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MarketScreener Homepage  >  Equities  >  Bolsa de Valores de Sao Paulo  >  BRF S.A.    BRFS3   BRBRFSACNOR8


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BRF S A : Transcript - 3Q20 Earnings Conference Call

11/17/2020 | 09:51am EST

Conference Call Transcript

3Q20 Results


November 10, 2020


Good morning, ladies and gentlemen and welcome to the results videoconference for the 3Q20 for BRF S.A.

We would like to inform you that this video conference is being broadcast through the Internet through the site www.brf-br.com/ri, where the presentation is also available.

At this moment, all participants are connected in listen-only mode, and ensuing this we will go on to the questions and answer session, when further instructions will be given for you to participate. We request that each participant pose only one question. Should you require assistance during the conference, please press *0 to reach the operator.

The forward-looking statements in this conference referring to the business outlook of the Company projections and results and the potential growth of the Company are forecasts and are based on the management expectations regarding the Company. These expectations are highly dependent on changes in the market, on the general economic performance of the country and the sector and international markets and therefore are subject to change. We would like to remind you that this conference is being recorded. This video conference will be presented by Mr. Lorival Luz, the Global CEO and the Vice Presidents are also present.

We would now like to give the floor to Mr. Luz who will begin the presentation. You may proceed, sir.

Lorival Luz:

Good morning to all of you. Once again, thank you for participating with us for the results for the 3Q20 for BRF. Once again, we are doing it through a video conference to be able to better interact with you and to perhaps convey our results with greater clarity.

Before we begin and go to the presentation, I would like to refer to the satisfaction that I feel with the results that we will be presenting to you. For the sixth consecutive quarter, we are reporting the results above the level that were recorded in two or three years ago. And I think this points to how assertive our quarter strategy has been and also points to our ability to execute and deliver. Now the results that you are going to observe now give us the confidence that we will be able to take new steps for the Company to grow.

At BRF, we are extremely proud of what we are doing, what we have done and of the way we are doing things. Our culture, our procedures, we do not accept any business at any price. We do things in a highly sustainable way with integrity, with quality and of course with safety. And I believe that BRF is one of the Brazilian companies that this year most invested in the health and safety of the people and all of its communities. We did this in detriment of having temporary impacts before and at the cost of our market share. At BRF, we truly believe that health and that the lives of people is always the priority.

When it comes to this presentation, I am going to hold a very brief presentation, about 15 minutes, and ensuing this, we will open for questions and answers. Here, we will have all of the Vice Presidents of the Company here to clarify issues and hold a conversation.

We go to the first slide of the presentation where we will refer to the results in the 3Q20. Once again, I would like to underscore the EBITDA margin and the net operating


Conference Call Transcript

3Q20 Results


November 10, 2020

revenue, and the cash generation of almost R$1 billion. Alongside with the liquidity and the availability that we have, R$15.3 billion, a leverage of 2.9x. Were it not for the variation of the USD, we could speak about the strength of the Company and how far we have come with this net income about R$219 million.

In the next slide, we show you a sequence of results since the first quarter. And what I would like to do here is reinforce the journey that we are on at present and the goals. The goals of having a more stable margin, appropriate growth, and above all, to avoid any type of volatility in our results. So there, we have had six quarters of margins, gross margins of approximately 24% and 25%, and an EBITDA margin around 14% to 15% and even this year, with the impacts of the COVID-19 pandemic, which once again points to the strength and the robustness of our processes and the strategy that we have.

Going on to the next slide, I would like to reflect with you and show you what this journey has been like and how it continues to be in BRF. I draw your attention to a very simple comparison based on facts and data of what BRF was like in the nine first months of 2018 and our present-day status. Two years later, with arduous work, with a strategy that we set forth, where all of us within BRF, our team, our employees are working in an integrated fashion.

Gross profit, as you can see, 15%, increasing to 23.5%. EBITDA margin practically increased twofold, going from 7.4% in the nine months 2018 to 12.9% this year. Even with the extraordinary expenses due to COVID-19, we left from R$2.4 billion to a profit of almost R$500 billion. Now the average debt maturity that reinforces our financial discipline, almost increasing threefold, going from 3.4 years to 9.5 years in the 3Q20, a leverage that has dropped to half, going from 6.7 times to 2.9 times.

