Main Producer of Biological Defensives and Special Fertilizers in a large and fast-growing market
According to a 2020 study published by MAPA, Brazil has more than 175 million hectares of crop area1, of which approximately 652 million hectares are dedicated to grain crops, and an agricultural production that exceeds R$4503 billion. Brazil is one of the largest agricultural markets in the world. The domestic market represents a significant demand for agricultural inputs, which we believe is compatible with the magnitude of its production.
The penetration of biological defensives, including the ones we produce, is still low in Brazil and in the world. In 2019, the market for synthetic pesticides in the Brazilian agribusiness was estimated at approximately US$42.0 billion, having increased by an average of 6.8% over the last two years, according to Kleffmann. The biological defensives market for the 2019/20 crop was estimated at R$930 million, having increased by 46% compared to the 2018/19 crop, according to Spark Consulting.
Biological products are less toxic and offer lower risk of causing environmental and human contamination, with confirmed efficacy and competitive costs when compared to traditional synthetic products. In view of these advantages, we expect a significant increase in demand for these products in the next years.
Additionally, pursuant to the structural trends of the global agricultural market, farmers are expected to seek new alternatives to sustainably increase the productivity of their land. These trends include (i) increased complexity and cost for the development of new synthetic molecules, (ii) the growth of pests that are resistant to synthetic pesticides, (iii) the appeal of society for reductions in the use of chemical products, (iv) the increase in global population, and (v) the limitation on agricultural expansion and shortage of new crop areas.
The Brazilian market for foliar and biological special fertilizers is estimated at approximately R$8.1 billion, according to Abisolo. The average annual growth rate of foliar fertilizers and biological fertilizers in Brazil was 11.8% in the period between 2014 and 2019.
We are well positioned to meet the growing demand for special biological defensives and special fertilizers, since we have (i) one of the largest portfolios of biological defensives and special fertilizers in Brazil, including inoculants, which are authorized for broad application to different crops in Brazil; and (ii) a robust pipeline of new products, in different stages of development as a result of our research and development abilities. Additionally, we believe we are the only one-stop-shop platform for our customers, placing us in a strategic position to capture new business opportunities.
1Ministry of Agriculture of Brazil, 2020. “Agribusiness Projections – Brazil 2019/20 to 2029/30”. Available at https://www.gov.br/agricultura/pt-br/assuntos/noticias/ao-completar-160-anos-ministerio-da-agricultura-preve-crescimento-de-27-na-producao-de-graos-do-pais-na-proxima-decada/ProjecoesdoAgronegocio2019_20202029_2030.pdf
2Ministry of Agriculture of Brazil, 2020. Available at https://www.gov.br/agricultura/pt-br/assuntos/politica-agricola/todas-publicacoes-de-politica-agricola/agropecuaria-brasileira-em-numeros/agropecuaria-brasileira-em-numeros-abril-de-2020
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Direct access to the market is one of our core strategies. Unlike other producers of inputs that rely exclusively on third-party distributors to reach farmers, we decided to build an expansive multichannel commercial platform, including direct sales, third-party distributors and cooperatives, to increase our coverage, distribution reach and access to agricultural producers with different profiles and cultures.
– In addition to our multichannel approach, the success of our commercial strategy is also due to our specialized sales and support team, which includes 198 highly qualified professionals, who monitor farmers on field, understand their needs and offer the most adequate solutions from our portfolio to each customer, plus ongoing technical support.
The presence of these professionals in fields strengthens our relationship with our customers, increases the credibility of our brands and products, and expands potential cross-selling and upselling among our products, as well as the exchange cost of our customers, which represents an important barrier to competition from new entrants or incumbents.
We believe that none of our competitors offer a product portfolio that is as diversified and complementary as the one we offer to our customers. Throughout the years, we developed products and skills related to research and development of a portfolio that reflects efficient and sustainable vegetal nutrition and protection solutions. We believe that such competences make us different from our competitors. Our portfolio was originally focused on inoculants and subsequently evolved to offer other products to our customers, including foliar fertilizers, soil conditioners, organominerals and biological defensives, among others.
Our current portfolio comprises more than 1,142 complementary products. Accordingly, we believe that it presents solutions for all stages of the crop cycle, offering opportunities for the development of new customers, to increase in cross-selling, to grow our revenues and to reduce costs, as a result of selling more products and becoming the preferred supplier of our existing customer base for all their needs.
