ADAMA Ltd. ($000553)

Dear investors, good afternoon. I am Guo Zhi, Corporate Secretary of ADAMA Ltd. Welcome to our first quarter roadshow for this Q1 of 2026. Today, we are still providing you simultaneous interpretation for English and Chinese. You can see the quit button on the right bottom of your screen. You can choose the channel for -- which matches your need. Today, we have also invited our President and CEO, Mr. Gael Hili; and Madam CFO, Efrat Nagar; and our Global Investor Relations and Financial Corporate Manager, Madam Rivka Neufeld to present to you our first quarter results. We have also the question-and-answer session. You can click the button and input your question. We are looking forward to your questions. So as a routine, we will present to you the Q1 business performance slides, and you are kindly remind to read through this legal disclaimer before we start. So now, we will welcome Mr. Gael Hili to present to you how we have performed in this first 3 months. Please, Gael.

Good afternoon, everyone. Very happy to be here to share where ADAMA is going, its Q1 and where we are with the state of the business. A lot of strength, a lot of good news in our Q1, which is a continuation of what we've seen in the performance of the company for the last 2 years. So in Q1 2026, we saw -- in a market that continues to be very competitive, very challenging. The profitability of the growers is -- continues to be challenged. There is a lot of uncertainties for growers today. So their willingness to invest continues to be challenged. But despite those conditions, we posted a quarter in Q1 as ADAMA, with sales growth of 3.7%. So higher sales was one of our key objectives for the start of 2026, and we delivered on that. It's a combination of higher volume and lower prices. Prices continue to go down in our markets. It's not only ADAMA, the whole industry is still facing price downturn. We have overcapacity that continues to affect the markets and a lot of competition in very tough competition, especially in markets like South America, Brazil, Argentina, but also in some Asian markets. So despite that, higher sales in Q1, higher gross profit also, so 5% growth in -- on the gross profit side with a gross profit percent, which is slightly higher than Q1 2025, which means that we are able in the current market condition to protect the profitability of the company, which we improved over the last 2 years. And our objective is to grow the sales while protecting the profitability, moving forward, and we succeeded to do that in Q1. The EBITDA is lower than Q1 2025, also because of the market conditions. We had expectation in terms of mix, which did not turn into reality, unfortunately. Our strategy of growing the sales of the higher margin product is working well in some geographies. It's still challenging because of the market condition in other geographies. So we're working on that. There is progress, but we need to continue to work on it. The -- we had lower financial expenses. This is another good news for Q1 2026 due to favorable CPI and an improved debt profile. All these put together make us report a higher net income, a significantly higher net income. Efrat will talk about the actual number in a moment. And whether it's reported or adjusted, the net income is higher than Q1 2026. And this evolution of the net income of ADAMA is also -- I see it as a continuation of what we've been working on the last 2 years, okay, getting out of very important losses into first smaller losses and now profit. This is one area of focus for us. And I see this as a natural continuation of the work we've been doing the last 2 years. Next slide.

Okay. So in terms of how it looks P&L for Q1 2026. So you can see here that our strategy of the profitable volume growth is reflected with 3.7% higher sales, while we see 3% higher in volumes. However, due to the market conditions that mentioned by Gael, the 4% lower prices are somehow offsetting the benefit from the volume. In addition, the company took a decision to exit and reduce the manufacturing and sales of basic and low-margin basic chemical products, which is also impacting the sales in 2026. Looking on the gross profit. So also in this quarter, we can see that our profit increased by 5% with a margin of 30.6%. This is due to the favorable exchange rate that impacts us positively on the gross margin, of course, the higher volumes and we succeeded not as expected, but we succeeded also to improve our quality of business, selling more profitable product, which supported also the level of the profitability. With higher OpEx, which in this -- in the OpEx, we see negative impact of the exchange rate, together with the increase of the employee compensation and increase in expenses to support this profitable sales growth. We are basically reaching to EBITDA of $150 million, 6% lower than last year. However, if we are looking on the adjusted profit, which supported by, as mentioned by Gael, better financial expenses also due to our cash management in 2025, better debt structure and the CPI, lower CPI on our bonds in Israel, we can see that our net profit in 2026 adjusted increasing by 35%, reaching to $59 million and the reported reaching to $82 million, while we reduced significantly our restructuring costs and also we sold a logistics center in Israel, we generated a profit of $37 million. Next slide.

