Q3 2023 JBS SA Earnings Call
Good morning, everyone and thank you for waiting welcome to Jbs, USA and Jbs USA third quarter of 2023 results conference call with US here today, we have Joe back Docomo, joining global CEO of Jbs.
He led me a couple of countries global CFO of Jbs.
Whereas labour she's the failure CEO of Jbs, USA Anacortes Genesis Investor Relations director.
This event is being recorded and all participants will be in a listen only mode. During the company's presentation. After J P. S remarks, there will be a question and answer session at the time for the restrictions will be given should any participant in our system. During this call. Please press star zero to reach the operator before.
Proceeding lemme Mesa that forward statements are based on the beliefs and assumptions of Jbs management.
They involve risks and uncertainties, because they relate to future events and therefore depend on circumstances that may or may not occur now.
Now I will turn the conference over to your back to Thomas Zani Global CEO of J P. S. Mr. Thomas you may begin your presentation.
Good morning, Thank you everyone for participating on our earnings calls.
Our third quarter numbers for 2020.
So we are on a steady path toward core.
Both our results and margins.
As we flagged it early in the third quarter bookings this year.
Our business segments continues to improve whether we are talking about margin or cash flow.
Thanks to the strength of our global diversified platform.
Joe Brocious in proteins.
The implementation of key management improvements in Brazil and Europe.
Steve.
We have added nearly 1%.
Boyd, our EBITDA margins compared to the second quarter revenues year rising to nearly 6%.
This cash flow progression and demonstrates our commitment to financial discipline and the fundamentals of our debt policy.
This is the first highlights.
Like to share about our results.
Moving to the second point.
And revisiting the issue.
It's really discuss it.
Two business areas that we are performers below their potential.
In this third quarter, we continue to work on the restoring the profitability of this operation and were beginning to see the initial results.
At CER.
Is it Q2 parts of our previous identify opportunities and we believe that the coming quarters will be positive impacted by the realization of these benefits from these measures.
Beyond operational improvements.
Tiara as opportunity outside its gates.
Meaning opportunities captured from the market with the ramp up of new facilities like Orlando for example, which have yet to reach full capacity.
Without a doubt we are in the very optimistic about <unk> prospects.
In our U S beef operate decent yoplait.
The operational measures, we have implemented in commercial industrial areas.
Helping us navigate the lowest point in the cycle.
The margin of the operation are showing gradual recovery.
Even sooner.
Scenario of fight that express is spreads and reduce it get on supply.
Demonstrating our commitment to operational excellence.
The third point is our dedication to financial discipline to reduce our debt.
This quarter, thanks to our strong cash flow, we reduced our net debt by $600 million.
Despite this reduction.
Our leverage increased to 588 87.
In dollar terms.
Due to a strategic a statistical issue.
Which gilead will elaborate on shortly.
These wells.
Once again show that we are well prepared to navigate this challenge period, which secured it and financial robustness.
We have extended the average term of our debt to Lps.
Spaniards liquidity and reduce the cost of borrowing.
This is a testament to our commitment to the financial discipline in our efforts to reduce our debt.
Beginning in this quarter of 2023, we will enter.
Sorry, the beginning of this last quarter of 2023.
We entered at a structural there leverage process for the corporate.
The fourth point.
I would like to highlight.
Our.
To grow in the core.
Investment of our operation front investment and new facility in the past years.
As evidenced by the opening of Rollouts that breadth of product and the sources sector and part of that two weeks ago.
One of the most modern and sustainable Jbs led to New York.
Likewise, our new Italian meat plant in United States continued to rapidly ramp up production.
Jbs long term revision remain unchanged.
We remain focused on our growth through diversification innovation value add products and strong brands.
We have a unique.
Multi geography multi protein platform that makes us more resilient in the face of challenging scenarios.
Any specific geographies or business lines.
Additionally, I'd like to address our focus on generating long term value.
Stakeholders with the dual listing our shares in Brazil, and the United States.
We believe this is a yet another way to generate even more value to all of our shareholders and our team members and our communities.
Finally.
Our ongoing investment in expansion the reduction of our debt and as a cushion of improvements in the management of our business. So that we got up so literally focus of what we can control regardless of other issues that may affect our business.
As we celebrate our 70 at University.
We have evolved our brand to commemorate this new shoppers for jbs.
It is a theme.
Most of the two.
Suddenly a celebration of our best and a reflection of our present and a vision for our future.
