Q4 2021 Bioceres Crop Solutions Corp Earnings Call
Good day, and thank you for standing by.
I'll come to the bio series crop solutions fiscal fourth quarter 2021 financial results Conference call.
At this time all participants are in a listen only mode. After.
After the speaker's presentation, there will be a question and answer session to ask a question. During the session you will need to press star one on your telephone.
Please be advised today's conference is being recorded seed corn.
Any further assistance. Please press star Zero I would now like to hand, the conference over to maximize Korea. Thank you. Please go ahead.
Good day, everyone and thank you for presenting.
During today's call with me today to go to call, our Chief Executive Officer, and then scale up and our Chief Financial Officer.
For the Q&A session.
We will proceed I would like to make the following safe Harbor statements today's call will contain forward looking statements and I refer you to afford income statements make sure.
Today's earnings release and presentation as well.
Our recent filings with the SEC, we assume no.
No obligation to update or revise any forward looking statements to reflect new or change events or circumstances.
Also please note that for comparison purposes, and a better understanding of our company's underlying performance.
In addition to discussing as reported results.
Our presentation today, we will discuss comparable results.
Excluding hyperinflation accounting in Argentina.
Additional information in connection with the application of the rule Ias 29 can be found in our earnings report.
Finally, this conference call is being webcast.
Webcast sneaky salary levels.
<unk> sections fitness clubs Dot com.
This time I would like to turn the call over to our CEO Federico Trucco.
Thanks, Max and thank you all for joining us today.
Please turn to slide three for a brief overview of the business and financial highlights we will discuss in today's call.
From a baseline business perspective, comparable revenues were up 39% to $76.0 million in the quarter and.
13% to 197.
$4 million for fiscal year 'twenty one.
With LTM adjusted EBITDA at $51.0 million.
Momentum consolidated in the fourth quarter, confirming a very strong second half to fiscal year 'twenty one.
Driven predominantly by sustained micro beaded fertilizer sales and the reorganization of the crop protection business.
These revenues do not account for approximately $9.0 million.
Of the total of $11.0 million of H before program contributed goods with.
With an average gross margin of 43%.
However associated operating expenses were 20 discounted from the adjusted EBITDA, indicating a boss.
H before program revenues will be recognized once realized inventories or not.
Longer.
Contributed but rather sold a seed or grain.
Top line growth for the quarter allow us allowed us to remain on track with our historical L. P M double digit growth trajectory.
While at the same time supporting the <unk> hundred four program Rollouts.
And think it will provide greater details around dollar financial performance for the quarter and full field fiscal year later on this presentation.
On the H before fronts, we have scaled up eight times compared to the previous year with a total of close to 80000 hectares planted with over 10 different wheat and soy eight before varieties.
As we have done in previous calls I will provide a more detailed updates on agronomic performance farmer acceptance inventory scaling up process are breeding Netflix and collaborations across the Americas and the current regulatory status for each crop.
Two relevant highlights worth, noting our head of our more in depth discussion are.
The regulatory clearance obtained in Canada.
H before site.
And the expansion of our collaboration agreement with Grupo Mario to North America.
Especially targeting the southern Canada, Minnesota under that caught us region.
We will also discuss these two highlights in greater depth in the next slides.
Please turn to slide four for an update on the ongoing H before wheat season.
H before we'd was planted in 55000 hectares with contributed goods totaling $10.0 million.
As previously explained the value piece contributed goods will be recognized as revenues once they realized inventories are sold a sito grains.
Longer contribute it.
The current multiplication area represents a seven eight times increase over last year's airport, including varieties outfit, 275% of Argentina's addressable market.
The number of participating growers increased eightfold with Henry percent grower repeat rates.
Very importantly, with 95% of participants Onboarding D. G W.
The crop is they have all been favorably with recent rains normalizing, but that whole situation suffered in some of the sub regions.
In slide five you will see the results of our atria forest soil ramp up process.
We finished harvesting all 23000 hectares.
At last season.
For all of our trade performance perspective results were aligned with technology expectations with HP for materials, showing significant yield benefits in highly restricted environments.
Equally in dose with average yields below one voice one five tons per Hector.
However.
The accumulated youll benefit was diluted as moderate to highly productive environments, where aggregated.
Karen Germplasm still behind some of the most competitive commercial multi deals.
These trump let them drag can be better observe as we assuming to the discrete you link the routes in the next slide with our smart just nine 1% yield reduction on average and environments between two five.
And three five tons per Hector.
This phenomenon was more pronounced in our earliest varieties, which yielded on average 11% less than a selected group of top commercial performers.
The germ plasm drag became less uncertainty as we evaluate these newer materials with second generation materials on.
Only 3% below the same group of commercial controls and some third generation varieties matching and even beating top commercial performers.
