ADAMA Reports First Quarter 2023 ResultsSales & Profit impacted by channel inventory
First Quarter 2023 Highlights:
? Sales down 11% to $1,259 million (-4% in RMB terms; -7% in CER
terms), 1% higher prices and8% decrease in volume? Adjusted EBITDA amounted to $165 million vs. $201 million in Q1 2022? Adjusted net income of $22 million; Reported net income of $12 million
BEIJING, CHINA and TEL AVIV, ISRAEL, April 24, 2023 – ADAMA Ltd. (the “Company”) (SZSE000553), today reported its financial results for the first quarter ended March 31, 2023.Ignacio Dominguez, President and CEO of ADAMA, said, "In 2022, supply challenges and risingcrop protection prices led to inventory buildup throughout the supply chain. While market demand isbeing supplied by the stockpiles of product in the channel, the high inventory levels and declining rawmaterial pricing are also supporting a "wait and see" approach. We believe that as the year progressesand the agricultural season in Latin America and India begins, this inventory will begin to deplete andthe demand ADAMA sees for its products will be invigorated."On a personal note, as recently announced, I requested to retire from ADAMA after 22 years with theCompany. Steve Hawkins, who currently serves as Senior Vice President of the Americas, will bereplacing me as President & CEO. I would like to assure all that I will remain at the disposal of theCompany in order to ensure a seamless transition and I am confident that under Steve's leadershipADAMA will reach new heights."
Table 1. Financial Performance Summary
| USD (m) | As Reported | Adjustments | Adjusted | ||||||||
| Q1 2023 | Q1 2022 | % Change | Q1 2023 | Q1 2022 | Q1 2023 | Q1 2022 | % Change | ||||
Revenues
| Revenues | 1,259 | 1,420 | (11%) | - | - | 1,259 | 1,420 | (11%) | |||
| Gross profit | 310 | 368 | (16%) | 30 | 46 | 340 | 414 | (18%) | |||
| % of sales | 24.6% | 25.9% | 27.0% | 29.2% | |||||||
| Operating income (EBIT) | 92 | 124 | (26%) | 10 | 9 | 102 | 133 | (24%) | |||
| % of sales | 7.3% | 8.8% | 8.1% | 9.4% | |||||||
| Income before taxes | 10 | 71 | (85%) | 10 | 9 | 20 | 80 | (74%) | |||
| % of sales | 0.8% | 5.0% | 1.6% | 5.7% | |||||||
| Net income | 12 | 67 | (82%) | 9 | 8 | 22 | 75 | (71%) | |||
| % of sales | 1.0% | 4.7% | 1.7% | 5.3% | |||||||
| EPS | |||||||||||
| - USD | 0.0052 | 0.0289 | 0.0093 | 0.0322 | |||||||
| - RMB | 0.0357 | 0.1836 | 0.0633 | 0.2045 | |||||||
| EBITDA | 166 | 203 | (18%) | (1) | (2) | 165 | 201 | (18%) | |||
| % of sales | 13.2% | 14.3% | 13.1% | 14.2% |
CER – Constant Exchange Rates
Notes:
? “As Reported” denotes the Company’s financial statements according to the Accounting Standards for Business Enterprises and theimplementation guidance, interpretations and other relevant provisions issued or revised subsequently by the Chinese Ministry ofFinance (the “MoF) (collectively referred to as “ASBE”). Note that in the reported financial statements, according to the ASBE guidelines[IAS 37], certain items (specifically certain transportation costs and certain idleness charges) are classified under COGS. Please seethe appendix to this release for further information.? Relevant income statement items contained in this release are also presented on an “Adjusted” basis, which exclude items that are of
a transitory or non-cash/non-operational nature that do not impact the ongoing performance of the business, and reflect the way theCompany’s management and the Board of Directors view the performance of the Company internally. The Company believes thatexcluding the effects of these items from its operating results allows management and investors to effectively compare the trueunderlying financial performance of its business from period to period and against its global peers. A detailed summary of theseadjustments appears in the appendix below.? The number of shares used to calculate both basic and diluted earnings per share in both Q1 2023 and 2022 is 2,329.8 million shares.? In this table and all tables in this release numbers may not sum due to rounding.The general crop protection market environment
In Q1 2023 commodity crop prices continued to decline as the result of a slowing global economy andbetter than expected production in some regions. However, crop prices remain elevated above the10-yr average as crop inventories remain low, supporting positive grower margins.While Q1 2022 was characterized by early purchases as a result of concerns about product availabilityand supply shortages, in Q1 2023 the channel and farmers were much more cautious regarding inputpurchases. An improved supply and logistics situation, relatively high channel inventories as well asthe deflationary environment of AI prices in China have led customers to adopt a “wait-and-see”
approach regarding some crop protection purchases.
