BRF S.A. (NYSE:BRFS) Q4 2023 Earnings Call Transcript
BRF S.A. (NYSE:BRFS) Q4 2023 Earnings Call Transcript February 27, 2024
BRF S.A. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good morning, ladies and gentlemen. Welcome to BRF's Q4 and Full Year 2023 Earnings Conference. This conference is being recorded and will be available for replay at the company's website, ir.brf-global.com, where the presentation slide deck can also be downloaded. [Operator Instructions] Before moving on, we'd like to emphasize that forward-looking statements are based on BRF's management's beliefs and assumptions as well as currently available information. These statements may involve risks and uncertainties seen as they relate to future events and, therefore, rely on circumstances that may or may not materialize. Investors, analysts and journalists must acknowledge that events relating to the macroeconomic environment, the industry and other factors may lead to materially different results than those expressed in such forward-looking statements.
Joining our conference today are CEO, Miguel Gularte; and CFO, Fabio Mariano. I will now turn over to Mr. Gularte, who will begin the presentation. Please, Mr. Gularte, you may proceed.
Miguel Gularte: Good morning. I'd like to start by thanking everyone for attending our earnings conference. BRF has reported net income of BRL823 million in the fourth quarter of 2023. Throughout the year, we focused on efficiency and excellence while executing our business plan. We made progress quarter-by-quarter and ended the year with positive results largely driven by the company's improved operational performance and financial discipline. We've closed this period with significantly lower leverage, the lowest in seven years. Our ever-evolving commercial execution, improved product portfolio performance and consistent work with the Sadia, Perdigão and Qualy brands have supported our profitability boost in 2023. In the international market, we've returned to double-digit margins, advancing in value-added products and securing a record number of plant licenses and new destinations.
Now I'd like to invite our CFO, Fabio Mariano, to present our financial results in further detail. After which, I'll come back for our final remarks on the announcement.
Fabio Mariano: Good morning to everyone on the call. On the starting page, I'd like to focus on the main financial indicators for Q4 2023, starting with net revenue, which came to BRL14.4 billion. Our EBITDA was BRL1.9 billion. This gives us a 13% margin for the period, our best quarterly result in many years. Our free cash flow performance was BRL613 million. That's our largest quarterly cash generation in three years. In working capital, we significantly reduced our inventories, which helped us to secure a financial cycle of 5.8 days, three days shorter than in the same period last year. The inventory turnover reached 75 days, 18 days less than in 2022. Ending this slide with leverage, we reached 2x our EBITDA in the last 12 months, lowest leverage in seven years.
In the next slide, Page 4. We show on the left-hand side our gross profit over time with 24% profitability in the period. We've reported a gross profit of approximately BRL3.5 billion. On the right-hand side, we also noticed the EBITDA progress as mentioned earlier. In the next slides, we will present our performance by market or business. Starting with Brazil, we continued to progressively improve our operating results. Our EBITDA margin came to 15.6% with the help of our holiday campaign. The best profitability of the year was that, even excluding seasonal sales. Note the performance of processed products was consistent with historical levels despite the still sub optimal consumer environment in the country. On Page number 6, we highlight the recovery in prices of fresh cuts in Brazil, just as we had predicted in the previous quarter.
At the bottom of the slide, we emphasized the increased accuracy of new product launches and continued progress of our commercial execution, which can be seen in the greater availability of products in store, greater penetration into new points of sales and a marked improvement in customer service levels, which significantly contributed to the performance of the domestic market. On Page 7, we highlight the outstanding performance of our celebratory portfolio. We showed our leadership in the market and the strength of our brands during this special festive period. Our market share was 72% in turkeys and 60% in special poultry, such as Chester. The next slide shows our performance in the international market. We see this business's recovery coming to double-digit margins as new price levels for poultry and griller cuts and the downturn of costs with decreased grains and efficiency gains from the BRF Plus program.
Our EBITDA margin increased by 7 percentage points compared with the previous year. We also noticed increased market share in chicken and poultry experts to many destinations. On the next slide, we highlight the growing profitability in the Halal market in the Gulf countries. We continued to grow our market share in processed foods, which is in keeping with our plans to expand the range of value-added items in the region. We also reported positive performance in Turkey, mirroring the larger share of processed foods and sales volumes and sound profitability levels in the unprocessed portfolio. We sustained our market share leadership with the Sadia and Banvit brands with 37% and 21% shares, respectively, in each of their markets. On the right-hand side, I point out the Direct Exports business.
We can see our prices performed for the main cuts. We grew our business alternatives with 16 new licenses for markets such as the United Kingdom, Africa and the Americas. Our export licenses came to 66 or have 66 new ones in 2023. We also reduced our finished product inventories by almost 80,000 tons internationally versus '22 and Direct Factory Exports remain at high levels. Unsold inventories continue to fall, improving our commercial execution and relieving the capital we've employed. I'll end the presentation talking about ingredients and pets. The business reported an EBITDA margin of 11.7%, BRL98 million during this quarter. It's important to note that the development of our manufacturing output continued to contribute to the maximization of our results in the company's portfolio.
In the Pet business, we increased our share in sales of the Super Premium Natural category with higher profitability and higher exports throughout the year, ending 2023 with our first shipments to the United Arab Emirates. We'd like to underscore the extension of our BRF Plus program to the Pet operation in search of growing our efficiency. In Ingredients, we continued to focus on growing or expanding our markets and increasing sales of value-added items such as hydrolyzed seeds. We continued to add value to our co-products in order to maximize our business integration. Next, I'll share the progress of our efficiency program, which Miguel will be quantifying in figures shortly. I'll show you comparisons with the same period last year. The bars were colored in light gray.
