Ghent, Belgium
25 August 2010
Devgen rapporteert halfjaarresultaten voor 2010
Devgen nv [Euronext Brussels: DEVG], announced today its results for the six month period ending 30 June 2010, which have been prepared in accordance with the IAS 34 'Interim Financial Reporting'.
Financial highlights
| € million |
H1 2010 |
H1 2009 |
| Revenues |
12.3 |
8.6 |
| Gross profit |
6.6 |
4.5 |
| R&D expenditure |
4.1 |
4.6 |
| Net loss from cont'd operations |
-2.3 |
-5.1 |
| |
June 30, 2010 |
December 31, 2009 |
| Cash Position(1) |
32.7 |
45.8 |
(1) Including restricted cash for an amount of € 5.5 million as per June 30, 2010 and € 5.6 million as per December 31, 2009.
Business highlights
Seed business India
Devgen is active in hybrid seeds of 4 crops in India. The 2010 sales season for rice, sorghum and pearl millet hybrid seeds is essentially completed to date. For Sunflower, the main sales season starts in Q4.
Rice:
- Devgen has grown its sales volume and revenues by 25%, despite poor market conditions. Both the 2009 and 2010 Kharif* seasons witnessed late arrival and shortfalls of rains. Under these conditions farmers tend to switch to a different crop to minimize their financial exposure and/or tend to plant varietal seed requiring less upfront investments. As a consequence the overall hybrid rice market has remained at approximately 16,000 ton, unchanged from 2009. The top 3 players (Devgen is nr 3), gained market share from the smaller players and increased their combined market share from an estimated 54% in 2009, to 60 % in 2010. Assuming normal weather patterns in 2011, the hybrid rice market is expected to resume growing.
- Devgen maintained its sales prices, based on the quality of its products, while the overall trend in the market was price reduction.
- Devgen launched Frontline Gold, a new premium seed product. A large number of demo trials during the 2009 season in addition to excellent results achieved in the 2009 government trials allowed for a successful launch this year. Frontline gold is a high yielding, premium quality, medium duration hybrid rice product..
- Devgen expanded its introduction of direct seeded rice in Northern India. In collaboration with CIMMYT India**, Devgen developed and widely promoted an agronomy package for direct seeding of rice. Direct seeded rice results in savings in labor, time to harvest and on average reduces water usage by 30% (3,000 m³ per hectare per season).
Sorghum:
- Devgen strengthened its number one position in volume and value with a 26% increase in sorghum sales over the previous year. This achievement occurred in a hybrid sorghum market that shrunk 40% compared to last year due to adverse weather and unfavorable crop economics***.
- Devgen launched, Sorghum 296 Gold, a hybrid delivering higher yield than DJ60, launched last year by Devgen. Until now DJ60 was the most premium product in the market.
- The hybrid sorghum sales in India are mainly for the Kharif season and represent 45% of the addressable market (2.4 million hectares). Devgen targets future growth in the remainder sorghum market by developing specialized products:
- The 5 million hectare market for the Rabi season**** is nearly exclusively supplied with cheap varietal seed. This Rabi season, Devgen is launching a new sorghum hybrid with the same grain quality but offering a considerable yield advantage.
- Today only 10% of the fodder sorghum market consists of branded, commercial seeds. This market is expected to grow as the milk industry in India increasingly encourages the farmer to move to quality fodder sorghum to feed his cattle. Devgen's SX17 sorghum fodder hybrid, is in its second year in the market and already obtained a 15% market share of the branded seed market segment. The total sorghum fodder market represents 1 million hectares or 50 K tons of seed.
Pearl millet:
- • Devgen today sells pearl millet mainly in Central India (Maharashtra and Karnataka states). Devgen maintained its volume and value in this market, which overall was down by 28% compared to 2009, due to adverse weather conditions.
- • To enter markets which are not served by the existing product portfolio, such as the large Northern India market, Devgen launched two new hybrids in 2010:
- - Mahalaxmi DB5000 a premium product for the warm and dry North-west region of India.
