Fertilizantes Heringer SA
BOVESPA:FHER3
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Fertilizantes Heringer SA
Earnings Call Analysis
Summary
Q3-2023
The company saw an 81% year-on-year increase in delivery volume, with coffee crops and soybeans as highlights. However, net revenue fell by 9% compared to Q3 2022, attributed to a notable decrease in fertilizer prices. Nevertheless, gross margins improved in Q3 due to stabilizing raw material prices, although SG&A expenses soared by 103%, partly due to restructuring efforts and fraud investigation costs. EBITDA remained negative, but financial expenses dropped by over 40% due to a new working capital financing structure backed by suppliers. The inventory reflected the international price drops of key raw materials like urea. Expectations for the national grain production signal a slight downturn, with a forecasted 1.5% decrease in grain production for the upcoming harvest.
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[Interpreted] Good morning. Thank you for waiting. Welcome to Fertilizantes Heringer conference call to discuss the results of the third quarter of 2023. Today with us, we have Mr. Fernando Maeda CFO and Controller; and Mr.[indiscernible], Regional Manager of the company. 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, 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 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 may lead to results that differ materially from those expressed in such forward-looking statement.
Now we would like to turn the floor over to Mr. Fernando Maeda, who will start the presentation. Mr. Maeda, you may proceed.
Thank you, Rodrigo. Good morning, everybody, and welcome to another conference [indiscernible]. And for those who are following the presentation, we will start with the quarterly delivery. The company remains with the strategy of focusing on the opportunities and increasing delivery volumes in 3Q '23.
The delivery volume grew by 81% year-on-year, totaling 784,000 tonnes. We can see here on the chart that we keep the variety of deliveries in the period, and coffee crops had the highest concentration, highlighting the growth also in soybean.
On the next slide, we have the accumulated deliveries. For the year, we grew about 65% vis-a-vis 2022. And the highlight here is coffee with the highest concentration in the period and also growth in the soybean market. It's important to say that besides the better distribution of the crops year-to-date, there was growth also in all the crops that are served by the company.
And another point, the 9 months of '23, 1.6 million tonnes of deliveries already exceeds the 12 months of 2022 when we delivered 1.4 million tonnes. Regarding the product mix, the company continues with the strategy of growing our specialty products, and we can see a percentage growth that's very significant in the third quarter of '23. 73.9% increase in specialty products year-on-year, close to what we had also in conventional products with a contribution to the growth of the segment in the year-to-date results.
It's important also to mention that in the previous quarters of '23, specialty products were growing, but the growth was smaller, it was more modest. So this is very positive news for the third quarter of '23. That is to say, the resumption of a significant growth in specialty product delivery.
On the next slide, we have the company's financial results. Regarding the net revenue. In spite of the increase in volume in the third quarter, we had a decrease vis-a-vis the third quarter of '22, BRL 1.64 billion lower by 9% of the third quarter of '22 to BRL 1.8 billion.
For the year in '23, we had BRL 3.9 billion, lower by 5% to the 9 months of '22, BRL 4.12 billion. The reduction in this period when compared to the same period of the previous year, is still very strongly impacted by the reduction in fertilizer prices. In relation to the gross result in the third quarter, it was positive BRL 101.1 million, much higher than the third quarter of '22, which was positive at BRL 15.8 million.
Year-to-date in '23, it is still negative at BRL 35 million lower than the 9 months of '22, positive by BRL 219.1 million and the constant reduction in the prices of input drove this lower margin in the sale of these products. But in the third quarter of '23, with the stabilization of prices of raw materials in international market we already see a change in this scenario and the resumption of positive margin for the company.
In relation to our SG&A, BRL 72.1 million, higher by 103% vis-a-vis the previous year, BRL 35.5 million. For the year, BRL 172.6 million higher by 77% vis-a-vis the first 9 months of '22, BRL 97.7 million negative. And this increase in expenses is due mainly to the restructuring of the company, aiming at a higher control and security in the processes and with the reinforcement of our commercial team in order to have a wider footprint in the market.
We have nonrecurring expenses here of about BRL 18 million, mainly related to the fraud investigations according to the material information that has already been published. In terms of EBITDA in the [ third, ] BRL 3.5 million negative higher than 3Q '22. BRL 45.9 million in the 9 months, negative by BRL 280.5, million lower than the 9 months of '22 when it was positive by BRL 63.3 million.
