אדמה פתרונות לחקלאות בע"מ ADAMA Agricultural Solutions Ltd. Quarterly Report for March 31, 2017

Transcription

1 אדמה פתרונות לחקלאות בע"מ ADAMA Agricultural Solutions Ltd. Quarterly Report for March 31, 2017

2 אדמה פתרונות לחקלאות בע"מ ADAMA Agricultural Solutions Ltd. Quarterly Report for March 31, 2017 Chapter A Board of Directors' Report on the state of the Company's Affairs Chapter B Financial statements (unaudited) for March 31, 2017 Chapter C Report Regarding the Effectiveness of the Internal Auditing of Financial Reporting and Disclosure The information contained herein constitutes an unofficial translation of the Quarterly Report for the first quarter of 2017, as published by the Company in Hebrew. The Hebrew version is the binding version. This translation has been prepared for convenience purposes only.

3 אדמה פתרונות לחקלאות בע"מ ADAMA Agricultural Solutions Ltd. Chapter A Board of Directors' Report on the state of the Company's Affairs

4 Adama Agricultural Solutions Ltd. Board of Directors' Report for the Quarter Ended March 31, 2017 This Report is limited in scope and should be reviewed together with the Periodic Report for 2016, published on March 30, 2017 (Ref: ). Adama is one of the world's leading crop protection companies. We strive to Create Simplicity in Agriculture offering farmers effective products and services that simplify their lives and help them grow. With one of the most comprehensive and diversified portfolios of differentiated, quality products, our 5,000-strong team reaches farmers in over 100 countries, providing solutions to control weeds, insects and disease, and improve crop yields. 1

5 Adjusted financial highlights first quarter of 2017 Another year of strong start for Adama, delivering record high profits Sales of $843 million, in line with Q1 last year in constant currencies: 1.2% lower in USD terms Volumes up 3.7%, commencing another year of consecutive market growth Gross profit up 5.2% to $311 million: 2.2 percentage point increase in gross margin to 36.9% Driven by strong improvement in portfolio mix and continued cost reduction All-time record high operating income of $136 million, up 5.8%: Operating margin up 1.1 percentage points to 16.2% All-time record high net income of $114 million, up 13.3%: Net income margin up 1.8 percentage points to 13.6% All-time record high EBITDA of $180 million, up 4.5%: EBITDA margin up 1.1 percentage points to 21.3% Improvement of $97 million in working capital: Driven by $74 million reduction in inventory Significantly reduced leverage: Balance sheet net debt of $953 million, $248 million below Q1 last year Reduced financial expenses Net debt / EBITDA ratio of 1.8x vs. 2.5x in Q1 last year Combination with Sanonda: Following recent approval by a significant majority of Sanonda s public shareholders, now awaiting final CSRC consent 2

6 Summary of developments in the sector and in the Company s activities Continued subdued demand for crop protection products, while some markets recover from weather-related lows despite a moderate increase in the prices of some agricultural commodities in 2016, their prices have generally remained at low levels during the first quarter of This price environment continues to negatively affect farmers profitability for the third consecutive year, and while in some regions the inventory levels in the distribution channels have been reduced in comparison to 2016, high inventory levels in other regions continue to result in subdued demand. Despite this overall market conditions, the Company achieved continued volume growth due to introduction of new products and market penetration. The average exchange rate of the US dollar had a negative yet immaterial effect on the Company s sales in comparison to the corresponding quarter last year, reflecting the strengthening of the US dollar against some currencies, primarily the Euro, and concurrently the weakening of the US dollar against other currencies, primarily the Brazilian Real. Containment of manufacturing and reduction of procurement costs continued control of manufacturing costs, including transportation and energy, combined with 2016 reduced raw material costs benefited the costs of goods sold. However, in light of changes in supply dynamics, higher raw material costs have been noted as of the end of 2016, which will impact production cost during the course of In the 2016 Board of Directors report, the Company described its expectation that the higher raw material, energy and transportation costs, the continued strengthening of the US dollar, together with lingering high levels of inventory in distribution channels in Europe following a soft 2016 season, will impact performance especially in the first half of The Company weathered these challenges well in the first quarter of this year, yet it nevertheless expects such conditions to continue to impact its performance in the second quarter. Adama Sanonda combination and flotation within the framework of advancing the Company s integration in China and the formation of its commercial and manufacturing infrastructure there, on March 27, 2017, following the approval of the Board of Directors of Hubei Sanonda Co. Ltd. ( Sanonda ) and the approval of the State-owned Assets Supervision and Administration Commission (SASAC), the general shareholders meeting of Sanonda approved the transaction whereby Sanonda will acquire the entire share capital of the Company, in return for assigning new shares of Sanonda to CNAC (the Combination ). Following the submission of the Combination documents to the China Securities Regulatory Commission (CSRC) on March 28, 2017 and a subsequent response to the CSRC s questions on May 14, 2017, final CSRC approval is now awaited. The Combination is expected to be completed around mid-2017, pursuant to the receipt of the necessary approvals. Upon completion of the Combination, shares of the combined group will trade on the Shenzhen Stock Exchange. 3

