JBS S.A.
Q3 2021 Earnings Call Transcript

Published: 11 Nov 2021

[Operator:]

Good morning, everyone, and thank you for waiting. Welcome to JBS Third 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. At that time, further instructions will be given. Before proceeding, let me mention that forward-looking 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 turn the conference over to Gilberto Tomazoni, Global CEO of JBS. Mr. Tomazoni, you may begin your presentation.

[Gilberto Tomazoni:]

Good morning everyone. We ended the third quarter of 2021 with a certainty that we are in the right path. Once again, the result we are presently approve not only the operational excellence of JBS and our diversify platform, but also the strength of our team of 250,000 team members around the world. is the company that can wear their challenge peers at search and found manners, meeting its responsibility to the planet and its community, while at the same time, create value for its stakeholders. We recent achieved the recognition that fill us with pride. We are full investment way, which puts JBS in a group of the world's most respected and solid companies. This is a direct result of our team focus on operational excellence, environment, and financial sustainability and corporate governance. We have elected two new independent board members. We have strengthened on our governance and compliance policy, process, and instruction anywhere establish an aggressive sustainability targets that will help us reach Net Zero by 2040. As Guilherme will cover, we will be tailor funded , we have ended this quarter at the best in the strongest moment in our history. Since 2020, we have invested $1.4 billion in ESG, $3.7 billion in new acquisition, $1.3 billion in expanding and modernizing our operation units, and we have returned $3.3 billion to our shareholders. In the third quarter in 2021, our net revenue was $17.7 billion. In the last 12 months ended September 30, net revenue was $61.7 billion. Net income for the quarter amount to $1.5 billion and in the last 12 months ended September 30th, our net income was $3.5 billion. Considered the constellation of share approved by the Board, net income by share in the quarter was BRL3.2 in the last 12 months BRL7.5 per share. In this quarter, we completed the acquisition of Meats and Meals businesses of Kerry Consumer Foods, leader in the production of frozen and chili red to meat meals in United Kingdom and Ireland. We also obtained the final approval for the acquisition of Huon, the second largest salmon aquaculture business in Australia. Finally, our entry in this segment, we want to replicate in aquaculture what we have done with the other types of protein. Further, we announced the agreement to acquire Sunnyvalley, a company that produce bacon, ham, turkey and all our prepared foods in the United States. Bearing in mind that the accusations announced in the last 12 months, but not yet fully factored in our results and included net -- not yet concluded acquisition of Huon, Rivalea, Sunnyvalley, we still have to add around $2 billion to the consolidated net revenue and around $250 million to the consolidated annual EBITDA. In addition, by the end of 2022, we'll have invested BRL3 billion, around $500 million in Seara that will generate in addition, BRL6 billion or around $1.2 billion in revenue. We are on the path to becoming the house of brands, launching innovative products and strong brands in each region where we operate. Our target is to have 10 brands with over $1 billion in revenue by 2025. With the superior results discussing today, we have also devote ourselves to safeguarding in our future in success. We have made the sustainability our strategy. Foster the transition to low carbon economy across our entire value chain. We are the first major company in our sector to take -- to Net Zero committed. By 2040, we will have the net zero balance of greenhouse gas emission across our entire value chain. This is why we are also present at COP26 in Glasgow to learn and share progress with the global leaders who have also embraced the centers of more sustainable future. At COP26 along with nine of the world's largest global food companies, we committed to development by COP27 a sectoral roadmap to contain global warming to 1.5 degrees centigrade, above fair industrial level. This commitment was articulated by the government of United States in with the support of the Tropical Forest Alliance, a multi stakeholder partnership platform, heartened by this all the economic fund in the World Business Council of Sustainable Development. Also at COP26, we entered in a strategic partnership to reduce bovine enteric methane emissions by up to 90% to the use of a new feeds supplements in the beef production value chain. But we are not stopping there, we are also working in partnership with the research institutions to apply other solution that will reduced the methane emissions. We had also two urgent issues to tackle. So, global warming and infuse equivalent for the grow world population. In this respect, we have two convictions. One, that is a challenge cannot be -- this challenge cannot be tackled in isolated manner. Or it's to happen, all of us need to unite under a common objective and that produce food is a crucial part of the solutions. Only the transition to more sustainable products will allow us -- our business to thrive while guarantee food security and depressurization of the planet. That is best to face the challenge, we must be skilled enough. Given the magnitude of the current environment challenge, yesterday, we announced a new restriction in the creation of the global operational President, which will be led by Andre Nogueira and Wesley Batista Filho. This new restriction aim to ensure that our focus in operational excellence, our people, and culture, while at the same time ensuring the company agile and independent in its decision-making and prepare to pursue its sustainability and grow with strategy. Andre Nogueira will oversee the operation in North America. Wesley Batista Filho will be in charge operation JBS Latin America, Seara business. As a result, the position of CEO of JBS Brazil will be held by Gilberto Xandó. João Campos will be the CEO of Seara. While JBS USA will be led by Tim Schellpeper with Steve Cohron, taking over JBS USA business. You can find further details about the experience and career path of each one of them in the notice to the market that we have disclosed yesterday. Our entire team embrace responsibility that reflect our role as a global leader. We will remain focused on feeding the people in the world with the best that is an increasingly sustainable manner. Thank you. Now, I pass to Guilherme Cavalcanti who will give details of our results.

