ADAMA Ltd. (000553) Earnings Call Transcript & Summary

[Interpreted] Dear investors, dear friends, good afternoon. Welcome again. I am Guo Zhi, the Corporate Secretary of ADAMA Ltd. Welcome to the online roadshow of Q2 and H1 for 2026 of our company. We have prepared simultaneous interpretation for you to choose the appropriate language, the suitable language for you to listen to the entire event. Participants attending today's roadshow includes our CEO and President, Mr. Gael Hili; Madam Efrat Nagar, our CFO; as well as our Financial Corporate Management Director, Madam Rivka Neufeld. You can see them on the screen. Our guests will present to you the performance for Q2 and H1. Following that, you can raise questions section on the right bottom of your screen. As a routine, please read carefully the legal disclaimer before we start. Without further ado, we will give the floor to our President and CEO, Mr. Gael Hili, to present you how we have performed. Please, Gael.

Okay. Can you hear me right, Guo Zhi?

Yes.

Okay. Good. Good afternoon, everyone. It's my pleasure to be here to introduce the H1 results for ADAMA and make some comments on our performance and how the market is evolving. Before I do that, I would like to a little bit set up the scene because in 2026 and the beginning of 2026, we actually, as a company, entered a new phase, and it's important that you understand and I will share with you what this new phase is about. Next slide, please. Since 2022, where the industry and ADAMA had a peak -- a high peak in performance, we've been in '23, in '24 and in '25 going through what we call the Fight Back and then the Fight Forward transformation. This lasted basically 3 years, '23, '24, '25, during which we made a lot of efforts, a lot of action to restore the profitability of the company and bring it back to sustainable financial position, which was not the case at the end of 2023, as you probably remember. We did during that period, a lot of changes in the company, operating model, changes to our asset footprint, changes to our operating model as a company, changes to the way our geographical footprint. This resulted in a 2025 performance, which was, as you remember, much better than '24 and '23. Now, after having stabilized the company, we're entering the next phase of our strategy execution. During the previous phase -- no, sorry, stay on that slide. During the previous phase, we built discipline, and we want to turn now this discipline into impact as we grow. That's what we call the next phase going forward. We've stabilized the company. It's now time to grow and to grow in a profitable way. Growth is going to be the essential next step for ADAMA, but it must be, and that's what I would like you to keep as a message. It must be the right type of growth. In the past, ADAMA has sometimes grown in certain periods, but with a growth that was diluting its profitability, we definitely don't want to do that. Now, we have to do, and I'll finish there for this slide, we have to do -- to deliver that growth in a market that is, for sure, more complex, more competitive and more pressured than it has been in the last 10 years. That means that we need to become more outward focused, closer to customers and sharper on competitors because we will grow only if we beat competition in a market that is not growing. Next slide. Obviously, we have a clear ambition as -- a clear growth ambition as we enter this new phase. This slide shows what we want to deliver by 2030. Obviously, I talked about the growth, profitable growth. It's about margin and cash discipline on top of top line growth. It's about making tough choices, but better choices and delivering long-term value for ADAMA stakeholders. Now, we want to become and remain and strengthen our position as a top post-patent synthetic chemistry provider, providing differentiated solution into -- to the end user into all the key chemical markets in the world where we are already present. Next slide. Now as we enter this new phase that we call growing forward, we see 4 sources of value, the value being both profit and cash. First, if I start with the top 2, #1 and #2 on the slide, they are the customer-facing heart of our strategy. This is where our differentiated value innovation strategy comes to life. The first pillar is about what we offer, our portfolio. We will continue to drive portfolio differentiation, sorry, that meet grower needs. We've been investing in the past for that. We have a very strong portfolio already today, and we want to continue to enhance it in the future. This means creating value through the right differentiation, differentiated offer that supports also the basic part of our portfolio. We will continue to sell commodities but we're going to see the weight, both in terms of top line and bottom line of the commoditized part of our portfolio shifting or reducing to the benefit of the part of our portfolio, which is more differentiated and more profitable. The second pillar is about how we sell. I was saying before that the current market and the way we see the market in the next months and years is very, very competitive. In order to differentiate yourself and to win with differentiated portfolio I was mentioning a second ago, we're going to need to uplift our commercial capabilities. There are some markets where we believe we have those capabilities already. In some markets, we are building them very rapidly and very aggressively. We want our teams in the regions to make better choices, sharper execution choices in front of the customer in the future. Now together, as I said, these 2 pillars, they represent how we creates value for the customer with our portfolio and how we deliver those or capture the value commercially. Now Pillar 3 and 4 are also very important. They play a different role. They are what make our growth more profitable, scalable and sustainable. Of course, the growth will be one in the market in front of the customers, but there are a lot of things we can still do at ADAMA. Despite everything we changed in '24 and '25 in the previous phase, there's still a lot of things we do in order to support and improve our profitability and our cash generation. The third pillar is about continuously working on becoming more competitive in terms of cost of our products, making sure that we have the right cost position, the right supply reliability, the quality and the flexibility. We are, as I said in previous meetings of this type, we are looking constantly at our production assets and optimizing them, making them more competitive. As I said, the market is very, very competitive and continues