Portfolio Development UpdateFormulation Mastery Update:
? In Q1 2023, the Company continued with the roll out of its formulation mastery products with16 registrations, including of Prothioconazole mixtures based on ADAMA's Asorbital
?
formulation mastery technology platform, for optimized penetration and enhanced long-lastingprotection.? Patent granted in Europe for a formulation mastery technology used to stabilize AI's that
otherwise cannot be formulated together. Expected to be included in ADAMA products in thecoming years.? Patent granted in additional geographies during the first quarter for Sesgama? a proprietary
formulation technology platform for high-load and other challenging formulations, enabling lessuse of co-formulants, transport and packaging materials per acre treated with a resultingimproved product sustainability profile. First products expected to be launched in the comingyear.Product Launches & Registrations:
During the first quarter of 2023 ADAMA continued to register and launch multiple new products inmarkets across the globe, adding on to its differentiated product portfolio. Differentiated products mayalso be based on recently off-patented active ingredients (AI's) that have been classified as highcommercial potential - "Core Leap" AI's and include a variety of product characteristics such as (i)
Sources: Rabobank, Agri Commodity Markets Research, March 2023; AgbioInvestor-Quarterly-Briefing-Service-PLUS_Q1-2023;JPM: Agricultural Markets Weekly, March 2023
"wait & see" refers to customers delaying purchases, while waiting to see if the market price declines further.
unique proprietary formulations, (ii) products with more than one mode of action, and (iii) biologicals.Among these were:
Launch of differentiated products during the first quarter of 2023 in select countries including:
? Launch in India of two insecticides Cosayr
?and Lapidos
?
, based on "Core Leap" AI,Chlorantraniliprole (CTPR), focusing on rice and sugar cane targeting stem borer and grubs.Executing on its "Core Leap" strategy, these products are based on backward integration (in-house) production of ADAMA.Registration of differentiated products during first quarter of 2023 in select countries including:
? Registration in Australia for "Core Leap" herbicide AI, Saflufenacil.? Registration in Australia for Sierra
?
, targeting arable land, pulses, orchards and non-crop uses,based on "Core Leap" herbicide AI Saflufenacil and ADAMA's formulation mastery technologyfor improved consumer traits including ease of use and a better efficacy on certain weedspecies. The registration of Sierra
?in Australia is the first global approval of an ADAMASaflufenacil based solution.
Financial HighlightsRevenues in the first quarter declined by approximately 11% (-4% in RMB terms; -7% in CER terms)to $1,259 million, reflecting an increase of 1% in prices and a decrease of 8% in volumes mainly dueto high channel inventory in the market and declining raw material prices supporting a "wait and see"approach across the board that impacted volumes and prices in the first quarter in 2023.
Table 2. Regional Sales Performance
CER: Constant Exchange Rates* 2022 denote proforma sales. As of 2023, the India, Middle East & Africa (IMA) region has been reorganized such that the countries formerlyincluded in this region are now included in the Europe region (renamed EAME) or in the Asia Pacific region.
Europe, Africa & Middle East (EAME): The sales in EAME increased in the first quarter in constantexchange rates, most notably in UK and Germany, despite delayed rainfall, high channel inventoriesand continued drought in Southern Europe.North America: The Consumer & Professional Solutions sales decreased in the first quarter,impacted by weather conditions as well inflationary pressure on consumer demand and a slowdown inthe professional market mostly due high levels of inventory in the channel and expectation for price
| Q1 2023 $m | Q1 2022 $m | Change USD | Change CER |
Europe, Africa & Middle East (EAME)*
| Europe, Africa & Middle East (EAME)* | 430 | 429 | +0% | +9% |
North America
| North America | 211 | 284 | (26%) | (25%) |
Latin America
| Latin America | 233 | 234 | (1%) | (3%) |
Asia Pacific*
| Asia Pacific* | 384 | 472 | (19%) | (12%) |
Of which China
| Of which China | 182 | 237 | (23%) | (16%) |
Total
| Total | 1,259 | 1,420 | (11%) | (7%) |
decreases.Sales in the US Ag market decreased in the first quarter as the market is in a state of "wait and see"due to high channel inventory and in anticipation of the spring season.Sales in Canada increased in the first quarter as the Company expanded its product portfolio during2022 and while the Company's products' pricing held. This was achieved despite cold weather delayingspring product movement, creating a backing up of inventory in the channel.Latin America: Sales in Brazil increased slightly in the first quarter, reflecting a "wait and see"approach in the market in light of declining selling prices and competition to sell the high, expensiveinventory accumulated throughout the channel.In other LATAM countries slightly lower sales were achieved due to the negative impact of the weatherin Argentina and Ecuador as well as lower sales in Peru.Asia-Pacific (APAC): During the first quarter the Company's sales decreased in the Asia Pacific regionfollowing a decline in the Company's sales in China of raw material, intermediates and fine chemicalsdue to softening of demand, strong competition and an overall decline in market prices.The Company's sales of its branded portfolio in China increased in local currency following strong salesof differentiated products and despite the decrease in market selling prices and high channel inventory.Sales in Pacific region in the first quarter were negatively impacted as the positive La Ni?a effectbegins to pass, while declining prices of AI from China and India encourage a "wait and see" approach.In India, the sales were impacted by exchange rates and by reduced market demand following high Q42022 market sales. In the rest of Asia, Thailand and South Korea presented strong performance in thefirst quarter.
