed as exhibit 10.38 to the Company’s registration statement on Form F-1 and incorporated by reference herein.
4.37	English translation of Third Amendment to Financing Agreement BNDES Repasse, dated December 14, 2010, between Angélica Agroenergia Ltda. and a syndicate of banks, previously filed as exhibit 10.39 to the Company’s registration statement on Form F-1 and incorporated by reference herein.
4.38	English translation of First Amendment to Credit Facility, dated December 18, 2010, between Angélica Agroenergia tda. and Banco do Brasil S.A., previously filed as exhibit 10.40 to the Company’s registration statement on Form F-1 and incorporated by reference herein.
4.39	Stock Subscription Agreement, dated January 6, 2011, between Adecoagro S.A. and Al Gharrafa Investment Company, previously filed as exhibit 10.41 to the Company’s registration statement on Form F-1 and incorporated by reference herein.
4.40	English translation of Promise to Sell, dated December 21, 2010, between Kelizer S.C.A. and Las Mesetas S.A., previously filed as exhibit 4.40 to the Company’s Annual Report on Form 20- for fiscal year-end 2010 and incorporated by reference herein.
4.41	English translation of Stock Purchase Agreement, dated August 18, 2011, between Kadesh Hispania, S.L., Leterton España, S.L. and Compañía Agroforestal de Servicios y Mandatos S.A., previously filed as Exhibit 4.41 to the Company’s annual report on Form 20-F for the year ended December 31, 2011 and incorporated herein by reference.
4.42	English translation of Stock Purchase Agreement, dated August 19, 2011, between Kadesh Hispania, S.L., Leterton España, S.L. and Simoneta S.A., previously filed as Exhibit 4.42 to the Company’s annual report on Form 20-F for the year ended December 31, 2011 and incorporated herein by reference.
4.43	Export Prepayment Facility, dated November 5, 2014 by and among Adecoagro Vale do Ivinhema S.A., Adecoagro Brasil Participacoes S.A., Usina Monte Alegre Ltda., ING Captal LLC, Rabobank Curacao N.V., ING Bank N.V., ING BANK N.V. Sao Paulo Branch and other Lenders party thereto..
4.44	Export Prepayment Finance Agreement dated December 20, 2016 by and among Adecoagro Vale Do Ivinhema S.A., as borrower, Adecoagro Brasil Participacoes S.A., Adeco Agropecuaria Brasil Ltda., and Usina Monte Alegre Ltda., as guarantors, ING Capital LLC, Cooperative Rabobank U.A., as arrangers and bookmakers, Banco Rabobank International Brasil S.A., as administrative agent and collateral agent, Cooperative Rabobank U.A., as collection account agent and paying agent, and the Lenders party thereto, previously filed as exhibit 4.44 to the Form 20-F and incorporated by reference herein.
8.1	Subsidiaries of Adecoagro S.A. as of April 30, 2015 previously filed as exhibit 8.1 to the Form 20-F and incorporated by reference herein.
12.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
12.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
13.1	Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
13.2	Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
15.1	Consent of Cushman & Wakefield Argentina S.A. Consent of Price previously filed as exhibit 15.1 to the Form 20-F and incorporated by reference herein
15.2	Consent of Price Waterhouse & Co. S.R.L.

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SIGNATURES

The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on Form 20-F/A on its behalf.

Adecoagro S.A.

/s/ Mariano Bosch

Name: Mariano Bosch

Title: Chief Executive Officer

Date: June 21, 2017

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Adecoagro S.A.

Consolidated Financial Statements as of December 31, 2016, 2015 and 2014 and for the years ended December 31, 2016, 2015 and 2014

Report of Independent Registered Public Accounting Firm

To the Shareholders of

Adecoagro S.A.

In our opinion, the accompanying consolidated statement of financial position and the related consolidated statements of income, comprehensive income, changes in shareholders’s equity and cash flows present fairly, in all material respects, the financial position of Adecoagro S.A. and its subsidiaries at December 31, 2016 and 2015, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2016 in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2016, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company's management is responsible for these financial statements, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in “Management’s Annual Report on Internal Control over Financial Reporting” included in Item 15 of this Annual Report on Form 20-F. Our responsibility is to express opinions on these financial statements and on the Company's internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

As discussed in Note 32.1, the company changed the manner in which it accounts for biological assets and property, plant and equipment.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Buenos Aires, Argentina.

April 27, 2017

PRICE WATERHOUSE & CO. S.R.L.

by  /s/ Marcelo de Nicola        (Partner)

Marcelo de Nicola

F- 2

Legal information

Denomination: Adecoagro S.A.

Legal address:Vertigo Naos Building, 6, Rue Eugène Ruppert, L-2453, Luxembourg

Company activity:Agricultural and agro-industrial

Date of registration:June 11, 2010

Expiration of company charter:No term defined

Number of register (RCS Luxembourg):B153.681

Capital stock:122,381,815 common shares (of which 1,238,318 are treasury shares)

F- 3

Adecoagro S.A.

Consolidated Statements of Income

for the years ended December 31, 2016, 2015 and 2014

(All amounts in US$ thousands, except shares and per share data and as otherwise indicated)

	Note	2016			2015 (*)			2014 (*)
Sales of goods and services rendered	4		869,235			674,314			722,966
Cost of goods sold and services rendered	5		(678,581	)		(557,786	)		(605,325	)
Initial recognition and changes in fair value of biological assets and agricultural produce	15		125,456			54,528			100,216
Changes in net realizable value of agricultural produce after harvest			(5,841	)		14,691			3,401
Margin on Manufacturing and Agricultural Activities Before Operating Expenses			310,269			185,747			221,258
General and administrative expenses	6		(50,750	)		(48,425	)		(52,695	)
Selling expenses	6		(80,673	)		(70,268	)		(78,864	)
Other operating income, net	8		(8,297	)		31,066			11,977
Share of loss of joint venture	16		-			(2,685	)		(924	)
Profit from Operations			170,549			95,435			100,752
Finance income	9		7,957			9,150			7,291
Finance costs	9		(165,380	)		(116,890	)		(86,472	)
Financial results, net	9		(157,423	)		(107,740	)		(79,181	)
Profit / (Loss) Before Income Tax			13,126			(12,305	)		21,571
Income tax (expense) / benefit	10		(9,387	)		7,954			(10,535	)
Profit / (Loss) for the Year			3,739			(4,351	)		11,036
Attributable to:
Equity holders of the parent			2,039			(5,593	)		11,116
Non-controlling interest			1,700			1,242			(80	)
Earnings / (Loss) per share from operations attributable to the equity holders of the parent during the year:
Basic earnings per share	11		0.017			(0.046	)		0.092
Diluted earnings per share	11		0.017			(0.046	)		0.091

(*): The prior years have been adjusted to reflect the Company’s adoption of amendments to IAS 16 and IAS 41 as further described in Note 32.

The accompanying notes are an integral part of these consolidated financial statements.

F- 4

Adecoagro S.A.

Consolidated Statements of Comprehensive Income

for the years ended December 31, 2016, 2015 and 2014

(All amounts in US$ thousands, except shares and per share data and as otherwise indicated)

	2016		2015 (*)			2014 (*)
Profit / (Loss) for the year		3,739		(4,351	)		11,036
Other comprehensive income:
-  Items that may be reclassified subsequently to profit or loss:
Exchange differences on translating foreign   operations		39,496		(178,146	)		(101,959	)
Cash flow hedge, net of tax (Note 2)		100,615		(94,851	)		(27,287	)
Other comprehensive income / (loss) for the year		140,111		(272,997	)		(129,246	)
Total comprehensive income / (loss) for the year		143,850		(277,348	)		(118,210	)
Attributable to:
Equity holders of the parent		143,603		(275,077	)		(117,744	)
Non-controlling interest		247		(2,271	)		(466	)

(*): The prior years have been adjusted to reflect the Company’s adoption of amendments to IAS 16 and IAS 41 as further described in Note 32.

The accompanying notes are an integral part of these consolidated financial statements.

F- 5

Adecoagro S.A.

Consolidated Statements of Financial Position

as of December 31, 2016, 2015 and 2014

(All amounts in US$ thousands, except shares and per share data and as otherwise indicated)

	Note	2016			2015 (*)			2014 (*)
ASSETS
Non-Current Assets
Property, plant and equipment, net	12		802,608			696,889			991,581
Investment property	13		2,666			4,796			6,675
Intangible assets, net	14		17,252			16,661			23,778
Biological assets	15		8,516			6,476			8,881
Investments in joint ventures	16		-			-			2,752
Deferred income tax assets	10		38,586			68,744			42,072
Trade and other receivables, net	18		17,412			21,795			50,590
Other assets			566			651			587
Total Non-Current Assets			887,606			816,012			1,126,916
Current Assets
Biological assets	15		136,888			105,342			115,855
Inventories	19		111,754			85,286			117,106
Trade and other receivables, net	18		157,528			145,011			164,526
Derivative financial instruments	17		3,398			4,849			7,966
Other assets			24			-			-
Cash and cash equivalents	20		158,568			198,894			113,795
Total Current Assets			568,160			539,382			519,248
TOTAL ASSETS			1,455,766			1,355,394			1,646,164
SHAREHOLDERS EQUITY
Capital and reserves attributable to equity holders of the parent
Share capital	22		183,573			183,573			183,573
Share premium	22		937,250			937,674			933,044
Cumulative translation adjustment			(527,364	)		(568,316	)		(397,560	)
Equity-settled compensation			17,218			16,631			16,735
Cash flow hedge	2		(37,299	)		(137,911	)		(43,064	)
Treasury shares			(1,859	)		(1,936	)		(2,840	)
Reserve from the sale of non-controlling interests in subsidiaries	21		41,574			41,574			25,508
Retained earnings			50,998			48,795			54,242
Equity attributable to equity holders of the parent			664,091			520,084			769,638
Non-controlling interest			7,582			7,335			7,589
TOTAL SHAREHOLDERS EQUITY			671,673			527,419			777,227
LIABILITIES
Non-Current Liabilities
Trade and other payables	25		1,427			1,911			2,391
Borrowings	26		430,304			483,651			491,324
Deferred income tax liabilities	10		14,689			15,636			39,635
Payroll and social liabilities	27		1,235			1,236			1,278
Derivatives financial instruments	17		662			119			39
Provisions for other liabilities	28		3,299			1,653			2,013
Total Non-Current Liabilities			451,616			504,206			536,680
Current Liabilities
Trade and other payables	25		92,158			53,731			83,100
Current income tax liabilities			1,387			962			76
Payroll and social liabilities	27		26,844			22,153			27,315
Borrowings	26		205,092			239,688			207,182
Derivative financial instruments	17		6,406			6,575			13,860
Provisions for other liabilities	28		590			660			724
Total Current Liabilities			332,477			323,769			332,257
TOTAL LIABILITIES			784,093			827,975			868,937
TOTAL SHAREHOLDERS EQUITY AND LIABILITIES			1,455,766			1,355,394			1,646,164

(*): The prior years have been adjusted to reflect the Company’s adoption of amendments to IAS 16 and IAS 41 as further described in Note 32.

The accompanying notes are an integral part of these consolidated financial statements.

F- 6

Adecoagro S.A.

Consolidated Statements of Changes in Shareholders’ Equity

for the years ended December 31, 2016, 2015 and 2014

(All amounts in US$ thousands, except shares and per share data and as otherwise indicated)

	Attributable to equity holders of the parent
	Share Capital (Note 22)		Share Premium (Note 22)			Cumulative Translation Adjustment			Equity-settled Compensation			Cash flow hedge (*)			Other reserves			Treasury shares			Reserve from the sale of non- controlling interests in subsidiaries		Retained Earnings		Subtotal			Non- controlling Interest			Total Shareholders’ Equity
Balance at January 1, 2014		183,573		939,072			(311,807	)		17,352			(15,782	)		(161	)		(961	)		-		43,018		854,304			45			854,349
Profit for the year		-		-			-			-			-			-			-			-		11,116		11,116			(80	)		11,036
Other comprehensive income:
-  Items that may be reclassified subsequently to profit or loss:
Exchange differences on translating foreign operations		-		-			(101,578	)		-			-			-			-			-		-		(101,578	)		(381	)		(101,959	)
Cash flow hedge		-		-			-			-			(27,282	)		-			-			-		-		(27,282	)		(5	)		(27,287	)
Other comprehensive income for the year		-		-			(101,578	)		-			(27,282	)		-			-			-		-		(128,860	)		(386	)		(129,246	)
Total comprehensive income for the year		-		-			(101,578	)		-			(27,282	)		-			-			-		11,116		(117,744	)		(466	)		(118,210	)
Employee share options (Note 23)
- Value of employee services		-		-			-			308			-			-			-			-		-		308			-			308
- Exercised		-		955			-			(326	)		-			-			210			-		-		839			-			839
- Forfeited		-		-			-			(108	)		-			-			-			-		108		-			-			-
Restricted shares (Note 23):
- Value of employee services		-		-			-			3,559			-			-			-			-		-		3,559			-			3,559
- Vested		-		3,444			-			(4,050	)		-			160			446			-		-		-			-			-
- Forfeited		-		-			-			-			-			1			(1	)		-		-		-			-			-
Purchase of own shares (Note 22)		-		(10,427	)		-			-			-			-			(2,534	)		-		-		(12,961	)		-			(12,961	)
Sale of non-controlling interests in subsidiaries (Note 21)		-		-			15,825			-			-			-			-			25,508		-		41,333			8,010			49,343
Balance at December 31, 2014		183,573		933,044			(397,560	)		16,735			(43,064	)		-			(2,840	)		25,508		54,242		769,638			7,589			777,227

(*): Net of 14,149 of Income Tax

The accompanying notes are an integral part of these consolidated financial statements.

F- 7

Adecoagro S.A.

Consolidated Statements of Changes in Shareholders’ Equity

for the years ended December 31, 2016, 2015 and 2014

(All amounts in US$ thousands, except shares and per share data and as otherwise indicated)

	Attributable to equity holders of the parent
	Share Capital (Note 22)		Share Premium (Note 22)			Cumulative Translation Adjustment			Equity-settled Compensation			Cash flow hedge (*)			Treasury shares			Reserve from the sale of non- controlling interests in subsidiaries		Retained Earnings			Subtotal			Non- controlling Interest			Total Shareholders’ Equity
Balance at January 1, 2015		183,573		933,044			(395,804	)		16,735			(43,064	)		(2,840	)		25,508		45,644			762,796			7,589			770,385
Changes in Accounting Standard (see Note 32)		-		-			(1,756	)		-			-			-			-		8,598			6,842			-			6,842
Total equity at the beginning of the financial year		183,573		933,044			(397,560	)		16,735			(43,064	)		(2,840	)		25,508		54,242			769,638			7,589			777,227
Loss for the year		-		-			-			-			-			-			-		(5,593	)		(5,593	)		1,242			(4,351	)
Other comprehensive income:
- Items that may be reclassified subsequently to profit or loss:
Exchange differences on translating foreign operations		-		-			(174,637	)		-			-			-			-		-			(174,637	)		(3,509	)		(178,146	)
Cash flow hedge (*)		-		-			-			-			(94,847	)		-			-		-			(94,847	)		(4	)		(94,851	)
Other comprehensive income for the year		-		-			(174,637	)		-			(94,847	)		-			-		-			(269,484	)		(3,513	)		(272,997	)
Total comprehensive income for the year		-		-			(174,637	)		-			(94,847	)		-			-		(5,593	)		(275,077	)		(2,271	)		(277,348	)
Employee share options (Note 23)
- Exercised		-		1,786			-			(603	)		-			316			-		-			1,499			-			1,499
- Forfeited		-		-			-			(146	)		-			-			-		146			-			-			-
Restricted shares (Note 23):
- Value of employee services		-		-			-			4,396			-			-			-		-			4,396			-			4,396
- Vested		-		3,103			-			(3,751	)		-			648			-		-			-			-			-
- Forfeited		-					-			-			-			-			-		-			-			-			-
Purchase of own shares (Note 22)		-		(259	)		-			-			-			(60	)		-		-			(319	)		-			(319	)
Sale of non-controlling interests in subsidiaries (Note 21)		-		-			3,881			-			-			-			16,066		-			19,947			2,017			21,964
Balance at December 31, 2015		183,573		937,674			(568,316	)		16,631			(137,911	)		(1,936	)		41,574		48,795			520,084			7,335			527,419

(*) Net of 49,106 of Income Tax.

The accompanying notes are an integral part of these consolidated financial statements.

F- 8

Adecoagro S.A.

Consolidated Statements of Changes in Shareholders’ Equity

for the years ended December 31, 2016, 2015 and 2014

(All amounts in US$ thousands, except shares and per share data and as otherwise indicated)

	Attributable to equity holders of the parent
	Share Capital (Note 22)		Share Premium (Note 22)			Cumulative Translation Adjustment			Equity-settled Compensation			Cash flow hedge (*)			Treasury shares			Reserve from the sale of non- controlling interests in subsidiaries		Retained Earnings			Subtotal			Non- Controlling Interest			Total Shareholders’ Equity
Balance at January 1, 2016		183,573		937,674			(567,133	)		16,631			(137,911	)		(1,936	)		41,574		62,923			535,395			7,335			542,730
Changes in Accounting Standard (see Note 32)		-		-			(1,183	)		-			-			-			-		(14,128	)		(15,311	)		-			(15,311	)
Total equity at the beginning of the financial year		183,573		937,674			(568,316	)		16,631			(137,911	)		(1,936	)		41,574		48,795			520,084			7,335			527,419
Profit for the year		-		-			-			-			-			-			-		2,039			2,039			1,700			3,739
Other comprehensive income:
- Items that may be reclassified subsequently to profit or loss:
Exchange differences on translating foreign operations		-		-			40,952			-			-			-			-		-			40,952			(1,456	)		39,496
Cash flow hedge (*)		-		-			-			-			100,612			-			-		-			100,612			3			100,615
Other comprehensive income for the year		-		-			40,952			-			100,612			-			-		-			141,564			(1,453	)		140,111
Total comprehensive income for the year		-		-			40,952			-			100,612			-			-		2,039			143,603			247			143,850
Employee share options (Note 23):
- Exercised		-		438			-			(140	)		-			82			-		-			380			-			380
- Forfeited		-		-			-			(164	)		-			-			-		164			-			-			-
Restricted shares (Note 23):
- Value of employee services		-		-			-			4,796			-			-			-		-			4,796			-			4,796
- Vested		-		3,225			-			(3,905	)		-			680			-		-			-			-			-
- Forfeited		-					-			-			-			-			-		-			-			-			-
Purchase of own shares (Note 22)		-		(4,087	)		-			-			-			(685	)		-		-			(4,772	)		-			(4,772	)
Balance at December 31, 2016		183,573		937,250			(527,364	)		17,218			(37,299	)		(1,859	)		41,574		50,998			664,091			7,582			671,673

(*) Net of (52,282) of Income Tax.

The accompanying notes are an integral part of these consolidated financial statements.

F- 9

Adecoagro S.A.

Consolidated Statements of Cash Flows

for the years ended December 31, 2016, 2015 and 2014

(All amounts in US$ thousands, except shares and per share data and as otherwise indicated)

	Note	2016		2015 (*)		2014 (*)
Cash flows from operating activities:
Profit / (Loss) for the year		3,739		(4,351	)	11,036
Adjustments for:
Income tax expense / (benefit)	10	9,387		(7,954	)	10,535
Depreciation	12	126,799		103,816		137,165
Amortization	14	701		585		509
Gain from disposal of farmlands and other assets	8	-		(7,914	)	-
Loss/(Gain) from the disposal of other property items	8	1,255		(721	)	(985	)
Equity settled share-based compensation granted	7	4,796		4,396		3,867
Loss/(Gain) from derivative financial instruments and forwards	8, 9	21,745		(17,686	)	(6,548	)
Interest and other financial expense, net	9	44,734		43,822		50,941
Initial recognition and changes in fair value of non harvested biological assets (unrealized)	3	(9,811	)	(11,326	)	(12,635	)
Changes in net realizable value of agricultural produce after harvest (unrealized)	3	90		(4,406	)	(1,134	)
Provision and allowances		341		(79	)	355
Share of loss from joint venture	16	-		2,685		924
Foreign exchange losses, net	9	19,062		23,423		9,246
Cash flow hedge – transfer from equity	9	85,214		32,700		12,031
Subtotal		308,052		156,990		215,307
Changes in operating assets and liabilities:
(Increase) in trade and other receivables		(30,996	)	(2,300	)	(38,622	)
(Increase) in inventories		(22,301	)	(9,275	)	(34,841	)
(Increase) in biological assets		(23,677	)	(20,154	)	(38,213	)
Decrease / (Increase) in other assets		83		(871	)	21
(Increase) / Decrease in derivative financial instruments		(17,892	)	25,880		4,493
Increase / (Decrease) in trade and other payables		39,054		(9,871	)	6,390
Increase in payroll and social security liabilities		3,052		4,996		6,253
Increase / (Decrease) in provisions for other liabilities		1,175		21		(179	)
Net cash generated from operating activities before taxes paid		256,550		145,416		120,609
Income tax paid		(1,149	)	(230	)	(458	)
Net cash generated from operating activities		255,401		145,186		120,151

(*): The prior years have been adjusted to reflect the Company’s adoption of amendments to IAS 16 and IAS 41 as further described in Note 32.

The accompanying notes are an integral part of these consolidated financial statements.

F- 10

Adecoagro S.A.

Consolidated Statements of Cash Flows (Continued)

for the years ended December 31, 2016, 2015 and 2014

(All amounts in US$ thousands, except shares and per share data and as otherwise indicated)

	Note	2016		2015 (*)		2014 (*)
Cash flows from investing activities:
Purchases of property, plant and equipment	12	(134,105	)	(141,770	)	(305,728	)
Purchases of intangible assets	14	(1,218	)	(1,203	)	(2,098	)
Interest received	9	7,671		8,201		7,068
Proceeds from disposal of other property items,		2,215		1,303		1,024
Proceeds from sale of farmland and other assets	21	-		12,610		-
Proceeds from disposal of subsidiaries	21	3,423		3,890		1,318
Investment in joint ventures	16	-		-		(1,372	)
Payment of seller financing arising on subsidiaries acquired		-		-		(684	)
Loans to joint venture		-		(8,082	)	-
Net cash used in investing activities		(122,014	)	(125,051	)	(300,472	)
Cash flows from financing activities:
Net proceeds from the sale of non-controlling interest in subsidiaries	21	-		21,964		49,343
Proceeds from equity settled shared-based compensation exercised		380		1,259		839
Proceeds from long-term borrowings	26	167,385		299,343		180,048
Payments of long-term borrowings	26	(277,913	)	(165,455	)	(177,027	)
Interest paid		(48,400	)	(48,438	)	(48,899	)
Proceeds from short-term borrowings	26	257,395		211,045		152,216
Payments of short-term borrowings	26	(272,033	)	(208,309	)	(70,239	)
Payment of derivatives financial instruments		(3,724	)	(18,676	)	-
Purchase of own shares		(4,772	)	(320	)	(12,992	)
Net cash generated from financing activities		(181,682	)	92,413		73,289
Net increase / (decrease) in cash and cash equivalents		(48,295	)	112,548		(107,032	)
Cash and cash equivalents at beginning of year		198,894		113,795		232,147
Effect of exchange rate changes on cash and cash equivalents		7,969		(27,449	)	(11,320	)
Cash and cash equivalents at end of year		158,568		198,894		113,795

(*): The prior years have been adjusted to reflect the Company’s adoption of amendments to IAS 16 and IAS 41 as further described in Note 32.

The accompanying notes are an integral part of these consolidated financial statements.

F- 11

Adecoagro S.A.

Notes to the Consolidated Financial Statements (Continued)

(All amounts in US$ thousands, except shares and per share data and as otherwise indicated)

1. General information

Adecoagro S.A. (the "Company" or "Adecoagro") is the Group’s ultimate parent company and is a société anonyme (stock corporation) organized under the laws of the Grand Duchy of Luxembourg. Adecoagro is a holding company primarily engaged through its operating subsidiaries in agricultural and agro-industrial activities. The Company and its operating subsidiaries are collectively referred to hereinafter as the "Group". These activities are carried out through three major lines of business, namely, Farming; Sugar, Ethanol and Energy and Land Transformation. Farming is further comprised of three reportable segments, which are described in detail in Note 3 to these consolidated financial statements.

Adecoagro is a Public Company listed in the New York Stock Exchange as a foreign registered company under the symbol of AGRO.

These consolidated financial statements have been approved for issue by the Board of Directors on March 14, 2017.

2. Financial risk management

Risk management principles and processes

The Group’s activities are exposed to a variety of financial risks. The Group’s overall risk management program focuses on the unpredictability of financial markets and seeks to minimize the Group’s capital costs by using suitable means of financing and to manage and control the Group’s financial risks effectively. The Group uses financial instruments to hedge certain risk exposures.

The Group’s approach to the identification, assessment and mitigation of risk is carried out by a Risk and Commercial Committee, which focuses on timely and appropriate management of risk.

