 Metam soil fumigants, were down modestly in 2009 as
compared to 2008; due largely to a shortened application season. We are a leading supplier in
this product category and with our strong manufacturing, technical sales, and logistical
capabilities, we will maintain our leadership position.
Inventory “work-down” also negatively affected our sales of herbicides in 2009. While EDI data
indicates that grower use of our primary product Impact® was nearly the same as in 2008,
inventory channels had sufficient stock on hand to limit 2009 replenishment requirements. With
much of that backlog depleted, and a much more focused selling effort at every level of our
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Dated 03/08/10 PAGE 8
sales channels, we anticipate a sales improvement in 2010. Our other major herbicide
Dacthal®, performed similarly in 2009 – relative to 2008.
Net sales of our insecticide product lines for 2009 were considerably lower than those of 2008.
After a good start, sales of our insecticides dropped in the second quarter of 2009 due to
reduced acres in cotton (on which Bidrin is used) and peanuts (on which Thimet is used) and a
decrease in pest pressure on cotton and other crops. In the third quarter, sales of broad
spectrum insecticide, Orthene, picked up; however, that trend trailed off in the fourth quarter, as
our Orthene line faced generic pricing pressure. In addition, a lack of precipitation and pest
pressure in our primary markets resulted in a drop in sales of our mosquito adulticide, Dibrom,
during both third and fourth quarters of 2009; and the decline in sales of this product negatively
impacted both top and bottom line performance. It should be noted that Dibrom had very strong
sales in 2008 due to a very heavy hurricane season.
Also, year over year sales of our fungicides experienced a significant drop. This decline resulted
primarily from reduced international demand for our PCNB product line, as a large-volume
customer had ordered a significant supply in 2008 and held sufficient inventory to preclude the
need to re-order in 2009.
Our plant growth regulators generated a consistently strong sales performance all year; led by
our NAA product line, net sales of plant growth regulators for 2009 were up significantly over
those of 2008.
Also, we saw solid performances from our two main foreign subsidiaries (in Mexico and Costa
Rica). However, international sales as a whole performed somewhat below the levels achieved
in the same period of 2008. This includes some impact from tight regional credit control, some
large transactions in 2008 (mentioned above) that have not repeated in the current year, and
regulatory pressure in Brazil and the European Union.
The Non-Crop segment declined significantly because of the non-reorder in Canada, and the
significant year-over-year drop in the demand for the mosquito adulticide Dibrom.
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Dated 03/08/10 PAGE 9
In conclusion, I feel confident that our sales will be considerably stronger going forward, and that
our ability to improve the productivity and efficiency of our manufacturing facilities will also be
significantly better. Our market positions, our product offering, our ability to service our
customers will continue to improve and should be reflected in improved financial results in the
next several years.
Now I will return the call to Eric
Eric Wintemute
Thank you, Trevor.
Now, I want to spend a few minutes on something that we have been working on for some time,
but which we have not emphasized in our dialogue with those outside the company. This is our
product development program under the guidance of Glen Johnson, our senior vice-president of
business and product development.
In this program, we have secured the rights to evaluate and advance the development of 14 new
compounds including fungicides, insecticides, herbicides and growth regulators. While they are
at various stages of the development process; approx 6 candidates could be ready for
registration in the next two to three years; and all 14 have the potential to reach
commercialization in the next 6 years.
As in all such research and development endeavors, some of these candidates may fail to meet
necessary commercial performance criteria or may fail to meet certain registration requirements.
Nevertheless, we believe that these compounds represent a substantial, incremental and
realistic opportunity for American Vanguard.
Additionally, as we pursue this initiative, we may have the opportunity to acquire and/or license
the rights to other compounds from a number of global sources that are engaged in AgChem
research and who recognize and appreciate our ability to commercialize products. We have
discussed this potential with a number of parties and they have shown interest in linking their
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Dated 03/08/10 PAGE 10
developmental chemistry with our proven registration and marketing skills. We will keep you
posted on the progress of such potential arrangements.
It is noteworthy to point out that while our traditional, successful business model has been based
primarily on the acquisition and introduction of existing (mature) branded compounds American
Vanguard does have a track record of success in this type of endeavor.
We licensed the post-emergent herbicide compound Topramezone from BASF at a preregistration
stage; carried it through it final trials; completed and secured its registration; branded
it as Impact® and introduced it successfully to the U.S. corn market.
We have also taken a traditional compound (DDVP) with very limited use and created new uses
for it in the commercial pest management market which required many of the same skills used in
new product introductions.
The first of these 14 new compounds is already being primed for launch. It is a potato sprout
inhibitor called SmartBlock®. We have filed for registration in the United States and Canada
and have patent protection in those markets that extends until 2019. Additional registration
filings will be made in all of the major potato growing areas of the world with patent protection
that could extend until 2027. This is a candidate that has shown significant performance
superiority to products now in use and we expect that it will experience its first sales in 2011.
Market acceptance and obtaining many international registrations will require time and effort, but
targeting a current worldwide market of over $40 million, makes us very excited about its
prospects.
It is interesting to note, that the “development track” that we have followed with Impact®, the
Nuvan ProStrip product line and the new sprout inhibitor SmartBlock® can be a very efficient /
high “return-on-investment” model.
While American Vanguard has always been (and continues to be) interested in acquiring mature
branded products at the right price, if we compare recent prices being paid for existing chemistry
in today’s marketplace, to the more modest expenditures that we have incurred in “developing”
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Dated 03/08/10 PAGE 11
these mid-to-late stage development compounds one finds that the return-on-investment of this
development approach can be quite attractive.
While there are risks associate with the probability of successful commercialization these can
often be exceeded by the ultimate benefits of owning patent-protected, well differentiated, niche
market products with high profit margins. We plan to very carefully, very selectively and very
economically continue to both acquire and develop additions for our expanding product portfolio.
To conclude, we have:
So the “Bottom line” of today’s call:
2009 was a very problematic year and we are certainly glad that we had the management
discipline to strengthen our balance sheet, improve our organization, and stay focused on the
future.
We believe that 2010 will show improvement and that future years will demonstrate that
American Vanguard will strengthening its market positions, exploit growth opportunities and
enhance its role in the international crop protection industry.
Thank you and we will now be happy to respond to your questions.
Jay Harris (Goldsmith & Harris)
<Q – Jay>: Good morning. Could you share with us your inventory objective for this year and
how those inventory objectives will be integrated with your manufacturing campaign?
<David>: Jay, we have a target to reduce our inventory by another $5-10 million over the year,
balanced over the course of the year.
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<Q – Jay>: So are we going to have shorter manufacturing runs?
<Eric>: Well, we do see stronger demand for our product for 2010, so the answer to the
question would be no. We think production will be up substantially in 2010, but will be reflected
in sales.
<Q – Jay>: Could you comment on how many dollars of cost you have taken out of operating
expenses and in which quarter you started to do that?
<Eric>: As David said we have balanced out for the year, as far as the increases that we have
made particularly in R&D and Technology. Regarding pay reductions, that was done in
September. The bonus piece of course is generally done at year end. Freight reductions
occurred over the course of the whole year which was down fairly dramatically. We have looked
at waste reduction, due to an issue in the first quarter, staffing up with the correct people in
technical in order to resolve those issues as we go forward with other compounds we
manufacture.
<Q – Jay>: What was the aggregate overall dollar amount?
<