ADAMA European Sales Drop, Procurement Costs Climb

ADAMA on Thursday posted lower first-quarter net profit, as lower-than-expected sales in Europe were not enough to offset the negative impact of hedge positions on the Euro created last year.

The ChemChina-owned Israeli company said net income was $85 million, down from $118 million in the year-ago period. Revenue climbed 11% to $1.02 billion from $922 million a year ago, on higher volumes except in Europe, which had a slow start to the season due to a prolonged winter.

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An ADAMA statement cited “continued subdued demand for crop protection products due to ongoing low soft commodity prices and farmer incomes, combined with certain re-opening of distribution channels.” While most agricultural commodities’ prices are generally stable, grain inventories continued to remain high, keeping pressure on prices. This environment is continuing to impact farmers’ incomes now for the fourth consecutive year. In some regions, inventory levels in the crop protection distribution channels are lower in comparison to a year ago, which allows customary market activity levels to resume in these regions.

The extended winter in Europe has caused a delay to the start of the season, impacting demand in the region. The pace of temperature rise in the coming weeks will determine how much of the delay can still be captured. The negative impact of 2017 Euro hedge position seen in Q1 is expected to conclude in Q2.

Despite these overall uneven market conditions, the company continues to deliver robust volume growth, driven by the introduction of new and differentiated products, and increased penetration in markets across the globe. In particular, Brazilian launch of Nimitz in Q1, together with the ongoing launch of Cronnos, are expected to make a meaningful contribution to Adama’s growth starting in the second half of the year.

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ADAMA also said it was focused on containment of manufacturing costs, and is seeing higher procurement costs due to shortages of raw materials and intermediates. The company continues to exercise strong control of its manufacturing costs. “However, higher procurement costs due to shortages in certain raw materials and intermediates, mostly owing to increased environmental focus in China, have raised product costs compared to the first quarter of last year. Robust demand conditions facilitate increased prices of approximately 2% across the portfolio to offset the higher procurement costs.”

 

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