Q4 2022 JBS SA Earnings Call
Speaker 1: of cattle as a result of the reconstruction of the herd and the lower availability of animals available to slaughter.
Speaker 1: On the other hand, we observe it and evolutions throughout the year in the other business, with highlights to work and primo while the epic culture business on change should show good profitability.
Speaker 1: Moving out to JBS, we have four net revenues for the quarter increase at 5.9% compared to the fourth quarter of 2021 and 6.9% year-over-year.
Speaker 1: From the second half of the year, results were impacted by the strong increasing cost given the lower availability of lives animals, as well as increasing cost of grain, labor and logistics.
Speaker 1: On the other hand, the men and an improved meat supported prices at high levels.
Speaker 1: You can spy on the July 27 post of the net revenue growth of 2.2% in the first quarter.
Speaker 1: and 18% in the annual comparison, reflecting the higher average price in the period, despite a challenging scenario due to the adverse inflation in the markets in which it operates and an exceptional market volatility.
Speaker 1: PPC recorded record results in terms of net revenue and adjusted EBISA for 2022. This is the result of a better commercial and operational execution in addition to the continuing investment strategy in a diversified portfolio.
Speaker 1: record results in terms of net revenue and adjusted EBISA for 2022. This is the result of a better commercial and operational execution in addition to the continuing investment strategy in a diversified portfolio with greater value added and brands.
Speaker 1: With that, I would like to open to our question and association.
Speaker 1: to our question and association.
Speaker 2: Ladies and gentlemen, we will now begin the question and answer session. If you have a question, please press...
Speaker 2: Start key followed by the one key on your touchtone phone now. If at any time you would like to remove yourself from the questioning queue press start great 2022.
Speaker 2: Our first question comes from Carla Casilla with JP Morgan. Please Carla, go ahead.
Speaker 3: Hi, thank you for taking the question. You talked about some of your capacity expansion that you've made particularly at pork and in packaged food.
Speaker 3: What are your thoughts in terms of additional capacity behind packaged food? Do you need to buy or build more expansion capacity or would you do M&A to also build capacity? Thank you Carla. Where's it?
Speaker 4: Could you answer these questions please?
Speaker 5: Good morning, Carla. We've done a lot of expansion recently. We could, our approach to a position is opportunistic. We look at the opportunities that are out there and decide what makes sense. So they'll continue to be the same. Having said that, we have done a lot of growth recently. And we have a, you know,
Speaker 5: Two new brand new plants that are coming up. So I think in the short term we're gonna focus on getting those plants up and running But regarding a position we'll always be on the look for them
Speaker 3: Okay, and any update on the potential for listing the US business?
Speaker 4: I'm Carla. As you know, we are okay. It's about the Oh, the list. We never stop working on this project.
Speaker 4: I'm Carla, as you know we are okay. Go ahead. It's about the, the three on the list. Oh, the list. Carla, we never stop working on this project. It's our top priority.
Speaker 4: We are working at least on our bonds in August and part of this work is the same.
Speaker 4: We will perform is a way that unlock the grace it possible value to the shareholders.
Speaker 4: It is not time for if but when.
Speaker 3: Okay, that's great. But is there something where there's enough steps that the WAN could be in the next year, or is it a longer term project?
Speaker 4: We cannot establish a time because as I said it is we are working in a way that create unlock value for best value, greater value to the shareholders and
Speaker 4: And we are struggling only possibilities, any possibilities to do that. This is, we don't want to compromise with the time.
Speaker 3: Okay, great. And this one last question, and then I'll pass it on. Your cash flow working capital was very strong this quarter. I'm wondering if there's any kind of a reversal or any kind of kind of guidance you can give us that you expect for working capital for the next quarter or next year?
Speaker 3: one last question and I'll pass it on. Your cash flow working capital was very strong this quarter. I'm wondering if there's any kind of a reversal or any kind of kind of guidance you can give us that you expect for working capital for the next quarter or next year.
Speaker 1: Okay, thanks, Karat. Remind that the first quarter is always the worst quarter of the year for the sector and we always have negative pre-cash flow in the first quarter. If you look at the last years especially because of working capital because we have suppliers that generally constantly follow.
Speaker 1: after the year end, supply payments, and the inventory is recomposed. So this makes always the working capital of the first quarter affecting negative the free cash flow. But for the year, I think that's a very good question because in the last two years we managed to solve income rule amendment the number.
