ADAMA Ltd

SZSE:000553

Earnings Call Transcript 2020-Q2

[Operator]

Hello, everybody. I'm Ignacio Dominguez, CEO of ADAMA. It is my pleasure to welcome you to our first half yearly financial highlights video.

Since I was appointed CEO on March 1 this year, we have lived some interesting but challenging times. Coming to you today from my home in Spain because, like many of you, most of our companies working remotely due to the COVID-19 pandemic that has disrupted so many lives around the world. With this video, I will be sharing with you our second quarter and first half results together with our CFO, Aviram Lahav.

Since the outbreak of the pandemic, we have taken every measure to ensure that our customers around the world continue to have access to the products they need to maintain the global food supply. We have done this while preserving our commitment to health and safety of our employees, providing personal protective equipment, distributing disinfectant and rolling out testing across many other countries. Even while working remotely, we have ensured that the teams remain in close contact with our customers, supporting them in this challenging period. And we have leveraged all tools at our disposal to keep supply and logistic lines running. Our various manufacturing facilities across the globe continue to operate, working in full compliance with local regulation. We will continue to make every effort at our reach to mitigate the impact of the pandemic on our business and to keep the company on its growth trajectory.

In Q2, we saw strong revenue growth in constant exchange rate terms. However, the widespread weakness of global currencies against the U.S. dollar resulting from the pandemic has constrained our sales growth and profitability in U.S. dollar terms.

I'd like to turn over to our CFO, Aviram Lahav, who will provide more details on our financials.

[Aviram Lahav, executive]

Thank you, Ignacio. I would like to start by highlighting some global trends that are affecting the entire agriculture and agrochemical markets as a result of the COVID-19 pandemic.

On the demand side, we've seen that global pandemic-related restrictions on food-related industries such as restaurants and tourism have constrained demand for agriculture produce. This has put pressure on crop prices, which in turn has reduced farmer income and their ability to spend on crop protection products.

On the production and supply side, following a tightening of supply and logistics conditions that we saw in Q1 due to the initial outbreak of the pandemic, we can now see that chemical production in China has largely returned to prior levels, and prices of raw materials and intermediates are starting to reflect the increase in supply.

And now some highlights from our results. In the second quarter, we recorded sales of $1.036 billion, up 12% at constant exchange rates, 3% higher in USD terms and up 7% in RMB terms. The strong sales performance was driven by 12% volume growth led mainly by emerging markets such as Brazil, India, Africa, China and parts of APAC. These markets, however, have been more significantly impacted by currency weakness in recent months. This has resulted in a negative currency impact, which we estimate to be around $85 million in the second quarter, explaining the difference between our growth in constant currencies and compared to our growth in U.S. dollar terms.

Our resilient growth in the quarter has seen us overcome the Q1 sales gap due to the outbreak of COVID-19, bringing our sales in the first half of the year to more than $2 billion. This is an increase of 7% in constant exchange rate terms, in line with our 2019 record high in USD and up 4% in RMB terms. In U.S. dollar terms, our first half sales of $2.008 billion were impacted by an estimated $135 million due to the weaker currencies.

In Q2, we recorded adjusted EBITDA of $163 million. In the second quarter, the strong volume growth alongside somewhat higher prices and an improved product mix were more than offset by the material depreciation of global currencies and slightly higher manufacturing costs. Indeed, here again, we saw an estimated $61 million impact in currency headwinds in the quarter.

In the half year, we recorded adjusted EBITDA of $306 million. Once again, over the half year period, the company's strong volume growth was outweighed by the significant currency weakness with an estimated impact of around $94 million as well as somewhat higher manufacturing costs. We continue throughout to maintain tight control of our operating expenses.

For the second quarter, we're reporting adjusted net income of $47 million, largely in line with the same quarter last year. This is despite an estimated negative currency impact on net income of $55 million seen over the quarter.

Over the half year, our adjusted net income was $74 million, reflecting the impact of the pandemic on our results in both the first and second quarters. In half 1, we estimate the impact of the weaker currencies to have been $117 million over the 6-month period.

We delivered significantly improved operating cash flow in both the second quarter and the first half. This mainly reflects marked improvement in the working capital during the period compared to the same period last year.

Ignacio, that's it for me. Now back over to you.

[Ignacio Dominguez, executive]

Thank you, Aviram.

During this time of global crisis, we're all reminded in every aspect of our lives of the importance of health, safety and the environment. At ADAMA, we take our responsibilities regarding environmental sustainability extremely serious. I'm really pleased to let you know that on July 9, we published our 2018-'19 sustainability report. We have made significant progress regarding our environmental impact in recent years, including recycling 422 tonnes of plastic and investing $80 million in health and safety projects.

We're also deeply committed to supporting the communities in which we operate. Among other initiatives, we have donated computers to students in need, distributed masks and food to families hit hard by the crisis, supported frontline workers with necessary protective equipment and even converted a production line over to the manufacturer of disinfectant in one of our China plants.

We bring this video to a close. I would like to emphasize my optimism regarding the future of ADAMA and global farming in general. The company is well positioned to weather the storms we're facing. And we're committed to continue providing solutions to farmers across the globe to allow them to keep feeding the world.

Thank you all for your time and attention. Stay well and stay safe.