Adama Ltd. Class A SZSE:000553
ADAMA : Second Quarter 2025 Q&A Filings
Source: MarketScreener
ADAMA LTD. SEMI-ANNUAL REPORT 2025
ADAMA Ltd. is a global leader in crop protection, providing solutions to farmers across the world to combat weeds, insects and disease. ADAMA has one of the widest and most diverse portfolios of active ingredients in the world, state-of-the art R&D, manufacturing and formulation facilities, together with a culture that empowers our people in markets around the world to listen to farmers and ideate from the field. This uniquely positions ADAMA to offer a vast array of distinctive mixtures, formulations and high-quality differentiated products, delivering solutions that meet local farmer and customer needs in dozens of countries globally, with direct presence in all top 20 markets.
Please see important additional information and further details included in the Annex.
August 2025
1
Section I - Important Notice, Table of Contents and DefinitionsThe Company's Board of Directors, Board of Supervisors, directors, supervisors and senior managers confirm that the content of the Report is true, accurate and complete and contains no false statement, misleading presentations or material omissions, and assume joint and several legal liability arising therefrom.
Gaël Hili, the person in charge of the Company (President and Chief Executive Officer) as well as its legal representative, and Efrat Nagar, the person leading the accounting function (Chief Financial Officer), hereby assert and confirm the truthfulness, accuracy and completeness of the Financial Report.
All the Company's directors attended the board meeting for the review of this Report.
The forward-looking information described in this Report, such as future plans, development strategy, market trends and their effect etc., does not constitute, in any manner whatsoever, a substantial commitment of the Company to investors. Investors and other relevant people are cautioned to be sufficiently mindful of investment risks as well as the difference between plans, forecasts and commitments.
The Company has described its possible risks in "X - Risks Facing the Company and Countermeasures" under Section III herein. The major risks of the Company include, among others, exchange rate fluctuations; exposure to interest rate, Israel CPI and NIS exchange rate fluctuations; fluctuations in raw material inputs and prices, and in sales. Investors and other relevant people are cautioned to be sufficiently mindful of investment risks. For the complete "Risks Facing the Company and Countermeasures" of the Company, please see the relevant section below.
For the Reporting Period, the Company does not plan to distribute cash dividends or bonus shares or convert capital reserve into share capital.
This Report and its Abstract have been prepared in both Chinese and English. Should there be any discrepancies between the two versions, the Chinese version shall prevail.
Section I - Important Notice, Table of Contents and Definitions 2
Section II - Corporate Profile and Financial Results 6
Section III - Performance Discussion and Analysis 9
Section IV - Corporate Governance, Environment and Society 33
Section V - Significant Events 35
Section VI - Share Changes and Shareholders 77
Section VII - Bonds 82
Section VIII - Financial Report 83
Section VIIII - Other Reported Data 204
Documents Available for ReferenceDuly signed Financial Statements by the Legal Representative and Accounting Principal as well as Head of the Accounting Organ;
Originals of all Company's documents previously disclosed in media designated by the CSRC as well as the originals of all the public notices, were deposited in the Company's office.
General Terms Definition
Company, the Company ADAMA Ltd.
Adama Agricultural Solutions Ltd., a wholly-owned subsidiary of the Company,
Adama Solutions
Anpon, ADAMA Anpon
ADAMA Huifeng
incorporated in Israel according to its laws
ADAMA Anpon (Jiangsu) Ltd., a wholly-owned subsidiary of the Company, incorporated in China according to its laws
ADAMA Huifeng (Jiangsu) Ltd., a 51% owned subsidiary of the Company, incorporated in China according to its laws
Board of Directors/Board The Board of Directors of the Company Board of Supervisors The Board of Supervisors of the Company
Group, the Group, ADAMA The Company, including all its subsidiaries, unless expressly stated otherwise ChemChina China National Chemical Co., Ltd.
ChemChina-Syngenta
Transaction CNAC
The acquisition of Syngenta AG by ChemChina in 2017
China National Agrochemical Co., Ltd., the indirect controlling shareholder of the Company, a wholly-owned subsidiary of ChemChina
CSRC China Securities Regulatory Commission
SZSE Shenzhen Stock Exchange
SASAC State Assets Supervision and Administration Commission of China
Syngenta Group Co., Ltd, the controlling shareholder of the Company as of June
Syngenta Group
15, 2020, a wholly-owned subsidiary of CNAC
Sinochem Holdings Sinochem Holdings Corporation Ltd.
Sinochem Holdings including all its subsidiaries unless otherwise indicated or the
Sinochem Group
context otherwise requires
Report This 2025 Semi-Annual Report Reporting Period, this Period January 1, 2025 - June 30, 2025
2024 Annual Report The Company's 2024 Annual Report published on March 14, 2025
Section II - Corporate Profile and Financial Results-
Corporate Information
Stock name ADAMA A, ADAMA B Stock code 000553, 200553
Stock exchange Shenzhen Stock Exchange
Company name in Chinese 安道麦股份有限公司
Abbr. 安道麦
Company name in English (if any) ADAMA Ltd.
Abbr. (if any) ADAMA
Legal representative Gaël Hili
Contact Information
Board Secretary
Securities Affairs Representative & Investor Relations Manager
Name Guo Zhi Wang Zhujun
Address 6/F, No.7 Office Building, No.10 Courtyard, Chaoyang Park South Road, Chaoyang District, Beijing
Tel.
010-56718110
010-56718110
Fax
010-59246173
010-59246173
E-mail
Other Information
Ways to Contact the Company
Indicate by tick mark whether any changes occurred to the registered address, office address and their postal codes, website address and email address of the Company during the Reporting Period.
Applicable √ Not applicable
No changes occurred to the said information during the Reporting Period, which can be found in the 2024 Annual Report.
Information Disclosure Media and Place where this Report is Kept
Indicate by tick mark whether any changes occurred to the information disclosure media and the place where this Report is kept during the Reporting Period.
Applicable √ Not applicable
The newspapers designated by the Company for information disclosure, the website designated by the CSRC for the publication of this Report and the location where this Report is kept did not change during
the Reporting Period. Said information can be found in the 2024 Annual Report.
Other Relevant Documents
Indicate by tick mark whether any changes occurred to the relevant documents during the Reporting Period.
Applicable √ Not applicable
Main Accounting Data and Financial Results
Indicate by tick mark whether the Company needs to retroactively adjust or restate any of its accounting data.
Yes √ No
January - June 2025
January - June 2024
YoY +/- (%)
Operating revenues (RMB'000)
15,024,200
14,910,289
0.76%
Net loss attributable to shareholders of the Company (RMB'000)
(80,352)
(894,866)
91.02%
Net loss attributable to shareholders of the
Company excluding non-recurring profit and loss (RMB'000)
(149,757)
(947,055)
84.19%
Net cash flow from (used in) operating activities (RMB'000)
1,738,578
1,731,118
0.43%
Basic EPS (RMB/share)
(0.0345)
(0.3841)
91.02%
Diluted EPS (RMB/share)
NA
NA
NA
Weighted average return on net assets
(0.42%)
(4.17%)
3.75 pp
End of Reporting Period
End of last year
+/- (%)
Total assets (RMB'000)
50,703,250
50,059,777
1.29%
Net assets attributable to shareholders (RMB'000)
18,905,044
18,991,094
-0.45%
-
Differences in Accounting Data under Domestic and Foreign Accounting Standards
Differences in Net Profit and Net Assets Disclosed in Financial Reports Prepared under Chinese and International Accounting Standards
Applicable √ Not applicable None during the Reporting Period.