The principal financial risks are related to raw material price, end-product price, exchange rate, interest rate, liquidity and credit. This section provides a description of the principal risks and uncertainties that could have a material adverse effect on the Group’s strategy, performance, results of operations and financial condition. These risks do not appear in any particular order of potential materiality or probability of occurrence.

· Exchange rate risk

The Group’s cash flows, statement of income and statement of financial position are presented in US dollars and may be affected by fluctuations in exchange rates. Currency risks as defined by IFRS 7 arise on account of monetary assets and liabilities being denominated in a currency that is not the functional currency.

A significant majority of the Group’s business activities is conducted in the respective functional currencies of the subsidiaries (primarily the Brazilian Reais and the Argentine Peso). However, the Group may transact in currencies other than the respective functional currencies, mainly the US dollars. As such, these subsidiaries may hold US dollar denominated monetary balances at each year-end as indicated in the tables below.

The Group’s net financial position exposure to the US dollar is managed on a case-by-case basis, partly by hedging certain expected cash flows with foreign exchange derivative contracts.

The following tables show the net monetary position of the respective subsidiaries within the Group categorized by functional currency. Non-US dollar amounts are presented in US dollars for purpose of these tables.

The accompanying notes are an integral part of these consolidated financial statements.

F- 12

Adecoagro S.A.

Notes to the Consolidated Financial Statements (Continued)

(All amounts in US$ thousands, except shares and per share data and as otherwise indicated)

2. Financial risk management (continued)

	2016
	Subsidiaries’ functional currency
Net monetary position (Liability)/ Asset	Argentine Peso			Brazilian Reais			Uruguayan Peso			US Dollar		Total
Argentine Peso		1,518			-			-			-		1,518
Brazilian Reais		-			(203,070	)		-			-		(203,070	)
US Dollar		(44,088	)		(307,088	)		(7,714	)		78,801		(280,089	)
Uruguayan Peso		-			-			(35	)		-		(35	)
Total		(42,570	)		(510,158	)		(7,749	)		78,801		(481,676	)

	2015
	Subsidiaries’ functional currency
Net monetary position (Liability)/ Asset	Argentine Peso			Brazilian Reais			Uruguayan Peso			US Dollar		Total
Argentine Peso		(7,513	)		-			-			-		(7,513	)
Brazilian Reais		-			(174,145	)		-			-		(174,145	)
US Dollar		(61,256	)		(376,757	)		32,560			95,251		(310,202	)
Uruguayan Peso		-			-			(1,083	)		-		(1,083	)
Total		(68,769	)		(550,902	)		31,477			95,251		(492,943	)

The Group’s analysis shown on the tables below is carried out based on the exposure of each functional currency subsidiary against the US dollar. The Group estimated that, other factors being constant, a hypothetical 10% appreciation/depreciation of the US dollar against the respective functional currencies for the years ended December 31, 2016 and 2015 would have decreased/increased the Group’sProfit Before Income Tax for the year. A 10% depreciation of the US dollar against the functional currencies would have an equal and opposite effect on the income statement. A portion of this effect would have been recognized as other comprehensive income since a portion of the Company’s borrowings was used as cash flow hedge of the foreign exchange rate risk of a portion of its highly probable future sales in US dollars (see Hedge Accounting - Cash Flow Hedge below for details).

		Functional currency
Net monetary position		Argentine Peso			Brazilian Reais			Uruguayan Peso			US Dollar		Total
2016	US Dollar		(4,409	)		(30,709	)		(771	)		-		(35,889	)
2015	US Dollar		(6,126	)		(37,676	)		3,256			-		(40,546	)

The tables above only consider the effect of a hypothetical appreciation / depreciation of the US dollars on the Group’s net financial position. A hypothetical appreciation / depreciation of the US dollar against the functional currencies of the Group’s subsidiaries has historically had a positive / negative effect, respectively, on the fair value of the Group’s biological assets and the end prices of the Group’s agriculture produce, both of which are generally linked to the US dollar.

Hedge Accounting - Cash Flow Hedge

Effective July 1, 2013, the Group formally documented and designated cash flow hedging relationships to hedge the foreign exchange rate risk of a portion of its highly probable future sales in US dollars using a portion of its borrowings denominated in US dollars, currency forwards and foreign currency floating-to-fixed interest rate swaps.

The accompanying notes are an integral part of these consolidated financial statements.

F- 13

Adecoagro S.A.

Notes to the Consolidated Financial Statements (Continued)

(All amounts in US$ thousands, except shares and per share data and as otherwise indicated)

2. Financial risk management (continued)

Principal amounts of long-term borrowings (non-derivative financial instruments) and notional values of foreign currency forward contracts (derivative financial instruments) were designated as hedging instruments. These instruments are exposed to Brazilian Reais/ US dollar foreign currency risks related to operations in Brazil and Argentine Peso/US Dollar in Argentina, respectively. As of December 31, 2016 and 2015, approximately 18.1% and 28.4%, respectively, of projected sales qualify as highly probable forecast transactions for hedge accounting purposes and were designated as hedged items.

The Group has prepared formal documentation in order to support the designation above, including an explanation of how the designation of the hedging relationship is aligned with the Group’s Risk Management Policy, identification of the hedging instrument, the hedged transactions, the nature of the risk being hedged and an analysis which demonstrates that the hedge is expected to be highly effective. The Group reassesses the prospective and retrospective effectiveness of the hedge on an ongoing basis comparing the foreign currency component of the carrying amount of the hedging instruments and of the highly probable future sales.

Under cash flow hedge accounting, effect of changes in foreign currency exchange rates on derivative and non-derivative hedging instruments not be immediately recognized in profit or loss, but be reclassified from equity to profit or loss in the periods when the future sales occur, thus allowing for a more appropriate presentation of the results for the period reflecting the strategy in the Group’s Risk Management Policy.

The Company expects that the cash flows will occur and affect profit or loss between 2017 and 2021.

For the year ended December 31, 2016, a total amount before income tax of 67,683 gain (US$ 176,657 loss in 2015) was recognized in other comprehensive income and an amount of US$ 85,214 loss (US$ 32,700 loss in 2015) was reclassified from equity to profit or loss within “Financial results, net”.

· Raw material price risk

Inflation in the costs of raw materials and goods and services from industry suppliers and manufacturers presents risks to project economics. A significant portion of the Group’s cost structure includes the cost of raw materials primarily seeds, fertilizers and agrochemicals, among others. Prices for these raw materials may vary significantly.

· End-product price risk

Prices for commodities products have historically been cyclical, reflecting overall economic conditions and changes in capacity within the industry, which affect the profitability of entities engaged in the agribusiness industry. The Group combines different actions to minimize price risk. A percentage of crops are to be sold during and post harvest period. The Group manages minimum and maximum prices for each commodity as well as gross margin per each crop as to decide when and how to sell. End-product price risks are hedged if economically viable and possible by entering into forward contracts with major trading houses or by using derivative financial instruments, consisting mainly of crops and sugar future contracts, but also includes occasionally put and call options. A movement in end-product futures prices would result in a change in the fair value of the end product hedging contracts. These fair value changes, after taxes, are recorded in the statement of income.

Contract positions are designed to ensure that the Group would receive a defined minimum price for certain quantities of its production. The counterparties to these instruments generally are major financial institutions. In entering into these contracts, the Group has assumed the risk that might arise from the possible inability of counterparties to meet the terms of their contracts. The Group does not expect any material losses as a result of counterparty defaults. The Group is also obliged to pay margin deposits and premiums for these instruments. These estimates represent only the sensitivity of the financial instruments to market risk and not the Group exposure to end product price risks as a whole, since the crops and cattle products sales are not financial instruments within the scope of IFRS 7 disclosure requirements.

The accompanying notes are an integral part of these consolidated financial statements.

F- 14

Adecoagro S.A.

Notes to the Consolidated Financial Statements (Continued)

(All amounts in US$ thousands, except shares and per share data and as otherwise indicated)

2. Financial risk management (continued)

· Liquidity risk

The Group is exposed to liquidity risks, including risks associated with refinancing borrowings as they mature, and that borrowing facilities are not available to meet cash requirements. Failure to manage liquidity risks could have a material impact on the Group’s cash flow and statement of financial position.

Prudent liquidity risk management includes managing the profile of debt maturities and funding sources close oversight of cash flows projections, maintaining sufficient cash, and ensuring the availability of funding from an adequate amount of committed credit facilities and the ability to close out market positions. The Group's ability to fund its existing and prospective debt requirements is managed by maintaining diversified funding sources with adequate available funding lines from high quality lenders; and reaching to have long-term financial facilities.

As of December 31, 2016, cash and cash equivalents of the Group totaled U$S 158.6 million, which could be used for managing liquidity risk.

The tables below analyzes the Group’s non-derivative financial liabilities and derivative financial liabilities into relevant maturity groupings based on the remaining period at the statement of financial position to the contractual maturity date. The amounts disclosed in the table are the contractual undiscounted cash flows and as a result they do not reconcile to the amounts disclosed on the statement of financial position except for short-term payables when discounting is not applied.

At 31 December 2016	Less than 1 year		Between 1 and 2 years		Between 2 and 5 years		Over 5 Years		Total
Trade and other payables		79,715		1,082		19		326		81,142
Borrowings		239,588		218,717		221,036		35,702		715,043
Derivative financial instruments		6,406		662		-		-		7,068
Total		325,709		220,461		221,055		36,028		803,253

At 31 December 2015	Less than 1 year		Between 1 and 2 years		Between 2 and 5 years		Over 5 Years		Total
Trade and other payables		48,177		566		1,062		283		50,088
Borrowings		275,914		176,712		372,672		66,689		891,987
Derivative financial instruments		6,575		119		-		-		6,694
Total		330,666		177,397		373,734		66,972		948,769

The accompanying notes are an integral part of these consolidated financial statements.

F- 15

Adecoagro S.A.

Notes to the Consolidated Financial Statements (Continued)

(All amounts in US$ thousands, except shares and per share data and as otherwise indicated)

2. Financial risk management (continued)

· Interest rate risk

The Group’s interest rate risk arises from long-term borrowings at floating rates, which expose the Group to cash flow interest rate risk. Borrowings issued at fixed rates expose the Group to fair value interest rate risk. The interest rate profile of the Group's borrowings is set out in Note 26.

The Group occasionally manages its cash flow interest rate risk exposure by using floating-to-fixed interest rate swaps. Such interest rate swaps have the economic effect of converting borrowings from floating rates to fixed rates.

The following tables show a breakdown of the Group’s fixed-rate and floating-rate borrowings per currency denomination and functional currency of the subsidiary issuing the loans (excluding finance leases). These analyses are performed after giving effect to interest rate swaps.

The analysis for the year ended December 31, 2016 and 2015 is as follows:

	2016
	Subsidiaries’ functional currency
Rate per currency denomination	Argentine Peso		Brazilian Reais		Uruguayan Peso		Total
Fixed rate:
Argentine Peso		1,005		-		-		1,005
Brazilian Reais		-		131,495		-		131,495
US Dollar		15,065		37,937		29,069		82,071
Subtotal Fixed-rate borrowings		16,070		169,432		29,069		214,571
Variable rate:
Brazilian Reais		-		65,408		-		65,408
US Dollar		48,677		306,559		-		355,236
Subtotal Variable-rate borrowings		48,677		371,967		-		420,644
Total borrowings as per analysis		64,747		541,399		29,069		635,215
Finance leases		181		-		-		181
Total borrowings as per statement of financial position		64,928		541,399		29,069		635,396

	2015
	Subsidiaries’ functional currency
Rate per currency denomination	Argentine Peso		Brazilian Reais		Uruguayan Peso		Total
Fixed rate:
Argentine Peso		3,125		-		-		3,125
Brazilian Reais		-		145,114		-		145,114
US Dollar		58,378		20,362		-		78,740
Subtotal Fixed-rate borrowings		61,503		165,476		-		226,979
Variable rate:
Brazilian Reais		-		48,231		-		48,231
US Dollar		13,180		434,670		-		447,850
Subtotal Variable-rate borrowings		13,180		482,901		-		496,081
Total borrowings as per analysis		74,683		648,377		-		723,060
Finance leases		279		-		-		279
Total borrowings as per statement of financial position		74,962		648,377		-		723,339

The accompanying notes are an integral part of these consolidated financial statements.

F- 16

Adecoagro S.A.

Notes to the Consolidated Financial Statements (Continued)

(All amounts in US$ thousands, except shares and per share data and as otherwise indicated)

2. Financial risk management (continued)

For the years ended December 31, 2016 and 2015, if interest rates on floating-rate borrowings had been 1% higher with all other variables held constant, the Group’sProfit Before Income Tax for the years would have decreased as shown below. A 1% decrease in interest rates would have an equal and opposite effect on the income statement.

	2016
	Subsidiaries’ functional currency
Rate per currency denomination	Argentine Peso			Brazilian Reais			Uruguayan Peso		Total
Variable rate:
Brazilian Reais		-			(654	)		-		(654	)
US Dollar		(487	)		(3,066	)		-		(3,553	)
Total effects on Profit Before Income Tax		(487	)		(3,720	)		-		(4,207	)

	2015
	Subsidiaries’ functional currency
Rate per currency denomination	Argentine Peso			Brazilian Reias			Uruguayan Peso		Argentine Peso
Variable rate:
Brazilian Reais		-			(482	)		-		(482	)
US Dollar		(132	)		(4,347	)		-		(4,479	)
Total effects on Profit Before Income Tax		(132	)		(4,829	)		-		(4,961	)

The sensitivity analysis has been determined assuming that the change in interest rates had occurred at the date of the statement of financial position and had been applied to the exposure to interest rate risk for financial instruments in existence at that date. The 100 basis point increase or decrease represents management's assessment of a reasonable possible change in those interest rates, which have the most impact on the Group, specifically the United States and Brazilian rates over the period until the next annual statement of financial position date.

· Credit risk

The Group’s exposures to credit risk arise in certain agreements in relation to amounts owed for physical product sales, the use of derivative instruments, and the investment of surplus cash balances. The Group is also exposed to political and economic risk events, which may cause non-payment of foreign currency obligations to the Group.

The Group’s policy is to manage credit exposure to trading counterparties within defined trading limits. All of the Group’s significant counterparties are assigned internal credit limits.

The accompanying notes are an integral part of these consolidated financial statements.

F- 17

Adecoagro S.A.

Notes to the Consolidated Financial Statements (Continued)

(All amounts in US$ thousands, except shares and per share data and as otherwise indicated)

2. Financial risk management (continued)

The Group sells to a large base of customers. Type and class of customers may differ depending on the Group’s business segments. For the years ended December 31, 2016 and 2015, more than 95% and 95%, respectively, of the Group’s sales of crops were sold to 121 and 95 well-known customers (both multinational and local) with good credit history with the Group. In the Sugar, Ethanol and Energy segment, sales of ethanol were concentrated in 35 and 25 customers, which represented 96 % and 96 % of total sales of ethanol for the years ended December 31, 2016 and 2015, respectively. Approximately 71 % and 82 % of the Group’s sales of sugar were concentrated in 20 and 13 well-known traders for the years ended December 31, 2016 and 2015, respectively. The remaining 3 % and 18 %, which mainly relates to “crystal sugar”, were dispersed among several customers. In 2016 and 2015, energy sales are 96 % and 96 % concentrated in 14 major customers. In the dairy segment, 85 % and 92 % of the sales were concentrated in 14 and 14 well-known customers in 2016 and 2015, respectively.

No credit limits were exceeded during the reporting periods and management does not expect any losses from non-performance by these counterparties. If any of the Group’s customers are independently rated, these ratings are used. Otherwise, the Group assesses the credit quality of the customer taking into account its financial position, past experience and other factors (see Note 18 for details). The Group may seek cash collateral, letter of credit or parent company guarantees, as considered appropriate. Sales to customers are primarily made by credit with customary payment terms. The maximum exposure to credit risk is represented by the carrying amount of each financial asset in the statement of financial position after deducting any impairment allowance. The Group’s exposure of credit risk arising from trade receivables is set out in Note 18.

The Group is exposed to counterparty credit risk on cash and cash equivalent balances. The Group holds cash on deposit with a number of financial institutions. The Group manages its credit risk exposure by limiting individual deposits to clearly defined limits. The Group only deposits with high quality banks and financial institutions. As of December 31, 2016 and 2015, the total amount of cash and cash equivalents mainly comprise cash in banks and short-term bank deposits. The Group is authorized to transact with banks rated “BBB+” or higher. As of December 31, 2016 and 2015, 4 and 3 banks (primarily HSBC, Rabobank, Citibank and Banco do Brasil) accounted for more than 85 % and 86 %, respectively, of the total cash deposited. The remaining amount of cash and cash equivalents relates to cash in hand. Additionally, during the year ended December 31, 2016, the Group invested in fixed-term bank deposits with mainly two banks (Banco do Brasil and Citibank) and also entered into derivative contracts (currency forward). The Group does not have investment in securities or other financial instruments for which risk may have increased due to the financial credit crisis. The Group’s exposure of credit risk arising from cash and cash equivalents is set out in Note 20.

The Group’s primary objective for holding derivative financial instruments is to manage currency exchange rate risk, interest rate risk and commodity price risk. The Group generally enters into derivative transactions with high-credit-quality counterparties and, by policy, limits the amount of credit exposure to any one counterparty based on an analysis of that counterparty's relative credit standing. The amounts subject to credit risk related to derivative instruments are generally limited to the amounts, if any, by which counterparty's obligations exceed the obligations with that counterparty.

The Group arranged interest rate swaps with HSBC and Itau in Brazil. The Group also entered into crop commodity futures traded in the established trading markets of Argentina and Brazil through well-rated brokers. Management does not expect any counterparty to fail to meet its obligations.

The accompanying notes are an integral part of these consolidated financial statements.

F- 18

Adecoagro S.A.

Notes to the Consolidated Financial Statements (Continued)

(All amounts in US$ thousands, except shares and per share data and as otherwise indicated)

2. Financial risk management (continued)

· Capital risk management

The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital. In order to maintain or adjust the capital structure, it may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or by own shares or sell assets to reduce debt. Consistent with others in the industry, the Group monitors capital on the basis of the gearing ratio. This ratio is calculated as total debt (including current and non-current borrowings as shown in the consolidated statement of financial position, if applicable) divided by total capital. Total capital is calculated as equity, as shown in the consolidated statement of financial position, plus total debt. During the year ended December 31, 2016, the strategy was to maintain the gearing ratio within 0.45 to 0.60, as follows:

	2016	2015 (*)
Total Debt	635,396	723,339
Total Equity	671,673	527,419
Total Capital	1,307,069	1,250,758
Gearing Ratio	0.49	0.58

(*) The prior years have been adjusted to reflect the Company’s adoption of amendments to IAS 16 and IAS 41 as further described in Note 32.

· Derivative financial instruments

As part of its business operations, the Group uses a variety of derivative financial instruments to manage its exposure to the financial risks discussed above. As part of this strategy, the Group may enter into derivatives of (i) interest rate to manage the composition of floating and fixed rate debt; (ii) currency to manage exchange rate risk, and (iii) crop (future contracts and put and call options) to manage its exposure to price volatility stemming from its integrated crop production activities. The Group’s policy is not to use derivatives for speculative purposes.

Derivative financial instruments involve, to a varying degree, elements of market and credit risk not recognized in the financial statements. The market risk associated with these instruments resulting from price movements is expected to offset the market risk of the underlying transactions, assets and liabilities, being hedged. The counterparties to the agreements relating to the Group’s contracts generally are large institutions with credit ratings equal to or higher than BBB+. The Group continually monitors the credit rating of such counterparties and seeks to limit its financial exposure to any one financial institution. While the contract or notional amounts of derivative financial instruments provide one measure of the volume of these transactions, they do not represent the amount of the Group’s exposure to credit risk. The amounts potentially subject to credit risk (arising from the possible inability of counterparties to meet the terms of their contracts) are generally limited to the amounts, if any, by which the counterparties’ obligations under the contracts exceed the Group’s obligations to the counterparties.

The accompanying notes are an integral part of these consolidated financial statements.

F- 19

Adecoagro S.A.

Notes to the Consolidated Financial Statements (Continued)

(All amounts in US$ thousands, except shares and per share data and as otherwise indicated)

2. Financial risk management (continued)

The following tables show the outstanding positions for each type of derivative contract as of the date of each statement of financial position:

§ Futures/ options

As of December 31, 2016:

	2016
Type of derivative contract	Quantities (thousands) (**)		Notional amount			Fair Value Asset/ (Liability)			(Loss)/Gain (*)
Futures:
Sale
Corn		66		9,436			46			46
Soybean		120		42,330			(1,171	)		(1,170	)
Sugar		17,020		9,144			722			64
Ethanol		6,900		3,978			(40	)		(40	)
Options:
Buy put
Soybean		14		464			644			181
Sugar		70,510		(6,734	)		5,374			352
Sell call
Sugar		54,597		3,058			(3,219	)		(105	)
Sell put
Sugar		14,528		748			(763	)		(1,625	)
Total		163,755		62,424			1,593			(2,297	)

As of December 31, 2015:

	2015
Type of derivative contract	Quantities (thousands) (**)		Notional amount		Fair Value Asset/ (Liability)			(Loss)/Gain (*)
Futures:
Sale
Corn		115		18,870		2,090			2,090
Soybean		183		49,721		1,546			1,546
Sugar		103,592		34,353		(2,686	)		(5,976	)
Ethanol		2,400		885		(10	)		(10	)
OTC:
Sugar		24,892		9,241		(2,041	)		(2,021	)
Options:
Buy put
Soybean		12		210		228			18
Sugar		25,146		1,704		837			(819	)
Sell call
Sugar		25,095		736		(1,300	)		(570	)
Sell put
Sugar		9,601		372		(182	)		188
Total		191,036		116,092		(1,518	)		(5,554	)

(*) Included in the line item “(Loss) / Gain from commodity derivative financial instruments” of Note 8.

(**) All quantities expressed in tons and m³.

Commodity future contract fair values are computed with reference to quoted market prices on future exchanges.

The accompanying notes are an integral part of these consolidated financial statements.

F- 20

Adecoagro S.A.

Notes to the Consolidated Financial Statements (Continued)

(All amounts in US$ thousands, except shares and per share data and as otherwise indicated)

2. Financial risk management (continued)

§ Foreign currency floating-to-fixed interest rate swap

In July 2016 the Group's subsidiary in Brazil, Adecoagro Vale do Ivinhema entered into a Reais 90 million (US$ 27.8 as of that date) loan with Bradesco. The loan bears interest at a variable rate of CDI (an interbanking floating interest rate in USD) plus 2.1% per year. At same moment and with same bank, the Company entered into a swap operation, which intention is to effectively convert the principal amount and interest rate denominated in Reais, to a principal amount an interest rate denominated in US$, plus a fixed rate of 6.55 %. The swap expires according to the due dates of the loan, until May 2019. As of December 31, 2016, the Group recorded a liability of US$ 0.7 million representing the estimated fair value of the swap as of that date.

§ Currency forward

During the year ended December 31, 2016, the Group entered into several currency forward contracts with Brazilian banks in order to hedge the fluctuation of the Brazilian Reais against the US Dollar for a total aggregate amount of US$ 57.2 million. The currency forward contracts entered in 2016 had maturity dates ranging between March 2016 and April 2017. The outstanding contracts resulted in a recognition of a loss of US$ 16.9 million in 2016.

During the year ended on December 31, 2016, the Group entered into several currency forward contracts with Argentinian banks in order to hedge the fluctuation of the Argentinean peso against US Dollar for a total notional amount of US$ 30.2 million. The currency forward contracts maturity date were in February 2016 and May 2017. The outstanding contracts resulted in the recognition of a loss amounting to US$ 0.3 million in 2016.

During the year ended on December 31, 2016, the Group entered into several currency forward contracts in order to hedge the fluctuation of the US Dollar against Euro for a total notional amount of US$ 10.7 million. The currency forward contracts maturity date is March 2017. The outstanding contracts resulted in the recognition of a gain amounting to US$ 0.6 million in 2016.

Gains and losses on currency forward contracts are included within “Financial results, net” in the statement of income.

The accompanying notes are an integral part of these consolidated financial statements.

F- 21

Adecoagro S.A.

Notes to the Consolidated Financial Statements (Continued)

(All amounts in US$ thousands, except shares and per share data and as otherwise indicated)

3. Segment information

According to IFRS 8, operating segments are identified based on the ‘management approach’. Operating segments are components of an entity about which separate financial information is available that is evaluated regularly by the chief operating decision maker (“CODM”) in deciding how to allocate resources and in assessing performance (the Management committee in the case of the Company). This classification is based on the differences in the nature of its operations, products and services. This approach stipulates external segment reporting based on the Group’s internal organizational and management structure and on internal financial reporting to the chief operating decision maker.

The Group operates in three major lines of business, namely, Farming; Sugar, Ethanol and Energy; and Land Transformation. The Coffee and Cattle businesses are now presented within “Farming – All Other Segments” because they not meet the quantitive threshold for disclosure.

