fertilizantes heringer s.a. · sugarcane others forest coffee corn soybeans 26.3% 28.5% 34.7% 2.0%...
TRANSCRIPT
Fertilizantes Heringer S.A.
1Q08 Results May 15th, 2008
Dalton Carlos Heringer - CEO and Board of Directors Member
Jaime Rebelo - CFO and Investor Relation Officer
2
Disclaimer
This presentation may include forward-looking statements about future events or results in
accordance with Brazilian and international regulations governing stock markets. Such
statements are based on assumptions and analyses made by the Company based on its
experience, the economic climate, on market conditions and expected future events, many of
which are beyond the Company’s control. Important factors that can lead to significant
differences between actual results and these forward-looking statements include the
Company's business strategy, economic conditions in Brazil and abroad, technology,
financial strategy, developments in the fertilizer industry, financial market conditions,
uncertainty regarding the results of the Company’s future operations, plans, objectives,
expectations, intentions, and other factors described in the item "Risk Factors" of the IPO
Prospectus filed with the Brazilian Securities and Exchange Commission (CVM). As a result
of these factors, the Company’s actual results may differ substantially from those expressed
or implied in the forward-looking statements.
The Company is currently in process of reviewing the full impact of the new regulation
issued on Dec 28, 2007 establishing some BRGAAP changes. CVM has communicated to the
market that the accounting standards adopted by the IASB are the international accounting
standards reference. Company has contracted external services to ensure a full
implementation of these new requirements in compliance to both, BRGAAP and IFRS. Also,
the Company has decided to issue its 2008 Financial Statements under the IFRS instead of in
2009 as required by the “Novo Mercado” rules.
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Agenda
Highlights of the period
• Market share and Sales per Crop
• Growth in the Number of Clients
• Specialty Products
Financial Results• Gross Revenue and Sales Volume
• Gross Profit
• SG&A Expenses
• EBITDA and ROIC
• Net Income and ROIC
• Working Capital and Cash Flow
Market and Outlook for 2008• Raw Material
• Commodities
• Market overview
• Seasonality
4
Highlights: Volume rose 30% in 1Q08 compared to 1Q07
Market Share reached 13.9% in 1Q08
Heringer’s Sales per Crop – thousand tonnes
The majority of 1Q08 growth came from corn and soybeans. The share of sugarcane in the crop mix declined,
since the sugarcane planted area expanded by less than 1Q07.
Σ 583.4
Σ 756.7
25% 26% 6% 21% 20% 2%
17% 23% 7% 21% 24% 8%
+30%
Market grew 18% in
1Q08.
Heringer grew 30%
• New mixing
facilities in regions
recently entered
Sugarcane Others SoybeansForest CornCoffee
26.3%
28.5%
34.7%
2.0%
8.5%
Brazilian Fertilizer Consumption
per region in 1Q08:
Brazilian Market: 5,426 K tons in 1Q08 vs. 4,601 K tons in 1Q07
06 07
+ 120 BP
Market Share grew from 12.7% to 13.9% in 1Q08
+ 150 BP
07 08Source: ANDA
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Highlights: The Number of Clients rose 30% in 1Q08 compared to 1Q07
Σ 10,384
Σ 13,524
Σ 27,488
Σ 31,057
Growth in the Number of Clients
Continuous growth in the
client base due to the
company´s expansion
specially in regions more
recently entered.
Strengthing of our client base
for sustainable growth in the
coming years
(+ 53%)
(+ 26%)
(+ 48%)
(+ 59%)
1Q08 vs 1Q07
+ 30%
+ 13%
Highlights: Specialty Products grew to 18% of the total sales volume,
versus 15% in the 1Q07
Commodity Specialty
80%
20%
78%
22%
85%
15%
82%
18%
Σ 583Σ 757
Σ 2,461
Σ 3,264 Specialty products
grew above the other
company’s products
average.
