Edited Transcript of JBSS3.SA earnings conference call or presentation 14-May-19 2:00pm GMT


Thomson Reuters StreetEvents

via Yahoo Finance - May 14, 2019


Q1 2019 JBS SA Earnings Call


May 15, 2019 (Thomson StreetEvents) -- Edited Transcript of Jbs SA earnings conference call or presentation Tuesday, May 14, 2019 at 2:00:00pm GMT


TEXT version of Transcript




Corporate Participants




* André Nogueira




* Gilberto Tomazoni


JBS S.A. - Global CEO


* Guilherme Perboyre Cavalcanti


JBS S.A. - Global CFO & Head of IR




Conference Call Participants




* Alan Alanis


UBS Investment Bank, Research Division - MD and Latin American Equity Strategist


* Alessia Maria Apostolatos Formiconi


HSBC, Research Division - Analyst of Global Beverages and LatAm Food


* Benjamin M. Theurer


Barclays Bank PLC, Research Division - Head of the Mexico Equity Research & Director


* Carla Casella


JP Morgan Chase & Co, Research Division - MD & Senior Analyst








Operator [1]




Good morning, everyone, and welcome to JBS conference call. During this call, we will present and analyze the result for the first quarter of 2019. As requested by JBS, this event is being recorded. The recording will be available this afternoon and can be accessed by following the instructions posted on company's website at www.jbs.com.br/ir. Taking part on this call, we have Gilberto Tomazoni, JBS Global CEO; Guilherme Cavalcanti, Global CFO and Investor Relations Officer; André Nogueira, JBS USA CEO; and Wesley Batista, Sr., President of JBS South America.


Now I will turn the conference over to Mr. Gilberto Tomazoni. Please go ahead, sir.




Gilberto Tomazoni, JBS S.A. - Global CEO [2]




Good morning, everybody. Thank you for your presence in this conference call. I'm very happy to announce our results in this first quarter of 2019. The results show our discipline and commitment to our value creation strategy.


Go to the numbers. Net revenue was 40.4 -- BRL 44.4 billion, up 11.5% and the consolidated EBITDA increased by 14 -- 14.4% and increased margin as well. Our leverage was, in dollars, 3.1x, and our reported net income was BRL 1.1 billion and EPS was BRL 0.41.


Before I pass it to Guilherme, I wanted to emphasize some points. First, our financial position levers reduction, lower cost of debt, lower amount of interest paid, better debt profile, cash position and cash generation, all of these efforts means that the company only needs to assess the market in 2026. In our commitment with transparency, we released our policy related liquidity, investments and dividend last night. Later, Guilherme will be explaining more about these 2 policies.


Third, our good market conditions. We are in a favorable cycle of protein, favorable supply/demand and a low cost of grain, combined with the consumption of protein in Asia has been growing for some times. In line with this, the company announced a finance agreement of BRL 3.4 billion in China I think in the previous quarters. Now with the African Swine Fever, the demand is boosting. This is a -- it's a point that I want to stress here. The other point is the global footprint. I think JBS has built a truly global footprint, which is practically impossible to replicate. We have our operations in 4 continent and we operate with 5 types of proteins.


We have a strong management team. Adjust for this because if I summary this, our financial conditions, our favorable market conditions, our footprint, our strong management team, JBS is ready to accelerate growth inside of the market opportunity.


To believe in U.S. is in our priority to unlock value and booster the growth.


I will now hand over the call to Guilherme, who will detail the results




Guilherme Perboyre Cavalcanti, JBS S.A. - Global CFO & Head of IR [3]




Thank you, Mr. Tomazoni. Before I start, I'd like to remember the disclaimer on Page 2 about future events that are subject to risks and uncertainties beyond our ability to control or predict.


Now please let's move to Page 4, where we show the evolution of our figures. Net revenue increasing 11.5% to BRL 44.4 billion. Gross profit increasing 13.3% reaching BRL 5.8 billion, and EBITDA increasing 14.4% to BRL 3.2 billion and EBITDA margin passing from 7% to 7.2%.