Differences in Net Profit and Net Assets Disclosed in Financial Reports Prepared under Chinese and Foreign Accounting Standards
Applicable √ Not applicable None during the Reporting Period.
Reason for accounting data differences under Chinese and Foreign Accounting Standards
Applicable √ Not applicable
- Non-Recurring Profit/Loss
√ Applicable □ Not applicable
Unit: RMB'000
Item | Reporting Period | Note |
Gains/losses on the disposal of non-current assets (including the offset part of asset impairment provisions) | 5,054 | |
Government grants recognized through profit or loss (excluding government grants closely related to regular operation of the Company and continuously given at a fixed quota or amount in accordance with certain standards) | 5,111 | |
Recovery or reversal of provision for bad debts which is assessed individually during the years | 38,147 | |
Post vesting cash share based payment revaluation | 7,578 | |
Gains or losses arising from the holding or disposal of financial assets or financial liabilities by non-financial corporations, except for effective hedging related to the normal operating of the Company | 30,714 | |
Other non-operating income and expenses other than the above | 1,820 | |
Other profit or loss that meets the definition of non-recurring profit or loss | - | |
Less: Income tax effects | 19,019 | |
Total | 69,405 |
Details of other profit and loss items that meet the definition of non-recurring profit or loss.
Applicable √ Not applicable
No such cases in the Reporting Period.
Explanation whether the Company has classified an item as non-recurring profit/loss according to the definition in the Explanatory Announcement No. 1 on Information Disclosure for Companies Offering Their Securities to the Public - Non-Recurring Profit and Loss, and reclassified any non-recurring profit/loss item given as an example in the said explanatory announcement to recurrent profit/loss
Applicable √ Not applicable
No such cases in the Reporting Period.
Section III - Performance Discussion and Analysis-
Main Business of the Company during the Reporting Period
The Company is a corporation incorporated in the People's Republic of China.
The Group is a global leader in crop protection, engaging in the development, manufacturing and commercialization of a wide range of crop protection products, that are largely off-patent. The Group provides solutions to farmers to combat weeds, insects and disease, and sells its products in dozens of countries globally, with direct presence in all top 20 markets.
The Group's business model integrates end-customer access, regulatory expertise, state-of-the art global R&D, production and formulation facilities, thereby providing the Group a significant competitive edge and allowing it to launch new and differentiated products that meet local farmers and customer needs in key markets.
The Group's primary operations are global, spanning activities in Europe, Africa & Middle East (EAME), North America, Latin America and Asia-Pacific (including China).
The Group also utilizes its expertise to adapt such products also for the development, manufacturing and commercialization of similar products for non-agricultural purposes (Consumer and Professional Solutions).
In addition, the Group leverages its core capabilities in the agricultural and chemical fields and operates in several other non-agricultural areas, none of which, individually, is material for the Group. These activities, collectively reported as Intermediates and Ingredients, include primarily, (a) the manufacturing and marketing of dietary supplements, food colors, texture and flavor enhancers, and food fortification ingredients; (b) fragrance products for the perfume, cosmetics, body care and detergents industries; (c) the manufacturing of industrial products and (d) other non-material activities.
ADAMA Group is a distinctive member of Syngenta Group, a world leader in agricultural inputs, spanning crop protection, seeds, fertilizers, additional agricultural and digital technologies, as well as an advanced distribution network in China.
The General Crop Protection Market Environment
In H1 2025 channel inventory returned to pre-pandemic levels in most countries, allowing crop protection demand recovery. Pricing pressure remains high, driven by production over-capacity of active ingredients. Crop commodity prices remain stably low and coupled with the high-interest rate environment, farmer profitability remains tight leading to just-in-time purchasing patterns.
Crop Protection Products
As described within the Company's 2024 Annual Report, the Group is focused on the development, manufacturing and commercialization of largely off-patent crop protection products, which are generally herbicides, insecticides and fungicides, which protect agricultural and other crops against weeds, insects and disease, respectively. Since the publication of the 2024 Annual Report, no major changes occurred with that respect. For details, please refer to 2024 Annual Report.
Please see important additional information and further details included in the Annex.
-
Core Competitiveness Analysis
No significant changes occurred to the core competitiveness of the Company during the Reporting Period.
-
Analysis of Main Business
General Description
Whether it is the same as main business of the Company during the Reporting Period disclosed or not?
√ Yes □ No
Please refer to the relevant information in section "I. Main Business of the Company during the Reporting Period" above.
Year-on-year changes of main financial data:
2025 Apr-June (000'RMB)
Same period of last year
(000'RMB)
+/-%
2025 Apr-
June (000'USD)
Same period of last year
(000'USD)
+/-%
Operating revenues
7,851,465
7,401,390
6.08%
1,091,791
1,041,344
4.84%
Cost of goods sold
5,806,542
5,785,722
0.36%
807,427
814,027
-0.81%
Selling and Distribution expenses
1,024,305
1,282,638
-20.14%
142,442
180,460
-21.07%
General and administrative expenses
362,102
256,008
41.44%
50,358
36,019
39.81%
R&D expenses
112,949
106,255
6.30%
15,708
14,948
5.08%
Financial Expenses
1,002,189
256,483
290.74%
139,326
36,099
285.96%
Gain (loss) from Changes in Fair Value
345,010
(47,557)
825.47%
47,976
(6,691)
817.02%
Total Net Financial Expenses
657,179
304,040
116.15%
91,350
42,790
113.48%
Loss before tax
(257,578)
(420,137)
38.69%
(35,786)
(59,123)
39.47%
Tax expenses (income)
(26,095)
247,124
-110.56%
(3,629)
34,770
-110.44%
Net loss
(231,483)
(667,261)
65.31%
(32,157)
(93,893)
65.75%
EBITDA
933,527
539,027
73.19%
129,812
75,841
71.16%
Net cash flows from operating activities
1,945,446
2,466,280
-21.12%
270,524
346,996
-22.04%
Net cash flows used in investing activities
(372,808)
(342,006)
-9.01%
(51,841)
(48,119)
-7.73%
Net cash flows used in financing activities
(1,890,259)
(1,861,463)
-1.55%
(262,850)
(261,900)
-0.36%
Net increase (decrease) in cash and cash equivalents
(320,875)
291,925
-209.92%
(43,437)
38,648
-212.39%
Reporting Period (000'RMB)
Same period of last year (000'RMB)
+/-%
Reporting Period (000'USD)
Same period of last year
(000'USD)
+/-%
Operating revenues
15,024,200
14,910,289
0.76%
2,091,331
2,098,494
-0.34%
Cost of goods sold
11,030,173
11,474,074
-3.87%
1,535,355
1,614,867
-4.92%
Selling and Distribution expenses
1,975,668
2,363,376
-16.40%
275,013
332,614
-17.32%
General and administrative expenses
734,867
536,266
37.03%
102,302
75,475
35.54%
R&D expenses
216,793
218,107
-0.60%
30,177
30,695
-1.69%
Financial Expenses
1,024,340
623,647
64.25%
142,429
87,804
62.21%
Loss from Changes in Fair Value
(6,493)
(196,492)
96.70%
(1,007)
(27,659)
96.36%
Total Net Financial Expenses
1,030,833
820,139
25.69%
143,436
115,463
24.23%
Loss before tax
(125,579)
(571,430)
78.02%
(17,403)
(80,433)
78.36%
Tax expenses (income)
(45,227)
323,436
-113.98%
(6,295)
45,514
-113.83%
Net loss
(80,352)
(894,866)
91.02%
(11,108)
(125,947)
91.18%
EBITDA
1,964,239
1,394,754
40.83%
273,447
196,317
39.29%
Net cash flows from operating activities
1,738,578
1,731,118
0.43%
241,697
243,495
-0.74%
Net cash flows used in investing activities
(635,095)
(814,956)
22.07%
(88,391)
(114,703)
22.94%
Net cash flows used in financing activities
(1,367,061)
(1,844,670)
25.89%
(189,941)
(259,536)
26.82%
Net decrease in cash and cash equivalents
(268,278)
(886,478)
69.74%
(35,403)
(128,632)
72.48%
Major changes to the profit structure or sources of the Company in the Reporting Period:
Applicable √ Not applicable None during the Reporting Period.
