Verde AgriTech Limited (NPK) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you very much for joining us for another results presentation. Before I begin today's presentation, I would like to remind you about the disclaimer on the presentation Felipe is going to be sharing. I would like to remind you that there are forward-looking statements. Actual results may differ, but I also would like to remind you of the series of warnings we make for people who choose to invest in Verde. It hasn't been an easy ride since we began the company several years ago. We've gone through several crises. And I think what we witnessed with the water issues on the road is a reminder about the sort of risks you can have when you're investing in the development in the technology in an earlier stage company. Nevertheless, we carry on as optimistic as ever, working as hard as ever, as excited as ever to keep bringing the company to keep moving the company forward. If you're watching it today live, thank you very much for your interest. If you're watching it on YouTube, thank you as well. And please remember that one way for you to help us or one way for you to help other potential investors, other stakeholders who, like yourself were interested in the company, one way for you to help us all is to click on the like button, is to share, to forward this video to someone to subscribe to our channel. This is how we tell Google that this content is of some merit. So as usual, for the first part of our presentation, we're going to have our Chief Financial Officer, Felipe Paolucci, going through the presentation, going through the results. And then afterwards, I will be addressing the several questions we've already received from many of you. What we tried doing was addressing some of the questions we received ahead of this meeting by e-mail on the presentation Felipe is going to be making. So some of those questions, we hope will be answered by Felipe on the presentation. If you don't feel that it was the case, please do not hesitate to resend your question when we will also be looking to answer them. Thank you one more time for your interest, and I look forward to talking to you a bit later on. Thank you, Felipe.

Thank you, Cristiano. Thanks everyone, for joining the conference. I will start now the presentation. And as Cristiano has said, the first chart here, we have the disclaimer where we explain a bit about the risks and what's good for you, what's not and about our journey. This will be also available at YouTube later. So you can go into the details on this disclaim. First here, we can -- as usual, again, we have 5% coupon off for Super Greensand purchase at Amazon. Unfortunately, in Canada, we are sold out, but we do have a very good product for you to purchase or to recommend to anyone in the coming weeks in the Amazon U.S.

Okay, Felipe, if you don't mind, just going back one slide.

This one? Or Cristiano, if you...

There it is. So I'm sure many of you are trying to decide what you're going to be giving as a Christmas gift. I'm sure many of you might be looking at Black Friday deals and some of you might just be looking at improving your garden or getting ready for the season next year. And it's a joy to be able to offer our product on Super Greensand. And it's also very useful to be selling it on Amazon. It was fantastic. I was in a presentation last week and I was giving the presentation, someone asked, oh it's a new project, but what is it like? Is it a good product? Is it validated? And it was very fortunate because I could just open the amazon.com website. I went there, and there are over 100 reviews on the product so far among thousands of people who have bought the product, but 5 stars or 4.5 stars. So it's -- I think it's very good that the product is available for each and every one of you to go ahead and try the product as well. Thank you, Felipe.