Speaker 1: in the market that makes at least a stable price for the grain price. So from the grain price side we don't, we're not expecting a consumer working capital. We have, I mean, we had in the last two years a lot of logistics problems that let us to work with high ventries than usual.
Speaker 1: especially the lockdowns in China, which we also don't expect for this year. We have also the ramp up of the CRF plans, we will consume some working capital because we are feeling the pipeline. However, we currently estimate...
Speaker 1: a release of working capital. It was also a positive, a fac only free cash flow, but that's what we've seen today around the $250 million. But again, there's a lot of variables that start off our control, but our cut expectation is more for a release of working capital than a consumption of working capital for the future.
Speaker 5: Even more than thanks for taking a course. I'll go a quick question. Just a little bit on cap exchange for the YouTube. You could go out a little more like on that. And I'll quick follow up on the home catalog, how it's applying pricing, especially North America. I've seen different conditions of different timing from what you were expecting and the overall.
Speaker 5: course competitive environment or everything is basically going as expected. Thanks.
Speaker 1: Okay, so CAPEX plans, basically this year we invested $2.2 billion, which was because of the high investments on the expansion that we did. For this year, we are forecasting between $1.3 to $1.5 billion in total CAPEX.
Speaker 6: Good morning, the connection wasn't very good here so if I understood correctly you were asking about our opinion on supply of hog and cattle just to confirm.
Speaker 6: Good morning, the connection wasn't very good here so if understood correctly you are asking about our opinion on supply of hog and cattle just to confirm in the US.
Speaker 5: Yes, yes please.
Speaker 6: Yes, so cattle, we have a good supply of cattle in the short term. We know that in the long run we are going to have lower supply. We look at our reports on cattle and feed and we can already see that. So that's coming at the end of the year. On the hog side we still have a good supply of hogs.
Speaker 6: health has been doing well, we're not going to have a challenge on volumes of hogs in the short term. This year we don't expect that. We see that there is more of a challenge on the cost of raising those hogs, especially on our live operations.
Speaker 5: Okay, perfect. Thanks everyone. Have a great day.
Speaker 2: Our next question comes from Priya Oleguepa with Barclays. Please Priya, go ahead.
Speaker 7: Thank you so much for taking the call. I was wondering if we had...
Speaker 7: around your free cash flow for the year specifically around your dividend payment I believe that there's some flexibility given the amount of dividends that you paid into 2022 that you could hold off on making any cash outlays around the dividend in 2023.
Speaker 7: Would that currently be your plan at this stage or is that something that we'd have to wait and see depending on how the environment shakes out?
Speaker 1: Thanks Priya. Okay, so for the frequency flow for the year, that's our first question. If you look at page 11 of the press release, we have all the detailed impact on now and at that.
Speaker 1: So, with their items that most of them will not be present this year, including, for example, share repurchase, working capital consumption that I discussed in the previous answer, biological assets. I have $865 million that was...
Speaker 1: We are building the herd for the expansion plans that we also don't have. Taxed here over $1 billion, we paid $230 million more because we paid taxes with an estimate for the year. The NVA is just as hard to realize it.
Speaker 1: figure on the next year. So we have $230 million of tax credit that will come this year, so decrease in the tax expenses for 2023. CAPEX, as I mentioned also in the previous questions, $2.2 billion, we can consider going down to $1.3 billion.
Speaker 1: The interest payments of $832 million. So we can expect for this year, not much, because 77% of our debts are bonds with fixed coupon. So we can consider $850 million of interest expenses for 2033. Acquisitions of you have entered.
Speaker 1: $77 million. Also, we are more selective on M&A, so we don't expect that. List payments of $435 million, we always have that, so we can consider this $450 million. Then, we will talk about dividends later, we have the buyback shares that we also more selective, so we are not expecting to repurchase shares in 2023.
Speaker 1: Then we have derivatives that can always be positive or negative. And the buyback shares of the DPC which they didn't renew their purchase program. So basically for the E-3 cash flow you can consider $850 million of cash flow.
Speaker 1: interest expenses $450 million of listing, then $1.3 billion in capital expenditures. So we have with that, they have $2.6 billion of expenses. It depends on the profit.
