Verde AgriTech Limited (NPK) Earnings Call Transcript & Summary

Hi, everyone. My name is Cristiano Veloso. I'm the founder of Verde AgriTech Plc. I'm very thankful for you attending this conference live and equally happy if you're watching our recorded video on YouTube. Before we begin today's event, I would like to ask you for a little help. If you've been following Verde, if you like what we're doing, you can help us very easily right now. If you click on like, you will allow Google's or YouTube's algorithm to show this result's presentation, this video, to all the potential shareholders, to all the potential investors who would potentially be interested in following our progress. Just by clicking like, you can help us that way. If you share the video, then you're tricking the algorithm even further. And if you make a comment at the end, it's super. You make a big difference. Something I also would like to suggest you to do, and you can do that if you're watching it live straightaway on our YouTube, if you're watching it on YouTube, you can also go and subscribe to our channel. And when you subscribe, if you click the little bell, you will be informed if and when we go live. I did a live quick presentation last week. I intend to be doing the same in the coming weeks and months. So if you wanted to be made aware straightaway that we're live, you need to do that. So our Q2 result is out. We're very excited, triple-digit growth. We're equally excited about everything we're seeing happening right now in Q3. And more importantly, we are, as always, thinking beyond. We are thinking beyond what -- we disclosed the results now. We're thinking far beyond what we're working right now. And we are equally excited about our growth trajectory. And above anything else, we're extraordinarily excited about the contribution we're making to the world we live in now, but more importantly, to the world we will have our children living in. So thank you very much. I will now allow Felipe Paolucci, our CFO, to go over the presentation. [Operator Instructions] And I look forward to the interaction at the end of this presentation. So thank you very much, and Felipe, please. Thank you very much, and go ahead.

Thank you, Cristiano. Can you all see my screen now?

Yes.

And so moving on to our presentation. As you can see, we have the, first, highlights, then Q2 2021 financial statements, cumulative result, operational summary, the key metrics, SG&A expenses, some important highlights, financial summary, a bit on economic scenario, sales growth and guidance and then we go to the Q&A section. Moving to the first chart, on the left top of the view, we can see here our cash. We still have with -- a strong ability to generate cash flow in the long term. We made a credit facility of over BRL 22 million with financial institutions in Brazil, that if you want, what we've used. So far, I'm not using any of it. The total loans for CapEx currently is around BRL 11.7 million. And the cash held by the company increased by 240% to $1.91 million compared to $607,000 in Q2 last year. On profitability, revenue from sales for Q2 was $5.37 million from the sale of 96,200 tonnes of the product at $56 per tonne sold. Revenue in Brazilian real increased by 159% to BRL 23.2 million compared to BRL 8.9 million in Q2 2020. On operations front, before non-cash events, we increased by 109% to $1.22 million compared to $584,000 in 2020. On net profit, we recorded a $79,000 profit compared to $444,000 in Q2 2020. Trade and other receivables increased by 259% to $6.02 million compared to $1.67 million in Q2 2020. And on volume side, we did increase 35% to 96,200 tonnes compared to 71,200 tonnes in Q2 2020. On operations, in Q1 2021, the company has invested over $0.5 million in infrastructure improvements. Such, for example, grounds of Plant 1 that were paved to provide greater operational efficiency and access routes as well to mining pits that have been enhanced and also project developments for Plant 2 that were further advanced. The company remains fully permitted to mine over 482,000 tonnes per year and has already submitted also mining and -- for mining and mining environmental applications for an additional 2.5 million tonnes. On the right side of the screen, you can see -- it's a summary that we had another strong second quarter with a triple-digit growth in revenue. And also we did announce in the last press release that the company has increased our guidance for revenue to BRL 60.5 million in 2021, which represents a growth of 72% year-on-year. And then beyond the next 2 quarters, Verde team is also heavily engaged with the company's expansion plans to increase our production capacity for the year of 2022. Then a bit on financial statements, you can see on the left side of the table 2021, and then compared to last year and also the first semester 2021 year-to-date against 2020 year-to-date. It's good to have a highlight here inside of our revenue, which will have a bit of more details later. The gross margin also has increased from 62% to 72% on quarter-based