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Dalton Carlos HeringerCEO and Member of the Board of Directors
Jaime RebeloCFO and IRO
2Q08 Results
August 14, 2008
2
Disclaimer and IFRS
This presentation may include forward-looking statements about future events or results in
accordance with Brazilian and international regulations governing stock markets. Such statements
are based on assumptions and analyses made by the Company based on its experience, the
economic climate, on market conditions and expected future events, many of which are beyond the
Company‟s control. Important factors that can lead to significant differences between actual results
and these forward-looking statements include the Company's business strategy, economic
conditions in Brazil and abroad, technology, financial strategy, developments in the fertilizer
industry, financial market conditions, uncertainty regarding the results of the Company‟s future
operations, plans, objectives, expectations, intentions, and other factors described in the item "Risk
Factors" of the IPO Prospectus filed with the Brazilian Securities and Exchange Commission (CVM).
As a result of these factors, the Company‟s actual results may differ substantially from those
expressed or implied in the forward-looking statements.
The Company is currently in process of reviewing the full impact of the new regulation issued on
Dec 28, 2007 establishing some BRGAAP changes. CVM has communicated to the market that the
accounting standards adopted by the IASB are the international accounting standards reference.
Company has contracted external services to ensure a full implementation of these new
requirements in compliance to both, BRGAAP and IFRS. Also, the Company has decided to issue its
2008 Financial Statements under the IFRS instead of in 2009 as required by the “Novo Mercado”
rules.
3
Disclaimer and IFRS
As a result of the sanctioning of Law 11,638/7 amending Brazilian Corporate Law and Brazilian
accounting practices as of the fiscal year ending in December 2008, as well as the issue of CVM
Instruction 469 on May 2, 2008, the Company is promoting studies about the related impacts and since
the financial statements published on June 30, 2008, the impacts referred to the Present Value
Adjustments are already being reflected in the 2008 Financial Statements. These impacts were also
calculated for the same periods in 2007 and adjusted on a pro-forma basis to provide comparability
with 2008.
The Company‟s Fiscal Council was established at the Extraordinary General
Meeting held on May 30, 2008. It consists of 3 (three) members and 3 (three)
alternate members, who have already started their work this quarter.
2Q08 Highlights
Change in Sales Mix by Crop
Market Share
Growth in Client Base
Specialty Products
Financial Results
Gross Revenue and Sales Volume
Gross Income
SG&A Expenses
EBITDA and ROIC
Net Income and ROIC
Working Capital and Cash Flow
Market and Outlook for 2008
Raw Materials
Commodities
Market
SeasonalityPhoto: Paulínia Unit in São Paulo
Agenda
5
Highlights: Volume rose 22% compared to 2Q07
Change in Heringer‟s Sales Mix by Crop – („000 tons)
Growth in volume was driven by corn and soybean, while sugarcane‟s share of the crop mix
declined due to contraction in the sugarcane planted area in 2Q08 versus a year earlier
Σ 608.4
Σ 744.4
32% 19% 9% 6% 8% 26%+22%
Market grew 26%
in 2Q08
Stronger growth
in South and
Midwest
Sugarcane Others SoybeansForest CornCoffee
Σ 1,191.8
Σ 1,501.0
29% 22% 8% 13% 14% 14%+26%
22% 23% 8% 5% 14% 28%
19% 23% 8% 13% 19% 18%
Heringer
+26% in 1H08
Market
+22% in 1H08
Sugarcane Others SoybeansForest CornCoffee
6
Highlights: Market Share reached 12.3% in 2Q08 and 13.1% in 1H08
30.5%
25.4%
33.0%
1.6%
9.5%
Market Share Expands from 12.7% to 13.1% in 1H08 2006 2007 2008
By Region – 1H08
22,767 20,195 20,982
4,792 6.051
24,609
- 11% + 4% + 17%
2004 2005 2006 2007
2Q07 2Q08
+ 26%
1H07 1H08
9,392 11,477
+ 22%
Year
Volume
(„000 Ton)
Volume
2008 Seasonality*
* Forecast
Brazil Volume
Brazilian Market(source: ANDA)
7
Highlights: Client Base rose 30% from 2Q07
Σ 5,055Σ 6,548
Σ 27,488
Σ 31,057
Growth in the Number of Clients
Continuous growth in client
base due to the company‟s
expansion, specially in
regions more recently entered
Strengthening of client base
for sustainable growth in the
coming years
2Q08 x 2Q07
+ 30%
+ 13%
Σ 13,064
Σ 16,766
+ 28%
Southeast
South
Midwest
North/Northeast
+ 50%
+ 60%
+ 25%
+ 24%
1H08 x 1H07
+ 53%
+ 54%
+ 24%
+ 31%
Heringer’s stand at 2008 Agrishow in Ribeirão Preto, SP
Highlights: Specialty Products grew to 21% of the total Sales Volume, versus 20% in the 1H07
Conventional Specialty
80%
20%
78%
22%
Σ 608
Σ 744
Σ 2,461
Σ 3,264 Growing contribution by
Specialty Products to
margin expansion
+ 33%
+ 24%
+ 26%
+ 49%
+ 29%
+ 33%
(„000 tons)
8
(1) Criterion changed from gross revenue to volumes delivered. Under previous criterion, specialty products accounted for 18% in 2006.