Analysis of Financial Highlights
Operating Revenues
Revenues in the second quarter increased by approximately 5% (6% in RMB; 5% in CER) to $1,092 million, reflecting a volume growth of 8%, more than offsetting a decrease of 3% in prices. The higher volumes reflected the gradual recovery of market demands and improvement of channel inventories in most regions, while the Company has been shifting away from selected low profit products and businesses. Prices were weak mainly due to low prices of active ingredients in light of overcapacity, as well as a high-interest rate environment and low commodity prices, which put pressure on distributors and farmers.
Supported by the growth of revenues in the second quarter, ADAMA reported flat sales for the first half of 2025 (0% in USD, 1% in RMB, 1% in CER), compared to the first half of 2024. The stabilization of revenues in the first half was driven by volume growth of 4% offsetting a decrease in prices of 3%.
Unit: RMB'000
2025H1
2024H1
YoY +/-%
Amount
Ratio of the operating
revenue
Amount
Ratio of the operating
revenue
Total operating revenue
15,024,200
100.00%
14,910,289
100.0%
0.8%
Classified by industries
Manufacture of chemical raw materials
and chemical products
15,024,200
100.00%
14,910,289
100.0%
0.8%
Classified by products
Herbicides
6,593,471
43.9%
6,163,343
41.3%
7.0%
Fungicides
3,149,177
21.0%
3,155,230
21.2%
-0.2%
Insecticides
3,913,941
26.1%
4,215,471
28.3%
-7.2%
Ingredients and Intermediates (Formerly referred to as Non-Agro)
1,367,611
9.1%
1,376,245
9.2%
-0.6%
Classified by regions
Europe, Africa & Middle East (EAME)*
4,811,339
32.0%
4,935,526
33.1%
-2.5%
North America
3,554,544
23.7%
2,941,766
19.7%
20.8%
Latin America
2,609,695
17.4%
2,841,344
19.1%
-8.2%
Asia-Pacific*
4,048,622
26.9%
4,191,653
28.1%
-3.4%
* As part of ADAMA's business optimization program, on January 1, 2025, South Africa was reclassified from the APAC region to EAME. To enable meaningful comparisons, the 2024 data presented here includes South Africa under EAME.
Note: the sales split per product category is provided for convenience purposes only, and is not representative of the way the Company is managed or in which it makes its operational decisions.
Regional Sales Performance in USD
Q2 2025
$m
Q2 2024
$m
Change USD
H1 2025
$m
H1 2024
$m
Change USD
Europe, Africa & Middle East (EAME)*
314
318
-1%
670
695
-4%
North America
276
223
24%
495
414
19%
Latin America
216
209
3%
363
400
-9%
Asia Pacific*
286
292
-2%
564
590
-4%
Q2 2025
$m
Q2 2024
$m
Change USD
H1 2025
$m
H1 2024
$m
Change USD
Of which China
143
121
18%
309
275
12%
Total
1,092
1,041
5%
2,091
2,098
0%
Note: the following analysis of regional sales performance is based on USD results, and the numbers in this table may not sum due to rounding.
Europe, Africa & Middle East (EAME):
Volumes and revenue in Europe have generally improved year-over-year in H1 and were similar in Q2, though EAME results were negatively impacted by significant Q1 declines in Turkey which also impacted H1. Pricing continued to decline in light of intense competition. Weather challenges in Northern Europe were offset by good conditions in France and other countries.
North America:
In the US Ag market, reduction of stock in the channel and good weather conditions in key markets such as corn and soybean led to volume increases. Just-in-time purchasing behavior continues with slight improvements in prices. Similarly in Canada while AI pricing pressures remain, volumes for ADAMA's overall portfolio have improved significantly in Q2 and H1. The Consumer & Professional Solutions experienced flat Q2 revenues with a slight increase in volume offset by a slight decline in prices. However, for the half-year revenues increased with declining prices more than offset by higher volumes. End users did not consume as much inventory as normal due to rain and adverse weather conditions.
Latin America:
In Brazil, volumes are up resulting in Q2 revenue improvements, partially offsetting a weaker Q1. Competition remains strong, resulting in lower pricing. In the rest of LATAM pricing pressures continue in light of generics competition and just-in-time purchasing behaviors, with lower volumes and revenues reported in Q2 and H1.
Asia-Pacific:
Sales continue to experience pricing pressure, with declines in Q2 and H1. These declines reflect both ample oversupply and the Company's decision to optimize regional layouts. In India, irregular weather including flooding in some regions and deficient rainfall in others, impacted sales, though volumes increased in both the quarter and half year.
In China, sales increased both in the second quarter and first half. Non-ag sales increased led by strong chlor-alkali markets with stronger margin due to higher operational efficiency. AI sales also increased, driven by volume growth due to the expansion of new distribution channels and supported by the recovery of global demand. Lower prices and volumes of branded formulations reflected the impacts of market competition.
Cost of Goods Sold:
List of the industries, products or regions which exceed 10% of the operating revenues or operating profits of the Company as at the Reporting Period
Unit: RMB'000
Operating revenues
Cost of goods sold
Gross Margin (%)
YoY increase/decrease of the operating revenues
YoY increase/decrease of the cost of goods sold
YoY increase/decrease of the gross margin
Classified by industries
Manufacturing chemical raw materials and
chemical products
15,024,200
11,030,173
26.6%
0.8%
-3.9%
3.5 pp
Classified by products
Crop Protection
13,656,589
9,952,759
27.1%
0.9%
-3.9%
3.7 pp
Ingredients and
Intermediates
1,367,611
1,077,414
21.2%
-0.6%
-3.4%
2.2 pp
If the scope of the Company's main business was adjusted during the Reporting Period, the Company's financial data of main business according to the adjusted scope at the end of the reporting period is disclosed as follows:
□ Applicable √ Not applicable
In the first half of the year, higher volumes also contributed to the increase of gross profits. The lower cost of goods sold mainly reflected the positive impacts of improved operational efficiency and lower costs of inventory sold. The said positive impacts on gross profits and its margin more than compensated for lower selling prices and the remediation costs by a wholly-owned subsidiary for its plant in Israel in the second quarter.
Operating Expenses:
Operating expenses include Sales and Marketing, General and Administration and R&D.
