JBS S.A.
Q1 2021 Earnings Call Transcript

Published: 14 May 2021

[Operator:]

Good morning, everyone, and thank you for waiting. Welcome to JBS First Quarter of 2021 Results Conference Call. With us here today, we have Gilberto Tomazoni, Global CEO of JBS; Guilherme Cavalcanti, Global CFO of JBS; Andre Nogueira, CEO of JBS USA; Wesley Batista Filho, CEO of JBS South America; 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. Before proceeding, let me mention that forward-looking statements are based on beliefs and assumptions of JBS management. They involve risks, uncertainties because they relate to future events, and therefore, depends on circumstances that may or may not occur.

[Gilberto Tomazoni:]

Good morning, everyone. Thank you very much for your presence in this first quarter 2021 result presentation call. As we will demonstrate during this presentation, the company had an excellent operational result in this quarter. Net income in this quarter reached BRL2 billion. Net revenue reached BRL75 billion in the quarter. That net revenue for this first quarter in 2021 was the same of the net revenue for the whole year of 2012 and only eight years of best. To be successful our company must deliver short, medium and long term sustainable results on behalf of all stakeholders, team members, shareholders, customers, consumers, society as a whole. We believe that this is our agent of transformation and our focus is on being a healthy company comprises healthy people on a healthy planet. Here's why we put sustainability at the earth of our strategy and you ever assume it that the most significant committee in the history of JDS to become a net zero company by 2040. That's why the company joined the business ambition for 1.5 degrees for the United Nations Global Compact, by which we committed to define size based goals to reach net zero across our value chain until at most 2050, and our objective that JBS proposes to achieve 10 years early. That's why we created the Fund of Amazon, to invest in social development of the people that live in the Biome, to invest in biotechnology, and reforestation. Our diversified platform and geographical and deeper type of protein has demonstrated important resilience in our results. Regardless of the challenge we face our business unit ever responded well, in made progress in each and every important financial indicator, including net revenue, EBITDA and net income. JBS operation US turned in an exceptional performance with record numbers in comparison with all previous first quarter, driven by strong domestic demand in a gradual resurgence of foodservice sector and by growth in export demand, led by the Asian market. Pilgrim's Pride also had a sound quarter following the recovery in demand in the United States. And food service business is improving and we have maintained our pace in the retail sector. The diversified portfolio and global consolidated operations have enabled us to weather the market challenges that the pandemic has presented. Seara continues its rise, due to our focus on our value-added products supported by well established brands and innovation. The business recently rolled out a new category of products within the cold cuts segment, Levíssimo Seara, produced 100% from pork loin, resulting in a significantly lower fat and sodium content. Seara has also ventured into the fish and seafood segment.

[Guilherme Cavalcanti:]

Thank you, Tomazoni. Please let's move to Slide 13 with the financial and operational highlights of the first quarter 2021 and where I would like to highlight that we continue to advance in our long-term strategy, delivering growth combined with financial discipline and a focus on operational efficiency. In the first quarter of 2021, we achieved net revenue of $14 billion or equivalent to BRL75 billion, which is 33% higher than the first quarter 2020. JBS adjusted EBITDA was $1.3 billion, or equivalent to BRL6.9 billion, which represents EBITDA margin of 9.1%, our record margin for the first quarter. In the last 12 months, adjusted EBITDA was also a record, totaling $6 billion, or equivalent to BRL32.5 billion Net income was BLR2 billion in the quarter, reversing the loss in the first quarter 2020, which was impacted by a negative result of the exchange rate variation of the period. In the last months net income was BRL12.6 billion. It's worth remembering that the net income of the first quarter 2020 has an impact of BRL8 of exchange rate variation. With the reduction in our balance sheet exposure to foreign exchange rate, both in regard of that - with third parties as well as intercompany debt, the impact in the first quarter 2021 was only BRL100 million. In the second quarter 2020 this impact was BRL2 billion. With the current exposure even with a more depreciated exchange rate scenario at the end of the second quarter, we won't have a significant exchange rate impact and therefore, the accumulated net profits in the last 12 months turned swiftly , indicating a good profit for the year of 2021 and consequently, a good minimum dividend to be paid in 2022.

[Operator:]

Ladies and gentlemen we will now begin the question-and-answer session. Our first question comes from Ben Theurer, Barclays.

