אדמה פתרונות לחקלאות בע"מ ADAMA Agricultural Solutions Ltd. Quarterly Report for March 31, 2014

Transcription

1 אדמה פתרונות לחקלאות בע"מ ADAMA Agricultural Solutions Ltd. Quarterly Report for March 31, 2014

2 אדמה פתרונות לחקלאות בע"מ ADAMA Agricultural Solutions Ltd. Quarterly Report for March 31, 2014 Chapter A Board of Directors' Report on the state of the Company's Affairs Chapter B Financial Statements (Unaudited) for March 31, 2014 Chapter C Report Regarding the Effectiveness of the Internal Auditing of Financial Reporting and Disclosure

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, 2014 The Board of Directors of the Company is pleased to present the Directors' Report on the state of the Company s affairs as of March 31, 2014 and for the cumulative three-month period then ended ("the Reporting Period"). The Directors' Report for the Reporting Period is limited in scope and should be read together with the Periodic Report for 2013 published on March 9, 2014 (Ref: ) ("the Periodic Report for 2013"). A. Board of Directors' remarks on the state of the Company's affairs 1. Brief description of the corporation and its business environment ADAMA Agricultural Solutions Ltd. and its subsidiaries ("the Company") specialize in the chemical industry and as at the reporting date, focus primarily on the agriculture-related chemical industry (agrochemicals). As such, the Company develops, manufactures and markets crop protection products. Furthermore, the Company has other operations which are based on its core capacities (in the agricultural and chemical industries), the scope of which, as at the reporting date, is insignificant. At the reporting date the Company is the leading global generic manufacturer of crop protection products, and sells its products in approximately 120 countries worldwide. The Company's key success factors are primarily wide global deployment, a broad portfolio of specialty products adapted to the farmer s needs, its goodwill, know-how, exceptional agronomical experience and ability, excellent technological-chemical capacities, first-rate research and development capacities and product licensing expertise, adherence to stringent ecological standards, strict quality control, global marketing and distribution system, comprehensive production system from R&D through manufacture, cooperation with multinational companies for the production and marketing of the products, financial robustness and available cash resources. Steady and consistent R&D investment facilitates the launching of new generic products, mixtures and formulations at opportune times. For a description of the Company's business strategy and goals, including its plan following completion of the merger transaction with a company from the ChemChina group, see section 31 in Chapter A of the Periodic Report for Brief review of the changes in the industry and in the Company's operations In the first quarter of 2014 the Company presented an increase in sales and also an increase in gross profit, gross margin and net profit. This increase stemmed mainly from an increase in quantities sold (mainly in Europe) and from a better mix of products. 1

5 The crop protection product market and the Company's operations were influenced by the following trends in the first quarter of 2014: a. Convenient climate conditions in Europe contributed to a growth in crop protection products quantities sold in that region including by the Company, while difficult climate conditions in the USA and in Australia caused a decrease in crop protection products quantities sold in that region including by the Company. b. The Company increased its sales in the quarter in spite of the negative influence of the weakening of some of the currencies in which the Company operates in Asia and the Pacific that was partially offset by the strengthening of the Euro. 2. Results of Operations Condensed Statement of Income Accounting Statement of Income for Q (in USD millions): % 1-3/2014 % 1-3/2013 Change % of change Revenue % Gross profit 34.4% % % Operating expenses 20.1% % % Operating profit (EBIT) 14.4% % (0.4) (0.3%) Finance expenses, net 2.8% % 29.3 (4.3) (14.5%) Pre-tax profit 11.6% % % Net profit after noncontrolling interest 10.9% % % EBITDA 18.8% % % * The Company's revenue in the first quarter of 2014, eliminating currency effects, increased by 4.1% compared with the corresponding quarter last year. 3. Analysis of business results A. Breakdown of revenues by geographical region Company sales in the first quarter of 2014 amounted to USD million, compared with USD million in the corresponding quarter last year, an increase of USD 24.3 million. The increase in total sales stemmed mainly from an increase in quantities sold and the raising of selling prices. See below for a specific description of trends unique to the principal regions of operation. Breakdown of quarterly sales (in USD millions): % 1-3/2014 % 1-3/2013 Change % of Change Europe 51.3% % % Latin America 15.0% % % North America 15.2% % (7.4) (5.1%) Asia Pacific and Africa 15.7% % (5.3) (3.6%) Israel 2.8% % 27.2 (2.1) (7.6%) Total 100.0% % % 2

