ADAMA Ltd. (000553) Earnings Call Transcript & Summary

I am Guo Zhi, the Board Secretary of ADAMA. I would like to welcome everyone to attend our roadshow for the full year of 2021. For this meeting, we have interpretation services for both English and Mandarin languages. You can click the icon that represents like a globe and then listen to your preferred language channel. On your screen, you can see that for the attendees of this meeting, we have the President and CEO of ADAMA, Ignacio Dominguez, Vice President of Finance, Efrat Nagar; Global Head of Strategy, Corporate Development and Capital Markets, Mr. Wayne Rudolph. They are joining us from abroad and meet our investors online and also to introduce about the company's performance in 2021. There will also be a Q&A session in the end and you can write and type your questions in our chat box. In our last session, we will be answering your questions. In today's meeting, we will be presenting a deck showing our full year performance. And first of all, this is a legal disclaimer of this presentation for your perusal. Right now showing on the screen is our legal statement. And next, let's welcome Mr. Ignacio Dominguez, President and CEO of ADAMA to brief you on our performance review.

Thank you, Zhi and good afternoon to everybody in China, and welcome to this session where we will be sharing with you the results of the fourth quarter of 2021 and how ADAMA ended up the entire year 2021. I would like to start, if we move to the Slide 4 by sharing with you a little bit of the conditions that we're operating in the market during the fourth quarter. There was a strong demand for crop protection products all over the world in all the regions, and that was driven by very high prices of the major commodity crops. And that was especially important in Latin America, where on top of these higher prices, there were increases in terms of planted area. All these conditions have proven to be very positive for farmers and their incomes because they were able to capitalize on these high yields and higher prices in order to even absorb the inflationary pressures that was coming from all the inputs especially fertilizers, energy, but also seeds, crop protection, fuel, machinery, et cetera, et cetera. Despite all this inflation, it was a very positive moment for farmers all over the world. On the other hand, supply for active ingredients, especially shores from China, it somehow improved and the prices remained high, but there were a few issues that were affecting the logistics during fourth quarter. One is the China dual control restrictions that probably you are all very much aware. And at the beginning of the quarter -- at the end of quarter 3 and the beginning of quarter 4, that was affecting the entire industry, even though by the end of the quarter, things came back to normal. At the same time, some of the surges on COVID-19 and its restrictions did affect negatively some of the agrochemical production and the resulting. So as a consequence of these 2 factors, the procurement costs remained high through the quarter. Combined that with all the challenges that we've been sharing with you during the year -- the year 2021, the energy cost was high. There was shortage of shipment space. The transportation resource were somehow disrupted by COVID, but also by the frictions in the domestic supply lines, all of them related to this COVID. Also, there were increases on the freight and logistic costs and that were elevated and continued even rising by the end of the quarter. And in this environment of very positive economics at farm level with high prices for the commodities and high cost for all the logistics and supply, at ADAMA, what we did is that we continued to manage in a most professional way our supply chain activities, but also we put quite a lot of effort on increasing prices in -- all over the world, by the way, in order to compensate for these higher costs. And we were somehow successful as I would like to show you when we go into the numbers. So if we move to Slide 5, then you can see that in the fourth quarter, we had strong growth on our turnover of 17%, which led us to a record high fourth quarter of $1.3 billion. And this growth was mostly driven by prices. Contrary to what we've been sharing with you through the year of 2021, in quarter 4, we increased our prices by 14% and our volumes still were able to grow, but in the most modest [ lead up ] by just 5%. This combination of prices and volume resulted in an increase of our gross margin of 23%, which led us to something that was certainly way above the margins that we achieved on the year before. And this price increase was more than enough in order to compensate all the inflation that we had on our cost. If you combine these factors with the traditional discipline that the company has shown on managing our operating expenses, the result is that our EBITDA for the quarter grew 23%, which is even above the growth that we show on our sales. And that is because despite the fact that we have to add additional sales and companies that we acquired through the year and they came to total terms, but the fact that we were able to manage our OpEx to sales ratio in a very strict way to help us -- because you have to compare that this was with a year of very limited activity in 2020 because of the pandemia. So I think that -- it's the reason why we're showing a very strong EBITDA growth, which is translated as well on the reported net income, where we are seeing a 33%. Even though in the adjusted, it's lower. And this operating net income, it's also taken into consideration circumstances like higher taxes and higher financial expenses. This very positive picture that we have shown for quarter 4 helps us to balance the position for the entire year, as you can see in the next slide. For the entire year, we ended up growing 17% versus 2020, which is mainly driven by volumes, 12% in volumes and 4% increase on prices. This means that our gross profit for the year, it is even -- it's even better than the year before and at 15%, okay? So it's a very robust outcome for the organization. Remember, the growth of ADAMA, it is really remarkable, and we are accelerating this growth. Now I was sharing with the organization that our transit from $3 billion to $4 billion took us 8 years. Our transit from $4 billion to $5 billion is going to take us 3, okay? And these capabilities of the organization to growth -- of ADAMA to deliver growth is very remarkable in the market, especially when you combine that with a certain control of our expenses that combined with the growth on the business and gross profit delivers a 7% increase on our EBITDA for the year. We are 7% despite the fact that we were able to sell 17% more, okay? So you have to take into consideration all the new acquired companies, all the shipment costs that we were sharing with you and the additional sales of almost $700 million. And despite that, we're showing a very strong growth in our EBITDA because of this combination with the discipline on expenses. And when we are looking into our net income, we are -- we're showing a figure that is slightly lower than the year before and both in terms of adjusted and in terms of reported. But the operating income of ADAMA is 8% more than the year before. It is true that the company had first to bear some of our investments for the reasons that you do know, but also we have some higher financial expenses, mainly related with the very expensive financing conditions in the international markets and especially in usual and also about hedges that we have to do in order to protect our position in countries where we're growing, especially Brazil. And also the fact that we are accommodating to higher taxes because of the higher profits that we are generating in our -- in some of our business units. How did we manage this growth all over the world? Well, if we move to the next slide, Slide #7, you can see here that in quarter 4, we were able to deliver growth in constant exchange rate in all the geographies. It's a bit more modest in Europe, but very remarkable. You see the growth that we have in all the Asia Pacific region. And on top of that, the growth that we were able to deliver in China, it's very, very important. And 