Dear investors, good afternoon. I am Guo Zhi, Corporate Secretary of ADAMA Ltd. Welcome to this session for the overall performance overview online roadshow for Q3 and the first nine months. We are providing simultaneous interpretation of English and Chinese. You can choose the English or Chinese channel according to your needs. You can see now on the screen, our CEO and President, Mr. Steve Hawkins, and our CFO, Ms. Efrat Nagar, Global Investor Relations Director, Rivka, and also me. Good afternoon again, and all of them will walk you through how the company has performed in Q3 and the first nine months. You can use the button on the right side of your screen to raise up your questions, and we will answer as much as possible.
And, as a routine, please, you're kindly reminded to read the legal disclaimer at the beginning of the slides. So now let's give the floor to our CEO and President, Mr. Steve Hawkins, to elaborate how ADAMA has performed in the reporting period. Please, Steve.
Good afternoon, everyone in China. We hope you're safe and well, and we look forward to sharing our Q3 and nine months results, and also taking questions at the end of the period. For Q3 and nine months, essentially, it's a similar trend to what we've seen so far this year, and the trends we know have been difficult overall. As we see by the numbers here, our sales for the full quarter are slightly over $1 billion. A negative $146 million for the year to date at nine months. Of course, we will explain the trends behind these. Next slide.
So as far as the continuation of the challenges in the market at the sales level, we have this so-called destocking phenomenon, where distributors have high inventory from the year before, and therefore this is leading to lower results for companies such as ourselves selling into the market. And then as well, on the sales line, we are seeing continued decreasing prices from the very high prices of last year. Margin also, to remind us, it's declining here. At the same time, we have given instruction to deplete old inventory, and that has negatively impacted our margin. At the same time, we believe is the right direction to our teams going forward, and we are seeing lowering inventory for sure, overall for us and in the market.
If I come to the net income line, we also have some currency impact here, that is positive. It's also our hedging costs have been lowered, but otherwise, we see a decline in our overall net income. Next slide, please. Now, if we come back on this nine months channel destocking story, we see really the similar. Sorry, just here. We're seeing the same story with the trends in the markets. Sales declined in nine months at 17% in U.S. dollars. We see here also the GP, similar, of course, to the quarter that I mentioned, and then this, trend of overall EBITDA decline, as we try to hold costs, deplete our old stock inventory with what we'd call our Fightback pla n and manage very strongly our operational costs.
So all of these in combination, unfortunately, are not delivering an improvement at the EBITDA level. And, now we're moving into the Southern Hemisphere areas. We are seeing a similar trends, as we are in Q4. So next slide, if we go to the regional highlights. As I mentioned, we are moving into the Southern Hemisphere markets, and we are seeing the same trend that we saw in the Northern Hemisphere markets, which we could imagine because it's the same macro trends with high channel stock, still good, strong grower demand in places like Brazil, Argentina, and Latin America overall. At the same time, if we look at the overall sales impact, we can see a major decline continuing. If we go specifically into the regions, North America, Q3 is a relatively small quarter.
So we've had the situation there from Q1, although we are seeing improvement in our consumer business, so there's some stabilizing in certain parts of the North America market. The European market has also been more stable for us, although we had a very year, very dry end of year, end of summer, and that has impacted destocking of the channel for Q3 and Q4. Also in some markets with cereal fungicides, we have seen higher stock than expected at the end of the year, that will be carried into next year. As I mentioned earlier, Brazil is really now the major market. We're just in this market. Soybeans are being planted. So although Q3, we see here the same trends, it's a bit early to tell how the full Latin America market will result for this year.
And then APAC, where we see continued, overall positive on the agricultural side, in China, and some challenges based on, very dry monsoon, in particular in India, towards the end of the year. So again, we see similar patterns for the full year and the same reasons behind that we've seen, so far. Thank you. Okay. Please, Efrat.
