Investor relations section

ADAMA Reports First Quarter 2022 Results

Strong performance in Q1, with continued price increases while maintaining volume growth, significant increase in net profit

First Quarter 2022 Highlights

  • Sales up 28% to an all-time quarterly record-high of $1,420 million (RMB: +25%), driven by 18% higher prices and 14% volume growth
  • Improvement of Opex/Sales ratio of 19.8% vs. 20.1% in Q1 2021
  • Adjusted EBITDA up 28% to $201 million (RMB: +25%)
  • Adjusted net income up 44% to $75 million; Reported net income nearly tripled to $67 million (RMB: +187%)

BEIJING, CHINA and TEL AVIV, ISRAEL, April 27, 2022 – ADAMA Ltd. (the “Company”) (SZSE 000553), today reported its financial results for the first quarter ended March 31, 2022.

Ignacio Dominguez, President and CEO of ADAMA, said, "The first quarter has seen us deliver an extremely strong start to the year, with a combination of higher prices and continued volume growth. Indeed, over the past two years, we have seen robust demand for crop protection products as a result of high agricultural commodity prices and strong farmer profitability. Now in the first quarter, we are reminded once again that crop protection is a vital component in ensuring global food security. Uncertainties in the supply from Ukraine and Russia of agricultural inputs, such as fertilizers, as well as agricultural produce like wheat, barley and sunflowers, have increased concerns regarding food security. This encourages agricultural production in other geographies and exacerbates an already tight global supply of all agricultural inputs. We hope that the terrible situation in Eastern Europe reaches a peaceful resolution as fast as possible, and ADAMA is committed to play its role in ensuring food security, in this region and globally, while continuing to provide support to our people and our customers as they navigate through this very difficult time."

Table 1. Financial Performance Summary

USD (m)

As Reported

Adjustments

Adjusted

Q1 2022

Q1 2021

% Change

Q1 2022

Q1 2021

Q1 2022

Q1 2021

% Change

Revenues

1,420

1,109

+28%

-

-

1,420

1,109

+28%

Gross profit

360

305

+18%

54

17

414

322

+29%

% of sales

25.4%

27.5%


 

 

29.2%

29.0%

Operating income (EBIT)

124

65

+90%

9

33

133

98

+35%

% of sales

8.8%

5.9%

 

 

9.4%

8.9%

Income before taxes

71

29

+148%

9

33

80

62

+30%

% of sales

5.0%

2.6%

 

 

5.7%

5.6%

Net income

67

23

+193%

8

29

75

52

+44%

% of sales

4.7%

2.1%

 

 

 

5.3%

4.7%

EPS

 

 

 

 

 

 

 

 

- USD

0.0289

0.0099




0.0322

0.0223


- RMB

0.1836

0.0639




0.2045

0.1447


EBITDA

203

138

+48%

(2)

19

201

157

+28%

% of sales

14.3%

12.4%

 

 

14.2%

14.2%

 

Notes:

“As Reported” denotes the Company’s financial statements according to the Accounting Standards for Business Enterprises and the implementation guidance, interpretations and other relevant provisions issued or revised subsequently by the ChineseMinistry of Finance (the “MoF) (collectively referred to as “ASBE”). Note that in the reported financial statements, as a result of recent changes in the ASBE guidelines [IAS 37], certain items as of Q4 2021 (specifically certain transportation costs and certain idleness charges) have been reclassified from Operating Expenses to COGS. Please see the appendix to this release for further information.

Relevant income statement items contained in this release are also presented on an “Adjusted” basis, which exclude items that are of a transitory or non-cash/non-operational nature that do not impact the ongoing performance of the business, and reflect the way the Company’s management and the Board of Directors view the performance of the Company internally. The Company believes that excluding the effects of these items from its operating results allows management and investors to effectively compare the true underlying financial performance of its business from period to period and against its global peers. A detailed summary of these adjustments appears in the appendix below.

The number of shares used to calculate both basic and diluted earnings per share in Q1 of both 2021 and 2022 is 2,329.8 million shares.

The general crop protection market environment

Crop prices increased sharply during Q1 2022 as a result of concerns regarding supply, due mainly to the Russia-Ukraine conflict, and also due to persistent dryness in parts of South America. Prices are generally expected to remain high throughout 2022, incentivizing another year of increases in global planted areas. As a result, crop protection demand remains strong globally as farmers strive to maximize yields in this high crop price environment. Farmers continue to face elevated production costs, mainly from higher fertilizer prices resulting from disruption to supply and tight availability caused by the Russia-Ukraine conflict, yet their farming activities are nevertheless still very profitable in most regions.