comparison and also to 68% against 57%. This year, we had some impacts on freight, distribution freight that also improved -- improves our revenue. Also, we had the KCl price, that also we have a chart to show later, that has increased in the market. The general expenses also increased from $350,000 to $422,000. And year-to-date, also a 46% increase from $770,000 to around $1,120,000. Going down to the net profit, then we came to the numbers I've said in the prior chart of $79,000 on Q2 2021 against $444,000 last year. In the year-to-date, we are $929,000 negative against $348,000 last year. On operational summary, little bit on the numbers per tonne. We can see that the revenue per tonne has increased 60% from $35 to $56. And the product cost per tonne also increased from $13 to $16 per tonne. Then the gross margin is 72% against 62%. So the benefit that we had on revenue was much higher, offsetting totally the additional cost that we had on fuel, oil and other expenses locally in Brazilian markets. Going down to the next chart, we have 2 charts here that we can see the sales per tonne. It's good to have an idea at each quarter since 2018, how the company is growing and showing in the end the full year, for example, that we came from 29,000 tonnes in 2018 to close to 120,000 tonnes in 2019. Then last year, 2020, we had 243,000 tonnes. And now we are projecting 350,000 tonnes for this new year. And in the right side, here, we can see the revenue of the company projection for this year also showing a very, very -- the increase compared to 2 or 3 years ago, achieving around $40 million at the end of this year. Going to SG&A, sales, general and administrative expenses. We do have sales marketing expenses increase. Here, you can see more in detail on the next chart, but related to people mainly, product delivery freight expenses, also both in more details in the next chart, giving total expenses increase of 270%. In the general expenses, we do have an additional 21% expenses, but mainly here, we can say that's general in specific spaces, in IT/software expenses, also related to people that were hired this year against last year. Now a bit on detail of the prior chart. You can see FOB, which is sales that the farmer pays for their freight and is responsible for it; and CIF, which is the sales that the company delivers the product until the farmer gate. So you can see a huge increase from 6% last year to 43% of the sales in this quarter at -- on CIF method. This is quite good for our supply chain since when we sell CIF, we do control much more the timing and the number of trucks and all the information we need from customers to avoid any kind of mistake or any kind of lack of trucks in the factory and this kind of thing. General expenses in the right side. We can see here that we have the general and administrative expenses and IT/software expenses. And most of it is related to the 29 additional people that we had compared year-on-year basis, and also the number of license and softwares that we are using currently in the company, which has an impact of the total number of people. Moving to the next chart, the financial summary. We can see revenue from sales for Q2 that was $5.37 million for 96,000 tonnes at $56 per tonne sold. So despite the 20% Brazilian real devaluation, the revenue per tonne has increased mainly to the 3 factors that we've mentioned below. Product volumes sold as CIF, as I said before, from 6% to 43%. Potassium chloride CIF price that increased the average from $287 to close to $400 here from $500 in Q2 this year. Also the number three, on BAKS, which is the mixture that we are selling, that has a higher sales price per tonne than the product. It was launched in Q4 2020. And now in Q2 2021, it already represents 13% of the total sales of the company. On profitability side, operating profit before non-cash events increased by 109% to $1.22 million compared to $0.5 million in Q2 last year. On gross margin side, I've already said it as well, 72% this year against 62% last year on sales volume, which increased 35%. On cash side, we did have a $1.9 million in the end of the quarter compared to $600,000 last year and trade and other receivables increased over 259%, what was expected due to the company growth and sales with 30 days up to 360 days in payment terms. On summary of interest in current loans, we do have here remain with the 11.83% average cost per annum. We do have some loans that depends on inflation rates. So it's not a fixed amount, but it changes a bit, but we did not have any additional loans in Q2 2021 with the total grant of around BRL 11.7 million or BRL 11.8 million on loans. Then a bit on the economic scenario. You can see here the exchange rate. We -- it seems that the Brazilian real is around -- close to be flat year-on-year. And then we do have the Brazilian real against Canadian dollars with a bit increase here from $4 to $4.36, which has a difference between exchange rates on Canadian dollars against U.S. dollars. But yes, the impact from coronavirus that we had last year already