6 Breakdown of quarterly sales by percentage: Europe Sales in the first quarter of 2014 amounted to USD million, compared with USD million in the corresponding quarter last year, an increase of USD 31.2 million. The increase in sales in the quarter stemmed primarily from an increase in quantities sold, from raising the selling prices, and from the strengthening of the Euro that was partially offset by currency hedging performed by the Company. Latin America Sales in the first quarter of 2014 amounted to USD million, compared with USD million in the corresponding quarter last year, an increase of USD 7.9 million. The increase in sales in the quarter stemmed mainly from an increase in quantities sold that was partially offset by lower selling prices. North America Sales in the first quarter of 2014 amounted to USD million, compared with USD million in the corresponding quarter, a decrease of USD 7.4 million. The decrease in sales in the quarter stemmed primarily from a decrease in quantities sold, inter alia, because of difficult climate conditions and due to lower selling prices. Asia Pacific and Africa Sales in the first quarter of 2014 amounted to USD million, compared with USD million in the corresponding quarter, a decrease of USD 5.3 million. The decrease in sales in the quarter stemmed primarily from a decrease in quantities sold mostly because of difficult climate conditions (especially in Australia) and from the weakening of currencies in which the Company operates in these regions, that was partially offset by raising selling prices. Israel Sales in the first quarter of 2014 amounted to USD 25.1 million, compared with USD 27.2 million in the corresponding quarter, a decrease of USD 2.1 million. 3

7 B. Revenues by segment of operation Breakdown of quarterly sales by segment of operation (in USD millions) % 1-3/2014 % 1-3/2013 Change % of Change Crop protection products 94.5% % % Other operations 5.5% % % Sales of crop protection products in the first quarter of 2014 amounted to USD million, compared with USD million in the corresponding quarter. Sales from the Company s other operations in the first quarter of 2014 amounted to USD 50.4 million, compared with USD 48.9 million in the corresponding quarter. C. Gross profit Gross profit in the first quarter of 2014 amounted to USD million (34.4% of sales), compared with USD million (33.3% of sales) in the corresponding quarter. The increase in gross profit and gross margin in the quarter stemmed mainly from a better product mix and from an increase in quantities sold, which were partially offset by the weakening of currencies in which the Company operates. D. Operating income Operating income in the first quarter of 2014 amounted to USD million (14.4% of sales) compared with USD million (14.8% of sales) in the corresponding quarter last year. Operating expenses in the first quarter of 2014 amounted to USD million (20.1% of sales), compared with USD million (18.5% of sales) in the corresponding quarter last year. R&D expenses in the first quarter of 2014 amounted to USD 10.1 million (1.1% of sales), compared with USD 8.8 million (1.0% of sales) in the corresponding quarter last year. Selling expenses in the first quarter of 2014 amounted to USD million (16.0% of sales), compared with USD million (14.5% of sales) in the corresponding quarter last year. The increase in selling expenses stemmed, inter alia, from an increase in marketing expenses, an increase in variable expenses as a result of an increase in quantities sold and an increase in provisions. General and administrative expenses in the first quarter of 2014 amounted to USD 27.5 million (3.0% of sales), compared with USD 26.8 million (3.0% of sales) in the corresponding quarter last year. E. Finance expenses Finance expenses (net) in the first quarter of 2014 amounted to USD 25.0 million, compared with USD 29.3 million in the corresponding quarter last year. The finance expenses in the quarter decreased compared to the corresponding period due mainly to a decrease in the CPI to which most of the Company s debentures are linked. F. Income tax Tax expenses in the first quarter of 2014 amounted to USD 7.1 million compared with USD 12.7 million in the corresponding quarter last year. The first quarter in general and this quarter in particular, are characterized by a lower tax rate compared to the effective tax rate applicable to the Company and It is so mostly because:(1) pursuant to the IFRS rules, 4

