JBS S.A.
Q4 2021 Earnings Call Transcript

Published: 22 Mar 2022

[Operator:]

Good morning, everyone, and thank you for waiting. Welcome to JBS Fourth Quarter and 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; Andre Nogueira, President of Operations in North America; Wesley Batista Filho, President of Operations in Latin America, Oceania, and the Global Plant Basin; 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 will turn the conference over to Gilberto Tomazoni, Global CEO of JBS. Please proceed.

[Gilberto Tomazoni:]

Good morning, everyone. Thank you for be part of this conference. The past year included several great achievements for JBS. We’ve excelled in our purpose to feed the world, providing the best production in a sustainable way. Thanks to the determination of our modern 250,000 team members around the world. At the same time, we’ve 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, city, states, shareholders and investors. JBS, previously a Brazil-focused company specializing in one type of protein, has evolved into 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 context, 2021 has set the stage for JBS's trajectory in the coming years. We increased our investment in 150 in 2021 related to 2022, reaching the relevant total of $4.19 billion. Resources that we are directed to expand and modernizing our operations around the world, buying companies in a sustainable project that express our ESG commitments. The strategic acquisition we made in 2021, in a total of $2.3 billion allows us to increase our relevance in segment in business where we see significant growth opportunities. The purchasing 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 market our entry into aquaculture market within industrial leaders that will provide a solid foundation for global expansion. 2021 also marked our entry into the cultured meat space with the purchase of controlling stake in Biotech Foods. Our investments in research and the construction of our production facility in Spain will help accelerate in industrial development in our cultivated protein market. I would also like to highlight the acquisition of Rivalea in Australia. Kerry Consumer Foods’ Meats and Meals business in U.K., King's Group in Italy, and SunnyValley Smoked Meats in U.S. We invested $1.1 billion in greenfield projects in our brands and value-added products in Brazil. Seara introduced new products, continuing to expand choice to the consumers. To meet growing demand, we accelerated efforts to expand and modernize 15 Seara production units, in a process that we are now -- it is -- in its final stage. In the United States, with Swift Prepared Foods, we focus of the potential for grow our margins and brands and invested in the construction of two specialty plants in the state of Missouri; one for Italian products in Columbia and another for cooked bacon in Moberly The investments and M&A in the expansion of CapEx had up to $3.4 billion, almost the same amount of the $3.6 billion we distributed to the shareholders in dividends and share buybacks, while we 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 brands to be delivered to consumers in various regions in Brazil, included a decline in channels. In the United States, Wild Fork offer the consumers the opportunity to purchase ready-to-eat meals and several types of protein online, I would say United States and Mexico all available for immediate delivery. At the same time, we have strengthened our relationship with commercial partners. In production, Swift start to import at Brazilian retail. We also doubled down our growth in the already established Açougue Nota 10, which support the fresh meat category for large supermarket groups in Brazil. The execution of business strategy was possible, thank you to our financial profile. As Guilherme will explain, we have today the healthiest financial standing in our company’s history, with a debt extension secured through successful bond issued that includes a November 2021 issued a marking the lowest spread in history for a Brazilian corporation, proving that deals is our strategy. We issued Sustainability Linked Bonds. With all these initiatives, our leverage fell to its lowest level, 1.51 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 to the JBS's most important commitment