Additionally, our portfolio strategy is based on our awareness of and concerns with sustainability, social and environmental matters. The manufacturing and commercialization of our products cause a positive impact on the environment and society to the extent that the use of inoculants contributes directly to the reduction of greenhouse gas emissions, since this technology replaces the use of nitrogen fertilizers in the petrochemical chain that release nitrous oxide (N2O), a greenhouse gas that, in addition to remaining in the atmosphere for longer, has a potential to harm the environment and contribute to global warming that is 310 times greater than CO2. The biological defensives, on the other hand, can substitute the synthetic pesticides of high toxicity, whose use has been widely questioned by several segments of society due to possible damage to the environment and human health, including both consumer health and the safety of applicators in the field.
The portfolio of organominerals and soil micronutrients is based on the efficient treatment of the waste produced by other industries, and the transformation of this waste into high quality soil conditioners, which are rich in minerals and nutrients. Vitória, our recently acquired subsidiary, uses the concept of circular economy in its business model, since it collects organic waste from dairy cattle producers and uses it as raw material for the organominerals that will be used by these same producers in a trading model. Accordingly, we believe that our concern with the environment and our distinguished history of operations in this regard place us in a prominent position among our competitors, as customers increasingly seek, and even demand environmentally cleaner solutions to implement in their production processes.
Sustainability is one of our strategic principles, which is in line with our adoption of increasingly sustainable practices that are less polluting and harmful to the environment. Since 2016, we issue annual sustainability reports that present the environmental and sustainability measures we adopt. We are constantly looking for improvements to our corporate governance and environmental sustainability practices and we have an internal team and processes dedicated to this matter. The following chart provides information on our environmental initiatives:
In 2021, the Company renewed the achievement of the Mais Integridade (More Integrity) Seal, granted by MAPA, which certifies companies that develop their activities with integrity, ethics, sustainability and responsibility. We are among the five companies in the segments in which we operate to be granted this seal, which we believe evidences the alignment of our growth with sustainability and integrity.
We believe that one of our strategic pillars is our ability to develop and apply technology in our production processes and the development of new products. We have a team of 49 highly qualified professionals dedicated to the research development and innovation of new products and technologies; more than 2,000 varieties of fungus, bacteria and strains of microorganisms exclusively accessed by us; and 150 strategic partnerships with more than 100 entities, including government research institutions, universities and other institutes. Accordingly, we believe we have strong competences in the research, development and innovation of new products and technologies that distinguish us from our competitors.
Demonstrating the successful integration and complementarity nature between the research and development center and the regulatory affairs sector, in the last four years, such areas and departments have been responsible for the development and regulation of 72 new products and recommendations of use. As of the date of this offering memorandum, we have an extensive development pipeline of new products to be launched in the next four years, including 146 new products and new recommendations for use are in the development phase, of which 35 are in the registration phase.
We also have a team of professionals dedicated to regulatory matters, who have regulatory expertise and knowledge to guide us in the most efficient manner during the entire bureaucratic and technical procedure required for the registration and launch of new biological products. We believe that this competence, together with our ability to develop new products and technologies, allows us to be ahead of our competitors and offer new solutions to the market in the shortest period of time possible.
We believe we have the largest manufacturing scale for the production of biological products based on microorganisms in Brazil. Our new industrial facility has an installed capacity to produce 5.0 million liters or kilos of biological products per year, representing a seven-fold increase in our installed capacity compared to our production capacity as of December 31, 2019. Accordingly, we are duly equipped to expand our scale and increase our market share in Brazil.
A significant portion of the biological defensives and special fertilizers market comprises small and medium-sized companies with local or regional scale, which are unable to produce biological products on a large scale due to market and technical issues, among others. Accordingly, we believe that, with the operation of our new facility and the consequent increase in our utilization rate, we are ready to consolidate our market share in these Brazilian sectors in relation to our competitors.
We believe we created a proven consolidated and integrated business platform that is well positioned for new acquisitions. This is the result of our successful history of strategic acquisitions, which added value in terms of access to new markets, expansion of our portfolio of products, new research and development competences and operating synergies. In the last five years, we completed four strategic acquisitions: (i) Samaritá, in 2014, which allowed us to expand our operations to other markets and further diversify our customer base with farmers of other crops, including citrus crops; (ii) Biovalens, in 2017, which added biological defensives to our pipeline; (iii) Vitória, in 2020, which produces organominerals based on organic waste; and (iv) JB Biotecnologia, in 2020, which produces biological defensives based on macroorganisms (parasitoids and predators).
Once an acquisition is completed, we explore all the alternatives to extract value during the process of integration, including: (i) offering the products of the acquired company through our commercial platform with nationwide scale; (ii) offering our products to the customer base of the acquired companies; (iii) implementing initiatives to optimize processes and rationalize costs; (iv) obtaining synergies derived from the integration of manufacturing processes; (v) optimization of working capital; and (vi) integrations and retention of talents and highly qualified human capital with competences that are complementary to our operations.