One interesting observation illustrated in slide seven.
Is that when corrupt after week in double cropping systems.
Germplasm drag is minimized and performance greatly improved.
At least in some of the second generation materials, where these could be tested.
And this is shown here.
In the current slide.
Yeah.
In summary, turning to the next slide.
H before we'd inventory ramp up is progressing as expected considering that we still have not received Brazil's regulatory clearance.
Which we will discuss in a moment.
Eight before soy inventory ramp up is being redesigned to address Trump let them drive in earlier materials with the ramp up of first earnings and materials discontinued and second generation materials repositioned to double cropping systems as we accelerate multiplication of third generation materials.
Target deemed there, but I'll list H before acreage opportunity.
Okay.
Now turning to slide nine.
Concomitantly with our internal efforts, we are expanding our existing collaboration with top tier soybean germplasm developer Grupo Don Mario.
With which we designed a new agreement during the quarter to jointly develop and commercialize <unk> for soy in North America.
More specifically in the sub region, including Southern Canada, Minnesota under that caught us.
Where we believe there are approximately 10 million hectares highly prone to water deficit.
As you May recall Grupo <unk> early licensee of the AP portrait for its Latin America, So reading programs.
And also during the last year, we have expanded our dream collaboration with D. M. G. One of Brazil stopped rely themselves soybean genetics with 170, <unk> pre commercial HVAC for soy varieties currently being tested in approximately 100 hectares of them up lots being organized with <unk>.
Selected farmers.
During the upcoming season in that country.
So G D M and T. M. D are expected to provide materials as soon as 2023 for the H B Fuller program in Latam as well as commercialized directly in the future using their existing go to market models.
Okay.
Finally, turning to the next slide I will discuss the main regulatory highlights for the quarter.
Received regulatory approval for each report soy from the Canadian Health Agency and the Canadian Food inspection agency.
As you know with approximately $7.0 million active Spartan every year and yields often below the three tons per Hector.
Our soybean production regions are well suited for H before value generation.
So H before soybean is approved today.
Actually in the United States, Brazil, Argentina, Paraguay in Canada, representing 85% of the world's soybean Hector age.
During the quarter, our regulatory teams had media day three four week consumption approval requests in Australia, New Zealand, South Africa and Indonesia.
Near the end of the quarter.
You said, it's received a formal requirement from <unk>, the Brazilian regulatory body.
To provide additional gene expression information for Natus non targeted genes of relevance to regulators.
This information was produced and filed with SEC the Navy yield by almost 18.
<unk> V H before wheat regulatory process in that country.
No additional information has been requested during the quarter by Chinese regulatory authorities regarding HP for soy.
And we believe both the regulators Rosie.
Brazil, and China should be able to resolve approval requests in their upcoming proceedings and look forward to communicating their findings as they are informed to us.
This concludes my prepared remarks, I will now turn the call over to our CFO and retail office like with to discuss our fiscal fourth quarter financial results and recap.
Thanks radical good day to everyone and thanks for joining us today.
Getting into the financials. Please turn to slide 11 for a review of the revenue performance during the quarter and full fiscal year.
A third eco line a few minutes ago, we had a strong fourth quarter performance with comparable revenue rising to $76.0 million from $60.0 million in the fourth quarter of fiscal year 2020.
Solid 39% increase the consolidated momentum from the third quarter.
Growth during the quarter was mainly driven by a successful outcome from the reorganization initiatives taken earlier in the fiscal year to reignite growth in our crop protection business segment.
From nutrition also contributed to increasing comparable revenues off the microwave fertilizer business line continued to expand confirming the growth trend that had been displayed in the third quarter.
The 48% and 46% increase in crop protection crop nutrition comparable revenue, respectively were slightly offset by an 8% drop in C&I integrated products.
On a reported basis the increase for the quarter was 71% from $50.0 million voters to $84.0 million.
This increase in reported revenue was significantly higher than the evolution of comparable revenues Ias 29 adjustments decreased the basis of the reported figure in the fourth quarter of 2020.
And expanded the reported metrics for the fourth quarter of 2021.
For the full fiscal year period total comparable revenues were up 13%.
$201.0 million compared to a year ago period.
With revenue growth across all three business segments.
Despite the softer performance during the second quarter, which had been negatively impacted by drought in key markets across South America, a strong second half of the fiscal year allowed the business to maintain double digit growth trajectory, even without the inclusion of $9.0 million out of the total.
$11.0 million voters of contributed goods from BH before program.
Please move on to slide 12, now for a breakdown on fourth quarter revenue per business segment.
The $25 million increase in comparable revenues was driven by crop protection crop nutrition with a slight drop in seed <unk> integrated products.
Crop protection sales were up 48% from the year ago quarter, reaching $51.0 million.
Growth across our segment portfolio resulted from the implementation of a reorganization of strategy.