7 Corporate activity of companies in the sector in the last two years, the agrochemical industry has seen the signing of a number of significant transactions, including the merger of Dow Chemical Co. with E.I Du Pont De Nemours and Company, the acquisition of Monsanto Company by Bayer AG and the acquisition of Syngenta AG by the ChemChina group ("Syngenta" and the "Transaction", respectively). In addition, as a result of these transactions, and to secure their regulatory approval, the industry has seen the subsequent announcement of related divestments. On May 18, 2017 the Transaction was completed, and subsequently, the Company is working according to its agreement with the said parties to effect the divestment of a number of its products (the Divested Products ), while receiving products of similar nature and economic value from Syngenta (the Transferred Products ). The Company intends to divest several of its products in Europe, while maintaining its ability to continue to sell such products in other countries outside Europe, and in some cases within Europe as well, while in the U.S. the Company entered into an agreement for the sale of a few of its products, all against the receipt of the Transferred Products. Although the aggregate sales in 2016 terms of the products that the Company may divest in Europe is significant with respect to its sales in this region, in relation to the Company's aggregate global sales, it is not material, and moreover, the combined impact of entering into agreements for the sale of the Divested Products and the receipt of the Transferred Products is expected to be immaterial. 1 The Company's assessments regarding the projected effects on the Company's results in 2017 as well as its assessments regarding the products to be divested and received in connection with the Transaction and their characteristics, the timing of reaching agreements and their corporate approval by the Company and their combined impact on the Company s business, are forward-looking statements, as defined in the Securities Law, These assessments may not be realized, or be realized in a different manner than the Company estimates, inter alia, due to factors that are not in the Company's control, amongst which, are developments in the crop protection market, changes in demand for the Company's products, in currencies and commodity prices and other macroeconomic trends. 1 See the immediate reports of May 21, 2017, April 5, 2017, and February 5, 2017 (reference numbers: , and ) and Note 28 of the 2016 financial statements. 4

8 Results of Operations Adjusted Income Statement Income Statement for the Quarter Q $m Q $m Change $m % Change CER % Change USD Revenues % -1.2% Gross profit % % of revenue 36.9% 34.7% Operating expenses Operating income (EBIT) % % of revenue 16.2% 15.1% Finance expenses, net Net income before taxes Net income % % of revenue 13.6% 11.8% EBITDA % % of revenue 21.3% 20.2% The first quarter of 2017 does not include adjustments. Income Statement items adjusted in the above table for the first quarter of 2016, as presented in the financial statements (in USD million): Gross profit 296 (34.7%), operating expenses 164 (19.2%), operating income (EBIT) 132 (15.5%), net income before taxes 102 (12.0%), net income 104 (12.2%) and EBITDA 175 (20.6%). 2 CER: Constant Exchange Rates Analysis of the Company's Adjusted Results Sales Sales in the quarter were lower by 0.6% compared to the corresponding quarter last year, in constant currency terms. Volumes grew by 3.7% in the quarter, driven by, amongst other things, launch of new products in several markets. Alongside this increase in volumes, a portion of the significant reduction in cost of sales was passed on to customers in a number of markets. In US dollar terms, the net impact of the weakening of the Euro and strengthening of the Brazilian Real against the US Dollar compared to the corresponding quarter last year, as well as the lower contribution of currency hedging, saw sales in the quarter end lower by 1.2%. 2 The income statement items for Q presented in the above table include adjustment for the value redeployment of employee options granted in 2014, which created an income in the amount of $3 million. For an analysis of the differences between the adjusted income statement items and the income statement items reported in the financial statements, see Appendix A. 5

9 Revenue split by region First quarter sales: Q $m Q $m Estimated % change in CER % change in $ Europe % -6.4% North America % +10.0% Latin America % +1.1% Asia-Pacific % +4.5% India, Middle East and Africa % -4.2% of which, Israel % -0.6% Total % -1.2% Noteworthy trends and developments in the various geographies affecting the Company s activities The information included in the shaded boxes provides additional information about developments and events that affected the Company s operations during the quarter in a non-material manner. Europe Sales in Europe were lower by 2.3% in constant currency terms compared with the corresponding quarter last year. This is primarily due to lower demand due to weaker yields in 2016 and a delayed start to the agricultural season in Western Europe, as well as high inventory levels in the distribution channels in a number of countries and the passing on to customers of some of the benefit of products significantly reduced cost. In US dollar terms, reflecting the weaker exchange rates and the lower contribution of currency hedging compared with the corresponding quarter last year, sales in Europe were lower by 6.4% in the quarter. In Ukraine, we continued to launch new products and expand our commercial reach throughout the country, while benefiting from the improvement in economic conditions. We saw a strong performance from our broad sugar beet portfolio in all major sugar beet markets in the region, capitalizing on an increase in planted areas. In the UK we are seeing significantly increased engagement through our digital platforms, including our WaterAware TM app which provides farmers with insights on safe use of crop protection around fresh water sources. In France a number of products including Legacy Duo and Protugan lost their registration ahead of the launch of alternative products, which resulted in lower sales. Despite a challenging economic environment, we grew well in Greece and further expanded our portfolio, with products as COTTONEX, a differentiated systemic herbicide for pre-emergent weed control. 6