In the first half of the year, the sales and marketing expenses declined mainly under the positive impacts following implementation of the Fight Forward transformation plan and also because in 2024 there were one-off expenses related to a legal claim of product liabilities. In the first half of both 2024 and 2025, the Company continued recording following charges in its sales and marketing expenses at a similar amount, which incurred due to mergers and acquisitions in recent years, mainly: (i) non-cash amortization charges in respect of transfer assets received from Syngenta related to the 2017 ChemChina-Syngenta acquisition; and (ii) non-cash amortization net charges related to intangible assets created as part of the Purchase Price Allocation (PPA) on acquisitions, with no impact on the ongoing performance of the companies acquired. The general and administrative expenses increased in the first half mainly due to the higher advisory and restructuring costs incurred than last year, which more than offset the positive impacts of the Fight Forward plan. Foreign exchanges rates had a positive impact on operating expenses during the reporting period.
Non-operational charges affected the Company's reported operating expenses amounting to 338 million
($ 47 million) in H1 2025 in comparison to RMB 472 million ($ 66 million) in H1 2024. For details of the non-operational charges, please refer to the Annex to the Report.
Financial Expenses:
"Financial Expenses" alone mainly reflect interest payments on corporate bonds and bank loans as well as foreign exchange gains/losses on the bonds and other monetary assets and liabilities before the Company carries out any hedging. The impact of Financial Expenses (before hedging) is RMB 1,024 million ($ 142 million) for the first half of 2025 compared to RMB 624 million ($ 88 million) for the corresponding period in 2024.
Given the global nature of its operational activities and the composition of its assets and liabilities, the Company, in the ordinary course of its business, uses foreign currency derivatives (forwards and options) to hedge the cash flow risks associated with existing monetary assets and liabilities that may be affected by exchange rate fluctuations. "Gains/Losses from Changes in Fair Value", which recorded the hedging costs and impacts among others amounted to a net loss of RMB 6 million ($ 1 million) in the first half of 2025, compared with a net loss of RMB 196 million ($ 28 million) in the corresponding period in 2024.
The aggregate of Financial Expenses and Gains/Losses from Changes in Fair Value (hereinafter as "Total Net Financial Expenses"), which more comprehensively reflects the financial expenses of the Company in supporting its main business and protecting its monetary assets/liabilities, amounts to RMB 1,031 million ($ 143 million) in the first half of 2025 compared with RMB 820 million ($ 115 million) in the corresponding period in 2024.
In the first half, Total Net Financial Expenses increased mainly because (i) in 2024 there was a RMB 239 million ($34 million) income from revaluation of the put options attributed to minority stakes in controlled subsidiaries, and (ii) in the second quarter this year a controlled subsidiary repurchased its bond principal as part of strengthening the debt structure, incurring a loss due to the premium between the buyback price and its issuance price.
It should be noted that as mentioned above, a subsidiary of the Company repurchased a significant part of its bond principal in the second quarter for the purpose of improving financing structure and efficiency. As the repurchase was completed late in the quarter, the impacts on improving the financial costs were minor during the reporting periods.
Cash Flow:
Net cash flows from (used in) operating activities: Operating cash flow of RMB 1,739 million ($ 242 million) was generated in the half-year period, compared to RMB 1,731 million ($ 243 million) generated in the corresponding period last year. The dynamics in the half-year period reflected an improvement in collection, offsetting higher outflow due to higher procurement payments in preparation to capture growth momentum.
Net cash used in investing activities was RMB 635 million ($ 88 million) in the half-year period, compared to RMB 815 million ($ 115 million) in the corresponding period last year. Lower cash used in investing activities reflected continued prioritization of investments in ADAMA's manufacturing facilities and portfolio optimization.
Free cash flow of RMB 651 million ($ 90 million) was generated in the half-year period compared to RMB 364 million ($ 51 million) generated in the corresponding period last year, reflecting the aforementioned operating and investing cash flow dynamics.
Cash Flow from Financing Activities was RMB 1,367 million ($ 190 million) consumed in the half-year period, compared to RMB 1,845 million ($ 260 million) consumed in the corresponding periods last year, mainly reflecting repayment and buyback of debts driven by positive free cash flow while less cash was utilized to reduce debts compared to last year.
-
Analysis of Non-Core Business
√ Applicable □ Not applicable
Unit: RMB'000
Amount
Proportion in total profit
Reasons
Whether sustained
Investment income
5,261
(4.19%)
No
Loss from change of Fair
Value
(6,493)
5.17%
Mainly from changes in fair value of
derivatives.
No
Credit impairment losses
(93,679)
74.60%
Expected credit loss in LATAM due to liquidity issues of some local
distributors.
Asset impairment losses
(27,617)
21.99%
No
Gain from disposal of assets
5,054
(4.02%)
No
Non-operating income
19,219
(15.30%)
No
Non-operating loss
12,555
(10.00%)
No
-
Analysis of Assets and Liabilities
Significant Changes in Asset Composition
Unit: RMB'000
End of Reporting Period
End of last year
Change in percentage point (pp)
Reason for significant change
Amount
As a percentage
of total assets (%)
Amount
As a percentage
of total assets (%)
Cash at bank and on hand
3,497,229
6.90%
3,630,608
7.25%
-0.35 pp
-
Accounts receivable
8,100,271
15.98%
7,977,830
15.94%
0.04 pp
-
Inventories
11,612,921
22.90%
11,164,663
22.30%
0.60 pp
-
Investment property
19,689
0.04%
20,509
0.04%
0.00 pp
-
Long term equity investments
35,956
0.07%
30,227
0.06%
0.01 pp
-
Fixed assets
9,588,625
18.91%
9,762,895
19.50%
-0.59 pp
-
Construction in progress
1,933,407
3.81%
1,996,892
3.99%
-0.18 pp
-
Right of use assets
527,579
1.04%
557,159
1.11%
-0.07 pp
-
Short-term loans
6,588,393
12.99%
4,748,720
9.49%
3.50 pp
Loan replaceme
nt
Accounts payable
5,440,839
10.73%
4,934,865
9.86%
0.87 pp
-
Contract liabilities
1,491,105
2.94%
1,810,764
3.62%
-0.68 pp
-
Long-term loans
1,746,425
3.44%
2,166,625
4.33%
-0.89 pp
-
Debentures payable
5,146,703
10.15%
6,320,157
12.63%
-2.48 pp
Repurcha sed part of
the bonds
Lease liabilities
599,408
1.18%
610,415
1.22%
-0.04 pp
-
Main Overseas Assets
√ Applicable □ Not applicable
Specific
contents of the assets
Reason
Scale
(Amount) of the assets (RMB'000)
Location
Operation
/Manageme nt mode
Control measures to guarantee safety of the assets
Net Profit of the assets (RMB'000)
Proportion of overseas assets out of total net assets (%)
Significant impairment risk?
