American Vanguard 2020 Investor Presentations Highlights and Analysis
American Vanguard 2020 Investor Presentations Highlights and Analysis
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Overview
American Vanguard, and their ag focused AMVAC subsidiary, aren’r household names through the ag industry. For those less familiar with it, here is an overview:
AMVAC is a California corporation and is a specialty chemical manufacturer that develops and markets products for agricultural, commercial and consumer uses. It manufactures and formulates chemicals for crops, turf and ornamental plants, and human and animal health protection. These chemicals, which include insecticides, fungicides, herbicides, molluscicides, growth regulators, and soil fumigants, are marketed in liquid, powder, and granular forms. In prior years, AMVAC considered itself a distributor-formulator, but now AMVAC primarily synthesizes, formulates, and distributes its own proprietary products or custom manufactures, formulates or distributes for others. In addition, the Company has carved out a leadership position in closed delivery systems, currently offers certain of its products in SmartBox, Lock ‘n Load and EZ Load systems, and is commercializing a precision application technology known as SIMPAS
AMVAC doesn’t even crack the top 10 in terms of crop protection chemical revenue globally. They have however, made more than 14 meaningful acquisitions of various chemical assets over the last 4 years in numerous countries, including common actives like quizalofop, proprietary formulations of propiconazole, and chlorothalonil. AMVAC on the chemistry side has essentially positioned itself as a niche player in the generic space, lacking the scale of organizations like Nufarm or ADAMA. What’s worth noting though is that they do create their own unique formulations and combinations. This is still innovation and can provide superior outcomes to a pure play generic organization (although in North America most have began to formulate their own unique combinations).
AMVAC compete directly with all of the larger agrochemical players, like Bayer Cropscience, FMC, Corteva etc. These competitors focus on discovery, AMVAC is not a discovery company in the traditional sense. They differentiate primarily on formulation and moving forward, more on the precision application of products.
Financial Results
While I couldn’t find an actual 2020 report, only presentation from 2020, in 2019 they had a significant portion of their business tied to 3 customers:
In 2019, 2018 and 2017, top three customers accounted for 39%, 29% and 33%
With only so many distributors of chemical products for ag, this isn’t surprising.
Their net sales have steadily climbed for 4 years, thanks in part to acquisitions:
However, in 2020 their sales dropped from $468 million to $458 million:
Looking at 2019 information, from a crop perspective 38% of their revenue comes from insecticides, 45% from herbicide+fungicides and the remaining ~17% from PGR’s and other:
Their gross margins by segment remains the same, indicating similar margin by product type.
Their gross margins are much lower than other competitor agrochemical companies like Syngenta, FMC or Bayer for example (who hover in the mid 40% range) where as AMVAC sits 38%, lagging in this regard. With that said, in the context of a generic like Nufarm who sits at 28% on crop protection.
From an R&D perspective, they are closer to ADAMA or UPL in the 5% of revenue committed to R&D vs. the 10% range for the Syngenta’s, BASF etc. This is to be expected for them being that they are primarily a generic product manufacturers.
Interestingly, they have a unique technology within this expense that I’ll cover more (SIMPAS).
Their Selling, General & Administrative are higher than others in the industry, again, as to be expected. They are around 27% of their sales vs. the top 5 agrochemical and seed companies being in the 16-18% range. This shows to a degree their smaller scale hindering their margins.
New Strategic Initiatives
They have a significant emphasis toward biologicals with their recent acquisition of Agrinos, which is a bio company.
SIMPAS
Smart Integrated Multi-Product Prescription Application System (SIMPAS) will enable farmers to prescriptively apply multiple products in one pass. This equipment just became commercially available in 2021 according to their website.
This system takes cartridges with RFID tags by product type and allows farmers to load them onto a planter. It is designed to be used with both liquid and dry products. Farmers can apply fungicides, nematicides, biologicals and micronutrients in furrow, at the same time and to only those parts of the field needing them.
This technology is very aligned with trends around sustainability and traceability. Ensuring there is no over application and specific understanding of what was applied where in the field. If we look at the progression of precision, it goes like this:
With SIMPAS one could argue there is an ability to treat even more precisely than the plant (microbes), although the benefit of that becomes less.
Here is an example of a prescription side by side with an as applied map:
I didn’t see any mention about their own digital or precision ag platform system. It would make sense that their platform can integrate seamlessly with precision and digital ag platforms, but more on what they could look at further down.