With focus on innovation operational excellence quality financial discipline and leadership in all that we do.
Thank you all for participating this earning calls.
Oh.
<unk> two over to Guillermo.
We will be detailing our financial.
Please.
Thank you Thomas let's go through the operational and financial highlights of the third quarter 2023, starting on slide 12. Please.
I'd like to start by highlighting all the work and the liability management that we continue to carry out throughout the second half of the year.
In September Jbs issued $2 5 billion in senior notes of which $1 6 billion with a fall of $6 75 per cent and maturity in 2034 and lower.
$900 million with a coupon of 725% and maturities in 2053.
Subsequently, we issued $500 million through our subsidiary <unk> been surprised with maturity of 2034 knuckle boom of $6 87.
Additionally in October we issued agribusiness receivables certificates in the amount of $1 7 billion Reais.
Thus with the resource described above we paid $440 million of trade finance lines in September and we repaid almost all of our short and mid term debts in the amount of $2 5 billion.
In addition to the tender offer of <unk> notes due 2027 already concluded in the amount of 868 million Boes.
After completing this entire process will extend jbs average debt to 12 years, reducing the average cost to 608% per year and practically eliminating the need to pay debt until 2027.
Moving on to slide 13, we have the operational and financial highlights of the quarter net.
Net revenue in the third quarter 2033 was $19 billion.
Adjusted EBITDA totaled $1 1 billion.
Which represents a margin of five 9% in the park.
So improvement since the first quarter 2023 in line.
Once we have been mentioning throughout the year.
Net profit was $117 million in the park.
Now moving to slide 14, the operational cash flow in the quarter was $1 $3 billion.
An improvement of 20% when compared to the previous quarter.
This result is mainly a consequence of the improving in your operating results, but also in working capital, which was positively impacted by $341 million.
The main gains came from improvements in accounts receivables due to the decrease in average price and increased payments from China and middle East countries.
As well as.
The reduction in inventories as a result of the decrease in the price of raw materials, mainly life gasoline in Brazil, and Australia in grains in U S and Brazil.
In the last two quarters, we informed the market that we could generate enough free cash flow to offset the first quarter cash burn of $1 $2 billion.
Considering the results of the second and third quarters, we have already reached $1 $1 billion that is 91% of the total amount.
Historically, the fourth quarter generates free cash flow due to the postponement of payments from live animals until the following fiscal year.
In the first quarter, we had a cash outflow of $440 million related to these purchases and do you expect that the good part of these amounts now returning the fourth quarter, which will contribute positively to the free cash flow of the year.
Furthermore, we are considering capturing more of her more $150 million in the fourth quarter on the back of long range.
<unk> prices.
Regarding tax we are estimating an additional cash inflow of $100 million due to the refund of state tax in U S and the monetization of tax credits in Brazil.
These amounts are in addition to the hunting in $85 million, we book in the second and third quarters.
Finally.
We already expected leveraging the third quarter to be the highest of the year due to the decrease in EBITDA, which as we've demonstrated its already improving sequentially.
When using the market core sales to support EBITDA, our leverage in 2023, we will end up around four times net debt to EBITDA.
Lower than the leverage boosted in the second quarter.
Likewise using market consensus for EBITDA of 2024, which is a margin of six 5% levered towards already returned to the top range indicated in our financial policy that is street times.
2025, using market consensus data, which is a margin of 7%.
Our leverage would end up the year of 2005 to two five times.
To wrap up this slide capex expenditures in the quarter was approximately $375 million.
52% of which was maintenance.
Therefore, considering the factors above free cash flow for the quarter was positive $783 million.
Moving to the slide 15, we have the evolution of our debt profile met that in the third quarter 2003 ended up at $16 billion, a decrease of approximately $600 million.
Sequential operational improvements reflected in RMB, one $1 billion and the improvement in working capital of $241 million were more than enough to offset the investments in capital expenditures of $375 million accrued interest of $270 million biological assets of $113 million.
And leasing payments of $101 million.
Net financial expenses for the quarter was $261 million is stable compared to the previous quarter. It's worth mentioning that 79% of our debt is in the form of bonds denominated in dollars with fix of coupons.
Leveraging dollars rose to $4 87, and <unk> $4 84 in the.
The growth has expanded by 61% reduction in EBITDA in the last 12 months ending in the third quarter 2023, when compared to the same period of previous year. However, as I mentioned previously our average it.
