(All figures are in Canadian dollars, unless stated otherwise. Average exchange rate in Q3 2024: C$1.00 = R$4.06)
SINGAPORE, Nov. 08, 2024 (GLOBE NEWSWIRE) -- Verde Agritech Ltd (TSX: "NPK”) (OTCMKTS: "VNPKF”) ("Verde” or the "Company”) announces its financial results for the period ended September 30, 2024 ("Q2 2024”).
Despite a slight reduction in delivered volumes, financial results for the third quarter of 2024 have shown an improvement compared to Q3 2023. The Company sold 100,986 tons in Q3 2024, down from 108,000 tons in Q3 2023. Nevertheless, Verde achieved a 33% reduction in net loss.
In recent months, the Brazilian agricultural sector has continued to experience the compounded effects of higher input costs and subsequent decline in commodity prices. Which was further pressured by elevated interest rates in Brazil, which has created significant challenges for farmers and led to record levels of insolvency rates across the sector and impacted both agricultural producers and its supply chain. Additionally, tightened credit conditions have made financing increasingly difficult for farmers, thus reducing their purchasing capacity.
"As we continue to navigate a challenging market, we remain focused on strategic milestones that will shape our future,” said Cristiano Veloso, Founder and CEO of Verde Agritech. "In the coming days, we anticipate sharing significant updates, including the debt renegotiation status, progress on the reassey of historical drilling and an independent mineral resource calculation for our Man of War rare earths project. Additionally, we expect to initiate the spin-off process for our rare earths asset.”
Recent developments and subsequent events
Loan Renegotiation
On October 02, 2024, Verde announced that it had successfully renegotiated with banks holding 73% of its outstanding loans. Following this action, the Company expected the remaining five creditor banks to accept the same terms or face a 75% debt reduction through a court order, as per applicable Brazilian legislation. Under the renegotiated agreement, the repayment term is extended to 120 months, with principal repayments suspended for 18 months. Crucially, 90% of the principal will be repaid on a staged schedule, starting after 55 months. The deal is anticipated to yield cash savings of R$115 million over the next 24 months. Additionally, all interest payments are suspended for 18 months, followed by an average nominal interest payment based on Brazil's CDI (Certificado de Depósito Interbancário) plus 2.08%1.
Rare Earths
On October 07, 2024, the Company announced that 4,708 hectares of its mineral concessions are prospective for Magnetic Rare Earths mineralization, following a review of historical drill holes. MREs, including Praseodymium, Neodymium, Dysprosium, and Terbium, are in high demand due to their crucial role in the energy transition and these elements are also essential components in the production of high-performance magnets used in electric vehicles, wind turbines, and other green technologies. Results from 15 additional drill holes revealed a 65-meter mineralized zone with grades of up to 4,209 ppm TREO and 975 ppm MREO.2
On October 29, 2024, Verde announced significant assay results from over 1,500 meters of exploration, identifying rare earth elements with concentrations reaching up to 12,487 ppm TREO and 3,357 ppm MREO. Results from 13 additional drill holes revealed an 89-meter mineralized zone with grades of up to 3,706 ppm TREO and 839 ppm MREO.3
Second Quarter 2024 Highlights
Operational and Financial Highlights
Sales in Q3 2024 were 100,986 tons, compared to 108,000 tons in Q3 2023.Revenue in Q3 2024 was $7.1 million, compared to $9.4 million in Q3 2023.Cash and other receivables held by the Company in Q3 2024 were $14.7 million, compared to $25.4 million in Q3 2023.EBITDA before non-cash events was -$0.03 million in Q3 2024, compared to -$0.62 million in Q3 2023.Net loss in Q3 2024 was -$2.33 million, compared to -$3.46 million net loss in Q3 2023.