Share in Total Sales Volume (1)
75.5%
24.5%
75.5%
24.5%
80%
20%
79%
21%
Σ 1,192
Σ 1,501
+ 22%
+ 22%
+ 22%
Photo: Interior of Paulínia Unit in São Paulo
Agenda
2Q08 Highlights
Change in Sales Mix by Crop
Market Share
Growth in Client Base
Specialty Products
Financial Results
Gross Revenue and Sales Volume
Gross Income
SG&A expenses
EBITDA and ROIC
Net Income and ROIC
Working Capital and Cash Flow
Market and Outlook for 2008
Raw Materials
Commodities
Market
Seasonality
10
Financial Results: Gross Revenue and Sales Volume
Gross Sales Revenue (R$ MM)
+ 11%
Sales Volume („000 tons)
Average sales price up
70% vs. 2Q07 and
25% vs. 1Q08
Price increases driven by
higher raw material prices
Volume:
Probable change in seasonality
from 38% of total in 1H07 to
approx. 44% in 1H08
2,305
+ 108%
-20%
3,264
+ 22%
+ 33%
+ 23%-9%
+ 59%
+ 95%
+ 26%
Quarter Half Year
* Proforma adjustment to present value
to maintain comparability with 2008, as
per disclaimer on page 3.
Note : In order to better demonstrate its effective operational margins, the company is presenting the Gross Profit and EBITDA reclassified by the FX Gain on a
“Pro forma” basis. This reclassified Gain is associated with the effective inventories sold during the period which is currently booked, under the
BRGAAP, in the Financial Income and Expenses line – below EBITDA line. The Reclassification was R$ 3.9 million in 2006, R$ 30.9 million in 2007,
R$15.7 million in 2Q08, R$7.8 million in 2Q07, R$25.8 million in 1H08 and R$10.7 million in 1H07. 11
Gross Profit (R$ MM) and Gross Margin - Adjusted
Financial Results: Gross Income and Gross Margin – After the FX Gain Reclassification
After Pro-Forma reclassification
+ 75%
+ 121%
11.0% 12.1% 16.2% 17.4%%NR
Options for the strategy of
using good purchase
opportunities to bring
forward inventory in the
1Q08, allowing for an
increase in
competitiveness given the
substantial hikes in the
prices of fertilizer raw
materials
15.9% 15.4%
Pro-Forma Reclassification
+ 88%
Quarter Half Year
* Proforma adjustment to present value
to maintain comparability with 2008, as
per disclaimer on page 3.