Intended to uncouple market access channels from teams dedicated to proprietary products from lower margin third party products.
The expansion during the quarter was mainly driven by higher insecticides fungicides and adjuvant sales in Latin America, specifically be to seed sales for the latter category in Brazil.
Average gross margin for the segment decreased from 39, 9% to 36, 2% primarily due to increased sales of lower margin seed treatment cut opex.
The other growth contributor for the quarters comparable revenue expansion wash the crop nutrition segment, which grew to $29.0 million voters across both product categories.
The strong performance of the microwave fertilizer product line during the quarter is the outcome.
Of the shifts in the commercial strategy that was implemented two quarters ago, we enhanced the attractiveness of the value proposition to farmers.
Blowing and already improved performance in the third quarter. The trailing last 12 months rate of usage of installed capacity increased from 30% to 40% on a sequential basis.
In Oakland sales also had a very good performance with volumes increasing from $7.0 million doses. Two 4 billion doses increased demand of high added value and document in Brazil, which fully recover the decline of the third quarter was the main growth driver in this category.
Margins for fertilizers remained stable as volumes scale up with the overall crop nutrition gross margin slightly expanding to 54, 2%.
Data and integrated products comparable revenue in the fourth quarter of fiscal 2021 stood at $14.0 million slightly below the year ago quarter. The.
Zero point $6 million decrease was driven by seed treatment packs. Despite volumes remaining flat at $2.0 million doses.
A proportion of the growth, but we had accomplished in South Africa in the fourth quarter of fiscal 2020 was replaced by lower price effects in Latin America.
Lower tax contribution as well as a slight shift from B to C to b to B pack sales in Argentina led to a segment gross margin dropped from 63, 5% to 53% this year.
Overall, we are very satisfied with growth in revenue during the quarter, which was accomplished with an average 43, 4% comparable gross margin. It is worth mentioning that aside from the pricing volume and product mix dynamics I just described.
Gross margins during the quarter were also affected by FX and inflation dynamics in Argentina, where we hold most of our production facilities.
Inflation related price increases of raw materials and manufacturing costs denominated in local currency exceeded the benefit of the Argentine peso appreciation.
Which negatively affected production cost structures of some of our products go.
The interaction between FX and inflation rates turned into headwinds during the fourth quarter of fiscal 2021 from tailwind in the year ago quarter further emphasizing an unfavorable comparison.
Moving onto slide 13, which shows the breakdown of gross profit per business segment.
As a result of the revenues and margins evolution addressed in the previous slides comparable gross profit for the quarter rose by $15.0 million from $24 five two.
From $35.0 million.
So part of the gross profit from crop protection was $20.0 million up $4 million from 11, and a half during the previous fiscal year quarter.
She didn't integrate these products contributed a total of $9.0 million borrowers and comparable gross profit during the quarter down 1.1.
$1 million from the year ago period in line with the evolution I described in the previous slide.
Finally crop nutrition delivered $15.0 million in comparable gross profit.
An increase of $4 million from $11.0 million a year ago.
It needs to be noted that crop nutrition display the highest growth within the three business segments, reaching a contribution of almost 40% to total comparable gross profit.
Reported gross profit rose by $15.0 million voters to $36.0 million the increase in as reported gross profit was higher than the increase in comparable gross profit. Following the same Ias 29 adjustments dynamics described for revenues.
Let's now please move on to slides 14, and 15 for a review on EBITDA performance for the quarter on the last 12 months respectively.
The $15.0 million increase in as reported gross profit was the main contribution to adjusted EBITDA growth for the quarter, which increased 13% and total $22.0 million voters compared with $21.0 million in the year ago quarter.
Conversely, operating expenses and other income and expenses rose by $11.0 million and <unk> 5 million respectively.
Including an expense increase of approximately one $3 million related to data acquisition within the H before program the rollout of the vehicle platform and income.
Supporting the program Hector scale out.
Setting aside H before related expenses SG&A from the operation of the baseline business increased primarily due to a mix of fixed and variable operating expenses related to the expansion of the business.
Salaries, and social security expenses increased by $7.0 million driven by growth in the Brazilian subsidiary as well as the reorganization process to support growth in the crop protection segment also Bollywood sales related tax expenses grew by $3.0 million borders in line with increased revenues during the quarter.
On a different note similar to manufacturing costs and payroll inflation and FX dynamics in Argentina.
Were the main on main instruct you on support functions of the company are located also had a negative impact in expenses.
Despite the increased total SG&A expenses were down 234 basis points as a percentage of revenue from 21, 7% to 19, 4% the noting operational leverage.
R&D expenses totaled $2 million during the quarter compared to <unk> 8 million doors in the fourth quarter of fiscal 2020.
