Hello and welcome to ADAMA Agricultural Solution's Analyst Call for the second quarter and first half of 2025. My name is Joshua Phillipson, Global Head of Investor Relations. Joining us on the call today is ADAMA CEO Gaël Hili, our CFO Efrat Nagar, and we'll also have a presentation from Eric Dereudre, our new Chief Commercial Officer. Following the presentation, we'll open for Q&A at any time during the webinar. You are welcome to submit questions using Zoom's Q&A icon. I'd like to draw your attention to this legal statement. I'll pause for a minute for you to review it. The statements in this presentation do not constitute a recommendation or offer to take action regarding the company's securities. The presentation may include forward-looking statements as defined in the securities law, which may not materialize among other things due to the realization of risk factors presented in the company's annual report.
The financial information presented in this call refers to 2025. The company does not undertake to update the information in the future. This webinar is being recorded and will be made available online via the company's website. I'd like now to turn over the call to our presenters. Please go ahead, Gaël.
Thanks, Josh. Good morning, everyone. It's my pleasure to present the results of the second quarter for ADAMA and the first half. First, I'll start by giving a quick update of how the market we're involved in, the agrochemical market, is doing. A lot of the things that are on this slide are not new. They've been basically the life we live in ADAMA for the last 18 months. They're driven by a key macro element that I'll quickly go through now. The first one, probably the most important one, is that this is a market that remains in an oversupply, overcapacity situation, mostly from China. This has been the case since now nearly two years. This has continuously, for the last two years, but this is also true for the last quarter and the one before, continuously put a significant price pressure on our industry and on ADAMA.
That is not changing, and that is not foreseen to change anytime soon. This is the result of structural overcapacity in our industry coming from China, which doesn't give any signs so far of resorbing. That's the first key element when it comes to the market. The other very important macro dynamics is the farmer economics. If you look at the farmer economics currently, and by farmer economics, I mean the profit that a farmer does on key crops in key markets, and it's his bottom line, they are not good compared to recent historical averages. This is the result of a squeeze between the price of inputs and the commodities, the price of commodities at which they sell their produce. It's mostly driven by the price of the commodities in the current case, which is lower than recent averages.
When you put all this together, the P&L of the farmers are pressured, so they have to make choices also on what type of investment they make for their crop, and they have a tendency to be much more cost-conscious than before. These are the two big, I would call, macroeconomical phenomena in our industry that are impacting our industry. All our competitors are in there too, but also ADAMA. There is another thing which has happened recently, which is that the inventory situation has, and this is a positive, the channel inventory situation, which was critical one year ago. One year ago, there was far too much inventory in the channel globally in all big markets.
This has cleaned over the last 12 months, which puts us now, and it was the case for Q2 already, Q1-Q2 this year in 2025, put us in a normalized situation where we saw some volumes coming back into the market, generated by the reduction of inventories in the channel. There's been a volume rebound in the market in Q1 and Q2, which we benefited from. In many markets, in all markets, to be honest, it's been offset by price declines. Price continues to decline, volumes are back, if I summarize quickly, in a situation where farmer profitability is pressurized. Next slide. In that context, I'm very happy and proud to report the Q2 and H1 results for ADAMA because we are showing another quarter of growth in our EBITDA to start with, and another quarter of improved margin and profitability.
The Q2 EBITDA is, or was, 19% above the same quarter last year, and H1 was nearly 20% above H1 last year. This is not the first quarter. I thought we'd show us a graph in a few minutes that illustrates that, but this is the fifth quarter in a row where we are growing quarter to quarter EBITDA. I remind you that in our industry, the right comparison, or the best comparison, is quarter same quarter to same quarter previous year because we are in a very seasonal business, and the comparison of consecutive quarters, for example, Q1 2025 to Q2 2025, does not really make sense in our industry. That's why we always compare a quarter to the same quarter of the previous year. If we do that comparison, when it comes to EBITDA, it's another very strong quarter.
We also improved the quality of our business versus the same period last year, both in gross margin, about a little bit more than three points, going from 26.8% to 29.6%, a little bit less than three points, sorry, and EBITDA margin going from 10.8% to 13.3%. This is very important, and it's also a trend that we've been working on for the last 18 months through our Fight Forward transformation. It's the result of many initiatives to cut our product costs. Now, of course, the pricing of the raw materials has helped us, but it's not only that. Including internally, we did a lot of work in reducing the cost of our products, whether it's active ingredients or formulation plants. Everyone has contributed to that. Lower cost of our products, lower cost of operation too, with improved operational efficiency.
