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Edited Transcript of BACHOCOB.MX earnings conference call or presentation 23-Jul-19 2:00pm GMT

Q2 2019 Industrias Bachoco SAB de CV Earnings Call

Celaya, Guanajuato, Aug 2, 2019 (Thomson StreetEvents) -- Edited Transcript of Industrias Bachoco SAB de CV earnings conference call or presentation Tuesday, July 23, 2019 at 2:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Daniel Salazar Ferrer

Industrias Bachoco, S.A.B. de C.V. - CFO

* Maria Guadalupe Jáquez Martínez

Industrias Bachoco, S.A.B. de C.V. - Investor Relations

* Rodolfo Ramos Arvizu

Industrias Bachoco, S.A.B. de C.V. - CEO

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Conference Call Participants

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* Luis Miranda Valenzuela

Santander Investment Securities Inc., Research Division - Head of Food and Beverage

* Miguel Angel Tortolero

GBM Grupo Bursátil Mexicano, S.A. de C.V. Casa de Bolsa, Research Division - Research Analyst

* Thiago Albuquerque

Onyx Equity Management - Equity Analyst

* Ulises Argote Bolio

JP Morgan Chase & Co, Research Division - Analyst

* Julia Reso

HCI - Analyst

* Eduardo Cella

BlackRock - Analyst

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Presentation

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Operator [1]

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Good morning. My name is Hilda, and I will be your conference operator today. At this time, I would like to welcome everyone to the Second Quarter 2019 Industrias Bachoco Earnings Conference Call. (Operator Instructions)

I will now turn the call over to Maria Jaquez. Maria, you may begin.

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Maria Guadalupe Jáquez Martínez, Industrias Bachoco, S.A.B. de C.V. - Investor Relations [2]

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Thank you. Good morning, and welcome to Bachoco's Second Quarter 2019 Conference Call. We released our financials yesterday after the market closed. If you need a copy of the release, please visit our website or request it from our Investor Relations Department.

This morning's call contains certain information that could be considered forward-looking statements regarding anticipated future events and performance. These statements reflect management's current beliefs based on information currently available and are not guarantees of future performance and are based on our estimates and assumptions that are subject to risk and uncertainties including those described in our annual report, Form 20-F, which could make our current results differ materially from the forward-looking statements discussed in this call.

Except as required by applicable law, Industrias Bachoco undertakes no obligation to publicly update or revise any forward-looking statements whether as a result of new information, future events or otherwise.

Lastly, unless otherwise indicated, the amounts mentioned in this conference will be figures of 2019 with comparative figures of the same period of 2018 in Mexican pesos. As a reference, the exchange rate as of January 30, 2019 was MXN 19.20 per US dollars. Here with me are our CEO, Mr. Rodolfo Ramos; and our CFO, Mr. Daniel Salazar. Now I will give the call to Mr. Ramos.

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Rodolfo Ramos Arvizu, Industrias Bachoco, S.A.B. de C.V. - CEO [3]

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Thank you, Maria, and good morning, everyone. In our business, the second quarter usually is the strongest one and this one is not the exception. In Mexico, some of the volatility conditions we observed in the second half of 2018 remained and GDP expectation for 2019 continued to deteriorate. Despite of that, we observed improvements in demand in our -- and our company has been able to capitalize that improvements. As a result, we managed to grow our volume sold across our main business segments, particularly in our balanced feed business line, which improved the most year-over-year.

In the U.S., we observed a better balance between supply and demand. However, we observed white meat still at the low part of the range when compared to the last 5-year historically. The condition mentioned above allow us to reach a net sales of MXN 16,888.1 million, which is 4.1% higher when compared to the same period of 2018. As of the first half of the year, our sales totaled MXN 31,207.7 million, which is nearly the same that the total sales reported in the same period of 2018.

On the side of the cost, we observed fairly stable raw material prices during most of the quarter, which in combination with some efficiencies captured in our process allow us to report a lower total cost when compared to both the quarter and the first half of 2018.