- - "Tilak" a high yielding product with wide adaptability across India.
Sunflower:
- - The 2009 Rabi market was significantly lower than normal: an estimated 4,500 tons compared to 6,500 tons in normal years and 7,000 tons in peak years. The currently depressed sunflower oil prices make growing other crops for farmers more profitable. Sunflower prices typically follow a multi-year cycle influenced by import of edible oil by the government. This trend continued in 2010, resulting in unexpected sales returns in H1 2010 which impacts 2010 sales.
- - Devgen's currently estimates that the 2010 sunflower market (which starts in Q4) will decrease by approximately 30% compared to last year and only reach 3100 tons. Prices are expected to be under pressure due to high stock levels in the market (2009 returns).
- - As a consequence of these market conditions, Devgen does not expect value growth in this crop but expects to retain its nr 3 position in this market.
- - Devgen's strong product portfolio and pipeline places it in a good position to grow again as markets return to pre-2008 levels over the next 2 years.
Hybrid rice Philippines
As Devgen is gaining experience in Philippines, the production capability, the trained staff and the upgraded infrastructure are gradually put in place.
Devgen's hybrid rice product, Masuwerte, was introduced in the dry season market (November 09 to April 10) and was sold for the first time during the wet season (June 10 to October 10). Sales of this hybrid were expanded to the three main rice growing islands (Luzon, Visayas and Mindanao), and stocks, albeit limited, were fully liquidated. The wet season gives more challenging weather and disease pressure than the dry season. To date this crop is in flowering stage. Early farmer's feedback is positive.
The research team in Philippines is now operational and has evaluated new hybrids for different market segments in Philippines and S.E. Asia. Several potential candidates for launch in 2011 and 2012 have been identified.
Hybrid rice Indonesia
Awaiting import clearance by Indonesian authorities, Devgen is still expecting to launch DG-1-SHS in the course of 2010.
Devgen strengthened its relationship with PT (Persero) Sang Hyang Seri. A memorandum of understanding was signed between both companies on the introduction of biotech rice in Indonesia.
Research
Devgen management is confident that the pipeline in its four crops is delivering the products that will fuel growth. While Devgen is further expanding its sunflower, sorghum and pearl millet pipelines, the main research investment targets the development of a new generation of superior hybrid rice seeds. Such products will be essential to convince farmers to convert from traditional rice to hybrid rice. Devgen targets to launch several new hybrid rice products in 2011 and 2012.
Devgen is on track with implementing its strategy of bottom-up redesign of hybrid rice. Devgen expects to reach important milestones following the completion of product trials currently ongoing in India and to be initiated shortly in Philippines. The results of these trials will be analyzed in Q1 2011. Launch of such new products is targeted for 2013.
With yields increasingly affected by drought, heat, and irrigation shortages, the development of a-biotic stress tolerant rice is increasingly critical. Devgen has both a biotech as well as a non-biotech research program towards this goal:
- In Q1 2010, Devgen and IRRI formed a partnership for the development of drought-tolerant hybrid rice.
- In parallel, several promising biotech traits for a-biotic tolerance and biotic stress resistance (pest and diseases) are being tested in the laboratory and the greenhouse.
Nematicides
Devgen remains on track for obtaining efficacy, registration and commercialization of its nematicide in a wide range of crops and countries. As expected and considered normal when launching new products for use in an agriculture environment, volumes sold remain on the low side to date.
Turkey is an important producer of high value crops with substantial exports into the EU. In 2009, Devgen successfully launched its nematicide under the brand name Devguard® in Turkey for use in tomatoes and cucumbers, peppers and eggplant. Experience was accumulated during the first season and allowed to build and enhance the pest management strategy which is being implemented in this year's main season. The new and enhanced protocols allow for broadening the potential of the product.