[Guilherme Perboyre 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 5x the initial offer. This bond coupled with all the work we did in terms of liability management, may JBS increase the average maturity of the debt from 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 leveraging reaches 1.46x, 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 for $2.1 billion, which will add $2 billion in revenue in 2022. And we compensate investors with some dividends and share buybacks of approximately $3.7 billion until February 2022. That translates into a total yield of 22%. We achieved all these always with a strong focus on financial discipline and 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 $8.1 billion in 2021 with the following breakdown. We returned $3.3 billion to shareholders through share buybacks and dividend distribution. If we include the share buybacks made in 2022, the return was $3.7 billion. Considering our strategic M&A announced in 2021, we invested $2.1 billion. We also invested $1.8 billion in the modernization and expansion of our production units. And finally, we have invested globally more than $1.3 billion in ESG initiatives. All things considered, we were able to reduce our leverage from 1.58x in 2020, to 1.46x in 2021, and increased interest coverage from 7.8x to 11.6x 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 $17.4 billion, which represents an increase of 27.8% in the annual comparison. In 2021, net revenues totaled $65 billion. The adjusted EBITDA for the quarter was $2.4 billion, which represents an EBITDA margin of 13.5%. In 2021, adjusted EBITDA totaled $8.5 billion, also a record with a margin of 13%. Net income was a total of $1.2 billion in the quarter, which represents an earnings per share of $0.48 per share. In 2021, net income was a total of $3.8 billion, which represents an earnings per share of $1.53. JBS distributed $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 2018. In other words, the carry of JBS shared remains extremely favorable 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 its 7 strategic acquisitions, that total investment of approximately $2.1 billion for the full year of the 2020. Don’t expect an impact of the net revenues is $2 billion. Please now move into Slides 34 and 35. The operating cash flow in the quarter was $1.8 billion. Free cash flow for the quarter was $1.1 billion, which represents a conversion of 45% of EBITDA to free cash flow. In the year, the operating cash flow was $4.7 billion. Free cash generation was $2.2 billion and excluding non-recurring payments of $768 million, and the expansion CapEx of the amount of $991 million, Free cash flow for the year would have been $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 $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 $12.4 billion, which represents an increase of $3.5 billion in the annual comparison, due to the share buybacks on the amount of $2 billion, M&A with the total amount of $1.7 billion and $1.3 billion in interim and anticipation of dividends. However, net debt -- net debt financial expenses in 2021 were stable in relation of 2020, corresponding to $731 million. That leverage was $1.46x in dollars and 1.52x in reais, the lowest level ever reached by the company. Interest expense coverage increased from 7.8x in 2020 to 11.6x in 2021. And it's important to highlight our comfortable liquidity position. We ended the year with a cash position of $4.2 billion, together with a revolving line of $2.2 billion, allowed to be asked to end the year with a total availability of $6.6 billion, which is approximately 3x the short-term, that's enough to pay all the debt until mid-2027. Moving to the bottom of the slide, I highlighted that our average cost of that in dollars of 3.99% for a year is the lowest ever record by the company, considering the issuance of Senior Notes in January 2022 of $900 million for a 30-year bond and $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 $7 billion with an average oversubscription of 5x. 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 units revenue in the period, the prepared foods category maintained its growth trend and registered an increase of 5% in 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 maintained its position as a market leader in the frozen segment and pizzas. In the export market, Seara posted volumes growth of 15% and 21% increasing average sales price, even facing a temporary suspension in certification to export to Saudi Arabia and the recovery of the Chinese hog herd. In 2021, Seara continue to make consistent progress in its strategic plan, with a strong innovation agenda, expansion of its production capacity, investments in its brands, household penetration and increasing the number of points of sales. The scenario for production costs remains challenging 2021 with an average cost of soybean meal and corn rising 31% and 56% year-over-year, respectively, according to ESALQ data. As a result, adjusted EBITDA reached $210 million with a margin of 11.2% in the quarter and adjusted EBITDA of $750 million in 2021, with a margin of 10.6%. Now moving to JBS Brazil on Slide 38. We see the revenue for the quarter growing 5% year-over-year, reaching $2.5 billion in the quarter and $10 billion in 2021, an increase of 29% year-over-year. The domestic market was the highlight of the quarter, with net revenue posting an increase of 13% in the annual comparison, mainly driven by the strengthening of Açougue Nota 10 loyalty program, which has already surpassed 1,700 stores. In 2021, net revenue grew 29% as a result of the price increase. It's important to point out that Friboi brand was elected the most remembered brand -- meat brand in Brazil according to the Top of Mind 2021 survey. However, the performance for this business unit continues to be impacted by the increase in the average price of cattle, which according to the data published by ESALQ increased around 35% in the annual comparison and also by China temporary suspension of resident beef exports. As a result, EBITDA for our JBS Brazil totaled $125 million in the quarter with a margin of 5% and $429 million in 2021 with a margin of 4.3%. Moving to Slide 39, at JBS USA Beef, and now speaking in dollar terms and in U.S GAAP, JBS USA Beef's revenue reach at $7.5 billion in the fourth quarter, an increase of 34% year-over-year and in the year net revenue of $27.2 billion, an increase of 25% year-over-year. The adjusted EBITDA totaled $1.3 billion in a margin of 18% in the quarter, and $4.9 billion in 2021, with a margin of also 18%. Beef demand higher than supply, sustaining the results in the year and the quarter, in both domestic market and exports. In North America, beef demand was driven by the strong performance on the retail channel and the recovery in the food service channel. In international, global demand for beef also remains very strong, particularly in Asia, which is now responsible for more than 75% of the total U.S beef exports with China becoming the third largest destination for American beef. U.S exports in 2021 were not only better due to the logistics impacts, mainly on the back of the congestion in American ports during the period. JBS Australia performance continues to improve sequentially as a result of the good management in the region. Cattle availability is still low, but strong domestic and international demand has increased beef prices and therefore improved results. Now moving to JBS USA Pork. In the fourth quarter of 2021, net revenue was $1.9 billion, an increase of 10.2% year-over-year. Adjusted EBITDA reached $230 million with a 12.1% EBITDA margin. In 2021, net revenue was $7.6 billion and adjusted EBITDA was $766 million, an increase of 26% year-over-year with a 10% EBITDA margin. The strong demand for pork boosted the prices and was important to sustain margin growth in the quarterly comparison and to keep margin stables in the annual comparison, even in the face of a much more challenging cost scenario, especially labor costs, packaging and transport. The shortage of labor and logistics also impacted production growth and a better mix of products. In the export market, Mexico, Colombia and Philippines grew volume in 2021 by 31%, 61% and 84%, respectively, and compensating the decline in the exports to China since the beginning of 2021. Pilgrim's Pride on Slide 41 present a net revenue of $4 billion in the quarter, an increase of 30% year-over-year. Adjusted EBITDA totaling $317 million, with an EBITDA margin of 7.8%, which excludes the impact of an aggregate of non-recurring payment of $132 billion in the U.S. In 2021, net revenue was $15 billion, an increase of 22% year-over-year. Adjusted EBITDA totaled $1.3 billion, 64% year-over-year with an EBITDA margin of 8.7%. In the United States, demand and price have been robust given the improvement in the foodservice channel, while retail sales remained strong, and we're above pre-pandemic levels. Mexico results continue to be solid, while in Europe the results were strongly impacted by the high inflationary costs in shortage of labor. On the other hand, we recently acquired Pilgrim’s Food Masters, former Kerry Meats and Meals, consolidating -- consolidated at the end of September 2021. It has already contributed positively to the results despite still passing through its integration process. To finish, I would like to move to Slide 42, that shows that our exports totaled $17 billion in 2021, with greater China representing 27% and Asia as a whole representing 54% of the total. With that, I would like to open to our question-and-answer session.

