Verde AgriTech Limited (NPK) Earnings Call Transcript & Summary

Welcome. Our next presenter is Verde Agritech. We have CEO, Cristiano Veloso, here with us to walk through a story, which I'm envious of. It's probably the fastest-growing company here at the conference this year. So Verde makes plant nutrients and fertilizers and they do it in a way that's more sustainable and less expensive. But I'll let Cristiano tell the whole story. Cristiano?

Yes. Thank you, Bobby. I think with -- after an introduction like that, probably if we just left the presentation as it is, I'll probably do less damage than me trying to explain the business. So thank you very much for the introduction, and thank you very much for everyone who has joined us here today for this presentation. But equally, thank you very much for everyone who is watching our presentation over the Internet, new potential investors interested in our story as well as I'm pretty sure a lot of our loyal investors and supporters and like -- I like to say, our co-owners who are watching the presentation live as well. Thank you very much for all the support. But thank you very much, Tom Gabe, thank you very much, Bobby, thank you very much all of Canaccord, who has invited Verde Agritech to this conference. It has been a fantastic experience. We've met some amazing institutional investors, and it's been most certainly very, very productive for us in increasing the awareness of what we're doing and we pretty much look forward to collaborating with Canaccord in this amazing group of investors we've met over the last few days here. Starting the presentation, I would like to remind you that our presentation contains certain forward-looking statements and actual results might differ, but I also do encourage you to read the rest of disclaimer because as you will see, we tend to be a little bit different in terms of the sort of investors, we think, will be happier join us in our ride. After being the CEO of a public company since 2007, I've realized that it's actually impossible to please every single type of investor. So we tried to explain a little bit how we are, how we think about as a company, how we focus, how we develop our strategy, and I think that's very important. As you will see from this disclaimer, one of the very important points we like our shareholders or our future shareholders should be aware of is the importance of this short trailer, I'm going to soon be playing here. It's a 2-minute video from a very interesting documentary available on Netflix called, Kiss the Ground. And it's a good trailer to help you understand why we are so passionate about our company, why we believe we've been growing so fast. Hopefully, as fast as Bobby just mentioned and why we don't have any other choice but to keep growing, not because shareholders want the profit from it, but above all, because we truly believe the world needs our growth if we ought to address certain serious problems we're facing as a civilization. So this is a trailer. [Presentation]

So yes, I hope if you don't have plans for tonight. I hope you enjoyed watching Kiss the Ground on Netflix. We have a purpose, and it's not just a marketing gimmick or something people come up with and ends up in a corporate presentation. Something very strong for us. It's something that makes big part of what we are as a company. Our purpose is to improve the health of all people and the planet. We can achieve our purpose by improving soil biodiversity. It's a theme, which is important, has been growing the United Nations, the food agency organization chose it last year as its key topic. And it's certainly essential for improving the nutrient density of the food we eat, but equally making the environment a little bit more sustainable. The way we can improve soil biodiversity is by supplying salinity and chloride-free potassium fertilizers we sell our products mainly direct to farmers. We have about 5,000 customers at the moment. And we sell the product -- even though it's better superior product, we sell it for the same cost as conventional fertilizers. Someone in the conference today kind of like try to summarize what we do by saying that a lot of farmers, they feed their crops with junk food, i.e., chemical fertilizers. Whereas what we're doing is by feeding crops with healthier alternatives, but not just healthy alternatives, but also and with added microbes, probiotics is I thought was an interesting way to summarize the business. Just by switching to electric cars or by installing solar panels, we're not going to be able to properly address climate change. We need to find ways to capture some of the carbon that was released to atmosphere and bring it back to the soils. And one of the most cost-efficient ways for you to do that is by working with nature. As you grow crops, as you grow commercial crops, be a bit soybeans, be it corn, you're capturing carbon from the atmosphere, that carbon is being transferred by crops down to its roots. And there, we have an army with billions of microbes working to amalgamate that carbon within the soil structure. The #1 enemy to this natural process comes from Russia, and it isn't Putin; it comes from Belarus, it isn't Lukashenko; it comes from Canada and isn't Trudeau. The #1 enemy to this natural process is potassium chloride. So potassium chloride is the conventional source of potash mined in those countries. Those countries represent about 75% of conventional potash supply. And even though it's a great product for being shipped all over the world from those countries down to places like Brazil, it's a project that, in addition to potash, it carries chloride, chloride kills soil microorganisms. To give you an idea of the size of the problem, annually, farmers apply over 