Q3 2023: Signs of rebound in gross profit driven by continuous liquid methionine volume growth and proactive cost management

Safety and Sustainability

Safety is and remains Adisseo's first priority: YTD TRIR as of 30 Sept 2023 at 0.58

Adisseo on track towards sustainability ambition

Construction of steam recycling project in Nanjing plant completed

Launch of DynOmik™, a new ruminant contributing to efficiency and sustainability of milk production

Business highlights: Reduced decrease in revenues (-9% in Q3 2023 vs Q3 2022 vs -12% in H1 2023 vs H1 2022) and in restated gross profiti (-17% in Q3 2023 vs Q3 2022 vs -46% in H1 2023 vs H1 2022) thanks to:

+24% volume growth in liquid methionine worldwide

Methionine prices stabilizing upwards during the quarter

Continued growth in specialties in a challenging environment

Positive impact from decreased raw material and energy costs

One-China Strategy in progress:

Excellent penetration of liquid methionine in China market

150KT powder methionine plant in Quanzhou expected to start-up in 2027

Ground-breaking ceremony of Chinese Specialty Blending Facility in Nanjing held on 31st August

Calysseo Chongqing plant: trial production in progress targeting to have on spec alternative protein for fish meal by the end of the year

European Specialties Expansion Project on track, the start-up of the new factory is expected in H1 2024

Competitive enhancement plan realized recurring savings of CNY120 million with extra cost efficiency program allowing to optimize costs by around CNY160million or more

In Q3, Adisseo recorded a positive cash flow from operating activities (CNY618 million) thanks to stringent cash and working capital management.

FY2023 outlook

Safety and sustainability remain Adisseo's top priorities.

Uncertainty is still prevailing. However, market demand is slowly recovering.

Adisseo is fully engaged to support growth, improve margins and to pursue strategic investments for the future.

Zhigang HAO, Chairman and CEO of Adisseo, said: "Liquid methionine continued to deliver strong growth, with 24% volume increase, especially driven by Chinese market.

In order to optimize our industrial set-up, produce locally to meet local customers' demands and reinforce our leadership in methionine, we decided to invest CNY4.9 billion to build a new 150KT powder methionine plant in Quanzhou Fujian. The plant is expected to start up in 2027.

In Q3 2023, market demand is slowly recovering and operational performancei is improving thanks to volume growth, stabilization of prices, reduced raw material and energy costs and on-going margin protection measures. This trend is expected to be pursued in the next quarters."

Bluestar Adisseo Company ("Adisseo" or "the Company") Board of Directors disclosed its Q3 2023 results.

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

Unit: CNY (100mil)

Q3 2023

Q3 2022

YoY variance

YTD 2023

YTD 2022

YoY variance

Operating revenue

32.9

36.0

-9%

96.1

108.0

-11%

Performance Products

22.3

25.3

-12%

64.0

77.5

-17%

Specialty Products

8.8

8.4

+5%

26.3

23.7

+11%

Restated Gross profiti (in % of operating revenue)

6.7

20%

8.0

22%

-17%

-2ppt

18.9

20%

30.7

28%

-38%

-8ppt

Performance Products

2.8

4.3

-36%

6.4

18.8

-66%

Specialty Products

3.5

3.5

0%

10.5

10.9

-4%

Gross profit

(in % of operating revenue)

5.5

17%

8.8

24%

-37%

-7ppt

18.8

20%

31.5

29%

-40%

-9ppt

Net profit attributable to shareholders

-0.7

2.7

-125%

-0.34

11.44

-103%

1 Excluding provision related to import duties in Q3 with USD2mil (CNY14m) impact in YTD 2023

Safety is and will remain Adisseo's priority. The safety performance for YTD TRIR as of 30 September 2023 landed at 0.58, showing some improvement compared to last quarter.

Adisseo is on track towards its sustainability ambition:

steam recycling project in Nanjing has completed its construction in Q3 2023. This will allow Adisseo to reduce costs and carbon footprint

DynOmik™, a new ruminant product was launched to the market in Q3, will increase efficiency and sustainability of milk production

In Q3 2023, in the context of challenging macro-environment, revenues decreased by -9% yoy to CNY3.29 billion. If excluding provision related to import duties, restated gross profit margin (reference to footnote) reduced by -2ppt to 20% and the restated gross profit reduced by -17% yoy. This represents a slower decrease trend compared with H1.

Regarding the methionine business, Adisseo achieved strong volume growth (+24%) in liquid methionine, especially driven by Chinese market. The accelerated penetration of liquid methionine in China was achieved thanks to successful conversion of customers into liquid as a result of increasing installation of the dosing systems (+40% yoy) and very good performance of Nanjing plant.

Methionine pricing is stabilizing upwards globally.

In order to optimize its industrial set-up, produce locally to meet local customers' demands and reinforce its leadership in methionine, Adisseo announced its investment of CNY4.9 billion to build a new 150KT powder methionine plant in Quanzhou Fujian in August. Leveraging SinoChem local platform, the Project will create significant synergies in supply chain and operations and will achieve strong cost competitiveness. The project is expected to start up in 2027.

The European platform continued to optimize its margin with liquid methionine plant restarted at full speed in Spain, acceleration of production in one of French powder methionine pants, while the less profitable powder methionine French plant still shut-down.

The vitamins business was still under great pressure due to weak market demand, overcapacity thus fierce competition in the industry.

On Vitamin A, the volumes were optimized to protect margins due to downward pressure in pricing. Margin is tightly managed by optimization of sourcing strategy, notably for Vitamin E and Vitamin B.

In Q3 2023, despite slow recovery in market demand, specialty business continued its revenue growth (+5%) thanks to growth in aqua and new monogastric products and strong growth in RumenSmart [Ca-MHA] despite weak dairy market in the U.S. and China.

Specialty gross margin was maintained (40%) in Q3 thanks to proactive margin protection actions, decrease in raw material, energy and logistic costs and start of recovery of ruminant business in China.

In Q3, Adisseo launched a new ruminant product to the market - DynOmik™. It increases nutrient intake and positively impact milk production and sustainability. This new product launch demonstrates the long-term commitment of Adisseo in helping the feed industry to find scientific and technical solutions to address sustainability and costs challenges.

European Specialties Expansion and Optimization project is on track and the start-up of the new factory is expected in H1 2024.

One-China Strategy progressed successfully with tangible benefits delivered:

Excellent penetration of liquid methionine in China market

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

The ground-breaking ceremony for Chinese Specialty Blending Facility in Nanjing was held on 31 Aug 2023

Calysseo Chongqing plant, the world's first commercial FeedKind® facility pursued its trial production, targeting to have on spec alternative protein for fish meal by the end of the year

Adisseo continued to implement its competitive enhancement plan that realized YTD recurring savings of CNY120 million. An extra cost efficiency program has delivered around CNY160 million savings or more. This reflects efforts across organizations, notably localization of dilution process to save distribution costs as well as to reduce carbon footprint, "greener and cheaper" manufacturing enabling energy costs optimization, raw material consumption and demurrage cost reduction thanks to digitalization and supply chain process fine-tuning, office relocation for lower rental.

2023 YTD net profit attributable to shareholders recorded a loss of CNY34 million, mainly due to the reduced margins and increased depreciation despite improvement in operational performance in this quarter.

2. Cash-flow

Cash position as of 30th September 2023 stood at CNY958 million, increased by CNY88 million compared to 30th June 2023.

In Q3, Adisseo recorded a positive cashflow from operating activities (CNY618 million) thanks to stringent cash and working capital management. Among which, operational working capital has been reduced by CNY148 million in Q3 thanks to inventory optimization and strict receivable management. Capex investments are also monitored selectively.

3. FY2023 outlook

Safety and sustainability remain Adisseo's top priorities.

Despite the uncertainty which is 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 volume growth in liquid methionine

Dynamic management of prices

Continuous growth in specialties

Full leverage of raw material and energy costs decrease

Cost and competitiveness optimization

Delivery of innovation and strategic projects to support sustainable and profitable business growth in the long term

-End-