Fertilizantes Heringer SA
BOVESPA:FHER3
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Fertilizantes Heringer SA
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Good morning, and thank you for waiting. Welcome to Fertilizantes Heringer conference call to discuss the results of the first quarter of 2020. Today with us, we have Mr. Dalton Carlos Heringer, CEO and Investor Relations Officer; and Mr. Ricardo Garcia, Head of Finance and Controller. We would like to inform you that this event is being recorded. [Operator Instructions] The replay of this event will be available for 1 week, starting at the end of this conference. This event is also being broadcast simultaneously on the Internet via webcast at Heringer's Investor Relations website, heringer.com.br/investorrelations, where you can find the slide presentation as well.
Before proceeding, we would like to clarify that forward-looking statements that might be made during this call in relation to the company's business perspectives, operating and financial projections and targets, our beliefs and assumptions of the company's management as well as information currently available. Forward-looking statements are not a guarantee of performance. They involve risks, uncertainties and assumptions as they refer to future events, and therefore, they depend on circumstances that may or may not occur. Investors should understand that general economic conditions, industry conditions and other operating factors may affect the future performance of the company and lead to results that differ materially from those expressed in such forward-looking statements.
Now we would like to turn the floor over to Mr. Dalton Heringer, CEO of -- and CFO (sic) [ CEO ] of Fertilizantes Heringer, who will start the presentation. Mr. Heringer, you may proceed.
Good morning, everybody, and thank you very much for participating in our call about the results of the first quarter of 2020. Today, with me, I will have Ricardo Garcia. And we will be making the presentation, the two of us. I will be talking about the third-party Brazilian market and the company's operation, Ricardo then we'll talk about the financial performance and the influence of COVID-19 on our business. And then I will come back and make the closing remarks about the outlook for the company. Those of you who are following our presentation, let's go to Slide #4.
The Brazilian fertilizer market has been maintaining a consistent growth. And what we see here are the figures for 2017, '18 and '19. As you can see, the growth during this 3-year period, but we also have an analysis of much wider -- and we believe that the market will continue to have this growth, we'll continue to follow this growth curve. We had 36,238,000 tonnes in 2019, the Brazilian market, as a whole, with an evolution of 2.1% when compared to 2018, which was 35.5 million tonnes. And we also bring to you information about the domestic production of raw materials and imports for the mixing of fertilizers. 2019 was marked in terms of the local production by 2 important factors that led to a drop of 12.8% domestic production going from 8,170,000 to 7,121,000. And this was driven by the urea production because Petrobras stopped all the urea plants, domestic plants. So the 3 domestic plants that Petrobras had been maintaining in operation, they came to a stop. And besides, we had a drop in the production of MAP by Mosaic. And these 2 products together that were no longer produced in 2019 caused this drop of almost 13%, going from 8,100,000 to 7,100,000.
When we talk about the imports, as you can see, the imports offset the drop in local production, and we had a growth of 7.3%, going from 27,500,000 and going to 29,500,000 in rounded numbers. So the drop in local production was offset by imports. And those of you who are following our presentation, you can go to Slide #5 now. And you can see that inventory didn't have big oscillations. We have the statistics of the fertilizer sector for carryover stock, and you can see that 2020 started with 6,600,000 tonnes. And if you do a historical analysis with the previous years, you can see that this is very much in line with the previous year. So no big differences here.
And as you can see here on Slide #5, those of you who are following the presentation, you can see the evolution of 34,400,000 in 2017, going to 35,500,000 and then 36,200,000 in 2019.
The company's expectation is that we will have a slight increase in the figures for our deliveries for 2020 in spite of the COVID-19 and in spite of many other factors that could have a negative impact on the increase of fertilizer demand. Because on the other hand, you have many other factors that are favorable and that may lead to a growth in the demand for fertilizers. And I believe that the main one is on our next slide. So those of you who are following the presentation, please go to Slide #6 of the presentation.
