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 to discuss the results of the second quarter of 2022. Today with us, we have Mr. Lieven Cooreman, CEO; Julio Enrique Varela Gubitosi, CFO and Investor Relations Officer; Alfredo Fardin, Procurement and Logistics Officer; and Ulisses Maestri, Commercial and Technical Officer. We inform that this event is being recorded. [Operator Instructions]
Before proceeding, we wish to clarify that forward-looking statements that might be made during this call in relation to the company's business outlook as well as 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. They involve risks, uncertainties and assumptions as they refer 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 may affect the future performance of the company, and may 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 Fertilizantes Heringer, who will start the presentation. Please, Mr. Cooreman, you may proceed.
Thank you very much. Good morning, everybody. As an introduction and to avoid any questions or remarks about the possible fraud and the contracting of maintenance services of the company and the investigation underway, all the information is made public. And they are mentioned in the material information already informed to the market as well as in the financial information that has already been published by the company. They are updated with the concrete advancement of the investigation according to the best judgment of the administration, of the management, and the legal counsel for the development of our work and the independence of the investigation committee.
With that, I would like to turn the floor over to Ulisses Maestri to talk about the company and the results of the quarter. Ulisses?
Good morning, everybody. Rodrigo, I cannot see the presentation on the screen. Well, let's talk about the quarter and the deliveries comparing to the same period last year. I would like to remind you that the company has a very strong action in 2 states, Minas Gerais and São Paulo, producers of coffee, where we have a very major participation. And in São Paulo, sugarcane; in Minas, more coffee. As a consequence, we made an update such as has been happening in the last few years in our sugarcane and coffee endeavors.
In this last quarter, we had a very strong participation on the part of these 2 states, also Mato Grosso do Sul, and the Northeast, Bahia and Sergipe. We delivered 242,000 tons, representing 1.8% more than in the same period of last year. And when we talk about the half year, we had a decrease in our deliveries in the market overall in spite of showing up to May a growth of 1.7%. Everything points to June and July being the 2 months in which there was a drop in the market.
So as I said before, we lost 11.6% in volume. And in spite of that, we delivered coffee 22%; corn 22%, 17% for sugarcane. And I would like to remind you that we are present in 9 states; São Paulo with 2 plants, Espírito Santo; 3 in Minas Gerais; and 3 Mato Grosso do Sul; in the Northeast, in Bahia, Sergipe, and Goiás 2. And more recently, yesterday, we officially opened the Rosário do Catete unit.
During this period, we were very much concerned to keep our margins in the whole half year, and we will be showing you because there was a very strong drop because of many reasons, but we made our best endeavors in order to keep our margins and the bottom line or the result of the company.
When we think about differentiated products or the specialty products, we have a very broad portfolio, I believe one of the broadest in the market. They are specialty products for all kinds of crops. And when I say all kinds of crops, we are referring to a delivery to over 50 different crops in a very diverse country. And these differentiated or specialty products have been helping us a lot in terms of maintaining our margins today. Both for the quarter and the half year, we had 50% participation of specialty products in our overall deliveries for the quarter and for the half year as well.
In relation to our plants, as I said before, we are operating with 12 plants, and we're very happy to reopen the Rio Grande unit. This state is extremely powerful in terms of agri business, Rio Grande do Sul, and yesterday we officially opened -- we have been working on that for a whole month already. But yesterday, we officially opened the Rio Grande unit. So we have 4.4 million tons installed capacity today.
And now I would like to give the floor to Julio, our CFO.
Thank you very much, Ulisses. Before talking about the financial highlights, I would like to say that the plant that we opened officially yesterday in Rio Grande was Rio Grande. On Slide #9, on the third line, we present the second quarter and the first half of 2022. We have a decrease in the half year comparing to the same period of last year. And the main highlights of the period were the net revenue in the second quarter of '22. The net revenue was BRL 1.08 billion, over 90% up year-on-year.
In the first half of '22 as a whole, we had BRL 2.3 billion in net revenue, about 77% more year-on-year, because last year it was BRL 1.3 billion in 2021 in the same period. And of course, there was a strong impact of the higher selling prices.
And due also to the higher raw material prices in the international market, the gross profit in 2Q '22 was BRL 68.2 million. And this means a gross margin of 6.3%, which is about 1/3 less than in the same period of 2021 when it was BRL 105.9 million. And when we reached a gross margin of over 18% in the first half of '22, the gross profit was BRL 203.3 million, reaching a gross margin of 8.8%, which is 20% lower on our year-on-year comparison when the gross profit was BRL 255.3 million with a gross margin of 19.5%. The cost of raw materials was higher during this period and driving down the gross margins when compared to the same period of the previous year.
Now the EBITDA in the second quarter of '22 was BRL 24.1 million, representing a 2.2% margin over net revenue, 77% lower compared to the previous year. The EBITDA for the first half of '22 was BRL 109.3 million with a 4.7% margin. And this means a drop of 48% vis-a-vis the first half of 2021, when the EBITDA was BRL 209.7 million with a 16% EBITDA margin. The lower margins when compared to the same period of '21 were impacted mainly by the higher raw material prices.