[Guilherme Perboyre Cavalcanti:]

Thank you, Tomazoni. Let's please move to slide 21 to our financial management achievements, and where I would like to start highlighting that we received an upgrade of JBS credit rating by Moody's and considering the upgrade received by Fitch in June of this year, we are now rated as fully investment-grade. This is an important achievement for our investors and stakeholders. And it's the results of our growth strategies combine it with financial discipline and advancements in our ESG strategy. On July 22, we are demonstrating that what I mentioned. Considering the period from the beginning of 2020 until now, we have invested $9.6 billion with the following breakdown. We returned $3.3 billion to shareholders through share buybacks and dividend distribution, including the anticipation of dividends announced yesterday. We invested $3.7 billion in acquisitions. This include the announced acquisitions that were not concluded yet, as who owned Rivalea, Sunnyvalley, and PPC. We also invested $1.3 billion in the modernization and expansion of our production units. And finally, we have invested globally more than $1.4 billion in ESG initiatives. Half of these investment was done with the company's generated free cash flow. One-fourth is not concluded and one-fourth, it's already included in our net debt. However, we were able to reduce our leverage from 2.1 times in 2019 to 1.49. And we increased our interest coverage from 6.2 times to 10.8 times in the same period. So, despite of the increase in net death, our capacity to repay the debt increases significantly. We reached the free cash flow perspectives for the fourth quarter and despite the addition of payments of announced acquisitions of Huon, Rivalea, PPC, Sunnyvalley and our anticipated dividends, our leverage should remain below 1.6 times by year end. Now, move to slide 24, where we present the financial and operational highlights for the quarter. In the third quarter of 2021, we achieved revenues of $18 billion, which represents an increase of 32% to BRL293 billion. In the last 12 months, net revenues total is $62 billion. Considering the acquisitions announced in the last 12 months, which are not fully reflected in these results and including they're not settled acquisitions have Huon, Rivalea, and Sunnyvalley, we would add around $2 billion in annual consolidated revenue and around $250 million in consolidated EBITDA. The adjusted for the quarter was $2.7 billion, which represents a margin of 15%. In the last 12 months, EBITDA totaled $7.4 billion, or equivalent to BRL40 billion, a record. Net income was a total of BRL7.6 billion in the quarter, which represents an earnings per share of BRL3 per share -- BRL3.2 per share. In the year-to-date, net income was BRL14 billion. This value indicates a significant profit for the year of 2021 and consequently, high minimum dividends as per the Brazilian corporate law. It is important to highlight that the balance sheet exposure to U.S. dollars in the end of the quarter was only BRL94 million. This improves our predictability of our net profits. Thus, in addition to the anticipation announced in August, we are announcing another interim dividends totaling BRL2.4 billion, which will represent BRL1 per share to be paid in November 24, 2021. Considering these interest dividends, dividend yield reached 8% in 2021. If we had the repurchase of shares of BRL7 billion carried out this year until October, the total yield reached 15% for the year so far. The company's Board also approved yesterday the So, move on to slide 25, we highlight the 32% growth in consolidated net revenues in annual comparison as a result of revenue growth in all of our business units. The adjusted EBITDA also posted an important growth of 74% in the quarter and EBITDA margin expanded 3.6 percentage points in the same period from 11.4% to 15% in the third quarter of 2021. Now, moving on to slide 26, the operating cash flow was $2.1 billion, or BRL11 billion in the quarter and free cash flow amounted to $1.4 billion or BRL7.3 billion, which represents a conversion of 52% of EBITDA to free cash flow. Excluding the non-recurring payments, the conversion would have been 60%. We have also increased investments in the company's organic growth. In the graph on the bottom of the slides, we have our CapEx in the quarter totaling BRL2.6 billion, of which 54% is related to investments in modernization and expansion. Now, please let's move to slide 27 where we have the evolution of our debt profile. Net debt for the third quarter was $11.2 billion, which represents an increase of $386 million in relation to the net debt of the second quarter 2021. This increase is mainly due to the payment of Kerry acquisition, the distribution of dividends and the net repurchase of shares, which gather totaling $1.7 billion. Despite all these initiatives, net leverage was 1.5 times in dollars and 1.54 times in the reals. It's important to mention that the net debt is already impacted by acquisition of Kerry, which was concluded