The Rules of the Game are Changing -...

The Rules of the Game are Changing

EREZ VIGODMAN PRESIDENT & CEO

MAKHTESHIM AGAN

JUNE 2013

© All rights reserved to Makhteshim Agan

This is the age of

Revolution

2

0

1

2

3

4

5

6

7

8

9

10

Billio

ns

Developing Countries

Developed Countries

Urban Population

Source: UN Population Division

Changing demographic landscape

1820 1870 1900 1950 1970 1990 2010 2025

Changing consumer landscape

Source: McKinsey Global Institute Cityscope 2.0

<1 3 7 13 23 23 36 53

Share of

population in

consuming

class (%)

World population

Billion people1

0.1 0.1 0.3 0.9 1.2 2.4

4.2

1.0 1.2 1.5 2.2

2.8

4.0

4.4

3.7

1820 1870 1900 1950 1970 1990 2010 2025

Below consuming class

Consuming class

Consumer landscape is changing dramatically

B6 China, India, Russia, Brazil, Mexico, South Korea

G6 U.S., Japan, Germany, England, France, Italy

Thousands of $Billions

7,579

2005 2005

13,106

24,799

2025 2025

20,565

Real consumption growth in 2012

Source: Oxford Economics

China

India

UAE

Russia

Ukraine

Saudi Arabia

Vietnam

Indonesia

Thailand

Malaysia

Colombia

Chile

Argentina

Brazil

Mexico

South Africa

US

Korea

Japan

Poland

Egypt

Turkey

UK

Eurozone

Czech Republic

-1 0 1 2 3 4 5 6 7 8 9 10

Major leap is needed in the next two decades in the supply of scarce global natural resources

Growth rate needed between 2010-2030 in relation to the

growth rate of these natural resources between 1990-2010

Arable Land

(food) Water Metals (Steel) Energy

+249% +139% +57% +32%

Resource price volatility is at all-time high, with the exception of energy in the 1970s

Source: Grill and Yang; Pfalfenzeller; World Bank; IMF; OECD statistics; FAO; UN Comtrade; McKinsey analysis

Note: Calculated as the standard deviation of the commodity sub index divided by average of the sub index over the period

20 22 21 13 15 7 4

56 38

14 40

7 8 14 15 15

9 8 20 21

10

30

7

25

10 11 17 13

3 9

21

6

32

15 24 24 20

11 17

9 10 11 13

27

Energy

Food

Metals

Agricultural

materials

Annual price volatility

%

Commodity prices have increased sharply since 2000, erasing all the declines of the 20th century

1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 20112 40

60

80

100

120

140

160

180

200

220

240

2012 2015 2019

Forecast

MGI Commodity Price Index (years 1999-2001 = 100)

WWI

Postwar

Depression

Great

Depression

WWII

1970s Oil Shock

Source: Grill and Yang; Pfalfenzeller; World Bank; IMF; OECD statistics; FAO; UN Comtrade; McKinsey analysis


The world is changing at an accelerating pace

GDP per capita (1990 dollars)

X years ago

0

1000

2000

3000

4000

5000

6000

7000

8000

9000

1000 900 800 700 600 500 400 300 200 100 Now

Source: J. Bradford De Long 12

13

THE RULES OF THE GAME ARE

CHANGING INDUSTRY

AFTER INDUSTRY


How the Business in Changing in the Agricultural Universe


Grain stocks have been decreasing and therefore crop prices are increasing

2.0

4.0

8.0

1.0

2.5

4.0

1.5

2.0

3.0

3.5

4.5

Stock to use ratio (months)

Average grain price (log scale)

Average grain prices and stock-to-use ratio

USD/bushel and months of stock to use ratio

Source: USDA, Datastream, Nomura research, 2011 15


Commodity and food prices are increasing

Source: Phillips McDougall, September 2011

Crop Prices 1992 – 2012

FAO Food Price index

0

100

200

300

400

500

Cotton Corn Soybean Wheat

60

80

100

120

140

160

180

200

16


Average annual yield increase of major crops

17

2.2%

2.0%

1.7%

1.4%

1.2%

1960s 1970s 1980s 1990s 2000s

Source: FAO, USDA


Rethinking agriculture

18

Adding new crop land

(reducing land degradation recycling

urban waste water and improving irrigation

techniques)

Developed countries’ large scale farms:

Increasing yield

through innovation (mechanization, genetic variety,

farming practices-including precision

farming)

Developing countries’ smallholder farms:

Boosting productivity

through transfer of technology and best farming practices

Reducing

Food

Waste


Israel as a dynamic lab for agriculture – lack of water and arable land as well as a variety of climates as a catalyst for innovation

Desert Agriculture

Aquaculture High efficiency of water use – Irrigation & Recycled water

Unique seed cultivation

Greenhouse Technologies

Seed treatment through the use of biotechnology

“Israel is driving its six decade quest to coax more from the soil, water, air,

and sunlight than do most other nations on earth…Israel leads the world by

recycling 70% of its wastewater, three times the figure for No.2 Spain.” Business Week, 2009

A few facts about innovation in Israeli agriculture:


The Role of Crop Protection


Steady agriculture demand cannot be met without crop protection

Source: Crop losses to pests; E-C Oerke, Journal of Agricultural Science (2006), 144

26%

51%

18%

32% 23%

40%

74%

49%

82%

68% 77%

60%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Potato Wheat Cotton Maize Rice Soybean

Potential yield loss with

no crop protection

21


Nemotode

Nematode

contamination Healthy

22


Diseased potato fields

23


Corn earworm

Corn Earworm will destroy

more than 90% of the sweet corn yields

And it's just one of 10,000

species of plant-eating insects

24


Monilinia Fructicola fungus

The Monilinia Fructicola fungus

will lead to a loss of 75% of the peach yields

25


Portulaca Oleracea

Portulaca Oleracea

will demolish 70% of the Carrot Yields

Season long

weed competition Zero weed

competition

26


Seed dressing

27


Environmental Solution Products enable healthy animals

by eliminating fleas, ticks, and chewing lice

28

29

The Rules of the Game are

CHANGING Also in Our Industry

29


Crop protection average volume growth is expected to continue

Source: Philips Mc Dougal, Nomura estimates

Crop prices are close to all-time highs

A gradual technology adoption in emerging

Asia and Russia

Acceleration in North American-driven

fungicide adoption

Continued growth in Latin America

GMO substitution is over

1981-2020

30


Never has the pace of change been greater

Emerging role of generics and intensifying generic competition

1

Shifting economic centers 2

Emerging role of Chinese AgChem producers

3

The role of seeds and traits 4

Rising cost of innovation 5

Increase in regulatory scrutiny 6

Increasing distribution consolidation 7

31


The emerging role of generics and intensifying generic competition

Crop Protection Market Share by Product

Off-patent products have

gained a total of 15.4% in

market share since 2004

20.0

25.0

30.0

35.0

40.0

45.0

50.0

55.0

Proprietary

Proprietary Off-Patent

Generic

Source: Phillips McDougall 32


MAI #7

#1 #2 #3 #4 #5 #6 Ranking

66% 56%

69% 76%

98%

82%

34% 44%

31% 24%

2%

18%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Syngenta Bayer BASF Dow Monsanto DuPont

Proprietary off-patent and generic products

Patented sales

Blurring boundaries between generic and innovative companies

Illustrative. Source: Phillips McDougal

Syngenta Bayer Monsanto Dow DuPont

BASF FMC Sumitomo

Others

33


The emerging role of the Chinese chemical industry

Volume of Chinese AgChem exports*

Source: Phillips McDougall, February 2012

*Formulated products

0

100000

200000

300000

400000

500000

600000

700000

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

34


The emerging role of the Chinese chemical industry

AgChem products* export prices, 2009

0

5

10

15

20

25

30

35

Insecticides Fungicides Herbicides

$/

ton

China

India

Israel

USA

France

Switzerland

Germany

Japan

Source: Phillips McDougall, Dec 2010

*Formulated products

35


Makhteshim Agan – who we are

36


Very Compelling Growth Story

Source: Philips McDougal, MAI analysis

$B

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

2.0

2.2

2.4

10

20

30

40

50

60

70

$B

Crop

Protection

Market

MA Industries

Crop

Protection

CAGR

13%

CAGR

3% 0.85 0.88 0.89

1.18

1.54

1.74 1.78

2.08

2.53

2.21

2.37

2.69

2.83

0

0.5

1

1.5

2

2.5

3

$B

37


MAI Sales Spread

53%

23%

17%

7%

Sales by Product Group

38.5%

22.7% 17.6%

17.5%

3.7%

Fungicides

Insecticides

Herbicides

Non Agro

Europe

Latin

America

North

America

Asia

Pacific

and

Africa

Israel

2012 Total Sales - $2,83 mm

Regional Spread

38


MAI Market Share and Position (2011)