76% growth in China in quarter 4 versus the year before, it's remarkable. And it comes not only from our branded business in China, but it's also by our -- the sales of our intermediates and raw materials. Our industrial sales were very positive. But it's not the only success story that we had in the quarter. We have very strong performance of Argentina, very strong performance of Brazil, also from Australia, from India. Overall, you see that the company was able to deliver growth of 17% in U.S. dollars, which was higher in constant exchange rate. And that is the picture as well when we look into the entire year, which is in the Slide 8. Here you can see that there are very remarkable growths coming from many places, Asia Pacific on top of it and China on top of it. Our growth in China was remarkable last year with almost 50% in U.S. dollar, but 58% in constant exchange rate. Our crop protection business is the fastest-growing crop protection business among this engender group in China. And we're very proud that what we are doing it's really helping not only the industry by our sales of raw materials, but also we are setting very, very good foundation in order to support farmers and customers in China. But on top of that, Asia Pacific, we had a very good year in Australia. We also had remarkable growth in South Africa. [ And I think ] for this year might be a bit more challenging in those territories because of the influence of La Nina, but very, very remarkable. Also Argentina and Brazil, they are in very good position. They continue to deliver year-after-year remarkable growth for ADAMA. Also our businesses in North America, both the ag business compared with the previous year is showing remarkable growth, and our consumer and professional division, it is -- it's combined in a very strong way, their activities in order to create demand and to reach consumers in a very remarkable way. And even in Europe, where you see a modest 3%, you might think, oh, it's disappointing, but it's still growing above the market. Situation in Europe was very challenging last year mainly because of weather, also because of regulation. And in a year like this, we will talk a little more later. It's -- they're facing new challenges with the situation in East Europe with the conflict in Ukraine, and that is affecting overall, the food industry, but I will address it in a moment, okay? So in the next slide, you have all the details by territory. Again, I want you to point out to that despite Europe where we have challenges of supply, in France and Germany and also some of these weather conditions, still it was a moderate growth that is above the market, but the rest, everything it's showing very strong and robust growth, both in volumes, but also in prices that is extremely important for the company moving into the year 2022. And in fact, one of the good things that we can share with you is that a lot of the price increases that we were able to accommodate by the end of the year, this tendency, it's moving into the year 2022, at least at the beginning of the year 2022. Remarkable, as I said, our sales, both in ag and non-ag in China, where also we're very proud of how the acquisition of Huifeng allowed us to bolster our position in the farmers into China. Let me go a little bit more in detail of the financials. So I would like then to move a bit more to analyze with you some of the figures that I just showed, okay? So we're moving to Slide 11. Let me start by the quarter 4 turnover. You see here that contrary or in a different view to what we saw in many quarters during the year 2021, quarter 4 was the time that we were able really to transfer price increases in a remarkable way into the market in a way that you can see that our growth it is even -- it's almost 3x the growth that we had in bouncing prices, and that was certainly a very positive outcome for the organization, that even included -- compensated some of the exchange rate effects. That is -- it's even more important when we look at the overall quarter of the full year. So we see in Slide 12, the entire year, the company grew from $4.1 billion -- could you please move to the next slide. Yes, grew $4.1 billion to $4.8 billion, remarkable growth. And $147 million came from prices on top of the $488 million, almost $500 million in volumes. That you've been following us, you know that the company, it's a very consistent on our growth of volumes into the market. We do have these commercial capabilities that allowed us really to have a very strong presence with customers, with farmers all over the world. The fact that we are able also to increase our prices and transfer some of the inflation that we are experimenting in our cost, it was extremely important for ADAMA during last year. On top of, we had slightly a beneficial effect from exchange rate that ended up the company being with these remarkable 17% and knocking at the door of the $5 billion, which is something that we are confident that soon we will surpass. How does it look in terms of gross profit? Well, the fourth quarter was, as I said, very positive. You see a 23% margin increase. And you can see here that the cost variance, I was sharing with you that many of the circumstances or the challenges are still alive. The dual control, the COVID restrictions, the transportation challenges. Yes, still, we had an impact on our cost of $80 million, but we were able to compensate that and beyond by price increases all over the organization where we almost increased our prices by twice the impact that we have on our cost variance. Meaning that our quarter compared with the year before is not only that, that we have a remarkable growth on gross profit dollars, it's also that we increased by more than 1 point our gross margin for the quarter. And that it's very critical because when you look into the entire year, in the next slide, in Slide 14, the entire year, what you can see here is that the capabilities of the company to increase prices to compensate cost is strategically important. And you saw that the effect over the entire year of $140 million more than the year before in our cost was totally compensated by the price variance and then our growth in profit was coming from the volumes. In terms of gross profit dollars, you can see that there is almost $200 million of growth despite the fact that the margin is slightly lower in terms of percentage, but it's strategically important for us to be able to transfer these cost increases into the market. And as I said before, we're confident that we are in the right track in order to deliver that also in the year 2022, is extremely important for us. The picture in EBITDA is shown in Slide 15 for the quarter. Once again, you can see that the story is the EBITDA contribution that we have by this price increase, it's more than enough in order to compensate all the negative effects that we might have by cost variance, by operating expenses variance and by exchange freight. Just 1 thing that I want you to remember is that we are increasing our operating expense by $30 million, but you have to remember that we are growing our sales by more than $200 million, which is very, very remarkable in the sense that it's showing that the company has been always very rigorous on maintaining our operating expenses. So we are, in that sense, very, very [ sober ]. That's the picture as well for the entire year. And if we move into Slide 15, you can see that price variance once again compensate the cost variance and our quality variance, it is higher than our operating expenses. And behind these 2 positive factors where we are showing growth in EBITDA of more than $310 million just in volumes and prices, the reasons why they're driving our growth in our EBITDA versus the year before by 7%. These are some of the numbers that we had on the upper side. But there are some other stories that I think that are relevant for you to understand what are differences between reported and adjusted and also some of the good things that ADAMA has been doing during last year and the way we manage our operating cash flow. So in order to elaborate a little bit more about those 2 topics, I'll ask Efrat Nagar to join me on the call and share with you a little bit more of those details. Efrat, Please.

