Fertilizantes Heringer SA

BOVESPA:FHER3

Earnings Call Transcript 2017-Q4

[Operator]

Good morning, and thank you for waiting. Welcome to Fertilizantes Heringer's Earnings Conference Call to discuss the Fourth Quarter of '17 and the Full Year of 2017. Today with us we have Mr. Dalton Carlos Heringer, CEO of the company; and Mr. Rodrigo Bortolini Rezende, CFO and IRO of the company. We would like to inform you that this event is being recorded. [Operator Instructions] After the call is over, there will be a replay facility for this call for 1 week.

This event is also being simultaneously broadcast by webcast at www.heringer.com.br/ir and the MZiQ platform as well, where the slide presentation is available for download. Before proceeding, let me mention that forward-looking statements that might be made during this call related to the company's businesses, operating and financial targets and projections are beliefs and assumptions of the company's management as well as information currently available to the company. Forward-looking statements are not guarantees 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 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, Fertilizantes Heringer's CEO, who will start the presentation. Mr. Heringer, you may proceed.

[Dalton Heringer, executive]

Good morning, everyone. Thank you for participating with us in the fourth quarter '17 results conference call and also for the full year of 2017. For those who are following our presentation, we will start by talking about the deliveries to the Brazilian fertilizer market in the fourth quarter. In the fourth quarter, the deliveries were at 0.4% higher in 2017 than the fourth quarter of 2016. The total volume of deliveries for the fourth quarter of 2017 was 9,644,000 tons vis-à-vis 9,609,000, so slightly higher in the fourth quarter of 2017 than the fourth quarter of 2016.

For the full year, the volume of deliveries of the Brazilian fertilizer market in 2017 was 1% higher than 2016. At 34,439,000 tons in 2017 vis-à-vis 34,083,000 in 2016. In spite of the reality of growth that we saw in the year of 2017, the Brazilian market had a purchase dynamic that was very different from the dynamic of purchases that we saw in previous years, mainly for soybean crops that usually started much before vis-à-vis 2017. So in 2017, what we saw wasn't a full period of harvest, that is to say slightly before the harvest period, a drop in prices, both for soybeans and as well for corn and due to this reason farmers had to postpone the sale of soybeans and corn as well. And due to this reason, the purchase of fertilizers after the previous years was much before, was postponed in 2017 as the farmers wanted to wait and they delayed the sale of the agricultural products, mainly soybean but also corn. And due to this reason in a certain period of the year, the inventories of the sector were much higher than they were in previous years. And also, the margins in this period as you can see as of March, and including August and September, which has got much lower levels than in previous years, typically low -- atypically low, leading to the reality that we saw in the results of the company both in the second quarter and in the third quarter of 2017.

On Slide #3, those who are following our presentation on the slide presentation, the Brazilian fertilizer market vis-à-vis the local production of raw materials had a worse behavior than we saw in previous years. What we saw was a significant drop in local production of these raw materials. And if you look at the fourth quarter, you can see that the total production of local raw materials was 1,959,000 tons, a drop of 17.2% vis-à-vis the fourth quarter of 2016 where we had 2,366,000 tons being produced and for the full year the drop was slightly lower at 9.5% with a total production in 2017 of 8,185,000 tons vis-à-vis the previous year that was much higher at 9,041,000 tons. The drop was more localized in 3 products that are very relevant in the Brazilian fertilizer market and [ there's no ] support in one in terms of crop of urea. Urea produced locally had a lot of problems in production and there were many moments in which production had to be interrupted. And also the production of SSP in the year was lower. And the [ installed ] capacity was much higher, but the effective production in the year was quite lower than the previous years 2016 and '15 as well.

And in the case of ammonium nitrate produced in Brazil, and [ Cubatão ] in the state of São Paulo, we had an incident at a plant in January 2017, and it took quite a few months in order to resume production because of that production was affected for the full year vis-à-vis the full year in the previous years, and due to the lower production in the Brazilian market.

Imports, those who are following us, we are now on Slide #4. The imports were much higher in this year due to the slow growth of the market that occurred, of 1%. But with the local production of raw materials, which was quite lower, as I said, imports in the year were at a record level growing by 7.5%, growing from 24,481,000 tons in 2016 amounting in 2017, 26,305,000 tons. And if we look at the fourth quarter, growth in imports was very small, 0.4% in fact, going from BRL 7.1 million reaching BRL 7.123 million in the fourth quarter of '17.

