(Extract from the Interim report for 3rd quarter 2008 for Auriga Industries A/S)
Cheminova benefited from the favourable market conditions for the agrochemical industry continuing into Q3 2008. In the first three quarters of the year, revenue was up at DKK 4,502 million, while operating profit was DKK 510 million, corresponding to an EBIT margin of 11 per cent.
| DKKm |
Q1-Q3 2008 |
Q1-Q3 2007 |
|
Revenue
Operating profit before depreciation,
amortisation and write-downs (EBITDA)
Operating profit (EBIT)
Net financials |
4,502
657
510
(87) |
3,266
262
129
(47) |
| Profit/loss before tax |
423 |
82 |
|
Balance sheet total
Non-current assets
Equity
Net interest-bearing debt |
5,007
1,191
1,710
1,696 |
4,069
1,026
1,529
1,034 |
|
Cash flow from ordinary activities
Cash flow from operating activities
Cash flow from investing activities |
(20)
(85)
(358) |
346
323
(94) |
| Available cash flow |
(443) |
229 |
|
Investments in property, plant and
equipment
Depreciation and amortisation |
89
147 |
94
132 |
|
Profit margin (EBITDA)
Profit margin (EBIT) |
15%
11% |
8%
4% |
(Figures in brackets are figures for 2007)
Revenue and results
Cheminova’s revenue for the first three quarters of the year increased by 38 per cent to DKK 4,502 million (DKK 3,266 million), which is in line with the outlook announced earlier. The underlying growth, excluding Stähler, is approximately 30 per cent. Calculated at unchanged exchange rates, the growth in revenue would have been 44 per cent.
Operating profit before depreciation and amortisation (EBITDA) was DKK 657 million (DKK 262 million), corresponding to an EBITDA margin of 15 per cent (8 per cent), and operating profit (EBIT) was DKK 510 million (DKK 129 million), corresponding to an EBIT margin of 11 per cent (4 per cent).
After financial expenses of DKK 87 million (DKK 47 million), profit before tax amounted to DKK 423 million (DKK 82 million).
Working capital is negatively affected by inventories and amounted to 46 per cent (45 per cent) of revenue. Cash flow from operating activities was DKK -85 million (DKK 323 million).
Sales and distribution
The strong demand for plant protection products seen in first half of the year continued in Q3. Preliminary sales figures for the first three quarters for the industry indicate a growth in sales of more than 20 per cent. Growth is driven by increasing demand for food and feed as well as strong demand for bioethanol based on maize and sugar cane. The prices of the major agricultural crops have fallen considerably in recent months, but inventories are historically low, and price levels therefore remain higher than in previous years.
Cheminova has gained market shares with sales growth at almost double the general market growth in the first three quarters of the year. Cheminova has realised growth for most products, but growth is driven, in particular, by a continued strong demand for the herbicide glyphosate. To this comes the acquisition of 50 per cent of the Stähler group and almost a doubling of sales of new generic products compared with the same period in 2007.
The market for glyphosate has seen positive development this year with increasing prices which have more than compensated for reduced sales volumes due to flooding in the Mid West in the USA and reduced supplies from third parties in Brazil. Prices from competitors in China have fallen in recent months, but remain considerably higher than in previous years. As expected, some markets are seeing slightly declining prices in Q4.
Sales of new products have almost doubled relative to the same period last year. The first three quarters of the year saw more new registrations than ever before, and several products have been introduced successfully.
The programme for eradication of boll weevil in cotton in the USA is nearing completion, and sales of malathion for this programme were therefore, as expected, lower than last year. Sales of other insecticides have developed satisfactorily.
Europe
Sales in Region Europe were up 78 per cent at DKK 1,503 million. The increase is primarily attributable to the acquisition of 50 per cent of the Stähler group, but growth has been seen within all product areas, and all companies in the region have achieved increases in revenue and earnings.