That is quite comfortable at 12 years with an average cost of 6% and no relevant maturities until 2027.
Before I move on to the business units I would like to make everyone aware that boldly in the earnings release and on our Investor Relations website, we began to disclose a beat in dollars and U S. GAAP for the international operations to facilitate comparability with our U S peers.
Let's now quickly go through the business units.
Starting with Seattle ones I'd like 16, net revenue for the quarter fell six 7% year over year in the third quarter, reflecting the lower poultry prices global oversupply of poultry on the other hand profitability improvement sequentially throughout the quarter as a result of lower production costs and greater operational efficiency. Furthermore, I would.
Like to highlight that say I have no great industrial complex located in the seat Jaco Lunger in October.
If anything its expansion strategy in brand and value added products.
Particularly in the chicken bread and hotdogs segments.
The new plants are the most automated data in a moment, but the most modern at jbs globally.
Moving now to slide 17, Jbs, Brazil reported net revenue of $4, 4% lower when compared to the same period the previous year as a result of the decrease in beef export prices mainly to China.
This result was partially offset by greater demand in the domestic market, reflecting the decrease in retail prices.
I would like to highlight that in a survey carried out by the data for the Institute.
Yeah.
Our Brazilian households, the three boys brand was once again elected top of mind that these the most remembered referred brand by Brazilian consumer.
Re boy wings. The midkiff every for the fourth time and consolidate itself as the absolute leader.
Moving onto the slide 18, and speaking from now on in dollars and U S. GAAP Jbs beef North America net revenue grew 7% year over year in the quarter. We then EBITDA margin of one 6%.
Though profitability reflects the turnaround in the cattle cycling the annual comparison the sequential improvement in profitability is a result of the company's efforts to improve commercial and operational performance already capturing gains on several fronts.
Moving on to Slide 19, we have jbs, Australia. Despite the decrease in consolidated net revenue.
EBITDA margin grew three percentage points to six 6% in U S. GAAP.
This improvement mainly reflects the lower purchase price of life capital given the greater visibility of annual most due to the more favorable cycle.
According to meet and livestock, Australia, the price of lives gap in Australia fell 49% year over year in the third quarter.
Danielle to Jbs USA pork net revenue for the fourth quarter was 5% lower compared to the third quarter 2022. However, the EBITDA margin returned to historical levels. This improvement in profitability as a result of lower lower green costs minus 24% year over year the decrease in pork.
Prices minus 18% year over year and continuous efforts aimed at expanding the value added portfolio and improving commercial and operational execution.
It was a surprise on July 21 presents a drop in net revenue of 2% in the third quarter 2010.
In the annual comparison, however, all regions improved margins compared to the pivotal squatter as a result of operational excellence programs continued partnership with key customers and increasing diversification through our branded and the value added portfolio.
In the U S. Both with cuts that are use it as raw material big birds.
Still face a challenging scenario, but the market fundamentals have already started to improve Mexico required strong result in the quarter.
With continued improvement in the life chicken operations, lower grain prices and the favorable exchange rate impact finally in Europe, the positive trajectory of margin growth on chinas driven by the conditions.
The continuous optimization of operations cost recovery efforts consolidation of back office activities and growth of partnerships with key customers.
As you can observe and as we have been indicating the sequential improvement in our profitability has already occurred and the trend remains positive in the fourth quarter, highlighting Jbs, Australia Ciara in Jbs, Brazil, So I would like to open to the our question and answer session. Please.
Ladies and gentlemen, we will now begin the question and answer session.
It will have a question. Please press the star followed by the one key on your Touchtone phone now you said any time you would like to remove yourself from the question in queue. Please press star two.
And our first question comes from Priya <unk> Gupta with Barclays. Please go ahead.
Good morning. Thank you so much for taking my questions.
I mean, I apologize a little bit, but we had some difficulties with the connection this morning on the call.
The first call that you posted.
This is a repeat of that.
It's just because we didn't quite clearly here the responses.
Congratulations on the results this morning.
Thank you Jeremy first if we can talk a little bit about the free cash flow performance I think on the call. This morning.
You guys mentioned that.
Free cash flow performance and fourth quarter should be similar to third quarter is that the right way to think about it in terms of.
The dollar amount or just directionally, so that would be the first question.
Okay is there actually could.
Could be more or less the same range in the third quarter it could be higher.
What do you have for the fourth quarter is.
Operator, good operation margin operational margins for Australia.
