Huston, we have a delivery cost problem!After a long day with the Verde 2021 Q2 financial statements and MDA documents, I thought you might like to see some of the highlights.
The most stunning standout is the 483% increase in the total cost per tonne for delivery of the product to customers, which apparently hit 43% of total tonnes sold being shipped in Q2 2021 at the Company's cost (CIF), rather than the 57% shipped under FOB terms to the customer at their expense. The Company expensed R$7,885,000 to deliver 41,380 tonnes in Q2 2021, versus R$1,000,000 to deliver 7,118 tonnes in Q2 2020.
This works out to R$190.55 per tonne in 2021 versus R$140.49 per tonne in 2020, a 35.6% increase in unit cost.
These are staggering delivery costs when you consider the cost of the product to extract, transport to the processing plant, and process into a finished product for sale totaled only R$63.36 per tonne in Q2 2021. It now costs three times the cost of the finished product to deliver it to the CIF (versus FOB) customers.
If you add product cost and CIF delivery costs in Q2 2021 you arrive at an average per tonne cost to the customer of R$253.91. This is R$10 more than the average revenue per tonne at $241.24, so we lose money on each tonne sold before considering marketing and selling costs (those 53 sales staff now generating sales) and any contribution to general and administrative costs, which continue to inflate quarter to quarter.
Clearly delivery strategies and their related relative costs is an important area that management needs to quickly review and get a handle on - no point in selling product at a "delivered to the customer" loss - a recipe for guaranteed long term failure in my experience.
Look for more of this type of analysis in my report to the VSG group members going out tomorrow.
Cheers,
S.