Fertilizantes Heringer SA
BOVESPA:FHER3
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Fertilizantes Heringer SA
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Good morning, and thank you for waiting. At this time, we would like to welcome everyone to Fertilizantes Heringer's 1Q '21 Earnings Conference Call. Today with us, we have Mr. Dalton Carlos Heringer, CEO and Investor Relations Officer; Mr. Ricardo Cavalcanti Alves, Head of Finance and Controller of the company; and Mr. Ulisses Maestri, Commercial Director and CTO. We would like to inform you that this event is being recorded. [Operator Instructions]
There will be a replay facility for this call for 1 week. This event is being simultaneously webcast on Heringer's IR website www.heringer.com.br/ir, where the slide presentation is also available for download. 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 outlook, operating and financial projections and targets are beliefs and assumptions of the company's management as well as information currently available.
Forward-looking statements are no guarantee of performance and involve risks, uncertainties and assumptions as they relate to future events and, therefore, depend on circumstances that may or may not occur, investors should understand that general economic conditions, industry conditions and other operating factors could also affect the future results of the company and could cause results to differ materially from those expressed in such forward-looking statements.
Now we would like to turn the conference over to Mr. Heringer, CEO and Investor Relations Officer of Fertilizantes Heringer, who will start the presentation. Mr. Heringer, you may begin.
Thank you very much, and good morning, everyone. I would like to thank all of you who are following us or those who will be listening to the recording of the call about the results of the first quarter of '21. Today with us, besides myself, in this investors call covering the company and the market, we will have our Technical and Commercial Director, Ulisses Maestri, and also we will have Ricardo Alves, Head of Finance, talking about the performance of the quarter. And I will focus on the outlook in order to conclude the call as planned. And then we will be opening for questions.
Now I would like to turn the floor to Ulisses. Thank you very much.
Good morning, everybody. Thank you, Dalton. This is Ulisses Maestri. The first slide, Slide #4, shows us the volume of deliveries when compared to the first quarter of '20. You can see a major increase, 39% increase, in fact, in volumes delivered. And there is an interesting characteristic about the mix. So you see an expressive increase of almost 40% on a year-on-year comparison. And the mix is very well distributed. Soy with a very small participation, represent corn 29%, coffee 28%, sugarcane 9% and the other crops remaining at 31%.
When we go to the next slide, we see something interesting that happens with our deliveries, very well distributed with our products. Given the competitive advantage of our specialty products, you can see that they grew very much. The first quarter of 2020, specialty 42% of the total vis-à-vis 48% in the first Q '21, once again, given the very good results that we have been obtaining. The specialty product initially is a very wide one. We operate in all the areas. We are a company of red nutrition -- plant nutrition.
And when we think about NPK, for instance, urea, which is a nitrogen that is the most used and in tropical soils, there is not very good effect because of vaporization. So we developed the product in order to mitigate this effect, neutralize, which has very interesting effect and has an effective participation also in this 48% of total.
As you know, the problem of the B2C in the Brazilian soil, in most of them, they are asset you have a general problem of fixation. And how do you mitigate that? We have a special product for that, SH1, which has the effect of mitigating this. When you go to potassium, it is not different. Potassium has a problem in the Cerrado soil, for instance, which is very acid. You have the problem of leaching. And we can mitigate this with product to solve or at least to mitigate the product, which is potassium, which acid in this -- thus, we have been operating. We see the problem in the field. We bring them inside the company in order to bring solutions to producers.
In the Ferti line, we have all the water-soluble products for the market, for all crops as well as the Foliar line. We have a whole range as you can see. And this broad portfolio makes the quarters different, that is to say, 42% to 48% in 2021, year-on-year, considering that we had an increase of 30% of total volume, the Brazilian fertilizer volume. The market grew by 12% from '19 to 2020, 40.5 million tonnes and imports also with the major growth, 11% growth, in fact, almost following the market. And what did not follow the market were the local production. Local production differently from import and deliveries went down 10%. In fact, imports had to be intensified, in fact, because of the lower domestic production.
On Slide #7, we have the active units. Today, we are operating 9 units with an installed capacity of 3.5 million tonnes. And we were very successful in the reopening of 2 units: Rio Verde in Goiás; and Rosário do Catete in Sergipe. Because of that and the history of the units that were assessed until then, we decided that in the second half of this year, we will be reactivating 2 units: one in Rosário do Catete, Sergipe and another one in Rio Verde in Goiás. Adding these 2 units to the 9 that are already operating, we will go to 4.2 million tonnes capacity.
This shows that the operation and the recovery has been very consistent, and the sales are healthy. And we always observe the results and always looking at the health of the company and the sales of the company. So I would like to give the floor now -- I would like to give the floor to Ricardo now.
Thank you, Ulisses. Thank you for allowing me to participate in this call about the results of the first quarter of '21. For those of who you are following the presentation, let's go to Slide #9, which brings our macro figures, net revenue, gross profit and the EBITDA as well. In the first quarter of '21 compared to '20 and to '19 as well, in 1Q '19, we had the reality of resumption of our growth. At the time, we had a low net revenue, which was not sufficient to generate profits. And in 2020, a rather different situation already.
In the transition year, we doubled -- we more than doubled our net revenue. Now you see here on the slide, our gross profit in 2020 already, the first quarter had a positive EBITDA, 8.9% and 0.9%. That is to say, almost 9% gross income, almost 9% EBITDA when compared to the net revenue. And once again, almost doubling in the first quarter of '21, net revenue, as you can see, gross profit and EBITDA, as you can see, 20% gross profit and 14% EBITDA. So you can see that this is a rather positive first quarter.
With a good reaction of delivered volumes and the good margin, as you heard from Ulisses with the mix contributing to the margin, giving us 20% of the net revenue, in gross profit and net EBITDA of 14%. I would like to mention that these metrics that I have already mentioned, the 3 ones: net revenue, gross profit and EBITDA are the best metrics for a first quarter for the company ever. 20% and 14%; gross profit BRL 149 million and EBITDA almost BRL 104 million.
On Slide #10, the next slide. For those of you who are following visually 2020, January to December, the full year, this is an information here, BRL 2.2 billion in net revenue. And in the last 12 months, including the quarter of 2021, the first one in this comparison, we can see that the net revenue goes up 16%. That is to say, the quarter impact in 12 months. When you remove the first quarter of the previous year and you put the first quarter of '21, this brings a 16% growth. And if you do the same for the gross profit, we have a growth of 36% in gross profit and EBITDA on the same basis, 55% growth.
EBITDA of the last 12 months is BRL 283 million almost. Vis-à-vis last year's EBITDA, 2020, BRL 182.5 million. EBITDA margin last year, 8.2%. And considering the last 12 months, 11% EBITDA margin, 55% increase, as we said before, and almost BRL 283 million, as we said before. So this is very positive.
We have a summary of our results here. And we go from volume to net revenue and if we compare this quarter to 1Q '20, we will see a growth in volume of 38.5% in volume, net revenue growing more because of the mix that brings us the best pricing, and we are talking about another reality of currency as well here. We see a profitability that is very good in the first quarter vis-à-vis the same period in 2020.
Gross profit, 22% vis-à-vis 8.9% in 2020. We are ratifying this information from previous slides, and we consider variable expenses, such as freight and commissions and the fixed ones, SG&A and here, we have the EBITDA. Freight and commission and SG&A dropped vis-à-vis the net revenue when compared to 1Q '20. And this ultimately generate a virtuous factor of EBITDA performing 14% of net revenue, as we said before, or BRL 103.8 million, as we said before.
For the net financial result, you can see that the information is good with the exchange rate variation that was not realized that correct or restate the long-term debt of our judicial recovery of BRL 85 million as a part of BRL 106 million of the company in this quarter. And this exchange rate variation that has no cash effect, no operating effect, let's say, we didn't have this recognition. We would have an expressive net financial result -- net result.
As we had an EBITDA of BRL 103.8 million, the exchange rate variation that guided our net result for a net loss of BRL 7.4 million, it is slightly negative. And we are talking about BRL 35 million in exchange rate variation. Naturally, this will be diluted over time and obligations will be paid or observed in the future at the future exchange rate, and this is totally diluted or maybe it will even be noted according to the behavior of the real.
We also bring to you our balance sheet information that brings relevant data. Those of you who are following our presentation on Slide 12, you can see that the liquidity of the company is rather interesting. Even if we have inventory turnovers that are fast and accounts receivable that are fast as well, you can see that this is very interesting as far as our business is concerned. Basically, we are talking about accounts receivable, about 1 month and inventory about 2 months in terms of turnover. And seasonally, this could change, but the average is more or less that.
And when we compare at the close of the balance sheet, the last one for effect of this analysis, we are comparing with December 31, 2020. We can see that the operating efficiency of the EBITDA that we have already referred to combined with the use of inventory that was built over last year. All this allowed us to decrease significantly our short-term bad debt by BRL 200 million, in fact. Half of this amount comes from profitability and half comes from the use of our inventory that gave this contribution via COGS. Nevertheless, has been -- there has been no disbursement because of the use of the inventory until the end of 2020.