Welcome. So first, on the summary part, we highlighted here one of the issues we had in the last period related to the road issue, what has limited our logistics corridor to Plant 2, which is now resolved, and peak season purchase orders had to be turned down. But despite that, the growth experienced throughout Q3 reflects yet again, the efforts and dedication of our team, the market's growing demand for our products. With Plant 2 commission, Verde is expected to continue its growth trajectory and improving bottom line. The company is no longer sold out and is receiving orders for 2022 and 2023. On Q3, the key highlights we have here again. Related to cash, we remain with the ability to generate significant free cash flow in the long term. We can see also that the cash utilized from investment activities has increased in Q3 to $13.8 million compared to $0.8 million last year. And trade and other receivables increased over 250%. So we end up on September with $29 million on receivable compared to $8.2 million, which is up, it was expected and in line with our cash flow projection. And the total loan for cash -- for CapEx and working capital in September increased to $19.1 million. We had additional loans that we had to make, but it was also again planned and was already communicated to the market when we started the CapEx for Plant 2 and the access road that we would use a bit on cash flow and a part of it on loans as we've made. On profitability side, you can see that revenue increased by 156% in Q3 2022 to $27.3 million compared to $10.7 million in Q3 2021. In Brazilian reais, the growth is close, it's 140%, so over BRL 109 million compared to BRL 49 million (sic) [ BRL 45,409 million ] last year. On sales by volume. Also a significant increase of 23% in Q2 (sic) [ Q3 ] to 189,000 tonnes compared to 153 tonnes 2021. On gross margin side, remain with a strong gross margin of 78% compared to 77% last year. On EBITDA, before noncash events, increased also 123% in Q3 to over $8.1 million compared to $3.6 million last year. And in the end of net profit increased by 103% in this year to $6.47 million compared to $3.12 million last year. On operations side, in October 2022, the company has announced that the second production plant, Plant 2, achieved its nameplate production capacity of 1.2 million tonnes per year. And Plant 2 was commissioned on August 31, 2022. In parallel, Plant 2 was undergoing an expansion process to be capable of producing 2.4 million tonnes per year. Adding to the Plant 1 capacity, which is 0.6 million tonnes per year, total capacity of the company for 2023 is expected to be 3 million tonnes per year. The Plant 2 total capacity, we do expect to achieve before the end of this year. A bit on Q3 financial statements. On the left side, you can see in the quarter results, Q3 2022, then with Q3 2021, the comparison and then year-to-date scenario. I would just highlight a few numbers here, but I have some more details in the coming charts. And also, any other kind of detail, please let us know what your questions are. You can see also in our statements that were already published on SEDAR. What I'd like to highlight on this chart here is just related to the gross profit sheet, which increased over 159% year-on-year to $21.2 million. And in the period, the year-to-date were $49.3 million on gross profit. Gross margin is not that good to compare now because I have another chart that shows the gross margin, excluding freight impact, which is quite relevant. But what is a good number here also to share is the EBITDA. The EBITDA, which is $8.1 million compared to $3.6 million, and especially, year-to-date basis, where the growth was over 466%, achieving $22.6 million this year, year-to-date compared to $4 million last year. So this is very, very significant growth and important numbers to highlight. On this chart, you can see the numbers. It's a bit easier to compare year-on-year and quarter-by-quarter because it's per tonne. So you can see in the first table, the operational summary on tonnes per tonnes sold and then revenue production and gross profit per tonne. And in the second table, you can see the same numbers, but removing the freight impact on revenue. So the gross margin decreased from 78% to 66%. But the good part of it is that year-on-year or year-to-date are much higher from 62% to 68% and quarter-to-quarter are pretty flat and a small decrease of 1% only quarter-on-quarter. So we had 66% excluding freight from revenue of gross margin this quarter -- last quarter. Now you can see in the left side, the sales tonnes, total sales things. We had the first factory operative in 2018. It's per quarter and per year. You can see here a bit of the seasonality of the business, how Q2 and Q3 normally are higher than the other quarters. This year, we do expect also a strong Q4, especially because of the support of Plant 2. And in the right side of the chart, we can see the revenue per year and also per quarter. So we concluded last trimester with $27 million compared to last year, $10.6 million for example. In 2020, we had $3.9 million; 2019, $3 million; and in the first year, we had the Plant 1 operative, we had less than $1 million of revenue. This chart has just excluded the quarter impact, but you can see year-on-year growth of the company from 2018 up to the expectation for this year. So we came from 29,000 tonnes in 2018 to 700,000 tonnes, which is like over 20x higher. And also on the revenue side, you can see that we came from $1.3 million in 2018, and we have the latest estimated revenue for this year on $86.6 million. On EBITDA, also it's the first time we show this kind of chart, but it shows here comparison with 2018. We can see another time the growth of the company, we began with a net loss on EBITDA of over $1.4 million. Then 2019, the company was like flat. Then for 2021, demonstrating a positive EBITDA. And this year, over $31 million expected on EBITDA for 2022. And on the earnings per share, EPS, we, of course, came from negative point from $0.04 negative then to 2022, where we expect to achieve $0.50 per share of earnings per share. On SG&A, we show the first part of the chart on sales expense and then general expense. We can see significant increase in most of the rows and items. This was expected to support our business. We had additional headcounts on sales. We had additional investment on marketing, additional license on IT and software, for example. But the key point here, which is like the big portion of the expense, these are related to freight. You can see that the expenses with freight in Q3 was $9.2 million ending the year at close to $19.2 million. I have a chart that demonstrate and explain a bit why we had this big increase on product delivery freight expenses, which is now, at the left side here, you can see FID -- FOB against CIF. And you can see that now in Q3 2022, we had 78% freight CIF, which means that most of the product, the company has hired better logistic to deliver the product to the client. And we can see that this trend remains as is, but I do not expect to have much more than that next year, 78% to 80% -- from 70% to 80% is a number that is normally a high number, but it's getting flat nowadays, and it's our expectation that it remains as is. And in the right side, within general expenses, I would just show a bit on the 3 key points on general administrative expenses, fee paid to sales agents and sales and marketing expenses. So one of the key change here, it was related on general administrative expenses where we had $450,000 management bonuses to our team that we had already accrued for 2022. On sales channel, which will divide our sales into direct sales, which is made by our internal employees. We have also the sales agents that sell Verde products among other products of other companies to the farmers and also the distributors, which we provide a discount in the price and then they resell this to the final client with the margin that we agree before. So what we can see that in the left side in Q3 2022, like over half of the sales, they were made by our internal team, which is a good surprise because we have much more sales agents in the market than internal employees selling our products. On the other hand, it is a good opportunity for growth. As you can see, the distributors, they were a small amount this year in Q3 only. 8%. And year-to-date, only 13% of the sales they were made throughout distributors. On loans, as I've mentioned before, we have some additional loans that we raised this year. They were most of it for working capital or equipment. So in the end of the day, went up now to September 30, with $19 million on payments to be made on loans and borrowings to banks, most of them with big banks in Brazil. And additional to it what we had, and we already disclosed that in our MD&A, it was loan with Banco do Brasil, which was made in October, a total of $5 million with 5-year terms that our business -- it will be the last one for this year. So we do not expect to have additional loan during 2022. This chart, the first comment here we can say that Verde has achieved its EPS, EBITDA and revenue and sales guidance for Q3 2022. And in the table below, what we saw -- what we can see is a comparison with the prior year. If we can highlight something here I would say on Q3, where you can see a significant growth in every row: like EPS from $0.06 to $0.12; EBITDA from $3.6 million to $8.1 million; revenue from $10.6 million to $27.3 million; and also on the volume from 153,000 tonnes to 189,000 tonnes. So there are very strong numbers that demonstrates the growth we had year-on-year or quarter-on-quarter in this case. On economic scenario, we have the first table, a comparison from U.S. dollar and Brazilian reais. And then in the second chart, Canadian dollars against Brazilian reais. You can see that -- well, we do have -- the most impact that we have now is from Canadian dollars. So we can see that we are close to BRL 4 per dollar at this moment. And last year, we were like a bit higher, maybe BRL 4 or BRL 4.20. And our expectation for 2023 that we are working on now is BRL 4.4, so because the situation is quite stable, and we're not sure if this BRL 4 per dollar will remain until the end of this year. Potassium chloride side, you can see also now a decrease on price in the last 2 months, especially. So we are now close to $700 or $640 per tonne. And last year, we were, at the same time, maybe $605 on average. So the -- and the second chart, also it's important to mention that diesel and crude oil prices are quite flat in the last, like 6 days in Brazil, although with the new President, et cetera, we might have some impact here as well, and we have the conflict at Ukraine and Russia that also impact our diesel price, which is -- which goes directly in our freight expenses. So this is a very relevant point to be analyzed and because it is -- the biggest impact in our cost for sure currently is crude oil and for -- to produce the product and also to mine, produce and also to deliver to the customers is the key impact. So Cristiano, this is what I have in terms of numbers. I will pass to you now, so you can move on with the Q&A section.

