Mr. Cristiano Veloso reports

VERDE ACHIEVES C$11.1 MILLION REVENUE, 76% GROSS MARGIN AND C$2.0 MILLION EBITDA IN THE FIRST QUARTER OF 2023

Verde Agritech Ltd. has released its financial results for the first quarter ended March 31, 2023 (Q1 2023).

Q1 2023 financials:

• Sales of Verde's multinutrient potassium products, Baks and K Forte, sold internationally as Super Greensand, by volume were 108,000 tonnes, compared with 112,000 tonnes in Q1 2022 and 16,558 tonnes in Q1 2021.
• Revenue in Q1 2023 was $11.1-million, compared with $11.3-million in Q1 2022 and $800,000 in Q1 2021.
• Cash and other receivables held by the company in Q1 2023 were $34.3-million, compared with $22.3-million in Q1 2022 and $4.8-million in Q1 2021.
• EBITDA (earnings before interest, taxes, depreciation and amortization) before non-cash events in Q1 2023 was $2-million, compared with $3.7-million in Q1 2022 and an $800,000 loss in Q1 2021.
• Total non-current assets in Q1 2023 were $68.3-million, compared with $30.1-million in Q1 2022 and $21.4-million in Q1 2021.
• Net loss in Q1 2023 was $100,000, compared with a $3-million profit in Q1 2022 and a $1-million loss in Q1 2021.
• In Q1 2023, 8,559 million tonnes (Mt) of chloride have been prevented from being applied into soils by farmers who used the product in lieu of potassium chloride (KCl) fertilizers. A total of 121,201 tonnes of chloride has been prevented from being applied into soils by Verde's customers since the company started production.

"In Q1 2022, our sales grew by an impressive 574 per cent and our revenue increased by an astonishing 1,260 per cent compared with Q1 2021. Achieving virtually the same volume as last year in markets that experience the strongest downturns of the last few years in the fertilizer industry is a remarkable accomplishment. The price of soybeans, which represents a major portion of Verde's sales, has declined by 33 per cent in the past 12 months, with a substantial 21-per-cent drop in the last three months alone. Additionally, potash prices have seen a significant decrease of 67 per cent over the past year, with a sharp decline of 22 per cent in the last three months. Despite these challenging market conditions, Verde's performance in Q1 2023, delivering results comparable to those achieved in Q1 2022, demonstrates the unwavering commitment and strategic approach of our team, and underscores our ability to thrive in an exceptionally difficult market landscape," stated Cristiano Veloso, founder, president and chief executive officer of Verde.

Selected annual financial information

The associated table summarizes Q1 2023 financial results compared with Q1 2022.

External factors

Revenue and costs are affected by external factors, including changes in the exchange rates between the Canadian dollar and the Brazilian real, along with fluctuations in potassium chloride spot CFR Brazil. The associated table summarizes these changes.

Q1 2023 compared with Q1 2022

EBITDA and EPS (earnings per share)

The company had an EBITDA of $1,969,000 in Q1 2023, compared with $3,678,000 in Q1 2022. This decrease can be mainly attributed to two factors:

1. Higher average freight cost: In Q1 2023, the average freight cost per tonne of product sold on a CIF (cost, insurance and freight) basis increased from $44 to $53. This increase was driven by a higher percentage of sales being made to the northern region of Mato Grosso state, which is located farther away from Verde's production facilities. As a result, the weighted average distance of product delivered increased by 12 per cent in the quarter compared with the previous year, with a $600,000 impact in Q1 2023.
2. Reduction in potassium chloride (KCl) CFR Brazil price compared with the previous year: The drop in KCl prices resulted in a 16-per-cent decrease in revenue per tonne, excluding freight expenses (FOB (free on board) price) in Brazilian reals, from $308 Brazilian reals per tonne in Q1 2022 to $259 Brazilian reals per tonne in Q1 2023. As a result, this had a $435,000 impact on the company's quarterly results.

Basic loss per share was 0.2 cent for Q1 2023, compared with earnings of six cents for Q1 2022.

Product sales

Sales by volume decreased by 4 per cent in Q1 2023, to 108,000 tonnes sold, compared with 112,000 tonnes sold in Q1 2022, due to the circumstances summarized below.

At the onset of the Ukrainian war in February, 2022, concerns arose regarding potential geopolitical sanctions against Russia and their potential impact on the availability of potash fertilizers. This led to a surge in customer orders during the first and second quarters as they sought to stockpile fertilizers for the upcoming crop season.

However, these concerns proved unfounded as the market actually experienced an oversupply of potash due to increased availability. Coupled with a 15-per-cent decrease in potash consumption in Brazil throughout 2022, this resulted in a 23-per-cent increase in year-end potash stock in Brazil, highlighting the lower overall demand for the product during the year.