[Operator:]

Our first question comes from Ben Theurer, Barclays.

[Ben Theurer:]

Hey, good morning, everyone. Tomazoni, congrats on the strong results. Two questions. So first, if we look into the current global supply chain disruption, obviously the implications we have from the Russia Ukraine on grain cost. Can you elaborate on your different strategies, be it in North America and South America on the hedging side? And where do you think this -- what is -- this is ultimately going to drive in terms of fervor inflation and the need to engage in pricing? I mean, we've seen Seara has been very strong on pricing. But how much more can you do on the pricing side to offset that cost pressure? That would be my first question.

[Gilberto Tomazoni:]

Thank you, Ben. Thank you for your question. Look, the inflation, as you mentioned, it's not just related to one another region or one other sector. It's a global challenge. Inflation come from different regions, could be labor costs in one region, while others come from logistic costs, energy costs and commodity costs as well. And I'll give you a general answer and then I will leave Wesley and Andre give more details for each one of the regions. First, we are focused in teams that we control and we control our internal cost, manage our mix, manage our opportunities for position in the markets in commodity, as we have a global team of commodity. We take decision as a global decision in terms of strategy or the execution, each one of the regions making on execution, but we look as globally. And we see that our main way to face this challenge is use our culture because as you know, we have a decentralized company, we give a lot of autonomy to our business units, each one of the leads of the biz units has the autonomy to manage the situation. In this situation, your ability, your speed or reaction makes a lot of difference. And we strongly believe that this could be an advantage for us as a structure, in culture, in our structure decentralized. I will give to Andre and Wesley, if you want to give a specific action, we are taking in the regions to face this challenge.

