2Q08 Results. Dalton Carlos Heringer CEO and Member of the Board of Directors Jaime Rebelo CFO and IRO. August 14, 2008

Transcription

1 2Q08 Results Dalton Carlos Heringer CEO and Member of the Board of Directors Jaime Rebelo CFO and IRO August 14, 2008

2 Disclaimer and IFRS 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. 2

3 Disclaimer and IFRS As a result of the sanctioning of Law 11,638/7 amending Brazilian Corporate Law and Brazilian accounting practices as of the fiscal year ending in December 2008, as well as the issue of CVM Instruction 469 on May 2, 2008, the Company is promoting studies about the related impacts and since the financial statements published on June 30, 2008, the impacts referred to the Present Value Adjustments are already being reflected in the 2008 Financial Statements. These impacts were also calculated for the same periods in 2007 and adjusted on a pro-forma basis to provide comparability with The Company s Fiscal Council was established at the Extraordinary General Meeting held on May 30, It consists of 3 (three) members and 3 (three) alternate members, who have already started their work this quarter. 3

4 Agenda 2Q08 Highlights Change in Sales Mix by Crop Market Share Growth in Client Base Specialty Products Financial Results Gross Revenue and Sales Volume Gross Income SG&A Expenses EBITDA and ROIC Net Income and ROIC Working Capital and Cash Flow Photo: Paulínia Unit in São Paulo Market and Outlook for 2008 Raw Materials Commodities Market Seasonality

5 Highlights: Volume rose 22% compared to 2Q07 Change in Heringer s Sales Mix by Crop ( 000 tons) Coffee Sugarcane Others Forest Corn Soybeans 32% 19% 9% 6% 8% 26% Σ % Σ Market grew 26% in 2Q08 Stronger growth in South and Midwest 22% 23% 8% 5% 14% 28% Sugarcane Others Forest Coffee Corn Soybeans Σ 1,191.8 Heringer +26% in 1H08 29% 22% 8% 13% 14% 14% +26% Market +22% in 1H08 Σ 1, % 23% 8% 13% 19% 18% Growth in volume was driven by corn and soybean, while sugarcane s share of the crop mix declined due to contraction in the sugarcane planted area in 2Q08 versus a year earlier 5

6 Highlights: Market Share reached 12.3% in 2Q08 and 13.1% in 1H08 Market Share Expands from 12.7% to 13.1% in 1H Brazilian Market (source: ANDA) By Region 1H08 Brazil Volume 2008 Seasonality* 1.6% 9.5% 33.0% 25.4% ( 000 Ton) Volume Year - 11% + 4% + 17% 22,767 20,195 20,982 24, % + 22% 30.5% Volume 4, Q07 2Q08 9,392 11,477 1H07 1H08 * Forecast 6

7 Highlights: Client Base rose 30% from 2Q07 Growth in the Number of Clients 2Q08 x 2Q07 1H08 x 1H % Σ 27,488 Σ 31,057 South Southeast North/Northeast Midwest + 60% + 25% + 24% + 50% + 54% + 24% + 31% + 53% + 28% Σ 16,766 Heringer s stand at 2008 Agrishow in Ribeirão Preto, SP + 30% Σ 5,055 Σ 6,548 Σ 13,064 Continuous growth in client base due to the company s expansion, specially in regions more recently entered Strengthening of client base for sustainable growth in the coming years 7

8 Highlights: Specialty Products grew to 21% of the total Sales Volume, versus 20% in the 1H07 ( 000 tons) Σ 3, % Σ 2, % Growing contribution by Specialty Products to margin expansion Σ 1, % Σ 1, % Σ 608 Σ % + 33% + 22% + 22% + 24% Share in Total Sales Volume (1) 20% 22% 24.5% 24.5% 20% 21% 80% 78% 75.5% 75.5% 80% 79% Conventional Specialty (1) Criterion changed from gross revenue to volumes delivered. Under previous criterion, specialty products accounted for 18% in

9 Agenda 2Q08 Highlights Change in Sales Mix by Crop Market Share Growth in Client Base Specialty Products Financial Results Gross Revenue and Sales Volume Gross Income SG&A expenses EBITDA and ROIC Net Income and ROIC Working Capital and Cash Flow Market and Outlook for 2008 Raw Materials Commodities Market Seasonality Photo: Interior of Paulínia Unit in São Paulo

