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Edited Transcript of MRFG3.SA earnings conference call or presentation 24-Feb-17 4:00pm GMT

Thomson Reuters StreetEvents

Q4 2016 Marfrig Global Foods SA Earnings Call

Feb 24, 2017 (Thomson StreetEvents) -- Edited Transcript of Marfrig Global Foods SA earnings conference call or presentation Friday, February 24, 2017 at 4:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Marcos Molina

Marfrig Global Foods SA - Chairman

* Martin Secco

Marfrig Global Foods SA - CEO

* Eduardo Miron

Marfrig Global Foods SA - IRO & CFO

* Frank Ravndal

Marfrig Global Foods SA - Keystone Foods, CEO

* Andrew Murchie

Marfrig Global Foods SA - Beef Brazil, CEO

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Conference Call Participants

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* Isabella Simonato

Bank of America Merrill Lynch - Analyst

* Alessandro Alerang

Bank of America Merrill Lynch - Analyst

* Ian Luketic

JPMorgan - Analyst

* Thiago Duarte

BTG Pactual - Analyst

* Alex Robarts

Citigroup - Analyst

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Presentation

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Operator [1]

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Good afternoon, ladies and gentlemen. At this time, we would like to welcome everyone to Marfrig Global Foods SA conference call to present and discuss its results for the fourth quarter and full year of 2016. The audio for this conference is being broadcast simultaneously through the Internet in the website www.marfrig.com.br/ir. In that address, you can also find the slideshow presentation available for download. (Operator Instructions)

Before proceeding, let me mention that forward-looking statements are being made under the Safe Harbor of the Securities Litigation Reform Act of 1996. Forward-looking statements are based on the beliefs and assumptions of Marfrig's management and on information currently available to the Company.

Forward-looking statements are not guarantees of performance. They involve risks, uncertainties and assumptions because they relate to future events and therefore depend on circumstances that may or may not occur in the future. Investors should understand that general economic conditions, industry conditions and other operating factors could also affect the future results of Marfrig and could cause results to differ materially from those expressed in such forward-looking statements.

Now I will turn the conference over to Mr. Marcos Molina, Marfrig Global Foods' Chairman. Please, Mr. Molina, you may now begin your conference, sir.

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Marcos Molina, Marfrig Global Foods SA - Chairman [2]

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(interpreted) We are announcing today the results of 2016 and the end of a cycle in Marfrig history where we have beyond the challenges of paying more than BRL2 billion of interest in our debentures. We have invested more than BRL2 billion in CapEx, with the challenge of keeping a positive cash flow, lowering our indebtedness, improving our financial metrics and keeping a very rigorous financial discipline.

We have accomplished all the challenges and met the guidance that we imposed to ourselves under a very volatile and challenging environment that Brazil has faced over this past year. We have done a very good job and have succeeded in our challenges based on our focus to the plan. I'd like to take the opportunity to thank all our teams across the globe, including our foreigners, our stakeholders and the financial industry that have been giving a lot of support to the Company across Brazil.

Now we are turning the page to a new cycle, but keeping the financial discipline and being under a very conservative approach -- taking a very conservative approach. This new phase is going to be focused on organic growth, mainly on the regions of the US and Asia, where we have a very solid base and a long lasting history of more than 60 years with our operation Keystone Foods, a global company with high levels, standards of quality with a very strong history of innovation and a outstanding footprint and quality of plants. All that gives us the confidence of having exceptional results for the future.

Talking now about the South Americas, we will continue looking for efficiency and improvements. We will soon present our plans for -- our strategic plans, which is at the end of the day based on return to the shareholders and stakeholders.

Thank you all again and I'd like to pass the call to Martin Secco, CEO of the Company.

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Martin Secco, Marfrig Global Foods SA - CEO [3]

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Thank you, Marcos. Good afternoon, ladies and gentlemen. I want to start by thanking everyone for participating in another earnings conference call of Marfrig Global Foods. Today we will be commenting on the result for the fourth-quarter 2016 and for the fiscal year of 2016. With me are the CEOs of the divisions, Frank and Andrew; and our Global IRO and CFO, Eduardo Miron; and our IR Manager, Roberta Varella.