· The Group’s‘Farming’ is further comprised of five reportable segments:

§ The Group’s‘Crops’ Segment consists of planting, harvesting and sale of grains, oilseeds and fibers (including wheat, corn, soybeans, cotton and sunflowers, among others), and to a lesser extent the provision of grain warehousing/conditioning and handling and drying services to third parties. Each underlying crop in this segment does not represent a separate operating segment. Management seeks to maximize the use of the land through the cultivation of one or more type of crops. Types and surface amount of crops cultivated may vary from harvest year to harvest year depending on several factors, some of them out of the Group´s control. Management is focused on the long-term performance of the productive land, and to that extent, the performance is assessed considering the aggregated combination, if any, of crops planted in the land. A single manager is responsible for the management of operating activity of all crops rather than for each individual crop.

§ The Group’s‘Rice’Segment consists of planting, harvesting, processing and marketing of rice;

§ The Group’s‘Dairy’ Segment consists of the production and sale of raw milk and other dairy products,

§ The Group’s‘All Other Segments’consists of the aggregation of the remaining non-reportable operating segments, which do not meet the quantitative thresholds for disclosure and for which the Group's management does not consider them to be of continuing significance as from January 1, 2014, namely, Coffee and Cattle.

· The Group’s‘Sugar, Ethanol and Energy’ Segment consists of cultivating sugarcane which is processed in owned sugar mills, transformed into ethanol, sugar and electricity and marketed;

· The Group’s‘Land Transformation’ Segment comprises the (i) identification and acquisition of underdeveloped and undermanaged farmland businesses; and (ii) realization of value through the strategic disposition of assets (generating profits).

The measurement principles for the Group’s segment reporting structure are based on the IFRS principles adopted in the consolidated financial statements.

The following table presents information with respect to the Group’s reportable segments. Certain other activities of a holding function nature not allocable to the segments are disclosed in the column‘Corporate’.

The accompanying notes are an integral part of these consolidated financial statements.

F- 22

Adecoagro S.A.

Notes to the Consolidated Financial Statements (Continued)

(All amounts in US$ thousands, except shares and per share data and as otherwise indicated)

3. Segment information (continued)

Segment analysis for the year ended December 31, 2016

	Farming															Sugar, Ethanol and			Land		Corporate			Total
	Crops			Rice			Dairy			All other segments			Farming subtotal			Energy			Transformation
Sales of goods and services rendered		142,124			96,562			32,897			960			272,543			596,692			-		-			869,235
Cost of goods sold and services rendered		(141,731	)		(83,574	)		(32,571	)		(212	)		(258,088	)		(420,493	)		-		-			(678,581	)
Initial recognition and changes in fair value of biological assets and agricultural produce		48,790			10,498			5,476			(13	)		64,751			60,705			-		-			125,456
Changes in net realizable value of agricultural produce after harvest		(5,841	)		-			-			-			(5,841	)		-			-		-			(5,841	)
Margin on Manufacturing and Agricultural Activities Before Operating Expenses		43,342			23,486			5,802			735			73,365			236,904			-		-			310,269
General and administrative expenses		(2,770	)		(3,373	)		(983	)		(290	)		(7,416	)		(22,648	)		-		(20,686	)		(50,750	)
Selling expenses		(5,692	)		(11,583	)		(752	)		(49	)		(18,076	)		(62,518	)		-		(79	)		(80,673	)
Other operating income, net		(8,787	)		402			686			8,497			798			(8,903	)		-		(192	)		(8,297	)
Share of loss of joint ventures		-			-			-			-			-			-			-		-			-
Profit / (loss) from Operations Before Financing and Taxation		26,093			8,932			4,753			8,893			48,671			142,835			-		(20,957	)		170,549
Depreciation and amortization		(1,369	)		(2,766	)		(964	)		(192	)		(5,291	)		(122,209	)		-		-			(127,500	)
Initial recognition and changes in fair value of biological assets and agricultural produce (unrealized)		5,790			2,316			1,319			107			9,532			279			-		-			9,811
Initial recognition and changes in fair value of biological assets and agricultural produce (realized)		43,000			8,182			4,157			(120	)		55,219			60,426			-		-			115,645
Changes in net realizable value of agricultural produce after harvest (unrealized)		(90	)		-			-			-			(90	)		-			-		-			(90	)
Changes in net realizable value of agricultural produce after harvest (realized)		(5,751	)		-			-			-			(5,751	)		-								(5,751	)
Farmlands and farmland improvements, net		68,224			18,868			168			5,504			92,764			26,734			-		-			119,498
Machinery, equipment and other fixed assets, net		3,892			14,949			7,449			467			26,757			418,543			-		-			445,300
Bearer plants, net		-			-			-			1,860			1,860			214,309			-		-			216,169
Work in progress		1,100			3,274			2,727			-			7,101			14,540			-		-			21,641
Investment property		-			-			-			2,666			2,666			-			-		-			2,666
Goodwill		3,782			1,737			-			1,186			6,705			6,700			-		-			13,405
Biological assets		28,189			25,575			6,827			2,433			63,024			82,380			-		-			145,404
Inventories		29,562			12,102			2,060			-			43,724			68,030					-			111,754
Total segment assets		134,749			76,505			19,231			14,116			244,601			831,236			-		-			1,075,837
Borrowings		43,878			47,156			616			10,449			102,099			533,297			-		-			635,396
Total segment liabilities		43,878			47,156			616			10,449			102,099			533,297			-		-			635,396

The accompanying notes are an integral part of these consolidated financial statements.

F- 23

Adecoagro S.A.

Notes to the Consolidated Financial Statements (Continued)

(All amounts in US$ thousands, except shares and per share data and as otherwise indicated)

3. Segment information (continued)

Segment analysis for the year ended December 31, 2015

	Farming															Sugar, Ethanol and			Land		Corporate			Total
	Crops			Rice			Dairy			All other segments			Farming subtotal			Energy			Transformation
Sales of goods and services rendered		154,741			84,668			32,981			1,302			273,692			400,622			-		-			674,314
Cost of goods sold and services rendered		(154,287	)		(69,075	)		(33,030	)		(603	)		(256,995	)		(300,791	)		-		-			(557,786	)
Initial recognition and changes in fair value of biological assets and agricultural produce		11,561			2,822			7,542			(181	)		21,744			32,784			-		-			54,528
Changes in net realizable value of agricultural produce after harvest		14,691			-			-			-			14,691			-			-		-			14,691
Margin on Manufacturing and Agricultural Activities Before Operating Expenses		26,706			18,415			7,493			518			53,132			132,615			-		-			185,747
General and administrative expenses		(3,987	)		(3,136	)		(1,451	)		(74	)		(8,648	)		(18,301	)		-		(21,476	)		(48,425	)
Selling expenses		(5,672	)		(12,592	)		(663	)		(49	)		(18,976	)		(50,729	)		-		(563	)		(70,268	)
Other operating income, net		16,422			600			(479	)		6			16,549			6,340			7,914		263			31,066
Share of loss of joint ventures		(2,685	)		-			-			-			(2,685	)		-			-		-			(2,685	)
Profit / (loss) from Operations Before Financing and Taxation		30,784			3,287			4,900			401			39,372			69,925			7,914		(21,776	)		95,435
Reserve from the sale of non-controlling interests in subsidiaries (see Note 21)		-			-			-			-			-			-			16,066		-			16,066
Depreciation and amortization		(2,427	)		(2,987	)		(1,456	)		(276	)		(7,146	)		(97,255	)		-		-			(104,401	)
Initial recognition and changes in fair value of biological assets and agricultural produce (unrealized)		2,234			587			-			207			3,028			8,298			-		-			11,326
Initial recognition and changes in fair value of biological assets and agricultural produce (realized)		9,327			2,235			7,542			(388	)		18,716			24,486			-		-			43,202
Changes in net realizable value of agricultural produce after harvest (unrealized)		4,406			-			-			-			4,406			-			-		-			4,406
Changes in net realizable value of agricultural produce after harvest (realized)		10,285			-			-			-			10,285			-			-		-			10,285
Farmlands and farmland improvements, net		75,702			16,053			289			5,265			97,309			22,359			-		-			119,668
Machinery, equipment and other fixed assets, net		3,853			14,367			9,422			611			28,253			369,184			-		-			397,437
Bearer plants, net		-			-			-			-			-			156,671			-		-			156,671
Work in progress		935			5,604			495			-			7,034			16,079			-		-			23,113
Investment property		-			-			-			4,796			4,796			-			-		-			4,796
Goodwill		4,609			2,117			-			1,192			7,918			5,592			-		-			13,510
Biological assets		22,536			23,131			6,786			288			52,741			59,077			-		-			111,818
Inventories		27,770			13,584			1,741			-			43,095			42,191			-		-			85,286
Total segment assets		135,405			74,856			18,733			12,152			241,146			671,153			-		-			912,299
Borrowings		54,321			24,932			5,318			1,273			85,844			637,495			-		-			723,339
Total segment liabilities		54,321			24,932			5,318			1,273			85,844			637,495			-		-			723,339

The accompanying notes are an integral part of these consolidated financial statements.

F- 24

Adecoagro S.A.

Notes to the Consolidated Financial Statements (Continued)

(All amounts in US$ thousands, except shares and per share data and as otherwise indicated)

3. Segment information (continued)

Segment analysis for the year ended December 31, 2014

	Farming															Sugar, Ethanol			Land		Corporate			Total
	Crops			Rice			Dairy			All other segments			Farming subtotal			and Energy			Transformation
Sales of goods sold and services rendered		177,662			103,682			32,968			1,525			315,837			407,129			-		-			722,966
Cost of goods sold and services rendered		(177,473	)		(84,199	)		(33,034	)		(842	)		(295,548	)		(309,777	)		-		-			(605,325	)
Initial recognition and changes in fair value of biological assets and agricultural produce		40,267			8,559			9,891			(10	)		58,707			41,509			-		-			100,216
Changes in net realizable value of agricultural produce after harvest		3,401			-			-			-			3,401			-			-		-			3,401
Margin on Manufacturing and Agricultural Activities Before Operating Expenses		43,857			28,042			9,825			673			82,397			138,861			-		-			221,258
General and administrative expenses		(4,343	)		(3,218	)		(1,554	)		(166	)		(9,281	)		(22,054	)		-		(21,360	)		(52,695	)
Selling expenses		(4,201	)		(14,367	)		(596	)		(29	)		(19,193	)		(57,815	)		-		(1,856	)		(78,864	)
Other operating income, net		356			480			437			(190	)		1,083			10,911			-		(17	)		11,977
Share of loss of joint ventures		(924	)		-			-			-			(924	)		-			-		-			(924	)
Profit / (loss) from Operations Before Financing and Taxation		34,745			10,937			8,112			288			54,082			69,903			-		(23,233	)		100,752
Reserve from the sale of non-controlling interests in subsidiaries (see Note 21)		-			-			-			-			-			-			25,508		-			25,508
Depreciation and amortization		(1,926	)		(3,261	)		(1,551	)		(398	)		(7,136	)		(130,538	)		-		-			(137,674	)
Initial recognition and changes in fair value of biological assets and agricultural produce (unrealized)		2,813			(2,340	)		1,128			353			1,954			10,681			-		-			12,635
Initial recognition and changes in fair value of biological assets and agricultural produce (realized)		37,454			10,899			8,763			(363	)		56,753			30,828			-		-			87,581
Gain from changes in net realizable value of agricultural produce after harvest (unrealized)		1,134			-			-			-			1,134			-			-		-			1,134
Gain from changes in net realizable value of agricultural produce after harvest (realized)		2,267			-			-			-			2,267			-			-		-			2,267

The accompanying notes are an integral part of these consolidated financial statements.

F- 25

Adecoagro S.A.

Notes to the Consolidated Financial Statements (Continued)

(All amounts in US$ thousands, except shares and per share data and as otherwise indicated)

3. Segment information (continued)

Total segment assets and liabilities are measured in a manner consistent with that of the consolidated financial statements. These assets and liabilities are allocated based on the operations of the segment and the physical location of the asset. The Group’s investment in CHS Agro S.A. is allocated to the ‘Crops’ segment. Therefore, the Group’s share of profit or loss after income taxes and its carrying amount are reported in this segment.

Total reportable segments’ assets and liabilities are reconciled to total assets as per the statement of financial position as follows:

	2016		2015
Total reportable assets as per Segment Information		1,075,837		912,299
Intangible assets (excluding goodwill)		3,847		3,151
Deferred income tax assets		38,586		68,744
Trade and other receivables		174,940		166,806
Other assets		590		651
Derivative financial instruments		3,398		4,849
Cash and cash equivalents		158,568		198,894
Total assets as per the Statement of Financial Position		1,455,766		1,355,394

	2016		2015
Total reportable liabilities as per Segment Information		635,396		723,339
Trade and other payables		93,585		55,642
Deferred income tax liabilities		14,689		15,636
Payroll and social liabilities		28,079		23,389
Provisions for other liabilities		3,889		2,313
Current income tax liabilities		1,387		962
Derivative financial instruments		7,068		6,694
Total liabilities as per the Statement of Financial Position		784,093		827,975

The accompanying notes are an integral part of these consolidated financial statements.

F- 26

Adecoagro S.A.

Notes to the Consolidated Financial Statements (Continued)

(All amounts in US$ thousands, except shares and per share data and as otherwise indicated)

3. Segment information (continued)

Non-current assets and net revenue and fair value gains and losses are shown by geographic region. These are the regions in which the Group is active: Argentina, Brazil and Uruguay.

As of and for the year ended December 31, 2016:

	Argentina			Brazil			Uruguay			Total
Property, plant and equipment		101,513			694,137			6,958			802,608
Investment property		2,666			-			-			2,666
Goodwill		5,980			7,425			-			13,405
Non-current portion of biological assets		8,516			-			-			8,516
Initial recognition and changes in fair value of biological assets and agricultural produce		62,970			62,556			(70	)		125,456
(Loss) from changes in net realizable value of agricultural produce after harvest		(4,491	)		(958	)		(392	)		(5,841	)
Sales of goods and services rendered		164,264			432,468			272,503			869,235

As of and for the year ended December 31, 2015:

	Argentina		Brazil			Uruguay			Total
Property, plant and equipment		110,218		579,694			6,977			696,889
Investment property		4,796		-			-			4,796
Goodwill		7,287		6,223			-			13,510
Non-current portion of biological assets		6,476		-			-			6,476
Initial recognition and changes in fair value of biological assets and agricultural produce		16,637		37,097			794			54,528
Gain / (Loss) from changes in net realizable value of agricultural produce after harvest		16,139		(32	)		(1,416	)		14,691
Sales of goods and services rendered		166,447		295,456			212,411			674,314

As of and for the year ended December 31, 2014:

	Argentina		Brazil			Uruguay		Total
Initial recognition and changes in fair value of biological assets and agricultural produce		57,369		42,042			805		100,216
Gain / (Loss) from changes in net realizable value of agricultural produce after harvest		1,629		(345	)		2,117		3,401
Sales of goods and services rendered		192,820		328,512			201,634		722,966

The accompanying notes are an integral part of these consolidated financial statements.

F- 27

Adecoagro S.A.

Notes to the Consolidated Financial Statements (Continued)

(All amounts in US$ thousands, except shares and per share data and as otherwise indicated)

4. Sales

	2016		2015		2014
Manufactured products and services rendered:
Rice		94,331		82,797		99,339
Ethanol		211,451		176,150		165,870
Sugar		330,895		177,801		174,459
Soybean oil and meal		-		2,071		-
Energy		53,995		46,671		66,800
Powder milk		4,816		1,042		2,948
Services		1,160		1,545		2,093
Operating Leases		984		1,309		1,593
Others		1,423		1,233		25
		699,055		490,619		513,127
Agricultural produce and biological assets:
Soybean		63,797		75,361		79,515
Cattle for dairy		3,059		3,656		2,553
Corn		48,502		41,813		69,636
Cotton		1,434		3,317		9,081
Milk		24,561		27,906		27,467
Wheat		16,951		16,116		7,669
Sunflower		7,275		12,659		10,016
Sorghum		-		111		84
Rice		950		-		1,117
Barley		1,240		634		1,150
Seeds		625		648		1,244
Others		1,786		1,474		307
		170,180		183,695		209,839
Total sales		869,235		674,314		722,966

Commitments to sell commodities at a future date

The Group entered into contracts to sell non-financial instruments, mainly, sugar, soybean and corn through sales forward contracts. Those contracts are held for purposes of delivery the non-financial instrument in accordance with the Group’s expected sales. Accordingly, as the own use exception criteria are met; those contracts are not recorded as derivatives.

The notional amount of these contracts is US$ 111.8 million as of December 31, 2016 (2015: US$ 62.4 million; 2014: US$ 31.5 million) comprised primarily of 146,524 tons of sugar (US$ 59.5 million), 10,005 m3 of ethanol (US$ 4.5 million), 464,697 mwh of energy (US$ 28.0 million), 23,179 tons of soybean (U$S 6.1 million), 31,598 tons of wheat (US$ 5.4 million), and 52,918 tons of corn (US$ 8.1 million) which expire between February 2017 and December 2017.

The accompanying notes are an integral part of these consolidated financial statements.

F- 28

Adecoagro S.A.

Notes to the Consolidated Financial Statements (Continued)

(All amounts in US$ thousands, except shares and per share data and as otherwise indicated)

5. Cost of goods sold and services rendered

As of December 31, 2016:

	2016
	Crops			Rice			Dairy		All other segments		Sugar, Ethanol and Energy			Total
Finished goods at the beginning of 2016 (Note 19)		16,034			6,904			55		-		24,631			47,624
Cost of production of manufactured products (Note 6)		478			61,254			371		206		376,791			439,100
Purchases		25,954			22,303			4,414		-		89,745			142,416
Agricultural produce		110,252			-			27,628		-		-			137,880
Transfer to raw material		(8,603	)		-			-		-		-			(8,603	)
Direct agricultural selling expenses		19,077			-			-		-		-			19,077
Tax recoveries (i)		-			-			-		-		(24,156	)		(24,156	)
Changes in net realizable value of agricultural produce after harvest		(5,841	)		-			-		-		-			(5,841	)
Finished goods at the end of December 31, 2016 (Note 19)		(13,117	)		(5,473	)		-		-		(49,601	)		(68,191	)
Exchange differences		(2,503	)		(1,414	)		103		6		3,083			(725	)
Cost of goods sold and services rendered, and direct agricultural selling expenses year		141,731			83,574			32,571		212		420,493			678,581

(i): Correspond to the presumed credit of ICMS over the sale values.

As of December 31, 2015:

	2015
	Crops			Rice			Dairy			All other segments		Sugar, Ethanol and Energy			Total
Finished goods at the beginning of 2015 (Note 19)		21,056			4,656			76			-		50,087			75,875
Cost of production of manufactured products (Note 6)		67			60,445			624			603		273,127			334,866
Purchases		27,625			13,520			920			-		48,610			90,675
Agricultural produce		93,536			-			31,563			-		-			125,099
Transfer to raw material		(6,237	)		-			-			-		-			(6,237	)
Direct agricultural selling expenses		29,179			-			-			-		-			29,179
Tax recoveries (i)		-			-			-			-		(16,196	)		(16,196	)
Changes in net realizable value of agricultural produce after harvest		14,691			-			-			-		-			14,691
Finished goods at the end of December 31, 2015 (Note 19)		(16,034	)		(6,904	)		(55	)		-		(24,631	)		(47,624	)
Exchange differences		(9,596	)		(2,642	)		(98	)		-		(30,206	)		(42,542	)
Cost of goods sold and services rendered, and direct agricultural selling expenses year		154,287			69,075			33,030			603		300,791			557,786

(i): Correspond to the presumed credit of ICMS over the sale values.

As of December 31, 2014:

	2014
	Crops			Rice			Dairy			All other segments		Sugar, Ethanol and Energy			Total
Finished goods at the beginning of 2014 (Note 19)		12,863			5,061			-			-		50,224			68,148
Cost of production of manufactured products (Note 6)		-			70,095			3,034			842		323,766			397,737
Purchases		37,705			15,810			117			-		16,402			70,034
Agricultural produce		132,216			-			30,020			-		-			162,236
Transfer to raw material		(7,191	)		-			-			-		-
Direct agricultural selling expenses		24,280			-			-			-		-			24,280
Tax recoveries (i)		-			-			-			-		(13,778	)		(13,778	)
Changes in net realizable value of agricultural produce after harvest		3,401			-			-			-		-			3,401
Finished goods at the end of December 31, 2014 (Note 19)		(21,056	)		(4,656	)		(76	)		-		(50,087	)		(75,875	)
Exchange differences		(4,745	)		(2,111	)		(61	)		-		(16,750	)		(23,667	)
Cost of goods sold and services rendered, and direct agricultural selling expenses year		177,473			84,199			33,034			842		309,777			605,325

(i): Correspond to the presumed credit of ICMS over the sale values.

The accompanying notes are an integral part of these consolidated financial statements.

F- 29

Adecoagro S.A.

Notes to the Consolidated Financial Statements (Continued)

(All amounts in US$ thousands, except shares and per share data and as otherwise indicated)

6. Expenses by nature

The Group presented the statement of income under the function of expense method. Under this method, expenses are classified according to their function as part of the line items “cost of goods sold and direct agricultural selling expenses”, “general and administrative expenses” and “selling expenses”.

The following table provides the additional disclosure required on the nature of expenses and their relationship to the function within the Group:

Expenses by nature for the year ended December 31, 2016:

	Cost of production of manufactured products (Note 5)
	Crops		Rice		Dairy		All other segments		Sugar, Ethanol and Energy			Total			General and Administrative Expenses		Selling Expenses		Total
Salaries, social security expenses and employee benefits		-		5,590		-		206		54,225			60,021			30,935		5,358		96,314
Raw materials and consumables		468		3,927		-		-		7,025			11,420			-		-		11,420
Depreciation and amortization		-		856		-		-		102,620			103,476			5,006		695		109,177
Fuel, lubricants and others		-		86		-		-		26,307			26,393			450		368		27,211
Maintenance and repairs		-		1,408		-		-		21,641			23,049			931		390		24,370
Freights		-		4,901		14		-		330			5,245			-		29,976		35,221
Export taxes / selling taxes		-		-		-		-		-			-			-		29,375		29,375
Export expenses		-		-		-		-		-			-			-		3,649		3,649
Contractors and services		10		-		39		-		4,374			4,423			-		-		4,423
Energy transmission		-		-		-		-		-			-			-		2,890		2,890
Energy power		-		913		-		-		1,007			1,920			795		211		2,926
Professional fees		-		90		-		-		387			477			5,495		1,105		7,077
Other taxes		-		58		-		-		2,012			2,070			653		8		2,731
Contingencies		-		-		-		-		-			-			1,835		-		1,835
Lease expense and similar arrangements		-		145		-		-		-			145			1,185		51		1,381
Third parties raw materials		-		3,001		-		-		26,552			29,553			-		-		29,553
Tax recoveries		-		-		-		-		(11,527	)		(11,527	)		-		-		(11,527	)
Others		-		1,344		-		-		4,428			5,772			3,465		6,597		15,834
Subtotal		478		22,319		53		206		239,381			262,437			50,750		80,673		393,860
Own agricultural produce consumed		-		38,935		318		-		137,410			176,663			-		-		176,663
Total		478		61,254		371		206		376,791			439,100			50,750		80,673		570,523

The accompanying notes are an integral part of these consolidated financial statements.

F- 30

Adecoagro S.A.

Notes to the Consolidated Financial Statements (Continued)

(All amounts in US$ thousands, except shares and per share data and as otherwise indicated)

6. Expenses by nature (continued)

Expenses by nature for the year ended December 31, 2015:

	Cost of production of manufactured products (Note 5)
	Crops		Rice		Dairy		All other segments		Sugar, Ethanol and Energy			Total			General and Administrative Expenses		Selling Expenses		Total
Salaries, social security expenses and employee benefits		-		5,952		-		551		49,454			55,957			28,354		5,053		89,364
Raw materials and consumables		56		3,760		86		-		7,143			11,045			-		-		11,045
Depreciation and amortization		-		1,305		-		-		82,711			84,016			5,762		765		90,543
Fertilizers, agrochemicals and seeds		-		-		-		52		-			52			-		-		52
Fuel, lubricants and others		-		102		-		-		20,034			20,136			468		66		20,670
Maintenance and repairs		-		1,167		-		-		13,934			15,101			937		356		16,394
Freights		9		4,303		38		-		-			4,350			16		20,930		25,296
Export taxes / selling taxes		-		-		-		-		-			-			-		29,110		29,110
Export expenses		-		-		-		-		-			-			-		3,223		3,223
Contractors and services		-		-		82		-		3,297			3,379			-		-		3,379
Energy transmission		-		-		-		-		-			-			-		2,386		2,386
Energy power		-		622		-		-		1,039			1,661			793		27		2,481
Professional fees		-		84		-		-		349			433			6,008		1,257		7,698
Other taxes		-		85		-		-		1,260			1,345			716		-		2,061
Contingencies		-		-		-		-		-			-			1,482		-		1,482
Lease expense and similar arrangements		-		77		-		-		216			293			1,107		43		1,443
Third parties raw materials		-		9,506		-		-		24,182			33,688			-		-		33,688
Tax recoveries		-		-		-		-		(14,395	)		(14,395	)		-		-		(14,395	)
Others		2		691		-		-		5,087			5,780			2,782		7,052		15,614
Subtotal		67		27,654		206		603		194,311			222,841			48,425		70,268		341,534
Own agricultural produce consumed		-		32,791		418		-		78,816			112,025			-		-		112,025
Total		67		60,445		624		603		273,127			334,866			48,425		70,268		453,559

The accompanying notes are an integral part of these consolidated financial statements.