Thank you, Ignacio. So as you're all familiar, we are presenting our numbers in the adjusted manner. And we had some adjustments that I would like to explain. Basically, this is a onetime noncash on operational adjustments that are not impacting our normal and regular business. So let's go to the numbers. The first -- the first adjustment. As you remember, last year, the amortization of legacy PPA of acquisition of [ solution ]. As we committed last year, we see the decrease in this amount in 2021 and probably next year, we will not see anymore. And the second one about Syngenta divestment. it's also reducing versus last year. The main adjustment here is regarding the upgrade and the relocation of Sanonda in 2021. Next year, with Sanonda going back to normal production, these numbers will be much lower, if any. So in general, some adjustments that we probably will see lower in 2022. Next slide, please. Slide 18. As Ignacio mentioned, our cash flow in 2021 was extremely positive, coming mainly from a better working capital management. If we are looking at the inventory, it was deliberately increased by the end of 2021 in order to try to mitigate the expected challenges in logistics, in the supply that will come in H1 2022. We see here $258 million and this is much, much lower as it's going to address the higher demand in 2022 that we already see now. Regarding customers, Ignacio mentioned that our sales increased by 17% versus last year. And we see here that although we saw a huge increase in our sales, our receivables are much lower by $95 million. This is coming by better collection and -- collection management during the year. So I think that is a very good signal for us. And the last one is about the suppliers, plus $310 million. This is coming from mainly 2 reasons: One [ because ] our higher inventory and our higher procurement during Q4, but also from managing to expand a supplier base and the credit terms from the supplier. So all in all, we can see that our operating cash flow in 2021 we finished it by $710 million versus $292 million in 2020. And the most important, our free cash flow is positive $75 million versus $150 million in the next slide. Regarding the ratio, net debt to EBITDA, I think for the first time, for the last, I don't know, maybe 2 or 3 years, how we are below the 2, which is also a very, very good sign for ADAMA. We are very profitable with this. So let's go to the next slide, so I can present the free cash flow. Slide 19. As I explained, the comparison between last year and this year, mainly positive income are coming from our cash -- our working capital management, positive $110 million. This $110 million is more than to offset our increase in investment -- in our CapEx investment in China and in Israel and also our last acquisition in China, buying Huifeng as Ignacio explained, which contributes a lot to our 2021 results. So we are finishing 2021 with positive free cash flow of $75 million. Thank you, Ignacio.