[Andre Nogueira:]

Yes. Ben, good morning. So, specifically about Seara, for sure we’ve been for a few years having this pressure on the cost side, especially on the grain, like Tomazoni mentioned, nowadays, in the past year hasn't fully been grained, we have a pressure on logistics, on labor, even in Brazil with the inflation and all of the adjustments we've we have done here with the labor costs. So, obviously, all of these are structural right, this is not just for us, this is for the market. So, as long -- like, Tomazoni said, we focus on the things we can control. And being structural, we see that the market in general, when this cost pressures come, we -- the tendency is to -- for this to be adjusted in the medium term. So, specifically about the cost pressure we're seeing right now with grain, we have done already some further price increases in the first quarter. Obviously, the timing of the cost increase is usually fast and then price comes at a more paced -- speed. So, the first quarter, we'll probably see less of that price increase being the results, and we're going to see more of the effect of those price increases in the second quarter of 2022. Again, like we said before, obviously, there's a part that has to come from price increases, but there's also a lot that's in our hand, that's mix and deciding channel mix and product mix. So, we're also focusing on those other avenues to increase average price without necessarily just increasing price.

[Ben Theurer:]

Okay.

[Wesley Batista Filho:]

Sorry not to repeat perspective use the same again, the best for everyone inflation is everywhere, the pressure is very, very strong especially U.S., our costs have been 30% to 40%, higher than was 2 years ago before the COVID, the fourth quarter. The answer for that is twofold. One, have a strong risk management to do as best as we can. It’s the grain situation. Make sure that we're communicating with our customers about the reality of the grain market, not only the grain, all the costs, stashed in U.S., our operational costs because of the labor shortage, and we were very aggressive in raising compensation for our team members trying to be ahead of the curve. Because availability of labor was more relevant than the cost of labor at that point. So, continue to work as hard as we can, be excellent in the operation, run more and more efficient every day. That's what Tomazoni commented about control, what we can control. But communicate with the customers about the reality of the cost that impacts us in labor, in all the aspects of the costs, and do the best that we can and just communication, make sure that the customers are aware of the reality in working price as much as we can.

[Ben Theurer:]

Okay. Perfect. And then second question, this is most likely more for Gui to multiple things around this. If we look into 2021, you've spent a lot in M&A. I mean, you haven't spent as much in a while, but at the same time you accelerated a lot. Just purchase of PPE investments, CapEx, et cetera. So, if we look into the balance of the strength of your free cash flow, everything you’ve been doing, dividends, share buybacks, but then at the same time, investing a lot, how should we think about the capital allocation in '22 in an absolute reais amount in terms of CapEx, M&A, what do you foresee? And how shall we put into context here what potential extraordinary dividends could look like or share buybacks as the year unfolds?

[Guilherme Perboyre Cavalcanti:]

Okay. Thank you, Ben. Okay. Let's start with the capital expenditure. We forecast the capital expenditure for this year on a range of $1.8 billion. We've been half of that expansion and half of that maintenance. Now on the share buybacks and dividends, remember that we ended up the year with 1.46x net debt to EBITDA, so below 1.5x. In the first quarter of 2022 tends to be higher than the first quarter of 2021. So, our last 12 months EBITDA spend. We also recovered capital reserve on the form of accumulated profits with the results of the fourth quarter. And we ended the year with a very strong cash position of $4 billion, which is money that we raised in very low interest rates in the end of 2021 and the beginning of 2022. So given that we have a strong capacity to continue to return money to the shareholders and doing M&A at the same time. So, we don't need to have a trade-off between these two investments. Generally, what we do is to decide throughout the year, drawing scenarios of performance to see how fast we will be returning this money to the shareholders. Of course, if we have opportunities to buy JBS shares at a good price to continue to be doing. Remember that the enterprise value to EBITDA of JBS it's still very compelling for share buybacks. And also, worth mentioning that our net profit of 2022 tends to be a good profit again. Last year, we had R$20 billion in net profit. And for Brazilian corporate law, we need to pay 25% of that net profit which last year we anticipated given that we have a better forecast predictability of our net profit. So, this year, most likely, as we will be forecasting net profit for the year, we will probably be anticipating dividends again. So, the M&A will depend on the opportunities that appear for us. But the thing is, as you mentioned, we have a very strong balance sheet. We don't need to have a trade-off between these investments, and we will continue to do M&A and returning money to the shareholders until we have a capital structure more efficient.