60 million tonnes of potassium chloride to soils. This represents about 0.5 trillion liters of clorox bleach spread over soils as far as killing soil microorganism is concerned. What we're trying to do is to stop the out-of-sight, out-of-mind mentality. Farmers have already understood how important those soil microbes are for productivity, for growing more resilient crops, for improving the soil itself. Now it's time for society to become aware of how important soil microbes are also for the environment. How important they are for fighting climate change. What we do as a company is to supply a combination of minerals and microbes perfected for specific needs of different crops and different soils. We've launched 2 products so far, K Forte and BAKS in Brazil. In the United States and Canada, we have Super Greensand available on Amazon, available throughout different distributors. So you all can go and buy Super Greensand manufactured by us on Amazon and other places. But in Brazil, when we look at commercial agriculture, which is 99% of our business. Those are the 2 products. K Forte being a source of potassium, silicon, manganese, magnesium. And then BAKS, which is in addition to those nutrients, a source of sulfur, boron and other micronutrients. Those products, they come with 5 different technologies. Those 4 technologies were launched last year. Micro S Technology allows us to convert elemental sulfur from oil refineries into fertilizer grade sulfur, make up pretty decent margin in that conversion and create a fantastic source of sulfur, gradual release sulfur for agriculture. We have Cambridge Tech, which was developed in partnership with Professor Derek Fray at university of Cambridge, and that's the technology that allows us to convert our minerals into a gradual release type of fertilizer. We have 3D Alliance, which allows us to add all the nutrients to the product, such as zinc, boron. N Keeper, which we apply to conventional nitrogen fertilizers, and allow us to transform it into a gradual release fertilizer, minimizing the mission of ammonia to the atmosphere. The final or the fifth technology we launched is Bio Revolution, something we worked on for several years, and it transformed our company into the first company in the world to be adding microbes to fertilizers in a large scale. It catapulted our company to becoming the largest biological producer in Brazil. The first microbe we launched is Bacillus aryabhattai, a phenomenal microorganism capable of increasing soil availability of nitrogen and phosphate, but also capable of growing crops, which are more resilient against drought. In addition to Bacillus aryabhattai we are working on other microbes, which we should be announced since this year. But what is also very exciting about this technology is how it transforms our fertilizers into a platform where other companies where all the scientists can be making their own microbes available for farmers. For those of you who aren't familiar with the whole microbial ecosystem, you have a whole range of products or microorganisms for different purposes, being widely studied and that are collectively transforming agriculture. This is what people would like to call the key engine behind the fourth revolution in agriculture. I've spoken a lot about the mineral in addition to our technology, and this mineral is what we mine. So we have a source for this unique mineral and it's a very big mine. It has enough resources when it comes to that fertilizer, that comes from Canada, Russia and Belarus called potash. And it's big enough to make Brazil self-sufficient in potash for about 40 years. This is a big number because Brazil is the world's largest importer of potash. It's the second largest consumer of potash but also because Brazilian farmers spent a lot of money buying this imported potash to give you an idea at current prices. Brazilian farmers spent about $12 billion importing potash from those 3 countries I mentioned. And we had enough resources to make -- to supply 100% of that market. Even though we're talking about mine, it's a mine that is as sustainable as a mine can be. The area where the mine is located, decades ago it was a forest. The forest was cut down to be replaced by petulant because it's a hilarity degraded petulant. So underneath it, we have our mineral, we borrow it from nature, process it and give it to farmers to reapply it back to nature to grow more nutritious food. But the area where we're extracting this mineral from, it gets replanted with a proper forest. So it's one of the largest local reforestation projects, but of endangered species and actual trees you want to see, not just reforestration types of trees. Well, if you're still excited after all of that, you can start talking about the least exciting part of the presentation, which are our numbers and financial growth. We've been growing fast since we began in 2017, above 130% CAGR. And our gross margins aren't bad at 74%. We put out our results yesterday, and it was 78% for the last quarter gross margins. The growth in revenue also has been significant since we began in 2017. This is in Brazilian reals. The exchange rates to the U.S. dollar at the moment is about is 5 to 1. Canadian dollars is about 4 to 1. So you can see how much we did last year in sales and how much we expect to be doing sales this year. When we put out this guidance in January this year, the target was about BRL 300 million or about $60 million. However, in May, we increased this guidance up to BRL 480 million, which is about CAD 100 million. This is the same number in terms of growth but looking at tonnage. And what you have for the last 3 columns, which go out of the chart, those are the numbers in tonnage for our expansion. So we currently have 