seems to be not hitting our currency anymore. On potassium chloride price, you can see the increase I've mentioned before. We used here Minas Gerais state price as basis for this chart. And you can see an increase, a very, very relevant increase on year-on-year basis. And also in the last chart, the 30-year history, we are not seeing yet here an increase, but probably it will be showing this impact as well. The year-on-year sales growth, we can see now here a comparison, again, 2018 up to 2021 from 29,000 tonnes to 350,000 tonnes projected for this year 2021. And also, sales of 350,000 tonnes. This remains our target. And on revenue side, the target increased from BRL 50 million to BRL 60.5 million, which shows an increase of 72% year-on-year. Last chart, you can see here the revenue projected. So we can see from 2017 that the company almost had normal, less than BRL 1 million revenue. Then now it shows BRL 60 million projected for this year. And then -- phase 2 and phase 3 of our project showing a huge increase projected for the coming years. Well, now I pass it back to Cristiano that will handle the Q&A section, and I'm also here to support in anything you need or any question that investors might have to me as well. Thank you, Cristiano.

Thank you very much, Felipe. If you could please stop sharing your screen, so we have a full screen or the rest of the presentation, Felipe. I think Felipe -- Isabella, if you could just tell Felipe. He's still sharing his screen.

I'm not -- no more sharing, Cristiano.

Thank you. Thank you. Cool. We have a lot of people attending this call and -- live and like to thank each and every one of you. If you don't mind, when the video is available on YouTube, if you could help, if you could go there on YouTube as well, click like, click share. It makes a difference. It makes a difference. We're always like one click from reaching a greater audience. So every little helps. And we really appreciate that we all in this boat should get at that.

[Operator Instructions] First question we have. Concerning the lithium content in the material you mine, I understand that it may be a too big investment for Verde to better understand the recovery possibilities of lithium. Could it be an opportunity to bring in an external partner to pay for the exploration studies and extraction equipment needed, and then charge them a hefty royalty for the lithium being mined in today's hot market for lithium, I think there is an interest out there? That's a very good question. In the pre-feasibility study we put out several years ago, there was a fourth mention there about some lithium anomalies, low-grade anomalies on -- in our material. And we focused 100% on fertilizers. If anyone would like to discuss with us, if anyone would like to introduce a potential interested party to fund the required exploration work, there would be some -- most certainly, some drilling required, there would be most certainly a bunch of assays required for an exploration program. If anyone wants to do that or knows any party who might be interested, we would be open to exploring this possibility. As you all know, and I'm pretty sure you all will appreciate, is that what we are doing with potash, what we're doing with Verde on its own is already a massive value-generation proposition, which requires a lot of time and focus from us and from our team. So we want to extract ourselves, but that -- and especially, the treasury, but that doesn't mean if there is something on the table that we shouldn't explore. That's something which actually excites me about as well. Thank you for the question. Next question. The BAKS sales sits around 13% of total for Q1 and Q2. Do you expect it to stay that way for the remainder of 2021 and increases will be seen year-over-year after farmers have tried it once? Or do you expect the share of BAKS to increase during the year? I don't know the answer. I most certainly have a very high level of excitement and confidence on this product. Obviously, it's a product that requires more preparation and technical persuasion than just selling K Forte. So it's taking time to ramp up. Most certainly, a lot of farmers, as you all know, will try and then make greater orders the following year, but I'm pleased. And the other problem, that's something else which is important to say, it's -- when it comes to logistics and production, we're having to use Plant 1 to produce K Forte, to produce the different compositions of BAKS, that creates a little bit of complication on deliveries, on production planning. So I'm looking forward to having our Plant 2 in operation next year, because then with Plant 2, it will be dedicated to K Forte production and will give us more flexibility for using Plant 1 for BAKS production, being able to offer BAKS both in imports but also in bulk with more alternative. One problem we currently face is the agenda, the deliveries to farmers when we have the different compositions, especially when we're talking about bulk delivery. So I think with Plant 2, it will make it slightly easy for us. Next