Now were it not for the impact of the USD, we would be below 2.5 times. But if put together the leverage and the debt average maturity, the capital structure is strong, sustainable, and adequate for the present moment and for what we are doing. And as a result of this, a significant increase in the ROIC for the Company. Therefore, I think it is important to reflect upon this to truly state what we have been doing, and I have underscored this. We are looking toward the mid and long-term of the Company so that we can have an ever-better Company and a stronger one. Evidently, this does not come easily.

We will go on to the next slide where I would like to show you some of the strategies that we have set forth and that have enabled us to take these steps. The first, to work constantly, to seek efficiency, a greater efficiency in costs and expenses, ensuring the stability of our margins and an adequate profitability.

And this will enable the Company to continue to invest in new products and new processes. This is a constant quest that we are in, efficiency, productivity and this is but an example. We are comparing this on days 100 of the cost of production index of Embrapa. And they show you the curve of increase in these costs, which was the COGS of the Company and the broad ability that we have of moving around with these news prices.

Now what is it that I am attempting to show you here regarding the main inputs of the Company. We do have an adequate capacity. And once again, I would like to do reinforce that, for us, consumption is strategic, and we make the very best decision that we can in this field, even though we have to increase our working capital because what is important for us is to guarantee the inputs and to ensure they are efficient.


Conference Call Transcript

3Q20 Results


November 10, 2020

We also have several initiatives that we put in place, but I reiterate the priority, of course, is to adjust cost to the market cost and to ensure that our prices are in accordance with market prices to ensure adequate margins for the Company. Now this is how we sustainably manage our Company and our ability to do this for the coming quarter and for the coming semester and the year 2021 will continue based on this trend.

We are ensuring that the Company will be productive based on planning and of course based on these principles. An important factor in the next slide we have even stronger brands and the most admirable and preferred brands in the market.

And these are data from Kantar, Folha Top of Mind as well as other surveys. We have Sadia, Perdigao and Qualy in this category. And this can be shown through the investments and through the way that we do this and the relationship with our consumers, with respect, with credibility, by listening to our consumers, and which are their needs, and of course with consistency in the delivery, consistently delivering quality in our products and making investments in a very robust, appropriate and cautious way, allowing our products to become ever more accessible to our customers.

So we are expanding about 10% versus the previous year. And now, we have reached over 260,000 active customers through our commercial strategies and with our position. So, we have costs, we can manage productivity appropriately, we have the brands. And the next slide will show how we also have the best position in our portfolio.

As we have said, we are positioning our portfolio more and more directed toward products that are seen in the presentation itself. Profitability is growing, EBITDA margins are going up. And I mentioned the last two points, which are also very important. And we are also making investments into innovation, launching new products and adapting products to what customers desire. So we are making them easier to prepare with more quality, a better taste, with food safety, and we are moving these products to have a greater share of consumers' baskets. So the mix in our portfolio is becoming better and better. And it will ensure sustainability and growth for our margins in our operation.

An example of that is shown on the next slide, slide number 9. Here we see the number of products or SKUs that have been launched. We reestablished the investments that our R&D team has had. So we have products for the local market and for the international market. This year, we have launched around 170 SKUs and we will have more. We will have new launches, which will be very relevant and important also in the 3Q.

Our goal is to really be present, to be there during all the moments in which our clients are consuming. We want to be where they have needs for our products. This is how we are designing our strategy. So the summary I mean to give is how our consistency and the priorities we set have led to these results.

Moving on to the next slide, this is another important point, it is important to report. Of course, we have had an impact from the Chinese market and the expansion that we have had with new approvals for new markets. With regards to China, the demand and their own production is still below what it was in 2018, before we had African swine flu. This has recovered, but as you can see on the left side, the herd is still based on female hogs selected as sows. So on the right, you can see that their monthly yields are still far below what they need.