Regarding our SG&A, as a result of the effort of keeping these lines under control, the second quarter was -- we managed to maintain the same level of expenses as a percentage of the total sales when compared to the same period of 2018 despite of the increase in energy and fuel prices we observed compared to the second quarter of '18. The aforementioned condition allow us to reach an operating income of MXN 2,163.8 million, which is 30.6% higher than the MXN 1,656.4 million reported in the second quarter of '18 with an operating margin of 12.8% and 10.2%, respectively. This has led into the -- an operating income of MXN 2,488.9 million for the first half of '19 and MXN 3,478.9 million for the first half of '18. With that, we reached an EBITDA of MXN 2,483.3 million for the second quarter of '19, which is 25.7% higher than the MXN 1,976 million for the second quarter of '18, with an EBITDA margin of 14.7% and 12.2%, respectively.

As of the first half of the 2019, we reported an EBITDA of MXN 3,138 million, which covers 76.7% of the EBITDA of the same period of the last year. At the bottom line, we reached earnings per share of MXN 2.65 for the quarter, an improvement when compared to the MXN 2.62 reached in the same period of 2018.

Our balance sheet remains strong as we reach a net cash level of MXN 13,560 million, which will enable us to continue supporting our growth plans.

At this point, I will turn the call over to Daniel for a discussion of the financial results.

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Daniel Salazar Ferrer, Industrias Bachoco, S.A.B. de C.V. - CFO [4]

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Thank you, Rodolfo, and good morning, everyone. As a result of the conditions Rodolfo mentioned before, our company's two quarter -- second quarter of '19 net sales totaled MXN 16,884.1 million, MXN 670.5 million or 4.1% higher than the MXN 16,213.6 million reported in the second quarter of '18. This increase was mainly as a result of higher prices in our poultry segment and higher volume sold in both poultry and our balanced feed business lines.

Regarding the first half of 2019, we reported net sales of MXN 31,207.7 million, which is 1% lower than the net sales of the same period of 2018.

In the quarter, sales of our U.S. operations represented 25.8% of total sales, which is lower than the 28.7% we reported in the same quarter of 2018. This was a result of higher volume sold in our Mexican operation, particularly in our balanced feed business line.

Cost of sales in the second quarter was MXN 13,164.5 million and MXN 25,680.2 million in the first half of the year. This represents an increase of 0.4% for the quarter and 1.9% for the year. This increase was due to a higher volume sold since our total unit cost was lower than 3.8% and 0.9% when compared to the second quarter and first half of 2018, respectively.

Gross profit for the quarter was MXN 3,719.6 million with a gross margin of 22%, an increase of 19.8% over the gross profit reported in the second quarter of 2018. For the first half of the year, we reached a gross profit of MXN 5,527.5 million with a margin of 17.7%. This amount is 12.6% lower than the gross profit reached in the first half of 2018 since the first quarter of the year was the strongest.

Total SG&A for the second quarter 2019 was MXN 1,550.8 million or 9.2% of total sales compared to the MXN 1,489.1 million and 9.2% of total sales for the second quarter '18. For the first half of 2019, SG&A totaled MXN 3,025.2 million or 9.7% of total sales compared to the MXN 2,874.6 million and 9.1% of total sales in the first half of 2018.

Operating income for the second quarter of 2019 totaled MXN 2,163.8 million and operating margin of 12.8%, higher than the MXN 1,656.4 million and higher than the 10.2% margin reached in the second quarter of 2018. The operating income for the first semester of 2019 was MXN 2,498.9 million and operating margin of 8%, lower than the MXN 3,478.9 million and lower than the 11% margin reached in the same period of 2018.

The EBITDA margin for the second quarter was 14.7%, higher than the 12.2% EBITDA margin of 2018. For the first half of the year, the EBITDA margin was 10.1% lower than the 13% reached in the same period of 2018. In the second quarter of 2019, net financial income was MXN 91.6 million and MXN 167.6 million in the first half of 2019, both lower than those for the same periods of 2018. The decrease in -- is mainly attributed to lower exchange rate gains as the Mexican peso appreciated versus the previous year.