Thank you, Efrat. So as you can see, the year had a strong finish in terms of many of the things that we were managing in ADAMA. We told you in the different -- in the previous call we said we are reaching an inflation point and we are confident that, that might be the situation when we're moving into the year 2022. So let me share with you a little bit of pieces of information that we think are relevant in order to understand the environment where we are playing in the year 2022 and how do we see the company navigating through the challenges that we have right now. The first thing that I have to share with you, it's -- what is the outcome of the war that is happening right now in Ukraine and the uncertainty that is happening in the geopolitical is European situation. Well, let me say first, that we are totally committed to support the business in East Europe. And as we are speaking, in fact, we are selling in both territories, both in Ukraine, but also in Russia because it is extremely important to support farmers and the food production in the world. Different things is how the economic outcome of these activities will come out, the capabilities of both countries in order to export grain, but Ukraine and Russia, they represent a very critical component of the global exports of cereal, corn, also grape and many other outputs in the agricultural world. We are evaluating what might be the impact that it will have in our organization. And we don't have final numbers right now, but we are totally confident that this situation will not affect materially the results of quarter 1 and we're still unclear about what will be the effect that will come for the rest of the year. There is no doubt we will have some negative effect that it's -- we're still trying to evaluate very close to the ground, what are the risks involved and how much that will affect ADAMA. But on the other hand, we are also very close to all the places where we do know that there will be better opportunities as a consequence of what it is not being produced in East Europe. And that is something that, as a company, we have that flexibility, that agility, that capability to understand which other markets in the world whether they're in Europe, whether they are in Latin America or in North America. We're trying to evaluate which other territories might compensate partially what we might lose in the East European business. And as I said, it's not going to be material for quarter 1, and we are still trying to address what will be the impact in the rest of the year. The situation of the -- in East Europe has certainly influenced that crop prices are still very high. There is a robust demand and consumption, but at the same time, there is a concern about the availability of fertilizers. You need to understand that only Russia today exports 40% of the global potash and in places like Brazil, for example, 20% of the fertilizers that are used there are coming from Russia. And 30% of the potash, by the way, comes from Russia, Northern Europe, I mean 40% of the ammonia is coming from Russia. So there's going to be a certain impact as well on the fertilizers, but the demand is very robust, and we see that despite views that we were thinking that maybe it was going to be a drop on these demand and prices at the beginning of the year, that's not the situation right now. However, that has also put some additional pressure in terms of competition and in terms of cost. It's affecting -- these issues are affecting the currencies all over the world. We see that our exchange rate is impacting our U.S. dollar sales. And not only that, as a consequence -- as a consequence of that, we are also having issues in terms of everything that is on cost. By the way, cost that is mainly driven by a certain attention on the markets, thinking about product availability, but also the cost of energy. We are experiencing right now high increase, not only in oil, but also in coal energy. We're seeing that as we are talking today, there are high costs of energy that immediately are translated into higher cost of production and higher cost of transportation. So we do understand that the pressure on margins will continue being there by significant price increases in raw materials, AEIs. We are envisioning that maybe in the second half of the year there will be a slight reduction on the price of raw materials and in the prices of active ingredients, but we are not sure about all other components like transportation, space of cargo and energy costs. So that's an issue. On top of all these things, COVID is not helping. And you do know right now some of the restrictions that we're having, for example, in Shanghai port, it's -- even though it's still operating, but it's starting to have a certain effect not on shortages, but is having certain disruptions and that you do know that is related with all these COVID resurges that is happening in China. And on top of the currency or Chinese currency is still performing very strong. The RMB, it's still appreciated versus the dollar. And despite the fact that the Israeli shekel, it's been softening a little bit. The reality is that we are in -- operating in this exchange -- in this currency environment that is putting pressure on cost. Very important then for the organization is to keep maintaining our prices high and transferring to the market, they cause inflation as much as we can, which so -- it sometimes is challenging, but that is the focus for the organization. So thank you. I think that with that, I'll finish the presentation. And it's enough for you to listen to us. Now we can -- we want to hear from you, and we want to listen to your questions so that we can answer the best we can, okay? So please.

Thank you, Ignacio, for your introduction. Now we are getting into the Q&A session. So on the right of the screen, you can type in the question. We can see now that there are some questions here. So the first question is, as ADAMA and its subsidiaries have fertilizers in their portfolio, and please introduce your products targeting soybean.

