Fertilizantes Heringer SA
BOVESPA:FHER3
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Fertilizantes Heringer SA
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Good morning, and thank you for waiting. Welcome to Fertilizantes Heringer conference call to discuss the results of the fourth quarter of 2020. Today, with us, we have Mr. Dalton Carlos Heringer, CEO and Investor Relations Officer; and Mr. Ricardo Cavalcanti Alves, Head of Finance and Controller of the company. [Operator Instructions]
There will be a replay facility for this call for 1 week. This event is being simultaneously webcast on the internet at the Investor Relations website of heringer.com.br/investorrelations, where the slide presentation is also available for download. Before proceeding, we would like to mention that forward-looking statements that might be made during this call in relation to the company's business perspective, operating and financial projections and targets, our 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 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 affect the future results 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 conference over to Mr. Dalton Heringer, CEO and Investor Relations Officer, who will start the presentation. Mr. Heringer, you may proceed.
Good morning, everybody. Thank you very much for participating in the call about the results of the fourth quarter of 2020. It is a great pleasure to be able to be here, telling you what happened in 2020 and the delivery of results during the full year. And besides myself, there will be Ricardo, who'll be talking about the financial performance. And those of you who are following the presentation, I would like to turn to the company and the Brazilian market on Slide #2, and talking about the delivery.
So now on Slide #4, about the quarterly deliveries. In the case of Heringer, 2020 was marked by a huge increase in deliveries because we have decreased quite a lot our deliveries in 2019 because of the characteristics of the beginning of the resumption of our operations after we filed for court-supervised reorganization.
So in the first year of the supervisory organization, there was a big difficulty in terms of working capital inventories, organization of this new reality in our plants with very important plants being shut down and still a very challenging situation in 2019, already analyzing each one of the quarters here. As you can see, those who are following us on Slide #4, you can see very clearly on this slide how much 2020 was better in terms of our deliveries. We had a growth of over 200% in the fourth quarter, and of course, this is the quarter that was the most badly hit. If you look at the first quarter of 2019, it was really February of 2019 when we filed for judicial recovery. And there was a very big difficulty for us in that first quarter of 2019 for this region.
So we have a comparison of the first quarter of '19 to '20. So year-on-year, we had a very strong growth, over 200%; and in the second quarter, a little bit over 50% year-on-year; the third quarter, over 80% growth year-on-year; and in the fourth quarter, over 45% growth year-on-year, closing the year with practically 1,400,000 tons delivered vis-à-vis less than 800 -- 76% growth year-on-year.
On the next slide, deliveries still have a very big diversity of crops in the fourth quarter and the full year. So there were no discrepancies regarding the historical standards or patterns of the company. Exception made to soybean that dropped quite steeply, a reality in terms of the decrease of participation of Asia in some regions that are very strong in soybean production, but the diversity of crops is maintained. And as you can see, in terms of the importance of the other crops in our portfolio, you can see the big highlight here. It's the high number and very diverse number of crops, which allows us to mitigate risks and not having such a big demand in the case of one crop. Let's say, one crop is undergoing difficulties, and then it would affect the company. So this doesn't happen because we have a very homogeneous distribution here.
And those who are following us, now let's turn to Slide #7 that I would like to highlight the fact that in spite of all the difficulties of the judicial recovery in 2019 and now with a strong recovery, but still under the court-supervised reorganization in 2020. In spite of all that, the company has been keeping a very strong sale of specialty products. We reached 46% in 2020 and 45% in 2019. So you can see that these are very high levels in the context of the whole industry because very often, many companies, many -- the company has been maintaining a very wide range in portfolio. As you can see, with specialty products for the application directly on the soil, in the fertirrigation systems, the soil and also in the full year product line. I'd like to apply in some of the stages of the plan, and the application is diluted in water. The product is diluted in water. And this is applied directly in the full year system of the plant. So we have been maintaining our success in this work in terms of our specialty product line.