10 North America Sales in North America increased by 10.1% in constant currency terms, compared with the corresponding quarter last year. This increase was driven by a significant 15.6% increase in volumes of higher margin products, which was partially offset by the passing on to customers of a portion of the significant reduction in cost of sales. In US dollar terms, sales increased by 10.0% compared with the corresponding quarter last year. Our US crop protection business continuing its strong momentum from last year, building on an improved portfolio mix. We launched CORMORAN TM, our distinctive mixture insecticide for apples and pears, which has had an encouraging start in advance of the upcoming season. We increased sales of our cotton portfolio, taking advantage of growth in the cotton market with products such as COTORAN and DIREX, herbicides for broadleaf weed, and DIAMOND, a differentiated insect growth regulator. We are deepening our relationship with customers across the channel, through such programs as our NIMITZ University campaign in which our field specialists work together with farmers to understand their nematode-related problems, finding ways to maximize their benefit from our flagship NIMITZ product. Our Consumer and Professional Solutions business continues to grow strongly. Latin America Sales in Latin America were lower by 9.3% in constant currency terms, compared with the corresponding quarter last year, despite an increase in volumes, primarily in Brazil, which was offset by lower volumes in Argentina and by the passing on to customers of a portion of the significant reduction in cost of sales. In US dollar terms, sales increased by 1.1% compared with the corresponding quarter last year, reflecting the impact of the appreciation of the local currencies, primarily the Brazilian Real, against the US dollar. The Company saw robust sales growth in Brazil in the quarter, with significant volume growth complemented by an improved portfolio. This strong performance is particularly noteworthy when considered against the slight decline of the overall Brazilian agrochemical market. Tight credit conditions in Brazil as well as in additional countries in the region continue to affect the pace of collection, and the Company continues its policy of aligning its sales with customers' demonstrated ability to meet their credit terms on an ongoing basis. We continued to outperform in Brazil, where we saw strong sales of our comprehensive insecticide portfolio for corn, with products such as VORAZ, a novel formulation for caterpillar control, offering a much-needed solution in the face of increasing resistance in Bt corn. Our sugarcane and pasture portfolio also performed well in Brazil, in particular ARREIO, a new advanced selective herbicide for the control of a variety of weeds in pastures, and PREMERLIN, a distinctive herbicide for the control of pre-emergent weeds in sugar cane. 7

11 High levels of inventory in the distribution channels, alongside low insect and disease pressure, impacted sales and pricing in Argentina. We grew and improved our business in Colombia, Ecuador, and Mexico, where our efforts to enhance our portfolio are bearing fruit. Our growth in these countries was also supported by positive weather conditions. Asia Pacific Sales in Asia-Pacific increased by 2.5% in constant currency terms, compared with the corresponding quarter last year. This increase was driven by significant volume growth, primarily in Australia and parts of south-east Asia, supported by new product launches and positive weather conditions. This significant volume growth was partially offset by the passing on to the customers of a portion of the significant reduction in cost of sales. In US dollar terms, sales increased by 4.5% compared to the corresponding quarter last year. We obtained several new product registrations, among them COUNTDOWN TM, a differentiated cereal herbicide for resistance management in Australia, NARKIS, a unique rice herbicide in the Philippines, and ALMAGOR, a distinctive rice fungicide in Vietnam. In China we continued the expansion of our commercial reach to four additional regions, bringing to growers Adama s advanced product portfolio alongside with additional products from the CNAC entities. India, Middle East and Africa Sales in the region were lower by 2.7% in constant currency terms, compared with the corresponding quarter last year, with a moderate increase in prices being offset by lower sales volumes, reflecting the negative impact of the weather in a number of countries. In US dollar terms, sales in the region were lower by 4.2% compared to the corresponding quarter last year. In India, farmers were faced with unfavorable weather conditions as well as disruption to their cash availability, putting pressure on our sales. We saw a robust performance in South Africa, benefiting also from positive currency movement and good weather conditions. In Turkey, we continue to expand our commercial platform through a widening network of distributors, and also launched the ADAMA ARTI TM app, for smart farm management. 8

12 Gross profit Gross profit increased significantly by 5.2% to $311 million, with gross margin up by 2.2 percentage points to 36.9%, compared to the corresponding quarter last year. This marked improvement resulted from a combination of strong volume growth, an improvement in portfolio mix towards a differentiated offering, and the significant reduction of costs. These factors were partially offset by the passing on to the customers of a portion of these reduced product costs into lower selling prices in some markets, as well as by the lower contribution of currency hedging. Operating expenses Total operating expenses in the quarter were $175 million (20.8% of sales), compared to $167 million (19.6% of sales) in the corresponding quarter last year. While the Company contained its level of expenses, the noted change is primarily due to a one-time income in the first quarter of 2016 of $6 million, related to the granting of an immaterial intellectual property license. Within the total operating expenses, Sales and Marketing expenses in the quarter were $136 million (16.1% of sales), in line with the corresponding quarter last year. General and Administrative expenses in the quarter were $30 million (3.5% of sales) compared to $29 million (3.4% of sales) in the corresponding quarter last year. Research and Development expenses in the quarter were $9 million (1.1% of sales), compared to $8 million (0.9% of sales) in the corresponding quarter last year. Financing expenses Financing expenses decreased compared to the corresponding quarter last year, primarily due to a decrease in costs of currency hedging on receivables, as a result of lower currency volatility, as well as due to the decrease in the Company s financial debt. Taxation The first quarter is generally characterized by a low effective tax rate compared to the tax rate applicable to the Company due to profits generated by companies in the group whose tax rates are lower than the total effective tax rate, and due to the tax assets related to intracompany sales. The Company recorded tax expenses of $3 million, compared to tax income of $4 million in the corresponding quarter last year. The change in tax expenses was mainly a result of the strengthening of the Brazilian Real against the US dollar during the corresponding quarter last year, which generated tax income due to a revaluation of tax assets and a reduction of noncash tax provisions in Brazil, which outweighed the effect of the strengthening of the Brazilian Real in the current quarter. 9