Gross Profit reported in the first quarter reached $310 million (gross margin of 24.6%) compared to$368 million (gross margin of 25.9%) in the same quarter last year.
Adjustments to reported results: The adjusted gross profit includes reclassification of allinventory impairment, taxes and surcharge and excludes certain transportation costs(classified under operating expenses).Excluding the impact of the abovementioned extraordinary items, adjusted gross profit in the firstquarter reached $340 million (gross margin of 27.0%) compared to $414 million (gross margin of
29.2%) in the same quarter last year.
The decline in gross profit in the first quarter was due to the decline in sales, as described above,exchange rates and high-cost inventory. These impacts were slightly moderated by the improvementin the Company's sales mix of higher margin products.Operating expenses reported in the first quarter were $218 million (17.3% of sales) compared to$243 million (17.1% of sales) in the corresponding period last year.Adjustments to reported results: please refer to the explanation regarding adjustments to the grossprofit in respect to certain transportation costs, taxes and surcharges and inventory impairment.Additionally, the Company recorded certain non-operational charges within its reportedoperating expenses amounting to $10 million in Q1 2023 in comparison to $6 million in Q12022. These charges include mainly (i) non-cash amortization charges in respect ofTransfer Assets received from Syngenta related to the 2017 ChemChina-Syngentaacquisition, (ii) charges related to the non-cash amortization of intangible assets createdas part of the Purchase Price Allocation (PPA) on acquisitions, with no impact on theongoing performance of the companies acquired, and (iii) incentive plans - share-based
compensation. For further details on these non-operational charges, please see theappendix to this release.Excluding the impact of the abovementioned non-operational charges, adjusted operating expensesin the first quarter of 2023 were $238 million (18.9% of sales), compared to $281 million (19.8% ofsales) in the corresponding period last year.The operating expenses were lower in the first quarter of 2023 mainly due to the Company recordinga doubtful debt provision for trade receivables in Ukraine in the first quarter of 2022. Additionally, inthe first quarter of 2023 these expenses decreased, among others, due to lower transportation andlogistics costs and the positive impact of exchange rates.Operating income reported in the first quarter amounted to $92 million (7.3% of sales) compared to$124 million (8.8% of sales) in the same quarter last year.Excluding the impact of the abovementioned non-operational items, adjusted operating income inthe first quarter amounted to $102 million (8.1% of sales) compared to $133 million (9.4% of sales) inthe same quarter last year.EBITDA reported in the first quarter amounted to $166 million (13.2% of sales) compared to $203million (14.3% of sales) in the same quarter last year.Excluding the impact of the abovementioned non-operational items, adjusted EBITDA in the firstquarter amounted to $165 million (13.1% of sales) compared to $201 million (14.2% of sales) in thesame quarter last year.Adjusted Financial expenses amounted to $81 million in the first quarter, compared to $53 millionin the corresponding period last year. The higher financial expenses were mainly driven by (i) higherbank interest expenses due an increase in short-term loans as well as the sharp increase in interestrates, (ii) higher hedging costs on exchange rates mainly due to volatility in the ILS/Dollar exchangerate and (iii) the net effect of the high Israeli CPI on the ILS-denominated, CPI-linked bonds.Adjusted taxes on income in the first quarter amounted to an income of $1 million, compared to taxexpenses of $5 million in the corresponding period last year. The tax income in the first quarter of2023 was mainly due to the non-cash impact of the stronger BRL on the value of non-monetary taxassets, the method of calculation of tax assets related to unrealized profits and low profit before tax.The low effective tax rate in first quarter of 2022 was mainly due to the generation of profits bysubsidiaries whose tax rates are lower relative to the Company’s aggregate effective tax rate, as wellas to the method of calculation of tax assets related to unrealized profits and a tax income from thestrengthening of the BRL.Net income attributable to the shareholders of the Company in the first quarter reached $12million (1.0% of the sales), compared to $67 million (4.7% of sales) in the corresponding period lastyear.Excluding the impact of the abovementioned extraordinary and non-operational charges, adjustednet income in the first quarter was $22 million (1.7% of the sales), compared to $75 million (5.3% ofsales) in the corresponding period last year.Trade working capital as of March 31, 2023, was $3,148 million compared to $2,695 million at thesame point last year. The increase in working capital was due to an increase in the value and levelsof inventory procured to support the sales in light of supply shortages, logistic challenges and inventorycosts increases seen in 2022. In the first quarter the procurement of inventory continued to decline incomparison to the fourth quarter of 2022, also resulting in lower trade payables. Trade receivablesdecreased reflecting good collections across the board.Cash Flow: Operating cash flow of $423 million was consumed in the first quarter, compared to $286million consumed in the corresponding period last year. The negative operating cash flow, which is
seasonally typical for ADAMA in the first quarter also reflected higher payments to suppliers to supportthe procurement of inventory in 2022.Net cash used in investing activities was $95 million in the first quarter, compared to $90 million in thecorresponding period last year. The cash used in investing activities in the first quarter of 2023included the acquisition of AgriNova New Zealand, investments in new production facilities in ADAMAAnpon, investments in manufacturing capabilities in Israel and investments in intangible assetsrelating to ADAMA's global registrations.Free cash flow of $542 million was consumed in the first quarter compared to $386 million consumedin the corresponding period last year, reflecting the aforementioned operating and investing cash flowdynamics.
