Hedge Hurts ADAMA Profit, While Sales Rise
ADAMA reported a lower second-quarter profit of $72 million, versus last year’s $81 million, hurt by a 2017 European hedge impact.
Sales rose 9.2% to a record $1.02 billion, up from over $1 billion in the prior-year quarter, driven by volume growth and market share gains in all of its key regions.
Commenting on the results, Yang Xingqiang, Chairman of Adama’s Board of Directors, said, “Even in a period when the industry is showing signs of recovery, ADAMA continues to outperform and deliver strong, double-digit growth, reaching record sales and expanding in all key markets. Supporting this growth, we are pleased with the commercial and operational benefits of our unique China-Global infrastructure.”
Chen Lichtenstein, President and CEO of Adama, added, “ADAMA continues to launch new high-value added products, most notably CRONNOS® and NIMITZ® in Brazil this year. This, combined with strong, differentiated growth worldwide and price increases, is driving our sales to record levels, and as the impact of the 2017 European hedges subside, also allows us to progressively approach last year’s record profit levels.”
Performance in Context of Market Environment
The past two quarters have seen the beginnings of a recovery in demand for crop protection products in many markets, despite ongoing low soft commodity prices and farmer income.
While most agricultural commodities’ prices remain subdued, in most regions inventory levels in the crop protection distribution channels are now lower in comparison to a year ago, allowing customary market activity levels to resume.
The second quarter saw a partial recovery in the European crop protection sector following a slow start to the season in the first quarter after an extended winter. ADAMA’s strong performance in the region in the second quarter nevertheless allowed it to deliver half-year results in Europe in line with last year.
As previously communicated, the negative impact of 2017 European hedge positions seen in the first quarter continued to a lesser extent into the second quarter, and is not expected to continue to impact results going forward.
ADAMA continues to deliver robust volume growth, driven by the introduction of new and differentiated products, and increased penetration in markets across the globe.
The launch of ADAMA’s innovative, triple mode-of-action soybean fungicide CRONNOS® in Brazil has started well, and is expected to make a meaningful contribution to growth starting in the second half of the year.
The combined company continues to maintain manufacturing cost discipline. 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 last year. Robust demand conditions facilitate increased prices of approximately 3% across the portfolio to partially offset the higher procurement costs.