That's for the cost part of the or the profitability part of our results. If you look at the sales, this is new. It's the first quarter since Q3 2022, where ADAMA is showing an increase on the top line. That's very good news because the nature of our transformation strategy is first to, if I'm going to simplify very much to make my point, is first to clean the shop, to create a sound base, sound from a profitability point of view, and then grow again. In the last 18 months, we consciously have cut our top line from products that are non-profitable. Now we're seeing for the first time the top line starting to grow again, despite the significant price pressure. You'll see some data from Efrat in a moment. It's a combination. This top line growth is a combination of volume growth and price growth.
Still, it's very good news that we're starting to show, yes, modest, but the market is not growing much more than that, modest growth for the first quarter in a long time. Last but not least, the cash flow is also delivering. We're also delivering a very strong first half of the year with a free cash flow increase by $24 million to a total of $32 million. We're doing everything I talked about before while keeping a very strong focus on cash, which has been also our focus the last 18 months. This is paying off. Overall, I'm very proud again and happy of the quarter we're delivering and the first half of 2025. Next slide, I think it's for Efrat.
Yeah, thank you. Thank you, Gaël. Okay, so how our P&L looks like. Starting from the sales, as mentioned by Gaël, we see the first time after Q3 2022 increase in our top line, reaching to $968 million. This is a combination of 6% volume growth, which are more than offsetting 3% lower prices versus the previous year. With 3% increase in sales, we are succeeding in Q2 2025 to increase our gross profit by 14%. We are presenting better costs from both better operational efficiencies, mainly due to our Fight Forward plan, and also a lower cost of inventory sold, more than compensating the lower prices in the market, reaching to 29% versus 26% in gross margin in Q2 2024.
With more OPEX discipline again, starting from 2024 as part of our Fight Forward and some liquidation issue that we are facing in LATAM , we are succeeding to increase our EBITDA to $180 million, 90% versus last year, and more importantly, representing a better quality of business of 12.2% EBITDA to sales margin. Our adjusted net profit is loss of 8%, decreased or narrowed by 86% versus last year, and our reported net profit narrowed by 63%, 64% versus last year, reaching to only $43 million in Q2 2025. Josh, if we look on H1 P&L, we see that our sales, our better sales in Q2 2025 contribute to the sales for H1. The sales, however, are down by 2%. This is mainly due to the losses in Turkey, not losses, sorry, missing of sales in Turkey.
As you remember, we wouldn't be able to sell to Turkey in Q1 because of the war in Israel and because of the new restrictions by Erdogan. The main season in Turkey is Q1, we suffer from this. This is one of the reasons for the sales decrease in H1. Of course, as mentioned by Gaël, our decision to exit from selected low-profit products and businesses also impacts our top line. However, if we see the gross profit increase by 8%, although sales have decreased by 2%, it demonstrates that we are in the right direction of focusing on more qualified business.
Reaching to around or very close to 30% gross margin in H1 2025 versus only 27% in H1 2024, and with a high level of pressure on our OPEX, and although we are facing some issues of liquidity in Latam, we are succeeding to reach to $244 million EBITDA in H1, 20% higher. We are finishing H1 2025 with adjusted net profit of $22 million versus the losses in H1 2024. For us, it's a good result. However, the reported net profit, $34 million versus $154 million, narrowed by 78%. The differences between the net adjusted and the reported are mainly due to our restructuring costs, the one-off non-recurring expenses that we are having to support our Fight Forward plan, our transformation plan, that our result in the last five quarters, as mentioned by Gaël, demonstrated the contribution for ADAMA business. Gaël, I think it's you now.
Right. If we look at the top line by region, a few key highlights. First of all, in terms of seasonality, it's important to understand that Europe, Africa, Middle East, and North America, plus part of Asia-Pacific, are in season during the first half of the year. I say that because Latin America, for most of it, is not in season. It's not the relevant indicator or the most relevant indicator for the performance of Latin America. If we look at first the two main regions which were in season in the first half, and these are first half figures, by the way, Europe, Africa, Middle East, you see a slight drop of the sales.