Other Highlights
Product sold in Q3 2024 has the potential to capture up to 12,111 tons of carbon dioxide ("CO2”) from the atmosphere via Enhanced Rock Weathering ("ERW”).4 The potential net amount of carbon captured, represented by carbon dioxide removal ("CDR”), is estimated at 8,126 tons of CO2.5 In addition to the carbon removal potential, Verde's Q3 2024 sales avoided the emissions of 4,659 tons of CO2e, by substituting potassium chloride ("KCl”) fertilizers6.Combining the potential carbon removal and carbon emissions avoided by the use our Product since the start of production in 2018, Verde's total impact stands at 292,613 tons of CO2.78,004 tons of chloride have been prevented from being applied into soil Q3 2024, by farmers who used the Product in lieu of KCl fertilizers.8 A total of 168,039 tons of chloride have been prevented from being applied into soils by Verde's customers since the Company started the production.9
Guidance Update
In recent months, Brazil's agricultural sector has continued to feel reel from the effects of past challenges, when farmers took on significant debt during a period of high input prices followed by a steep commodity price drop. Now, with higher interest rates, farmers are experiencing heightened financial strain, and insolvency filings have reached record levels across the sector, impacting both farmers and distributors of agricultural inputs. This environment has also triggered a credit crunch, making financing increasingly difficult for agricultural producers. To mitigate risks associated with this tightening credit market, Verde has adopted conservative sales practices, limiting exposure to credit risk. Consequently, in light of these conditions, investors are advised not to rely on the financial guidance for fiscal year 2024.
Q3 2024 in Review
Agricultural Market
The price of potassium chloride (KCl) decreased by approximately 8% during the quarter and by 13% compared to the same period last year10, intensifying competitive pressure from lower-priced imports. This downward pricing trend, along with a more conservative purchasing approach adopted by farmers11, is driven by macroeconomic uncertainties such as elevated interest rates12, that led to significant delays in fertilizer purchases across the agricultural sector, causing a postponement in fertilizer demand13. Typically, the Brazilian market sees an uptick in fertilizer purchases by mid-year; however, this quarter experienced a notable decline as farmers deferred investments, anticipating improvements in both economic and climatic conditions14.
In addition, adverse weather conditions, including prolonged drought periods followed by delayed rains15, further impacted the Company's operations in the third quarter of 2024. The extended dry spells disrupted agricultural cycles, slowing down demand for fertilizers and affecting crop readiness across key regions. These challenging conditions added another layer of complexity to an already cautious market, dampening overall sales performance for the period.
In Q3 2024, the Brazilian potash fertilizer market was under pressure due to ongoing macroeconomic and environmental challenges16. Potassium chloride (KCl) average prices were US$297 per ton17, marking a 13.57% decrease from Q3 2023, continuing the downward trend observed since the peak in 2022. This decline was primarily driven by an oversupply in global markets and weaker demand in key emerging economies, including Brazil18. Despite the lower potash prices, farmers were cautious in making purchases due to persistent economic uncertainties, high-interest rates, and limited access to credit19.
Global market competition
In 2024, Brazil continues to face elevated interest rates, impacting the financing conditions for both companies and farmers. The current SELIC interest rate is 11.25%. The Central Bank of Brazil projects the SELIC rate to be 11.75% by the end of 2024, 11.50% by the end of 2025, and 9.75% by the end of 2026.20 Annual inflation forecasts stand at 4.5% for 2024 and 4.0% for 2025.21
Brazilian farmers have continued to struggle with limited working capital amid challenging market conditions in 2024. They have increasingly sought input suppliers offering the most favorable payment terms and interest rates, allowing them to defer payment until after the harvest, typically between 9 to 12 months later. However, Verde's ability to provide financing with longer tenors remains considerably lower compared to international players22, making its terms less competitive for its customers. Unlike its competitors, Verde does not have the option to incur most of its cost of debt in US dollar-denominated liabilities.
Verde's average cost of debt is 15.0% per annum. To incentivize sales, the Company offers its customers a credit line that charges a spread to its finance costs to comprise operational costs, provisions, and expected credit losses, leading to an average lending cost of 17.5% for credit-based purchases. While this approach is necessary in the agricultural sector, it increases the risk of non-payment for suppliers such as fertilizer companies, reflecting the heightened financial pressures within the sector.