in the end of September. Including Kerry's last month EBITDA, net leverage would be 1.49 times in dollars and 1.52 times in reals, the lowest level achieved by the company historically. And it's important to highlight our comfortable liquidity position. We have at the end of the third quarter, a cash position of $4.3 billion, together with a revolving line of $2.2 billion at the end of the third quarter, totaling $6.5 billion in total liquidity, which is more than three times the short-term debt and enough to pay the debt until mid-2026. Move to the bottom of the slide, I highlight that our average cost of debt in dollars was 4.47% per year, the lowest ever recorded by the company. However, it is still 1.4% above the interest of our bonds on the secondary market for the same average period of six years. And therefore, it means that we still have potential opportunity to reduce financial expenses $220 million per year. For the next year, for example, three bonds that together totaled $2.6 billion, with coupons of 5.75% and 5.87% become callable. The refinance of the street bonds we will extend the average term of the debt and will capture around $100 million in net financial expenses savings per year. Now, let's move to the business units performance. Starting with Seara on slide 28, we have the third quarter 2021 net revenue growing 38% in the annual comparison, and reaching BRL9.6 billion. In the domestic market, which represents 51% of the total business revenue, the category of repaired products has remained the highlights, posting a growth of 4% in sales volume, and 20% in average sales price. Seara continuous focus on innovation and among the main introductions of this quarter, I highlighted that we launched Seara brands the first complete line of 100% of vegetable protein-based cuts in Brazil. In the export market, Seara posted the growth of 20% in volume sold and 11% in average sales price. The scenario for production costs remain challenging, with the average cost of soybean meal and corn rising by 23% in 74% year-over-year, respectively according to -- data. As a result, adjusted EBITDA reached BRL984 million with a margin of 10.2%. Now, moving to JBS Brazil on slide 29, we see the revenue for the quarter growing by 35% year-over-year, reaching BRL15.5 billion in the quarter. The export market was the highlight of the quarter with net revenue posting a significant increase of 50% in the annual comparison as a result of the 25% growth in volume and 27% in average sale price of fresh beef category. In Brazil Friboi brand achieved an important mark by being elected the most remembered meat brands in Brazil, according to the Top of Mind 21 survey. Despite this sequential improvement, the performance for this business units continues to be impacted by the increase in the average price of --, which according to the data published by increased at around 35% in the annual comparison. As a result, EBITDA for JBS Brazil totaled BRL946 million in the quarter with a margin of 6.1%. Moving to slide 30, at JBS USA Beef and now is speaking in dollar terms and in U.S. GAAP. JBS USA beef's revenue reached at $7.4 billion in the third quarter, an increase of 38% year-over-year, with EBITDA of $1.6 billion and the margin of 22%. In Mexico, -- sorry in North America, beef demand continued growing as the progress in the COVID vaccination accelerated the reopening of the foodservice channel at the same time that retail sales remained strong. Global demand for beef also remains very strong, particularly in Asia, which now is responsible for more than 75% of the total U.S. beef exports, with China becoming the third largest destination for American beef. The performance of Australia beef continues to improve sequentially, mainly due to the strong domestic and international demands that are sustaining beef prices. Now, moving to JBS USA Pork, net revenue total -- net revenue was $2.1 billion, an increase of 46% year-over-year and EBITDA reached $249 million with a 12% EBITDA margin. Margins increased in the quarterly comparison supported by the strong domestic month, as well as the fact that labor shortage continue to hold back production. In the export market, Mexico, Japan, and South Korea grew volumes year-to-date in 30%, 6.5%, and 5% respectively, compensating the declining the exports to China since the beginning of 2021. presented a net revenue of $3.8 billion in the quarter, an increase of 25% year-over-year, EBITDA totaled $347 million with a EBITDA margin of 9.1%. In the United States, demand and pricing has been robust given the improvement in the foodservice channel while retail volumes have remain strong. In Mexico, business continues to perform, while in Europe, shortage of labor ingrained inflation among other costs put pressure on margins. To finish, I would like to move to slide 33 that shows that our exports totaled $5 billion in the quarter with Greater China representing 28% and Asia as a whole represented 50% of the scope. With that, I would like to open to our question-and-answer session.

