Interim Financial Report 1H 2009

(Extract from the Interim Report for Auriga Industries A/S for the period January 1, 2009 – June 30, 2009)

Developments for glyphosate disappointing, but growth from new products

(Figures in brackets are figures for 2008)

The deteriorating market conditions for the herbicide glyphosate meant that Auriga’s revenue declined by 1% at unchanged exchange rates in 1H 2009. Calculated in DKK, revenue declined by 3% to DKK 2,978 million, while an operating profit of DKK 196 million was returned, corresponding to an EBIT margin of 7%. Other products, including the many new products introduced in recent years, are developing satisfactorily. Apart from developments for glyphosate, Cheminova is thus expecting to increase its market share in 2009 through revenue growth of more than 10% coming from other products. The ambitious targets set out in the Business Plan “Five-in-Fifteen” are maintained.

Income, balance sheet and cash flow

Cheminova did not achieve the expected sales and results in 1H 2009 due to deteriorating market conditions for the herbicide glyphosate. Revenue for 1H was DKK 2,972 million (DKK 3,070 million), down 3%. Calculated at unchanged exchange rates, a fall in revenue of 1% would have been realised. Stähler is fully consolidated from March 1, 2009, and contributed revenue growth of DKK 160 million in 1H.

After cost reductions, an operating profit before depreciation and amortisation of DKK 299 million (DKK 467 million) was realised, corresponding to an EBITDA margin of 10% (15%), while an operating profit of DKK 200 million (DKK 373 million) was realised, corresponding to an EBIT margin of 7% (12%). The decline in earnings is primarily attributable to considerable price falls for Cheminova’s largest product, glyphosate, in several important markets, including in particular in the USA towards the end of the period.

Higher net interest-bearing debt and foreign exchange rate effects increased financial expenses to DKK 63 million (DKK 41 million). Consequently, a profit before tax of DKK 137 million (DKK 332 million) was realised.

Balance sheet total was DKK 5,887 million (DKK 5,169 million) after full consolidation of Stähler. Larger inventories of glyphosate primarily in the USA together with higher receivables increased funds tied up in working capital. Despite the global credit crisis, customers’ payments in general and in Brazil specifically developed satisfactory. Cash flow from operating activities was DKK 4 million (DKK -204 million), while available cash flow was DKK -254 million (DKK -527 million) after investments of DKK 258 million, of which most concern the acquisition of an additional 25% stake of Stähler in Q1 2009.

Sales and distribution

The long-term prospects for the agrochemical industry remain positive despite the current difficult market conditions. Even though crop prices have dropped from previous record levels, farmers continue to cultivate extensive land areas and will continue to protect their crops using crop protection products. After very strong market growth of about 20% in 2008, there is a risk of zero market growth in 2009 or even a slightly declining market. The reason is primarily the negative developments for the herbicide glyphosate, which is the world’s largest crop protection product. Increasing supplies from China and lower demand due to climatic conditions and a reduction in inventories by distributors have led to considerable price falls for glyphosate, which has impacted market players and also Cheminova negatively.

Region Europe

New products saw satisfactory growth, and the organophosphorous insecticides dimethoate and chlorpyrifos also developed satisfactorily while sales of glyphosate declined. The region saw a combined growth of 17% relative to the same period last year. The acquisition of an additional 25% stake in Stähler contributed growth of DKK 160 million, resulting in organic growth in the region of 4%.

Region ANZAC

Sales in the region were hard hit by the late start to the season in the USA and the distributors’ reduction of inventories, which led to lower sales and price falls for glyphosate. However, the insecticide gamma-cyhalothrin and the fungicide flutriafol saw satisfactory growth, while sales of new products also developed satisfactorily. Due to the negative market developments for glyphosate, sales were down 13% relative to 1H 2008.

Region Latin America

Revenue did not develop as expected in the largest Latin American markets in the low season. The credit crisis, drought in Argentina and southern Brazil and significantly lower glyphosate prices reduced the market in this area. The region saw an 8% decline in revenue relative to the same period last year.

Region International

The global credit crisis led to a considerable slowdown in sales prior to the start of the season in the CIS countries. Since then, the situation has improved, but credit terms are still restrictive. All in all, sales declined by 33% relative to 1H 2008.

Other activities

Sales in India developed satisfactorily in light of the late and poor monsoon, while sales of fine chemicals declined in line with expectations. Total sales within other activities declined by 16% relative to 1H 2008.

Products

Cheminova's new products continue to show satisfactory growth, while the traditional products' share now has been reduced to half of revenue.

Herbicides accounted for 44% of revenue in 1H after a decline of 3 percentage points relative to the same period in 2008. The decline is attributed to the negative trend for the company’s largest single product, glyphosate, which accounted for approx. 25% of the total revenue, while several selective herbicides saw growth.