Equity investment in Adama
Solutions
Acquired through Major Assets
Restructuring
15,552,902
Israel and globally
Corporate Governance
Corporate Governance
(251,820)
82%
No
Other explanations
N/A
Assets and Liabilities Measured at Fair Value
√ Applicable □ Not applicable
Unit: RMB'000
Item
Opening balance
Profit/loss on fair value changes in the Reporting Period
Cumulative fair value changes charged to equity
Impairment provided in the Reporting Period
Purchased in the Reporting Period
Sold in the Reporting Period
Others
Closing balance
Financial assets
1.Financial assets held for trading (excluding derivative
financial assets)
1,035
-
-
-
1,012
-
-
2,047
2.Derivative financial assets (including long term)
483,822
117,458
(56,692)
-
568,787
(249,969)
-
863,406
3.Other equity
investments
131,473
-
(304)
-
-
-
-
131,169
Total financial assets
616,330
-
(56,996)
-
569,799
(249,969)
-
996,622
Other
205,059
-
-
-
7,962
(50,790)
-
162,231
Total of above
821,389
117,458
(56,996)
-
577,761
(300,759)
-
1,158,853
Financial liabilities
278,580
186,587
-
-
-
-
-
465,167
Significant changes in the measurement attributes of the main assets in the Reporting Period
Yes √ No
Limitation on Asset Rights as of End of the Reporting Period
At the end of this Reporting Period, restricted assets included RMB 181,544,000 - restricted cash, most of which as guarantee for bank acceptance bills; and RMB 146,565,000 of other non-current assets, mainly as guarantee for lawsuits.
-
Investments Made
Overall Condition of the Total Investments Made
√ Applicable □ Not applicable
Investment during the
Reporting Period (RMB'000)
Investment during the Same Period Last Year (RMB'000)
+/-% YoY
16,137,558 22,170,519 -27.21%
Significant Equity Investments during the Reporting Period
Applicable √ Not applicable
Significant Non-Equity Investments executed during the Reporting Period
Applicable √ Not applicable
Financial Investments
Investments in Securities
Applicable √ Not applicable None during the Reporting Period.
Investments in Derivative Financial Instruments
√ Applicable □ Not applicable
Investment in Derivative Financial Instruments for Hedging during the Reporting Period
√ Applicable □ Not Applicable
Unit: 000 RMB
Investment Type
Initial Investment
Opening Balance
Profit/loss on fair value changes in the Reporting
Period
Cumulative fair value changes charged to equity
Purchased in the Reporting Period
Sold in the Reporting Period
Closing Balance
Percentage of investment amount divided by net asset
at end of the period
Option
2,029,357
2,029,357
(20,738)
(28,273)
2,025,884
2,029,357
2,025,884
10.7%
Forward
19,405,343
19,405,343
(48,391)
(65,970)
14,111,674
19,405,343
14,111,674
74.6%
Total
21,434,700
21,434,700
(69,129)
(94,243)
16,137,558
21,434,700
16,137,558
85.3%
Explanation of accounting
policies and specific accounting principles for hedging during the reporting period, and any
significant changes compared
with last reporting period
Please refer to section VIII of this Report, note III. 32.1 for the disclosure of the accounting policies for hedging. There is no change in the accounting policies for hedging during the reporting period.
Explanations about actual
gain/loss during the Reporting Period
The loss during the year was RMB 94,243,000 compared to a loss of RMB 178,050,000 in the same period last year. The loss was mainly due to the devaluation of the USD by 12% vs. the BRL and by 11% vs. the EUR, offset by devaluation of the USD by 7.5% vs. ILS.
Explanations for hedging effect
Despite of the loss incurred from the hedging transactions, which include the gains or losses from changes in the fair value of the derivatives, the gains or losses from the disposal of the derivatives and the hedging costs, the Group has effectively mitigated the impact from the exchange rate fluctuations
during the year.
Source of fund for the derivatives investment
Internal.
Risk and control analysis for the Reporting Period (including but not limited to market risk,
liquidity risk, credit risk, operational risk, legal risk, etc.)
The aforesaid refers to short term hedging currency transactions made with banks.
The Group's transactions are not traded in the market. The Transactions are between the applicable company in the Group and the applicable bank until the expiration date of the transaction, therefore no market risk is involved.
Regarding credit and liquidity risk, the Group is working with large and substantial banks only and with some of them the Group has ISDA agreements. As to operational risk, the Group is working with relevant software, which is its back office for all transactions.
No legal risk is involved.
The actions taken in order to further reduce risks are:
Every 2-3 years the internal audit of the relevant subsidiaries' department is auditing the entire procedure.
Market price or fair value change of investments during the Reporting Period.
Specific methodology and assumptions should be
disclosed in the analysis of fair
value of the investments
The aforesaid refers to short time hedging currency transactions made by the relevant subsidiary with banks. Segregation of duties as follows:
For the fair value evaluation, the relevant subsidiary is usually using external experts. The relevant subsidiary hedges currencies only; the relevant
transactions are simple (Options and forwards) for short terms. For fair value methodology see section VIII of this Report, note IX. Fair Value. The exchange rates are provided by the accounting department of the relevant subsidiary and all other parameters are provided by the experts.
Litigation-related situations (if
applicable)
N/A
Date of disclosure of Board
approval (if any)
March 14th, 2025
Date of disclosure of
Shareholders' approval (if any)
April 8th, 2025
The relevant subsidiaries have specific guidelines, under the Group's policy, which were approved by the subsidiaries' financial statements committee of the board, which specifies, inter alia, the hedging policy, the persons that have the authorization to deal with hedging, the tools, ranges etc. The only subsidiary that has hedging positions in the Group in the period was Adama Solutions and its subsidiaries.
The relevant subsidiaries apply management designed procedures and controls, which among other things, monitor the working process and the controls of the hedging transactions and are quarterly reviewed and annually audited.
The controllers of the relevant subsidiaries are involved in the process and are monitoring the hedging accounting treatment.
The company is required to comply with the "Self-regulatory Guidelines for Listed Companies on Shenzhen Stock Exchange: No. 3 - Disclosure of Industry Information".
The derivative transactions carried out by the Group were mainly through options and forward in order to mitigate the currency exposure and the fluctuation in Israeli CPI. For more details, please refer to the section above.
Investment in Derivative Financial Instruments for Speculation during the Reporting Period
Applicable √ Not Applicable
No such situation occurred during the Reporting Period.
Use of Raised Fund
Applicable √ Not applicable None during the Reporting Period.
-
Sale of Major Assets and Equity Interests
Sale of Significant Assets
Applicable √ Not applicable None during the Reporting Period.
Sale of Significant Equities
Applicable √ Not applicable
-
Main Controlled and Joint Stock Companies
√ Applicable □ Not applicable
List of main subsidiaries and stock-participating companies influencing over 10% of the net profits on the Company
Unit: RMB'000
Name
Type
Main services
Registered
capital
Total
assets
Net assets Operating Operating Net profit
revenues profit
Adama
Solutions Subsidiary
Development, manufacturing and marketing of agrochemicals, intermediate materials for other industries, food
additives and synthetic aromatic products,
mainly for export.
720,085 42,624,316 12,699,959 13,263,012 (309,059) (245,725)
Subsidiaries acquired or disposed during the Reporting Period
Applicable √ Not applicable
Explanations on the main controlled and joint stock companies
√ Applicable □ Not applicable
During the Reporting Period, total sales of Solutions, a wholly-owned subsidiary of the Company, amounted to $1,845 million, a decline of 2%, reflecting an increase of 3% in volumes and a decrease of 3% in prices. Solutions' net loss was $34 million in the first half of the year, compared with net loss of
$137 million in the corresponding period last year. For detailed explanation of the performance movement, see above explanation of the Section.
-
Structured Entities Controlled by the Company
Applicable √Not applicable
- Risks Facing the Company and Countermeasures
The Group is exposed to several major risk factors, resulting from its economic environment, the industry and the Group's unique characteristics, as follows (the order below does not indicate priority):
Exchange rate fluctuations
Although the Company reports its consolidated financial statements in RMB, the Company's material subsidiary Solutions reports its consolidated financial statements in US dollars, which is its functional currency, while its operations, sales and purchases of raw materials are carried out in various currencies. Therefore, fluctuations in the exchange rate of the selling currency against the purchasing currency impact the Company's results. The Group's most significant exposures are to the Euro, the Israeli Shekel and the Brazilian Real. The Group has lesser exposures to other currencies. The strengthening of the US dollar against other currencies in which the Company operates reduces the dollar value of such sales and vice versa.
