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Plant Impact – Third Quarter Trading Update far from routine…

By Steve Moore | Monday 19 June 2017

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from ShareProphets). I have no business relationship with any company whose stock is mentioned in this article.

A “Third Quarter Trading Update” announcement from Plant Impact (PIM). Sounds routine, but the shares are currently more than 12% lower at sub 40p.

The announcement commences with that “revenue for the nine month period to 30 April 2017 was up 55% on the same period last year at £7.3m” - this “around 30%” up on a constant currency basis. It added that “much of this underlying year to date growth has come from increased shipments of our flagship soybean product Veritas to Brazil for the 2016/17 growing season”. So far, so good then.

“The cash balance at 30 April 2017 was £3.7m (31 January 2017: £6.0m), with the outflow reflecting that payment for Q3 shipments was not received until after the period end. The balance at the 31 May 2017 was £5.0m”. Hmmm, so a net cash outflow still then – although not as bad as initially seemed. Following though is that “challenging industry-wide trading conditions in the country have meant that end of season inventory levels of agricultural chemical products in Brazil, including Veritas, are higher than expected”. Uh oh.

An exclusive market rights agreement for Veritas in Brazil sees Bayer Cropscience required to purchase annual minimum contractual volumes of product – and it is updated that the current situation now sees that;

“The group is in discussions about how they will meet these commitments, including exploring contractual amendments which would enable higher volume product strategies and integrated commercial offers to growers. The outcome of these discussions may impact the full year results and expectations for growth in the next financial year.”

Hmmm – so “challenging industry-wide trading conditions”, “higher than expected” inventory levels, annual minimum volumes contractual amendment “discussions” and offers to growers. The possible near-term “impact” ain’t going to be favourable – and the share price reaction looks understandable. At this juncture, one I’ll certainly be avoiding.

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