ADAMA reports results for third quarter and first nine months of 2020

Date:10-30-2020

- Record Q3 Sales of $978 million, +12% at constant exchange rates (CER), +3% in USD (RMB: +2%)

Driven by 11% volume growth, led by continued growth in emerging markets

Sales in US dollar terms impacted by an estimated $88 million due to weaker currencies

- Record 9M Sales of $2,987 million, +8% in CER terms, +1% in USD (RMB: +3%)

Continued strong 8% volume growth despite ongoing global COVID-19 constraints 

Sales in US dollar terms impacted by an estimated $222 million due to weaker currencies

- Q3 Net Income of $21 million (Q3'19: $42 million); estimated FX impact of approximately $81 million  

Reflects lower operating income, higher financial expenses

- 9M Net Income of $95 million (9M'19: $173 million); estimated FX impact of approximately $201 million

Reflects lower operating income, higher tax expenses due to BRL weakness in Q1

ADAMA Ltd. (the "Company") (SZSE 000553), Thursday reported its financial results for the third quarter and nine-month period ended September 30, 2020.  

Ignacio Dominguez, President and CEO of ADAMA, said, "In these unprecedentedly challenging and concerning times, and despite the widespread constraints on, and changes in, how we do business all over the world, our Company continues to deliver record business growth, both in the third quarter and over the nine-month period. However, while global currencies recovered somewhat against the US Dollar in the third quarter, when compared to the prior year currencies remained generally weaker, especially in emerging markets where our growth is strongest, which continued to restrain our sales growth and has severely impacted our profitability in USD terms. Despite this, our underlying business remains strong, with continued robust business growth and market share gains in certain key markets, combined with lower procurement costs and reduced operating expenses, while we remain focused on helping farmers worldwide to do what they do best, feed the world."  

Performance in Context of Market Environment

During the third quarter of 2020, the global agrochemical market is expected to have seen moderate growth, as the residual impact from COVID-19 continues to linger in many markets. Crop prices have recovered in many key crops, however, for some such as cotton, planted acreage was lower due to the lower crop prices at the time of planting during the first half of the year, impacting sales in this segment in markets such as the US, Brazil and Turkey. Governments across the world continue to include farmers in extensive support programs, partially offsetting lost income due to the pandemic.

While global currencies recovered somewhat against the US Dollar during the third quarter, they generally remained significantly weaker when compared to the third quarter and first nine months of 2019, especially in the emerging markets where the Company is seeing its strongest growth.

Following an extended period of industry-wide supply constraints in recent years due to the increasingly stringent environmental regulations imposed on Chinese producers, during the first half of the year, procurement costs of chemical raw materials and intermediates started to decline as general levels of production and supply increased. This increase in production and supply was seen despite some disruptions due to the initial COVID-19 outbreak in the first quarter.

The Company started to benefit from this trend in the third quarter as these lower procurement costs have migrated through the Company's inventory cycle. However, the lower prices have also had a negative impact on the Company's sales of chemical raw materials and intermediates, which form part of its Ingredients & Intermediates business in both China and Israel. 

Acquisition of Huifeng

On October 29, 2020, ADAMA announced the acquisition of a majority stake in a newly established company that will hold the vast majority of the crop protection synthesis and formulation facilities of Jiangsu Huifeng Bio Agriculture Co., Ltd ("Huifeng"), a leading Chinese crop protection producer and key player in the Chinese crop protection market.

Financial Highlights

Revenues in the third quarter grew by 12% and by 8% in the nine-month period, in CER terms, compared to the corresponding periods last year. This growth was driven by strong increases in volumes, up 11% in the quarter and 8% in the nine-month period.

Growth in the quarter was led by a strong performance in Latin America, driven by robust volume growth across the region despite widespread COVID-19 related restrictions. Continued growth was also seen in Asia-Pacific as well as in the India, Middle East & Africa region. The noteworthy growth in the quarter in these regions more than compensated for lower sales in Europe and North America, largely due to challenging weather conditions.

In US dollar terms, sales grew by a more moderate 3% in the quarter and 1% in the nine-month period (2% and 3%, respectively in RMB terms), compared to the corresponding periods last year. The lower growth in USD (and RMB) terms reflects the generally weaker currencies, especially in the emerging markets of Latin America and the India, Middle East & Africa regions where the Company is growing the fastest, which constrained sales in US dollar terms by an estimated $88 million and $222 million, respectively, when compared to the same periods last year.

Europe: Sales were lower by 5.0% in the third quarter and by 0.7% in the nine-month period, in CER terms, compared with the corresponding periods last year.

The lower sales in the quarter were largely due to the widespread extreme drought conditions which reduced crop protection application in key crops such as oilseed rape and winter cereals, resulting in some delayed sales, as well as high inventories in distribution channels. During the quarter, ADAMA completed the acquisition of the remaining 51% of Alfa in Greece, bolstering its activities in this important market. 