10 Financial Results: Gross Revenue and Sales Volume Gross Sales Revenue (R$ MM) + 59% 2,305 Quarter Half Year Average sales price up -20% + 11% + 95% 70% vs. 2Q07 and + 108% 25% vs. 1Q08 Price increases driven by higher raw material prices Volume: + 33% Sales Volume ( 000 tons) 3,264 Probable change in seasonality from 38% of total in 1H07 to approx. 44% in 1H08-9% + 23% + 26% + 22% * Proforma adjustment to present value to maintain comparability with 2008, as per disclaimer on page 3. 10

11 Financial Results: Gross Income and Gross Margin After the FX Gain Reclassification Gross Profit (R$ MM) and Gross Margin - Adjusted + 75% Quarter Half Year Options for the strategy of + 88% using good purchase opportunities to bring + 121% forward inventory in the 1Q08, allowing for an increase in competitiveness given the substantial hikes in the prices of fertilizer raw materials %NR 11.0% 12.1% 16.2% 17.4% 15.9% 15.4% * Proforma adjustment to present value to maintain comparability with 2008, as per disclaimer on page 3. After Pro-Forma reclassification Pro-Forma Reclassification 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. The Reclassification was R$ 3.9 million in 2006, R$ 30.9 million in 2007, R$15.7 million in 2Q08, R$7.8 million in 2Q07, R$25.8 million in 1H08 and R$10.7 million in 1H07. 11

12 Financial Results: Selling and Administrative Expenses + 38% + 19% Selling Expenses (R$ MM) Quarter Half Year + 40% -100 PB + 39% -240 PB -200 PB %NR 7.6% 6.6% 7.4% 5.0% 7.2% 5.2% Administrative Expenses (R$ MM) Quarter Half Year Selling expenses rose in absolute terms, but were diluted in higher Net Revenue, declining as a percentage of NR SG&A expenses fell 90 BP, from 9.6% of NR in 2Q07 to 6.3% of NR in 2Q08-50 PB -90 PB + 25% + 26% -70 PB %NR 2.2% 1.7% 2.2% 1.3% 2.1% 1.4% 12

13 Financial Results Adjusted EBITDA and EBITDA Margin EBITDA (R$ MM) and EBITDA Margin (% NR) EBITDA ROIC considering SSP plant + 140% EBITDA ROIC excludes investment in SSP plant/not yet generating income flow Quarter + 233% Half Year + 141% The combination of: - strategy of purchasing higher volumes in 1Q08, anticipating the continued increase in raw materials - higher sales volume, especially in regions with newer operations; - the dilution of SG&A expenses, %NR 3.7% 5.5% 7.5% 12.2% 8.2% 10.2% Note: for ROIC calculation, the import finance loans (FINIMP) are being considered as Working Capital Return 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. Extraordinary items in 2006 (COFINS/Bonuses) Extraordinary items in 2007 (IPO expenses) Proforma reclassification... Improved the competitiveness leading to EBITDA per tonne of R$ 130 in 2Q08, versus R$ 48 in 2Q07 (+171%), and +91% vs. 1Q08 * Pro forma adjustment to present value to maintain comparability with 2008, as per disclaimer on page 3. 13

14 Financial Results: Adjusted Net Income and Net Margin Net Income (R$ MM) and Net Margin (% NR) + 135% EBITDA ROIC excludes investment in SSP plant/not yet generating income flow EBITDA ROIC considering SSP plant Quarter + 240% + 116% Net Income favored by: Reversal of UNREALIZED foreign exchange losses (financial expenses group ) on international accounts payable in 1Q08 Continued appreciation in BRL vs. USD generating financial revenue from USD-linked liabilities ROIC: The majority of the IPO %NR 4.0% -3.1% 2.5% 3.8% 5.6% 9.3% 6.0% 6.7% Note: for ROIC calculation, the import finance loans (FINIMP) are being considered as Working Capital Return 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. proceeds concentrated in CAPEX in 2007 and 2008 * Pro forma adjustment to present value to maintain comparability with 2008, as per disclaimer on page 3. Extraordinary items in 2006 Extraordinary items in