Conference Call Transcript

3Q20 Results


November 10, 2020

You have a greater perspective that this productivity will go back to the 2018 levels. But this won't happen in 2021 or in 2022 to '23. It will probably start happening from 2024 on. So we still have some time where we will have a great demand. And the foreign market still has high demands, and it will continue to provide opportunities despite volatilities that we see on a monthly basis. But the trend, the expectation we have is that the next months will be consistent and they will be positive and high.

So changing a bit of our conversation and talking about the Company's capital structure. I am very proud to say that we are able to demonstrate what we have done in this last journey. We went from a level of 6 times down to 2.9 times. This is our leverage. And as I said, even despite foreign exchange impacts, our debt is still denominated in U.S. USD. And a lot of it was impacted by foreign exchange. We went from US$1 below R$4 to US$1 at R$5.6. So this variation basically made our debt go up substantially.

But we have made an effort to generate cash and reduce our nominal debt denominated in R$, if we were to calculate, if we were to consider it in Brazilian reals. And this is done at the same time as we extend our debt.

At the end of the 3Q20, we see that our average term was 7.5 years. And this is a pro forma calculation after the operations we have had throughout the year. So there were some liquidations, as you can see, that will take place in 2021. And there will be a new issuance. So the Company is absolutely net, and we will have the right terms and the values will be quite low for the next quarters.

Moving onto the next slide. We also manage not only the financial side of the Company, but we are also looking toward sustainable development from the fields to the table. And this is done by taking care of the environment and with initiatives to reduce waste. This is something that is done by our entire population. So we work with the best practices and we take part in the best associations. We have a transparent leadership which is also ethical. And this is shown by the fact that we are the only company that is in ISE. We are also listed in B3's Novo Mercado and ADR program and there are other initiatives that were taken this year.

The next slide also highlights the fact that we have invested significantly in improving our process and in performing commercial management. Meaning that we also invested in digital transformation. This goes for Go Digital and Be Digital. We substantially increased our investments there these last few years. And we will invest even more because we believe that this process will bear fruit for the Company. It is going to bring us more adaptability and productivity. And we have had initiatives collecting data from all of our growers and farmers.

And we have adapted all the pillars in our operational excellence system to have the right measurements and then another number of initiatives that will provide information. And this information will be worked on, analyzed, and will retro feed into this process. So this is a tireless search to have more productivity and be better suited for our clients.

So moving on to my closing remarks on the next slide. I would just like to conclude my presentation by recapping what we have had so far and what our results were this quarter. During this quarter, we sold 1.1 million tons. Our gross profits were R$2.3 billion. Our adjusted EBITDA was R$1.3 billion.

Our EBITDA margin was around 14% for the sixth quarter in a row. Profits were R$200 million for this quarter. And we advanced in the products that bear the strength of our


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BRF SA published this content on 10 November 2020 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 17 November 2020 14:50:01 UTC

© Publicnow 2020
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Sales 2020 38 424 M 7 028 M 7 028 M
Net income 2020 734 M 134 M 134 M
Net Debt 2020 15 446 M 2 825 M 2 825 M
P/E ratio 2020 18,7x
Yield 2020 0,93%
Capitalization 16 711 M 3 061 M 3 057 M
EV / Sales 2020 0,84x
EV / Sales 2021 0,78x
Nbr of Employees 90 000
Free-Float 99,4%
Chart BRF S.A.
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BRF S.A. Technical Analysis Chart | BRFS3 | BRBRFSACNOR8 | MarketScreener
Technical analysis trends BRF S.A.
Short TermMid-TermLong Term
Income Statement Evolution
Mean consensus OUTPERFORM
Number of Analysts 11
Average target price 26,23 BRL
Last Close Price 20,69 BRL
Spread / Highest target 64,3%
Spread / Average Target 26,8%
Spread / Lowest Target -8,17%
EPS Revisions
Managers and Directors
Lorival Nogueira Luz Global Chief Executive Officer
Pedro Pullen Parente Chairman
Vinícius Guimarães Barbosa Vice President-Operations & Procurement Officer
Carlos Alberto Bezerra de Moura Chief Financial Officer & Vice President-Finance
Neil Hamilton dos Guimarães Peixoto Vice President-Research & Development
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