relatrio da administrao 2009 verso final eng · 15.4 million metric tons in 2008. the ending stocks...
TRANSCRIPT
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1
MMAANNAAGGEEMMEENNTT RREEPPOORRTT
Dear Shareholders,
In compliance with legal provisions, Fertilizantes Heringer S.A. ("Heringer" or "Company") here
in presents the Management Report and financial statements for the period ended December
31, 2009, accompanied by the Independent Auditors' Report and corresponding notes.
Brief History
Fertilizantes Heringer S.A. is a pioneer in the production, marketing and distribution of
fertilizers and has a national presence and 42 years of experience in this industry. Heringer has
registered strong growth over its history, which is the result of its investments in production
units, differentiated quality and products, personalized service, extensive marketing and
distribution network, secure and stable access to raw materials, agile decision-making process
and opportune and strategic positioning in regional markets.
Heringer was incorporated in 1968 by the agricultural engineer Dalton Dias Heringer as a sole
proprietorship under the name Dalton Dias Heringer.
Today, Heringer sells basic fertilizers, NPK formulas and special fertilizers at 19 mixing units
located in Brazil’s primary consumption regions, with the capacity to mix 4.7 million metric
tons each year, taking into account the seasonal adjustments in production capacity.
Heringer distributes fertilizers to rural producers, agricultural companies, merchandising
businesses and cooperatives located nationwide. It has a technical team with extensive
capacity to develop new special fertilizers, as well as two research centers, which enables it to
meet the needs of a wide variety of agribusiness segments.
Representing an important development for its expansion and modernization, in April 2007,
Heringer carried out an initial public offering, listing its stock on the Novo Mercado Special
Corporate Governance segment of the São Paulo Stock Exchange (Bovespa), with its stock
trading under the ticker FHER3.
Lógica Transportes S.A., a wholly owned subsidiary of the Company, was incorporated in
March 2008 to operate rail freight services for the Company and for third parties.
In late 2008, Heringer started production at its sulfuric acid and single super phosphate (SSP)
plant located in Paranaguá, Paraná, with annual capacity of 200 thousand metric tons of
sulfuric acid and 300 thousand metric tons of SSP.
On the corporate governance front, Heringer installed its Audit Board for fiscal year 2008 and
later also for fiscal year 2009, which is composed of 3 members and 3 alternate members.
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2
Brazilian Fertilizer Market
In 2009, fertilizer deliveries in Brazil totaled 22.5 million metric tons, which represents growth
of 0.2% from 2008. Fertilizer supply significantly exceeded demand in 2009, due to the high
ending stocks in 2008. In 4Q09, fertilizer deliveries in Brazil totaled 6.5 million metric tons, for
growth of 54.8% from the 4Q08, with the quarter's deliveries proving decisive for enabling the
country’s industry to achieve the slight growth it registered in the full year. Some of the factors
that contributed to this growth in varying degrees were:
• An atypical 4Q08, with consumption substantially lower than the historical trend, due
to the global financial crisis;
• Lower fertilizer prices in relation to 4Q08, as well as during 2009;
• The recovery in commodity prices during 2009;
• The increase in business confidence among producers;
• The higher profitability of producers, reflecting the higher revenue and lower
production costs;
• The higher supply of credit in the market;
• The return to historical seasonality in the sector, with deliveries in the first six months
of 2009 accounting for 37% of the total in the year, and the last six months of the year
accounting for 63%.
In 2009, Brazilian fertilizer production was practically stable in relation to 2008, declining by a
slight 5.7% to 8.4 million metric tons, from 8.8 million metric tons in 2008. Despite the strong
growth in 4Q09, production declined in 2009 because of the lower production in the previous
quarters due to the high level of stocks in the industry.
The strong growth in 4Q09 was due to the recovery in demand in the quarter in relation to
4Q08, which was severely impacted by the international economic crisis.
Following the same trend as domestic fertilizer production, Brazilian fertilizer imports in 4Q09
increased by 89.8% to 3.1 million metric tons, from 1.6 million metric tons in 4Q08. The higher
imports reflected the adjustment in inventories during the year, which increased the need for
imports in the sector.
As a result, In 2009, fertilizer import volume totaled 10.9 million metric tons, down 28.8% from
15.4 million metric tons in 2008.
The ending stocks in 2009 of 3.5 million metric tons were 45.3% lower than the ending stocks
in 2008 of 6.4 million metric tons, and consequently were in line with historical levels. The
lower domestic production and imports led to a destocking trend in the industry. The ending
stocks in 2009 were also down in relation to 2007.