Speaker 1: Working capital is then uncertain but depends on grain prices and other variables. So for the year then you can get your EBITDA estimate and then make the difference from 2.6 to 2.8 billion dollars.
Speaker 1: That will be roughly estimated for the year free cash flow. Now, before you write, we anticipated the payment of the dividends last year, given our strong cash narration and our access to capital markets. So we anticipated $877 million.
Speaker 1: which we could be paying in 2005, but we anticipated for last year. Remember that in Brazil we have a minimum pay-out ratio for the corporate loss that requires 25% of our net profit to be distributed to the shareholders. And that's what we did, we anticipated 28% because it will be used in...
Speaker 1: we need to pay that only 2024 regarding the 2023. However, if we have cash generation, access to market, we think that is a good advantage for the shareholders of something that will have to be done in the next year. We may be willing to anticipate it again.
Speaker 1: and give this benefit. But this is something that we've not decided yet, but there's always a possibility or we anticipate the dividends these for the debt will be paid next year. For this year we have this flexibility for sure.
Speaker 7: Okay, that's very helpful. And then as we're thinking about normalization of beef margins, I think in the past you've talked about potentially the mid-single digit range for 2023. Could you update us on how you're thinking about that for this year, just given some of the dynamics?
Speaker 6: for beef in the medium term even though first quarter and fourth quarter and first quarter will be more challenging. We have the same mid single digits outlook for beef in the US. But is that is that I appreciate that as midterm but is that how we should be thinking about 23?
Speaker 7: Wonderful. Thank you. I'll pass it on.
Speaker 2: Our next question comes from Rodrigo Almeida with Santander. Please Rodrigo, go ahead.
Speaker 8: I want to go back a little bit about capital location, financial leverage and maybe try to connect with the US listing that we talked about also. I understand and I think the market as a whole agrees widely.
Speaker 8: As you can see, I mentioned during the presentation, and I just wanted to get a sense here and then try to connect to the topic of the US listing and things like this because, correct if I'm wrong, but in the case of the US listing, you could be looking at some sort of a capital raising or something like this in order to have a bigger company, a bigger float. And my point here is…
Speaker 8: Whether you could be looking or aiming to reduce net debt in absolute terms, again I understand that your financial position is very comfortable but trying to connect these points here, reduction in net debt as you maintain leverage at a certain level for example, as you may now have a reason to go and ask the market and I think there are investors willing to accept it, right, but to go and ask, okay so...
Speaker 8: Could I raise some money and reduce my debt? I wanted to try to connect these two points here. I think it would be great if you could also maybe just jump in and that's part of the controlling portion of the company here. Give us your perception on how could...
Speaker 8: that take place given the current share price. We're talking about an eventual lease and potential capital increase. Not that it's a big concern, but it's something that I wanted to get your take. And then I wanted to go into a second point here, specific point, and I saw in the Portuguese coin, sorry, I wasn't able to take part in the full discussion there, but I wanted to do a follow-up on the topic about the US gap in IFRS.
Speaker 8: differences and understanding the beef division, it's related to inventories. So in the beef division, specifically North America, I wanted to understand a little bit from you guys, how much of days of inventories are we talking about in terms of finished products in order to have such an impact that we saw in this quarter? And then, how many days of inventories are we talking about?
Speaker 8: on US pork, we see the whole price is going down. We just talked about this and they wanted to understand if we could see the US get margins converging back to the IFRS margins that we saw maybe the next quarter or so. And that's the main questions I wanted to ask you. Sorry for the long questions here, but thank you. Thank you, Rodrigo. Thank you so much.
Speaker 1: addressed by far. So the first part of the question, we approved in March 2019 a policy that is stated on our website, this is our in-depthness policy, that states that we should pursue to be between two and three times net data vida.
Speaker 1: in the long term. And why this range, because it's the range that generally investment grade companies of this sector are in. So that's our long term target. It's also in this policy says that if by any reason, that we have been passively read.
Speaker 1: reached 375, I cannot refer to shares and I cannot pay extraordinary dividends, only the minimum required by the Brazilian corporate law. And we have to present to the board a plan to deliver to the company how we would bring this leverage to the long term target is two increased times.
Speaker 1: Now, we are starting already into your question of capital raising. Remember that is the last answer. I would say that we could estimate a bit of a break even of $2.8 billion. So you get your estimate minus $2.8 billion, the roughly estimate of free cash flow. So most likely we will have a free cash flow.