13 Revenues by operating segment First quarter sales split Q $m % Q $m % Change $m Change % Crop protection (Agro) % % % Other (Non-Agro) % % % Total % % % Financial Condition and Liquidity 3 Cash flow and investment in fixed assets Operating cash flow was a negative $3 million compared to a positive $8 million in the corresponding quarter last year. Due to the seasonality of its activities, the Company generally does not generate positive or significant positive operating cash flow in the first quarter. The change in operating cash flow recorded in the quarter results primarily from the reflection in the Company's consolidated financial reports of an $18 million non-cash write-off performed at the end of 2016, in the financial statements of a non-consolidated joint venture, which is not in the Company's core business. The Company's investments were $39 million, compared to $33 million in the corresponding quarter last year. These investments included primarily investments in product registrations and other intangible and fixed assets. Investments in fixed assets, net of investment grants, amounted to $16 million, compared to $17 million in the corresponding quarter last year. The Company generated seasonal negative free cash flow of $42 million, compared to negative free cash flow of $25 million in the corresponding quarter last year. Current assets Total current assets of March 31, 2017 amounted to $2,773 million compared to $2,857 million as of March 31, 2016, and $2,561 million as of December 31, Cash, current liabilities and long-term loans The Company's total financial liabilities, including bank credit and debentures, was $1,383 million as of March 31, 2017 (of which 10.1% was short term), compared to $1,633 million as of March 31, 2016 (of which 23.0% was short term), and $1,364 million (of which 13.1% was short term) as of December 31, The Company's balances of cash and short-term investments were $389 million as of March 31, 2017, compared to $415 million as of March 31, 2016, and $480 million as of December 31, The cash balance received within the framework of the Receivables Financing Facility (as well as the new Receivables Financing Facility added in 2016) was $357 million as of March 31, 2017 and $320 million as of March 31,

14 The Company's net debt, including credit, the impact of hedging transactions attributed to debt, and net of cash and short-term investments, was $953 million as of March 31, 2017, compared to $1,201 million as of March 31, 2016, and to $899 million as of December 31, The Company distributed dividends of approximately $18 million during Financial covenants The financial covenants of the Company's bank financing documents and its Receivables Financing Facility Program are: ($m) Net Debt/Equity Net Debt/EBITDA Minimum Equity Retained Earnings Financial Covenants Bank Credit 1.25x 4.0x 1, Financial Covenants Receivables Facility 1.25x 4.0x - - Compliance of the Company with Financial Covenants as at March 31, x 1.8x 1,763 1,337 As of March 31, 2017 and on the date of publication of this report, the Company complied with the financial covenants included in its financing documents and the Receivables Financing Facility Program. 5 Shareholders' equity The Company's shareholders' equity was $1,763 million as of March 31, 2017, compared to $1,637 million as of March 31, 2016 and $1,654 million as of December 31, 2016, following a dividend declaration of approximately $40 million during Equity as a proportion of total assets was 38.9% as of March 31, 2017, 35.6% as of March 31, 2016, and 38.6% as of December 31, The Company's issued and paid-up share capital as of March 31, 2017 was 137,990,881 ordinary shares of NIS 3.12 par value each. Financial ratios As at March 31: Ratio of current assets to current liabilities (current ratio) Ratio of current assets, excluding inventory, to current liabilities (quick ratio) Ratio of financial liabilities to total assets, gross Ratio of financial liabilities to total equity, gross % 78.5% % 99.8% 4 On September 15, 2016, the Company declared a dividend of approximately $40 million. Of this amount, a total of approximately $18 million has been paid as of the date of the report. For further details regarding the dividend, including the deferred dividend, see Section 4 of Chapter A of the Periodic Report for The calculation of the covenant Net Debt/EBITDA is based on the twelve months ended on the date of the financial statements. For more information about the Financial Covenants and additional limitations that apply to the Company pursuant to the provisions of the financing agreements and the Receivables Financing Facility Program, see Section 26 in Chapter A of the Periodic Report for 2016, and Note 20 to the financial statements as at December 31,

15 Financing sources The Company finances its business operations from its own equity and external funding sources. 6 Warning signs In view of the consolidated financial structure of the Group, and based on the financial data recorded in the Company's consolidated financial statements as reviewed by the Company's management, the Board of Directors determined that the fact that the Company's separate reports indicate an ongoing negative cash flow from operating activities, despite occasional positive cash flow in past quarters, does not point to a liquidity issue, and accordingly, as at the report date, there are no Warning Signs in the Company. The primary considerations supporting the resolution of the Board of Directors include, inter alia: the Company's consolidated financial statements reflect a positive level of working capital and continued positive cash flow from operating activities, with such positive working capital, which includes, at the reporting date, a cash balance of approximately $387 million, being the principal source for the repayment of the Company's liabilities; Based on the structure of the Group operations, Adama Makhteshim and Adama Agan are the principal manufacturers of the Group's products sold by the Group's marketing companies, such that a continuous liability of the marketing companies towards these manufacturing companies is created. These current liabilities form the primary source for repayment of the loans issued to Adama Makhteshim and Adama Again by the Company, which were issued on the basis of, and at identical terms to, those of the debentures, including the repayment date. Events occurring subsequent to the date of the financial statements For information concerning events that occurred after the date of the report, see the introduction to this report. For information about the debentures held by the public at the reporting date, see Appendix B. 6 For details, see Section 26, Credit Financing, and Section 25, under the titles Receivables Credit and Payables Credit of Chapter A to the Periodic Report for