question. At the beginning of today's presentation, you talked about looking forward ahead of future. As you may recall, you once said in a video interview with John Kaiser that the hardest sale will be the first 50,000 tonnes. In the same metaphorical sense, have you now sold those 50,000 tonnes? Are you confident for the future? Yes, most certainly. And I stand by that. Those -- that initial amount of product will forever be the hardest sales. It doesn't mean our life is easy from now onwards because it will never be easy, but it will never be as difficult as it was knocking on people's doors and say, hey, we're just a new project here. Do you want to try it a little bit? You're going to be the first one. By the way, you're going to be the first one. So it has helped, and it has changed. Another question here. Are you currently in negotiations, a private equity fund, to find a partner with whom to take the private with the fund buying out the 75% of the company you do not currently control? No. I'm not currently in negotiations with a private equity fund for that purpose. Next question. How common are glauconite deposits? And how favorably does your reserves, potassium content, compare? It's a good question. They are relatively rare, those glauconite deposits. But an interesting discovery of a very large green sand or glauconite deposit took place in Mars. So I know how trend it is nowadays to talk about going and mining out of earth. There was a good article in The Economist a couple of weeks ago about that. So who knows, who knows maybe one day we will be joining Elon and going to Mars to help to fertilize on the -- or the planet. The second part of your question, our project or mine certainly compares very favorably with other deposits. So for example, there are some glauconite occurrences in India. But there, it's very low grade, it's about 3%; or in the U.S., it's around 5%, 6%. But most of the reserves in the U.S., to the best of our knowledge, have been depleted. As you might remember, glauconite has been mined in the United States for over 2 centuries. Glauconite was one, or if the first conventional source of potash, millions of tonnes were used in the country. But what is left is of no commercial interest to the best of our knowledge for different reasons, all the way from residential development or to the fact the mine has been depleted already. There is a mine in Russia, we're aware of. And they -- from what we know, it's a small mine, and it's lower grade than ours. A long time ago, we were approached by the government of Estonia talking about a mine they had come across. We actually went to look. To see what they're talking about, but they had like about 50 meters of calcium carbonate on the top of it, which makes it completely uneconomic. So the short answer to your question, Mark, would be we've never been able to find anything as favorable, as important or as economic as we had until the discovery of mines which might change everything, who knows. Thank you, Mark. Next question. There's a next -- I wonder if that's someone sending me a k***. That's -- I will move forward. The next question, would you be open to working with an interested take-private partner if one stepped forward? That's from the same gentleman who asked the other question. The answer is a bit obvious, I think, which would be if it would be something for the best interest or the interest of all shareholders and in line with what we believe is the price, we could certainly look into it. Next question. Given that the product costs roughly 6x as much in fuel to deliver when compared to traditional potash, how does the company plan to increase its share of the local market where delivery costs are low? Even though it costs a lot more to deliver our product than it costs to deliver KCl, we always sell our product for the farmer on a delivered basis. So if you're a farmer in Mato Grosso state and you're currently paying BRL 4,000 per tonne of potassium chloride, you will pay BRL 4,000 divided by 6 for our product. And Verde will reduce its FOB price to adjust, so the farmer isn't paying anything more for our product. If the farmer is right next to the mine, the same applies, in which case, of course, we have a higher margin to the other scenario. So that's how we will continue working, and that's how we will continue evolving our market share. You once mentioned that K Forte is not as popular with farmers of short-season crops. Has that changed at all? And does the company have a strategy to increase demand for its products from these industries? Short-season crops, it's niche. As once I heard from a consultant, it's actually triple niche. So when you look at the main crops in Brazil. This will represent about 90% of potash consumption. Short-season crops, it's not something that I would be worrying about some short-season crops they have like the growth. They have different alternatives for using our product. But it isn't something relevant for us at this point. After we have 90% market share, then it's something we need to look a