The full year comparison can also be seen in the material you've received. In agriculture and livestock, feed conversion of poultry and pigs fell by 2.5% and 1%, respectively. Chicken mortality fell by two percentage points and hatch rates increased by 5.6 percentage points. In manufacturing, we grew our factory yields by more than five percentage points. In logistics, we've reduced our returns and increased our service levels in Brazil in a very material way. In the following slide, we show you the trend of our COGS, a major driver for competitiveness growth. On the left-hand side, we can see that the average COGS per kilogram in Brazil fell by 5 - or rather 7.5% in the year versus 2022. And more importantly, the cost in the last quarter of the year was 5% lower than the average for the year, showing an excellent transition point for 2024.
Internationally, the COGS per kilogram in the last quarter was 8% lower than the average for the year. As we've already underscored, the improvement in COGS is anchored in the reduction in grain consumption within the BRF program. On Page 14, we show you the highlights in sustainability. ESG showing achievements such as a 26% reduction in absolute Scope 1 and 2 emissions. Two, we are very close to achieving our clean energy self-production targets. Three, we've achieved 100% traceability in direct grain suppliers and 77% traceability for indirect suppliers in the Amazon and Cerrado biomes. Four, we won recognition for good animal welfare practices. Five, we've maintained our presence in the ISE and B3 carbon efficiency index portfolios. And lastly, we continued to generate positive social impact by engaging actions in 100% of the municipalities where we have a footprint.
On Page 16, we now show you information about the company's capital structure. In the chart on the left-hand side, we see the performance of our net debt and leverage. These indicators were already mentioned at the beginning of the conference. We have the lowest leverage in seven years. On the right, we can see our debt profile, which is still diversified and long, with no concentration of repayments in the near term and comfortable liquidity position. The next slide shows you our free cash flow. The chart shows an operating cash flow of BRL1.7 billion, an investment flow of BRL741 million and BRL352 million financial flow. All of that adds up to a free cash flow of BRL613 million, which is the best cash generation we've reported in any quarter in the last three years.
On the final slide, we talk about the performance of our net debt between the quarters. We reported a net debt of BRL9.4 billion with contributions from the capitalization of our share offering in July. The allocation of funds from that follow-on offering will continue to help us reduce interest charges over the next coming quarters. I'd like now to thank the audience and turn the floor over to our CEO, Miguel Gularte, for his closing remarks.
Miguel Gularte: Thank you, Fabio. To conclude our presentation, I'd like to point out that our focus on operational efficiency and the financial discipline we've maintained quarter after quarter is what enabled the net profit and cash generation we've reported for the fourth quarter of 2023. Our efforts and initiatives throughout the year were decisive for our sound performance in the period. The company's predicted intelligence model, combined with the efficiency gains from the BRF Plus program proved to be assertive throughout the year and allowed us to capitalize on grain origination in due time as prices fell, which led to a material cost reduction in the second half of the year. Additional returns from BRF Plus totaled BRL525 million in the fourth quarter, bringing the total for the year to BRL2.2 billion.
I should also highlight the progress we've made in major indicators throughout the year such as feed conversion, unprocessed food yields, animal mortality, commercial execution and logistics service levels among others. Moreover, we've recorded the lowest FIFO discount levels in recent years, showing greater integration between our production and sales planning. Not only that, but we've also significantly reduced inventories across the board, bringing in savings in financial and storage costs. The highlights of the year also include our higher profitability in Brazil, supported by our ever-evolving commercial execution and improved performance of our portfolio as a whole. In the fourth quarter, we reported an EBITDA margin almost twice that of the fourth quarter of 2022.
Special mention should also be made of the consistency and progress in the profitability of our processed foods portfolio in Brazil throughout 2023. In our international operation, our EBITDA margin returned to double digits in Q4 with a significant recovery in prices in all locations. Our market diversification strategy remained consistent as we resumed our exports to the United Kingdom. In 2023, we secured 66 plant licenses for new locations in Latin America, Asia, Europe and South Africa. I should also underscore Sadia's leadership in the GCC regions Halal market, where we gained market share in process foods in keeping with our strategy of increasing the volume of value-added items. Our results also mirror the consistent work of our leading brands in their respective markets, Sadia and Qualy Vita in South America; and Banvit in Turkey.
We also saw an improvement in our people management indicators such as engagement, absenteeism and turnover and continued to invest in our team's development. I'd like to point out our performance in occupational safety, where we reported the best rates in history, cementing BRF's benchmark position in the market. Our performance in the last quarter of 2023 confirms our team's ability to manage with focus and discipline. We step into 2024 motivated by the results we've achieved and with Version 2.0 of BRF Plus already well underway. As I often say, here, the future begins every Monday, and we will continue to devote ourselves to pressing on with BRF Plus 2.0 in 2024, always striving for our company's continued evolution. We've opened a new chapter in our history with Marfrig's consolidation as controlling shareholder with more than a 50% stake, and we are confident we will continue our journey with commitment, agility, simplicity and efficiency.
I'd like to thank our dedicated associates for our progress and achievements. I'd like to thank our Chairman, Marcos Molina, and the Board of Directors for their unlevering trust, constant presence and continued support. And also like to thank our shareholders, our integrated outgrowers, our customers, our suppliers and all the communities where we operate. Thank you.
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