Approximately two thirds of the R&D expenses in the quarter were related to the development of seed and traits and the remaining third was related to development of new Biopharma side somebody's stimulus.
I know the JV results decreased by $6.0 million doors compared to the fourth quarter of fiscal 2020, mainly due to Ias 29 adjustments on senior debt the company's micro beaded fertilizer manufacturing JV.
Yes.
In slide 15, adjusted EBITDA for fiscal year, 2021 totaled $51.0 million voters, a 4% increase versus fiscal 2020.
Sales growth spanned all business segments with US reported gross profit increasing by a total of $12.0 million from boast off $12.0 million increase in comparable gross profit and a one eight.
Millions of dollars, but it's with your adjustment from Ias 29.
The divergence between as reported and comparable metrics for the full year was lower than the fourth quarter figures.
Aspen benign adjustments.
The decrease in a scenario of conversions of inflation and FX depreciation in Argentina.
Growth in gross profit was partially offset by an increase of $16.0 million in operating expenses with a fourth quarter dynamics, explaining most of the increase and bolting the yearly trend.
Importantly, SG&A for fiscal year 2021 includes expenses related to the ramp up of THB four program.
While deferred revenues from contributed goods are yet not fully reflected in revenue and gross profit.
Inflation and FX dynamics in Argentina also had a negative impact in the full year expenses compared to fiscal year 2020.
Following the $51.0 million adjusted EBITDA achieved during the fiscal year supplementary cash flow information is presented in the right hand side of the slide.
Investment activities totaled $23.0 million during the full fiscal year $4 million were invested in tangible assets, including maintenance capex as well as the acquisition of land for the expansion of the adjuvant manufacturing facility in Brazil.
<unk> and intangible assets.
During the year stood at $10.0 million with roughly 35% allocated to the continuous development of the <unk> digital platform.
Finally, the acquisition of where they've got other assets from our JV, our biosciences, mainly explained the $9.0 million voters in acquisitions during the year.
From a tax perspective income tax accrued over the period, excluding deferred tax liabilities.
At $10.0 million.
Additionally, one $8 million of deferred tax liabilities from previous fiscal periods were paid during fiscal year 2021.
Finally, net cash financial expenses and commissions accrued for fiscal year 2021 totaled $20.0 million.
Let's now please turn to slide 16 to address our debt evolution in cash position.
We continue to make good use of research partnership with Argentina agreed markets throughout the fourth quarter as we completed $26 million public offering of series five corporate bonds in early March 30% of the issuance.
A one year maturity and an annual coupon rate of <unk>, 98% and the remaining 80% was issued with a maturity of 36 months on an annual coupon rate of five 5%.
The total financial debt increased by $27.0 million from the fourth quarter of fiscal 2021st left hand side column.
Through the fourth quarter of the current fiscal year, while total LTM financial expenses decreased by 16% from $20.0 million to $20.0 million.
Total net debt as of June 32021 was $124.0 million.
Two five turns net debt to adjusted EBITDA.
The increase in the Companys debt ratio compared to the prior fiscal year was primarily due to increasing total financial debt as the company replace inefficient working capital sources with corporate bonds on a sequential basis net debt to LTM adjusted EBITDA decreased from 280.
89 turns on March 31, 2021, primarily due to reduced short term debt position and higher LTM EBITDA.
Liquidity from cash and cash equivalents and short term investments represented approximately 67%.
Current portion of debt.
That concludes the financial remarks for today, So I will now turn it to third eco for concluding remarks.
Thank you Enrique.
Moving forward to the next slide we can.
Summarize some of the major highlights for the fiscal year, 'twenty, one where we had double digit.
Top line growth across all three segments. Despite a cellphone performance in the second quarter due to the climatic situation in South America.
Gross mainly driven by the development of the micro beaded fertilizer.
Expansion plan in the fourth quarter crop protection, we organizational strategy.
Contributed goods for HVAC Port program, both eight before we'd at HP for soy increased significantly.
<unk> 3 million.
Approximately $105 per Hector farmed.
We did a gross margin of approximately 43% and the value of these contributed goods as we indicated before will be recognized as revenues. Once the realized inventories are sold us seed or green.
But not knowing that contributed.
H before wheat, what's commercially approved in Argentina on October of 2020 subject too.
The Brazilian import approval for.
For full commercial launch in Argentina.
This approval represents a historical milestone for the entire global value chain being the first biotech we'd event.
<unk> fully cleared.
We acquired the remaining H before Sawyer ownership interest in better like a L. L C.
Aiming to accelerate breeding and go to market strategies.
Complete ownership will enable us to capture more of the underlying economic value generated by the technology and as part of the transaction.
Company acquired but I guess that at soybean library of gene editing materials for do you end up being new quality and productivity rates as well as exclusive rights to all of our key technologies applicable to.