Thank you for the question. No, we don't have as an overall organization fertilizers. We do have few companies all over the world that they are producing some special fertilizers. For example, our Greek subsidiary, they do have a small fertilizer business. And our Chilean subsidiary, they do have something that they call special fertilizers in the nutrient area. But traditional fertilizers that are coming from potash or ammonia like NPK, the ones that are really needed in order to enhance production, no, we don't have. The group does. As you do know, the group has Sinofert and they have their own operations. Syngenta group has that, but not ADAMA, okay? Nevertheless, the availability of fertilizers, it will affect ADAMA in the sales that will make -- will help farmers to take decisions, whether they will be cropping more or not. For example, we do know that corn farmers in The United States, they are evaluating right now if they increase areas in order to produce more corn to balance the lack of supply that will come from East Europe. And the limiting factor is the access to fertilizers. Very, very similar question for Brazil and for Argentina, where they will have to evaluate if their local capabilities of fertilizers will make it available for them to grow more. So I hope that, that is one of the part of your question. The second question is we do have a very robust portfolio in soybean and we do have a very strong position, especially in the control of diseases for soybean and that is behind the very remarkable growth that we're having in all Latin American countries. That's the reason why we are sustaining growth in Brazil, and that is the reason why places like Argentina in first place, but also Paraguay and others in Latin America, they are performing very well. We have a set of new products that are coming not only to reinforce our position, but we do have innovative formulations that I've probably talked to you in other of our meetings, innovative formulations that deliver superior performance for ADAMA and behind those products, we have a locomotive to deliver growth, okay?

The next -- our second question, within the past years during which ADAMA has been listed, your former supplier, Rainbow Agrochemicals has witnessed very high profit and revenue growth. So I would like to ask if there is a possibility of ADAMA being replaced and surpassed by Rainbow Agrochemicals because for these suppliers, they have also started to develop off-patent business and they are also applying many registrations. I had asked this question 4 years ago. I had asked ADAMA to be aware of such companies. So I'm just wondering if you think for Rainbow Agrochemicals and such -- such suppliers, will they pose as a threat to ADAMA and will ADAMA be replaced.

Thank you for that question. I'll take this one. Firstly, I think it's fair to say that Rainbow's performance this year was extremely impressive. They are certainly a very good company, and we have absolutely a lot of respect for them and what they do. I think it's interesting to identify how a company like Rainbow differs from a company like ADAMA. And it will help us, I think, to understand how it is that they can enjoy such a strong financial performance in 1 particular year when the dynamic is not necessarily the same for a company like ADAMA. And this is the case, I think, also for other similar kind of Chinese suppliers who largely earn their profits from the sale of active ingredients in the wholesale market. And of course, for them, in the current environment where the prices of raw materials and active ingredients and intermediates is extremely high as Ignacio has already said, then of course, for them, this is a great time for them to enjoy high profits in their business. They also, of course, are a big seller of glyphosate. And we know that glyphosate has enjoyed a very, very strong run in the last year or 1.5 years. So companies like Rainbow, but not only Rainbow also many other Chinese peer companies of ours are enjoying the recent period, and it's good for their profits. On the other side, ADAMA, for us, we are focused on the sale of end formulated products in the global agricultural markets. So as you know then, for us, these active ingredients and intermediates are largely input costs for us as opposed to revenue sources for us, although we do make some good revenue in China, largely in China from some of this. But for us, the bulk of our profits comes from formulated products in end markets. So for us, the increase in active ingredient prices and intermediates and raw materials actually is a big burden on our costs and our cost structure. However, we strongly believe that our business model over time will be a more sustainable, more diversified and ultimately higher profit business model over time. There will be years like this last year, where for a short period of time, because of the artificial increase in active ingredient prices, there will be such years where the suppliers outperform us. But I think over time, as these active ingredient prices come back down to an equilibrium and the profits that are generated by the Chinese supplies also comes back down into equilibrium, we'll see that what really will drive the long-term profit of the industry is the growth of the agricultural markets of the end markets and our relevance in front of the ultimate customer who is the farmer. So I think from that perspective, we have a lot of respect for companies like Rainbow. They really are good and efficient companies, but we do not believe that they will replace us in any way. They have -- they do have some degree of overseas registrations, but certainly, a drop in the ocean compared to companies like us who have not only a portfolio of global registrations, but also commercial sales forces feet on the ground that are speaking directly to customers and to farmers. So it's not something that they can easily replicate it. It'll take them decades similar to what it took ADAMA to build up this company over decades. Thank you for that question.

As for our third question, as a subsidiary of Syngenta Group, why does ADAMA have to share or amortize liabilities of the group every year. This is the [indiscernible] translation. However, for me, I don't think ADAMA will share the liabilities of Syngenta Group. Maybe you want to ask about the transport assets of the acquisition of Syngenta Group. Maybe you want to ask about this kind of amortization if I understand it correctly. So the floor is again given to Wayne.

