International Conference Call
JBS S/A (JBSS3)
3Q22 Earnings Results Call
November 11th, 2022
Operator: Good morning, everyone and thank you for waiting. Welcome to JBS S/A and JBS USA third quarter of 2022 results conference call.
With us here today we have Gilberto Tomazoni, Global CEO of JBS,
Guilherme Cavalcanti, Global CFO of JBS, Wesley Batista Filho, Global President of Operations, and Christiane Assis, Investor Relations Director.
This event is being recorded and all participants will be in a listen-only mode during the Company's presentation. After JBS' remarks, there will be a question-and-answer session. At that time further instructions will be given. Should any participant need assistance during this call, please press *0 to reach the operator.
Before proceeding, let me mention 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, I'll turn the conference over to Gilberto Tomazoni, Global CEO of JBS. Mr. Tomazoni, you may begin your presentation.
Gilberto Tomazoni: Good morning and thank you for your presence in this call to review the results for the third quarter for 2022.
I would like to note that after many years André Nogueira is not the here with us today, the transition of his role to Wesley Batista Filho has been completed. I want to take this opportunity to thank André once more for his immeasurable contribution to the company over the years. He remains with us in our Advisory Board in the US and our Pilgrim's Pride Board. I would also like to wish Wesley Filho success in his new role as a Global President of Operations.
We recorded the highest net revenue in our history for a quarter at R$98.9 billion, our annualized revenue is already close to R$400 billion, a major milestone for JBS, which is now the largest food company in the world in terms of revenue. We are experiencing a period of rising costs, such as electricity, grain, and others are causing increase in inflation in several countries impacting our cost structure and the consumer behavior, especially in Europe. In addition, our beef business in the US is returning to the normalized margin, in 2021 this margin experienced historic highs. This return to normalize margins was already anticipated by the market.
Despite the circumstance, our numbers for the quarter once again demonstrate our ability to produce solid results. During the quarter we posted a net profit of R$4 billion and reducing our gross debt by US$1 billion compared to the second quarter of 2022, as we are detailing later. The strength and resilience of our global presence once again made difference, this is the results of our solid geographical and multiprotein strategy diversification, the high quality of our team, our agile leadership, and our disciplined management.
Looking at our geographic and protein diversification, I believe that the market has not yet understood our competitive advantage, but I'm glad that some analysts have already recognized this. I've high hope that soon it will be evident to all market. Guilherme will present later, our liability management strategy has placed us in a comfortable cast position, we have created a leverage ratio of 1.7 times in U.S. dollars and increase average terms of our debts from 6.2 to 10 years. In addition, we have no significant maturities until 2027 and we have reduced our costs and our debt.
Our solid financial conditions allow us to navigate through the challenging market scenario leaving us well-positioned to take advantage of the opportunities that may arise while maintaining conservative position that is necessary considering the global economic scenario. Since 2021, we have invested more than R$26 billion in the expansion of our business, including more than R$50 billion in greenfield project in Brazil and United States, most of these new plants will be operated by the end of this year and throughout 2023.
We're strengthening our presence in relevant markets with the expansion of our plants of Seara business in Brazil, in the prepared food business in US will remain a core strategy of the company and we're confident in the value creation opportunity of these investments (unintelligible) including the ability to strengthen our free cash flow.
In this period, we have further diversified our business with our entry in the salmon market after one acquisition in Australia, our expansion in the pork market in Australia and the acquisition of Rivalea with relevant investment in alternative proteins with acquisition of Vivera and our investment in technology with cultivated proteins. Aware of the responsibility to the future generation and society, we have made progress in our net zero 2040 commitment focusing on actions that make the company more sustainable and the same time more competitive, more productive, increase the efficiency in our process and reducing waste across our value chain.
Consistent to meet our sustainability focus, in the quarter we have launched Genu-in, which produces peptides and gelatin for the nutraceutical industry by making use of bovine skin, waste become raw-materials for another process, increase efficiency and reducing emissions. In the US, Pilgrim's made an important investment to convert methane in renewable energy in Louisiana. In Europe, Pilgrim's UK is investing to improve energy efficiency projects across
several of its facilities, our journey to net zero will make JBS more efficient, more competitive, and more sustainable.
Our focus remains putting the best people in the right place to succeed and grow, maintain efficiency, and streamline management structure, reinforce our culture of ownership in execution and the constant improvement of our unique diversified business platform. This is what has given us the opportunity to face different scenarios and market conditions.
Thank you for your time this morning and I will now pass to Guilherme, who will give details of our results. Guilherme, please.
Guilherme Cavalcanti: Thank you, Tomazoni. Let's go over the operational and financial highlights for the third quarter starting on slide 17, please.
I'd like to start highlighting all the liability management that we carried out throughout the quarter and the significant benefits obtained with the reopening and pricing of US$2 billion of senior notes with maturities in 2028, 2033 and 2052 with which JBS used the net proceeds to pay in full the term loan B. With this payment the company reduced its secure debt from 15% to 4%, remaining in its balance sheet only the secure debt of Pilgrim's Pride. Moreover, the proceeds were also used to redeem the 2028 and 2029 bonds with coupons of 6.75% and 6.5% respectively in addition to the payment of other short-term debts.
At the beginning of October, we conducted the issuance of agribusiness receivables certificates in the amount of US$289 million in 3 series with maturities of 27, 32 and 37. We also announced last week the net expansion of US$600 million in availability of revolving credit lines, we currently have a total amount of US$3.2 billion, of which US$2.8 billion at JBS USA and US$550 million at JBS Brazil.
