ADAMA: Robust business growth and increased profits in the fourth quarter conclude a resilient performance in a challenging year

ADAMA Ltd. reported its financial results for the fourth quarter and full-year period ended December 31, 2020.

Financial Highlights

Revenues grew by 17% in the fourth quarter and by 11% in the full-year period, in CER terms, compared to the corresponding periods last year, driven by a 16% increase in volumes in the quarter and a 10% increase over the full year.

In the fourth quarter, the Company delivered strong, double-digit growth in all key regions in constant currency terms. A particularly strong performance in the quarter in North America saw the region almost fully recover from the severe weather and other challenges seen mainly in the US earlier in the year. Similarly strong growth was achieved in Europe in the quarter, bolstered by good consumption by farmers and the Company’s acquisition in Greece in mid-year, bringing the region into positive growth territory for the full year. Favorable weather conditions in the quarter in Asia-Pacific supported growth across the region, with noteworthy performances seen in Australia, Japan and across south-east Asia. The India, Middle East & Africa region delivered continued growth, with noteworthy performances seen in India and South Africa, which also enjoyed supportive seasonal conditions. ADAMA continues to grow its market share in Latin America, led by strong business growth in Brazil, despite challenging weather in some parts which delayed the soybean planting season, as well as solid performances in Chile, Peru, Colombia and Mexico.

The robust growth in the fourth quarter drove ADAMA to achieve record-high sales in 2020. The Company saw its strongest growth over the year in the emerging markets of Latin America and the India, Middle East and Africa region, as well as in APAC. Its performance was further bolstered by various acquisitions completed in 2020, including in Greece and Paraguay.

In US dollar terms, sales in the fourth quarter grew by 10% and by 3% in the full-year period, compared to the corresponding periods last year, reflecting the impact of the generally weaker currencies, especially in the emerging market regions where the Company is growing the fastest. The currency weakness constrained sales in US dollar terms by an estimated $71 million in the fourth quarter and by an estimated $293 million over the full year.

Gross profit: Reported Gross Profit in the fourth quarter was $330 million (gross margin of 28.9%) and $1,173 million (gross margin of 28.4%) in the full-year period, compared to $291 million (gross margin of 28.1%) and $1,217 million (gross margin of 30.4%) in the corresponding periods last year, respectively.

China Relocation & Upgrade Program

ADAMA continues to progress on the relocation and upgrade of its production and environmental facilities at both its Jingzhou (Hubei Province) and Huai’An (Jiangsu Province) sites. Despite the temporary suspension of the Jingzhou site at the outbreak of the COVID-19 pandemic in Q1 2020, and some delays due to severe flooding in the area a few months later, the Company is expecting to start production at the new site in Jingzhou within the next few months. The first phase of the Huai’An relocation is expected to be completed by the end of 2022.

In addition to the significant capital sums being invested in the Relocation & Upgrade program, the Company recorded largely relocation-related costs within its Cost of Goods Sold of approximately $5 million in the fourth quarter (Q4 2019: $19 million) and $50 million in the full-year period (2019: $60 million). These charges include mainly (i) higher procurement costs incurred as the Company continued to fulfill demand for its products, in order to protect its market position, through replacement sourcing at significantly higher costs from third-party suppliers, (ii) higher idleness charges largely related to suspensions at the facilities being relocated as well as to the temporary suspensions of the Jingzhou site in both Q1 2020 (at the outbreak of COVID-19 in Hubei Province) as well as Q1 2019 (due to environmental inspections carried out at the time), and (iii) non-cash accelerated depreciation charges related to terminated facilities at the old sites.

Excluding the impact of the abovementioned largely non-recurring and relocation-related costs, the Company recorded adjusted gross profit of $335 million (gross margin of 29.4%) in the fourth quarter and $1,223 million (gross margin of 29.6%) in the full-year period, compared to $310 million (gross margin of 29.9%) and $1,276 million (gross margin of 31.9%) in the corresponding periods last year, respectively.

The higher gross profit achieved in the fourth quarter was driven by the strong volume growth, alongside lower procurement costs, more than offsetting the continued impact of generally weaker global currencies, which constrained gross profit by an estimated $62 million.

Over the full-year period, the significant currency weakness constrained gross profit by an estimated $247 million, outweighing the Company’s robust business growth and lower procurement costs, resulting in lower gross profit when compared to the same period last year.