In 2020, besides the fact that Heringer had a very good performance in terms of recovery and the recovery of the volumes delivered in the sectoral side, it was also marked by higher deliveries. The statistics for the system -- for the sector is for 9 months only. So you can see 11.5% increase in the Brazilian market in terms of fertilizer deliveries. And certainly, these figures will not be so high, it will be lower than 11.5% for the full year, but this is our expectation for the full year. And of course, it has to do with the characteristics of the Brazilian agribusiness. And in spite of the pandemic, this sector was able to manage and to continue producing and continue exporting and having a good placement of exports in the Brazilian case, the devaluation of the real brings about benefits in terms of profitability for most of the crop because most of the crops today -- or most of the crops. And with that, we have a very big demand for fertilizers. And in spite of all the problems of the pandemic, the Brazilian agribusiness was successful in terms of Heringer's deliveries.
Of course, our figures are higher because of the steep drop that we had in the past. And because of that, our potential for recovery is higher than the growth of the sector as a whole. In terms of imports, the figures are higher than 2020 in order to balance -- in terms of higher deliveries, once the local production as those of you who are familiar with the figures of Heringer, you know that the production of raw materials are being kept at lower and lower levels, representing less in the total production for the demand or raw materials. So this year, 5 million tons vis-à-vis, 5, 160,000, in the previous year. So every quarter, you see some drop in production and some similar results. But with higher volumes for deliveries and local production representing less in the total of the industry. With the imports and the local production -- adding local production to imports, we have 28 million tonnes. And in spite of that, the deliveries were even higher, 29.4 million. And in these 9 months, there was a reduction in the sectorial inventory of 1.3 million tonnes. Of course, the sector had the necessary inventories in order to cope with the reduction. So there was no interruption. We had a normal flow in the specific case of Heringer. We closed December with adequate inventory levels to work in the first quarter, and the details will be presented by Ricardo, who will be talking about inventories in the context of our balance sheet. But we had an opportunity in the working capital structure and our financing structure. We have the opportunity to have adequate inventory levels during the year and also in the beginning of 2021. Already giving you some data about the first quarter because the first quarter was also good for -- in terms of deliveries for the sector. Of course, we don't have these statistics yet for the sector, but the figures for the company were very positive in terms of volume deliveries in the first quarter. Agriculture has been maintaining its characteristic of having a continuity of a very profitable process with exports and the Brazilian agribusiness has been having a very good harvest in most of the regions with only a handful of situations in terms of shortage of crops and the reality of national production. Domestic production has been very good, very productive and with high yields and most of the regions. And with that, a reality of very good profitability in most crops. Soybean, corn and the main crops in Brazil with a very good profitability for producers.
And because of that, the maintenance of investments in fertilizers does exist. So if there is no abrupt change in the political arena or in the pandemic, we believe that 2021 will be a continuation of what we saw in 2020. That is to say, each quarter, having an increase in demand on the part of agriculture and the range being able to perform and to deliver recovery in its figures and in its operations.
Now let's turn to Slide #9, please. I will be talking about the reality of the manufacturing of Heringer. We had many plants that have been shut down after we filed for judicial recovery, and they were hibernating as we used to say. So it's really a scheduled shutdown, and we were very careful, and we did all the preventive maintenance in the stoppages of these units. And right after we filed for judicial recovery, the company was operating with 7 manufacturing plants in some states and in some regions. And in São Paulo, we were operating Ourinhos and Paulínia, where we have our headquarters of the company. Here in the state of São Paulo. In Três Corações, in the Viana unit -- in 2 units, in fact, right at the beginning of the court-supervised reorganization. Iguatama, Manhuaçú, the 2 units in Minas. And 1 in Catalão and one in Candeias. Catalão, Goiás is Candeias and Bahia.
