Verde's Revenue Grows 190%, With A 271% Increase In EBITDA In Full Year 2022

(All figures are in Canadian dollars, unless stated otherwise. Average exchange rate in 2022: C$1.00 = R$3.97)

BELO HORIZONTE, Brazil, March 30, 2023 (GLOBE NEWSWIRE) -- Verde AgriTech Plc (TSX:“NPK”) (OTCMKTS:“VNPKF”) (" Verde ” or the“ Company ”) is pleased to announce its financial results for the full year ended December 31, 2022 (“ FY 2022 ”) and the fourth quarter 2022 (“ Q4 2022 ”).

FY 2022 Financials

• Revenue increased by 190% in FY 2022, to $80,271,000 compared to $27,709,000 in FY 2021.
• Revenue in Brazilian Real (“ R$ ”) increased by 167% in FY 2022, to R$318,544,000, compared to R$119,310,000 in FY 2021.
• Sales of Verde's multinutrient potassium products, BAKS® and K Forte® sold internationally as Super Greensand® (the“Product”) by volume increased by 57% in FY 2022, to 628,000 tonnes compared to 400,000 tonnes in FY 2021.
• Gross margin increased to 78% in FY 2022, compared to 74% in FY 2021.
• EBITDA before non-cash events increased by 271% in FY 2022, to $23,912,000 compared to $6,450,000 in FY 2021.
• Net profit increased by 405%, to $17,804,000 in FY 2022 compared to $3,522,000 in FY 2021.
• Capital expenditures increased to $41,623,000 in FY 20222 compared to $2,179,000 in FY 2021.
  

"Our record results in 2022 demonstrate Verde's commitment to growth and innovation. In parallel, we are proud to have achieved important milestones throughout the year, including the conclusion of our updated Pre-Feasibility Study, the construction and expansion of Plant 2, the redomiciliation of our Company to Singapore, and the renewal of our Board of Directors, with Luciana de Oliveira Cezar Coelho, Madeleine Lee and Fernando Prezzotto,” declared Verde's Founder, President & CEO Cristiano Veloso.

“We are proud to now be Brazil's largest potash producer by capacity, with an installed capacity of 3 million tonnes per year (“ Mtpy ”). However, our ambitions do not stop here. We are determined to continue growing and reach our goal of producing 50Mtpy as outlined in our PFS.1 To achieve this, in 2022 we have filed an Environmental License Application to extract up to 25 Mtpy and have already been granted multiple easements by the Brazilian National Mining Agency to build and access future mines. Moreover, we have requested authorization from the National Land Transport Agency to build a railway branch capable of transporting up to 50 Mtpy of our product, linking our facilities to the Ferrovia Centro Atlântica, the largest railroad network in Brazil. We are grateful for the tireless efforts and dedication of our employees, without whom these milestones would not have been possible. I want to express my sincere gratitude to each and every one of them," concluded Mr. Veloso.

2022's Key Milestones

On March 22, 2022, Verde announced its key objectives for that year. A review of those objectives is detailed below:

Launch a new technology in Q2 2022

In April 2022, Verde launched Bio Revolution, a technology that enables the incorporation of microorganisms to mineral fertilizers. K Forte® is the first fertilizer in the world to use Bio Revolution technology. Bacillus aryabhattai will be the first microorganism to be incorporated into Verde's Product, it is a bacterial strain widely renowned in agriculture for its multiple benefits.

Finish the expansion Pre-Feasibility Study (“PFS”)

In May 2022, Verde concluded the expansion PFS for the Cerrado Verde Project, which supplants the Pre-Feasibility Study completed in December 2017, covering the financial economic potential for the Brazilian agricultural market for potash, sulphur, and the micronutrients zinc, boron, copper and manganese. The expansion PFS contemplates three distinct and independent production scenarios for Verde's Product with annual productions of 10Mtpy, 23Mtpy and 50Mtpy.2

Reach Plant 2's commercial production by Q3 2022

In August 2022, the Company announced the commissioning of its second production plant (“Plant 2”), with initial capacity to produce up to 1.2 Mtpy of Product. It achieved its nameplate capacity in October 2022.

Expand Plant 2's operational capacity from 1,200,000 to 2,400,000 tpy by Q4 2022, raising Verde's overall production capacity to 3,000,000 tpy

In November 2022, Verde announced that the expansion of Plant 2 was complete, increasing the Company's total production capacity to 3Mtpy.

Upgrade local infrastructure to sustain Plant 2's logistics

As part of Plant 2's logistics corridor, the Company upgraded the road infrastructure, including 22 kms of roads, 14 kms of asphalting, and the construction of a new bridge. At its peak, the Company employed 350 people in the construction works of Plant 2 and correlated infrastructure.