Thank you, Steve. So, as presented by Steve, in the third quarter of 2023, we have reached $1 billion sales. This is 24% reduction, from what we achieved, in Q3 2022. This is, because of, we reduced our, volumes by 12% and prices by 13%. The reduction is mainly, as explained by Steve, by the high channel inventory, in the market. The channel is destocking in light of the interest rate, which will also we see, a new, approach in the market of just-in-time, procurements by the old channel, and, the lower market, prices cost, mainly from China. All these reduce, the demand for crop protection products, in Q3, which impact ADAMA, significantly. In the next slide, we can see the gross profit bridge. In this quarter, we have reached $198 million gross profit, versus $373 million last year.
One of the reason is, of course, the decline in sales, which impact you can see here, the quantity impact and the prices impact. However, we already see in this quarter, also some cost benefit of $16 million. So although we sold this quarter significant portion of expensive inventory, which impact at our our gross profit, and we also recorded a provision for inventory impairment in this quarter. We see here positive cost of impact of $16 million. This is because the company succeeded in this quarter to see the benefit from the prices in the market by selling products at market prices . We also can see that the impact of the currencies in this quarter is a positive $14 million.
This is due to the positive impact of sales from the Brazilian currency and the euro, which both were strong versus the dollar. And from the other hand, the RMB, the Chinese currency, and the Israeli shekel, are both very soft as well versus the dollar, which means that our production costs, which are mainly in China and in Israel, are reduced because of the strong dollar versus these two currency. Which means we the first quarter for a long time that we enjoying from better currencies. If you are looking on the EBITDA, so we can, we can see, of course, the impact that I already explained on the sales and the gross profit.
B ut also we can see that our OpEx, our operating expenses, reduce also in this quarter due to the measure that took by the company, once we see that the situation in the market is more challenging. So we decided to took few measurements or 20 initiatives to support our business. Part of them, and Steve will elaborate more later, is on OpEx management, and we can see here, this is reflected, fully reflected in the EBITDA by $37 million positive impact. So, we have reached $35 million EBITDA in this quarter, versus $171 million in last quarter. Now, we can go to the next slide.
For the nine months, we have reached $3.5 billion sales for the first nine months of 2023, 17% from last year, 10% reduction in volume, 5% reduction in prices, from all the reasons that I already explained, when we discussed the Q3, channel inventory, channel, channel, destocking inventory, expectation for lower cost from China, et cetera. Looking on the impact on the gross profit for the nine months, we have reached on the nine months to $815 million gross profit, versus $1.2 billion, last year. Again, huge impact of the decline in sales, the sales of high cost inventory that we procured during 2022, when the demand was much higher, and the inventory impairment that we recorded in these quarters, in the last two quarters, due to the difference between the cost that we are holding and the prices in the market.
In the EBITDA here, $312 million EBITDA for the nine months, versus $611 million last year. Also here you can see the significant impact of the initiatives, of the measurement that the company took in order to manage the situation. $92 million contribution from OpEx reduction, positive impact on the factors that reduce our EBITDA, the decline in sales and the situation in the market. Another, the focus of the initiatives by the company is not only by reduction of OpEx. If we can see. If we can go to the next slide. We can see that, one of the main focus area of the initiatives that we took is improving our cash flow. Improving our cash flow, mainly by inventory management.
You can see here that, in these nine months of 2023, we succeeded to reduce our inventory by $300 million. How did we do it? Mainly by two main initiatives. One, by managing our procurements. We decided to focus and to prioritize procurements in only high margin inventory. This is one. The second is to try to push as fast as we can the high costly inventory to the market, in order to be able to procure more fresh and low-cost inventory, and to enjoy from the low cost in the market. You can see in the left, left side of the slide, the working capital. So suppliers are lower, of course, with alignment to the lower inventory procurement, while also customers are lower.
This is also because we're still focusing and doing intensive collection to have more money in our pockets. All reflected in our cash flow in the next slide. As you can see, in the nine months, we succeeded to generate $63 million positive operating cash flow. This is versus -$246 million. So although the situation in the market is challenging, we succeeded to provide, to generate cash in these, in these nine months, and also in this quarter, $82 million. Again, this is a focus area of the company, focusing on working capital management, mainly inventory, to support cash flow. But not only that, also our free cash flow in the nine months is negative $276 million, but this is versus -$623 million in the last nine months. Also, for this quarter, -$22 million versus -$154 million, last quarter.