If we take into account, which is, I think, fair, what Efrat Nagar was saying about Turkey, that we lost because of these geopolitical reasons and the decision of the Turkish government to ban Israeli companies from the market, then we would actually be growing by 3%, which is probably where the market is. Good performance in Europe, Africa, and Middle East, knowing that we have taken the decision to get out of certain products. The growth is coming from the right product, that differentiated product with higher margin. In North America, you see a quite strong growth, around 20%, which is coming on the back of a market that has rebounded significantly in volumes because of the channel dynamics I was referring to. All our three businesses in North America, we basically have three streams. One is the non-crop business, and then we have U.S. agriculture and Canada.
All three of them have performed well, again, on the back of a market that was helpful. North America was the less difficult market in the first half when it comes to price. The only one where on some products we managed to pass some increases, also using the dynamic of the tariffs. That's North America. Asia-Pacific is mostly India in that case. We are having a difficult year in India, but it's based on our own decision to clean our go-to market in that market.
Very important market for ADAMA, but it's a market where we were starting to have significant issues with some of our channel partners related to product returns and where we had to take the decision to change the rules of the game there and also to stop selling to many of those retailers who were returning us a significant part of what we were selling to them. I'm simplifying a bit, but the main reason behind this drop in India is a conscious decision, a painful, but conscious and, in my opinion, right decision to clean our go-to market. Last but not least, Latin America, which is off-season again, so it's the smallest part of the year for them, H1. You see a drop, which is mostly driven or only driven by the significant price pressure in Brazil and in Argentina too.
The LATAM markets are the opposite of what I was saying before for North America. This is the part of the world where the price pressure is the biggest and the most difficult for our industry and for ADAMA too, especially when you play in the segment of patent, which is more subject to those price pressures.
Okay, thank you, Gaël. Sales bridge, as mentioned, 2% decrease, around 3% volume growth, $50 million, although we decided to exit from a few low-profit products and businesses and due to the issue with Turkey. Also, not fully compensated the price reduction of the $61 million, mainly due to the overcapacity and the high interest rate in the market. With that, we are reaching $1.8 billion sales in H1 2025. If we are looking on the bridges for the next slide of the EBITDA, we can see from where our EBITDA increased. Okay, we are starting with $204 million, 10.5% EBITDA to sales ratio, reaching $244 million. Mainly volume, 14%, not mainly, starting from the volume, $14 million. You can see here the cost contribution, $150 million. This is mainly due to our operational efficiency following our Fight Forward plan, together with low cost of inventory sales.
These $150 million are more than compensating our lower prices, which contribute to higher EBITDA. We see also a fixed impact, mainly in Q1. We face from the depreciation of the Brazilian currency, which impacts our businesses and the $8 million OPEX. As I mentioned, this is more due to the liquidity issue, collection issue that we are facing in Latin America. Josh, next slide. Our cash flow, as mentioned by Gaël, is better by $24 million. Our free cash flow is better by $24 million. This is supported by better profit, $120 million. We reduced our loss by $120 million. Our operating cash flow here is minus $10 million. This is due to our decision to manage our inventory, to increase slightly our procurements in order to address the demand in the market.
As mentioned by Gaël, we see an easing of the inventory channel in most of the regions, and we would like to be able to address upsides from the market, so we decided to increase our inventory. However, due to our very good collection and customer management, the decrease in the operating cash flow is only $10 million. With a key prioritization around CapEx and intangible asset investment, we are succeeding to get to $32 million free cash flow, $24 million better than H1 2024. Josh? The main. This is our debt breakdown, $2.2 billion. The main difference in this table versus March 2025 is basically our bonds. As you know, we in June 2025 had a massive bond buyback, which reduced our bonds to $784 million.
However, if we can see our unused committed credit lines from the bank are $580 million, which supports our liquidity and enables us to keep supporting our markets and our customers. Josh? With that, I am proud to report that our net debt to EBITDA ratio, this is our covenant to our banks, is 2.5. This is versus the required 4 that we are having with our agreement with the banks and other institutional companies. Josh?
Thanks, Efrat. The next few slides on commercial excellence are a recording from yesterday's webinar that we gave to our Chinese investors because Eric, who is presenting, as travel today precludes him from participating live.