Table 3. Revenues by operating segmentFirst quarter sales by segment
| Q1 2023 USD (m) | % | Q1 2022 USD (m) | % |
Crop Protection
| Crop Protection | 1,146 | 91.1% | 1,271 | 89.5% |
Intermediates and Ingredients
| Intermediates and Ingredients | 112 | 8.9% | 149 | 10.5% |
Total
| Total | 1,259 | 100% | 1,420 | 100% |
First quarter sales by product category
| Q1 2023 USD (m) | % | Q1 2022 USD (m) | % |
Herbicides
| Herbicides | 575 | 45.7% | 659 | 46.4% |
Insecticides
| Insecticides | 334 | 26.5% | 351 | 24.7% |
Fungicides
| Fungicides | 237 | 18.9% | 261 | 18.4% |
Intermediates and Ingredients
| Intermediates and Ingredients | 112 | 8.9% | 149 | 10.5% |
Total
| Total | 1,259 | 100% | 1,420 | 100% |
Note: the sales split by product category is provided for convenience purposes only and is not representative of the way the Company ismanaged or in which it makes its operational decisions. Numbers may not sum due to rounding.
Further InformationAll filings of the Company, together with a presentation of the key financial highlights of the period,can be accessed through the Company website at www.adama.com.
About ADAMAADAMA Ltd. is a global leader in crop protection, providing solutions to farmers across the world tocombat weeds, insects and disease. ADAMA has one of the widest and most diverse portfolios ofactive ingredients in the world, state-of-the art R&D, manufacturing and formulation facilities,together with a culture that empowers our people in markets around the world to listen to farmersand ideate from the field. This uniquely positions ADAMA to offer a vast array of distinctive mixtures,formulations and high-quality differentiated products, delivering solutions that meet local farmer andcustomer needs in over 100 countries globally. For more information, visit us at www.ADAMA.comand follow us on Twitter
?
at @ADAMAAgri.