Beef, Brazil in Seattle.
It will include.
It will benefit the operational free cash flow.
We also have.
More working capital release to the to the grain prices decrease.
Also working capital release through the prices of the live animals in Australia and Brazil.
We also expect more of a $100 million in tax refunds by state.
Texas in U S and credit monetization in.
In Brazil.
And.
Remember that every every year.
We have oh.
Most vulnerable.
Livestock payments.
For example.
In first quarter. This year, we had $440 million surplus payments.
That was postponed it from December to January.
40 million was a deferred payment of getaway in Brazil, and $300 million was deferred cattle and hogs in U S.
If you have the same thing.
That'd be had serious also potential positive effect.
<unk> of these livestock differed.
So all in all we expect to have a good free cash flow.
For the fourth quarter as well as.
Improved making operational margins in almost all of our business units.
Okay and then.
Picking up on that point.
You mentioned a specific read that.
Australia, Brazil, MCR are continuing to see positive momentum into the fourth quarter.
You guys had a really solid margin performance in the U S pork.
Should we think about that performance into fourth quarter, and then next year.
Secondly, given where it is relative to kind of the long term range.
Okay, I'll pass to whether they choose to talk about the perspective of next year of work and then it's almost on a very good morning.
On pork.
We expect that.
We look back book is the most stable business we have overall.
The first half of the year, we consider as more of them.
Normally then more more to do with the.
The business going forward.
We had a good quarter in the third quarter, and we expect the fourth quarter usually to be.
A bit more challenging in the third quarter that seasonal.
Nothing wrong with that but we expect next year for <unk> to be a pretty good year.
And to have more.
Margins closer to historic.
So there should be we are optimistic about <unk>. If you know what is going to be a challenge as we go into the bottom of the cycle. We haven't reached there yet.
Especially when we start retaining heifers thats going to be good news long term to short term.
Painful.
When that when that happens and.
That's all going to depend on climate.
And weather.
Where there are loans, we're going to start broadly retaining returning after next year, which should reduce the availability of fed cattle.
So we expect in 'twenty four.
To be a challenging year more challenging this year, having said that we have a lot of internal opportunities that we are capturing we have been closing that gap in the last couple of quarters and.
And.
And so we expect that even though the market is going to be more challenging for beef USA Inc.
Into next year, we expect that if we're able to capture all of this internal opportunities. We have we should be able not to have a worse year than this year and potentially cause.
Better year than this year, even though the market will be more challenging we have.
Approximately.
Another two percentage points.
<unk> in our operation from where we are today, we capture a bunch of the most of the commercial opportunities.
In the first two quarters, there is still some opportunities in our commercial side of the business.
But multiple wolfcamp here to now operations is where we're really focusing on there is probably another two percentage points to be captured or that's more or less over forgo our outlook for the for the U S business.
Okay. That's helpful and so we shouldn't necessarily think of beef.
Beef as losing money next year is that per it'll be it.
It will depend a lot on all of the things Thats internal <unk>, so, but yes, you should consider that as what we are considering.
Okay.
That's helpful and then.
Thank you.
Steve.
Just final point us to.
Sort of where you are in terms of.
The ICC.
Conversations and when we may be able to see some sort of relief on the.
Shareholder vote and Thats. It from me. Thank you.
Right.
As Tom has only speaking.
I'd like just to add to what.
Whereas in this docket.
Talk about the perspective in terms of U S. We are very bullish in terms of Australia.
We are now working one shift we are planning for the next year to be worked in two shifts because the availability of catalyst the market's demanding we're very bullish in terms of our Australia operations.
And in terms of Brazil, we are very positive with charter because we have indentified the.
Very important gaps inside of our affiliation is working on that and we have our dollar perspective that will start to show a more robust results in terms of our internal improvement besides of the market conditions, we have a lot to kept inside of the company than <unk>.
The demand front.
Our.
And out of the gate.
New plants Oxiana. When we are we are able to capture more market and we are in the hour. It's thought that is not is not fight for the same space.
Focus on their own.
On grow the categories with innovations.
We are very positive Italian.
And the answer to your last question about the listing.
Yeah.
Okay.
We are.
Our structure.
Our dual listing in U S and Brazil.
We receive it.
Consideration from our ADR.
<unk> investor would like to have.
Right.
Two voted the shareholder meetings as well the other investors.
Since our present structure did not consider that option.
And then.
You will see it to be a fair play.
From now.
<unk>.