Now talking about the carryover stock from 2017 to 2018. This volume of 5,534,000 tons coming from a level of 5,100,000 tons approximately in 2017. And in spite of the fact that inventories at the end of the year were quite in line with the previous years, over the years the purchases of both corn and soybean didn't happen as early as if they happened in the previous years. In the middle of the year, around April, May, June, inventories for the sector were at much higher level -- much higher than in previous years when the purchases for soybean and corn were occurring more strongly and earlier as well. And because of that, the margins that we saw in the second quarter and the third quarter as well were low thus impacting the results obtained in these 2 quarters, the second and the third quarter. In the fourth quarter, as we can see in the presentation, imports were already lower and the volumes of the fourth quarter occurred in a very important fashion and in this case, in this year or at the end of the year, inventories were already at normal levels. So those dynamics that we just described in fact occurred in the market in the year of 2017 lead us to -- well in 2018 the barter ratio is at better levels than they were during the same period last year and with the price reality of soybean prices that is already higher than we saw at the same period last year.

And for this reason, I believe very strongly that the companies in this sector are already working with this purchase situation, understanding that this market in the same fashion as it happened last year, might delay purchases a little bit for the summer soybean and corn crops. So with this reality that we could have an early purchase for soybean and corn with a dynamic that is more similar to 2017, this could lead the sector to work with inventory levels – better adjusted inventory levels for 2018. And in fact, you can already see this with the recent figures published for the sector, for January and February. And exports in these 2 months are already -- imports are already lower than what we saw last year for the same 2 months.

And the supply and demand dynamic for 2018, we believe that it'll be more normalized, bringing to 2018, more normal, so to say, margins if we don't have the same situation that we saw in 2017, now in 2018.

Now continuing with our slide presentation. On Slide 6, we see the main crops in Brazil, soybean and corn, sugarcane and coffee. These 4 crops are extremely important to the growth of the nitro fertilizers in Brazil. And due to this reason, the market remains normal when the soybean and corn prices and as well as sugarcane and coffee prices are with a barter ratio of fertilizers at a very favorable level historically, having a very good correlation, so to say in our view of agriculture, in the course of fertilizers vis-à-vis the agricultural prices of these 4 main crops. So we see a possibility of having more normal purchases for these 4 crops. And I would like to mention that Brazil has this characteristic of having a very wide range of other crops as well besides the 4 main ones that we are mentioning in our presentation.

But nevertheless, the other crops are also at very favorable levels and the company believes very strongly that these crops will keep demand at normal levels. And demand for this year should also reach a new record. For the year, reaching a level that would be 2% higher than what we saw in 2017 reaching 35 million tons for the year. The raw material price dynamics in 2017 was quite linear I would say. And as you can see in our presentation on Slide #7. As you can see, there was a hike in the prices of these raw materials during the full year of 2017. And I would like to stress that this hike that we saw in the price of these raw materials in the year happened in a worldwide reality of early demand. So the situation that we saw in Brazil regarding demand also had a similar correlation to the rest of the world where the agricultural prices reached very low levels in 2015, 2016. And we see a gradual improvement in prices already starting in 2017, and this should become stronger in 2018 and '19 as well. So the agricultural products price reality brings to us a better dynamic for the supply and demand situation. But I would like to mention that the company does not work with an explosive growth in prices for 2018. We work with the reality very similar to what we saw in 2017, where we saw a clear trend of the possibility of seeing gradual price increases during the year. And I would even say very similar to what we saw in 2017.

Continuing our presentation, 2017. Due to this reality that I just described, of early purchases for soybean and corn lower than what we saw in previous year, seasonality was even more marked in 2017. Of the total for the year, only 38% was delivered in the first half. So the balance of delivery -- of 100% deliveries was seen in the second half with higher deliveries than in previous years reaching 62%. And as I said before, we believe in a more normal reality so to say, vis-à-vis the early purchases for soybean and crop. And deliveries, therefore, should be better distributed over the year, reaching in 2018 the level of 40% of deliveries in the first half, and 60% in the second half of 2018, reaching a total volume for the year as we said before, regarding our estimates, 35 million tons. This is our estimate being 2% higher than the volumes achieved in 2017 that had been the record of our deliveries. So in 2018, we should be having a new record in terms of total delivery volumes already within this year 2018. And as a consequence, in a more normal market dynamic, with better adjusted inventory which is something that has already been seen in this first quarter, margins will go back to more normal levels as well; not as low as we saw in 2017, which was nontypical as we saw during 2017.

