United Kingdom
September 8, 2008
Highlights
- Strong progress in all
areas of the business
- Market drivers continue to
support favourable environment for products
- Bayer CropScience confirm
second year of testing Myconate on corn, cotton, soybeans
and sunflowers and makes milestone payment
- Negotiations regarding
transfer of technology at advanced stage
- Multinational
agrochemical/seed companies begin testing Myconate on cereal
crops such as wheat, barley, sorghum and oats
- Monsanto commence
extensive testing programme of Harpin on row crops
- Investment in product
development and field trials yields strong results and
significantly extends range of crops and applications for
technologies
- In discussions with a
number of major crop science companies for further supply
agreements for Myconate and Harpin
- Multi-year supply
agreement for natural products signed with The Scotts
Company, the largest supplier of retail products to the home
gardening industry in the United States
Commenting on the results, Chief
Executive John Brady said:
“Demographic trends in middle-class global population growth are
driving demand for increased per capita protein consumption
throughout the world and this irrepressible trend directly
increases the demand for our customers’ products. As a result,
the prospects for Plant Health Care are very exciting.
Awareness, interest and demand continue to grow for our
natural-based products and, in particular, Myconate and Harpin
are developing strong commercial opportunities in many markets.
All of the market drivers, as well as the good progress we are
making with our partners and potential partners and the
strengthening order book, encourage us to look forward to the
future with optimism and confidence in our ability to realise
our strategy.”
INTRODUCTION
We are pleased to announce the financial results of
Plant Health Care plc
for the six months ended 30 June 2008, and to update our
shareholders on our progress in developing the business.
Plant Health Care provides natural products which promote plant
growth, health and yield. Our goal is to become a globally
significant and successful company by proving the effectiveness
of our products and supplying them to the market, either in
partnership with the world’s largest seed and agrochemical
companies that have distribution capabilities to address the
global market (for row and other high-volume crops), or by using
specialist distributors to address the lower volume, but
higher-value, crops and plants.
We made significant progress against this goal in the first half
of the year and this is continuing into the second half. In
particular, the partnerships established in 2007 with Bayer
CropScience and with Monsanto are progressing in line with our
expectations and we are in a wide range of discussions on
further partnership opportunities, including, in particular,
negotiations at an advanced stage regarding a transfer of
technology. Our product development and trials programmes are
confirming an ever-wider range of applications and target crops
for our key Myconate® and Harpin technologies.
SUMMARY OF FINANCIAL RESULTS
Revenue for the six months ended 30 June 2008 was $7.9 million
(2007: $8.4 million), producing gross profit of $3.8 million
(2007: $3.8 million) and a loss before tax of $3.3 million
(2007: loss of $2.9 million). Cash at 30 June 2008 was $7.6
million (2007: $ 0.6 million).
The sales of our international operations were strong during the
first half, with Europe up 81% and Mexico 18% over the same
period in 2007. In the United States, due to the difficulty of
securing organic product registration, we discontinued sales of
organic plant food (OPF) and, as a result, recorded OPF sales of
only $0.1 million in the current period compared to $0.9 million
in the first half of 2007. The reduction in OPF sales in the US,
along with the timing of technology partnership fees which
benefited the 2007 period, led to a decline in total revenue of
6%.
Gross margins for the period increased to 48% (2007: 46%) mainly
due to increased margins on most Harpin-based products. These
margin improvements more than offset the effect of higher raw
material and energy costs throughout the remainder of the
business.
Administrative expenses of $7.1 million (2007: $6.7 million)
included $1.8 million spent on the development and marketing of
Myconate and Harpin (2007: $1.6 million). The introduction in
July 2007 of a long-term incentive plan to attract, incentivise
and retain senior executive talent led to a 2008 first half
charge of $0.3 million for non-cash share-based compensation
(2007: $0.02 million). Disposal of a surplus leased property
allowed the release of a provision of $0.15 million in the
period.
The increase in cash over 30 June 2007 reflects the successful
capital raising of $9.8 million (net of expenses) in September
2007.
OUR TECHNOLOGIES
Continued investment in product development and field testing
has yielded strong results and significantly extended the range
of crops and applications for which we can now approach partners
and distributors.
Myconate®
The period began with Bayer CropScience confirming its decision
to move forward into a second year of testing Myconate on corn,
cotton, soybeans and sunflowers and making a milestone payment
to the Company.
Following successful Company trials of Myconate on wheat in
2007, we entered into agreements with several large
multinational agrochemical/seed companies for 2008 testing of
Myconate on cereal crops, such as wheat, barley, sorghum and
oats. Later in the first half, further outstanding results from
independent field trials of Myconate on wheat conducted by local
growers were reported from Mexico.
In the specialty crop sector, we have established seed treatment
testing with Myconate for vegetables and we are also evaluating
the use of Myconate for fruit and other perennial crops.
Harpin
Following the December 2007 agreement with Monsanto to develop
and commercialise Harpin-based seed treatment applications for
corn, soybean, cotton and canola (rape), Monsanto has been
conducting its own rigorous and extensive testing programme both
in the USA and elsewhere. We are working closely with Monsanto,
providing support wherever it is needed to facilitate the test
programme.
In January we announced at the Beltwide Cotton Conference in
Nashville that replicated field trials for Harpin-based N-Hibit®
and ProAct® demonstrated yield improvements in cotton of between
6% and 12%. These strong results led to a decision to enhance
the “N-Hibit Partnership” programme with the American Soybean
Association by including a grower satisfaction guarantee for the
2008 growing season.
