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Devgen nv (Euronext Brussels: DEVG), an agro-biotech company developing and commercializing hybrid seeds and crop protection solutions, today provides a business update and its results for the twelve month period ending 31st December 2011. During this period, Devgen has reached a key milestone in the development of its Next Generation Hybrid Rice seeds (NGHRTM), broadened its current offering of hybrid seeds, improved its market access and strengthened its balance sheet. Devgen believes the company is well placed to deliver on its goal of shaping the field of hybrid rice in India and Southeast Asia, thus helping farmers meet the productivity increases needed to grow more food on less land using less water, labor and agrochemicals.
Thierry Bogaert, CEO of Devgen, stated: “The positive results in the development of our Next Generation Hybrid Rice varieties are a key achievement of the last twelve months. The improvement in yield compared to currently marketed hybrid and inbred varieties that we have seen, gives us confidence that Devgen’s varieties have the potential to be an important catalyst in driving the uptake of hybrid rice in India and Southeast Asia. Our current seed business nearly doubled in 2011, reflecting the competitiveness of our product portfolio of hybrid seeds and the continuing improvement of our market access.”
Next Generation Hybrid Rice and Biotech Rice
Since 2005, Devgen has undertaken a fundamental redesign of hybrid rice in order to develop Next Generation Hybrid Rice (NGHRTM) seeds. The company uses an advanced breeding platform that is considerably more efficient than hybrid rice technology currently in the market in India and Southeast Asia.
Devgen’s improved varieties are expected to offer farmers significant performance benefits over existing varieties, including substantially higher yields, improved production efficiencies, better milling quality, suitability for mechanized seeding and desired taste.
In 2011, Devgen’s researchers in India and the Philippines produced hundreds of new and proprietary hybrid rice varieties based on NGHRTM-technology. These were then tested during the July 2011 rice-growing season in multi-location trials in India, the Philippines and Vietnam. The recently completed data analysis identified a substantial number of NGHRTM-varieties that gave in these trials a more than 20% yield advantage over the best conventional varieties and a more than 10% yield advantage over the current-best hybrid rice varieties in the market.
Historical examples in many field crops (such as cotton, corn and sorghum) and in many vegetable crops, learn that farmers only prefer to plant hybrid varieties over conventional varieties once they offer a yield advantage of 20% or more. A substantial number of Devgen’s NGHRTM-varieties now reach this commercial breakthrough threshold. The company is therefore confident that it is on track to deliver hybrid rice varieties that have the potential to fundamentally change the farmer’s economics and to drive the adoption of hybrid rice varieties in India and Southeast Asia.
The best NGHRTM-varieties identified in the 2011 season now undergo seed production research and are scheduled to enter multi-location performance trials in the upcoming planting season mid-2012. In January 2013, Devgen expects to select NGHRTM-varieties for pilot seed production and market entry through large-scale farmer trials in July 2013. The full start of sales is targeted for 2014.
Regarding biotech rice, Devgen’s pipeline of crop protection (insect resistance and herbicide tolerance) and stress traits in rice made progress as planned. Activities in Devgen's government certified biotech greenhouse facilities in Hyderabad (India) and Singapore were further expanded.
Devgen’s current hybrid rice seed business in India and Southeast Asia
Devgen’s existing hybrid rice business in India and Southeast Asia is centered on a number of premium seeds which offer advantages to farmers over traditional varieties. This product portfolio has allowed the company to establish a significant presence in the hybrid seed segment of these markets.
Devgen strengthened its market access in 2011 and achieved a 40% increase in the sales of hybrid rice seeds versus 2010. This was amongst others due to:
Investments in 2011 have led to a strengthening of Devgen’s product portfolio with new hybrid rice seed products set for launch in India, Indonesia and the Philippines in 2012.
In India, Devgen saw the successful conclusion of farmer trials of two new premium hybrid rice varieties. During these trials, Devgen’s new hybrid rice varieties were grown in several hundred locations across key rice markets in India’s Eastern states. Over 125,000 farmers visited the sites as part of the pre-launch marketing campaign. The farmers who conducted the tests and those who visited the fields gave highly positive feedback on yield, grain quality and plant type. The market potential of these improved hybrid rice varieties is therefore substantially validated. Furthermore, extensive seed production trials showed that these products have improved production efficiency over current hybrid seed products, hence an expected lower cost of goods and reduced production risk. Sales of these new products start in the planting season that begins in May 2012.
In the Philippines, Devgen obtained registration for three additional new hybrid rice varieties.
These various necessary steps taken last year, pave the way for the further expansion of Devgen’s seed business in 2012.
