Inventories of Ag Chem products in Brazil higher than expected, hitting sales in Q4 and 2018
Companies: Plant Impact
Plant Impact (LON: PIM) announced a profit warning in its Q3 Update this morning with lower revenues now expected in Q4 from its Brazilian market than previous guidance.
It appears that high levels of competition in Brazil have led to higher inventory levels in the country for Agricultural Chemical products such as Plant Impact's Veritas. Higher inventory levels result in lower expected near-term revenues as farmers defer new orders.
"...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. "
Plant Impact is in talks with its exclusive marketer of Veritas in Brazil, Bayer Cropscience because it looks like the overhang of inventory means Bayer may not meet the minimum purchase requirement it needs in order to maintain its exclusivity.
"The outcome of these discussions may impact the full year results and expectations for growth in the next financial year."
The above quote suggests that numbers could be affected both in Q4 2017 and FY 2018.
Unfortunately, today's announcement does not quantify how much revenues and earnings could be impacted this year and next which makes it difficult for the market to adjust correctly. As we know, in these cases the market usually takes a pessimistic view, and this explains the 13% fall in share price this morning.
Looking backwards, the performance over the first nine months has been encouraging with revenues up over 50% on a like-for-like basis and up 30% using a constant currency:
"Revenue for the nine month period to 30 April 2017 was up 55% on the same period last year at £7.3m (2016: £4.7m)"
Analysts were previously baking in topline growth of 44% in 2017 and c.60% in 2018 based on consensus numbers. This will surely come down as models are updated. The business is currently loss-making but was expected to swing to profitability in 2018.