Operating expenses: Total Reported operating expenses of $267 million (23.4% of sales) were recorded in the quarter and $922 million (22.3% of sales) in the full-year period, compared to $326 million (31.5% of sales) and $993 million (24.8% of sales) in the corresponding periods last year, respectively.

In addition to the abovementioned relocation-related costs included in its Cost of Goods Sold, the Company recorded within its operating expenses a further $39 million in the fourth quarter (Q4 2019: $115 million) and $93 million in the full-year period (2019: $178 million) in non-operational, mostly non-cash items, including mainly, (i) amortization charges related to various historical corporate development activities, (ii) expenses in respect of early retirement (mainly in 2020) and severance of employees (largely in 2019 and related to the China relocation and upgrade project), (iii) asset impairment charges recorded largely in 2019 and mainly related to facilities being relocated, and (iv) adjustments for non-cash/non-operational income related to incentive plans and a capital gain recognized on acquisition of control of an equity investee.

Excluding the impact of the abovementioned extraordinary, mostly non-cash items, the Company recorded total adjusted operating expenses of $228 million (20.0% of sales) in the quarter and $829 million (20.1% of sales) in the full-year period, compared to $212 million (20.5% of sales) and $815 million (20.4% of sales) in the corresponding periods last year, respectively.

The Company continues to maintain strong operating cost discipline while accommodating significantly higher sales and the inclusion of acquisitions. Operating expenses in the 2020 periods benefited from the global currency weakness against the US dollar when compared to prior periods, and were further aided by the impact of COVID-19 restrictions that caused savings on certain expenses, while operating expenses in the 2019 periods were net of income related to expropriation of land recorded then.

Operating income: Reported operating income in the fourth quarter was $63 million (5.5% of sales) and $251 million (6.1% of sales) in the full-year period, compared to -$36 million and $224 million (5.6% of sales) in the corresponding periods last year, respectively.

Excluding the impact of the abovementioned non-operational, mostly non-cash items, adjusted operating income in the fourth quarter was $107 million (9.4% of sales) and $394 million (9.6% of sales) in the full-year period, compared to $98 million (9.4% of sales) and $462 million (11.5% of sales) in the corresponding periods last year, respectively.

The global currency weakness impacted operating income by an estimated $59 million in the quarter and $224 million in the full-year period.

EBITDA: Reported EBITDA in the quarter was $154 million (13.5% of sales) and $592 million (14.4% of sales) in the full-year period, compared to $95 million (9.2% of sales) and $610 million (15.3% of sales) recorded in the corresponding periods last year, respectively.

Adjusted EBITDA in the quarter was $168 million (14.7% of sales) and $628 million (15.2% of sales) in the full-year period, compared to $155 million (15.0% of sales) and $692 million (17.3% of sales) recorded in the corresponding periods last year, respectively.

The global currency weakness impacted EBITDA in the fourth quarter by an estimated $59 million and $224 million in the full-year period.

Europe: Sales grew by 10.7% in the fourth quarter and by 1.7% in the full-year period, in CER terms, compared with the corresponding periods last year.

The strong double-digit growth in the quarter was driven by good consumption of cereal herbicides by farmers, which more than offset the lower insecticide applications on key crops such as oilseed rape, due to weather challenges. Northern Europe benefited in the quarter from an early start to the 2021 season. The Company continued to deliver a pleasing performance in Greece, following its recent acquisition in the country.

The robust performance in the quarter saw ADAMA deliver positive growth in the region over the full year period, driven by moderate volume growth which was partially offset by a somewhat softer pricing environment. The Company continues to gain market share in key countries in the region, with strong performances over the full year in Germany, Poland and Ukraine, as well as in Italy and France, despite an overall contraction of the market in the country.

During the quarter, the Company obtained multiple new registrations, including ADAMA’s self-produced prothioconazole-based solution in the UK, a further milestone in the journey of this molecule that is expected to be a key contributor to the Company’s future growth. ADAMA achieved the registration of TIMELINE FX^®, a cross-spectrum herbicide for spring cereal, in Lithuania, penetrating an important segment in the region.

In US dollar terms, sales grew by 14.7% in the quarter and by 0.5% in the full-year 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 relatively weaker levels over much of the full-year period.

North America: Sales grew by 14.7% in the fourth quarter but were lower by 0.9% in the full-year period, in CER terms, compared with the corresponding periods last year. The robust business growth in the quarter saw the Company almost fully overcome the severe weather-related challenges and COVID-19 impact seen earlier in the year.

