Verde AgriTech Limited (NPK) Earnings Call Transcript & Summary

Hi, everyone. My name is Cristiano Veloso. I am the Founder and CEO of Verde AgriTech. I would like to thank you for joining our very first online Investor Day. It has been -- it has taken us quite a while to put one of those together and we hope to be making them a little bit more often from now onwards. On today's very special Investors Day, we shall be introducing our 3 new recruits. Our 3 new senior executives who have joined Verde in the last couple of months. We're going to allow Gilson Guardiero, Newton Nagumo and Lucas Brown to present themselves to you, to explain a little bit about what they're focusing on for the next few weeks and months ahead and I hope you all enjoy it. If you're watching it online, thank you for your interest. Please make sure you click that like button. That's how you're going to tell YouTube that other people like you might be interested in this content. If you know anyone who might be interested in this presentation as well, please do share this presentation and help us spreading our developments to other like-minded investors, to other like-minded stakeholders. So we've received several questions ahead of this conference call. I would like to thank you all for sending those questions. Over the weekend, we went through the questions, we review -- revised the presentation. We made sure if not all, most of those questions would be addressed throughout the presentation. If at the end of the presentation, you feel like you have other questions or you would like some further clarification on your question, please make sure you contact us so you can -- please make sure you contact us so you can -- we can definitely answer. So starting the presentation today. We can go to the next slide. I would like to remind you that today's presentation contains forward-looking statements, and the actual results might be different to the ones we expected. I would also would like to remind you that we take a very long-term view to the development of the company. We are working hard right now to make the future results a reality without, of course, forgetting how important it is -- the results also we are going to be delivering in the short term. But when we look at new technologies, when we look at new products, when we look at the market development, we're most certainly taking a long-term view. Next slide. The agenda for today's presentation, I will provide a very quick update on the market. I will remind you all of what it has been like operating in the last -- over the last few months in this very atypical year. Then i'll introduced our new management structure with the addition of our 3 new highest. Then Felipe will talk a little bit more in detail about what's happening specifically with exchange rates, with potash prices, exchange rates and we'll show 2 cash flow projections of 2 different scenarios, then Gilson will introduce himself. We'll talk a little bit about our strategy for delivering on the guidance of this year where we're working hard to trying to achieve for the last quarter of this year as well as what we hope to be accomplishing next year and the following year. After Gilson, we will have Newton Nagumo talking to us about not just his trajectory, but about how he is restructuring our marketing department. His ideas, his vision for how we are going to be positioning ourselves and what we can expect from Verde and its marketing efforts for the coming months. And then finally, we will have Lucas Brown again, talking about his background and why he joined Verde, what he saw as an upside. He's going to be talking both about carbon offsetting and carbon insetting 2 different terms. You will hear a lot about in the coming years, but we are already working hard on it and also how we hope to improve our investors -- our Investor Relations efforts now that our management team has been augmented with the new hires. Next slide, please. From -- a bit of an update, okay. What you can see from the slide is the good news. But let me remind you about what has happened in the last few months. Last year, we had record prices for food, soybeans, corn, but we equally have record prices for all agricultural imports, fertilizers, seeds [ indiscernible ] equipment, everything, all those prices went through the roof. What most farmers did last year in a very bullish scenario was to buy all of those very expensive inputs. And they kept looking with an expectation of the price of the agricultural commodities they produce with a strong expectation that those prices will also go up. So last year, most farmers did very little hedging, very little hedging. By hedging, I mean, lots of farmers, they will sell before they even plant the commodities they will produce let's say corn, they will realize some prices now at least to cover their costs. But last year, because they were so bullish about where prices could move towards, lots of farmers didn't do that. They expected prices to keep going up. What happened unfortunately as last year progressed, and what really intensified in the first half of this year was that agricultural commodity prices kept crushing, kept reducing. So you had the worst-case scenario possible for farmers. They had generated debt. They have bought imports at higher price. They didn't hedge. And when it came to the point when they had to pay back the imports, most