<unk> done that they have a financial oceans.
In carrying out the listing we decided to comply with the request from our shareholders invested in <unk> and <unk>.
And this decision forced us to redo it.
The legal structure.
Our F.
Fr.
<unk>.
Our legal department work it.
On the matter and we resubmitted our fr.
And now we are in the process.
DNA with SEC.
And is.
That is the answer for the question.
Our next question comes from Ben Terry with Barclays. Please go ahead.
Yes.
Good morning, and thanks for taking my questions just wanted to follow up quickly on the operations in Brazil CRM particular.
So we've seen the sequential improvement over the last two quarters up now back at the margin of five and a half which we know is not the level you want to be so how should we think about just given the comments you made sequential improvement into <unk>, but maybe a little bit of a preview into 2024, how are expected lower <unk>.
<unk> prices in the.
The business itself also on the export markets.
Looking into 2024, how should we think about that margin recovery back to the more historic level of theory that would be my first question.
Hi, Jeremy.
For your question.
We see.
We didnt Daniels improvement with the cost of the grant and the increase of the capacity that we have invested in capex. During this late.
Oh four years out.
Our module will be double digits.
Work on this.
Okay, So you're saying double digit margin for next year.
Exactly this is our is our focus.
Okay, perfect and then.
Australia, obviously and is having a nice run and you've mentioned the decline in cabinet cost around close to 50%.
On that cost side now as well.
Going through a number el Nino phenomenon, and obviously the implications from El Nino tend to be more dry conditions down in Australia.
Any early signs of some sort of a herd liquidation because of that and what has been accelerating that capital supply and where the lower cost or is it really just because of everything that's been rebuilt from the last recovery post drought situations. Some some years ago did you not just have a healthier available to them.
Capital.
Oh Ben.
And then we.
Got it.
Situation in Australia.
We.
Rebuild it.
It hurt.
And the availability of the Earth is because the past two to three years reduces.
Now the availability of the price and the availability of the Earth.
<unk>.
Cause the cycle is a positive cycles, we I've mentioned before we are working one shift right now we are preparing for the second.
And but nothing related to El Nino.
And it would be an issue.
But.
So far it's too early to say something about that.
Okay perfect. Thank you very much I'll leave it here.
Our next question comes from Andrew Charles with BMO. Please go ahead.
Hey, good morning, Thanks for taking my questions.
My first one is on exports.
Export demand and in particular from China, you called out some pressure on export prices from China. So I guess I'm curious what your expectation is going forward as we roll into 2024 in terms of China export demand and if.
Youre expecting a recovery and what your level of confidence in that is.
Uh huh.
I will give you the overview about.
Consider all of the market and then if you add <unk> to add some specifics things from you asked please feel free to do that.
We will talk about China. It was specific to your question, we see that.
Thank you.
Demand from China.
Keep growing.
Because is it structural.
If you look for the per capita consumption in China.
It's very low consider other markets.
With the same income bottler.
That means that.
Got it.
<unk>.
Red meat is an explanation in China did keep growing.
Yeah.
When you talk about other broad things that other parties that has different dynamics there.
China will buy just.
Specific of goods, but not the beef.
We see that we'll be keep growing and people say, though that the market today.
Economy is not the growth.
Before but.
To grow 6% and the size of the economy is much bigger than before.
We're very we're very positive with China not just for next year. We are positive for long terms in terms of beef that did.
The demand from the structural.
Structural and keep growing.
Okay. That's helpful. Thank you and then my second question is just on the.
The debt pay down expectations, you talked about entering the deleveraging phase so.
How should we be thinking about the pace of that.
Debt targets you'd like to achieve over kind of what kind of timeframe. Thank you.
Thank you Andrea.
So.
At this moment, we are in budgeting process.
So we still don't know what business units will put in the budget for margins.
But one thing is for sure for next year and maybe it's not on the market consensus is that capital expenditures will decrease.
Given that we finished our capital expenditures expansions, both in <unk>, and <unk> products and bakery and U S.
So capital expenditures next year.
We will most likely be lower probably by the next call. We'll give you our guidance on capital expenditure for 2024 months, we have its finalize it.
So if I and if I put the marketing costs for the fourth quarter or no.
As we were mentioning specially because of Australia.
Brazil in Seattle.
You'll see.
Most likely the EBITDA.
The levels are higher than what you saw in the third quarter.
Same for free cash flow.
