Fertilizantes Heringer SA
BOVESPA:FHER3

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Fertilizantes Heringer SA
BOVESPA:FHER3
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Price: 3.48 BRL 0.29% Market Closed
Market Cap: 187.4m BRL
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Earnings Call Transcript

Earnings Call Transcript
2020-Q3

from 0
Operator

Good morning, and thank you for waiting. Welcome to Fertilizantes Heringer's conference call in order to discuss the results of the third quarter of 2020. Today with us, we have Mr. Dalton Carlos Heringer, CEO; and Ricardo Garcia, Head of Finance and Controller of the company. 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 also being simultaneously webcast on the Internet at Heringer's Investor Relations website, at heringer.com.br/ir, where the slide presentation is available for download as well.

Before proceeding, we would like to mention that forward-looking statements that might be made during the 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 to the company. Forward-looking statements are not a guarantee of performance. They involve risks, uncertainties and assumptions as they relate 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 also affect the future results of the company and may 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, Fertilizantes CEO, who will start the presentation. Mr. Heringer, you may begin.

D
Dalton Heringer
executive

Good morning, everybody, and thank you for participating in this call in which we will be talking about the results of the third quarter of 2020. Those of you who are following us, we would like to give you a message in relation to the third quarter. What we saw during this quarter was an important recovery of the company's results vis-Ă -vis last year's third quarter. Already, we see a very strong recovery after we filed for judicial recovery.

So in this quarter, we had an important margin recovery and EBITDA result and operation in terms of volume as well, and we will be referring to this during our agenda. And we also saw some important information that will be detailed afterwards, although we had an exchange rate variation in the third quarter and that was very big. That is to say, over BRL 18 billion, the dollar went from 5.47 at the beginning of the month to 5.64.

And in spite of this expense that has noncash effect because we have a very long term. Because of the judicial recovery, we had a positive result in the quarter. And I would like to start by saying these positive data, and we have been able to recover adequately with the generation of EBITDA and increasing our scale on a monthly period. So the operation has been recovering and the margins are satisfactory in terms of generating cash at each month, and already having the operation at a much better scale than the one that we saw last year during the same period, which was a big challenge for the company.

So those of you who are shareholders in Heringer, you know how big the challenge was faced by the company during the whole year or 2019. So our agenda today will be split into 3 major topics. I will be making the first part about the company and the Brazilian market. Afterwards, Ricardo will detail the financial performance of the quarter. And lastly, I will come back, and I will talk about the outlook.

Those of you who are following our presentation, the slide presentation is available at the company's website. So let's go to Slide #4 now, in which we can visualize the operation for the quarter in terms of volume occurred in the quarter and also the crops. So we had a very major increase in our deliveries, in our volumes in the third quarter of 2020, with a year-on-year comparison, an evolution of 246,000 tonnes for the third quarter 2020, going from 246,000 tonnes to 447,000 tonnes, which means a growth of 82% year-on-year.

When we talk about the crops, we see that the company maintains the distribution profile. It is quite diluted. And we have no crop whatsoever concentrating our deliveries. And of course, our biggest crop in this quarter is coffee. Because of the areas in which the company is operating right now, the company had a logistics capacity to operate in the whole country. And now we are closer to where we have our mixing unit, so we concentrate our operators in these areas -- operations in these areas. And in the case of the third quarter of 2020, we have 37% tonnes to coffee. And the others -- and when we say others, we have over 30 different crops in the blue area of the slide. We have different types of clients being served in this area.

And continuing our presentation with Slide #5, we start to talk about the year-to-date figures. I would like to mention that during the 9 months of this year, we have already exceeded the total of last year. Last year, we delivered slightly less than 800,000 tonnes. And in the first 9 months of 2020, we have already delivered 905,000 tonnes. So when we compare data comparing to 2019, we see a growth of over 100%, in fact, 101% growth. And I would like to highlight that the deliveries when we draw the comparison of the first 9 months of 2020 to '19, we have 2 mixing units that we have reopened, one in Três Corações and another one in Dourados in Mato Grosso do Sul that was reopened this year. So the company has been recovering or increasing the area of operation and increasing scale as well.