Last year when covering American Vanguard I wrote this:
Microbial based products in the future may be able to be through these cartridges - we know nutrition, soil texture and more vary by area, biology does as well. Precision application of biology will be a focus in the future
Based on the acquisition of Agrinos I would suspect this moves forward rapidly. Especially in the context of sustainability and carbon related initiatives
From last years Upstream overview:
The RFID tags are compelling on other levels too, beyond retail invoicing and farmer benefits. When I start to think about traceability and sustainability demands from foods companies it can be challenging to understand specifically what chemistry/product went where without manual process- opening up the data to human error. This RFID tag could be tracked much more simply in the as-applied data, enabling a cleaner, more passively collected data set that can be stored and exported in a much simpler fashion.
Fast forward to today and we see exactly that direction from the organization with their ULTIMUS system:
ULTIMUS is an electronic verification system that will revolutionize the recording and reporting process for essentially anything that’s applied to a field in which crops are being grown
This enables the seamless recording and opens the SIMPAS technology up to be very beneficial in all things traceability: whether talking carbon associated with a field, a specific low carbon grain or any other spec. This week we witnessed Bushel acquire FarmLogs. If there could be an API integration with FarmLogs, that becomes interesting (granted field level data is likely sufficient for this).
Couple this with see and spray technology or smart spraying and all of a sudden farmers have the capability to do two major passes at plant level precision. Not to mention the potential capability of drone spraying.
As a couple asides from American Vanguard: The last major pass or piece of equipment is the harvester. This is a subject I have heard talked about a few times in the context of being “less precise” than it could be. No matter the crop, whether corn or canola, there are losses each year that equate to lost revenue and increased expenses to control. Double whammy to the ROI. There are companies in this space currently, like Farmwave and Bushel Plus, working to increase the efficiency of harvest and bring precision harvesting forward.
Lastly, SIMPAS is focused on planters. There is a Canadian based equipment company called Clean Seed Capital* that enables row level precision with their SMART Seeder MAX air and their “SeedSync” tech which would be similar to ULTIMUS.
*Disclosure: I am have a small investment in Clean Seed Capital (TSX.V: CSX)
Licensing and Distribution
There has already been an agreement for Trimble to distribute the SIMPAS system. This will be the driver of being able to view in real time what products and rates are going down via their in tractor hardware or Trimble Ag Software products.
There is also a big opportunity through licensing. Without the robust portfolio to really take advantage of this technology, they will likely (or have already) license this delivery mechanism out to other chemistry and fertilizer organizations. To use this only with their own products limits the opportunity and potential.
Biologicals
This years presentation had a HEAVY biological emphasis.
Last year “bio” showed up only 8 times and all in the context of the southern hemisphere and a pre-2018 biological investments. This year? 6 slides of the 34 toal alluding to biologicals and sustainable products. Big shift in a years time.
What changed was the previously mentioned Agrinos acquisition:
What’s worth noting is they were actually bought out of bankruptcy, after losing $1.7billion over the last 10 years.
Agrinos:
A fully integrated biological crop input supplier, from IP, through internal manufacture and warehousing, to distribution and sales.
Agrinos’ high yield technology (HYT®) product platform delivers increased yield at an attractive ROI for farmers, supporting consistent results in diverse environmental conditions and crops.
The products work alongside traditional crop inputs (e.g. fertilizers, herbicides, fungicides and insecticides) to help improve their effectiveness and efficiency, providing increased yield stability and soil health, whilst reducing the environmental footprint of modern agriculture.
Global and scalable infrastructure, with state of the art, low cost manufacturing facilities.
A good overview of their products:
They do have the liquid nutrient products and liquid soil applied microbials that will fit nicely in with their SIMPAS system.
I mentioned earlier that they do not have a digital or precision platform offering. This may present a near term acquisition opportunity. I assume they will focus on integrations, but they could differentiate their products and technology with a strong modelling tool (38% of their business comes from insecticides) and have a central hub for the information they have within ULTIMUS.
They have a big focus on sustainability and carbon:
It doesn’t make sense for them to have a carbon initiative themselves, but in terms of being able to get their products integrated into others, that seems like the biggest opportunity. Their technology could plug into different protocol, driving demand for their products further.
They likely have a fit in partnership with a company like Pattern Ag or Trace Genomics as well. They have the biologicals and they have precision application capabilities. Without a strength in understanding exactly whats going on at a precise level, their level of precision becomes less valuable. So doing something with one of those groups, or one similar becomes important moving forward.
Final Thoughts
American Vanguard has begun to move their business towards two trends we see with sustained or gaining momentum: biologicals and precision technology. Their acknowledgement and ultimately action in these areas is positioning them well as the areas become more prominent in agriculture.
American Vanguard has been known as an ag chemistry company for a long time. Moving ahead they will be known for more than their chemistry business, but their precision technology as well.
Related: See and Spray Implications for Agribusiness - Upstream Ag Insights
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