So on the sales front, as I was saying before, we saw an increase of the sales overall. If we look at it by region by region, there are some differences. Some of them are market related. Some of them are actually related to decisions that we made as a company. Let me start with the top 2, which are Europe, Africa, Middle East and North America. Here, you see we posted some very strong sales growth, despite the price is also negative in those -- the price trend is also negative in those markets. We posted these very strong volume increases, thanks to our growth strategy. And this is very promising in places where also we're seeing some positive impact of the mix. I'll go to Asia Pacific, and then I'll talk about Latin America, which is the most challenging market today. But Asia Pacific, you see a downside there, lower sales. This is driven by a decision of ADAMA to exit the sale, and the production and sales of some basic chemicals, actually not in agriculture. We were selling some basic chemicals in China at a very low margin, a business that was not accretive to the overall profitability of the company, and we decided to exit this business back in Q3 2025. And when you compare the 2 quarters, Q1 2025 to Q1 2026, these sales are not there anymore. So that's not something that we see as a bad news. It's actually our decision, and I believe it's a good decision. Now Latin America, this is where the market is really challenging. This drop of 2% that you see in dollar is a combination of actually higher volumes but significantly lower prices, more significant than what we expected. The market continues to be very challenging in Brazil. There is a lot of product in the market. All players in the industry are trying to win in Brazil, and they're ready to make price concessions that are sometimes very, very challenging for us and for all the players in the industry and driving prices down. So that explains the trend in Latin America. Now Latin America, Q1 is not high season. It's actually low season. The real business in Latin America happens in Q3 and Q4. And I really hope that by then, we'll see some inversion of the price trend also led by the -- or influenced by what we're seeing on the cost side of our industry related to the increase of oil prices and raw materials in China. Next slide?

Okay. Thanks, Gael. So this slide basically represents the sales bridge. I already mentioned our volume growth of 3%. This is a combination from one hand, loss of sale of some low-margin clinical products. But from the other hand, it's supported by new product introduction, which also supported our margin due to the higher -- relatively higher gross margin profitability of those products. With still challenging market conditions, our prices are down by 4% and the weak dollar because we are a dollar-nominated company, we are also enjoining from the dollar by $45 million, and this bring us to $1,037 million sales. If we will go to the next slide and looking on the EBITDA bridge, okay? So we can see, of course, the impact of the volumes, $24 million contribution to our profit, again, due to slightly higher quality of our business. Costs are moderate, more or less the same like last year and the increase in OpEx, which, as I mentioned, to support these sales, the increase in sales require more operating expenses. And FX eventually supported ADAMA by $25 million, which allow us to reach to $150 million EBITDA, 14.5% EBITDA to sales margin. In the cash flow -- in the next slide. So I think it's -- very important to mention that every -- because of the seasonality of ADAMA business, Q1, the first quarter of each and every year is usually negative. So we can see here that the operating cash flow in Q1 2026 is $141 million. This is mainly due to phasing of sales and collection. Last year, Q4 2025, we sold lower sales, if you remember, versus last year. So the collection in this quarter is lower. And also, we perform or executed sales at the end of this quarter, which the collection will be next -- in the next quarter. So bottom line is only phasing. And of course, we don't have any issue around collection. Looking at the free cash flow, so we can see that our continued ROI-based investment discipline, including the proceeds from the sales of the logistics center in Israel somehow offset partially the negative operating cash flow and our outflow for free cash flow in Q1 is $139 million. Next slide?