16 Yang Xingqiang Chen Lichtenstein Aviram Lahav Chairman of the Board President & CEO CFO March 25,

17 Appendixes Appendix A Analysis of the Gaps between the Adjusted Income Statement Items and the Income Statement Items in the Financial Statements $m Adjusted Adjustments Reported Q Q Q Q Q Q Revenues Gross profit Operating expenses Operating income (EBIT) Finance expenses, net Pretax income Net income EBITDA The adjusted Income Statement items for Q include adjustment for the value redeployment of employee options granted in 2014, which created an income in the amount of $3 million. 14

18 Appendix B Details of the Company's Debentures as at the end of the reported Year Series Date of issue Rating Total par value on date of issue (in NIS millions) Type of interest Nominal interest rate Effective interest rate at reporting date Market value on March 31, 2017 (in NIS millions) Dates of interest payments Dates of principal payments Linkage basis Nominal par value at March 31, 2017 (in NIS millions) CPI-linked nominal par value at March 31, 2017 (in NIS millions) Carrying value of debenture balances at March 31, 2017 (in USD millions) Carrying value of interest payable on March 31, 2017 (in USD millions) Fair value at March 31, 2017 (in USD millions) Series B Dec. 06 Jan. 12 Jan. 13 Feb. 15 Feb-May 15 ilaa- 1, CPI-linked annual interest 5.15% 3.7% 4,771.7 (2) Twice a year on May 31 and on Nov, 30 in each of the years Nov. 30 of each of the years CPI for October ,483.1 (2) 4,141.6 (2) 1,130.0 (2) 19.3 (2) 1,313.8 (2) (1) At the date of the report, the Company was in compliance with all the terms and undertakings under the Deed of Trust, and no conditions existed giving rise to a cause of action for immediate repayment of the debentures. (2) Net of debentures purchased by a wholly-owned subsidiary, which, as of March 31, 2017, holds 67,909,858 debentures (Series B), which accounts for 1.91% of total issued debentures (Series B). 15

19 Appendix C - Exchange Rate Data for the Company's Principal Functional Currencies March 31 Q1 Average Change Change EUR/USD (6.1%) (3.4%) USD/BRL % % USD/PLN (5.0%) (2.7%) USD/ZAR % % AUD/USD (0.4%) % GBP/USD (13.5%) (13.6%) USD/ILS % % USD L 3M 1.15% 0.63% 82.9% 1.07% 0.62% 71.4% 16

20 אדמה פתרונות לחקלאות בע"מ ADAMA Agricultural Solutions Ltd. Chapter B Financial statements (unaudited) for March 31, 2017

21 Adama Agricultural Solutions Ltd. Condensed Consolidated Interim Financial Statements (Unaudited) As at March 31, 2017 In U.S. Dollars

22 Adama Agricultural Solutions Ltd. Condensed Consolidated Interim Financial Statements as at March 31, 2017 (Unaudited) Contents Page Auditors' Review Report 2 Condensed Consolidated Interim Statement of Financial Position 3 Condensed Consolidated Interim Statement of Income 5 Condensed Consolidated Interim Statement of Comprehensive Income 6 Condensed Consolidated Interim Statement of Changes in Equity 7 Condensed Consolidated Interim Statement of Cash Flows 10 Notes to the Condensed Consolidated Interim Financial Statements 12

23 Somekh Chaikin KPMG Millennium Tower 17 Ha arba a Street, PO Box 609 Tel Aviv 61006, Israel Review Report to the Shareholders of Adama Agricultural Solutions Ltd. Introduction We have reviewed the accompanying financial information of Adama Agricultural Solutions Ltd. and its subsidiaries (hereinafter the Group ) comprising of the condensed consolidated interim statement of financial position as of March 31, 2017 and the related condensed consolidated interim statements of income, comprehensive income, changes in equity and cash flows for the threemonth period then ended. The Board of Directors and Management are responsible for the preparation and presentation of this interim financial information in accordance with IAS 34 Interim Financial Reporting, and are also responsible for the preparation of financial information for this interim period in accordance with Section D of the Securities Regulations (Periodic and Immediate Reports), Our responsibility is to express a conclusion on this interim financial information based on our review. We did not review the condensed interim financial information of certain consolidated subsidiaries whose assets constitute 4.9% of the total consolidated assets as of March 31, 2017, and whose revenues constitute 6.3% of the total consolidated revenues for the three month period then ended. Furthermore, we did not review the condensed interim financial information of equity-accounted investees, the investment in which amounted to $63,602 thousand as at March 31, 2017, and the Group s share in their profits amounted to $718 thousand for the three-month period then ended. The condensed interim financial information of those companies was reviewed by other auditors whose review reports thereon were furnished to us, and our conclusion, insofar as it relates to amounts emanating from the financial information of such companies, is based solely on the said review reports of the other auditors. Scope of Review We conducted our review in accordance with Standard on Review Engagements 1, Review of Interim Financial Information Performed by the Independent Auditor of the Entity of the Institute of Certified Public Accountants in Israel. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards in Israel and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. Somekh Chaikin, an Israeli partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity.