To this crop by a serious has also been granted Latin American rights to Arctic ETS wheat traits and good with Brent and other <unk>.
L a noncore asset.
During the period, we successfully completed the.
The offer to exchange.
All $26.0 million outstanding warrants in a cost effective manner, eliminating the future dilution entailed by by these theory about this.
There were $17 million. So total financing obtained also during the last fiscal year $43 million of funding was added to the company's.
Main operational subsidiary reached a lag there.
<unk> D series, four and series five Corp.
Corporate bonds.
Making a considerable progress towards sub.
Substantially lowering financing costs, extending debt maturities and increasing.
Financial flexibility syndicated by Enrique.
24 point, sorry, $35.0 million equity financing complete.
Completed through the aforementioned better the Cas acquisition and the warrants.
Tender offer transaction.
Management has been focusing unlocking value from stocks liquidity lock accretive deal structure with strategic equity components as they once just described on top of selective persistent IR efforts resulted in a 78%.
Year over year improvement.
Three months that ADM moving average.
Yeah.
In terms of stuff lately.
Moving to the next slide coming up next in terms of fiscal year 'twenty. Two you can expect from our baseline business perspective to see reignited a profitable growth in the seed <unk> integrated products segment the.
The same way, we saw in the crop nutrition and the crop protection segments over the last two quarters.
<unk> continued to move forward with our digital platform releasing.
Some of the developments we have generated in this in this front.
From a product development and go to market perspective.
Celebrate the ramp up of the third generation materials for both atria for soy and HP for wheat and.
Start ramping up inventories for the good week.
But the deals are we in licensed from Acadia.
On the regulatory front.
<unk>, China, and Brazil regulatory clearance is up 83 for soy and eight before we respectively and also continue to work on the downstream any ESG initiatives too.
To build on the data we are accumulating and provide.
Data driven ESG, scoring of produced inventories, although the HPV program.
Dean downstream specifications.
So these are essentially concludes today's management overview I will now.
Open up the floor for any questions that you may have.
Yeah.
And as a reminder, if you'd like to ask a question simply press star one on your telephone keypad.
Your first question comes from the line of Ben <unk> with Lake Street capital markets.
Alright, Thank you for taking my questions.
First question on the quarter itself Gray resolved really congratulations on a strong end to two to the year.
I'm curious if you can talk about the initiatives that you've taken in both the nutrition and the protection segment and talk about kind of your expectations for fiscal 'twenty two around those initiatives. I mean, you guys are now coming off of a really difficult comp given how good of a second half you had but I guess I'm curious how.
Further improvement do you expect in these two parts of your business throughout fiscal 'twenty two.
Hi, Ben this is bill.
Thanks for joining us.
Okay.
So.
From those two business segments, starting point in crop protection.
I was studying.
Previous remarks.
Tried to divide the channels the teams the.
Our commercial teams are focused on the proprietary and.
Valuable profitable products.
Other products.
This is unfortunate for the company, but that would require it depends.
On a different approach to market such as third party plants.
She thought so that's a good opportunity for us.
Business in the company, but are not strategic.
So doesn't it organization process already started delivering results.
And that might continue throughout the year.
Your incremental results, but this is more of a one time implementation process and not something that will continue delivering results either after a year.
So that to me more of a one time or versus what you are seeing in problem permission.
Our new commercial strategy around microwave.
<unk> is working.
Very well until now you remember from previous calls.
Sizing to hit the gas.
Ramping up the volumes up pretty nicely.
<unk> being a bit more aggressive on pricing for farmers, but trying to keep margins as would be done.
To me the third quarter and the fourth quarter were a testament to that.
We were able to significantly increase the use of their capacity.
And that is something that we hope will continue delivering.
We sold all over Europe.
22 number that you're targeting to get.
Upwards of 60% sometime in the next two years with Europe being pickup so still a long way to go.
That started to ease the rehearing.
And you don't give guidance.
So obviously, a very very attractive business.
To us and Latin America, we have already a market leader, but we are seeing that growth is happening.
I'm, taking place in that category.
The good thing.
By geography footprint so.
Starting this quarter, what we lost in South Africa.
Operating income.
Remember, we got what we broadly loss in Brazil last quarter was recovered D. C. Here, so steel a source of growth to us and I think that our main strategic points there.
Geographic distribution globally.
And remember that this is the product broadly, which we are globally.
In the.
Industry more specifically in biologicals.
Got it okay. That's helpful. Thanks Enrique.
Pivoting over to H before.
There's a lot going on here and I'll admit I am a little confused as kind of a near term expectations, especially for soy I understand the first second and third generation a breakdown that you gave but for that second generation that you've outlined as being.
Pretty efficient on on on kind of poor quality.
<unk> is the expectation that youre going to be revenue Ing SEC.