As a consequence, potash prices have significantly declined, witnessing a 67-per-cent decrease over the past year, with a sharp 22-per-cent decline in the first three months of 2023. This has prompted farmers to delay their agricultural input purchases as they anticipate further price drops, thereby reducing the demand for fertilizers in Q1 of 2023.

Furthermore, the price of soybeans, which represents the major portion of Verde's sales, has declined by 33 per cent over the past 12 months, with a significant drop of 21 per cent in the last three months.

Despite the exceptional market circumstances witnessed in Q1 2021 and Q1 2022, Verde delivered in Q1 2023 results comparable with those achieved in the previous year.

Revenue

Revenue from sales decreased by 2 per cent in Q1 2023, to $11,125,000 from the sale of 108,000 tonnes of product at average $103 per tonne sold, compared with $11,304,000 in Q1 2022 from the sale of 112,000 tonnes of product at an average $101 per tonne sold.

The increase in average revenue per tonne was mainly due to the higher percentage of CIF sales in the quarter, with 68 per cent in Q1 2023, compared with 60 per cent in Q1 2022.

Average revenue per tonne excluding freight expenses (FOB price) decreased by 10 per cent in Q1 2023, to $67 compared with $75 in Q1 2022, mainly due to the decrease in potassium chloride CFR Brazil, from $750 (U.S.) to $1,200 (U.S.) per tonne in Q1 2022 to $455 (U.S.) to $520 (U.S.) per tonne in Q1 2023. This reduction was partially offset by the 7-per-cent appreciation of the Brazilian real against the Canadian dollar.

Production costs

Production costs include all direct costs from mining, processing and the addition of other nutrients to the product, such as sulphur and boron. It also includes the logistics costs from the mine to the plant and related salaries.

Verde's production costs and sales price are based on the following assumptions:

1. Micronutrients added to Baks increase its production cost, rendering K Forte less expensive to produce.
2. Production costs vary based on packaging type, with bulk packaging being less expensive than big bags.
3. Plant 1 produces K Forten bulk, K Forte big bag, Baks bulk and Baks big bag, while Plant 2 exclusively produces K Forte bulk. Therefore, Plant 2's production costs are lower than Plant 1's costs, which produces two types of products and offers two types of packaging options each.

The associated table shows a breakdown of Verde's full-year 2023 production costs projection for Baks and K Forte, and what percentage of those costs is not controllable by management:

Verde calculates its total production costs as a weighted average of the production costs for Baks and K Forte, taking into account the production site and packaging type for each product. Therefore, comparing the company's production costs on a quarter-over-quarter basis may not be meaningful due to the varying proportions of the cost factors that impact each quarter.

Production costs increased by 2 per cent in Q1 2023, to $2.71-million compared with $2,654,000 in Q1 2022. Average cost per tonne increased by 6 per cent in Q1 2023, to $25 compared with $24 in Q1 2022.

Despite a 4-per-cent decrease in sales volume, from 112,000 tonnes in Q1 2022 to 108,000 tonnes in Q1 2023, Verde was able to reduce the average production cost in Brazilian reals. In Q1 2023, the average production cost was $96.47 Brazilian reals, compared with $98.03 Brazilian reals in Q1 2022. This cost reduction can be attributed primarily to a shift in the sales mix of packaging types, with a decrease in the percentage of big bag sales from 39 per cent in Q1 2022 to 24 per cent in Q1 2023.

Sales and marketing expenses

Sales and marketing expenses include employees' salaries, car rentals, travel within Brazil, hotel expenses and the promotion of the product in marketing events.

This increase can be primarily attributed to the implementation of a field sales team, which resulted in expenses related to car rentals and travel. Additionally, the company made additional investments in media and third party marketing agencies as part of a strategic initiative to attract new customers.

Fees paid to independent sales agents

As part of Verde's marketing and sales strategy, the company pays out commissions to its independent sales agents.

Fees paid to independent sales agents increased by 1 per cent in Q1 2023, to $137,000 compared with $136,000 in Q1 2022, in line with Q1 2023 sales.

Product delivery freight expenses

Product delivery freight expenses increased by 30 per cent in Q1 2023, to $3,867,000 compared with $2,973,000 in Q1 2022, as the company has significantly increased the volume sold as CIF (cost, insurance and freight), up from 60 per cent of total sales in Q1 2022 to 68 per cent in Q1 2023.

Sales made to states that are situated at a greater distance from Verde's production facilities had a notable effect on the logistics costs. In Q1 2023, the average freight cost per tonne of product sold on a CIF basis increased from $44 to $53, compared with the previous year. This increase was driven by a higher percentage of sales being made to the northern region of Mato Grosso state, which is located farther away from Verde's production facilities. As a result, the weighted average distance of product delivered increased by 12 per cent in Q1 2023 compared with Q1 2022, with a $600,000 impact in the quarter.