This improvement in our free cash flow is also because of our working capital management, but also because we took initiatives around CapEx investment, and we prioritize only the must-have project, in order, from one hand, to support the company growth, but for the other hand, to support our cash flow generation. Thank you. Steve, to you.
Thank you, Efrat. If we come back to the themes that we spoke about, and Efrat gave us, of course, the details. Just to remind us, to connect us to the overall crop protection market globally and the trends that we're seeing. The first one I'll point out is the bottom right-hand, the farmer at the profitability level with commodity prices remains strong, and this is the demand we're seeing at the grower level for the use of our products in all markets and adopting our new technology. So the farmer level demand and consumption is strong. At the same time, on the top left-hand side, is the industry overstocking 2022. So this is the heart of the challenge for the industry and for our performance this year, is too much stock and not...
Even with normal grower or above normal grower demand, it's not depleting the stock, the very high stock levels that we see. On the top right-hand side then, another factor that we are obviously thinking about as we look forward, is with the change in interest rates and the cost of inventory, not only for ourselves, but for our channel partners around the world, this is somehow slowing purchases from manufacturers as well. Those are the three main industry impacts that we're seeing very uniquely here in 2023. We go to the next slide. You heard, you heard much of this from Efrat. Our response, we believe, since Q2, has been very strong.
We very quickly reacted after our Q1 challenges that we saw, and we're focusing on cash, as you heard from Efrat, and we're seeing the benefits and the impact of those policy and procedure changes, in particular, around procurement, which you heard from Efrat. Also, how we're managing production in our plants through better forecasting as well. We are having an impact on the depletion of our high cost inventory, something around $300 million. So we are making improvements. As we get in now to the big market in Brazil, we are expecting that we will continue that trend strongly in Q4. If we move on to the middle part about our midterm objectives, of course, we will continue to focus on farmer demand creation.
We will continue to focus with the lower costs and active ingredient costs from China that will lower our cost of goods overall going forward. As Efrat mentioned, we're starting to see that now somehow in our portfolio, but the focus remains to liquidate the higher cost inventory. For sure, the longer-term strategy and ambition is not changing as we continue to be a partner of choice for customers. Finally, again, to reemphasize our value proposition in the market, we continue to perform well versus competition in markets. So our products continue to be seen as a value for customers. Our Core Leap strategy, the second point here, continues on track, and we're very pleased with the progress of that.
Formulation Mastery, as we see differentiation of our portfolio with customers, continues to be on track. We're very excited about our portfolio, very excited about our pipeline into the future. And also next year, in particular, we have multiple product launches in key markets. And then, for sure, operational excellence continues to be a key theme. And in particular, not only is active ingredients declined, but our processes, our productivity, and our overall efficiency remains a key focus. With that, we want to thank you for your patience. We understand it's a difficult year. We want to reassure you that we are very focused. The team is very focused overall around the world on delivering the very best business result that we see in this challenging market environment.
We are still early in the Q4 here, and we have one of the biggest markets, Brazil, ahead of us. So, we're counting on a good performance there that will offset the performance year to date and improve the situation we're in at the moment. Thank you. Xiexie.
Hao de. Xiexie, Steve.
Thank you, Steve. Next comes our Q&A session. As you can see on the right side of the screen, you can type in your questions, and we have already received some questions from our investors. For question number one, ADAMA has made a total of over CNY 200 million in inventory impairment in the first three quarters. What is the current situation of high-cost inventory depletion in ADAMA? And what will be the annual and the subsequent inventory impairment losses?
Thank you for the question. So, indeed, ADAMA reported in this year higher provision for impairments on inventory value than we are used to. And this is, of course, because our inventory situation in 2023 as results from the 2022, a high demand in the market. And every quarter, basically, we are checking. This is part of our policy, to check our inventory costs versus the prices in the market. And if needed, we are recording provision, and this is what we did in 2023, and we will keep doing through next quarter. However, as I mentioned, when I presented the slides, we are focusing on inventory management, which means that we are pushing.