Our total taxes were MXN 663.4 million for the quarter, MXN 21.6 million higher when compared to the total taxes reported in the same period of 2018. For the first half of '19, our total taxes were MXN 772.1 million, MXN 337.6 million lower than the income taxes for the same period of 2018.

All the above led us to a net income of MXN 1,591.9 million for the quarter with a net margin of 9.4%. This income is 1% higher than the net income reached in the second quarter 2018. For the first half of '19, the net income totaled MXN 1,894.4 million with a net margin of 6.1%, which is lower than the net margin of 9% for the first half of '18.

The net income per share was MXN 2.65 for the quarter and MXN 3.15 for the first half of 2019 compared to a net income per share MXN 2.62 and MXN 4.72 for the same period of '18, respectively.

Going into our balance sheet, we kept a healthy financial structure with an increase of total assets of 3.7% when compared to year-end 2018. Our net cash was MXN 13,560 million for the end of the quarter higher than our net cash level of MXN 13,420.9 million at the beginning of the year. Our CapEx was MXN 824.6 million, and we kept our plans of spending around $110 million (sic) by the end of the year. This project will be to support our organic growth and maintain our facilities at high level of productivity.

Well, that is all. Thank you, and I will turn the call back to Rodolfo for final comments.

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Rodolfo Ramos Arvizu, Industrias Bachoco, S.A.B. de C.V. - CEO [5]

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Thank you, Daniel. We expect the poultry industry to continue with a normalized growth rate in both the markets in which we participate. As we are entering the third quarter, which is usually the weakest, we are observing some of the favorable conditions of the second quarter prevailing at the beginning of the third quarter. Even with that, we expect to observe some seasonal adjustments in prices, we expect our margin to improve when compared to the same period of the last year. On the other hand, we expect that the increase in raw material cost seen by the end of the second quarter may have some effects in the results of the third quarter. However, we expect to offset part of those increases through efficiencies in our process.

Regarding raw material prices, currently, we are observing volatile condition typical of the season, which could potentially pressure our cost of sales. Also we are observing some external uncertainties related to conventional trading and ASF that could potentially affect the dynamics of the market in which we compete.

In that regard, we are following these conditions closely to make proper decision. We will continue to focus in attending to our markets, keeping a healthy financial position and investing our CapEx above maintenance levels in order to grow and to be close to our customers.

With that, we'll now take your questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) We have a question from Luis Miranda from Santander.

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Luis Miranda Valenzuela, Santander Investment Securities Inc., Research Division - Head of Food and Beverage [2]

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Hello. Can you hear me?

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Rodolfo Ramos Arvizu, Industrias Bachoco, S.A.B. de C.V. - CEO [3]

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Yes.

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Luis Miranda Valenzuela, Santander Investment Securities Inc., Research Division - Head of Food and Beverage [4]

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The question -- a couple of questions and the first one was regarding, Rodolfo, your closing remark regarding the outlook for the second half and especially in the top line. When we take a look at your results and the pricings and volumes, it seems little bit surprising the very good results considering what we have seen in Mexico with the slowdown in other companies in the consumer space. I don't know if in terms of the -- you mentioned the supply/demand, but I don't know if you could elaborate a little bit more.

And also if you have some additional color of what has been the impact, or if any, of the African swine fever? And the second question is, for Daniel, if you could help us understand the impact of the IFRS 16 on what would be the adjusted margin or the impact of IFRS 16 and on the margin for the second quarter?

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Rodolfo Ramos Arvizu, Industrias Bachoco, S.A.B. de C.V. - CEO [5]

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Thank you, Luis. The -- normally, this second quarter is the best of the year, and we saw a seasonality effect in terms of the demand. Swine or pork meat has been very expensive during the quarter, so that help us to increase the prices in chicken too. So the effect of the ASF, it's around 10% of the cost of the swine. We can see a price increase of 10% year-over-year in the pork meat. So that help us to increase the prices in chicken.