Below some of those
products:
+ 55%
+ 25%
+ 30%
+ 49%
+ 29%
+ 33%
(thousand of tonnes)
6
% of Total Volume (1)
Mixed Mineral Fertilizer
with foliage application
Boosts usage of Urea
Micro-nutrients on 100%
of the NPK granules
(1) Measurement criterion changed from gross revenue to volume delivered basis. Per previous criterion, specialty products
accounted 18% in 2006
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Agenda
Highlights of the period
• Market share and Sales per Crop
• Growth in the Number of Clients
• Specialty Products
Financial Results• Gross Revenue and Sales Volume
• Gross Profit
• SG&A Expenses
• EBITDA and ROIC
• Net Income and ROIC
• Working Capital and Cash Flow
Market and Outlook for 2008• Raw Material
• Commodities
• Market overview
• Seasonality
8
Financial Results: Gross Revenue and Sales Volume
Gross Revenue (R$MM)
+ 11%
Sales Volume (thousands of tonnes)
Average sales price rose 40% in
the 1Q08 compared to the 1Q07,
and 16% to the 4Q07.
Price pushed by raw material
increases
Volume:
Probable seasonality pattern
change, from 38% in the 1H07 to
approximately 41% in the 1H08.
2,305
+ 81%
-20%
8
22,767
Brazilian
Market20,195 20,982 4,601 5,426
Source: ANDA
24,609
- 11% + 4% + 17%
2004 2005 2006 2007 1Q07 1Q08
3,264
+ 30%
+ 33%
+ 23%-9%
+ 18%
+ 59%
2008 Seasonality
Note : In order to better demonstrate its effective operational margins, the company is presenting the Gross Profit and EBITDA reclassified by the
FX Gain on a “Pro forma” basis. This reclassified Gain is associated with the effective inventories sold during the period which is currently
booked, under the BRGAAP, in the Financial Income and Expenses line – below EBITDA line 9
Gross Profit (R$ MM) and Margin (% NR) – Adjusted
Financial Result Gross Profit and Margin – After the FX gain
reclassification
“Pro forma” reclassificationAfter “Pro forma” reclassification
+ 75%
+ 66%
11.0% 12.1% 13.9% 12.7%%NR
Option for the strategy of
using good purchase
opportunities to bring forward
inventory in 4Q07, allowing
for an increase in
competitiveness given the
substantial hikes in the prices
of fertilizer raw materials
Accounting Margins reflect
the COGS calculated based
on the average acquisition
price, and therefore considers
the prices of the raw materials
acquired in the 1Q08, which
were higher (differently if First
In First Out criterion were
applied)
10
Selling Expenses (R$ MM)
Financial Results: Selling, General and Administrative Expenses
+ 40%
General and Administrative (R$ MM)
+ 19%
+ 27%
+ 38%
2.2% 1.7% 2.0% 1.4%%NR
7.6% 6.6% 6.9% 5.4%%NR
The Selling Expenses rose in
absolute values, but have
been diluted as a percentage
of the Net Revenue.
The SG&A expenses
represented 8.9% of the Net
Revenue in the 1Q07 and
decreased 210 BP reaching to
6.8% in the 1Q08.
-150 BP-100 BP
-50 BP -60 BP
11
EBITDA (R$MM) e EBITDA Margin (%NR)
Financial Results – Adjusted EBITDA and EBITDA Margin
Extraordinary items in 2006 (COFINS/Supplier’s rebate policy changes)
FX “Pro - Forma” reclassificationExtraordinary Item in 2007 (IPO Expenses)
+ 140%
+ 90%
3.7% 5.5% 7.3% 7.7%%NR
The combination of:
- strategy of purchasing
higher volumes in 4Q07,
anticipating the continued
increase in raw materials
- higher sales volume,
especially in regions with
newer operations;
- the dilution of SG&A
expenses,
... Improved the
competitiveness leading
to EBITDA per tonne of
approximately R$ 67 in 1Q08,
versus R$ 46 in 1Q07, up
46% against
1Q07 and 22% on 4Q07
ROIC EBITDA – considering SSP
ROIC EBITDA – not considering the investment in the SSP plant/not yet generating income flow
Return on Invested Capital– (ROIC) = adjusted EBITDA, divided by the Average of 2 years invested Capital. Invested Capital is defined as: Total assets less cash and liabilities net of debt.