Currency exchange rate
The Canadian dollar valuated by 3.5% versus Brazilian Real in Q2 2024 compared to the same period from last year.23
Q3 2024 Results Conference Call
The Company will host a conference call on Tuesday, November 12, 2024, at 09:00 am Eastern Time, to discuss Q3 2024 results and provide an update. Subscribe using the link below and receive the conference details by email.
Date: Tuesday, November 12, 2024Time: 09:00 am Eastern TimeSubscription link: https://bit.ly/Q3-2024-Results-Presentation
The questions must be submitted in advance through the following link up to 48 hours before the conference call: https://bit.ly/Q3-2024-Results-Presentation-Questions
The Company's first second financial statements and related notes for the period ended September 30, 2024 are available to the public on SEDAR at www.sedar.com and the Company's website at www.investor.verde.ag/.
Results of Operations
The following table provides information about the three and nine months ended September 30, 2024 as compared to the three and nine months ended September 30, 2023. All amounts in CAD $'000.
All amounts in CAD $'000 3 months
ended
Sep 30, 2024
3 months
ended
Sep, 2023 9 months
ended
Sep 30, 2024 9 months
ended
Sep 30, 2023 Tons sold '000 101 108 271 323 Average Revenue per ton sold $$ 71 87 69 95 Average Production cost per ton sold $ (18)(28)(20)(24)Average Gross Profit per ton sold $ s 53 59 49 71 Gross Margin 75%67%71%75% Revenue 7,161 9,375 18,709 30,805 Production costs(1) (1,830)(3,056)(5,316)(7,680)Gross Profit 5,331 6,319 13,393 23,125 Gross Margin 74%67%72%75%Sales and marketing expenses (895)(695)(2,844)(3,026)Product delivery freight expenses (2,630)(3,919)(6,767)(11,509)General and administrative expenses(1,839)(2,328)(4,485)(5,142)EBITDA (2) (33 )(623) (703)3,448 Share Based and Bonus Payments (Non-Cash Event)(3) (104)(261)(2,146)(145)Depreciation, Amortisation and P/L on disposal of plant and equipment (3) (758)(973)(2,479)(2,852)Operating Profit after non-cash events (895)(1,857) (5,328)451 Interest Income/Expense (4)(1,431)(1,593)(4,372)(3,586)Net Profit before tax (2,326)(3,450) (9,700)(3,135)Income tax (5)(10)(14)(27)(196)Net Profit (2,336)(3,464) (9,727)(3,331) (1) - Non GAAP measure
(2) - Included in General and Administrative expenses in financial statements
(3) - Included in General and Administrative expenses and Cost of Sales in financial statements
(4) - Please see Summary of Interest-Bearing Loans and Borrowings notes
(5) - Please see Income Tax notes
External Factors
Revenue and costs are affected by external factors including changes in the exchange rates between the C$ and R$ along with fluctuations in potassium chloride spot CFR Brazil, agricultural commodities prices, interest rates, among other factors. For further details, please refer to the Q3 2024 Review section:
Financial and operating results
In Q3 2024, revenue from sales decreased by 24%, alongside an 18% reduction in the average revenue per ton compared to the same period in 2023. When excluding freight expenses (FOB price), the average revenue per ton declined by 11% year-over-year, primarily driven by a reduction in KCl prices. This decrease was partially offset by improvements in the product mix, reflecting a higher proportion of premium products compared to Q3 2023.
Sales declined by 6% in Q3 2024 compared to Q3 2023, due to the conditions outlined in the Q3 2024 Review section.
As a consequence of the points mentioned above, the Company's EBITDA before non-cash events was -$0.03 million in Q3 2024 compared to -$0.62 million in Q3 2023.
The Company generated a net loss of -$2.3 million in Q3 2024, compared to a net loss of -$3.5 million in Q3 2023.
Basic loss per share was $0.044 for Q3 2024, compared to earnings of $0.066 for Q3 2023.
Production Costs
In Q3 2024, production costs per ton decreased by 36% compared to Q3 2023, primarily due to an optimized sales mix and increased production from Plant 2, which contributed 25% of total sales.