The year 2008 was completely atypical, with the first half of the year accounting for 51% of
total deliveries in the year, and the second half responsible for 49%. In 2009, we observed a
return to historical seasonality, with 37% of deliveries in the first half and 63% in the second
half.
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3
2006 2007 2008 2009
20,982
24,609
22,429 22,471
+17.3%
-8.8% +0.2%
Deliveries
(in
th
ou
san
d o
f m
etr
icto
ns)
Source: Anda
2006 2007 2008 2009
8,772
9,816
8,8768,373
Source: Anda
+11.9%
-9.6%
-5.7%
Local Production
(in
th
ou
san
d o
f m
etr
icto
ns)
2006 2007 2008 2009
12,102
17,53015,412
10,978
+44.9%
-28.8%
-12.1%
Imports(i
n th
ou
san
d o
f m
etr
icto
ns)
4.4
6.4
3.5
DEC/07 DEC/08 DEC/09
(in
mil
lio
n o
f me
tric
ton
s)- 45.3%
Inventories
Source: Anda Source: Anda
Source : Anda / 2009
2004 2005 2006 2007 2008 2009
65%71% 72%
62%
49%
63%
35%29% 28%
38%
51%
37%
1st Half 2nd Half
Seasonality
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4
Heringer’s Sales and Breakdown by Crop
In 2009, delivery volume was 3,931 thousand metric tons, representing a 23% increase from
3,190 thousand metric tons in 2008, with this growth rate far surpassing the industry average
of 0.2%. In 4Q09, Heringer’s delivery volume was 1,402 thousand metric tons, up 81% from
774 thousand metric tons in 4Q08 and making an important contribution to growth in the full
year.
In addition to the factors that influenced the Brazilian fertilizer industry in 4Q09 and the year,
Heringer’s strong growth was also driven by expansion in its client base due to concerted sales
efforts, with a focus on direct sales to clients and excellent technical and commercial
preparation.
It is important to mention the increased share of deliveries for soybean cultivation, which
increased by 96% in 4Q09 and by 32% in 2009 from the same periods a year earlier. This
development was due to the fact that 4Q08 was severely affected by the international
financial crisis, to the expansion in the soybean planted area at the expense of the corn
planted area in relation to 2008, and to the favorable year for soybean cultivation, which
presented good profitability.
Nevertheless, fertilizer deliveries for corn cultivation increased by 856% in 4Q09, with this crop
also severely impacted in 4Q08, and by 15% in 2009 in relation to 2008. Another highlight was
the strong sales volume for the second corn crop in 4Q09.
Deliveries for coffee cultivation increased by 56% in 4Q09 from 4Q08 and by 48% in the year.
Deliveries for sugarcane cultivation also increased from the same periods in 2008, by 164% in
4Q09 and by 17% in 2009. Note that sugarcane cultivation was also heavily impacted in 4Q08.
In 2009, despite the unfavorable weather conditions, especially in the Center-South region,
sugarcane cultivation in the period was benefitted by the expansion in Brazil’s flex-fuel vehicle
fleet in 2009, the operational startup of new sugarcane crushing mills and the sugarcane crop
shortfalls experienced by international producers.
Fertilizer consumption for reforestation increased by 41% in relation to 4Q08, demonstrating
the return to historical consumption, reflecting the improved scenario in this sector. In the
year, fertilizer consumption in this sector decreased by 18%.
Fertilizer deliveries for other crops increased by a strong 23% in 2009. We currently provide
fertilizers for over 70 crops, which include fruits (including citrus), vegetables, flowers, etc.
These crops also generated a significant increase in sales volume to retailers.
Figures for Heringer’s sales mix by crop indicate stability in the share of total sales of each
crop.
These crops also generated a significant increase in sales volume to retailers.
Heringer’s national footprint also helps to mitigate any problems associated with weather,
pests and disease that can affect certain regions.
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5
Specialty Products
Specialty products make important contributions to Heringer’s margins and also in terms of
customer loyalty.
The share of specialty products in total sales increased by 5 percentage points, from 22% in
2008 to 27% in 2009.
In 2009, this volume was 1,044 thousand metric tons, 47.9% higher than the 706 thousand
metric tons in 2008.
Specialty products are fertilizers that in large part are produced exclusively by Heringer and
which offer agronomic characteristics superior to standard products. Heringer has the largest
portfolio of specialty fertilizers on the market (27 products), which are suitable for all crops.
The development of this product line seeks to meet more effectively the nutritional needs of
crops in order to enhance yields and quality.