So these were the 7 units that the company kept in operation after filing for judicial recovery, and still in 2019, we resumed operation. I think it was in the fourth quarter of 2019, we resumed operations in Três Corações. This unit is also located in Minas Gerais. It had been nonoperating for 6 months, and we were very successful in this resumption of activity that was very good in terms of contact with clients and allocating inventories for this unit. And it was a very successful situation and a very big achievement going back to this market in 2020 in the middle of last year. Also the Dourados unit in Mato Grosso do Sul was reactivated, a very important market, Mato Grosso do Sul, with a very big diversity of crops, corn, soybean, sugarcane, pastures and a very big diversity of crop with small, medium and large producers. So the client profile is very diversified in that region. And the resumption of activity last year of this unit was very successful as well in Dourados.
For this year, we'll be resuming activities in 2 additional units: One in Sergipe in Rosário do Catete, and one, the second unit in the state of Goiás, Rio Verde. We already have Catalão in operation, and we will be resuming activities in Rio Verde. And this unit is still hibernating. We are starting the maintenance in order to reactivate it in Rio Verde in Goiás. So the company will be operating 11 units by the end of the current year, mixing units. And right at the beginning of the judicial recovery in February '19, we had 7. So off the 7 units that we were operating in February 2019, now we already have -- well, improving our logistics and operating in different regions with lower costs and bringing a very big operating benefit to the company. Among the units of the company, they still have 3 units that are still hibernating. One in Paraná, in Paranaguá, and 2 units in Rio Grande do Sul, one in Rio Grande City and one in Porto Alegre. And also in our presentation, we explained a reality of a material fact that we published on February 19, 2021, which was the contract signed for the sale of the Uberaba unit in Minas Gerais. This unit had a guarantee. It was a debt that was outside the judicial recovery process, and this was announced, and you have all the details in the material fact. However, it will be submitted to the appreciation of CADE, which is the Administrative Council of Economic Defense for approval.
So the contract has already been signed, and we are waiting for the appreciation of the CADE to be fully executed between the parties in this contract of purchase and sale.
I would like to thank you very much for your attention. And now I would like to give the floor to Ricardo. He will be talking about the financial performance of the company according to our agenda, comparing the figures of 2020 to 2019 and the financial performance as a whole. Thank you very much for your attention. Ricardo? We are waiting for Mr. Alves to start his presentation about the financial results.
Thank you, Dalton. Thank you, everybody, and I would like to wish a good morning to all the participants in this call. For those who are following our slides, could you please turn to Slide #12, where we have the evolution of our sales and our results and profitability during 2020. We can see here that the volumes flowed according to the seasonality of the sector, and the EBITDA margin goes up consistently every quarter, which shows how careful we are with our margins and with the control of our operating expenses as a whole during the year.
Slide 13, our operating results since 2018. We can see that although we had higher sales in 2018, we had lower margins here and the very strong impact of the exchange rate situation. And this was exactly the opposite in the years after 2018, '19 and especially, in 2020. As the company was already healthy, and we were able to increase our sales and increase our margins, and this meant over BRL 182 million EBITDA in the year. And this effort, as you can see here on the slide -- on the footnote, this is the best EBITDA margin in 10 years, 8.2%.
Talking about the quarter of 2020 vis-à-vis 2019, on Slide #14 now. The volume growth of 45% quarter-on-quarter. And we can see the acceleration of our sales endeavor and the growth in the market participation as a consequence of net revenue increases an even higher percentage, reflecting the result of the price increases and also the mix of our specialty products that have a higher margin and of our consistent margin than the traditional product. COGS quarter-on-quarter under strict control. In the fourth quarter 2020, it was very good, and the gross margin was almost 16% vis-à-vis less than 10% in the same period last year. Variable costs, freight and commissions in -- as usual according to the patterns of our industry. And the fixed cost, SG&A, even net of the expenses strictly related to the judicial recovery, about BRL 58 million of consultancy services. In spite of that, we were able to decrease these expenses by 28% in this quarter already excluding these and in spite of the higher sales, maintaining our control on our expenses. So all these combined factors give us a net result in 2020 for the company. In the fourth quarter of 2020, BRL 97.7 million EBITDA, a very interesting margin of 12% of net sales vis-à-vis an adjusted EBITDA net of the effect that I have just mentioned of expenses with the consultancy services related to the core to provide the organization with 3.1% participation in the net sales. In 2020, 12%.