12
Financial Results: Selling and Administrative Expenses
Administrative Expenses (R$ MM)
+ 19%
+ 25%
2.2% 1.7% 2.2% 1.3%%NR
Selling expenses rose
in absolute terms,
but were diluted in
higher Net Revenue,
declining as a percentage
of NR
SG&A expenses fell 90 BP,
from 9.6% of NR in 2Q07
to 6.3% of NR in 2Q08
-50 PB -90 PB
2.1% 1.4%
+ 26%-70 PB
Quarter Half Year
Selling Expenses (R$ MM)
+ 39%
+ 38%
7.6% 6.6% 7.4% 5.0%%NR
-240 PB-100 PB
7.2% 5.2%
-200 PB
+ 40%
Quarter Half Year
13
EBITDA (R$ MM) and EBITDA Margin (% NR)
Financial Results – Adjusted EBITDA and EBITDA Margin
Extraordinary items in 2006 (COFINS/Bonuses)
Proforma reclassificationExtraordinary items in 2007 (IPO expenses)
+ 233%+ 141%
3.7% 5.5% 7.5% 12.2%%NR
The combination of:
- strategy of purchasing
higher volumes in 1Q08,
anticipating the continued
increase in raw materials
- higher sales volume,
especially in regions with
newer operations;
- the dilution of SG&A
expenses,
... Improved the
competitiveness leading
to EBITDA per tonne of
R$ 130 in 2Q08, versus
R$ 48 in 2Q07 (+171%), and
+91% vs. 1Q08
EBITDA ROIC – considering SSP plant
EBITDA ROIC – excludes investment in SSP plant/not yet generating income flow
8.2% 10.2%
+ 140%
Quarter
Half Year
* Pro forma adjustment to present
value to maintain comparability with
2008, as per disclaimer on page 3.
Note: for ROIC calculation, the import finance loans (FINIMP) are being considered as Working CapitalReturn on Invested Capital– (ROIC) = adjusted Net Profit, divided by the Average of 2 years invested Capital. Invested Capital is defined as: Total assets less cash and liabilities net of debt.
* Pro forma adjustment to present
value to maintain comparability with
2008, as per disclaimer on page 3.
Extraordinary items in 200714
Net Income (R$ MM) and Net Margin (% NR)
Financial Results: Adjusted Net Income and Net Margin
Extraordinary items in 2006
+ 116%
+ 135%
4.0% 2.5% 5.6% 9.3%-3.1%%NR
EBITDA ROIC – considering SSP plant
3.8%
EBITDA ROIC – excludes investment in SSP plant/not yet generating income flow
ROIC: The majority of the IPO
proceeds concentrated in
CAPEX in 2007 and 2008
6.0% 6.7%
+ 240%
Quarter
Net Income favored by:
• Reversal of UNREALIZED
foreign exchange losses
(financial expenses group )
on international accounts
payable in 1Q08
• Continued appreciation in
BRL vs. USD generating
financial revenue from
USD-linked liabilities
Note: for ROIC calculation, the import finance loans (FINIMP) are being considered as Working CapitalReturn on Invested Capital– (ROIC) = adjusted Net Profit, divided by the Average of 2 years invested Capital. Invested Capital is defined as: Total assets less cash and liabilities net of debt.
Financial Results: Working Capital
(1) Inventory Days net of client advances15
23 65 19 -8 4 15 15 44 58 59
-12 -2 -18 -26 -22 1 1 10 0 -3
Working Capital Days
Working Capital Days
(considering FINIMP in
accounts payable /
working capital)
Inventories Days:
Strategy of higher inventory
volume purchase to meet
demand on a competitive
basis.
Accts. Payable Days:
Local: Option for up-front
cash payments avoiding high
interest.