In H1 2010, Devgen launched its nematicide in the US under the brand name Enclosure® for use in peanut production. A focused market introduction in key peanut growing states in the US enables Devgen to gain experience and achieve further optimization of its product. To date customer feedback is positive.
In Europe, progress has been made with the next steps for the registration of Devguard® as a nematicide on selected crops. In Italy the finalization of the review is now expected before end 2011. In Spain Devgen has submitted in Q2 its registration dossier for the use of Devguard® on tomatoes, peppers, cucumbers and melons.
In South-Africa, the registration review process is ongoing. Large scale demonstration trials on tomatoes and potatoes are now planned for the upcoming season. A distribution agreement is being finalized and further crop and label expansion is being progressed.
In Morocco, registration trials for the use of Devguard® on tomatoes are ongoing. The trials are performed in close cooperation with the Moroccan Ministry of Agriculture and Devgen's commercial partner in Morocco. Tomato is the most important vegetable crop grown under protective cover in Morocco.
Key figures June 30, 2010
EUR 000 (except for earnings per share) |
H1 2010 |
H1 2009 |
| Revenue |
12,252 |
8,618 |
| EBITDA |
-1,040 |
-3,760 |
| Operating loss from continued operations |
-2,120 |
-4,645 |
| Net of financial income/cost |
-212 |
-339 |
| Net loss from continued operations |
-2,332 |
-4,985 |
Basic earnings per share from continued
operations (EUR) |
-0.12 |
-0.28 |
| Net profit/loss from discontinued operations |
0 |
-162 |
Net Loss for the year continued &
discontinued operations |
-2,332 |
-5,147 |
Basic earnings per share from continued &
discontinued operations (EUR) |
-0.12 |
-0.29 |
| |
June 30, 2010 |
December 31, 2009 |
| Cash and cash equivalents(1) |
32,724 |
45,763 |
(1) Including restricted cash for an amount of € 5.5 million as per June 30, 2010 and € 5.6 million as per December 31, 2009.
Revenues
Devgen's revenue for the first six months of 2010 totaled € 12.3 million, compared to € 8.6 million for the same period of 2009, an increase by 42%.
Revenue from sales of goods amounted to € 6.0 million for the first six months of 2010 as compared to 5.7 million in the same period of 2009. Seed sales figures in H1 were negatively impacted (€ 1.8 million) by unexpected sales returns on sunflower in India due to shifting crop economics for farmers, traditionally growing sunflower. Sunflower sales during the upcoming Rabi season, export sales of seeds out of India and nematicides sales (in Turkey) are expected to further add to the revenue line in H2.
Revenue from research and development increased from € 2.9 million for the first six months of 2009 to € 6.2 million for the first six months of 2010, an increase by 112%. This is due to the income recognition of the update of the Research and Technology agreement with Monsanto Company and to the renewed Collaboration Agreement with Sumitomo Chemical Company.
Expenditures
Cost of goods sold was € 5.6 million, compared to € 4.1 million in H1 2009, an increase by 36%. Cost of Goods is negatively impacted by major investments in growing our production capacity. Following the decision to operate in many new areas it was necessary to identify and train a large number of new farmers which before were not familiar with the production of hybrid seeds. Identifying area specific planting windows and matching soil types impacted further on the achieved productivity and as consequence on cost of goods.
Gross profit increased from € 4.5 million in H1 2009 to € 6.6 million in H1 2010, an increase by 47% due to the contribution of research and development.
Research and development expenses for the first six months of 2010 amounted to € 4.1 million (or € 3.6 million excluding depreciation) as compared to € 4.6 million (or € 4.2 million excluding depreciation) last year. The decrease of € 0.5 million or 12% is mainly due to lower research expenditure for the nematicide program.
General and administrative expenses for the first six months of 2010 amount to € 3.1 million, an increase by € 0.7 million or 30% as compared to € 2.3 million in the same period last year. This is mainly explained by the geographic expansion of our business activities in India, Singapore, Philippines, Indonesia, the US and South-Africa.