Now let's turn to the Brazilian grain production. The harvest in '16, '17 -- the agricultural harvest of '16, '17 had an unprecedented situation with the harvest estimated up until then at an extremely high level, 238 million tons of grain. And this should not be repeated at the same level this year. The 2017, 2018 crop year, we had a delay in terms of rainfall in many of the regions. And due to this reason, the ideal period of planting was outside the best window of opportunities because of the delayed rainfall. But in spite of that, the main [ pertinent ] regions have very good harvest expectations. We should be seeing a drop in the harvest of the '17, '18 crop year vis-à-vis the record crop year '16, '17. But still much higher than the previous years, in which Brazil, with only a few exceptions was able to have a harvest higher than 200 million tons of grains as a whole, so in spite of this drop. And by the way, we even had some drought because of the delayed rainfall. And therefore, the planting seasons in the main regions, corn producing regions in Brazil, we thought there could be even a higher drop in the '17, '18 crop year. And this is not materializing.

So the main regions that produce grains have a very good harvest and no big weather problems up to now. And in terms of region, in terms of Latin America, our neighbor Argentina, is facing a very serious problem regarding rainfall because rainfall is much lower than what would be normal for the pattern in Argentina. But right now, Brazil has not been facing these problems in the main producing areas. So our harvest will be lower than what we saw in the '16, '17 crop year. However, the drop will not be as significant as we could imagine before. So there will be a drop, but with a recovery of expectation during December, January and February, already with normal weather situation, the rainfall situation.

Now I would like to talk about a macro vision of the company in Slide #10. The company this year will be celebrating 50 years of operations in the Brazilian Fertilizer market in 2018. And this is a very important year, an important celebration because many companies in this specific fertilizer market have not had the opportunity yet of having an effective operation for 50 years. The company is one of the biggest fertilizer companies in Brazil. Our deliveries in 2017 were very similar to 2016. The difference was very small between 2017, 4.3 million tons and 2017 4.2 million metric tons. Net revenue dropped and Rodrigo will be going in-depth in our financials.

Basically once the volume was the same, the drop in prices was due to the total sales of the year because of exchange rate realities. The average exchange rate was lower and also the margins were slightly lower than what we saw in the previous year. In 2017, EBITDA was BRL 92 million. This BRL 92 million was below EBITDA of the company since 2010, and Rodrigo will explain this. The company is increasing its national footprint, increasing our efforts to differentiate our products. And in the year, in 2017, we sold to over 35,000 clients in 2017.

As we are celebrating 50 years of existence in 2018, we have shown this in a time line for those who are following us, we have a timetable on Slide 11, of the 50 years of existence of the company. The company was founded in 1968, working basically in a region of coffee producers, in the state of Minas Gerais. During the whole period in which the company has been growing, the growth has been organic.

We started our geographic expansion by the State of Espírito Santo, then São Paulo, and then growing towards the Midwest, the Northeast and the South of the company. So we had our IPO in 2007, and the IPO was in the Novo Mercado in the listing segment in 2017 -- 2015. 2 large raw material producers came on board in sulfur and potassium. So they were included in Heringer’s shareholder base. And this year, we are celebrating 50 years of operations. And during all these years, the company has been able to grow more than the market ever, in spite of the drop that we saw in volumes in 2015 up to 2017. In spite of that, the company has been changing a little bit our focus. Our previous focus was much more on volume. And it's important to have a specialty product portfolio that might help the industry and farmers to have higher productivity gains. So in the past, our focus was on achieving higher and higher volumes and since 2015, we have been changing our focus and working more and more to deliver a portfolio of specialty products that might bring better margins and working with farmers to increase productivity gains in the many crops that Brazil produces.