Insecticides accounted for 31% of sales in 1H after positive developments, especially for dimethoate and chlorpyrifos, in Europe. Insecticides consist of the traditional organophosphorous insecticides, pyrethroids, such as gamma-cyhalothrin and acrinathrin, as well as several insecticides introduced in recent years.

Fungicides accounted for 13% of revenue. New products such as epoxiconazole and fluazinam are developing well, while the largest product, flutriafol, accounts for a diminishing share of sales.

Other products and activities include, among other things, micro-nutrients, growth regulators and other fine chemicals. The segment accounts for 12% and a declining share of sales.

Production and logistics

At most of Cheminova’s production facilities in both Denmark and India, developments were satisfactory in 1H 2009. The LEAN project is progressing according to plan, and performance has improved in a number of areas.

Raw material prices were on average on the same price level as 1H 2008. However, prices have generally declined significantly compared with 2H 2008. Energy prices (natural gas) declined compared with 1H 2008.

Development and registration

Cheminova’s development and registration activities are progressing according to plan, and the development pipeline and product portfolio developed as expected in 1H 2009. The number of product approvals obtained (registrations) was also high. The share of revenue in 1H 2009 attributable to new products introduced in the past five years increased relative to the same period last year. The development work undertaken in collaboration with Stähler has intensified, and relations with other external collaboration partners are developing satisfactorily.

Corporate Social Responsibility (CSR)

The work aimed at realising the CSR targets defined for 2009 is progressing according to plan.

Product stewardship

In line with previous Cheminova releases, 10 Class I products will be phased out by the end of 2009 at the latest. Three of these WHO Class I products were already phased out in 2008, while the process of phasing out the rest is progressing according to plan. At half-year, the phasing-out of monocrotophos and methyl parathion in Colombia and methamidophos in Brazil was virtually completed.

Production

At the factory in India, the number of accidents at work was lower in 1H 2009 than in the same period in 2008, and the efforts going into reducing the levels of organic compounds (COD) in waste water are progressing according to plan. Water consumption was reduced relative to 1H 2008, but is higher per tonne of product due to low production. Efforts to reduce energy consumption by 5% in 2009 compared with 2008 are being postponed, and the target is now expected to be met in 2010.

At the factory in Denmark, campaigns aimed at further improving the safety culture are progressing according to plan, which resulted in a reduction in the number of work-related accidents in 1H 2009 relative to 1H 2008. The energy savings project is progressing as planned. The re-certification audits in accordance with ISO 14001 and OHSAS 18001 will be conducted in September 2009.

Mission, vision and values

The roll-out of mission, vision and values to all levels in the global matrix organisation is developing according to plan. The ambitious targets set out by Cheminova in the ”Five-in-Fifteen” Business Plan require a clear vision and strategy, competent and committed employees as well as a strong, focused organisation and culture in all Cheminova’s companies.

Business Plan “Five-in-Fifteen”

Cheminova’s new Business Plan ”Five-in-Fifteen” was announced in March with an ambitious target of doubling the market share to 5% in 2015. The plan is based on the assumption of an annual market growth of 3-4% driven by the continued need to increase crop yields in order to meet the increasing demand for food from a growing population, a rising demand for meat and the conversion of more acreages for the production of bioenergy.

Approx. two thirds of Cheminova’s total growth is expected to be achieved through the organic development of the product portfolio, while the rest is ensured via acquisitions of complementary companies, products and other activities.

Growth in revenue will lead to economies of scale within, e.g. sales and administration, while earnings will be relatively less burdened by development and registration costs. Moreover, improved efficiency in all functions and a higher share of differentiated products will improve Cheminova’s earnings margins. The target is thus an EBITDA margin in 2015 which is in line with the best among peers in the industry. Another aim is to reduce the average working capital to 40% of revenue so that the generated cash flow will finance the acquisitions anticipated in the plan.

The Business Plan is based on growth from new products and acquisitions, while the traditional products, including glyphosate, are expected to show a continued drop in sales and earnings. Neither current market developments for glyphosate or the current economic crisis is expected to impact the long-term prospects for the market, for which reason the targets set out in the plan are maintained.

Outlook 2009

The global need for increasing food production is still expected to boost the demand for crop protection. The market conditions for Cheminova’s largest product, glyphosate, are not expected to improve in 2H. The reduced demand for glyphosate is expected to result in production adjustments in Denmark in the coming months. Cheminova’s other products, including the many new products introduced in recent years, are expected to see continued growth. Disregarding the development for glyphosate, Cheminova expects to continue to gain market share in 2009 based on growth of more than 10% for other products.

Cheminova therefore maintains the outlook announced on August 6, 2009, of revenue of approx. DKK 5,800 million and an EBIT margin in the range of 6-7%. Cash flow from operating activities is expected to be positive as inventories will be reduced in 2H 2009.

The most significant uncertainty factors are market developments in general and specifically for glyphosate as well as the coming season in Brazil.

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

August 27, 2009