little bit more detailed. Well, do you -- then another question. Do you have a December 31 projection for what the company believes the December Canadian dollar's exchange rate will be? No, we don't. We're not in the currency forecast business. At year-end last year, it was CAD 0.245 with today reporting CAD 0.24? If not the spot price, do you have a range estimate or even a directional estimate? Hey, I'm a simple guy trying to build a fertilizer company. Dealing with exchange rates, currencies and trying to pretend, I know, how they're going to move against each other is definitely beyond what we can do here. Next question, your license application for Plant 2 seeks approval for a formulation of balanced feed and prepared feed for animals. Can you explain what additional process you're considering beyond green sand? No, I can't explain what -- in addition to what we're doing. I appreciate there is access or there's availability of material over the Internet that might some time allow people to make their own theories or ideas. But we just can't comment on any of that unless, of course, it's material or if it's something relevant for what we're doing at the moment. Next question. Can you provide, geez, wow, there are 56 open questions here. So I hope I get to the end of this. If not, I might start speaking up or piling some questions at the end. Can you provide details of what was acquired for $539,000 as an addition to the non-depreciable land and building account in Note 5? No I can't. Can you provide details of what was acquired for $457,000, $95,000 in Q1 as an addition to -- no, I can't. If this is important, like those little tiny details for you for one to invest or to carry on being investor, it's -- you're probably looking at the wrong company. Any news on the 2.5 million tonne license? When is that expected? And how confident are you in that timing? Is there a chance that the 480,000 tonnes per year permit will be maxed out before the 2.5 million tonnes per year is awarded? There isn't any material news, if there had been, we'd have disclosed. It's making its way throughout Brazil's notorious bureaucracy. I don't give a comment on when it's expected and the people who have been following, sort of, for very long. And we know how difficult to predict this kind of stuff is. But we are doing our best and try to do everything we can to allow the relevant people to make their decision. Is there a chance that the 480,000 tonnes per year permit would be maxed out? That's a good question. There's always a chance. If you look at our latest target or latest revenue target, you will see that we are not worried about that becoming a problem. Are you aware of what are the green fertilizer start-ups have been to completion, small, disruptive companies, not big competitors such as Mosaic? And how heavy are you investing in research and development to stay ahead with the best product? Good question. We are investing a lot in research and development, not from investing a lot of money because, as you know, we don't have that much money to invest. But we're investing a lot of our effort, a lot of our creativity, a lot of our analysis, a lot of our strategic view of this space to make sure the little money we have to invest in that can be as efficient and can translate into significant gains, and most importantly, in a significant edge to the business. Can you provide details of what was acquired for $144,000 in addition to your -- in the first half of your disclosing notes? I can't provide any details. No, I'm sorry. And it says, if this is something important, to be honest, the question, you're looking -- I think you're missing the point of what Verde is. I think that's a different mindset to when you invest in a small cap, in a growth company. If it's important to understand what that kind of stuff, I think you should look for another company quite honestly. Another question, given that the product costs roughly 6x as much in fuel to deliver when compared to traditional potash, how does the company plan to increase its share of the local market where delivery costs are low? I apologize. Now I got your question. And thank you for asking it again. If there's any question you feel like the answer wasn't good enough, please do not hesitate to send it back, especially because there are so many, you kind of get a little bit anxious trying to move as many of them as possible. So what the question here is about is what are we doing to increase our market share of the local market of -- the market closest to the plant because, of course, we're making more money by selling closer to the market, closer to that market than farther away. What we're doing is, well, one, when it comes to marketing, we are kind of focusing more money -- marketing money to that region. When we look at our OKRs, if you don't know what OKRs are, please go and read the fantastic book called Measure What Matters. If you don't think it was worth your time, send me the bill, I'll pay you for the book, Measure What Matters is a brilliant book. We've implemented this