Yes. So ESG reporting, this is something we're very proud of. We've been releasing our 2025 ESG report with a lot of very positive news on the front of -- on that front. I won't go through all the thing on the slide, but just highlight some of them. We've -- we had a -- we saw a reduction -- a significant reduction of our hazardous waste in 2025 versus 2024, 75%. We have 0 significant injuries or fatalities during 2025, which is another very important achievement for us. And our Scope 1 and 2 emissions were down 21% in 2025, and they're on track to deliver our 2030 objectives. So this is an area where ADAMA is really progressing as per our plans, sometimes even better. And this is recognized by outside stakeholders, that's the next slide. You will see that our ratings, our ESG scores, if you look at -- and we look at different outside parties who are rating this type of performance, you see that all of them are increasing our rating as a company following the release of that report. So we're very -- I'm very happy. I'm very proud of our performance in that area. And we will continue, obviously, to drive this agenda in the quarters and the years to come. This is very important to us. We believe it's very important to our stakeholders, shareholders. And we know that this type of ratings are taken into consideration by our shareholders to evaluate the value of the company. So we are very focused on that area. I think that's it for the presentation. We'll go to Q&A, correct?

[Interpreted] Thank you for your introduction. Next, we will enter the Q&A session. The first question is that -- has there been a specific assessment of the damage to the warehouse at the company's Israeli factory at the end of March 2026? What impact has it had [ on your ] performance in Q1 2026, will it have on the whole year of 2026?

Yes. Thank you for the question. First, of course, we -- this was a very sad event for us, which we're still recovering from at the plant level. Most of the plant, I have to say, by now, 90% of the units of the plant have been returned to operation within 2 to 3 weeks of that event. So there have been a lot of repair and rebuild happening very fast after this event. I want also to stress the fact that nobody was injured during these events, which is a tribute also of how we -- how our people on the plant are following the safety procedure in case of events like this one. Now in terms of business continuity, I have to say that whether it's Q1 or the full year, we don't see any material impact on the business continuity. So our ability to sell to provide our customer, we have alternative options or we had during the few weeks where we had some operational, let's say, slowdown in the plant, we have alternative. So we continue to serve our customers globally without issue, and we don't see any material impact for Q1, none, 0. And for the full year, if any, it will be very, very minimal, not material at the scale of ADAMA.

Yes. Just to add to this that in Q1, important to mention that we recorded provisions for some damage of our product, which is $5.7 million. However, we are expecting to get this money, the compensation from the compensation fund in Israel. And also, we have an insurance on a loss of profit. So continue like beyond the fact that we are not seeing any material damage to our business continuity, we're also going to get the money from the government and from the insurance in order to cover our expenses due to these [ things ].

[Interpreted] Second question is that due to the particular event, the prices of various chemical products worldwide have been a significant increase in March 2026. Considering ADAMA's sales performance in April and expectation for May, what changes have occurred in the selling prices of ADAMA? Have the corresponding cost increases been successfully passed on through product price increases?

So clearly, first, you saw that in Q1, our costs were broadly flat. Actually, they were flat. You saw a negative impact of $9 million on the bridge that Efrat presented earlier. But most of that $9 million is a one-off impact in Brazil, which is not -- if we want to compare apples with apples, our costs were flat in Q1, which is logical because in Q1, we're still -- what we sold in Q1 was mostly either produced or purchased in Q3 and Q4 last year, where the cost increase that we see today in the market were not active yet now. True, the costs are increasing now. And the big question mark is will ADAMA, but not only ADAMA, the industry as a whole, able to -- or how much of these cost increases will the industry be able to pass to the end customer down to the grower, knowing that the financials of the grower are also challenged in this very moment, okay? So clearly, we are increasing prices. Most of our price increases are -- depending on countries, they're active April 1 or they were active April 1 or May 1, so a few days ago. And we are doing our utmost to capture the -- or to compensate the cost increase that we see coming into prices in the market. Now our ability to do that will depend on 2 things. First will depend on ourselves and our ability to also leverage our portfolio. But also -- and I would say, in that case, very importantly, will depend on the market, okay? So we saw the market behaving sometimes in an illogical way in the past years, destroying value because of competitiveness. Is that going to continue? Or are we going to see a global trend from the whole industry to capture or to compensate the cost increases? This is too early to say. We will know this probably in Q3 and Q4 when the actual cost increases will hit the P&Ls of most of the companies in the industry. It's going to happen between the second half of Q2 and the beginning of Q3, depending on the supply chain of different companies. So we are definitely -- our intention in ADAMA is definitely to, at least compensate those pricing -- those cost increases with price increases. Our ability will also depend on what the market is doing on that one. So far, as you saw in Q1, we have protected our margins.