And as we said before, besides, in 2021, this period was under the influence of the Uberaba unit divestment. There was a positive impact of the Uberaba unit divestment, which brought an additional margin of about BRL 31 million in 2021. In the net income line, you can see that the major impact was the unrealized exchange variation in the period. In the second quarter of '22, this exchange variation was negative by BRL 94.7 million. The net result was negative by BRL 94.7 million, down from the positive BRL 144.7 million net income in 2Q '21.
In the half year, in the first half of '22, we had a positive exchange variation of BRL 33.7 million. Nevertheless, it was lower than the first half of '21 when it was positive, BRL 137.3 million.
Now going to Slide #10, when we talk about the financial results. Slide #10, please. So we have the main drivers that impacted the financial result. We had a BRL 80.4 million loss in 2Q '22 from the unrealized exchange variation over the judicial recovery debt in foreign currency stemming from the 10.6% Real devaluation in the period, the Brazilian currency devaluation. In spite of this loss in 2Q '22, in the first half of 2022 as a whole, we had an unrealized exchange variation gain of BRL 72 million, mainly due to the appreciation of the Real by 6.1% in the period. And I would like to highlight the fact that the foreign currency debt under the judicial recovery is a long-term debt and payment will start in December 2023.
Talking about the loan interest and other financial expenses, the total expenses in 2Q '22 were BRL 56.7 million, up by 227% vis-a-vis the BRL 17.4 million in 2Q '21. In the half year as a whole, total expenses, total financial expenses were BRL 103 million, 165% higher on a year-on-year comparison. And the increase in the period was mainly due to 2 factors: a higher working capital need as fertilizers became more expensive and this impacts our inventory, and also the higher Selic interest rate, which impacts the working capital financing of the company.
Now going to the last slide of the financial information, slide #11. With the cash flow of the company, and here we are talking about the first half of 2022, consolidating the figures, we see that we closed the first half with BRL 22 million cash. And the main items in this consolidation are the positive results before income tax and social contribution, which was BRL 63 million. The noncash expenses amounted to BRL 7.1 million, mainly referring to interest and then realized exchange rate variation in the period.
The increase in the asset accounts amounted to BRL 361.5 million, basically concentrated in inventories, once again, due to the higher fertilizer prices. Also, the increase in the liability account amounted to BRL 14.6 million, the net investment of BRL 35.4 million and also the cash flow net of financing activities, which was BRL 303.6 million.
With that, I come to the end of the financial part of the presentation, and I give the floor to Alfredo Fardin.
Good morning, everybody, thank you very much. We are talking about Slide #13 now about the imported raw material price performance. I would like to remind you that international prices at the end of the fourth quarter of '21 were related to -- in the first quarter of '22, they were related to the crisis in Ukraine because of the uncertainty about the supply of raw materials to the global market because of the importance of this country. Now what we see at the end of the second quarter is almost a slight correction.
Still potassium going up, potassium and MAP were kept at high prices mainly due to the high profitability and a very good barter ratio, and the need for soybean, in order to buy 1 ton. And on the other hand, we see urea with a decrease, not because the barter ratio is not good, but we do not see a strong demand in Brazil or abroad to keep the prices at higher level. Those of you who follow us maybe are concerned with the inventory levels. And we can say to you that our inventories are renewed if necessary, depending on the scenario for the next 60 to 90 days, and the drop in urea prices -- our inventories were renovated already bringing urea to our inventories at the current price levels.
Next, please. You are very familiar with this slide and we show this just to report the scenario that we have in Brazil and the growth of the planted area in Brazil, technology very much present in the increasing yield. Some exceptions have to do with the weather conditions, the climate conditions in some areas, but yields are overall growing historically. And this leads us to look at the crops and see that we will have record harvest and we have extremely competent farmers to do this job.
And we are a major supplier to them. We are present in a segment that we think about as a fertilizer segment, but it is the agricultural segment. And we see an extremely positive scenario for Brazil. We always keep this slide in all presentations to keep in mind our segment and all the opportunities that we have. Thank you.
[Operator Instructions]
May we answer the questions, please? May we start answering the questions. Yes, please. We have a few questions already. In relation to the investigation of the possible fraud. And as I said in my opening remarks, I would like to mention again that the company is totally committed with transparency, and we always will be communicating in a transparent fashion all the situations that we may find within the company.
Nevertheless, we are not going to make any additional remarks about the investigation because it's already underway, as I said, which means that all information regarding this investigation will be communicated in material information. So this answers some of the questions that are here. So I am giving an overall answer to all the questions about the investigation.
And another question about the opening of the unit. And the question is question number 10, which has already been published to the market in the material information. The reopening of Rio Grande started operation 1 month ago. And yesterday, we had the celebration ceremony with people representing the government and all our suppliers and partners, and all the people who are working in this unit, and we did not publish a material information about that because this is just part of the information or this is part of the daily routine of our operations.
So the company does not believe this is a matter for a material information because it has to do with the regular operations of the company and as published in the press release and the ITR.