[Ben Theurer:]

Okay. And the U.S. IPO, does that play an important role within that? Or the climbing to it, or is it really more when it can be done, it can be done?

[Guilherme Perboyre Cavalcanti:]

It can be done or when it can be done, it doesn't imply a consequence on the strategy because, again, we don't need to raise capital given the low leverage that we have right now.

[Ben Theurer:]

Okay, perfect. Thank you very much.

[Guilherme Perboyre Cavalcanti:]

Thank you, Ben.

[Operator:]

Our next question comes from Leonardo Alencar, XP Investimentos.

[Leonardo Alencar:]

Good morning, everyone. Thanks for taking my question. I wanted to get a better view on the M&A process. As we see in M&A process, it's how you're managing to diversify geographically and the protein profile. So, I wanted to check if this is a correct way is in terms of see with the M&A process? And to understand how do you see the synergies, is it possible to expect from Australia we form Rivalea and the beef operation. Is it possible to expect synergies between operations? I understand it's probably surely on this process to get the full picture. But then if you can give us some more color even on Europe with Kerry and King's, if it's possible to expect synergies between operations as well. And for the next steps for the M&A process, if we should expect more geographical diversification? Or if you should expect more protein diversification like this move towards the fish protein? And the last point for this is the changing environment with higher growing prices, this could affect the strategy or even would be a good opportunity, and maybe we can expect a faster pace of M&A for 2022 due to lower margins for most players in the world?

[Gilberto Tomazoni:]

Good morning, Leonardo. I understood the first part of the question that you talk about the synergy and why for the M&A. But the last part of your question, I lost because the connection was not good. Could you repeat that, please?

[Leonardo Alencar:]

The last part is just that since we are seeing this changing environment for grain prices, corn prices and -- selling price is going up. We are seeing the margins for the sector getting worse for many countries. And if this could be a good opportunity and maybe this process of M&A, maybe you could see more M&As coming in the short-term because of that.

[Gilberto Tomazoni:]

