ADAMA reports third quarter and first nine months 2024 results

• Q3 2024 adjusted gross profit 14% above Q3 2023, representing a third consecutive quarter of improvement in adjusted gross margin. Profitability improvement achieved following strict management of inventory supporting lower costs, as well as the continued focus on differentiated products and de-focus from low margin products supporting positive product sales mix;

• Q3 2024 adjusted EBITDA more than doubled over Q3 2023, second consecutive quarter of improvement in EBITDA and EBITDA margin, with 9M 2024 adjusted EBITDA 6% above 9M 2023, reflecting continued OPEX management measures;

• Significant improvement in cash flow despite challenging market conditions; Operating cash flow of $402 million achieved in 9M 2024 in comparison to $63 million in 9M 2023; Positive free cash flow of $179 million achieved in 9M 2024 in comparison to a negative cash flow of $276 million in 9M 2023. 

Third Quarter 2024 Highlights:

• Sales down 10% to $929 million (-11% in RMB terms; -6% in CER¹ terms), mainly reflecting a 7% decrease in prices despite a 1% increase in volumes

• Adjusted gross profit up 14% to $225 million (margin of 24.2%) from $198 million (margin of 19.2%) in Q3 2023 

• Adjusted EBITDA up 125% to $80 million (margin of 8.6%) from $35 million (margin of 3.4%) in Q3 2023

• Adjusted net loss of $78 million; Reported net loss of $133 million 

• Improvement of $77 million in operating cash flow; of $159 million in Q3 2024 vs $82 million in Q3 2023

• Improvement of $150 million in free cash flow; $128 million in Q3 2024 vs -$22 million in Q3 2023 

First Nine Months 2024 Highlights:

• Sales down 14% to $3,028 million (-13% in RMB terms; -12% in CER terms), mainly reflecting a 9% decrease in prices and a 3% decrease in volumes

• Adjusted gross profit amounted to $782 million (margin of 25.8%) vs $815m (margin of 23.1%) in 9M 2023 

• Adjusted EBITDA up 6% to $332 million (margin of 11.0%) from $312 million (margin of 8.9%) in 9M 2023 

• Adjusted net loss of $149 million; Reported net loss of $259 million 

• Improvement of $339 million in operating cash flow; $402 million in 9M 2024 vs $63 million in 9M 2023

• Improvement of $455 million in free cash flow; $179 million in 9M 2024 vs -$276 million in 9M 2023 

ADAMA Ltd. (the ″Company″) (SZSE 000553), reported its financial results for the third quarter and first nine months of 2024 that ended September 30, 2024.

Gaël Hili, President and CEO of ADAMA, said, "ADAMA's financial results for the third quarter of 2024 are an indication of the steady turnaround the Company is making. We have again demonstrated marked improvements in our quality of business and cash generation. Our decision to de-focus from certain commoditized generics, coupled with our continued focus on higher value, differentiated products, has led to improvement in the gross margin for the third quarter in a row and in the EBITDA & EBITDA margin for the second quarter in a row. The fierce competition in the market, mainly in such commoditized generics, validates this was the right decision for ADAMA.

"With three quarters of progressive improvements under our belt, I am confident that the "Fight Forward" transformation plan is putting the company on the right path for future success and I plan to accelerate its implementation. In the coming months we will implement our evolved operating model aimed at deploying resources in countries where we can best drive profitable growth, enhancing our commercial operations, functional excellence, and customer engagement in key markets, creating greater cross company ‎efficiencies. ‎I also strongly believe that ADAMA's portfolio strategy focused on delivering innovative products with attractive ROI for farmers is exactly the right one for the challenging market conditions we see, especially as farmer purchase power continues to be impacted across the world.

