BIOX: Bioceres Crop Solutions reports financial results and reviews operational achievements for the 2021 fiscal year

By Steven Ralston, CFA

NASDAQ:BIOX

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Bioceres Crop Solutions (NASDAQ:BIOX) generated double-digit top-line growth in fiscal 2021. Comparable revenues increased 13% to $197.4 million in fiscal 2021, and adjusted EBITDA increased 3.9% to $48.3 million. Despite the second fiscal quarter being impacted by severe drought conditions in certain key growing areas in South America, positive top-line momentum in the second half was driven by the implementation of management’s pricing strategy in micro-beaded fertilizer business and the reorganization of the Crop Protection business. In addition, contributed goods are expected to generate approximately $7.2 million in revenues when the seed inventories are sold.

Plantings of HB4 wheat and HB4 soy increased over 700% in fiscal 2021 as the company builds seed inventory in anticipation of regulatory approvals being granted by Brazil and China.

On the regulatory front, Bioceres Crop Solutions achieved two highly significant bio-agricultural regulatory milestones. In October 2020, Argentina approved the production and marketing of drought-tolerant and salinity-tolerant HB4 wheat, though the regulatory approval is contingent upon trade approval by Brazil. And in June 2021, the Canadian Health Agency and Food Inspection Agency approved drought and herbicide tolerant HB4 soybeans for consumption and production in Canada.

During fiscal 2021, Bioceres entered into or expanded several strategic partnerships. In mid-March 2021, Bioceres Crop Solutions invested in Moolec Science Ltd, an Ag-Food tech company that is in the process of developing hybrid crops that combine plant-based (including soybean and wheat) and cell-based technologies in order to provide meat analog food-proteins. In May 2021, the Bioceres entered into an agreement with Havanna SA, a manufacturer of premium food products that could utilize HB4 agricultural products in its farm-to-fork efforts. During the fourth fiscal quarter, Bioceres expanded the collaboration with GDM Seeds to North America, an opportunity estimated to be over 10 million hectares. The immediate target areas are southern Canada, Minnesota and the Dakotas.

In November 2020, Bioceres acquired the remaining 50% of the Verdeca joint venture. Bioceres is now in sole control of HB4 soy technology. In addition, Bioceres has been granted rights to the Good Wheat brand in Latin America.

Bioceres Crop Solutions now owns 100% of Verdeca LLC. The acquisition includes Verdeca’s library of gene-edited materials, including exclusive rights to Arcadia’s HB4 soy technologies developed during the years of the joint venture. Bioceres is now in sole control and now accelerate breeding and go-to-market efforts for HB4 soy. In addition, Bioceres also was granted rights to Arcadia’s wheat traits, the Good Wheat brand and other GLA non-core assets for Latin America.

Flagship HB4 Programs

HB4 Wheat

In the June-July 2021 planting season, 55,000 hectares were planted, up 686% from 7,000 hectares last year. The number of HB4 wheat growers increased 800% YOY from 25 to 225 with 95% onboarding digitally, a testament to the company’s Generation HB4 digital β-platform, which automates commercial interaction, credit scoring, contract execution and input logistics. Through a comprehensive dashboard app, growers sign up by geo-positioning their fields and then manage orders, invoicing, billing, traceability etc.

The August-December 2020 wheat growing season was characterized by severe drought conditions in certain growing regions. HB4 wheat out-yielded commercial varieties on average by 13.5%. In low-end productivity environments, HB4 wheat increased yields by an average of 42%. These drought conditions enabled Bioceres Crop Solutions to showcase HB4 wheat technology under real world conditions.

HB4 Soy

In the November-December 2020 planting season, approximately 23,000 hectares of drought-tolerant HB4 soybeans were planted (up 667% from 3,000 hectares in the prior fiscal year) with the number of growers increasing 887% from 15 to 148.

HB4 soy has demonstrated significant yield benefits in highly restricted environments in environments where average yields are below 1.5 tons per hectare. However, the benefit was not being realized in moderate to highly productive environments where average yields were greater than 2.5 tons per hectare. The company has developed second and third generation varieties that meaningfully reduce the drag. The first generation materials are being discontinued, and second generation varieties are being repositioned for double cropping while third generation varieties are being ramped up.

Regulatory Approvals

On June 1, 2021, Bioceres announced that the Canadian Health Agency and the Canadian Food Inspection Agency approved HB4 drought and herbicide tolerant soybeans for consumption (food & feed) and production in Canada. The target market is in southern Canada where approximately 2.5 million hectares of soybeans are farmed where yields are usually below three tonnes per hectare.

Awaiting Regulatory Approvals from Brazil and China

Bioceres Crop Solutions is on the verge of globally commercializing HB4 soybeans and HB4 wheat. Management looks forward to the over $100 million market opportunities the will spring from China’s regulatory approval for the importation of HB4 soybeans and Brazil’s regulatory approval for the importation of HB4 wheat. The company continues to build up inventories of HB4 soybeans and HB4 wheat in preparation for fast-tracking commercialization when these regulatory approvals are granted. The impact of commercializing HB4 technology will be highly significant for Bioceres Crop Solutions.