In addition, Heringer has an experienced technical team formed by agronomists and
agricultural specialists. This technical team works together with important researchers in the
field of soil fertility and plant nutrition in order to continually update their knowledge of new
techniques and parameters to achieve proper crop nutrition and fertilization.
2007 2008 2009
707 539 628
594681
835
204 243200
603 517
768
516 577
665 641 633
837
Σ 3,933
Market
+0.2%
+32%
+15%
+48%
- 18%
+23%
+17%
-2%
+23%
Σ 3,265Σ 3,190
Sales by Crop
(in
th
ou
san
d o
f m
etr
icto
ns)
Soybean Corn Coffee Reforest Others Sugarcane
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6
Client Base and Market Share
Heringer’s client base registered strong growth to 45,653 clients in 2009. In 2009, the client
base expanded by 29.3% from the previous year.
Expanding the client base is important for supporting Heringer’s sustainable growth over the
coming years.
Heringer’s market share reached 17.5% in 2009, expanding by 3.3 percentage points from
2008.
2008 2009
2.484 2.889
706
1.044
Specialty
Conventional
27%
2008 2009
22%
73%78%
+ 47.9%
+16.3 %
Σ 3,190
Σ 3,933
Share of Specialty Products and
Conventional
Sales Volume
(in
mil
lio
n o
f m
etr
icto
ns)
+23.3%
2007 2008 2009
31,05735,306
45,653
+29.3%+13.7%
Number of Clients
2007
13.3%
2008
14.2%
2009
17.5%3.3 pp
Heringer's Market Share
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7
Mixing Units and Production Capacity
Heringer currently has 19 mixing units, with the units in Anápolis, Goiás, in São João do
Manhuaçu, Minas Gerais and in Rio Grande, Rio Grande do Sul slated to start up operations in
2Q10. The Goiás unit was leased, while the other two units were outsourced.
In Paranaguá, Paraná, Heringer has a Sulfuric Acid Unit and a Single Super Phosphate (SSP)
Plant.
In the state of Mato Grosso do Sul, to replace the unit in the city of Rio Brilhante, which was
leased, construction was begun on a unit in the city of Dourados, which is slated to start up
operations in the second half of 2009.
Furthermore, production capacity is being expanded at the units in Rosário do Catete,
Iguatama, Catalão, Rio Verde and Ourinhos.
Heringer’s current annual production capacity is 4,700 thousand metric tons, which will
increase to 5,700 thousand metric tons after the conclusion of these new investments.
12.6%
30.2%
28.8%
28.4%
North/Northeast
Midwest
Southeast
South
Source: Anda
Brazilian Market Consumption Distribution
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8
FINANCIAL RESULTS (amounts in R$ thousand)
2009 Income Statement
In 2009, net revenue was R$ 3,192.3 million, down 9.4% from 2008. The lower net revenue in
the period was due to the combination of the 27.6% increase in delivery volume and the 29.0%
drop in the average sales price in relation to 2008. The average sales price in 2009 was R$
765.92, down from R$ 1,078.64 in 2008.
NORTH
Rosário do Catete
Camaçari
NORTHEAST
Legend
Mixing Units
SSP Units
MIDWEST
Rondonópolis Anápolis
Rio Brilhante
Rio Verde
SOUTHPorto Alegre
Bebedouro
Ourinhos
Manhuaçu
Viana
SOUTHEAST
Rio Grande
São João do
Manhuaçu
Catalão
Mixing Units, SSP Production and Sulfuric Acid
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9
Gross income was R$ 241.1 million in the period, representing gross margin of 7.6%. Gross
income was down 14.4% from the gross income of R$ 281.9 million in 2008.
In 4Q09, prices suffered heavy pressure in the market, which led to strong margin
compression. The main factors pressuring prices are listed below:
• Generalized concern in the market that delivery volumes in 2008 of 22.4 million metric
tons would not be achieved in 2009, leading to higher supply in the market, and
consequently lower prices;
• The decline in raw material prices, which continued during 4Q09;
• The perception that soybean planting peaked in October.
SG&A expenses as a percentage of net revenue in 2009 were 2 percentage points higher than
in 2008. This result was due to the lower revenue and higher selling expenses, this latter
primarily reflecting the expenses with delivery freight, given the sharp increase in delivery
volume, combined with the drop in the average sales price.
Bear in mind that delivery freight expenses form a portion of the composition of the sales
price. There was also R$ 2 million related to the provision for tax liabilities included in the
Federal Tax Renegotiation Program (REFIS) that were recognized in 4Q09.
