fertilizantes heringer s.a. - mz · 2) the company is currently in process of reviewing the full...
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Fertilizantes Heringer S.A.Company Overview and Market where Heringer is inserted
2008 1st Quarter and 2007 Full Year Results
Dalton Carlos Heringer - CEO and Board Member
Jaime Rebelo - CFO and IR Officer
May, 2008
2
Disclaimers
1)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.
2) The Company is currently in process of reviewing the full impact of the new regulation
issued on Dec 28, 2007 establishing some BRGAAP chances. 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.
Company Ownership Structure after IPO(Apr 12, 2007)
Note
1 Including greenshoe exercise and partial exercise of
stock option program
Pre-Offering Post-Offering1
Total shares: 36.6 million Total shares: 48.8 million
Note
1 BSSF is wholly owned by AIG Capital Partners
3
Leading Fertilizer Blender and Distributor Company in Brazil
Founded in 1968, Heringer blends,
distributes and sells NPK formulas, mixed
nutrients and processed fertilizer
products
– 15 strategically located mixing
facilities.
Proven track record
Differentiated network and footprint
Diversified client base
One of the three largest player in Brazil, with 13.9 % market share at the end of 1Q08
(13.2% in 2007 coming from 11.7% at the end of 2006).
Nationwide Reach through Superior Facilities‟ LocationUnique Business Model
Legend
Owned Mixing Facilities Leased Mixing Facilities Tolling Mixing Facility
New mixing facilities under construction Ports Headquarter
4
Rosário do Catete
Camaçari
Rondonópolis
Catalão
Manhuaçu
Três Corações
Uberaba
Viana
Paranaguá
Paulínia
Bebedouro
Ourinhos
Rio Brilhante
Bom Jesus de Goiás
Porto Alegre
Aratu
Porto Alegre
Aracaju
Vitória
Santos
Paranaguá
NPK Production Chain at a Glance
Note:
1 Both Fosfértil and Ultrafértil are jointly
controlled by Bunge, Mosaic and Yara
2 After completing its backward integration
plan (expected by the 2nd half of 2008)
Brazilian Fertilizers Production Chain – Major Players
NPK
Mixtures
Producers
Mining
& Basic/Intermediate
Fertilizer Producers
Petrobrás
Vale
Ultrafértil1
Fosfértil1
Copebrás
Bunge
Heringer2
Bunge
Mosaic
Fosfértil1
Galvani
Yara
Copebras
Cibrafértil
Heringer
Bunge
Mosaic
Fertipar
Yara
Other
SSP
2007 – Brazilian Nutrient Market – 11.9 Million Tonnes
FSU
Bulgaria
Holland
USA
Venezuela
Argentina
Korea
FSU
Canada
Israel
Germany
OtherUSA
Morocco
Tunisia
FSU
Other
8.6 M Ton-NPK
2.3M Ton-N
2.2M Ton-P
4.1M Ton-K
Petrobras
Fosfértil
3.3M Ton-NPK
0.8M Ton-N
2.2M Ton-P
0.3M Ton-K
Fosfértil
Copebrás
Bunge
Mosaic
Galvani
Other
Vale
Source: ANDA 5
The Brazilian fertilizer industry
operates in three major sub-
segments
– ore mining and natural
gas extraction
– production of basic and
intermediate fertilizers
– production and
distribution of NPK
mixtures
In 2007, Brazil imported 72% of
its Nutrient needs.
Heringer‟s Importation needs
are in line with the Brazilian
pattern.