1 plant, which is operational. It has a production capacity for 600,000 tonnes. We have a second plant which should be commissioned this month and will significantly increase our production capacity up to a total production capacity this year of 3 million tonnes of product. If you consider that the guidance for 1 million tonnes is about $100 million. If we're talking about this plant 3 times -- with 3 million tonnes, we're talking about being the facility, everything built to reach revenues as high as $300 million. Earnings -- net earns for the guidance is about $50 million. So with the 3x greater, you're looking at net earnings potential out of 3 million tonnes of creation of around $150 million. Should some of you might be thinking it's a big number, it's a big growth. But those of you who have been following us for very long, have heard me saying how and heard me saying when that was the reality how selling the initial 50,000 tonnes of product, which we did in 2018 was going to be the hardest amount of product we would ever have to sell because after that, it's no longer as much of a new product. People start talking among each other, and that has really been how we've been able to grow so far. If you go on our YouTube channel, Portuguese, you will be able to listen testimonials from nearly 100 of our customers talking about all the benefits. They've seen from switching from junk food, this investor mention towards a more natural diet what it does for your soil, what it does for your productivity. What we've also done because we have a mine as big as we do, with potash resources as big as we do, what we've also done is to look at what the economics would look like if we were to fully develop it. And we did a prefeasibility study, which is available on our website, it's available on SEDAR. And this looked at producing an off potash to supply about half of the Brazilian potash demand. When you do the math and you do it counted NPV discounted the net present value, the NPV you get is about $17 billion. When you divide that by the number of shares we have in issuance, you come up to about $300 in NPV per share. But if that's all that matters to you and you didn't like the documentary, perhaps this is another better company out there, I would suggest we start by watching Kiss the Ground. So yes, as a summary, we believe we've built a track record over the years of growing the company in a shareholder-friendly way with very small dilution since I started the company back in 2005. We have a very good Board of Directors, Alysson Paolinelli. He was a Nobel Prize nominee last year. They're going to nominate him again this year. I hope he gets it because it definitely deserves it for what he did, transforming the Cerrado region of Brazil into the bread basket of the world. Without him, we would all be indeed trouble nowadays in terms of food production. I suggest it's a fascinating story behind him. We can truly make a difference when it comes to fighting climate change without any very complicated technology or science behind it. It's really allowing nature to do it on job. It's a scalable project. So we're talking about building a plant 3 at 10 million tonnes. But for any reason, we decided that to go with a smaller plant or even a bigger plant, we can do that. We don't need to sacrifice the capital structure in order to keep growing in a profitable way. Brazil is a major food producer people say that every day, 1 in each 5 items you eat or drink will come from Brazil unless you drink as much coffee as I do, in which case, it will be a different ratio. But yes, Brazil really matters, and that's why we talk about improving the health of all people in the planet by allowing Brazilian farmers to grow more nutritious food without having to overcharge or charge more for growing more nutritious food. They automatically can allow people all over the world to start consuming better food and avoiding what the United Nations also calls 1 of the world's biggest problems being hidden hunger. People buy nowadays and buy some food, which looks very pretty because they have pesticides applied to it, which is an all big because they put all the chemical fertilizers. But when you look from a nutrient point of view, it's very poor in nutrients and that's why we're improving the health of all people by allowing farmers to grow more nutritious foods. Number five, we are a truly sustainable company when it comes to how we are producing the product, what the product does, how we approach things. And then finally, bio revolution, which something we're extraordinarily excited about. It is the next revolution of agriculture, but it's not just us, we're excited about. I think perhaps the reason we're so excited about it is because we spend so much time with farmers in Brazil. And I've done it all my life because I come from a farming background and frames everything, but they are even more excited about microbes as some of the investors or entrepreneurs or VCs might be because they really like it. And they see the results. They like it because it helps them making more money. Agriculture is a high-risk venture. A farmer can only do what he loves 30 to 40x per lifetime. Think about you as an investor, if someone turned to you and say that you can only buy 30 stocks. And that's it, that's more or less how it is for farmer. So they're very conservative. It's very important to understand where they're coming from. And something we just like doing. So gentlemen, ladies, thank you very much for all your interest, everyone watching from home. It was a great, great encountering you even though it was online. Hope to see each and every one again, face-to-face in another conference or somewhere else. Thank you very much.

Thank you, Cristiano.