On an annual basis, approximately 22% of the Group's sales are to the European market and therefore the impact of long-term trends on the Euro may affect the Company's results and profitability.
Analyses of currency exposure from foreign currency exchange rate fluctuations against assets, liabilities and cash flow denominated in foreign currencies are done constantly. High volatility of the exchange rates of these currencies could increase the costs of transactions to hedge against currency exposure, thereby increasing the Company's financing costs.
The Group uses commonly accepted financial instruments to hedge most of its substantial net balance sheet exposure to any particular currency. Nonetheless, since as part of these operations the Group hedges against most of its balance sheet exposure and only against part of its economic exposure, exchange rate volatility might impact the Group's results and profitability. As of the date of publication of this Report, the Group has hedged most of its balance sheet exposure.
In addition, as the Company's product sales depend directly on the cyclical nature of the agricultural seasons, therefore the Company's income and its exposure to the various currencies is not evenly distributed over the year. Countries in the northern hemisphere have similar agricultural seasons and therefore, in these countries, the highest sales are usually during the first half of the calendar year. During this period, the Company is most exposed to the Euro. In the southern hemisphere, the seasons are opposite and most of the local sales are carried out during the second half of the year. During these months, most of the Company's exposure pertains to the Brazilian Real.
Exposure to Interest rate, Israel CPI and NIS exchange rate fluctuations
The debentures issued by Solutions, the material subsidiary of the Company, are Israeli Shekel based and linked to the Israel Consumer Price Index "CPI" and therefore an increase in the CPI and an appreciation of the shekel rate against the dollar might lead to a significant increase in its financing expenses. In addition, high volatility of the exchange rate of USD/NIS and expectations of material changes in the inflation rate, may increase the costs of hedging transactions on currency exposure, and as a result, may lead to a further increase in the company's financing costs. As of the date of approval of the financial statements, Solutions hedged most of its exposure to these risks on an ongoing basis,
through CPI hedging and USD-ILS exchange rate hedging transactions.
In addition, inflation in several global markets has a cross effect on the business results of the Group, since on one hand, it contributes to the Group's ability to increase the sale price of its products, but on the other hand, it may increase the Group's production costs and operating expenses. As of the date of the Report, the Group is unable to isolate the influence of inflation on its sale prices and its costs. The Group estimates that the cumulative cross influence of inflation does not have a material effect on to its financial results.
Since December 31, 2021, the Group have had dollar denominated liabilities bearing variable interest rates previously based on LIBOR, exposing it to interest rate fluctuations. Following the global transition away from LIBOR, the Company monitors its exposure and periodically evaluates hedging strategies. As of January 1, 2022, SOFR (USD), ESTR (EUR) and SONIA (GBP) have replaced LIBOR as alternative risk-free rates. As of the date of publication of this Report, the Group has not carried out hedging for such exposure, since US dollar interest rates have been relatively stable.
In addition, the effect of interest changes on the debt that serves the Group's working capital is seasonal. Such debt bears a variable interest, but has no material effect on the Group's financing expenses. As a result, the net increase in interest rate does not have a material effect on the Group's business.
Business operations in emerging markets
The Group conducts business - mainly product sales and raw material procurement - inter alia, in emerging markets such as Latin America (particularly in Brazil, the largest market, country wise, in which the Group operates), Eastern Europe, Southeast Asia and Africa. The Group's activity in emerging markets is exposed to risks typical of those markets, including: political and regulatory instability; volatile exchange rates; economic and fiscal instability and frequent revisions of economic legislation; relatively high inflation and interest rates; terrorism or war; restrictions on import and trade; differing business cultures; uncertainty as to the ability to enforce contractual and intellectual property rights; foreign currency controls; governmental price controls; restrictions on the withdrawal of money from the country; barter deals and potential entry of international competitors and accelerated consolidations by large-scale competitors in these markets. Developments in these regions may have a significant effect on the Group's operations. Distress to the economies of these markets could impair the ability of the Group's customers to purchase its products or the ability to market them at international market prices, as well as harm the Group's ability to collect customer debts, in a way that could have a significant adverse effect on the Group's operating results.
The Group's operations in multiple regions allows for the diversification of such risks and for the reduction of its dependency on particular economies. In addition, changes in registration requirements or customers' preferences in developed western countries, which may limit the use of raw materials purchased from emerging economies, may require redeployment of the Group's procurement organization, which might negatively affect its profitability for a certain period.
Operating in a competitive market
The crop protection products industry is highly competitive. Currently, seven multinational companies, including the Company, lead the global industry. Five of these, Bayer, Syngenta, Corteva, BASF and FMC, are Originator Companies, which develop, manufacture and market both patent-protected as well as off-patent products. The Group competes with the original products with the aim of maintaining and increasing its market share.
The Originator Companies possess resources enabling them to compete aggressively, in the short-to-
medium term, on price and profit margins, so as to protect their market share. Loss of market share or inability to acquire additional market share from the Originator Companies can affect the Group's position in the market and adversely affect its financial results. For details regarding the Group's competitive advantages see section III - subsection II. Core competitiveness analysis above.
Similarly, the Group also competes in the more decentralized off-patent segment of the market, against other off-patent companies and smaller-scale Originator Companies, which have significantly grown in number in recent years and are materially changing the face of the crop protection industry, the majority of whom have not yet deployed global distribution networks, and are only active locally. These companies often price their products aggressively and at times have lower profit margins than the Group, which may adversely impact the Group's sales and product prices. The Group's ability to maintain its revenues and profitability from a specific product in the long term is affected by the number of companies producing and selling comparable off-patent products and the timing of their entrance to the relevant market.
Any delay in developing or obtaining registrations for products and/or delayed penetration into markets and/or growth of competitors that focus on off-patent active ingredients (whether by the expansion of their product portfolio, granting registrations to other manufacturers (including manufacturers in China and India) to operate in additional markets, transforming their distribution network to a global scale or increasing the competition for distribution access), and/or difficulty in purchasing low cost raw materials, may harm the Group's sales, affect its global position and lead to price erosion.
Decline in scope of agricultural activities; Climate change and exceptional changes in weather conditions
The scope of general agricultural activities worldwide may be negatively affected by many exogenous factors, some resulting from climate change, including but not limited to extreme weather conditions, natural disasters, a decrease in agricultural commodity prices, government policies and the economic condition of farmers. A material decline in the scope of agricultural activities would by necessary implication cause a decline in the demand for the Group's products, erosion of its prices and collection difficulties, which may have a significant adverse effect on the Group's results. Extreme weather conditions, both chronic and acute, as well as other damages caused by nature may have an impact on the demand for the Group's products, as well as to price thereof. For example, drought may reduce the need for fungicides, which could result in fewer sales and greater unsold inventories in the market, whereas excessive rain could lead to increased plant disease or weed growth requiring growers to purchase and use more crop protection products. Drought and/or increased temperatures may change insect pest pressures, requiring growers to use more, less, or different insecticides. Climate change may increase the frequency or intensity of extreme weather such as storms, floods, heat waves, droughts and other events that could affect the demand for the Company's products. The Group believes, that should extreme weather conditions or a number of such bad seasons occur in succession, without favorable seasons in the interim, its results may sustain significant harm.