And this EBITDA was enough to cover the financial expenses, the exchange rate variation, giving BRL 45.8 million of net result. And it is important to mention that there was adjustment to fair value by BRL 2 million, bringing this to the market value.
But on the next page, we will be talking about this comparison and the comparison of these effects. Let's go to Slide #15 now, please. We have the same profit and loss statement here. However, we are talking about the full years of 2020 vis-à-vis 2019. You can see that the volume and the sales value grew significantly above 80% higher. On a year-on-year comparison, consolidating an important recovery of our deliveries, our pricing and the cost of products, our COGS, 86% of net. 14.4% margin of BRL 318 million in 2020 vis-à-vis BRL 78.2 million in the full year of 2019, which was 6.6% gross margin at the time. And the other fixed and variable costs, that is to say, freight and commissions and also our SG&A, our fixed costs were 13% of the net revenue in 2019. Net of the nonrecurring effect that we had that year, basically, it was expenses with consultancy for our core to provide to organization process.
In 2020, 7.7% of the net revenue, a little bit more than half of that showing our efficiency in our expenses. And in 2020, BRL 182.5 million adjusted EBITDA, 8.2% of the net revenue vis-à-vis an adjusted EBITDA with nonrecurrent expenses, negative in 2019 of BRL 49 million. In both periods, the exchange rate variation had a very big impact on the business.
And we can see that on Slide #16, for those who are following up the financial results, it is open. You can see the biggest impact every year in 2020, BRL 73 million is the amount with all the financial charges over the reorganization liability, BRL 73 million. The impact for the full year in 2019, BRL 1.2 million adjustment to fair value on the debt -- future debt, and this was recognized in the year. In the financial results, we have interest and other financial expenses and monetary variation that are the result of the short-term financing of the company and the net exchange variation, which is a big impact that we had already net in 2020, BRL 254.7 billion because of the devaluation of 29% in the currency over the year when compared to 2019. And so with a restatement of our debt in foreign exchange, and it is important to say that these exchange rate variations have no cash impact. And it is quite the opposite because they refer to an extended debt that in the plan, we have 25 years already. So this is the balance sheet of the company.
Now on Slide #17 of the company. Comparing with the previous slide, we have a growing liquidity from 2018 up to 2019. And what is relevant and it's worth mentioning that the inventories are adequate to our sales, be it current sales at the end of the quarter, which are the biggest in the year, and also prepared for the sales for the following quarter. We have, in 2020, at least BRL 15 million in compensation and negotiation of tax credit. And in liabilities, we have funding for the balance of our operations and long-term reflects the restatement of the debt of our judicial recovery process. Working capital, inventory days and accounts receivable days, accounts receivable were around 30 days is the standard that we have for our claims. And then some negotiations that we carry out for balancing our cash could have a small difference here and inventories around 90 days or a little bit less.
And it is adequate to support higher sales at the end of the year. As it is typical, as I said before, the last quarter, and it also supports very well the orders at the beginning of the subsequent year.
And finally, cash flow, on Slide 19 of the presentation. For the quarter and for the full year -- in both information for the quarter and for the year, we start from the net result of the company. Before income tax and social contribution, noncash expenses, depreciation and we contemplate the increase in assets, which was basically the biggest impact, the construction of the inventory. So this dynamic generated a need for working capital that was covered with receivables in the year, increasing our short-term debt of BRL 45 million.
So this is what I have to mention to you from the financial viewpoint.
