Plant Impact – Lean and Green

Not that long ago the so-called smart money was looking at agricultural commodities for the next wave of the commodity boom. Although such thoughts are on hold for the moment, the London market has seen a small influx of related companies in the last year or two that still look quite promising.

One such outfit is Plant Impact. Based in Preston, it was formed in 2003 and joined AIM in October 2006. It specialises in natural products designed to improve the health of crops, making them more resistant to climate change, adverse soil conditions and pests. This results in better crop yields and a longer shelf life, which of course boosts the profits of food suppliers.
Plant Impact is coming to the end of its research and development phase at the moment so revenues are still minimal. It has around 200 ongoing field trials in over 30 countries, primarily sponsored by third parties many of whom approached Plant Impact in the first instance.

Although some trials have been conducted on arable crops such as soy bean, the majority have been on higher value items such as fruits and flowers. Tests have been conducted on tomatoes, lettuce, table grapes, strawberries, blackberries, apples, pears, cocoa, squash, roses and cucumbers for example.

Many of these trials have produced impressive results with one on cocoa improving yields by 69% and another on lettuces improving yields by 15%, shelf life by 7 days and dramatically reducing fertiliser input.

Plant Impact uses six main technologies, sometimes in combination with each other, to create its various different products. Manufacturing is outsourced to two UK-based firms.

BugOil arguably has the most commercial potential. It’s a pesticide based on natural oils that targets whiteflies, aphids and mites. Trials concluded earlier this year showed BugOil achieved 100% control of mites within 3 days compared with 14 days for standard treatments. A couple of months later this was followed by a distribution agreement with DVA Agro to supply the Tanzanian rose market where spider mites are a major pest.

An EU regulatory submission for BugOil was made in August and a US submission is planned for early 2009. Successful product registration could see commercial sales begin in these markets sometime in 2010. In a recent presentation, Plant Impact estimated BugOil’s addressable market size as $1.9bn and projected eventual annual sales of 5% of this amount. They are in currently in advanced negotiations for a global licensing deal for BugOil, which could represent a major step towards this goal.

Plant Impact’s other technologies are Calcium Technology (CaT), Plant Impact Nitrogen Technology (PiNT), Speedo, Nematicide and Alethea.

CaT aids calcium absorption by triggering a plant’s calcium pump and is reckoned to work 20-50 times faster than alternative treatments.  PiNT slows down the breakdown of nitrogen so that plants can absorb it in its more useful forms of amine and ammonia – PiNT products are available via Tesco and major garden centres.

Speedo, you won’t be surprised to hear, quickens plant growth. It does this by increasing the efficacy of nutrient products. Nematicide, based on essential oils, kills parasitic nematodes (roundworms) while Alethea strengthens plant cells against climate-related stress.

In April 2008, Plant Impact signed a five-year distribution agreement with a US fertiliser specialist called Miller covering products derived from CaT, PiNT and Alethea. Sales of $64,000 relating to this agreement were recorded in the half-year to September 2008, representing around a quarter of total revenue for this period.

Plant Impact reckons the addressable market for its various crop nutrient products is around $4bn a year. It has targeting a projected market share of 2% while also looking at a partnership agreement that could see its products used on biofuels.

So what about financials? £3.3m was raised at 38p when the company floated in 2006. In February 2008 a further £1.4m was raised at 47p. As at the end of September, cash remaining was £1.85m with the burn rate over the preceding six months running at just under £200,000 a month.

Revenues over the last two and a  half-years have increased from £129,000 to £225,000 as the company begins to target bigger deals. Gross margins widened to 45% as opposed to 36% in the previous year, thanks to better pricing.

Employing extra sales staff has increased Plant Impact’s cash burn a little this year, as has more expenditure on research and development. So, although revenues are moving in the right direction, further funding of some description is likely to be required in the next year. An equity fundraising would be very dilutive at the moment, so it seems more likely that Plant Impact will look to include funding as part of licensing deals instead.

The second half of 2008 has seen a number of boardroom changes. Mark Wyatt, a non-executive, left in August to join Imperial College London. William Thompson moved from a non-executive position to become chief operating officer in October. He previously led the Insecticide and Fungicide division of Dow Chemicals, overseeing a doubling of sales to $130m over a period of four years. Two new non-executive directors with substantial experience of the agricultural products industry were appointed in October.

Along with many other small companies, Plant Impact’s share price has been savaged in the last six months, falling from 50p to around 10p. However, if it can secure a major licensing deal, there’s clear upside potential.