Reach 100 cities with Cultivando Amor – Verde's flagship social engagement program that donates part of Verde's sales proceeds to charities chosen by the Company's clients in their municipalities.

In 2022, Verde donated over R$262,900 to local charities across 06 cities in Brazil.

2022 Overview

Fertilizer demand and commodities market

At the onset of the Ukrainian war, in February 2022, concerns that geopolitical sanctions against Russia would cause significant shortage of potash fertilizers resulted in a 154% surge in the average price of potash between March and July, compared to 2021.3 However, this fear proved unfounded, as there was actually a glut of potash in the market due to increased availability, resulting in a 45% surge in potash imports by Brazil over the same period, compared to 2021.4 This oversupply, combined with a 15% drop in potash consumption in Brazil in 2022,5 contributed to a challenging market for fertilizer producers.

Brazil potassium chloride imports ('000 tonnes) 6

The table below compares Brazil's monthly average KCl CFR prices from 2021 to 2023:

KCl CFR average spot price (US$) 7

In 2022, the remaining fertilizer stock in Brazil increased by 16% compared to the previous year, while the potash stock saw a 23% increase during the same period. These figures demonstrate a lower overall demand for these products over the year.

Year-end stock in Brazil ('000 tonnes) 8

Potassium chloride production, imports and consumption in Brazil ('000 tonnes) 10

The price for Brazil's main agricultural commodities has also been following. Coffee and soybeans have fallen 28% and 7%, respectively, from January to December 2022.11

Production capacity

In the first months of 2022, Verde faced record demand for its Product from customers looking to build potash inventories ahead of an expected market shortage. However, despite the expected start date for Plant 2 operations and increase in production capacity, the Company had to halt the sale of its Product for Q3 and Q4 delivery due to anticipated inability to supply the demand.

In addition to that, Verde could not fulfill all the orders in its books during the peak season between Q3 and Q4 due to limited access to and from Plant 2, caused by unforeseen groundwater issues that impacted the new road construction. As agriculture is a seasonal business with a determined period for applying fertilizers for each crop, some of Verde's customers had to cancel their orders. This had an impact on the Company's results, which could have been better if Plant 2 had started producing and delivering on schedule.

Brazilian Economy and Elections

The presidential election in Brazil brought additional challenges to farmers' purchasing decisions for the 2022/2023 harvests. The fertilizer market was stagnant before the elections, with many customers holding off on purchasing. Following the elections, the market remained stagnant due to concerns and uncertainty surrounding the new government policies.

The Central Bank of Brazil (the“ Bank ”) kept its monetary policy interest rate (“ SELIC ”) unchanged at 13.75% for the fifth consecutive meeting in March 2023. The Bank's Monetary Policy Committee (“ Copom ”) mentioned that global activity and inflation remain resilient, and the monetary tightening continues to advance in major economies. Copom decided to maintain its strategy for a longer period to ensure the convergence of inflation, while won't hesitate to resume the tightening cycle if the disinflationary process does not proceed as expected.

Most recent economic activity indicators continue to corroborate the deceleration scenario. Annual inflation eased to 5.6% in February 2023, while inflation expectations for 2023 and 2024 have increased to 6.0% and 4.1%, respectively.12 The table below shows the SELIC rates from 2018 to 2023:

SELIC interest rates 13

The Brazilian economy closed the year 2022 with an accumulated growth of 2.9%, according to the Gross Domestic Product (“ GDP ”) data released by the Brazilian Institute of Geography and Statistics (“ IBGE ”). In the fourth quarter of 2022, Brazilian GDP was negative after five consecutive increases. The decrease was 0.2% in relation to the immediate previous three months, which reflects a scenario of deceleration of economic activity.14

Coffee sector impacts

The Brazilian coffee sector experienced significant challenges in 2022 due to adverse climate conditions, following on two years of frost and drought,15,16 which disrupted global commodity markets and impacted crop productivity for years to come. As a result, many farmers opted not to apply fertilizers as they anticipated low yields in the next harvests.

The biennial cycle is a characteristic of coffee trees, which consists of an alternation of a year with a large flowering followed by another with less intensity in July/August. Recently, with the incidence of hail and strong winds in the main coffee-growing regions,17 it can not only damage current productivity levels but also alter the cycle of the next year, when, despite being a positive biennial crop, it may present reduced productivity levels, as in 2022.

In 2021, a lower production was already expected compared to that observed in 2020 due to the productive biennial cycle of Arabica coffee. However, the 2021 harvest was further affected by negative bienniality due to adverse weather conditions, with the incidence of water scarcity combined with frost during the harvest. These occurrences brought about a significant reduction in productivity levels for this harvest, which had a great impact on next year's harvest.

The national average productivity was 27.7 sacks per hectare (“ scs/ha ”), only 4.8% higher than that of the 2021 harvest, a year of negative bienniality, and 19.3% lower than that recorded in the 2020 harvest, a year of positive bienniality, like 2022.

