During the Borsa Italiana Star Conference in March 2019, Giorgio Basile (President and Reference Shareholder of Isagro SpA, listed on the Star Segment of Borsa Italiana) spoke about his company’s future.
This future is coming, and we want to discuss his company’s expansion plan with him, especially after he spoke to investors and journalists involved in the sector in March 2019, stating, “I will not only tell you what we are doing, but also what we want to do.”
We will discuss, with Basile, how Isagro has performed over the last nine months and how it will progress in 2020.
We witnessed a certain crisis in the world agrochemical market in 2019, and the results of Isagro, both in terms of turnover and share performance, also proved to be quite disappointing. Why did these difficulties arise and how could a recovery of the company’s stock on the Milan Stock Exchange happen in the near future?
“We distinguish market issues from company issues. Markets in some geographical areas have certain issues, but here we are in an economic situation. So there is no excuse for what affected the performance of the company in 2019, and the data announced for the first nine months will enable us to imagine closing the year with a largely negative result. It is not the market that justified this, it is only partially cyclical. There are facts connected to society.”
What exactly are you referring to?
“It is something that primarily concerned a specific key product from our range sold in a mixture with another active ingredient now revoked at European level, which has led to a significant impact. Beyond this point, in reality in 2019, we have reached the end of a plan, a story, which for years has been materializing, which is the progressive lack of sustainability in Isagro's business model based on the discovery of new chemical molecules and their subsequent development.”
So you will no longer develop new chemical compounds?
“This historic model from original research has become progressively unsustainable year after year, for the very simple reason that the cost of development has increased six to eight times over the last 20 years, arriving at absolutely unsustainable costs for the limited size of our society compared to international giants that we compete wit. It is no coincidence that we are the only small company that still uses this global model.”
This factor has already been reported during the last conferences on the stock exchange.
“It is not as if we only noticed in 2019, but that year we had to complete the development of our latest product, which is a fungicide jointly developed with a well-known American company. We could not stop this project because its value, once developed, is important. However, in terms of cash, due to its large scale, our investment created an excessive absorption of resources.”
A few days ago you announced a divestment of activities in India. I understand that this has created a great deal of liquidity and will bring enormous benefits to society. How do you plan to take advantage of this opportunity?
“Liquidity will become very important when we have completed the other parts of the project. However, I would like to emphasize that this is not just a simple opportunity to generate cash to meet our financial needs. Absolutely not. The sale of Isagro Asia is the first of many steps, and we intend, shortly, to conclude the plan I mentioned earlier. I am speaking about months and not years, because the discussion is certainly within 2020 and not necessarily at the end of 2020. The turning point will be in the next five to seven months under a very realistic goal of divesting other chemical assets, meaning both existing products and those in the research pipeline.”
This is a Copernican revolution in Isagro's strategy from 2020 onwards.
“In a way, yes. From this year, we have abandoned our commitment to spending in terms of research and investment in new products. So, we will abandon the products in our research pipeline. In other words, we will stop spending on the research and development of chemicals. We will give up assets, including what we already have that produce a current turnover, as well as those we have developed that are still yet to generate a turnover. All this, progressively in time, will generate cash, and at this a very important point, and much higher sales that what Isagro Asia has already achieved.”
But will it be higher figure? How do you plan to reinvest it?
“We will reinvest the proceeds of these assets in other means for the protection of plants, especially organic ones. Not just for organic farming, but for the whole of agriculture. We will continue traditional agriculture that makes use of chemical products, but we will also continue to play the role of‘Italian Creativity for Plant Health.’Our mission will not change, but instead of supplying chemical products, we will supply biological products, both what we already have and above all what we intend to develop from today through acquisitions that aim to integrate our range of products, as well as through proposing a new structure. We will also maintain our various presences abroad in terms of distribution, to sell this innovative range of products.”
Will the acquisition of existing assets take place only in Italy and Europe or worldwide?
“We are looking at both a possible acquisition in Italy and also in the rest of the world. We would prefer possible transactions in Italy, because we would not like to have Isagro listed on the Italian Stock Exchange only as a holding company. If we acquired companies around the world, Isagro would remain within its initial turnover peak but would only become a holding company in relevant sectors. Nothing wrong with that, but I would prefer our significant participation in Italy through mergers. In short, recreating the business of the parent company can only come from acquisitions with related additions. But it is a preference, not a condition.”
You spoke previously about Italian creativity. Will you be able to maintain that?
“The heart of our research in the new sector, which already exists, must be Italian, because Italian creativity is recognized at a very high level. It is true that we have to convert from a chemical culture to biological culture, but the goal of plant protection is the same. So, in all interventions, if there is a research culture, it is a question of enhancing it with operations that are certainly not simple, indeed demanding andwith financial and psychological burdens. However, it is how Isagro can have a future in a competitive game.”
Do you think this change will positively influence your share price?
“The evaluation of Isagro‘s market stock expresses and understandably reflects its results both from last year and previous years, which explains our stock’s low value. What is missing though? There is no answer to why, but only facts will prove it. The sale of Isagro Asia, bought at a quarter of the value it was resold, shows that when we sell assets at their true value, the success of our current strategic turnaround is evident, because the value of our assets to buyers is an expression of their ability to generate profits and not of Isagro's limited production capacity.”
Do you mean that if used well by larger companies, Isagro's assets could generate a much more substantial turnover?
“There are problems concerning financial and organizational limits, but our assets have a value that we cannot extract for our limited size. When the market takes into account not just the value that we generate, but also how much our assets are worth in terms of potential, we will have a considerable advantage. It is clear that the utilization of generated liquidity will become important.”