Important Producer and Exporter
Brazil as % of Worldwide Export Sales
(2007)
Brazil ranks among the top producers/exporters of agricultural products …
Source: USDA/MAPA
Brazil as % of Worldwide Production
(2007)
… and has one of the lowest cost of production worldwide
6
23%24%29%30%
34%38%
42%
84%
7%
15%16%16%17%20%
25%
36%
62%
1°
1°
2°
1° 1°
2° 2°
1°1°
1°
1°
4°2°
3° 4°
4°
2°
Orange
Juice
Coffee Sugar BeefSoybean
Oil
Poultry CornSoybean
GrainSoybean
Meal
Orange
Juice
Sugar Soybean
Grain
Beef Coffee Soybean
Meal
Poultry Soybean
Oil
7
Brazil: The Frontier of World‟s Agriculture Frontiers
Largest Fertilizer Markets
Source: Veja Magazine April/30/2008
Total Area
Arable Land
Planted Area
Ethanol Area
Total available land (mm hectares)
283 95
(1) Source: Agroconsult
100%
100%
1%
20%
65%
4%
Source: IFA / ANDA
80%35%
Brazil has over 283 million hectares of potential unused farmland, 80% of its total Arable Land, compared to an estimated 95 million hectares of unused farmland, 35% of the total Arable Land in the U.S., the largest agricultural player.
Ethanol Area represents only 1% of potential arable land in Brazil, while in the U.S, this Area represents 4%.
Brazil‟s fertilizer application rate is around 150 Kg of Nutrient per Hectare (1), lower then other major global producers as China and US.
Brazil is the 4th largest fertilizer market, growing above global average
Impressive Growth Profile …
Heringer Brazilian NPK Market
Organic growth at approximately 2.7x the industry‟s CAGR from 1995 to 2007
Source: ANDA and Company’s estimates
3.7% Heringer‟s market share
8
(mm
ton
s)
(mm
ton
s)
13.2%
Mix by Crop:
… in a Competitive Landscape
Main Players in the Brazilian NPK Market
Heringer‟s differentiated sales network and focus in the retail segment were the key
factors which enabled the Company to increase its market share from approximately 4%
in 1995 to 13% in 2007
1995 2007
Others
30%
Fertiza
4% Solorrico
7%
Fertibras
3%
Trevo
14%
Takenaka
4%
IAP7%
Manah
10%
Serrana
11%
Heringer
4%
Copas
6%
Bunge
32%
Yara
17%Mosaic
11%
Source: Company’s estimates9
Yara
12% / 13%
Fertipar
12% / 13%
Bunge
29% / 30%
Mosaic
11% / 12%Heringer
13.2%
ADM
4% / 5%
Others
14% / 19%
48% Top six players‟ market share – from 1995 to 2007 82%
Focused on Direct Sales to Farmers
Heringer‟s broad distribution network allows the Company to access all size farmers all
over Brazil … focusing on Retail
Distribution Network
… a key driver for its superior profitability
Sales by Segment – 2007
31.0K active customers: + 13% from
27.5K in 2006
800
1,500
Beginning
2005
End
2007
10
Wholesale
5%
Sugar Mills
5%
Coops
5%
Reforest
Companies
4%
Industrial
1%
Companies
(final
consumers)
34%
Farmers
(final
consumers)
46%
Increase Footprint in Specialty Products
Heringer invests in technology, presenting the market with several successful
initiatives over the years in order to meet client‟s demand …
… developing products differentiated from commoditized ones offering to our
clients best nutrient options and capturing higher margins
Micro TotalNew Launchings
Achievements
innovative production
process: micronutrients
are applied to all
fertilizer
grains, substantially
increasing effectiveness
micronutrients
Heringer launches
two products in 2007
+
Product Mix (% of delivered Volume)
11
90%80% 78%
22%20%10%
2005 2006 2007
Commodity Specialty
Note: Measurement criterion changed from gross revenue to volume delivered basis. Per previous
criterion, specialty products accounted 18% in 2006.