in Verde realistically this year, but it started last year, and it's been changing things. So it's one of the key -- one of the -- one of our key Rs in as far as developing the local market. So we're doing our best. We're doing our best. But also as I'd like to say because we have this big mission to have a significant market share in Brazil not because we want to be selling billions of dollars but because we understand the impact this has in the plan itself and everyone's health, we have to, from an earlier stage as now -- we have to start infecting other areas. So we created little clusters of people using our product. And then those little clusters can start growing on their own from mouth to mouth, marketing and people talking about it and be happy about the usage of our product. Thank you for the question. Are you constantly researching and keeping watch of the latest agro science research and developments that could threaten or alternatively be taken on by the company? Yes, we most certainly are. You once mentioned that K Forte is not as popular with farmers of short-season. I think that question -- that one was answered. The next one. Can you confirm you will not sacrifice future prospects of the company in the form of growth, research and development and a healthy cash reserve by starting a dividend too early? Can you confirm you will not sacrifice future prospects of the company in the form of growth, research and development and a healthy cash reserve by starting a dividend too early? That's a very good question, Mark. When you look at our presentation, one of the comments we have there is that if you expect us to pay dividends to sacrifice growth, look for another company. That's something we have in writing there. So I think that kind of like helps answering your question. What I appreciate, though, is that I'm just another shareholder in the company and -- or the views. So one thing I'm discussing with the Board is setting up some sort of independent committee to look into all the alternatives, all the merits and how things should progress or not. I personally find it's going to be very difficult to convince the majority of our shareholders that given the big potential in terms of growth that the company should be really paying dividends. I don't think we have a single shareholder who's investing in the company right now because they want dividends. If that was the case, there are so many good companies out there that pay dividends that you should be looking for them. The other day -- anyway, we are here to talk about good dividend payers. So that's a little bit how I view things. There's one thing I need to say here, though, is some times, we have, of course, some cash treasury. And sometimes, I look at that money, the bank, and I look at the price of our shares. And I just think shouldn't one -- will you be thinking about using some of that money just to buy back some of those huge shares, not recommend anything, just shouldn't the company consider that some of that treasury, if allowed to -- if allowed -- if approved by the Board, if approved by the lawyers, by the accountants and by shareholders, everyone of us, shouldn't some of that treasury perhaps go towards buying back some shares if they're so cheap as lots of us believe they are. So this is just me thinking out loud here. There's no statement anyway in any direction. But thank you for the question. Another question. When I look at the revenue and tonnage guidance, it doesn't seem consistent with current KCl market pricing. I'm wondering why that is? Are you bearish in prices? Did lower prices get locked in early? There's a different price get used? I would need to have more detail in the calculations you're making. I'm happy to look at your spreadsheet to understand. What I can say from a general guideline is that if you knock on our door and say you want to buy our product, we will tell you our product is -- even though it's better than conventional potash in a number of ways, you won't need to pay more. And with that, of course, as with any company, if you're a very large consumer or if there is a commercial interest or in certain situations, we might reduce our price a little bit in relation to potassium chloride. But that doesn't mean we're bearish in prices. It just means it's just a commercial nature of doing business. Your question, if I'm bearish on prices, I don't like the word bearish. I think the industry made a big mistake this year. I thought they have learned from what happened in 2008. I thought they had learned that I wouldn't behave if they haven't made the big mistake in 2008 to allow prices to go as high as they did and they made the same mistake again. There's no need to be charging farmers as much for potassium chloride as the cocktail decided to do. You don't need to be charging $600. So I think it was a mistake, and hopefully, this gets fixed in the short term. A good question. Thank you very much. Next question. What's the customer retention rate of Verde year-over-year? I don't know by memory, but in the monthly