And here, we show you the barter ratio. The main crop that consume fertilizers in Brazil have -- between agriculture products and fertilizers, they have a barter ratio that is very favorable. In corn, for instance, we had a drop of over 50 sacks to 1 tonne. And the period that we analyzed here in March, you can see that we have 40.4. So you can see a decrease in the amount of product to have this ratio for 1 tonne of fertilizer. If you go to soybean, you can see that in some regions, the freight varies. So this is the average among the regions. So soybean also had a favorable evolution here. And likewise, sugarcane and a slight decrease in arabica coffee. But in spite of that, you can see that still has very good or very favorable historical levels.
So what leads us to have this estimate for 2020? That is to say 2020, slightly better than 2019. This is basically due to the barter ratio that I have just shown you. So the barter ratio is a commanded between the price of fertilizers in dollars -- in U.S. dollars and the exchange rate and the agricultural product, which also has a vary in the case of export crops, which is the bulk of the consumption of fertilizer in Brazil. These are the crops that are exported. And we have the local production, then we have exports. A major part of the coffee produced in Brazil and the major part of the sugarcane produced in Brazil as well. And a very big volume of soybean is exported as well and as well as the corn produced here. Sometimes not as corn, but very often, by means of the meat chain, that is to say, poultry and pork and also beef because of the food. And you have this favorable barter ratio, and this drives up the expectation for the year. And we have already been feeling this during the first month of this year, January, February and March. And the company believes that there has already been an increase if we compare to the same period of 2019. And Ricardo will be talking about the COVID-19, but the sector has been operating with no interruption of local production and no interruption of our sales, and everything is business as usual, I would say. And we also have this expectation of a slight increase for the year in spite of all the problems that we see in Brazil and in the rest of the world because of the COVID-19 pandemic.
Continue our presentation, Slide #7. Those of you who are following us, we wanted to bring some information to you about a change that happened in Heringer. Our seasonality was very similar to the sector overall because up to 2017/'18, we had all our units in operation and our seasonality, in terms of our deliveries, was basically the same as the market. As you can see, in 2017, you can see the market and Heringer figures and the figures are rather similar. In 2018, there was a big influence of the inventory decrease. And we already had an end of year with very low inventories and also in terms of scale. And it really masks, I would say, to a certain extent this reality. However, in 2019, we already have this reality shown. And the company will have a delivery performance in the second half higher than the average of the sector. The sector in 2020 should have something similar to the historical level, that is to say, we do not expect any big changes for market effect. But in Heringer, as a company, ultimately has a delivery in comparison to the sector higher than in the second half and the first half similar to the sector basically because of the crops in which we operate and the regions where we operate as well. When we had the nationwide operation, it was very similar to the market. But today, we have some of our units closed.
And those of you who are following us on Slide #9, we show you all our units here. So we have 9 units in operation, and 1 of them resumed operations this month, this current month with an installed capacity that is quite strong. And in 1 year, we could have over 300,000 units with a storage capacity of 45,000. And I'm referring to the Dourados unit in Mato Grosso do Sul state. And on the same slide, you can see that the company today has 6 mixing units that are hibernating, and they are the company. They are owned by the company, and they're not producing mixes. So we have 9 that are running. They are up and running, and these are Ourinhos and Paulínia in the Sao Paulo state; and in Minas Gerais, Iguatama, Manhuaçu and Três Coraçoes. In Goiás, we have Catalao and Candeias in Bahia state. Then in Espírito Santo, and as I said before, now in this current month, June, we restarted the operation of the Dourados Unit in Mato Grosso do Sul.
If we look at the installed capacity for the company overall, today, the active units that are up and running, they have a total capacity to deliver in 1 year of 3.5 million tonnes and the storage capacity of approximately 540,000 tonnes. The hibernated units are being maintained. That is to say, we hibernated them in a coordinated fashion. There was a whole procedure that was followed regarding the equipment and the hibernation process in general. And depending on what the company does or decide in the future, there could be a sale in the process that has already been approved in our judicial recovery plan or our court to provide the organization plan. Or in the case of Dourados, a resumption in some of these units that are hibernating today, so the future will be showing all these possibilities to us.