8 tax expenses are calculated in inter-company sales at the buying company's tax rate and not that of the Selling company. As a result of the transfer of inventory, which has yet to be sold, to the seller company, tax income was generated in the quarter, although this is a temporary difference, which is expected to change later in the year; (2) profits generated in a company whose tax rate is significantly lower that the effective tax rate applicable to the Company. G. Net profit Net profit in the first quarter of 2014 amounted to USD 98.7 million (10.9% of sales), compared with USD 90.2 million (10.2% of sales) in the corresponding quarter last year. H. EBITDA EBITDA in the first quarter of 2014 amounted to USD million (18.8% of sales), compared with USD million (19.0% of sales) in the corresponding quarter last year. 4. Financial Condition and Liquidity A. Cash flow The Company's current cash flow in the first quarter of 2014 was negative at USD million, compared with a negative current cash flow of USD million in the corresponding quarter last year. The change in cash flow from operating activities in the quarter stemmed primarily from an increase in Company s activities. It should be noted that the first quarter of each year is marked by a growth in the working capital in light of the high volume of sales compared to other quarters due to the seasonality of sales, and therefore higher trade receivables which are repaid during the year. In addition the first quarter of each year is marked by higher inventories in order to prepare for the second quarter s sales. The Company's investments in the first quarter of 2014 amounted to USD 61.6 million, compared with approx. USD 57.6 million in the corresponding quarter last year. These investments were mostly in product registration, intangible assets and fixed assets. The investment in fixed assets, which included investment in equipment and facilities, including facilities for the maintenance and protection of environmental standards, amounted to USD 27.0 million, compared with USD 22.3 million in the corresponding quarter last year. B. Current assets Total current assets as of March 31, 2014 amounted to USD 3,167.8 million compared with USD 2,919.2 million on March 31, 2013 and USD 2,740.6 million on December 31, C. Investments in fixed assets See the section on cash flows above. D. Cash, current liabilities and long-term loans The volume of the Company's credit (bank loans and debentures) as of March 31, 2014 amounted to USD 1,989.3 million (of which 31.5% short term), compared with USD 1,864.1 million (of which 33.7% short term) on March 31, 2013 and USD 1,738.0 million (of which 26.6% short term) on December 31, The Company's balances of cash and short-term investments as of March 31, 2014 amounted to USD million, compared with USD million on March 31, 2013 and USD million on December 31, The Company's net debt (bank loans, debentures and finance of securitization net of cash, short-term investments and the effects of hedging transactions attributed to debt and long term deposits) as of March 5

9 31, 2014 amounted to USD 1,595.9 million, compared with USD 1,509.2 million on March 31, 2013 and USD 1,271.7 million on December 31, According to the bank finance documents for the long-term loans of the Company and its subsidiaries, the Company is required to comply with financial covenants towards certain banks ("the Finance Documents"), the principal of which at March 31, 2014 and at the date of publication of this report, are these: (1) The ratio between the Company's interest-bearing financial liabilities and its equity will not exceed At March 31, 2014, the actual ratio was 09.; (2) The ratio between the Company's interest-bearing financial liabilities and its earnings before finance expenses, taxes, depreciation and amortization (EBITDA) will not exceed 4. At March 31, 2014, the ratio between the Company's interest-bearing financial liabilities and EBITDA was 390; (3) The Company's equity will be no less than USD 1.22 billion. At March 31, 2014, equity totaled USD 1911 billion. (4) The Finance Documents of one of the banks further provide that the balance of Company's surpluses or of its retained earnings according to the financial statements for every date, shall not be less than USD 700 million. At March 31, 2014, the Company's surplus balance is USD 160,0 million. In addition, some of the Finance Documents contain sections providing that a Change of Control (as defined in the relevant Finance Documents) in the Company or in a number of subsidiaries, which is effected without the prior written consent of the relevant banks, shall constitute cause for immediate and full foreclosure on the relevant liabilities. The customer debt securitization agreement of the Company and its subsidiaries (as detailed in section 22.3 in Chapter A of the Periodic Report for 2013) ("the Securitization Agreement") includes undertakings by the Company to comply with financial covenants, of which the key covenants are: (1) The ratio between the Company's financial liabilities and its equity will not exceed At March 31, 2014, the ratio was 09.; (2) The ratio between the Company's interest-bearing financial liabilities and EBITDA will not exceed 4. At March 31, 2014, the ratio was 390; (3) The Company's equity will be no less than USD 1 billion. At March 31, 2014, the equity totaled USD 1911 billion. At March 31, 2014 and during the first quarter of 2014, and at the date of publication of this report, the Company was in compliance with the financial covenants applicable to it under the Finance Documents and the Securitization Agreement. For more information, see section 23.4 in Chapter A of the Periodic Report for 2013, and Note 20(c) and (d) to the financial statements as of December 31, According to the arrangement with the bank with which the Company signed the securitization agreement and with the banks towards which the Company is required to fulfill financial covenants pursuant to the Finance Documents, the outstanding debt under the securitization agreement is not included as part of the financial liabilities for the purpose of reviewing the financial covenants, even though the Company changed its accounting treatment regarding the securitization agreement after having applied IFRS 10, and includes the outstanding debt under the securitization agreement within its balance sheet. 6