F- 31

Adecoagro S.A.

Notes to the Consolidated Financial Statements (Continued)

(All amounts in US$ thousands, except shares and per share data and as otherwise indicated)

6. Expenses by nature (continued)

Expenses by nature for the year ended December 31, 2014:

	Cost of production of manufactured products (Note 5)
	Crops		Rice		Dairy		All other segments		Sugar, Ethanol and Energy			Total			General and Administrative Expenses		Selling Expenses		Total
Salaries, social security expenses and employee benefits		-		5,842		-		563		55,136			61,541			32,237		5,467		99,245
Raw materials and consumables		-		-		-		-		8,814			8,814			-		-		8,814
Depreciation and amortization		-		1,322		-		61		114,026			115,409			5,962		1,113		122,484
Fuel, lubricants and others		-		108		-		25		20,938			21,071			475		49		21,595
Maintenance and repairs		-		1,383		-		56		17,857			19,296			994		367		20,657
Freights		-		5,906		174		-		-			6,080			8		25,145		31,233
Export taxes / selling taxes		-		-		-		-		-			-			-		32,697		32,697
Export expenses		-		-		-		-		-			-			-		2,204		2,204
Contractors and services		-		-		587		-		4,560			5,147			-		-		5,147
Energy transmission		-		-		-		-		-			-			-		1,703		1,703
Veterinary expenses		-		-		-		23		-			23			-		-		23
Energy power		-		654		-		2		1,113			1,769			295		28		2,092
Professional fees		-		122		-		-		753			875			7,470		1,067		9,412
Other taxes		-		-		-		100		1,333			1,433			784		5		2,222
Contingencies		-		-		-		-		-			-			1,236		-		1,236
Lease expense and similar arrangements		-		84		-		6		-			90			1,195		87		1,372
Third parties raw materials		-		8,392		-		-		27,948			36,340			-		-		36,340
Tax recoveries		-		-		-		-		(18,828	)		(18,828	)		-		-		(18,828	)
Others		-		-		-		6		8,489			8,495			2,039		8,932		19,466
Subtotal		-		23,813		761		842		242,139			267,555			52,695		78,864		399,114
Own agricultural produce consumed		-		46,282		2,273		-		81,627			130,182			-		-		130,182
Total		-		70,095		3,034		842		323,766			397,737			52,695		78,864		529,296

The accompanying notes are an integral part of these consolidated financial statements.

F- 32

Adecoagro S.A.

Notes to the Consolidated Financial Statements (Continued)

(All amounts in US$ thousands, except shares and per share data and as otherwise indicated)

7. Salaries and social security expenses

	2016		2015		2014
Wages and salaries (i)		117,423		104,216		133,573
Social security costs		28,849		23,111		28,646
Equity-settled share-based compensation		4,796		4,396		3,867
		151,068		131,723		166,086
Number of employees		8,326		8,089		8,109

(i) Includes US$ 28,475, US$ 16,708 and US$ 42,354, capitalized in Property, Plant and Equipment for the years 2016, 2015 and 2014, respectively.

8. Other operating income, net

	2016			2015			2014
Gain from disposal of farmland and other assets (Note 21)		-			7,914			-
(Loss) / Gain from commodity derivative financial instrument		(16,007	)		22,148			9,937
Loss from onerous contracts – forwards		(44	)		(25	)		(157	)
(Loss) /Gain from disposal of other property items		(1,255	)		721			985
Settlement agreement (Nota 29)		8,489			-			-
Others		520			308			1,212
		(8,297	)		31,066			11,977

9. Financial results, net

	2016			2015			2014
Finance income:
- Interest income		7,671			8,201			7,068
- Other income		286			949			223
Finance income		7,957			9,150			7,291
Finance costs:
- Interest expense		(48,198	)		(49,491	)		(54,915	)
- Cash flow hedge – transfer from equity (Note 2)		(85,214	)		(32,700	)		(12,031	)
- Foreign exchange losses, net		(19,062	)		(23,423	)		(9,246	)
- Taxes		(2,719	)		(3,358	)		(3,731	)
- Loss from interest rate/foreign exchange rate derivative financial instruments		(5,694	)		(4,437	)		(3,232	)
- Other expenses		(4,493	)		(3,481	)		(3,317	)
Finance costs		(165,380	)		(116,890	)		(86,472	)
Total financial results, net		(157,423	)		(107,740	)		(79,181	)

The accompanying notes are an integral part of these consolidated financial statements.

F- 33

Adecoagro S.A.

Notes to the Consolidated Financial Statements (Continued)

(All amounts in US$ thousands, except shares and per share data and as otherwise indicated)

10. Taxation

Adecoagro is subject to the applicable general tax regulations in Luxembourg.

The Group’s income tax has been calculated on the estimated assessable taxable results for the year at the rates prevailing in the respective foreign tax jurisdictions. The subsidiaries of the Group are required to calculate their income taxes on a separate basis according to the rules and regulations of the jurisdictions where they operate. Therefore, the Group is not legally permitted to compensate subsidiaries’ losses against subsidiaries’ income. The details of the provision for the Group’s consolidated income tax are as follows:

	2016			2015			2014
Current income tax		(21,505	)		(2,163	)		(124	)
Deferred income tax		12,118			10,117			(10,411	)
Income tax (expense) / benefit		(9,387	)		7,954			(10,535	)

The statutory tax rate in the countries where the Group operates for all of the years presented are:

Tax Jurisdiction	Income Tax Rate
Argentina		35%
Brazil		34%
Uruguay		25%

Deferred tax assets and liabilities of the Group as of December 31, 2016 and 2015, without taking into consideration the offsetting of balances within the same tax jurisdiction, will be recovered or settled as follows:

	2016			2015
Deferred income tax asset to be recovered after more than 12 months		96,822			88,466
Deferred income tax asset to be recovered within 12 months		17,504			36,569
Deferred income tax assets		114,326			125,035
Deferred income tax liability to be settled after more than 12 months		(86,573	)		(68,102	)
Deferred income tax liability to be settled within 12 months		(3,856	)		(3,825	)
Deferred income tax liability		(90,429	)		(71,927	)
Deferred income tax assets, net		23,897			53,108

The gross movement on the deferred income tax account is as follows:

	2016			2015			2014
Beginning of year		53,108			2,437			(9,255	)
Exchange differences		10,953			(8,552	)		7,954
Tax (charge) benefit relating to cash flow hedge (i)		(52,282	)		49,106			14,149
Income tax (expense) / benefit		12,118			10,117			(10,411	)
End of year		23,897			53,108			2,437

(i): Relates to the gain or loss before income tax of cash flow hedge recognized in other comprehensive income amounting to US$ (67,683) for the year ended December 31, 2016 (2015: US$ 176,657; 2014: US$ 53,584); net of the reclassification from Equity to Income Statements of US$ (85,214) for the year ended December 31, 2016 (2015: US$ (32,700); 2014: (12,031))

The accompanying notes are an integral part of these consolidated financial statements.

F- 34

Adecoagro S.A.

Notes to the Consolidated Financial Statements (Continued)

(All amounts in US$ thousands, except shares and per share data and as otherwise indicated)

10. Taxation (continued)

The movement in the deferred income tax assets and liabilities during the year, without taking into consideration the offsetting of balances within the same tax jurisdiction, is as follows:

Deferred income tax liabilities	Property, plant and equipment			Biological assets			Others			Total
At January 1, 2014		77,038			11,152			14,425			102,615
Charged/(credited) to the statement of income		(6,446	)		3,469			6,014			3,037
Exchange differences		(16,367	)		(2,137	)		(2,936	)		(21,440	)
At December 31, 2014		54,225			12,484			17,503			84,212
(Credited)/charged to the statement of income		22,310			8,260			(12,460	)		18,110
Exchange differences		(20,571	)		(4,781	)		(5,043	)		(30,395	)
At December 31, 2015		55,964			15,963			-			71,927
(Credited) /charged to the statement of income		3,380			(2,752	)		16,787			17,415
Exchange differences		(512	)		911			688			1,087
At December 31, 2016		58,832			14,122			17,475			90,429

Deferred income tax assets	Provisions			Tax loss Carry forwards			Equity-settled share-based compensation			Biological Assets			Others			Total
At January 1, 2014		5,827			69,620			6,417			4,874			6,622			93,360
Charged/(credited) to the statement of income		(3,745	)		(2,636	)		(522	)		(1,568	)		1,097			(7,374	)
Tax charge relating to cash flow hedge		-			14,149			-			-			-			14,149
Exchange differences		(313	)		(12,780	)		-			507			(900	)		(13,486	)
At December 31, 2014		1,769			68,353			5,895			3,813			6,819			86,649
Charged/(credited) to the statement of income		770			24,541			(275	)		(1,293	)		4,484			28,227
Tax charge relating to cash flow hedge		-			49,106			-			-						49,106
Exchange differences		(750	)		(34,809	)					(793	)		(2,595	)		(38,947	)
At December 31, 2015		1,789			107,191			5,620			1,727			8,708			125,035
Charged/(credited) to the statement of income		353			31,074			20			(2,063	)		149			29,533
Tax charge relating to cash flow hedge		-			(52,282	)		-			-			-			(52,282	)
Exchange differences		289			11,135			-			336			280			12,040
At December 31, 2016		2,431			97,118			5,640			-			9,137			114,326

The accompanying notes are an integral part of these consolidated financial statements.

F- 35

Adecoagro S.A.

Notes to the Consolidated Financial Statements (Continued)

(All amounts in US$ thousands, except shares and per share data and as otherwise indicated)

10. Taxation (continued)

Tax loss carry forwards in Argentina and Uruguay generally expire within 5 years. Tax loss carry forwards in Brazil do not expire. However, in Brazil, the taxable profit for each year can only be reduced by tax loss carry forward up to a maximum of 30 %.

In order to fully realize the deferred tax asset, the Group will need to generate future taxable income in the countries where the tax loss carry forward were incurred. Based upon the level of historical taxable income and projections for future taxable income over the periods in which the deferred tax assets are deductible, management believes that as at December 31, 2016, it is probable that the Group will realize all of the deferred tax assets in Argentina and some portion of the deferred tax assets in Brazil.

As of December 31, 2016, the Group’s tax loss carry forwards and their corresponding jurisdictions are as follows:

Jurisdiction	Tax loss carry forward		Expiration Period
Argentina		62,480	5 years
Brazil		219,840	No expiration date.
Uruguay		1,773	5 years

Deferred income tax assets are recognized for tax loss carry-forwards to the extent that the realization of the related tax benefit through future taxable profits is probable. The Group did not recognize deferred income tax assets of US$ 4.0 million in respect of losses amounting to US$ 11.8 million that can be carried forward against future taxable income.

The tax on the Group’s profit before tax differs from the theoretical amount that would arise using the weighted average tax rate applicable to profits of the consolidated entities as follows:

	2016			2015			2014
Tax calculated at the tax rates applicable to profits in the respective countries		(3,644	)		3,842			(7,804	)
Non-deductible items		(3,304	)		(133	)		(441	)
Non-deductible items – changes in estimates on previous year		(1,182	)		-			-
Tax losses where no deferred tax asset was recognized		(569	)		(317	)		(2,383	)
Non-taxable income		-			4,625			199
Others		(688	)		(63	)		(106	)
Income tax (expense) / benefit		(9,387	)		7,954			(10,535	)

The accompanying notes are an integral part of these consolidated financial statements.

F- 36

Adecoagro S.A.

Notes to the Consolidated Financial Statements (Continued)

(All amounts in US$ thousands, except shares and per share data and as otherwise indicated)

11. Earnings per share

(a) Basic

Basic earnings per share is calculated by dividing the profit attributable to equity holders of the Group by the weighted average number of shares in issue during the period excluding ordinary shares held as treasury shares (Note 22).

	2016		2015			2014
Profit/(Loss) from operations attributable to equity holders of the Group		2,039		(5,593	)		11,116
Weighted average number of shares in issue (thousands)		121,421		120,901			120,562
Basic earnings / (loss) per share from operations		0.017		(0.046	)		0.092

(b) Diluted

Diluted earnings per share is calculated by adjusting the weighted average number of shares outstanding to assume conversion of all dilutive potential shares. The Group has two categories of dilutive potential shares: equity-settled share options and restricted units. For these instruments, a calculation is done to determine the number of shares that could have been acquired at fair value, based on the monetary value of the subscription rights attached to outstanding share options. The number of shares calculated as above is compared with the number of shares that would have been issued assuming the exercise of the equity-settled share options. As of December 31, 2016, there were 1,658 thousands (2015: 1,701 thousands; 2014: 1,729 thousands) share options/restricted units outstanding that could potentially have a dilutive impact in the future but were antidilutive for the periods presented.

	2016		2015			2014
Profit / (Loss) from operations attributable to equity holders of the Group		2,039		(5,593	)		11,116
Weighted average number of shares in issue (thousands)		121,421		120,901			120,562
Adjustments for:
- Employee share options and restricted units (thousands)		1,695		1,445			1,055
Weighted average number of shares for diluted earnings per share (thousands)		123,116		122,346			121,617
Diluted earnings / (loss) per share from operations		0.017		(0.046	)-		0.091

The accompanying notes are an integral part of these consolidated financial statements.

F- 37

Adecoagro S.A.

Notes to the Consolidated Financial Statements (Continued)

(All amounts in US$ thousands, except shares and per share data and as otherwise indicated)

12. Property, plant and equipment

Changes in the Group’s property, plant and equipment in 2016 and 2015 were as follows:

	Farmlands			Farmland improvements			Buildings and   facilities			Machinery,   equipment,   furniture and fittings			Bearer plants			Others			Work in   progress			Total
At January1, 2015
Cost		174,420			13,855			284,994			541,400			259,193			12,743			120,176			1,406,781
Accumulated depreciation		-			(8,454	)		(90,223	)		(263,814	)		(44,517	)		(8,192	)		-			(415,200	)
Net book amount		174,420			5,401			194,771			277,586			214,676			4,551			120,176			991,581
Year ended December31, 2015
Opening net book amount		174,420			5,401			194,771			277,586			214,676			4,551			120,176			991,581
Exchange differences		(56,498	)		(1,588	)		(70,454	)		(106,957	)		(68,889	)		(1,829	)		(22,824	)		(329,039	)
Additions		-			48			11,666			47,926			44,018			2,302			45,513			151,473
Reclassification to investment property (Note 13)		(580	)		-			-			-			-			-			-			(580	)
Transfers		430			2,574			43,879			68,136			-			392			(115,411	)		-
Disposals		(3,245	)		-			(1,564	)		(1,728	)		-			(64	)		-			(6,601	)
Reclassification to non-income tax credits (*)		-			-			(1,048	)		(740	)		-			-			(4,341	)		(6,129	)
Depreciation (Note 6)		-			(1,294	)		(9,782	)		(58,174	)		(33,134	)		(1,432	)		-			(103,816	)
Closing net book amount		114,527			5,141			167,468			226,049			156,671			3,920			23,113			696,889

The accompanying notes are an integral part of these consolidated financial statements.

F- 38

Adecoagro S.A.

Notes to the Consolidated Financial Statements (Continued)

(All amounts in US$ thousands, except shares and per share data and as otherwise indicated)

12. Property, plant and equipment (continued)

	Farmlands			Farmland improvements			Buildings and facilities			Machinery, equipment, furniture and fittings			Bearer plants			Others			Work in progress			Total
At December31, 2015
Cost		114,527			14,889			267,473			548,037			234,322			13,544			23,113			1,215,905
Accumulated depreciation		-			(9,748	)		(100,005	)		(321,988	)		(77,651	)		(9,624	)		-			(519,016	)
Net book amount		114,527			5,141			167,468			226,049			156,671			3,920			23,113			696,889
Year ended December31, 2016
Opening net book amount		114,527			5,141			167,468			226,049			156,671			3,920			23,113			696,889
Exchange differences		(6,004	)		(838	)		26,675			46,053			33,169			103			(924	)		98,234
Additions		-			-			7,420			36,190			74,175			1,484			19,454			138,723
Reclassification to investment property (Note 13)		1,335			-			-			-			-			-			-			1,335
Transfers		-			6,856			6,491			6,608			-			8			(19,963	)		-
Disposals		-			-			(1,078	)		(3,125	)		-			(72	)		-			(4,275	)
Reclassification to non-income tax credits (*)		-			-			(1,233	)		(227	)		-			-			(39	)		(1,499	)
Depreciation (Note 6)		-			(1,519	)		(15,688	)		(60,238	)		(47,846	)		(1,508	)		-			(126,799	)
Closing net book amount		109,858			9,640			190,055			251,310			216,169			3,935			21,641			802,608
At December31, 2016
Cost		109,858			20,907			305,748			633,536			341,666			15,067			21,641			1,448,423
Accumulated depreciation		-			(11,267	)		(115,693	)		(382,226	)		(125,497	)		(11,132	)		-			(645,815	)
Net book amount		109,858			9,640			190,055			251,310			216,169			3,935			21,641			802,608

(*) Brazilian federal tax law allows entities to take a percentage of the total cost of the assets purchased as a tax credit. As of December 31, 2016 and 2015, ICMS tax credits were reclassified to trade and other receivables.

The accompanying notes are an integral part of these consolidated financial statements.

F- 39

Adecoagro S.A.

Notes to the Consolidated Financial Statements (Continued)

(All amounts in US$ thousands, except shares and per share data and as otherwise indicated)

12. Property, plant and equipment (continued)

Depreciation is calculated using the straight-line method to allocated their cost over the estimated usefull lives. Farmlands are not depreciated.

Farmland improvements	5-25 years
Buildings and facilities	20 years
Furniture and fittings	10 years
Computer equipment	3-5 years
Machinery and equipment	4-10 years
Vehicles	4-5 years
Bearer plants	6 years

The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each statement of financial position date.

Depreciation charges are included in “Cost of production of Biological Assets”, “Cost of production of manufactures products”, “General and administrative expenses”, “Selling expenses” and capitalized in “Property, plant and equipment” for the years ended December 31, 2016, 2015 and 2014, respectively.

During the year ended December 31, 2016, borrowing costs of US$ 4,654 (2015: US$ 7,684, 2014: US$ 6,864) were capitalized as components of the cost of acquisition or construction for qualifying assets.

Certain of the Group’s assets have been pledged as collateral to secure the Group’s borrowings and other payables. The net book value of the pledged assets amounts to US$ 575,882 as of December 31, 2016 (2015: US$ 416,393).

13. Investment property

Changes in the Group’s investment property in 2016 and 2015 were as follows:

	2016			2015
Beginning of the year		4,796			6,675
Reclassification (to)/from property, plant and equipment (i)		(1,335	)		580
Exchange difference		(795	)		(2,459	)
End of the year		2,666			4,796
Cost		2,666			4,796
Accumulated depreciation		-			-
Net book amount		2,666			4,796

(i)       Relates to new contracts with third parties.

As of December 31, 2016, the fair value (level 3) of investment property was US$ 57 million (2015: US$ 55 million).

The accompanying notes are an integral part of these consolidated financial statements.

F- 40

Adecoagro S.A.

Notes to the Consolidated Financial Statements (Continued)

(All amounts in US$ thousands, except shares and per share data and as otherwise indicated)

14. Intangible assets

Changes in the Group’s intangible assets in 2016 and 2015 were as follows:

	Goodwill			Trademarks			Software			Others			Total
At January 1,2015
Cost		20,172			2,498			3,910			142			26,722
Accumulated amortization		-			(1,539	)		(1,276	)		(129	)		(2,944	)
Net book amount		20,172			959			2,634			13			23,778
Year ended December 31, 2015
Opening net book amount		20,172			959			2,634			13			23,778
Exchange differences		(6,662	)		(29	)		(1,026	)		(18	)		(7,735	)
Additions		-			-			1,160			43			1,203
Amortization charge (i)		-			-			(568	)		(17	)		(585	)
Closing net book amount		13,510			930			2,200			21			16,661
At December 31, 2015
Cost		13,510			2,469			4,044			167			20,190
Accumulated amortization		-			(1,539	)		(1,844	)		(146	)		(3,529	)
Net book amount		13,510			930			2,200			21			16,661
Year ended December 31, 2016
Opening net book amount		13,510			930			2,200			21			16,661
Exchange differences		(105	)		(8	)		186			1			74
Additions		-			-			1,176			42			1,218
Amortization charge (i)		-			-			(661	)		(40	)		(701	)
Closing net book amount		13,405			922			2,901			24			17,252
At December 31, 2016
Cost		13,405			2,461			5,406			210			21,482
Accumulated amortization		-			(1,539	)		(2,505	)		(186	)		(4,230	)
Net book amount		13,405			922			2,901			24			17,252

(i) Amortization charges are included in “General and administrative expenses” and “Selling expenses” for the years ended December 31, 2016 and 2015, respectively. There were no impairment charges for any of the years presented (see Note 33 (a)).

The accompanying notes are an integral part of these consolidated financial statements.

F- 41

Adecoagro S.A.

Notes to the Consolidated Financial Statements (Continued)

(All amounts in US$ thousands, except shares and per share data and as otherwise indicated)

15. Biological assets

Changes in the Group’s biological assets in 2016 and 2015 were as follows:

	2016
	Crops (ii)			Rice (ii)			Dairy			All other segments			Sugarcane (ii)			Total
Beginning of the year		22,536			23,131			6,786			288			59,077			111,818
Increase due to purchases		-			-			-			1,713			-			1,713
Initial recognition and changes in fair value of biological assets (i)		48,790			10,498			5,476			(13	)		60,705			125,456
Decrease due to harvest / disposals		(110,252	)		(38,508	)		(27,946	)		-			(141,645	)		(318,351	)
Costs incurred during the year		68,607			33,839			23,885			558			91,235			218,124
Exchange differences		(1,492	)		(3,385	)		(1,374	)		(113	)		13,008			6,644
End of the year year		28,189			25,575			6,827			2,433			82,380			145,404

	2015
	Crops (ii)			Rice (ii)			Dairy			All other segments			Sugarcane (ii)			Total
Beginning of the year		31,011			23,875			9,183			-			60,667			124,736
Increase due to purchases		-			-			-			306			-			306
Initial recognition and changes in fair value of biological assets (i)		11,561			2,822			7,542			(181	)		32,784			54,528
Decrease due to harvest / disposals		(93,536	)		(39,488	)		(31,563	)		-			(81,108	)		(245,695	)
Costs incurred during the year		81,725			44,024			25,120			253			67,460			218,582
Exchange differences		(8,225	)		(8,102	)		(3,496	)		(90	)		(20,726	)		(40,639	)
End of the year year		22,536			23,131			6,786			288			59,077			111,818

(i)       Biological asset with a production cycle of more than one year (that is dairy and cattle) generated “Initial recognition and changes in fair value of biological assets” amounting to US$ 66,168 for the year ended December 31, 2016 (2015: US$ 40,145; 2014: US$ 51,390). In 2016, an amount of US$ 56,783 (2015: US$ 44,236; 2014: US$ 105,466) was attributable to price changes, and an amount of US$ 9,385 (2015: US$ (4,091); 2014: US$ (54,076)) was attributable to physical changes.

(ii) Biological assets that are measured at fair value within level 3 of the hierarchy.

The accompanying notes are an integral part of these consolidated financial statements.

F- 42

Adecoagro S.A.

Notes to the Consolidated Financial Statements (Continued)

(All amounts in US$ thousands, except shares and per share data and as otherwise indicated)

15. Biological assets (continued)

Cost of production as of December 31, 2016:

	Crops		Rice		Dairy		All other segments		Sugar, Ethanol and Energy		Total
Salaries, social security expenses and employee benefits		3,786		5,820		3,849		214		12,610		26,279
Depreciation and amortization		395		-		-		-		5,880		6,275
Fertilizers, agrochemicals and seeds		24,774		8,047		80		-		24,087		56,988
Fuel, lubricants and others		971		1,527		772		17		3,385		6,672
Maintenance and repairs		1,253		2,811		1,787		92		2,519		8,462
Freights		1,421		479		127		19		-		2,046
Contractors and services		23,769		13,248		-		-		2,651		39,668
Feeding expenses		-		-		9,053		21		-		9,074
Veterinary expenses		-		-		1,624		69		-		1,693
Energy power		119		853		492		-		-		1,464
Professional fees		131		85		169		-		145		530
Other taxes		1,561		131		8		100		116		1,916
Lease expense and similar arrangements		6,965		97		8		-		38,555		45,625
Others		3,462		741		563		26		1,287		6,079
Subtotal		68,607		33,839		18,532		558		91,235		212,771
Own agricultural produce consumed		-		-		5,353		-		-		5,353
Total		68,607		33,839		23,885		558		91,235		218,124

Cost of production as of December 31, 2015:

	Crops		Rice		Dairy		All other segments		Sugar, Ethanol and Energy		Total
Salaries, social security expenses and employee benefits		4,573		7,729		4,765		6		8,578		25,651
Depreciation and amortization		461		11		-		-		4,711		5,183
Fertilizers, agrochemicals and seeds		30,639		10,370		-		-		16,519		57,528
Fuel, lubricants and others		1,645		2,783		908		12		2,588		7,936
Maintenance and repairs		973		3,610		1,972		55		1,401		8,011
Freights		616		1,063		125		15		-		1,819
Contractors and services		27,364		16,512		-		-		2,823		46,699
Feeding expenses		-		-		9,742		2		-		9,744
Veterinary expenses		-		-		1,913		38		-		1,951
Energy power		149		608		423		-		-		1,180
Professional fees		155		215		386		3		58		817
Other taxes		1,534		146		16		122		50		1,868
Lease expense and similar arrangements		10,459		358		2		-		30,035		40,854
Others		3,157		619		422		-		697		4,895
Subtotal		81,725		44,024		20,674		253		67,460		214,136
Own agricultural produce consumed		-		-		4,446		-		-		4,446
Total		81,725		44,024		25,120		253		67,460		218,582

The accompanying notes are an integral part of these consolidated financial statements.

