AgroPages-MAI sales up 28% in second quarter-Agricultural news

Makhteshim-Agan Industries’ (MAI) second-quarter agrochemical sales jumped by 28.3% to $630 million. The rise followed a significant sales increase in last year’s second quarter. Chairman of the board and CEO Avraham Bigger hailed the results. “The crop protection market demonstrated significant growth during the first half of the year,” he says.

Continuing robust commodity prices led to strong demand for pesticides, the company says. “Relatively favourable” weather conditions in the company’s main markets also helped sales. Revenues were up in all regions with South America experiencing the strongest growth. MAI also increased its products’ average selling prices.

Currency movements pushed up the dollar value of sales, while the strengthening shekel hit costs in Israel, the company says. High oil prices raised the price of raw materials that are derivatives of oil.

The company added 40 registrations of active ingredients, formulations and mixtures in the second quarter.

total sales

Second-quarter sales including revenues from non-agro activity grew by over a quarter after adjustments to $682.3 million.

Total earnings before interest tax, depreciation and amortisation (EBITDA) rose by 29.8% to hit a record $134.3 million, accounting for 19.7% of sales against 19.1% last year. The EBITDA margin results were largely due to improved operating profits (EBIT).

Rising volumes and prices resulted in higher gross profits and operating profit. Gross profit margin rose from 34.8% in the second quarter of 2007 to 35.1% this year. Operating profit rose by more than a third (36%) to $113.4 million, while margins were up from 15.4% to 16.6%.

first half

First-half agrochemical sales were up by 30.8% to $1,303.1 million. Gross profits on all sales were up by 31.1% to $499.5 million and margins rose from 34.8% in the first six months of 2007 to 35.6%. The stronger euro contributed to improved margins as well as rising volumes and prices. EBITDA was up by 36.5% to $289.7 million, with a margin of 20.6% (19.4% in 2007).

MAI's results ($ million)
2nd qtr ended June 30th	2007	% change	2008
Sales	542.5	+25.8	682.3
Agrochemicals	491.2	+28.3	630.0
EBITDA¹	103.5	+29.8	134.3
EBIT²	83.4	+36.0	113.4

Six months
Sales	1,095.7	+28.1	1,404.4
Agrochemicals	996.2	+30.8	1,303.1
EBITDA¹	212.2	+36.5	289.7
EBIT²	167.9	+47.3	247.3
¹ earnings before interest, tax, depreciation and amortisation; ² earnings before interest and tax

regional sales

Second-quarter sales, including of non-agrochemical products, were up in all of MAI’s main markets.

Europe was the company’s principal market, accounting for 41% of sales in the second quarter against 40.4% in last year’s second quarter. Revenues in the region rose by more than a quarter in both of the first two quarters, helped by the strengthening euro. The currency was 15.9% stronger than the dollar in this year’s second quarter compared with 2007.

South America replaced North America as the company’s second-largest market. Revenues jumped by almost half (49.6%), led by Brazil. The company concedes that some of the increased sales in the country were likely due to farmers bringing forward purchases, due to “the high levels of demand in the country”. Sales for the first six months also rose by almost half to $291 million.

North American sales were up by 7.1% to $140.7 million. Relatively low growth was due to the divestment of its US subsidiary, RiceCo, last year, the company says. First-half sales also grew by just over 7%.

Sales in MAI’s domestic market, Israel, rose by 5.4% in the second quarter and by 3% for the first six months. Business in other regions rose by over 30% in the second quarter and by about half for the first six months. Australia accounts for much of MAI’s “rest of the world” segment. A good agricultural season in the country, following years of drought, boosted sales, MAI says.

MAI's group sales by region ($ million)
2nd qtr ended June 30th	2007	% change	2008
Europe	219.1	+27.8	279.9
South America	96.0	+49.6	143.6
North America	131.4	+ 7.1	140.7
Israel	30.5	+ 5.4	32.2
Rest of the world	65.5	+31.1	85.9
Total1	542.5	+25.8	682.3

Six months	2007	% change	2008
Europe	486.5	+27.4	619.9
South America	196.0	+48.4	291.0
North America	233.7	+ 7.6	251.4
Israel	55.9	+ 3.0	57.6
Rest of the world	123.5	+49.4	184.6
Total	1,095.7	+28.2	1,404.4
¹ may not add up due to rounding

outlook

MAI is extremely confident about continued high demand for its products. It has deliberately raised its inventory levels, expecting the trends of the first half to carry on for the rest of the year and into 2009. The company dismisses recent slides in commodity prices, which fell by over 15% in July, saying the fundamentals behind higher prices remain. Much of the increased demand for pesticides has been due to farmers seeking higher yields on high-value crops.

The company is especially bullish about growth in South America, and Brazil in particular. Despite an acceptance that business in Brazil included early purchases by farmers, MAI expects strong growth. “The whole agrochemical sector expects a big leap in Brazil,” it says. MAI adds that the Brazilian market has performed well ahead of expectations. “The sector expected the national market to reach $5.3 billion in 2008, but it attained that in 2007.” The company speculates that Brazil may become as large as the US market in the near future.

MAI is also confident about Argentina, saying that farmers have won their dispute with government. Argentine soybean farmers went on a national 100-day strike in protest at government plans to increase taxes on soybean exports. The government has lost a vote in the Argentine Parliament on the matter. Sales in Argentina rose by more than half in the first quarter of this year, but fell by a similar amount in the second quarter as the strike hit demand. “The farmers are back at work and we expect good sales,” MAI adds.

Margins for the first half have come in ahead of expectations but the company is keeping the same targets for the rest of the year, it says. “There are unpredictable elements.” MAI implies that margins will increase if raw material prices do not rise further. But any raw material price rises would be passed on to customers, it adds.

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MAI sales up 28% in second quarter

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