The company's cash flow in the quarter, which is Slide #13 of our presentation, shows this reality. The dynamic of the cash flow is part of the profit before tax -- income tax, a loss of BRL 9.5 million. In net of the noncash effect that we have already mentioned, the exchange rate variation, we have an adjusted net income and we must consider a higher impact of -- which is the inventory that didn't have to be disbursed in terms of assets and liabilities because we had a structure that allowed us to use the relevant amount so we have a cash flow from operating activities amounting to BRL 241 million, the company's investment CapEx BRL 10 million.
So it was possible to deliver in the quarter a free cash flow of BRL 231.6 million. And the free cash flow naturally was used for financing activities, which means that we have to reduce here, BRL 218 million with our short-term debt with financial institutions, a very good use of our profitability and which allowed us to reduce very significantly the financial liabilities of the company.
And with that, I finish my part. And I give the floor back to Dalton, who will talk about our outlook.
Thank you very much, Ulisses. Thank you, Ricardo, for covering the 2 first steps of our agenda. I will talk about the perspectives for our company, and we have 4 -- 3 slides to show you what has been happening with demand and with the production of food as well as raw material prices.
Those of you who are following us, please turn to Slide #15. You can see very clearly the increase in raw materials in the NPK chain, nitrogen, phosphorus and potassium, had price increases, mainly due to the very strong demand that we saw coming from the main agricultural products producing countries. And that gave this possibility to increase prices of these raw materials because this was supported by good agricultural prices in world commodities. So the support from agricultural prices. Offset that, that is to say, the increase in demand generated the opportunity to raise prices. And we do not see this reality when there is no support so it's important if you have a hike in prices, it's very important to have the support of demand and also in the barter ratio.
So let's turn now to Slide #16, where we see a rather long chart, you can see since the '90s. And here, we show very clearly that the growth in demand for fertilizers was the main factor for the increase in agricultural production in Brazil. The planted area went from 37 million hectares in terms of production in grains and reaching in 2021, an area around 68.5 million. Well, the increase was not that big, but you saw, on the other hand, production doubling, increasing yield, 100% in this period. So you can see the average of grains per hectare lower than 2 tonnes going to more than 4.
And in fact, what you can see during this period is that Brazil had a huge leap of productivity of yield and Brazil became one of the biggest world exporters in grains. And a short while ago, Brazil was self-sufficient, that is to see no major surpluses for export. And with this gain in yield and this increase in the use of supplies and fertilizers among them, it was possible to achieve this big leap. And today, we are major exporters/of food.
Talking about the fertilizer part here of the chart. The consumption of fertilizers that was 10.8 million tonnes in '95, '96 crop year, in the crop year 2021, we had a very high consumption, 40.6 million tonnes, 4x higher than the year that was mentioned. So the use of technology, in general, in agriculture and, more specifically, fertilizers are very important tools for the environment preservation, keeping areas or holding areas to be used in other activities, preserving them. And in spite of that, with technology, achieving increases in production and yield.
On Slide #17. Now talking about the short run. We broke the record of farming production, agriculture production going from 257 million tonnes, going to almost 274 million tonnes in the 2021 harvest year and it is really a record ahead of us. In some regions, we have for the second crop, some regions are having a drier weather than we saw in the previous years. But with a large survey from CONAB, what we expect is what we put in this chart. And this would lead to 4 average tonnes per hectare.
And the company data have already been informed, the first quarter was rather strong in terms of demand and also the company's capacity to participate in this growth that we saw last year. And we would like to thank you very much for participating in your call and tell you that we continue to be very confident about the future of the company after everything that we have been doing in the last couple of years. Many things have changed, and the company was able to adapt to this new reality to continue its businesses.
Once again, thank you very much. And now we would like to open for your questions. Thank you.
[Operator Instructions] The first question sent via webcast from Mr. [ Tales Venita Carvalho ]. He is an individual investor.
What is your expectation for sales for the full year of 2021, considering the excellent result that you have delivered in the first quarter? Will it be possible to keep the EBITDA margin at the same level or close to this level that you delivered in the first quarter?
Thank you, [ Tales ], for your question. We will probably see an increase in our sales, our net revenue taking into account the recovery that the company has been delivering over the last couple of years. Fertilizers have a characteristic that there is a very important impact of the dollar and raw materials so that you may establish your selling price.