ContactRivka Neufeld Zhujun WangGlobal Investor Relations China Investor RelationsEmail: ir@adama.com Email: irchina@adama.com
Abridged Adjusted Consolidated Financial Statements
The following abridged consolidated financial statements and notes have been prepared as described in Note 1 in thisappendix. While prepared based on the principles of Chinese Accounting Standards (ASBE), they do not contain all of theinformation which either ASBE or IFRS would require for a complete set of financial statements, and should be read inconjunction with the consolidated financial statements of both ADAMA Ltd. and Adama Agricultural Solutions Ltd. as filedwith the Shenzhen and Tel Aviv Stock Exchanges, respectively.Relevant income statement items contained in this release are also presented on an “Adjusted” basis, which exclude itemsthat are of a one-time or non-cash/non-operational nature that do not impact the ongoing performance of the business, andreflect the way the Company’s management and the Board of Directors view the performance of the Company internally.The Company believes that excluding the effects of these items from its operating results allows management and investorsto effectively compare the true underlying financial performance of its business from period to period and against its globalpeers.Abridged Consolidated Income Statement for the First Quarter
| Adjusted4 | Q1 2023 USD (m) | Q1 2022 USD (m) | Q1 2023 RMB (m) | Q1 2022 RMB (m) |
Revenues
| Revenues | 1,259 | 1,420 | 8,611 | 9,016 |
Cost of Sales
| Cost of Sales | 898 | 989 | 6,147 | 6,282 |
Other costs
| Other costs | 20 | 16 | 138 | 105 |
Gross profit
| Gross profit | 340 | 414 | 2,325 | 2,630 |
% of revenue
| % of revenue | 27.0% | 29.2% | 27.0% | 29.2% |
Selling & Distribution expenses
| Selling & Distribution expenses | 186 | 199 | 1,270 | 1,263 |
General & Administrative expenses
| General & Administrative expenses | 39 | 47 | 267 | 296 |
Research & Development expenses
| Research & Development expenses | 20 | 21 | 135 | 130 |
Other operating expenses
| Other operating expenses | (6) | 15 | (43) | 95 |
Total operating expenses
| Total operating expenses | 238 | 281 | 1,630 | 1,785 |
% of revenue
| % of revenue | 18.9% | 19.8% | 18.9% | 19.8% |
Operating income (EBIT)
| Operating income (EBIT) | 102 | 133 | 696 | 844 |
% of revenue
| % of revenue | 8.1% | 9.4% | 8.1% | 9.4% |
Financial expenses
| Financial expenses | 81 | 53 | 555 | 335 |
Income before taxes
| Income before taxes | 20 | 80 | 140 | 509 |
Taxes on Income
| Taxes on Income | (1) | 5 | (7) | 33 |
Net Income
| Net Income | 22 | 75 | 148 | 477 |
Attributable to:
| Attributable to: |
Non-controlling interest
| Non-controlling interest | 0 | 0 | 0 | 0 |
Shareholders of the Company
| Shareholders of the Company | 22 | 75 | 148 | 477 |
% of revenue
| % of revenue | 1.7% | 5.3% | 1.7% | 5.3% |
Adjustments
| Adjustments | 9 | 8 | 64 | 49 |
Reported Net income attributable to theshareholders of the Company
| Reported Net income attributable to the shareholders of the Company | 12 | 67 | 83 | 428 |
% of revenue
| % of revenue | 1.0% | 4.7% | 1.0% | 4.7% |
Adjusted EBITDA
| Adjusted EBITDA | 165 | 201 | 1,131 | 1,277 |
% of revenue
| % of revenue | 13.1% | 14.2% | 13.1% | 14.2% |
Adjusted EPS
– Basic
| Adjusted EPS5 – Basic | 0.0093 | 0.0322 | 0.0633 | 0.2045 |
– Diluted
| – Diluted | 0.0093 | 0.0322 | 0.0633 | 0.2045 |
Reported EPS
– Basic
| Reported EPS2 – Basic | 0.0052 | 0.0289 | 0.0357 | 0.1836 |
– Diluted
| – Diluted | 0.0052 | 0.0289 | 0.0357 | 0.1836 |
For an analysis of the differences between the adjusted income statement items and the income statement items as reported in the financial
statements, see below “Analysis of Gaps between Adjusted Income Statement and Income Statement in Financial Statements”.
The number of shares used to calculate both basic and diluted earnings per share in both Q1 2023 and 2022 is 2,329.8 million shares.
Abridged Consolidated Balance Sheet
| March 31 2023 USD (m) | March 31 2022 USD (m) | March 31 2023 RMB (m) | March 31 2022 RMB (m) |
Assets
| Assets |
Current assets:
| Current assets: |
Cash at bank and on hand
| Cash at bank and on hand | 514 | 598 | 3,529 | 3,796 |
Bills and accounts receivable
| Bills and accounts receivable | 1,637 | 1,857 | 11,246 | 11,789 |
Inventories
| Inventories | 2,512 | 2,151 | 17,265 | 13,657 |
Other current assets, receivables andprepaid expenses
| Other current assets, receivables and prepaid expenses | 285 | 333 | 1,961 | 2,117 |
Total current assets
| Total current assets | 4,948 | 4,940 | 34,001 | 31,359 |
Non-current assets:
| Non-current assets: |
Fixed assets, net
| Fixed assets, net | 1,749 | 1,651 | 12,022 | 10,480 |
Rights of use assets
| Rights of use assets | 80 | 74 | 547 | 467 |
Intangible assets, net
| Intangible assets, net | 1,479 | 1,506 | 10,163 | 9,560 |
Deferred tax assets
| Deferred tax assets | 217 | 157 | 1,490 | 994 |
Other non-current assets
| Other non-current assets | 115 | 114 | 788 | 725 |
Total non-current assets
| Total non-current assets | 3,640 | 3,501 | 25,010 | 22,227 |
Total assets
| Total assets | 8,588 | 8,441 | 59,011 | 53,587 |
Liabilities
| Liabilities |
Current liabilities:
| Current liabilities: |
Loans and credit from banks and otherlenders
| Loans and credit from banks and other lenders | 1,319 | 438 | 9,067 | 2,781 |
Bills and accounts payable
| Bills and accounts payable | 1,009 | 1,324 | 6,934 | 8,404 |
Other current liabilities
| Other current liabilities | 905 | 905 | 6,220 | 5,745 |
Total current liabilities
| Total current liabilities | 3,234 | 2,667 | 22,221 | 16,931 |
Long-term liabilities:
| Long-term liabilities: |
Loans and credit from banks and otherlenders
| Loans and credit from banks and other lenders | 512 | 655 | 3,521 | 4,156 |
Debentures
| Debentures | 1,039 | 1,211 | 7,142 | 7,690 |
Deferred tax liabilities
| Deferred tax liabilities | 45 | 52 | 311 | 330 |
Employee benefits
| Employee benefits | 116 | 121 | 799 | 770 |
Other long-term liabilities
| Other long-term liabilities | 302 | 371 | 2,074 | 2,357 |
Total long-term liabilities
| Total long-term liabilities | 2,015 | 2,411 | 13,847 | 15,303 |
Total liabilities
| Total liabilities | 5,249 | 5,078 | 36,068 | 32,234 |
Equity
| Equity |
Total equity
| Total equity | 3,339 | 3,364 | 22,943 | 21,352 |
Total liabilities and equity
| Total liabilities and equity | 8,588 | 8,441 | 59,011 | 53,587 |
Abridged Consolidated Cash Flow Statement for the First Quarter
| Q1 2023 USD (m) | Q1 2022 USD (m) | Q1 2023 RMB (m) | Q1 2022 RMB (m) | |
| Cash flow from operating activities: | ||||
| Cash flow used for operating activities | (425) | (286) | (2,905) | (1,814) |
| Cash flow used for operating activities | (425) | (286) | (2,905) | (1,814) |
| Investing activities: | ||||
| Acquisitions of fixed and intangible assets | (85) | (92) | (580) | (584) |
| Proceeds from disposal of fixed and intangible assets | 4 | 1 | 26 | 3 |
| Acquisition of subsidiary | (22) | 0 | (148) | 0 |
| Other investing activities | 9 | 1 | 63 | 7 |
| Cash flow used for investing activities | (93) | (90) | (639) | (574) |
| Financing activities: | ||||
| Receipt of loans from banks and other lenders | 525 | 153 | 3,595 | 969 |
| Repayment of loans from banks and other lenders | (29) | (27) | (200) | (172) |
| Interest payment and other | (26) | (10) | (179) | (61) |
| Other financing activities | (53) | (65) | (365) | (410) |
| Cash flow from financing activities | 417 | 51 | 2,851 | 327 |
| Effects of exchange rate movement on cash and cash equivalents | 1 | 0 | (53) | (24) |
| Net change in cash and cash equivalents | (100) | (325) | (747) | (2,085) |
| Cash and cash equivalents at the beginning of the period | 607 | 903 | 4,225 | 5,759 |
| Cash and cash equivalents at the end of the period | 506 | 579 | 3,479 | 3,674 |
| Free Cash Flow | (542) | (386) | (3,710) | (2,448) |
Notes to Abridged Consolidated Financial StatementsNote 1: Basis of preparationBasis of presentation and accounting policies: The abridged consolidated financial statements for thequarters ended March 31, 2023 and 2022 incorporate the financial statements of ADAMA Ltd. and of all of itssubsidiaries (the “Company”), including Adama Agricultural Solutions Ltd. (“Solutions”) and its subsidiaries.The Company has adopted the Accounting Standards for Business Enterprises (ASBE) issued by the Ministryof Finance (the "MoF") and the implementation guidance, interpretations and other relevant provisions issuedor revised subsequently by the MoF (collectively referred to as “ASBE”).The abridged consolidated financial statements contained in this release are presented in both ChineseRenminbi (RMB), as the Company’s shares are traded on the Shenzhen Stock Exchange, as well as in UnitedStates dollars ($) as this is the major currency in which the Company’s business is conducted. For the purposesof this release, a customary convenience translation has been used for the translation from RMB to US dollars,with Income Statement and Cash Flow items being translated using the quarterly average exchange rate, andBalance Sheet items being translated using the exchange rate at the end of the period.The preparation of financial statements requires management to make estimates and assumptions that affectthe reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of thefinancial statements, and the reported amounts of revenues and expenses during the reporting period. Actualresults could differ from those estimated.Note 2: Abridged Financial StatementsFor ease of use, the financial statements shown in this release have been abridged as follows:
Abridged Consolidated Income Statement:
? “Gross profit” in this release is revenue less costs of goods sold, taxes and surcharges, inventoryimpairment and other idleness charges (in addition to those already included in costs of goods sold);part of the idleness charges is removed in the Adjusted financial statements? “Other operating expenses” includes impairment losses (not including inventory impairment); gain (loss)
from disposal of assets and non-operating income and expenses? “Operating expenses” in this release differ from those in the formally reported financial statements inthat certain transportation costs have been reclassified from COGS to Operating Expenses.? “Financial expenses” includes net financing expenses and gains/losses from changes in fair value.