12%

4%

19%

12%

25%

total

APAC & Africa

LATM

NAFTA

Europe

Off-patent

market share Off-patent

position

4.7%

2.4%

7.0%

4.8%

7.5%

total

APAC & Africa

LATM

NAFTA

Europe

Total sector

market share Total sector

position

1st

2nd

1st

5th

1st

5th

8th

7th

10th

7th

Sources: Phillips McDougall; MAI analysis 39


Our Unparalleled Off-patent Global Footprint

Sales in over 120 countries

More than 50 subsidiaries in close to 45 countries

HQ

Subsidiary

Sales

40


Global Development & Registration Network

7 development and registration hubs, 2 chemistry R&D centers

Development capabilities in all regions

Local registration capabilities in over 100 countries

Full registration dossier building capabilities

Switzerland

Germany

Israel

Brazil

Colombia

US

India

Israel

Development and registration center

Chemical R&D center

India

41


MAI’s global manufacturing footprint

Synthesis

Formulation

Italy (Kollant)

Spain (Aragro)

Poland (MAAP)

Greece (Alfa)

US (Bold-Ocilla)

Columbia (Proficol)

Brazil (Milenia –

Taquari)

Israel (Makhteshim)

Brazil (Milenia –

Londrina)

US (CSI-Houston)

Israel (Agan)

US (Bold-Tifton)

India (Gujarat)

South Korea (JK)

Mexico (Bravo)

42


Our current business model

Product Quality & High Level

Service

One Stop Vendor: For Unparalleled

Solution Offering

Product Distinctiveness • Innovative

Products

• Advanced Formulations and Mixtures

43


Looking Reality

In the EYE

44


Looking reality in the eye

24%

26%

28%

30%

32%

34%

36%

38%

40%

2001 2002 2003 2004 2005 2006 2007 2008 20090.7

1.2

1.7

2.2

2.7

Sales GM

45


MAI key challenges (January 2010)

Cost structure of AI’s and products

Global supply chain effectiveness

Brazilian operation

U.S Ag Chem penetration

Business model (in an ever changing industry)

New vision, purpose and clear direction

46


47

What We Have Done Since 24.1.2010


Laying the foundation that will support differentiation

Fixing the foundation

(operational enhancement measures)

Driving Organic growth

48


2009-2012 financial figure highlights

CAGR: 9%

CAGR: 16%

CAGR: 26%

CAGR: 33%

CAGR: 55%

49


Strong focus on gross margin

24%

26%

28%

30%

32%

34%

36%

38%

40%

0.7

1.2

1.7

2.2

2.7

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Sales GM

50


Laying the foundation that will support differentiation

Fixing the foundation

(operational enhancement measures)

Driving Organic growth

Laying the foundation

for a new future

51


Laying the foundation for a new future

Innovation culture

Crystal

Novel Agricultural Technologies Division – new frontiers

Ground preparation for a global brand launch

From products orientation to market orientation– enhancing our marketing capabilities in conjunction with a better understanding of farmers needs

Business combination with ChemChina

Core Values: Creating Simplicity, Empowering People, Passion, Get it Done Core Purpose: Creating Simplicity in Agriculture Visionary goal: creating a new business model,

?

Enhancing product portfolio differentiation

52


Business Combination with ChemChina


The importance of food security in China

China Food

Security

Promoting safer and more

efficient Agrochemicals

Promoting Agricultural Technology

Increasing Arable Land

Adopting high quality seeds

China is 20% of the world’s population, 7% of the world’s arable

land and 6.6% of global freshwater resources

54


Reverse merger transaction with ChemChina

IDB ChemChina

40%

MAI

Acquiring and integrating selected

AgChem operations of ChemChina

and additional Chinese businesses

60%

55


Five pillars to be built in China (a leap in implementing our new business model

Distribution leadership in a

fast growing market

Complementary R&D resources and capabilities

Strong domestic supply chain capabilities (sourcing, formulation platform)

Strong cost position of specific AIs

Our Customers

Developing a leading seeds

and traits business

56


Project Crystal - Crystallizing Our Strategic Direction


Creating

In Agriculture SIMPLICITY

Our Core Purpose

58


Get it Done

Creating Simplicity

Passion

Empowering People

Our Values

59


Quest blueprint

Business model

transformation

Make the most of

a game changing

transaction

Connecting purpose,

values and vision to

foster change

60

Thank you

The Rules of the Game are Changing -...

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