Generation seed here in fiscal 'twenty, two and if so what kind of inventory levels do you have.
That second generation material.
Hi, Ren this is Federico thank you for joining the call and thank you for the question regarding the HV for soy.
Ramp up process. So what we wanted to basically illustrate there is how fast we move forward. He now were bringing efforts we're improving on the general performance in moderate to highly productive environment and not just the H B Fuller benefit in these highly restricted environments, where we know that technology.
We can deliver 15%, 16% yield improvements, which we believe to be important for the varieties to be used broadly and to minimize.
Any kind of user.
Discomfort, if you will it be for whatever reason situations are.
Very good from from a rainfall perspective and and we.
And farmers experience a drag due to the germplasm GAAP so.
The second generation varieties of the 23000 hectares, we just harvest it.
Less than 15% of those at word planted with second generation materials.
So what we wanted to to tell you here is that our ability to ramp up in the coming season.
It's probably going to be less than what we need in the last year. So last year, we did eight eight times.
And what we did the year before we think this year will be at 3% to Forex.
Cause up sort of the constrained generated by them.
The performance in the first generation varieties, which we will not continue to scale.
And repositioning of all of the second generation materials.
Dropping systems or highly restricted areas, we want to make sure that farmer experience.
Yeah.
Excellent and that is kind of what were putting the guidance here.
Designed.
The process for the accounting system now at where.
Still in ramp up mode. So you won't expect.
To see you Shouldnt expect to see revenue is materializing until we get the the China approval.
Having set lease if we discontinue some inventories.
That gets to be sold are strained or.
Salt.
Yes.
Green River, there you will see that coming through the P&L.
Process in the coming year, and maybe I think I can give you more color regarding as to how that gets materialized, but Paul CFC. If your question was fully addressed otherwise.
I'll try it again.
No I think you did but that that presented that presents another question on your comment about.
About and basically.
Leading the way here for Chinese approval so so.
Does that imply that.
<unk>.
That commercializing H before soy via an identity preserved supply chain and ensuring great customers, our domestic that thats not an initiative that's going to be undertaken here.
You know in fiscal 'twenty to fiscal 'twenty two for soy is gonna be purely an inventory.
And the inventory ramp year, and not a commercial year for H before soy.
It's going to be an inventory ramp year for them ideas, we get to keep.
For futures.
Sales of seed and he will become.
Our revenue year for materials were discontinued and we're sending into an identity preserved industrialization back.
Okay.
Right.
That makes sense.
Okay, and then I guess the last question on H before.
<unk> talked about the double crop system here now with with wheat, and soy and really what does that look like what kind of what's the what's.
What's the double crop system in Argentina from a timing perspective, when do they planting.
Are they following up with soybean planting.
So <unk> has already been planted it's usually a June July.
July Atlanta, and depending on the area and.
And then the.
Depending on the level of humidity farmers might want to do soy after week in November and December.
That is where we're seeing that H before performance fees and hence, particularly in the modern it environments.
Although the two highly productive environments.
Where we saw the the germplasm drag.
And there are $6 million sectors today.
Under the double cropping system in Argentina. So this is not an insignificant.
Opportunity.
We have.
Not only are.
Performance in soybeans that we can point to but also where we can leverage on the terrific performance of our wheat varieties in all of the H before wheat.
Performance studies beyond these fields.
M B, a terrific complement to the soy products that.
Outperform commercial Medici has seen double cropping system. So while this is still a fraction of the overall opportunity we are seeking with H before I think it's one that weekend.
Make you saw right away with our second generation materials. We are currently scaling up.
Okay last one for me and then I'll pass it over you talk about fast tracking third generation.
Third generation materials really what does that mean you know what.
What initiatives are you taking.
Fast tracking and what does.
What's your expectation for how inventory build can can can grow over the next year or two given this fast track approach.
So the faster Rockiness essentially doing up see some production so instead of having one cycle of multiplication every year, we will try to particularly early on when we're talking about hundreds of.
Thousands.
The off season in the U S. Like we have done in the past for some materials. So that's currently happening I believe that we will.
Probably be on a few thousand hectares with third generation materials in the coming up season on the aggregate.
And the remaining obviously to achieve the 3% to Forex at will be with second generation materials and <unk>.
Significant portion of that that's our fault.
Photo work to two weeks.
We believe that in the next cycle.
We should not be hindered by the performance of the materials all by the availability of inventories, but we will be dependent on.
Chinese approval as I said before moving identity preserve beyond that half a million hectares.
Mark.
It's challenging so.
We think that if we do things right from a multi application perspective, we should be able to be there and then the Chinese clearance becomes of greater relevance.
What we have today.
Okay.
Okay very good well I appreciate the comments from both of you are there's more to talk about but I'll I'll turn it over to the other analysts. Thank you for taking my question.
