Interim financial report 2008

(Extract from the Interim Report for Auriga Industries A/S for the period January 1, 2008 – June 30, 2008)

The favourable market conditions experienced by the company in Q1 continued in Q2 and resulted in strong growth in revenue and earnings for Cheminova.

(Figures in brackets are figures for 2007)

Revenue and results

Cheminova’s revenue for 1H of DKK 3,070 million (DKK 2,089 million) was significantly higher than expected at the beginning of the year, but in line with the outlook announced by Auriga on June 24, 2008. Calculated in DKK, the increase in revenue corresponds to growth of 47 per cent, while growth at unchanged exchange rates would have been 54 per cent. The underlying growth excluding Stähler is therefore more than 40 per cent.

Operating profit was DKK 373 million (DKK 74 million), corresponding to an EBIT margin of 12 per cent (4 per cent). After financial expenses of DKK 41 million (DKK 26 million), profit before tax was DKK 332 million (DKK 48 million).

Working capital amounted to 48 per cent (52 per cent) of revenue. Working capital key figures have generally improved, but inventories are up in order to cover the expected demand in the coming months. Cash flows from operating activities were DKK -204 million (DKK -9 million), while available cash flow was DKK -527 million (DKK -87 million), primarily due to the investment in Stähler of DKK 269 million.

Sales and distribution

The strong demand for plant protection products experienced by the industry in Q1 continued in Q2. Preliminary market data indicate a general growth of more than 20 per cent. The growth is primarily driven by the strongly increasing demand for agricultural products resulting from the increasing standards of living in countries such as China and India. To this comes the increasing demand for ethanol for fuel based on corn and sugarcane. Finally, climatic conditions in most major markets have been relatively favourable for the demand for plant protection products.

Cheminova’s market share grew at more than double the growth rate of the market in 1H. The company saw growth in all important markets and for largely all products, but the strong growth in revenue is attributable, in particular, to the acquisition of a 50 per cent stake in Stähler and the strong demand for Cheminova’s largest product, glyphosate.

Higher average prices have been obtained during the period, which has more than compensated for increasing raw material and energy costs. Sales of the new products almost doubled relative to the same period last year. A large number of new registrations have been achieved, and more products have been introduced with considerable success.

Sales in region Europe increased by 73 per cent to DKK 1,094 million. The increase is attributable, in particular, to the acquisition of a 50 per cent stake in Stähler, but all product areas have seen considerable growth, and all companies in the region have seen growth and improved earnings.

Sales in region ANZAC (Australia, New Zealand, the USA and Canada) increased by 54 per cent when calculated in Danish kroner to DKK 714 million. Most products saw an increase in demand, but growth was driven, in particular, by the strong demand for glyphosate. Sales in Australia more than doubled relative to the same period last year when the Australian agricultural sector was affected by drought.

Sales in region Latin America are dominated by Brazil where the main season is in the second half of the year. In 1H, sales increased by 53 per cent when calculated in DKK to DKK 506 million. Cheminova has its own subsidiaries and a significant market share in Mexico, Colombia, Brazil and Argentina. All four companies recorded satisfactory growth in revenue and earnings.

Sales in region International, i.e. the rest of the world except India, global contract customers and fine chemicals, increased by 29 per cent to DKK 216 million. Growth is attributable, in particular, to strong growth in sales in the CIS countries (Russia, the Ukraine etc.).

Sales within the segment Other activities include sales of other fine chemicals, global contract customers and activities in India. Sales in this segment increased by 9 per cent to DKK 546 million.

Production and logistics

Operations at the factory in Denmark and India were satisfactory in 1H. Strong demand has put several plants under considerable pressure and resulted in long delivery times. In this context, it is very satisfactory that Cheminova’s Lean project already now has resulted in a glyphosate production more than 10 per cent higher than what has so far been regarded as maximum capacity.

Most raw materials have been under pressure with shortages resulting in considerable price hikes. The reason for this is significantly higher oil prices and increasing demand for raw materials for agricultural products. During the period, Cheminova succeeded in procuring necessary volumes of raw materials for its own production, while sales of glyphosate were restricted by the possibilities of buying volumes from third parties. 

Endeavours to improve production economy at the factory in Denmark continue. Considerable scope for improvement has been identified, and the first results have been achieved.

Development and registration

In line with strategy, considerable resources are currently being invested in developing, registering and introducing new products. This year, Cheminova is expected to allocate approx. 5 per cent of revenue to these purposes, including costs incidental to maintaining and extending existing registrations. The strong focus on this area was initiated in 2005, and the first tangible results are now visible in the form of the many products being introduced.

The introduction of the new fungicides fluazinam and epoxiconazole in the first markets has been very satisfactory. The first registrations for the herbicide sulcotrione have been obtained in Europe.

Corporate Social Responsibility (CSR)

The implementation of the CSR objectives for 2008, as set out in the CSR report for 2007, is largely progressing according to plan:

Product stewardship

According to the phasing-out plan for class I products, methyl parathion was to be phased out in Cuba in 2009, but this has already been effected. Unfortunately, it has not been possible to replace the class I product with a class II product.

Production

The new incineration plant for chemical waste at the factory in India will be commissioned in September.

Discharge of waste water from the factory in India has been reduced in line with targets.

New EU chemicals regulation REACH

According to REACH, Cheminova has registered the substances which cannot be preregistered, i.e. substances which are regarded as new under the regulation. For Cheminova, this applies to three substances.

Outlook 2008 and 2009

Cheminova’s outlook with regard to revenue and results for 2008 remains as set out in the company announcement dated June 24, 2008. For the year as a whole, Cheminova thus expects revenue of approx. DKK 5.5 billion and a profit before tax of DKK 450-500 million.

Cash flows from operating activities are expected to be positive, but will be affected by strongly increasing activity levels and increasing inventories. After Q1, the expected cash flows from operating activities were in line with 2007 (DKK 268 million).

Significant uncertainty factors are the glyphosate market price and the availability and prices of key raw materials.

Cheminova expects to meet the previously announced targets for 2010 already in 2009, i.e. revenue of approx. DKK 5.5 billion and an EBIT margin of 10 per cent. With the pro rata consolidation of Stähler, revenue of just under DKK 5.9 billion is expected for 2009 with an EBIT margin of approx. 10 per cent.

---------------------------------------------------------------------

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

August 20, 2008