"On a personal note, I am excited to join ADAMA at this transformative time and look forward to shaping the company, together with our Global Leadership Team, to face and succeed in this challenging environment." ‎

Table 1. Financial Performance Summary

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 Chinese Ministry of Finance (the ″MoF) (collectively referred to as ″ASBE″). Note that in the reported financial statements, according to the ASBE guidelines [IAS 37], certain items (specifically certain transportation costs and certain idleness charges) are classified under 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 both Q3 and 9M 2024 and 2023 is 2,329.8 million shares.

• In this table and all tables in this release numbers may not sum due to rounding.

The General Crop Protection (CP) Market Environment²

During the third quarter of 2024, key commodity crop prices remained subdued, pressuring farmer income, despite some ease in the prices of inputs.

While channel inventory continues to ease, the high interest rate environment coupled with ample product supply and active ingredient prices from China remain at historic lows, continue to drive a just-in-time purchasing approach by the channel.

These dynamics have negatively impacted the pricing in the crop protection market.

Update on the War Situation in Israel

ADAMA is headquartered in Israel and has three manufacturing sites in the country. The war situation in Israel, including recent developments, and tensions in the Red Sea and shipping disruptions, have not had a material impact on the Company's ability to support its markets or on ADAMA’s consolidated financial results.

"Fight Forward" Transformation Plan

As announced in the ADAMA's full year 2023 financial results report, ADAMA initiated a plan in the first quarter of 2024 to revalue ADAMA through improving the quality of the business to turnaround the ‎Company. The Company-wide transformation plan is aimed at gradually delivering profit and cash targets over a period of 3 years (2024-2026).

Portfolio Development Update

Product Launches, Registrations:

During the third quarter of 2024 ADAMA continued to register and launch multiple new products in markets across the globe, adding on to its differentiated product portfolio.

Differentiated products address specific grower needs with strong ROI for farmers through innovative formulation technology and/or novel mixing concepts of Active Ingredients.

Select launches of differentiated products during the third quarter of 2024 include:

• Launch of Bazak^® in India, powered by ADAMA's proprietary formulation technology. Bazak^® is an innovative dual mode insecticide controlling brown plant hoppers in rice, based on the combination of two systemic molecules (Pymetrozine and Dinotefuran). ADAMA's proprietary effervescent formulation technology, which is patent protected, provides superior and faster disintegration of granules, once added in to spray water. This technology ensures easy mixing and ease of use in farm level application.

  
  

• Launch of Upturn^® in India, powered by Ayalon™ formulation technology for enhanced spreading and penetration. Upturn^® is a microemulsion formulation herbicide combining the active ingredients Fomesafen and Propaquizafop, providing control over both broadleaf and grassy weeds, ensuring enhanced crop protection for Pulses and Soybeans.

Selected registrations of differentiated products during the third quarter of 2024 include:

• Registration of Prothioconazole based products in additional countries:

  
  

• Soratel^® in Germany, Italy, Belgium and Bulgaria, powered by ADAMA’s proprietary Asorbital^® Formulation Technology

• Maganic^® in Germany, powered by ADAMA’s proprietary Asorbital^® Formulation Technology

• Forapro^® in Hungary, powered by ADAMA’s proprietary Asorbital^® Formulation Technology

• Maxentis^® in Argentina, Australia, Austria, Belgium, Poland, Slovakia, US

  
  

• Registration of Matos^® in South Korea, an insecticide powered by Ayalon™ formulation technology for enhanced spreading and penetration. Matos is the first worldwide registration of an ADAMA Spirotetramat based solution.

  
  

• Registration of ‎Edaptis^® in Italy, Czech Republic and Greece. Edaptis^® is an innovative dual mode action post emergence ready-to-use herbicide that provides broad-spectrum control of grassy weeds and improved efficacy in combating resistant populations.

  
  

• Registration of ‎Plethora^® in Mexico. Plethora is an innovative insecticide that combines two potent active ingredients, Novaluron and Indoxacarb. Designed for broad-spectrum control of chewing pests, it offers farmers the advantage of not needing to identify the specific pest before application.