The challenging cost environment of 2021 has extended into 2022. Global energy prices further increased during the quarter, impacted by Russia's strong share of global gas exports. In addition, global freight and logistics costs have recently increased again due to oil prices going up, while the availability of shipping resources continues to be limited. Despite some easing in procurement prices for raw materials, intermediates and active ingredients in China during the quarter, prices are expected to remain generally elevated and could increase further due to production disruptions and tight supply in China as COVID-19 impacts the country. Strong global crop protection demand, as well as the high energy prices, may exert additional upward pressure on such procurement prices. Additionally, the availability of certain intermediates, such as co-formulants, has become uncertain as higher energy prices have decreased the economic viability of their production, causing a spike in their prices.

Portfolio Development Update

In line with ADAMA's efforts to differentiate its product portfolio through unique formulations, during the first quarter of 2022, ADAMA registered and launched multiple new products in markets across the globe. Among these were:

  • Launch in Canada of SORADUO™, a broad-spectrum, long-lasting fungicide against Fusarium in wheat and barley that includes ADAMA's unique formulation of Prothioconazole and Tebuconazole. ADAMA is one of the first companies to produce in-house the recently off-patent Prothioconazole;
  • Continued rollout in Europe of TIMELINE® FX, a three-way herbicide mixture in an advanced formulation for a wide range of weeds in cereals;
  • Launch in Canada of ZIVATA™, a broad-spectrum insecticide with an advanced, renewably sourced formulation using sustainable plant-based materials;
  • Registration in the USA of CORMORAN®, a broad range, dual mode, long-lasting insecticide for use in tree nuts;
  • Registration in Australia of FIGHTBACK®, a dual mode herbicide for use in fallow land, pastures and others;
  • Registration in Mexico, Peru, Ecuador and other countries in Central America of MATTOK® a dual mode systematic broad-spectrum, long-lasting fungicide with unique anti-stress technology formulation for rice and corn.

Financial Highlights

Revenues in the first quarter grew by 28% (+25% in RMB terms) to $1,420 million, driven by a significant 18% increase in prices, a trend which started in the third quarter of 2021. The markedly higher prices were complemented by continued strong volume growth (+14%), including the contribution of newly acquired companies, achieved despite supply challenges in the market, which were only slightly moderated by the adverse impact of exchange rate movements.

Table 2. Regional Sales Performance

 

Q1 2022

$m

Q1 2021

$m

Change

USD

Change

CER

Europe

357

344

+3.6%

+5.7%

North America

284

189

+50.4%

+49.9%

Latin America

234

177

+32.5%

+31.5%

Asia Pacific

388

241

+60.8%

+62.8%

 Of which China

237

124

+90.6%

+87.7%

India, Middle East & Africa

157

158

-0.5%

+15.8%

Total

 

1,420

1,109

+28.0%

+31.2%

CER: Constant Exchange Rates

 

Europe: A strong performance in France, Romania and Poland, bolstered by good demand and high prices, more than offset a decline in sales in Ukraine, drought conditions in parts of southern Europe, and the adverse impact of exchange rates. The Company benefited from the sales in various countries of recently launched products POLEPOSITION® and TIMELINE® FX.

North America: The remarkably strong growth in sales in the first quarter was driven by the Consumer & Professional business, which experienced robust demand, allowing for price increases in light of concerns regarding potential shortages. This was further complemented by continued growth in US crop protection, driven both by higher volumes as well as higher prices, reflecting generally strong demand, especially in corn, soybeans, cereals and rice.

Latin America: Strong growth was achieved in Brazil due to early demand from farmers and higher prices, supported by good soybean and corn planting seasons, and despite drought conditions in the south of the country. This was complemented by demand for the Company's differentiated products, including the fungicides ARMERO™, ACROSS® and the herbicide ARADDO®, which are part of ADAMA's leading soybean protection offering.

Sales also grew in most of the countries of the wider region, driven by price increases, as the Company continues to strengthen its positioning throughout the region.