Thank you very much, Felipe. Several questions we have here today, Felipe. They all are on our financials. So my suggestion is if you also open the Q&A section, we can go over each one of them together and then some of them you might just jump in and answer them if that's okay.

Okay.

So the first question. Why were your freight costs in Q3 significantly higher than Q2 on a per CIF pound basis? And of course, if I'm answering anything here, just jumping, but is diesel price is going up. Anything else in addition to diesel price going up, Felipe?

Yes, we have 2 points here that I would highlight to everyone. We have the diesel price, which is the cost per tonne. However, we can have also mix change. You can sell for further distance sometimes, for example, of Mato Grosso or South Brazil or North. And for sure, this will not be demonstrated there in the presentation, but this will also impact a lot the cost per tonne sold on freight.

Okay. Second question, I think you've answered it as well. So the second question, why were your cost of goods sold in Q3 significantly higher than Q2 on a per-tonne basis? The answer is because it's being shipped further away, especially in Q3, where there's a lot of demand coming from Mato Grosso state, where you have soybeans and some other states which are further away.

Just some point here on costs and cost of goods sold. It's important to highlight here that here is the diesel price that was like 60% higher or 45% higher than the prior quarter. The inflation scenario in Brazil that we had also 10% inflation on each kind of cost that we have in the factory. This is also very relevant for the business. And also the last point is that we had an increase on big bag sales and big bag costs, like it's very important for the total cost of the product and it has an increase of maybe 20% quarter-by-quarter or year-on-year. So this impact us.

Yes. Next question is a very technical question here. Fixed asset questions, note #5, Felipe shows fixed asset classes, including 1 quarter land in buildings, which generates no depreciation. This suggests that all acquisitions with land as any buildings would depreciate. Would you please consider changing this asset class to be just land to avoid confusion, depreciable buildings would be in plant and equipment? Felipe, do you want to answer that?

Yes. Maybe, I will try. I might agree, makes sense to your point. I think that it will not be relevant at all since the amount is very small. But okay, I'll take this point and rework later and if you need to, can change, no problem. I'll write it down.

Next question is Super Greensand profitable in the mid to longer term as it's bulkier than more concentrated competitive, so cost more in delivery? As I understand it, Lula should be promoting small farmlands of extensive pass-throughs. Is it good for Verde? Or should it has no impact? Are you commercially targeting small farmers as well as bigger ones? So the answer to the first question is that we are very competitive even in states, which were further away. I -- for you to have a very detailed analysis of our -- of how competitive we are, I would like to suggest you have a look at our prefeasibility study. The marketing study chapter goes into a lot of detail, looking at freight costs, weighted average FOB, depending on market penetration, depending on production scale. So there is plenty of data there discussing this question. The other question about Lula promoting small farmlands. We sell to everyone. I mean, we have a whole wide range of customers all the way from smaller ones with less than with 30 hectares to very big ones. The next question is also a technical question, Felipe. So did you make significant expenditures on land in Q2, CAD 2.1 million…

Now the comparison of $500,000 balance in between one and the other quarter, it is year-to-date number. What we have here, we have our...

Felipe, sorry.

Sorry.

I'll just finish reading the question, otherwise, people -- you've been able to read the question, but people in the audience, they can't see the question yet. So the good question here is, did you make significant expenditures on land in Q2, $2.1 million; in Q3, $2.7 million. Can you please provide details on what land was acquired for these amounts?

This is how it is demonstrated in the financial statement. This is a variance that we have up to June $2.1 million in this role, let's say, classified as that, and then $2.7 million. So the variance is like $500,000 and most of it was experienced with investment in lands like license, like payments to open a bit more the road. This is how classified there and what we had to pay to some farmers or that -- to provide our access to providing Plant 2. This is the number.