  
  

• Registration of ‎Sonavio^® in Portugal. Sonavio is a selective herbicide based on Bifenox with high efficacy against broadleaf weeds and is suitable for use on various crops, notably some vegetables which currently have very few weed control solutions.

Select patents granted during the third quarter of 2024 include:

• Patent granted in the USA for a stable liquid formulation of Clethodim and Fluroxypyr combination, demonstrating ADAMA’s commitment to delivering advanced formulation technologies to improve ease of use for the farmer.

  
  

• Patent granted in Ukraine for a mixture of Aminopyralid and Quinmerac, an efficient and innovative mixture for combating weeds.

Financial Highlights

Revenues in the third quarter declined by approximately 10% (-11% in RMB terms; -6% in CER terms) to $929 million, presenting a decrease of 7% in prices and an increase of 1% in volumes.

The lower sales reflect lower market prices and de-focus from selected low profit products. High competition from Chinese and ‎Indians manufactures as well as declining active ingredient prices have impacted the pricing of the overall crop protection market led by the pricing of commoditized generic crop protection. Moreover, despite improvement in market inventory levels, the channel is exercising ‎cautious buying patterns in light of price volatility and a higher interest rate ‎environment.

These results brought the revenues in the first nine months of 2024 to $3,028 million, a decline of approximately 14% (-13% in RMB terms; -12% in CER terms), reflecting a decrease of 9% in prices and a decrease of 3% in volumes.

Table 2. Regional Sales Performance

Notes:

CER: Constant Exchange Rates

Numbers may not sum due to rounding

Europe, Africa & Middle East (EAME):

Sales in EAME decreased in the third quarter and first nine months of 2024, following negative weather conditions in Eastern, Central and Northen Europe, and strong competition across the region, which have impacted pricing.

North America: Consumer & Professional Solutions – Sales were higher in the third quarter and nine-month period supported by good weather, while the Company focused on higher margin products. ‎

In the US Ag market, sales increased in the third quarter supported by channel restocking against channel destocking in the corresponding quarter and decreased in the first nine months of 2024, following pricing pressure in light of competition and lower farmer profitability, just-in-time purchasing patterns reflecting the high interest rate environment.

‎ADAMA's sales in Canada in the third quarter were higher and reflected good demand for pre and post harvest herbicides and fungicides, while the lower sales in the nine month period were impacted by low insecticide demand due to weather conditions.

Latin America: Brazil – decline in sales in the third quarter and first nine months of 2024, reflecting ‎the softer pricing following competition from Chinese competitors, ″wait and see″ famers behavior ‎postponing CP purchases, negative impact of weather as well as de-focus from non-selective herbicides. ‎ ‎The Company is focusing its sales on higher margin products, with new product ‎introductions of differentiated products continuing to do well. ‎

In the rest of LATAM sales in the third quarter and the first nine month period reflected negative weather conditions which have impacted the seasons across the region, while pricing was impacted by high competition. Despite this, new product introductions of differentiated products supported sales.

Asia-Pacific (APAC):

In China, the branded formulations sales in the third quarter were impacted by lower customer demand due to high channel inventory, market competition and extreme weather events as typhoon in Southern China. The pricing pressure continued throughout the first nine months. The Non-Ag business saw a stable demand and improved business quality despite the impact of lower prices.

In the Pacific region, sales in the third quarter and the first nine months were lower, impacted by softer pricing and just-in-time purchasing patterns. Sales in the third quarter were supported by positive weather conditions in Eastern Australia and in New Zealand.

Sales in India were stable in the third quarter and down in the nine month period, impacted by erratic weather and softer pricing, particularly in ‎commoditized products.

Sales in the wider APAC region continued to experience pricing pressure following intense competition from China, particularly in commoditized products, and low demand as customers focused on lowering stocks and tended to buy products as needed.