24 Somekh Chaikin KPMG Millennium Tower 17 Ha arba a Street, PO Box 609 Tel Aviv 61006, Israel Conclusion Based on our review and the review reports of other auditors, nothing has come to our attention that causes us to believe that the accompanying financial information was not prepared, in all material respects, in accordance with IAS 34. In addition to that mentioned in the previous paragraph, based on our review and the review reports of other auditors, nothing has come to our attention that causes us to believe that the accompanying interim financial information does not comply, in all material respects, with the disclosure requirements of Section D of the Securities Regulations (Periodic and Immediate Reports), Sincerely, Somekh Chaikin Certified Public Accountants (Isr.) May 25, 2017 Somekh Chaikin, an Israeli partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity.

25 Adama Agricultural Solutions Ltd. Condensed Consolidated Interim Statement of Financial Position as at March 31 March 31 December (Unaudited) (Unaudited) (Audited) $ thousands $ thousands $ thousands Current assets Cash and cash equivalents 386, , ,885 Short-term investments 2,241 4,736 5,131 Trade receivables 909, , ,157 Trade receivables as part of securitization transaction not yet eliminated 49,425 40,918 30,156 Subordinated note in respect of sale of trade receivables 154,955 96,766 51,618 Prepaid expenses 21,587 19,199 20,578 Financial and other assets, including derivatives 177, , ,739 Tax deposits less provision for taxes 16,859 10,841 15,949 Inventories 1,054,747 1,123,473 1,035,071 Total current assets 2,773,277 2,857,239 2,561,284 Long-term investments, loans and receivables Investments in equity-accounted investee companies 70,936 70,025 70,776 Other financial investments and receivables 56,742 48,554 52,871 Non-financial assets, including non-current inventory 22,550 26,561 18, , , ,073 Fixed assets Cost 1,736,948 1,670,526 1,711,212 Less accumulated depreciation 926, , , , , ,550 Deferred tax assets 103,164 96,466 87,226 Intangible assets Cost 1,784,926 1,694,341 1,755,199 Less accumulated amortization 1,090, ,091 1,062, , , ,428 Total non-current assets 1,758,522 1,737,501 1,725,277 Total assets 4,531,799 4,594,740 4,286,561 3

26 Adama Agricultural Solutions Ltd. Condensed Consolidated Interim Statement of Financial Position as at March 31 March 31 December (Unaudited) (Unaudited) (Audited) $ thousands $ thousands $ thousands Current liabilities Loans and credit from banks and other lenders 139, , ,161 Current maturities of debentures - 104,103 - Trade payables 573, , ,739 Other payables 621, , ,773 Current tax liabilities 32,390 30,788 21,160 Put options to holders of non-controlling interests 36,349 30,403 37,253 Total current liabilities 1,402,965 1,570,311 1,328,086 Long-term liabilities Long-term loans from banks 113, , ,129 Debentures 1,129,995 1,084,784 1,069,253 Other long-term liabilities 29,197 31,269 27,237 Deferred tax liabilities 10,172 15,961 11,218 Employee benefits 76,047 74,465 73,672 Put options to holders of non-controlling interests 6,895 7,260 6,686 Total long-term liabilities 1,366,010 1,387,391 1,304,195 Total liabilities 2,768,975 2,957,702 2,632,281 Equity Share capital 125, , ,595 Share premium 623, , ,829 Capital reserves (323,909) (337,711) (322,454) Retained earnings 1,337,309 1,222,687 1,227,310 Total equity attributable to the owners of the Company 1,762,824 1,634,400 1,654,280 Non-controlling interests - 2,638 - Total equity 1,762,824 1,637,038 1,654,280 Total liabilities and equity 4,531,799 4,594,740 4,286,561 Yang Xingqiang Chen Lichtenstein Aviram Lahav Chairman of the Board of Directors President & Chief Executive Officer Chief Financial Officer Date the financial statements were approved: May 25, 2017 The notes to the condensed consolidated interim financial statements are an integral part thereof. 4

27 Adama Agricultural Solutions Ltd. Condensed Consolidated Interim Statement of Income for the Three-month period ended Year ended March 31 December (Unaudited) (Unaudited) (Audited) $ thousands $ thousands $ thousands Revenues 843, ,156 3,070,165 Cost of sales 531, ,018 2,036,858 Gross profit 311, ,138 1,033,307 Other income (621) (6,273) (9,738) Selling and marketing expenses 135, , ,731 General and administrative expenses 29,646 26, ,665 Research and development expenses 9,491 7,743 32,684 Other expenses , , , ,145 Operating income 136, , ,162 Financing expenses 77,561 50, ,962 Financing income (58,307) (21,440) (120,612) Financing expenses, net 19,254 29, ,350 Share of income (loss) of equity-accounted investee companies 307 (433) (16,622) Profit before taxes on income 117, , ,190 Income taxes 3,029 (4,050) 22,520 Profit for the period 114, , ,670 Attributable to: The owners of the Company 114, , ,328 Non-controlling interests - 2,342 2,342 Profit for the period 114, , ,670 The notes to the condensed consolidated interim financial statements are an integral part thereof. 5