F- 43

Adecoagro S.A.

Notes to the Consolidated Financial Statements (Continued)

(All amounts in US$ thousands, except shares and per share data and as otherwise indicated)

15. Biological assets (continued)

Biological assets in 2016 and 2015 were as follows:

	2016		2015
Non-current
Cattle for dairy production (i)		6,584		6,460
Breeding cattle (ii)		1,533		-
Other cattle (ii)		399		16
		8,516		6,476
Current
Breeding cattle (iii)		501		-
Other cattle (iii)		243		598
Sown land – crops (ii)		28,189		22,536
Sown land – rice (ii)		25,575		23,131
Sown land – sugarcane (ii)		82,380		59,077
		136,888		105,342
Total biological assets		145,404		111,818

(i) Classified as bearer and mature biological assets.

(ii) Classified as consumable and immature biological assets.

(iii) Classified as consumable and mature biological assets.

The fair value less estimated point of sale costs of agricultural produce at the point of harvest amounted to US$ 141,645 for the year ended December 31, 2016 (2015: US$ 81,108).

The following table presents the Group´s biological assets that are measured at fair value at December 31, 2016 and 2015 (see Note 17 to see the description of each fair value level):

	2016								2015
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Cattle for dairy production		-		6,584		-		6,584		-		6,460		-		6,460
Breeding cattle		2,034		-		-		2,034		-		-		-		-
Other cattle		-		642		-		642		-		614		-		614
Sown land – sugarcane		-		-		82,380		82,380		-		-		59,077		59,077
Sown land – crops		-		-		28,189		28,189		-		-		22,536		22,536
Sown land – rice		-		-		25,575		25,575		-		-		23,131		23,131

There were no transfers between any levels during the year.

The accompanying notes are an integral part of these consolidated financial statements.

F- 44

Adecoagro S.A.

Notes to the Consolidated Financial Statements (Continued)

(All amounts in US$ thousands, except shares and per share data and as otherwise indicated)

15. Biological assets (continued)

The following significant unobservable inputs were used to measure the Group´s biological assets using the discounted cash flow valuation technique:

Description	Unobservable inputs	Range of unobservable inputs		Relationship of unobservable inputs to fair value
		2016	2015
Sown land – sugarcane	Sugarcane yield – tonnes per hectare; Sugarcane TRS (kg of sugar per ton of cane) Production Costs – US$ per hectare. (Include maintenance, harvest and leasing costs)	-Sugarcane yield: 60-100 tn/ha -Sugarcane TRS: 120-140 kg of sugar/ton of cane -Maintenance costs: 500-600 US$/ha -Harvest costs: 9.0 -14.0 US$/ton of cane -Leasing costs: 12.0-14.4 tn/ha	-Sugarcane yield: 60-90 tn/ha -Sugarcane TRS: 130-140 kg of sugar/ton of cane -Maintenance costs: 440-530 US$/ha -Harvest costs: 7.0 -10.0 US$/ton of cane -Leasing costs: 12.0-14.4 tn/ha	The higher the sugarcane yield, the higher the fair value. The higher the maintenance, harvest and leasing costs per hectare, the lower the fair value. The higher the TRS of sugarcane, the higher the fair value.
Sown land – crops	Crops yield – tonnes per hectare; Commercial Costs – usd per hectare; Production Costs – US$ per hectare.	- Crops yield: 2.0 – 2.8 tn/ha for Wheat, 5.4 – 7.7  tn/ha for Corn, 2mentira.7 - 3.8 tn/ha for Soybean and 1.5-2.1 for Sunflower - Commercial Costs: 66-97 US$/ha for Wheat, 150-225 US$/ha for Corn, 70-110 US$/ha for Soybean and 65-90 US$/ha for Sunflower - Production Costs: 170-250 US$/ha for Wheat, 350-550 US$/ha for Corn, 270-400 US$/ha for Soybean and 200-300 US$/ha for Sunflower	- Crops yield: 1.8 - 2.5 tn/ha for Wheat, 5.0 - 8.0 tn/ha for Corn, 2.0 - 3.2 tn/ha for Soybean and 1.6-2.3 for Sunflower - Commercial Costs: 60-95 US$/ha for Wheat, 175-265 US$/ha for Corn, 75-110 US$/ha for Soybean and 65-90 US$/ha for Sunflower - Production Costs: 170-250 US$/ha for Wheat, 340-500 US$/ha for Corn, 270-430 US$/ha for Soybean and 250-350 US$/ha for Sunflower	The higher the crops yield, the higher the fair value. The higher the commercial and direct costs per hectare, the lower the fair value.
Sown land – rice	Rice yield – tonnes per hectare; Commercial Costs – usd per hectare; Production Costs – US$ per hectare.	-Rice yield: 5.1 -6.1 tn/ha -Commercial Costs: 8-15 US$/ha -Production Costs: 750-1,000 US$/ha	-Rice yield: 4.4 -6.8 tn/ha -Commercial Costs: 6-15 US$/ha -Production Costs: 705-1,150 US$/ha	The higher the rice yield, the higher the fair value. The higher the commercial and direct costs per hectare, the lower the fair value.

As of December 31, 2015, the impact of a reasonable 10 % increase (decrease) in estimated costs, with all other variables held constant, would result in a decrease (increase) in the fair value of the Group’s plantations less cost to sell of US$ 9.1 million for sugarcane, US$ 1.1 million for crops and US$ 2.8 million for rice.

As of December 31, 2016, the impact of a reasonable 10 % increase (decrease) in estimated costs, with all other variables held constant, would result in a decrease (increase) in the fair value of the Group’s plantations less cost to sell of US$ 10.8 million for sugarcane, US$ 1.0 million for crops and US$ 2.7 million for rice.

The accompanying notes are an integral part of these consolidated financial statements. 

F- 45

Adecoagro S.A.

Notes to the Consolidated Financial Statements (Continued)

(All amounts in US$ thousands, except shares and per share data and as otherwise indicated)

16. Investments in joint ventures

The table below lists the Group’s investment in joint ventures for the years ended December 31, 2016, 2016 and 2015:

		% of ownership interest held
Name of the entity	Country of incorporation and	December 31, 2016			December 31, 2015			December 31, 2014
	operation
CHS AGRO S.A.	Argentina		50	%		50	%		50	%

On February 26, 2013, the Group formed CHS AGRO, a joint venture with CHS Inc. CHS Inc. is a leading farmer-owned energy, grains and foods company based in the United States. The Group holds a 50 % interest in CHS AGRO. On October 2014, CHS AGRO finished its sunflower processing plant in the city of Pehuajo, Province of Buenos Aires, Argentina.

	2016		2015
At the beginning of the year		-		2,752
Share of loss		-		(2,685	)
Exchange differences		-		(67	)
At the end of the year		-		-

The following amounts represent the assets (including goodwill) and liabilities, and income and expenses of the joint ventures:

	2016			2015
Assets:
Non-current assets		17,185			17,592
Current assets		9316			11,179
		26,501			28,771
Liabilities:
Non-current liabilities		22,000			22,207
Current liabilities		15,273			14,341
		37,273			36,548
Net assets of joint venture		(10,772	)		(7,777	)

	2016			2015			2014
Income		9,390			14,201			-
Expenses		(16,048	)		(22,934	)		(1,848	)
Loss before income tax		(6,658	)		(8,733	)		(1,848	)

The shares in the joint ventures were not publicly traded for any of the years presented.

There are no contingent liabilities relating to the Group’s interest in the joint ventures, and no contingent liabilities of the ventures themselves.

According to the laws of certain of the countries in which the Group operates, 5 % of the profit of the year is separated to constitute legal reserves until they reach legal capped amounts (20 % of total capital). These legal reserves are not available for dividend distribution and can only be released to absorb losses. The Group’s joint ventures have not reached the legal capped amounts.

The accompanying notes are an integral part of these consolidated financial statements. 

F- 46

Adecoagro S.A.

Notes to the Consolidated Financial Statements (Continued)

(All amounts in US$ thousands, except shares and per share data and as otherwise indicated)

17. Financial instruments by category

The Group classified its financial assets in the following categories:

(a) Financial assets at fair value through profit or loss

Financial assets at fair value through profit or loss are financial assets held for trading. A financial asset is classified in this category if acquired principally for the purpose of selling in the short-term. Derivatives are also categorized as held for trading unless they are designated as hedges. For all years presented, the Group’s financial assets at fair value through profit or loss comprise mainly derivative financial instruments.

(b) Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Loans and receivables comprise “trade and other receivables” and “cash and cash equivalents” in the statement of financial position.

The following tables show the carrying amounts of financial assets and financial liabilities by category of financial instrument and reconciliation to the corresponding line item in the statements of financial position, as appropriate. Since the line items “Trade and other receivables, net” and “Trade and other payables” contain both financial instruments and non-financial assets or liabilities (such as other tax receivables or advance payments for services to be received in the future), the reconciliation is shown in the columns headed “Non-financial assets” and “Non-financial liabilities”.

	Loans and receivables		Assets at fair value through profit or loss		Subtotal financial assets		Non- financial assets		Total
December 31,2016
Assets as per statement of financial position
Trade and other receivables		79,964		-		79,964		94,976		174,940
Derivative financial instruments		-		3,398		3,398		-		3,398
Cash and cash equivalents		158,568		-		158,568		-		158,568
Total		238,532		3,398		241,930		94,976		336,906

	Liabilities at fair value through profit or loss		Other financial liabilities at amortized cost		Subtotal financial liabilities		Non- financial liabilities		Total
Liabilities as per statement of financial position
Trade and other payables		31,424		49,718		81,142		12,443		93,585
Borrowings (excluding finance lease liabilities)(i)		-		635,215		635,215		-		635,215
Finance leases		-		181		181		-		181
Derivative financial instruments (i)		7,068		-		7,068		-		7,068
Total		38,492		685,114		723,606		12,443		736,049

(i)    Effective July 1, 2013,the Group formally documented and designated cash flow hedging relationships to hedge the foreign exchange rate risk of a portion of its highly probable future sales in US dollars using a portion of its borrowings denominated in US dollars,currency forwards and foreign currency floating-to-fixed interest rate swaps (see Note 2).

The accompanying notes are an integral part of these consolidated financial statements. 

F- 47

Adecoagro S.A.

Notes to the Consolidated Financial Statements (Continued)

(All amounts in US$ thousands, except shares and per share data and as otherwise indicated)

17. Financial instruments by category (continued)

	Loans and receivables		Assets at fair value through profit or loss		Subtotal financial assets		Non- financial assets		Total
December 31, 2015
Assets as per statement of financial position
Trade and other receivables		83,435		-		83,435		83,371		166,806
Derivative financial instruments		-		4,849		4,849		-		4,849
Cash and cash equivalents		198,894		-		198,894		-		198,894
Total		282,329		4,849		287,178		83,371		370,549

	Liabilities at fair value through profit or loss		Other financial liabilities at amortized cost		Subtotal financial liabilities		Non- financial liabilities		Total
Liabilities as per statement of financial position
Trade and other payables		19,734		30,354		50,088		5,554		55,642
Borrowings (excluding finance lease liabilities)(i)		-		723,060		723,060		-		723,060
Finance leases		-		279		279		-		279
Derivative financial instruments (i)		6,694		-		6,694		-		6,694
Total		26,428		753,693		780,121		5,554		785,675

(i)    Effective July 1, 2013,the Group formally documented and designated cash flow hedging relationships to hedge the foreign exchange rate risk of a portion of its highly probable future sales in US dollars using a portion of its borrowings denominated in US dollars,currency forwards and foreign currency floating-to-fixed interest rate swaps (see Note 2).

Liabilities carried at amortized cost also included liabilities under finance leases where the Group is the lessee and which therefore have to be measured in accordance with IAS 17. The categories disclosed are determined by reference to IAS 39. Finance leases are excluded from the scope of IFRS 7. Therefore, finance leases have been shown separately.

Because of the short maturities of most trade accounts receivable and payable, other receivables and liabilities, and cash and cash equivalents, their carrying amounts at the closing date do not differ significantly from their respective fair values. The fair value of long-term borrowings is disclosed in Note 26.

The accompanying notes are an integral part of these consolidated financial statements. 

F- 48

Adecoagro S.A.

Notes to the Consolidated Financial Statements (Continued)

(All amounts in US$ thousands, except shares and per share data and as otherwise indicated)

17. Financial instruments by category (continued)

Income, expense, gains and losses on financial instruments can be assigned to the following categories:

	Loans and receivables			Assets/ liabilities at fair value through profit or loss			Other financial liabilities at amortized cost			Total
December 31, 2016
Interest income (i)		7,671			-			-			7,671
Interest expense (i)		(39,533	)		-			(8,665	)		(48,198	)
Foreign exchange gains/ (losses) (i)		4,737			(12,288	)		(11,511	)		(19,062	)
Gain from derivative financial instruments(ii)		-			(21,745	)		-			(21,745	)
Net result		(27,125	)		(34,033	)		(20,176	)		(81,334	)

	Loans and receivables			Assets/ liabilities at fair value through profit or loss			Other financial liabilities at amortized cost			Total
December 31, 2015
Interest income (i)		8,201			-			-			8,201
Interest expense (i)		(42,615	)		-			(6,876	)		(49,491	)
Foreign exchange gains/ (losses) (i)		1,499			(27,526	)		2,604			(23,423	)
Gain from derivative financial instruments(ii)		-			17,686			-			17,686
Net result		(32,915	)		(9,840	)		(4,272	)		(47,027	)

(i) Included in “Financial Results, net” in the statement of income.

(ii) Included in “Other operating income, net” and “Financial Results, net” in the statement of income.

The accompanying notes are an integral part of these consolidated financial statements. 

F- 49

Adecoagro S.A.

Notes to the Consolidated Financial Statements (Continued)

(All amounts in US$ thousands, except shares and per share data and as otherwise indicated)

17. Financial instruments by category (continued)

Determining fair values

IFRS 13 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. All financial instruments recognized at fair value are allocated to one of the valuation hierarchy levels of IFRS 13. This valuation hierarchy provides for three levels. The allocation reflects which of the fair values derive from transactions in the market and where valuation is based on models because market transactions are lacking. The level in the fair value hierarchy is categorized in its entirety is determined on the basis of the lowest level input that is significant to the fair value measurement in its entirety.

As of December 31, 2016 and 2015, the financial instruments recognized at fair value on the statement of financial position comprise derivative financial instruments.

In the case of Level 1, valuation is based on unadjusted quoted prices in active markets for identical financial assets that the Group can refer to at the date of the statement of financial position. The financial instruments the Group has allocated to this level mainly comprise crop futures and options traded on the stock market.

Derivatives not traded on the stock market allocated to Level 2 are valued using models based on observable market data. The financial instruments the Group has allocated to this level mainly comprise interest-rate swaps and foreign-currency interest-rate swaps.

In the case of Level 3, the Group uses valuation techniques not based on inputs observable in the market. This is only permissible insofar as no observable market data are available. The Group does not have financial instruments allocated to this level for any of the years presented.

The accompanying notes are an integral part of these consolidated financial statements. 

F- 50

Adecoagro S.A.

Notes to the Consolidated Financial Statements (Continued)

(All amounts in US$ thousands, except shares and per share data and as otherwise indicated)

17. Financial instruments by category (continued)

The following tables present the Group’s financial assets and financial liabilities that are measured at fair value as of December 31, 2016 and 2015 and their allocation to the fair value hierarchy:

		Level 1			Level 2			Total
Assets
Derivative financial instruments	2016		2,789			609			3,398
Derivative financial instruments	2015		4,849			-			4,849
Liabilities
Derivative financial instruments	2016		(1,196	)		(5,872	)		(7,068	)
Derivative financial instruments	2015		(4,326	)		(2,368	)		(6,694	)

There were no transfers within level 1 and 2 during the years ended December 31, 2016 and 2015.

When no quoted prices in an active market are available, fair values (particularly with derivatives) are based on recognized valuation methods. The Group uses a range of valuation models for this purpose, details of which may be obtained from the following table:

Class	Pricing Method	Parameters	Pricing Model	Level	Total
Futures	Quoted price	-	-	1		(443	)
Options	Quoted price	-	-	1		2,036
NDF	-	-	-	2		(5,210	)
Foreign-currency interest-rate swaps	Theoretical price	Swap curve; Money market interest-rate curve; Foreign-exchange curve.	Present value method	2		(53	)
						(3,670	)

The accompanying notes are an integral part of these consolidated financial statements. 

F- 51

Adecoagro S.A.

Notes to the Consolidated Financial Statements (Continued)

(All amounts in US$ thousands, except shares and per share data and as otherwise indicated)

18. Trade and other receivables, net

	2016			2015
Non-current
Trade receivables		1,802			1,764
Trade receivables		1,802			1,764
Advances to suppliers		1,930			8,476
Income tax credits		7,472			6,428
Non-income tax credits (i)		1,853			1,914
Judicial deposits		3,280			2,105
Other receivables		1,075			1,108
Non-current portion		17,412			21,795
Current
Trade receivables		61,546			55,846
Receivables from related parties (Note 31)		8,114			8,204
Less: Allowance for trade receivables		(643	)		(481	)
Trade receivables – net		69,017			63,569
Prepaid expenses		8,302			3,914
Advances to suppliers		21,451			12,182
Income tax credits		7,116			5,438
Non-income tax credits (i)		43,572			42,914
Cash collateral		3,546			6
Receivables from related parties (Note 31)		172			300
Receivable from disposal of subsidiaries (Note 21)		-			2,997
Other receivables		4,352			13,691
Subtotal		88,511			81,442
Current portion		157,528			145,011
Total trade and other receivables, net		174,940			166,806

(i) Includes US$ 1,499 (2015: 6,129) reclassified from Property, plant and equipment.

The fair values of current trade and other receivables approximate their respective carrying amounts due to their short-term nature. The fair values of non-current trade and other receivables approximate their carrying amount, as the impact of discounting is not significant.

The accompanying notes are an integral part of these consolidated financial statements. 

F- 52

Adecoagro S.A.

Notes to the Consolidated Financial Statements (Continued)

(All amounts in US$ thousands, except shares and per share data and as otherwise indicated)

18. Trade and other receivables, net (continued)

The carrying amounts of the Group’s trade and other receivables are denominated in the following currencies (expressed in US dollars):

	2016		2015
Currency
US Dollar		54,012		30,191
Argentine Peso		45,641		36,210
Uruguayan Peso		762		566
Brazilian Reais		74,525		99,839
		174,940		166,806

As of December 31, 2016 trade receivables of US$ 14,641 (2015: US$ 7,542) were past due but not impaired. The ageing analysis of these receivables indicates that 5,264 and 549 are over 6 months in 2016 and 2015, respectively.

The Group recognizes an allowance for trade receivables when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of the receivables.

Delinquency in payments is an indicator that a receivable may be impaired. However, management considers all available evidence in determining when a receivable is impaired. Generally, trade receivables, which are more than 180 days past due are fully provided for. However, certain receivables 180+ days overdue are not provided for based on a case-by-case analysis of credit quality analysis. Furthermore, receivables, which are not 180+ days overdue, may be provided for if specific analysis indicates a potential impairment.

Movements on the Group’s allowance for trade receivables are as follows:

	2016			2015			2014
At January 1		481			527			545
Charge of the year		387			152			192
Unused amounts reversed		(178	)		(27	)		(83	)
Used during the year		-			(7	)		-
Exchange differences		(47	)		(164	)		(127	)
At December 31		643			481			527

The creation and release of allowance for trade receivables have been included in “Selling expenses” in the statement of income. Amounts charged to the allowance account are generally written off, when there is no expectation of recovering additional cash.

The maximum exposure to credit risk at the reporting date is the carrying value of each class of receivable mentioned above.

As of December 31, 2016, approximately 82% (2015: 73%) of the outstanding unimpaired trade receivables (neither past due not impaired) relate to sales to 17 well-known multinational companies with good credit quality standing, including but not limited to Camara de Comercializacao de Energia Electrica CCEE, Louis Dreyfus Commodities Suisse S.A.T, Alimport, Czarnikow Group Limited, Establecimientos Las Marias, Mastellone Hnos.S.A., Bunge Agritrade S.A., ETG Commodities Ltd., among others. Most of these entities or their parent companies are externally credit-rated. The Group reviews these external ratings from credit agencies.

The accompanying notes are an integral part of these consolidated financial statements. 

F- 53

Adecoagro S.A.

Notes to the Consolidated Financial Statements (Continued)

(All amounts in US$ thousands, except shares and per share data and as otherwise indicated)

18. Trade and other receivables, net (continued)

The remaining percentage as of December 31, 2016 and 2015 of the outstanding unimpaired trade receivables (neither past due nor impaired) relate to sales to a dispersed large quantity of customers for which external credit ratings may not be available. However, the total base of customers without an external credit rating is relatively stable.

New customers with less than six months of history with the Group are closely monitored. The Group has not experienced credit problems with these new customers to date. The majority of the customers for which an external credit rating is not available are existing customers with more than six months of history with the Group and with no defaults in the past. A minor percentage of customers may have experienced some non-significant defaults in the past but fully recovered.

19. Inventories

	2016		2015(*)
Raw materials		42,108		35,740
Finished goods (Note 5)		68,191		47,624
Stocks held by third parties		1,308		1,643
Others		147		279
		111,754		85,286

(*) The prior years have been adjusted to reflect the Company’s adoption of amendments to IAS 16 and IAS 41 as further described in Note 32.

20. Cash and cash equivalents

	2016		2015
Cash at bank and on hand		130,001		185,864
Short-term bank deposits		28,567		13,030
		158,568		198,894

21. Disposals

Year ended December 31, 2014

Sale of 49% of interest in Global Anceo S.L.U. and Global Hisingen S.L.U.

In June, 2014, the Group completed the sale of a 49 % interest in both Global Anceo S.L.U. and Global Hisingen S.L.U., companies which main underlying assets are the Guayacanes and La Guarida farms, for an aggregate sale price of US$ 50.5 million. The net proceeds received as of the transaction´s day amounted to US$ 49.3 million.

The accompanying notes are an integral part of these consolidated financial statements. 

F- 54

Adecoagro S.A.

Notes to the Consolidated Financial Statements (Continued)

(All amounts in US$ thousands, except shares and per share data and as otherwise indicated)

21. Disposals (continued)

The sale of the respective equity interests did not result in the loss of control of these companies and therefore the transactions were treated as equity transactions for accounting purposes.The difference between the net proceeds received and the recognition of the non-controlling interest was registered in Statement of Changes in Shareholders’ Equity under the line item “Reserve from the sale of non-controlling interests in subsidiaries” for an amount of US$ 41.3 million (US$ 25.5 million in the column item “Reserve from the sale of non-controlling interests in subsidiaries” and US$ 15.8 million in the column item “Cumulative Translation Adjustment”) and also an increase in non-controlling interest of US$ 8.0 million.

Year ended December 31, 2015

Sale of La Cañada Farm.

In November 2015, the Group completed the sale of “La Cañada”, a 3,399 hectare farm located in the province of San Luis, Argentina, for a total consideration of US$ 12.6 million fully collected as of year-end. This transaction resulted in a gain of US$ 7.9 million included within “Other operating income, net”.

Sale of 49% of interest in Global Acamante S.L.U. Global Calidon S.L.U., Global Carelio S.L.U. and Global Mirabilis S.L.U.

In December, 2015, the Group completed the sale of a 49 % interest in Global Acamante S.L.U., Global Calidon S.L.U., Global Carelio S.L.U. and Global Mirabilis S.L.U., companies which main underlying assets are El Orden and La Carolina farms, for an aggregate sale price of US$ 22.0 million, which were fully collected at the time of the transaction.

The sale of the respective equity interests did not result in the loss of control of these companies and therefore. The difference between the net proceeds received and the recognition of the non-controlling interest was registered in Statement of Changes in Shareholders’ Equity under the line item “Reserve from the sale of non-controlling interests in subsidiaries” for an amount of US$ 19.9 million (US$ 16.1 million in the column item “Reserve from the sale of non-controlling interests in subsidiaries” and US$ 3.9 million in the column item “Cumulative Translation Adjustment”) and also an increase in non-controlling interest of US$ 2.0 million.

