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ADAMA reports strong growth, driving record sales in both the Q3 and year-to-date
Nov. 1, 2019
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IsraelADAMA Ltd. (the “Company”) reported its financial results for the third quarter and nine-month period ended September 30, 2019.
Table 1. Financial Performance Summary
All income statement items contained in this release are presented on an adjusted basis. A detailed description and analysis of differences between the adjusted income statement and that reported in the financial statements is contained in the “Analysis of Gaps between Adjusted Income Statement and Income Statement in Financial Statements” in the appendix to this release. EPS are the same for basic and diluted. Q3 and 9M 2019 include the results of both Bonide and Anpon following their acquisition in Q1 2019.
Commenting on the results, Yang Xingqiang, Chairman of ADAMA’s Board of Directors, said, “Our strong performance in the quarter aided in overcoming the challenges that we faced during the first-half of the year, bringing the Company to growth also over the nine-month period. With the continued development and rolling out of our pipeline of differentiated products in markets across the globe, we remain focused on executing our growth strategy and look ahead to concluding the year with positive momentum.”
Chen Lichtenstein, President and CEO of ADAMA, added, “We delivered record-high sales in both the quarter and nine-months, led by double-digit growth in North America as well as our differentiated, formulated and branded products in China. Latin America is performing strongly as it goes into its peak season, and we saw a pleasing contribution from Europe in its late season. The business growth was further bolstered by continued price increases. This performance drove growth in all profit-metrics in the quarter, despite the significant residual impact from the Jingzhou site disruption which is continuing to progress in its ramp-up of operations.”
Performance in Context of Market Environment
The third quarter saw drought conditions across Europe, Latin-America and parts of Asia-Pacific. In Europe, the dry weather delayed herbicide application in key crops and reduced oilseed rape planting areas. North America saw a partial recovery late in the season following the severe flooding seen in the first half of the year. Following a delayed start to the Indian monsoon season, conditions have improved.
Prices in key crops including wheat, corn and soybean softened somewhat during the quarter, which continues to challenge farmer income in most regions.
While product supply remains generally constrained due to the increased environmental focus in China causing industry-wide shortages in certain raw materials and intermediates, some capacity is returning to the market, yet procurement costs are still elevated compared to last year. The Company continues to raise its prices in all regions and contain its manufacturing and other operating costs to mitigate this impact.
Financial Highlights
Revenues in the third quarter grew strongly to $953 million, up 9% compared to $872 million in the same period last year in US dollar terms, and 11% up in constant currency terms. Nine-month sales reached $2,962 million, up 2% in US dollar terms compared to $2,918 million in the parallel period last year, and up 3% in constant currency terms, overcoming the significant headwinds encountered throughout the year. This strong growth was achieved despite the impact of the disruption at the Jingzhou old site, which constrains the supply of high-demand products in many geographies as it continues its gradual ramp-up of operations. The disruption at the site constrained third quarter sales by $55 million and nine-month sales by $162 million.
The third quarter saw a partial recovery in North America late in the season following the severe weather challenges seen in the first half of the year, with noteworthy performances in both the US and Canada. The Company also grew strongly in Europe in the third quarter, following a challenging first half of the year, despite the drought in the region, as well as in Brazil and the rest of Latin America, where its portfolio of differentiated products is driving increasing market penetration. In China, ADAMA continues to grow sales of its differentiated, formulated and branded products at significant double-digit rates.
Supportive demand facilitated further price increases in the quarter of an average 2% across all regions.
Gross profit grew 6% in the third quarter to $295 million (gross margin of 31.0%) compared to $279 million (gross margin of 32.0%) in Q3 2018, while gross profit in the nine-month period was $968 million (gross margin of 32.7%), in line with the $972 million (gross margin of 33.3%) recorded in the corresponding period last year. The somewhat lower gross margins reflect the impact of the Jingzhou old site disruption which constrained sales of backward-integrated products in high demand, as well as higher procurement costs and softer currencies, partially offset by higher pricing aimed at passing on the impact of the higher procurement costs, as well as an improvement in product mix in the quarter. The Jingzhou site disruption reduced third quarter gross profit by $24 million and nine-month gross profit by $64 million.
Operating income in the third quarter was $83 million (8.7% of sales) and $325 million (11.0% of sales) in the first nine months, compared to $81 million (9.3% of sales) and $353 million (12.1% of sales) in the corresponding periods last year, respectively. The Jingzhou old site disruption, including idleness costs, constrained operating income by $31 million in the third quarter and by $89 million in the nine-month period.
EBITDA in the third quarter was $144 million (15.1% of sales), up 8% compared to the $134 million (15.3% of sales) recorded in Q3 2018. In the nine-month period, EBITDA was $509 million (17.2% of sales), in line with the $512 million (17.6% of sales) recorded in the corresponding period last year. The Jingzhou old site disruption, including idleness costs, constrained EBITDA by $31 million in the third quarter and by $89 million in the nine-month period.