We have plants and mixing units all over Brazil in order to cater to the main market. The company has 4 plants in the Midwest. And this is the main consumption region for fertilizers today and the Midwest represents 34% of the Brazilian fertilizer demand. The company is well positioned with the units that we have in this region in order to deliver to this market. The South region -- in the South region, we have 3 units, which allows us to have a very effective operation in the South and the 3 states of the South that have a total demand for 9 million tons in 2017, representing approximately 27% of the total Brazilian demand for fertilizers. And due to the fact that the company was founded and we started our work in the state here, in the Southeast, we have a very important footprint there in the 3 main states; Minas Gerais, where we started; and São Paulo and Espírito Santo. And this region is still extremely important in the Brazilian fertilizer consumption market. In 2017, this region, Southeast represented 25.4% of the overall Brazilian demand and the company has logistics that is very well prepared to cater to this market. And the Northeast of the country now represents 10% of the overall Brazilian consumption with 3.5 million of total volume approximately. And in the Northeast markets, the company is already very present. In the north of the country, the demand is relatively low, very much concentrated in the states of Para and Maranhão -- and Tocantins, I'm sorry. The total demand is still very low. But these are markets that in the future will see a growth rate that will be higher than the more consolidated market.

Right now we have 1 unit that produces SSP and sulfuric acid. However, it is not operating because we are waiting for a judicial decision that should occur in the next few months. And we believe that it will be positive. That is to say this decision will be positive, so that we may resume production, even today we have an installed capacity that is very adequate for the future growth of the company's volume. So we have an installed capacity in our plants to reach up to 6.5 million tons in 1 year.

Those of you who are following our slide presentation, now I'm going to Slide 14. And I will be talking about deliveries in the fourth quarter [ by the region ]. The fourth quarter was marked by a recovery in the volumes delivered by the company. The second quarter had a drop of over 11% vis-à-vis the market. And in the third quarter of 2017, the company was able to decrease this drop to approximately 5% from 11% and with the deliveries that we saw in the fourth quarter, we see a recovery of market share by the company already in the fourth quarter. So we had an increase in our deliveries of 6.8%, whereas, the market grew 0.4% only. 150,000 tons of deliveries in the fourth quarter of '17 vis-à-vis the same period in '16 of 1,169,000 tons. We saw very significant increase in our deliveries for soybean. And in the case of sugarcane, we also saw a much-improved delivery going from 184,000 tons in '16 to 231,000 tons in 2017.

The company wants to work with all crops and very intently. The biggest crop for the company also in the fourth quarter of '17 was the other crop, with an increase of 3.8%. In this quarter, we saw a drop in deliveries for corn. And by the way, the [ core ] areas for the planting of '17, '18 were smaller. And the use of technology for corn as well in some regions was also slightly lower, much impacted by the prices of this crop that occurred at the end of last year.

Now looking at the deliveries for the year by the company. We have delivered 4,224,000 tons in 2017 vis-à-vis 4,304,000 tons in '16. So there was a drop for the year of 1.9%. And if you look quarter-by-quarter, in the second quarter, the drop was 11%, dropping to 5% at the end of the year closing with minus 1.9%. So we saw a gradual recovery once the margins also improved gradually quarter-on-quarter.

So we closed the year with this drop of 1.9%. And looking at the Brazilian market, as I said before, there was an increase of 1% for the market overall. And if we look at the crop for 2017, the company had crops in soybean 11%, corn 18%. And in corn -- there was a drop in practically all the regions and, as I said before, because of the prices -- of the corn prices that were lower in 2017 than they were in the previous years. And as a consequence, some of the other crops, coffee, sugarcane and the other crop, had increase in deliveries in the same period.

The company continues to work with direct deliveries to our end customers, individuals and corporations, our legal entities, representing almost 80% of our deliveries in these 2 channels, that is to say individual producers and also agricultural, legal entities with an increase in sales to cooperatives as well representing as a segment, for us, in 2017, practically 13%. And resale 9% of our deliveries in 2017.

