European drought hits Adama Q3

Chen Lichtenstein
Chen Lichtenstein

Sales of high-margin fungicides in Europe were sharply down. Adama also reports the acquisition of a US company.

Pesticides company Adama reported a decline in third quarter profit today, which it attributes to the severe drought this summer throughout Europe that led to a decline in sales of high-margin fungicides there. Adama also reported that it had agreed the purchase of a privately-held company in the US that deals in home pesticide products. Financial details of the acquisition were not disclosed, but the price is estimated to be in the $120-140 million range.

The acquired company is Bonide Products Inc., which supplies solutions for eliminating pests in the house and garden, and recorded sales of $70 million in 2017. Adama says that Bonide's nationwide distribution network will provide improved access to a domestic consumer market estimated to be worth $1.5 billion. Adama expects the deal to close by the end of 2018, subject to certain conditions and to obtaining regulatory approvals.

Since 2017, Adama has included Adama Agricutural Solutions, whose bonds are traded in Tel Avi, in its financials, as well as Chinese company Sanonda with which it merged last summer. The combined company is still traded on the Shenzhen Stock Exchange under the name Hubei Sanonda Co., Ltd., but is in the process of changing its name to Adama.

Today, Adama reported a third quarter net profit of $45 million, 16.3% lower than in the corresponding quarter of 2017. Third-quarter sales rose 3.4% to $872 million, despite a decline of 18.5% in sales in Europe.

According to market estimates, the European drought sliced some $56 million from Adama's sales in Europe in the third quarter and about $30 million from its gross profit, since the lost sales were of high-margin products with a gross margin of about 50% of sales. Weakness in several currencies, chiefly of Brazil, India, Turkey and Argentina, reduced these countries' contributions to sales and profit, offset by strong vlume sales growth and higher prices. Adama sales volume rose 3.8% in the third quarter, and it managed to raise its product prices by 6%, with price rises expected to continue in the future.

Adama chairman Yang Xingqiang 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."

Adama president and CEO Chen Lichtenstein 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."

Adama says that it continues to advance collaboration opportunities with other ChemChina group entities, as well as other entities in China, to make the most of its positioning.

Published by Globes, Israel business news - en.globes.co.il - on October 31, 2018

© Copyright of Globes Publisher Itonut (1983) Ltd. 2018

Chen Lichtenstein
Chen Lichtenstein
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