General and administrative expenses

These costs include general office expenses, rent, bank fees, insurance, foreign exchange variances, and remuneration of executive and administrative staff in Brazil.

General administrative expenses increased by 125 per cent in Q1 2023, to $920,000 compared with $410,000 in Q1 2022.

Prior to Q4 2022, administrative employees working at the offices situated within Verde's production facilities were accounted for as part of the personnel production costs. However, in Q1 2022, an adjustment was implemented to ensure alignment with accounting standards. This adjustment involved shifting the cost centre for expenses associated with 33 employees who met that criterion. As a result, a total of $222,000 was reallocated from production costs to general administrative expenses in the quarter.

Furthermore, additional rental expenses were incurred in Plant 2, which involved the rental of water trucks and metallic structures to support operations.

Additionally, the company made the decision to outsource cleaning and maintenance services for Plant 1, Plant 2 and Verde's administrative office in Sao Gotardo. Previously, these services were handled by employees of the company.

Legal, professional, consultancy and audit costs

Legal and professional fees include legal, professional, consultancy fees, along with accountancy, audit and regulatory costs. Consultancy fees are consultants employed in Brazil, such as accounting services, patent process, lawyer's fees and regulatory consultants.

Expenses decreased by 23 per cent in Q1 2023, to $317,000 compared with $411,000 in Q1 2022. The decrease was mainly due to 2022 costs relating to the redomiciliation of the company to Singapore.

Information technology/software expenses

IT/software expenses include software licences such as Microsoft Office, customer relationship management (CRM) software and enterprise resource planning (ERP).

Expenses decreased by 45 per cent in Q1 2023, to $112,000 compared with $204,000 in Q1 2022. Q1 2022 was higher as the company was implementing the change in its accounts from ERP to SAP Business One. This has now been concluded.

Taxes and licences

Taxes and licence expenses include general taxes, product branding and licence costs.

Expenses increased in Q1 2023, to $23,000 compared with $16,000 in Q1 2022, an increase of $7,000.

Share-based, equity and bonus payments (non-cash events)

These costs represent the expense associated with stock options granted to employees and directors, along with equity compensation and non-cash bonuses paid to key management.

Share-based, equity and bonus payments costs decreased by 56 per cent in Q1 2023, to $28,000 compared with $64,000 in Q1 2022. The decrease is a result of a reduction on share-based payments in the quarter.

Liquidity and cash flows

For additional details see the consolidated statements of cash flows for the quarters ended March 31, 2023, and March 31, 2022, in the quarterly financial statements.

On March 31, 2023, the company held cash of $4,289,000, a decrease of $4,684,000 on the same period in 2022.

Trade and other receivables increased by 70 per cent in Q1 2023, to $29,996,000, compared with $17,618,000 in Q1 2022. Trade and other payables decreased by 6 per cent in Q1 2023 to $9,494,000, compared with $10,071,000 in Q1 2022.

Q1 2023 results conference call

The company will host a conference call on Wednesday, May 24, 2023, at 10 a.m. ET, to discuss its Q1 2023 results and provide an update. Subscribe on-line and receive the conference details by e-mail.

Date:  Wednesday, May 24, 2023

Time:  10 a.m. ET

Subscription link: access on-line  

The questions can be submitted in advance, on-line, up to 48 hours before the conference call.

The company's first quarter financial statements and related notes for the period ended March 31, 2023, are available to the public on SEDAR and on the company's website.

About Verde Agritech Ltd.

Verde is an agricultural technology company that produces potash fertilizers. Its purpose is to improve the health of all people and the planet. Rooting its solutions in nature, Verde makea agriculture healthier, more productive and profitable.

Verde is a fully integrated company: it mines and processes its main feedstock from its 100-per-cent-owned mineral properties, then sells and distributes the product.

Verde's focus on research and development has resulted in one patent and eight patents pending. Among its proprietary technologies are Cambridge Tech, 3D Alliance, MicroS Technology, N Keeper and Bio Revolution. Currently, the company is fully licensed to produce up to 2.8 million tonnes per year of its multinutrient potassium fertilizers, K Forte and Baks, sold internationally as Super Greensand. In 2022, it became Brazil's largest potash producer by capacity. Verde has a combined measured and indicated mineral resource of 1.47 billion tonnes at 9.28 per cent K2O (potassium oxide) and an inferred mineral resource of 1.85 billion tonnes at 8.60 per cent K2O (using a 7.5 per cent K2O cut-off grade). This amounts to 295.7 million tonnes of potash in K2O.

For context, in 2021, Brazil's total consumption of potash in K2O was 6.57 million.

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