Oct. 31, 2018
This increase was driven by volume growth of 3.8% in the quarter and 5.7% in the nine-month period. Especially strong performance was recorded in Latin America, India, Middle East and Africa as well as in Asia-Pacific, which more than offset the tens of millions of sales missed due to the severe drought in Europe. In addition to the volume growth, improved demand conditions facilitated a stronger pricing environment, largely compensating for the softer currencies and allowing the passing on of some of the impact of the constrained supply and higher procurement costs.
Gross profit in the quarter was lower by 6.5% to $279 million (gross margin of 32.0%), while gross profit in the nine-month period increased by 1.1% to $972 million (gross margin of 33.3%), compared to the corresponding periods last year. Excluding the 2017 European hedge impact, gross profit increased by 5.1% to $1,011 million (gross margin of 34.2%) in the nine-month period, compared to the corresponding period last year.
The lower gross profit in the quarter reflects primarily the impact of the missed high-margin sales in Europe due to the drought in the region, particularly of fungicides, which hurt gross profit by tens of millions. Apart from the drought impact, strong volume growth and increased prices more than offset continued higher procurement costs of raw materials and intermediates and the softer currencies, most notably the Brazilian Real and the Indian Rupee.
Chen Lichtenstein, President and CEO of ADAMA, added, “The extraordinarily dry summer in Europe this year has been the toughest we have seen in decades, impacting our top line and profit in the quarter. In spite of this challenge, we continue to grow our business and gain share in key markets across the globe. In addition, expense discipline and working capital management mitigated the impact and we continue to generate strong cash flow. We continue to invest in the expansion and further differentiation of our product portfolio, building on our strong foundations to drive growth and profits going forward.”
Sales by region
Europe: Sales were lower by 19.2% in the quarter and by 5.0% in the nine-month period in constant currency terms, compared with the corresponding periods last year.
The unprecedented drought that began towards the end of the second quarter continued throughout the third quarter, resulting in a decline in highly profitable sales in the region. The dry weather caused a reduction in disease and insect pressure, mainly impacting sales of high margin fungicides, as well as delaying the planting of the winter cereal crops, pushing some herbicide sales into the fourth quarter.
New products were registered in the quarter, including TRIVOR®, a unique insecticide combination product for sucking pests in citrus, as well as NIKITA®, a novel three-way herbicide mixture with triple modes-of-action for corn, both in Italy.
In US dollar terms, sales in Europe were lower by 18.5% in the quarter and by 2.5% in the nine-month period compared with the corresponding periods last year. Excluding the 2017 European hedge impact, sales in the region increased by 1.9% to $909 million in the nine-month period.
North America: Sales were lower by 0.9% in the quarter, yet increased by 8.5% in the nine-month period in constant currency terms, compared with the corresponding periods last year.
The slight decline in sales in the quarter was largely due to dry weather conditions in Texas and Western Canada, which was largely offset by increased selling prices.
In the US, the generally stronger pricing environment continued in the face of industry-wide supply shortages, compensating for the higher procurement costs.
Consumer and Professional Solutions continues to perform well, with strong momentum in both professional pest and industrial vegetation management.
In US dollar terms, sales in North America were lower by 1.0% in the quarter, yet increased by 9.0% in the nine-month period, compared to the corresponding periods last year.
Latin America: Sales increased by 40.2% in the quarter and by 30.4% in the nine-month period in constant currency terms, compared with the corresponding periods last year. This strong performance was a result of recent product launches, alongside increased pricing across most countries in the region.
ADAMA continued to grow strongly in Brazil, with a robust increase in volumes and increased prices partially compensating for the volatility of the Brazilian Real.
During the third quarter, the recently launched CRONNOS TOV® exceeded expectations both in Brazil as well as in Paraguay, with strong market acceptance of this novel three-way mixture fungicide meeting unmet needs in soybean rust.
In US dollar terms, sales in Latin America increased by a significant 20.2% in the quarter and by 18.4% in the nine-month period compared with the corresponding periods last year, reflecting the softness of local currencies.
Asia-Pacific: Sales increased by 8.4% in the quarter and by 6.8% in the nine-month period in constant currency terms, compared with the corresponding periods last year.
The robust performance in the quarter was driven by increased volumes and prices, notwithstanding the continued severe drought conditions in Australia and Indonesia.
In China, sales of branded and formulated products continue to grow strongly, as ADAMA continues to expand its product portfolio and geographic reach, and despite typhoon conditions in the south of the country in August. A number of new registrations were obtained, including the herbicide AGIL® in potato, the insecticide GALIL® in citrus, and BANJO FORTE® a broad-spectrum fungicide in pepper. ADAMA is markedly shifting away from selling unformulated, technical product to intermediaries, by prioritizing the sale rather of distinctive branded, formulated products through both its domestic and global commercial networks, and in so doing benefiting from the full product positioning as well as end-to-end margin.
Thailand, Korea, and Japan performed well, supported by an expanded and increasingly differentiated portfolio and favorable weather conditions. In spite of the continued drought in Australia, ADAMA continues to grow its share in the country.
ADAMA registered a number of new and differentiated products, including RIMON® FAST, a unique mixture insecticide in the Philippines, OUTSHINE®, a differentiated combination herbicide for cereals in Australia, as well as BREVIS®, ADAMA’s unique fruit thinner for apples in Australia, and NIMITZ®, the proprietary nematicide in Vietnam.
In US dollar terms, sales increased by 4.9% in the quarter, while sales increased by 9.7% in the nine-month period, compared to the corresponding periods last year.
India, Middle East & Africa: Sales grew by 17.7% in the quarter and by 18.7% in the nine-month period in constant currency terms, compared with the corresponding periods last year, driven by significant volume growth as well as substantial price increases, as a result of strong demand for the Combined Company’s portfolio and generally favorable weather conditions.
India saw solid growth in the quarter. ADAMA continues to expand its portfolio of differentiated products in the country, with the launch in the quarter of BARAZIDE®, a tailor-made mixture insecticide developed specifically for the Indian market, SHAMIR® a novel fungicide with dual modes of action and NIMROD®, a systemic fungicide with both protective and curative activity against powdery mildew.
Sales in Africa grew strongly in the quarter, with South Africa enjoying a robust recovery after the breaking of the drought in the Cape, and as well as significant growth in West Africa.
In US dollar terms, sales increased by a strong 9.7% in the quarter and 15.4% in the nine-month period, compared to the corresponding periods last year, with the softness of local currencies, most notably the Indian Rupee and Turkish Lira, against the US dollar, somewhat moderating the strong growth in constant currency terms.
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