On one hand we are pushing the countries, we are pushing our business units to sell as much as they can, the high-cost inventory in order, firstly to see the cash in the bank, and secondly to avoid this kind of provision. This is one. And secondly, a new inventory is procured only if it's expected to generate higher profit, which means this is to protect, okay, any, or additional reduction of cost in the market. So with these two steps, we believe that inventory is managed, and as I presented, we already see significant reduction in our inventory in the first nine months of 2023, of $300 million. And this is although the demand in the market is lower than expected.
Hao de.
Thank you. For question number two, what are the main reasons for the underperformance sales in Latin America in quarter three?
So for Latin America, including Brazil, we saw the same trends we saw in the Northern Hemisphere, where there's high channel stock, delayed grower demand, and consumption at the same time is very strong at the grower level. So it's, it's a, it's the very same trends we saw in the north. Good, strong grower demand, high channel stock that's being depleted, and a very slow reordering, restocking from the channel. It's amazing in some ways, this consistent theme across all the markets in the globe, after the COVID oversupply period of 2022.
For question number three. What is your expectation for CP products demand next year?
Well, as we've been saying, the grower level demand is consistent and positive. So we continue to see grower level demand and consumption of crop protection products increase. So it's still an increasing market in value and volume next year. And depending on how the situation unfolds in Brazil and LatAm in Q4, we would expect throughout next year some improvement in the overall demand for manufacturers and ourselves, obviously, to sell to the channel. So not normal historical levels, but for sure an improvement on the sell-in to the channel, somewhat dependent on how things end in Brazil.
Question number three. This is about the conflict between Israel and Palestine, and the conflicts have been escalating. So how are things going for ADAMA people in the Israeli headquarters, and how is the local business running?
Well, thank you for this question. Of course, we're thinking very much about our team in Israel, and we have our colleagues on the call. Efrat here is in Israel. We have almost 1,500 employees, 1,500 employees in Israel, so we are taking very close care. At the moment, fortunately, we have no employees directly impacted as far as themselves, so everyone is safe at the moment. We run a daily emergency response plan that I lead with the management team to check on our employees, our manufacturing sites, our overall operations. Focused on not only the health and safety of our teams, but also on business continuity for imports and exports.
So overall, we have seen essentially no major business discontinuities or disruptions at this point, and that's what we're focused on maintaining.
Question number five. Could you please brief us on the three production sites in China, about their operation status respectively, and also their profitability for the first nine months, as well as the sales update for ADAMA in China?
You are on mute.
So, we're pleased to say that we are, of course, as we see the higher demand and move into supply for next year, we are seeing reduced idle capacity and the plant production improving. Jingzhou is our strongest, more than 90% capacity at the moment. So it's really product dependent. But as far as our three sites, I mean, just to remind us, they're part of an integrated global supply chain. So we do not look at the individual sites from a separate operations perspective. They're integrated to our overall cost of goods. So of course, we know the situation overall for the company. We know our demand situation, so we are, you know, we are also having an underperformance in the full production capacity and the sales of those individual plants.
I think that was the question. I'll stop there.
Question number six. For quarter three, we kept seeing losses, and so from which region did the losses mainly come from, and which regions are relatively better in terms of profits in Q3?
So, ADAMA business is more about seasonality, and in H2, our main business is coming from Latin America, mainly in Brazil. The situation today in the market in the first nine months of the year, the market in Brazil contracted by 13.3%. Okay? And it, of course, impacted also ADAMA Brazil. Although we, our business reduced lower than market trend, still we see a very significant impact in terms of quantity and prices from the situation in Brazil in Q3, and this is one of the main reason to have the results in this quarter.
第七个问题呢，是投资者，想问一下，现在安道麦在南半球-
Question number seven. In both Southern and Northern Hemisphere , we would like to know your inventory volume. The total inventory volume of ADAMA.