But again, even if we put the market consensus on the Bloomberg, we can get it for the fourth quarter. We will finish this year at four times and that there'd be that then first quarter next year remember.
Because the fourth quarter.
Fourth quarter 2022, remember, we have $870 million EBITDA and again, just youll see the exchange of EBITDA wheel.
We'll improve plus the free cash flow will make this first deleveraging for the fourthquarter than first quarter 2000, and Thats. It for you was the worst quarter.
And we had a $460 million.
EBITDA, which will really replace it to a much higher EBITDA in the first quarter 2024.
Despite the cash consumption of the first quarter, we will see.
Also affecting our benefits.
Decreasing again.
Leverage in the second quarter, we start to generate free.
Free cash flow plus the EBITDA improvement.
That we mentioned that's our expectation for next year, we will see this deleveraging path, we should have more clear after the budgeting process, but again, even if it puts the market consensus in the model you will see that we will finish next year with three times EBITDA and if you put market consensus in subs 95, we will see two and a half times on that.
EBITDA bear in mind that the market consensus has a six 5% margin for next year and 7% margin for 2025, which we.
I think that is more on the conservative side.
Great I appreciate all that color. Thank you very much.
Our next question comes from Carla Casella with Jpmorgan. Please go ahead.
Hi, just a couple of follow ups on earlier questions.
Just in terms of the listing is it really just a shareholder vote that is the last hurdle or are there other hurdles that you need for that listing.
And also related to that have you do you have any early thoughts in terms of how much.
Your business should be paying out in dividends.
Once your when you scan the list paying versus what you pay today.
Yes.
Okay, I will start with the dividend.
And question and then I'll pass it along.
Remember that we announced that when leverage was 315.
We announced a special.
Special dividends in case of General Assembly approval.
And then the lease of the listing process.
Now the leverage is beyond the what.
We allows for extraordinary dividends, which is $3 75 thresholds.
So going forward.
We will be.
<unk> to pay extraordinary dividends, except from the minimum obliged by Brazilian corporate law.
Only when this leverage goes below 375.
And of course, if we leased.
In U S. A where you do not have this requirement of a minimum dividend.
So these goods.
He was also the 375 it will be exactly the threshold that we would be allow us to pay dividend. So the only thing that we have contemplated for next year is the special extraordinary dividends.
In case of the lease due to approve it.
Thats your analysis when leverage was $3 50.
And Tyler just to add.
What really I haven't said most of that is there is a belief.
In U S is our priority.
<unk> in the <unk>.
We changed.
That was that we consider to give to the.
Yeah.
At our Investor.
<unk>.
Right to vote.
In our shareholder meeting is just that this is the implication because this.
He is a legal implications.
The only change we have Don saw when do we have lunch depression, yeah. So we have to do another F for application and we are in this process of a bit of questions are as you see on these new application that the changes to allow our ADR to be able to vote given that our ADR skew over the counter.
Okay.
Okay, Great and then just one business follow up we've heard a lot of companies talk about some variable trends in China and I know you've got some business. There can you just talk about what youre, seeing and kind of China, and the Asian market and how that impacts your different regions.
We.
We are optimistic with this market and we are increase our sales from Brazil from those trials. The only issue that we are facing in the U S. Because the availability of <unk>.
<unk> counts in U S and we are but the other business U S arc and <unk> and <unk>.
You can.
We're optimistic with the Asia market.
And Carlo will just add that.
The lower availability of.
U S beef is going to be a great opportunity for Greenfield <unk>. So we're already seeing that today.
Sure.
Lot of times, it's much better for us to fill some of the cuts are better for us to sell in the domestic market.
And that volume is going through our Greenfield business in Australia for the pretty good fiduciary business.
Got it.
One of the benefits from our diversified lots of farm when do we have we can catch them when it gets hard to different geographies like you ask whoever institutional in terms of beef, but.
And Oh.
We are getting this opportunity.
Okay.
Okay, Great and then one this is I'm not sure how much you can or will answer but in the past with asked and talked about normalized margin range as far as the different businesses and I know it has changed dramatically with more prepared foods and facility additions.
Efficiency improvements can you just give us any sense for.
What the normalized ranges foreign for your operating margin or on the different businesses.
Recognizing we may not be in that yet in terms of the businesses, where we're in a down cycle.
Yeah.
Got.
If we if you consider that.
We are working on the CR.
Two digits.
We are working for us.
Tanya.
Yeah.