to be. We cannot just sit on the current situation. We need to continue to improve the competitiveness of our production assets. This is a very important pillar of our growth strategy. The fourth pillar is I would say, everything else, but all the initiatives that can be delivered within the company in order to optimize the way we operate. Processes, systems and data that supports decision, and it's a real source of growth and profitability and cash. During Fight Forward, which was the previous period for ADAMA, we built that discipline of defining initiatives. Let me take an example, cost-saving initiatives and following them through, executing on them. This is what brought us to 2025 results that we had. We will continue to utilize and even improve that discipline that we created in the company to look for opportunities of optimizing anywhere in the company. These are the 4 pillars of our strategy. Now obviously, there are a few things that need to be supporting that execution for us to be successful. First of all, we want to continue, as I was saying just a second ago, to be very, very focused on execution discipline. Once again, we built a lot of that discipline during the last 2 years. We will keep it. Our operating model, this is the second bar at the bottom, has changed to a matrix model during the last 2 years. Now, we need to get the best out of that model for taking better and faster decision. Last but not least, we need all across the company with all our employees to demonstrate the right behaviors that align, that support the 4 pillars that was mentioned earlier. Next slide. I just wanted to share that to basically put us or help you understand where we are at ADAMA in terms of phase of the history of our company. We restructured. We have done a lot of work to bring the company into a sustainable, healthy financial results in 2025, even if our net income was still negative in 2025 due to some restructuring charges. Now we're moving into growth. Now, how did we grew? Did we do in Q2 and in H1 2026 in that context? First of all, I want to focus on some very important highlights, which we're very proud of. If we look at Q2 and H1, what I'm going to say now relate to H1, which obviously include Q1 and Q2, but it's a better approach or it's more significant than just looking at Q2. I'll mention the number, I'm going to mention now are about our first half H1. We saw volume growth across most regions. That's the good news. The challenging news is that we saw price pressure also across nearly all our regions. Actually, more price pressure in the market than we thought we would see, especially after the start of the war in the Middle East, we were hoping for -- to see more price power of the industry during -- after the war, which unfortunately, in most cases, didn't happen due to several factors, the most important one being that this industry is still very highly overcapacity situation. Now so we still -- we saw growth on volumes, lower prices. We saw higher gross margin. supported by improved mix. This is a very positive sign that says that our strategy execution is starting to work in this next phase. We saw a better mix, meaning we saw more sales of the differentiated part and more profitable part of our portfolio in H1 2026. This is really -- we didn't see it everywhere, okay, yet, but we saw it in several regions, which is telling us that our strategy, if executed correctly with the right capabilities in the right markets can work. We continued during H1 2026 on the way of cost control and OpEx discipline. This is, as I said, continues to be a very, very competitive market in which we cannot slow down that discipline. For example, one data point I can give you is that the number of employees in H1 globally has continued to reduce. This reduction has started 2 years ago, but it continues quarter-by-quarter. We're also very proud of an improved debt profile and cash management, which has significantly lowered our financial expenses, and this resulted in a positive impact on the net profit. We have a higher reported and a higher adjusted H1 net income, which I know is a very important KPIs for investors in China. We're very proud and happy to report that. Now, as I was saying before in my introduction about ADAMA's new phase, if we look at the crop protection industry at our market, we have seen in H1, and we expect to see it for the rest of 2026, relatively stable growth, stable volumes in the market, which is good news in a way because we've seen high variability in the previous 2 years also related to inventory levels that were high in '23 and '24 -- sorry, in '24 and '25 in the channel. This has gone away. We are, from that point of view, back to a relatively normal and healthy situation. That's good news. Now, as I was saying before, price is the challenging news here. It's not only ADAMA. The market is not demonstrating -- the agrochemical industry is not demonstrating yet price power in the first half of 2026. Also despite the signs that came from -- the cost increase sign that came at the start of the war in the Middle East. Even with that, we saw prices remaining under very high pressure. If we look at farmer income, well, it's even more under pressure than in 2025. Why? Because if you look outside of agrochemicals, which is a bit the outlier, unfortunately for us, all other inputs that growers use for the crop around the world have increased after the start of the Middle East war. Their prices have increased. You take fertilizer, you take fuel, you take seeds, all these have increased. But the commodity prices, the price at which the growers sell, their production have not significantly increased. You see that the profit of the growers is getting squeezed significantly even more than in 2025 this year. That's putting this market -- and I don't even mention the weather and the geopolitical challenges that are all across the world, tariffs and things like this, which puts pressure on top of what I was mentioning. But if you keep those 2 things, the fact that there is no price power in this industry at this stage and the fact that the grower profitability is under pressure even more than the last 2 years tells you that this is a market that continues to be challenging. It doesn't mean that ADAMA cannot grow in this market. We can grow, and we're demonstrating it in several regions, but the market is difficult and we believe will continue to be difficult at least until the end of 2026. We see no sign of reduction of the challenge of overcapacity in China, which is one of the key macro factors that is putting pressure on pricing in this industry. Efrat?