We have -- the crop portfolio, I believe is more diversified than the others. And we have these 4 main ones with a very strong correlation. The soybean crop we delivered 19%, for sugarcane 18%, for soybean -- and 18% for coffee. And these 4 in equal volumes almost, as you can see. And you can see that the other crops as far as [ deliveries ] is concerned, all of them together, they represent the -- most importantly, we have almost 70 different crops included in this new area, and the company is very well prepared, offering high added-value products and very differentiated products both in soluble and foliar and solid products as well for application in the soil. And the distribution reality of the company was maintained in 2017 at the level that we had up to 2016. Or in other words, maintaining the crop diversification and maintaining also the sale profile focused in a direct manner on our end customers mostly. And as we said before, in 2017, 35,000 clients were serviced. I would like to mention that speciality products in 2017 had a slight drop in the total volume, but in spite of this drop that we saw in the percentage of the total growth margin, in spite of the 46% of the volume, speciality products represented 65% of our gross margin, or in other words speciality products of the company have been increasing participation in the margins of the company. They are becoming more and more relevant in terms of our margins. And we will continue our focus on the specialty products line, as these products for the company have been extremely important, vis-à-vis our margins. In our total sales in 2017, we reached 46% coming from a previous record of 49% in 2016. And in spite of the drop, percentage-wise drop as I said, the share of specialty products in the total gross margin of the company went up in 2017, vis-à-vis 2016 reaching this level of 65%. Regarding our specialty products line, we have been adding new products both in the foliar line, as well with the fertigation line, but I would like to stress more importantly this year in 2017, I would like to mention that the company was able to complete a very diversified portfolio in the foliar line. Today, the company has in its foliar line, a very complete line of products for all the main crops produced in Brazil.

And we have been able to publicize this quite extensively, and the foliar line of the company in 2017 grew by almost [ 100% ] vis-à-vis 2016. We also believe that for 2018, we will be achieving very strong growth as well in our foliar line, once the levels are still low. So we will see growth in our fertigation line and our foliar line. We expect a very significant growth in these 2 lines for 2018.

Now I would like to give the floor to Rodrigo, who will cover in detail our financials for 2017. Thank you very much. So Rodrigo.

[Rodrigo Rezende, executive]

Thank you, Dalton. Good morning, everyone. Now let's turn to Page 19 in our slide presentation. Let's talk about our income statement mentioning the fourth quarter and the year as a whole. The volume for the fourth quarter was 1,248,000 tons, 7% higher than the volume that we had at the fourth quarter '16 when we delivered about 1,170,000 tons, as Dalton has already said. Our expectation was to deliver anything higher volume than we delivered. And the holiday season has a negative impact, but in spite of that, our growth was higher than what we had at the fourth quarter of '16. Net revenue also went up 8% higher on a year-on-year basis, reaching practically BRL 1.5 billion in the fourth quarter of '17, vis-à-vis BRL 1.37 billion in the fourth quarter of '16.

Gross margin was not so good; in the fourth quarter of '16 was 18% and it dropped by -- dropped to 11.2%. And gross profit was BRL 167 million, lower than the fourth quarter of '16 when the company had BRL 247 million in gross profit. When we look at freight and commission in the fourth quarter last year, BRL 72 million or about 8% of our net revenue with the same percentage of the fourth quarter of '16 vis-a-vis net revenue. End of the fourth quarter of '16, freight and commission were slightly lower, BRL 65 million. SG&A, net of freight and commission in the fourth quarter of '17 dropped vis-à-vis the fourth quarter of '16 about 4%, reaching BRL 56 million, 3.8% of the net revenue. Whereas in the fourth quarter '16 they were higher, BRL 58.5 million, 4.3% of the net revenue. EBITDA in the fourth quarter of '17, although it was below in the quarters of the year, it was BRL 44 million then minus BRL 38 million in the second, only BRL 15 million in the third, a lot of fluctuation in this regard as we said. And our expectation was to achieve a higher EBITDA in the fourth quarter as usual. But in spite of having been the highest for the year, the highest BRL 71 million, with a margin of 4.8% of the net revenue -- in spite of that, it was quite lower than the fourth quarter of '16, that was BRL 138 million with a margin of 10% of the net revenue. In fourth quarter -- in previous fourth quarters, we had around BRL 200 million. So this EBITDA was lower than the historical average for the company for the fourth quarter. Net financial income BRL 94.5 million, vis-à-vis BRL 48 million in the fourth quarter of '16. This amount has to do with discount net interest BRL 44.5 million, BRL 66 million, a negative exchange rate variation and hedge operations amounted to almost BRL 17 million. In the fourth quarter, net income was negative by BRL 23 million, much lower than the net result that was positive up BRL 52.5 million in the fourth quarter of '16.