Adjusted EBITDA in 2009 was R$ 36.9 million, for adjusted EBITDA margin of 1.2%, down from
2.6% in 2008. In line with our previous comments related to the factors that impacted the
4Q09 results, EBITDA in 2009 was also heavily impacted.
In 2009, net financial income/(expenses) was R$ 111.9 million, reflecting the appreciation in
the Brazilian real against the U.S. dollar in the period.
Heringer maintains a hedge policy to mitigate the foreign exchange risk on its USD-
denominated liabilities related to its raw material imports. On December 31, 2009, the
Company held a hedge position formed through swap contracts of US$ 295.8 million.
Adjusted net income in 2009 was R$ 68.4 million, for net margin of 2.1%, reflecting significant
improvement from the adjusted net loss of R$ 253.2 million in 2008.
2009 % NR 2008 % NR∆ %
09/08 4Q09 % NR 4T08 % NR ∆ % 09/08
Gross Revenue 3,260,988 3,611,131 994,549 935,391
Net Revenue 3,192,314 100.0% 3,524,559 100.0% -9.4% 972,812 100.0% 914,580 100.0% 6.4%
COGS (2,951,181) -92.4% (3,242,704) -92.0% -9.0% (911,313) -93.7% (991,351) -108.4% -8.1%
Gross Profit 241,133 7.6% 281,855 8.0% -14.4% 61,499 6.3% (76,771) -8.4% 180.1%
SG&A (266,697) -8.4% (224,255) -6.4% 18.9% (88,585) -9.1% (58,207) -6.4% 52.2%
EBITDA 5,009 0.2% 90,113 2.6% -94.4% (44,153) -4.5% (124,607) -13.6% 64.6%
Adjusted EBITDA 36,913 1.2% (12,249) -1.3%
Net Fin. Income/(Exp.) 111,965 3.5% (459,473) -13.0% 124.4% (12,058) -1.2% (289,167) -31.6% 95.8%
Net Income/(Loss) 59,508 1.9% (253,164) -7.2% 123.5% (35,200) -3.6% (277,865) -30.4% 87.3%
Adjusted Net Income/(Loss) 68,439 2.1% (26,269) -2.7%
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10
As the following table shows, the adjusted EBITDA of R$ 31.9 million and the adjusted net
income of R$ 8.9 million reflect the reversal of the non-recurring impact from participating in
the Federal Tax Renegotiation Program (REFIS) introduced by Federal Law 11,641/09.
Participation in REFIS (Federal Law 11,941/09)
The Board of Directors meeting of March 1, 2010 approved the company’s participation in the
Federal Tax Renegotiation Program established by Federal Law 11,941/09 for the
administrative appeal that discusses the possibility of offsetting tax liabilities with tax credits
acquired from Agrovale - Agro Indústrias do Vale do São Francisco S.A., which involves
substituting the approved plaintiff, with the failure by Brazil’s Federal Revenue Service to ratify
this substitution challenged, generating administrative proceeding 11543001781200390. This
offset totaled R$ 71.5 million, which with monetary restatement and penalties totaled R$133.9
million on December 31, 2009. The company’s participation in the program reduced by R$ 21.9
million the balance of these liabilities, which now stands at R$ 112.0 million. This outstanding
balance will be partially settled by carrying forward tax losses in the amount of R$47.5 million
and the remaining balance of R$64.5 million will be paid in up to 180 monthly installments.
In addition, the company will seek to resume the use of its tax credits through a lawsuit, for
which the restated amount based on the criteria established by the court decision was R$127.5
million on December 31, 2009. The recognition on the accounting statements will be made
based on the acquisition cost of these credits plus the restatement determined by the court
decision, up to the market value limit, in accordance with the interpretation of the Securities
and Exchange Commission of Brazil (CVM) stated in its Official Letter 379/07 dated November
5, 2007, in response to the company’s consultation made on October 8, 2007, which on
December 31, 2009 totaled R$ 90.5 million. This had a negative impact on the company’s net
income in 4Q09 of approximately R$ 7.3 million and on its EBITDA in the period of R$ 29.9
million.
On December 31, 2009 the difference between the face value of the credits and their restated
acquisition cost was R$ 37.1 million, which will be recorded on the financial statements as the
credits are realized based on the receipt of the certificates of judgment debt of the
government.
The Company has also participated in the program for liabilities involving other lawsuits and
administrative proceedings in the amount of R$ 3.6 million, net of tax loss carryforward. As a
result, the total amount to be included in the federal tax renegotiation program is R$ 115.6
million.