The Brazilian HB4 wheat regulatory process progressed in June 2021, when the Comissão Técnica Nacional de Biossegurança (National Technical Biosafety Commission aka CTNBio) requested additional gene expression information for native non-targeted genes of relevance from Bioceres. The requested information was filed with CTNBio by August 18th.

The Chinese regulatory authorities did not request any additional information regarding HB4 soy during the fourth fiscal quarter.

Strategic Partnerships

In mid-March, 2021, Bioceres Crop Solutions contributed its GLA rights to Moolec Science Ltd in return for a 6% equity interest (2,919,715 ordinary shares) in the company. Moolec Science is an Ag-Food tech company that is in the process of developing hybrid crops that combine plant-based and cell-based technologies in order to provide meat analog food-proteins. In an effort to commercialize cultured meat, Moolec has produced rennin (bovine enzyme chymosin) in safflower seeds and currently is working on producing bovine (cow) and porcine (pig) functional proteins in protein-rich crops, initially in soybean and peas, but also in wheat and oats.

In early May 2021, Bioceres Crop Solutions entered into an agreement with Havanna SA, a manufacturer of premium food products that are sold in retail stores and supermarkets as well as through its own system of over 300 franchise coffee shops. Havanna will develop and roll out a line of HB4 wheat-derived products with farm-to-fork traceability. This foray into the direct-to-consumer channel should not only promote consumer engagement with HB4 wheat, but also valid the adoption of HB4 wheat as a high value ingredient by other food processors.

In December 2013, Verdeca (now wholly-owned by Bioceres) entered into a joint venture with GDM Seeds (Grupo Don Mario) to develop and commercialize HB4 soybean varieties. A new agreement was signed during the fourth fiscal quarter of 2021 that expanded the collaboration to North America, an opportunity estimated to be over 10 million hectares. The immediate target areas are southern Canada, Minnesota and the Dakotas.

Acquisition of Remaining 50% of Verdeca

On November 12, 2020, Bioceres Crop Solutions acquired the other 50% ownership interest in the Verdeca joint venture held by Arcadia Biosciences (as well as the Intellectual Property assets related to soybeans for Latin America) for $20.0 million, consisting of $6.0 million in cash and 1,875,000 shares of Bioceres (worth $14 million). In addition, Arcadia will receive $2.0 million upon Verdeca obtaining regulatory import clearance for HB4 soybeans from China. In addition, Arcadia will receive 6% royalty payments of the net HB4® soybean technology revenues realized by Verdeca up to a maximum of $10 million. Subsequently, in June 2021, Arcadia Biosciences sold its entire 1,875,000-share holding in Bioceres for $22.2 million.

Bioceres Crop Solutions now owns 100% of Verdeca LLC. The acquisition includes Verdeca’s library of gene-edited materials, including exclusive rights to Arcadia’s HB4 soy technologies developed during the years of the joint venture. Bioceres is now in sole control and now accelerate breeding and go-to-market efforts for HB4 soy. In addition, Bioceres also has been granted rights to Arcadia’s wheat traits, the Good Wheat brand and other GLA non-core assets for Latin America.

ESG (Environmental, Social and Governance) Assessment

Bioceres Crop Solutions commissioned Vigeo Eiris, the ESG Solutions Group of the well-known Moody’s rating company, to produce an independent Second Party Opinion (SPO) on the social and environmental impact the roll out of HB4 soy and HB4 wheat in terms of cumulative CO2-equivalent savings. Management’s goal for the roll out of HB4 technology is to achieve over 156,000 tons in cumulative CO2-equivalent savings by 2025.

Management desires to adhere to Voluntary Process Guidelines of the ICMA (International Capital market Association), which recommend achieving certain Sustainability-Linked Bond Principles (SLBP) in order to give guidance to market participants that allocate capital to sustainability-linked financial products. SLBP include realizing material, pre-determined and verifiable ESG sustainability objectives through quantitative Key Performance Indicators (KPIs). Management believes its goal in terms of cumulative CO2-equivalent savings provides a clear definition of a KPI, along with its reference to the Sustainable Development Goals (SDGs) of the United Nations (namely SDG 2 and 13), sets the foundation to qualify as an issuer of Sustainability-Linked Bonds (SLBs).

Fiscal 2021 Financial Results

Bioceres Crop Solutions also reported financial results for the fiscal year ending June 30, 2021. Management’s new fertilizer pricing structure, coupled with the reorganization of the sales effort in the Crop Protection segment during the fourth fiscal quarter, drove a 13.4% YOY increase in total comparable revenues to approximately $197.4 million from $174 million in fiscal 2020.

Comparable revenues of the Crop Nutrition segment increased 19%. The significant catalyst was micro-beaded fertilizer, which management has been priming up through a commercial pricing strategy designed to utilize more of the installed operational capacity of 50,000 tonnes. The plant’s utilization rate on a 12-month trailing basis was 40% (20,000 tonnes) compared to 30% (15,000 tonnes) during fiscal 2020 and 20% (10,000 tonnes) in fiscal 2019. In addition, price increases in commodity fertilizers (the primary competition to the company’s micro-beaded fertilizer) further incentivized farmers to transition and adopt the advanced technology of micro-beaded fertilizer.

