Verde AgriTech Ltd (VNPKF) (Q2 2024) Earnings Call Highlights: Navigating Financial Challenges ...

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Wed, Oct 9, 2024, 4:32 PM 5 min read

Cash and Receivables: $15.3 million in Q2 2024, down from $23.8 million in Q2 2023.
Bank Loans: Secured $0.8 million in Q2 2024; total debt at $41 million.
Sales Volume: 85,000 tonnes in Q2 2024, down from 107,000 tonnes in Q2 2023.
Revenue: $6.5 million in Q2 2024, down from $10.3 million in Q2 2023.
EBITDA: Approximately zero in Q2 2024, compared to $2.1 million in Q2 2023.
Net Loss: $2.6 million in Q2 2024, compared to a net profit of $0.2 million in Q2 2023.
Gross Margin: 54% in Q2 2024, down from 71% in Q2 2023.
Average Revenue per Tonne: Decreased by 21% in Q2 2024.
Average Production Cost per Tonne: Increased by 17% to $21 per tonne.
Freight Cost per Tonne: Decreased to $37 in Q2 2024, from $48 in Q2 2023.
Cash Flow: Cash held at $2.7 million at the end of Q2 2024, down from $6.2 million in Q2 2023.
Trade Receivables: $12.8 million in Q2 2024, down from $17.6 million in Q2 2023.
Debt Restructuring: Ongoing negotiations involving 100% of the group's current debt, expected to conclude by the end of Q3 2024.

Warning! GuruFocus has detected 7 Warning Signs with VNPKF.

Release Date: August 16, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

Verde AgriTech Ltd (VNPKF) has secured an additional $0.8 million in bank loans during Q2 2024, indicating continued access to financial resources.
The company maintains a significant gross margin of up to 72%, demonstrating strong profitability despite market challenges.
Verde AgriTech Ltd (VNPKF) is actively working on debt restructuring with positive progress, including potential extensions of payment terms and reductions in interest rates.
The company has a robust sales team in place, combining experienced field sales with inside sales, which is expected to drive future growth.
Verde AgriTech Ltd (VNPKF) is exploring new product lines and technologies, such as high value-added products and microbial business development, to diversify and enhance its offerings.

Negative Points

Verde AgriTech Ltd (VNPKF) experienced a significant decrease in revenue from $10.3 million in Q2 2023 to $6.5 million in Q2 2024, reflecting market challenges.
The company reported a net loss of $2.6 million in Q2 2024, compared to a net profit of $0.2 million in Q2 2023, indicating financial difficulties.
Sales volume decreased from 107,000 tonnes in Q2 2023 to 85,000 tonnes in Q2 2024, showing a decline in market demand.
Interest rates in Brazil remain high, impacting farmers' ability to finance their operations and affecting Verde AgriTech Ltd (VNPKF)'s sales.
The company faces challenges in the agricultural market, including declining potash prices and lower agricultural commodity prices, which have affected profitability.

Q & A Highlights

Q: Can you provide an update on the company's debt situation and the ongoing negotiations with banks? A: Cristiano Veloso, CEO, explained that Verde AgriTech has a total debt of approximately $41 million CAD, with half of it due in the next 12 months and the rest within three years. The company has stopped debt payments to bring banks to the negotiation table. Most of the debt is held by Banco do Brasil, which is supportive due to its understanding of the agricultural sector. The negotiations aim for a significant reduction in interest rates and an extension of repayment terms, with a focus on ensuring financial stability even in worst-case scenarios.

Q: How is Verde AgriTech addressing the high cost of finance for farmers compared to KCl? A: Veloso mentioned that while the company can offer competitive terms to some farmers, its small balance sheet limits the ability to provide widespread financing. The focus is on high value-added products and building a strong sales team to drive growth. The new sales team is expected to show results in the coming quarters, with a long-term strategy to disassociate from KCl pricing.

Q: Are there any developments in using nitrogen-fixing bacteria to reduce nitrogen fertilizer costs for farmers? A: Veloso noted that while Brazil is a pioneer in using microbes for nitrogen fixation, the market is commoditized and low-margin. Verde AgriTech is focusing on microbes that bring other benefits, such as making phosphate available and addressing soil diseases. The company is also registering products as soil conditioners to expand the range of microbes used.

Q: What is the status of Verde AgriTech's carbon credits initiative? A: The company is working on enhanced rock weathering (ERW) for carbon credits but has faced challenges due to evolving market standards. Verde AgriTech has hired a scientist with experience in ERW and carbon certification to advance the project. The company is optimistic about a new methodology from Puro Nasdaq, which could unlock the market for certifying and monetizing carbon credits.

Q: How is the company planning to grow sales with existing clients who currently purchase small amounts? A: Veloso highlighted that the company is building long-term relationships with clients and incentivizing them to expand their purchases. The new sales team is actively engaging with clients, and there have been instances where referrals have led to significant new sales. The focus is on personalized engagement rather than institutional incentives.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

This article first appeared on GuruFocus.

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