Close to two digits.
We are positive of chicken.
U S as well.
Europe.
And.
The only really challenge we are seeing it.
Our decision to invest.
Dan you want to consider.
But you could consider.
To be in the low single digits somewhere close to that.
In the lower side of the low single digits during the variable part of the cycle in the high single digits for board something like this.
Great. Thank you.
Okay.
Bye.
Okay.
Okay.
Our next question comes from based on Black with RBC capital markets. Please go ahead.
Hi, guys. Thanks for taking my call just a couple of questions on credit side.
It sounds like you're reasonably confident that deleveraging path of your business for next year.
Maybe just talk a little bit about excess free cash flow and if you would ever consider maybe taking out some.
Our dollar debt in the future given the current rate environment and then second question, just being going back to the Chinese consumer.
Beef prices seem to be a little bit of a headwind in your Brazilian beef segment.
On the structural demand part totally understand.
We're coming from on that but I guess, maybe just speak to some of the pricing weakness that youre seeing and what it would take for that pricing out of China to move.
Move back up.
Thank you so I'll start with the free cash flow question.
<unk>.
So.
We again as I mentioned, we are still in the process of budgeting.
Which will give us more clarity once we had finished about capital expenditures for next year.
But so far we've been able to consider.
At breakeven EBITDA of around $3 billion.
So you get the difference.
Our estimate of EBITDA.
$2 billion to $3 billion, which is our interest expenses for the year, which is around $1 $1 billion fix at plus 500 million of operational easy then we have the capital expenditures, which is again, we still revising but so far before we finished the budget to work with distribution. So.
Given that our EBITDA next year as well as some I was wondering whether they feel dimension will be improving.
The margins will be improving for almost all the business units, except the U S beef.
We will probably see a higher free cash flow as well.
For next year.
For example, it Ben.
Generally the first quarter, we have cash consumption every quarter. This is on the healthy but on the second quarter next year own words, we start to see free cash flow generation and then you have a relevant question to me that's what we will do with these excess free cash flow.
Remember that our indebtedness policies.
Four beat and us to make acquisitions beyond $4 25, net debt to EBITDA. So we won't be able to deploy capital for acquisitions. Once we decreased the leverage above below these levels and we cannot be extraordinary dividends above 375, so engaged so most likely these excess.
Cash that we start generating as second quarter next year will be used to pay down debt, which debt because we have we will be left over with.
Most only mostly basically almost all.
Capital market that we.
We will have to choose what there'll be more efficient way to tender for the debt.
It's an opportunity because.
Given the the local bond that we have.
On those that they are trading below face value so any payment.
Bill degrees. We're also that's more proportionally than that that if we buy those debts at the discount.
On the other hand.
Our average cost of debt is very low because we have bonds with a coupon of two 5% with 3% even at 30 year or four 3%.
It is very cheap Budd.
But again, that's the kind of of calculations that we will have to do which will be more efficient way.
To decrease our debt.
Square.
Right.
And then just on the Chinese pricing Park.
Okay.
Oh.
Yes.
In terms of you'll talk about in terms of pricing.
<unk>.
We are positive with the demand in China.
In Newark positive because.
It's a long term is the structural demand.
Uh huh.
Debt.
The increase increase they pick up the consumption. If you consider that the pickup cycle in China, China is very low.
Seven eight.
Kilos per capita.
You consider globally is very low debt this year will be keep growing and it's not just for next year, but they keep it long term.
Because the economy is.
Keeping growing.
This is one point if you look forward now the current price that you need to consider it as a consideration in terms of the cost of the catalysts, we have in Australia at the cost of the game, we ever Brazil in the current price in China.
The margin is much better.
<unk>.
Yeah.
Of course, there is there is opportunity for growth the price if you consider that historically the price can grow.
But even that's not grow if you consider the current enterprise it managers not that we are positive with the China for next year.
Okay.
Perfect. So you would think that.
Jbs, Brazil should see sequential margin improvement from here.
Perfect. Thanks, guys.
Thank you Benjamin.
This concludes today's question and answer session I would like to invite Mr. Thomas furniture prestige with his closing statements. Please go ahead Sir.
I would like to thank you for all of you to participate at these earning calls.
$4.
All right.
<unk> members that they are commitment to make this company stronger and our focus on the restaurant excellent. Thank you.
Yes.
That does conclude the GBS our conference for today. Thank you very much for your participation have a good day and thank you for using chorus call.
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