Makhteshim Agan Announces Fourth Quarter And Full Year 2010 Financial Results

Date:03-22-2011

Makhteshim Agan Group, the world leader in branded off-patent crop protection solutions, today reported financial results for the 2010 fourth quarter and fiscal year, ended December 31, 2010.

Mr. Ami Erel, Makhteshim Agan's Chairman of the Board, commented, "2010 was an imperative year for Makhteshim Agan. The one-time charges which we recorded reflect important measures that we took in order to solidify our operations and commercial standings. Our overall actions, as well as, global market and weather conditions make us optimistic about our business performance, as we start 2011. On the ChemChina business combination we and our partners are progressing and we expect closing in-line with our earlier indications.

At the closing of 2010 we parted from Mr. Avraham Bigger who served as Chairman of the Board for the last four years, we would like to thank him for his leadership and contribution to the Company over the years."

Mr. Erez Vigodman, President and CEO of Makhteshim Agan, added "2010 marks a year of significant achievements for Makhteshim Agan. One-time charges relating to overall restructuring measures impacted significantly our results. We are committed to execute the full set of change initiatives which we announced in the beginning of 2010, in a way which will enable us to fortify our global competitive position and create a sustainable and winning business model in our sector.

A new organizational model which came into force in the beginning of July, management changes in the Americas, an enhanced organization in Asia Pacific and Africa, advances in our operational realignment in Israel, the recent completion of the restructuring of our operations in Brazil, were all implemented during 2010, and will gradually improve our business results already in 2011.

To complement these initiatives, we were working out a transformational transaction which converges with all the change initiatives as well as with the strategic direction of our company going forward. In line with this goal, we are now advancing the ChemChina business combination.

Our commercial and product development efforts continued to play a central role in advancing our organic growth and business performance in all our regions excluding Brazil in 2010. The add on acquisitions we have closed in Mexico and Korea together with the collaboration agreement with Monsanto in the North and Latin American markets, will all support further our growth in 2011" Mr. Vigodman concluded.

BUSINESS COMBINATION WITH CHEMCHINA: UPDATE

On January 8, 2010, the Company announced that an agreement was signed with a subsidiary of the China National Chemical Corporation to carry out a merger that will result in the Company becoming private under joint ownership of ChemChina (60%) and Koor (40%). The Company's shares shall be purchased at a price that reflects a value of the Company of USD 2.4 billion and payment for them will be in US dollars. Accordingly, the price per share is USD 5.57 prior to dilution in a negligible amount likely to be caused by the exercise of employee options. The Company continues to expect closing of the transaction in the second or third quarters of 2011.

SALES

Excluding one-time items, FY 2010 sales were $2,368.2 million compared with $2214.6 million in the corresponding period of 2009. Fourth quarter 2010 sales were $505.1 million, compared with $496.2 million in the corresponding period of 2009, an increase of 1.8%. The main contributor to sales growth was an increase in volumes sold which was partially offset by the decline in the average sales prices for the Company's products, compared with the average prices in 2009.

  
On a geographic basis, the strongest sales increases were in the Company's Asia Pacific & Africa region, which contributed $363.3 million in the fiscal year of 2010, a 48.2% increase from $245.0 million in 2009. This improvement was due to an increase in sales volume, particularly in India and Australia. For the fourth quarter of 2010, sales in this region amounted to $86.1 million, compared to $68.6 million in the same period last year, an increase of 25.1%.

Sales in Latin America for fiscal year of 2010 amounted to $539.6 million, compared with $540.9 million last year, a 0.2% reduction. Increased sales volume in Argentina and Columbia supported by new product launches in this region were offset by continued weakness in the Brazilian operation and pricing pressure. For the fourth quarter of 2010, sales in Latin America totaled $168.4 million, compared to $196.5 million in the same period of the previous year, a 14.3% decrease.

North American sales for FY 2010 amounted to $404.3 million, compared with $402.2 million in the same period of the previous year, a slight increase of 0.5%. During the fourth quarter of 2010, sales in North America amounted to $83.7 million, compared to $80.9 million in the corresponding period of the previous year, an increase of 3.5%.

European sales for the full year of 2010 were $965.6 million, compared with $939.5 million in the corresponding period of the previous year, an increase of 2.8%. The growth stemmed mainly from increased sales of crop protection products in Eastern Europe which was partially offset by a weaker EUR currency. During the fourth quarter of 2010, sales in Europe totaled $140.6 million, compared to $129.0 million in the same period last year, an increase of 8.9%.

EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization)

Excluding one-time charges, EBITDA for FY 2010 was $258.1 million (10.9% of sales), compared to $244.4 million (11.0% of sales) in FY 2009, an increase of 5.6%. Excluding one-time charges, EBITDA for 4Q 2010 was $17.4 million (3.4% of sales), compared to $8.7 million (1.8% of sales) in 4Q 2009. Including one-time charges, FY 2010 EBITDA was $141.7 million compared to $217.7 million in FY 2009. Including one-time charges, EBITDA during 4Q 2010 was ($85.4) million compared to $8.7 million EBITDA in same period in the prior year.

GROSS PROFIT

Gross profit for FY 2010, excluding one-time charges of $153.0 million related to the operational realignment in Israel ($54.6 million) Milenia restructuring ($79 million), the Albaugh acquisition ($4.9 million) and registration assets impairment in the US ($14.5 million), totaled $673.1 million, compared to $602.1 million for FY 2009, an increase of 11.8%. Excluding one-time charges, gross profit for the fourth quarter of the year was $121.5 million, compared to $100.9 million in the same period of 2010, an increase of 20.4%.