The accompanying notes are an integral part of these consolidated financial statements. 

F- 55

Adecoagro S.A.

Notes to the Consolidated Financial Statements (Continued)

(All amounts in US$ thousands, except shares and per share data and as otherwise indicated)

22. Shareholders’ contributions

The share capital of the Group is represented by common shares with a nominal value of US$ 1.5 per share and one vote each.

	Number of shares		Share capital and share premium
At January 1 2014		122,382		1,122,645
Employee share options exercised (Note 23) (1)		-		955
Restricted shares and units vested (Note 23)		-		3,444
Purchase of own shares		-		(10,427	)
At 31 December 2014		122,382		1,116,617
Employee share options exercised (Note 23) (1)		-		1,786
Restricted shares and units vested (Note 23)		-		3,103
Purchase of own shares		-		(259	)
At 31 December 2015		122,382		1,121,247
Employee share options exercised (Note 23) (1)		-		438
Restricted shares units vested (Note 23)		-		3,225
Purchase of own shares		-		(4,087	)
At 31 December 2016		122,382		1,120,823

(1) Treasury shares were used to settle these options and units.

Share Repurchase Program

On September 24, 2013, the Board of Directors of the Company has authorized a share repurchase program for up to 5% of its outstanding shares. The repurchase program has commenced on September 24, 2013 and is reviewed by the Board of Directors after each 12-month period: repurchases of shares under the program aremade from time to time in open market transactions in compliance with the trading conditions of Rule 10b-18 under the U.S. Securities Exchange Act of 1934, as amended, and applicable rules and regulations. The share repurchase program does not require Adecoagro to acquire any specific number or amount of shares and may be modified, suspended, reinstated or terminated at any time in the Company’s discretion and without prior notice. The size and the timing of repurchases will depend upon market conditions, applicable legal requirements and other factors. On August 12, 2014 the Board of Directors decided to extend the program for a 12 month-period. Also, on August 15, 2015 the Board of directors decided to extend the program for another 12 months period.

As of December 31, 2016, the Company repurchased 2,840,825 shares under this program, of which 1,605,497 have been applied to some exercise of the Company’s stock option plan and restricted stock units plan.

The accompanying notes are an integral part of these consolidated financial statements. 

F- 56

Adecoagro S.A.

Notes to the Consolidated Financial Statements (Continued)

(All amounts in US$ thousands, except shares and per share data and as otherwise indicated)

23. Equity-settled share-based payments

The Group has set a “2004 Incentive Option Plan” and a “2007/2008 Equity Incentive Plan” (collectively referred to as “Option Schemes”) under which the Group granted equity-settled options to senior managers and selected employees of the Group´s subsidiaries. Additionally, in 2010 the Group has set a “Adecoagro Restricted Share and Restricted Stock Unit Plan” (referred to as “Restricted Share Plan”) under which the Group grants restricted stock units to senior and medium management and key employees of the Group’s subsidiaries.

(a) Option Schemes

The fair value of the options under the Option Schemes was measured at the date of grant using the Black-Scholes valuation technique.

As of the date of these financial statements all options has already been vested and expensed. The Group recognized aggregate compensation expense of US$ nil for the year ended December 31, 2016 (2015: US$ nil; 2014: US$ 0.3 million) related to the options granted under the Option Schemes.

The Adecoagro/ IFH 2004 Stock Incentive Option Plan was effectively established in 2004 and is administered by the Compensation Committee of the Company. Options are exercisable over a ten-year period. In May 2014 this period was extended for another ten year-period.

Movements in the number of equity-settled options outstanding and their related weighted average exercise prices under the Adecoagro/ IFH 2004 Stock Incentive Option Plan are as follows:

	2016					2015					2014
	Average exercise price per share		Options (thousands)			Average exercise price per  Share		Options (thousands)			Average exercise price per  Share		Options (thousands)
At January 1		6.67		1,696			6.71		1,916			6.67		2,061
Forfeited		-		-			5.83		(9	)		8.62		(5	)
Exercised		6.96		(55	)		7.11		(211	)		5.83		(140	)
At December 31		6.66		1,641			6.67		1,696			6.71		1,916

Options outstanding at year end under this Plan have the following expiry date and exercise prices:

	Exercise price per		Shares (in thousands)
Expiry date (i):	share		2016		2015		2014
May 1, 2024		5.83		570		570		570
May 1, 2025		5.83		481		508		543
May 1, 2026		5.83		46		50		136
February 16, 2026		7.11		103		103		110
October 1, 2026		8.62		441		465		557

(i) On May 2014, the Board of directors decided to extend the expired date of the Plan.

The accompanying notes are an integral part of these consolidated financial statements. 

F- 57

Adecoagro S.A.

Notes to the Consolidated Financial Statements (Continued)

(All amounts in US$ thousands, except shares and per share data and as otherwise indicated)

23. Equity-settled unit-based payments (continued)

The Adecoagro/ IFH 2007/ 2008 Equity Incentive Plan was effectively established in late 2007 and is administered by the Compensation Committee of the Company. Options are exercisable over a ten-year period.

Movements in the number of equity-settled options outstanding and their related weighted average exercise prices under the Adecoagro/ IFH 2007/2008 Equity Incentive Plan are as follows:

	2016					2015					2014
	Average exercise price per share		Options (thousands)			Average exercise price per  share		Options (thousands)			Average exercise price per share		Options (thousands)
At January 1		13.07		1,701			13.07		1,729			13.07		1,751
Forfeited		12.98		(43	)		13.01		(28	)		13.40		(22	)
At December 31		13.07		1,658			13.07		1,701			13.07		1,729

Options outstanding at year-end under the Adecoagro/ IFH 2007/2008 Equity Incentive Plan have the following expiry date and exercise prices:

	Exercise
	price per		Shares (in thousands)
Expiry date:	share		2016		2015		2014
From Nov 13, 2017 to Aug 25, 2018		12.82		908		937		957
Jan 30, 2019		13.40		595		608		617
Jun 1, 2019		12.82		3		3		3
Nov 1, 2019		13.40		11		11		11
From Jan 30, 2020 to Sep 1, 2020		13.40		110		110		110
From Jan 30, 2020 to Sep 1, 2020		12.82		31		31		31

The following table shows the exercisable shares at year end under both the Adecoagro/ IFH 2004 Incentive Option Plan and the Adecoagro/ IFH 2007/ 2008 Equity Incentive Plan:

	Exercisable shares in thousands
2016		3,299
2015		3,397
2014		3,645

The accompanying notes are an integral part of these consolidated financial statements. 

F- 58

Adecoagro S.A.

Notes to the Consolidated Financial Statements (Continued)

(All amounts in US$ thousands, except shares and per share data and as otherwise indicated)

23. Equity-settled unit-based payments (continued)

(b) Restricted Share and Restricted Stock Unit Plan

The Restricted Share and Restricted Stock Unit Plan was effectively established in 2010 and amended in November 2011. It is administered by the Compensation Committee of the Company. Restricted shares or units under these Plan vest over a 3-year period from the date of grant at 33 % on each anniversary of the grant date. Participants are entitled to receive one common share of the Company for each restricted share or restricted unit granted. There are no performance requirements for the delivery of common shares, except that a participant’s employment with the Group must not have been terminated prior to the relevant vesting date. If the participant ceases to be an employee for any reason, any unvested restricted unit shall not be converted into common shares. The maximum number of ordinary shares with respect to which awards may be made under the Plan is 2,474,701. The maximum numbers of ordinary shares is revised annually.

At December 31, 2016, the Group recognized compensation expense US$ 4.3 million related to the restricted stock units granted under the Restricted Share Plan (2015: US$ 4.4 million).

The restricted shares under the Restricted Share Plan were measured at fair value at the date of grant.

Key grant-date fair value and other assumptions under the Restricted Share Plan are detailed below:

Grant Date	Apr 1,  2014			May 15,  2014			Apr 1, 2015			May 15, 2015			Apr 1, 2016			May 15, 2016
Fair value		7.92			8.72			9.45			10.12			12.63			12.52
Possibility of ceasing employment before vesting		5	%		0	%		5	%		0	%		5	%		0	%

Movements in the number of restricted shares outstanding under the Restricted Share Plan are as follows:

	Restricted stock units (thousands)			Restricted stock units (thousands)			Restricted shares (thousands)			Restricted stock units (thousands)
	2016			2015			2014			2014
At January 1		1,018			861			109			699
Granted (1)		464			626			-			480
Forfeited		(29	)		(37	)		(3	)		(21	)
Vested		(453	)		(432	)		(106	)		(297	)
At December 31		1,000			1,018			-			861

(1) Approved by the Board of Directors of March 15, 2016 and the Shareholders Meeting of April 20, 2016

The accompanying notes are an integral part of these consolidated financial statements. 

F- 59

Adecoagro S.A.

Notes to the Consolidated Financial Statements (Continued)

(All amounts in US$ thousands, except shares and per share data and as otherwise indicated)

24. Legal and other reserves

According to the laws of certain of the countries in which the Group operates, a portion of the profit of the year (5%) is separated to constitute legal reserves until they reach legal capped amounts. These legal reserves are not available for dividend distribution and can only be released to absorb losses. The legal limit of these reserves has not been met.

Legal and other reserves amount to US$ 45,080 as of December 31, 2016 (2015: US$ 44,540) and are included within the balance of retained earnings in the statement of changes in shareholders’ equity.

The Company may make distributions in the form of dividends or otherwise to the extent that it has distributable retained earnings or available distributable reserves (including share premium) that result from the Stand Alone Financial Statements prepared in accordance with Luxembourg GAAP. No distributable retained earning result from the Stand Alone Financial Statements of the Company as of December 31, 2015, but the Company has distributable reserves in excess of US$ 920,171.

25. Trade and other payables

	2016		2015
Non-current
Payable from acquisition of property, plant and equipment (i)		1,042		1,563
Other payables		385		348
		1,427		1,911
Current
Trade payables		77,325		47,035
Advances from customers		7,758		2,838
Amounts due to related parties (Note 31)		1,152		465
Taxes payable		4,685		2,716
Other payables		1,238		677
		92,158		53,731
Total trade and other payables		93,585		55,642

(i) These trades payable are mainly collateralized by property, plant and equipment of the Group.

The fair values of current trade and other payables approximate their respective carrying amounts due to their short-term nature. The fair values of non-current trade and other payables approximate their carrying amounts, as the impact of discounting is not significant.

The accompanying notes are an integral part of these consolidated financial statements. 

F- 60

Adecoagro S.A.

Notes to the Consolidated Financial Statements (Continued)

(All amounts in US$ thousands, except shares and per share data and as otherwise indicated)

26. Borrowings

	2016		2015
Non-current
Bank borrowings		430,202		483,583
Obligations under finance leases		102		68
		430,304		483,651
Current
Bank overdrafts		90		9
Bank borrowings		204,923		239,468
Obligations under finance leases		79		211
		205,092		239,688
Total borrowings		635,396		723,339

As of December 31, 2016, total bank borrowings include collateralized liabilities of US$ 525,663 (2015: US$ 669,109). These loans are mainly collateralized by property, plant and equipment, sugarcane plantations, sugar export contracts and shares of certain subsidiaries of the Group.

The maturity of the Group's borrowings (excluding obligations under finance leases) and the Group's exposure to fixed and variable interest rates is as follows:

	2016		2015
Fixed rate:
Less than 1 year		67,682		89,918
Between 1 and 2 years		43,630		31,096
Between 2 and 3 years		40,047		30,197
Between 3 and 4 years		21,857		22,497
Between 4 and 5 years		21,116		18,779
More than 5 years		20,239		34,492
		214,571		226,979
Variable rate:
Less than 1 year		137,331		149,559
Between 1 and 2 years		150,517		109,488
Between 2 and 3 years		81,947		102,351
Between 3 and 4 years		18,457		79,341
Between 4 and 5 years		18,309		44,233
More than 5 years		14,083		11,109
		420,644		496,081
		635,215		723,060

Borrowings incurred by the Group’s subsidiaries in Brazil are repayable at various dates between January 2017 and April 2024 and bear either fixed interest rates ranging from 2.5 % to 9.0 % per annum or variable rates based on LIBOR or other specific base-rates plus spreads ranging from 4.13 % to 17.52 % per annum. At December 31, 2016 LIBOR (six months) was 1.32 % (2015: 0.85 %).

Borrowings incurred by the Group´s subsidiaries in Argentina are repayable at various dates between January 2017 and September 2023 and bear either fixed interest rates ranging from 6.11 % and 7.00 % per annum for those borrowings denominated in US dollar, and a fixed interest rate ranging from 9.90 % and 28.75 % per annum for those borrowings denominated in argentine pesos.

The accompanying notes are an integral part of these consolidated financial statements. 

F- 61

Adecoagro S.A.

Notes to the Consolidated Financial Statements (Continued)

(All amounts in US$ thousands, except shares and per share data and as otherwise indicated)

26. Borrowings (continued)

Brazilian Subsidiaries

The main loans of the Group’s Brazilian Subsidiaries are:

Bank	Grant Date	Nominal amount		Capital outstanding as of December 31				Maturity date	Annual Interest Rate
				2016			2015
		(In millions)		Millions of Reais		Millions of equivalent Dollars	Millions of equivalent Dollars
Banco Do Brasil (1)	October 2012	R$	130.0	R$	109.9	33.7	32.9	November 2022	2.94% with 15% of bonus performance
Itau BBA FINAME Loan (2)	December 2012	R$	45.9	R$	30.4	9.3	9.3	December 2022	2.50%
Itau BBA (3)	March 2013	R$	75.0	R$	18.8	5.8	9.3	March 2019	CDI + 3.20%
Banco do Brasil / Itaú BBVA Finem Loan (4)	September 2013	R$	273.0	R$	219.4	67.3	66.7	January 2023	6.87%
BNDES Finem Loan (5)	November 2013	R$	215.0	R$	163.9	50.3	48.9	January 2023	3.84%
ING / Rabobank / ABN / HSBC / Credit Agricole / Caixa Geral / Galena (6)	January 2015	US$	160.0		-	98.0	160.0	December 2018	LIBOR 3M plus 4.40%
ING / Rabobank / Bladex / Credit Agricole / Votorantim / ABN (7)	August 2015	US$	110.0		-	110.0	110.0	December 2019	LIBOR 3M plus 4.65%
Rabobank (8)	February 2016	US$	40.0		-	40.0	-	March 2019	LIBOR 3M plus 3.50%
Tokyo-Mitsubishi (9)	August 2016	US$	30.0		-	30.0	-	August 2019	6.25%
Bradesco (10)	July 2016	R$	90.0	R$	90.0	27.6	-	May 2019	CDI + 2.10%
Votorantim (11)	July 2016	US$	15.0		-	15.0	-	June 2019	LIBOR 3M plus 4.60%

(1) Collateralized by (i) a first degree mortgage of the Carmen (Santa Agua) farm; (ii) a first degree mortgage of the Sapálio farm; (iii) a first degree mortgage of the Takuare farm; and (iv) liens over the Ivinhema mill and equipment.

(2) Collateralized by (i) a first degree mortgage of the Carmen (Santa Agua) farm; (ii) a first degree mortgage of the Sapálio farm; (iii) a first degree mortgage of the Takuare farm; and (iv) liens over the Ivinhema mill and equipment.

(3) Collateralized by power sales contract.

(4) Collateralized by (i) a first degree mortgage of the Carmen (Santa Agua) farm; (ii) a first degree mortgage of the Sapálio farm; (iii) a first degree mortgage of the Takuare farm; (iv) liens over the Ivinhema mill and equipment; and (v) power sales contract.

(5) Collateralized by (i) liens over the Ivinhema mill and equipment; and (ii) power sales contracts.

(6) Collateralized by (i) a first-degree mortgage of the Conquista, Alto Alegre, Dom Fabrício, Nossa Senhora Aparecida, Água Branca, Ouro Verde and Bela Manhã farms, (ii) pledge of sugarcane, and (iii) sales contracts.

(7) Collateralized by (i) a first-degree mortgage of the Rio de Janeiro farm, and (ii) sales contracts.

(8) Collateralized by sales contracts.

(9) Collateralized by sales contracts.

(10) Collateralized by pledge of ethanol.

(11) Collateralized by (i) power sales contract and (ii) sales contracts.

The accompanying notes are an integral part of these consolidated financial statements. 

F- 62

Adecoagro S.A.

Notes to the Consolidated Financial Statements (Continued)

(All amounts in US$ thousands, except shares and per share data and as otherwise indicated)

26. Borrowings (continued)

The abovementioned loans contain certain customary financial covenants and restrictions which require us to meet pre-defined financial ratios, among other restrictions, as well as restrictions on the payment of dividends. These financial ratios are measured considering the statutory financial statements of the Brazilian Subsidiaries.

During 2016 and 2015 the Group was in compliance with all financial covenants.

Argentinian Subsidiaries

The main loans of the Group’s Argentinian Subsidiaries are:

Bank	Grant Date	Nominal amount	Capital outstanding as of December 31		Maturity date	Annual Interest Rate
			2016	2015
		(In millions)	(In millions)	(In millions)
IDB Tranche A (1)	Feb-09	US$       20	US$     6.15	US            $ 8.7	Nov-18	6.11% per annum
IFC Tranche A (2)	Dic-16	US$       25	US$   25.00	-	Sep-21	4.3% plus LIBOR
IFC Tranche B (2)	Dic-16	US$       25	US$   25.00	-	Sep-23	4% plus LIBOR

(1): Collateralized by property, plant and equipment with a net book value of US$ 24.77 million, by a mortgage over (i) Carmen and La Rosa farms which are property of Adeco Agropecuaria S.A. and (ii) El Meridiano farm which is the property of Pilagá S.A.

(2): Collateralized by a US$ 75 million mortgage over Carmen farm, which is property of Adeco Agropecuaria S.A.

The Group entered into a floating to fix interest rate forward swap, fixing LIBOR at 1.25%, effective May 2012.

The abovementioned loans contain certain customary financial covenants and restrictions which require us to meet pre-defined financial ratios, among other restrictions, as well as restrictions on the payment of dividends. These financial ratios are measured considering the statutory financial statements of the Argentinian Subsidiaries.

During 2016 and 2015 the Group was in compliance with all financial covenants.

The carrying amounts of the Group’s borrowings are denominated in the following currencies (expressed in US dollars):

	2016		2015
Currency
US Dollar		437,307		526,710
Brazilian Reais		196,903		193,345
Argentine Peso		1,186		3,284
		635,396		723,339

The accompanying notes are an integral part of these consolidated financial statements. 

F- 63

Adecoagro S.A.

Notes to the Consolidated Financial Statements (Continued)

(All amounts in US$ thousands, except shares and per share data and as otherwise indicated)

27. Payroll and social security liabilities

	2016		2015
Non-current
Social security payable		1,235		1,236
		1,235		1,236
Current
Salaries payable		7,351		4,755
Social security payable		3,063		2,766
Provision for vacations		12,109		9,877
Provision for bonuses		4,321		4,755
		26,844		22,153
Total payroll and social security liabilities		28,079		23,389

28. Provisions for other liabilities

The Group is subject to several laws, regulations and business practices of the countries where it operates. In the ordinary course of business, the Group is subject to certain contingent liabilities with respect to existing or potential claims, lawsuits and other proceedings, including those involving tax, labor and social security, administrative and civil and other matters. The Group accrues liabilities when it is probable that future costs will be incurred and it can reasonably estimate them. The Group bases its accruals on up-to-date developments, estimates of the outcomes of the matters and legal counsel experience in contesting, litigating and settling matters. As the scope of the liabilities becomes better defined or more information is available, the Group may be required to change its estimates of future costs, which could have a material effect on its results of operations and financial condition or liquidity.

The table below shows the movements in the Group's provisions for other liabilities categorized by type of provision:

	Labor, legal and other claims			Onerous contracts			Total
At January 1, 2015		2,729			8			2,737
Additions		1,483			17			1,500
Used during year		(921	)		(1	)		(922	)
Exchange differences		(998	)		(4	)		(1,002	)
At December 31, 2015		2,293			20			2,313
Additions		3,447			57			3,504
Used during year		(2,174	)		(14	)		(2,188	)
Exchange differences		291			(31	)		260
At December 31, 2016		3,857			32			3,889

Analysis of total provisions:

	2016		2015
Non current		3,299		1,653
Current		590		660
		3,889		2,313

The Group is engaged in several legal proceedings, including tax, labor, civil, administrative and other proceedings in Brazil, which qualified as contingent liabilities for an aggregate claimed nominal amount of US$ 18.2 million and US$ 30.1 million as of December 31, 2016 and 2015, respectively.

The accompanying notes are an integral part of these consolidated financial statements. 

F- 64

Adecoagro S.A.

Notes to the Consolidated Financial Statements (Continued)

(All amounts in US$ thousands, except shares and per share data and as otherwise indicated)

29. Disclosure of leases and similar arrangements

The Group as lessee

Operating leases:

The Group leases land for crop cultivation in Argentina. The leases have an average term of a crop year and are renewable at the option of the lessee for additional periods. Under the lease agreements, rent accrues generally at the time of harvest. Rent is payable at several times during the crop year. Lease expense was US$ 6.8 million for the year ended December 31, 2016 (2015: US$ 10.8 million; 2014: US$ 12.8 million). Lease expense is capitalized as part of biological assets.

The Group also leases various offices and machinery under cancellable operating lease agreements which involve no significant amount.

The future aggregate minimum lease payments under cancellable operating leases are as follows:

	2016		2015
No later than 1 year		5,311		5,370
Later than 1 year and no later than 5 years		2,294		141
		7,605		5,511

Agriculture “partnerships”(parceriaby its exact term in Portuguese):

The Group enters into contracts with landowners to cultivate sugarcane on their land. These contracts have an average term of 5 years.

Under these contracts, the Group makes payments based on the market value of sugarcane per hectare (in tons) used by the Group in each harvest, with the market value based on the price of sugarcane published by CONSECANA and a fixed amount of total recoverable sugar per ton. Lease expense was US$ 64.9 million for the year ended December 31, 2016 (2015: US$ 53.41 million; 2014: US$ 65.0 million). Lease expense is included in “Initial recognition and changes in fair value of biological assets and agricultural produce” in the statement of income.

Finance leases:

Most of the leased assets carried in the consolidated statement of financial position as part of a finance lease relate to long-term rental and lease agreements for vehicles, machinery and equipment. Obligations under finance leasing totals US$ 181 and US$ 279 as of December 31, 2016 and 2015, respectively.

The Group as lessor

Operating leases:

The Group acts as a lessor in connection with an operating lease related to leased farmland, classified as investment property. The lease payments received are recognized in profit or loss. The lease has a term of ten years.

The following amounts have been recognized in the statement of income in the line “Sales goods and services rendered”:

	2016		2015		2014
Rental income		954		1,302		1,523

The accompanying notes are an integral part of these consolidated financial statements. 

F- 65

Adecoagro S.A.

Notes to the Consolidated Financial Statements (Continued)

(All amounts in US$ thousands, except shares and per share data and as otherwise indicated)

29. Disclosure of leases and similar arrangements (continued)

The future minimum rental payments receivable under cancellable leases are as follows:

	2016		2015
No later than 1 year		494		940
Later than 1 year and no later than 5 years		988		1,185
		1,482		2,125

On September 2013, Marfrig Argentina S.A. (“Marfrig Argentina”), the argentine subsidiary of the Brazilian company Marfrig Alimentos S.A. (“Marfrig Alimentos"), unilaterally early terminated the lease agreements for grazing land entered into with the Group on December 2009. The termination of the lease agreements was effective in the fourth quarter of 2013, and on April 2014, the Group filed an arbitration proceeding against Marfrig Argentina and Marfrig Alimentos claiming unpaid invoices for US$ 0.5 million and indemnification for early termination. On September 2016, the Parties settled the arbitration proceedings in the amount of US$ 9 million. As of December 31 2016 the group collected US$ 7 million and as of the date of this financial statements the group has collected the full amount.

This settlement, net of the unpaid invoices and other expenses resulted in an income of US$ 8.5 million reflected in the line item Other operating income.

Finance leases:

The Group does not act as a lessor in connection with finance leases.

The accompanying notes are an integral part of these consolidated financial statements. 

F- 66

Adecoagro S.A.