ANZAC
Sales in Region ANZAC (Australia, New Zealand, USA and Canada) were up 35 per cent at DKK 1,004 million. Sales in Australia doubled relative to the same period last year when the market was negatively affected by drought. In October, and with a view to strengthening the position in the Australian market, Cheminova acquired a formulation plant in Wyong, Australia, from Bayer. In Q3, sales in the USA were negatively affected by the flooding in the Mid West, which has led to lower sales and thereby larger inventories of glyphosate, and by the decline in sales of malathion for the boll weevil eradication programme.
Latin America
Sales in Region Latin America are dominated by Brazil, where the season started towards the end of Q3. During the first three quarters of the year, sales increased by 31 per cent to DKK 861 million. All companies in the region have seen growth in revenue and earnings. Full ownership of the Colombian company was acquired in October.
International
Sales in Region International, which covers the rest of the world, exclusive of India, global contract customers and fine chemicals, were up 21 per cent at DKK 303 million. Growth is primarily due to increasing sales in the CIS countries (Russia, the Ukraine etc.).
Other activities
Sales within the Other activities segment cover sales of other fine chemicals, global contract customers and activities in India. Sales to this segment were up 8 per cent at DKK 840 million.
Production and logistics
Operations at the production plants in both Denmark and India were very satisfactory during the first three quarters of the year. In Denmark, the Lean project meant that production at the glyphosate plant has been 10 per cent higher than what was thought to be its maximum capacity. Moreover, considerable scope for improvements has been identified, e.g. within the packaging and maintenance areas.
Raw material and energy prices were considerably higher than for the same period last year, and several key raw materials have been in short supply.
Development and registration
In accordance with Cheminova’s strategy, considerable resources are currently going into developing, registering and introducing new products. Also this year, Cheminova expects to spend approximately 5 per cent of revenue on such activities, including expenses related to maintaining and developing existing registrations. The massive focus on this area started in 2005, and is now producing tangible results with many new registrations.
Thus, a total of seven new products were launched in the first three quarters of the year.
Corporate Social Responsibility (CSR)
The implementation of the CSR targets for 2008, as set out in the CSR report for 2007, is largely progressing according to plan:
Product stewardship
According to the phase-out plan for Class I products, methyl parathion was due to be phased out in Cuba in 2009. However, as Cheminova has not succeeded in establishing a dialogue with the Cuban authorities about the substitution of the Class I product with a less toxic Class II product, the product has already been phased out.
To allay any doubts about Cheminova’s CSR policy in so far as methyl parathion in Brazil is concerned, the Ministry of Health in Brazil has been informed about the decision to phase out the Class I product in 2010, and Cheminova has offered its active participation in the reassessment of the product.
Production
The new incineration plant for chemical waste at the factory in India was commissioned in October.
New EU chemicals regulation REACH
Cheminova has, pursuant to REACH, registered the substances which cannot be preregistered, i.e. substances which are considered to be new under the regulation. For Cheminova, this includes three substances.
Outlook 2008 and 2009
Cheminova’s outlook for 2008 shows revenue of approximately DKK 5.7 billion against an earlier outlook of approximately DKK 5.5 billion. The expected profit before tax remains DKK 450-500 million.
Cash flow from operating activities is expected to be negative at just over DKK -100 million.
The most important uncertainty factors are increasing risks in emerging markets as a result of the financial crisis, developments in Q4 in the Brazilian market and market prices for glyphosate.
For 2009, Cheminova has hedged approximately 60 per cent of the expected net exposure in USD at an average exchange rate of approximately DKK 5.50.
Despite uncertainty about the effects of the financial crisis, Cheminova is now expecting revenue in excess of DKK 6.0 billion in 2009 against a previously announced outlook of DKK 5.9 billion, with an unchanged EBIT margin of approximately 10 per cent.
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The total Quarterly Report can be found on Auriga's website www.auriga-industries.com.
November 10, 2008
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