Yes. Thank you. All what just mentioned by Gael reflected in our P&L for the first half of 2026, which is with stable sales seasoned to generate higher gross profit and higher gross margin. We will see it later on in our bridges, supported net profit higher than last year, if we are speaking in terms of adjusted and in terms of reported $62 million positive income versus losses 2025. Important to mention, our financial expenses significantly reduced versus last year, supported this profit increase. This is due to our focus and the ones that are with us in the last few years, you know our focus on our cash generation and also in this half, we are presenting positive cash flow, which, of course, reduced our debt -- level of debt and decreased our financial expenses. More than that, also our structure of debt, which means that we are replacing high-cost debt with low-cost debt following, as you remember, our buyback of our bonds last year also supported our lower financial expenses, this to generate higher net adjusted and reported profit in H1 2026 versus H1 2025. Next slide. Gael?

Yes. Thank you, Efrat. On this slide, you see the performance of our sales by region, and there are significant differences. I'll start by the top with the high-performing region. You see that in Europe and Africa, Middle East in H1 '26 versus H1 '25, you see the volumes have increased significantly by 9% in USD and by 2% in CER. With these type of numbers, we are convinced that we gain market share in Europe, in Europe, Africa, Middle East. This is a region where the growth of the differentiated part of our portfolio is working, is delivering and a region that gives us a lot of assurance that this strategy I was talking about before is working when you have the right execution discipline. Also significant growth in North America, which is, by the way, continues after 2 years of strong performance. You see in North America, the growth of 5% in USD. Same thing, this on the back of strong execution of launch of new products and also significant commercial effectiveness initiatives to improve the level of our commercial capabilities in that region. Latin America, you see is the other way around. Now our volumes actually, our volumes in Latin America have grown. The problem is that Latin America and especially Brazil, Argentina, too, but Brazil really very intensely is the place -- the market in the world where this price pressure I was mentioning earlier is the most acute. It's acute, especially in the mid-tier off-patent segment that ADAMA is playing in. We're really -- the level of aggressiveness of new entrants, especially from China and India in this market does not allow or is making the market very, very difficult on the pricing point. All the volume growth that we achieved in Brazil have been offset by price, unfortunately. Asia Pacific, if we exclude China, we see growth. We see actually growth -- and mainly this is the big country in that region is India. The growth is coming from India mostly, which is good news. We are recovering in India after 2 difficult years. The market is not easy either in India, I can tell you that for sure. But still, we're -- same story as I was saying for North America and Europe. We see our -- the execution of our strategy starting to have impact on the ground. Now, you see a big negative in China here. We have to be careful here because we have to exclude the fact that we took a conscious decision to close an asset in 2025 in our Anpon site to close an asset, which was a non-agrochemical, non-ag. We were producing chemicals, commodity chemicals for industries outside of agriculture in this plant at a relatively -- actually at a significantly lower margin than our average. This was dilutive to our profitability and not really sustainable with the way we saw it. We closed that asset. Of course, now the difference it's showing up on the sales. But if we exclude those sales, we see that our Chinese business is actually growing volume on the branded formulated part of the business. It's also a slightly decreasing on the tech sales. This is due to a phenomenon that has affected all the tech sales player in China after the war, okay? There was -- at the start of the war in the Middle East, you had a bit of a moment or a few -- yes, about a month where the market kind of stopped with all buyers and all sellers waiting to understand where the prices was going to go, and that has resulted in lower volume on the tech business. But I wouldn't see it as a structural issue. The one thing to remember here is that overall, our performance in China is actually pretty solid. This is taking us with a growth for the total of the company, about flat sales on the top line, if you combine all this in U.S. dollar. Next slide.

