Makhteshim-Agan Industries sales up 14% in fourth quarter

Makhteshim-Agan Industries (MAI) posted a 14.4% rise in fourth-quarter crop protection sales to $433.6 million in 2007. The company benefited from the "beginning of price increases during the fourth quarter". They were the first for many years, it says. The increases came across the company's portfolio in Brazil and Europe, the company told us.

The Israeli company increased sales across all regions except its domestic market. It took advantage of an improving market in Latin America, especially Brazil, and outside its core markets of Europe and the Americas. Results were influenced by "strong demand for our products, particularly in South America and Brazil", the company told us. Australia also boosted results. "[There was] strong demand [for our products] following an increase in acreages and [pesticide] applications due to favourable crop commodity prices."

Group sales, including the non-agro business, for the quarter rose by 13.6% to $475.8 million. The results were in line with expectations. They include revenues from non-core activities, such as aromatic products. Divestments in non-core business impacted on group sales. MAI's crop protection business is taking an increasing share of group sales, following some non-core divestments. It accounted for 91.1% of sales in the last quarter against 90.4% in the fourth quarter of 2006.

The company recorded fourth-quarter net profit of $20.2 million against a loss of $38.5 million in the same period a year earlier. Earnings before interest, tax, depreciation and amortisation (EBITDA) were $50.7 million against a 2006 fourth-quarter loss of $6.4 million.

annual results
Annual crop protection sales rose by 19.8% to $1,894.9 million, while group sales were up by 17% to $2,081.2 million. Growth came primarily in Europe and South America.

Chairman and chief executive officer Avraham Bigger welcomes the results and remains upbeat. "In 2007, MAI demonstrated its engrained growth capabilities in all business areas, capitalised on strong demand in the crop protection sector - and an upward trend in prices of soft commodities and increased planted acreage."

Increased demand for agricultural products has led to a boost in pesticide sales. Higher demand for crops is due to worldwide rising incomes and the switch to biofuels from sugar cane and maize, MAI says. The company also cites "relatively favourable weather conditions in most regions in which the company operates" for its improved results. The annual figures represent a recovery from the previous year when weather conditions impacted results. The strengthening of currencies, such as the euro, against the dollar also contributed to the improved results, the company says.

The gross profit for the year on group sales, not including one-time adjustments, rose by 14.9% to $697.4 million. The gross profit margin was 33.5%, compared with 34.1% in 2006. Rising oil prices impacted on raw material and energy costs and dented profitability. Efficiency savings from combining the operations of group businesses and higher prices for the company's products offset the effect of much of the rise in costs.

MAI started to move away from production as part of a "change and efficiency improvement plan" last year. The company initiated the plan early in 2007. It focuses on synergies among its different businesses in key markets to improve profitability. Mr Bigger is "pleased with the progress" of the plan's implementation.

MAI group net profit for the year rose from $83.9 million, accounting for 4.7% of sales in 2006 to $178.2 million (8.6%). The increase in net profit was due mainly to higher sales and lower operating expenses as a result of the efficiencies plan, MAI says. EBITDA for the year rose by more than half to $354.5 million. The EBITDA margin was 17% in 2007, compared with 12.9% in the previous year.

MAI results ($ million) 

Year ended Dec 31st   2006 %    change    2007 

Sales                       1,778.8   +17.0     2,081.2 

 agrochemicals          1,581.3   +19.8     1,894.9 

Selling, general 

 admin & R&D expenses     402.9   + 1.7       409.7 

Operating profit               203.8   +41.1       287.6 

EBITDA1                       229.7   +54.3       354.5 

Net profit                       83.9 > 100         178.2 

Fourth quarter 

Sales                     419.0   +13.6       475.8 

 agrochemicals            378.9   +14.4       433.6 

Selling, general 

 admin & R&D expenses     121.8   - 9.7       110.0 

Operating profit            9.9   >-100        36.6 

EBITDA1 (loss)            (6.4)       -        50.7 

Net profit (loss)        (38.5)       -        20.2 

1 earnings before interest, tax, depreciation and amortisation 

 regional sales

Group sales in Europe rose by 9.8% to $147.8 million in the fourth quarter. Annual European sales jumped by 18.5% to $817.7 million. High commodity prices and favourable weather conditions helped sales. Consolidation of acquired companies and the strengthening euro also boosted results in 2007.

South American group sales were up by 18.7% to $178.3 million in the fourth quarter. Annual sales leapt by more than a quarter (+26.2%) to $542.8 million. Demand for MAI products was particularly strong in Brazil, the company says. Group sales in North America rose by 5.3% to $77.8 million in the fourth quarter and by 11.8% to $390.8 million for the year. The increase came despite the divestment last year of the US subsidiary, RiceCo, which worked in the development of herbicide products for use on rice.

Sales in Israel declined by 3.7% to $21.5 million in the fourth quarter, and were 8.2% lower at $102.5 million for the year. The reduction was in group sales rather than its core crop protection business, and was due to divestments in non-agro businesses, the company says.

MAI's business in the rest of the world grew by almost a third (+32.7%) to $50.4 million in the final quarter and by 15% to $227.4 million for the year.

[two pie charts] 

MAI's annual sales share by region 2007 (2006) 

Europe                  39.3% (38.8%) 

South America        26.1% (24.2%) 

North America        18.8% (19.6%) 

Israel                    4.9% (6.3%) 

Rest of the world    10.9% (11.1%) 

registrations

MAI gained 120 registrations in 2007, against 166 in the previous year. The EU permitted member states to extend provisional approvals for MAI's proprietary insecticide, novaluron, for up to two years, after the company requested additional data and time for the evaluation. MAI's subsidiary, Makhteshim-Agan North America became the primary distributor of the cotton herbicide, Cotoran (fluometuron), in the US following its divestment by DuPont. It had been supplying DuPont with fluometuron since 1999, when MAI acquired the US business from Novartis.

outlook
The company is fairly bullish on prices. "Assuming strong demand and a continued high level of agricultural output, we should expect price increases as opposed to the normal price devaluation in the market, MAI told Agrow. It is wary of rising raw material costs and explains that it did not enter any long-term agreements to hedge against rising costs during 2007. Around 70% of company costs come from raw materials, it adds.