Waiting for Q2 Numbers - revisiting Q1Like most analysts waiting patiently for the latest quarterly numbers, I spend time going over previous quarterly spreadsheets checking everything is ready for the new numbers to be input when they arrive on Monday. This useful exercise also takes one back to prior spreadsheets and can generate additional insights and questions.
Here is a piece of one of my Q1 2021 spreadsheets dealing with Gross Margins:
| | In Brazil Reals | | | | Per |
| | Quarter Ending | Per Tonne in Brazil Reals | | Tonne |
| | 31-Mar-21 | 31-Mar-20 | 31-Mar-21 | 31-Mar-20 | | % Change |
| | | | | | | |
| Tonnes Sold | 16,558 | 10,170 | 62.8% | | | |
| | | | | | | |
| Revenue | 3,586,018 | 1,681,319 | $ 216.57 | $ 165.32 | | 31.0% |
| Production costs (before Amort and depr) | 1,872,842 | 1,038,462 | $ 113.11 | $ 102.11 | | 10.8% |
| Amortization of mineral deposits | 17,261 | 6,593 | $ 1.04 | $ 0.65 | | 60.8% |
| Depreciation of production equipment | 224,396 | 49,451 | $ 13.55 | $ 4.86 | | 178.7% |
| Gross Profit | 1,713,176 | 642,857 | $ 103.47 | $ 63.21 | | 63.7% |
Some observations:
Production/Sales were up by 62.8% quarter over quarter.
Revenue recognized per tonne was up by 31%.
These combined to generate a total R$ revenue increase of 113.2%.
Very Impressive Production costs per tonne (extraction from mine, transport to processing plant, and operation of the processing plant, before depreciation and amortization) increased by 10.8%.
This is a surprise, given the increase in volume (62.8%) should have spread the fixed costs over a larger production volume, with the same or lower variable costs.
This suggests the variable costs saw a substantial increase (contracted extraction and transport services, costs of oprating the processing plant - labour, electricity, maintenance and repairs).
Not impressive Gross margin % increased by 63.7%, generating a total increase in gross margin R$ of 166.5%.
Very Impressive Given this Q1 experience, and what we know of the price environment in Q2, I am expecting to see another very impressive quarter at the total sales line.
I am also expecting a better job from management around production costs, especially with the increased production volume. Q2 production in 2020 was 71,183, a 600%increase over the 10,170 tonnes sold in Q1 2020. the same relative increase for Q2 2021 would see a quarterly sales volume of 99,348 tonnes, or about 2/3 of the quarterly production capacity. This should then give full scope to management to improve average production costs per tonne, as we saw in Q2 2020 where the average cost per tonne fell to R$54 from the R$102 per tonne reported in Q1 2020.
These two expectations combine to produce a high expectation of very impressive results in the Q2 Gross Margin % and in the total Gross Margin R$ reported.
Roll on Monday!