[Operator:]

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

[Ben Theurer:]

Perfect. Thank you very much and good morning. Congrats on those outstanding results. Couple of questions. So, first of all, you've talked a little bit about it. But within your sustainability approach and I know there was a relief a few days ago that you're partnering with DSM and the feed additive in order to reduce methane within your supply chain. So, my understanding is this is primarily focused on Brazil because of the approvals that are out there in Brazil. But could you give us maybe a little bit of a roadmap on how you think to potentially roll this out as approvals come in into our markets? And what are the biggest challenges to overcome, given the fact that it needs to be administered on a daily basis, but in Brazil or in Australia, you still have a lot of cattle grown on grass. So, that would be my first question.

[Gilberto Tomazoni:]

Ben, this is Tomazoni. Thank you for the question. It is -- we start -- the agreement is a global agreement with the DSM. You'll know that the SSM spent more than 10 years studying this supplements and Brazil -- we start in Brazil because the approval and because the restriction of production of DSM. We start in Brazil, we are developing this project, they need to bring the supplement to Brazil, we start development in Brazil. We're planning with DSM to -- the next step will be in Australia. And the other roadmap, we not have defined yet, but what I can say to you is that a global agreement we start Brazil, the second will be Australia and I think the next will be U.S. after Australia. And for sure you have the question how you supplement that? We are not just -- because when you have to eat a lot, it's easy when you have in the grass will be more is a challenge to do that. We need to learn on that. We are just start to work with this. But it's not the only project that we have in this target to reduce methane. We have already some experience with lemongrass then will be much easier to fit the words. That have the potential to reduce 30% of the methane emissions. And we start not all the projects in Brazil with Italian company, the Brazilian Institute -- Research Institute that cannot add other supplements and we are not stopped on that, we believe that we have -- it's a good way to reduce the methane emissions. Of course, we have a lot of opportunity to -- that basis solutions -- the best solution for example, they the integration of cattle and grain and florist as their potential to reduce -- I talk now for the -- all the balance in terms of the carbon emission -- beginning as carbon emissions. We -- at the end, just to summarize, we believe that all of the initiatives, the additives in the diet to reduce the enteric fermentation in to reduce the emission by the land, we can be -- can they show to the world that the cattle, it's part of the solution for the green -- the part of the solution of the challenge in terms of the environment. And the other challenge that we have to feed the world with the grow population.

[Ben Theurer:]

Okay, perfect. Thank you very much Tomazoni. And then my next question, I guess that one's more for Gui. Given the most recent upgrade from Moody's on your bonds, and you've said you're looking into some opportunities to get some refinancing done to serve or save money? How fast can you implement that? And is there anything else needed in order to potentially get included in some of the IG benchmarks, et cetera? I think there's a change required. So, how do you think about this because that obviously could further improve access to capital markets and even further reduce the cost of capital? Is that something you're you've already planning around? Or how do you feel about the need to move here on the bonds?

[Guilherme Perboyre Cavalcanti:]

Yes, Ben, that's a good question. The speed of implementation, we could wait for the call dates, which will happen in January, in July, in September, of the three-month bonds that I mentioned, or we can do tender offers before. If they have good marketing -- by market conditions, we will probably be anticipating those re-financings to tender offers. So, that's the idea. And in terms of the benchmark index, we sure are given now that we have the investment grade, we will be looking -- we'll be studying to see if we can make a part of bond index like the Bank of America 1 which given that we are 140 A, we can participate. And others like market that we are not -- that has to be registered, we will also see the pros and cons of maybe registering the bonds. I see you're making shelf registrations to speed up the process. And it speeds up this refinancing because we have this tremendous opportunity, we still have a lot of expensive debt in our balance sheet and our bonds are trading at 3.10%, 3.15% a 10-year bond yield. So, we have -- again, as I mentioned that tremendous opportunity to cut those expenses that by more than a half in the interest expense.

[Ben Theurer:]

Okay. And how much -- well, is there any connectivity to what you said on the call earlier this morning around the plans to list the shares in the U.S. in 2022. There's something that is somewhat -- well, needs to be done first on the bond side to then move forward on the U.S. listing or what's next in order to get this finally done?

[Guilherme Perboyre Cavalcanti:]

No, the listing is totally separated process from the bond side. So, the listing is just a matter of restart -- begin again the process because of those process, once you stay without, for example, making confidential filings, you have to start all over again, maybe it's just a matter of restarting again. But in the meantime, of course we take any steps that maybe will be done only after the listing. Examples was that we've seen, a more efficient debt location that will continue to do in the meantime. All the ESG investments and I think it's important for us prior to the distance have a better recognition of our ESG and maybe improvement our ESG ratings and the M&A that we have been doing is increasing the mix of value added and branded products in portfolio with to also potentialize the rating once we list the company. And also the steps that we announced, the proposal for the minority of PPC. So that that's a step that we -- that if -- after the -- if we conclude this, we won't have two listed companies in U.S. will be better for shareholders, and you won't have to dilute shareholders in the future because we're using cash for that. So, those steps will be continued to be doing and all of them will potentialize I think the rating that we could get once we listed the company in U.S.

[Ben Theurer:]

Okay, perfect. And then one operational question. And I'm very sorry for basically taking over the call here. But within JBS USA Beef, obviously the Australian unit, I remember, you've talked about this in the past, it represents about a fifth of the contribution here. If I know you don't give the exact details, but could you give us some quality comments around the level of profitability you're seeing within the Australian operations between the fresh business and the prepared business and how you think this is going to trend into 2022?

[Gilberto Tomazoni:]

Andre, can you take this question?

[Andre Nogueira:]

Hi Ben, thanks for the question. So, the prepared food business in Australia run in a pretty good level, GGs margin. The fresh business, as we said, have been recovering sequentially in the quarters, but still way below what we consider normal for Australia, especially in the market, that we're seeing a strong phase the way that we're seeing right now and way below U.S., Ben. I think that as Australia moves next year, especially, the second part of next year, where we should see -- start to see that availability of Kerry. And I strongly believe that the international price of beef and lamb will continue to be very strong. We should see Australia improving margin. And both will be at that point, way above what would be the normal margin for Australia just because price of this international being so strong, and there's, I think that have everything in place to continue to be very strong with demand in Asia the way that it is and demand in each market the way that it is. So -- but today Australia, it's a drag in our overall results. Of course, the U.S. market is way above the Australian market. Canada is in line with U.S. in terms of margin. Even in U.S. remember that we have different types of cattle we process, native cattle, we process horses and we process cows. Horses are very similar with the native cattle. Cows are not in the same level of profitability -- it’s a good level, but not even close to what to have in terms of margin natives and horses. And we have the capacity in our plants to balance this mix. So, the plants that process cows and horses, we're processed much more horse and reduced the amount of cows. We have this capability to adjust and that's a unique opportunity that we have JBS. I strongly believe that Australia will continue to prove respecting the normal seasonality of the business, will continue to improve the huge, very strong retention of category now, what happened right now in Australia in the last several months and several quarters. The cows that have the process are historically low. That means retention that we should see the second part of next year start to have a much better availability, with the price that's actually. Again margins have been strong historical levels just because of sales price -- global sales price for .

[Ben Theurer:]

Perfect. Thank you very much Andre.

[Gilberto Tomazoni:]

And Ben, just to add what Andre, so explained about the Australia, he just showed that how its important -- strong is our global platform because we have cycles in different regions, in different kinds of proteins, but our plus -- global plus and pharma, it's really that competitive advantage of the company.

[Ben Theurer:]

Perfect. Thank you very much Tomazoni. And congrats again on those outstanding results.

[Operator:]

Excuse me. Our next question comes from Guliamme Paliyaris , Bank of America. Mr. Paliyaris, your line is open. Please go ahead.

[Unidentified Analyst:]

Good morning, everyone. Thank you for taking my question. Two questions here on Seara, it seems that the company continues to being shared over time, right? So every quarter we're seeing Seara outgrowing the competition. And in that sense, if you could give us some color in terms of what are the categories that the company is outperforming in terms of value added in processed food? And also, regarding the spread between beef prices and chicken prices that are diminishing in Brazil? What are your thoughts in terms of how this will change the demand for the portable protein here in Brazil?

[Guilherme Perboyre Cavalcanti:]

Good morning, Glen. So regarding the first part of your question, we have the -- we have been seeing an increase in market share. And the strength of the branding resume for sure. We've been, for the last couple of years, we have led the frozen category in Brazil, Seara brand has been the leader in the market for 28 consecutive months. So this is a very consolidated leadership that we were able to achieve. Other than that, we have made very, very good improvements in our market share in the pizza category, and recently a very strong market share -- and market share gaining in cold cuts, and in the other, mostly cold cuts, modellers. This have been really, really good achievements that we had in the previous -- in the last couple of months, or actually in the last half year. The second part of the question, I didn't really understand, if you could repeat that?

[Unidentified Analyst:]

Sure. One, we are taking a look on the spread between the beef price in Brazil, since we had the ban from China, and the price of chicken continues to go up with the best was how this changes demand going forward? Do you think that there is a structural shift there are -- we're continue to see a great demand for poultry in Brazil?

[Guilherme Perboyre Cavalcanti:]

Yes. We see a structural change in demand for poultry was you would think that per capita consumption will continue to increase. We see that more and more this will be it is a trend. Obviously, there's a short term changes in these prices in Brazil. That's because of all the reshuffling that the industry had to do to adjust to this to this temporary suspension. But we don't see that any of these short term movements would change the trend, Brazil will overall consume more poultry on a per capita basis.

[Unidentified Analyst:]

Thank you. That's very clear and just one follow-up there. In terms of the pork consumption in Brazil, we see that there are some investments being made in that pork store Brazil could actually expand the feedstock and more customers coming to the market. Do you see this trend going up -- going forward here in Brazil as well?

[Guilherme Perboyre Cavalcanti:]

Yes. Absolutely. So Brazil consumes very little pork on a per capita basis, mostly on mostly most of the pork consumption in Brazil. A lot of it is in process in part of prepared foods, right. We said that, there is a huge opportunity to increase per capita consumption in Brazil. We are working with a incentivize that consumption and find new ways of having that consumption growing in Brazil. You know, we've been doing a lot of programs that are pretty similar to what we do on the beef side with the pork --

[Operator:]

Ladies and gentlemen, please hold. Ladies and gentlemen, please hold.