10 E. Equity The Company's Equity as of March 31, 2014 amounted to USD 1,513.4 million, compared with USD 1,435.7 million on March 31, 2013 and USD 1,404.2 million on December 31, Equity as a proportion of the total balance sheet was 30.9% as of March 31, 2014, 31.8% on March 31, 2013, and 31.5% on December 31, The Company's issued and paid-up share capital as of March 31, 2014 is 430,531,550 ordinary shares of NIS 1 par value each. F. Financial ratios 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 gross balance sheet Ratio of financial liabilities to total equity, gross March % 41.3% 131.4% 129.8% December % 123.8% G. Finance resources The Company finances its business operations from its equity and from non-bank credit (mainly debentures), bank loans (short- and long-term), customer debt securitization, and supplier credit. H. Warning Signs The Board of Directors of the Company reviewed the existence of Warning Signs in the Company, as these are defined in Article 10B(14) of the Securities regulations (Periodic and Immediate Reports), In view of the consolidated financial structure of the Company and its subsidiaries and based on the financial data appearing 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 does not point to a liquidity problem, and accordingly and as of the date of the report, there are no Warning Signs in the Company. The main considerations behind the resolution of the Board of Directors include, inter alia, these: 1. The Company's consolidated financial statements reflect a positive working capital. Furthermore, the consolidated annual financial statements reflect and ongoing positive cash flow from operating activities. This positive working capital, which includes, at the reporting date, a cash balance of approx. USD 316 million, is the principal source for payment of the Company's liabilities. 2. Based on the structure of the operations of the Group, the manufacturing subsidiaries in Israel, Makhteshim and Agan ("the Manufacturing Companies") are the principal manufacturers of the Group's products that are sold by the Group's marketing companies all over the world, so that there is a current liability of the marketing companies towards the manufacturing Companies. 3. The proceeds from the debentures issued by the Company were granted as loans to the manufacturing Companies on the same terms as the terms of the debentures, including the dates of payment. 7

11 B. Summary of Key Developments See the chapter on Material Changes and Innovations in the Company's business. C. Market Risks Exposure and Management 1. General The Company conducts its business in business environments that operate in various currencies. Due to its activities, the Company is exposed to market risks, mainly exchange rate fluctuations, partial adjustment of the prices of products to reflect the prices of raw materials, change in the rate of rise of the Consumer Price Index (CPI), and changes in the LIBOR interest rate. The Company's Board of Directors approved a policy of use of accepted financial instruments (such as options, forward contracts and swap transactions) for hedging against exposure stemming from the Company's operations to exchange rate fluctuations and a rise in the CPI. The Company effects these transactions only through banks and stock exchanges which must comply with capital adequacy requirements or maintain a scenario-based level of collateral. For details of the credit risk and the liquidity risk, see Note 29 to the consolidated financial statements of the Company as of December 31, Exchange rate data for the Company's principal functional currencies vis-à-vis the US dollar and LIBOR: 1-3 average March 31 Change Change % % EUR/USD 18.5% % USD/BRL (2.9%) (6.9%) USD/PLN 21.4% % USD/ZAR )13.7%( )11.5%( AUD/USD 6.6% % GBP/USD )5.8%( (4.4%) USD/ILS (18.6%) 0.29% 0.24% )16.8%( 0.28% 0.23% USD L 3M The exchange rate fluctuations of these currencies during the Reporting Period are attributed to the various items in the Company's financial statements. The net impact of the changes in currency exchange rates in the period after the date of the financial statements on the equity exposure is not material, due to the high rate of balance sheet hedging carried out by the Company as noted above. 2. Risk Management Officer The Company s CFO, Mr. Aviram Lahav, is responsible for the Company's market risk management. For information about his education, qualifications and business experience, see section 26A in Chapter D of the Periodic Report for Description of Market Risks For details of the Company's exposure to market risks and how they are managed, see the Directors' report of the Company as of December 31, 2013 and Note 29 to the Company's financial statements as of December 31,

12 D. Corporate Governance 1. Approval of the financial statements Since February 27, 2012, the Company has a Financial Statements Review Committee whose members are members of the Audit Committee Messrs. Yehezkel Ofir (Chairman of the committee, who is an independent external director with accounting and financial expertise), Shoshan Haran (independent external director who reads and understands financial statements), and Zhang Gong (independent director with accounting and financial expertise) ("the Committee Members"). All the Committee Members gave a declaration prior to their appointment, concerning their education and experience, as noted in section 26 of Chapter D of the Periodic Report for 2013, based on which the Company sees them as having accounting and financial expertise or as having the ability to read and understand financial statements, as the case may be. As part of the process for approval of the financial statements as of March 31, 2014, the CFO presented to the committee a detailed presentation of the financial results, and the committee discussed them as reflected in the financial statements, as well as the assessments and estimates made in connection with them, the internal controls relating to the financial statements, the integrity and appropriateness of the disclosure in them, and the accounting policy adopted and the accounting treatment applied in matters that are material to the Company. The committee also discussed other important issues. The committee met on May 8, 2014 to review the financial statements for the period ended March 31, Other than the Committee members, the meeting was attended by interested parties and senior officers Aviram Lahav CFO and Keren Yonayov Controller. The Committee Members and the members of the Board of Directors received a draft of the financial statements several days prior to the meeting. Representatives of the Company's auditors, who comment and respond to questions from the Committee members and members of the Board of Directors on the material issues arising from the data presented in the financial statements under discussion, are invited to the meetings of Committee and the Board of Directors at which the financial statements are discussed and approved. The Company's Internal Auditor was notified of the committee's meeting and invited to attend. After discussing the financial statements, the committee drafted its recommendations concerning their approval and submitted them in writing to the Board of Directors prior to the date of the Board's discussions. On May 12, 2014, when presenting the financial statements to the Board of Directors, the Company's CEO, Mr. Chen Lichtenstein, presented the main results of the Company's operations during the period under review and referred to material events that occurred during the period. In addition, the CFO, Mr. Aviram Lahav, gave a detailed presentation of the Company's financial results in the period, while comparing them with prior periods and emphasizing substantial issues arising from them. During the reviews, the Company's management responded to questions from the members of the Board of Directors on all areas of the Company's operations. The Board of Directors of the Company discussed the Company's financial statements as of March 31, 2014 and resolved to approve them. 9