Net profit of BRL 1.1 billion and earnings per share at BRL 0.41. It's worth mentioning that this net profit was impacted by a deferred income tax that is generated because of the tax loss on the Brazilian operations due to the FX depreciation becomes an asset that improves the results. This accounting effect becomes a cash tax savings as it offsets future profits and decrease the usage of tax credits that can be used in the future. For the shareholders, this means higher minimum dividend as Brazilian Corporate Law requires at least 25% of net profit and higher base of accumulated profit for future business.


Now please let's move to Page 5, where we show that our operational cash flow increased to BRL 750 million given the higher EBITDA as explained before. And free cash flow reached a negative BRL 712 million. It's worth mentioning that the first quarter of the year is characterized by a seasonality effect of concentration of supplier's payment and inventories recomposition. So every first quarter, we have cash consumption and this quarter was not different.


It's worth mentioning that the first quarter 2018, we had BRL 110 million negative only because we had BRL 924 million of asset sales in the quarter -- in the first quarter of 2018. So this considering the divestment in the first quarter 2018, our cash consumption decreased almost by half in the first quarter. Even we investing, we think we're coming back to our normal levels of capital expenditures of BRL 750 million because in the first quarter '18, we were contingent to the CapEx for -- that was BRL 414 billion -- million. So we could increase our CapEx to normal levels. And at the same time, decrease the cash consumption of the first quarter. And also it's worth mention that despite the cash consumption of the first quarter 2018, we generated BRL 5.7 billion in free cash flow or $1.5 billion.


Now moving to Page 6. We see the evolution of our debt profile. Over gross debt decreasing from $17 billion to $14 billion. Our net debt, in reais, coming from BRL 45 billion to BRL 49 billion due to the FX depreciation on the debt when translated to reais. However, the strong free cash flow that the company presented in the last 2 year, despite this FX impact, the leveraging reais decreased from 3.24 to 3.20. Leveraging dollars stayed at 3.1x.


Now please let's move to Page 7, where we'll talk about the liability management that was done as a subsequent event of the quarter. This liability management took the average maturity from 4.3 years to 6 years. We have $7.5 billion maturing until 2022. This number decreased to $2.7 billion, of which $1.6 billion is loans with banks under the normalization agreement that we already started the process of renegotiation to extend maturities, decrease interest rates and release guarantees.


Cash on hand, first revolving lines covered maturities up to 2023. On the other hand, cash generation plus cash on hand covered maturities up to 2026. This means a very, very low refinancing risk. This financial strength is already reflecting on the yield-to-maturity of our bonds negotiated on the secondary market. From the beginning of the year to today, our bonds had -- is negotiating a yield-to-maturity around 1.5% lower. This means lower financial expenses for the future and, consequently, higher free cash flow to shareholders.


Our other positive points of this liability management was a decrease on the gross debt. This liability management was leveraging the Otto. We increased the liquidity of our bonds, and consequently, the price discovery. And we decreased our level of secured debt in around $2.5 billion from $6 billion of secured debt to $3.5 billion of secured debt. This gives the company another cushion given that you can use the guarantees to quick raise net debt if needed. It's worth mentioning that yesterday, as Tomazoni said, we uploaded policies we revised and approved by the Board of Directors. More specifically, any liquidity indebtedness policy and a dividend policy.


The liquidity policy states that the leverage rate to be pursued all run is to be between 2x and 3x net debt-to-EBITDA. Dividends are limited to 3.75 net adjusted EBITDA as the dividend policy. As an investment's policy, mergers and acquisition could be 2 quarters over 3.75 as long as a contingent plan is presented to the finance committee. This shows our commitment to the financial strength of the company and to higher governance and transparency. To finish, it's worth mentioning that our leverage rate to finish the first quarter at 3.1 and the positive free cash flow will take us to the long-term target in the next quarters.


Now let's talk about the business unit's performance...