Move to another topic now, which is the topic of commercial excellence. For that, I'm very pleased to introduce Eric, Eric Dereudre, who has joined ADAMA as the Chief Commercial Officer on April 1st. We're very pleased to have somebody like Eric on board. You can go to the next slide. Eric is a very seasoned and experienced leader from our industry. He's coming from Corteva, where he held various roles: strategy, P&L ownership. He's coming to us with the mission to raise the bar of our commercial sales and marketing organization. I'm convinced that he's the right person for that. That's why I'm so happy to have him. He is leading now our regions, our commercial organization in the region, and he's strengthening the leadership team of ADAMA by bringing this very impressive experience from our industry.
Eric, I'll leave you the ground now to tell us about what you've seen as a newcomer to ADAMA.
Thank you, Gaël. Thank you, Gaël, for this warm introduction. Good day, everyone. Very happy to be here with you today. As Gaël mentioned, I've been now spending four months in ADAMA. I've spent a lot of time over these four months with an intensive connection with our people in the core countries. I traveled a lot to meet our people, but most importantly, also to meet our customers. It was a very, very intense four months of onboarding to get to know the team and the market environment in which we operate now and the mood of our team and customers. Maybe what I wanted to do today is give you a little bit of a flavor of what I've seen, my observation with my fresh eyes, if I may say, from my 30 years of experience in the industry, but looking from inside of ADAMA.
The first thing that I can probably spot is the strong belief in the portfolio and the pipeline. Everywhere I've been in the core countries, core regions, from both internal and external, a strong confidence in our portfolio. The product quality is what comes first always in conversation we had with external stakeholders. The reliability of our products. As well, when I talk internally about the confidence of the team about our pipeline, it looks like there's a strong confidence and hope that this pipeline is really meeting the customer needs. That's quite really, really pleasant and refreshing to see from the many interactions I had with the market. That's the first component I wanted to highlight.
This is despite a significant portfolio optimization and reduction that we did over the last two, three years as part of the Fight Forward initiative and the kind of optimization and rationalization of our portfolio. Despite that, I see a pretty strong confidence in our portfolio, which remains strong. The second element, which was really outstanding too, is the strong relationship, genuine, deep, long-standing relationship that we have with our customers, the channels, the distributors in the different markets. This is kind of a very much a big asset for ADAMA to have this relationship with the main distributors in the region. This relationship is based on a long history. It's based on trust and confidence, open, easy-to-do business with ADAMA. That was also very refreshing to see.
This is combined with a very high level of knowledge of the market, of the ways to do business, customized by region from our own team. This trust and relationship with customers and channels has been, for me, over the first four months, a significant asset that I've been able to witness. The other element which I wanted, and it was really my objective traveling and visiting our teams, is where do we stand internally in terms of accepting the changes of the market, in terms of embracing the many transformations that have been going so far in the company as part of the Fight Forward. What I can tell is the mindset of our people, the ownership, the business ownership of our people is extremely strong. I realized that there was a very strong self-awareness of what has to improve, what has to change.
The self-awareness is there, but most importantly, they are already engaging in the deep transformation genuinely, and with a very strong mindset of ownership and an entrepreneurial mindset for making those changes, embracing those changes, and moving forward. That was extremely refreshing for me to see. It makes me extremely confident in our ability to move forward and continue growing and developing and transforming the company. The biggest opportunities I've seen, of course, in my space is the commercial capabilities that we continue to develop, ready to match basically this portfolio and the demand from the market. If we move to the next slide, something that I want to mention, and before we go to what would be the commercial excellence activities and things that we can move, maybe a few words on the market condition. I don't want to repeat what Gaël Hili has mentioned before.
He did a pretty good picture of what the market looked like, but what I can testify and witness today from my interaction with the customers is the tone and the level of conversation with the channels nowadays has shifted a little bit from where it was a year or two ago, where it was extremely intense. There was a high level of inventories. There was extremely challenging conversation. I think the tone now has changed a little bit as we get through normalization of the channel inventories. This is really, really real. We see it. The conversation is changing, moving to more strategic conversation. Their level of inventories in the channels have now normalized, as I said, and Gaël mentioned it as well, the destocking has happened, and now we are starting again to have kind of normal, if I may say, business conversation with the channels.
