Strong seed and technology revenue growth - Devgen's nematicide launched - Loss H1 substantially reduced
Regulated information
Financial highlights
€ million H1 2009 H1 2008
Revenues 8.6 5.8
R&D expenditure 4.6 7.2
Burn Rate 7.7 7.1
Net loss from cont'd operations -5.0 -7.4
June 30, 2009 December 31, 2008
Cash Position 36.2 24.2


Business highlights

Devgen's novel nematicide, an agro-chemical product that protects crops from damage by parasitic nematodes, is ready to enter the market:

- Devgen obtained regulatory approval in the US for usage of its new nematicide on peanuts. Devgen will promote its nematicide under the brand name Enclosure®. Sales are planned to start early 2010 and demo trials and information campaigns are currently ongoing;

- Devgen obtained regulatory approval in Turkey for use of its nematicide on tomato and cucumber grown under protective cover. The product was launched in Turkey at the beginning of August under the brand name Devguard®.

In India strong growth was achieved in the hybrid seed business despite adverse weather conditions:

- Devgen achieved a 40% growth in turnover during the first half of the year.

- Sales of Devgen's hybrid rice, pearl millet, sunflower and sorghum for the entire Kharif season (ending September) are now estimated to exceed last year sales during the same period with respectively 100%, 70%, 22% and 16%.

- Taking into account that part of the sunflower sales are planned for the Rabi season (running from October until February), turnover for the year is expected to grow by 50% for the full year 2009.

- Growth of turnover in India is lower than planned, but Devgen performs amongst the best in the Indian seed industry in a year when adverse weather conditions had a negative influence on seed production and late and weak Monsoon rains substantially affected the country's farming industry as a whole (e.g. in anticipation of lower production, the Indian government has banned rice exports for the remainder of the year).

- By the end of 2009, having completed its first full year of operations, Devgen aims to be the top 4 player in hybrid rice, to regain the number one position in premium hybrid sorghum and targets to be the number 3 hybrid sunflower seed provider in India.

In Indonesia and the Philippines Devgen is preparing to launch its premium hybrid rice varieties:

- In the Philippines, Devgen has entered into a distribution agreement with Leads Agri, one of the leading agrochemical distributors with nationwide presence and familiar with farmer needs. A Devgen production and commercial support team is put in place. The Philippine breeding team has been strengthened and focuses on evaluating and breeding new rice hybrids that meet the needs of the Philippine farmer. Production is ongoing in preparation of the November sales season.

- In Indonesia Devgen has strengthened its relationship with Pt. Sang Hyang Seri (Persero) through the creation of a Strategic Business Unit for hybrid rice seed production. Registration of Devgen's product is pending and first sales targeted for Q4 2009 or Q1 2010.

Devgen realized significant progress and obtained further industry validation of its R&D programs and capabilities:

- Devgen and Monsanto Company updated their Research and Technology Agreement, resulting in a payment of € 20 million in cash by Monsanto Company to Devgen.

- Devgen renewed the Agrochemical Compound Discovery Agreement with Sumitomo Chemical Company continuing a successful joined research collaboration.

- Devgen's pipeline of biotech traits is expanding and progressing on track.


Key figures H1 2009

EUR 000 (except for earnings per share) H1 2009 H1 2008
Revenue 8,618 5,846
EBITDA -3,615 -6,793
Loss from continued operations -4,645 -7,937
Net of financial income/cost -339 490
Net loss from continued operations -4,985 -7,447
Basic earnings per share from continued
operations (EUR) -0.28 -0.42
Net loss from discontinued operations -162 -4,122
Net Loss for the year for continued &
discontinued operations -5,147 -11,568
Basic earnings per share from continued &
discontinued operations (EUR) -0.29 -0.65
June 30, 2009 Dec 31, 2008
Cash and cash equivalents[1] 36,173 24,218




Revenue

Devgen's revenue for the first six months of 2009 totaled € 8.6 million, compared to € 5.8 million for the same period of 2008, an increase with 47%.

Revenue from seed sales amounted to € 5.7 million for the first six months of 2009 as compared to 4.1 million in the same period of 2008, an increase with 40%. Higher sales are explained by higher volumes and pricing for premium quality. Seed sales will continue in H2 with the sunflower season still to come into full effect. Furthermore export sales (Indonesia and Pakistan) are expected to further add to the top line whilst first sales in the Philippines are expected in Q4.