Now it's clear, thank you. I will answer those first two in the same type because they are connected. First, M&A is part of our DNA. We are, all the time, in the market, looking for opportunities that fit with our strategy and makes sense in terms of economic. Discipline is very, very important. It's now more because we have a strong balance sheet should be discipline is more important. And because of that, you saw that we start to increase our activity in greenfield that was not so active in the past because we believe that sometimes the acquisition with the sector we want to enter or we want to expand the opportunity in the market, the value that is possible to buy not make sense in terms of the future results. And then we decided to grow with greenfield. But the main part of our deal is M&A. We reinforced our internal structure in order to give more time and dedication for the net zero target that we want to be in 2005 and for M&A activity was one of the two reasons -- or the two reasons that we enhanced our internal structure. That means this we are focused on. Of course, when we’ve a challenge in the market because of inflation or because of overproduction or because of lack of supply, many of the disruption in the market gives opportunities appears. I don’t know that will be appeared because of that. But to say, we are -- it's a continuous process to look for opportunities. If now we appear, we are ready because our balance sheet allows us to do something relevant in acquisition. In terms of where we want to grow, aquaculture is clear our focus on. So, we see that seafood is the -- in terms of as the biggest consumption per capita consumption in the world and grow higher than the other meat protein. And we see that while fish will be a restriction, we do not grow that, maybe it will be less. And aquaculture will be need to supply the demand. And with acquisition one, we enter in the segment, but it's -- as we enter in a place, it’s the right place because, in Australia, we have the structure to manage and we accelerate it. It will speed our learning about the sector. And we want to transform our aquaculture business that we enter right now and big as we’ve chicken and pork in our portfolio. This is the one -- it's a driver for growth. Of course, we are not timed for grow, we are looking opportunity all the time for growth in this. The other thing is plant-based. The acquisition of Vivera give us a lot of synergy in terms of the business that we are ready. We are in half in our operation in Brazil and U.S. And we don't know the size of this consumption think about this business. But for sure, you want to be one of the leader of the segment. And we are investing in R&D and team in developing new products in a new type of packaging and the strategy is for growth, and we are dedicated a team to the test. This is -- I will talk about segment. When we are entering as well in the cultivated meat with the -- by the control of the BioTech Spain. And BioTech has a pilot plant that already produced, they are -- the technology is already proven. They produced 1 ton in the pilot plant. Now our strategy is to build industrial sectors that will be 100,000 -- 100 tons, sorry, 100 tons of cultivated meat. And this is -- and besides of that, we are investing in R&D because BioTech, I believe, that biotechnology will be one of the opportunities for growth not just in cultivating meat, but is a derivative from this technology. And thinking about other priority is brand and value-added. If you look what we have bought in the past, we -- in the last year, we made an acquisition brand, Pilgrim’s bought the retail business of Kerry Foods in U.K. and Ireland, it was a branded company. We brought brand to the operation that we have in U.K. We are investing in SunnyValley in U.S. was value added. We are greenfield of Italian specialty with U.S, $200 million. This is branded product that we have produced at. And this fit with the acquisition we made in Italy that we bought historical -- two historical brands, and that will be -- that already has a plan for operations they import in the U.S., and this is already present the brand in the market. That is perfect fit and help us to speed up -- speed the -- our operation that, the plant we have already. We are -- will be finished at the end of this year. And Europe, we are still in terms with -- about the regions. We are -- we see that U.S. is an opportunity. We want to grow more our value-added and brand products in the U.S. market. we want to grow more in Europe. We see Europe as a huge opportunity because we can take each one of the country in Europe is opportunity. Europe as a continent, but each one of the country is a different strategy and different opportunities, and we see Europe as opportunity as we see Brazil as an opportunity. And Australia, we just bought Rivalea in Australia, there is one more protein now we are present that and it's a booster for our value-added product that we have with Primo in Australia. In summary, we -- this is -- we are not changing strategy. We -- now we are more prepared, because why we are more prepared because it enhance our structure. And we have a strong balance sheet and we’ve discipline for growth.

[Leonardo Alencar:]

Okay. Thank you very much. That’s clear. Thank you.

[Operator:]

Our next question comes from Barbara Halberstadt, JPMorgan.

[Barbara Halberstadt:]

Hi. Good morning. I wanted to follow-up on one question regarding the capital allocation. It's clear that you want to keep leverage below a certain level. I just wanted to confirm how much that is, if it is at the 1.5x, or just below 2x? And also, if you're comfortable with the gross debt level where it is, and also cash position? Or if, over time, we should expect more of a focus on the net leverage metric than on necessarily the levels for gross debt and cash? And then the second question would be on the supply chain. If you could comment a little bit on how you're seeing currently supply chain globally, especially for your export businesses. You mentioned from some of your operations, you faced some issues in the fourth quarter, and we’ve heard from different industry players, similar comments on lack of containers or just higher cost delay. So, I just wanted to get a little bit of more color on how you're seeing the supply chain bottlenecks evolving in the first and second quarter for this year. Thank you.

[Guilherme Perboyre Cavalcanti:]