Yes. Thank you. So I think it's a useful clarification to make. As Efrat shared with you, we do have some amortization charges that are related to a portfolio of products that we acquired from Syngenta in 2018, those of you that were with us back then will remember that we did essentially what we called a back-to-back transaction where we sold some portfolio of products in Europe to a company called Nufarm, one of our global competitors. And we took the proceeds from that sale and passed those through to Syngenta in exchange for a portfolio of equal value from Syngenta. So that was a transaction that had no real impact on our business. We divested some products and acquired some other products. So overall, our business continued. But it did have an accounting impact in that the products that we divested of course, in many cases, old products that have no book value anymore. So they have very little amortization remaining. But then, of course, when you do an acquisition, it's -- as if it's a new product that comes in and you therefore have to start amortizing. So the reason that we amortize these products -- the reason that we adjust for the amortization of these products is because we're trying to show that it really wasn't the acquisition of brand-new products that we had just developed, but it was really just a swath of various parts of our portfolio with no real economic impact even if there was an accounting impact. So it's got nothing to do with the -- we are not sharing in liabilities of the Syngenta Group. You don't have to be concerned about that. This is simply an accounting amortization of -- related to the products that we acquired from them in 2018.

Thank you, Wayne. Next question -- sorry, the production resumption of Sanonda and Huifeng, what is the current status in these 2 sites and do the 2 sites reach their reasonable level of capacity utilization? Do you foresee that your production can be normalized in 2022. Ignacio, would you like to address that?

Yes. Thank you. Look, it's -- the most pleasing thing that I can say is that they are right now in production. The relocation of Sanonda or Jinzhou site was not something trivial. It not only demanded quite a lot of effort from the organization, is that from a technological point of view, it was a true challenge because also the HSC standards that we're meeting today are top class. They are on the leading edge of HSC standards in the entire China. And we have a site now that is back to production in a very, very pleasing levels. You know that we are producing DMPAT and Acephate, we are at full capacity of DMPAT, okay? So now everything that we need in terms of commercial demand for DMPAT, we're capable to produce in Sanonda, and that is remarkable. We're still in a ramp-up level with Acephate. We are probably reaching 50% of the capacity, and we are ramping up in a reasonable way in order to ensure that all the new technologies are coming into place. But this 50% is a remarkable improvement versus not only the last 2 years, even versus the situation where we were in the old site of Sanonda. And we have great capabilities as we are moving forward to reach levels that will be very pleasing for our commercial activities and for our presence in the manufacturing. Same happens with Huifeng. Also, the ramping up, the starting of the production, it was very challenging. You have to remember, Huifeng was almost stopped for 3 years. These factors is not like turning back a car. These are really sophisticated in places and sites and installations and it's really complex to move back to all the lines into production. But I can say that with the exception of 1 product, which is Bromoxynil where we are expecting to have production by the end of mid-April because the rest of all the lines that we had in Huifeng, they are in production. And not only that, we are even evaluating if the current -- the current layout, it needs to be also adapted in order to cope with some of the opportunities that we see right now because of the impact in the market and specifically in East Europe. In fact, 2 of the products that we have in Huifeng, which are 2,4-D and MCPA. We map great opportunities because of the higher demand that happens in the market and we are evaluating whether our existing capabilities can be even enhanced in order to cope with some of those opportunities. So coming back to your question, yes, we are very pleased about how these returning back to normal operations is going in both places and certainly will represent a true benefit for our results in the year 2022.

Next question, the robust price increase of your company in Q4 is really pleasing news. So how do you see the price trend onwards? Do you think this increased momentum can be maintained in 2022?

Thank you. As you say, yes, there is a good momentum. And what I can tell you is that we were able to increase prices through the year 2021. Certainly, we did in the fourth quarter. We are increasing prices in quarter 1 versus fourth quarter, okay? And we are expecting also that these levels of high prices will remain at least during the first half of the year 2022. In any case, just bear in mind that the price increase versus the same period of the year before is remarkable. So even if there is a slight reduction on prices as we're moving through the year, they will be much higher when we compare with the year before in double-digit figures. That's where we are right now in price increases. So even if there is a slight decrease, there will be higher prices than the year before. But I can say that the momentum, I'd say, it is fine, and we are certainly capitalizing on that in quarter 1, and we're very confident about quarter 2. Also very important will be what happens with all the supply chain structure in the second half of the year. What might happen from China. If the current conditions remain, also the procurement cost of raw materials and active ingredients will remain high, and that certainly will be a good atmosphere to deliver price increases. So we're positively confident about that.

Next about your PR release. You mentioned that there will be a number of new products to be launched. And also, there will be a plan for capacity expansion. How significant does the company predict the contribution from these new investments will be for 2022 and the coming 1 or 2 years?

