Adama’s revenues increased 5.4% in Q3 2017

Adama’s revenues grew by 5.4% in the third quarter of 2017 and by 3.7% in the first nine-month period compared to the corresponding periods last year, in US Dollar terms. This growth was driven by an increase in volumes of an increasingly differentiated product portfolio of 7.4% in the quarter and 7.1% in the nine-month period, despite generally adverse agricultural market conditions. This clear volume growth was somewhat offset in the quarter and in the nine-month period by a generally softer pricing environment.



In the third quarter, sales also benefited from the strengthening of certain currencies against the dollar, mainly in Europe, compared to the corresponding quarter last year, which was offset by the lower contribution of currency hedging. Similarly, over the nine-month period, sales benefited from the strengthening of certain currencies against the dollar in a number of key regions such as Brazil and India, which was offset by the weakening of certain currencies against the US Dollar, most notably the Euro and the British Pound, compared to the corresponding period last year, as well as the lower contribution of currency hedging.

Gross profit increased by 10.6% in the quarter to $299 million, with gross margin up by 1.6 percentage points to 35.4% compared to the corresponding period last year. In the nine-month period, gross profit increased by 12.3% to $962 million, with gross margin up by 2.7 percentage points to 35.6%, compared to the corresponding period last year. The strong increase in profitability resulted from a combination of the robust volume growth, further improvement in portfolio mix towards a more differentiated offering, alongside continued reduction of costs. These factors were partially offset by the pricing environment, as well as by the lower contribution of currency hedging.

Operating income increased 28.0% in the quarter to $111 million, with an increase of 2.3 percentage points in operating margin to 13.1%, compared to the corresponding period last year. In the nine-month period, operating income rose by 25.7% to $397 million, with an increase of 2.6 percentage points in operating margin to 14.7%.

Net income in the quarter increased by 69.4% to $57 million, with an increase of 2.6 percentage points in net income margin to 6.8%, compared to the corresponding period last year. In the nine-month period, net income grew by 33.2% to $261 million, with an increase of 2.2 percentage points in net income margin to 9.7%.

EBITDA increased 15.3% in the quarter to $163 million, with an increase of 1.7 percentage points in EBITDA margin to 19.4%, compared to the corresponding period last year. In the nine-month period, EBITDA rose by 15.7% to $553 million, with an increase of 2.1 percentage points in EBITDA margin to 20.4%.

Commenting on the results, Yang Xingqiang, Chairman of the Combined Company, said, "During the quarter, we completed the combination between Adama and Sanonda, realizing our strategic vision of the creation of the first publicly traded, Global-China crop protection leader. In recent weeks, we aligned the Board of Directors and management team of the Combined Company. We are confident that our experienced global management will continue to lead the group towards new heights, capitalizing on its strong momentum in recent years as well as our unique positioning both globally and within the increasingly important China market."

Chen Lichtenstein, President and CEO of the Combined Company, added, “In our first quarter as a combined company, we are pleased to report these strong results, with notable volume growth of our differentiated portfolio driving both top-line expansion and continued significant increases in all profit and profitability metrics. With the completion of the combination of Adama and Sanonda, we have established China as our eighth regional commercial cluster, and now benefit from our end-to-end integrated structure and China build-up. We are also glad to be returning to the public equity markets, and look forward to engaging with both the China and global investor communities."

Regional sales



Europe: Sales were lower by 3.6% in the quarter and by 0.7% in the nine-month period, in constant currency terms, compared with the corresponding periods last year. In the quarter, unfavorable weather conditions combined with continuing high levels of inventory in the distribution channels, led to reduced demand and a decrease in the overall European crop protection market, keeping pressure on prices and volumes. Despite the challenging conditions, the Company’s sales volumes in Europe grew over the nine-month period, but were more than offset by the passing on to customers of a portion of the reduction in product costs.

A dry start to the quarter in Southern Europe led to reduced demand for fungicides and insecticides, leading to channel inventories remaining high, most notably in Italy and Spain. A wetter second half of the quarter saw a stronger performance in oilseed rape herbicides, particularly in France, but reduced cereal herbicide usage in Eastern Europe.

The harvest was slightly delayed in Northern Europe due to extensive rainfall, impacting the planting of oilseed rape and cereals in this region.

In US dollar terms, sales were lower by 1.9% in the quarter, reflecting the positive effect of the stronger exchange rate of the Euro during the quarter partially offset by the lower contribution of currency hedging, compared with the corresponding quarter last year. Over the nine-month period, sales in US dollar terms were lower by 2.8%, reflecting the impact of the weaker exchange rates over the nine-month period, as well as the lower contribution of currency hedging, compared with last year.

North America: Sales increased by 7.0% in the quarter and by 6.2% in the nine-month period, in constant currency terms, compared with the corresponding periods last year. These increases were driven by volume growth, notwithstanding the impact of extreme weather conditions experienced in the south of the US in the second half of the quarter, which was partially offset by the passing on to customers of a portion of the reduction in product costs.

The Combined Company saw good results in the US, driven by continued strong performance of its cotton portfolio, which is benefiting from increased acreage. Of particular note have been the contributions of the ACEPHATE 97 insecticide, which benefits from the Combined Company’s end-to-end integrated value chain, and Setup® 6SL plant growth regulator (containing the active ingredient Ethephon, sourced from a ChemChina group affiliate), which both continue to perform well, as well as CORMORANTM, a differentiated dual-action larvicide which delivers strong results as it expands into new crops and regions.