farmers buy with 6 to 9 months to repay. When it came to the point in time when they have to repay it, the price of their products had crashed. So they had throughout this year, a cash flow squeeze, they struggled a lot of them struggled to be able to pay their bills. As a result, the level or the number of farmers that failed to pay back their debts skyrocketed throughout this year. Farmers who were able to buy, they had cash squeeze issues, so they didn't have much choice in terms of what products, they could or they couldn't buy, and it was a very difficult year. It was very -- it was and it has been a very difficult year. If you look at other public companies in Brazil, operating in this space, if you look at the financials, look at the results, the updates, you will see how terrible the situation has been. And this is the bad news. The good news is things have now or they seem to have stabilized. So we are seeing agricultural commodity prices are either plateauing or slightly recovering. Interest rates in Brazil have come down, and we have better expectations for the coming months. Also, very importantly, farmers were far more conservative this year. So they hedged more of their future sales. So they reduced their risks. So it all suggests that when it comes next year, we most certainly will not be seeing that sort of cash squeeze. Very atypical we saw this year, and the market will come back to normality. So don't take it just from me sharing that. It's what the players in the space are talking. This is what happened. Everyone is looking at this year as a very terrible year which followed -- which happened after a near last year, which was completely atypical year. And now we expect for the next year to go back to a certain normality. So after this brief summary on last year, on what we see happening in the market, expectations for next year. Let me introduce very briefly here how the structure -- what this structure will look like going forward. So we will have Lucas managing the carbon projects as well as our Investor Relations effort and Institutional Relations. We will have Felipe carrying on over same mining operations and admin. Gilson, as our Chief Revenue Officer, will look after our sales team, our technical team and our R&D. And then finally, Newton Nagumo, who will be responsible for marketing. So with no further ado, in the next slide, I would like to let Felipe go over the financials very quickly, talk about those projections. And after Felipe, who you're all very familiar with already, after we finish that, I will briefly introduce Gilson, and he will present our sales strategy. So Felipe, please go ahead.

Thank you, Cristiano. Thanks, everyone, for joining. First, I'd just like to introduce myself. My name is Felipe Paolucci. I'm Chief Financial Officer of Verde AgriTech. I've been working at Verde since February 2019, almost 5 years then. And a bit on my background. The beginning of my career, I've worked for -- as an auditor for Deloitte, which is one of the big 4 companies in the world, on this matter and also as the finance planning at Unilever. After this, I had an experience at Arista, which is now UPL. A very big multinational company in the Agro chemical sector for around 10 years. On this role, I took responsibly as finance planning, logistics, procurement and factory planning. So this is a bit on my background. So please let's move on the next chart. Thanks. A bit on the Brazilian economic scenario, the first one that I bring to share with you is related to our Brazilian Selic interest rate. I'm not sure everyone is familiar with this, but Selic is the base interest tax defined by the Brazilian government, and this is used as referenced by the banks to set loan interest rates. So this is quite important input for us at this point since we do have loans to be paid in the coming years. And I will go a bit more in detail in the next chart. But say talking -- no, just come back to this, please. But talking a bit about on the Selic rate. We can see that we had a decrease from 13.75% to 12.75% in the last 2 months or 3 months. And we do have a projection scenario for a decrease in this rate as well to 9% in 2024 and then 8.5% in 2025 and '26. One important assumptions and highlights that I believe as well is that considering this reduction that the market analysis are predicting. And you can see that just for 2024 for example, it would bring to us an additional savings of $1.1 million on interest expenses. And if you take a look at the next 3 years, it could be up to $2.7 million savings on interest expenses. So this is a quite important input that hopefully it happens. So it seems that it's going to be true in the next months. The second chart on the assumptions based on currency exchange, it's another very relevant input for us. How the KCL sold in Brazil. [ Artis ] based in U.S. dollars. It's important from Russia, Canada, Belarus and other countries. And we do have a relevant impact once the Brazilian Real gets stronger or weaker. We saw in the last 2 months that we had a decrease in around 6% in Brazilian Real against U.S. dollars, which means that Brazilian Real was weaker. And then I've made a necessity analysis scenario that demonstrates that, for example, if we do have 5% [ indiscernible ] in U.S. dollars against Brazil Real, it could bring to us $3 million to $4 million upside or downside the opposite way. Going to