Working Capital Days
Heringer’s working capital reflects the seasonality of its business. Therefore, comparisons
between same quarters of the year provide a clearer understanding of its working capital.
Heringer maintains a working capital policy to provide the capital needed for its operations,
while maintaining a cash position that is adequate for its needs.
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11
Heringer maintains a strict credit policy aimed at keeping accounts receivable days at low
levels that seek sales with short terms and adequate credit analysis, thereby reducing default
risk and losses. Accounts receivable days stood at 28 days in 2009, down from 34 days in 2008.
Inventory days stood at 30 days in 2009, down from 43 days in 2008. Through synergies
between the commercial, supplies and logistics areas, Heringer seeks to maintain an ideal level
of inventories to meet its client’s needs in a timely manner and with quality.
Accounts payable days ended 2009 at 115 days, down from 135 days in 2008. Heringer
believes it is well positioned to continue its financing operations for the acquisition of fertilizer
raw materials.
Financial Highlights (amounts in R$ thousand)
Heringer maintained an adequate cash position in the period, ending 2009 with a cash balance
of R$ 153.0 million.
Low levels of accounts receivable and inventories, combined with supplier credit lines and
FINIMP operations, reflect the effective management of our working capital.
-22 2 1 10 0 -3 -21 -59 -110 -92 -55 -58
Working Capital Days
54 5239 34 44 34 35 34
4939
31 28
51
7660
59 60
110 106
4355
6748
30
127 126
9883
104
147162
135
214198
134115
1Q07 2Q07 3Q07 4Q07 1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09
Accounts Receivable Days Inventories Days Accounts Payable Days
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12
Cash Flow (amounts in R$ thousand)
Heringer’s cash generation was negative R$ 97.8 million in 2009. Cash began the period
(December 31, 2008) at R$ 250.8 million and ended the period (December 31, 2009) at R$
153.0 million.
2009 2008 2007
Delivery Volumes (thousand/tons) 3,933 3,190 3,265
Cash and Cash Equivalents 153,040 250,810 118,145
Cash Flow Generation (97,770) 132,365 (58,603)
Accounts Receivable 307,320 352,375 315,345
Inventories 415,936 533,887 539,933
Local Suppliers 175,964 50,848 20,801
International Suppliers 424,981 795,802 370,012
Import Financing & others 567,387 644,823 282,336
Accounts Payable Total 1,168,332 1,491,473 673,149
Total suppliers + Finimp USD 569,933 616,442 368,288
4Q09 2009
Income before Taxes and Social Contribution (66,493) 77,375
Non cash flow impact expenses (revenues) 102,151 (299,100)
Assets reduction 275,330 209,043
Liabilities reduction (337,997) (44,688)
Operational Activities cash flow (27,009) (57,370)
Investing Activities cash flow (11,966) (38,825)
Financing Activities cash flow (379) (1,575)
Cash Generated (Used) (39,354) (97,770)
Net Increase (Decrease) In Cash
Initial Cash 192,394 250,810
Ending Cash 153,040 153,040
Net Increase (decrease) in Cash (39,354) (97,770)
Purchase of fixed assets using ICMS credits 7,682 12,282
Purchase of tax credits 71,524 71,524
Transactions not involving cash 79,206 83,806
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13
Heringer Ownership Breakdown
Since 2007, Heringer stock (ticker symbol FHER3) has been listed on the Novo Mercado, the
special listing segment of the São Paulo Stock Exchange (Bovespa) with the highest standards
of corporate governance.
Heringer is one of the 100 most liquid stocks on the São Paulo Stock Exchange (Bovespa) and is
a component of the following stock indexes: Brazil Index (IBrX), Industrial Sector Index (INDX),
Special Corporate Governance Stock Index (IGC), Small Cap Index (SMLL) and Special Tag-Along
Stock Index (ITAG).
Foreign investors held 67.0% of the free-float in June 2008, with this figure declining to 49.0%
in December 2009, with the share of Brazilian investors in the free-float increasing from 33.0%
in June 2008 to 51.0% in December 2009. On December 31, 2009, Heringer’s free-float
registered 55 foreign investors and over 4,000 Brazilian investors.
Stock Performance in 2009
In 2009, Heringer stock (FHER3) registered a gain of 201%. Average daily trading volume was
R$ 2,073,044 and the average number of trades per day was 317.
In 2008, the impacts from the global crisis led to strong net outflows by foreign investors to
cover positions outside of Brazil, exerting strong pressure on Heringer’s stock price. However,
in view of the market’s good fundamentals, the latest results disclosed by Heringer, new
estimates for fertilizer sales and prices, and changes in the world economic scenario and in
country risk, Heringer stock posted an excellent recovery over the past 12 months.