In the Crop Protection segment, comparable revenues increased 13%, bolstered by the reorganization of the sales effort during the fourth fiscal quarter. In the Seed and integrated products segment, comparable revenues increased only 5% as an unfavorable product mix shift to B2B sales and lower-priced packs in Latin America reduced the segment’s rate of top-line growth.

The comparable gross profit margin compressed 102 basis points.

Reported selling, general and administrative (SG&A) expenses increased 24.1% to $47.6 million from $38.3 million in fiscal 2020. Major factors include higher employee salaries and social security expenses in the baseline business, expenses related to the ramp up of the HB4 program and additional outsourced professional services incurred by the roll-out of the digital platform. Reported R&D expenses increased 33.9% to $5.62 million as regulatory approvals and product registrations were pursued, along with continued development of seeds, traits, biofungicides and bio-stimulants for wheat and soybean crops.

Adjusted EBITDA increased 3.9% YOY to $48.3 million in fiscal 2021 versus $46.5 million in the prior fiscal year, primarily driven by same forces in the fourth quarter, increased gross profits from the Crop Nutrition and Crop Protection segments, somewhat offset by higher operating expenses. The lower rate of increase compared to the fourth quarter is due to IAS 29 adjustments that result from the inflation and FX dynamics in Argentina.

For fiscal 2021, Bioceres Crop Solutions reported a net loss attributable to equity holders of $6.87 million (or $0.175 per diluted share) versus a net profit of $3.36 million (or $0.092 per diluted share) in fiscal 2020. Weighted shares outstanding increased 7.7% to approximately 39.22 million shares from 36.42 million shares in the last fiscal year.

As of June 30, 2021, Bioceres Crop Solutions has a strong liquidity position with cash, cash equivalents and other short-term financial assets totaling approximately $49.2 million compared to $56.0 million as of June 30, 2020. Working capital, however, improved YOY from $37.2 million to $43.8 million.

Removal of All Outstanding Warrants

During the fourth fiscal quarter, Bioceres exchanged all 24,200,000 outstanding warrants through a $1.031 million tender offer transaction, thereby eliminating potential future dilution.

Updated Segment Information

With its principal executive offices in Argentina, Bioceres Crop Solutions is an integrated, global provider of crop productivity solutions for use in all stages of crop cycle, from pre-planting all the way through harvested crop storage. The company has developed and provides a portfolio of products and services categorized in three segments: crop protection (65.9% of FY2021 reported revenues), crop nutrition (35.0%) and seed & integrated products (20.1%). This multi-product platform includes seeds, seed treatments, biologicals, adjuvants, chemicals and fertilizers.

The crop protection segment (34.2% gross margin in FY2021) is comprised of adjuvants (performance-enhancing molecules that increase the effectiveness of the active ingredients in pest control products), insecticides, fungicides and other control products, while the crop nutrition segment (49.5%) is composed of inoculants, fertilizers and microbiological products. The highest gross margin segment is seed & integrated products (62.9%), which includes seed treatments (full seed treatment packs that promote plant growth) and seed traits & germplasm.

Bioceres Crop Solutions has a global distribution and commercial platform serving many countries; however, significant revenues are concentrated in seven countries with the company’s key market being Argentina (91.3% of FY2021 revenues), along with the nearby countries of Brazil (14.3%), Uruguay (3.3%), Paraguay (3.1%) and Bolivia (2.2%), along with France (2.5%). Argentina is one of the largest markets for genetically modified crops, particularly row crops.

Drivers for Growth

There are several potential catalysts that would drive revenue growth, EBITDA and earnings of Bioceres Crop Solutions. The company’s new fertilizer pricing structure, along with the reorganization of the sales effort in the Crop Protection segment is driving near-term revenue growth. These two initiatives were implemented in the second half of fiscal 2021 and should continue to gain traction during fiscal 2022.

In addition, regulatory approval for importation of HB4 soybeans into China and/or the regulatory approval for the importation of HB4 wheat into Brazil would drive a dramatic scale-up of production of HB4 soybeans and/or HB4 wheat in Southern Cone of South America. The increase in demand could potentially over double the company’s top line. Also, management to preparing to further penetrate the Canadian and U.S. markets through the company’s collaboration with GDM Seeds.

Valuation

For Bioceres Crop Solutions, a reasonable methodology is a discounted cash flow (DCF) model that estimates future cash flows and discounts them by using the cost of capital in order to attain a net present value. Our DCF model is arranged by expected revenue streams from three business lines, namely the company’s revenue generating businesses (primarily Rizobacter), the expected revenues from HB4 soybeans and the expected revenues from HB4 wheat. The model (which applies a 14.5% discount rate and a terminal P/S ratio of 0.56) indicates a NAV share price target of $18.20 per share on a fully diluted basis.

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