Abridged Consolidated Balance Sheet:
? “Other current assets, receivables and prepaid expenses” includes financial assets held for trading;
financial assets in respect of derivatives; prepayments; other receivables; and other current assets? “Fixed assets, net” includes fixed assets and construction in progress? “Intangible assets, net” includes intangible assets and goodwill? “Other non-current assets” includes other equity investments; long-term equity investments; long-term
receivables; investment property; and other non-current assets? “Loans and credit from banks and other lenders” includes short-term loans and non-current liabilities
due within one year? “Other current liabilities” includes financial liabilities in respect of derivatives; payables for employee
benefits, taxes, interest, dividends and others; advances from customers and other current liabilities? “Other long-term liabilities” includes long-term payables, provisions, deferred income and other non-
current liabilities
Income Statement Adjustments
| Q1 2023 USD (m) | Q1 2022 USD (m) | Q1 2023 RMB (m) | Q1 2022 RMB (m) |
Net Income (Reported)
| Net Income (Reported) | 12.2 | 67.3 | 83.3 | 427.7 |
Adjustments to COGS & Operating Expenses:
| Adjustments to COGS & Operating Expenses: |
1. Amortization of acquisition-related PPA and other acquisition related costs
| 1. Amortization of acquisition-related PPA and other acquisition related costs | 4.2 | 5.4 | 28.7 | 34.0 |
2. Amortization of Transfer assets received and written-up due to 2017 ChemChina-
Syngenta transaction (non-cash)
| 2. Amortization of Transfer assets received and written-up due to 2017 ChemChina-Syngenta transaction (non-cash) | 6.1 | 5.6 | 41.5 | 35.6 |
3. Upgrade & Relocation related costs
| 3. Upgrade & Relocation related costs | 0.7 | 1.9 | 4.6 | 12.0 |
4. Incentive plans
| 4. Incentive plans | (0.8) | (4.1) | (5.7) | (26.2) |
5. ASBEs classifications COGS impact
| 5. ASBEs classifications COGS impact | (29.7) | (43.4) | (203.4) | (275.4) |
6. ASBEs classifications OPEX impact
| 6. ASBEs classifications OPEX impact | 29.7 | 43.4 | 203.4 | 275.4 |
Total Adjustments to Operating Income (EBIT)
| Total Adjustments to Operating Income (EBIT) | 10.1 | 8.7 | 69.2 | 55.5 |
Total Adjustments to EBITDA
| Total Adjustments to EBITDA | (0.5) | (2.4) | (3.6) | (15.3) |
Adjustments to Taxes
| Adjustments to Taxes |
1. Taxes impact
| 1. Taxes impact | 0.7 | 1.0 | 4.9 | 6.6 |
Total adjustments to Net Income
| Total adjustments to Net Income | 9.4 | 7.7 | 64.3 | 48.9 |
Net Income (Adjusted)
| Net Income (Adjusted) | 21.6 | 75.0 | 147.6 | 476.5 |
Total adjustments to Net Income attributable to the shareholders of the Company
| Total adjustments to Net Income attributable to the shareholders of the Company | 9.4 | 7.7 | 64.3 | 48.9 |
Notes:
1. Amortization of acquisition-related PPA and other acquisition related costs:
a. Amortization of Legacy PPA of 2011 acquisition of Solutions (non-cash): Under ASBE, since the first combined reporting for Q3 2017,
the Company has inherited the historical “legacy” amortization charge that ChemChina previously was incurring in respect of its acquisitionof Solutions in 2011. This amortization is done in a linear manner on a quarterly basis, most of which will have been completed by the endof 2020.b. Amortization of acquisition-related PPA (non-cash) and other acquisition-related costs: Related mainly to the non-cash amortization
of intangible assets created as part of the Purchase Price Allocation (PPA) on acquisitions, with no impact on the ongoing performance ofthe companies acquired, as well as other M&A-related costs.