13 E. Disclosure in financial reporting 1. Critical accounting estimates As of the date of the report, no material changes occurred during the first quarter of 2014 in the critical accounting estimates used by the Company for its financial statements. 2. Events after the date of the report on the state of the Company's affairs For events after the reporting date, see the chapter Material Changes and Innovations in the Company's Business and with regard to the grant of options to the Company s CEO see also Note 6 to the condensed interim consolidated financial statements as of March 31, F. Information pertaining to the Company s Debentures See the table attached hereto as an appendix. 11

14 Yang Xingqiang Chairman of the Board Chen Lichtenstein President & CEO Aviram Lahav CFO May 12,

15 Appendix Details of the Company's Liability Certificates Series Date of issue Rating Total par value on date of issue (in NIS millions) Type of interest Stated interest Effective interest at report date Stock exchange value on March 31, 2014 (NIS) Dates of interest payments Dates of principal payments Linkage basis Nominal par value at March 31, 2014 (in NIS millions) CPI-linked nominal par value at March 31, 2014 (in NIS millions) Carrying value of debenture balances at March 31, 2014 (in USD millions) Carrying value of interest payable on March 31, 2014 (in USD millions) Fair value at March 31, 2014 (in USD millions) Series B (1)(3) (4)(5) Dec. 06 1,650 Jan. 12 ila+ (8) 514 Jan CPI-linked annual interest 5.15% 4.0% (9)3,670.5 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 2006 (9)2,683.1 (9)3,216.5 (9)886.7 (9)15.7 (.)1,052.6 Series D (2)(3) (5)(6)(7) Dec. 06 ila+ (8) 235 Mar Jan Feb Annual interest 6.50% 1.8% 1,280.1 Twice a year on May 31 and Nov. 30 of each of the years Nov. 30 of each of the years Unlinked 1,165., 1,

16 (1) The trustee for Debentures (Series B) is Aurora Fidelity Trust Company Ltd., 12 Menachem Begin Road, Ramat Gan (Tel: ; Fax: ). Contact person: Adv. Iris Shlevin, CEO. Series B is considered a material liability of the Company. (2) The trustee for Debentures (Series C and D) is Hermetic Trust (1975) Ltd., 113 Hayarkon Street, Tel Aviv, Israel; (Tel: , Fax: ). Contact person: Dan Avnon or Meirav Ofer. hermetic@hermetic.co.il. Series C and D are considered a material liability of the Company. (3) 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. (4) On January 9, 2013 the Company issued, in a private placement by way of series expansion, NIS 600,000,000 par value of Debentures (Series B). For details, see the Company's immediate reports dated January 6 and 8, 2013 (Refs and ). (5) On January 16, 2012 the Company issued, by way of series expansion under a shelf prospectus published by the Company in May 2010, NIS 513,527,000 par value debentures (Series B) and NIS 540,570,000 par value of debentures (Series D). For more details, see the Company's immediate report dated January 17, 2012 (Ref: ) and the amending report of the same date (Ref: ). (6) On March 25, 2009 the Company issued, by way of series expansion under a shelf prospectus published by the Company in May 2008, NIS 661,000,000 par value of debentures (Series C) and NIS 472,000,000 par value of debentures (Series D). For more details, see the Company's immediate report dated Match 26, 2009 (Ref: ). (7) On February 11, 2014 the Company issued, in a private placement by way of series expansion, NIS 487,795,000 par value of debentures (Series D). For more details, see the Company's immediate report dated February 12, 2014 (Ref: ). (8) On July 6, 2011, Standard & Poor's Maalot ("Maalot") announced that it was lowering the rating for Debentures (Series B, C and D) from ilaa to ila+ with stable outlook (Ref ). On January 4, 2012 Maalot announced that it had set a rating of ila+ for Debentures (Series B and/or D), issued by way of series expansion pursuant to a shelf prospectus, of up to NIS 950 million (Ref ). On January 12, 2012 Maalot announced that the above rating will be valid also for additional expansions of these series up to NIS 200 million, so that the total expansion will amount to up to NIS 1,150 million par value (Ref: ). On August 20, 2012, Maalot confirmed the rating of ila+ for the Company's debentures (Ref ). On December 31, 2012 Maalot confirmed a rating of ila+ for Debentures (Series B) issued in a private placement by way of series expansion, of up to NIS 600 million par value (Ref ). On September Maalot confirmed a rating of ila+ for the Company s Debentures (Ref ). On February Maalot confirmed a rating of ila+ for the Company s Debentures (series D) issued upon a privet placement of up to NIS 550 Million (Ref ) (9) Net of debentures purchased by a wholly-owned subsidiary, which at the date of this report holds 67,909,858 debentures (Series B), accounting for 2.47% of total issued debentures (Series B). 13