[Interpreted] The question is that the gross margin of ADAMA in Q1 by [ 0.3 ] percentage points to 30.6%, which is lower compared to the gross margin increase for the whole year of 2025. And what is the company's gross margin for the whole year of 2026? And what are the means to further improve the gross margin?

So you know that we basically, we started our journey in a very low baseline of profitability of gross margin. We launched our Fight Forward plan in order to improve our gross margin, and we see it significantly in 2025. However, it's easier to jump versus the low baseline versus a continued significant gross margin improve. We are in the trend of improving our quality of business during the 2026 onwards. However, we do believe that we will not -- according to the also market condition, we will see improvement, but not at the level of the jump in 2025.

And if I may add Efrat, we've been -- we are changing -- we are moving from a phase of restructuring and for 2 years, cutting costs, setting up the company for -- in a healthy financial place, which we did for 2 years. Now we're getting into a phase in -- which started in Q1, where we need to grow the top line again, which we did, okay, in Q1, as you saw, the sales grew. In order to do that, we cannot do that and at the same time, increase the gross profit from the magnitude that we did in 2024, the 4 points, okay? We want to continue to grow our gross profit -- our profitability, but probably at a slower pace than what we did before because we want at the same time to also increase the top line of the company, okay? So we're managing that balance. I think, again, Q1 showed that we can manage that balance. and we will continue to do so. So we are still after improved profitability. We're keeping actually the discipline with cost management, with return on investments that we built over the last 2 years that took us where we were in -- if you see our financial for the full year 2025. And now next is to grow the sales while also growing the profitability, but we cannot do it at the same pace as we did in the last 2 years because in the last 2 years, the company shrunk in terms of size, okay? We took some hard decision to walk away from some products to improve the profitability. Now with the portfolio that is left with us, we want to grow this portfolio in sales. And this portfolio has a starting profitability, which is healthy. We can increase it and we will increase it, but not at the same pace as before. We cannot expect that.

[Interpreted] The fourth question is that ADAMA's net profit for Q1 has seen a significant year-on-year increase, yet both EBITDA and cash flow have declined compared to the same period last year. How do you interpret the contradictory trend in these financial figures?

So you know that from the EBITDA to the net profit, we have other factors that impact us, okay? So we discussed the lower financial expenses. This is, one, because of our better cash performance in 2025 -- positive cash performance in 2025. We also restructured our debt to have a lower cost debt and also the CPI on our bonds in Israel, which were -- was lower in 2026 versus 2025. So this is benefit to our net profit. Another line or expenses that impacted our net profit and more than offset the lower EBITDA is our tax expenses. While we keep focusing on our company structure in order to improve our taxes, we already shared with you our [ ROI ] project of merger with Israeli company all in order to see or to unlock tax benefit in Israel. We are also benefiting in this quarter from accounting guidelines around the level of the BRL, the Brazilian currency and also the level of the intergroup inventory that hold by our subsidiaries. And of course, in addition, the sales of our logistics center in [ Ma' agan ] in Israel, as we mentioned, $37 million, all those more than compensate the lower EBITDA, and we are performing significantly better net profit adjusted and of course, reported.

[Interpreted] Next question is that recently, China National Climate Center stated that it is expected to the La Nina will [ fade ] in May 2026 and moderate or stronger El Nino event will occur in autumn, possibly lasting until the end of the year. Has ADAMA ruled the impact of this climate event on the demand for crop protection products in various regions around the world.

Yes. Thank you. This is -- we are looking into this, obviously, we know that this type of forecast provision exists. Usually, historically, El Nino can have -- depending on crops and geographies, Northern Hemisphere, Southern Hemisphere, wheat versus soybean versus corn can have actually negative or positive impact on the market, okay? I think it's too early to say what will be the impact, if any. We're monitoring it through risk and opportunities. If it has an impact, obviously, it will be the whole market. It won't be only ADAMA. And I believe that at this stage, we cannot do much more than treat it as a potential risk in some geographies and a potential opportunity in others. That's the way we're treating it.

[Interpreted] Second question is that in Q1, the company's administrative expenses decreased by 20% year-on-year. The previous administrative expenses were mainly affected by expenses related to the Fight Forward plan. Will the full year decline of the company's administrative expense be close to the Q1 decline rate or will it drop by a larger margin?