But this year, in particular, the efficiencies of the industry were just below the last year, so we can -- we -- I can say that we have more or less the same offer than the last year. So with the market growing and with the demand for the season and the prices of the other proteins, we saw very good prices in the chicken industry, in general. So I can say that for some reason the African swine fever is affecting just 10% of the price, if I compare it year-over-year and I can say that the poultry industry capitalized that price too and with the strong demand that we have in the quarter, I think that was the result of the quarter.

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Daniel Salazar Ferrer, Industrias Bachoco, S.A.B. de C.V. - CFO [6]

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Okay. Now on the second question, Luis, about the impact of the IFRS 16, I could say that there is no significant impact from this application.

In our case, we estimate that the recognition of the assets or as assets our listing contract is no more than MXN 950 million. So the consequence in the P&L is unmaterial in the [EBITDA] margin is not significant at all this impact.

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Operator [7]

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The next question comes from Miguel Tortolero from GBM.

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Miguel Angel Tortolero, GBM Grupo Bursátil Mexicano, S.A. de C.V. Casa de Bolsa, Research Division - Research Analyst [8]

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Congratulations on the results. The first one is regarding EBITDA margin. Just would like to know how do you feel about reaching the low part of the range in terms of EBITDA margin for 2019, now with the results of the first half on hand? And the second one regarding the U.S. We still saw a weak quarter in terms of top line. So just would like to -- could you give a bit more color on what you're seeing in this region and your expectations going forward?

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Rodolfo Ramos Arvizu, Industrias Bachoco, S.A.B. de C.V. - CEO [9]

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Well, in terms of the EBITDA, I think we all want to be in the range of the last year. Up to now, the 7th month of the year, I can tell you that we are just in line with -- we expect to be in line with the results of the last year. So saying that we just -- almost offset the gap that we had in the first quarter.

In this -- in the -- our U.S. operation, the first quarter, we saw very weak prices of our boneless meat and with a rebound for the season. And right now, we are seeing a reduction just because of the season. And I'm seeing a little bit more offer, but I'm still seeing a very good balance between offer and demand. So we are expecting a normalized year here. The challenge that we are going to have here and in our Mexico operation is the cost of the raw materials, and we are doing some things in order to minimize the effect of the raw materials.

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Operator [10]

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(Operator Instructions) The next question comes from Ulises Argote from JPMorgan.

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Ulises Argote Bolio, JP Morgan Chase & Co, Research Division - Analyst [11]

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Congratulations on the results. Just a couple of questions here on my side. I was wondering if you could give us some color on how hedges are looking for you guys towards the end of the year, particularly when compared to the recent price spike we have seen in corn? And maybe if you can comment and give us a bit more color on the operating efficiencies that you comment for this quarter? Where are this coming from? Are they sustainable? And can we expect similar trends on this side going forward?

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Rodolfo Ramos Arvizu, Industrias Bachoco, S.A.B. de C.V. - CEO [12]

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Sure. Our hedge policy is just to hedge the amount of corn and soybeans in foreign currency for the contracts that we have in the long term with our customers. And other than that, we have no more than 2 or 3 months of inventory. So at this moment, I can tell you we are hedged all our soybeans to the end of the year, but the -- and corn, we have 2 months -- 2 more months according to our policy plus the contracts that we have a fixed-price, that is our policy and we stick on it.

And the efficiencies that we are capturing is in both areas, in live production and in our processing plants in terms of yields, in terms of cost. And another efficiency that we're capturing right now is we acquire normally in this time of the year our domestic harvest in Mexico. And right now, we have with the increases here in the area in the States, we have a better position. Our grain position in Mexico is very good. So we right now offset a little bit different in cost from here to our Mexican operation. So we are -- I can say that we are in a good shape in our inventory there.

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Daniel Salazar Ferrer, Industrias Bachoco, S.A.B. de C.V. - CFO [13]

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I would like to add a brief comment. On the SG&A side, we also had an important improvement because even that as Rodolfo mentioned, we are maintaining the percentage of our sales as SG&A. In terms of our volume, we have a small reduction in unitary cost. So that means that we have compensated somehow the increases that we faced in the last year in terms of our oil and energy cost with some efficiencies in our performance.

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Ulises Argote Bolio, JP Morgan Chase & Co, Research Division - Analyst [14]

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Great. Just a follow-up there. Can you share with us if the kind of the contracts that you have for the corn hedges are below the current spot prices? Or are they more or less in line with what we have been seeing over the last couple of weeks?

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Rodolfo Ramos Arvizu, Industrias Bachoco, S.A.B. de C.V. - CEO [15]

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It's -- what we have up to the end of the year are below the market value. So we have a good position there, and our -- each composition is very good, both corn and soybeans. So we have a very good position there.

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Operator [16]

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We have a follow-up question from Luis Miranda from Santander.

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Luis Miranda Valenzuela, Santander Investment Securities Inc., Research Division - Head of Food and Beverage [17]

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Just a follow-up on cost. I know it's very tough to have a very clear view on the grains but with the information you're already seeing from the harvest in Mexico and the prices in the U.S. and your contacts, the information we are receiving is that we are getting to a peak in the prices of corn during July? Or is it still too early to have a clearer view on this for the third quarter?

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Rodolfo Ramos Arvizu, Industrias Bachoco, S.A.B. de C.V. - CEO [18]

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Well, both the markets are connected. So if we have a cost increase in the corn market here in the States, for sure, we are going to have the same effect in Mexico, maybe with just a time differentiation or gap in the time of that, but at the end both markets are connected. But this -- the corn harvest in Sinaloa state was the last month. So prices were in line with the U.S. prices before the price increase in -- here in the local market, here in the States. But that allow us to buy our corn -- our local corn in Mexico at a very good price. So I feel very comfortable with our grain position down in Mexico. For instance, in our operation, our complexes of the Northwest, we cover most of the -- most of our consumption for the year in that particular complex and at very good prices. So I feel very comfortable with that.

Now for the other operations, we have to import for the Gulf, all the operations at the complexes that we have in the Gulf, we are importing grains to those operation at the market price.

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Operator [19]

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We have a question from Thiago Albuquerque from Onyx.

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Thiago Albuquerque, Onyx Equity Management - Equity Analyst [20]

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I have a quick question on your receivable share. We have a seen a strong increase during the quarter. Just...

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Rodolfo Ramos Arvizu, Industrias Bachoco, S.A.B. de C.V. - CEO [21]

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Can you a little bit -- I barely can hear you. Can you speak a little bit?

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Thiago Albuquerque, Onyx Equity Management - Equity Analyst [22]

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Can you hear now?

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Rodolfo Ramos Arvizu, Industrias Bachoco, S.A.B. de C.V. - CEO [23]

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Yes, better.

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Thiago Albuquerque, Onyx Equity Management - Equity Analyst [24]

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My question is on your receivables. We have seen a strong increase during the quarter. Just want to understand if you have any change in your policy in your collections or if there was some seasonal effect in the trend for the remaining of the year?

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Rodolfo Ramos Arvizu, Industrias Bachoco, S.A.B. de C.V. - CEO [25]

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Can you...

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Daniel Salazar Ferrer, Industrias Bachoco, S.A.B. de C.V. - CFO [26]

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Thiago, this is Daniel. Thank you for your question. Well, there is no change in our policy. The only reason for this increase is, there are 2 reasons. One is, the closing date of that quarter kept out some collections -- strong collection from the retailer, but there is something common depends on the payment date that our customer has. But on the other side, remember that, in this year, the government put a tax policy that prohibits the compensation of other taxes against the income tax. For that reason, our value-added tax increased a little bit compared with the previous year, but this doesn't mean that it's a problem for the company. The only thing is that we will compensate this in our half year tax return that we will present in this year -- in this month, -- sorry.

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Thiago Albuquerque, Onyx Equity Management - Equity Analyst [27]

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So the parts related to the receivables from the retailers, we should see a normalization for the next quarters?

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Daniel Salazar Ferrer, Industrias Bachoco, S.A.B. de C.V. - CFO [28]

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Yes, that's correct. On the other side, the value-added tax that is to collect, it will regularize also in the -- after -- in the third quarter as well.