Heringer continues to believe in the long term potential of Brazil’s fertilizer sector, given the
country’s excellent agriculture conditions and low rates of fertilizer use.
Ownership Breakdown and Free-Float Foreign and Brazilian Investors on Free-Float
Controlling
Group
67.8%
Free-Float
32.2%
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
0%
20%
40%
60%
80%
100%
120%
dec/07 dec/08 jul/09 aug/09 sep/09 oct/09 nov/09 dec/09 jan/10
% Brazilian % Foreign
No. Foreign No. Brazilian
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14
2010 Outlook
The outlook for Brazil’s agribusiness sector in 2010 was heavily correlated to developments in
the world economy, given its strong dependence on exports of orange juice, sugar, soybean,
corn, animal proteins, etc. The growth in international demand for agricultural commodities
and their prices is tied to the higher income levels in emerging economies in recent years and
to population growth.
Following the strong contraction in world economic growth in 2009, we expect a slight
recovery this year, driven primarily by emerging economies. Economic growth in developed
countries remains weak, due to the repercussions of the economic crisis on the economy in
general.
We expect Brazil’s GDP to grow by 4.5% to 5.5% in 2010, with agribusiness making an
important contribution to this growth.
Specifically in relation to Brazil’s fertilizer market, the outlook for 2010 suggests a better year
than in 2009, basically due to the level of ending stocks, which stood at 3.5 million metric tons
in 2009, compared with 6.4 million metric tons in 2008.
As a result, supply should be more in line with demand, which should support margin
expansion in the industry over the course of 2010.
International raw material prices should present lower volatility than in 2008 and 2009.
Accordingly, fertilizer prices should remain near current levels, resulting in lower costs for rural
producers.
JAN/09 MAR/09 MAY/09 JUL/09 SEP/09 NOV/09 DEC/09
R$ 3.61
R$ 4.85
R$ 8.04
R$ 2,66
R$ 6.84
R$ 3.23
R$ 9.40
R$ 11.95
R$ 12.26
R$ 11.00
R$ 10.70
Performance of FHER31 Performance of FHER3 vs. IBOV
Note 1: Values in Brazilian Reais
201%
83%
jan feb mar apr may jun jul aug sep oct nov dec
FHER3 IBOV
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15
Brazil’s fertilizer production could increase in the medium term, in view of VALE’s launch of
phosphate- and nitrogen-based fertilizers in Brazil, through the acquisition of phosphate mines
and the acquisition of the Brazil’s largest producer of fertilizer raw materials. New investments
will most likely be made in fertilizer raw material production, thereby reducing Brazil’s
dependence on imports.
We expect better profitability in Brazil’s agribusiness sector in 2010, due to the lower
production costs and the better barter ratio for fertilizers versus agricultural products.
Grain production in the 2009/10 marketing year is estimated at 146.5 million metric tons,
which would represent growth of 7% on the 135.2 million metric tons in the 2008/09
marketing year.
Expectations point to fertilizer consumption in Brazil of approximately 23.5 million metric tons.
International Raw Material Prices
Prices in USD. Source: Specialized magazines in the FMB sector and The Market
CRF* = cost and fright
0
200
400
600
800
1000
1200
1400
Dec-07 Feb-08 Apr-08 Jun-08 Aug-08 Oct-08 Dec-08 Feb-09 Apr-09 Jun-09 Aug-09 Oct-09 Dec-09 Feb-10
MAP/DAP - CFR* TSP-CFR KCL in Bulk - CFR
Urea in Bulk - CFR Ammonium Nitrate - FOB Ammonium Sulphate - CFR
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16
Agricultural Commodities - Prices
Source and Projection : Agroconsult / R$/bag = Bag Prices
Soybean R$/bag* (60kg/Parana) Corn R$/bag* (60kg/Sao Paulo)
Sugarcane R$/bag* (50kg/Sao Paulo) Arabica Coffee R$/bag* (60kg/Brazil)
15.3
25.0
18.9
33.8
27.8
21.3
19.4
26.5
31.9
38.8
50.6 49.2
49.7
34.9
23.2
27.2
46.4
44.0
59.2
224.6
291.3
252.7
238.6
283.8
267.2
PROJECTION
19.735.8
283.9
PROJECTION
PROJECTION
PROJECTION
77.3
Barter Ratio of Agricultural Products versus Fertilizers
Source: Agroconsult
Soybean Parana (bag/60kg) Corn Parana (bag/60kg)
Sugarcane Sao Paulo (tons) Coffee (Brazil)
30.4
22.016.7
36.3
71.1
42.9
24.1
55.061.0
45.5 51.0
77.6 65.3
107.2
50.7
20.8 21.818.1
23.9
20.1
47.2
21.8
17.1
2.32.6 2.8
4.2
6.3
4.1
2.5
5.0
3.83.7
5.9
8.2
5.9
4.2
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Human Resources
On December 31, 2009, Heringer had 2,888 employees. The payroll, which includes salaries,
mandatory social charges and benefits, totaled R$ 97.2 million.