So I cannot really tell you how much this increase will be, and it's impossible for us to make this kind of prediction or estimate as a guidance for the full year. What I can tell you is that we have -- our expectation is to achieve a major increase in our revenues, taking into account the characteristics that we have been seeing so far in terms of raw material prices in dollars and the margin.
Regarding the second part of your question, the EBITDA in this first quarter was very good. We have almost 11% margin in the last 12 months, and the quarter was very strong as well, 14% EBITDA. And I do not believe you could consider this as a historical reality. And 11% is already historic reality of the company, but I believe that you could consider that the history of the company does not really mirror the future reality. Many decisions were made. We have the influence of a very big short-term debt that was dealt with under our judicial recovery process.
And the unit had a reduction in our payroll and they have -- they adjusted to this new reality, and it is possible to achieve an average margin in the future higher than our history or the history that was 6%, 7% in the last -- in the recent future. As the average of the last 12 months, we had 11%. This is really a challenge. But higher than the history of the company that was around 7% is something very probable. I believe you could work with an EBITDA margin higher than our history.
[ Tales Venita Carvalho ], a private investor. We haven't seen some large world players in the fertilizer market, such as ICL, Nutrien, Uralchem, with focus on growth in Brazil, especially by means of acquisitions. Recently, Italy acquired companies in Brazil in this sector, becoming a very big global player and consolidating in the Brazilian market. How do you see this?
Thank you very much for the question. Yes, it is a fact that in the last 2 decades, the sector has been undergoing a very big transformation. Basically, the companies that distributed in Brazil were domestic companies. And they didn't have a direct interconnection with the production of raw materials, and this has been changing gradually and becoming more and more important. Large distributors and producers of raw materials are now present in the Brazilian market.
Among other things, because of the potential of our market, Brazil is a very big market and growing more than the world average, bringing productivity and the opportunity for the large players to come and have their operations in Brazil. So we see this move on the part of the large producers as an opportunity, in fact. And at the same time, the company has already adapted to a level of operations and diversity of crops and specialty products in order to maintain even in the scenario of large producers and distributors operating in Brazil. In spite of that, it is seeking its profitability, its niches and its continuity.
More specifically about players, at this moment in time, the company has nothing to say in this regard right now. There was a material fact that was published last Friday. And in this material fact, we said that we have no reality that should be made public. And at the same time, the controlling shareholders are analyzing the investment opportunities that happen quite often. And that could generate operations regarding the control of the company, even. But what we have to say now is what I have already said. At this moment in time, there is nothing that should be made public, and we reiterate that as soon as we have something that we need to make public, we will be doing this immediately. We will inform the market immediately according to the regulation.
Maurício Schuck from the webcast from BB DTVM. What is the level of stabilization for gross income and margin for the future? What are your estimates?
Maurício, thank you, from BB DTVM. In the last 12 months, we delivered a good performance in terms of delivery of volumes and delivery of margins and profitability. We were coming from a history of 13% in gross profit and EBITDA margin 7% to 8%. And in the last 12 months, you can see that it could be 10%, 12% and the gross profit closer to 16%.
So we understand that we will be performing, and we want to perform so that in the next few quarters, we have positive results, positive literally -- with a very positive performance, with a very well-executed plan and that it may be put in place as a reality, and that we see this trend confirmed.
Looking at the more recent quarters, in the last quarter last year, we had a gross profit and EBITDA that were growing and the trend continues. And we want to keep our EBITDA and our gross profit very healthy. Starting with the sales, our deliveries and keeping our eyes on the gross margin, the austerity on our expenses. So we intend to have the stabilization with some growth. Thank you, Maurício.
From the webcast, [ Flavio Umm ]. What is the company doing in order to increase market share?
Thank you, [ Flavio ], for the question. This is Ulisses. The market grew 12%, we grew 39%. We are already getting more market share. We are recovering now, and we have already recovered 2 units in the second half. We will be recovering 2 additional ones. But the major concern on the part of the company is not a market share. It will happen as a consequence. It will happen naturally because we are reactivating 2 other units as of the second half.
But our main concern is to have healthy sales and that bring us margin. So we are reopening units, and we are looking at the market that we know very well. We have a very strong presence. We opened a unit in the Northeast, for instance. And this organic growth will naturally make our market share grow, but it will be a natural consequence.
[Operator Instructions] From the webcast, [ AJ Sanon ]. When will you be reactivating all the plant operations, because of the very big presence of imported fertilizers?
Thank you, [ Sanon ] for the question. This is Dalton. The sale of imported product has been increasing gradually once the Brazilian market has been growing at a much faster pace than the local production is growing. And because of that, producers have to resort to imports. And in some cases, local production is going down. A few years ago, we had about 10 million tonnes of domestic production. And what we see, for instance, last year, it went to 6.5 million. There will be a recovery in production later on.