Now let's go to the next slide. The financial results of the third quarter. And we can see here that it was affected mainly by the exchange rate variation. In the third quarter of '23, it was negative BRL 55.3 million lower than the third quarter of '22, negative by BRL 56.2 million. In the 9 months of '23, positive BRL 45.6 million higher than the 9 months of '22, positive at BRL 15.8 million, 4% devaluation of real vis-a-vis the previous year made the accumulated results closed with BRL 45.6 million in positive net variation -- exchange variation.
Regarding the other financial expenses in the third quarter of '23, BRL 33.8 million lower by 41.6% to the third quarter of '22 when it was BRL 57.9 million. Year-to-date, BRL 96.8 million, lower by 40.1% to the 9 months of '22, BRL 161.4 million and this reduction of about 40% in this period of '23, when compared to the same period of last year, even if you consider the higher interest rates, it's because of the new financing structure for our working capital.
Our working capital structure is being financed mainly and mostly by our suppliers. And on the next slide regarding our cash flow of the 9 months of '23, Heringer closed with cash and cash equivalent BRL 45.4 million, and the main items affecting the cash was the loss, a negative result before income tax and social contribution BRL 365.8 million; noncash expenses BRL 141.9 million, mainly due to provisions for inventories and interest rates on liability referring to the court-supervised reorganization; reduction in the asset account of BRL 141.9 million mainly due to the reduction in our inventory account given the lower input prices during the year; rising the liability accounts BRL 157.5 million, mainly due to advantage from customers.
Net investments of BRL 83.5 million, mainly due to works in order to adjust the unit mainly to comply with safety rules and also new lease agreements. And the negative net cash flow from financing activities was BRL 8.9 million. As we communicated to the market on August 28, the company paid interest of 2 -- Class II and III customers in the judicial recovery process. There was a negative variation of BRL 16.5 million in the cash in the period paid to creditors.
Regarding our financial figures, this is what I had to report, and I would like to give the floor to [indiscernible], please.
Talking about the evolution of raw material prices, as we informed in the first few quarters, we come from an inventory with higher raw material prices, as you can see on the chart, the 3 main raw materials that we use: Urea, still in December '22, $510. And in June '23, going to $286 and in September too. You can see an accumulated drop of 20% in the period and the same behavior regarding MAP, $626 per tonne in December '22, $538 in September '23. You can see a drop of 14% in the period and also potassium chloride in December, $533. In June, $340. And in September, $359 with a 33% drop. And the prices in June came from negotiations in the period with our clients, with farmers. And also drove the highest delivery in this period. And it changes the inventory profile. The inventories went down at lower prices, and we can see here on the chart that there was a reduction or an interruption in the drop of international prices due to the increase in demand in the main consumer market and the significant [ price ] reaction in urea due to the low inventories in India. India is a very large consumer market.
And lastly, talking about the national grain production, the planted area this year. According to the first CONAB survey of the '23, '24 harvest disclosed in October. Brazil should reach a harvest of around 317.5 million tonnes with a slight reduction in grain production of 1.5% vis-a-vis '22, '23, which was a record harvest of 322 million tonnes.
And the estimate from MB Agro Consultancy that was made available in the tenth Brazilian fertilizer congress with 42 million tonnes at the end of the year, 3.4% growth vis-a-vis the 2022 market.
[Operator Instructions] We have a question from Mr. Eduardo.
How much was paid in applicable interest to creditors of the court-supervised reorganization in 2023?
BRL 50 million, Eduardo. Another question by Paulo Roberto, I'm going to read the question. I have been following your webcast for about 2 years. And during this period, many quarters presented losses, but the explanation varies. Sometimes, it's because of the high prices of raw materials or the low prices. So is there any favorable scenario regarding the prices of raw material so that you may achieve and deliver significant results -- positive results?
Answering your question, Paulo. We had a drop in prices, consistent one since March 2022. So this drop in prices was consistent and it lasted as we showed until June 2023. During this period of consistent drop in prices, we justified that the results of the company in terms of gross margin will be strongly impacted by the lower prices, not because of the drop itself, but because of the ongoing and consistent drop. And as we are distributors, we have to buy the raw material in order to sell it afterwards. And when you have a low price scenario, we end up being impacted as our gross margin is impacted because of that. And what we showed in the last quarter was a positive gross margin. It was even higher than the same period last year. And as [ Enrique ] said, in a scenario of a more stable price and for some of the raw materials, the prices went even up. So I think we are rather in line with what we have been presenting. In a scenario of prices dropping, this has a negative impact on our margin. And when we see higher prices, then we also see a higher gross margin.
[Operator Instructions] There are no more questions. Fertilizantes Heringer conference call has come to an end. Thank you very much for attending, and we wish you a good day.
[Statements in English on this transcript were spoken by an interpreter present on the live call.]