Talking about the distribution of sales per crops. As you can see in the presentation, those who are following the presentation, the diversity of cultures is maintained. And in this case, we have even more crops when compared to the quarter. You can see that this has a bigger weight here. And we've been very close to what was delivered to coffee and the others with 30. So you can see that the 3 important crops that we have been delivering our sales to; corn, 19%; sugarcane, 12%; soybean, 7%. And the soybean crop is the one that has the highest demand for fertilizers in Brazil, but the area of operation of the company today is more in the 3 states of the south of the country and also Mato Grosso, some very important areas in terms of soybean crop.

And as far as Heringer is concerned, so soybean does not present as much as you can see for fertilizers in general.

Now continuing with our presentation, let's turn to Slide #6. Here we show the specialty products of the company, both for total volume showed. So in the specialty product, the company has products that suffer all the ways that are necessary to bring this to the plant. So we have the solo product, and we have the fertigation to be used in the irrigation systems, conventional, and all kinds of fertigation that the country uses. And more recently, some years ago, we have been working very effectively in the Foliar area that is having very good results in terms of margin and margin contribution as well.

In terms of scale, the first 9 months of this year, 48% of the total sold was of this line and 32% traditional, so specialty and conventional. This year, conventional is already delivering good results, but of course, the specialty products have superior margins.

Let's continue with the presentation, going to the next page, and let's talk about fertilizer deliveries. You can see here a reality of comparison of the first half of the fertilizer market with Heringer. The fertilizer sector on an annual basis has been increasing deliveries, and this is a one-off reality in this presentation. We are putting 3 years, the first half of '18, the first half of '19 and the first half of '20. As you can see a major growth in the comparison, year after year. So we had 12.818 million delivered by the second -- the first half '18; then 13.816 million in '19; and this year, a very big growth, 17% growth, delivering as a sector 16.249 million. And in this period, the Heringer deliveries, as you can see, there was a drop that occurred from the first half of '18 to the first half of '19, the period during which we had a very big crisis.

And when we looked for restructuring by means of a judicial recovery process, we had a major drop from '18 to '19 in terms of half year when the restructuring was being -- was underway already -- starting to be underway, so we only delivered 203. And then we see an important growth of 125% that occurred between the first half of '19 and the first half of '20. We went from about 200 to 457. We see a consistent drop for a few years already. And the reason why we have this drop in spite of the fact that the market has been going up, there are some situations. For instance, Petrobras has stopped national produce production in the 3 plants, and this was recent. And we also had, in previous periods, ammonium sulfate and also potassium in this situation. So the national production little by little has been decreasing. And Petrobras leased the Northeast units of the urea plants that are hibernating now. They are not operating. And most probably, in the near future, we might see some increase in the local production. But given the drops already seen in the past, for this reason, imports were the major generator of the necessary raw materials for the fertilizer mixers in very high percentages today.

So most of the raw materials, most of the chemicals for the fertilizer mixes are coming from abroad. That is to say, they are being imported. And in these 6 months, there was an increase in 9%, 13.3 million tonnes being imported vis-Ă -vis 12 million in the first quarter of '19. And this was necessary as the national production, as I said before, has been decreasing consistently. And imports increasing year after year show the balance in order to have the demand met has to do or has to be by means of imports. I would like to thank you all. And I would like to give the floor now to Ricardo Garcia, who will talk about the financial performance.

R
Ricardo Garcia
executive

It was a pleasure -- those of you who are following the presentation, we are now on Slide #9, where we show the results of the third quarter of 2020 vis-Ă -vis '19. We see a volume that rose over 80% and which accelerates the sales efforts. Net revenue practically doubled, reflecting a very good price increase as well. And COGS, cost of goods sold, 16% in the gross margin, so some freight and commissions. SG&A, which represented 7% of net revenue in the third quarter of '19; and during this quarter of 2020, 7.9%. And all this combined gave us an EBITDA of BRL 64 million. 9% of the net revenue vis-Ă -vis BRL 8.6 million in the same period of '19, 2.4% of the net revenue. Therefore, the EBITDA in this quarter was enough to cover the financial expenses and the exchange rate variation that was referred to. And the net financial income, BRL 7.1 million vis-Ă -vis negative BRL 135 million in the -- now let's talk about Slide #10.

