Hello fellow Verde Shareholders,
As observed in a previous post the 2020 Financial statements Principal Risk and Uncertainties section contains 23 individual risk headings compared to only 6 in the 2019 financial statements. Just to avoid any confusion on the reader’s part, the introduction to the Risk section then goes on to say: “The risks noted below do not necessarily comprise all those faced by the Group.” 23 separate and distinct risks in 2020 and there could be more. This pronouncement obliged a concerned shareholder to go through each one very carefully, trying to comprehend and assess the nature of the risk and how it might impact my investment.
I thought my fellow shareholders might appreciate hearing some of my comments regarding individual risks identified and communicated by management. Let’s start with number 23 which I quote here in full:
The Cerrado Verde Project is Managed by a Subsidiary The material operating subsidiary for the Cerrado Verde Project is Verde Fertilizantes. The managers (“administradors”) of Verde Fertilizantes are Felipe Paolucci CFO and Elton Golaves, Mining Engineer, but the ultimate control of Verde Fertilizantes is with Cristiano Veloso, Director and Chairman. Despite the controls that the Group has put in place, there may be risks associated with ensuring that the corporate actions of Verde Fertilizantes reflect the decisions of the Board of Directors and management of the Group.
Really? Verde Agritech plc (“Verde”) is a UK registered corporation with no active operations of its own: it is essentially a holding Company which owns shares of its operating entities, Verde Fertilizantes Ltda (“VFL”) and FVS Mineracao Ltda (“FVS”) which are incorporated and carry on business in Brazil.
Verde owns 100% of VFL, 84% directly, and the remaining 16% indirectly through 100% owned GB01N Limited (an inactive shell Company whose only assets are the VFL shares).
Verde owns 100% of FVS, 0.005 directly, and the remaining 99.95% indirectly through VFS, which it owns 100% as noted above.
In any event, the consolidated financial statements of Verde report the activities of all the separate legal entities as if they were a single combined company. Indeed, page 38 of the Notes to the Financial Statements state under Note 2.2 state:
Where the Company has control over an investee, it is classified as a subsidiary. The Company controls an investee if all three of the following elements are present: power over the investee, exposure to variable returns from the investee, and the ability of the investor to use its power to affect those variable returns. The consolidated financial statements present the results of the Company and its subsidiaries as if they formed a single entity. Intercompany transactions and balances between group companies are therefore eliminated in full.
Mr. Veloso is the Chairman of the Verde Board and the Verde CEO. Mr. Paolucci is the CFO of Verde.
The Board of Directors of VFL and its officers comprise the following individuals:
Mr. Veloso
Mr. Paolucci
Mr. De Medeiros
The Board of Directors of FVSand its officers comprise the following individuals:
Mr. Veloso
Mr. Paolucci
Mr. De Medeiros
So how do we deal with the supposed risk “associated with ensuring that the corporate actions of Verde Fertilizantes reflect the decisions of the Board of Directors and management of the Group”?
Here is an easy solution. If the Board and officers of VFS do not carry out exactly the decisions of the Verde Board and management, immediately fire Mr. Veloso, Mr. Paoucci and Mr. Medeiros from their positions at VFS. As far as I can ascertain, having Mr. Veloso and Mr. Paoucci as local, onsite, day-to-day managers of the operating subsidiaries guarantees that the instructions they issue themselves are fully reflected in their direction and management of the subsidiaries.
The inclusion of this risk leaves me scratching my head and frankly wondering as to the state of mind of the person who wrote it, and those that determined it should be retained and included as the 23rd Principal Risk in the 2020 financial statements.
Cheers,
S