management report, we share, there is there -- that number is made available. We will be looking into disclosing the one in connection to 2021. But I -- some people look at that number. We have some financing people who invest in especially, S-A-A-S, SaaS companies, software-as-a-service companies, where what they call churn, which is the people who carry on like people they don't lose in the process. It's a crucial metric. And it has to be because they have some enormous, enormous multiples. And the whole thesis behind those and normal multiples is because once you subscribe to Amazon Prime, you never stop paying Amazon Prime or whatever software-as-a-service you're using at the moment. In the case of fertilizers, there are so many things that change and have no impact on how good or how bad your product is. So for example, this year in Brazil, we had a massive drought, which bankrupt some farmers, which made some farmers not keen to apply for his licenser-ship. So the guy can be perfectly happy about our product and buy everything else, but he just won't buy it. For example, with coffee, and we had in Gerais, and all temperatures came down really fast and [Foreign Language] in English, frozen-bite, whatever that is, and lots of the farmers, they lost their farms. Again, it doesn't matter. They won't buy or they aren't buying it because they're not happy, or sometimes, the level of potassium in their farms are high, or sometimes, they had some other financial issues. They aren't buying the products. So there are so many different reasons a farmer won't be able to start something, I would worry too much. But it's something we measure. When we look again, I hope everyone will be convinced to really measure what matters, but it's something we measure. We measure -- and we especially started measuring very carefully this year, and it's something that for us is something that we learned a lot from it. That's for sure. How much of the sales were rewarded? I think it's a similar answer to what I -- the one I just gave. Next question. With experts such as Jeremy Grantham saying we are in a massive asset bubble that will likely lead to major asset declines, are you making sure your debt levels are sustainable in unfavorable economic conditions? I understand we are. I understand that our debt level is very small in comparison to sales, everything else. So we like to believe we'd be very conservative in that regard. Depending on the adjusted EBITDA performance, the CEO, myself, is going to earn a bonus over his base salary. How much has the company accrued for this potential bonus at the end of Q1? How much has the company accrued for this potential bonus, if any, during Q2? I don't know. I'm sure there is some accruement that was made. And of course, if we were going to disclose that here, it would also make it very clear to see where we're seeing our sales going in our operations. So next question. Can you elaborate on whether you think the drought is temporarily masking even stronger underlying volume growth trends? That's a good question. That's a good question. Potentially, yes. Potentially, it is masking a little bit strong growing -- growth in our trends. The videos we've been receiving on WhatsApp of the drought and fires -- wildfires in Brazil, it's sad, it's sad. As sad as it was from Verde from the really dry temperature we had. And that, for the obvious reasons, impacts the market. Next question. Please remind me of market potential in Brazil for you and your percentage penetration if you hit your target at 350,000 tonnes? Okay. So the answer to the first part of the question, if you look at our pre-feasibility study, when we look at the 25 million tonnes scenario, I think that represents about 40% of market share, that's 25 million tonnes. If we hit the 350,000 tonnes, you can work out the math, and you can see how tiny, absolutely tiny our market share is in Brazil. Next question, based on SEDAR filings on August 24, none of the 97,000 stock options issued in Q2 as disclosed in Notes 10 were made to reporting insiders. Can you confirm that this is correct? I can confirm that this is correct because I trust the people who are doing those filings. What I would expect the balance to be is that this balance would be for employees who don't need to file a specific SEDAR disclosures. So that would be then. Next one. I'm a new private investor in Verde. I'm still doing research due diligence. Who should I contact with my -- with many general questions about the basics of the industry and specifics on Verde? Excellent. Thank you for your interest. Thank you for following what we're doing. My suggestion here is to do this with myself. Let's organize a time, and we can -- if you allow, we can record the session. If you don't allow, it's okay. But if you allow, we can record the session, and then we can make it available on YouTube for other investors like yourself who might be in an early stage of doing research due diligence, and we can have that video there as a help for other people as well. So please get in touch. Thank