Notes to the Consolidated Financial Statements (Continued)

(All amounts in US$ thousands, except shares and per share data and as otherwise indicated)

30. Group companies

The following table details the subsidiaries that comprised the Group as of December 31, 2016 and 2015:

			2016			2015
	Activities	Country of incorporation and operation	Ownership percentage held if not 100 %			Ownership percentage held if not 100 %
Details of principal subsidiary undertakings:
Operating companies (unless otherwise stated):
Adeco Agropecuaria S.A.	(a)	Argentina		-			-
Pilagá S.A.	(a)	Argentina		99.84	%		99.84	%
Cavok S.A.	(a)	Argentina		51	%		51	%
Establecimientos El Orden S.A.	(a)	Argentina		51	%		51	%
Bañado del Salado S.A.	(a)	Argentina		-			-
Agro Invest S.A.	(a)	Argentina		51	%		51	%
Forsalta S.A.	(a)	Argentina		51	%		51	%
Dinaluca S.A.	(a)	Argentina		-			-
Simoneta S.A.	(a)	Argentina		-			-
Compañía Agroforestal S.M.S.A.	(a)	Argentina		-			-
Energía Agro S.A.U.	(a)	Argentina		-			-
Adeco Agropecuaria Brasil Ltda.	(b)	Brazil		-			-
Adecoagro Vale do Ivinhema Ltda.	(b)	Brazil		-			-
Adecoagro Commodities Ltda.	(b)	Brazil		-			-
Usina Monte Alegre Ltda.	(b)	Brazil		-			-
Kelizer S.A.	(a)	Uruguay		-			-
Agroglobal S.A. (f.k.a. Adecoagro Uruguay S.A.)	(a)	Uruguay		-			-
Holdings companies:
Adeco Brasil Participações S.A.	-	Brazil		-			-
International Farmland Holdings LP	(d)	United States		-			-
Adecoagro LP S.C.S.	(e)	Luxembourg		-			-
Adecoagro GP S.a.r.l.	-	Luxembourg		-			-
Ladelux S.C.A.	-	Uruguay		-			-
Spain Holding Companies	(c)	Spain		-			-

(a) Mainly crops, rice, cattle and others.

(b) Mainly sugarcane, ethanol and energy.

(c) Comprised by (1) wholly owned subsidiaries: Kadesh España S.L.U.; Leterton España S.L.U.; Global Asterion S.L.U.; Global Acasto S.L.U.; Global Laertes S.L.U.; Global Seward S.L.U.; Global Pindaro S.L.U.; Global Pileo S.L.U.; Peak Texas S.L.U.; Peak City S.L.U. and 51% controlled subsidiaries (see note 21): Global Acamante S.L.U.; Global Carelio S.L.U.; Global Calidon S.L.U.; Global Mirabilis S.L.U. Global Anceo S.L.U.Global Hisingen S.L.U.

(d) Merge without liquidation with Adecoagro L.P. in April 2015.

(e) The continuer from the merger between Adecoagro LP and International Farmland Holdings LP.

The accompanying notes are an integral part of these consolidated financial statements. 

F- 67

Adecoagro S.A.

Notes to the Consolidated Financial Statements (Continued)

(All amounts in US$ thousands, except shares and per share data and as otherwise indicated)

30. Group companies (continued)

The percentage voting right for each principal subsidiary is the same as the percentage of capital stock held. Issued share capital represents only ordinary shares/ quotas, units or their equivalent. There are no preference shares or units issued in any subsidiary undertaking.

According to the laws of certain of the countries in which the Group operates, 5 % of the profit of the year is separated to constitute legal reserves until they reach legal capped amounts (20 % of total capital). These legal reserves are not available for dividend distribution and can only be released to absorb losses. The Group’s joint ventures have not reached the legal capped amounts.

31. Related-party transactions

The following is a summary of the balances and transactions with related parties:

Related party	Relationship	Description of transaction	Income (loss) included in the statement of income									Balance receivable (payable)/(equity)
			2016			2015			2014			2016			2015
Mario Jorge de Lemos Vieira/ Cia	(i)	Cost of goods sold and services rendered (ii)		(42	)		(2,304	)		(2,854	)		-			-
Agropecuaria Monte Alegre/ Alfenas		Receivables from related parties (Note 18)		-			-			-			172			300
Agricola Ltda/ Marcelo Weyland Barbosa Vieira/ Paulo Albert Weyland Vieira		Payables (Note 25)		-			-			-			(701	)		(465	)
Directors and senior management	Employment	Compensation selected employess		(5,213	)		(7,528	)		(7,439	)		(17,355	)		(16,836	)
CHS Agro	Joint venture	Purchases of goods		-			-			402			-			-
		Receivables from related parties (Note 18)		-			-			-			8,114			8,204
		Payables from related parties (Note 25)		-			-			-			(451	)		-
		Sales of goods		372			2,201			2,824			-			-
		Services		87			110			70			-			-
		Interest income		326			74			49			-			-

(i) Shareholders of the Company.

(ii) Relates to agriculture partnership agreements (“parceria”).

The accompanying notes are an integral part of these consolidated financial statements. 

F- 68

Adecoagro S.A.

Notes to the Consolidated Financial Statements (Continued)

(All amounts in US$ thousands, except shares and per share data and as otherwise indicated)

32. Summary of significant accounting policies

The principal accounting policies applied in the preparation of these consolidated financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated.

32.1 Basis of preparation and presentation

The consolidated financial statements of the Group have been prepared in accordance with International Financial Reporting Standards (IFRS) of the International Accounting Standards Board (IASB) and the Interpretations of the International Financial Reporting Interpretations Committee (IFRIC). All IFRS issued by the IASB, effective at the time of preparing these consolidated financial statements have been applied.

The consolidated financial statements have been prepared under the historical cost convention as modified by financial assets and financial liabilities (including derivative instruments) at fair value through profit or loss and biological assets and agricultural produce at the point of harvest measured at fair value.

In order to facilitate the understanding of our Consolidated Financial Statements, we have changed the format of the presentation of our income statement. During the fourth quarter of 2016, we aggregate our sales in a single line item titled “Sales of goods and services rendered”. Likewise, the corresponding cost has also been aggregated and presented as a single line item titled “Cost of goods sold and services rendered”. The breakdown of sales is now included in Note 4 to the Consolidated Financial Statements. The comparative figures have been retroactively changed accordingly.

The preparation of consolidated financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgment in the process of applying the Group’s accounting policies. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements are disclosed in Note 32.

(a) Standards, amendments and interpretations to existing standards effective and adopted by the Group in 2015

The following standards, amendments and interpretations to existing standards have been published and were mandatory for the Group as of January 1, 2015:

All the amendments to the standards IAS 32, ‘Financial instruments: Presentation’ – Offsetting financial assets and financial liabilities, IAS 36, ‘Impairment of assets’ – Recoverable amount disclosures for non-financial assets and IAS 39, ‘Financial instruments: Recognition and measurement’ – Novation of derivatives and continuation of hedge accounting have been analyzed by the Company. The application of these standards did not materially affect the Group’s financial position or results of operations.

Other standards, amendments and interpretations which are effective for the financial year beginning on 1 January 2015 are not material to the Group.

§ Effects of the adoption of the amendments of IAS 41 and IAS 16

In June 2014, the IASB made amendments to IAS 16 Property, Plant and Equipment and IAS 41 Agriculture which distinguish bearer plants from other biological assets. Bearer plants are solely used to grow produce over their productive lives and are seen to be similar to an item of machinery. They will therefore now be accounted for under IAS 16. However, agricultural produce growing on bearer plants will remain within the scope of IAS 41 and continue to be measured at fair value less cost to sell. The amendments shall be applied for annual periods beginning on or after January 1, 2016, with earlier application permitted.

The Group’s sugarcane and coffee plantations qualify as bearer plants under the new definition in IAS 41. As required under IAS 8, the change in accounting policy applied retrospectively. As a consequence, the sugarcane planting and coffee plantations was reclassified to property, plant and equipment and measured at amortized cost and depreciated over their useful life on straight-line basis, effective January 1, 2016 and comparative figures retrospectively revised accordingly. The Group adopted the transitional rule which allows companies to apply fair value of bearer plants as their deemed cost as of January 1, 2014.

However, agricultural produce growing on sugarcane and coffee plantations will remain under the line biological asset and continue to be measured at fair value less cost to sell.

The accompanying notes are an integral part of these consolidated financial statements. 

F- 69

Adecoagro S.A.

Notes to the Consolidated Financial Statements (Continued)

(All amounts in US$ thousands, except shares and per share data and as otherwise indicated)

32.1 Basis of preparation and presentation (continued)

These amendments resulted in changes in accounting policies and adjustments to the amounts and the results of the operations recognized in the financial statements as of and for the years ended December 31, 2016 and 2015, as follows:

Statements of Income (extracts)

	2015(Previously stated)			Increase/ (Decrease)			2015  (Revised)			2014(Previously stated)			Increase/ (Decrease)			2014  (Revised)
Cost of goods sold and services rendered		(505,693	)		(52,093	)		(557,886	)		(545,281	)		(60,044	)		(605,325	)
Change in fair value of biological assets		36,869			17,659			54,528			27,145			73,071			100,216
Profit / (Loss) before income tax		22,129			(34,434	)		(12,305	)		8,544			13,027			21,571
Income tax (expense) / benefit		(3,754	)		11,708			7,954			(6,106	)		(4,429	)		(10,535	)
Profit / (Loss)for the period		18,375			(22,726	)		(4,351	)		2,438			8,598			11,036
Attributable to:
Equity holders of the parent		17,133			(22,726	)		(5,593	)		2,518			8,598			11,116
Non-controlling interests		1,242			-			1,242			(80	)		-			(80	)
		18,375			(22,726	)		(4,351	)		2,438			8,598			11,036
Basic earnings per share		0.142			(0.188	)		(0.046	)		0.021			0.071			0.092
Diluted earnings per share		0.140			(0.186	)		(0.046	)		0.021			0.070			0.091

Balance sheet (extracts)

	31 December 2015 (Prev. stated)			Increase/ (Decrease)			31 December 2015 (Revised)			1 January 2015 (Prev. stated)			Increase/ (Decrease)			1 January 2015 (Revised)
Biological assets		299,270			(187,452	)		111,818			341,232			(216,496	)		124,736
Property, plant and equipment		540,218			156,671			696,889			776,905			214,676			991,581
Deferred tax assets		60,857			7,887			68,744			45,597			(3,525	)		42,072
Inventories		77,703			7,583			85,286			104,919			12,187			117,106
Total assets		978,048			(15,311	)		962,737			1,268,653			6,842			1,275,495
Retained earnings		62,923			(14,128	)		48,795			45,644			8,598			54,242
Cumulative Translation Adjustment		(567,133	)		(1,183	)		(568,316	)		(395,804	)		(1,756	)		(397,560	)
Total equity		542,730			(15,311	)		(527,419	)		770,385			6,842			777,227

Cash flow (extracts)
	31 December 2015 (Prev. stated)			Increase/ (Decrease)			31 December 2015 (Revised)			1 January 2015 (Prev. stated)			Increase/ (Decrease)			1 January 2015 (Revised)
Net cash generated from operating activities		153,914			(8,728	)		145,186			133,133			(12,982	)		120,151
Net cash used in investing activities		(133,779	)		8,728			(125,051	)		(313,454	)		12,982			(300,472	)

The accompanying notes are an integral part of these consolidated financial statements. 

F- 70

Adecoagro S.A.

Notes to the Consolidated Financial Statements (Continued)

(All amounts in US$ thousands, except shares and per share data and as otherwise indicated)

32.1 Basis of preparation and presentation (continued)

(b) Standards, amendments and interpretations to existing standards that are not yet effective

Below is a description of the standards, amendments and interpretations issued by the IASB to existing standards that have been issued and are mandatory for the Group’s fiscal periods beginning after January 1, 2015 and which have not been early adopted by the Group:

In May 2014, the IASB issued IFRS 15, "Revenue from contracts with customers", which deals with revenue recognition and establishes principles for reporting useful information to users of financial statements about the nature, amount, timing and uncertainty of revenue and cash flows arising from an entity’s contracts with customers. Revenue is recognized when a customer obtains control of a good or service and thus has the ability to direct the use and obtain the benefits from the good or service. The standard replaces IAS 18 ‘Revenue’ and IAS 11 ‘Construction contracts’ and related interpretations. The standard is effective for annual periods beginning on or after January 1, 2018 and earlier application is permitted. The Group has not yet assessed the potential impact IFRS 15 may have on the financial position and results of operations of the Group.

In July 2014 the IASB published the final version of IFRS 9 Financial Instrument which replaces earlier versions of IFRS 9 and completes the IASB’s project to replace IAS 39 Financial Instruments: Recognition and Measurement. It includes requirements on the classification and measurement of financial assets and liabilities, as well as an expected credit losses model that replaces the current incurred loss impairment model. The standard is effective for accounting periods beginning on or after January 1, 2018. Early adoption is permitted. The Group has not yet assessed IFRS 9’s full impact on the financial position and results of operations of the Group.

In September 2014, the IASB issued the amendments to IFRS 10, “Consolidated financial statements” and IAS 28, “Investments in associates and joint ventures”, which addresses an acknowledged inconsistency between the requirements of both standards in dealing with the sale or contribution of assets between an investor and its associate or joint venture. These amendments must be applied on annual periods beginning on or after January 1, 2016. The Group is currently assessing the impact these amendments may have on the financial position and results of operations of the Group.

In January 2016, the IASB finished its long-standing project on lease accounting and published IFRS 16, ‘Leases’, which replaces the current guidance in IAS 17. This will require far-reaching changes in accounting by lessees in particular. The standard applies to annual periods beginning on or after 1 January 2019, with earlier application permitted if IFRS 15, ‘Revenue from Contracts with Customers’, is also applied. The Group has not yet assessed the potential impact IFRS 16 may have on the financial position and results of operations of the Group.

There are no other IFRSs or IFRIC interpretations that are not yet effective that would be expected to have a material impact on the Group.

The accompanying notes are an integral part of these consolidated financial statements. 

F- 71

Adecoagro S.A.

Notes to the Consolidated Financial Statements (Continued)

(All amounts in US$ thousands, except shares and per share data and as otherwise indicated)

32.2 Scope of consolidation

The consolidated financial statements include the results of the Company and all of its subsidiaries from the date that control commences to the date that control ceases. They also include the Group’s share of the net income of its jointly-controlled entities on an equity-accounted basis from the point at which joint control commences, to the date that it ceases.

(a) Subsidiaries

Subsidiaries are all entities over which the Group has control. The Group controls an entity when the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Subsidiaries are fully consolidated from the date that control commences and deconsolidated from the date that control ceases.

The Group uses the acquisition method of accounting to account for business combinations. The consideration transferred for the acquisition of a subsidiary is the fair value of the assets transferred, the liabilities incurred and the equity interests issued by the Group. The consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration arrangement. Acquisition-related costs are expensed as incurred. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date.

The Group recognizes any non-controlling interest in the acquiree on an acquisition-by-acquisition basis either at fair value or at the non-controlling interest’s proportionate share of the acquiree’s net assets.

The excess of the consideration transferred, the amount of any non-controlling interest in the acquiree and the acquisition-date fair value of any previous equity interest in the acquiree over the fair value of the identifiable net assets acquired is recorded as goodwill.

Inter-company transactions, balances and unrealized gains on transactions between group companies are eliminated. Unrealized losses are also eliminated. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group.

(b) Changes in ownership interests in subsidiaries without change of control

Transactions with non-controlling interests that do not result in loss of control are accounted for as equity transactions – that is, as transactions with the owners in their capacity as owners. The difference between the fair value of any consideration paid and the relevant share acquired of the carrying value of net assets of the subsidiary is recorded in equity. Gains or losses on disposals to non-controlling interests are also recorded in equity.

(c) Disposal of subsidiaries

When the Group ceases to have control any retained interest in the entity is re-measured to its fair value at the date when control is lost, with the change in carrying amount recognized in profit or loss. The fair value is the initial carrying amount for the purposes of subsequently accounting for the retained interest as an associate, joint venture or financial asset. In addition, any amount previously recognized in other comprehensive income in respect of that entity is accounted for as if the Group had directly disposed of the related assets or liabilities. This may mean that amounts previously recognized in other comprehensive income are reclassified to profit or loss.

(d) Joint arrangements

Under IFRS 11, investments in joint arrangements are classified as either joint operations or joint ventures depending on the contractual rights and obligations each investor has rather than the legal structure of the joint arrangement.

The accompanying notes are an integral part of these consolidated financial statements. 

F- 72

Adecoagro S.A.

Notes to the Consolidated Financial Statements (Continued)

(All amounts in US$ thousands, except shares and per share data and as otherwise indicated)

32.2 Scope of consolidation (continued)

The Group has assessed the nature of its joint arrangements and determined them to be joint ventures and value them under the equity method.

Under the equity method of accounting, interests in joint ventures are initially recognized in the consolidated statement of financial position at cost and adjusted thereafter to recognize the Group’s share of the post-acquisition of profits or losses and movements in other comprehensive income, respectively. When the share of losses of an investee equals or exceeds the carrying amount of an investment the Group discontinue applying the equity method, the investment is reduced to zero and does not record additional losses. If the investee subsequently reports net income, the Group would resume applying the equity method only after its share of that net income equals the share of net losses not recognized during the period the equity method was suspended.

Unrealized gains on transactions between the Group and its joint ventures are eliminated to the extent of the Group’s interest in the joint ventures. Unrealized losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of the joint ventures have been changed where necessary to ensure consistency with the policies adopted by the Group.

32.3 Segment reporting

According to IFRS 8, operating segments are identified based on the ‘management approach’. This approach stipulates external segment reporting based on the Group’s internal organizational and management structure and on internal financial reporting to the chief operating decision maker (the Management Committee in the case of the Company)

32.4 Foreign currency translation

(a) Functional and presentation currency

Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary economic environment in which the entity operates (‘the functional currency’). The consolidated financial statements are presented in US dollars, which is the Group’s presentation currency.

(b) Transactions and balances

Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions or valuation where items are remeasured. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognized in the statement of income, in the line Item “Finance income” or “Finance cost”, as appropriate.

(c) Group companies

The results and financial position of all the Group entities (none of which has the currency of a hyper-inflationary economy) that have a functional currency different from the presentation currency are translated into the presentation currency as follows:

· assets and liabilities for each statement of financial position presented are translated at the closing rate at the date of that statement of financial position;

· income and expenses for each statement of income are translated at average exchange rates (unless this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the rate on the dates of the transactions); and

· all resulting exchange differences are recognized as a separate component of equity.

When a foreign operation is partially disposed of or sold, exchange differences that were recorded in equity are recognized in the statement of income as part of the gain or loss on sale.

Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing rate.

The accompanying notes are an integral part of these consolidated financial statements. 

F- 73

Adecoagro S.A.

Notes to the Consolidated Financial Statements (Continued)

(All amounts in US$ thousands, except shares and per share data and as otherwise indicated)

32.5 Property, plant and equipment

Property, plant and equipment is recorded at cost, less accumulated depreciation and impairment losses, if any. Historical cost comprises the purchase price and any costs directly attributable to the acquisition. Under the definition of Property plant and equipment is included the bearer plants, such as sugarcane and coffe trees.

Where individual components of an item of property, plant and equipment have different useful lives, they are accounted for as separate items, which are depreciated separately.

Subsequent costs are included in the asset’s carrying amount or recognized as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognized. All other repairs and maintenance are charged to the statement of income when they are incurred.

The depreciation methods and periods used by the group are disclosed in Note 12.

Gains and losses on disposals are determined by comparing the proceeds with the carrying amount and are recognized within “Other operating income, net” in the statement of income.

32.6 Investment property

Investment property consists of farmland for rental or for capital appreciation and not used in production or for sale in the ordinary course of business, and it is measured at cost less accumulated depreciation and any impairment losses if any.

32.7 Leases

The Group classifies its leases at the inception as finance or operating leases. Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases and charged to the statements of income in a straight-line basis over the period of the lease. Finance leases are capitalized at the lease’s inception at the lower of the fair value of the leased property and the present value of the minimum lease payments. The corresponding rental obligations, net of finance charges, are included as “Borrowings”

32.8 Goodwill

Goodwill represents future economic benefits arising from assets that are not capable of being individually identified and separately recognized by the Group on an acquisition. Goodwill on acquisition is initially measured at cost. being the excess of the consideration over the fair value of the Group’s share of net assets of the acquired subsidiary undertaking at the acquisition date. Following initial recognition, goodwill is measured at cost less any accumulated impairment losses. It is allocated to those cash generating units expected to benefit from the acquisition for the purpose of impairment testing. Goodwill arising on the acquisition of subsidiaries is included within “Intangible assets” on the statement of financial position. Goodwill arising on the acquisition of foreign entities is treated as an asset of the foreign entity denominated in the local currency and translated at the closing rate.

Goodwill is not amortized but tested for impairment on an annual basis, or more frequently if there is an indication of impairment. Gains and losses on the disposal of a Group entity include any goodwill relating to the entity sold (see Note 32.10).

The accompanying notes are an integral part of these consolidated financial statements. 

F- 74

Adecoagro S.A.

Notes to the Consolidated Financial Statements (Continued)

(All amounts in US$ thousands, except shares and per share data and as otherwise indicated)

32.9 Other intangible assets

Other intangible assets that are acquired by the Group, which have finite useful lives, are measured at cost less accumulated amortization and impairment losses, if any. These intangible assets comprise trademarks and computer software and are amortized in the statement of income on a straight-line basis over their estimated useful lives estimated to be 10 to 20 years and 3 to 5 years, respectively.

32.10 Impairment of assets

Goodwill

For the purpose of impairment testing, assets are grouped at the lowest levels for which there are separately identifiable cash flows, known as cash-generating units. If the recoverable amount of the cash-generating unit is less than the carrying amount of the unit, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit pro-rata on the basis of the carrying amount of each asset may in the unit. Impairment losses recognized for goodwill cannot be reversed in a subsequent period. Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted (see Note 33 (a) for details).

Property, plant and equipment and finite lived intangible assets

At each statement of financial position date, the Group reviews the carrying amounts of its property, plant and equipment and other intangible assets which have finite lives to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent, if any, of the impairment loss. Where the asset does not generate cash flows that are independent from other assets, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs.

If the recoverable amount of an asset or cash-generating unit is estimated to be less than its carrying amount, that carrying amount is reduced to its recoverable amount. An impairment loss is recognized immediately in the statement of income.

Where an impairment loss subsequently reverses, the carrying amount of the asset or cash-generating unit is increased to the revised estimate of its recoverable amount, not to exceed the carrying amount that would have been determined had no impairment loss been recognized for the asset or cash-generating unit in prior years. A reversal of an impairment loss is recognized immediately in the statement of income.

32.11 Biological assets

Biological assets comprise growing crops (mainly corn, wheat, soybeans, sunflower and rice), sugarcane, coffee and livestock (growing herd and cattle for dairy production).

The Group distinguishes between consumable and bearer biological assets, and between mature and immature biological assets. “Consumable” biological assets are those assets that may be harvested as agriculture produce or sold as biological assets, for example livestock intended for dairy production. “Bearer” biological assets are those assets capable of producing more than one harvest, for example sugarcane or livestock from which raw milk is produced. “Mature” biological assets are those that have attained harvestable specifications (for consumable biological assets) or are able to sustain regular harvests (for bearer biological assets). “Immature” biological assets are those assets other than mature biological assets.

Costs are capitalized as biological assets if, and only if, (a) it is probable that future economic benefits will flow to the entity, and (b) the cost can be measured reliably. The Group capitalizes costs such as: planting, harvesting, weeding, seedlings, irrigation, agrochemicals, fertilizers and a systematic allocation of fixed and variable production overheads that are directly attributable to the management of biological assets, among others. Costs that are expensed as incurred include administration and other general overhead and unallocated production overhead, among others.

The accompanying notes are an integral part of these consolidated financial statements. 

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Adecoagro S.A.

Notes to the Consolidated Financial Statements (Continued)

(All amounts in US$ thousands, except shares and per share data and as otherwise indicated)

32.11 Biological assets (continued)

Biological assets, both at initial recognition and at each subsequent reporting date, are measured at fair value less costs to sell, except where fair value cannot be reliably measured. Cost approximates fair value when little biological transformation has taken place since the costs were originally incurred or the impact of biological transformation on price is not expected to be material.

Gains and losses that arise on measuring biological assets at fair value less costs to sell and measuring agricultural produce at the point of harvest at fair value less costs to sell are recognized in the statement of income in the period in which they arise in the line item “Initial recognition and changes in fair value of biological assets and agricultural produce”.

Where there is an active market for a biological asset or agricultural produce, quoted market prices in the most relevant market are used as a basis to determine the fair value. Otherwise, when there is no active market or market-determined prices are not available, fair value of biological assets is determined through the use of valuation techniques.

Therefore, the fair value of biological assets is generally derived from the expected discounted cash flows of the related agricultural produce. The fair value of the agricultural produce at the point of harvest is generally derived from market determined prices. A general description of the determination of fair values based on the Company’s business segments follow:

· Growing crops:

Growing crops, for which biological transformation is not significant, are measured at cost, which approximates fair value. Expenditure on growing crops includes land preparation expenses and other direct expenses incurred during the sowing period including labor, seedlings, agrochemicals and fertilizers among others.

Otherwise, biological assets are measured at fair value less estimated point-of-sale costs at initial recognition and at any subsequent period. Point-of-sale costs include all costs that would be necessary to sell the assets

The fair value of growing crops excluding sugarcane and coffee is measured based on a formula, which takes into consideration the estimated crop yields, estimated market prices and costs, and discount rates. Yields are determined based on several factors including location of farmland, environmental conditions and other restrictions and growth at the time of measurement. Yields are multiplied by sown hectares to determine the estimated tons of crops to be obtained. The tons are then multiplied by a net cash flow determined at the future crop prices less the direct costs to be incurred. This amount is discounted at a discount rate, which reflects current market assessments of the assets involved and the time value of money.