Gross Profit reported in the third quarter increased by 2% to $188 million (gross margin of 20.2%) compared to $185 million (gross margin of 18.0%) in the same quarter last year and in the nine month period reached $672 million (gross margin of 22.2%), compared to $748 million (gross margin of 21.2%) last year.

Adjustments to reported results: The adjusted gross profit mainly includes reclassification of all inventory impairment, taxes and surcharge and excludes certain transportation costs (classified under operating expenses), as well as a provision related to the soil & water cleanup and remediation regarding the Company's ‎different sites in Israel. ‎

Adjusted gross profit in the third quarter increased by 14% to $225 million (gross margin of 24.2%) compared to $198 million (gross margin of 19.2%) in the same quarter last year and in the nine month period reached $782 million (gross margin of 25.8%) compared to $815 million (gross margin of 23.1%) last year.

Despite the decline in sales in the third quarter and first nine months of 2024, the Company improved the gross margin both in the third quarter and nine month period following the positive impact of new inventory sold, priced at market levels and following management's focus on the quality of business which led to an improvement in the sales mix of higher margin products, moderated by the negative impact of exchange rates. In the third quarter the Company also recorded a slight increase in quantities sold, which had a positive impact.

Operating expenses reported in the third quarter of 2024 were $222 million (23.9% of sales), compared to $224 million (21.7% of sales) in the same quarter last year and reached $671 million (22.2% of sales) in the nine month period compared to $655 million (18.6% of sales) last year.

Adjustments to reported results: please refer to the explanation regarding adjustments to the gross profit in respect to certain transportation costs, taxes and surcharges and inventory impairment.

Additionally, the Company recorded certain non-operational items within its reported operating expenses amounting to $37 million in Q3 2024 in comparison to $7 million in Q3 2023 and $113 in 9M 2024 in comparison to $22 in 9M 2023. These include mainly (i) provisions, such as legal claims, registration impairment and update of registration depreciation (ii) measures to improve efficiencies, (iii) non-cash amortization charges in respect of Transfer Assets received from Syngenta related to the 2017 ChemChina-Syngenta acquisition, (iv) charges related 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. For further details on these non-operational items, please see the appendix to this release.

Adjusted operating expenses in the third quarter were $212 million (22.8% of sales), compared to $229 million (22.1% of sales) in the same quarter last year, and reached $645 million (21.3% of sales) in the nine month period compared to $698 million (19.8% of sales) last year.

The operating expenses were lower in the third quarter and first nine months of 2024, following undertaking tight OPEX management measures, including the impact of initiatives included in the Company's transformation plan, lower transportation and logistics costs and the ‎positive impact of exchange rates.

Operating income reported in the third quarter reached a loss of $34 million )-3.6% of sales) compared to a loss of $38 million (-3.7% of sales) in the third quarter of 2023 and amounted to $1 million (0.0% of sales) in the nine month period compared to $94 million (2.7% of sales) last year.

Adjusted operating income in the third quarter amounted to $13 million (1.4% of sales) compared to a loss of $31 million (-3.0% of sales) in the same quarter last year and increased by 17% to $137 million (4.5% of sales) in the nine month period compared to $117 million (3.3% of sales) last year.

EBITDA reported in the third quarter increased by 49% to $56 million (6.0% of sales) compared to $37 million (3.6% of sales) in the same quarter last year and amounted to $252 million (8.3% of sales) in the nine month period compared to $318 million (9.0% of sales) last year.

Adjusted EBITDA in the third quarter increased by 125% to $80 million (8.6% of sales) compared to $35 million (3.4% of sales) in the same quarter last year and increased by 6% to $332 million (11.0% of sales) in the nine month period compared to $312 million (8.9% of sales) last year.

Adjusted financial expenses amounted to $84 million in the third quarter, compared to $82 million in the corresponding quarter last year and amounted to $224 million in the nine month period compared to $259 million last year.