So what you saying this isn't necessarily acquiring land.

No.

It's more associated with the capital expenditure associated in developing infrastructure access. Is that what you're saying?

Yes, yes.

Okay. If this question wasn't answered. If you still want more clarification, please ask the question again, and we're going to come back to it. The other question. How much has been invested in the road improvements to September 30, 2022, and how much will be spent in Q4?

Well, the total CapEx we have projected for Plant 2, an access improvement in Brazil reais is around BRL 120 million. Up to September, it was like -- I mean I don't have exactly the number here, but probably 70% of it or 80% of it was already spent or paid, sometimes paid, sometimes not accounted yet. So we do expect to finalize this by December. And some of the investments will remain for Q1 due to the rainy season that has already started, but most of it was already signed and compromised with the companies.

Thank you, Felipe. Where have you accounted for the road improvement expenditures? Since Verde does not own the road, it cannot under GAAP be included in fixed assets. Have you immediately expensed these costs or have you included them as prepaid expense?

So far, it is to prepaid expense. But we need also to analyze, and we are talking to the auditors and we believe that it's going to be used as CapEx. Yes, and although it's not ours, it's an expense that is accepted by auditors to be used as CapEx.

Have the auditors confirmed that yet, Felipe or still need to wait for the confirmation?

To wait for the confirmation.

Okay. Any news regarding the U.S. listing? We're working on it. How happy are you about the stock in comparison to the actual results and forecasts? Minus 15% seems great Q3 results announcement. If there's one thing I've learned about our share price since I started the business 17 years ago is that it very rarely was capable to completely mimic what I value of a company. I hope that answers your question. Can you please comment on the Plant 2 costs incurred this year? So can you please comment on the Plant 2 costs incurred this year. Q1, $2.8 million; Q2, $10 million; Q3, $10 million compared to the capital budget forecasts you have provided previously.

Well, Plant 2 so up to last month to us [indiscernible] is still investment, not cost. So we can cost when we decide it's 100% done and start to deliver from there, et cetera. So what was other costs, you can see here so far is still related to Plant 1 to deliver product to the customers.

Next question. Now that we have a partnership with Lavoro, at what point will we start to produce a granulated product? Does having a granulated project appeal to a much larger customer base? Our granulation, is that as soon as we get to a point where we believe the market for the powdered version of our product has saturated, we will then deploy capital investment in a granulation plant, so we can enlarge the size of that market. But as you may expect, given how [ served ] out we've been over the last few years, that point hasn't arrived yet. Next question, do you have a forecast for total capital expenditures for 2022?

Yes, the projected CapEx for this year remains around, like I said before, BRL 120 million.