Thank you, Gael. Looking on the sales, as mentioned by Gael, flat sales versus last year. But if we are looking on the details behind, the picture is the hybrid, starting with the volume, higher volume by 1%. If we are taking, by the way, out the Anpon sales that we did not perform in H1 2026 due to our decision to exit from this activity, our sales basically increased 3%, and our volume growth would be significantly higher. However, the prices decrease the prices -- the pressure of prices in the market decreased by 4% and together with a positive FX impact due to the weaker dollar, as mentioned, we are generating in this half $2.1 billion sales, stable sales, excluding Anpon, it's basically 3% sales increase. I think what's important to mention here, it's not only our volume growth, but the contribution of this growth -- this volume growth into our gross profit as reflected in $36 million in the gross profit, which means that our mix of product is positive. We are selling more profitable products and less nonprofitable products. Together with more or less the same sales, we have succeeded in this quarter to generate higher gross profit, 2% higher, $632 million and higher gross margin above 30%. With OpEx, which is more or less stable despite the fact that it's impacted by, to support the growth of the sales, we are performing slightly lower EBITDA than last year by 3% and getting to the $302 million. If we will move to the cash, we can see that our operating cash flow also impacted with our decision to stop the activities in Anpon as the mix of sales despite the fact that we had a stable sales, the mix of sales moved to more long-term collection, which impacts the operating cash flow. Together also from the company IRON project, which merged the Israeli company. For that, we had to buy and to procure more inventory to support the future. We basically generating only $100 million operating cash flow. Together with the sales of Agan Logistics Center and our continued focus on CapEx investment that generating very short and ROI, we are succeeding also in this half to present a positive outflow of $54 million versus $90 million last year.

Good. Thank you very much, Efrat. We are at the end of what we had to present today in terms of slides. We'll move to the Q&A in a second. Let me though repeat one last time that these results, we believe, of H1 are showing resilience and are showing that broadly our -- the execution of our strategy is working. We're showing growth in the places where we're putting that execution in place. This is happening in a market that is very, very challenging and competitive. We'll move to questions with that, Guo Zhi.

[Interpreted] [Operator Instructions] Question number one. The management mentioned during Q1 2026 communication that the company has raised prices in different regions. What's the current status of these price increase implementation? How did prices in Q2 this year change compared with the first quarter this year? And can selling prices be further raised in the third quarter this year? And what is the expected corresponding change in gross margin?

Sorry. I'll answer that one. It's true that we have intentionally after the start of the war in the Middle East because of our -- the risk of this war to impact our cost -- negatively to increase our cost, we have put price increases in nearly all our markets, all of them actually. We've announced price increases. Now ADAMA, as you probably remember, is a company that has about 6% market share globally, 6% to 7%. We're not the market leaders. The problem is that in some cases, not in all cases, in some cases, we managed to drive those price increases to the bottom line. In some cases, we didn't. Why? Because the market was not moving. We had to swallow back some of those price increases. The result is still better prices in Q2 than in Q1, but not to the extent of what we hoped when the Middle East -- the war started in the Middle East. We saw some price traction, for example, in China. China is a market where we saw some -- for our formulated business, some good price performance. We managed to pass some price increase in the U.S., but you have some other markets like Brazil, like Argentina, even like Europe, where our attempt to increase prices did not work as we hoped because the market and especially the market leaders, the big company who lead this industry did not show any intention or willingness to increase prices. We will continue to push prices as much as we can in Q3 and for the rest of the year. Now being realistic about the market. If the market finally shows some price power, of course, ADAMA will too. But we depend also on the market leader of this industry to throw that price power, which they haven't done so far. The last thing, which is important, despite all this price pressure, I remind you that we have managed to increase our H1 gross profit in the first half of 2026 versus the first half of 2025, which is quite an achievement.

[Interpreted] Okay. Question number two, the China Meteorological Administration has indicated that this year we see the strongest El Nino effect in history. How does the company view the impact of this event on global food prices? And what will be the subsequent implications for demand and price products?

Usually, this type of meteorological phenomenon El Nino is -- brings extreme weathers and extreme weather events that are not in favor of agriculture. Usually, it's more a challenge. It's more a minus than a plus for growers. Now there are some variability globally, but if you make an average, usually, historically, El Nino is more affecting agriculture than helping agriculture. Usually, the most affected area are Asia Pacific and Latin America. Obviously, we are monitoring very closely those markets week by week, month by month. Frankly, what you need in a situation like this as a company like ADAMA is a flexible supply chain, okay? We are increasing the focus and the attention on our supply chain to make sure that every time we take decision, especially for those 2 markets, they're taken as late as possible so that to give us as much possibility to react as possible on how those markets are evolving. You saw that -- if you look at the value of the market globally, H1 was relatively flat as a global market, maybe down a little bit, but not because of volumes, okay, because El Nino could affect the volumes because of the prices. We don't see that fundamentally different in the second half, where markets like Brazil and Argentina, so the Southern Hemisphere are going to come. Yes, there will be impact of El Nino. But overall, our assumption today, and if you hear comments from our competitors when they release their results is the same, they are still believing or assuming a market that is relatively stable year-on-year versus 2025.