Now let's go to Slide #10. This quarter was marked by a very strong delivery compared to the first quarter of 2019. The first quarter of 2019 was very weak in terms of operations due to the fact that we didn't have the necessary inventories in order to sell in most of the units. So in 2019, this quarter, this is when we submitted our request for the court to provide reorganization plan, and we demobilized many of our employees, and we had to lay off many of our employees, and we had a whole process of reorganization of the company. And this means that the volumes that were delivered in the first quarter of '19 were 83,000 tonnes only. On the other hand, in the first quarter of 2020, we had deliveries of 272,000 tonnes. As you can see, this is an increase of 228%. This is a major increase because we had already organized many processes within the company in the previous quarter. So the first quarter of 2020 was already established in an inventory of -- a reality of inventories at adequate levels and the operations already resuming very strongly. And in terms of the crops, there have been no major changes. The main crop in 2019 had already been coffee, followed by the other crops and corn after coffee. And this year, coffee was also the main crop, followed by the other crop at 32%, and corn 24%. And so there have been no major changes in this period in terms of the participation of the crops in our deliveries and our sales.
Okay. Now let's go to Slide #11. I would like to mention that we were able to grow 2 percentage points in terms of deliveries and sales of specialty lines. And the company works with 3 major lines of specialty product, one, to be used via Solo and then the Ferti line, which is used in fertigation and the Foliar line. So the Solo line, the Ferti line and the Foliar line, altogether, they meet all the requirements of plant and the system of solid fertilizer via the Solo line and the use of foliar technology as well. So if you compare the figures of 2019 to the 2020 figures, you can see that we delivered 33,000 tonnes of specialty products in the first quarter of '19, representing 40% of the volume delivered. And on the other hand, in the first quarter of 2020, we had a delivery of 115,000, representing 42%. We believe that gradually, we will be going back to something closer to 50%. And the company in the past had 46%, 48% and even 49%, if you look historically. So this 42% tend to go up and up, getting closer and closer to 50% as time goes by. So we are working very strongly in terms of identifying the demand for specialty products, and agriculture has been having a demand for product that really bring benefits in terms of higher yield in the production process. And the company wants to participate in the process of meeting the needs of these clients that have this kind of demand.
Now talking about -- on the last slide of my part of today, I would like to talk about the evolution of imported raw material prices. When I started the presentation, I talked about the barter ratio. And the barter ratio is favorable very much driven by what we are showing here on Slide #12, the price of raw materials in dollars. When compared to previous period, as you can see, you can see the comparison here. So if you take only 1 single comparison, let's say, from March 2020 to December 2019, you can see that MAP and urea are higher now in March than they were in December and chloride will be lower than it was in December. If you compare March 2020 to March 2019, you can see that the 3 raw materials, except for May to urea that will be slightly higher, the others were lower, MAP with a major drop and the chloride as well. So you can see that the drop in the prices of raw materials in dollars together with a raw material that will be exported, that is to say an agricultural commodity. All this together caused an improvement for the main crops that require fertilizers in Brazil. And due to this reason -- due to this reason, the barter ratio is good, and the expectation is also very good. If we consider the months that have already -- we have already had this year and turning our eyes to the future.
Now I would like to give the floor to Ricardo. And he will be talking about our financials. Thank you very much.
Thank you, Dalton. I would like to start by presenting our balance sheet. We had some important points in terms of changes when we compare the first quarter of 2019 to 2020. We see that we had a reduction in taxes recoverable, BRL 126 million, mainly because of the PIS and COFINS taxes. And we can see that these figures went down to BRL 170 million and they were BRL 275 million. We also had a significant increase in here. And on the next slide, I will go in depth. And in the first quarter of '19, our inventories still had an impact of the beginning of our court to provide reorganization plan in the first quarter of 2020, the BRL 360 million that you see, they are concentrated basically on 8 units. They are more manageable. Our accounts receivables increased. And we had a net current capital when we compare to the liabilities going from 0.3 in the first quarter of '19 to 1.4 this year.
Let me talk about the current liabilities. You can see a decrease in trade accounts to BRL 276 million. Both amounts were transferred to the line of the judicial recovery -- the judicial reorganization. So we have visibility at the restructuring of our debt, that after the ratification of the plan, and these figures are distributed payment plans. As a consequence, we have a much better situation in 1.4 -- the interpreter apologizes, but the sound is very bad. It goes from [ 0 to 208 ].
In taxes recoverable in the long run, we saw a slight increase as a consequence of the operation itself that generates a recovery amount that is slightly higher. We can see that our shareholders' equity was very high last year, negative, and this figure was reverted, in December '19, we had an adjustment to fair value. And this became BRL 30 million positive in December '19. And now once again, we have a negative amount, and we will be explaining this, but it is -- the sound has disappeared here. We had an increase of BRL 244 million to BRL 306 million. And likewise, from BRL 120 million to BRL 186 million.
Going to Slide 15, we can see this impact on the working capital of the company, and we can see that we had negative working capital. And as a consequence, it became positive, and it was kept stable when compared December 2019 to March 31, 2020, maintaining practically the same levels.
Today, we only have 8 units, and we are going to 9, as was explained about Dourados. The average sales term was kept at low levels. No problem in terms of liquidity of our accounts receivables, as our clients have been paying on time. And with the approval of the court to provide reorganization plan, we had a major benefit with the renegotiation of our debt and the extension of the maturities that brought a very important benefit to the company. And the company became more transparent for the company and for the management of the profile.
On the next slide, Slide 16, we talk about the judicial recovery. As you can see, on February 4, we had the ratification of the court to provide reorganization plan. And still in 2019, on September 3, we already had the approval by the Creditors Meeting. And on February 14 this year, on February 19 as well, we had the ratification. So our debt is being legally renegotiated. And we have a division among 4 classes here, Class IV -- Class I, labor, where we have our employees and former employees, BRL 30 million based on 31st of December; Class II secured debt, BRL 305 million; and III and IV, unsecured debt, BRL 1,635 million overall unsecured debt. Sometimes individuals and sometimes small companies. And the total debt was BRL 1,969 million. And it became to BRL 769 million after the fair value -- after the court to provide reorganization in December 2019.
It is important to mention that today, we have a plan with a grace period, 30 days for the labor class and the other ones, they will only start in 3 years accounting from February 19, 2020. Only in 3 years' time, we will be paying more significant amount, and we will have smaller percentages vis-à-vis the total. And because of that, the payments of 2021 up to 2024, they are not relevant vis-à-vis the overall amount. The most important amount start only in 2025 when the company start to pay about BRL 45 million per year based on December 31, 2019.
It's important to say that the main payment will be from 2027 to 2024 and then only 2034 to 2040. And the others, we will be generating positive cash. We can see that the company can obtain enough cash to pay all the amounts that have been mentioned on this slide.
Now let's talk about the results on Slide 17. We can see the increase in volume that was mentioned by Dalton went from BRL 83 million in the first quarter of '19, going to BRL 172 (sic) [ 271 ] million in the first quarter of '20, an increase of 227%. BRL 387 million net revenue compared to the BRL 135 million in the same period last year. This means a growth of 186%. Of course, it had a benefit impact. When compared to the first quarter of 2019, this represented a negative margin of about 15% last year. And there was a very important reversal this year. And now we have BRL 35 million positive in gross profit, around 9% different.
Freight and commission expenses. In the first quarter of 2020, we can see that vis-à-vis the net revenue, it is stable, 3.5%, BRL 14 million to BRL 387 million.
SG&A also had a major decrease. In the first half of '19, we had a very high expense with indemnifications, indemnities because of the judicial recovery as well as consultancy that we resorted to. In 2020, we do not have these expenses today, much more aligned with the reality that we have today than in 2019 in terms of SG&A. Because of all these reasons, the EBITDA, which was negative last year, today, we have BRL 3.4 million positive. It is important to mention that the EBITDA has been maintaining positive since July 2019. After 18 months of a negative EBITDA, we started to improve our EBITDA since July 2019. So this means that we have been maintaining this for the last 9 months. A slight reduction because of the stoppage of the Paranaguà plant, generating a negative EBITDA of BRL 800,000 and our EBITDA of BRL 4.2 million went to BRL 3.4 million, as you can see on this chart.
Slide #18. We have here the impact of initial expenses on our business. As I mentioned in the previous slide, we had a decrease because of the exchange rate variation. It's important to mention that these expenses are amount that will be impacting the cash of the company only in the 25 years of the debt. But from the accounting viewpoint, we had an immediate impact from the economic viewpoint in terms of profitability. However, this will depend on the variation of the exchange rate over 5 years. But initially, the impact is this.
Slide #19, cash flow, BRL 236 million negative, result before income tax and social contribution, mainly due to the financial revenue. So it was negative. But in spite of that, you can see that we had BRL 4.2 million positive, very close to our EBITDA. And this was very much impacted by the variation of the exchange rate. Only slight variations in the accounts of current assets and liabilities. You can see that we had BRL 4.2 million here. In the next quarter, we'll have an important inflow of recoverable taxes, BRL 58 million, already occurred, in fact, in the beginning of April this year, which is already an important positive impact.
On the next slide, we can see why this result of BRL 4.2 million was went to BRL 3.4 million. Because of the Paranaguà unit, the company continues with the process of environmental licensing process. There was a meeting in December 2019. And there was -- so during this meeting, we submitted our plan.
Now we would like to say a few words about the COVID-19. You can see that there was a decree on March 20 by the federal government. We said that there have been some negative impact on certain crops and positive impacts on others. But all in all for the Brazilian agribusiness, we can see that the impact of the pandemic was not very relevant, as Dalton mentioned. There were some positive impacts, some negative impacts. But all in all, we do not see a big relevance of the COVID-19 on that. And we have had no negative impact on our operations. So our wholesales program is according to our plans. And what is really favorable is that the other essential activities have been operating without interruption. So you have the port activities and the logistics and transportation models, the packaging and the power companies and others, they are operating as usual. They have been operating normally so far, and this is very positive for our business.
And Heringer is very proud to be a participant in this chain, and we continue to be committed to providing high-quality products, ensuring the continuity of agricultural production in the country, and we are deeply committed to protecting our employees, our business partners and service providers. And -- so this led to an additional protection to our people. For instance, all the employees that can work remotely, they are working remotely. Or when they cannot work remotely, there is a reduction in the number of employees in the workplace. And we have increased the number of buses to transport our employees. And just to see also during the meals of the company, and distancing in the workplace and during the meals of the company, and we distribute hand sanitizer and mask and communication and instruction on how to behave and how to use the protection and safety equipment. And we have been updating information on either suspected or confirmed cases of our employees in the company and the measures taken and everything that is going on regarding COVID-19 up to now. Of course, this is a very new situation, a very recent situation. There is a constant learning for everybody, not only for our company. So when we have a new situation, we analyze the situation in detail and very carefully so that we may give our employees the highest degree of protection that we can and also to society as a whole.
Thank you very much for your attention. And I would like to give the floor back to Dalton Heringer. Thank you very much. Have a good week.
Thank you, Ricardo. Thank you for participating in our meeting. And I would like to summarize a few of the points -- I would like to summarize the few of the points that should be highlighted regarding what Ricardo said about the financials of our company. I would like to mention that this first quarter of 2020 and about which we are making this presentation and give you information and all the figures, this celebrates the first anniversary of our request for court-supervised reorganization. And this made a huge difference in the figures of the company and the operation of the company and also the outlook for the company in terms of our future, our possibilities. And if you take the first quarter of 2019, and if you compare to the first quarter of 2020, that is to say 12 months later, you can see the data that we show you on Slide 25. And this shows that there is a major change in the balance sheet of the company and what was negative, current capital was no longer negative current capital and the debt that was short term and that was past due has already been rolled over and extended. And the influence of the dollar rate on the long-term debt is completely different from the impact of a dollar or an exchange rate variation on a short-term debt. This is a totally different situation. So the perspective in the process of structural improvements that the company has already been able to put in place during these 12 months is something of extreme importance. We are resuming our operation in terms of scale. And if you make a comparison between the quarters, that is to say the quarter -- the first quarter of 2019 with less than BRL 100,000 and growing almost threefold already in the first quarter of 2020. And the EBITDA that had been very negative already has a slight positive result in the first quarter of 2020.