Harpin is also highly effective as a foliar application, and
independent multi-year research studies have demonstrated
significant yield increases when combining Harpin and
glyphosate, the world’s most commonly used herbicide. Early this
year we entered into non-exclusive agreements with several
leading companies in the industry to allow them to evaluate
these studies and the effectiveness of Harpin in combination
with glyphosate.
Harpin has also been shown to be highly effective, when applied
immediately pre-harvest, in extending the shelf life of salad
and soft fruit crops, and preventing cracking in many types of
fruit, including cherries, strawberries and raspberries. In
early June, UK trials of Pre-Tect®, the brand name for Harpin
when used in this application, demonstrated 75% less rot than
the control fruit and validated our future development plans for
shelf-life extension products.
In the specialty crop sector, we have established seed treatment
testing with Harpin in vegetables and in sugarbeet.
Your Board believes that the use of Myconate and Harpin need not
be restricted to food crops, and that there are potential
opportunities for these technologies to be used in developing
crop sectors, such as energy crops. We have formed a team within
Plant Health Care to follow biofuel developments, enabling us to
take full advantage of these opportunities as they arise.
OPERATIONAL REVIEW
Agriculture division
Sales in the US Agriculture division were $1.5 million (2007:
$2.4 million). As described above, we decided to cease OPF sales
in the US during the period and this accounted for much of the
revenue fall. However, market awareness of new Harpin and
Myconate-based products has increased significantly and we
remain confident that sales into the US agriculture market will
resume significant growth in 2009 and beyond.
Sales in Europe were up 81% to $1.7 million (2007: $0.9 million)
as new Harpin-based product sales grew rapidly.
Our Mexican sales increased by 18% to $1.6 million (2007: $1.4
million) as a result of growth of our customer base, as well as
expanded use of our products in the forestry and turf markets.
Gross margin for the division was 55% (2007: 45%), reflecting
the high margins generated by Harpin-based products and the
elimination of OPF, a product line that generated a lower gross
margin.
Horticulture and Turf
Revenues in this division, at $2.6 million, were at a similar
level to 2007, but we expect increased sales in the second half
as our products gain traction in the retail market. The gross
profit margin was 37% (2007: 43%) mainly due to increasing raw
material costs which could not all be passed on to customers.
Operating expenses were unchanged from 2007 and stringent cost
controls will ensure another positive financial contribution
from this business in 2008.
Growth will be aided by this division’s ability to introduce its
products to the home user via the retail market. We announced
today that we have entered into a multi-year supply agreement
with The Scotts Company, the largest supplier of retail products
to the home gardening industry in the United States. Under this
agreement, we will supply Scotts with natural products for
inclusion in their line of retail lawn and garden products
In addition to the supply agreement, the two companies have
agreed to continue working together to explore future
applications of Plant Health Care’s technologies in products for
the retail lawn and garden and professional horticulture
markets. Scotts has the dominant market share in a retail market
that exceeds $35 billion in annual sales.
Technology partnerships
As referred to above, early this year Bayer CropScience gave
notice that it would undertake a second year of testing of
Myconate seed treatments in corn, soybean, cotton and
sunflowers; this resulted in a milestone payment to the Company.
Monsanto has also begun an equally rigorous and extensive
testing programme on Harpin seed treatments in corn, soybean,
cotton and canola, both in the USA and elsewhere. We are working
closely with both companies, providing support wherever it is
needed to facilitate their test programmes and market
introduction. We remain on track to launch products for
commercialisation over the next 2 years.
The Company is now working towards establishing additional
commercialisation opportunities for both Myconate and Harpin
beyond the row crops for which agreements have been struck to
date. Plant Health Care is currently in discussions with a
number of major crop science companies for further supply
agreements in order to respond to the increasing global demand
for sustainable crop yield improvements.
Following the highly encouraging 2007 Company tests on wheat, we
have established testing arrangements for cereals with three
agrochemical companies selected for their geographical reach and
market share in the cereal grain seed treatment sector. One of
these potential partners is also testing a Harpin seed treatment
in wheat.
The successful research on Harpin used in combination with
glyphosate opens the door to other significant opportunities.
There are over 250 million acres of glyphosate-tolerant crops
across the globe. The Company is in discussions with several
major glyphosate producers with a view to partnering Harpin in a
co-formulation with glyphosate for use in these crops.
We are in preliminary discussions with two major potential
partners who have a strong interest in Harpin being applied
pre-harvest to strengthen crops and prolong shelf life.
Outlook
The growth in global middle-class population is driving demand
for increased per capita protein consumption throughout the
world, and this irrepressible trend directly increases the
demand for our customers’ products. As a result, the prospects
for Plant Health Care are very exciting. Awareness, interest and
demand continue to grow for our natural-based products and, in
particular, Myconate and Harpin are developing strong commercial
opportunities in many markets. Global demand for energy crops
will, we believe, create further opportunities for us.
We are also well positioned to take advantage of the continuing
global demand for greater environmental stewardship, a factor
leading to the recent inclusion of Plant Health Care by the
Cleantech Group in its Cleantech Index (AMEX: CTIUS) of leading
environmentally-responsible companies.
All of the market drivers, as well as the good progress we are
making with our partners and potential partners, encourage us to
look forward to the future with optimism and confidence in our
ability to realise our strategy.
We thank Plant Health Care staff for their effort and commitment
to the Company and our shareholders for their continuing
support.
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