Q4 2023: Improved Operating Performance thanks to positive business dynamic and effective cost measures

Zhigang HAO, Chairman and CEO of Adisseo, said: “2023 has been a very challenging year. Thanks to the effort of all Adisseo employees, we have achieved +21% volume growth in our number 1 star product liquid methionine allowing us to capture market shares.

Meanwhile, we have successfully realized a good balance between growth and cost and cash management.  

More importantly, Q4 showed clear signs of rebound and concluded an exceptionally challenging FY2023 with a positive annual net result.  

In Q4 2023, a progressive quarter on quarter improvement was delivered on all metrics for both performance products and specialties.

We expect the positive dynamics to continue in Q1 2024. We are committed to materialize the opportunities to deliver profitable growth, with the strong support from the controlling shareholders and the Adisseo teams.”

Unaudited figures presented to BAC Audit Committee

(Full year 2023 audited consolidated accounts expected to be presented to the Board on 28 March 2024)

I. Business Review: Revenues & Net Profit Attributable to Shareholders

Safety is and will remain Adisseo’s priority. Q4 2023 TRIR landed at 0.4, leading to FY2023 TRIR at 0.54. 

Adisseo is pursuing its sustainability path notably in its product development including:

• A new enzyme product Rovabio® Phyplus, Adisseo’s latest generation of phytase enzyme, offering significant sustainability benefits. It contributes to overall nutrient efficiency and sustainability and improves the overall digestibility of feed.

• A new ruminant additive, Dynomics, which helps to address GHG emission issue in dairy industry.

The steam recycling project in Nanjing construction was completed in Q3 2023. It will contribute to the energy consumption efficiency as well as cost competitiveness of the plant. The turbine is now in use since January 2024.

Nanjing plant wastewater treatment project is well on track, expecting to start its construction in Q2 2024.

In the context of a challenging macro-environment, Q4 revenue recorded a -4% yoy decrease but the operational performance is rebounding with an +8.5% quarter to quarter revenue increase and gross margin improved from 17% in Q3 to 26% in Q4, thanks to:

• Continuous volume penetration in liquid methionine

• Continued specialty business growth driven by new products penetration

• Gross margin improvement thanks to methionine pricing rebound in Q4

• Positive benefits realized from cost saving plan as well as decreased raw material and energy prices

Regarding the methionine business, continued strong penetration in liquid methionine led to a strong FY volume growth of +21% contributed by all regions, which was achieved notably thanks to successful conversion of powder customers into liquid. This is driven by the industrialization of agriculture looking for efficiency and precision and supported by the significant increase of installation of the dosing systems, especially in China, thanks to Adisseo’s strong service support.

Strong penetration allows more than double-digit volume growth in methionine, well beyond the market.

Methionine pricing is rebounding in Q4 in the context of a shifted dynamics between demand and supply.

Both Nanjing and European liquid methionine plants continued to improve production costs, thanks to lower raw materials and energy costs as well as cost competitiveness enhancement plan.

The land for the new 150KT powder methionine plant in Quanzhou has been purchased. Leveraging SinoChem local platform, synergies in supply chain and operations and strong cost competitiveness are expected. It will allow Adisseo to optimize its industrial set-up, to produce locally to meet local customers’ demands and to reinforce its leadership in methionine. The project is expected to start up in 2027.

At the beginning of 2024, Adisseo has decided to definitely not restart the powder methionine production plant in Commentry to improve overall cost competitiveness of methionine business.

The Vitamins business was improving in Q4 2023.  

On Vitamin A, volumes were optimized to protect margins. Adisseo continued implementation of sourcing strategy optimization, notably for Vitamin E and Vitamin Portfolio.

In Q4 2023, despite challenging market conditions, the specialty business recorded a double-digit revenue growth of +10% in Q4 compared with Q3, resulting in an +8% full year increase in 2023, thanks to:

• Double-digit growth in new monogastric products (+13.5% in Selisseo®) and successful penetration of Rovabio® Ph

• Sustained growth in aqua in Latin America and EU regions

• Sustained health by Nutrition in Q4 2023 driven by Framelco business

• Positive dynamic in phytogenics Norfeed business, especially in Latin America, France and Germany

• despite still challenging dairy market conditions both in North America and China

Specialty gross margin increased to 49% in Q4,thanks to:

• Proactive margin protection actions

• Decrease in raw material, energy and logistic costs

• Optimization of product portfolio

The European Specialties Expansion and Optimization project construction is being finalized and the start-up of the new factory is expected in Q2 2024.

The new plant built in France for Innovia, a drying formulation unit for specialties, enjoyed a successful start-up, allowing a bigger production capacity for formulation with higher efficiency and sustainability level.

Following the opening of Research & Innovation center in China in 2022, , another new European R&I center opened in Nov 2023 in the Chemical Valley in Lyon, allowing to gather more than 100 international researchers with strong innovative dynamics, thus reinforcing Adisseo’s global R&I network and capacity.

One-China Strategy progressed successfully:

• Excellent penetration of liquid methionine in China market with more than +50% volume growth

• Nanjing Plant (BANC360) operates at full capacity and competitive cost with excellent safety performance

• The first Chinese Specialty Blending Facility in Nanjing is aiming to complete construction by the end of 2024

• FeedKind®, an innovative single-cell protein obtained MARA registration in mid-January, allowing to start selling the product from Q1 2024

Adisseo continued to pursue cost control and optimization efforts along the year. Its ongoing cost competitiveness enhancement program realized recurring savings of CNY207million in 2023 and total recurring savings of around CNY900 million since 2019. It will be pursued further in the future.

An extra cost efficiency program allowed to cut further cost in 2023, which delivered CNY242.5 million cost savings.

This reflects efforts across the organization and some main activities include:

• Supplier contract renegotiation in transportation, toll manufacturing and new Vitamin sourcing contracts

• Localization of dilution process to save distribution costs as well as to reduce carbon footprint

• “Greener, smarter” manufacturing enabling energy & raw material costs optimization

• Supply chain process fine-turning allowing demurrage cost reduction

• Office relocation for lower rental

• Tight resource monitoring, especially on supporting function

EBITDA ratio was improved from 11% in Q3 to 20% in Q4, largely contributed by the improving gross margin.

Net profit was largely impacted by the impairment and restructuring mostly from powder methionine workshop in Commentry and old Innovia plant as well as close down of Kallo plant in Belgium.

FY2023 net profit attributable to shareholders landed at CNY52 million, a positive result in an unprecedentedly tough market environment.

II.  Cash-flow

Cash position as of 31 December 2023 stood at CNY1 billion, increased by CNY0.2 billion compared to 31 December 2022.

In 2023, Adisseo recorded a positive cashflow from operating activities of CNY2.8 billion.

In Q4, free cash flow after tax (FCFAT) generated a positive flow of CNY428 million, which was mainly driven by stringent cash and working capital optimization with optimized net debt position.

III.  FY2024 outlook

Safety and sustainability remain Adisseo’s top priorities.

Despite the volatility and uncertainty are still prevailing, market demand is slowly recovering. In this context, Adisseo is fully engaged to support growth, improve margins and pursue strategic investments for the future. This includes:

• Continuous operational excellence implementation while reinforcing cost leadership and delivering sustainability

• Acceleration of liquid methionine growth and revamping powder footprint

• Dynamic pricing management

• Continuous growth in specialties

• Continuous acceleration of innovation

• Significant strategic investment plan to support sustainable and profitable business growth

The positive operating dynamics is expected to be pursued in Q1 2024.

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