(Extract from the Interim Report for Auriga Industries A/S
for the period January 1, 2006 – June 30, 2006)
Cheminova’s revenue rose 6 per cent in a difficult market. The new companies developed satisfactorily, but margins are low in the initial period. In accordance with the new Business Plan, there has been a rise in marketing, development and registration costs.
| Figures in DKKm |
1st half 2006 |
1st half 2005 |
|
Revenue
Profit/loss on ordinary operation before
depreciation, amortisation and
write-downs (EBITDA)
Operating profit (EBIT)
Net financials |
2,086
242
163
(24) |
1,964
340
253
(31) |
| Profit before tax |
139 |
222 |
|
Cash flow from ordinary activities
Cash flow from operating activities
Cash flow from investing activities |
(146)
(175)
(27) |
162
19
(33) |
| Available cash flow |
(202) |
(14) |
|
Investments in property, plant and
equipment
Depreciation and amortisation |
27
79 |
33
87 |
|
Profit margin (EBITDA)
Profit margin (EBIT) |
12%
8% |
17%
13% |
Despite difficult conditions in virtually all markets, Cheminova saw an increase in revenue of nearly 6 per cent to DKK 2,086 million (DKK 1,964 million) in first half. The growth in revenue is attributable, in particular, to the newly added companies.
Until registrations have been obtained for Cheminova’s own products, revenue in the new companies is mainly made up of third-party products with a lower average gross profit.
As part of the new Business Plan, Cheminova experienced a rise in marketing, development and registration costs in the first half.
Operating profit was DKK 163 million (DKK 253 million), corresponding to an EBIT margin of 8 per cent (13 per cent). Net financial expenses amounted to DKK 24 million (DKK 31 million). Profit before tax was DKK 139 million (DKK 222 million), which is lower than expected at the beginning of the year.
Available cash flow in first half was negative at DKK 202 million (DKK -14 million). The unsatisfactory development is caused by growing inventories and increasing debtors, particularly in Brazil, in addition to growing revenue. The difficult financial circumstances of the Brazilian farmers have made it necessary to extend the credit period. Paid income taxes amounted to DKK 29 million (DKK 143 million) in first half, which had a positive impact on the cash flow compared to last year.
Market development
First half was characterised by unusual climatic conditions. Most of Europe and the USA experienced a long winter, a very late spring and a hot early summer with a widespread lack of precipitation. Australia is stricken by drought again this year. The climatic conditions, which are unfavourable to farmers, have resulted in a lower than normal need for plant protection products.
In addition to unfavourable climatic conditions and declining crop prices, Brazilian farmers are very hard influenced by the Brazilian real’s continued heavy increase against the USD. The farmer sells his crops in USD, but pays his expenses in the local currency. Coupled with rising input costs for especially energy, this led to a severe drop in earnings for Brazilian farmers. This resulted in liquidity problems and consequently lower consumption of plant protection products and reduced solvency.
It is estimated that the global market for pesticides has been around 5 per cent lower than in the first half of 2005.
Sales
Cheminova’s revenue in first half of 2006 was satisfactory considering the climate, but there were major variations between countries. Due to the late spring, sales were disappointing in most Western European countries except Spain. The Spanish company had a very good first half, not least due to strong sales of Cheminova’s new products. Russia and the other CIS countries also developed positively and better than expected. The region is a significant growth market for Cheminova.
Revenue in North America was characterised by satisfactory sales of glyphosate, but under fierce competition and declining prices. Sales of insecticides were weaker than expected due to a low level of infestation caused by the dry climate. The lack of rain also meant that sales of malathion for the programme for eradicating boll weevils in cotton began later than in 2005.
Developments in Mexico were very positive in first half, and the Argentine company also saw growth with satisfactory sales. However, the end of the season in Brazil was disappointing, especially so because of the difficult financial circumstances of the farmers.
In India the monsoon started late, which meant that farmers held back on their purchases of pesticides.
The new sales companies in Colombia, Australia, Poland and Bulgaria have largely developed as expected.
Business Plan 2010
Cheminova has prepared a Business Plan for the period up until 2010. The objective is to increase revenue, through organic growth alone, from just over DKK 4 billion in 2005 to DKK 6 billion in 2010. The objective is an EBIT margin of 14 per cent towards the end of the period.
The plan will require considerable investments in development, registration and marketing, which will lead to a decline in EBIT margin to about, or as in 2006, slightly under 10 per cent for the first few years of the plan period.
A number of companies are expected to be acquisition targets in the coming years. Cheminova will be participating in this consolidation process.
The patented products’ share of the market has been declining for a number of years and continues to decline. This allows Cheminova to introduce new and interesting products in the coming years. Furthermore, an increasing number of products also pave the way for new and interesting mixture formulations.
Outlook 2006
The season in the northern hemisphere is drawing to a close by the end of first half. Revenue and results for the second half are therefore largely dependent on developments in sales in the southern hemisphere, particularly in Brazil, and of the boll weevil eradication programme in the USA.
For second half, Cheminova is expecting revenue to be on the same level or slightly above revenue for second half of 2005 and profit before tax to be slightly below last year’s result.
Assuming that market conditions will be normal in second half, Cheminova is expecting revenue of approx. DKK 4.2 billion for 2006 as a whole and a profit before tax of approx. DKK 260 million. At the beginning of the year, expectations were of revenue of approx. DKK 4.3 billion and a profit before tax of approx. DKK 300 million.
A positive available cash flow is expected for the second half.
August 16, 2006
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The total Interim Report can be found on Auriga's website www.auriga-industries.com.
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