Table 2. Regional Sales Performance
Europe: Sales in Europe grew by 15.0% in the quarter and were lower by 8.1% in the first nine-months, in constant currency terms, compared to the corresponding periods last year. The strong performance in the quarter was driven by business growth, although only partially recovering from the supply-related challenges in the first half of the year, and despite a severe drought in the region which delayed herbicide application in cereals, reduced disease pressure in grapes and citrus, lowering consumption, and reduced oilseed rape planting areas.
In Northern Europe, sales grew strongly in the quarter driven by Germany and the Baltic countries. The Company restrains sales in Ukraine where liquidity remains challenging for distributors.
The Company saw robust growth in South Europe in the quarter with continued market share gains. Noteworthy performances were recorded in France, which experienced its second strongest harvest on record, as well as Italy and Iberia. Strong demand for insecticides compensated for the weak disease pressure in grapes and citrus.
The Company obtained a number of new registrations for differentiated products, including FOLPAN®, ADAMA’s proprietary fungicide treating key resistant diseases in cereals in Germany, PITCHER®, a differentiated mixture fungicide for flower-bulbs in the Netherlands and ZAKEO EXTRA®, a dual-action, wide spectrum fungicide in Greece.
In US dollar terms, sales in Europe grew by 12.1% in the quarter and were lower by 6.2% in the first nine months, compared to the corresponding periods last year, reflecting the impact of softer currencies over the periods.
North America: Sales grew by 28.8% in the quarter and by 5.7% in the nine-month period, in constant currency terms, compared with the corresponding periods last year. The significant increase in the quarter was achieved through a combination of robust organic business growth, increased prices and joiners.
The Company recorded strong growth in the quarter in both the US and Canada, partially recovering from the first-half floodings while benefiting from price increases in key backward-integrated products.
In US dollar terms, sales in North America grew by 28.8% in the quarter and 5.5% in the first nine months, compared to the corresponding periods last year.
Latin America: Sales grew by 10.1% in the quarter and by 16.7% in the first nine months, in constant currency terms, compared to the corresponding periods last year. Strong business growth in key countries in the face of a severe drought across the region, alongside continued price increases, more than offset the impact of constrained supply.
The Company continues to grow strongly in Brazil despite a delayed planting season in soybean and corn crops, driven by its differentiated product portfolio and key recently launched products. These include flagship product CRONNOS®, the triple-action fungicide for soybean rust which is performing strongly in its first year since launch, GALIL®, a differentiated combination insecticide and TRIVOR®, a dual-action insecticide for rapid and extended control of sucking pests.
Noteworthy performances were recorded in the quarter in Colombia, Bolivia, Mexico and Peru, while over the nine-month period, the leading contributors to growth were Peru and Colombia.
During the quarter, ADAMA launched several new products, including BREVIS®, a differentiated solution to optimize fruit load and size in apples in Argentina and TRIVOR®, in Colombia. The Company obtained a number of new registrations for differentiated products, including EXPERTGROW®, a range of biostimulants promoting the growth and development of multiple fruit, vegetables and flower crops in Peru, Paraguay and Bolivia.
In US dollar terms, sales in Latin America increased by 9.1% in the quarter and 11.9% in the first nine months, compared to the corresponding periods last year, reflecting the impact of generally softer currencies, and in particular the devaluation of the Argentinian Peso.
Asia-Pacific: Sales in the region grew by 8.6% in the third quarter and by 6.1% in the first nine months, in constant currency terms, compared to the corresponding periods last year, driven by business growth alongside continued price increases, while being affected by constrained supply of products of the Jingzhou old site.
In China, ADAMA continues to see strong demand for its differentiated, formulated and branded products, with sales growth of more than 25% in both the quarter and the first nine months, excluding those from the Jingzhou old site. In the first nine months of this year, ADAMA has launched 12 new products in China, driving this strong growth. Two new registrations of the NIMITZ® suite of products were obtained in the quarter. Anpon delivered a solid performance.
The third quarter saw robust growth in Japan and a resilient performance in Australia, despite the continued severe drought in the country which is significantly reducing summer crops. These compensated for the weather-related challenges seen throughout South-East Asia.
During the quarter, the Company obtained new registrations in Australia, including SOPRANO®, a cereal fungicide, and SOMBRERO®, an insecticide seed dressing for a wide range of crops.
In US dollar terms, sales in Asia-Pacific grew by 5.3% in the third quarter and by 1.9% in the first nine months, compared to the corresponding periods last year, reflecting the impact of softer currencies.
India, Middle East & Africa: Sales in the third quarter were lower by 3.4%, yet still grew by 2.3% in the first nine months, in constant currency terms, compared to the corresponding periods last year.
In India, the Company benefited from the start of the monsoon rains, but was impacted by shortages of key products produced at the Jingzhou old site. ADAMA saw noteworthy sales in the country of SHAMIR®, the novel dual-action combination fungicide for protection of multiple fruit and vegetable crops.
Over the nine-month period, India and Turkey delivered noteworthy performance.
In US dollar terms, sales were lower by 4.0% in the third quarter and by 2.4% in the first nine months, compared to the corresponding periods last year, reflecting the impact of softer currencies.
Table 3. Revenues by operating segment
Source: ADAMA
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