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Operator [29]

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We have a question from [Julia Reso] from HCI.

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Julia Reso, HCI - Analyst [30]

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My question is regarding some news in early July about some avian influenza in Mexico. Can you comment a little bit on how it struck in Mexico for that kind or do you have operations near any of the place it had a focus on?

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Rodolfo Ramos Arvizu, Industrias Bachoco, S.A.B. de C.V. - CEO [31]

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Mexico, the authorities -- the Mexican authorities reported several outbreaks of avian influenza in the central parts of the country, but mainly in backyard birds, not in commercial operations. So at this moment, it's not a problem avian influenza in the country. The reports were just in backyard birds.

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Julia Reso, HCI - Analyst [32]

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Do have operations near the place that it has a focus?

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Rodolfo Ramos Arvizu, Industrias Bachoco, S.A.B. de C.V. - CEO [33]

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Yes, we have some operation close because those outbreaks were in the central part of the country in Guanajuato states and Querétaro states, and we have some operations over there, but at this moment we don't have any issue with avian influenza.

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Operator [34]

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The next question comes from Ulises Argote from JPMorgan.

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Ulises Argote Bolio, JP Morgan Chase & Co, Research Division - Analyst [35]

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Just a quick one here related to the EBITDA margin expectations for the third quarter. You say that we can expect an increase year-on-year, but here the third quarter of 2018 was really weak. So can you provide more color there directionally on how it could look? I mean can we still expect it to be hovering around the double-digit level or what more or less can we expect in that sense?

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Rodolfo Ramos Arvizu, Industrias Bachoco, S.A.B. de C.V. - CEO [36]

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Okay, you want to answer Daniel or...

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Daniel Salazar Ferrer, Industrias Bachoco, S.A.B. de C.V. - CFO [37]

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Yes, well, of course, we would expect a much better result compared with the third quarter of last year and we think -- we do think that we can reach a double-digit -- or close to double-digit result for this quarter.

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Operator [38]

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We have a question from [Eduardo Cella] from BlackRock.

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Eduardo Cella, BlackRock - Analyst [39]

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Just one question in terms of the price of poultry. Can you give us an idea of how prices were different in the U.S. and Mexico in the second quarter? It seems that in Mexico increased, I am not so sure in the U.S , you mentioned something of the boneless, but can you explain us a little bit more on that and your expectation for the third quarter. Do you think that the situation with the pork will still benefit you for the rest of the year?

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Rodolfo Ramos Arvizu, Industrias Bachoco, S.A.B. de C.V. - CEO [40]

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Yes, the industry here, in the States, the boneless prices, it's -- I can say it's delayed in price in terms of the market. In Mexico for this time of the year the strongest market is the live market so we cannot compare the prices in Mexico with the prices here in the States because we are talking about different products. So we had a very strong demand for live birds in the Southeast of the country and that made the difference.

Here in the States, even in the second quarter, breast meat normally is a very good quarter. This particular year we are in the lowest part of the 5-year historical chart. So prices in Mexico soar because of the live market, the public markets and those markets made the difference. We are expecting for this quarter prices to decline because it's normally at this time of the year that happened. But July has been by far better than the same period of the last year. So we expect a better quarter comparing quarter-by-quarter. So at the end, we expect to have an EBITDA margin very close to or slightly above the 2 digits.

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Ulises Argote Bolio, JP Morgan Chase & Co, Research Division - Analyst [41]

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Perfect. And just on the situation for the hog industry?

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Rodolfo Ramos Arvizu, Industrias Bachoco, S.A.B. de C.V. - CEO [42]

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The hog industry, I think, the prices well, it's difficult to predict because in Mexico industry has been growing at a very high pace. So we're going to have a very important production in Mexico, but this has been offset with the outside price. Mexico has been importing around 40% of our consumption from the States. So if there is any change in the China policies to allow United States to export hog -- pork meat or even chicken meat to China, it's is going to change the dynamic of the Mexican market, but this we don't know.