28 Condensed Consolidated Interim Statement of Comprehensive Income for the Adama Agricultural Solutions Ltd. Three-month period ended Year ended March 31 December (Unaudited) (Unaudited) (Audited) $ thousands $ thousands $ thousands Profit for the period 114, , ,670 Other comprehensive income items that after initial recognition in comprehensive income were or will be transferred to the statement of income Foreign currency translation differences for foreign operations 12,879 6,952 (13,865) Foreign currency translation differences for foreign operations transferred to the statement of income - - (82) Effective portion of changes in fair value of cash flow hedges (4,273) (22,826) 14,310 Net change in fair value of cash flow hedges transferred to the statement of income (11,538) (15,774) (14,237) Taxes in respect of other comprehensive income items that were or will be transferred to the statement of income in succeeding periods 1,477 3, Total other comprehensive loss that after initial recognition in comprehensive income were or will be transferred to the statement of income, net of tax (1,455) (28,592) (13,335) Other comprehensive income that will not be transferred to the statement of income Re-measurement of defined benefit plan (4) (2,728) 84 Taxes in respect of other comprehensive income items that will not be transferred to the statement of income Total other comprehensive income (loss) for the period that will not be transferred to the statement of income, net of tax (1) (2,411) 136 Total comprehensive income for the period 112,791 75, ,471 Total comprehensive income attributable to: The owners of the Company 112,791 73, ,040 Non-controlling interests - 2,431 2,431 Total comprehensive income for the period 112,791 75, ,471 The notes to the condensed consolidated interim financial statements are an integral part thereof. 6

29 Condensed Consolidated Interim Statement of Changes in Equity Adama Agricultural Solutions Ltd. Share Capital Retained Share capital premium reserves (1) earnings Total equity $ thousands $ thousands $ thousands $ thousands $ thousands For the three-month period ended March 31, 2017 (unaudited) Balance as at January 1, , ,829 (322,454) 1,227,310 1,654,280 Total comprehensive income for the period Profit for the period , ,247 Other comprehensive income Foreign currency translation differences for foreign operations ,879-12,879 Effective portion of changes in fair value of cash flow hedges - - (4,273) - (4,273) Net change in fair value of cash flows hedges transferred to the statement of income - - (11,538) - (11,538) Re measurement of defined benefit plan (4) (4) Taxes on other comprehensive income - - 1, ,480 Other comprehensive loss for the period, net of tax - - (1,455) (1) (1,456) Total comprehensive income (loss) for the period - - (1,455) 114, ,791 Dividends to holders of non-controlling interests holding a put option (4,247) (4,247) Balance as at March 31, , ,829 (323,909) 1,337,309 1,762,824 (1) Including treasury shares that were cancelled in the amount of $245,548 thousand. The notes to the condensed consolidated interim financial statements are an integral part thereof. 7

30 Condensed Consolidated Interim Statement of Changes in Equity Adama Agricultural Solutions Ltd. Total equity attributable to Share Capital Retained the owners of Non-controlling Share capital premium reserves (1) earnings the Company interests Total equity $ thousands $ thousands $ thousands $ thousands $ thousands $ thousands $ thousands For the three-month period ended March 31, 2016 (unaudited) Balance as at January 1, , ,829 (309,030) 1,126,239 1,566, ,566,840 Total comprehensive income for the period Profit for the period , ,190 2, ,532 Other comprehensive income Foreign currency translation differences for foreign operations - - 6,863-6, ,952 Effective portion of changes in fair value of cash flow hedges - - (22,826) - (22,826) - (22,826) Net change in fair value of cash flow hedges transferred to the statement of income - - (15,774) - (15,774) - (15,774) Re-measurement of defined benefit plan (2,728) (2,728) - (2,728) Taxes on other comprehensive income - - 3, ,373-3,373 Other comprehensive income (loss) for the period, net of tax - - (28,681) (2,411) (31,092) 89 (31,003) Total comprehensive income (loss) for the period - - (28,681) 101,779 73,098 2,431 75,529 Dividends to holders of non-controlling interests holding a put option (3,708) (3,708) - (3,708) Share-based payments (1,623) (1,623) - (1,623) Balance as at March 31, , ,829 (337,711) 1,222,687 1,634,400 2,638 1,637,038 (1) Including treasury shares that were cancelled in the amount of $245,548 thousand. The notes to the condensed consolidated interim financial statements are an integral part thereof. 8

31 Condensed Consolidated Interim Statement of Changes in Equity Adama Agricultural Solutions Ltd. Total equity attributable to Share Capital Retained the owners of Non-controlling Share capital premium reserves (1) earnings the Company interests Total equity $ thousands $ thousands $ thousands $ thousands $ thousands $ thousands $ thousands For the year ended December 31, 2016 (Audited) Balance as of January 1, , ,829 (309,030) 1,126,239 1,566, ,566,840 Total comprehensive income for the year Profit for the year , ,328 2, ,670 Other comprehensive income Foreign currency translation differences for foreign operations - - (13,954) - (13,954) 89 (13,865) Foreign currency translation differences for foreign operation recognized in the statement of income - - (82) - (82) - (82) Effective portion of changes in fair value of cash flow hedges ,310-14,310-14,310 Net change in fair value of cash flow hedges transferred to the statement of income - - (14,237) - (14,237) - (14,237) Re-measurement of defined benefit plan Taxes on other comprehensive income Other comprehensive income (loss) for the year, net of tax - - (13,424) 136 (13,288) 89 (13,199) Total comprehensive income (loss) for the year - - (13,424) 162, ,040 2, ,471 Dividends to holders of non-controlling interests holding a put option (4,149) (4,149) - (4,149) Derecognition of non-controlling interests due to loss of control in subsidiaries (2,638) (2,638) Share-based payments (16,981) (16,981) - (16,981) Dividends to owners of the company (40,263) (40,263) - (40,263) Balance as of December 31, , ,829 (322,454) 1,227,310 1,654,280-1,654,280 (1) Including treasury shares that were cancelled in the amount of $245,548 thousand. The notes to the condensed consolidated interim financial statements are an integral part thereof. 9