· Growing herd and cattle:

Livestock are measured at fair value less estimated point-of-sale costs, with any changes therein recognized in the statement of income, on initial recognition as well as subsequently at each reporting period. The fair value of livestock is determined based on the actual selling prices less estimated point-of-sale costs in the markets where the Group operates.

· Coffee:

The agricultural produce growing on the coffee trees, are biological assets, and are valued at fair value less cost to sell. Projected costs include maintenance, pruning, land leasing, harvesting and coffee treatment. These estimates are discounted at an appropriate discount rate.

The accompanying notes are an integral part of these consolidated financial statements. 

F- 76

Adecoagro S.A.

Notes to the Consolidated Financial Statements (Continued)

(All amounts in US$ thousands, except shares and per share data and as otherwise indicated)

32.11. Biological assets (continued)

· Sugarcane:

Sugarcane planting costs form part of Property plant and equipment. The agricultural produce growing on sugarcane is classified as biological assets and are measured at fair value less cost to sell. The fair value of agricultural produce growing on sugarcane depends on the variety, location and maturity of the plantation.

Agricultural produce growing in the Sugarcane, for which biological growth is not significant, is valued at cost, which approximates fair value. Expenditure on the agricultural produce growing in the sugarcane consists mainly of labor, agrochemicals and fertilizers among others. When it has attained significant biological growth, it is measured at fair value through a discounted cash flow model. Revenues are based on estimated yearly production volume (which will be destined to sugar, ethanol, energy and raw cane production) and the price is calculated as the average of daily prices for sugar future contracts (Sugar #11 ICE-NY contracts) for a six months period. Projected costs include maintenance and land leasing among others. These estimates are discounted at an appropriate discount rate.

32.12 Inventories

Inventories comprise of raw materials, finished goods (including harvested agricultural produce and manufactured goods) and others.

Harvested agricultural produce (except for rice and milk) are measured at net realizable value until the point of sale because there is an active market in the produce, there is a negligible risk that the produce will not be sold and there is a well-established practice in the industry carrying the inventories at net realizable value. Changes in net realizable value are recognized in the statement of income in the period in which they arise under the line item “Changes in net realizable value of agricultural produce after harvest”.

All other inventories (including rice and milk) are measured at the lower of cost and net realizable value. Cost is determined using the weighted average method.

32.13 Financial assets

Financial assets are classified in the following categories: at fair value through profit or loss and loans and receivables. The classification depends on the purpose for which the financial assets were acquired. Management determines the classification of its financial assets at initial recognition (see Note 17).

(a) Recognition and measurement

Regular purchases and sales of financial assets are recognized on the trade-date – the date on which the Group commits to purchase or sell the asset. Financial assets not carried at fair value through profit or loss are initially recognized at fair value plus transaction costs. Financial assets carried at fair value through profit or loss are initially recognized at fair value and transaction costs are expensed in the statement of income. Financial assets are derecognized when the rights to receive cash flows from the investments have expired or have been transferred and the Group has transferred substantially all risks and rewards of ownership. Financial assets at fair value through profit or loss are subsequently carried at fair value. Loans and receivables are subsequently carried at amortized cost using the effective interest method.

Gains or losses arising from changes in the fair value of the “financial assets at fair value through profit or loss” category are presented in the statement of income within “Other operating income, net” in the period in which they arise.

The accompanying notes are an integral part of these consolidated financial statements. 

F- 77

Adecoagro S.A.

Notes to the Consolidated Financial Statements (Continued)

(All amounts in US$ thousands, except shares and per share data and as otherwise indicated)

32.13 Financial assets (continued)

If the market for a financial asset is not active (and for unlisted securities), the Group establishes fair value by using valuation techniques. These include the use of recent arm’s length transactions, reference to other instruments that are substantially the same, discounted cash flow analysis, and option pricing models, making maximum use of market inputs and relying as little as possible on entity-specific inputs.

The Group assesses at each statement of financial position date whether there is objective evidence that a financial asset or a group of financial assets is impaired. Impairment testing of trade receivables is described in Note 32.15.

(b) Offsetting financial instruments

Financial assets and liabilities are offset and the net amount reported in the statement of financial position when there is a legally enforceable right to offset the recognized amounts and there is an intention to settle on a net basis, or realize the asset and settle the liability simultaneously. This right must not be contingent on future events and must be enforceable in any case.

32.14 Derivative financial instruments and hedging activities

Derivatives are initially recognized at fair value on the date a derivative contract is entered into and are subsequently remeasured at their fair value. Commodity future contract fair values are computed with reference to quoted market prices on future exchanges markets. The fair values of commodity options are calculated using year-end market rates together with common option pricing models. The fair value of interest rate swaps has been calculated using a discounted cash flow analysis.

The Group manages exposures to financial and commodity risks using hedging instruments that provide the appropriate economic outcome. The principal hedging instruments used may include commodity future contracts, put and call options, foreign exchange forward contracts and interest rate swaps. The Group does not use derivative financial instruments for speculative purposes.

The Group’s policy is to apply hedge accounting to hedging relationships where it is both permissible under IAS 39, practical to do so and its application reduces volatility, but transactions that may be effective hedges in economic terms may not always qualify for hedge accounting under IAS 39. Any derivatives that the Group holds to hedge these exposures are classified as “held for trading” and are shown in a separate line on the face of the statement of financial position. The method of recognizing gains or losses on derivatives depends on whether the derivative is designated as a hedging instrument, and if so, the nature of the item being hedged. Gains and losses on commodity derivatives are classified within “Other operating income, net”. Gains and losses on interest rate and foreign exchange rate derivatives are classified within ‘Financial results, net’. The Group designates certain derivatives as hedges of the foreign currency risk associated with highly probable forecast transactions (cash flow hedge).

The Group documents at the inception of the transaction the relationship between hedging instruments and hedged items, as well as its risk management objectives and strategy for undertaking various hedging transactions. The Group also documents its assessment, both at hedge inception and on an ongoing basis, of whether the instruments that are used in hedging transactions are highly effective in offsetting changes in fair value or cash flows of hedged items.

Cash flow hedge

The effective portion of the gain or loss on the instruments that are designated and qualify as cash flow hedges is recognized in other comprehensive income. The gain or loss relating to the ineffective portion is recognized immediately in the statement of income within "Finance income” or “Finance cost”, as appropriate.

The accompanying notes are an integral part of these consolidated financial statements. 

F- 78

Adecoagro S.A.

Notes to the Consolidated Financial Statements (Continued)

(All amounts in US$ thousands, except shares and per share data and as otherwise indicated)

32.14 Derivative financial instruments and hedging activities (continued)

Amounts accumulated in equity are reclassified to profit or loss in the periods when the hedged item affects profit or loss. The gain or loss relating to the effective portion is recognized in the statement of income within "Finance income” or “Finance cost”, as appropriate.

When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for hedge accounting, any cumulative gain or loss existing in equity at that time remains in equity and is recognized when the forecast transaction is ultimately recognized in the statement of income. When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was reported in equity is immediately transferred to the statement of income.

32.15 Trade and other receivables and trade and other payables

Trade receivables are recognized initially at fair value and subsequently measured at amortized cost using the effective interest method. In the case of receivables, less allowance for trade receivables.

An allowance for trade receivables is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of the receivables. Such evidence includes significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganization, and default or delinquency in payments. Subsequent recoveries of amounts previously written off are credited against selling expenses in the statement of income.

32.16 Cash and cash equivalents

Cash and cash equivalents includes cash in hand, deposits held at call with banks and other short-term highly liquid investments with original maturities of three months or less. In the statements of cash flows, interest paid is presented within financing cash flows and interest received is presented within investing activities.

32.17 Borrowings

Borrowings are initially recognized at fair value, net of transaction costs incurred. Borrowings are subsequently measured at amortized cost using the effective interest method. Borrowing costs are capitalized during the period of time that is required to complete and prepare the asset for its intended use.

32.18 Provisions

Provisions are recognized when (i) the Group has a present legal or constructive obligation as a result of past events; (ii) it is probable that an outflow of resources will be required to settle the obligation; and (iii) a reliable estimate of the amount of the obligation can be made. Provisions are measured at the present value of the expenditures expected to be required to settle the obligation using a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the obligation.

32.19 Onerous contracts

The Group enters into contracts, which require the Group to sell commodities in accordance with the Group's expected sales. These contracts do not qualify as derivatives. These contracts are not recognized until at least one of the parties has performed under the agreement. However, when the contracts are onerous, the Group recognizes the present obligation under the contracts as a provision included within “Provision and other liabilities” in the statement of financial position. Losses under these onerous contracts are recognized within “Other operating income, net” in the statement of income.

The accompanying notes are an integral part of these consolidated financial statements. 

F- 79

Adecoagro S.A.

Notes to the Consolidated Financial Statements (Continued)

(All amounts in US$ thousands, except shares and per share data and as otherwise indicated)

32.20 Current and deferred income tax

The Group’s tax benefit or expense for each year comprises the charge for current tax payable and deferred taxation attributable to the Group’s operating subsidiaries. Tax is recognized in the statement of income, except to the extent that it relates to items recognized directly in equity. In this case, the tax is also recognized in equity.

The current income tax charge is calculated on the basis of the tax laws enacted at the date of the statement of financial position in the countries where the Group’s subsidiaries operate and generate taxable income. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. It establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities.

Deferred income tax is recognized, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. However, the deferred income tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred income tax is determined using tax rates (and laws) effective in the countries where the Group’s subsidiaries operate and generate taxable income.

Deferred income tax assets are recognized only to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilized.

Deferred income tax is provided on temporary differences arising on investments in subsidiaries, except where the timing of the reversal of the temporary difference is controlled by the Group and it is probable that the temporary difference will not reverse in the foreseeable future.

The Group is able to control the timing of dividends from its subsidiaries and hence does not expect to remit overseas earnings in the foreseeable future in a way that would result in a charge to taxable profit. Hence deferred tax is recognized in respect of the retained earnings of overseas subsidiaries only to the extent that, at the date of the statement of financial position, dividends have been accrued as receivable or a binding agreement to distribute past earnings in future has been entered into by the subsidiary.

The accompanying notes are an integral part of these consolidated financial statements. 

F- 80

Adecoagro S.A.

Notes to the Consolidated Financial Statements (Continued)

(All amounts in US$ thousands, except shares and per share data and as otherwise indicated)

32.21 Revenue recognition

The Group’s primary activities comprise agricultural and agro-industrial activities.

The Group’s agricultural activities comprise growing and selling agricultural produce. In accordance with IAS 41 “Agriculture”, cattle are measured at fair value with changes therein recognized in the statement of income as they arise. Agricultural produce is measured at net realizable value with changes therein recognized in the statement of income as they arise. Therefore, sales of agricultural produce and cattle generally do not generate any separate gains or losses in the statement of income. See Notes 32.11 and 32.12 for additional details.

The Group’s agro-industrial activities comprise the selling of manufactured products (i.e. industrialized rice, milk-related products, ethanol, sugar, energy, among others). These sales are measured at the fair value of the consideration received or receivable, net of returns and allowances, trade and other discounts, and sales taxes, as applicable. Revenue is recognized when the significant risks and rewards of ownership have been transferred to the buyer, recovery of the consideration is probable, the associated costs and possible return of goods can be estimated reliably, and there is no continuing management involvement with the goods. Transfers of risks and rewards vary depending on the individual terms of the contract of sale.

The Group also provides certain agricultural-related services such as grain warehousing/conditioning and other services, e.g. handling and drying services. Revenue from services is recognized as services are provided.

The Group leases owned farmland property to third parties under operating lease agreements. Rental income is recognized on a straight-line basis over the period of the lease.

The Group is a party to a 10-year power agreement for the sale of electricity which expires in 2018. The delivery period starts in May and ends in November of each year. The Group is also a party to two 15-year power agreements which delivery period starts in March and ends in December of each year, these two agreements will expire in 2024 and 2025, respectively. Prices under all the agreements are adjusted annually for inflation. Revenue related to the sale of electricity under these two agreements is recorded based upon output delivered.

32.22 Farmlands sales

The Group’s strategy is to profit from land appreciation value generated through the transformation of its productive capabilities. Therefore, the Group may seek to realize value from the sale of farmland assets and businesses.

Farmland sales are not recognized until (i) the sale is completed, (ii) the Group has determined that it is probable the buyer will pay, (iii) the amount of revenue can be measured reliably, and (iv) the Group has transferred to the buyer the risk of ownership, and does not have a continuing involvement. Gains from “farmland sales” are included in the statement of income under the line item “Other operating income, net”.

The accompanying notes are an integral part of these consolidated financial statements. 

F- 81

Adecoagro S.A.

Notes to the Consolidated Financial Statements (Continued)

(All amounts in US$ thousands, except shares and per share data and as otherwise indicated)

32.23 Assets held for sale and discontinued operations

When the Group intends to dispose of, or classify as held for sale, a business component that represents a separate major line of business or geographical area of operations, or a subsidiary acquired exclusively with a view to resale, it classifies such operations as discontinued. The post tax profit or loss of the discontinued operations is shown as a single amount on the face of the statement of income, separate from the other results of the Group. Assets and liabilities classified as held for sale are measured at the lower of carrying value and fair value less costs to sell.

Non-current assets and disposal groups are classified as held for sale if their carrying amount will be recovered through a disposal rather than through continuing use. This condition is regarded as met only when management is committed to the sale (disposal), the sale (disposal) is highly probable and expected to be completed within one year from classification and the asset is available for immediate sale (disposal) in its present condition. The statements of income for the comparative periods are represented to show the discontinued operations separate from the continuing operations.

32.24 Earnings per share

Basic earnings per share is calculated by dividing the net income for the year attributable to equity holders of the parent by the weighted average number of ordinary shares outstanding during the year. Diluted net earnings per share is computed by dividing the net income for the period by the weighted average number of ordinary shares outstanding, and when dilutive, adjusted for the effect of all potentially dilutive shares, including share options, on an as-if converted basis.

32.25 Equity-settled share-based payments

The Group issues equity settled share-based payments to certain directors, senior management and employees. Options under the awards were measured at fair value at the date of grant. An expense is recognized to spread the fair value of each award over the vesting period on a straight-line basis, after allowing for an estimate of the awards that will eventually vest. The estimate of the level of vesting is reviewed at least annually, with any impact on the cumulative charge being recognized immediately.

32.26 Research and development

Research phase expenditure is expensed as incurred. Development expenditure is capitalized as an internally generated intangible asset only if it meets strict criteria, relating in particular to technical feasibility and generation of future economic benefits. Research expenses have been immaterial to date. The Group has not capitalized any development expenses to date.

The accompanying notes are an integral part of these consolidated financial statements. 

F- 82

Adecoagro S.A.

Notes to the Consolidated Financial Statements (Continued)

(All amounts in US$ thousands, except shares and per share data and as otherwise indicated)

33. Critical accounting estimates and judgments

Critical accounting policies are those that are most important to the portrayal of the Group’s financial condition, results of operations and cash flows, and require management to make difficult, subjective or complex judgments and estimates about matters that are inherently uncertain. Management bases its estimates on historical experience and other assumptions that it believes are reasonable. The Group’s critical accounting policies are discussed below.

Actual results could differ from estimates used in employing the critical accounting policies and these could have a material impact on the Group’s results of operations. The Group also has other policies that are considered key accounting policies, such as the policy for revenue recognition. However, these other policies, which are discussed in the notes to the Group’s financial statements, do not meet the definition of critical accounting estimates, because they do not generally require estimates to be made or judgments that are difficult or subjective.

(a)Impairment testing

At the date of each statement of financial position, the Group reviews the carrying amounts of its property, plant and equipment and finite lived intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent, if any, of the impairment loss. Where the asset does not generate cash flows that are independent from other assets, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. The Group’s property, plant and equipment items generally do not generate independent cash flows.

Goodwill is tested for impairment annually or more frequently if events or changes in circumstances indicate that the carrying amount may be impaired. The impairment review requires management to undertake certain judgments, including estimating the recoverable value of the CGU to which the goodwill relates, based on either fair value less costs-to-sell or the value-in-use, as appropriate, in order to reach a conclusion on whether it deems the goodwill is impaired or not.

For purposes of the impairment testing, each CGU represents the smallest identifiable group of assets that generate cash inflows that are largely independent of the cash inflows from other assets or group of assets.

Farmlands may be used for different activities that may generate independent cash flows. When farmlands are used for single activities (i.e. crops), these are considered as one CGU. When farmland businesses are used for more than one segment activity (i.e. crops and cattle or rental income), the farmland is further subdivided into two or more CGUs, as appropriate, for purposes of impairment testing. Generally, each separate farmland within Argentina and Uruguay are treated as single CGUs, while in Brazil, management identified a farmland together with its related mill as separate CGUs.

Based on these criteria, management identified a total amount of 39 CGUs as of September 30, 2016 and thirty-eight CGUs as of September 30, 2015.

As of September 30, 2016 and 2015, there were no impairment indicators on the Company’s long lived assets. Therefore, the Group only tested those CGUs with allocated goodwill in Argentina, Brazil and Uruguay.

CGUs tested based on a fair-value-less-costs-to-sell model at September 30, 2016 and 2015:

As of September 30, 2016, the Group identified 11 CGUs in Argentina and Uruguay (2015: 11 CGUs) to be tested based on this model (all CGUs with allocated goodwill). Estimating the fair value less costs-to-sell is based on the best information available, and refers to the amount at which the CGU could be bought or sold in a current transaction between willing parties. In calculating the fair value less costs-to-sell, management may be assisted by the work of external advisors. When using this model, the Group applies the “sales comparison approach” as its method of valuing most properties. This method relies on results of sales of similar agricultural properties to estimate the value of the CGU. This approach is based on the theory that the fair value of a property is directly related to the selling prices of similar properties.

The accompanying notes are an integral part of these consolidated financial statements. 

F- 83

Adecoagro S.A.

Notes to the Consolidated Financial Statements (Continued)

(All amounts in US$ thousands, except shares and per share data and as otherwise indicated)

33. Critical accounting estimates and judgments (continued)

Fair values are determined by extensive analysis which includes current and potential soil productivity of the land (the ability to produce crops and maintain livestock) projected margins derived from soil use, rental value obtained for soil use, if applicable, and other factors such as climate and location. Farmland ratings are established by considering such factors as soil texture and quality, yields, topography, drainage and rain levels. Farmland may contain farm outbuildings. A farm outbuilding is any improvement or structure that is used for farming operations. Outbuildings are valued based on their size, age and design.

Based on the factors described above, each farm property is assigned different soil classifications for the purposes of establishing a value, Soil classifications quantify the factors that contribute to the agricultural capability of the soil. Soil classifications range from the most productive to the least productive.

The first step to establishing an assessment for a farm property is a sales investigation that identifies the valid farm sales in the area where the farm is located.

A price per hectare is assigned for each soil class within each farm property. This price per hectare is determined based on the quantitative and qualitative analysis mainly described above.

The results are then tested against actual sales, if any, and current market conditions to ensure the values produced are accurate, consistent and fair.

The following table shows only the 11 CGUs (2015: 11 CGUs) where goodwill was allocated at each period end and the corresponding amount of goodwill allocated to each one:

CGU / Operating segment / Country	September 30, 2016		September 30, 2015
La Carolina / Crops / Argentina		40		64
La Carolina / Cattle / Argentina		13		22
El Orden/ Crops / Argentina		60		97
El Orden/ Cattle / Argentina		5		8
La Guarida / Crops / Argentina		405		658
La Guarida / Cattle / Argentina		330		536
Los Guayacanes / Crops / Argentina		511		830
Doña Marina / Rice / Argentina		1,803		2,930
Huelen / Crops / Argentina		2,020		3,283
El Colorado / Crops / Argentina		890		1,446
El Colorado / Cattle / Argentina		130		211
Closing net book value of goodwill allocated to CGUs tested (Note 14)		6,207		10,085
Closing net book value of PPE items and other assets allocated to CGUs tested		36,901		54,272
Total assets allocated to CGUs tested		43,108		64,357

Based on the testing above, the Group determined that none of the CGUs, with allocated goodwill, were impaired at September 30, 2016 and 2015.

The accompanying notes are an integral part of these consolidated financial statements. 

F- 84

Adecoagro S.A.

Notes to the Consolidated Financial Statements (Continued)

(All amounts in US$ thousands, except shares and per share data and as otherwise indicated)

33. Critical accounting estimates and judgments (continued)

CGUs tested based on a value-in-use model at September 30, 2016 and 2015:

As of September 30, 2016, the Group identified 3 CGUs (2015: 3 CGUs) in Brazil to be tested base on this model (all CGUs with allocated goodwill). In performing the value-in-use calculation, the Group applied pre-tax rates to discount the future pre-tax cash flows. In each case, these key assumptions have been made by management reflecting past experience and are consistent with relevant external sources of information, such as appropriate market data. In calculating value-in-use, management may be assisted by the work of external advisors.

The key assumptions used by management in the value-in-use calculations which are considered to be most sensitive to the calculation are:

Key Assumptions	September 30, 2016	September 30, 2015
Financial projections	Covers 4 years for UMA	Covers 4 years for UMA
	Cover 7 years for AVI	Cover 7 years for AVI
Yield average growth rates	0-1%	0-1%
Future pricing increases	3% per annum	1% per annum
Future cost increases	3% per annum	1% per annum
Discount rates	6.22%	6.5%
Perpetuity growth rate	2.%	2%

Discount rates are based on the risk-free rate for U. S. government bonds, adjusted for a risk premium to reflect the increased risk of investing in South America and Brazil in particular. The risk premium adjustment is assessed for factors specific to the respective CGUs and reflects the countries that the CGUs operate in.

The following table shows only the 3 CGUs where goodwill was allocated at each period end and the corresponding amount of goodwill allocated to each one:

CGU/ Operating segment	September 30, 2016		September 30, 2015
AVI / Sugar, Ethanol and Energy		4,892		3,997
UMA / Sugar, Ethanol and Energy		2,564		2,122
Closing net book value of goodwill allocated to CGUs tested (Note 14)		7,456		6,119
Closing net book value of PPE items and other assets allocated to CGUs tested		689,857		554,688
Total assets allocated to 3 CGUs tested		697,313		560,807

Based on the testing above, the Group determined that none of the CGUs, with allocated goodwill, were impaired at September 30, 2016 and 2015.

Management views these assumptions as conservative and does not believe that any reasonable change in the assumptions would cause the carrying value of these CGU’s to exceed the recoverable amount.

The accompanying notes are an integral part of these consolidated financial statements. 

F- 85

Adecoagro S.A.

Notes to the Consolidated Financial Statements (Continued)

(All amounts in US$ thousands, except shares and per share data and as otherwise indicated)

33. Critical accounting estimates and judgments (continued)

(b) Biological assets

The nature of the Group’s biological assets and the basis of determination of their fair value are explained under Note 32.11. The discounted cash flow model requires the input of highly subjective assumptions including observable and unobservable data. Generally the estimation of the fair value of biological assets is based on models or inputs that are not observable in the market and the use of unobservable inputs is significant to the overall valuation of the assets. Unobservable inputs are determined based on the best information available, for example by reference to historical information of past practices and results, statistical and agronomical information, and other analytical techniques. Key assumptions include future market prices, estimated yields at the point of harvest, estimated production cycle, future cash flows, future costs of harvesting and other costs, and estimated discount rate.

Market prices are generally determined by reference to observable data in the principal market for the agricultural produce. Harvesting costs and other costs are estimated based on historical and statistical data. Yields are estimated based on several factors including the location of the farmland and soil type, environmental conditions, infrastructure and other restrictions and growth at the time of measurement. Yields are subject to a high degree of uncertainty and may be affected by several factors out of the Group’s control including but not limited to extreme or unusual weather conditions, plagues and other crop diseases, among other factors.

The key assumptions discussed above are highly sensitive. Reasonable shifts in assumptions including but not limited to increases or decreases in prices, costs and discount factors used would result in a significant increase or decrease to the fair value of biological assets. In addition, cash flows are projected over a number of years and based on estimated production. Estimates of production in themselves are dependent on various assumptions, in addition to those described above, including but not limited to several factors such as location, environmental conditions and other restrictions. Changes in these estimates could materially impact on estimated production, and could therefore affect estimates of future cash flows used in the assessment of fair value (see Note 15).

(c) Fair value of derivatives and other financial instruments

Fair values of derivative financial instruments are computed with reference to quoted market prices on trade exchanges, when available. The fair values of commodity options are calculated using year-end market rates together with common option pricing models. The fair value of interest rate swaps has been calculated using a discounted cash flow analysis.

(d) Income taxes

The Group is subject to income taxes in numerous jurisdictions. Significant judgment is required in determining the worldwide provision for income taxes. There are many transactions and calculations for which the ultimate tax determination is uncertain. The Group recognizes liabilities for anticipated tax audit issues based on estimates of whether additional taxes will be due. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the current and deferred income tax assets and liabilities in the period in which such determination is made.

Deferred tax assets are reviewed each reporting date and reduced to the extent that it is no longer probable that sufficient taxable income will be available to allow all or part of the asset to be settled. Deferred tax assets and liabilities are not discounted. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment (see Note 10 for details).

The accompanying notes are an integral part of these consolidated financial statements. 

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