Marketing and distribution expenses amounted to € 2.3 million (or € 1.9 million excluding amortization of intangible assets) for the first six months of 2010, in line with expenditure over the same period of 2009.
Other operating income amounted to € 0.7 million as per June 30, 2010 as compared to € 0.1 million as per June 30, 2009. In 2010 a value gain was recorded for an amount of € 0.5 million on a financial participation. Devgen obtained shares of a newly established bio-pharmaceutical company, Amakem NV, following a contribution in kind of one of Devgen's former pharmaceutical research projects.
Results
The net loss from continuing operations for the first six months of 2010 amounts to € 2.3 million versus € 5.0 million over the same period last year.
Earnings before interest, taxes, depreciation and amortization (EBITDA) for H1 2010 improved to € - 1.0 million from € - 3.8 million for the first six months of 2009 (continued operations). Higher gross profit and lower expenditure for R&D is more than offsetting higher expenditure for SG&A. The operating loss improved from € 4.6 million in the first half of 2009 to € 2.1 million in the same period of 2010.
Cash flow and cash position
Devgen's cash and cash equivalents amounted to € 32.7 million on June 30, 2010, as compared to € 45.8 million on December 31, 2009, a decrease by € 13 million*****.
The cash used in operations amounted to € 10.4 million including the effect of the net loss of € 2.3 million and working capital requirements of € 9.4 million. Last year the cash provided by operating activities was exceptionally favored by the cash received from the update of the Research and Technology Agreement with Monsanto Company. This was posted as deferred income to be spread over the remaining term of the contract (ending October 2011).
Cash used in investing activities for the first six months of 2010 amounted to € 0.8 million. Investment in property, plant and equipment amounted to € 0.9 million (seed infrastructure).
Cash flow from financing activities amounted to € -1.5 million for the first six months of 2010, mainly due to the repayment of a bank loan in India.
Consolidated balance sheet
The balance sheet total at June 30, 2010 amounted to € 72.5 million versus € 80 million at December 31, 2009. The balance sheet remains solid with a solvency rate (equity versus total assets) of 62% and a cash position of € 32.7 million vs. € 45.8 million at December 31, 2009.
Trade receivables have increased from € 3.9 million at December 31, 2009 to € 5.7 million at June 30, 2010 due to business seasonality (receivables relating to Kharif season). Growth in rice and sorghum strengthen the impact.
Inventory at June 30 amounting to € 6.8 million compared to € 2.4 million on December 31, 2009 holds mainly inventories for rice, sunflower and nematicides. The inventory for rice seed caters for planned export sales, early Kharif sales in India and buffer stock for future growth. Sunflower seed inventory is ready for shipment into the Rabi market (Q4).
Trade payables on June 30, 2010 amount to € 6.2 million compared to € 4.9 million at December 31, 2009 again reflecting seasonality with numerous liabilities with respect to production and marketing related expenses accounting for the main balance.
Deferred income decreased by € 4.1 million to € 11.1 million and mainly relates to gradual revenue intake of the € 20 million received in cash from Monsanto Company in 2009.
Outlook full year 2010
Revenues
Devgen forecasted top-line growth of 35 to 40% which was considered achievable under normal weather and market conditions in India. Both the Rabi season and the Kharif season gave highly exceptional weather scenarios (especially late arrival of the monsoon initially and excessive rains during the Kharif).
Late arrival of rains in key market areas for hybrid rice impacted the planned growth for rice. The achieved 25% growth is below our initial expectations but in the stagnating market significantly outperforms the industry as a whole. Changed crop economics whereby the farmers chose to grow more cotton and pulses rather than sunflower, resulted in sales returns during the Kharif season. Excessive rains in key markets in August, the high stock levels of hybrid sunflower seeds in the market, together with the reduced market for sunflower leads us to anticipate a tough sunflower Rabi sales season, from both a volume and value perspective. This will further impact our forecasted top line. The strong growth in sorghum (+26%), is not offsetting the impact of the above. With both seed sales in Philippines and nematicides sales in Turkey and the US in ramp-up mode the expected top-line growth from sales of goods is now set at approximately 20%. Revenue growth for contract research will remain at 35% resulting in an overall growth reforecast of still 25%.