The volume and the value more than double in the comparison, consolidating an important recovery in deliveries and price positioning. COGS, 86% of net revenue margin, 3.6 on 9 million, 30.6 million. And the other freight and commissions and commercial expenses, SG&A this year, 9%. You can see that the EBITDA was BRL 84.76 million, 6.1% vis-Ă -vis negative BRL 69 million in the previous year. The exchange rate variation impacts the business. And in '20 and in '19, there were losses here.

I would like to mention that the exchange rate variation has no cash impact. It refers to adjustments and that's past due for 25 years.

And on the next slide, we see the operating results. And we bring another period for comparison purposes, 3Q '18, '19 and '20. You can see that in the third quarter as well as January to September, the gross margin rose 2.5x here and the EBITDA margin, no longer negative and 9% in the quarter and 6% in the year-to-date.

The balance sheet, as you can see, compares the third quarter of '20 to '18 and '19. And we see accounts receivable. And we see something on the next slide as the stronger liquidity is in recoverables because of negotiations of tax credits -- the translator apologizes, but the sound is being cut. Recognized at the closing of 31 of December of '19.

Shareholders' revenue shows here this recovery in this period. And on Slide #13, we have the working capital since 2017. And our working capital reflects accounts receivables around 30 days, showing good terms with the clients and also negotiations of securities for cash balance. Working capital reflects also the necessary inventories to support realized and expected sales nor inventories.

Some other details on Slide #14, days of accounts receivable and inventories. We show you here from the third quarter of '15 until the third quarter of '20. And we see, in this quarter, the 90 days and 30 days, respectively, contemplating the current reality of sales of the company. And I would like to mention this slide that the methodology for calculation contemplated the average of balances on a monthly basis. And the beginning and the end of each one of the period show you the dynamics of the company in each quarter as a whole and not only at the closing of each quarter. So we prefer to use this methodology that shows the dynamics for the quarter and not only at the close of the quarter. We believe it is more adequate.

And now on Page 15, cash flow, 9 months up to now -- in the 3 months and the 9 months. So you can see that we have the results before income tax and social contribution for both periods and noncash effect as well; the exchange rate variation, as we said; and also our inventories in order to be able to fill the orders. And so you can see this was covered with the negotiation of receivables and bringing about the balance in our cash.

D
Dalton Heringer
executive

Thank you, Ricardo. I would like to mention that after many quarters in a row, the company was able to deliver a positive net result of BRL 7 million, which is still too little. But it is the fruit of the recovery that we have been seeing gradually, and it didn't happen before because of the very strong exchange rate variation that we have been suffering here in Brazil because of the pandemics and also because of political uncertainties and economic uncertainties that we are having here. And all these uncertainties do exist, but I believe that the influence of the macroeconomics in terms of the company's results and in terms of the impacts that it generate, most of it is water under the bridge already. And uncertainties regarding the pandemic as well that is being suffered by the whole world is being slightly mitigated because we have a better knowledge of the pandemic and more opportunities in the horizon, may be a vaccine for the next few months, and this is what everybody hopes for.

And the EBITDA operation has been improving since the first quarter of this year. This is what I would like to highlight again. And in terms of the impact of the exchange rate variation on our financial expenses, maybe it has already reached a peak in the third quarter of 2020. And what we see now is that the dollar is remaining at levels that are very close to what has already happened before. We are not seeing any additional peaks. So we have a very good outlook for the fourth quarter of 2020. And depending on the exchange rate variation, up to the end of this year, we expect to be able to deliver a positive net result in the fourth quarter.