In Minas Gerais, the largest national producer, the average productivity was 21.6 scs/ha, 4.6% lower than the 2021 harvest, a year of negative bienniality.

The adverse weather conditions recorded before the start of this cycle, as well as throughout this season, affected the crops to some extent. Prolonged periods of drought and cold fronts that even resulted in frost in some areas affected crops in important phenological phases, impacting flowering, load, and fruit "catching," as well as their development. During the harvest, a fruit load well below expectations was noticed, with fewer grains than usual, and their weight below average.

Coffee productivity report in the Southeast Region states of Brazil 18

The coffee sector is a major consumer of Product during the last quarter of the year and Verde has a competitive geographical advantage thanks to its proximity to major coffee growers in Brazil, reducing freight costs and boosting margins. Therefore, the decline in Product sales in the coffee sector had and outsized impact on the Company's Q4 2022 results.

In 2021, Verde's sales to the coffee sector in Q4 represented 9% of total sales in the quarter and in 2022, 5% of total sales in the quarter. The total sales volume of the Company decreased by 7% in Q4 2022 compared to Q4 2021, but the sales volume made to the coffee sector had a decline of 43% in the same period, as can be seen in the table below:

Percentage of sales made to the coffee sector in the fourth quarter

The total number of Verde's customers in the coffee sector decreased from 98 in Q4 2021 to 49 in Q4 2022. Despite that, the percentage of the clients' total purchase potential (in tonnes of Product) that was supplied by Verde increased from 29% in Q4 2021 to 63% Q4 2022, demonstrating an increase in market adoption due to customers applying Verde's product on a larger area of their farms.

Percentage of clients' purchase potential (in tonnes of Product) supplied by Verde

“When the war in Ukraine broke out, there were concerns about a potential shortage of potash. In reality, however, the market was oversupplied. Throughout 2022, many farmers refrained from buying potash due to the unprecedented soaring prices, resulting in a 15% Brazilian potash imports and, consequently, a record inventory build-up.19 In Brazil, the last quarter of 2022 saw the convergence of several unfavourable factors, including pre and post-electoral tensions that drastically reduced investments by farmers. Moreover, two years of bad weather severely affected coffee harvests in Brazil, leading coffee growers to reduce expenditure on inputs. Despite all these challenges, which are unlikely to recur in 2023, I am proud to share Verde's record growth and financial results for the year”, commented Mr. Veloso.

In 2022, Verde presented a growth of 386% in EPS, 271% in EBITDA, 190% in revenue and 57% in sales compared to the previous year, as can be seen in the table below:

FY 2022 growth compared to FY 2021

Q4 2022 Financials

• Revenue increased by 55% in Q4 2022, to $16,837,000 compared to $10,851,000 in Q4 2021.
• Revenue in R$ increased by 43% in Q4 2022, to R$66,814,000 compared to R$46,723,000 in Q4 2021.
• Sales by volume decreased by 7% in Q4 2022, to 125,000 tonnes, compared to 134,000 tonnes in Q4 2021.
• Gross margin increased to 76% in Q4 2022, compared to 75% in Q4 2021.
• EBITDA before non-cash events decreased by 47% in Q4 2022 to $1,293,000, compared to $2,452,000 in Q4 2021.
• Net loss was $1,312,000 in Q4 2022, compared to a $1,878,000 profit in Q4 2021.

2023 Guidance

As previously described, potash trends did not meet the market's expectations after the Ukraine war, reflecting in decreasing fertilizer prices and lower demand throughout 2022. The price of potash has been on a downward trend since late 2022, with a decrease of 47% in 2022 average KCl CFR Brasil price, compared to the current price,21 leading farmers to holdback potash purchases with the expectation of even lower prices in the near future.

In light of the aforementioned factors, Verde's guidance for 2023 is described in the table below:

FY 2023 guidance ranges

The 2023 guidance is underpinned by the following assumptions:

• Average Brazilian Real (“R$”) to Canadian dollar exchange rate: C$1.00 = R$4.20
• Average KCl CFR Brazil price of US$450, with an overall discount rate of 10%, resulting in the final price of US$405.
• Sales Incoterms: 70% CIF and 30% FOB
• Sales channels: 47% direct sales and 53% indirect sales
• Income taxes: 34% of the subsidiary net profit before taxes

As of January 2023, the Brazilian Subsidiary (Verde Fertilizantes) is subject to income taxes using the 'Actual Profits' method (“Lucro Real”, in Portuguese), which is based on taxable income (the tax in this method is approximately 34% of the Net Profit), adjusted by certain additions and exclusions as determined by the legislation. The Actual Profit will be calculated quarterly.

Up to December 31, 2022, the Brazilian Subsidiary was under the 'Assumed Profits' method.