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Operator [43]

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We have a follow-up question from Miguel Tortolero from GBM.

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Miguel Angel Tortolero, GBM Grupo Bursátil Mexicano, S.A. de C.V. Casa de Bolsa, Research Division - Research Analyst [44]

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Thanks for the follow-up. Just a quick one on the others division. Just would like to understand the dynamics explaining the 16% volume growth and also what's driving the 9% sales growth even with the strong volume growth that I just mentioned?

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Rodolfo Ramos Arvizu, Industrias Bachoco, S.A.B. de C.V. - CEO [45]

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Well, the drivers, because of the balance sheet and the expansion, the strong expansion percent in our division of balanced feed and right now we're very competitive in that business because of the cost of our raw material, we had been exporting higher volume than the same period of the last year. So that increase in volume is for exports. We just increased our market share in our markets and we are increasing our pet food sales. So the increases in sales in that division, increase in pet food, which is by far more expensive feed so that makes us to have that strong result in our balanced feed division.

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Miguel Angel Tortolero, GBM Grupo Bursátil Mexicano, S.A. de C.V. Casa de Bolsa, Research Division - Research Analyst [46]

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All right. What's driving the sales to only increase 9% in that division?

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Rodolfo Ramos Arvizu, Industrias Bachoco, S.A.B. de C.V. - CEO [47]

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In what...

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Miguel Angel Tortolero, GBM Grupo Bursátil Mexicano, S.A. de C.V. Casa de Bolsa, Research Division - Research Analyst [48]

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In the others division with the volume up 16%.

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Rodolfo Ramos Arvizu, Industrias Bachoco, S.A.B. de C.V. - CEO [49]

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Mainly it's the others division it's different -- is not included in our feed business line. It's...

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Daniel Salazar Ferrer, Industrias Bachoco, S.A.B. de C.V. - CFO [50]

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It's included, Rodolfo.

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Rodolfo Ramos Arvizu, Industrias Bachoco, S.A.B. de C.V. - CEO [51]

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Well, but in others --

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Daniel Salazar Ferrer, Industrias Bachoco, S.A.B. de C.V. - CFO [52]

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In others division, we include the beef, the balanced feed that includes also the pet food, and also, the swine. So as Rodolfo mentioned before, the main impact, the main increase comes from the balanced feed and also from beef, beef even that it's a small line in this division of others, the increase in the beef is more than 20%.

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Rodolfo Ramos Arvizu, Industrias Bachoco, S.A.B. de C.V. - CEO [53]

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Our composite -- you're asking about our growth in pounds 17% and our increase in sales is just 9.6%?

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Miguel Angel Tortolero, GBM Grupo Bursátil Mexicano, S.A. de C.V. Casa de Bolsa, Research Division - Research Analyst [54]

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Yes, exactly.

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Rodolfo Ramos Arvizu, Industrias Bachoco, S.A.B. de C.V. - CEO [55]

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We have to analyze here our mix, our sales mix, because we are increasing our sales of some raw materials because our position we can capitalize some of benefits of those raw materials and some, let's say, some not so expensive feeds, so we increased our sales, but our mix give us just an increase in dollars or pesos of 9.6%.

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Daniel Salazar Ferrer, Industrias Bachoco, S.A.B. de C.V. - CFO [56]

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The other reason, Miguel, is because the balanced feeds in comparative terms has a much lower price than the core business line. So even that you have an increase in volume, the increase in sales is less because of the unitary price.

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Operator [57]

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(Operator Instructions) There are no further questions at this time. I will now turn the call over to Mr. Ramos for final remarks.

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Rodolfo Ramos Arvizu, Industrias Bachoco, S.A.B. de C.V. - CEO [58]

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Thank you, everyone, for joining us this morning. If you have any further questions, please contact our Investor Relation area, who will be glad to assist you. Thank you very much to everybody.

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Daniel Salazar Ferrer, Industrias Bachoco, S.A.B. de C.V. - CFO [59]

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Thank you.

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Operator [60]

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And this concludes today's conference call. You may now disconnect.