17 Material changes or innovations in matters described in Chapter A Description of the Corporation's Business in the Periodic Report as of December 31, Organizational structure changes On May 12, 2014 the Board of Directors approved an organizational structure change which will assist the Company in implementing its strategy. The changes will become effective gradually in the course of the second half of 2014 and will conclude by January The organizational change will include, inter alia, division of the commercial regions into clusters; expanding of the Company's management to include, inter alia, additional mangers from within the organization who shall manage the clusters and the establishment of a committee of management members which will observe the company s performance. As part of the said organizational change, the Company's senior officers list will be modified or changes to the responsibilities or role of certain of the Company's senior officers will be made as the Company shall report, the key of which are as follows: 1. Mr. Shaul Friedland, current head of the Americas region, will act as CCO and will be responsible for several clusters. 2. Mr. Ignacio Dominguez, currently CCO and head of the global product and marketing division, will continue to hold his position and will be responsible for several clusters. 3. Mr. Dani Harari, currently SVP strategy, innovation and business intelligence, will act as SVP Strategy and Resources responsible for strategic planning, human resources, information and digital technologies. 4. Mr. Anders Harfstrand, current Head of Europe, will remain with the company until the end of the year. 5. Ms. Shiri Ailon, currently acting as Head of Corporate Development will be appointed as VP Corporate Development and Head of China Integration as of July 1, Ms. Rony Patishi-Chillim will be appointed as CEO of Lycored leaving her position as SVP Business Development and Corporate Communications as of December 31, Mr. Amos Rabin will be appointed as Head of China Organizational Processes leaving his position as SVP Human Resources as of July 1, Mr. Uri Shani and Mr. David Hebel will continue to hold their current positions but will cease to act as officers as of July 1, 2014 and December 31, 2014, respectively. 2. Section Structural Changes in the Group's Development: Material M&A's+ Section Shareholders agreement Asset Injection Within the Company s activities to maximize the potential of the Merger Transaction, and pursuant to the Merger Agreement and its related agreements, the Company continues to promote the negotiations with CNAC regarding the transaction of purchasing all or part of the shares or assets of several companies and their subsidiaries which are directly and/or indirectly controlled by CNAC, among them the Class A shares of Hubei Sanonda Co., Ltd.. Nevertheless, and although the negotiations are progressing, to this date there is still no certainty as to the identity of the assets to be purchased, to the final compensation in the 14

18 transaction, to the contribution, embedded in the transaction, to the Company s revenues and to the future anticipated impact of such purchase. The Company continues to evaluate business opportunities in China that will support the creating of a significant R&D, operational and commercial infrastructure in the country, in a way that will contribute to the Company s presence in the Chinese market, to strengthen its presence in the Asia-Pacific region and strengthen its global capabilities. However, during the reporting period, the negotiations held between the Company and Shenzhen Noposion Agrochemicals Co., Ltd, regarding the incorporation of a joint company, and regarding collaboration in distribution in China, has ended with no results. 3. Section 21-Human capital On January 29, 2014, the Company issued 9,322,227 options exercisable to 9,322,227 ordinary NIS 1 per value shares of the Company, to officers and employees of the Company and its subsidiaries. The issuance was preformed according to an Outline dated December 25, For additional details regarding the outline and the options, see a report dated December 25, 2013 (ref ). On April 24, 2014 and May 11, 2014, the Company's Remuneration Committee, Board of Directors and Shareholders approved the employment terms of Mr. Lichtenstein as the Company President and CEO, effective as from his date of employment (February 7, 2014), including the grant of additional options, all in accordance to the Company s Remuneration Policy. For additional details see the Company s immediate report and privet placement report dated May 12, 2014 (ref and ) and also for the grant of options see Note 6 to the condensed interim consolidated financial statements as of March 31, Section 29 Corporate governance Following the appointment of Mr. Chen Lichtenstein as President and CEO of the Company, on March 7, 2014 Mr. Lichtenstein has suspended himself from his tenure as President and CEO of CNAC and it was also agreed that Mr. Lichtenstein will not be entitled to any remuneration for his services to CANC. Accordingly, the Audit Committee and the Board of Directors approved on April 27, 2014 and on May 11, 2014, respectively, an amendment to an Arrangement for Prevention of Conflict of Interest, that was executed with regard of Mr. Lichtenstein s appointment as President and CEO of CNAC. For additional details see the Company s immediate report dated May 12, 2014 (ref ). 5. Section 31.3 business objectives and strategy- Company's plans following closing of the Merger Transaction According to the shareholders agreement, the Company started initial preparations towards a process of reissuance of the Company's shares in an IPO on an overseas stock exchange. 15