First, the company has a very robust pipeline of new active ingredients. And we are -- we -- if you remember, we shared with you that we were investing in order to secure that there is a constant flow of new active ingredients coming into our portfolio, and that was our strategy since the year 2017. We've been able to bring into life several new AEIs during the last years like Indoxacarb, like prothioconazole, like [indiscernible]. This is not the end of it. We have -- we've introduced 5 new AEIs in the last years. We have very strong plans to introduce new AEIs during the coming 3 years, okay, including some new AEIs that might hit some of the markets in the year 2022. And that is -- it's a must for ADAMA to ensure that this is happening. But it's not the only thing where we are investing. Having new products, it's part of our strategy that is combined with 2 other elements that make us very, very strong in our competition. The first one is investing in our manufacturing capabilities. And you've seen that through the last years, and we are committed to invest both in China and also in Israel and in other places in order to secure that we have the best cost for some of these active ingredients that we are utilizing. By the way, we're also exploring opportunities with other group companies in order to ensure that we do have these cost capabilities produced in-house. At the same time, we're investing in our formulation capabilities in order to secure that tomorrow we will have unique formulations that will provide value and differentiation for ADAMA. Let me share with you an example. One of these AEIs that we've introduced during the last years is prothioconazole. Today, prothioconazole is registered in many of the European and Latin American markets through formulations that are unique and differentiated, providing better efficacy than their competitors on the segment. And at the same time, we've invested heavily in Israel, in Brazil and in contract manufacturers in order to ensure that we do have the best cost. And we are evaluating also the capabilities that we might have in Anpon and capabilities that we might have in Huifeng. And even we will be cooperating with Yangnong in order to achieve this cost leadership of our active ingredients that will go into differentiated formulation. So everything has come into place. Yes, the organization is putting quite a lot of resources but this strategy is very powerful and will pay back in the results of years to come. Starting with the new AEIs that we're going to launch this year and the years after, we're going to launch 5 new AEIs in between 2022, 2023 and 2024.

The next question, now the profit and share price of various global agrochemical players have reached the historical record when the crop market is booming. We see the share prices of FMC, Corteva and UPL have all increased significantly. When will the same happen to our company? And when will this happen?

Sure. I can take this one.

I will complement you, Wayne, okay?

Okay. Sure. Sure. No problem. So I think that clearly, the share prices of some of our competitors have performed well, although not all of them. Our competitors are going through many of the same dynamics that we are. So many of our competitor companies have grown very strongly in the last year or 2. I will say that ADAMA is among the strongest growing of these competitors globally, right? So we've grown in actual fact faster than some of them. I will say that also in terms of the reaction of the market to price increases -- to the cost increases through raising prices, ADAMA has been doing okay. We've been keeping up with most of the competitors in terms of price increases, especially now with what we saw in Q4 with a very, very strong response in prices, which is, I think, stronger than some of the other competitors. However, I do think that we recognize that ADAMA has been through something very unique that many of our other competitors have not yet been through and this is in terms of the large projects that we are undertaking, specifically on our manufacturing side, and largely related to China, right? So we have invested a lot of investment into the relocation and upgrade of the facilities in China something that has -- something firstly that is very strongly part of our strategy and what we believe is going to be a strong engine for our growth and profitability going forward. However, it has posed challenges while we're going through the process. And of course, we are incurring some of these costs that our competitors are not, if they're not involved in similar processes, which is why we then show the impact of these upgrade and relocation expenses because we do believe them to be transient. We believe them to be temporary. And once we emerge from this investment phase, we believe that our profitability will improve and hopefully, our share price will respond in time. So we realize, of course, that our share price has underperformed our competitors, but we believe we're on the right track, and we appreciate the support of our investors as we go through this journey.

Just to build on that comment, we're very appreciative of you being with us through moments of heavy investment in order to secure our position through the years to come for the future. I think that in our last call, I was telling you, maybe we are in an inflation point and I really believe that, that is the situation because we have greater strategic plans behind all the things that we've invested in order to secure a very solid platform that we have in China and in other places. So the company is in a very good position in order to capitalize on those investments, not only for the benefit that might have for the group -- for ADAMA, but also for the benefits that might have for the group, one of the things that we are evaluating right now in the future is how can we better utilize group assets for the benefit of everybody within the Syngenta Group. And in that sense, the -- of 3 sites, Sanonda, Anpon and Huifeng, they play a very critical role not only for the future benefit of ADAMA but for the future benefit of Syngenta Group on top of other sites that might come from the group and specifically from Yangnong where we are evaluating great opportunities of cooperation.

The next question is for Syngenta and Yangnong. Last year, the transaction value was about $3 billion. So I want to know the transaction situation with ADAMA.

Okay. Look, there are certainly a lot of transactions that are happening among the different entities in the group, okay? And not only with Syngenta or with Yangnong, also with [ MAT ], also with Sinofert, where we are also utilizing some of their retail capabilities in order to enhance our growth. The key thing is not so much what is the amount of the transaction, but the benefit of the synergies that are generated. And I can tell you that from -- for the group, these synergies are way above $0.5 billion in terms of sales for ADAMA. For ADAMA, this is in a way above $250 million of sales in the year 2021 that were generated by cooperation with Syngenta or with Yangnong. And not only that in terms of sales and the turnover, additional sales that were generated by this cooperation. This is also -- at about $90 million of our EBITDA last year was generated by synergies created on our cooperation with group entities. And this cooperation was not only in terms of sales, not only in terms of pure transactional activity of companies selling -- non-selling to us or all selling to Syngenta, there were many other areas where we were able to cooperate. For example, we were able to put together volumes of 2 of the business units in order to negotiate with cargo space on these shipment roads that I was talking to you. We were able to have benefits from better rates on shipments. So the company was able to generate last year very important figures of synergies that are related for ADAMA.