Thank you, Barbara. On your first question, in terms of leverage, in the beginning of 2019, we approved indebtedness policies at the Board that states that on the long-term we should pursue to stay between 2x and 3x net debt to EBITDA. So that's our long-term goal. However, in the last 2 years, we’ve been expanding our EBITDA and generating free cash flow on a pace that is faster than we’ve been able to spend because the capital discipline that Tomazoni just mentioned. So, at the end, our net debt to EBITDA fell below 1.5x, despite all our investments and return to shareholders in terms of dividends and share buybacks. So going forward, as I mentioned, we intend to pursue to have efficient capital structures that we intend that is to be between 2x and 3x net debt-to-EBITDA because it's also this level that rating agencies requires for food companies to be investment grade. So, thinking on the investment grade, we want to have this long-term goal. In terms of gross debt and cash, it's a fact that we end up the year with a much higher cash position that we need with the $4 billion, and we raised another bond in January, a 30-year bond and a 7-year bond, which we refinance in part of the debt and the other parts also increases our cash position. We did that because we took advantage of the very friendly market. So, we took advantage of this market and positive feeling about the sector to raise this cash. And of course, now it's time for us to decrease short-term debt -- use this cash to decrease short-term debt. However, most of these short-term debt, basically almost all is in Brazil, it's trade-related debt, which I need to generate FX contracts in order to prepay those debt. So that's why I cannot say at all. We need to have some time. So, throughout this semester, I will be decreasing my short-term debt using this cash position because -- also because in an environment of higher interest rates, it's also good to pay the short-term debt and to decrease the carry of this cash. So that’s how we intend to do. Also using the revolver lines to work to be able to work with a lower cash position as well. However, we tend to think the company on a net leverage basis because we want to be able to take advantage of -- to raise cash when the market is friendly and don’t need to raise cash when the market is more challenging. So that’s -- so to think on a net leverage, that’s how we think. But also bear in mind that we have a carry of this cash that we should also to take care.

[Operator:]

Thank you. Our next question …

[Gilberto Tomazoni:]

No, go ahead. Go ahead, please.

[Operator:]

Our next question comes from Carla Casella, JPMorgan.

[Carla Casella:]

Hi. My question is around the charges that you took this quarter, mostly with PPC with the others. I'm wondering if the DOJ charges were cash or non-cash? And if there -- if this is the end of the resolution? Or if there could be further charges going forward?

[Guilherme Perboyre Cavalcanti:]

Hi. Most of what -- the impacted results for cash. And it's -- going forward, it's still -- we thought that for the chicken part, it's almost done, but that is something that's very difficult to predict because it doesn't depend on us or anything of new transactions of the slot, but we think that most of its done.

[Wesley Batista Filho:]

I mean, just to clarify, these are not DOJ issues. This is settlement with customers in the lawsuits. So that's not DOJ charge.

[Carla Casella:]

Okay, great. And then you’ve talked in the past about whether you're registering your bonds, your U.S. bonds. Can you just talk about what that entails? And maybe the ballpark and timing in terms of what could be the earliest or latest do you think you would register the bond?

[Guilherme Perboyre Cavalcanti:]

Yes. What is needed for that is just we need to have SEC process just at least in your shares. So, we need to comply with some steps including have SOC compliance for the entire company. So, we are analyzing the cost and those steps and how long we need to implement everything. And also, remember that we have this listing project as well, which is more or less the same needs that we have for our portfolio. So, it's difficult to say when, but at some point, in the future we intend to have our bonds registered. So, with that being allowed to participate in the indexes and also being allowed to have a shelf registration, which will make our issuance even more fast whenever we can go to the market.

[Carla Casella:]

Great. That’s super helpful. And just one follow-on on that. Would it be a registration for all the bonds? Or would it just be the U.S., or the SA bonds? Would it include all the financial subsidiaries as well?

[Guilherme Perboyre Cavalcanti:]

And given that SA is a guarantor and the parent they need is -- the process has to be for the entire company. So, if you will, most likely, we will have -- we will be registering all the bonds.

[Carla Casella:]

Great. Thank you so much.

[Operator:]

Our next question comes from Priya Ohri-Gupta, Barclays.

[Priya Ohri-Gupta:]

Great. Thank you so much for taking the questions. Just one follow-up around the bond structure, if I may. Has there been any updated timing around or thoughts around potentially changing the issuer for the notes that are issued under JBS Finance Luxembourg to JBS USA FoodCo, and what steps would be needed to do that?

[Guilherme Perboyre Cavalcanti:]

All right. That's a good question. If you look at the presentation, you will see that we end up the year with around 34%, 35% of the bonds allocated at in Luxembourg, which is not the most efficient from a savings perspective. So, most likely during this semester, we will probably -- we will be rebalancing these which can be -- one way to do this is as we did in the past and also as we mentioned on the bond calls when we issue them, we have the ability to change the issuer to the USA. We will improve cash savings doing that. And also raising -- allocating and raising money on the U.S. entity. So probably we will be rebalancing this throughout this first and second quarter.