Speaker 1: So these free cash flow accumulated is enough to bring us our leverage down in two years timeframe. For example, if it reaches 375 or higher, our free cash flow on a two-year timeframe generally increases by 25%. That's about 1% off in ignoring the number of ApHI only, or anywhere in the subcontinent.
Speaker 1: given that the calculation that I did in the last question would bring us below three times. So that will be a plan. So we would not need capital raising to bring this leverage down because we generate free cash flow, most likely in other years.
Speaker 1: So that's why I addressed it. And the least thing Tomazu already asked, we don't have time for that, so.
Speaker 1: In terms of access to the market of our new debt, we don't have the necessity to go to the market unless we decide to anticipate dividends as also the previous question that I mentioned. If we decide to anticipate dividends, we may raise debt to that.
Speaker 1: And now on the US GAAP and IFRS, in fact we have a difference of $328 million dollars. So IFRS, the bidet of JBS USA was 777, YUS, GAAP, the bidet was $349 million dollars.
Speaker 1: The difference is because of treatments, accounting treatments of first, the leasing. A leasing in my FRS doesn't impact, the dog goes into the depreciation while US GAAP, it impacts. So we have a $75 million effect on that.
Speaker 1: Now inventories of this, in US GAAP you adjust the market value and in IFRS is at cost made an impact of $67 million positive.
Speaker 1: The port, the same thing, was $12 million for the same reason of the inventories. Now, we have the biological assets that in US GAAP it is a cost and IFRS is in the market. So this is a difference of $62 billion. Biological assets in Australia are a difference of $29 billion.
Speaker 1: And then the depreciation of the chicken grandma in USA is 86 million dollars because in US gas it's on the CTV and the cost of product sold and in the FRS is depreciation. So
Speaker 1: Generally, we have these accounting treatments of leasing, inventories, and biological assets. Generally, sometimes they go in different directions and then they offset each other. This quarter, we had all these differences moving in the same direction that was increasing in magnitude.
Speaker 9: Thank you.
Speaker 2: Our next question comes from Carlos Lavoy with HSBC. Please Carlos, go ahead.
Speaker 2: Yes, good morning everyone. Guillermo, you've done a terrific job over the last few years of taking a lot of costs out of the business and...
Speaker 2: transforming your balance sheet.
Speaker 2: Are there any major issues left to do other than the registration of Your bonds in the US or the SEC are there any other steps that you need?
Speaker 2: to accomplish or that you feel you need to accomplish to get a New York Stock Exchange listing done.
Speaker 1: Thank you. So in terms of liability management, you're right, we made everything that we needed to do and it took advantage of very low interest rates in the market when you issued bonds at 3%, 10-year bonds at 3%, 30-year bonds at 4.3%.
Speaker 1: And this is basically done. Now that the cost of issuance is higher, given the higher level interest rates, we don't need to come to the market. I think the only bet that I would say is still remaining for liability management is that
Speaker 1: is the remaining 4% of that that has guarantees, which is $480 million of a term low NA at the pilgrims level and a bond of pilgrims that matures in 2027 that is callable is $850 million. So I would say that these two deaths could be, so that they still we have opportunity.
Speaker 1: for to stand the maturity, but it all depends on the market. We are working to list the bonds. We have to list them up to August and last we have 25 days increase in interest rates. So we are very advanced on that....
Speaker 1: more opportunities maybe for the liquidity of the bonds. And part of the work for equity listing is the same work for a bond listing in terms of SEC requirements. So it's whenever, as Tomazoni said, whenever we decide to go for the listing, we'll have part of the job already done, makes it easier and quicker.
Speaker 1: although we don't have a timeline yet for that.
Speaker 1: yet for that.
Speaker 2: Thank you, Guilherme. Ladies and gentlemen, this concludes today's question and answer session. I would like to invite Mr. Tomazoni to proceed with his closing statements. Please go ahead, sir. I would like to thank you all of you for your
Speaker 2: That does conclude the JBS Audio Conference for today. Thank you very much for your participation. Have a good day and thank you for using ChorusCall. You may disconnect your lines now.
Speaker 9: Thanks for watching!
Speaker 9: I'll see you guys next time. Bye.
Speaker 9: And volme.
Speaker 9: Thanks for watching!