Sales, General and Administrative Expenses:
SG&A represents a non-operating segment that includes corporate and administrative functions, essential for supporting the Company's operating segments.
Sales Expenses
CAD $'000
3 months ended 3 months ended 9 months ended 9 months ended Sep 30, 2024 Sep 30, 2023 Sep 30, 2024 Sep 30, 2023 Sales and marketing expenses(825)(890)(2.558)(2,990)Fees paid to independent sales agents(70)195 (286)(36)Total (895)(695) (2.844)(3,026) Sales and marketing expenses cover salaries for employees, car rentals, domestic travel in Brazil, hotel accommodations, and Product promotion at marketing events.
As part of its marketing and sales strategy, Verde compensates independent sales agents through commission-based remuneration. In Q3 2023, commission expenses showed a credit balance of $195,000 following a $249,000 provision reversal, which contributed significantly to the credit balance that quarter. Excluding this one-time adjustment, commission expenses in 2024 have remained consistent with prior levels, reflecting Verde's stable approach to sales compensation.
Product delivery freight expenses
Expenses decreased by 33% in the third quarter of 2024 compared to the same period last year. The volume sold as CIF (Cost Insurance and Freight) in Q3 2024 represented 72% of total sales, compared to 78% in Q3 2023.
General and Administrative Expenses
CAD $'000 3 months ended
Sep 30, 2024 3 months ended
Sep 30, 2023 9 months ended
Sep 30, 2024 9 months ended
Sep 30, 2023 General administrative expenses (682)(1,203)(2.083)(2,983)Allowance for expected credit losses(785)(563)(1.018) (592)Legal, professional, consultancy and audit costs (262)(332)(905)(939)IT/Software expenses (99)(190)(427)(532)Taxes and licenses fees (11)(40)(52)(96)Total (1.839)(2,328)(4.485)(5,142) General administrative expenses include general office expenses, rent, bank fees, insurance, foreign exchange variances and remuneration of executives, directors of the Board and administrative staff. General administrative decreased by 43% compared to the same period last year, due to a reduction in leasing expenses, such as water trucks and metallic structures to support operations.
In the third quarter of 2023, we experienced a significant reduction in the number of employees, which led to an increase in severance payments. Consequently, expenses in Q3 2024 were lower than Q3 2023.
According to Verde's sales policy, any customer payments that are overdue for more than 12 months must be provisioned for. The increase in the allowance for expected credit losses in Q3 2024 compared to Q3 2023 is attributed to the financial constraints faced by farmers, which are a result of low prices for agricultural commodities, among other factors, as outlined in the Q3 2024 Review section.
Legal, professional, and audit costs comprise fees for accounting, audit, and regulatory services. Consultancy fees include expenses related to external consultants in Brazil, covering accounting services, patent processing, legal fees, and regulatory consulting. In 2024, these expenses were reduced as a result of the internalization of accounting functions and a decrease in audit costs.
IT/Software expenses include software licenses such as Microsoft Office, Customer Relationship Management ("CRM”) software and Enterprise Resource Planning (ERP). Expenses decreased by 48% in Q3 2024 compared to the same period last year due to a decrease in costs associated with the Company's CRM software.
Share Based, Equity and Bonus Payments (Non-Cash Event)
Share Based, Equity and Bonus Payments (Non-Cash Events) encompass expenses associated with stock options granted to employees and directors, as well as equity compensation and non-cash bonuses awarded to key management personnel. In Q3 2024, the costs associated with share-based payments were -$0.1 million compared to -$0.2 million for the same period last year. This variance was primarily due to new options issuance.
Liquidity and Cash Flows
For additional details see the consolidated statements of cash flows for the quarters ended September 30, 2024, and September 30, 2023 in the quarterly financial statements.
Cash received from / (used for):
CAD $'000 3 months
ended
Sep 30, 2024 3 months
ended
Sep 30, 2023 9 months
ended
Sep 30, 2024 9 months
ended
Sep, 2023 Operating activities 1,500 (9,216)(1,671)(16,090)Investing activities (377)504 Read The Rest at :
