Fertilizantes Heringer SA
BOVESPA:FHER3
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Fertilizantes Heringer SA
Earnings Call Analysis
Q4-2023 Analysis
Fertilizantes Heringer SA
In its recent earnings call, the company discussed several key areas of financial performance. Selling, General & Administrative (SG&A) expenses rose to BRL 49.9 million from BRL 44.9 million in the previous quarter, a modest uptick mainly attributed to the firm's restructuring efforts. This trend was also reflected in the annual figures, with expenses totaling BRL 129.8 million, still lower than BRL 145.6 million from the previous year. Despite a rough first half dominated by plummeting prices, the company saw some relief as EBITDA losses narrowed to BRL 34.8 million from a steeper BRL 86.2 million in the year's final quarter. Financially, a year-over-year improvement was noted, ending with financial expenses at BRL 22.2 million for the full year, a significant reduction from BRL 161.2 million in the prior period. This improvement contributed to narrowing the net loss to BRL 24.5 million for the quarter and BRL 361 million for the year, from a previous BRL 70.1 million and BRL 150.5 million, respectively.
The company's market outlook remains cautiously optimistic. A notable stabilization in prices is expected, driven by a global equilibrium between supply and consumption. This stabilization is anticipated to persist and provide a platform for consistent pricing. The Brazilian market, in particular, showed signs of robust recovery, with fertilizer consumption rebounding to levels comparable to the 2021-2022 season, especially in the Southern and Northeastern regions. However, overall Brazilian yields have suffered due to weather instabilities, such as significant events in Rio Grande do Sul state, balancing increased productivity elsewhere.
On the topic of capital funding, the company has shifted to more cost-effective financing through supplier credits, reducing its financial expenses. This approach is under continuous review with its controlling shareholders and management to determine the best funding methods. As for risk management, while the company didn't explicitly state having a hedge policy, the importance of managing foreign exchange risk, especially considering the positive impact of BRL 98.6 million from foreign exchange variation, was emphasized, hinting at future considerations for such strategies.
Management clarified that they do not provide future guidance on gross margins or other financial metrics. However, despite inquiries from analysts about the justification for economic viability with gross margins consistently below 5%, the company's representatives reiterated the recovering trajectory in the latter half of the year. This recovery is seen as the fertilizer prices began to stabilize, signaling improving margins in the forthcoming periods.
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Let's go to discuss the results for the fourth quarter of 2023. With us today are Mr. Fernando Maeda, the company's Head of Finance and Controllership; and Mr. Ulisses Tonini, Regional Manager. We would like to inform you that this event has been recorded. [Operator Instructions]
Before proceeding, we would like to clarify that any forward-looking statements that might be made during this conference call regarding the company's business prospects, projections and operating and financial goals are based on the beliefs and assumptions of the company's management as well as on information currently available.
Forward-looking statements are not a guarantee of performance. They involve risks, uncertainties and assumptions as they refer to future events and therefore, depend on circumstances that may or may not occur. Investors should understand that general economic conditions, industry conditions and other operating factors may affect the company's future performance and may lead to results that differ materially from those expressed in such forward-looking statements.
We would now like to give the floor to Mr. Fernando Maeda, who will begin the presentation. Please, Mr. Maeda, go ahead.
Good morning. Regarding the company in the Brazilian market, I'll start on Slide 4 of the presentation that is available in our IR site for quarterly deliveries. We had 58.3% increase when the company totaled 679,000 tonnes versus 429,000 tonnes in Q4 '22. We can see that there was a better distribution among the cultures among the crops. The main crop continues to be coffee. And there was a significant increase in soybean where we grew more than 200%.
The next slide, we see the data for the full year 2023. The company delivered 2,294,000 tonnes a 63.3% increase over 2022 when we delivered 1,405,000 tonnes. The main crop in the full year was also coffee. We delivered 648,000 tonnes compared to 425,000 tonnes in 2022. And we've also seen this breakdown, a good breakdown of crops in 2023.