Petrobras has already leased a plant in the Northeast and some production of Super and MAP will happen over the next few months and years. So the local production should not continue to grow? It's quite the opposite. It should recover and start growing. However, the Brazilian market grows more than that. And this is a trend that should continue the reality of sale.
Is that raw materials that get into this blend of NPK will have a higher imported component? And this is the trend that we see regarding the resumption of activities in our units. We have already mentioned this regarding 2 units in the second half of this year. And we still have 3 units that we have not defined yet, 2 in Rio Grande do Sul and one in Paraná. Of the 14 units that the company owns, 11 will be running by the end of this year. So we still have these 3.
And the question is when will you come to a decision about the 3 remaining ones? We don't have a definition on the part of the Board. And we do not have any -- reached any conclusion about the resumption of activities. When we filed for judicial recovery, the company kept in operation only 7 plants -- 7 units. And of these 7 units that we were running at the beginning of the process or soon after we filed for core to provide the organization, we will already have 11 of the 7 that started at the beginning of this process. So this is our answer. Thank you.
[Operator Instructions]
Thank you, Maurício, for your question about the judicial recovery. Everything is as expected. The plan that was approved is being strictly followed by the company. We already have, frankly, our whole liability of the recovery -- judicial recovery already paid, I mean, the labor liability. This was done with the cash that was generated during this period. And Ricardo in the financial area, during the presentation, showed very clearly that the new debt outside the debt of the judicial recovery is very, very low. So we do not have new debt being generated.
We have rebuilt our inventory. We made the payment of the labor part of our liability, and we are already being the cap for, which is the small suppliers and small companies according to what was approved in the plan, and the plan has been running very smoothly. And during the next year, or maybe at the beginning of 2022, we expect to exit from judicial recovery and this is provided by the current law.
We have a term of 2 years after the approval of the plan. After the plan is ratified, we can have the conclusion of the judicial recovery, and our expectation is to continue to comply with the plan very strictly and being able to close this process over 2022 -- at the beginning of 2022. So, thank you very much.
[ Pedro Calixto ] from [ Cluvidi Vistamintus la de ]. Among the hibernated units, the idea is to put them in operation again? Or do you intend to sell some of them?
[ Calixto ], thank you for the question. The hibernated units, as was said before, in a previous answer, Paranaguá in Paraná and 2 units in the state of Rio Grande do Sul. We have not come to a decision regarding resuming production in these units.
And regarding the second part of your question about selling or divesting one of these units, we are working on the sale. We asked for authorization for an auction of one of the plants in Rio Grande do Sul, specifically the Porto Alegre plant. Still pending a judicial analysis in the judicial recovery process. So we need to receive authorization to sell this plant. In case we do get this authorization, very probably, the company will be trying to sell this asset.
The second plant among the 3 ones is the Paraná plant in Paranaguá. And this plant has a burden of fiduciary lean. So this unit could have a different treatment, different from a recovery or a resumption of local production. This debt is not under the process of judicial recovery. Due to the guarantee of the fiduciary lean on the company, on the plant, we do not know about the future of this plant. So here is the explanation of all the 3 units. I thank you very much for your questions.
As there are no more questions, I would like to turn the floor back to Mr. Heringer for his closing remarks.
I would like to thank you very much for participating in our call and also those who will be listening to the recording of this call in the next few days. I would like to mention that the answers have already been answered, and thank you very much for the questions.
And it was very important to show you that the quarter was very good, and the company has been performing very well in a satisfactory manner in the judicial recovery process. This is a very tough process as a whole. It's not easy for the company to get to the point of filing for a judicial recovery. But we are already reaping the benefits from this process or recovery, and we see a very healthy recovery ahead of us, supported by the Brazilian agriculture that is the stalwart of our country.
The Brazilian agriculture is performing in an enviable fashion. Some people say that we have levels of operation of agriculture production that are close to the possibility of feeding up to 1 billion people in the world. Maybe the figure is lower than that. But certainly, it will continue to grow. And most probably in the future -- in the near future, Brazil will be producing to feed its population plus something around 800 million inhabitant. So this means that we will have agricultural production to help and to support the demand for food in the rest of the world as well. Thank you very much.
Thank you. Fertilizantes Heringer conference call has come to an end. You may disconnect your lines now. Thank you very much. Have a very good day.
[Statements in English on this transcript were spoken by an interpreter present on the live call.]