[Guilherme Perboyre Cavalcanti:]

Okay. Sorry. I don't know what -- I'm not sure what part you guys could listen to. But I'm just saying that overall we have been developing the Brazilian pork market through similar approaches to what we do in the beef side we were talking about it. I hope that you could understand give me my answer and well enough..

[Unidentified Analyst:]

Sure. Certainly.

[Operator:]

Our next question comes from Rodrigo Almeida with Santander.

[Rodrigo Almeida:]

Hello, can you hear me?

[Guilherme Perboyre Cavalcanti:]

Yes, Rodrigo. We can hear you. Go ahead.

[Rodrigo Almeida:]

Perfect. Good morning, everyone. First of all, congratulations the results very impressive. So I just wanted to touch on a couple points here, if possible and it takes for a little bit on the U.S. listing potential. You were very vocal about 2022. And then I just wanted to explore a little bit on the format of this listing, in terms of, whether there will be a corporate restructuring, if you're -- if you have an idea of listing the whole of JBS business in the US, or just limiting to a carve out of the US businesses in leasing those in the US. I think it would be very helpful for me to get some color on this front if possible of course. The second question that I have is related to Brazil and investments. You mentioned the BRL3 billion investments. There is a plan underway. I just want to understand a little bit if there is a potential way to break down this investment in what's an increasing capacity for fresh products. And what's an increase in capacity for new production lines for product -- process products. I just want to get a little bit of an understanding in a tangible understanding of the growth of processed foods in Brazil? And then I have a third point -- sorry, if you've touched upon this earlier this morning already. But I wanted to understand a little bit of the outlook for the fourth quarter in Brazil, more specifically taking into account the export restrictions to China, and significant decline of cattle prices in Brazil. You can just -- wanted to understand a little bit more of the outlook for margins in Brazil, we saw a good improvement quarter-over-quarter in the third quarter? But then I wanted to understand, if that could continue into the fourth quarter? I have these three questions. Thank you.

[Guilherme Perboyre Cavalcanti:]

Okay. Thanks Rodrigo. I will begin with the US listing. As you know when we were working on these before the pandemic we -- and then the pandemic came in and then we stopped the process. Since them you see the evolution of our financials, we generated a lot of cash. We also have changes in tax legislation around the world. So, I think this is now with our current the current state of our balance sheet perspectives, we need a lot of M&A is in the meantime. We can see it again, and it will start to -- start what will be the best associate reorganization that will create more value for the shareholders. So -- when I say that, we will begin the process again. We will begin exactly specifically redesigning, associate their structure for the leases in light of again, the current balance sheet situation, in light of the M&A that we are doing around the one. And in light of the possible tax legislation around the world; Brazil, US and the OECD countries?

[Gilberto Tomazoni:]

Morning, Rodrigo, regarding Seara investment, investments in Seara. So roughly about two-thirds of what we're investing is focused on prepared and value add and about one-third is in our total production, remembering that a lot of that total production will support our growth in in Prepared. So that's crucial for to make that happen. So the investment is well underway and we're making good progress and we'll have most of all of our investments being finished in operation in the next year. Regarding these margins in this scenario, so for sure, we -- there's a disruption that comes from this temporary suspension from China. We saw a lower capital cost due to this important market not being available. We think that -- again, we think that this is a temporary suspension, we don't think this is something that should hold for a long period of time. So we think in the near -- in somewhere in the future here, we should regain that market access. Having said that, we do think that we can -- we are able to maintain similar margins in this market somewhere and similar to this to this third quarter and the fourth quarter.

[Rodrigo Almeida:]

Thank you very much. And congratulations again on this strong corporate strategy there.

[Operator:]

The next question comes from Carlos Laboy, HSBC.

[Carlos Laboy:]

Yes. Good morning, everyone. Guilherme, congratulations on this balance sheet optimization process. You've been waiting since you arrived. Along those lines, what pieces of your ESG plan, do you think you want to have in place ahead of a New York Stock Exchange listing? And are some of these may be also important for what you want to do with your bonds next year?

[Guilherme Perboyre Cavalcanti:]