The salaries paid to employees is calculated in accordance with governing law and their
compensation is composed of the base salary (nominal) and a variable portion, which includes
overtime, additional for nighttime work, hazard pay, productivity and bonuses.
The benefit policy is managed as advantages for employees with the aim of increasing their
safety and wellbeing while at work as well as outside of work. Employees are offered a benefit
package that includes a healthcare plan, life insurance, daycare, food and transportation.
Heringer also has a profit sharing program through which it distributes to its employees 10% of
net income adjusted for any accrued losses from prior periods. Before the end of the fiscal
year, the Company distributes a nominal monthly salary as an advance, independent of the net
income in the period. Employees admitted during the fiscal year receive a share proportional
to their time of service.
Grain Production, Planted Area and Brazilian Fertilizer Market
Source: Agroconsult/ * Agroconsult's Projection and Company's Estimate
143,859
135,263
145,164 149,929
47,376 47,943 48,335 49,193
2007/2008 2008/2009 2009/2010* 2010/2011*
Grain Production Planted Area Brazilial Fertilizer Market
24,609
22,429 22,471
23,500
(in
th
ou
san
d o
f m
etr
ic t
on
s a
nd
of
he
cta
res)
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Fixed Assets
On December 31, 2009, the Company had investments of R$ 344.7 million, basically
represented by the investments in its own properties.
The Company had 19 production units, of which 10 units are owned, 6 units are leased and 3
units are outsourced.
Research & Development
Heringer invests regularly in the research and development of new technologies that can be
applied in its fertilizer production line. As a result of this effort, today Heringer has the largest
portfolio of special products in the market, most of them developed with in-house technology.
These special products have superior agronomic characteristics than conventional products
and yield better results for client’s crops. These increases in productivity are documented
through experiments conducted by well known research institutions, as well as the
testimonials of countless farmers who have used these fertilizers.
In addition, Heringer has an experienced technical team formed by agronomists and zoologists
who are familiar with the latest trends in crop fertilization in Brazil. This technical team works
together with important researchers in the field of soil fertility and plant nutrition in order to
continually update their knowledge of new techniques and parameters to achieve proper crop
nutrition and fertilization.
With the objective of generating and disseminating technical data to farmers and livestock
producers, Heringer maintains two Research Centers, one dedicated to coffee cultivation and
the other to pasture management. The knowledge generated by these centers helps
strengthen relationships with rural producers and also provides technical support for the
Company’s special product sales.
The Eloy Carlos Heringer Experimental Extension and Research Center (CEPEC) is an initiative
of Heringer in partnership with the Ministry of Agriculture, Livestock and Supply (MAPA).
Located in Martins Soares, Minas Gerais, since 1994 it has been considered a national
reference in technological development for high-altitude coffee cultivation, receiving each
year some 1,000 rural producers and technicians at its meetings to present research results.
Located in Viana, Espírito Santo, the Pasture Management and Fertilization Center (CEMAP)
organizes visits and meetings with farmers, researchers, livestock producers and technicians to
disseminate its results and knowledge. The center has 31.0 hectares of pasture, of which 18
hectares are allocated to the production system, which simulates the reality of the field, where
different levels of fertilization are tested. On two of these hectares, various species of grasses
are planted to generate knowledge on the nutritional requirements of each. Under the
coordination of a Research Supervisor, since its creation CEMAP has received more than 1,500
visitors, who include researchers, university representatives, producers and the entire network
of Heringer representatives in Brazil. The center has also organized 180 lectures in various
Brazilian states, including Bahia, Espírito Santo, Rio de Janeiro, São Paulo, Minas Gerais, Goiás,
Mato Grosso, Mato Grosso do Sul and Paraná.
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The Agribusiness Research Center (CEAGRO) located in Vila Velha, Espírito Santo is one of the
pillars of Heringer’s operational excellence, providing a structure for researching and
developing new agricultural techniques. CEAGRO, which has hosted events since 2004, has
maintained a busy calendar of conferences and meetings in the past few months, attracting
professionals (directors, technicians and executives) from various agribusiness areas.