Thank you very much, Ricardo. Thank you very much for giving us this adequate presentation about the financials of the company in 2020, and of course, the comparable consequences from 2019. In a nutshell, I would like to mention a few points of the -- our financials, emphasizing what has already been said, in fact. But I would like to mention that based on the percentages, the EBITDA generated in 2020 was the highest in the last 10 years. It was excellent in terms of percentage in the comparison with the previous year, that is to say, over 8% EBITDA. And this was very important in terms of us having achieved this. And also I would like to highlight what has already been said about our gross profit. Our gross profit was a very big highlight as well, besides the characteristics that the company has of having an effective expense control. So the summation of these factors was the EBITDA that we delivered, such important figures. And concluding the remarks about our finances, before the judicial recovery, the company basically had all the working capital debt and current debt in the short run. So the reflexes of exchange rate variation that we had examples in 2019 and 2020, and they materialized by means of our payments. And these exchange rate variations that occurred in our debt associated to foreign currency and because of the maturity, the short-term maturities of these debt, we had an impact of needing to have more reals to pay for the dollar -- for our dollar-denominated debt and differently from the situation that occurred in the past. Right now, all the U.S.-denominated -- U.S. dollar-denominated debt is under the judicial recovery process and with a very extended period -- so extended maturity.
So we will start the payment of this part of our debt that falls under the judicial recovery in dollars. We will start paying in -- as of December 2023. So the exchange rate variation seen in this period from 2019 to 2020 will not have a cash impact, and we will only start some materialization of this effect on our cash of our obvious financial expenses in 2023, and and still a very small percentage of our total debt. So the cash effect will be diluted over time.
So these were the points that I wanted to add, and now we have 3 slides to conclude our presentation. And I will try to summarize as -- because of time constraints. I would like to say that the Brazilian agribusiness, as has been said and repeated, was very positive in spite of all the characteristics and all the challenges brought about by the pandemic and still bringing about to the whole country to all the businesses. In spite of all that, Brazilian agribusiness, in fact, it's highly competitive. It is one of the pillars of competitiveness. And with the example of work and dedication on the part of our country, and our agribusiness is extremely strong.
And we have a high degree of credibility in our exports to our commercial partners that require our agricultural products. In terms of raw materials, there have been price increases because of the fact that the demand went up. Nitrogen and phosphate had important price increases. In the case of potassium, the situation is not the same. But during the year, 12 months, there was even a small decrease in potassium prices, but as of the first quarter of this year, we already see a slight increase. So from the first to the second quarter and from the second to the third, in comparison to the previous ones, there have been price increases in potassium as well.
And Brazil, concluding our presentation, has had once again a harvest -- a record harvest, breaking successive harvest record year after year after year. And very possibly, already in 2021, we will be crossing the barrier of demand of over 40 million tonnes of demand for fertilizers. This will probably be a figure that will bring us to the net level.
If everything remains the same and if the situation continues in terms of demand increases, we will see this forward, something around 40 million tonnes delivered within the year, which places us among the countries that have the highest demand for fertilizers and therefore, higher and higher agricultural productions in order to meet the demand, not only for domestic demand, but also for a whole range of food needs from countries that have in Brazil, their stronghold in terms of demand. And they come to us to acquire our agriculture production that is very efficient, and we have been having an increasingly important agriculture in the Brazilian economy.
So thank you very much for having stayed with us. And now we would like to open for questions. Thank you very much.
[Operator Instructions]
One question come, [indiscernible] from a webcast. Given the scenario of market consolidation, do you have any opportunity of sale together with other players? In the short term, do you see the possibility of the sale of control or a merger for the company?
[indiscernible], thank you very much for your question. Yes, the possibility does exist. The company has been in existence for 52 years, and it is going through this major recovery process after we filed for judicial recovery. The judicial recovery process does not prevent the company from having some kind of situation of change of control and similar things. So the answer that I can give you right now, if I have understood your question, is that the possibility does exist. In the process of judicial recovery, you do have the possibility of having a sale of control, a change of control. There is no legal impediment in this case. But we haven't informed the market about everything that we can in part to the market. So let's say, there -- a situation arises that must be made public by means of our Investor Relations channels, we will be bringing you the necessary information, complying with the legislation. The fertilizer market is attractive, and it has been going through a major consolidation as well, and this is still going on.