For the year as a whole, 2017, the volume delivered by the company dropped by 1.9%, vis-à-vis 2016 and we had delivered BRL 4.3 billion and we had BRL 4.24 billion last year. We recovered this volume result. As said, we dropped 11% in the first half vis-a-via the first half of '16 as Dalton said. We recovered, going to 5% in the 9 months year-to-date of the year. And we estimated delivering more for the full year, but it was 1.9% to net revenue for BRL 217 million was BRL 4.8 billion, dropping by almost 8%, vis-à-vis 2016, that was BRL 5.2 billion. And why do we see this drop, or the high drop vis-à-vis the drop in volume, about 2%? So how do we explain this drop, and Dalton has already explained that, but basically it was because of the lower prices in reals of fertilizers. And the average exchange rate for 2017 was close to 3.2, and in 2016 the average exchange rate was close to 3.5.

And also due to the lower gross margin achieved in 2017, vis-à-vis 2016.

Freight and commissions. For the year as a whole, BRL 234 million, that is to say lower, 3.1% lower, 4.9% of the gross revenue. Whereas in 2016, we had BRL 241 million represented 4.5% of the net revenue. And I would like to emphasize that the gross margin for the year 2017 was also lower than the average historical gross margin for the company 12.5%, 13%. Last year it was around 9.5%, vis-à-vis 12.3% in 2016.

For the year, SG&A, net of freight and commissions increased 7.7%, BRL 215 million, 4.5% of the net revenues vis-à-vis BRL 200 million in 2016, almost 4% of the net revenue. This increase was basically due to a higher increase in our allowance for doubtful accounts. But in the historical average of the company, it is quite in line with the 0.2%, 0.3% of the gross revenue that we have been having in the last 2 years. And basically, with the increase also in our sales area, in our technical area, training, marketing actions and restructured and almost exclusive sales team, we said that in our call for the third quarter, in order to manage the foliar line of the company that delivered a very good growth last year, vis-a-vis 2016. And we expect the foliar line, which is one of the components of our specialty products, together with fertigation and soil lines, we expect to see a new growth in this year.

EBITDA last year was non-typical, only BRL 92 million, marking around 2% over net revenue in this decade, the 2010s. Since 2010 it was the lowest than the average EBITDA of the company has been BRL 200 million and BRL 300 million in this decade. And in 2016, BRL 250 million. So you can see how this EBITDA was weaker in 2017, basically because of the higher supply of raw materials, mainly in the second and third quarters, and imports as well.

So let's go to the next slide, talking about distribution and production of sulfuric acid, and also the net financial expenses that went up slightly. Last year, BRL 232 million, vis-a-vis BRL 137 million in the previous year. Basically an average of net financial expenses, exception made to '15 because it was higher due to the massive devaluation of the exchange rate. And with that, the net result of the company in 2017 was negative by BRL 125 million, vis-a-vis a net income of BRL 43 million in the previous year. So this result was impacted mainly by the low gross margin and the low EBITDA that happened over the year.

And when we go to Slide #20, we can see that in the distribution of fertilizers, the EBITDA of the company was BRL 108 million. But due to the stoppage of the sulfur plant, we had a negative impact of this -- of BRL 15 million and the EBITDA was BRL 92 million because of that temporary stoppage of this plant.

Now talking about Paranaguá, the Paranaguá plant, as Dalton said, regarding the public civil lawsuit, we have already ended the evidentiary stage, and we are now waiting for information regarding the judge's decision.

Now please turn to Page 21, where we will be talking about the increase in our leverage in 2017. Net debt/EBITDA ratio went to 12, vis-à-vis 4 in the previous year. And this increase in leverage was not due to a huge increase in the company's investment. In fact, the investment was quite in line with the previous year. In 2016 it was BRL 1 billion, about -- and in 2017, it went slightly up to BRL 1.2 billion, [ equivalent ] 323 to 372 in real [ solays ], a slight increase in the price of raw materials and for fertilizers in the international markets. Basically this increase in leverage did not happen because of an increase in our debt. It was very much in line with 2014, 2012, so it was not this reason. It was because of the low EBITDA that we had in 2017 and quite atypical.

Now let's turn to Page 22, please. We are going to talk about capital risk management here. And in spite of the increase in leverage that we saw in the previous slide, here you can see that the capital risk management, which is the company's debt over the previous year gross revenue was kept at historical levels, adequate historical levels. We reached 23% in 2017, lower than the highest one, which was 25% and also lower than what was given us, of 30% by the Board of Directors for this year.