Okay. So we share with you that in the last 2 years, 2024, 2025, we had the Fight Forward plan, which I think took us to a -- change in the mindset of ADAMA towards OpEx discipline, okay? So the good news that this OpEx discipline is the part of our now culture, okay, our ongoing business, and we will continue to manage it through 2026. Another good news that as we shared with you, this Fight Forward plan resulted by also higher restructuring expenses, the payment from McKinsey. And it is something that we are not going to see in 2026. This is also going to support, of course, our operating expenses. And last but not least, the FX impact because we are a dollar-denominated company, we are going to see some negative impact on the dollar on translating the local currency into dollar on the OpEx. But overall, I can share with you that we are putting a lot of effort on our OpEx management to make sure that OpEx is allocated to the regions, to the business that are performing to support their profitable sales growth.

[Interpreted] Question #8, does ADAMA resume your sales in Turkey?

Not yet. The answer is not yet. We're still not selling in Turkey following the embargo that was announced by the Turkish government back in 2024. But we have plans to come back probably towards the second half of this year. We're treating it at this stage as an upside. It's not part of our official plan. But we have good chances, solid chances to come back in -- towards the end of 2026 with even higher expectation for 2027. So we are -- we will -- we have found a compliant and way through submission of new regulatory documents to the Turkish authority to sell again in Turkey. And we will do so, as I said, probably towards the second half of this year and then growing again in 2027. That's our intention.

[Interpreted] Let's move to the next question, the question #10. So you can check out. It is a question about tariff. And what is the approximate value of goods exported to U.S. in 2025 and 2026 that are subject to IEEPA tariffs. What is the corresponding tariff amount? What proportion of this is eligible for a refund? And previously, who is bearing the cost for exporting goods to U.S. and how much is the cost? And who is the ultimate beneficiary of this refund? Will it be returned to your company? And do you have any similar expectation for refunds and what impact will this have on your future gross margin?

So look, we are well aware of the refund mechanism that has been released by the government, the authorities in the U.S. At this stage, it's difficult, and we're not in a position to comment on our eligibility as a company for potential refund for a potential benefit of that process. So we don't want to speculate at this stage as it's simply too early. Now I want to also stress out that the exposure of ADAMA to the U.S. market is -- exists, okay? We have a presence in the U.S., but our agriculture sales in the U.S. are relatively small, okay, if you put it in the context of the overall ADAMA. So even if it has an impact at one point in time, it will not be a very material impact at the scale of ADAMA.

[Interpreted] Okay. Let's see the last question. How do you view the global resistant problem of glyphosate?

Well, I view it as a company like ADAMA, which is an off-patent chemical company, has access to all available off-patent molecule in -- globally. So we can choose our tools, and we're doing it very actively, which means that we are able to provide solutions to growers that actually are alternatives to glyphosate. And we're doing it already in our herbicide portfolio. So -- and we're not selling glyphosate at ADAMA or very little. We decided to exit the glyphosate business because it was not profitable enough. And so for us, the resistance to glyphosate, while it's an issue for growers, recognize that is an opportunity -- is actually an opportunity through bringing variable solution to growers that allow them to find alternatives to glyphosate to manage their weeds.

[Interpreted] So that concludes Q&A. I will give the floor back to Gael to give us closing remarks. Thanks.

Yes. Thank you. First, thanks to all of you for your questions. I really appreciate the engagement here. As I said in my introduction, Q1 for us is entering into a new phase, a phase of growth. We've seen -- you've seen our sales and gross profit and net profit increasing quarter-over-quarter. I see it as -- also part of that is a result, a continuation of all the efforts we did in the last 2 years to bring the company in a financial -- in a good solid financial place, and we continue that journey while growing our business. And there is a lot of positive in what we shared today for Q1. There is also a lot of challenges in the market and a lot of uncertainty. This is something that is obvious to everyone. And -- but I think we have a team, we have a company that is able to manage much better that uncertainty than if we look at the company, where the company was 2 years ago. So I have also a lot of confidence in the future. Thank you very much.

[Interpreted] So that's the end of Q1 2026 session. We appreciate your support. Thank you. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]