Next question. As K Forte BAKS [ leads ] less and Bio Revolution makes more potassium available for plant uptake. Is it not the case that less of Verde's potash could be used per tonne of KCl than the current 6:1 ratio? The answer for this question is potentially, yes. We -- when you listen to some of the testimonials on our website, there's a lot of [ an adopto ] evidence towards that. Some of the trials, they suggest this might be the case. However, for the time being, we are staying away of the very complex situation where you're telling farmers to apply less nutrients per hectare because you have a greater efficiency. A lot of companies have failed phenomenally badly in the last few years by trying to promote that sort of situation. And because we're not increasing the cost to farmers because in a lot of situations, we can actually reduce that cost, we don't really need to justify that at this stage. The next question. Given the massive budgets of the likes of huge competitors such as Nutrien and Mosaic, can Verde really afford to give money in the form of dividends or do share buybacks? Is this money not needed to compete and stay ahead with new technological development and potentially acquire new projects? We have no intention of acquiring new projects. We believe there's plenty of organic growth to be developed. There's plenty of upside in our current technological portfolio. And addressing the first part of the question about dividends or share buybacks. We believe that as soon as the Board decides there is capital available for that purpose, which wouldn't sacrifice our growth, I'm pretty sure we would be looking at ways to return that money to shareholders. Next question. With the development of Bio Revolution, is there any scope or merit for using the technology, for using this technology as well as developing other new technology for use with any sulfate of potash projects and acquiring them? It's -- yes, there is potential, but it's not ours preference. Let's also remember that sulfate of potash, which is another source of potash, is -- although it doesn't have as much chloride as potassium chloride, it's still a salt. So most probably not the best environment for you to be adding microbes to. Next question, how much can Plant 1 and 2 still expand and by when? I think the short answer is that on the site, we have Plant 1. It's pretty much expanded to as much as we've planned for. And that's the same situation for Plant 2. So the short answer here is on those 2 sites, there is no expectation for expansion. Of course, we do have the other expansion plants which would be executed in different sites. The other question is the products you sold out. No, it hasn't been sold out since we commissioned Plant 2 or since it ramped up. So it's the first time for a change that we have product available for immediate delivery. As you might have seen from the results put out by other players, by other agricultural players with public information, the third quarter, and most likely the fourth quarter of this year, have been some very difficult quarters for fertilizer sales in Brazil. You can see that in the numbers of some of the large producers. Of course, we're an exception in terms of our growth, in terms of our market share, but we were able to grow. This is important to be registered. We were able to grow in a very, very challenging market, both Q3 and Q4, as you've seen from the results and the statements from our -- from the other companies in this space. And they've given plenty of reasons for that situation of why it turned out to be that way. Next question, why is Bio Revolution being sold at a 90% discount? This is a promotion, a deal we offered at the end of year to try to incentivize or -- start incentivized demand in Q4 and Q1, which are always and will always be our slowest quarters given the climate, given the raining season and given the fact most of farmers will not applying for any fertilizer during those quarters. Next question, how much was the price difference between FOB and CIF per tonne in 2022 Q3? If I understood this question correctly, we have $144 as a final price per tonne and FOB $95 per tonne, and apparently, this is on the presentation. The next question, can you please elaborate the sales initiatives discounts you plan to put into place for the next few quarters? And what financial impact those efforts will have on cost profitability? We now have a very big plant with a lot of production capacity, and we have some slow quarters. So we definitely will not be selling at a loss, but we will try to make sure farmers who have demand for products for very specific reasons at those slow months will consider us as potential vendors. And part of that more aggressive strategy will require offering discounts. Especially given the situation you have with potash fertilizers in Brazil, there are record inventories of potash sitting at Brazilian ports. A lot of potash was brought into Brazil during the earlier part of the year with an expectation that there could be a shortage later in the year. This created gigantic inventories. And to give you an idea, some of that inventory is even being reexported to other countries from Brazilian ports, which, I guess, is good news. You are also finding other people willing to raise the price and sucking up some of that bigger inventory. Next question, what's generally the difference between independent sales channels and distributors in terms of how they get compensated for their sales efforts? How is the business split? Which does roughly come from each of those? So there's now with the presentation a slide where we show -- we divide it by direct sales. Those are the ones, of course, our own team will be responsible for, just from a demand generation and then from a relationship point of view. Then we have what we call independent agents. Independent agents, they're responsible for generating the demand. Once the demand is generated, the relationship is looked after by us. And then we have a smaller percentage, which is comprised of distributors who will be buying our product from us and then selling it forward to their own customers. So there is a slide addressing that in detail. I'm quite anxious how the number of questions doesn't stop growing here, but at least the number of people joining our call has increased significantly since we began. For some of you who might be interested, we have nearly 100 people live right now interested in Verde, I'm very thankful. And if you're watching it on YouTube, and you've liked things so far, please do not hesitate to click that like button, this is one way to help us. It's one way to tell Google, this is good content and other likeminded people might also like to hear what we have to say. If you're watching it live and you are among the nearly 100 people here, as soon as this is live, if you remember to go back and hit the like button, this is another way to help making this content more visible to other users. Next question. What do you plan to do to control production costs? What can Plant 2 contribute to lower deals? And which level of production costs should we reasonably model going forward? A couple of good questions here. In terms of cost control, certainly, the fact it's a bigger plant will allow us to dilute some of the fixed costs. The other advantage comes from the fact that we -- with Plant 2, we don't need to transport the product all the way from the mine to the plant where it gets beneficiated. So there is a saving there. And your last question here about what should we reasonably model going forward? I think it's a hard one for us to answer here given the volatility you have on oil prices, the exchange rate. I would suggest you look at all what we've disclosed so far, look at the feasibility studies, look at the oil price, make your own assumptions in terms of the number you would be using. Next question. The prefeasibility study comes with a $27.48 average freight cost estimate across regions. Why do you actual -- why do actual delivery costs differ so much? Taking Q3 2022 total distribution costs divided by tonnes sold CIF, 145, it's $62 approximately, USD 46. There was a range of average freight costs. The fact it's coming higher at $46 will be associated with some of the sales being made further away from where the mine is. The other element here is that the prefeasibility studies was done thinking long term and it's used as a long-term oil price, diesel cost, a higher -- a smaller number to where it is right now. So I don't remember, but it is written on the PFS, what is diesel oil price was considered. But certainly, as a long-term price, smaller than the current price, which we like to believe shouldn't be with us for many more years. Next question. Why do you consider it to be reasonable to use the PFS as a valid reference point for project economics and NAV? It's an independent study, which looked at the market, looked at the reserves, looked at the economics and came up with, and us as well, came up with the project economics. This is very normal for mineral resource companies like ourselves, be it on the minerals or precious metals, to work, to prepare those feasibility studies and which will come with those economics. It's down to us as the management team to do everything we possibly can to develop the assets to its full potential, being always cognizant of the challenge one would face developing such assets and all the risks associated with that. And then it's down to investors to look at all the different assumptions of the market and where the economy is going and where the potentials are, where the risks are and try to come up with their own view in terms of valuations. Next question. Plant 1 was fully operational at December 31, 2021 and had a total cost in the financial statement of $2.1 million with a 600,000 tonne per annum capacity. Plant 2 has 4x the capacity at 2.4 million tonnes but at a cost to September 30, 2022, of about $24 million, which is about 11x the cost of Plant 1. Can you provide details on why Plant 2 capital cost per tonne is almost 3x the cost of Plant 1? I will leave that with Felipe on the details. In terms of the expectation, my expectation is that some of the infrastructure investment for Plant 2 might have gone into that Plant 2 line. Is that what happened, Felipe?