Devgen’s activities in other hybrid crops in India
Devgen strengthened its market access in India in its existing seed business in three other strategic crops – sorghum, pearl millet and sunflower. Devgen produces and sells across India proprietary premium seeds of these crops that are seasonally and geographically complementary to rice. The company also started to distribute cotton seeds which complements its portfolio of proprietary hybrid seeds.
In 2011, Devgen realized a 40% growth in hybrid sorghum seed revenues. Devgen introduced an important new hybrid sorghum variety in the market. This product is designed to strengthen Devgen's current leadership of the Indian hybrid sorghum market by having the potential to capture an important share of the so far non-hybridized Rabi (winter) sorghum market which accounts for more than two thirds of the total sorghum market. This new product is expected to offer growers, for the first time, a hybrid variety with equivalent grain quality and taste to traditional Rabi sorghum varieties, whilst providing a significant grain and fodder yield advantage.
Devgen saw a 29% increase in hybrid pearl millet seed sales in 2011. The company successfully completed the first sales season of its first hybrid pearl millet seed adapted to all pearl millet growing areas in India. In its first sales season the new seed was purchased, planted and harvested by over 15,000 farmers across all the pearl millet growing areas in India. The feedback from farmers was most encouraging, referring to a number of advantages over currently available products including higher yields of premium grain and fodder combined with desirable color and quality. Until the market introduction of this new product, Devgen’s hybrid pearl millet seeds were suited only for the South of India (15% of the market). The new hybrid pearl millet seed is important for Devgen as it gives the company first time access to farmers in North India, which account for almost 85% of the 10 million hectare pearl millet market.
The market for sunflower seeds was again limited in 2011. Farmer economics were slightly better than last year but still not at sufficient levels to convince them to grow sunflower in a much larger acreage. Devgen performed well against this difficult market background achieving respectable volumes at prices exceeding last year’s net sales prices. This solid performance was due to the quality of the company’s hybrid sunflower seed portfolio.
In 2011, Devgen acted for the first time as a distributor of hybrid cotton seeds in-licensed from a third party. This distribution activity leveraged Devgen’s marketing and sales capabilities and increased the company’s revenue without increasing its sales force or G&A costs. This activity carries no seed production or stock risk, but contributes only a distributor margin.
Devgen’s novel nematicide for agrochemical use offers a superior environmental and worker exposure profile compared to other currently marketed nematicides. The company’s product is already sold in Turkey under the Devguard® brand to protect tomatoes, peppers, eggplants and cucumbers from infestation by plant parasitic nematodes.
Cheminova was appointed as the distributor for Devgen’s nematicide Devguard® in Southern Europe end of March 2011. This cooperation led to successful joint pre-launch activities in that region.
Last year, the Russian Federation granted permission to import tomatoes and cucumbers treated with Devguard® 500SC from Turkey and other countries. Market opportunities for Devgen are thus expanding in regions that cultivate vegetables for export to Russia.
Data from the first full season of peanut trials with Enclosure® in the US, using a modified label that permitted more flexible applications, confirmed that it performed as well as its main competitor in the market. Sales based on this new label are expected to start once the trials have been fully evaluated and support from key opinion leading agronomists advising farmers has been gained.
The full season evaluation of vegetable trials in the US indicates that Enclosure® delivers crop yields comparable to standard nematicide treatments and significantly higher yields than untreated crops. These results confirm previous observations in Europe.
Devgen is closely monitoring the progress in the review of its registration dossiers by the regulatory authorities. Registrations of Enclosure® and Devguard® in more crops and countries are expected in the course of 2012.
Other corporate developments
Devgen appointed two reference investors to its Board of Directors:
Devgen’s revenues amounted to € 25.5 million in 2011 compared to € 20.7 million in 2010. This 23% increase is due to the excellent performance of Devgen’s seed business. Revenues from product sales amounted to € 15.1 million, nearly double the turnover of € 8.3 million reported in 2010. This excellent growth is mainly attributable to volume growth in hybrid rice seeds (+50%), hybrid sorghum seeds (+35%), hybrid pearl millet seeds (+12%) and to the start of the distribution of cotton seeds.
As anticipated, given the seasonality of the business, seed revenues in the second half of the year were much lower than in the first half of 2011. Seed sales in the second half of the year were comprised of sales of sunflower seeds in India and rice seeds in Philippines, which were in line with expectations. These sales were further increased by realization of additional volumes of sorghum and cotton seeds in India in the second half of 2011.
Revenues associated with R&D activities (Monsanto Company and Sumitomo Chemical Company) were € 10.4 million in 2011 compared to € 12.5 million in the previous year. This lower figure was due to the completion of the 5 year research and licensing agreement with Monsanto Company in October 2011.