15 Financial Results: 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: (1) Inventory Days net of client advances 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$ MM ) Working Capital Days Working Capital Days (considering FINIMP in accounts payable / working capital) 15

16 CASH FLOW (R$ MM) R$74.1 MM were generated in the 2Q08 R$ MM were generated in the 1H08 Inicial Cash 03/31/2008 Non Adjusted EBITDA Net Financial Result Others Advances from Clients Taxes to Recover Taxes payable Clients FINIMP Raw Material Imp. Finance Suppliers Inicial Cash 12/31/2007 Non Adjusted EBITDA Net Financial Result Others Advances from Clients Taxes to Recover Taxes payable Clients FINIMP Raw Material Imp. Finance Suppliers Ending Cash 06/30/2008 Interest on Equity Corporate Taxes Inventories Units+SSP+Others Ending Cash 06/30/2008 Units+SSP+Others Interest on Equity Corporate Taxes Inventories 16

17 Agenda 2Q08 Highlights Change in Sales Mix by Crop Market Share Growth in Client Base Specialty Products Urea (N) Single Super Phosphate - SSP (P) KCL (K) Financial Results Gross Revenue and Sales Volume Gross Income SG&A expenses EBITDA and ROIC Net Income and ROIC Working Capital and Cash Flow Market and Outlook for 2008 Raw Materials Commodities Market Seasonality Raw materials for NPKs

18 Market and Outlook for 2008 Raw Material Basic Fertilizers: MAP, TSP and KCL Nitrogen Fertilizers MAP (C&F) YoY: + 164% 2Q08: + 9% TSP (FOB) YoY: + 179% 2Q08: + 4% KCL (C&F) YoY: + 224% 2Q08: + 58% Urea (FOB) YoY: +134% 2Q08: +59% Nitrate (FOB) YoY: +91% 2Q08: -5% 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. Source: The Market Sulphate (C&F) YoY: +139% 2Q08: +49% Urea in bulk Yuzhny, Nitrate in bulk Black Sea, Ammonia Sulfate in bulk Brazil, MAP in bulk Brazil, TSP in bulk Africa, Potash MOP in bulk Brazil 18

19 Market and Outlook for Commodities Commodity Prices Grains: Corn, Soybean, Wheat Softs: Coffee, Sugar, Oranges On the other hand, the demand keeps strong: Rising Grain Prices Global Grain stock reduction Few unused potential farmland in other countries Stock-to-Use Ratio Cereals (1) Bioenergy programs (ethanol) Population and output growth (1) World stocks and demand 19

20 Market and Outlook for 2008 Market Market Outlook for 2008 still at 25.8 MM tons, which may be revised quarterly. Volume by Crop (MM tons) Volume by Region (MM tons) + 4.0% Σ 20.2 Σ % % Σ 25.8 Σ % Σ % Σ % Σ 24.6 Σ 25.8 Legend: E = estimated allocation by crop and region Source: ANDA for 2005 to 2007 Estimates 2008 Volume per Region/ ANDA Volume per Crop/ ANDA and Heringer 20

21 SSP Plant and Other Investments Photo: Construction of the SSP plant (Paranaguá, PR) Photo: Construction of SSP Plant (Paranaguá, PR) SSP plant - Commissioning and start of tests in 3Q08 Photo: Construction of Mixing Unit in Catalão, GO Inauguration of new Mixing Unit in Iguatama, Minas Gerais, with annual capacity of 150,000 tons In early 4Q08, operational startup of new Mixing Unit in Catalão, Goiás, with annual capacity of 150,000 tons Photo: Construction of Mixing Unit in Iguatama, MG 21

22 Seasonality: Distribution of Sales Volume Market 2004 to % 69% According to ANDA, 2008 seasonality should change, with first half accounting for aproximately 44% of total fertilizer volumes in 2008, versus 38% in ANDA estimates 2008 market at 25.8 million tons HERINGER S seasonality is similar to the Brazilian market in the first half of the year. However, Heringer s fourth quarter has historically outpaced the market Market % / 63% ANDA 2008 Estimates 25.8 MM Tons 56% 38% / 37% 44% Source: ANDA for Brazilian market 22

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