I want to put a little bit of a warning there. Of course, the farmers' profitability all around the place in most of the cropping system remains extremely tight. The geopolitics is not helping. The trade of commodities is not helping. There is still some anxiety behind the profitability of the farmers, which still puts a lot of pressure on pricing. From a volume perspective, things are normalizing. The pressure on pricing remains completely there because of the farmers' profitability. We also know that the overcapacity of crop protection production from China remains high. That is also putting some pressure on the volume. I can really witness that the signs of market stabilization are there. This is the right moment.
The transformation that ADAMA did a few months and a year ago is now starting to pay off because we are now completely aligned with the new dynamics of the marketplace. That is for a little bit the outside. Now, if you look to the commercial activities, as Gaël Hili mentioned, after I made this observation, we know in which market environment we now operate, which is slightly changing. For me, the investment that the company is doing in the commercial capabilities and to differentiate ourselves from the competition is just amazing. We continue that journey from account management planning to market engagement with data-driven approaches. All of that is really to ensure that we capture the most value from our innovations.
I believe a few quarters ago, for those of you who were there, I believe that one of my colleagues presented the value innovation and the pipeline we develop and how we want to extract value and create new products and solutions for the farmer. That is from the product development side. On the commercial side, the main activities that we are ongoing now are really to make sure that we capture the most value from this pipeline and this innovation. It comes from a few elements. First is the value-based pricing, moving slightly from a cost pricing kind of approach to a more value pricing strategy. This is going on. We are putting in place the tools. We are putting in place the processes, the KPIs to make sure that we extract the value from the pricing approach.
This is starting to pay off, as we've seen in some of our product launches. The second element to accompany this movement to value innovation is the demand generation. Here again, ADAMA staying a very strong channel-focused and channel-centric, distribution-centric company. We are also helping our distributors to generate the demand. Here again, we are developing tools to track the sell-out of the products to the farmer. We are developing tools to help the positioning and to sell the value proposition of our new product pipeline. All of that is starting to be extremely visible in the way we do. We have some good success of launches of new products. I've been witnessing that with a long list of customers in Brazil, for instance, where we launched new products recently. This is going to be the success that we hope for the pipeline that we are developing.
Demand generation and launch excellence have been really the key component that we want to continue to develop. The journey is going on. The third element, actually, is the resilience and the execution of those plans. I mean, once you have a good marketing plan, you have the value proposition, you have your right price setting, you have your right account management plan in place to launch those technologies and manage the season, the question comes about the execution. Here again, I'm very pleased to see the tools that the Fight Forward has given the company with and equipped our teams with, where they can track now the execution of an account management plan almost on a month-by-month level and frequency to really make sure that we constantly adjust our strategies and our commercial activities. This is done across the board with a very strong cross-functional approach.
That's also a nice transformation that is going on now. I'm very confident that from an execution standpoint, we are also now equipped with much better tools to capture the value and, most importantly, to execute the plan as part of our, along with our strategy. In a nutshell, this is what we've been focusing on for the four months. Very important journey. Makes me extremely confident, Gaël and the team, on where we are going. Tools are there. The mindset is there. The portfolio is there. The customer base is there. This is, as a commercial leader like me, it's really refreshing and pleasant to see. Now we need to move to the execution and the robustness of this execution. Gaël and Efrat, that's what I wanted to share with the team today.
Move to another topic now, which is the topic of commercial excellence. For that, I'm very pleased. Thanks, Josh. As I think there are no questions, I will quickly summarize and conclude here for us today. The transformation in which ADAMA has embarked, which we call the Fight Forward transformation, which is a very structured and end-to-end transformation, is delivering results. It's been delivering results for several quarters now in a row, five to be precise. It gives us confidence for the future. Our next challenge, as I was saying before, after having brought back the profitability of this company to an acceptable level, we're still on a journey there. We will not stop to the current levels, is to do what Eric was saying, which is to use our portfolio, our differentiated portfolio, to grow the top line and gain share in our key markets.
Once again, the result of the recent future gives us confidence in that. We are very happy so far of how 2025 has unfolded. With that, Josh, I think I will give you back the floor.
Thank you, Gaël and Efrat and Eric. If anyone has additional questions after the call, please reach out to us. Our email is IR for Investor Relations at adama.com. We appreciate your time and interest in ADAMA, and we look forward to maintaining the connection with you.
Thank you.
Thank you. Bye.
Bye.