With relation to expenses, as Ricardo has already said, you can see that the expenses, given the increase in the operation. As a percentage of our net revenue, this has been going back to our historical levels. It was very high. They were very high during 2019 as a percentage of the net revenue because the operation dropped quite simply and the recovery in the volumes of the operation is bringing about little by little, this percentage of expenses vis-Ă -vis net revenue closer to the historical levels of the company.

And just concluding our presentation, I would like to mention the outlook for agribusiness in Brazil. If you allow me, it's like raining on a wet ground already. Everybody, in fact, knows about the situation, the agribusiness is helping the country in its overall economy. We have been gaining productivity in agriculture and with a very big benefit to Brazil overall. Agribusiness has not stopped. It continues to generate increases, and with a very strong contribution and helping mitigate the impact of the pandemic on the Brazilian economy. So we had the record harvest in the 2019, 2020 harvest year.

And in terms of our perspective, what is the big concern on the part of agribusiness? And of course, the fertilizer sector and Fertilizantes Heringer has to do with the weather condition of this year. As we see, we have a very big degree of uncertainty, much higher than last year. And this could generate difficulties in terms of production because of the dry weather that we are having. And I don't believe this is going to be generalized. I think this weather reality in terms of rainfall and the potential risk -- lower volumes of rainfall than historical levels. But I would say that most of the problems would be one-off problems, and they would have to do with prices. That is to say, agricultural product and its prices would reflect the problems that could arise from this weather situation, from the rainfall situation. And this generates increases in dollars in the quarters. In the case of nitrogen urea, in this quarter, we had a 15% increase; potassium chloride, 8%; and phosphate or phosphorous as a representative of the chain, 13% more in U.S. dollars.

Basically because of the increase in demand, so the whole world has experimented (sic) [ experienced ] an increase in demand, and the demand for fertilizers has to do with the increased demand for agricultural production. That is to say, producing the necessary food to feed the population. So this is not generally in the whole world because you have regions and areas and countries that have driven this demand up. And Brazil, Africa and part of Asia, specifically in Asia, India, that has been seeing an increase in the demand for fertilizer as a whole.

Going towards the end of the presentation, we see a productivity gain that is much higher than the scale of the planted area. Given the increasing yield, you can see that it has been increasing much more than the area itself, with a higher scale in terms of fertilizers. So in this period, that you can see, we see a snapshot of the increase that we had, 12, 13 -- minus 30 million tonnes going -- or less than 30 million tonnes and going to -- up to 36 million tonnes in terms of increase in consumption. So very clearly, we are going to have a further increase. And statistics show, in the first half, a very expressive growth. That shouldn't be the reality for the remainder of this year because it has to do with the 6 first months of delivery in this year. It should be from 2% to 4%. This is more or less what we expect in terms of increase in fertilizer deliveries for this year. In the case of Heringer, we are in a process of recovery, as I said before.

We have already exceeded last year, the full year of '19, with the 3 first quarters of this year. And the fourth quarter will be very important, will play a very important role. And we will have the highest volumes of deliveries in the year. So we will see a fourth quarter that will be very strong in terms of deliveries. And our production scale and our sales scale will deliver very good figures compared to last year. Basically, this is what we had to bring to you as information. And now we would like to thank you very much for following our call. And should you have any questions, I would -- we would like to open for questions now.

Operator

[Operator Instructions] Now Mr. Heringer will take the floor for his closing remarks.

D
Dalton Heringer
executive

I would like to thank you very much for participating in our call about the results of the third quarter. As we have already said, we are recovering the company and bringing the company to a healthy level. And this is a very bitter medication, the judicial recovery. However, it does bring about the benefits that we are seeking in terms of repositioning our debt and all the necessary measures that have been taken and are being taken by the company, so that we may bring the company back to a positive level.

And once again, I would like to thank you very much and wish you a good afternoon.

Operator

Thank you. Fertilizantes Heringer's conference call has come to an end. Please disconnect your lines, and have a good day. Thank you.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]