As examples of our competence and ability to extract value from acquisitions (i) the case of Samaritá, which in the twelve months prior to its acquisition in 2014 recorded a net revenue of approximately R$25.1 million, and EBITDA margin of approximately (14.6)%, and in 2015 recorded a net revenue of approximately R$38.2 million, and EBITDA margin of approximately 23.6%; and (ii) the case of Biovalens, which in the twelve months prior to its acquisition in 2017 recorded a net revenue of approximately R$0.5 million, and, with the support of the sales platform of Vittia and market access, recorded R$48.2 million, R$33.5 million and R$16.4 million of net revenue in 2020, 2019 and 2018, respectively.
We believe that one of our decisive competitive advantages the broad experience and in-depth industry knowledge of the members of our management. Our management currently comprises a committed and experienced team, with highly complementary competences. The members of our senior management include senior professionals with unmatched knowledge of the market, including Wilson Fernando Romanini, our chief executive officer, who has dedicated more than 28 years to our operations, as well as other experienced professionals, who add other key competences, such as agronomist Henrique Ferro, our chief research, development and innovation officer, who holds a master’s degree and Ph.D. in agronomy, in the area of biological control, from the Federal University of Lavras (Universidade Federal de Lavras), with an extension in the University of Delaware, having dedicated more than 14 years to the research and development of microorganisms used as biological defensives.
Our executives are supported by shareholders aligned with us and focused on our success and continuity of our business. Our shareholders include certain of our executives, which hold material equity interests in us, further reinforcing the alignment between management and shareholders. BRZ Investimentos, through Brasil FIP, also holds a material equity interest in us since 2014 and has actively contributed to the improvement of our internal controls, implementation of business strategies, adoption of better corporate governance practices, and improvement of our sustainability, social and environmental strategies, placing us in a distinguished position for sustainable long-term growth.
The market for agricultural inputs in Brazil presents a significant and promising growth opportunity. We believe that we are well positioned to successfully benefit from this growth, primarily due to our solid multichannel commercial platform, strong brands that are recognized in the market and our broad portfolio of vegetal nutrition and protection solutions.
Based on these pillars, our growth strategy includes:
Expanding our reach and increasing penetration in underexplored agricultural crops
Historically, our presence was concentrated in the Brazilian savanna (cerrado) region and the western portion of the state of São Paulo. Supported by a broad portfolio of products and our sales force, we cultivated and developed solid relationships with farmers, cooperatives and distributors. We expect to replicate this strategy to further expand our coverage and increase our penetration in markets and segments that are still underexplored.
Since each region and agricultural crop in Brazil has its own dynamic characteristics in terms of agriculture and market, we believe that our multichannel platform, together with our specialized service and broad portfolio of products, provides us with multiple opportunities to build and develop new relationships with local farmers, cooperatives and distributors, which previously had little demand for our products, including the South and Northeast regions of Brazil.
Driving organic growth through the cross-selling of products in our broad portfolio
We intend to further explore opportunities of cross-selling and upselling in our current base of more than 1,945 customers. Currently, our Vit Integra program offers our customers complete guidance on the integration of more than 200 products, allowing each of our technologies to produce the best effect on the others.
From the customer standpoint, we believe that the integration of our technologies improves the consistency of agronomic responses and the levels of productivity, as well as simplifies the purchase process of inputs through the concentration of purchases with us, making us their preferred supplier.
As of the date of this offering memorandum, approximately 27% of our customers purchase only one of our products, 16% purchase two products and 57% purchase three or more of our products. Accordingly, we believe that we still have significant opportunities to further explore the potential of our existing customer base, thus driving our organic growth in a sustainable and efficient manner.
Launching of new products
We have capabilities related to the research and development of new products and a large pipeline of products that are expected to reach the market in the upcoming months and years. We have a number of development fronts, especially of products in the biological defensives product category.
Growing through selected acquisitions
We believe we are well positioned to operate as a consolidation platform in the industry and continue to perform acquisitions in a fragmented market of agricultural input producers. Acquisitions allow us to quickly expand our presence in new and existing markets and segments, increasing our verticalization process, customer base, portfolio of products, and industrial and technological competences. We maintain an updated list of potential strategic targets and an active communication channel with the shareholders of these companies to monitor their performance and moment in the market. Accordingly, we expect to prudently select the best assets available in the market to integrate our inorganic growth effort.
Our acquisition strategy comprises: (i) opportunities to access new markets and segments, or consolidate our presence in segments in which we already operate, such as foliar fertilizers, organominerals, among others; (ii) the acquisition of new competences in the research and development of new products and technologies; (iii) the acquisition of new products that complement our portfolio; and (iv) opportunities to extract operating synergies during the integration of the acquired companies.