Note: for ROIC calculation, the import finance loans (FINIMP) are being considered as Working Capital
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Net Income (R$MM) and Net Margin (%NR)
Financial Results: Adjusted Net Income and Net Margin
Extraordinary Items in 2006
Extraordinary Item in 2007
+ 7%
+ 135%
4.0% 2.5% 5.9% 3.5%-3.1%%NR
ROIC Net Profit– considering SSP
3.8%
Net Income was partially affected
by the UNREALIZED foreign
exchange loss: FX Volatility in
late March, drove the FX rate to
close to R$1.75/US$, impacting
the financial result at the end of
March 08. However, the exchange
rate returned to levels below
R$1.70/US$ in April, reversing this
UNREALIZED loss (impact of
approx. R$8 M).
…while Inventories (natural
hedge, partial offset account to
the international accounts
payable), are maintained at
historical acquisition levels until
they are realized/sold.
ROIC: The majority of the IPO
proceeds are allocated in CAPEX
over 2007 and 2008.
Note: for ROIC calculation, the import finance loans (FINIMP) are being considered as Working CapitalReturn on Invested Capital– (ROIC) = adjusted Net Profit, divided by the Average of 2 years invested Capital. Invested Capital is defined as: Total assets less cash and liabilities net of debt.
ROIC Net Profit – not considering the investment in the SSP plant/not yet generating income flow
Financial Results: Working Capital
(1) Inventories Days net of advances from customers13
23 65 19 -8 4 15 15 44 58
-12 -2 -18 -26 -22 1 1 10 0
Working Capital days
Working Capital days(considering FINIMP as
Accts Payable/ Working
Capital
Inventories Days:
- Strategy of higher
inventory volume
purchase to meet demand
on a competitive basis.
Accts. Payable Days:
- Local: Option for up-front
cash payments avoiding
high interest.
- International:
- Import Financing Facility
(FINIMP) as a lower
interest rate alternative to
the ones built into the raw
material prices at term of
the suppliers purchases
(FINIMP is 99% of the ST
Debt – R$ 377,2 MM
77
90
52
35
54
5239
3444
39
92
63
19
51
75
60
5960
93
117
96
62
101112
84
49
46
128
184
133
80
127 126
98
83
104
0
20
40
60
80
100
120
140
160
180
200
1Q06 2Q06 3Q06 4Q06 1Q07 2Q07 3Q07 4Q07 1Q08
Days Accounts Receivable DaysInventories Days (1)Accounts Payable DaysAccounts Payable Days - adjusted by FINIMP
14
Financial Results: Cash Flow (R$ MM)
R$ 60.7 million were generated in the 1Q08
Initial
Cash
Non
Adjusted
EBITDA
Others
Advances
from
Clients
FINIMP - Raw
Material Import
Finance
Units+
SSP+Others
Interest on
Equity
Ending
Cash
Dec/31/07 Mar/31/08
Inventories
Corporate
Taxes
Suppliers
Clients Net
Financial
Result
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Agenda
Highlights of the period
• Market share and Sales per Crop
• Growth in the Number of Clients
• Specialty Products
Financial Results• Gross Revenue and Sales Volume
• Gross Profit
• SG&A Expenses
• EBITDA and ROIC
• Net Income and ROIC
• Working Capital and Cash Flow
Market and Outlook for 2008• Raw Material
• Commodities
• Market overview
• Seasonality
16
Supplying offer continues
tight:
• N,P and K producers
operating close to full
capacity - around or over
90%
• Tight balance between
fertilizer Supply and
Demand
• Brazil’s imports growth in
2007
• Significant increase in raw
material prices – pressure
on the agricultural terms
of trade.