Devgen reported a gross profit of € 12.0 million in 2011 which is in line with the gross profit achieved in 2010. The sales and gross profit growth from the seed business was able to fully compensate for the lower revenues from research contracts.
Devgen achieved a gross profit of € 1.6 million on the sales of goods in 2011 compared to a gross loss of € 0.4 million in 2010. This significant improvement in the gross profit from sales of goods resulted from volume increases and was further due to improved production efficiencies and better production conditions in 2011.
Due to the seasonality in the sales of seeds and write down of obsolete inventories at the end of the season, the gross profit in the second half of 2011 is lower than in the first half of the year.
Devgen’s operating loss amounted to € 6.3 million in 2011, which is slightly above the € 6.2 million operating loss reported in 2010, but in line with expectations.
Marketing and distribution expenses of € 4.4 million were slightly below last year’s € 4.5 million. Devgen is benefitting from the market building investment it has made in previous years. This allows the company to realize significant sales growth while total marketing and distribution expenses remain at the same level.
Reported R&D expenses were € 8.1 million, compared to € 8.5 million in 2010. General and administration expenses amount to € 6.2 million in 2011, slightly above last year’s € 6.1 million.
Other operating income amounted to € 0.4 million in 2011 compared to € 0.9 million in 2010. In 2010, other operating income included a € 0.5 million gain on the contribution in kind of part of Devgen’s human therapeutic assets to Amakem NV, a new start-up company focused on eye disease.
Devgen reported a net loss for the period of € 7.0 million, compared to € 7.1 million loss reported for 2010. Operating expenses were stable. A reduction in R&D income was compensated by growth in the gross profit of the seed business.
Devgen had an operating cash outflow of € -8.1 million in 2011, compared to an outflow of € -14.2 million in 2010. With an operating result equivalent to last year’s result, the net operating cash outflow improved by € 6.1 million compared to 2010. This improvement mainly results from favorable changes in trade receivable and inventory balances during 2011.
The cash outflow on investment activities amounted to € 0.6 million, including € 0.3 million nematicides development expenses.
The company generated € 24.2 million from financing activities in 2011. This consists of the € 26.8 million capital increase dated April 4, 2011 offset by debt repayments of € 1.7 million and net financial expenses of € 0.9 million.
In April 2011, Devgen raised € 26.8 million through an equity private placement with pre-identified investors at a price of € 5.85 per share. The principal new investors were Gimv and Gimv-managed funds who jointly invested € 9 million, while € 17.8 million was invested by other new and existing investors including O.G.B.B. A. Van Herk B.V., Madeli Participaties B.V. and Biovest Comm.VA.
As result of this transaction, the company’s solvency ratio (equity versus total assets) improved to 82% at the end of December 2011, compared to 64% at the end of December 2010.
Devgen’s non-current assets remained stable at € 29.0 million as at 31 December 2011 versus € 30.5 million as at 31 December 2010.
The net working capital (excluding cash and cash equivalents) increased from € -4.5 million as of 31 December 2010 to € -0.2 million per end of 2011. This € 4.3 million change is the effect of the usage of the prepayment received from Monsanto Company and the decrease of the inventory and trade receivable balances.
Cash and cash equivalents amount to € 44.3 million as of 31 December 2011, including € 5.7 million restricted cash. The increase of € 15.5 million compared to end December 2010 is due to the € 26.8 million proceeds from the above mentioned private placement offset by € 11.3 million cash used in operating, investing and other financing activities.
Outlook for 2012
Devgen believes that it is well positioned to achieve a further increase in seed sales in 2012 because of:
Devgen’s investments over the last years and those continuing in 2012 are expected to deliver a series of value creating milestones including:
The company is confident that the available cash is sufficient to continue its investments in R&D and market access in India and Southeast Asia.
Financial statements 2011
More complete financial statements for 2011 are available on http://www.devgen.com/financial_reports.php
The statutory auditor, DELOITTE Bedrijfsrevisoren, represented by Mr. Gert Vanhees, has confirmed that it has accomplished substantially all of the audit work and that, as a result of the audit, no meaningful corrections need to be applied to the financial information as included in this press release.
Financial calendar 2012
“Shaping the field of hybrid rice across India and South East Asia”
Devgen’s mission is to deliver the next green revolution in rice to farmers in India and Southeast Asia.
Devgen uses advanced biotechnology and molecular breeding technology to develop the Next Generation Hybrid Rice (NGHRTM) seeds and crop protection solutions with a superior environmental profile:
Incorporated in 1997, Devgen has offices in Ghent (Belgium), and has subsidiaries in Singapore, Hyderabad (India), Yogyakarta (Indonesia), General Santos (the Philippines) and Delaware (US), totaling over 250 staff.