The next slide, Slide 6, we see the mix of products delivered. We can see that there was quite a significant growth of conventional products, both in Q4 '23 and in the full year 2023. We grew 111% in Q4, and we can see 462,000 tonnes in the full year of 500 or so 93% growth. As regards to specialty products, we also grew in the quarter, but was 2.8%. And 217,000 tons. In the full year, we had 772,000 tonnes for specialty products up 25%. One point to mention here is that for 2024 the company intends to change a little bit the mix of these products. We should change some products in our portfolio, some will leave the portfolio. Others will be added and we'll call this category premium products rather than specialty products, and this change will start in 2024. So premium products.
On the next slide, we speak a little about the Brazilian fertilizers market, on Slide 7. I think the main point to be mentioned here is that there was an increase in our deliveries in 2023 compared to 2022. In 2023, we were ending with 45.8 million tonnes, and these are under ANDA. So we are practically back to the same levels of 2021, when the market was at 45.8 million tonnes. And of course, comparing growth, as mentioned in the previous slides, of more than 60% and growth for [ range ] versus market growth, we can see the performance in the company's deliveries was really very good.
Now let's speak about the financial performance of the company. I'm on Slide 9. In the quarter, the company had a net revenue of BRL 1.4 billion versus fourth quarter, BRL 1.5 billion, so down 8.2%. Year-to-date, we had BRL 5.3 billion versus 2022, BRL 5.6 billion, so this is down 6%. Now obviously, this reduction has a lot to do with the price of fertilizers because it was quite a significant increase in volume.
As for the growth result in the quarter, BRL 43.5 million versus a positive result of BRL 23.9 million in fourth quarter 2022. In the full year, we ended the year with BRL 8.5 million compared with BRL 243 million in 2022. And here, I think it is important to highlight we had a first half that was very hard in terms of gross results for the company, but there was a significant recovery in the last 2 quarters of the year. So here, we ended the year with a positive growth result of BRL 8.5 million.
Regarding SG&A, we had expenses of BRL 49.9 million, compared to expenses of BRL 44.9 million in Q4 2022, 11% up in the full year. We had expenses up to BRL 129.8 million versus expenses for 2022 of BRL 145.6 million. And here, we had mentioned this in previous conference calls. These extra expenses refer to the restructuring of the company. You can see that increase in the quarter is a lot lower than the increase in these expenses for the full year. So the company ended the quarter with an EBITDA of BRL 34.8 million negative versus another negative EBITDA of BRL 86.2 million in Q4 2022. In the full year ended with a negative EBITDA of BRL 322 million versus a negative EBITDA of BRL 26 million in 2022.
I'd like, again, to remind you of the first half when we were more impacted on our EBITDA and the main reason was the constant decline in prices that we had in the beginning of the year basically as a result of a decline that started in March 2022, which only ended in June of 2023. As for the net financial result, we had a positive result of BRL 28.9 billion versus a negative result in Q4 '22 of BRL 15.7 million.
In the full year 2023, we ended with financial expenses of BRL 22.2 million compared to expenses in 2022 of BRL 161.2 million. To end with a net result of BRL 24.5 million negative; 4, the quarter, fourth quarter 2023 compared to BRL 70.1 million negative in Q4 '22. In the full year, BRL 361 million negative versus BRL 150.5 million negative in 2022.
On Slide 10. Here, we see the financial results for the company. Financial expenses, we have 2 main components here. The net foreign exchange variation, which had a positive effect in the quarter of BRL 53 million versus another positive effect of BRL 42 million in Q4 2022 in the full year. In the slide item, we ended BRL 98.6 million positive compared with another positive foreign exchange variation of BRL 57.9 million.
I'd like to remind you that the main components of this foreign exchange variation are the debt, the long-term debt of the company coming from the court-supervised reorganization, most of them in dollars, and that's with suppliers regarding the purchase of raw materials. As regards interests and financial expenses, Q4 '23 totaled BRL 24.1 million in expenses compared to the same quarter in 2022 with BRL 57.8 million. In the full year, expenses of 120.9 million compared to the previous year 2022 expenses totaling 219.2 million. Here, we can see that there was quite a considerable reduction in these expenses. Of course, the interest rates of the court-supervisory reorganization do not have an impact here, but the impact came from our financial cost to finance our working capital.
The company is getting a lot more funding through our suppliers rather than short-term loans, which is what we used to do in the past. So we are ending with a net result with a negative BRL 24.5 million in the Q4 '23 and in the full year, a negative BRL 361 million in our net result.