Asia-Pacific: The Company's rapid growth in Asia Pacific during the first quarter was led by the particularly strong increase in sales in China. The growth in China was led firstly by the sales of raw materials and intermediates, which continued to benefit from strong demand and high prices in light of ongoing tight supply following shutdowns in competing facilities due to environmental inspections and COVID-19, which has also disrupted and slowed down transportation. In addition, sales of ADAMA's branded, formulated portfolio in China also grew significantly, and were supported by a pleasing performance from the commercial activities and portfolio acquired from Huifeng at the end of 2020.

In the wider APAC region, strong sales were delivered in the Pacific region and in certain countries in the Far East, benefiting from favorable seasonal conditions, and despite the impact of the weakening of the Australian dollar.

India, Middle East & Africa: Sales in the region grew in constant exchange rate terms, mainly led by India, and despite the cold and rainy season in the Middle East and Africa which brought low insect and disease pressure. This growth is particularly noteworthy in light of a very strong first quarter in 2021 and was offset by the adverse impact of the depreciation of the Turkish Lira on the USD denominated sales.

Gross Profit reported in the first quarter was up 18% to $360 million (gross margin of 25.4%) compared to $305 million (gross margin of 27.5%) in the same quarter last year.

Adjustments to reported results: The adjusted gross profit includes all idleness costs and excludes transportation costs to third parties and its marketing subsidiaries (classified under operating expenses).

In the reported results, as of Q4 2021, following recent changes in the guidelines in China, the aforementioned transportations costs and opex idleness have been reclassified from operating expenses to costs of goods (not impacting the operating results), while these expenses were not recorded in the cost of goods in Q1 2021, but rather in the operating expenses.

Additionally, certain extraordinary charges related largely to a temporary disruption of the production of certain products, were adjusted in Q1 2021. These charges have significantly declined in Q1 2022, as the relocation and upgrade of the manufacturing Jingzhou site in China has been completed and is now almost fully operational.

Excluding the impact of the abovementioned extraordinary items, adjustedgross profit in the first quarter was up 29% to $414 million (gross margin of 29.2%) compared to $322 million (gross margin of 29.0%) in the same quarter last year.

In the quarter, the significantly higher gross profit and improvement in the adjusted gross margin were mainly driven by the markedly higher prices, complemented by continued volume growth, all of which more than offset higher logistics, procurement and production costs as well as the negative FX impact.

Operating expenses reported in the first quarter were $236 million (16.6% of sales) compared to $239 million (21.6% of sales) in the same quarter last year.

Adjustments to reported results: please refer to the explanation regarding adjustments to the gross profit in respect to certain transportation costs and idleness.

Additionally, the Company recorded certain non-operational, mostly non-cash, charges within its reported operating expenses amounting to $5.7 million in Q1 2022 in comparison to $16.0 million in Q1 2021. These charges include mainly (i) non-cash amortization charges in respect of Transfer assets received from Syngenta related to the 2017 ChemChina-Syngenta acquisition, (ii) charges related mainly to the non-cash amortization of intangible assets created as part of the Purchase Price Allocation (PPA) on acquisitions, with no impact on the ongoing performance of the companies acquired, as well as other M&A-related costs and (iii) non-cash, share-based compensation (incentive plans). For further details on these non-operational charges, please see the appendix to this release.

Excluding the impact of the abovementioned non-operational charges, adjustedoperating expenses in the quarter were $281 million (19.8% of sales), compared to $223 million (20.1% of sales) in the corresponding period last year.

The higher operating expenses in the quarter primarily reflect a doubtful debt provision for trade receivables in Ukraine, higher transportation and logistics costs driven by both volumes being transported and an increase in freight costs, as well as the inclusion of recent acquisitions.

Operating income reported in the first quarter was up 90% to $124 million (8.8% of sales) compared to $65 million (5.9% of sales) in the same quarter last year.

Excluding the impact of the abovementioned non-operational, mostly non-cash items, adjustedoperating income in the first quarter was up 35% to $133 million (9.4% of sales) compared to $98 million (8.9% of sales) in the same quarter last year.

EBITDA reported in the first quarter was up 48% to $203 million (14.3% of sales) compared to $138 million (12.4% of sales) in the same quarter last year.

Excluding the impact of the abovementioned non-operational, mostly non-cash items, adjustedEBITDA in the first quarter was up 28% to $201 million (14.2% of sales) compared to $157 million (14.2% of sales) in the same quarter last year.

Financial expenses and investment income were $53 million in the first quarter, compared to $36 million in the corresponding period last year. The higher financial expenses in the quarter were mainly driven by the net effect of the increase in the Israeli CPI on the ILS-denominated, CPI-linked bonds, and higher non-cash charges related to put options in respect of minority interests on recent acquisitions.