A question from [ Thales ] about the percentage of products and the spot price, i.e., is the company paying more than the spot price?
This is considered as one additional supplier, everything that we buy from the international market and all the purchases are made regarding the market conditions. We may buy from any company, but we always evaluate the conditions. So this is how we make decisions regarding our purchases.
I would like to go back to a very specific question that maybe was not totally covered with my answer. It was a question by [ Venesse ].
Don't you think releases should only publish when you reach the end of the investigation because this impacts the share prices?
CVM demands the publication of material information of any act or a fact that may impact the share prices or the decision on the part of investors of selling or buying shares. Of course, this is a relevant or material information because of the impact that it may have on the price of shares and according to the best practices and complying with the orders of the CVM, the company decided to publish what occurred immediately to the market.
I would like to mention that the company as part of a revision of quarterly information had 2 external advisers and this needed to include them in the ITR. So the information was made public by means of material information, as I said.
Will you have a better COGS because of the increase in spot prices? The high inventory has to do with prices and not the volume of product. As you know, our inventories are necessary to supply from 60 to 90 days, mainly when we consider the situation here in Brazil. So for our sales planning, we need to avoid the shortage of products and also this is strategic because we have to think at prices variations. As we have a lot of uncertainty this year, this is the reason why we are more conservative now in terms of controlling what we have in our inventories in order to meet our demands for the next few months.
And as I said, this inventory is very dynamic. It is renovated on a monthly basis in order to comply with the market need. So the high amount is more linked to prices than to the volume or amount of product, you know very well that raw material prices are international.
[Operator Instructions] From [ Rodrigo Todaro ] about the tender offer publication, or the report about the tender offer.
I believe there are other questions about the tender offer, but answering Rodrigo, tender offer is something to be decided on the buyer's side and not the company. It is the object of the tender offer. So in the process, we are the facilitators in the preparation of the report. So we supply information. And we suppose the report is being finalized, because we sent all the information requested by the evaluators until the end of July.
And of course, they are evaluating the impact of the material information about the investigation, and it will be the object of a future material information to be published.
[Operator Instructions] From [ Carlos Ojeda ] about the company inventories. He asks, what is the price of urea with which you have built up your inventory? And do you see any need to make adjustments in the fair value of your inventories in the third or the fourth quarter.
I would like to clarify that the company does not get into detail about the inventory per product. We do not break down this information. Nevertheless, on average, the company -- in the next few quarters, we will not be able to give you any guidance regarding performance. So we cannot say anything about our selling inventory of urea or any other product with a higher or lower margin. We cannot say this. What we can say is that there would be no need to restate the value of the inventory should it become more expensive than the average of the market, and it would be sold at the negative price, but adjustment to the fair value would not be necessary.
[Operator Instructions] Another question. It is in English. It has to do with the tender offer as well.
The question is from [ Han Smith ]. And [ Han Smith ] asked whether we have any news for the market regarding the outstanding tender offer from EuroChem, the independent valuation of the shares, and whether the Ukraine situation is impacting our ability to close the offer?
Thanks for the question, [ Han ]. As Julio explained, buyers together with other partners are evaluating the impact of the ongoing investigation on the finalization or the emission of the appraisal report, and obviously that will be communicated at opportunity. On the second part of your question, no, we don't see any consequence of the Ukraine situation on this tender offer process.
Answering the question by Paolo [indiscernible]. The company had increased inventory. This is what you published at the end of the first quarter, and he asks, with the war in Ukraine and prices going up, shouldn't Heringer have performed better and why wasn't it?
So Paulo, as we said before, the increase in the company's inventories was a consequence of the price increases, not the volume increase, and prices of fertilizers have been going up consistently in the first few months of this year. And in the market, what we saw was a situation of fear of a shortage of products in Brazil as a whole in the first half, imported more proportionally than in the previous year.
And in the second quarter of '22, specifically when we had major volumes of products in the market, Heringer was not able to sell all these products with the same margin that the company had in the past. So there is no direct relation between the high fertilizer prices and the demand in the domestic market that would allow us to maintain our margins.
[Operator Instructions]
Just repeating what I said at the beginning of the call. Due to the number of questions about the investigation, everything that has already been said in the publication of the material information that we published. And we are analyzing the fact. And of course, we will continue this investigation, and we will be updating the market with all the advancements made by the investigation committee. We have a third party that is helping in this investigation. So we expect in the next few weeks to come back to this matter.
[Operator Instructions]
As I said before, we acquire raw materials from many different suppliers according to market conditions, and we cannot inform you about the percentage because this is very dynamic. Today, it can be higher, tomorrow can be lower. It depends on daily negotiations, and we establish our positions in the market, and we have opportunities every single day. So we do not have a fixed percentage of how much we buy from EuroChem or any other. So we negotiate according to market conditions, and there are new opportunities arising every single day with the amount of products that we buy from EuroChem vary. And we have no need whatsoever to establish a fixed percentage.
There are no more questions. Fertilizantes Heringer conference call has come to an end. Thank you very much. Have a good day.
[Statements in English on this transcript were spoken by an interpreter present on the live call.]