Investment Thesis – Market Share Growth and
Backward Integration Plan
12
2%
11%
32%
27%
28%
Brazilian Fertilizer
Consumption per Region - 2007
(1) Production Capacity adjusted by
Seasonality in „000 tonnes at end of 2006
(2) Production Capacity expanded from
the one announced at the IPO time frame
BACKWARD INTEGRATION
• Construction of an SSP (Super Single Phosphate)
plant at Heringer‟s Paranaguá site with a total
production capacity of 2:
Sulfuric acid: 180,000 tons/year
SSP granules: 160,000 tons/year
• Expected investment of approximately R$ 100 to R$
115 million (in 2007 & 2008)
• Operations to begin in the second half of 2008
• Significant gain in synergies by producing
intermediate fertilizers and NPK mixtures at the same
operational unit
• Decrease dependence on others suppliers to obtain
raw materials that should result in margin
improvements
• Improve distribution logistics in the Midwest region
• Higher EBITDA margins
EXPANSION
• From 2007 to 2010, Heringer expects to invest
approximately R$ 170 million to expand capacity from
2,977 tons1 to 6,780 tons
• Construction/Expansion of mixing units and/or in
regions either with attractive business opportunities, or
lower market share penetration.
• Logistic optimization and market share gains due to
consumer proximity.
13
Operational Highlights, Financial Results and Market Overview
Operational Highlights of the 1st Quarter of 2008
2008 1st Quarter and 2007 Full Year Financial Results
Market Overview and Outlook for 2008
14
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
15
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)
16
% 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
17
Financial Results: Gross Revenue and Sales Volume
Gross Revenue (R$MM)
+ 11%
Sales Volume (thousands of tonnes)
Average sales price rose 40% in
the 1Q08 compared to the
1Q07, and 16% to the 4Q07.
Price pushed by raw material
increases
Volume:
Probable seasonality pattern
change, from 38% in the 1H07 to
approximately 41% in the 1H08.
2,305
+ 81%
-20%
17
22,767
Brazilian
Market20,195 20,982 4,601 5,426
Source: ANDA
24,609
- 11% + 4% + 17%
2004 2005 2006 2007 1Q07 1Q08
3,264
+ 30%
+ 33%
+ 23%-9%
+ 18%
+ 59%
2008 Seasonality
Note : In order to better demonstrate its effective operational margins, the company is presenting the Gross Profit and EBITDA reclassified by the
FX Gain on a “Pro forma” basis. This reclassified Gain is associated with the effective inventories sold during the period which is currently
booked, under the BRGAAP, in the Financial Income and Expenses line – below EBITDA line 18
Gross Profit (R$ 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)
19
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
20
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
21
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$8 M).
…while Inventories (natural
hedge, partial offset account to
the international accounts
payable), are maintained at
historical acquisition levels until
they are realized/sold.
ROIC: The majority of the IPO
proceeds are allocated in CAPEX
over 2007 and 2008.
Note: for ROIC calculation, the import finance loans (FINIMP) are being considered as Working CapitalReturn on Invested Capital– (ROIC) = adjusted Net Profit, divided by the Average of 2 years invested Capital. Invested Capital is defined as: Total assets less cash and liabilities net of debt.
ROIC Net Profit – not considering the investment in the SSP plant/not yet generating income flow
Financial Results: Working Capital
(1) Inventories Days net of advances from customers22
23 65 19 -8 4 15 15 44 58
-12 -2 -18 -26 -22 1 1 10 0
Working Capital days
Working Capital days(considering FINIMP as
Accts Payable/ Working
Capital
Inventories Days:
- Strategy of higher
inventory volume
purchase to meet demand
on a competitive basis.
Accts. Payable Days:
- Local: Option for up-front
cash payments avoiding
high interest.
- International:
- Import Financing Facility
(FINIMP) as a lower
interest rate alternative to
the ones built into the raw
material prices at term of
the suppliers purchases
(FINIMP is 99% of the ST
Debt – R$ 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
23
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
24
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
25
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%
26
Market and Outlook for 2008
E = Estimated
27
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%
28
AND JUST AS A REMINDER: THE LOWER THE FERTILIZER APPLICATION
THE LOWER THE HARVEST!!! (Fertilizers not sprayed over this row)