During the quarter, the Combined Company successfully relaunched the products transferred from Syngenta, bringing these strong brands – the Bravo family of fungicides (containing active ingredient Chlorothalonil), including the products Bravo Weather Stik®, Bravo Ultrex® and Bravo® ZN, as well as the insecticides Fulfill® (containing the active ingredient Pymetrozine), Trigard® and Armor® (both containing the active ingredient Cyromazine) – into the Combined Company’s offering.

The violent hurricanes experienced in the south of the US impacted farmers in the second half of the quarter, as well as the Consumer and Professional Solutions business.

In US dollar terms, sales increased by 7.1% in the quarter and by 6.1% in the nine-month period.

Latin America: Sales increased by 5.1% in the quarter in constant currency terms compared with the corresponding quarter last year. This increase was driven by significant volume growth, despite extreme weather conditions across the region, which was partially offset by the softer pricing environment. Sales were lower by 3.5% in the nine-month period in constant currency terms, compared with the corresponding period last year, with an increase in volumes being more than offset by pricing.

Extreme weather conditions across Latin America, including hurricanes in Central America, excessive rainfall in Argentina and drought in the beginning of the season in Brazil, combined with the earthquakes in Mexico, resulted in significant challenges for farmers in the region.

The Combined Company grew its sales in Brazil in the nine-month period, with an improved portfolio driving volume expansion, delivering a particularly noteworthy performance considering the overall decline in the Brazilian agrochemical market in the period with farmer profitability continuing to be impacted by generally low agricultural commodity prices, as well as continuing tight credit conditions and channel de-stocking. In Brazil in the third quarter, the Company saw a strong performance from its soybean portfolio, including the GALIL® insecticide and POQUER® herbicide, which is effective in combating increasing glyphosate-resistant weeds, as well as from ARREIO®, a herbicide launched last year which is performing well in pastures.

In Chile, sales of BREVIS®, a proprietary fruit thinner, performed well. New marketing initiatives in Colombia, focusing on increasing farmer engagement and demand creation, are driving the Combined Company’s business growth.

In US dollar terms, sales increased by 5.8% in the quarter and remained stable in the nine-month period compared with the corresponding periods last year, reflecting the impact of the appreciation of local currencies, primarily the Brazilian Real over the nine-month period, against the US dollar.

India, Middle East & Africa: Sales were lower by 0.8% in the quarter in constant currency terms, compared with the corresponding quarter last year, with a robust increase in volumes being offset by the impact of a change in the domestic tax regime in India. General sales tax is no longer added to sale prices, and also not deducted from product costs, thereby reducing top-line while not impacting profit. Adjusting for this change in the Indian tax regime, sales in the quarter in constant currency terms increased by 8.8%.

Sales in the region increased by 5.4% in the nine-month period in constant currency terms, and increased by 11.0% adjusting for the impact of the change in the tax regime in India, compared with the corresponding period last year. This increase resulted from a significant increase in volumes.

In India , the insecticide TAPUZ®, a unique combination of two active ingredients, one benefiting from the Combined Company’s end-to-end value chain, and the other sourced from an affiliate within the ChemChina group, is performing well in rice, cotton and other crops, while ACEMAIN®, a broad spectrum systemic insecticide also delivered a strong performance in cotton.

In South Africa, continued drought conditions in the Cape region are impacting wheat and vine products, while the Company continues to grow in Turkey, capitalizing on its strong sugar beet portfolio.

In US dollar terms, sales increased by 2.8% in the quarter and by 7.2% in the nine-month period, and increased by 12.4% and 12.8% adjusting for the impact of the change in the tax regime in India, reflecting the impact of the strengthening of several currencies, including the South African Rand and the Indian Rupee, both in the quarter and the nine-month period, compared to the corresponding periods last year.

Asia-Pacific: Sales increased by 20.0% in the quarter in constant currency terms, compared with the corresponding quarter last year, driven by an increase in differentiated product volumes. The volume growth reflects strong performance in New Zealand, China, Vietnam and Indonesia, driven by a strong product offering and increasing farmer engagement while benefiting from generally favorable weather conditions in various countries in the region, which were partially offset by the extremely dry conditions in Australia.

Sales increased by 18.7% in the nine-month period in constant currency terms, compared with the corresponding period last year. This increase was driven by significant volume growth, primarily in the Pacific, China and parts of south-east Asia, supported by new product launches driving a continually improving portfolio mix, which was partially offset by softer prices.

A number of unique and differentiated products obtained registrations in the quarter, including the fungicide CUSTODIA® for fruits and vegetables in the Philippines, the herbicide MAYORAL® for Sugarcane in Thailand, the insecticide TRIVOR® for Citrus in Australia, the herbicide NARKIS® for rice in Indonesia and the herbicide ZULU® XT for cereals in Australia.

In Australia, the Combined Company entered into a collaboration with Pessl Instruments to deliver a cost-effective hardware solution that combines with advanced disease modelling software to better predict the viability of the crop and assist farm advisers with input decisions.
In China, the Combined Company continues to expand its sales team and product portfolio, with new registrations for CORMORAN® in Apples and RIMON FASTTM in Cabbage. High insect pressure in rice drove increased sales of Dichlorvos.
In US dollar terms, sales increased by 21.7% in the quarter and by 18.1% in the nine-month period compared to the corresponding periods last year, reflecting the appreciation in the quarter of the local currencies, primarily the Australian Dollar, against the US dollar.