Revenue from research and development services increased from € 1.8 million for the first six months of 2008 to € 2.9 million for the first six months of 2009. Revenues recorded from the update of the Research and Technology agreement with Monsanto Company and from the renewed collaboration with Sumitomo Chemical Company explain this increase. The € 20 million received from Monsanto, as a result of the update, will be reflected in the P&L for an amount of K€ 667 per month as of May 2009 till October 2011, the end of the contract period.

Expenditure

Cost of goods sold was € 4.1 million, fully relating to sales of seed, compared to € 2.9 million in H1 2008.

Research and development expenses for the first six months of 2009 amounted to € 4.6 million (or € 4.2 million excluding depreciation) as compared to € 7.2 million (or € 6.6 million excluding depreciation) last year, a decrease of € 2.6 million or 36%, mainly due to lower research expenditure for the nematicide program and lower depreciation.

General and administrative expenses for the first six months of 2009 are € 0.5 million lower than during the same period last year, amounting to € 2.3 million.

Marketing and distribution expenses amounted to € 2.3 million (or € 1.9 million excluding amortization of intangible assets) for the first six months of 2009, as compared to € 0.9 million (or € 0.4 million excluding amortization) in the same period of 2008. This is the direct result of a major intensification of sales efforts (e.g. increased number of sales people in the field) to support Devgen's aggressive growth path.

Results

The net loss with respect to continuing operations for the first six months of 2009 amounts to € 5.0 million versus € 7.4 million over the same period last year. A small amount of loss was recorded for discontinued operations during H1 2009, leading to a total net loss of € 5.1 million compared to the net loss including discontinued operations at the end of June last year of € 11.6 million.

Earnings before interest, taxes, depreciation and amortization (EBITDA) for H1 2009 improved to € - 3.6 million from € - 6.8 million for the first six months of 2008 (continued operations). Higher gross profit and lower expenditure for General & Administrative expenses and Research & Development is more than offsetting higher expenditure for Marketing & Distribution. The operating loss improved from € 7.9 million in the first half of 2008 to € 4.6 million in the same period of 2009.

Cash flow and cash position

Devgen's cash and cash equivalents amounted to € 36.2 million on June 30, 2009, as compared to € 24.2 million on December 31, 2008, an increase of € 12 million[2].

The cash provided by operating activities for the first six months of 2009 amounted to € 15.3 million. Net loss for the period of € 5.1 million was offset by working capital movements with as major component cash received for the update of the Research and Technology Agreement with Monsanto Company which 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 2009 amounted to € 0.7 million. Investment in property, plant and equipment amounted to € 1.1 million partly offset by interest received for an amount of € 0.17 million and proceeds of sales of property, plant and equipment (fixed assets relating to discontinued operations) for an amount of € 0.2 million.

Cash flow from financing activities amounted to € -2.6 million for the first six months of 2008. The repayment of a bank loan in India almost entirely explains the use of cash for financing activities.

Consolidated balance sheet

The balance sheet total at June 30, 2009 amounted to € 71 million versus € 57 million at December 31, 2008. Despite a reduction of the solvency rate (equity versus total assets), down to 50% at June 30, 2009 (vs. 71% at December 31, 2008), the balance sheet remains solid, with a cash position of € 36.2 million (vs. € 24.2 million at December 31, 2008). Current liabilities increased to € 28.6 million from € 9.3 million. This includes deferred income for an amount of €19.4 million mainly relating to the € 20 million received in cash from Monsanto Company in Q2, 2009.


Outlook full year 2009

Revenues

Seed sales are expected to exceed € 9.0 million, representing 50 percent growth versus last year. This is lower than targeted because of adverse climatic conditions, during both the production and the sales season in combination with a weak Indian rupee (-5%). In India, based on premium pricing and strong demand for our products combined with good cost management and low product returns, the company is targeting a bottom line corresponding to plan. The shortfall in seed sales is foreseen to be compensated by higher income out of research collaborations (€ 6 million). Sales of nematicides in 2009 are expected to not yet contribute significantly to the top line.

Total revenues are therefore expected to exceed € 15 million.

Burn rate and cash position

The burn rate is estimated at € 12 million by year end down from an initial forecast of € 19 million. This is mainly due to higher revenues out of research collaborations. The effect of movements in working capital will however completely offset the operational burn rate, including investments and the repayment of a loan. Net effect on the cash position is estimated to be positive for an amount of € 2 million resulting in a cash position at year end of approximately € 26 million.

R&D expenditure is expected to total approximately € 9 million, slightly lower than initially budgeted.