[Ben Theurer:]

Hey, good morning Tomazoni and the team. First of all, congratulations on those strong results for the first quarter. I have two questions, if I may. So first, question number one, just a little bit on what you're seeing on the industry dynamics and the different markets. And I think you've nicely alluded to it that obviously in Brazil, you're seeing a lot more input cost pressure as different grain costs are going higher, you're still working on offsetting that a lot in price increases. We're also seeing a similar situation happening to a degree in the pork business in the US, we're having some headwinds on PPC as well, on the cost side that's coming through. So just in general, with this all grain inflation, cost inflation, how confident are you within the different regions to bring pricing through and to ultimately maintain the strong level of profitability, which you still have in the first quarter? That will be my first question. Thank you.

[Guilherme Cavalcanti:]

Hi, Ben. Good morning. So to start with Brazil, we had quite certain other increase in price - very sharp increase in cost sorry, that has - price has taken a while to follow the grain price. But if feel that this grain cost - in Brazil it's a structural condition for - to stay here for a while. And we're going to adapt our Brighton. And obviously, we need to work on efficiencies as well to mitigate this risk. So we're very confident for two reasons. One is, because of the work we've done, in the past few months, we've been able to vest part of that cost increase on to price and see there is more space going forward. But on top of that, also, because of the work we've been doing, we've been improving mix. Obviously, when we have a big sharp cost increase like what - as we've had you have to increase price to return to normal margin. But also, we need to do a very, very strong work on selling more value added items to be able to offset some of this business growing to have a long-term better margin. So we're confident. Same thing with beef, we obviously - again, cattle cost went higher, very fast, and beef now it's following and we think we will be able to normalize in the short-term. But this cost will most probably be a process going forward and we're going to have to adjust our business model to that.

[Ben Theurer:]

Just to state quickly within Brazil, would you consider cutting some of the production levels in Brazil to also kind of cause a lot lower levels of production and just to help support price as well just to stay in Brazil quickly before we go to the US?

[Guilherme Cavalcanti:]

Yeah. And that's not in our plans for now. We don't feel that's necessary to do that especially because of the consistency of the work we're doing - we've been doing. The same goes for the other products. We've been viewing partnerships and bringing strong value added work and we don't feel that we need right now to cut back on production.

[Ben Theurer:]

Okay, perfect and then - and the US what are you seeing there?

[Wesley Batista Filho:]

Hi, Ben. Thanks for the question. Let's break this down in a few areas. First, the grain price, the grain price of course, that's more directly chicken production in US, Mexico, in Europe. With the market condition that we have today Ben we have been able to still believe that we'll be able to continue to pass to discuss okay because if you look at the more commodity side of the market, that the Big Bird, the price of the cows and the big bird now is 64% higher than it was in the same time of last year and this is demand driven. And in other parts like Europe, we have more formula base, days pass through, take a little bit more time few months. But when you have formula base, you're going to pass the cost of the grain to the final price. The other pressure that we have is in - that's more specific in us is the labor. And labor cost is going up. We just did another round of increasing compensation at several of our plants. And again, consider the condition of the market in beef, pork and chicken we have been able to pass through this impermeable cost. The cattle in Australia is another source of increasing cost for us. We buy cattle in the market. The cattle is very high in Australia right now. Australia beef price or selling prices is very, very high, but not enough success. So we are not making money in Australia beef or lamb right now. We're making money now in the other small business or making good money - good margin in Primo. Primo is growing, but beef and lamb in Australia are not. But we have no plans to reduce our production there. We think that we have a very efficient operation. We have very good customers in the global market. We will continue to supply and discuss with the market, we need to adjust for the new reality of the cattle price through the cycle change and I don't think that's going to happen before next year.

[Ben Theurer:]

Okay, perfect. Thank you very much. And then my second question was around your bid you've put out for the plant-based business in Europe. Could you give a little more updates on what you think? How this is going to turn out and how you think this can be combined with the efforts you've had on plant-based within Brazil, but also within the US? I'm thinking Brazil was with Seara and Ozo in the US. Just give us a little bit of an update a few bites to chew on so to understand where you're heading with the different initiatives in the three major markets.