Environmental, health and safety legislation, standards, regulation and exposure
Many aspects of the Group's operations are strictly regulated, including in relation to production and trading, and particularly in relation to the storage, treatment, manufacturing, transport, usage and disposal of its products, their ingredients and byproducts, some of which are considered hazardous. The Group's activities involve hazardous materials. Defective storage or handling of hazardous materials may cause harm to human life or to the environment in which the Group operates. The regulatory requirements regarding the environment, health and safety could, inter alia, include soil and groundwater clean-up requirements; as well as restrictions on the volume of the hazardous materials permitted to be stored in the Group's
facilities and type of emissions the Group is permitted to discharge into the air and water.
The regulatory requirements applicable to the Group vary from product to product and from market to market, and tend to become stricter with time. In recent years, both government authorities and environmental protection organizations have been applying increasing pressure, including through investigations and indictments as well as increasingly stricter legislative proposals and class action suits related to companies and products that may potentially pollute the environment. Compliance with these legislative and regulatory requirements and protection against such legal actions requires the Group to commit considerable human and financial resources (both in terms of substantial ongoing costs and in terms of material one-time investments) to meet mandatory environmental standards. In some instances, this may result in delaying the introduction of products into new markets or in adverse effects on the Group's profitability. In addition, the toughening, material alteration or revocation of environmental licenses or permits, or their stipulations, or the inability to obtain such licenses and permits, may significantly affect the Group's ability to operate its production facilities, which in turn may have a material adverse effect on the financial and business results of the Group. The Group may be required to bear significant civil liabilities (including due to class actions) or criminal liabilities (including high penalties and/or high compensation payments and/or costs of environmental monitoring and rehabilitation), resulting from violation of environmental, health and safety regulations, while some of the existing legislation may impose "strict liability" regime on the Group, i.e. the Group will be held liable, regardless of proof of negligence or malice.
While the Group invests material sums in adapting its facilities and in constructing special facilities in accordance with environmental requirements, it is currently unable to assess with any certainty whether these investments (current and future) and their outcomes may satisfy current or future requirements, should these be significantly increased or changed. In addition, the Group is unable to predict with any certainty the extent of future costs and investments it may incur in order to meet the requirements of the environmental authorities in the relevant countries in which it operates since, inter alia, the Group is unable to estimate the extent of potential pollutions, their duration, the extent of the measures required to be taken by the Group in handling them, the division of responsibility among other parties and the amounts recoverable from third parties.
Furthermore, the Group may be the target of bodily injury claims and property damage claims caused by exposure to hazardous materials, which are largely covered under the Group's insurance policies.
The Group is evaluating both transition and physical risks related to climate change. Physical chronic and acute risks to ADAMA production assets, activities and products are being evaluated with the PCRAM methodology. The Company has been assessing the transition risks, including the carbon taxes. Additional transition risks include the adaptation of novel technologies aimed at reducing carbon emissions.
In addition, regarding products that are exported to Europe, the Group may be subject to the EU Carbon Border Adjustment Mechanism (CBAM). As of this date, the Group's products are not subject to the first phase of the CBAM.
Legislative, standard and regulatory changes in product registration
The majority of the substances and products marketed by the Group require registration at various stages of their development, production, import, utilization and marketing, and are also subject to strict regulatory supervision by the regulatory authorities in each country. Compliance with the regulatory requirements that vary from country to country and which are becoming more stringent with time, involves significant
time and costs, and rigorous compliance with individual registration requirements for each product. Noncompliance with these regulatory requirements might materially adversely affect the Group's expenses, cost structure and profit margins, as well as penetration of its products in the relevant market, and may even lead to suspension of sales of the relevant product, and recall of those products already sold, or to legal action. Moreover, to the extent new regulatory requirements are imposed on existing registered products (requiring additional investment or leading to the existing registration's revocation) and/or the Group is required to compensate another company for its use of the latter's product registration data, these might amount to significant sums, considerably increasing the Group's costs and adversely affecting its results and reputation. In recent years the industry has been suffering from revocation of registration for many products around the world. This trend is particularly evident in European countries as well as in many other countries worldwide.
Nevertheless, the Group believes that, in countries where the Group maintains a competitive edge, any toughening of registration requirements may actually increase this edge, since this will make it difficult for its competitors to penetrate the same market, whereas in countries in which the Group possesses a small market share, if any, such toughening may make further penetration of the Group's products into that market more difficult.
Product liability
Product and producer liability are a risk for the Group. Regardless of their prospects or actual results, product liability lawsuits might involve considerable costs as well as tarnish the Group's reputation, thus potentially impacting its profits. The Group has a third-party and defective product liability insurance cover. However, there is no certainty that the scope of insurance cover is sufficient. Any future product liability lawsuit or series of lawsuits could materially affect the Group's operations and results, should the Group lose the lawsuit or should its insurance cover not suffice or apply in a particular instance. In addition, while the Group has not currently encountered any difficulty renewing such insurance policy, it is possible that it will encounter future difficulties in renewing an insurance policy for third party liability and defective products on terms acceptable to the Group.
Successful market penetration and product diversification
The Group's growth and profit margins are affected, inter alia, by the extent of its success in developing differentiated products and obtaining registrations for them, so as to enable it to gain market share at the expense of its competitors. Usually, being the first to launch a certain off-patent product affords the Group continuing advantage, even after other competitors penetrate the same market. As such, the Group's revenues and profit margins from a certain new off-patent product could be materially affected by its ability to launch such product ahead of the launch of a comparable product by its competitors.
Should new products fail to meet registration requirements in the different countries or should it take a long period of time to obtain such registrations, the Group's ability to successfully introduce a new product to the relevant market in the future may be affected, since entry into the market prior to other competitors is important for successful market penetration. Furthermore, successful market penetration involves, inter alia, product diversification in order to suit each market's changing needs. Therefore, if the Group fails to adapt its product mix by developing new products and obtaining the required regulatory approvals, its future ability to penetrate that market and to maintain its existing market share could be affected. Failure to introduce new products to given markets and meet Group objectives (given the considerable time and resources invested in their development and registration) might affect the sales of the product in question in the relevant market, the Group's results and margins.
Intellectual property rights of the Group and of third parties
The Group's ability to develop off-patent products is dependent, inter alia, on its ability to oppose patents or patent application of Originator Companies or other third parties, or to develop products that do not otherwise infringe intellectual property rights in a manner that may involve significant legal and other costs. Originator Companies tend to vigorously defend their products and may attempt to delay the launch of competing off-patent products by registering patents on slightly different versions of products for which the original patent protection is about to expire or has expired, with the aim of competing against the off-patent versions of the original product. The Originator Companies may also change the branding and marketing of their products. Such actions may increase the Group's costs and the risk it entails, and harm or even prevent its ability to launch new products.
The Group is also exposed to legal claims that its products or production processes infringe on third-party intellectual property rights. Such claims may involve time, costs, substantial damages and management resources, impair the value of the Group's brands and its sales and adversely affect its results. Such lawsuits that were concluded involved non-material amounts.