Verde's Key Objectives for 2023:

• Launch a range of BAKS® products customized for different types of crops, with the addition of new nutrients.
• Launch a new microorganism to be added to Bio Revolution, in addition to Verde's currently inoculated microorganism Bacillus Aryabhattai.
• Obtain environmental licence and mining permits for the additional extraction of up to 25Mtpy.
• Launch a new technology and file its patent.
• Start engineering studies for Plant 3.

Environmental

Verde's production process is sustainable. The processing does not require tailings dams, nor does it generate any waste by-products. In sum, the ore recovery rate is 100%.

The mined area is mainly composed of degraded pasturelands that, once mined, Verde transforms into tropical forest. To that end, the Company planted 4,300 trees in 2019, 5,000 in 2020, 9,888 in 2021 and 10,341 in 2022, totaling over 29,500 trees. In 2023, Verde intends to plant 5,000 trees.

All planted species are originally native to the region, many of which are today deemed endangered species.

Selected Annual Financial Information

The table below summarizes Q4 and FY 2022 financial results compared to Q4 and FY 2021:

(1) – Non GAAP measure
(2) – Included in General and Administrative expenses in financial statements
(3) – 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. The table below summarizes these changes:

(1) – Source: Acerto Limited Report.

FY and Q4 2022 compared with FY and Q4 2021

Net Profits and EPS

FY 2022

The Company generated a net profit of $17,804,000 in FY 2022, an increase of $14,282,000 compared to a net profit of $3,522,000 in FY 2021, thanks to an increase of 57% in sales and an increase of 59% in the average Potassium Chloride CFR Brazil price in 2022, compared to 2021.

Earnings per share were $0.34 for FY 2022, compared to $0.07 for FY 2021.

Q4 2022

The Company suffered a net loss of $1,312,000 for Q4 2022, a decrease of $3,190,000 compared to $1,878,000 profit for Q4 2021, mainly due to a $1,639,000 increase in interest expenses.

Basic loss per share was $0.03 for Q4 2022, compared to earnings of $0.04 for Q4 2021.

Product Sales

FY 2022

Sales increased by 57% in FY 2022, to 628,000 tonnes sold, compared to 400,000 tonnes FY 2021, thanks to purchases from new clients and an increase in the purchase of K Forte® and BAKS® among Verde's returning customers,

Q4 2022

Sales by volume decreased by 7% in Q4 2022, to 125,000 tonnes sold, compared to 134,000 tonnes sold in Q4 2021, due to the circumstances summarized in the topics below. For further details, please refer to the topic 2022 Overview of this document.

• A glut of potash in the market due to increased availability, resulted in a 45% surge in potash imports by Brazil over the same period, compared to 2021.23 This oversupply, combined with a 15% drop in potash consumption in Brazil in 2022,24 contributed to a challenging market for fertilizer producers. The 23% increase in the year-end stock of potash in Brazil demonstrate its lower overall demand over the year.
• In the first months of 2022, Verde faced record demand for its Product from customers looking to build potash inventories ahead of an expected market shortage. However, the Company had to halt the sale of its Product for Q3 and Q4 delivery due to anticipated inability to supply the demand.
• In addition to that, Verde could not fulfill all the orders in its books during the peak season between Q3 and Q4 due to limited access to and from Plant 2, caused by unforeseen groundwater issues that impacted the new road construction. Consequently, some of Verde's customers had to cancel their orders, which had an impact on the Company's results, that could have been better if Plant 2 had started producing and delivering on schedule.
• The presidential election in Brazil brought additional challenges to farmers' purchasing decisions for the 2022/2023 harvests. The fertilizer market was stagnant before the elections, with many customers holding off on purchasing. Following the elections, the market remained stagnant due to concerns and uncertainty surrounding the new government policies.
• The Brazilian coffee sector experienced significant challenges in 2022 due to adverse climate conditions, following on two years of frost and drought,25,26 which disrupted global commodity markets and impacted crop productivity for years to come. In Minas Gerais, the largest coffee producer in Brazil, the average productivity was 21.6 scs/ha, 4.6% lower than the 2021 harvest, a year of negative bienniality . As a result, many farmers opted not to apply fertilizers as they anticipated low yields in the next harvests.

Revenue

FY 2022

Revenue from sales increased by 190% in FY 2022, to $80,271,000 from the sale of 628,000 tonnes of K Forte® and BAKS, at an average $128 per tonne sold; compared to $27,709,000 in FY 2021 from the sale of 400,000 tonnes of Product, at an average $69 per tonne sold.

Average revenue per tonne excluding freight expenses (FOB price) improved by 77% in FY 2022, to $83 compared to $47 in FY 2021.

Average revenue per tonne in FY 2022 was higher than FY 2021 mainly due to: