Fertoz sees solid and increasing demand for deliveries as it 'dips its toes' into US online retail market

Fertoz Ltd (ASX:FTZ) is experiencing solid and increasing demand for deliveries during the Northern Hemisphere Fall despite COVID-19 and border crossing delays into the US, which negatively impacted forecast sales in the June quarter. Regular shipments from its high-grade Mexico stockpile commenced during the June quarter, albeit slowed by border crossing delays that abated when the new US/Mexico Free Trade Agreement came into effect on July 1, 2020. A large increase in organic food buying over the June quarter, particularly in the US, is expected to drive larger-than-forecast growth in organic planting in 2021. Moving into home market The organic phosphate development company is also moving into the retail home gardeners market with new consumer-sized packaging in the US, as home gardeners look to grow their own organic produce. Fertoz executive chairman Patrick Avery said: “As most of us are seeing globally, this has been an odd year. COVID-19 has impacted everyone, and one key challenge we face is that of lower costs for conventional fertilisers making organic inputs less competitive. “During the quarter we faced several supply chain slowdowns for lack of workers, drivers and other essential inputs. We had dozens of education sessions planned but all were cancelled. “This combination of factors has slowed our penetration of the higher-value fruit and vegetable markets. In the face of this, we had to source new third party processors to process our ore, additional transportation firms to move product to customers and move to online meetings and agronomy sessions with our customers. “We have ensured the lines of communication with our customers have stayed open through the pandemic, and after having regularly updated the organic articles and blogs on our website, we were pleased to see a strong response in the number of hits each month, not only from established organic farmers but also home-gardeners looking to grow their own organic produce in this COVID world." Fall bookings Avery said: “Although spring sales were slow, our fall 2020 bookings are increasing, in part due to increased website hits and in part due to the increasing number of distributors in our key target regions. “Finally, we are pleased to announce the start of shipments from our Mexico stockpile into the southeast of the USA, amid increased market awareness of our very high phosphate ore from this site. “We look forward to achieving an increase in deliveries over the coming quarter, as well as our first website sales.” September quarter plans Its activities planned for the current quarter include: ➢ Building momentum with distribution agreements and third-party suppliers which offer potential to add significant volumes; ➢ Development of an organic N-P product planned for fall 2020; ➢ Offering 1 pound, 2 pound and possibly 10 pound bags to retail customers, ordered via the Fertoz website; and ➢ Updating the scoping study to shift granulation in-house, offering the potential to significantly reduce production costs of its most popular lines. Retail market The company said during the COVID pandemic, it had seen online sales increase dramatically across the organic retail sector. As such, it is planning to offer smaller consumer-sized bags in the US, as part of a small initial consumer/retail products offering, as it dips its toes into the online retail sales over the remainder of 2020. Its investigations indicate that this is a very high margin sector. Regular shipments The company said it had good bookings for Fall 2020 in North America as it began regular shipments from its Mexico stockpile. It had stimulated strong early customer interest from two large suppliers. Fertoz expects to adjust to the new rules of the new US-Canada-Mexico trade agreement and expects this operation to report steady sales in the rest of 2020. It is working with two new, major fertiliser distributors on final drafts of distribution agreements. One of them includes the 'full cycle concept', offering grain contracts to growers and recommending or supplying Fertoz products, and the other is one of the largest input providers in eastern Canada and northwest US. Fertoz is also working with a major, diversified agriculture products and services company, which supplies high-tech farm information, inputs and advisory agronomic services, to carry and recommend its products. It also plans to install required water monitoring wells in the Marten area, as required by its BC Bulk Sampling permit and is likely to extract ore from this bulk sample in the summer of 2021. The company received a notice of compliance following an inspection under the Environmental Management Act of the Fernie area and Marten lease by the BC Ministry of Environment and Climate Change. Australia, New Zealand and Philippines markets Fertoz said sales in Australia had picked up in the second quarter of 2020 due to good rain on the east coast of Australia. Demand is good for the third quarter, with shipments on the way of 336 tonnes of FertAg in August and 336 tonnes in September. It noted that tax and JobKeeper incentives received due to the COVID pandemic were expected to total $56,000 from May to October. In the Philippines, sales have slowed and the impact of COVID-19 is expected to last for the rest of the year. Organic market The COVID-19 pandemic had seen a 25% hike in organic food and drink sales in the 17 weeks to June 27, 2020, according to a recent report by Nielsen Research. This was incremental to the US$50 billion in organic food sales and US$5 billion in organic non-food sales. According to Bloomberg Intelligence, this trend should continue as Americans use the lockdown period to improve eating and exercise habits. Further, although the S&P500 is at about the same value now as prior to the pandemic, organic food companies’ stock prices have generally increased, with many experiencing rises in sales this year. COVID-19 impact COVID-19 procedures have been undertaken, with very little travel and in-person meetings since the start of the pandemic. Staff salaries have been reduced to ensure the company has sufficient funds to get through these difficult times. It warned that COVID outbreaks continue to impact the business, with certain areas having to close down for 14-day periods if there was evidence of community infection. This can result in last-minute cancellations of trucking operations and/or selected border closures or delays, which can impact sales and deliveries. Fertoz has $1.5 million in cash as at 30 June 2020, with no significant loan balances owing.