19 אדמה פתרונות לחקלאות בע"מ ADAMA Agricultural Solutions Ltd. Chapter B Financial Statements (Unaudited) for March 31, 2014

20 Adama Agricultural Solutions Ltd. Condensed Consolidated Interim Financial Statements (Unaudited) As at March 31, 2014 In U.S. Dollars

21 Adama Agricultural Solutions Ltd. Condensed Consolidated Interim Financial Statements as at March 31, 2014 (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

22 Somekh Chaikin Telephone KPMG Millennium Tower Fax Ha'arba'a Street, PO Box 609 Internet Tel Aviv 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 the condensed consolidated interim statement of financial position as of March 31, 2014 and the related condensed consolidated interim statements of income, comprehensive income, changes in equity and cash flows for the three-month 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 5.4% of the total consolidated assets as of March 31, 2014, and whose revenues constitute 7.3% 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 $7,312 thousand as at March 31, 2014, and the Group s share in their profits amounted to $794 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. 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) Somekh Chaikin Certified Public Accountants (Isr.) May 12, 2014 Somekh Chaikin, a partnership registered under the Israeli Partnership Ordinance, is the Israeli member firm of KPMG International, a Swiss cooperative.

23 Condensed Consolidated Interim Statement of Financial Position as at Adama Agricultural Solutions Ltd. March 31 March 31 December (Unaudited) (Unaudited) (Audited) $ thousands $ thousands $ thousands Current assets Cash and cash equivalents 315, , ,386 Short-term investments 17,088 2,767 11,063 Trade receivables 1,432,707 1,265, ,497 Prepaid expenses 18,990 18,267 16,991 Financial and other assets, including derivatives 121, , ,986 Current tax assets 10,915 11,741 12,481 Inventories 1,250,857 1,161,032 1,218,200 Total current assets 3,167,769 2,919,186 2,740,604 Long-term investments, loans and receivables Investments in equity-accounted investee companies 74,381 18,145 73,307 Other financial investments and receivables 85,447 53,943 87,451 Other non-financial investments and receivables, including non-current inventory 26,272 38,005 26, , , ,304 Fixed assets Cost 1,510,989 1,422,406 1,485,631 Less accumulated depreciation 776, , , , , ,194 Deferred tax assets 90,598 81,084 82,101 Intangible assets Cost 1,569,450 1,455,956 1,546,382 Less accumulated amortization 850, , , , , ,698 Total non-current assets 1,730,135 1,593,028 1,716,297 Total assets 4,897,904 4,512,214 4,456,901 3

24 Adama Agricultural Solutions Ltd. March 31 March 31 December (Unaudited) (Unaudited) (Audited) $ thousands $ thousands $ thousands Current liabilities Credit from banks and other lenders 511, , ,143 Current maturities of debentures 114, ,661 65,378 Trade payables 682, , ,525 Other payables 496, , ,742 Current tax liabilities 43,008 44,456 39,458 Put options to holders of non-controlling interests 33,699 53,277 63,703 Total current liabilities 1,881,554 1,694,978 1,622,949 Long-term liabilities Loans from banks 247, , ,187 Debentures 1,115,495 1,022,773 1,027,340 Other long-term liabilities 29,531 33,115 40,990 Deferred tax liabilities 18,333 25,253 19,450 Employee benefits 84,116 86,465 86,038 Put options to holders of non-controlling interests 7,874 7,795 Total long-term liabilities 1,502,945 1,381,558 1,429,800 Total liabilities 3,384,499 3,076,536 3,052,749 Equity Share capital 125, , ,595 Share premium 623, , ,829 Capital reserves (296,694) (240,800) (307,096) Retained earnings 1,060, , ,823 Total equity attributable to the owners of the Company 1,512,874 1,434,897 1,403,151 Non-controlling interests ,001 Total equity 1,513,405 1,435,678 1,404,152 Total liabilities and equity 4,897,904 4,512,214 4,456,901 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 12, 2014 The notes to the condensed consolidated interim financial statements are an integral part thereof. 4