On the next slide, we speak about the cash flow of the company. So we started analyzing the negative cash flow of BRL 291.8 million because that was the result before income tax and social contribution. We have expenses that have not a cash effect of BRL 162.7 million positive. And this is mainly composed of inventory provisions and depreciation. Then we get to noncash effect or results adjusted to noncash effects, BRL 229.1 million negative and we start our balance sheet analysis with a reduction in asset accounts benefiting the cash flow by BRL 8.9 million here mainly due to a lower inventories given the reduction in the price of fertilizers and quite a significant increase in the suppliers' account positively impacting cash flow by BRL 331.4 million with the cash flow of operating activities of BRL 111.1 million, positive.
Then we had cash flow of investment activities, BRL 148.1 million negative. And this refers to investments in practically all of our operating units of Paranaguá plant. Net going to investments that have been done in Candeias [indiscernible] and in the PaulĂnia plant. We get to a free cash flow of BRL 36.9 million negative. Cash flow of financing activities, positive BRL 15.5 million. We end up with a variation in the cash flow of negative BRL 21.4 million.
With this, we end the part of the financial performance, and I turn the floor to Ulisses Tonini who's going to speak a little about market outlook.
Good morning, everyone. As Fernando mentioned, we saw a reduction in prices during 2023 and 2022, extending to mid-2023. And then prices tended to stabilize. Now looking forward, we believe, in greater price stability, given a balance between supply and consumption in the world market. Things are more in balance and then prices tend to remain more stable.
We can see on Slide 14 evolution of the Brazilian market regarding production planted area, yield productivity and fertilizers consumption. Now the highlight in this chart comes from the 2022, 2023 season compared to the 2023, '24 season, which we ended while we're going to see a strong resumption in the consumption of fertilizers getting back to the same levels of the 2021, 2022 season. We saw strong resumption in fertilizers consumption in the states in the South of Brazil, strong growth there -- in the states of the South and in the Northeast of Brazil, again, they resumed planted area and strong consumption for soybean. In the states of [ Maringá ] [ Piauà ] these were the states that stood out to resuming the consumption of fertilizers increasing Brazilian consumption. Taking it back to the levels of 2021, '22.
We also had some weather instability during the year. We had serious weather events in Rio Grande do Sul state, and some recovery with more rainfall and a certain stability in weather and that increased productivity in the southern states of Brazil. But overall, Brazilian yield was not that good, given this oscillation that we had last year. And this is basically what we had.
Thank you, Mr. Maeda. Mr. Tonini, we will now start the Q&A session for investors and analysts only. [Operator Instructions]
A question from Mr. [ Nilton Caesar ].
What will be the company's working capital funding policy, third-party capital or headquarters of the group. And whether we will adopt a hedge policy to protect our margin and inputs from foreign exchange variation.
Regarding funding, as I mentioned during the presentation, we have been getting funding through suppliers with much lower financial expenses compared to the past. We are obviously evaluating this with our controlling shareholders and with the management, assessing the best ways to fund the company. We did in the past, doesn't mean that we will continue to do in the future. But we are always evaluating what is the best approach for the company.
We have a question from Mr. [ Paulo Roberto Vellinge, Jr. ]
He says, how can the company's management to justify the economic viability of a company that has a gross margin consistently lower than 5% in the last 6 quarters. Not considering any investments in restructuring, which are not part of the gross margin. Is there any more optimistic guidance for gross margin in 2024. This was the question.
Well, let me just stress what we said at the start of the call. The company does not provide guidance for future results. We only commented during the conference call, the past results. But as regards the beginning of the question, I think it's very coherent with what we've been presenting in recent advisories to investors.
Did the company suffered a lot with the price decline in the fertilizers market since March of 2022?
This price decline continued into the mid-2023. So this did impact the results of the company, which was very negative in that period. But we highlight that there was an improvement in the last 2 quarters of 2023 and we got to price levels as we showed during the presentation, which are relatively stable and remained relatively stable in the last 2 quarters when the company started presenting more positive margins.
[Operator Instructions] There are no more questions. Fertilizantes Heringer earnings conference call is closed. Thank you, and have a nice day.
[Statements in English on this transcript were spoken by an interpreter present on the live call.]