[Interpreted] Let's see the third question. ADAMA reported net income for H1 changed to an income of $62 million from a loss to $11 million last year, yet adjusted EBITDA declined 3% year-on-year. After excluding the $36 million capital gain from the sale of the Israel Logistics Center and favorable currency effects, what is the true Y-o-Y trend in operational profitability for H1? Which financial metric does the management team internally prioritize? Furthermore, the adjusted net income declined year-on-year in Q2. What are the factors in your mind, which have impacted the Q2 performance?

I will take this. We suggest that we will look at the adjusted figures, mainly adjusted EBITDA and net income. As you probably know, adjusted figures exclude expenses and income that are not part of the company's ongoing activities. If we are speaking about H1, adjusted net income, as I presented, increased by 28%, excluding the capital gain from the sales of logistics center in Israel and the other extraordinary items. Facing the challenging industry environment as presented by Gael, ADAMA remains focused on selective growth, disciplined execution and improving profitability and cash. This was reflected in our improved volumes supporting better gross profit and margin. Of course, as I already mentioned, lower financial expenses and positive cash flow. Currently, we are focusing on improving our performance and protecting our profitability. Net income is an important metric. That's why we improved our debt structure which together with positive inflow contributed to lower financial expenses. We just finished merger of the Israeli entities to improve additional operational efficiencies.

[Interpreted] Lets look at the fourth question. Revenue in China declined 23% Y-o-Y in H1, and it has so far fell 8%, even excluding some onetime factors. When do you expect to see a recovery?

I mostly answered that question already during my presentation, but I will repeat the main points here. The drop of the revenue, 23% in China is mostly due to a decision we took consciously to close an asset of basic chemicals for non-ag markets. Now it's true that even if you exclude that reduction, we're still reducing the top line by 8%. Now this is coming from the business of tech sales. Our formulated branded business is growing in China in H1. The tech sales are going down because of what I was saying before. There've been about a month, maybe even 6 weeks after the start of the war, but this market has stopped basically because all -- both buyers and suppliers were waiting to see what was going to happen to prices, a bit kind of wait-and-see type of position, which lowered the overall size of the market during those 6 weeks. Then it restarted, but this is what explains the slight drop on our tech sales business out of China.

[Interpreted] Now, lets see the fifth question. So ADAMA launched 23 new products and obtained 54 registration certificates in H1. What is the current revenue proportion of these differentiated formulation products? How much higher is their gross margin? What is your target for the next 2 to 3 years?

On new products, and yes, you're absolutely right. We launched a significant number of new products in the first half and also a significant number of new registration. Unfortunately, we do not disclose the breakdown externally. However, I can tell you, as I was saying in my introduction, that we very much focus in ADAMA on these new product launches and not only on their launch, but also on accelerating the growth in the first 2 to 3 years of the life of those products. This is one very key focus. When I said to you earlier that we're looking at improving our commercial capabilities in our key markets, this is one of the focuses, how we launch and grow products. Now, one of the actual concrete results or proof points of that is the fact that our mix is positive in H1. This is a very important metric for us as we go into this new phase of growth for ADAMA, we want to grow our profit supported by the mix. The mix basically tells us that those new products volumes are growing and they're growing with the right level of profitability.

[Interpreted] So question #6, operating cash flow declined sharply from $242 million to $100 million and free cash flow fell from $90 million to $54 million. You explained it's because of collection time difference and inventory stocking. Is it purely a timing issue related to disturbance? Or do you think it reflects a structural increase in your working capital?

Yes, I will go to the end, okay? Our current level of working capital is not due to any structural increase in working capital as we saw a few years ago. I think this is a very important statement. As mentioned and also included in the question and as I presented in our presentation, this is due to collection, stable sales with different mix of sales for moving to more longer-term collection sales. Also, as I mentioned, IRON project, the merger of the Israeli entities to increase operational efficiency, this require us to procure and produce more inventory in order to not lose any sales in the future due to this name change.

[Interpreted] Question #7. Your company previously expected to resume sales in Turkey in the second half of this year. What is the latest progress in this regard?