No, I have some factors here. The Plant 1 was built maybe from 2018, '19 that most of the expenses made there and the infrastructure inflation in Brazil in the last 3 years like iron, like other very relevant items to build anything, the inflation was like higher than 150% or 200%. This is one point that has this impact. And also, we can say that some types of equipments also in Plant 2, we do expect to have less maintenance expenses then. They were purchased from the first, let's say, like first-line supplier. Within the Plant 1, we used new equipment like we purchased used equipment as well. The Plant 2 just had brand new ones. So some of this also had this impact and the expectation is to recover this investment really fast with a lower cost per tonne and lower maintenance, lower time with, yes, like I said, maintenance and all. That's the key points.

Building Plant 1 was very high risk. We couldn't fund it in a more conventional way. I think some of you will remember that you borrowed money to build that Plant 1. I had to sign as a guarantor of the debt given the high risk they saw associated with the business at a very early stage. And we did everything one could possibly be doing to save CapEx. As Felipe said, we bought a bunch of secondhand equipment. We used not the best suppliers for a lot of the stuff, and we did do a lot of the work in terms of infrastructure. For Plant 2, we did it a bit better. So we -- it's 2 very different plants if you visit them from our point of view. And as Felipe said, what we expect as a result is a lower operating cost because we would expect lower maintenance. For example, to give you an idea, the sheds for storage, the first one is made of just simple brick, simple tiles. The other one is made of proper concrete, the foundations as well. So there's a lot of stuff that was done properly on Plant 2, which wasn't necessarily the case because we didn't have the capital available back then on Plant 1. And now going back and fixing it just doesn't make a lot of sense. Next question. Has Verde locked in sales volume for 2023? Yes. What portion of 2023 volumes have been preserved? We haven't disclosed that, but not a huge amount. Next question. Please provide an update on U.S. listing. This is still expected to happen? Yes, we expect it to happen and hopefully, around the time when I turn 42 years old. Any new partnerships on the horizon potentially? Other question. Given that Verde's turning farm soil with a natural product, do you see any potential synergies for Verde and farmers to generate some credits in the future? Yes, we do. We've kind of started to work towards that. Next question regarding the gross profit. It seems the figures deviate from the feasibility study. Do you think gross profit will trend back to feasibility study plan? As I said, the feasibility study is based on a much lower diesel price. It's different to the big spike we've seen now. That also answers the second part of the question about the transportation costs. Next question. Please [ describe the ] relationship with Lula and the impact that may have on Verde's growth. Brazil is an established democracy with a very professional civil servant [ sphere ] mostly of government, which is what we've been working with throughout nearly 2 decades now throughout 5 different presidents. And I think the only 2 certainties when it comes to politics, is one certainty is that those civil servants will probably most of them still be there whenever we have a new president and likewise, we hope we're still going to be there. Next question. If you have benefit from price, what is your outlook for pricing? I like to plan for the worst and hope for the best. So we always look at pricing coming back to historical lows from a planning point of view. And if it's anything above that, we're happy with it. So if you look at our prefeasibility study, we've used $360, which is about 10% less than the long-term potash price, which has been used by a lot of the analysts. Another question. When are you going to migrate from Pink Sheets -- lots of questions about the U.S. Hopefully, we can have news on that shortly. If you can transfer the inflation, oh that's a good question. Do you transfer the inflation of costs to farmers? Yes, we've done it so far, given the appreciation of fertilizer prices. Can you discuss how sensitive Verde is to inflation? [Audio Gap]

Cristiano, we lost your last minute. We lost when you said, do you discuss how sensitive Verde is to inflation?

Okay. Thank you, Felipe. Is it better now? Can you hear me now?

Yes. Yes. It's good.