We still see in the last few months and the last few years, we still see consolidations and announcements regarding acquisitions in the sector -- in the fertilizer sector, specifically. And the commitment on the part of the company is that any reality that must be made public, we'll be doing this by means of the mandatory Investor Relations channels that we have. And together with the CBM and FBOVESPA, bringing all the necessary information.
From the webcast. Do you have any update about the Paranaguá environmental license? Do you have any update to give us?
[indiscernible], thank you very much for the question. Yes, the Paranaguá unit has already obtained the judicial decision that the operation can be resumed after a new environmental licensing once the previous licensing was considered as not sufficient in the judicial analysis. So the decision way back then was that it would be necessary to have a new environmental license. The company has been working on that, and there is a new process of environmental licensing going on, the new submission of an EIA/RIMA, and we have already carried out a public hearing in -- under the scope of these environmental license in -- during the year of 2020, and the company expects that the previous license and installation license should be occurring already.
So it is on schedule. Normally, a new EIA/RIMA with the public hearing and all the proceedings, they usually take a certain amount of time. And very often, it goes beyond one year. And in some cases, it goes beyond 2 years. And in our case, we already have one year. So it is quite normal according to the expectation that we have that we will have the issuance of the installation license -- previous license because in our case, the plant is already installed, but still within 2021. This is a process that is underway, on schedule with a big possibility of having this licensee still by the end of this year. Thank you.
[indiscernible], a question from the webcast. Do you have any plans to reduce your OpEx? Do you intend to invest in solar energy? Any plans?
[indiscernible], thank you very much for your question. Of course, we are paying attention to our OpEx. And undoubtedly, we are based on norms and procedures, and we mapped on our expenses and the levels of approval, the limit of approval. In each one of the levels, we have all the processes in place to control expenses. So this is what we do every single day. Also the reopening of the units and the reactivation of all the operations are feasible, mean that we do not have the fixed expenses of maintenance of the hibernated unit. And these units, being reactivated, they generate more than enough revenue to cover expenses. So we had these expenses when they were hibernated, and in Dourados this year, we already reactivated Dourados, and we are reactivating 2 other in Goiás and Sergipe.
And this removes these expenditures regarding maintenance in these hibernating units. Regarding solar energy in our production process and the mixing of our raw materials in order to make our fertilizers, we have a very low consumption of energy in our processes. This is not significant in our production system, quite the opposite. And of course, opportunities will always be in our radar screen. And we pay attention, of course, to this subject because it is really invoked today, but this is not a relevant expense today, and we have no plans whatsoever so far related to solar energy.
[Operator Instructions]
As there are no more questions, I would like to give the floor to Mr. Dalton Heringer for his closing remarks.
Once again, thank you very much for participating in this call about the results of the fourth quarter of 2020, and we are preparing ourselves for a very strong first quarter and the delivery of results in the next call. We expect to bring you very good news about our recovery and a very good operation being delivered. What I can say is that in spite of all the difficulties that we are facing from a very tough and complicated process, such as the one that, in our case, was the judicial recovery process in terms of decisions made at the time, we are a very successful case. Our operation is taking stride, all the labor part has been already settled, and still within this year, we will be starting the payment of Class 4 and Classes 2 and 3 or being prepared, that is to say, the reals in order to comply with what was approved in the shareholders' meeting. So the company is very successful in the creditors meeting.
And this is not easy, as you know, and we want to continue to bring our investors very good news, and we are making our best endeavors to deliver on that. Of course, we are being very much helped by the context of the Brazilian agribusiness, which is very positive.
So thank you very much. Thank you for your attention.
Fertilizantes Heringer conference call has come to an end. Thank you very much for your participation. We wish you a very good afternoon. Thank you.
[Statements in English on this transcript were spoken by an interpreter present on the live call.]