[Gilberto Tomazoni:]

Hi, Ben. Thank you for your question. We - as you know we - plant-based is on a segment that we want to be an important player. We don't know how will be the size of the segment, but we will be - for sure we will be an important player in this segment. Vivera was an opportunity for us to grow faster in Europe and in a way we have - we believe that we have a lot of synergy in terms of other business we have today, Brazil and US in terms of technology, in terms of marketing analogy, in terms of new product development. This is I think will be faster all of the other operation and as well the opportunity for grow Vivera volume with the synergy we have in other markets. And from - at the moment we are keep business as is all of independent, but maybe in the future depends of the conditions. We are creating a global plant-based organization.

[Ben Theurer:]

Perfect. Thank you very much. Congrats again.

[Operator:]

Our next question comes from Carla Casella, JP Morgan.

[Carla Casella:]

Hi. On the acquisition of that business is that going to be included - which sub segment will that be included in?

[Gilberto Tomazoni:]

So sorry Carla, you're asking for other conditions. Could you repeat the question I think I did not understand well your question?

[Carla Casella:]

Okay. No, the European plant-based business that you were just referring to, is that going to be included in - which division will you include that in, in your financial results?

[Andre Nogueira:]

Hi, Carla. Here is Andre Carla. It would be under the JBS USA overall, we did not define yet, it would be a standalone or have to be part of another division. So we would - after the acquisition we would define that.

[Carla Casella:]

Okay. And then you mentioned a few times that food service is starting to grow again. Can you just update us of where - when you look at each category, what percentage of the business is food service and where you see that longer term? Because I think it's moved around a bit. You've grown so much your value added that food service I'm assuming is a lower percentage than it used to be. I you can get an update.

[Andre Nogueira:]

So I'll talk about US Carla. I think food service is recovering. I think that when this is finished done with the recovery between US in food service and retail, I think that we'll go back to what was before or very similar to what was before. I don't think that we're going to see any relevant change, compared to how it was before. The difference that we're seeing in US and this apply for all the three proteins that export is taking more and more market share. And this is a trend that I don't see changing, consider the growth in Asia, and how Asia overall is absorbing more and more protein from the globe. And I commented this last time and I should emphasis on that. If you look very much to markets like Japan and Korea, they import between 50% and 60% of the total protein that they use, beef, pork and chicken on a combined base. And I think that the other accounts do go in that direction, they will take many, many decades to arrive there. But that's the direction because they are going consumption in a much faster pace than what they can grow their protein production. So if look, China today, China came from 5% in the past, and now they relying 14%. They still far away from what's the market share that beef, pork, protein represent for Japan and Korea, that's a more mature market. So I think that at the end of the day, anyways, food service will represent off the hand a are very similar percentage than was before. Our value-add will to continue to grow, but value add will go to food service too. The service would serve, the big - the plant that we start to run now fully cooked bacon. In reality food service represent a higher market share than retail. We just start to run this plant - we're going to start to run this plant this month, in May, at the end of May. And food service will be a big part of that. One thing that I think that wants to call attention, Carla is - and I think that we underestimate that a little bit when food service closed in March and April last year, food service have a long pipeline. For you to have a steak or breast meat in a restaurant to serve you a lot of process and even is between our production and the final use a much longer pipeline that there is for example. We did not suffer last year when food service closed, we didn't suffer too much, while the demand every day was so high that the food service was able to sell that product to the retail. And our production in US dropped - in US and Canada dropped in April. But now that food services coming back, we can see that they need a long pipeline. So there's a lot of things that needs to be built between us and the final user. So and we are seeing strong demand in US. I think that's part because of that. Just project that when Europe reopened food service and Asia reopened food service in full. So I think that we're going to see very strong demand for food service, because you need to feel out despite the line of products should be able to serve the final consumer at the end.

[Carla Casella:]

Okay, great. And can you give us just a percentage of food service by protein like chicken versus beef versus pork and in a normal market and not right this moment?

[Andre Nogueira:]

I'll come back to you on that Carla. But for sure chicken is the highest one in terms of food service, followed by beef and pork and the fresh is the smallest one. But then you need to put how they processing pork. But chicken will be the highest one following beef and then pork.

[Carla Casella:]

Okay, great, thank you.

[Operator:]

This concludes today's question-and-answer session. I would like to invite Mr. Tomazoni to proceed with his closing statement. Please go ahead, sir.

[Gilberto Tomazoni:]

I'd like to thank you all of our team for the great work and say for all of you that we at JBS remain committed to our purpose to feed people around the world with the best and increasingly sustainable manner. Thank you.

[Operator:]

That does conclude JBS audio conference for today. Thank you very much for your participation. Have a good day. And thank you for using Chorus Call.