Talking about inflation. Usually, when you have inflation, it also impacts food prices and fertilizers are directly priced according to where food prices are. So historically, every time food prices went up, we saw fertilizers price going up. So to that extent, we believe we are hedged. Next question. Your cash cost per tonne went up considerably in the equivalent of $200 per tonne KCl. Do you expect that Plant 2 will reduce production costs? Yes, for all those reasons I've mentioned. Next question. Can you discuss how are you thinking about your future production development between now, 3 million tonnes, and 10 plus 3? Will development be staggered? Example, 2022 to 2023, plus 5? Or is the development of plus 10 million in 2025? We don't know yet. We're still trying to figure out what the size of the next plant is going to be. We did not hear you answering the granulation. The Zoom was stuck. So thanks for the feedback. The answer about granulation was to say that we will granulate the product when we feel like we can no longer sell a powdered version of the product as fast as we've been able to. Until we get to this point, we see little incentive for making that capital expenditure investment on a granulation plant. But as we grow, certainly that point will come. The question is -- another question, does NPK have in multi expectations, sales volume through their network? Second question, what percentage of the last quarter sales were from repeat customers versus new ones? So the answer to the first question, we don't have a breakdown. We -- of what we expect from in terms of sales and what would come from a network. We didn't sit down to try to discuss that. We're really looking to grow the pie, be it via direct sales or via distributors. So far, as you can see from our -- from the presentation, we've been much more successful selling the product ourselves rather than through third parties. So for next year, it's going to be different. It's going to be the first year we have a significant distributor also selling the product. Second question here, the percentage of sales which were repeat customers versus new ones? I don't know the number, but there is a lot of repeat customers. Can you share what is the current situation with Russian potash and the possible impact of Russia taxing local potash and Brazil's supply? The current situation is that there's lots of Russian potash making its way to Brazil. There's absolutely no restriction whatsoever on imported Russian potash and the unavoidable impact of Russia taxing potash is for the cost of Russian potash supply is going up. And that will certainly be transferred to Brazilian farmers. How has the reception of Bio Revolution been so far? Excellent, a lot of interest as people get to learn more about Bacillus aryabhattai, about the benefits. It's going really well. And has it contributed to overall sales materially? No. The answer is no. We're not that stage yet, especially because a lot of the sales that were supposed to be delivered and were delivered in Q3 and some of it in Q4 this year that had already been made even before Bio Revolution got to a broader distribution and people became aware of it. The next question, since diesel is one of your biggest costs, do you have any strategy in place to change to cheaper transportation? Well, the alternative would be rail. It's something we have something going on there, but not for the very short term. At our prefeasibility study, as a very long-term scenario, at 50 million tonnes, it's based on, or a lot of it, on rail transportation. Next question, how has the situation with regard to the potash glut in Brazil ports being changed recently, have you seen that being worked through in the recent months? I'm going to be next week visiting some of those fertilizer blenders. So I'm going to have more like on the ground detail and be on a port looking at what the situation is with my own eyes, but what I've heard through the industry is that there's still a lot in ports. How are customer relations when you had to cancel Q3 deliveries? Oh, that's a good question. How are customer relations when you have to cancel Q3 deliveries. Did you receive cancellations? What proportion are accepting their deliveries now? That's a very good question. It was a bloody nightmare. It was very embarrassing to have to go and cancel the level of tonnage as unfortunately, we did. We will have that figure disclosed in detail when we have Q4 results out, but it's greater than 100,000 tonnes, unfortunately, all the products that we have to cancel deliveries because we couldn't fulfill deliveries when they were supposed to. And the farmers doesn't have a choice. If it goes beyond the planting, they have to -- they can't take the product anymore. We're still working very hard to achieve our guidance. So I'm not saying that as -- don't read what I'm not saying -- and I'm not saying we're not going to hit our guidance. We're working very hard, still believe we can be achieving it. Obviously, we're having to make up for over 100,000 tonnes of cancellation already. Can we have some details on the Lavoro deal? When does it come into effect? I've not seen the project on their website thus far. It's something being planned for next year. There are -- Lavoro is a bit of a conglomerate. They operate with business of different independent retailers they bought over the years. Each one is still managed to a certain extent independently, which is requiring a lot of effort from us going from shop to shop, going from business structure to business structure. So that process is on the way. And I just look at the situation. It's a very good question. So I look at the situation, and I just feel very proud about our own sales team and about the phenomenal job our own sales team has done growing from less than 5,000 tonnes to hopefully beyond 700,000 tonnes this year. And very important, and this is something else people don't appreciate. We don't have a single person on the field, 100% of our internal sales are done inside sales, digital marketing and that's what has allowed us to grow so quick in such a short period of time with very small investment. Usually, companies to achieve similar type of growth, they will end up having to have hundreds of salespeople in the field, and you can see that from the financial results published by those distributors which are not public companies. You can go online and see how that sort of requirement really hurts their economics. So very proud of our team and how they've been able to succeed in a very innovative way when it comes to selling products to farmers and especially selling products, which are -- which are novelty, innovative products rather than just selling a commodity to a farmer who would already be very familiar with. What's your view for 2030? How many million tonnes per year you want to process at that time? I have big expectations. I put it this way. Who audits the company accounts? It's a British firm called PKF that has been auditing us since 2007. Have you looked further into carbon credits for your product? The incoming government seems keen to support that. Just before -- on the previous question here about audit. As an exploration company, as a predevelopment company, we stayed away from the very big costs of a Big 4 accountants, a Big 4 auditor. However, going forward now as the medium to large-sized company we'll becoming, we are starting a competitive process to choose between 1 of the Big 4 to be auditing us in 2023. So we will be receiving proposals. And once we select one of those big companies, we will be presenting that in the next shareholders' meeting that we'll vote to approve any change of auditors to one of the Big 4, so you can look up for that in the coming months. Next question, have you looked further into carbon capture credits for your product? The incoming government seems keen to support that. Has there been any contact with the incoming government, given their acknowledgment that Brazil should reduce for a lot some imported potash? Yes, we're very keen to keep developing. There's something, there's an initiative going on. We hope to report that in the [Audio Gap] that's working on the [indiscernible].

Sorry, we lost your last 30 seconds. You ended, how many tonnes of chlorine have been avoided, right?

Say that again, Felipe?

You are in the question. We lost last 30 seconds, and you say we heard until how many tonnes of chlorine have been avoided by farmers using Verde AgriTech products. This question there from [Hodge].

I haven't been -- I haven't even answered this question yet. I was on the previous question about carbon credits.

We lost the last 30 seconds.