Thanks Brent.
And again, if <unk> like to ask a question simply press Star. One. Your next question comes from the line of Kevin <unk> with Brookline.
Hi, Thank you.
Couple of questions first on the <unk>.
In your presentation you.
<unk> mentioned, you expect regulatory approval in fiscal year 2022.
Is it.
Do you have increased confidence or is it.
Just on the regulatory interaction or is this just the Pat reflect the passage of time I'm trying not to read too much into that.
Piece of information in the slide.
Well, thanks, Ken for for joining the call I think the answer is a combination of all these different aspects that you have indicated for instance in terms of the Brazil process for H before wheat.
That's an active process we.
We can follow what happens in every meeting.
We got questions.
Send to us I believe in the.
In the June meeting.
After the process was.
Ready to be decided those questions ask us to generate additional data essentially to look at how H before may affect other genes in week that can potentially be of <unk>.
Allergan.
Allergan.
Linked.
And we need something that has no presses, we basically evolution did every single Genie wheat.
And show that there was no change and we provided that data back to regulators in August 18th.
The first meeting since we provided that data was conducted the first days of September. So there was not enough time, probably between our filing in that meeting for regulators to to have a full view of the data package, but there is an upcoming meeting in October.
We will leave enough time would have elapsed for them to come to a conclusion and then we don't know what that completion will be but there is a process that we can more or less track and.
We can get an additional question or we can get an approval and so that's where we are in terms of where the Chinese process.
We have less visibility and.
All that we know is that we are not getting more questions and that is this.
This has been the case since.
Since last year. So we didn't get any additional question from Chinese regulators during 2021.
They have not met yet.
So we don't know when the next meeting is going to occur.
They usually are meeting in the health first half of the year, but that has not occurred and this is not be upset is related. This is for all gmos that they gave all right.
We don't have.
Our meeting die arise that we can sort of point you to today, but that is kind of where.
Where we are in our understanding of the processing, China from a time perspective, where within the customary timeframe.
Yeah.
Within which they made decisions in the past for four other events that they have approved.
Okay.
Fair enough Thats very helpful.
My second question relates to your comments on Canada.
And.
Typically we've assumed that.
Small subset say, 20% to 25% of acreage in a given market.
The appropriate for.
H before products and your comments on Canada today suggested it might be more than that given.
The geography.
Does that reflect the increased visibility on the market opportunity there.
Yeah, that's a very good point that 25% as a rule of thumb up for us.
Sort of the Amerigas I would say by when you look at the sub region that is entailed by southern Canada.
And some parts of the northern U S like munis sort them that I call. It 10 million hectares. There all combined where we expect penetration to be higher than 25% because these are hectares.
Often brown to water deficits and where average yields.
To be below the three times per hectare, sometimes even below the two five tons per Hector so the value proposition of H before becomes even more compelling.
That's why we we were.
Eager to secure germplasm for the police region.
And one thing we were effectively announcing today.
So collaboration not to be able to have maturity groups tool and below that are specifically suited.
To the east part of North America, and take advantage of having all the approvals in place.
To capture.
On the SEC Hector snow.
Yeah.
Great. Thanks, and just this will be my last question and it relates to the partnerships.
How does the partnership economics work.
And most specifically.
Hi.
Do they have any impact relative to.
Doing this on a standalone basis.
Yeah.
Well I think the there are two important aspects.
The.
Usually the technology's priced on two different fronts, the germ plasm the hardware if you will.
And the trade.
The software that goes into that hard work.
So we were software providers for them from an age before perspective, we have our own hardware company. When we are discussing a proprietary program the data that yourself from from Latin America from Argentina comes from our.
Hardware company, where we're combining <unk> with our proprietary study germ plasm, if we use someone else's hardware.
That person gets to keep the three to four sometimes even $8.
For bag that are usually.
Hardware dependent when we jointly develop the hardware we split that 50.50, but that doesn't do anything to the price of the software, which we get to keep ourselves.
Ford burden, if you will that we fully owned today that is the developer of the trade we might if certain incentives.
One.
Yeah.
Working with partners on the software revenue and they can be between 15% to 30%.
The trade price so trade fees, depending on how deeply in bulk we are.
And whether they meet on a sudden metrics.
But this is building additional economics beyond what we originally had.
Germplasm perspective.
Are you providing their germplasm capabilities go financing that so that we can have them.
Owner shipping into those additional economics and keeping.
Keeping everything else from the trade side the way it is for traditional licensee.
So to be clear the net effect for you is minimal.
Just on what you had previously.
Indicated to us.
Yeah, I wouldn't I mean, we're not having a leakage on our H before value in general.
There will be some germplasm royalties coming to us due to the investment we will be making jointly with our Mario but the important thing here is the ability to capture in a geography, we would not be able to capture in the absence of somebody because we do not have.