Including one-time charges, gross profit in FY 2010 totaled $649.2 million (27.5% of sales), an increase of 11.6% over FY 2009. For the fourth quarter ending December 31, 2010, gross profit, including one-time charges, was $106.1 million. This was a 5.1% increase, compared to 4Q 2009. Including one-time charges, the gross margin for 4Q 2010 was 21.0%, compared with 20.3% for the same period in 2009.

The growth in both gross profit and gross margin during FY 2010 and the fourth quarter of 2010 was due to an increase in sales volume coupled with an improved product mix, as well as a decrease in raw material prices which led to reduced selling costs. This was partially offset by the decline in average sales price.

OPERATING PROFIT

Operating profit for the year totaled $147.9 million, excluding the aforementioned charges, compared with operating profit of $146.4 million in FY 2009. Including the one-time items, FY 2010 operating profit totaled $6.2 million.

Excluding one-time items, operating loss for the fourth quarter of 2010 was $11.6 million compared with a loss of $17.4 million in the same quarter of last year. Including one-time items operating loss for 4Q 2010 amounted to $139.7 million compared with an operating loss of $17.4 million in the comparable quarter last year. The increase in operating loss in the quarter and the sharp decline in operating profit in 2010 derives mainly from the non-recurring effects as aforesaid.

OPERATING EXPENSES

Operating expenses for the year totaled $643.0 million (27.2% of sales), compared with $462.1 million (20.9% of sales) during FY 2009. Operating expenses for the fourth quarter of 2010 were $245.8 million (48.7% of sales), compared with $118.3 million (23.8% of sales) during the fourth quarter of 2009. The increase in operating expenses in the quarter and for the year is primarily attributable to: 1) one-time items are discussed previously 2) an increase in sales costs and 3) an increase in administrative and general expenses.

NET INCOME

Net income for the year was $20.8 million, excluding the aforementioned one-time charges. This compares with $67.3 million for the fiscal year of 2009. Including the one-time charges, the Company recorded a net loss of $132.2 million compared with net income $32.7 million in FY 2009.

Excluding one-time charges, net loss during the fourth quarter of 2010 totaled $39.7 million compared with $29.8 million during the same period last year.

CASH FLOW

The Company recorded negative cash flow from operating activities of $5.8 million during the fourth quarter of 2010, compared to negative cash flow from operating activities of $10.0 million in the fourth quarter of 2009. During the twelve months ended on December 31, 2010 operating cash flow amounted to $162.4 million compared with $209.6 million during the corresponding period last year.

Free cash flow (less short-term investments) in FY 2010 amounted to negative cash flow of $34.4 million compared with a positive cash flow of $55.8 million in the same period last year. The free cash flows (excluding short-term investments) in the fourth quarter of 2010 amounted to negative cash flow of $71.0 million compared with negative cash flows of $56.2 million in the corresponding quarter last year. Declining cash flow during the year and the quarter was attributable to the aforementioned negative operating cash flow.

FINANCING EXPENSES

Financing expenses totaled $121.5 million for the twelve months ended December 31, 2010 compared with $93.2 million last year. The increase in financing expenses in the year is mainly attributable to non-cash financing costs incurred due to revaluation of employee funds related to the strengthening of the new Israeli Shekel against the U.S. dollar as well as changes in actuary assessments.

Financing expenses during the fourth quarter of 2010 were $26.1 million compared with $23.1 million during the same period last year. The increase in financing expenses was due to the revaluation of employee funds in line with trends for the full year.

STRATEGIC UPDATE

JK Inc. Acquisition

On October 8, a wholly owned subsidiary of the Company acquired a 51% stake in JK Inc., a South Korean agrochemical company dealing in formulation and distribution of crop protection products in South Korea, with annual sales of approximately $10mm.

Bravo AG Acquisition

On October 18, 2010 a wholly owned subsidiary of the Company signed an agreement to acquire the shares of Ingenieria Industrial S.A de C.V. ("Bravo AG Group"). The transaction was closed in January 2011.

Bravo AG Group is a private company with annual sales of approximately $30mm that is involved in the production and distribution of crop-protection products, which are primarily sold in Mexico and other countries. Bravo AG has two production plants in Mexico at which it formulates products for the local market and copper-based products considered to be eco-friendly.

Monsanto Collaboration

On October 19, Monsanto Company and Makhteshim Agan announced a strategic crop protection collaboration that will combine MAI's off-patent molecules with Monsanto's Roundup Ready PLUS(TM) weed management platform to provide optimal management of weed resistance for its customers. Financial terms of the agreement were not disclosed.

Milenia Restructuring

On October 11, 2010, Makhteshim Agan announced a comprehensive reorganization plan for its Brazilian subsidiary, Milenia. As such, Milenia's restructuring plan is intended to adapt MAI's operation in Brazil to the changing market conditions and return it to its leadership position in this very key market. The Company recorded one-time charges of $79.0 million related to the restructuring in fiscal year 2010.

The restructuring will establish new leadership, improve product cost position and accelerate the introduction of new crop protection solutions. The plan will scale down Milenia's manufacturing operations in Brazil, closing a manufacturing site in Taquari and a formulation site in Londrina. It will also significantly reduce its workforce by 320 employees. The Company estimates the annual cost savings related to this restructuring plan to amount to $30 million as early as 2011.

As part of the restructuring, Mr. Luiz Barone, Milenia's former CEO, left Milenia by mutual agreement, and Mr. Rodrigo Gutierrez was appointed CEO.

Operational Restructuring

On October 18, 2010 the Company reached agreement with its unionized employees in its Israeli manufacturing sites of Ashdod, Be'er Sheva and Ramat Hovav that calls for early retirement of up to 250 employees and allows for further realignment of its global manufacturing activities.

The Company continues to take important actions in streamlining and optimizing the layout of its global production sites to better serve customer need to deliver high quality solutions to farmers globally.