Yes, that's a good question, Carlos. In fact, I think the company is doing a lot of things in ESG. I think the problem is not what we're going to do, because I think we are investing a lot in the social, as we do in our program here in COVID situation , which invested more than BRL400 million just in Brazil. The Hometown Strong in in the US which we support the communities, the better future in US, which provide college tuition for employees and relatives. On the environmental side, we put the Amazon fund together. Now we signed an agreement to decrease the methane emissions of Cairo. So I think we are on the governance side, we are increasing the level of independence of our board. So we are acting in all of the fronts. I think it's more a matter of being recognized by the ESG ratings of what we've been doing. We think we do not deserve to have some grades that we have in some of the indexes that is with artificial intelligence collecting headlines around the world because we are the largest meat company in the world. So all the headlines against the sector will fall on us. So -- and this jeopardizes our ratings on ESG. So I think we should -- I think what we have is to make the agencies recognize everything you've been doing and improve this. And of course, this will have a potential impact on the listing because a lot of ESG funds sometimes follow these indexes, these artificial intelligence indexes, and they are -- they cannot increase the stakes in JBS, for example. So this is a work that we've been focusing too much and we’ve being very vocal on that. And especially, that -- and we believe that -- and we hope that we'll be recognized for everything we'll be doing in this font. And on the bond side, probably the -- our next bonds as most as we can we will make them Sustainability Linked. But of course, we want to do KPIs that are challenging that we think we can achieve them. And so for example, we -- the last two bonds Sustainability Linked that we did was related to greenhouse gas emissions, I think is the first thing that we should focus on. We launched the local debenture in Brazil, which has a KPI, which is two trenches one at 10 and another 15 year trench which the KPIs is our blockchain platform of transparency in Cairo procurements. If we don't see these by January 2006, all of our capital purchases is not on this blockchain will guarantee that our -- the purchase of our direct suppliers and of the suppliers of our suppliers are all in compliance with the zero deforestation polish that we have no tolerance for something different. The interest rates of this local debentures will increase in 25 basis points. So we'll be the first Sustainability Linked local debenture in Brazil. So as most as we can, we will be focusing both on the bond side and also from our corporate ESG ratings that we expect to be to improve.

[Carlos Laboy:]

Okay. Thank you. And one last question. Can you give us some color on whether there is any industry specific efforts in the United States being made with the federal government to help you deal with the labor shortage that you have perhaps with some relief on visas or something? Or do you think this is kind of a medium to long-term constraining the whole industry is going to have to deal with?

[Gilberto Tomazoni:]

Hey, Carlos, it's not an issue for the industry Carlos. It's an issue for US overall, not only issue for US, the issue for today all the developed countries, look all our labor is it's hard to find and it is impacting several different industries. If you see in the TV, the advertise of Amazon trying to convince people to go to work there. So yes, there's a movement, but this is not the industry issue. This is a US issue for labor. And I believe that this will stay first for quite a period of time, because I think that the change in the labor force that's happened, it's happened fast, this related demographics, is related to participation rate of the labor force, and this will be constrained to grow production, this to be in fact the cost of labor. But in the other side of this equation, we generate more demand because I think that the fresh group orders in U.S., the price of this labor, the cost of this labor will continue to increase. So there is movement, but I don't think that's -- there's nothing specific about the industry, which is a shortage of labor in US overall.

[Operator:]

Our next question comes from Carla Casella, JPMorgan.

[Carla Casella:]

Hi. Most of my questions have been answered. But I guess just one further one, some of the management changes you recently announced and the board changes, are these all required or moving you forward towards that US listing and do you have any timeframe of potential US listing? And in the event of one, will there be a change in cash between the US and the SA business to return any of the intercompany loans?

[Gilberto Tomazoni:]

Hi, Carla. These -- all of these changes in terms of the management structure we announced yesterday and the board changes, it's nothing related direct to the listing in US. Our listing in US it's key as a priority. And we have done so far, a lot of initiatives that facilitate and speed up the process and we believe that we will be listed next year in US.

[Guilherme Perboyre Cavalcanti:]

About the intercompany, Carla. As you have seen, we are already capitalizing the intercompany, still we have to do this throughout time for several reasons. But the auditors already are considering those intercompany loans through SA as a investment profile, not at debt profile anymore. And that's why it's not -- we are not having FX impact on those intercompany loans. So we will continue to process of aligning those inter-companies. And the same time always distributing that that in a more efficient way. So I think that's -- I don’t know, if it did that answer your question?

[Carla Casella:]

Yes.

[Gilberto Tomazoni:]

Yes. I think it's worth mentioning that once we got investment grade, all the covenants of our bonds fell in and we now -- we don't have any limits in terms of money transfer throughout -- through entities.

[Carla Casella:]

Okay. Great. I guess, that's what I was checking on. So thank you so much.

[Operator:]

Next question comes from Priya Rangarajan, MidOcean. Sorry. Next question comes from Ricardo Alves, Morgan Stanley.

[Ricardo Alves:]

Good morning again everyone. I got cut off. So apologies if this was asked. A quick question to Andre on exports in the U.S. Beef division. I remember you had been gaining market share overall in the US. Did those gains of market share continued in the third quarter? If you have any comments Andre specifically on China, since September with a suspension in Brazil, I know that the channels and clients are different between what you're dealing with out of the US versus Brazil, but given the relevance of Brazil as a beef supplier to China, just wondering if at least some impact could have affected you in the US. And then a couple of questions to Guilherme. Just if you could comment quickly, Guilherme, on the capital dynamics from the second quarter into the third quarter, and then what to expect for the fourth quarter? Just trying to get a sense if your cash conversion in the fourth quarter is going to be higher than the third quarter. Of course, EBITDA generation is lower. But in terms of cash conversion, should we be more optimistic on that front? And then just a final question, perhaps to Guilherme or Tomazoni as well, on the Pilgrim’s standard offer, just a quick update with regards to timing and prices, basically your recent thoughts on that? So those three quick questions. Thank you.