25 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 909, ,385 3,076,355 Cost of sales 596, ,598 2,108,282 Gross profit 313, , ,073 Other income (437) (400) (12,815) Selling and marketing expenses 145, , ,050 General and administrative expenses 27,473 26, ,485 Research and development expenses 10,051 8,833 33,667 Other expenses , , , ,084 Operating income 130, , ,989 Financing expenses 47,685 73, ,176 Financing income (22,648) (44,455) (132,611) Financing expenses, net 25,037 29, ,565 Share of income of equity-accounted investee companies ,197 Profit before taxes on income 105, , ,621 Taxes on income 7,127 12,674 44,550 Profit for the period 98,681 90, ,071 Attributable to: The owners of the Company 98,744 90, ,248 Non-controlling interests (63) (64) (177) Profit for the period 98,681 90, ,071 The notes to the condensed consolidated interim financial statements are an integral part thereof. 5

26 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 98,681 90, ,071 Components of other comprehensive income where after the initial recognition as part of the comprehensive income were transferred or will be transferred to the statement of income Foreign currency translation differences in respect of foreign operations 2,727 (2,539) (16,691) Effective portion of change in fair value of cash flow hedges (405) 26,002 (19,145) Net change in fair value of cash flow hedges transferred to the statement of income 8,412 (4,532) (13,174) Taxes on the components of other comprehensive income that were transferred or will be transferred to the statement of income in succeeding periods 3 (1,860) 118 Total other comprehensive income (loss) for the period where after the initial recognition as part of the comprehensive income were transferred or will be transferred to the statement of income, net of tax 10,737 17,071 (48,892) Components of other comprehensive income that will not be transferred to the statement of income Re-measurement of defined benefit plan (981) Taxes in respect of items of comprehensive income that will not be transferred to the statement of income 117 (42) (47) Total components of other comprehensive income (loss) for the period that will not be transferred to the statement of income, net of tax (864) Total comprehensive income for the period 108, ,765 78,302 Total comprehensive income attributable to: The owners of the Company 108, ,829 78,351 Non-controlling interests (71) (64) (49) Total comprehensive income for the period 108, ,765 78,302 The notes to the condensed consolidated interim financial statements are an integral part thereof. 6

27 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, 2014 (unaudited) Balance as at January 1, , ,829 (307,096) 960,823 1,403,151 1,001 1,404,152 Comprehensive income for the period Profit (loss) for the period 98,744 98,744 (63) 98,681 Components of other comprehensive income Foreign currency translation differences in respect of foreign operations 2,735 2,735 (8) 2,727 Effective portion of change in fair value of cash flow hedges (405) (405) (405) Net change in fair value of hedged cash flows transferred to the statement of income 8,412 8,412 8,412 Re-measurement of defined benefit plan (981) (981) (981) Taxes on components of other comprehensive income Other comprehensive income (loss) for the period, net of tax 10,745 (864) 9,881 (8) 9,873 Total comprehensive income (loss) for the period 10,745 97, ,625 (71) 108,554 Share-based payments 1,876 1,876 1,876 Dividends to holders of non-controlling interests (327) (327) (327) Elimination of non-controlling interests due to loss of control of subsidiary (659) (659) Transactions with holders of non-controlling interests holding a put option (260) (260) 260 Exercise of options granted to employees in subsidiary (83) (108) (191) (191) Balance as at March 31, , ,829 (296,694) 1,060,144 1,512, ,513,405 (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

28 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, 2013 (unaudited) Balance as at January 1, , ,829 (257,662) 836,378 1,328, ,328,776 Comprehensive income for the period Profit (loss) for the period 90,198 90,198 (64) 90,134 Components of other comprehensive income Foreign currency translation differences in respect of foreign operations (2,539) (2,539) (2,539) Effective portion of change in fair value of cash flow hedges 26,002 26,002 26,002 Net change in fair value of hedged cash flows transferred to the statement of income (4,532) (4,532) (4,532) Re-measurement of defined benefit plan Taxes on components of other comprehensive income (1,860) (42) (1,902) (1,902) Other comprehensive income for the period, net of tax 17, ,631 17,631 Total comprehensive income (loss) for the period 17,071 90, ,829 (64) 107,765 Dividends to holders of non-controlling interests holding a put option (863) (863) (863) Transactions with holders of non-controlling interests (209) (209) 209 Balance as at March 31, , ,829 (240,800) 926,273 1,434, ,435,678 (1) Including treasury shares that were cancelled at the amount of $245,548 thousand. The notes to the condensed consolidated interim financial statements are an integral part thereof. 8