In the third quarter of 2024, the financial expenses were slightly higher due to higher hedging costs on exchange rates, the net impact of a higher Israeli CPI on the ILS-denominated CPI-linked bonds moderated by lower interest paid on loans following a decrease in loans in light of the positive cash flow achieved, better loan mix and improved efficiency of cash management.

In the nine-month period the financial expenses were lower also due to lower interest paid on loans in light of the positive cash flow achieved, better loan mix and improved efficiency of cash management as well as the net impact of a lower Israeli CPI on the ILS-denominated CPI-linked bonds.

Adjusted taxes on income in the third quarter amounted to tax expenses of $6 million, compared to tax expenses of $3 million in the corresponding quarter last year and amounted to expenses of $61 million in the first nine months of the year compared to a tax income of $7 million last year.

Despite reaching losses before tax, the Company recorded tax expenses in the third quarter and first nine months of the year mainly ‎because the losses were primarily incurred by subsidiaries with relatively lower tax rates, while some ‎of them did not create deferred tax assets on the losses. On the other hand, the subsidiaries that ‎generated profit have a higher tax rate. ‎

In first nine months of 2024 the company recorded tax expenses due to the non-‎cash impact of the weakness of the BRL compared with tax income due to stronger BRL in the first nine months of 2023. ‎In the third quarter of 2024 the company recorded tax income due to the non-‎cash impact of the stronger BRL compared with tax expenses due to the weakness of the BRL in the third quarter of 2023. ‎

Net loss reported in the third quarter was $133 million and $259 million in the nine month period, compared to a net loss of $112 million and $146 million in the corresponding periods last year, respectively.

Adjusted net loss in the third quarter was $78 million and $149 million in the nine month period, compared to a net loss of $115 million and $135 million in the corresponding periods last year, respectively.

Trade working capital as of September 30, 2024, was $2,218 million compared to $2,742 million as of September 30, 2023. Inventory held by the Company continued to decline from the end of 2023, including inventory of finished goods, and reached $1,740 million as of September 30, 2024, in comparison to $2,129 million as of September 30, 2023. The decrease in working capital was following the Company's implementation of selective procurement practices, which already began in 2023, and which led to a decrease in the level of inventory held by the Company and lower trade payables. The Company also improved its payable terms following implementation of initiatives part of the Company's transformation plan. The decrease in receivables reflected the intensive collections as well as the lower sales.

Cash Flow: Operating cash flow of $159 million and $402 million was generated in the third quarter and first nine month period in 2024 respectively, compared to $82 million generated in the third quarter and $63 million generated in the nine month period in 2023. The operating cash flow was significantly improved in the third quarter and first nine months of 2024 due to the company maintaining strict procurement practices, intensive collections and an improvement in supplier terms, reflecting implementation of initiatives taken as part of the company's transformation plan.

Net cash used in investing activities was $7 million in the third quarter and $122 million in the first nine month period in 2024, compared to $69 million and $231 million in the corresponding periods last year, respectively. The lower cash used in investing activities in the third quarter and first nine months of 2024 reflected implementation of the Company's transformation plan including the prioritization of investments in its manufacturing facilities as well as prioritization of investments in intangible assets relating to ADAMA's global registrations, in line with the optimization of the Company's portfolio. In the third quarter of 2024, the Company recorded the sale of a real estate asset whereas in the first quarter of 2023 the company completed the acquisition of AgriNova New Zealand.

Free cash flow of $128 million was generated in the third quarter and $179 million generated in the nine month period compared to $22 million consumed in the third quarter and $276 million consumed in the corresponding periods last year, respectively, reflecting the aforementioned operating and investing cash flow dynamics.

Table 3. Revenues by operating segment

Notes:

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.

Numbers may not sum due to rounding.

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.

¹ CER – Constant Exchange Rates

² Sources: CCPIA (China Crop Protection Industry Association), BAIINFO, FocusEconomics, China ‎Containerized Freight Index, internal sources