Fertilizantes Heringer SA
BOVESPA:FHER3
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Fertilizantes Heringer SA
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Good morning. Thank you for waiting. Welcome to Fertilizantes Heringer Conference Call in order to discuss the Results of the First Quarter of 2022. We have Mr. Lieven Cooreman, CEO; Alfredo Fardin, Procurement and Logistics Officer; Ulisses Maestri, Commercial and Technical Officer; and [Ricardo Cavalcanti Alves], Head of Finance and Controller of the company. We would like to inform you that this event is being recorded [Operator Instructions]
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 financial projections and targets, our beliefs and assumptions of the company's management as well as information currently available to the company. Forward-looking statements are no 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 will 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. Cooreman, CEO of the company who will start the presentation. Mr. Cooreman, you may proceed.
Thank you very much. Good morning, everybody. Rodrigo has already introduced everybody who is here to talk about the results of the second quarter and Ulisses [indiscernible] and Ricardo will be talking. I became the CEO at the end of the first quarter. So they will be talking about the results in a more appropriate fashion in order to put everything into context. Ulisses?
Thank you very much, Lieven. Good morning, everybody. First of all, thank you very much for your presence and for your participation in our call. The agenda is rather brief. We will be talking about the company, the financial performance, the outlook. Going to slide number 4, we can see that in the quarter, and compared year-on-year, we saw a major drop in volume, 20%. This was due because of our participation, which is very big in the Southeast region. And according to the Association, we can see a 22% drop in the region overall.
And in the states where we have the biggest number of units, Minas Gerais, where we have 3 the drop was higher towards 38% and the market had a drop of 34%. So you can understand why we had a drop of 20% in the volume. In relation to the crops and the crop mix, it was similar to the first quarter of 2021, led by other crops. 30% represented by 50 different crops, a very big mix in our deliveries. In relation to our delivery mix on slide number 5, in terms of specialty products or differentiated product. These products had a better performance when compared to the first quarter of 2021, going from 48% to 51%.
You can see that the added value is higher than the conventional products. You see a very broad portfolio and one of the biggest portfolios in the market. And we have soil, Ferti for fertigation and Foliar. Going to slide number 6, we see the geographical distribution. We have 14 units, blending units, active unit. And you can see that 3 are hibernating and 11 are in operation. And they have an installed capacity of 4,225,000 tons, the one that are in operation. The company's expectation, well, it's not really an expectation any longer. We are going to open one additional unit, Rio Grande, and it will resume activities in the second quarter of 2022. So today, we have 11 units scattered throughout 7 states of Brazil.
Basically, this is what I wanted to mention regarding the -- my area, the commercial area and Ricardo Cavalcanti will be talking about the financials.
Thank you Ulisses. I'm going to talk about the financials of the first quarter of 2022 on page number 8 of our presentation, for those of you who are following. We show you the comparison on a year-on-year basis. And as Ulisses said, we had a drop in volume of 20% but the cost of raw materials as we were already seeing in mid-2021 led us to increase our prices in order to recompose our margins. So we have a sale that went up 66%. And raw materials went up more than that, as you can see on the chart, but we had a margin of 11% in spite of the hike in raw materials.
We were able to transfer this to the prices and the freight are slightly higher. We have a cost of logistics that went up in these last 12 months, as everybody knows, and this is the reason why we have more here in freight and with the lower volume. We have this line of variable expenses and SG&A in line with what we saw in the same period last year. In spite of the high inflation rate, we were able to keep our SG&A in line. We had the recognition of revenue because of machine auctions. This was a one-off event in December, and they are one of the big reasons of BRL 2.2 million revenue in other net operating income.
So you can see that the operating result is BRL 77 million recognized as losses. The financial result is very much impacted by the exchange rate. We have part of our debt in our Judicial Recovery indexed to U.S. dollars. And this non-realized gain, unrealized gain and this is an accounting appropriation that has to be done every month. And on the next slide, I'm going to talk about that in more detail. BRL 128 million in net income vis-a-vis the loss in the same quarter last year with an unrealized, negative unrealized exchange rate gain. And we saw an appreciation of the real vis-a-vis the dollar in this last quarter and reminding you that we have a long-term debt that is U.S. dollar-denominated.
And lastly, we have an EBITDA, 6.9% of the net revenue, BRL 85 million. On slide number 9 we have the breakdown of our financial expenses. And this -- and here we want to isolate the exchange rate variation. And here, we refer to the unrealized exchange rate variation. And in the previous quarter of the same quarter last year, we had an unrealized loss because there was an appreciation of the U.S. dollar vis-a-vis real. And here, we have the interest of the debt that we have under our Judicial Recovery Plan and the cost of short-term loans for working capital purposes for the company.
And the net result of all that, BRL 120 million and EBITDA, BRL 85 million, as you can see here on this chart on page 9. Now, let's go to slide number 10. In this metric per ton in the quarter, BRL 301 million sold; BRL 135 million, gross profit; BRL 149 million last year; and BRL 136 million. On the lower part, we can see that the income per ton was higher, BRL 448 million. And last year, it was BRL 396 million. And the reason for that is because of the price increases, and we were able to maintain the margin. And this endeavor allowed us to be even more profitable than we were when the price was lower.
BRL 448 million per ton is the number that we have for the quarter for the company. On slide number 11 now, we have the cash flow. It is based on the accounting result and it reconciliate all the items before taxes on the top of the paid BRL 183 million and we gave back so to say the noncash effect. In order to perch this effect at exchange rate variation is not again, it is an unrealized gain, and we exclude it and other items as well. And we reconciliate that to BRL 183 million. This is affected by assets and liabilities. One asset that didn't have to be disbursed in the case of the inventory is the main reason for this gain.