During the quarter, the Company obtained multiple new product registrations in the region, including COLT^®, a herbicide for the control of broadleaf weeds in winter cereals and pasture, and FOLPAN GOLD^®, a systemic fungicide to combat grapevine mildew, both registered in Bulgaria.

In US dollar terms, sales were lower by 4.0% in the quarter and by 3.2% in the nine-month period, compared to the corresponding periods last year, reflecting the net impact of the relative strengthening of European currencies against the US dollar in the quarter, contrasted with their relative weakness over the nine-month period.

North America: Sales were lower by 9.3% in the third quarter and by 7.1% in the nine-month period, in CER terms, compared with the corresponding periods last year.

Crop protection sales were markedly lower, largely due to disruptive weather conditions in the US which saw windstorms damage corn fields in the mid-west, fires raging in the orchards and vineyards of California and Oregon, and a heatwave challenging cotton farmers in Texas already contending with reduced demand due to the COVID-19 impact on the apparel industry, alongside low insect pressure impacting sales of insecticides. This was partially mitigated by the robust performance of the Company's Consumer and Professional Solutions business, which continues its strong recovery from the COVID-19 related challenges seen earlier in the year.

The Company continued to expand its differentiated product offering in the region, following the earlier launches in Canada of CUSTODIA^®, a combination fungicide controlling a wide range of diseases in corn, soybeans and wheat, as well as ORIUS^®, a broad-spectrum fungicide for wheat, barley and oat crops.

In US dollar terms, sales were lower by 9.3% in the quarter and by 7.6% in the nine-month period, compared to the corresponding periods last year, reflecting the moderate weakening of the Canadian Dollar seen in the first half of the year.

Latin America: Sales grew by a robust 38.7% in the third quarter and by 32.7% in the nine-month period, in CER terms, compared to the corresponding periods last year, driven by significant volume growth in key countries and continued price increases to partially compensate for the material weakness of the currencies in the region, and despite widespread COVID-19 related restrictions.

The Company saw significant volume growth in Brazil, driven by strong performances from its differentiated product portfolio including flagship product CRONNOS^®, the triple-action fungicide for soybean rust, GALIL^®, a differentiated combination insecticide and TRIVOR^®, a dual-action insecticide for rapid and extended control of sucking pests, following its successful 2019 launch.

Noteworthy performances were also recorded in Argentina, Colombia, Mexico and Paraguay, as well as in Peru, bolstered by the Company's recent acquisition in the country.

On October 14, 2020, ADAMA acquired a majority stake in FNV S.A., its key crop protection distributor in Paraguay, strengthening the Company's commercial presence in this important market and providing ADAMA with direct market access, ensuring the sustainability and growth of its key distribution platform.

During the quarter, the Company obtained multiple new product registrations in the region, including ARADDO^®, a complete solution for the management of a wide range of glyphosate-resistant weeds in soybean, corn and wheat crops in Brazil.

In US dollar terms, sales in the region grew by 10.9% in the quarter and 8.6% in the nine-month period, compared to the corresponding periods last year, as the robust business growth was heavily impacted by weaker currencies in the region, in particular the significant decline in the Brazilian Real against the US dollar.

Asia-Pacific: Sales grew by 5.3% in the quarter and by 3.4% in the nine-month period, in CER terms, compared to the corresponding periods last year, driven by continued volume growth.

In Asia-Pacific (outside of China), the Company saw strong performance from Australia and New Zealand, benefiting from favorable weather, and more than offsetting challenging seasonal conditions in South East Asia.

During the quarter, the Company obtained multiple new product registrations in the region, including ULTRO^® 900 (Carbetamide), a herbicide for the control of grasses in all pulse crops. This is a new active ingredient in Australia for broadacre cropping, the country's largest cropping segment.

In China, the Company delivered moderate growth in the quarter, with a strong performance from its branded, formulated sales being partially offset by lower prices received for its raw materials and intermediates due to increased supply generally from Chinese producers. The growth in the formulated products was supported by new product launches including AN GUO XUAN^®, a protective fungicide for tomatoes, and XIN TUO LONG^®, an effective growth regulating solution for cotton harvesting in the Xinjiang region.

In US dollar terms, sales in the region grew by 7.0% in the third quarter but were flat over the nine-month period, compared to the corresponding periods last year, reflecting the strengthening of the Chinese Renminbi against the US dollar in Q3, contrasted with the generally weaker currencies over the nine-month period.

India, Middle East & Africa: Sales grew by 7.5% in the quarter and by 14.2% in the nine-month period, in CER terms, compared to the corresponding periods last year, driven by robust volume growth.

The growth in the region was driven mainly by a strong performance in India, which benefited from above-average monsoon rains and good cropping conditions.

During the quarter, the Company continued to expand its hybrid product offering in the region, launching TRIGUS^®, an insecticide for use on sucking pests, in India.

In US dollar terms, sales in the region grew by 2.8% in the quarter and by 8.3% in the nine-month period, compared to the corresponding periods last year, reflecting the impact of softer currencies, most notably the Turkish Lira, the Indian Rupee and the South African Rand.