Cheminova sales up 20% in Q1

Cheminova’s agrochemicals sales were increased by 20.4% compared with last year to DKK 1,510 million in the first quarter of 2012. Total revenue increased in Q1 2012 by 15.6% to DKK 1,610 million. Earnings before interest, tax, depreciation and amortisation (EBITDA) was boosted by 50.8% to DKK 187 million, and EBIT was up by 85% to DKK 148 million. Realised selling prices increased by an average of 3% relative to the prior-year period. The market for crop protection remains positively influenced by strong demand for and high prices on agricultural crops. Farmers are thus encouraged to increase the acreage and protect crop yields through the use of crop protection products. In Q1 2012, the industry also benefited from an early start to the season in Northern Europe and North America as well as a good end to the season in Brazil.

Cheminova’s sales results (DKK million)
Q1 ended March 31st	Q1 2012	Q1 2011	% change
Sales Total	1,610	1,393	+15.6
Agrochemicals	1,510	1,254	+20.4
Other activities	100	139	-28.1
EBITDA*	187	124	+50.8
EBIT**	148	80	+85.0
* earnings before interest, tax, ** earnings before interest and tax depreciation and amortization

Sales by region

Continued market growth in Eastern Europe and a good and early season in Northern Europe more than compensated for a declining market in Southern Europe, which was affected by drought in Spain and the difficult financial situation in, e.g., Greece. Growth was driven primarily by herbicides, especially pethoxamide and sulfonylurea herbicides. Positive market developments were seen in France and Germany. In the past year, the French subsidiary has obtained registrations for a number of new products and ensured good market access through a new partnership with a local distribution partner. Growth and improved results were thus seen in France. In Germany, the new management is restructuring the business, which is now posting satisfactory results in the form of increasing sales and reduced costs. Satisfactory results were also returned by the other companies in the region. A combined total growth of 12% was posted for the region with satisfactory improvements in earnings.

Good climatic conditions have resulted in a good and early start to the season in North America. The introduction of new differentiated products, for example based on the active ingredient kresoxim, and growth from gamma-cyhalothrin and flutriafol, which has now been introduced for cotton, have contributed to sound growth in the region. At the same time, a strong demand has been seen for the traditional insecticides such as chlorpyrifos and dimethoate. It is satisfactory that market access is successfully created for new differentiated products through established distribution channels. A combined total growth of more than 50% was posted for the region with improvements in earnings.

As expected, a good end to the season was seen as large areas had been allocated to agricultural production in Brazil during the now ended season, while Argentina was hit by drought. In Brazil, growth is driven by differentiated products with high margins, including products based on fluazinam and a modern micro capsule formulation containing methyl parathion, offering a replacement for a number of phased-out products in cotton. In Argentina, growth from differentiated products continues, and in Colombia a good position is being maintained for flutriafol based products. The region realised a combined total growth of more than 40% and a satisfactory improvement in earnings through focus on high margin products.

Satisfactory results were posted for the early season in India despite a less positive outlook for the coming season compared to the past couple of years. In Australia, climatic conditions and the competitive situation have resulted in lower than expected sales. In the CIS countries, the winter weather has delayed the start to the season in for example Russia. In India and in the region as a whole, focus on developing the product portfolio has produced satisfactory results. Total sales in the region did not develop as expected, but earnings have been satisfactory.

Cheminova’s first quarter sales by region (DKK million)
Region	2012	2011	% change
Europe	855	761	+12.4
North America	111	73	+52.1
Latin America	314	223	+40.8
International	252	238	+5.9
Global activities	78	98	-20.4
Total	1,610	1,393	+15.6

Sales by category

The process of transforming Cheminova‘s product portfolio was completed in 2011, and glyphosate now accounts for only 10% of revenue. Growth now and in the coming years will be driven primarily by increased market penetration for products which have already been introduced in the first markets. Moreover, the introduction of several new products from the development pipeline is expected to strengthen growth.

Herbicides saw growth of 16% through increased market penetration by products introduced in recent years. The sulfonylurea products saw satisfactory growth. Herbicides based on the active ingredient pethoxamide, which has been added to the product portfolio following the acquisition of Stähler, also generated satisfactory growth. In light of the expectation of continued growth for this active ingredient, production will start up at the factory in Denmark later in the year, once the production plant has been completed.

Realising a growth rate of 25%, insecticides grew more than expected due to the early start to the season in North America and accounted for 33% (30%) of revenue in Q1. Satisfactory growth has been realised for abamectin and gamma-cyhalothrin, while also the traditional products such as chlorpyrifos and dimethoate generated growth based on the early start to the season.

Revenue from fungicides was up 22% and now accounts for 20% (19%) of total revenue. Sales growth was achieved following continued progress for flutriafol and fluazinam, while a kresoxim-based product was successfully introduced during the early season in the USA.

Sales of other crop protection products accounted for an unchanged 8% (8%) of revenue. The segment comprises, e.g., Headland’s micro nutrients and growth regulators such as trinexapac, which has now been introduced in Europe.

Other activities accounted for 6% (10%) of revenue following a decline within fine chemicals.

Cheminova’s first quarter sales by category (DKK million)
Category	2012	2011	% change
Herbicides	539	464	+16.2
Insecticides	530	422	+25.6
Fungicides	315	259	+21.6
others	126	109	+15.6
Total	1,510	1,254	+20.4

Outlook

The good start to the season is attributable to climatic conditions and a positive outlook in the agricultural sector. Farmers are thus expected to increase the acreage used for growing important crops such as corn, soybeans and wheat as crop prices remain high. Cheminova still expects growth corresponding at least to market growth. Earnings will be improved through improved contribution ratios and a lower cost ratio.

Cheminova maintains the previously announced outlook for 2012 of revenue of approx. DKK 6,000 million with an earnings margin (EBITDA) of approx. 10% and an operating profit (EBIT) in the level of DKK 350-450 million.