Now let's turn to Page 23 please, where once again will be talking about the atypical EBITDA of BRL 92 million. But please see that we only had that in 2008 because of the international financial crisis. This season was totally different. The oversupply of some raw materials in 2017 and this had a negative impact on the company's margins. Our carryover inventories, sector carryover, as Dalton said, 5.5 million tons. That's not a big deal here, very well aligned with previous years. And in January, the imports by the sector dropped by 25% already. And when we look at the EBITDA from 2010 to 2017, you can see that the lowest EBITDA was '15, with BRL 200 million and the best was 2011 with BRL 352 million.

So as you can see, 2017 is very atypical vis-a-vis the average of the company, that is around BRL 250 million and last year EBITDA was BRL 92 million.

Now let's turn to Page 24. In provision for bad debt, for 2017, it went up slightly, vis-à-vis 2016. However, it was kept at levels that are well-aligned with the historical average of the company. So this is no big deal for the company. This is the crisis that hit Brazil since 2015. So we estimate that there will be a growth in the GDP of about 3% this year. And the whole market believes that we should see this around 3% growth in our GDP. But the year where the GDP dropped, the company had to work and be very strict regarding that credit. So we kept 0.22% over our net revenue for our provision for bad debt higher than 2016, however lower than 2015, lower than 2013 and 2015, 0.25% and 0.29% as you can see on the slide. And our sales policy was very much focused on catering to all kinds of clients, large clients, and large customers, small customers, selling to 35,000 customers, end customers. This helped us mitigate this kind of risk, which is associated basically to liquidity. In terms of CapEx, as you can see on this slide, you can see that the highest CapEx were 2014 and 2015 for the construction of the Candeias and Rio Grande plants that were completed in 2015. And based on the results of -- you can see in 2016 only BRL 7 million and the company had given the same guidance. And we have a negative CapEx of BRL 2.5 million approximately in 2017. Due to the divestments from some assets, mainly vehicles and heavy machinery that are acquired with that IPMS credit and then they are sold.

So last year, our CapEx was 0, so to say, those levels. And for 2018, the guidance that we give for guidance is similar to the last couple of years, that is to say up to BRL 20 million.

Now let's turn to Page 25, where we -- where we talk about working capital days. As you can see, accounts payable, inventory days and accounts receivable days. You can see that in the fourth quarter -- the fourth quarter was very well aligned with previous quarters. And we can also see that [indiscernible] finances with working capital, using credit lines from suppliers and from banks. And for 2018, due to higher prices of raw materials and also due to the situation in the international fertilizer market, we face higher challenges in the management of our working capital. But last year, we ended accounts receivable days at a lower number, 26 vis-a-vis 30, showing the group liquidity management of the company and inventory days were similar to the fourth quarter of '16, supporting the higher volume delivered in the period. And accounts payable, as you can see, dropped to 127 days from 140, but very much in line with the other years of the company.

Now let's turn to Page 26, the company's cash flow. You can see that income before tax was negative by BRL 36 million in the fourth quarter. Expenses with no cash effect, BRL 75 million. Basically due to unrealized exchange rate variation and some interest as well, we saw an increase in our asset accounts of BRL 22 million, basically concentrated in inventory. And we also saw a reduction in -- a net reduction in our liability accounts because we concentrated in payments of import financing. And the cash flow from operating activities was negative by BRL 79.5 million. Cash flow from investment activities was [ supplemented ] by BRL 15 million for the reasons that I have just referred to. The sale of equipment, machinery, trucks and free cash flow was negative in the quarter, BRL 64 million. Partially financed by our financing activities of about BRL 37 million, in such a way that the company's cash closed at a level similar to the end of 2016. So we close the year at BRL 67 million.

And to conclude our presentation, please turn to the last page, where we see the ownership breakdown. It is the only fertilizer company at this [ bequeaths ] the industrial base, [ this has been ] the Novo Mercado. It has been a public company since 2007, operating in a very competitive market, but this market is growing. So agriculture, as you know, has been one of the pillars of Brazilian growth. In spite of the small growth last year, it still has a relevant role, plays a relevant role. And it's very important in the export agenda of Brazil, '17, '16, for being one to cross, that really released Brazilian export, and led Brazilian exports as a whole. And contributing with almost 50% of the overall exports of Brazil. As I said, this market is very competitive, but due to the seasonality of this business, the business model of the company has to be analyzed on an annual basis always.

