JBS S A : Conference Call Transcript 4Q21

International Conference Call

JBS S/A (JBSS3)

4Q21 Earnings Results Call

March 23rd, 2022

Operator:

Good morning, everyone and thank you for waiting. Welcome to JBS Fourth quarter and the full year of 2021 results conference call.

With us here today we have Gilberto Tomazoni, Global CEO of JBS, Guilherme Cavalcanti, Global CFO of JBS, André Nogueira, President of Operations in North America, Wesley Batista Filho, President of Operations in Latin America, Oceania, and the global plant-based business 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.

Mr. Gilberto Tomazoni: Good morning, everyone, thank you for being part of this conference.

The past year included several great achievements for JBS, we have excelled our purpose to feed the world providing the best production in sustainable way thanks to the determination of our more than 250,000 team members around the globe. At the same time, we have invested in strengthening the foundation that will fuel the company's growth in the coming years.

We achieved a record profit and investment generating return to all our shareholders, team members, cities, states, shareholders, and investors. JBS previously in Brazil-focused company specializing in one type of protein has evolved in a global food company with a diversified footprint in all types of protein that includes a vast portfolio of strong brands and value-added products. Within this contest to 2021 has set the stage for JBS trajectory in the coming years, we increased our investment in 150 in 2021 in relation to 2022 reaching the relevant total of USUS$4.19 billion, resources that are directed to expandand modernize our operation around the world, buying companies in a sustainable project that express our ESG commitment.

The strategic acquisition we made in 2021 in a total of USUS$2.3 billion allowed us to increase our relevance in segment and business where we see significant growth opportunities. The purchase of Vivera, for example, has positioned us as a leader in Europe's plant-based market providing a structure to leverage growth and synergy within our global plant-based operation. The acquisition of Huon marked our entrance in the aquaculture market within an industrial leader that will provide a solid foundation for solid global expansion.

2021 also marked our entrance into the cultural meat space with the purchase of controlling stake in BioTech Food. Our investment in research and the construction of our production facility in Spain will help accelerate the industrial development in our cultivate protein market.

I would also like to highlight the acquisition of Rivalea in Australia, Kerry Consumer Food and meat business in UK, Kings Group in Italy, and SunnyValley smoked meat in US. We invested US$1.1 billion in greenfield project in our brand and value-added products in Brazil. Seara introduced new products, continues to expand choice to the consumers. To meet growing demand, we accelerate efforts to expand and modernize 15 Seara production units and a process that we are now in final stage.

In the United States with Swift Prepared Foods, we focus of the potential for grow our margin and brands and invested in the construction of 2 specialty plants in the state of Missouri; one for Italian products in Colombia, and other for cooked bacon in Moberly. The investments in M&A and the expansion of Capex head up to US$3.4 billion, almost the same amount of the US$3.6 billion we distributed to the shareholders in dividends and share buybacks while continue to transform our customer and consumer relationship.

Over the past 2 years, we have experienced unprecedented growth in e-commerce through both direct sales platform and with our partners. For instance, Friboi online, Loja Seara, Comer Bem and Swift online allows our brand to be delivering to the consumer and various region in Brazil included the client channels. In United States Wild Forks offer a consumer opportunity to purchase the ready-to-eat meals and several types of protein online, I say United States and Mexico, all available for immediate delivery.

At the same time, we have strengthened our relationship with the commercial partners, introduction Swift store in store in important Brazilian retails. We also doubled our growth in the already established Açougue Nota 10 with support the fresh meat category for large supermarket groups in Brazil. The execution of this strategy was possible thank you to our financial profile. As Guilherme will explain, we have today the healthiest financial state in our company history with a debt extension security through successful bond issued that includes in November 2021 issued a market the lowest spread the history for a Brazilian corporation, proving that sustainability is our strategy, we issued sustainability-linked bonds. With all these initiatives, our leverage fell to its lowest level, 1.51 times in reais and 1.46 in dollars.