So, inventory in the channel varies highly depending on the market itself, how many channel players there are, how many farmers there are. Each market is quite different as far as the normal amount of inventory that a channel partner would hold. That said, the average would be somewhere between 20%-40% inventory. The trend we've seen globally this year is between 50%-100% more than that average. So that gives you some sense of it. As far as the precise amount of inventory that our customers hold, that's not information that we have in detail.
We do have some informal information with some key customers, but generally, once we sell the product to our customers, they own the stock, and we do not have that information from them.
第八个问题呢，是目前实际价格处于什么样的-
Question number eight. What do you think is the level of formulation price? How do you foresee the price of both AI and formulation in 2024?
Well, this is an important question, of course, and we believe we've seen the active ingredient prices more or less stabilize in China, so that will translate to some stabilization globally. So as compared to this year, we expect stable to improving prices.
第九个问题呢，是投资者想问，在以色列的三个工厂，那么在他们家-
Question number nine. What percentage of capacity of the three production sites located in Israel account for the total capacity of ADAMA, for all the facilities of yours?
Yeah. So just to make a correction, we have two manufacturing sites in Israel, not three. And for our total global capacity, because we have active ingredient and formulation in Israel, so it's, there's different parts here. But I would I think the way to answer the question is approximately a quarter, 25%-30% of our total production for the globe is coming from Israel.
第十个问题呢，是安道麦B股的市净率。
Question number 10. The price-to-book ratio of your B-s hare is 0.23. It is probably the top, the champion, among all the 4,000 listed company in both A and B- share market. Have you considered repurchase to change the performance of your shares?
Not at this time. We're focused on improving the business performance, in particular in 2024, based on the situation in 2023. Although we will continuously assess these ideas into the future, but at the moment, we have no plans.
第十一个问题呢，请问-
Question number 11. I would like to know your expectation about the industry strength in the coming year. Do you think it will go up or go down? How do you foresee the total situation?
Well, again, we've said throughout our presentation that at the farmer level, the demand remains strong. So the consumption and the demand for products from the industry and technology and innovation like Formulation Mastery continues. And as we've said, the overall inventory at the channel level is for sure declining, and we need to see what happens in Q4, in particular in Latin America and Brazil. So based on a normal weather year, which also impacts our business, of course, and we've had some of those challenges, we would expect a stable to a slightly improving overall market for next year.
第十二个问题呢，是投资者想问一下，对于明年-
Question number 12. The investor wants to know your expectation about the global inventory status for 2024. Do you think the destocking process already has finished in some geographies? How do you expect it will influence the global demand? When do you expect this total destocking will complete around the world?
Yeah, a very important question, and, very complex question, of course, with the many different markets. So as I just mentioned, we have a huge market in, Brazil and Latin America, that we still need to see how that finishes. But that market, along with the Northern Hemisphere markets, at the moment, looks like it will finish with higher than average, historical inventories. So that means going into 2024, the channel globally will have higher than average stocks. And that will continue to impact the overall industry in 2024. So with a normal to positive demand at the farmer level, again, bringing down that stock, with a slower sell-in from manufacturers, my overall expectation is the market will rebalance itself in 2024.
As we move to the end of next year, end of 2024, we will start to see the more new normal market type of situation.
Okay, we've received another question from a certain investor. Okay. The question is not very clear, clearly written, expressed, so we will just skip it. And, I think, so much for today's Q&A day, that will complete the entire Q&A session. Thanks, our senior managers and executives, and you know that, ADAMA has a hotline to receive your comments and questions. So you are mostly encouraged to use these tools to approach us. And, now let's give the floor to Steve again to give us the concluding remarks. Closing remarks.
Thank you. Well, there was many very good questions today. We understand the Q3 results overall was continuing the trend that we've seen the rest of this year. We're looking forward to Q4, which, we have a very strong business in Latin America and Brazil, and, those businesses now are really just beginning, with farmers planting. And, we thank you for your patience and listening to our story and, your support of the company, in this challenging times. Xiexie.