All right. No worries. So the carbon -- thanks for letting me know. So the carbon credit is something we're looking into. It's something we expect to be able to update the market in the coming months. In terms of the new government, which is the second part of the question here, the government is dealing with some big issues at the moment, the new government, with the transition and some big budget issues. The team that's going to be looking at agriculture was just announced yesterday, and we hope to engage with them at the right time. How many tonnes of chlorine have been avoided by farmers using Verde AgriTech product? Excellent question. It is on our presentation, the answer. Are you still working on a U.S. listing? Yes. When do you anticipate to receive outstanding permits? I don't know. What is your birthday? 16th of January. Thank you. Have you considered licensing technology to other markets where Verde's product is not expected to be sold? We've considered, but we're just too busy with what we're doing now and really focusing on the Brazilian market. What will the granulation plant cost? It depends on the capacity. It depends on technology. That's something we have invested and carry on investing over the years in terms of coming up with what would be the cheapest way to do that. When you look at the granulation, the 2 big costs. The first one is removing water because we need to add some sort of moisture to granulate the plant. So drawing off that moisture is a big cost. And the other challenge -- or the other costs you have is by adding additives, which increase the strength -- the hardness of your granulate. I've been working for years now with the view or with the purpose or with the challenge to be able to granulate the product without the need to drive off the material and without the need to add binding strength because at times, because we didn't need to grow the granulation plant at -- right now, we have time and we keep working on it. And the results are very encouraging. Next question. I take a point about granulation, but what about the farmers who won't buy powdered but would buy granular? Yes, we haven't been able to supply to those farmers yet, but that also hasn't stopped us growing as fast as we've been growing. Can you share the impact of global natural gas prices on competitive potash production as an indirect impact on the attractive of Verde? There is very little need for any sort of heating using natural gas. So I think this impact of natural gas price going up on potash has been very low. It's more with nitrogen fertilizers, which also impacts phosphate supply chain. There are some questions here, which I probably should skip. Why does your sales website still say sold out when you have capacity available? I don't know which website that is, but it shouldn't [ indicate ] sold out. Can you please give some details on the Morgan Stanley Conference? Morgan Stanley Conference in Boston last year wasn't as busy as I guess we all wish it was. But nevertheless, there were some very interesting institution investors I could meet. One, I've known for a long number of years, which is based in Boston, which I had an interesting good update call and some other new ones I met. Is the permitting delays due to finalizing the plans for the next plant or due to government delays? I would say it's neither of them. I wouldn't even call it a permitting delay. I would only call it a permitting delay if there was -- if that was restricting our production capacity, which isn't the case. At the time, right now, we're fully permitted to produce around 3 million tonnes and I'm confident that whenever we exceed the market demand for 3 million tonnes, we're equally going to be able to have the required permits to go above 3 million tonnes. And the last question, how much stock can you pile up as inventory in the warehouse of a conglomerate distributor or your own warehouses in Q4 and Q1 for sales in Q3? Distributors will not be taking our inventory; doesn't make any sense. It's a bulk material. You need to move it directly to farmers. Our warehouses can store about 15,000 tonnes of product. And when it comes to capital allocation and production, it's much cheaper for you to have excess production capacity than it is for you to produce and stock product. It's cheaper to have more -- or to have -- to buy the equipment for production than it is to maneuver in by storage facilities. So thank you. Oh I see -- so my question regarding sold-out sign is about the website [ larger.vag.ag ]. This website isn't operational. We have a new website, which is in construction and should be available very, very soon. Ladies and gentlemen, thank you very much for your interest. That completes all the questions we received both via e-mail and via the chat option. It's the last time we're going to be talking in 2022. I would like to say it has been a very [Audio Gap] year. I am very proud, as I said, with all the work carried out by our team in Brazil. I think we've achieved a lot. When we were faced with a challenge, I think we were quick to address it and grow from it. I see ourselves in a very strong position for the following year. It will be the first time in our history where we will have significant production capacity far beyond what we historically had. So it will be very interesting. It will also be the first year where we will have a team which will be more trained. So different to 2022 and 2021, when we were hiring dozens and dozens of people as demand was growing and training people for 2023. The team is there. The team is formed. If we need to hire more people, we'll be in very specific positions and replacement. So there should be very limited hiring in 2023. The team we already have in place is more than capable, in our view, of supplying the 3 million tonnes production capacity we currently have. We're very encouraged by the results our farmers are getting. And you will see a lot of those into the testimonials we have shared in the last little while. If you go to the website on the YouTube channel in Portuguese, they are close to 100 testimonials. We will be translating most of those testimonies, perhaps all of those testimonials to English and making them equally available. For 2023, it is going to be the first year we will have a large distributor working alongside ourselves. It will be interesting to see how much that will potentially translate into more sales. And overall, I'm very excited, I'm very excited. It's farmers in Brazil, they remain bullish. They remain bullish about expanding their business. They remain bullish about commodities, about feeding the world. No doubt the world recognition about the importance of increased sustainability in agriculture is something that has been helping us and the thesis that I believe will carry on allowing more people to understand the importance of what we're doing and importance what you are doing as investors to be supporting us. And I think that said, I look forward to talking to you very soon in the new year with a lot of good news and in the meantime. We'll be busy. It will be very busy for us. We should be keeping up our pace in terms of taking the market as we've been, with something every week or every other week. There's a lot. We're working very hard to write press releases and get them approved by the Board and approve the reviews and should be updating them, putting them out as soon as possible. There's some interest stuff coming up. And yes, I guess, I could talk because I like to talking to you guys. And if you're watching it live, I hope you've collected the slide, but if not, please do it now. And with no more words, thank you very much. See you guys all very soon. Bye-bye.