2007 was a year that clearly supported the claim that global agriculture is in the midst of vibrant growth. Continuing what has become a steady trend over most of the last several years, farm production once again lagged behind demand, as the call for protein crops strengthened in markets everywhere.
Whereas overall yield and acreage are expanding, demand still continues to outstrip supply as stock-to-use ratios decrease for most of the soft-commodities. Indeed, grain stocks are now at some of their lowest levels in decades. Driving this trend are several factors, including the emergence of a stronger middle class in Asian markets, the general growth of the world’s population and the proliferated use of fuels which creates pressure for an increase in staple crops that heretofore were only used as food and feed.
Crop protection products are instrumental in aiding farmers in enhancing yields - a fact which has boded well for the agrochemical industry in general and for Makhteshim Agan in particular. Our net income for 2007 amounted to $175 million on overall sales of $2.08 billion. Moreover, despite the rise in prices of raw materials and oil, we finished 2007 with a best-in-class distinction in terms of sales growth and posted an impressive profit growth as well.
The year in review: Creating the catalysts for change
During the first quarter of the year, we officially approved our Change & Efficiency plan and immediately proceeded to embark upon its implementation. Since that time, we have vigorously executed the plan across our entire global operation and have already begun to see the benefits of our labor.
The plan consists of three complementary components which, taken together, should be powerful catalysts in driving our performance in the years to come and helping us to maintain and expand our current position as the world’s leading branded off-patent agrochemical provider. They are:
I. Global Leadership Group - The successful launch and smooth implementation of the GLG - our global forum for enabling better collaboration amongst our top level managers - has achieved a positive, cross-enterprise synergy. A healthy dialog on the strategic issues facing the company, from product development to cost containment, pricing and beyond, now ensues on a regular basis. Our global managers from every region convene in a different location several times a year to share information, discuss matters of import in specific regions on policies to ensure their successful handling.
More than just a communication platform, the GLG has helped us to improve transparency and accountability. Regional performance is now being measured not only by top-line growth, but on end-to-end contribution of each of our local subsidiaries to the profitability of the global group. New IT systems that have been put in place on a cross enterprise basis help our regional executives to set their sales objectives in order to generate better profitability in their target markets.
II. Organizational restructuring - During 2007, Makhteshim Agan underwent the most significant operational consolidation process since the two companies initially merged into a single entity in 1998. As a result, our new corporate headquarters facility in Airport City (a modern commercial zone adjacent to Ben Gurion Airport) serves as the global nerve center for all of our non-manufacturing functions, including all top level executive positions from sales and finance, to marketing and product development, purchasing and more. Israeli manufacturing, which heretofore was guided by policies formed separately in Makhteshim and Agan, is now headed by a single leadership team that oversees the planning and production of our herbicide, fungicide and insecticide products. Finally, our restructuring efforts have also extended to adding new divisions, including an in-sourced legal department to accompany our day to day business activities and a new talent management department that will help us to evaluate the performances of all of our managers on an enterprise wide basis.
III. Improved efficiency - Over the year, we have saved through consolidated purchasing and by reducing manpower of duplicated functions through restructuring our management. Whereas much of the ground we gained here has been eroded by the increases in the prices of oil and raw materials, the centralization of our procurement efforts has given us stronger bargaining power and should set the stage for making significant strides in cost savings in the years to come.
Moving forward in the field…
Assessing the demand for agrochemical products in advance can never be an exact science. Unpredictable weather can significantly shorten or lengthen an agricultural season and government policies can accordingly influence what sort of investment farmers in a given region will make in protecting their crops. In 2007, we found ourselves facing an increase in volume demand that exceeded our projections for the year. Our AgChem sales have grown by more then 20%. Despite the strain this put on our supply chain, we performed exceptionally well, quickly ramping up our production and moving stock to eager markets all over the world with increased efficiency.
Our business is growing rapidly and new opportunities are emerging which reflect the overall growth in demand in global agriculture. To keep pace, we continually adjust various aspects of our Change & Efficiency plan while maintaining full commitment to its sustained execution.
Looking ahead, I am confident that the processes we have set in motion to boost profitability, cut costs and improve efficiency will help us to retain and further fortify our position as the world’s most diverse and comprehensive provider of branded off-patent crop protection products. As always, we remain committed to maintaining our dominant market standing and to serving farmers in fields everywhere with the safest and most effective products available.
Avraham Bigger
Chairman & CEO