the next chart, we can see a bit on potassium chloride price as well another very relevant input for the company. We can see in the chart on the right side of that screen, a decrease since July last year for over $900 CFR price to $350 is the current price for the potash. This price remains stable in the last 45 to 60 days. And we are doing and considering in our projections, this value of interest rate, the current interest rate, the current potassium chloride price and the current effects. So these are the key points that will help to support the analysis I'm going to show in the next chart, please, [ indiscernible ]. Now we can see a financial projection. It's not 2023, but full year projects, it could be next year and 2025. But in a full year scenario where you can see 1.2 million tonnes in the left column and 3 million tonnes in the right column, we can see that the company would be delivering on a [ digital ] perspective, close to $32 million in the 1.2 scenario and $108 million in the 3 million scenario. But why we chose these 2 scenarios? Because the first we do not need additional CapEx to achieve both scenarios. And of course, you are assuming that the growth will not happen just once. So our current capacity in the factory can deliver this 3.0 million tonnes per year without relevant investment. So this was why we chose both scenarios. And you can see in the terms of earnings per share that both scenarios would deliver from $0.36 per share up to $1.26 in the 3 million scenario. And also just to highlight the key assumptions we are using the current market assumptions, which is Canadian dollar 3.7. PCL price at $350, as I said before. Crude oil at $90 per barrel. Some important information related to mix that it's important to highlight here as well. Sales channel mix and also CIF against FOB. Well, these are -- this is the key projections we are showing today. And then I'll demonstrate a bit on the sensitive table where we can see what happens if KCL and crude oil price goes down to 10% or goes up 10%. We do can see that even in the 1.2 scenario, if KCL price decreased 10% and crude oil increased 10%, we would be delivering an EBITDA of $16.7 million. And also our net cash generation in the end of the year or period of 4.4. So it goes from 4.4 to 91 or [ indiscernible ] the same $16.7 million $147 million. So this 10% has a very significant impact in our business. [ indiscernible ] next one, please. Yes. Cristiano, I'll move forward to you, and then at the end I would like to share as well as chart related to [ indiscernible ].

Yes. Okay. So now I would like to introduce Gilson Guardiero. Gilson, please go ahead.

Thank you, Cristiano. So I'd like to introduce -- I'm Chief Revenue Officer. So I'm a renowned engineer over 20 years of experience in Brazil, our business with NBA in financial [ control ], agriculture and strategic leadership. So I have some good experience in my career as the technical manager for national operation at [indiscernible], it's a Brazilian company and was responsible for the developing lines of special products, including one of the best sellers products up to date. It was a very important work in that moment to groove the sales products to sales products -- special sales products. So we start to 1.3 million tonnes to at 2.17 million tonnes in 2 years was a very good work with increase in revenues of $380 million to the company. So as -- in an another experience, It was as commercial manager at TIMAC AGRO. I was recognized as to have been in the region managed with the Brazilian. Highest growth in revenue in 5 years was very important to the company, starting from $680,000 in 2013 to $9.5 million in 2018. So recognized -- sorry, okay. Recognized for the creation of other -- it was a very important product in that moment to create a project to the forest product, open paper director of the open paper. In 2 years, we achieved revenues of $2.5 million. It was very important too. and my last work was in Kimtech. I was the Director of Kimtech and I structured the company in Brazil in the last 3 years. So we reached important results, increasing revenues from $1 million to $15 million in the 30 year of work. So that's a part of my experience. Next, here, we will talk about the Q4. Our strategy for Q4, please. Next. So the first point here is the customer portfolio. We have -- there is 779 clients who bought Verde's product in Q4 since 2021. So they have a potential of 3.5 million tonnes of products. So this is -- we are working very hard in this portfolio to reach our objectives with this kind of clients. Very important. We are looking at the [ K1 ] '24 too. So we have here 384 clients who bought Verde's products in Q1 since 2021. So they have a potential of purchase of 1 million tonnes. So this is another important job and part of the work that we have, we are doing in this moment. So the primary focus too is the top 100 clients in the company's portfolio, with 1.2 million tons of purchase potential. So at this moment, we are focusing in Q4, Q1, especially in 100 clients in our portfolio. The targeting the major enterprise for us is very important because in this moment, we have 2 big crops this moment to sell products or these crops, those crops. One is pulp and paper and sugarcane, important crops in Brazil. For example, we -- for us, it's very good to this kind of markets because they are closing us in our factory. So, we