2. Amortization of Transfer assets received and written-up due to 2017 ChemChina-Syngenta transaction (non-cash): The proceeds fromthe Divestment of crop protection products in connection with the approval by the EU Commission of the acquisition of Syngenta by ChemChina,net of taxes and transaction expenses, were paid to Syngenta in return for the transfer of a portfolio of products in Europe of similar nature andeconomic value. Since the products acquired from Syngenta are of the same nature and with the same net economic value as those divested,and since in 2018 the Company adjusted for the one-time gain that it made on the divested products, the additional amortization charge incurreddue to the written-up value of the acquired assets is also adjusted to present a consistent view of Divestment and Transfer transactions, whichhad no net impact on the underlying economic performance of the Company. These additional amortization charges will continue until 2032 butat a reducing rate, yet will still be at a meaningful level until 2028.
3. Upgrade & manufacturing facilities relocation-related costs: These charges all relate to the multi-year Upgrade & Relocation program inChina. As part of this program, production assets located in the old production sites in Jingzhou and Huai’An were relocated to new sites in 2020,2021 and in the coming years. Since some of the older production assets may not be able to be relocated, some of these assets which are nolonger operational are being written off (or impaired), while for others, their economic life has been shortened and therefore will be depreciatedover a shorter period. Since these are older assets that were built many years ago and will be replaced by newer production facilities at the newsites, and since the ongoing operations of the business will not be impacted thereby, the Company adjusts for the impact of all charges relatedto the China Upgrade & Relocated program, which include mainly: (i) excess procurement costs incurred as the Company continued to fulfilldemand for its products, in order to protect its market position, through replacement sourcing at significantly higher costs from third-party suppliers(ii) elevated idleness charges largely related to suspensions at the facilities being relocated These charges have significantly declined since thefirst quarter of 2022, as the relocation and upgrade of the manufacturing Jingzhou site in China has been completed and is now at a high levelof operation.
4. Incentive plans: ADAMA granted certain of its employees, a long-term incentive (LTI) in the form of 'phantom' awards linked to the Company’sshare price. As such, the Company records an expense, or recognizes income, depending on the fluctuation in the Company’s share price,regardless of award exercises. To neutralize the impact of such share price movements on the measurement of the Company’s performanceand expected employee compensation and to reflect the existing phantom awards, in the Company’s adjusted financial performance, the LTI ispresented on an equity-settled basis in accordance with the value of the existing plan at the grant date.
5. ASBEs classifications COGS impact – according to the ASBE guidelines [IAS 37], certain items (specifically certain transportation costs) are
classified under COGS.
6. ASBEs classifications OPEX impact – according to the ASBE guidelines [IAS 37], certain items (specifically certain transportation costs) are
classified under COGS.
Exchange Rate Data for the Company's Principal Functional Currencies
| March 31 | Q1 Average | ||||||
| 2023 | 2022 | Change | 2023 | 2022 | Change | ||
| EUR/USD | 1.088 | 1.109 | (2.0%) | 1.073 | 1.122 | (4.4%) | |
| USD/BRL | 5.080 | 4.738 | (7.2%) | 5.195 | 5.233 | 0.7% | |
| USD/PLN | 4.293 | 4.180 | (2.7%) | 4.392 | 4.180 | (5.1%) | |
| USD/ZAR | 17.83 | 14.51 | (22.8%) | 17.735 | 15.249 | (16.3%) | |
| AUD/USD | 0.668 | 0.749 | (10.7%) | 0.684 | 0.724 | (5.5%) | |
| GBP/USD | 1.236 | 1.312 | (5.8%) | 1.214 | 1.342 | (9.5%) | |
| USD/ILS | 3.615 | 3.176 | (13.8%) | 3.538 | 3.198 | (10.6%) | |
| USD LIBOR 3M | 5.19% | 0.96% | 423bp | 4.92% | 0.53% | 439bp | |
| March 31 | Q1 Average | |||||||
| 2023 | 2022 | Change | 2023 | 2022 | Change | |||
| USD/RMB | 6.872 | 6.348 | 8.2% | 6.842 | 6.351 | 7.7% | ||
| EUR/RMB | 7.474 | 7.043 | 6.1% | 7.338 | 7.126 | 3.0% | ||
| RMB/BRL | 0.739 | 0.746 | 0.9% | 0.759 | 0.824 | 7.9% | ||
| RMB/PLN | 0.625 | 0.658 | 5.1% | 0.642 | 0.649 | 1.1% | ||
| RMB/ZAR | 2.594 | 2.286 | (13.5%) | 2.592 | 2.401 | (8.0%) | ||
| AUD/RMB | 4.573 | 4.752 | (3.8%) | 4.679 | 4.595 | 1.8% | ||
| GBP/RMB | 8.491 | 8.332 | 1.9% | 8.307 | 8.520 | (2.5%) | ||
| RMB/ILS | 0.526 | 0.500 | (5.2%) | 0.517 | 0.504 | (2.7%) | ||
| RMB SHIBOR 3M | 2.48% | 2.37% | 11 bp | 2.41% | 2.42% | (1) bp | ||