you for your interest. Other questions, how many individual non-insider employees were included in the grant of 96,000? I don't have. I don't know. I think I've made my comment, if stuff like that is important for one to decide whether or not to invest in Verde, look for another opportunity to invest. I think there are thousands of public companies out there. Next question. While Verde gains more scale, do you still see relevant reduction in production costs, sales cost and administrative cost, it's an excellent question. Absolutely, absolutely. When you look at our production costs nowadays, we have our plant about 30 kilometers from where the mine is. So we need to have trucks transporting it from the mine to the industry, that's where -- from where we sell it to farmers. So when we start selling straight from the plant mine, as we will do, hopefully, next year with Plant 2. There is a significant cost reduction. The first plant, it's [ 200 ] mills. The next one, we're looking at 400 mills. As those things grow, there's a lot of the costs there that can dilute in terms of production costs. We're also trying to improve a lot of the process. So we should be having our IASB audit in the second half of this year. But just having an ISO and our quality audit isn't enough. I'm also a huge fan of link. That probably explains why you only see me wearing my basic black top. That's part of my lean mentality. So I have a wardrobe. And that's all I wear, my jeans and my black top, so I keep it very simple. Don't want to waste time citing what I'm going to wear and this lean mentality that's something I'm a huge believer, and we are hiring a very good lean consultant. I mean, I think that will be more gains from that one. What's also a big believer and there's some other good books on that one is trying to improve at least 1% every time in everything we do. The ones of you who like cycling or cycling you will read how that strategy allowed Britain to go from nothing in cycling to becoming a powerhouse in indoor cycling. And you'd be very interested to learn how they've applied the same strategy with their football. And people are already giving credit to the fact they were able to get to the final of the European Championship, thanks to that project, which began a few years ago. So that's something we try to do with the Verde all sectors, everything we're doing, we're trying to make at least 1% better than before. Thank you for your question. So the next question, how many individual employees were associated with the 3,471 stock options issued on May 10, 2021, and then forfeited before the June 30 quarter end. Next question. If 10% of the 97,000 stock option issued on May vested immediately, representing 97, why theres no TAM report a number of these options is. Can you talk about -- next question, can you talk about the change in transport cost is that mostly having to deal with few use to get material from the ore to the process in yards. Yes, but also, we sell CIF. So let's say, you come and buy a product in January to get delivered in August. And you get a fixed price in January for the product delivered in August. So when fuel price goes up, that bites our margin. What is the calculated fair value related to the [ 96,200 ] stock options at the May 10 initial grant date? I don't know. Have any further stock options being issued to employees so far in Q3? Answer, no. Next question. Do you -- do you have a percentage of sales that are new versus returning customers. We have that disclosed for the last year. And we'll probably be doing that once this year is finished as well. Answering one of the questions above, I did explain why this is far more relevant in a software-as-a-service company than it is with Verde, anyway -- I think, I've covered that. Next question Can you explain why 10,000 $1.69 options issued on March profit in Q2 was versus due to a same employee receiving $10,000 in March and leaving the company, which you have only seen 10% of the options vest. I think, yes. I think that was an employee that was either let go or left. Chris, next question. Can you please clarify the stock option plan, which granted such a lot bonus to so many sales staff. This had a large impact on our profit. It's just likely to recur annually in the long term? It's very unlikely to occur annually in the long term. I think there was a one-off type of event for the foreseeable future. That's my view. Next question. Can you explain what caused the full feature of 140,000 to update 180,000 purchased stock option issued on February 140,000 forfeited in Q1 in Q2? I don't know. Next question. In the presentation, it was mentioned that some of the cost increase was partially due to increasing the hiring and technology expansion. Does that mean that some cost per tonne of distribution will decrease over time. If so, how substantially can those costs decline on that front? Also, approximately how much of the year-over-year cost increase was due to higher oil prices. Felipe, do you want to try answering that question, but I got you a little bit.