Building our future is based on our strong ESG standards, our dedication to the society and the future of the planet is constant. In 2021, we took on what I consider today JBS most important commitment: to be net zero by 2040. We have already taken decisive steps, like launching our transparent livestock platform and the green office program, both aimed in addressing the sustainable challenge in Brazil livestock supply chain, our most pressing industry challenge.

We have also made progress in reducing methane emissions associated with the cattle production by testing dietary additives, as well as supporting additional researchers. JBS has also invested in a circular economy expanding our operation in the new plants for recycling plastic, collagen, organic fertilizer, and biodiesel. We also invested in a solar energy project for Swift store in Brazil and our operation in the US we committed a total of US$1.41 billion in sustainability projects around the world in 2021.

In the social sphere, we continue to offer direct support to the communities in regions in which we operate. This is clear in Brazil where the Fazer o Bem Faz Bem Program has given more than US$81 billion to highly vulnerable regions, and the JBS Fund to the Amazon is already found in 6 initiatives to promote sustainable and social economic development in both the Amazon regions.

The same applies to our operation around the world, particularly in the United States where over the past 2 years Hometown Strong has committed US$100 million initiative supporting the communities around JBS operation. We are proud to our support to the Geminare School in Brazil, which has 800 full-time students and the Better Futures Program in the United States, which offer a free Community College education to all of our US team members and their children and has more than 2.500 students enrolled in the program's first year.

Change we have made to our governance structure and being recognized by our main shareholders. In 2021, we reached a majority of independent directors on our Board of Directors; 7 out of 9 members, and 22% our part is composed by women, for which we earned the Woman on Board Certification last year.

In conclusion, we end in 2021 with an unprecedented recognition achieving full investment grade achievement and record operating results, our consolidate net revenue grew 30% reaching US$71 billion and a net income for US$4.15 billion. These results prove our operational excellence and our capacity to deliver growth and value at the same time, and all of this thanks to our extraordinary team. Thank you.

I'll pass now to Guilherme Cavalcanti, that will give more information about our financial profiles and the business update.

Guilherme Cavalcanti: Thank you, Tomazoni. Let's please move to our financial management achievements. The year of 2021 was marked by great achievements: JBS was rated full investment grade after the upgrades of the company's credit ratings by Fitch in June and by Moody's in November. I would also like to emphasize JBS first 30-year bond, which had a demand greater than 5 times the initial offer. This bond coupled with all the work we did in terms of liability management made JBS increase the average maturity of the debtfrom 5.9 years in 2020 to 8.1 years in February 2022. For the same period, our average cost of debt dropped from 5.1% to 4.3%.

Financial leverage in dollars reached 1.46 times, the lowest of JBS history. We announced acquisitions of 7 companies that are part of our long-term growth strategy of enhancing our value-added portfolio and branded products or US$2.1 billion, which will add US$2 billion in revenue in 2022, and we compensate the investors some dividends and share buybacks of approximately US$3.7 billion until February 2022. That translated into a total yield of 22%.

We achieved all this always with a strong focus on financial discipline in our ESG agenda, which already has made a lot of progress, as Tomazoni mentioned.

On slide 30, we are demonstrating what I just mentioned, we have invested US$8.1 billion in 2021 with the following breakdown: we returned US$3.3 billion to shareholders through share buybacks and dividends distribution. If we include the share buybacks made in 2022, the return was US$3.7 billion. Considering all strategic M&A announced in 2021, we invested US$2.1 billion. We also invested US$1.8 billion in the modernization and expansion of our production units. And finally, we have invested globally more than US$1.3 billion in ESG initiatives. All things considered, we were able to reduce our leverage from 1.58 times in 2020 to 1.46 times in 2021 and increased interest coverage from 7.8 times to 11.6 times in the same period.