32 Adama Agricultural Solutions Ltd. Condensed Consolidated Interim Statement of Cash Flows for the Three-month period ended Year ended March 31 December (Unaudited) (Unaudited) (Audited) $ thousands $ thousands $ thousands Cash flows from operating activities 114, , ,670 Profit for the period Adjustments Depreciation and amortization 43,481 43, ,294 Loss (gain) on realization of fixed and intangible assets, net 141 (5,146) (6,883) Amortization of discount/premium and debt issuance costs 116 (243) (824) Impairment of assets - - 8,703 Share of losses (income) of equity- accounted investee companies (307) ,622 Share-based payments transactions - (1,623) (16,981) Revaluation of put and call options to holders of non-controlling interests (647) (1,202) (811) Adjustment of long-term liabilities 60,102 33,877 15,939 SWAP transactions (120) (120) (481) Change in provision for income tax and tax advances, net 14,192 7,125 (364) Increase in deferred taxes, net (15,354) (24,473) (22,884) Changes in assets and liabilities Decrease (increase) in trade and other receivables (293,710) (263,035) 6,786 Decrease (increase) in inventories (8,966) 41, ,348 Increase in trade and other payables 78,804 67,690 24,381 Change in employee benefits 5,013 3,159 3,663 Net cash from (used in) operating activities (3,008) 8, ,178 Cash flows for investing activities Acquisition of fixed assets (18,225) (17,571) (94,061) Additions to intangible assets (25,771) (22,297) (93,854) Short-term investments, net 2,985 - (431) Long-term investments, net - - (9,147) Proceeds from sale of fixed and intangible assets 298 6,126 6,223 Investment grant received 1, ,436 Dividend from equity-accounted investee company ,112 Disposal of subsidiaries - - (1,430) Deferred payment for business combination - - (600) Net cash used in investing activities (38,598) (32,713) (190,752) The notes to the condensed consolidated interim financial statements are an integral part thereof. 10

33 Condensed Consolidated Interim Statement of Cash Flows for the (cont d) Adama Agricultural Solutions Ltd. Three-month period ended Year ended March 31 December (Unaudited) (Unaudited) (Audited) $ thousands $ thousands $ thousands Cash flows from financing activities Receipt of long-term loans from banks - 10,000 12,700 Repayment of long-term loans and liabilities from banks and others (10,718) (12,787) (104,165) Repayment of debentures - - (101,210) Increase (decrease) in short-term liabilities to banks, net (31,754) 49,471 (9,028) Dividend paid to owners of the Company - - (18,521) Dividend paid to holders of non-controlling interests (4,247) (1,982) (4,149) Payment of contingent consideration in respect of business combination - (5,000) (7,520) Net cash from (used in) financing activities (46,719) 39,702 (231,893) Increase (decrease) in cash and cash equivalents (88,325) 15,018 79,533 Cash and cash equivalents at the beginning of the period 474, , ,352 Cash and cash equivalents at the end of the period 386, , ,885 Additional information: Interest paid in cash (7,355) (8,230) (93,605) Interest received in cash 4,060 4,185 35,009 Taxes paid in cash, net (5,834) (9,740) (43,836) The notes to the condensed consolidated interim financial statements are an integral part thereof. 11

34 Adama Agricultural Solutions Ltd. Notes to the Financial Statements as at March 31, 2017 (Unaudited) Note 1 - Reporting Principles and Accounting Policies A. The reporting entity (1) Adama Agricultural Solutions Ltd. (hereinafter the Company ) is an Israel-resident company that was incorporated in Israel, and its official address is at Golan Street in Airport City Park. The condensed consolidated financial statements of the Company as at March 31, 2017 include those of the Company and its subsidiaries (hereinafter together the Group ) as well as the Company s rights in an associated company and in joint ventures. The Group operates in Israel and abroad and is engaged in the development, manufacture and marketing of agrochemicals, intermediate materials for other industries, food additives and synthetic aromatic products, mainly for export. 100% of the Company s shares are held by China National Agrochemical Corporation (hereinafter - CNAC ). The Company is a reporting entity. (2) Sales of agrochemical products are directly impacted by the agricultural seasons (in each of the different markets), the weather in each region and the cycles of the growing seasons. Therefore, the Company s income is not uniform or the same during the quarters of the year. The agricultural seasons in countries located in the northern hemisphere (mainly the United States and Europe) take place in the first two quarters of the year, and therefore in these countries the highest sales are usually in the first half of the year. On the other hand, in the southern hemisphere, the seasonal trends are the opposite and most of the local sales are made in the second half of the year, except for Australia where most of the sales are made in April through July. In the Company s estimation, the Company s worldwide operations along with the dispersement of the markets in which it operates, moderates part of the seasonal impacts, even though the Company s sales are higher in the northern hemisphere. Note 2 - Basis for Financial Statement Preparation A. Declaration of compliance with International Financial Reporting Standards (IFRS) These condensed consolidated interim financial statements have been prepared in accordance with IAS 34 Interim Financial Reporting and do not include all the information required for full annual financial statements. They should be read in conjunction with the financial statements as at and for the year ended December 31, 2016 (hereinafter the Annual Financial Statements ). Furthermore, these financial statements have been prepared in accordance with the Section D of the Securities Regulations (Periodic and Immediate Reports), The condensed consolidated interim financial statements were authorized for issue by the Group's Board of Directors on May 25,