Furthermore, although the Group protects its brands and trade secrets with patents, trademarks and other methods of intellectual property protection, these protective means may not be sufficient for fully safeguarding its intellectual property. Any unlawful or other unauthorized use of the Group's intellectual property rights could adversely affect the value of its intellectual property and goodwill. In addition, the Group may be required to take legal actions involving financial costs and resources to safeguard its intellectual property rights.
Fluctuations in raw material inputs and prices, and in sales costs
Significant percentage of the Groups' cost of sales derives from raw material costs. Hence, significant increases or decreases in raw material costs affect the cost of goods sold, and are, due to the length of the Company's inventory cycle, generally reflected in the Company's financials. Most of the Group's raw materials are distant derivatives of oil prices and therefore, extreme changes or decrease in oil prices may affect the costs of raw materials, although only partially.
To reduce exposure to fluctuations in the prices of raw materials, the Group customarily engages in longterm purchase contracts for key raw materials, wherever possible. Similarly, the Group acts to adjust its sales prices, wherever possible, to reflect the changes in the costs of raw materials.
As of the date of approval of the financial statements, the Group has not engaged in any hedging transactions against increases in oil and other raw material costs.
Exposure due to recent developments in the genetically modified seeds market
Any significant development in the market of genetically modified seeds for agricultural crops, including as a result of regulatory changes in certain countries currently prohibiting the use of genetically modified seeds, and/or any significant increase in the sales of genetically modified seeds and/or to the extent new crop protection products are developed for further crops that would be widely used (substituting traditional products), will affect demand for crop protection products, requiring the Group to respond by adapting its product portfolio to the new demand structure. Consequently, to the extent that the Group fails to adapt its product mix accordingly, this may reduce demand for its products, erode their sales price and by implication affect the Group's results and market share.
Nevertheless, the fact that the Group itself markets some of the products for which herbicide tolerance traits have been developed, acts to mitigate this exposure (albeit only in terms of marketing margins).
In addition, natural and/or biological substances that attack weeds, pests and diseases are potential
alternatives for the Company's products, though as of the date of the report, their efficiency is relatively limited, and they are commercialized in a relatively small volumes.
Operational risks
The Group's operations, including its manufacturing activities, rely, inter alia, on state-of-the-art computer systems. The Group continually invests in upgrading and protecting these systems from malfunctions and attack. Any unexpected failure of these systems, as well as the integration of new systems, could involve substantial costs and adversely affect the Group's operations until completion of the repair or integration. The potential occurrence of a substantial failure that cannot be repaired within a reasonable time frame may also affect the Group's operations and its results. Currently, the Group has a property and loss-of-profit insurance policy.
The Group's production capacity is affected, among others, by its facilities' output and individual area and time allocation at full capacity. The Group's Multi-purpose facilities provide manufacturing flexibility and enable the Group to prepare for the manufacturing of new products. Although the Group believes that its existing sites have sufficient facilities and land areas to expand its production capacity, if necessary, in the case of immediate or short-term increases in demand for new products supply may be delayed due to lack of capacity to meet demand for such new products.
Data protection and cyber security
During its activity, the Group may be exposed to risks and threats, related to the stability of its information technologies systems, data protection and cyber security, which could appear in many different forms (such as service denial, misleading employees, malfunction, encryption or data erasing and other cyber-attacks via E-mail or malicious software). An attack on such computerized systems, mainly network based systems may cause the group material damages and expenses and even partial suspension and disruption of their proper functioning. In order to minimize the abovementioned risks, the group invests resources in its technological resilience and in proper protection of its systems.
Raw material supply and/or shipping, port service disruptions and inventory
Lack of raw materials or other inputs utilized in the manufacture of the Group's products may prevent the Group from supplying its products or significantly increase production costs. Moreover, the Group imports raw materials to its production facilities worldwide, from where it then exports the technical or formulated products to its subsidiaries around the world for formulation and/or commercialization purposes. Disruptions in the supply of raw materials from regular suppliers may adversely affect operations until an alternative supplier is engaged. If any of the Group's suppliers are unable to supply raw materials for a prolonged period, including due to ongoing disruptions and/or prolonged strikes and/or infrastructure defects in the operating of a relevant port, and if the Group is unable to engage with an alternative supplier at similar terms and in accordance with the relevant product registration requirements, this may adversely affect the Group's results, significantly affect its ability to obtain raw materials in general, or obtain them at reasonable prices, as well as limit its ability to supply products and/or meet customer supply deadlines. These might negatively affect the Group, its finances and operating results. In order to reduce this risk, it is the Group's practice to occasionally adjust the volume of its product inventories or in certain scenarios, to increase the levels of inventory held by the Company to overcome possible supply shortages, logistic challenges and increases in cost of inventory, as mentioned above, in order to support expected future sales. Additionally, in the case of fluctuations in the market prices for inventory held by the Company, this may affect its finances and operating results. In addition, war, regional conflicts, acts of terror and/or governmental instability around the world may negatively impact the Company's operations. This may
result, among others, in the suspension of operations or the shutdown of affected facilities, hence causing production and distribution delays, loss of property, injury to employees, and increased insurance premiums.
Failed mergers and acquisitions; difficulties in integrating acquired operations
The Group's strategy may include selective mergers, acquisitions, investments and collaborations to enhance and strengthen its presence in certain markets. When pursuing such opportunities, effective integration with market conditions, profitability forecasts and competition are key considerations. Challenges in implementation or deviations from forecasts may impact the expected value, customer retention, liability exposure and the valuation of intangible assets related to a merger or acquisition, as well as affect the retention of skilled personnel resources.
Production concentration in limited plants
A large portion of the Group's production operations is concentrated in a relatively small number of locations. Natural disasters, hostilities, labor disputes, substantial operational malfunction or any other material damage might significantly affect Group operations, as a result of the difficulty, the time and investment required for relocating the production operation or any other activity.
International taxation
Most of the Group's sales are global, through its consolidated subsidiaries worldwide. These individual companies are assessed in accordance with the tax laws effective in each respective location. The Group's effective tax rate could be significantly affected by different classification or attribution of the profits arising from the proportional value of the components of each of the companies in the Group in the various countries, as is recognized in each tax jurisdiction; changes in the characteristics (including regarding the location of control and management) of these companies; changes in the breakdown of the Group's profits into regions where differing tax rates apply; changes in statutory tax rates and other legislative changes; changes in assessment of the Group's deferred tax assets or deferred tax liabilities; changes in determining the areas in which the Group is taxed; and potential changes in the Group's organizational structure.
Changes in tax regulations and the manner of their implementation, including with regard to the implementation of BEPS, may lead to a substantial increase in the Group's applicable tax rates and have a material adverse effect on its financial position, results and cash flows.
Risks arising from the Group's debt
The Group finances its business operations by means of its own equity and loans from external sources (primarily traded debentures issued by Solutions, bank credit and credit from related parties). The Group's main source for servicing the debt and its operating expenses is by means of the profits from the Group companies' operations. Restrictions applying to the Group companies regarding distribution of dividends to the Group, or the tax rate applicable on these dividends, may affect the Group's ability to finance its operations and service its debt.
In addition, the Group's Finance Documents, as contained in the bank credit agreements, require meeting certain Financial Covenants. Failure to meet these covenants due to an exogenous event or non-materialization of Group forecasts, and insofar as the financing parties refuse to extend or update these Financial Covenants as per the Group's capabilities, may lead the financing parties to demand the immediate payment of these liabilities (or part thereof).
Exposure to customer credit risks
The Group's sales to customers worldwide usually involve customer credit as is customary in each market.