R&D expenditure
Forecasted expenditure on R&D remains at € 10 million required to progress Devgen's R&D pipeline which should contribute to future top- and bottom-line growth.
Cash flow
Cash flow including working capital is now set at € -21 million compared to an initial forecast of € -15 million. Lower than expected sales and higher cost of goods are impacting on gross margin because of:
- weather conditions and
- because Devgen expands into new areas to increase its production capacity and to mitigate weather risk.
The higher use of cash is further due to higher working capital requirements:
- inventory increase, partially due to returns and do to strategic stock built-up in support of growth;
- increase in debtors as Devgen is accessing the government subsidy channel to be supplied with notified products. Sales through this channel are with guaranteed payment in Q1.
Auditors Report
Limited review report on the consolidated half-year financial information for the six-month period ended 30 June 2010
To the board of directors
We have performed a limited review of the accompanying consolidated condensed balance sheet, condensed income statement, condensed statement of comprehensive income, condensed cash flow statement, condensed statement of changes in equity and selective notes 1 to 15 (jointly the "interim financial information") of Devgen NV ("the company") and its subsidiaries (jointly "the group") for the six-month period ended 30 June 2010. The board of directors of the company is responsible for the preparation and fair presentation of this interim financial information. Our responsibility is to express a conclusion on this interim financial information based on our review.
The interim financial information has been prepared in accordance with IAS 34, "Interim Financial Reporting" as adopted by the EU.
Our limited review of the interim financial information was conducted in accordance with the recommended auditing standards on limited reviews applicable in Belgium, as issued by the "Institut des Réviseurs d'Entreprises/Instituut van de Bedrijfsrevisoren". A limited review consists of making inquiries of group management and applying analytical and other review procedures to the interim financial information and underlying financial data. A limited review is substantially less in scope than an audit performed in accordance with the auditing standards on consolidated annual accounts as issued by the "Institut des Réviseurs d'Entreprises/Instituut van de Bedrijfsrevisoren". Accordingly, we do not express an audit opinion.
Based on our limited review, nothing has come to our attention that causes us to believe that the interim financial information for the six-month period ended 30 June 2010 is not prepared, in all material respects, in accordance with IAS 34 "Interim Financial Reporting" as adopted by the EU.
Diegem, 24 August 2010
The statutory auditor
DELOITTE Bedrijfsrevisoren / Reviseurs d'Entreprises
BV o.v.v.e. CVBA / SC s.f.d. SCRL
Represented by Gert Vanhees
***** Including restricted cash for an amount of € 5.5 million as per June 30, 2010 and € 5.6 million as per December 31, 2009.
About Devgen nv
Devgen's mission is to enable farmers to sustainably grow more food on less land, with less water, agrochemicals and labour.
Devgen uses advanced biotechnology and molecular breeding technology to make high yielding seeds and crop protection solutions with a superior environmental profile. Devgen brings this technology to the market in the world's major food and feed crops through two complementary strategies:
- licensing Devgen technology for use in corn, cotton and soy and selected other crops in exchange for R&D funding, and milestone and royalty payments;
- producing and selling its premium hybrid seeds in major field crops such as rice, sunflower, sorghum, and pearl millet, in the Indian subcontinent and South-East Asia.
In its Crop Protection unit, Devgen developed an agro-chemical product that protects crops from damage by parasitic nematodes. This nematicide was launched in Turkey and in US.
Incorporated in 1997, Devgen has offices in Ghent (Belgium), and has subsidiaries in Singapore, Hyderabad (India), General Santos (Philippines) and Delaware (US), totalling about 280 employees.
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