[Priya Ohri-Gupta:]

Okay. And then you’ve highlighted some of the recent benefits of liability management that you -- actions that you’ve taken. How are you thinking of any additional steps to address them at the legacy bonds that are in the structure now that you are in investment grade?

[Guilherme Perboyre Cavalcanti:]

That's a good question. Markets now are challenging. And the good thing is that we don't need to go to the market not only because we have, again, a high cash position, very strong of $4 billion. And we -- and our free cash flow generation is higher than any amortization even if you look at the outer years. So, we don’t have a necessity of the financing. So, we can wait the markets to improve. And many does -- we will be doing more liability management. Of course, now the calls that we have, it's lower. We have calls for 2023, '24 with the bonds with 6.8% and 6.15% yield, which have an opportunity to decrease those interest expenses. But we don’t need to do this in the short-term and we will probably be waiting to access the market only when we feel we have a friendly environment again.

[Priya Ohri-Gupta:]

Okay. That’s helpful. And then can you just remind us of your hedging strategy for the beef and the pork segment? As part of that, if you could sort of remind us what percent of your cattle and hog purchases are contracted ahead of time? And the percentage of your pork business that’s vertically integrated and the role that, that plays in the current backdrop?

[Gilberto Tomazoni:]

Andre? Andre, I think you will be in better position to answer this question.

[Andre Nogueira:]

Yes. We don’t close our hedge strategy and our hedge position. So, most of the cattle are cash-based cattle. And we have some hogs that are contract. And hog production represents around 15% of the hog process, and we have another piece of the hogs that is based in the cost. But overall, we don’t close any hedge position on strategy.

[Priya Ohri-Gupta:]

Okay. That’s helpful. Thank you so much.

[Operator:]

Thank you. We will now reopen Barbara Halberstadt from JPMorgan. Please proceed.

[Barbara Halberstadt:]

Hi. Thank you for picking me up again. I just wanted to follow-up on the supply chain question. Just wanted to understand what are the type of bottlenecks you've seen? And if you're still seeing them in your export businesses? We’ve heard other players experiencing the same situation in their industries as well. So just wanted to understand how you're seeing overall logistics bottlenecks across your businesses, especially for exports? And any costs that might be related to that? Thank you.

[Gilberto Tomazoni:]

Barbara, if I understood well your question, you talk about the situation in terms of logistics. Is it correct?

[Barbara Halberstadt:]

Yes, correct. In terms of logistics for -- especially for exports.

[Gilberto Tomazoni:]

I think we’ve different situations in different regions. In general, we are facing a challenge after the -- during the COVID and is not still normalized. And this restriction of availability of containers was something that happened in all of the regions. One different than the others. We have a very close relationship with the shipping companies and try to find a solution for each one of the restrictions. Of course, this not means that we are -- we don’t have a problem, we still have some restriction. As Andre mentioned in the beginning that we have, in terms of stock, we have more higher stock that normally we have and because of restrictions of logistics. And it's not different in Brazil, and it's not different in Australia. But it's that -- now this with , we face that communication to some regions was stopped. And ultimately, we -- our export from this region specific to Russia is very small compared to our activity in terms of export and it's not really make big impact in our results. I don't know if Andre or Wesley, you want to add and clarify something more about logistics.

[Andre Nogueira:]

Just to add that on top of the issues with shipping lines and the container availability, the port congestion continues without any relevant improvement in the last several months. So, the situation continues and it's a day-by-day challenge on top of much, much higher cost than we ever saw before to move. It's not only about the cost. The cost is very, very high. There's a limitation in the containers, but the ports in U.S. on top of that have been a high level of congestion that creates a big challenge in all the export. That's why I comment that our export could be much higher it was not about the registration, the port congestion in the U.S.

[Wesley Batista Filho:]

And in Brazil, we had -- our biggest problem was last year. This year, things are more normalized, but obviously, we still observe and we are very close to this to make sure that we don’t have any disruption in our production because of that.

[Barbara Halberstadt:]

Perfect. Thank you so much.

[Operator:]

Thank you. This concludes today's question-and-answer session. I would like to invite Mr. Tomazoni to proceed with his closing statements.

[Gilberto Tomazoni:]

Thanks to all of you be part of this conference and a special thanks to all of our JBS team for their dedication and make JBS better every day. Thank you.

[Operator:]

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