Sales of crop protection products in the US and Canada in the quarter benefited from strong demand, especially for fall burndown herbicides, which more than offset a challenging season for cotton growers. The quarter also saw good momentum being generated by the Company’s portfolio of recently launched products targeting the Spring 2021 season, among them the FullPageTM rice cropping system, which enjoyed early demand from growers following the considerable increases in rice yields seen in the 2020 season.

Continued growth of the Company’s Consumer and Professional Solutions business in the quarter brought a resilient finish and a pleasing performance in what was a challenging year.

In US dollar terms, sales grew by 14.4% in the quarter but were lower by 1.2% in the full-year 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 24.9% in the fourth quarter and by 29.9% in the full-year 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 weakening of the currencies in the region.

In Brazil, a strong performance in the quarter resulted in continued market share gain, despite experiencing unstable weather which delayed soybean planting and reduced cotton acreage, as well as continued COVID-19-related challenges. The Company also recorded strong growth in the quarter in Colombia and Chile, as well as in Peru and Paraguay, bolstered by its recent acquisitions in those countries, and offsetting the impact of severe drought conditions in several countries in the region, including Argentina. Over the full-year period, the Company delivered strong business growth in the region in CER terms, driven by significant volume growth, most notably in Brazil as well as Mexico, Chile and Argentina, alongside local currency price increases, mainly in Brazil.

During the quarter, the Company obtained more than a dozen new product registrations in the region, including ACROSS^® broad spectrum fungicide, ARREMATE^® triple mode herbicide, both in Brazil, as well as MATTOK^® a differentiated combination fungicide and bio-stimulant, in Colombia and Honduras, and PLETHORA^® a unique and highly efficient combination insecticide for key crops in Colombia.

In US dollar terms, sales in the region grew by 2.5% in the quarter and 6.5% in the full-year 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 12.9% in the quarter and by 5.4% in the full-year period, in CER terms, compared to the corresponding periods last year.

In Asia-Pacific (outside of China), the Company delivered strong business growth across the region in the quarter, with noteworthy performances seen in Australia and across South East Asia and Japan, benefiting from favorable weather conditions. The strong growth in the quarter capped a pleasing performance over the full year period in this part of the region, despite COVID-related challenges seen throughout the year. During the quarter, the Company launched a new product in New Zealand, GOLTIX GOLD^®, featuring a unique formulation with reduced hazard profile and improved efficacy for controlling weeds in beet crops.

In China, the Company recorded double-digit volume growth in the quarter, with strong sales of raw materials and intermediates, albeit at lower prices due to increased supply generally from Chinese producers. In the full-year period, ADAMA continued to deliver solid growth of its branded, formulated portfolio. The Company significantly enhanced its commercial reach in China, by acquiring a majority stake in Dibai, Jiangsu Huifeng’s domestic commercial crop protection business. This transaction is a significant milestone in ADAMA’s continuous commercial expansion in China, and will significantly bolster the Company’s commercial activities, positioning and offering in this key strategic market. In addition, the Company continues to work towards the Closing of the second phase of the transaction with Huifeng (the acquisition of a majority stake in most of Huifeng’s manufacturing operations), which is currently expected to close during the second quarter of 2021.

In US dollar terms, sales in the region grew by 16.8% in the fourth quarter by 3.8% in the full-year period, compared to the corresponding periods last year, reflecting mainly the strengthening of the Chinese Renminbi and the Australian dollar against the US dollar in the quarter, contrasted with the generally weaker currencies over the full-year period.

India, Middle East & Africa: Sales grew by 12.8% in the quarter and by 13.9% in the full-year period, in CER terms, compared to the corresponding periods last year, driven by strong volume growth.

The growth in the region over the quarter was driven by strong performances in all key countries, notwithstanding the ongoing COVID-19 restrictions, with noteworthy performances seen in India and South Africa, which benefited from favorable weather and cropping conditions. Turkey continued to grow in the quarter, despite experiencing a major earthquake which temporarily suspended commerce in the country, and following challenges seen earlier in the year due to lower demand for cotton as a result of the pandemic. The strong performance over the full year saw the Company take advantage of the good monsoon season in India as well as positive seasonal conditions in South Africa, to drive significant volume-led business growth across the region.

During the quarter, the Company launched multiple new products in India, including ZAMIR^®, a systemic and long-acting fungicide in wheat, as well as FLAMBERGE^®, a bio-stimulant, strengthening its portfolio in this key segment.

In US dollar terms, sales in the region grew by 10.5% in the quarter and by 8.7% in the full-year 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.

Read the full report here.