Verde Announces Q3 2024 Results
(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 CO2.7
8,004 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, 2024
Time:
09:00 am Eastern Time
Subscription 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 endedSep 30, 2024
3 months endedSep, 2023
9 monthsendedSep 30, 2024
9 monthsendedSep 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
%