Alright.
So these region of North America from.
Our proprietary efforts.
Great. Thank you.
Your next question comes from the line of Steven Ralston with Zacks.
Okay.
Good morning.
Good morning, let's say even on the great topline.
The seams.
It seems to be that the.
Strategies that you're putting into the crop protection in the crop nutrition segments is gaining traction.
This will be.
Kind of a long winded question.
Just looking at it.
Overall it appears that.
The seed business.
It's a geographic expansion story.
And with the potential with Argentina of course would have lightened.
Lightning could strike here in Brazil, and China.
The nutrition area is the capacity utilization story, and you have plenty of room to ramp up the utilization in it.
You're on track there.
But looking at the.
Crop protection area.
With this reorganization will strategy.
It's with bringing on these dedicated teams.
It seems like there's a structural increase in the SG&A and could you talk about that because I see.
The SG&A jumped up substantially during the fourth quarter.
But you know as.
As you say it was it's.
It's still a lower percentage of sales because this topline grew so much.
But could you talk about what's structural implications there are in ESG in any line concerning the reorganization of the strategy.
Hi, Steven.
Thanks for joining us today, especially with the hiring of the call.
So I think that your overview.
The initiatives.
Accurate.
On your specific question on this journey, a very mind got.
SG&A, we are today accounting for expenses related to the launch of <unk>.
For them the rollout before and that is yet not having any impact on that.
Top line profitably.
So to me that he felt important point on SG&A and then on your question on your specific question.
About the crop protection reorganization process.
Something that you can take much of the increasing SG&A that you see it might be about 20% to 30% no more than no more than that.
That also takes into consideration Brazil.
The ramp up of SG&A like Europe.
So if you work year after year, we're seeing good levels of growth.
You know theyre going to be captured we need to put in place.
<unk> functions to allow for the growth.
Afterwards.
We keep truck that SG&A expenses in Brazil, we put in place in one specific BD.
Sales growth on the following.
The way, we think about Brazil. So SG&A increase is a combination of those three things.
Not specifically attributable to reorganization processing income protection.
Thank you also I noticed the R&D line of increased substantially.
Is that.
Because of the our second and third generation HB for soy.
Well that is a combination of things.
Yeah.
You see here how to go.
Further regulatory.
No.
Request approvals I program.
We made that you saw in the slides.
Critical presented.
We are developing an opinion registrations for products in other geographies biologicals maintenance.
So it's a split between regulatory expenses.
<unk> business.
And the registration why did you run some biologicals seed geographies.
Thank you and thank you for taking my questions.
Yeah, they follow up from the line of Ken telephone Brookline.
Hi, Thank you.
Quickly you did.
Had the refinancing with <unk>.
Or is it back there.
Several weeks ago.
What.
<unk> of interest savings do you expect from that.
Second to come for the question I think we've now reached.
0.2 each.
Our average cost of debt is paid.
Okay.
So we don't expect further savings from future issuances.
Don't see issuances to allow to refinance our existing debt maintain our leverage ratio.
So we are now.
That's opportunities we'd enter that space.
Have to do with extended maturities and lowering our average cost of debt.
Great.
<unk>.
This is my last question.
You've made a few comments about Argentinian inflation this period and the CPI numbers are.
The last couple of months have been I think as high as 50%.
How are you thinking if nothing else changed in inflation stayed at.
This level.
How are you thinking about the margin impact over the course of the next year.
Is this something that will taper off or do you expect that the magnitude of increase the magnitude of impact on margins could continue.
It's a great question Ken.
We don't look at the FX and inflation on a standalone basis in Argentina, you need to look at those two variables.
Sure.
So what we've seen in the past.
Two decades, you said inflation devaluation or depreciation of the local currency converge in the long run or the mid term.
Might be that the short term there should that happen.
It's not.
Two or three quarters fiscal year, 'twenty, one but turned into headwinds.
Cost structure.
<unk> costs that impacted the gross margins, but also some of our SG&A costs.
In the last two or three quarters.
<unk> for currency in Argentina inflation.
Inflation, so that should catch up at some point so it is something.
Obviously video shoot me any money.
Yeah.
Yeah.
Thank you.
And at this time there are no further questions I'll turn the call back over to Federico Trucco for closing comments.
Okay. So thanks, everyone for joining us.
I know this is a lot of information in todays call.
So I hope that you can feel free to reach US back if you need further detail or further explanations we stand fully available we're happy with the performance that was obtained in fiscal year 'twenty one.
Particularly after what we saw in the second quarter. So second half that was very strong and allows us to show the results, where we're showing today. So thanks again I hope everyone has a great week and we are fully available.
Do you have any follow ups. Thank you.
Thank you, ladies and gentlemen that close the call for today you may now disconnect.
[music].