So we thank you very much for your attention. And now I would like to turn the floor over to Dalton.

[Dalton Heringer, executive]

So first of all, thank you very much for participating in our call. And now we would like to open for questions. And we will try to clarify your doubts during your Q&A. Now we will start the Q&A session for investors and analysts, sorry.

[Operator]

[Operator Instructions] The first question is from Márcio Montes from Banco do Brasil.

[Márcio de Carvalho Montes, analyst]

Could you tell us about your selling expenses? Could you give us some color about the G&A expenses because we saw a reduction of 16.8% in the period? So could you give us some color about that? And I would like to know about deliveries in the first quarter of '18, and your expenses with freight and commission that are linked to that. So what could we expect in this regard, regarding the deliveries of soybean and corn?

[Rodrigo Rezende, executive]

Márcio, thank you for the question. Since 2016, we have been working hands-on on the company's expenses overall, as Dalton said, with a lower volume, vis-a-vis 2014 and '15 already. And with a very sharp focus on differentiated products. And last year, we saw a slight drop in the participation of the differentiated products that as Dalton said, it accounted for 65% of the gross profits of the company. G&A went up in the third quarter because of the -- of the whole issue regarding our establishment of our new sales team. So this is a reason why they were higher vis-à-vis 2016 and we trust that those are commercial area and our technical and agri sectors of the company continue to work on the soil and the foliar and fertigation lines. And because of that, we believe that we will go back to a volume of differentiated products, to the level that they had in 2016, with equally important contribution to the profitability of the company and the gross profit of the company. Thank you.

[Dalton Heringer, executive]

This is Dalton. So this mismatch that you saw in 2017, vis-à-vis commercial expenses should be better aligned now in 2018. They should go back to normal because the teams that are being set up to further intensify our -- the participation of specialty products is already achieving very good results. It's already given very good results. And with relation to the second part of your question, deliveries, now in the [ first ] quarter, are going very well. [ Gathering ] was very positive, both in volume and in margins. The reality was the hike in the exchange rate at the end of the year. And it went back at the beginning of this year. And what we expect is the reality of EBITDA, in line with the historical levels of the company. So back to -- we expect to have a more normalized situation, in terms of inventories for the sector as a whole. And this year, we believe that the purchases will be earlier, be made earlier in line with what's happened in 2017. So the company has this view, and this view is very clear for us for 2018. We believe that the dynamic should be very similar to 2017, which means that we should have a more normal EBITDA for the year. So for the year, we believe we will go back to the averages that we saw from 2010 to 2016, and not at the level that we saw in 2017, be it the volume for 2017 was lower than the BRL 100 million. This is a situation that occurred in 2017.

[Operator]

[Operator Instructions] As there are no more questions, we would like to give the floor back to Mr. Heringer for his closing remarks.

[Dalton Heringer, executive]

Thank you very much, everybody, once again, for participating in our call regarding the results of 2017 full year. In fact, in terms of margin, it was a very challenging year. And the company tried to manage this challenge as best as possible, the challenge that we had this year. And we do not believe these low margins will be repeated in 2018, versus the reality in terms of agriculture. So -- leads the company to believe that the company will see better days in terms of operations. And the company's reality, in line with what we have been planning and doing regarding specialty products, this is a very firm reality and we are very well structured. Specialty products of the company have been obtaining important productivity gains in all the crops and in all the regions.

And Brazil has an unprecedented possibility regarding its agriculture. And the agriculture potential is huge. No other sector in Brazil can compare to that. So the mismatch that you saw in terms of margin, as was said before, should not be repeated in 2018. So we maintain our bullish view of the Brazilian market for fertilizers and also for agribusiness as a whole. The price recovery, agricultural prices recovery, should start at the levels that we've seen to the prices, agricultural prices and grain prices that we saw in 2015 and '16 are already higher today. And we are almost sure that this reality will be bringing benefit to margins and with this reality of going back to normal levels in 2018.

So this is what we had for our call today. Once again, thank you very much for participating. And I wish a very good year to all of you and all of us. Thank you very much.

[Operator]

Fertilizantes Heringer's conference call is closed. You may disconnect your lines. Have a good day.