Taxes on income in the first quarter were $5 million, compared to $9 million in the corresponding period last year. The first quarter is generally characterized by a low effective tax rate compared to the effective tax rate of the Company over the full year. This is mainly due to the generation of profits by subsidiary companies within ADAMA whose tax rates are lower relative to the Company’s aggregate effective tax rate, as well as to the method of calculation of tax assets related to unrealized profits. In the first quarter of 2022, the low effective tax rate also reflects the tax income due to non-cash impact on the value of non-monetary tax assets of the significant strengthening of the BRL, while in the first quarter of 2021, the Company recorded tax expenses due to the impact of the weakening of the BRL.

Net income attributable to the shareholders of the Company reported in the first quarter was $67 million (4.7% of sales), up 193% compared to $23 million (2.1% of sales) in the corresponding period last year.

Excluding the impact of the abovementioned extraordinary and non-operational charges, adjustednet income in the first quarter was $75 million (5.3% of sales), up 44% compared to $52 million (4.7% of sales) in the corresponding period last year.

Trade working capital at March 31, 2022 was $2,695 million compared to $2,604 million at the same point last year. The slight increase in working capital was due to an increase in trade receivables, driven largely by its strong sales growth as well as the inclusion of a recently acquired company. The Company is holding higher inventory levels due mainly to the expectation of further volume growth in coming quarters as well as anticipated supply shortages and inventory costs increases. This increase in inventory levels was offset by higher trade payables. The trade capital/last twelve months sales ratio of 53% at March 31, 2022 in comparison to 61%, at March 31, 2021 demonstrates the improved efficiency in the Company's management of its working capital.

Cash Flow: Operating cash flow of $286 million was consumed in the quarter, compared to $129 million consumed in the corresponding period last year. The negative operating cash flow, which is seasonally typical for ADAMA in the first quarter, also reflects the higher build-up of working capital in the first quarter compared to the parallel quarter last year for supporting the growth of the business.

Net cash used in investing activities was $90 million in the quarter, compared to $109 million in the corresponding period last year. The cash used in investing activities in the first quarter of 2022 is largely related to investments in our differentiated portfolio (Core Leap) in Israel and Brazil as well as in China relocations. In the first quarter of 2021, the Company also recorded such investments in addition to the completion of the payment related to the acquisition of Jiangsu Huifeng’s domestic commercial crop protection business.

Free cash flow of $386 million was consumed in the first quarter compared to $248 million consumed in the corresponding period last year, reflecting the aforementioned operating and investing cash flow dynamics.

Table 3. Revenues by operating segment

First quarter sales by segment

Q4 2021

USD (m)

%

 

 

Q4 2020

USD (m)

%

Crop Protection

1,197

89.5%

1,032

90.5%

Intermediates and Ingredients

140

10.5%

109

9.5%

Total

1,337

100%

 

1,141

100%

 

First quarter sales by product category

Q4 2021

USD (m)

%

 

 

Q4 2020

USD (m)

%

Herbicides

582

43.5%

477

41.8%

Insecticides

359

26.8%

316

27.7%

Fungicides

256

19.1%

240

21.0%

Intermediates and Ingredients

140

10.5%

109

9.5%

Total

1,337

100%

 

1,141

100%

Note: the sales split by product category is provided for convenience purposes only and is not representative of the way the Company is managed or in which it makes its operational decisions.

 

Further Information

All filings of the Company, together with a presentation of the key financial highlights of the period, can be accessed through the Company website at www.adama.com.

About ADAMA

ADAMA Ltd. is a global leader in crop protection, providing solutions to farmers across the world to combat weeds, insects and disease. ADAMA has one of the widest and most diverse portfolios of active ingredients in the world, state-of-the art R&D, manufacturing and formulation facilities, together with a culture that empowers our people in markets around the world to listen to farmers and ideate from the field. This uniquely positions ADAMA to offer a vast array of distinctive mixtures, formulations and high-quality differentiated products, delivering solutions that meet local farmer and customer needs in over 100 countries globally. For more information, visit us at www.ADAMA.com and follow us on Twitter® at @ADAMAAgri.

Contact

Rivka Neufeld Zhujun Wang
Global Investor Relations China Investor Relations
Email: ir@adama.com Email: irchina@adama.com

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