Basic Fertilizers: MAP, TSP and KCL
Nitrogen Fertilizers
Source: The Market
MAP (C&F)
YoY: + 147%
1Q08: + 89%
TSP (FOB)
YoY: + 206%
1Q08: + 118%
KCL (C&F)
YoY: + 134%
1Q08: + 43%
Urea (FOB)
YoY: + 33%
1Q08: + 4%
Nitrate (FOB)
YoY: + 52%
1Q08: - 2%
Sulphate (C&F)
YoY: + 47%
1Q08: - 8%
2007
2007
Market and Outlook for 2008 – Raw Material
Urea in bulk – Yuzhny, Nitrate in bulk – Black sea, Ammonia Sulphate in bulk – Brazil, MAP in bulk – Brazil
TSP in bulk – Africa, Potash – MOP in bulk - Brazil
17
Commodity Prices
80
100
120
140
160
180
200
220
240
260CRB-Reuters Index: Commodities
(jan/2006=100)
Grains: Corn, Soybeans, Wheat
Softs: Coffee, Sugar, Orange
Stock-to-Use Ratio Cereals(1)
On the other hand, the demand
keeps strong:
• Rising Grain Prices
• Global Grain stock reduction
• Few unused potential farmland
in other countries
• Bioenergy programs (ethanol)
• Population and output growth
The expected Brazilian agricultural
income for 2008 is US$ 73.8 billions
(+6.8% considering 2007), the third
highest income in the last 20
years, only behind 2004, when the
exchange rate contributed to
farmer’s income SOURCE: MAPA/BR
Market and Outlook for 2008 – Commodities
(1) Global Stock and Demand
6.2 6.9 7.4 7.7
6.0 5.6 7.3 7.6
5.5 5.8
6.8 7.2 2.1
2.3
2.7 2.8
0.4 0.4
0.4 0.5
2005 2006 2007 2008E
North 25.0%
Northeast +3.7%
South +5.9%
Midwest +4.1%
Southeast +4.1%7.5 7.1
8.4 8.5
3.1 3.5
4.8 4.9
4.5 4.5
5.2 5.5 2.9 3.3
3.3 3.7
1.4 1.6
1.7 1.7
0.8 1.0
1.2 1.5
2005 2006 2007 2008E
Cotton +25.0%
Coffee +0.0%
Sugarcane +12.1%
Others +5.8%
Corn +2.1%
Soybeans +1.2%
Market outlook for 2008: revised from 25.5 to 25.8 millions of tons. This
outlook can be updated on a quarterly basis.
Volume per Crop(millions of tons)
Volume per Region(millions of tons)
Conclusion of the SSP plant in Paranagua (PR) and starting of new mixing
facilities in the second half of 2008, in Iguatama (MG) and Catalão (GO), both
with a capacity of 150,000 tons/year.
Source: ANDA for 2005 to 2007 | Estimates 2008 – Volume per Region/ ANDA – Volume per Crop/ ANDA and Heringer
Σ 25.8
Σ 20.2 Σ 21.0
Σ 24.6Σ 25.8
Σ 20.2Σ 21.0
Σ 24.6+ 4.0+ 17.1%
+ 4.8%
+ 4.0%+ 17.1%
+ 4.8%
18
Market and Outlook for 2008
E = Estimated
19
Market 2004 to 2006
Source: ANDA for the market
Market 2007 ANDA 2008 Estimates – 25.8 MM Tons
31%
69%
38% / 37% 41%
59%
According to ANDA data, a change in the 2008
seasonality pattern is expected. The 1st half
could be approximately 41% of total fertilizer
volume sold in 2008, against 38% observed in
2007. ANDA estimates a 25.8 million tonnes
market for 2008.
HERINGER’S seasonality is similar to the
Brazilian Market during the first half of the year.
However, Heringer´s last quarter of the year
has been historically stronger than the market.
Sales Volume Seasonality
62% / 63%