International:
Import Financing Facility
(FINIMP) as a lower interest
rate alternative to the ones
built into the raw material
prices at term of the suppliers
purchases (FINIMP is 99% of
the ST Debt
R$ 465.2 MM )
16
CASH FLOW (R$ MM)
R$74.1 MM were generated in the 2Q08 R$134.75 MM were generated in the 1H08
Non Adjusted EBITDA
Others
Inventories
Advances from Clients
FINIMP – Raw Material Imp. Finance
Inicial Cash
03/31/2008
Ending Cash
06/30/2008
Inicial Cash
12/31/2007
Ending Cash
06/30/2008
Non Adjusted EBITDA
Advances from Clients
FINIMP – Raw Material Imp. Finance
Suppliers
Clients
Interest on Equity
Net Financial Result
Corporate Taxes
Units+SSP+Others
Inventories
Clients
Interest on Equity
Corporate Taxes
Units+SSP+Others
Taxes to Recover
Taxes payable
Net Financial Result
Others
Suppliers
Taxes to Recover
Taxes payable
Raw materials for NPKs
Agenda
Urea (N)
Single Super
Phosphate - SSP (P)
KCL (K)
2Q08 Highlights
Change in Sales Mix by Crop
Market Share
Growth in Client Base
Specialty Products
Financial Results
Gross Revenue and Sales Volume
Gross Income
SG&A expenses
EBITDA and ROIC
Net Income and ROIC
Working Capital and Cash Flow
Market and Outlook for 2008
Raw Materials
Commodities
Market
Seasonality
18
Basic Fertilizers: MAP, TSP and KCL
Nitrogen Fertilizers
Source: The Market
MAP (C&F)
YoY: + 164%
2Q08: + 9%
TSP (FOB)
YoY: + 179%
2Q08: + 4%
KCL (C&F)
YoY: + 224%
2Q08: + 58%
Urea (FOB)
YoY: +134%
2Q08: +59%
Nitrate (FOB)
YoY: +91%
2Q08: -5%
Sulphate (C&F)
YoY: +139%
2Q08: +49%
Market and Outlook for 2008 – RawMaterial
Urea in bulk – Yuzhny, Nitrate in bulk – Black Sea,
Ammonia Sulfate in bulk – Brazil, MAP in bulk – Brazil, TSP
in bulk – Africa, Potash – MOP in bulk – Brazil
2007
2007 2008
2008
Supplying offer continues
tight:
• N,P and K producers
operating close to full
capacity - around or over
90%
• Tight balance between
fertilizer Supply and
Demand
• Brazil‟s imports growth in
2007
• Significant increase in raw
material prices – pressure
on the agricultural terms
of trade.
19
Commodity Prices
Market and Outlook for 2008 - Commodities
Grains: Corn, Soybean, Wheat
Softs: Coffee, Sugar, Oranges
Stock-to-Use Ratio – Cereals(1)
(1) World stocks and demand
On the other hand, the demand
keeps strong:
• Rising Grain Prices
• Global Grain stock reduction
• Few unused potential farmland
in other countries
• Bioenergy programs (ethanol)
• Population and output growth
Volume by Crop(MM tons)
Volume by Region(MM tons)
Source: ANDA for 2005 to 2007 | Estimates 2008 – Volume per Region/ ANDA – Volume per Crop/ ANDA and
Heringer
Market and Outlook for 2008 –Market
Legend: E = estimated allocation by crop and region
Σ 25.8
Σ 20.2 Σ 21.0
Σ 24.6Σ 25.8
Σ 20.2Σ 21.0
Σ 24.6
20
+ 4.8%+ 17.1%
+ 4.0%
+ 4.8%+ 17.1%
+ 4.0%
Market Outlook for 2008 still at 25.8 MM tons, which may be revised quarterly.
21
SSP plant - Commissioning and start
of tests in 3Q08
Inauguration of new Mixing Unit in
Iguatama, Minas Gerais,
with annual capacity of 150,000 tons
In early 4Q08, operational startup of
new Mixing Unit in Catalão, Goiás,
with annual capacity of 150,000 tons
SSP Plant and Other Investments
Photo: Construction of the SSP plant (Paranaguá, PR) Photo: Construction of SSP Plant (Paranaguá, PR)
Photo: Construction of Mixing Unit in Iguatama, MG
Photo: Construction of Mixing Unit in Catalão, GO
22
Market 2004 to 2006
Source: ANDA for Brazilian market
Market 2007 ANDA 2008 Estimates – 25.8 MM Tons
31%
69%
38% / 37%44%
56%
According to ANDA, 2008 seasonality should
change, with first half accounting for
aproximately 44% of total fertilizer volumes
in 2008, versus 38% in 2007. ANDA estimates
2008 market at 25.8 million tons
HERINGER‟S seasonality is similar to the
Brazilian market in the first half of the year.
However, Heringer‟s fourth quarter has
historically outpaced the market
Seasonality: Distribution of Sales Volume
62% / 63%