[Andre Nogueira:]

Hi, Ricardo. Exports continue to be extremely strong, Ricardo. US is growing at 21%. So are growing above that to continue to gain and it is normal. We have a strong, strong presence in terms of sales and relationship with key customers in all the markets. If you see what we have in Japan, if you see what we have in Korea. Last week, our main customer in the international market spend a week with us here, visiting us, visits our plants, the relationship is extremely strong and our talk about products, our talk about products with more value, different types of products, so brands. So it is a strong. We continue to gain market share, and it's normal considering our global footprints, considering our capacity, considering the folks that were put on that. China, specific -- I don't think that's the Brazil impact US beef. Anyway, it's very different channels, have very different types of products. The reality is China, as I said probably a year ago that expect that China will be one of the top three exports to US, now China, it is one of the top three exports for US. It's exactly what I said. US in the most recent months represent 80% of the China import. And I think that's have all the capacity, go to 15% of all the China import in beef. And if you see that how much is represents for the US production, and if you see that Japan, it's kind of quiet right now and expect that Japan will come back pretty strong. So export will continue to grow. And that's one of the key points why I believe that beef price will continue to very, very sustainable high level.

[Guilherme Cavalcanti:]

Okay. On the working capital side, as I mentioned in the second quarter call, in the second quarter 2021, we had logistics problems around the world with port delays. And because of that, we had some working capital that would come back in the third and fourth quarter of this year. And that's what happened. We see that the cash conversion of the third quarter was very good. And it will be even higher if it was not from non-recurrent payments. For the fourth quarter, the trend is the same. In Brazil, it’s specifically because of the China situation. The release of working capital would be higher, if it was not for that. But we hope that this situation being resolved with fourth quarter working capital release from Brazil will be significant. And then this -- and again in the perspectives from US of free cash flow, it's also very good. So we expect that the fourth quarter cash conversion will be in line of the third quarter.

[Ricardo Alves:]

Perfect. Thanks, Guilherme, and thanks Andre as well. I just had that that final one on Pilgrim's.

[Guilherme Cavalcanti:]

The Pilgrim's, we made the offer, as you know the Public Tender Offer. And we have no news on this front. This is a process. This is a negotiation process like other similar of this one.

[Ricardo Alves:]

Fair enough. Thanks. Thanks again everyone. Super helpful.

[Operator:]

Our next question is from Priya Rangarajan, MidOcean.

[Priya Rangarajan:]

Hi. Thank you for the call. I had a couple of questions. In the past you guys have been moving debt from SA to US and now with the listing. But you also did an issuance of the 32s, which was ESG linked. When you're talking about tendering the bonds and also listing in the US, how should we be thinking about future bonds will be base food out of the US? Or will it be -- and you mentioned that it will be ESG linked as well. So would it be issued of the -- out of the US or would it be more SA issued? Thanks.

[Guilherme Cavalcanti:]

Okay. Going forward, we continue to issue bonds both from USA and from SA as well. For one of the reasons is that in this way, we capture a higher public given that we can reach emerging markets funds and also US funds. So, that we will continue to do. But bear in mind that we have provisions on our SA bonds that we can always change the issuer to US or to another entity on top in the case of a listing that we have this provision. So regardless vary issue, we can always move these bonds to one entity above. So this -- that -- and that's how we will proceed. As I mentioned as most as we can, we will try to do sustainability linked bonds, although for time -- for timing or other reasons, we may do also regular bonds going forward.

[Priya Rangarajan:]

Got it. And one follow-up. You had mentioned that some of the new bonds that you will be like issuing after the tender would -- could be registered in order to get index eligibility. Your -- some of your bonds, existing bonds have 144A-for-life, would you considered listing them as well? Or would that not be a computation? Thanks.

[Guilherme Cavalcanti:]

We will see, what are the costs on doing that? And what are the advantages? What are the commitments that we have to do? So we will going to -- as I mentioned, we will start to make this study. So far we'll continue to issue 144A. And once we have these, we make bigger decision to we should do -- we can list the new ones, and depending on the cost. We can list the old ones, but 144A is eligible for Bank of America index, but it's not eligible for the Barclays index.

[Priya Rangarajan:]

Got it. Thank you so much.

[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 would like to finalized this to thank you our -- all our team members around the world for the outstanding work and commitment. They are responsible for these excellent results that were delivered today. Thank you.

[Operator:]

That does conclude the JBS audio conference for today. Thank you very much for your participation. And have a good day. Thank you.