Bioceres Crop Solutions Corp. annual report, Q4 FY2019

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Bioceres Crop Solutions Corp. — FY2019 Form 20-F

Period note: The request specifies “2018 Q4,” but this filing is the annual report for the fiscal year ended June 30, 2019, with comparison to the year ended June 30, 2018. It does not report a standalone 2018 fourth quarter. Financial statements are prepared under IFRS in U.S. dollars; FY2019 includes Argentina hyperinflation accounting under IAS 29, which affects comparability.

Business context

Bioceres develops and sells agricultural biotechnology, seed, crop protection and crop nutrition products, principally through operations in Argentina and subsidiaries including Rizobacter. On March 14, 2019, the company completed its business combination with Union Acquisition Corp. and exercised an option that increased indirect ownership of Rizobacter to 80%. The filing describes three operating segments: crop protection, seed and integrated products, and crop nutrition.

Financial results and liquidity

  • Revenue: Total revenue was $160.6 million, up 20.3% from $133.5 million. The filing attributes $11.9 million of the increase to IAS 29; excluding that effect, revenue rose $15.2 million. Crop protection contributed $90.2 million, crop nutrition $45.1 million, and seed and integrated products $25.3 million.
  • Margins: Gross profit was $73.6 million, or approximately 45.9% of revenue, versus $56.4 million, or 42.3%, in FY2018. Segment gross margins were 40% for crop protection, 49% for crop nutrition and 61% for seed and integrated products.
  • Operating results and earnings: Operating income increased to $32.1 million from $15.7 million. The company nevertheless reported a $16.4 million net loss, compared with a $14.3 million loss; loss per share was $0.60 versus $0.39. Finance results remained a $41.5 million expense. FY2019 income tax expense was $7.0 million, compared with a $10.9 million tax benefit in FY2018.
  • Adjusted EBITDA: Unaudited, non-IFRS Adjusted EBITDA was $41.3 million, up from $22.4 million; margin increased to 25.7% from 16.8%. It excludes, among other items, finance results, taxes, depreciation and amortization, and $4.5 million of transaction expenses; it is not a measure of cash flow or liquidity.
  • Cash flow: Operating activities generated $29.7 million, versus $18.4 million. Investing activities used $3.3 million, and financing activities used $26.9 million. Cash and cash equivalents were $3.5 million at year-end, with $4.7 million of other current financial assets.
  • Debt and liquidity: Borrowings were $103.6 million, including $66.5 million current and $37.1 million non-current. The filing separately cites $92.8 million of indebtedness under an Exchange Agreement definition; the measures differ. Total liabilities were $180.4 million, assets $242.5 million and equity $62.1 million. Current liabilities/current assets improved to 1.16x from 1.39x; indebtedness/Adjusted EBITDA was reported at 2.25x versus 4.34x.

Material changes versus FY2018

  • Reported revenue growth was led by crop nutrition and crop protection; seed and integrated product revenue declined $1.5 million as reported, or $3.4 million excluding IAS 29 effects, amid restructuring of the seed channel ahead of anticipated HB4 commercialization.
  • Operating income improved, but net loss widened, reflecting the shift from a tax benefit to tax expense and substantial finance costs. Finance costs increased primarily because of higher interest expense.
  • Other comprehensive results improved from a $31.8 million loss to $3.9 million of income, primarily due to smaller foreign-currency translation losses.
  • IAS 29 adoption adjusted FY2019 results and opening balances. The filing says Argentine CPI rose 55.8% from June 2018 to June 2019, triggering tax indexation; $2.8 million of incremental tax expense and payable was recognized, with part allocated to later fiscal years.

Outlook, risks and unusual items

  • Management expected existing cash, operating inflows and borrowings/refinancing to cover anticipated needs for the next 12 months, while pursuing long-term refinancing. After year-end, it renewed expired revolving facilities totaling $17.2 million. A subsequent October 2019 facility allowed up to $20 million, of which $15 million had been drawn by the report date, at 15% cash interest.
  • Growth plans depend materially on developing and commercializing HB4 drought-tolerance technology, securing regulatory approvals and expanding fertilizer, biological and seed-product sales. Management cited an average HB4 yield improvement of 13%–19% in trials; commercial realization remains uncertain. The filing gives no quantified financial guidance.
  • Rizobacter breached a liabilities-to-assets covenant under its syndicated loan at June 30, 2019 and obtained a waiver from the majority lenders. The filing notes high Argentine interest rates, substantial near-term debt maturities and refinancing risk.
  • Argentina’s currency volatility, inflation, recession, exchange controls and political uncertainty pose significant operating and financing risks. Revenue and costs are exposed differently to peso and U.S. dollar movements; the company reported a net U.S. dollar foreign-currency position of negative $40.5 million.
  • A precautionary court measure affects shares in Rizobacter and a portion of dividends. If the contingencies are lifted, Bioceres S.A. may owe sellers $17.3 million; an adverse ruling could instead reduce the company’s Rizobacter ownership.
  • FY2019 includes $20.9 million of share-based payment expense associated with listing the shares, a $6.6 million gain from cancellation of the Rizobacter purchase option, and $4.5 million of merger transaction expenses. Product-liability insurance is not maintained.
  • Disclosure controls were judged effective at a reasonable assurance level. Management did not provide an internal-control-over-financial-reporting assessment for FY2019 because the business combination had only recently closed; an auditor attestation was also not included. The independent auditor issued an unqualified opinion on the IFRS financial statements.

Most important facts for investors to verify

  • Reconcile the filing’s different debt measures ($103.6 million of borrowings versus $92.8 million under the stated indebtedness definition), maturities, renewal options and covenant requirements.
  • Assess cash conversion and liquidity using the full cash-flow statement, working-capital needs, restricted deposits and the substantial amount of debt due within one year.
  • Separate organic operating growth from IAS 29 effects and confirm the treatment of hyperinflation, currency translation and tax indexation in comparisons.
  • Track HB4 regulatory decisions and commercialization milestones, including whether anticipated yields, launch timing and royalties translate into sales and cash flows.
  • Monitor the Rizobacter share injunction, the potential $17.3 million payment, covenant waivers and the effect of Argentine exchange controls on debt service and cash transfers.
  • Review dilution and governance exposure: Bioceres S.A. owned 74.7% of the ordinary shares, and outstanding warrants could add shares if exercised.