In the quarter, other important highlights where the registration rights of our senior notes with the US Security Exchange Commission, the simplification of the debt structure through the consolidation of the issuance of all the notes and the removal of collateral from the subsidiaries of all JBS USA's indebtedness. These steps are essential to expand the potential investor base, the liquidity of the notes, and the investors' confidence in addition to improving comparability with the companies with investment grade credit risk due to the permanent removal of all high yield governance from the notes.
The impact of all these liability management led JBS to increase its average debt term from 6.2 years to 10 years in the third quarter 2022 while reducing the cost of debt with a positive net present value impact of the interest reduction of the last 2 liability management of US$75 million. Our financial leverage in dollars remained at very comfortable levels of 1.76 times. Yesterday we announced that we will pay the interim dividends in November 2022 in the total amount of US$433 million, which represents US$0.20 per share.
Finally, I would like to point out the return on invested capital was 22% considering the third quarter last 12 months results.
Now moving on to slide 18, where we present the financial and operational highlights for the quarter. In the third quarter of 2022 we achieved net revenues of US$19 billion, which represents an increase of 7% in the annual comparison. The adjusted EBITDA for the quarter was US$1.8 billion, which represents and EBITDA margin of 9.6%. Net income was a total of US$765 million in the quarter, which represents an earnings per share of US$.30 per share. I would also like to highlight that considering the third quarter of 2022 last 12 months, net revenue was a record of US$72 billion, adjusted EBITDA of US$8.2 billion and net income of US$3.7 billion, and the earnings per share of US$1.63.
Please, now moving to slide 19, the operating cash flow in the quarter was US$1.3 billion, free cash flow for the quarter was US$615 million, in the quarterly comparison free cash flow generation was positively impacted by the lower consumption of working capital mainly given the improvements in accounts receivable of US$280 million considering the better flow of sales to China with less restrictive measures in relation to COVID-19 during the quarter. Additionally, we had a reduction in tax payments of US$242 million quarter over quarter.
In the third quarter of 2022 last 12 months, the operating cash flow was US$4.1 billion, free cash flow generation was US$1.2 billion. Excluding non-recurring payments of US$486 million and expansion Capex in the amount of US$1.2 billion, free cash flow of the last 12 months would have been US$2.9 billion, which represents a cash conversion of 35% of the adjusted EBITDA.
We have also increased investments in the company's organic growth. In the graph on the bottom of the slide total Capex was US$566 million, of which US$286 million was expansion Capex mainly given investment expansion at the Seara and prepared food plants in the US.
Now please let's move just like 20, where we have the evolution of our debt profile. Net debt in the third quarter 2022 was US$14.5 billion, which represents a decrease of US$432 million from the second quarter on the back of the higher free cash flow generation and also positive reversion of operating working capital. Our gross debt was reduced in US$1 billion from the second quarter to the third quarter. Net leverage was 1.76 times in dollars and 1.81 times in reais while interest coverage was 10.2 times in the third quarter of 2022, both extremely comfortable ratios.
In addition, it is important to highlight our comfortable liquid position. We ended the quarter with a cash position of US$3.1 billion, which together with all revolving credit facilities available of US$3.2 billion allows us a total liquidity of US$6.3 billion. Finally, as mentioned above, with all liability management carried out in the period, the average debt term increased from 6 to 10 years.
Let's move to the business units' performance. Starting with Seara on the last 21, net revenue grew 22% in Q3, mainly as a result of the 20% increase in the average sales price and 2% growth in volume. In the domestic market the main highlight was the prepared food category with 11% increase in prices while volumes remained stable compared to the third quarter 2021.
Seara continued to invest in innovation, capacity expansion, commercial and operational execution, thus, the Seara brand continues to increase its preference penetration in the Brazilian households and repurchases by consumers. In the export market, net revenues in dollars increased 36% compared to third quarter 2021. It is worth mentioning the strong growth of poultry sales in the period with a 29% growth in prices and 13% volumes in the annual comparison.
In the third quarter 2022, the higher production cost was offset by price passed through combined with a better mix of markets, channels, and products in addition to the management's focus on operational efficiency and innovation, thus, adjusted EBITDA reached R$1.8 billion with an EBITDA margin of 15.1%.
Now moving to JBS Brazil on slide 22, we see the revenue for the quarterly growing by 5% year over year reaching US$3.1 billion. In the export markets strong international demand mainly from Asia contributed to a 12% growth in net revenues in dollars with a growth of 4% in volume and 7% in the average price. In the domestic market, even with a challenging macroeconomic scenario, sales in the fresh beef category grew 4.3% year over year as a result of higher volumes following the strategy of increasing the number of clients through the loyalty programs and approach in the Friboi and Swift brands to the end-consumers.
Finally, I would like to highlight an important achievement: the Friboi brand was once again chosen as Top-of-Mind brand; that is the most remembered and preferred brand by Brazilians according to the Instituto Datafolha.
Moving to slide 23, at JBS Beef North America - and now we're speaking in dollars and in USGAAP - JBS Beef North America revenue reached US$5.6 billion in the third quarter, a decrease of 5.2% year over year and the adjusted EBITDA totaled US$403 million with a 7.3% margin.
This quarter beef margin North America faced a relevant impact year over year given the acceleration of expected changes in the market conditions. In the domestic market wholesale beef prices declined sequentially incentivizing retails to promote sales and promotions are likely to accelerate going forward. On the other hand, live cattle remained at high levels during the quarter increasing 15% year over year. In the markets year-to-date, the US beef exports continue to outperform 2021 in volumes, 5% more, and in prices 14% more as a result of better international demand a significant improvement of logistics in the American ports.
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