Now move to slide 31, where we present the financial and operational highlights for the quarter. In the fourth quarter of 2021, we achieved net revenues of US$17.4 billion, which represents an increase of 27.8% in the annual comparison. In 2021 net revenues totaled US$65 billion. The adjusted EBITDA for the quarter was US$2.4 billion, which represents an EBITDA margin of 13.5%. In 2021 adjusted EBITDA totaled US$8.5 billion, also a record with a margin of 13%. Net income was a total of US$1.2 billion in the quarter, which represents an earnings per share of US$0.48 per share. In 2021 net income was a total of US$3.8 billion, which represents an earnings per share of 1.53.

JBS distributed US$1.4 billion in dividends, which represents a dividend yield of 8.2% in 2021. Considering the share buybacks of 2021 and those of the first 2 months of 2022, the total yield was 22%. The return on invested capital in 2021 was 24%, whereas this indicator had been 20% in 2020 and 16.5% in 2019. In other words, they carry of JBS shares remains extremely favored to the shareholder.

The company Board also approved yesterday the cancellation of 129 million shares in treasury, as well as the new buyback program with the object of maximizing the value generation to the shareholders through an efficient management of its capital structure.

To conclude these slides, following JBS vision of diversifying proteins and geographies, expanding value-added portfolio, the company announced 7 strategic acquisitions that totaled an investment of approximately US$2.1 billion.

For the full year of the 2021 the expected impact of the net revenues is US$2 billion.

Please, now move into slide 34 and 35, the operating cash flow in the quarter was US$1.8 billion, free cash flow for the quarter was US$1.1 billion, which represents a conversion of 45% of EBITDA to free cash flow. In the year, the operating cash flow was US$4.7 billion, free cash generation was US$2.2 billion and excluding non-recurring payments of US$768 million and the expansion Capex of the amount of US$991 million, free cash flow for the year would have been US$4 billion, in line with 2020 with the conversion of 47%.

We have also increased investments in the company's organic growth. In the graph of the bottom of the slide, we have our Capex in the year totaling US$1.8 billion, of which 56% is related to investments in modernization and expansion.

Now please let's move to slide 36, where we have the evolution of our debt profile. Net debt in 2021 was US$12.4 billion, which represents an increase of US$3.5 billion in the annual comparison. Due to the share buybacks on the amount of US$2 billion, M&A in the total amount of US$1.7 billion and US#1.3 billion in interim and anticipation of dividends. However, net debt financial expanses in 2021 were stable in relation of 2022 corresponding to US$731 million.

Net leverage was 1.46 times in dollars and 1.52 times in reais, the lowest level ever reached by the company. Interest expenses coverage increased from 7.8 times in 2022 to 11.5 times in 2021.

And it's important to highlight our comfortable liquidity position, we ended the year with a cash position of US$4.2 billion together with the revolving line of US$2.2 billion allowed JBS to end the year with a total availability of US$6.6 billion, which is approximately 3 times the short-term debt and enough to pay all the debt until mid-2027.

Moving to the bottom of the slide, I highlighted that our average cost of debt in dollars of 3.99% per year is the lowest ever record by the company. Considering the issuance of senior notes in January 2022 of US$900 million for a 30-year bond and US$600 million for a 7-year bond, the average debt maturity came from 5.9 years to 8.1 years. Considering January 2022 emissions plus the ones in 2021, the total amount of bonds issued by the company was US$7 billion with an average oversubscription of 5 times. In Brazilian local debentures, the issuance was R$2.8 billion.

Also worth mentioning that our free cash flow of the year is higher than any annual debt amortization, what means a zero refinancing risk going forward.

Now let's move to the business units' performance. Starting with Seara, on slide 37, net revenue grew 34% in the fourth quarter and 37% in 2021, posting growth in both volumes and prices. Sales in the domestic market which accounted for 53% of the business unit's revenue in the period, the prepared foods category maintained its growth trend and registered an increase of 5% in the volume sold and 11% in prices.

I'd like to highlight Seara's holiday campaign, which was very successful with a 24% growth in its kits sold in relation to last year. the Seara brand also