So just going back to these points, if you draw a comparison, a critical comparison between a reality of the figures of 2019 vis-à-vis 2020 for the first quarter of each one of these 2 years, you can see that the difference is huge. It's monstrous, I would say, and you have a reality of continuity in the current reality of Heringer that is extremely strong. If you compare to the difficulties that the company had been facing in the first quarter of 2018 to the extent of being forced to file for judicial recovery.
So let's talk about the fluctuation of our shares during this period. After the plan was approved by the meeting, we had a major impact on the price of our share. That is to say, when the plan was voted during the creditor's meeting and when the plan was approved, this generated a recovery in the price of our shares. As you can see, it went to BRL 3.6, going from BRL 2.2, BRL 2.4 before the approval of the plan. Then we had -- in February and March, we had a very strong impact of COVID-19 vis-à-vis the global stock market, not only the Brazilian stock market. So this situation was not specific to Heringer because the shares dropped overall in the world, of course, and also in the Brazilian market -- in the Brazilian stock market. And we already see a recovery in terms of the price of our shares. As we said, we do not have the whole impact the first quarter in terms of operations in the first quarter of '20 compared to the first quarter of '19. We already see this recovery going from less than BRL 2. And it is already over BRL 3, the price of our shares, already reflecting the improvement in our operations that we have already referred to. And of course, we have -- we are a small-cap company, and we do not have a lot of trading every single day. And we have the impact of the exchange rate, and these impacts are higher when you have a small-cap than if you are a large-cap company. But we already see this in the price of our shares. We see already this recovery.
Let's talk about our outlook for this year. The crops or the harvests are good. We have a growth of almost 4% compared to last year. And the reality of a good harvest with a favorable barter ratio, this is what lead us to believe that we will have a level of demand for fertilizers during 2020, that will be slightly higher than last year's. So basically, our outlook is positive, and the recovery of the company is going at full steam, and Ricardo has already referred to the impact of COVID-19 on our company and the agribusiness as a whole. It was not as big as an impact as on some other sectors of the economy. Of course, it does have some impact. But when you compare to other sectors of the economy, you can see that our reality in the context of the COVID-19 pandemic has been quite favorable. That is to say, we are keeping our delivery performance, our sales performance and our participation in the regions where we operate. So this is what we had to inform during our presentation, and we thank you very much for participating. And we would like to turn the floor over to the operator to open the Q&A session. Thank you very much.
[Operator Instructions]
I have a doubt about the revision made in the Dourados. Will it be available for sale, even if you restart the operations?
Thank you very much for your question, [ Emma ]. And it's a very timely question. We had the approval of our plan in December last year, which was very flexible. And we have a reality which is the following: We do not have an obligation to sell a certain or specific unit so we can resume operation with Dourados because our financial capacity gives us this perspective of reopening this unit and the market liquidity as well. And the market has a diversity of crops, as you know, it's a very big one. And the plan was not strict. That is to say, there is no obligation to sell. It allows us to sell, but it does not apply just to sell. And the sale of this asset or any other asset, going to the second part of your question, if we would sell other assets, should they be auctioned or sold, they will serve to accelerate the payment of our debt, but we can pay our debt according to our plan that was approved in terms of terms of terms, in terms of interest rates, regardless of selling our assets. So we can make our payments according to our plan and the sale of an asset would be or will be just to accelerate the payment of our debt.
[Operator Instructions] As there are no more questions, I would like to give the floor back to Mr. Heringer.
Thank you very much for participating. And our Investor Relations team and our financial team will be available should you need to ask any additional question or should you need any additional information. So please feel free to use our communication channels in order to contact us. And once again, we would like to thank you very much for participating in this call. And we remain available to you, and hope to see you again soon. Thank you very much. And we wish you a very good day. Thank you very much.
Thank you very much. Fertilizantes Heringer conference call has come to an end. Please disconnect your lines. Have a very good day. Thank you.
[Statements in English on this transcript were spoken by an interpreter present on the live call.]