ADAMA Hit by Drought in Europe, Higher Sourcing Costs
- Shortage in certain raw materials and intermediates, mostly owing to increased environmental focus in China, led to higher procurement costs and to some extent limited even greater volume growth.
- In the US, the generally stronger pricing environment continued in the face of industry-wide supply shortages, compensating for the higher procurement costs.
ADAMA reported its net profit fell 16% in the third quarter, as a dry European summer hit sales of high-margin fungicides.
Net income in the period was $46 million, compared with last year’s $55 million.
Third-quarter sales rose 3.4% to $872 million. Continued volume growth driven by demand for differentiated products and market share gains in all key regions, despite worst drought in 40 years across most of Europe, which reduced demand for high-end fungicides by several tens of millions. Global growth outside Europe was 10.0% in the quarter.
Commenting on the results, Yang Xingqiang, Chairman of ADAMA’s Board of Directors, said, “The harsh drought in Europe stopped us short of achieving a great quarter, as the need for our leading fungicide products was absent. However, ADAMA continues to prove its ability to grow strongly elsewhere, and has once again posted record revenues in both the quarter and the nine-month period. The Company’s strong commercial and operational efficiency allowed us to deliver robust cash flow generation and lowest ever leverage level, ensuring that ADAMA can look to the future with confidence, and continue to execute on its growth strategy.”
Chen Lichtenstein, President and CEO of ADAMA, added, “The extraordinarily dry summer in Europe this year has been the toughest we have seen in decades, impacting our top line and profit in the quarter. In spite of this challenge, we continue to grow our business and gain share in key markets across the globe. In addition, expense discipline and working capital management mitigated the impact and we continue to generate strong cash flow. We continue to invest in the expansion and further differentiation of our product portfolio, building on our strong foundations to drive growth and profits going forward.”
In Europe, sales were lower by 19.2% in the quarter and by 5.0% in the nine-month period in constant currency terms, compared with the corresponding periods last year.
The unprecedented drought in Europe that began towards the end of the second quarter continued throughout the third quarter, resulting in a decline in highly profitable sales in the region — sales fell 18.5% in U.S. dollar terms. The dry weather caused a reduction in disease and insect pressure, mainly impacting sales of high margin fungicides, as well as delaying the planting of the winter cereal crops, pushing some herbicide sales into the fourth quarter.
New products were registered in the quarter, including TRIVOR®, a unique insecticide combination product for sucking pests in citrus, as well as NIKITA®, a novel three-way herbicide mixture with triple modes-of-action for corn, both in Italy.
In the United States, sales were lower by 0.9% in the quarter, largely due to dry weather conditions in Texas and Western Canada, which was largely offset by increased selling prices.
In the US, the generally stronger pricing environment continued in the face of industry-wide supply shortages, compensating for the higher procurement costs.
In China, sales of branded and formulated products continue to grow strongly, as ADAMA continues to expand its product portfolio and geographic reach, and despite typhoon conditions in the south of the country in August. A number of new registrations were obtained, including the herbicide AGIL® in potato, the insecticide GALIL® in citrus, and BANJO FORTE® a broad-spectrum fungicide in pepper. ADAMA is markedly shifting away from selling unformulated, technical product to intermediaries, by prioritizing the sale rather of distinctive branded, formulated products through both its domestic and global commercial networks, and in so doing benefiting from the full product positioning as well as end-to-end margin.
Thailand, Korea, and Japan performed well, supported by an expanded and increasingly differentiated portfolio and favorable weather conditions. In spite of the continued drought in Australia, ADAMA continues to grow its share in the country.
ADAMA registered a number of new and differentiated products, including RIMON® FAST, a unique mixture insecticide in the Philippines, OUTSHINE®, a differentiated combination herbicide for cereals in Australia, as well as BREVIS®, ADAMA’s unique fruit thinner for apples in Australia, and NIMITZ®, the proprietary nematicide in Vietnam. In U.S. dollar terms, Chinese sales increased by 4.9% in the quarter, while sales increased by 9.7% in the nine-month period, compared to the corresponding periods last year.
Shortage in certain raw materials and intermediates, mostly owing to increased environmental focus in China, led to higher procurement costs and to some extent limited even greater volume growth.
Robust demand conditions facilitated increased prices in the quarter of approximately 6% across the portfolio.
The company continues to advance collaboration opportunities with other ChemChina group entities, as well as other entities in China, to make the most of its positioning.