Articles from Auriga Magasinet No. 2, September 2007
Growth plan ensured through new initiatives
Cheminova is reviewing the ambitious Business Plan 2010. A number of new initiatives are being launched.
Cheminova's very ambitious Business Plan 2010 was presented in 2005. Focus was on exploiting the unique situation that the patent protection of a number of big products in the industry will be expiring in the coming years. This presents an opportunity for Cheminova to develop, produce, register and market the products, thereby increasing revenue and earnings. A broader product programme creates a more sustainable foundation for the business in the long run.
The company has the competences required to make the most of this situation. The strategy is to broaden the product programme significantly through the dedicated development, registration and introduction of more new products each year for a number of years. The strategy involves a material increase in the resources invested in development and registration.
The plan from 2005 showed that the company's results would be marked by these investments for a number of years, but the aim was to create strong growth, leading to revenue of DKK 6 billion and a profit from ordinary operations of 14 per cent of revenue (EBIT margin) by 2010.
Kurt Pedersen Kaalund is ready to meet the challenges of the future and to launch a
number of initiatives, both globally and in Denmark.
Changed circumstances
Since the plan was made, it has not been possible to achieve the expected financial results.
- Circumstances have changed. Firstly, the USD exchange rate is currently significantly lower than expected when the original plan was drawn up, and secondly developments in the Brazilian market have been slightly more challenging than anticipated. The fungicide flutriafol, which used to be the only product available for controlling the Asian rust fungal disease in soybeans, is now one of several products, which has resulted in intensifying competition. Finally, the introduction of new products has been delayed, primarily in the EU member states, due to major bottlenecks in the processing and approval of our applications by the relevant authorities, explains Kurt Pedersen Kaalund, Executive Vice President of Cheminova. - Due to the changed conditions, the target has been revised to revenue of approx. DKK 5.5 billion in 2010 and an EBIT margin of 10 per cent.
In the original plan, it was assumed that the USD exchange rate would be 6.50 in 2010. Given the current low exchange rate, this is no longer realistic.
- The change in the USD exchange rate alone means a decline in revenue of approx. DKK 200 million and a reduction in the EBIT margin of 2.5 per cent. We will therefore continue to reduce Cheminova's dependence on exchange rate fluctuations, among other things through the sourcing of products in USD, says Kurt Pedersen Kaalund.
He also points out that the market situation, especially in Brazil, has changed markedly in comparison with the assumptions made in the original Business Plan.
- Competition has intensified, and how fungicides are used has changed towards a need for a mix of products rather than only using the fungicide flutriafol to control the Asian rust fungal disease in soya. Consequently, this market will not play such an important role for Cheminova's earnings as previously expected, Kurt Pedersen Kaalund points out.
Still valuable development pipeline
Cheminova will continue to develop, register and introduce a number of new and interesting products, thereby increasing its existing product portfolio.
- Cheminova enjoys a strong position in the most important markets, and we have the competences needed to introduce more new and important products in the coming years. We have a number of very interesting products in our development portfolio which will be introduced over the coming years and fully penetrate the market after the end of the current planning period. Even though the development and registration costs have a significant bearing on our financial results at the moment, it is vital that we continue to pursue these activities so as to guarantee Cheminova’s long-term position, says Kurt Pedersen Kaalund.
Improvements identified and implemented
While sticking to the development plan, a number of initiatives are being launched to improve earnings.
- A number of improvements will at the same time be introduced in Cheminova. Within the next few years, adjustments, rationalisations and organisational changes are all in all expected to contribute three-digit millions to earnings. So on the one hand we will be pursuing our aim of introducing new products in the global market, while on the other hand we will be making sure that all aspects of our organisation are analysed with a view to introducing improvements. Through these combined activities, we expect to meet the targets set out in the revised Business Plan 2010, Kurt Pedersen Kaalund concludes.
Global focus
Improvements include the establishment of a new global organisation aimed at utilising Cheminova's competences more effectively, while at the same time focusing more on transparency across Cheminova's many subsidiaries.
- The subsidiaries around the world possess competences which are important to the con-tinued development of Cheminova, and the new organisation structure will ensure that these competences are fully utilised, says Kurt Pedersen Kaalund.
Focus on Cheminova
With the divestment of the subsidiary Skamol earlier this year and the possible divestment of Hardi later this year, Auriga will be able to concentrate all efforts on developing Cheminova.
- The industry is going through an interesting phase. Increasing focus on energy crops and increasing standards of living in the world are resulting in higher prices for agricultural crops. This results in a greater incentive to increase production through the use of plant protection products among other things. This will also lead to improved market conditions for Cheminova. Cheminova will pursue relevant opportunities for making acquisitions and continue to play an active role in connection with the structural rationalisations which are taking place within the industry, Kurt Pedersen Kaalund concludes.
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Production unit at Rønland
The market for organophosphorous insecticides has been falling for a number of years and will continue to do so. This means that capacity utilisation at this part of the factory in Denmark will decline over time.
- Our factory is the most integrated factory in the world, and we will continue to benefit from this. In step with the declining utilisation of both the production facilities and the entire infrastructure, which comprises distribution and environmental units, the competitive edge of the factory will fall. We are therefore now beginning to investigate the possibility of running the factory more effectively and more in line with the situation, explains Niels Morten Hjort, Vice President, Operations. - This will secure the Danish factory's long-term position as a contributor to the Cheminova group.
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Sales organisation
Over the past twenty years and especially in recent years, Cheminova has built up a network of subsidiaries in the most important markets in the world.
- The selling and marketing of our products in 25 countries all over the world, from Australia to Canada and from Argentina to Russia, is now in the hands of our own employees. We are now implementing a regional structure which will improve coordination and the prioritisation of our global efforts, explains Jesper Kirkeby Hansen, Vice President, Sales and Marketing. - The new structure also means that a global management forum will be created, thereby incorporating the competences from the global sales organisation into the management of the company.
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Development portfolio
The expiry of patents for a number of the most interesting products in the industry is a very positive development for Cheminova, as it allows Cheminova to develop own production processes and product formulations and start registrations and marketing.
- We are currently working with a portfolio of projects – our pipeline – which comprises about 30 products. Some of these are major products globally, while others are destined for more narrowly defined, local markets. Our ability to develop competitive production processes and innovation formulations allows us to introduce differentiated products with a higher market value, states Allan Skov, Vice President, Development. - The development pipeline consists of products which will be introduced over a period from now and five years into the future, while full market penetration will be achieved over a period of time after 2010.
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Working capital
Due to the increasing business being done in Latin America and especially in Brazil in recent years, Cheminova's working capital has increased considerably. This is attributable both to the market conditions in Brazil and to the fact that mid-season is at the end of the year.
- We are, however, convinced that we can improve our binding of working capital through dedicated efforts within this field, says Søren Vedel, Vice President, Finance and Support. - All the companies in the Cheminova group are involved, and clear targets have been set for these improvements.
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