have optimal -- we can optimal logistics is very important for us. In [indiscernible] states and surround areas, open paper and reforestation, we have 4 million hectares. So it's very important in potential of 10 million tons of products. And similarly, for sugarcane, we have set 7 million hectares in [ indiscernible ] and adjacent states. So with a potential 10 million tons of products. That is very important for us too. Next. We work very hard with team [ indiscernible ]. And this moment achieved more specialization, we've established and it's solely dedicated to recuring new sales. Here, we have some important people, important professionals, direct -- working direct to new sales specialists in new sales. So it's very important. Account Manager division, so we have 8 sales executives with increasing purchase order among our existing client farmers. This team will transition from home of inside sales to fuel sales road. This is a very important point because we -- the most of the people, our employees are the sales -- was at home office work because the moment was good for that. But now we are put in our team in the field to reach more clients and opportunities. Then another point, Partnership and Manager division. Here, we have 15 sales executives inside this team [ indiscernible ] ties with sales partners and drive new sales via partners outlet. So presenting purchase potential of 2 million tons of products. So we have a big potentials, sales and good opportunities. Next, in '24, our strategy to achieve 1.2 million tons. I will talk about it. So commercial strategy to achieve. The first one is partner client portfolio. Here with our team in the field. It's -- we wanted to be close to the partners to be to have different work with them, such as commercial agreement, technical, commercial visitings, training, fields event, marketing through regional [indiscernible] manager teams. Because we will reach more than 10,000 clients in Partners portfolio with 2.5 million tons of purchase potential. So this is a point, a different point that we are looking for this kind of work. Report change is very important for us because in our portfolio we have some database, which has potential of 1.3 million tonnes. These special clients and 8.3 million tons, just the private clients, the biggest clients. So the potential is very high. In our objective to reaching 12% of this potential to achieve our goals. So -- because the potential is very high. So with only 12% is possible to achieve our growth. And for '24, one situation in Brazil, we are following the microbiological products or microbial products. So this is a very important market in Brazil. It's growing very fast every year. And the, for example, the expectation of this year is $700 million to $20 million to $1 billion in '25. So -- we have some studies and some works through the microbiological products. And we will continue to invest in the biological technologies for the fertilizer through bio revolution. Bio Revolution is the name of our technology. So the company has capacity to produce up to 600,000 tons of fertilizer with this kind of technology. So we will grow or produce this month in 2024. Another point is B2B. B2B because an important market in Brazil is for organomineral. Organomineral is a very important market because we introduce organic products mix with fertilizing, in fertilizer and they are growing 30% per year in Brazil. We've estimated revenues $5.2 billion in '23 and $9 billion in '25. So it's an important market. We are working to have some 16 companies in our portfolio sales since '21. And we want to participate more this kind of market and gaining experiencing in '24 for sales partners to open new opportunities. Another important market that we will reach is organic [ indiscernible ] market. The organic market in Brazil grew 30% in '23 and we estimated revenue for '23 -- I'm sorry, '25, $1.4 billion. So it's very important crop. In the main crops that is growing very fast is sugarcane, orange and coffee. These 3 areas of organic key products, organic key areas, more than 1,000 hectares -- 100,000 hectares. With an estimate potential 200,000 tons of our fertilizer. So it's another important market. Next, please. For '25 commercial strategy to achieve million tons of sales. So we are focusing in our technologies. We have some technology like 3D Alliance, Micro S technology and keeper and the others. And we are trying to put more add value to reduce the limitation of logistics. Can you put again the presentation? Okay. Now so this is important to our logistics and to be more competitive against the commodities. So this -- one of the strategies that we will use in '25. Next, B2B or Organomineral, we talk about it, and we are capitalizing on the knowledge and the relationship we've gained in '24 for a sales part and to open new opportunities. There are -- there's 175 registered companies of organic mineral in Brazil. So we are working only with 16 now. So this is a big market that we want to reach. And Bio Revolution, as we said about the partnership and technology development in biologicals to increase the number of microorganism fertilizer especially to combat pest and soil disease. So we are looking for some microorganisms, technologies or possibilities to create new opportunity for this kind of market. That's it. Thank you.

Thank you very much, Gilson. Newton, please go ahead.