In 2006, the technology FH Micro Total was developed, which consists of a line of products
obtained from an innovative production process by which micronutrients are incorporated into
fertilizer granules, substantially increasing the fertilizer’s efficiency, since it increases the
application uniformity and solubility of micronutrients. Today, Micro Total technology is
available in all of Heringer’s product formulations, since the process results in higher yields for
consumers compared to conventional formulations. These yield gains were proven by
experiments conducted by renowned research institutions in Brazil. To guarantee the
maximum quality of the micronutrients used in this product line, the Company developed at its
Unit II located in Paulínea a micronutrient production process with the granulometry required
for perfect coverage of fertilizer granules, which produces products with superior physical and
agronomic characteristics.
In 2007, Heringer launched its FH Nitro Mais technology. This is an unprecedented product in
the Brazilian market, using special sources of micronutrients to minimize losses caused by the
volatilization of the urea. Through several experiments conducted with consultants, a mixture
was developed using micronutrient sources with characteristics that can inhibit the action of
urease (an enzyme that breaks down urea molecules). The technology consists of covering the
urea granules with this mixture, allowing for more efficient use of this important nitrogen
source. The product is enjoying excellent reception in the market, since it combines two
important benefits: lower nitrogen losses from volatilization and micronutrients with high
levels of availability for use by crops.
Environment
Heringer complies with all environmental laws and regulations, and environmental issues are
considered and observed in all phases of the design, construction and operation of its
industrial units.
All production units require authorization from regulatory agencies for their operation and are
subject to regular oversight.
In addition to the investments already made in Heringer’s production units to bring them in
line with environmental laws and regulations, many other additional investments have been
made in production units as preventive measures and measures to adapt to regulations before
they take effect. Heringer has an environmental management system that allows it to develop
and implement policies and objectives that take into account legal requirements and
information on relevant environmental aspects.
In February 2009, the Paraná State Public Prosecutors’ Office filed a civil action in the public
interest that questioned the conformity of the licensing process and alleged environmental
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damages at the plant in Paranaguá, Paraná. On November 20, 2009, an injunction paralyzed
the unit’s operations, and on December 15, 2009, the injunction was lifted by the 4th Region
Federal Court of Appeals, with the plant authorized to resume operations. Since then, the
Company has continued to defend its interests in the civil action.
Shareholder rights
In accordance with the Company’s bylaws, shareholders are assured the right to receive a
mandatory annual dividend of at minimum 25% of net income in the fiscal year, after being
offset by any accrued losses and with the deduction or addition of the following amounts: (i)
the amount destined for constituting the legal reserve; (ii) the amount destined for forming
the contingency reserves or the reversal of these reserves formed in prior periods; (iii) the
amount resulting from the reversal of the unearned profit reserve formed in prior periods, in
accordance with Article 202, Item II of Federal Law 6,404 of 1976, as amended (Brazilian
Corporation Law).
Adherence to the Market Arbitration Chamber
The Company, its shareholders, administrators and members of the Audit Board (when
installed) pledge to resolve through arbitration all and any disputes or controversies that could
arise between them that is related to or arises from, especially, the application, validity,
effectiveness, interpretation, violation and related effects of the provisions contained in
Brazilian Corporation Law, in the Company’s bylaws, in the rules issued by the National
Monetary Council (CMN), by the Central Bank of Brazil and by the Securities and Exchange
Commission of Brazil (CVM), in any other laws or regulations applicable to the general
functioning of the capital markets, as well as those contained in the Regulations of the Novo
Mercado, in the Regulations of the Market Arbitration Chamber and in the Novo Mercado
Listing Agreement.
Relationship with the external auditors
In accordance with CVM Instruction 381/03, in 2009 the Company did not receive from the
independent auditors or persons related to them any other service other than the external
audit. In addition, the policy adopted by the Company is in line with the principles that
preserve the auditor's independence when hiring auditing services, in accordance with
internationally accepted criteria, namely: the auditor must not audit his or her own work,
perform managerial tasks for his or her customer or promote the customer's interests.
Closing remarks
The Company’s management expresses its appreciation to shareholders, clients, suppliers and
employees for their confidence and support demonstrated over the course of another year.
We remain confident in the continued positive performance of Brazil’s agribusiness sector and
in its lasting importance to the country’s economy.
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In this context, Fertilizantes Heringer remains focused on the pursuit of excellence in all its
activities, through the efforts and dedication of its entire team, striving to always offer high-
quality products and services to its customers.
The Management,