Interim financial report 2007

(Extract from the Interim Report for Auriga Industries A/S

for the period January 1, 2007 – June 30, 2007)

Despite a lower revenue than expected, the profit generated by Cheminova for the first half was in line with expectations. Uncertainty concerning developments during the season in Brazil in the second half of the year has made Cheminova reduce its profit forecast for the year.

Cheminova's revenue for the first half of 2007 of DKK 2,089 million (DKK 2,108 million) did not live up to expectations and was DKK 19 million lower than in the first half of 2006. Following a good start in Q1, revenue in Q2 2007 was both lower than expected and lower than last year.

Revenue was negatively affected, in particular by the strike at Cheminova's Danish production facilities and negative developments in several markets.

Operating profit was DKK 74 million (DKK 163 million), corresponding to an EBIT margin of 4 per cent (8 per cent). After financial expenses of DKK 26 million (DKK 24 million), profit before tax amounted to DKK 48 million (DKK 139 million), which is as expected.

Available cash flow in the first half was negative at DKK -87 million (DKK -202 million). Working capital has developed better than expected and better than last year, especially because of a considerable decline in receivables in Brazil, while paid income tax of DKK 20 million (29 million) has had a positive impact on cash flows relative to last year.

Market developments

The demand for biofuels based on maize, sugar cane and rape in the USA, Brazil and Europe, respectively, is seeing a strong increase. This translates into increasing crop prices for farmers and thereby a stronger incentive to protect the crops. The global market for plant protection products is thus expected to have grown relative to the first half of 2006.

In the USA the strong focus on maize for production of bioethanol means that the acreage planted with maize has been increased by 19 per cent, while the acreage planted with soya and cotton have been reduced. Similarly, the market in Brazil has been positively affected by increased production of sugar cane.

The first half of the year was characterised by a very early and warm spring in Europe and a cold and late spring in the USA. This has meant a good year for sales of fungicides in Europe, while the US market for insecticides has been smaller than expected on account of low levels of insect infestation.

Sales and distribution

All else being equal, the positive developments in agriculture will entail improved market opportunities for Cheminova as registrations are being obtained for new products for use in maize and sugar cane. Short term, the change in use of farmland primarily in the USA will, however, not have a positive impact for Cheminova as the existing product programme is used less in maize than in cotton and to some extent soya. Cheminova's insecticides have an important market in cotton.

The strike at the Danish factory affected all production plants for twelve days and resulted in a considerable loss of production during a very important period in relation to a number of key markets. This has translated into a loss of sales in the market, especially for glyphosate as this facility is normally running at full capacity. The continued growth in the global use of glyphosate means that several markets have experienced shortages and slight price increases for the product, but the market remains strongly competitive.

Sales of fungicides were disappointing, especially as a result of the difficult situation in Brazil where the product flutriafol is used to control Asian rust, a fungal disease. Many farmers continue to use products containing flutriafol, but the competition has changed following the introduction of several new products. In the USA there was no need to control Asian rust in the first half, while Eastern Europe has seen strong sales of fungicides.

Sales of organophosphorous insecticides declined and amounted to just under 22 per cent of total revenue against 24 per cent in the first half of 2006. The decline is, among other things, attributable to a late start to the season and low rates of insect infestation in the USA. Sales of new insecticides and pyrethroids have grown, but more slowly than expected.

Sales of new generic products and third-party products have shown satisfactory growth. The registration authorities in several countries are burdened by a heavy workload, which leads to delays in the handling of applications for registration. This often results in a later market introduction of new products than expected.

Within fine chemicals, intermediates and flotation agents etc. results were in line with last year.

Developments in important markets such as the USA, Brazil and India were not satisfactory in the first half. On the other hand, several European markets such as Spain, the UK and Russia recorded satisfactory growth. The new sales companies have largely developed as expected. Several of Cheminova's new subsidiaries are in the process of obtaining registrations for Cheminova's own products, and sales are consequently primarily consisting of third-party products with lower contribution margins.

In Brazil, the strong crop prices are positive for the agricultural sector, but a strong exchange rate is to some extent countering this effect. The government is expected to introduce a financing package soon, and many farmers have consequently been hesitant when it comes to settling old debt. Cheminova Brazil has, however, succeeded in reducing receivables by more than DKK 200 million relative to 2006. The overdue share of the receivables is also lower than at the same time last year. The product liability cases have still not been settled with Cheminova's insurance company.

In accordance with the new Business Plan, there has been an increase in marketing, development and registration costs relative to first half of 2006.

Corporate Social Responsibility (CSR)

First half of 2007 saw the ISO 14001 environmental certification of the production plant in Denmark and the OHSAS 18001 certification of the occupational health and safety organisation.

Fundamental principles for Cheminova's Supplier Code have been laid down and communicated to all relevant suppliers. Product Stewardship principles have been approved and are being formally implemented in all Cheminova's subsidiaries.

Business Plan 2010

Cheminova's Business Plan for the 2005-2010 period sets a revenue target of DKK 6 billion and an EBIT margin target of 14 per cent in 2010.

These targets are now being revised on account of changing conditions:

• The USD exchange rate of DKK 6.50 for 2010 on which the Business Plan was based can no longer be considered realistic. All else being equal, today’s exchange rate level would lead to a reduction in revenue of approx. DKK 200 million and a reduction in the EBIT margin of 2.5 per cent. In future, Cheminova will continue to reduce its dependence on the USD exchange rate, among other things through increasing sourcing of products in USD.
• Owing to intensifying competition and changing patterns in the demand for fungicides in Brazil, this market and, in particular, the fungicide flutriafol, cannot be expected to play the important role for Cheminova's future earnings as originally planned.
• The registrations necessary for the introduction of new generic products developed by Cheminova are delayed, primarily due to bottlenecks at the registration authorities in the EU countries.

Nevertheless, Cheminova is maintaining its strategy of developing, registering and introducing several new products with a view to creating a sustainable global market position. In parallel, efforts aiming at operational improvements through streamlining, rationalisations and organisational changes are increased. The revised Business Plan and the improvements are to ensure that by 2010, Cheminova will generate revenue of DKK 5.5 billion with an EBIT margin of 10 per cent followed by improved key figures in subsequent years. The improvement initiatives are expected to lead to non-recurring costs of DKK 20 million in 2007.

Following the divestment of Skamol and the decision to look into the possible divestment of Hardi, Auriga will be able to concentrate on developing Cheminova. The financial targets in the revised Business Plan are expected to be achieved through organic growth alone. In addition, Cheminova aims to pursue relevant potential acquisitions and to play an active role in the structural rationalisations which are expected to sweep the industry.

Outlook 2007

It is very uncertain how second half of the year will develop, primarily on account of Brazil. Revenue for 2007 as a whole is still expected to total approx. DKK 4.3 billion. However, it will not be possible to achieve the earnings results for the year which have been announced earlier. An EBIT margin of 3-4 per cent and a profit before tax of approx. DKK 80 million after non-recurring costs of DKK 20 million are now expected. At the beginning of the year and after Q1, expectations were of an EBIT margin of 5-6 per cent and a profit before tax of approx. DKK 165 million.

August 22, 2007

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The total Interim Report can be found on Auriga's website www.auriga-industries.com.