So the next question is one of advantages ADAMA has is in the global market is extensive and diversified registrations and products. Can you please elaborate and update more details about your product registration and development plans?

Yes, you're absolutely right. The good thing about ADAMA is our global reach and our capability to reduce their products. And what I can say is that, first, we have been evaluating about 90 new concepts of formulations that are coming into our pipeline in the year 2021, okay? So let's start by that. We do have 90 new formulations that we are right now evaluating in our portfolio. These will hit the market over the next 5, 6 years, okay? Every year -- we have operations that are almost in 100 countries all over the world. And in all these places, we are registering products. In fact, the numbers of new registrations and label extensions that we had last year, it is certainly in the vicinity of 300 new registrations worldwide. But the key thing is not so much whether we are able to enlarge our portfolio, is that we are putting quite a lot of effort on having more and more differentiated products that allowed us to capitalize on generating and capturing value for farmers and capturing value for ADAMA. So as I said before, we are investing heavily not only in registrations and in new concepts, it's also we're investing heavily on differentiated formulations. And we do have a big project, strategic project in order to deliver more and more unique formulations. This last year, we were able to sell our [indiscernible] or we were able to deliver sorbitol products that are combining active ingredients of our portfolio providing a unique outcome in the formulations. That is in a strategic approach that we are reinforcing. So it's not only the registration base, which we are, as I'm telling you, very, very efficient all over the world, it's that we have a robust pipeline and in the strategic direction to capture value by differentiation and innovation in the formulation side.

Okay. So the next question, in 2021, the sales volume showed strong growth. But how is the current inventory situation in global distribution channel? How does the company foresee the major risks of sales in the future?

The situation in the channel is not the same on all over the world, okay? As I said before in my presentation, the demand is very strong. There is robust demand in the market because of the -- on the stability that is on the price and on the availability of [ Ukraine ]. So there are places that, yes, they have inventories but nothing is it's really concerned. I think that, for example, let me pick The United States, okay? There are inventories in the channel. But the reason for not depleting those inventories is not that there is no demand at farm level or that they have very big levels of inventory. The situation is that right now, farmers are evaluating whether they will increase their surface in order to attend the growing demand that might come from non-production in East Europe or if they are evaluating economically if they're going to be able to do that and that is put in a certain questioning on the demand. But the levels of inventories in all the main markets, starting from Europe or The United States or Brazil or Latin America in general are not a concern, very strong consumption last year in the ground in the southern hemisphere, Australia, South Africa, and Argentina. And in Europe, where we were a bit concerned at the beginning of the year, an early campaign and the disruption that Europe today is thinking about bringing back into production, follow land -- follow, it's a land that was out of production for several years. They have already announced that they are putting EUR 500 million aid in order to bring that into production. So Europe is going to find that the inventories that they have in the channel will have to afford to produce in more land. This is the situation where we are today. So we're not concerned about the level of inventories nor about the sales per se. I want to be clear with all of you, we are confident that the turnover of the company will be okay. We are much more focusing that we do a proper business in terms of maintaining our profitability, prices, et cetera, et cetera.

Okay. So the next question. The company argued that the large amount of investment inside China influenced its margin, but the investment is CapEx, not very much relevant to profitability. Could you further explain, #16.

I think this is a question in response to a comment that I made a little bit earlier about how the -- what we're doing in China has impacted our P&L. It's a very good question. It's not always straight forward. Essentially -- you're right that most of the investment per se as investment, of course, is CapEx and does not go through the P&L. However, there are definitely P&L impacts on our profitability related to these investments. Firstly, while we are suspending production in the old site and before we've ramped up production in the new site, there is idleness in the production facilities. That idleness while we are not yet operating at full capacity, of course, goes through our P&L in the form of costs that are not covered by product sales. That's just one example. A second example, and one of the larger costs that we include in our adjustments that we provide you, is that while some of these lines are suspended or not yet fully operational, we do protect our position in the global markets through alternative procurement of those products from external parties. Of course, when we do so, it's done at a higher cost than when we produce it ourselves. So that also has another impact through our P&L. So there are a number of, let's say, undesirable impacts on a temporary basis that hit our P&L as well as the investment itself, which, of course, goes through the balance sheet and the cash flow statement. So it's not like the P&L is unimpacted. And therefore, we also expect that once these -- once we emerge from these investments and relocation processes, we expect that the P&L also will show some improvement as well.

Okay. Thank you, Wayne. Our meeting is going to be concluded at 5:00 p.m. in China time, and we're almost at the end. Maybe we cannot answer all the questions by investors online. But actually, we have setup a better channel for e-mail and questions from investors. You're very welcome to contact us through the e-mail or the channel. So this is the end of our investor meeting today. Please keep in contact with us and please support ADAMA as you always do. Thank you.

Thank you very much.

Thank you very much.