The company had a cost -- and as we already had the inventory, this is the reason why it is concerned as a gain and for [ can ] reconciliation purposes. And now talking about the liability, this was a loss because we disbursed provisions that were made at the year-end, and the inventory was closed at a high value and the expenses related to customs duties were paid, and there was a cash disbursement for this reason. So we have BRL 116 million in terms of operating activities, cash flow, the investments in the company BRL 12.606 million, free cash flow, BRL 104 million positive.
And the BRL 104 million free cash flow for financing activities to reduce our short-term bank debt. So we reduced by BRL 115 million, as you can see, the cash flow from financing activities. So this means a reduction in our balance, our cash balance of BRL 10,818 million. On the lower part, we see the reconciliation. Cash at the beginning of the period, about BRL 30 million and at the end BRL 19 million, a little bit less than BRL 20 million.
Thank you, Ricardo. Now we have on slide number 13. And as you know, it is very important to follow the price of the raw materials for Brazil. About 85% is important in terms of raw materials. We can see this that as of the third quarter last year, the prices reached new levels, and they were higher up to the end of February, except for May to urea. And in January and February, it went down. And after the beginning of the conflict between Russia and Ukraine, we can see a very big price increase. We reached the end of March with prices that were already high at the end of the fourth quarter, and they were even higher in the third quarter.
This fact alone, this has to do with the uncertainty that we have in terms of supply by Russia because of the weight that Russia has in the world supply mainly to Brazil. The prices of agriculture commodities sustain this high level of fertilizer prices. In spite of the very high prices, we still have a good profitability especially in Brazil, when the new crops are going to be planted.
And now I would like to turn the floor over to Ulisses.
Thank you very much. To finalize the presentation on slide 14, we have been showing you the production of Brazil with an expectation of a record production, 260 million tons, almost 270 million tons. And here in this package, we have fertilizers and the amount of area that we need to use using the technological package, so to say, is much better than if we use the same technology that we used in the '70s, for instance. So the yield has been increasing as well as fertilizer consumption. The fact is that Brazil this year had 45.9 million tons and the expectation for this year is that consumption will stay stable with the production of grains, another production record and a very high number of deliveries.
We thank you very much for your presence and your participation, and we will be available to you if you wish to ask questions.
[Operator Instructions] Thank you very much [ Lorenzo ] for your question about the price per ton. We know that raw materials are increasing prices on a monthly basis and this price per ton is calculated regarding the first quarter and today, May, the prices are higher because we saw a price increase. And we had to transfer this to the prices. So you are correct. In the quarter, it was slightly lower than the current amount in the market.
Thank you very much for a question about the company's debt profile. And the company relates the working capital issues with short-term loans raised at the market rate and market guarantees when they are required. The company closed the debt at [ BRL 400 million ]. However, the long-term debt has another profile, and it is exclusively linked to the Judicial Recovery. About BRL 2 billion par value, at a fair value, a little bit over BRL 1 billion. And I would like to remind you that this is payable as of December 2023.
December is a deadline for payments within 2023 and it's a very long-term debt. It will be like that up to December 2025. December '45. And this has real guarantees or they are unsecured. The labor that were fully paid 12 months after the Judicial Recovery Plan was approved. And at every half year, for 10 half years, we have less than BRL 1 million to be paid at each semester, each half year.
[ Andres ], thank you for your question. What is the expectation for the delisting or the registration of the company's capital?
The tender offer depends on the new buyer and it is accumulated with the one of the delisting plan, the deregistration. As you know, according to the company's guidelines -- on May 5, there was a meeting to have the assessment report. And once the assessment report is ready, there will be a final decision about the tender offer. With the other one at the CVM and considering all the necessary documentation and the analysis will start.
And the deadline for the deregistration can vary regarding to the requirements and with the possible discussion with the collegiate of the CVM, the Brazilian SEC. The result will be published in about 10 days and the auction will be held about 45 days after the publication of the final report. And we estimate that this should last for about a few months -- and restated by the SELIC, the amount restated by the SELIC interest rate.
[indiscernible] Why do we sell less product if there was a shortage of fertilizer? When we look at the report about all deliveries in Brazil, we can see that the market for January and February had a significant drop.
As I said before, in some regions, this was even bigger mainly in the regions where we have a higher share Minas Gerais, Espirito Santo and the Southeast in general. In our view, there was a general drop in the market as a whole, not only [indiscernible] but mainly in the regions where we have the bigger presence. And what -- mentions regarding shortages, there was no shortage in the market where [ we reset ] operates.
[ Eduardo ],what about the situation of the raw materials with the conflict Russia and Ukraine?
Before that, we already had doubt about the availability of raw materials from Russia to Brazil and this uncertainty and at the beginning of the conflict and then in our specific case, I would say that our future perspective bring no rupture, no disruption in the supply.
[indiscernible] I would like to know your strategy about the opening in Rio Grande? So we have a reduction of 25%. Why are you going to resume operations?
In the case of Rio Grande do Sul, we understand reopening this unit is very good because we will be able to remunerate the end with the idea that we start to use this idle capacity. This was the reason why we decided to reopen the Rio Grande unit.
[Operator Instructions] [indiscernible] He's asking about the average ticket of 4,000. And if you're including there the old contract as the fertilizer formulate in the third quarter was negotiated over 5,000?
We do not -- during this period, we were not working with contracts. They have already been remunerated. They have already been invoiced and the results are already here in the results. We were talking about contracts signed in 2021. There is no such thing to be delivered in the first or the second quarter of 2022.
As there are no more questions, I would like to inform you that adding to this conference call about the results of the first quarter of '22 has come to an end. Thank you very much for participating and we wish you a very good day. Thank you.