Before I begin the presentation, I want to highlight that despite the challenging year Marfrig was able to deliver the result as promised, that reflects its strength, like the geographic diversification with production sites across the globe, its portfolio diversification with high volume processed products and also the effort and the commitment of all the employees at all the levels of the organization.

Now I will pass the call over to Eduardo, who will begin the presentation on the result of the quarter.

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Eduardo Miron, Marfrig Global Foods SA - IRO & CFO [4]

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Thank you, Martin. Let's go to slide 3, where I will begin the presentation on the fourth quarter, starting with net revenue.

As you can see in the chart on the left, Marfrig posted net revenue of BRL5 billion in the quarter, down 6% year over year. The main drivers were the 14.3% appreciation of the Brazilian real against the US dollar; the lower average sales price in Beef division, in line with the industry trend; and the lower average price in Keystone division due to lower international commodity prices, partially offset by the 17% growth in sales volume in Keystone division.

Keystone and International Beef operations accounted for 60% of the total revenue in this quarter, in line with the profile in the fourth quarter of 2015.

Regarding our currency exposure, note that in the fourth quarter 76% of the revenue was in currencies other than the Brazilian real versus 81% in the fourth-quarter 2015.

Let's now turn to slide 4 please. On slide 4, I will comment on Marfrig's consolidated gross income and adjusted EBITDA. On the chart on the right, gross margin stood at 10.6% in the quarter with gross income of BRL530 million, down 23% on the fourth quarter of 2015. The main factors contributing to this performance where the 14.3% depreciation of the US dollar against the Brazilian real and the lower sales volume and margin compression in Beef division, which followed the industry trend, then these two factors partially offset by the continuous solid performance in Keystone division. Note that in comparison with the third quarter of 2016, gross income grew by 8.9%, which is in line with our expectation of generating stronger results in the last quarter of the year.

Adjusted EBITDA in the fourth quarter was BRL394 million with margin of 7.9%, down 24% on the same quarter of 2015 and following the decline in gross income. In comparison with the third quarter, however, adjusted EBITDA grew by 60%, the results reflect the better margin at Keystone and the improvement in sales and administrative areas in Beef division. Lastly, the chart on the lower right provides a breakdown of EBITDA in the quarter by divisions, with Keystone contributing 55% or 10 percentage points above the same quarter of 2015.

Let's go to the next slide please. Turning to slide 5, you can see the net income in the quarter and fiscal year, considering only the continuing operation; in other words, excluding the non-recurring gains from the asset divestments. In the quarter, Marfrig posted a net loss of BRL241 million, reflecting the weaker operating income, as explained earlier. In the year, Marfrig posted a net loss of BRL726 million, which represents an improvement of BRL700 million or 49% from the net loss of BRL1.4 billion in 2015.

The continued solid result of Keystone and the liability management actions focused on reducing debt cost contributed to this performance.

Now I will pass the call over to Frank Ravndal.

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Frank Ravndal, Marfrig Global Foods SA - Keystone Foods, CEO [5]

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Thanks, Eduardo. Good morning, everyone. As expected, the fourth quarter was another strong quarter for Keystone. Before going through the results detailed on the slide, I wanted to outline the four main contributors to the strong quarterly performance.

First, the fourth quarter saw strong year-over-year volume growth across the entire Keystone enterprise. Our US key accounts business was a big reason for the success. As I mentioned before, Keystone is strategically committed to continue growing our sales of value-added products to our key accounts and that strategy continues to produce results.

As a percentage of total sales, the fourth quarter sales to key accounts increased from 29% to 31%, driven by significant new product introductions and by adding new customers. During 2016, 52 new products were commercialized and ten new customers were added in the US alone. This steady growth reflects our commitment to be the preferred value-added supplier to the world's best consumer brands by creating high quality food products with our proven commitment to food safety.

Our APMEA business was the other key reason for the fourth quarter volume growth, led by our operations in Australia and Malaysia. Those operations continued to grow their exports to Asian and Middle East markets and also grew in their domestic market. The second theme for the fourth quarter was our change in product mix, as we continue to support our customers' efforts to meet evolving consumer preferences. In particular, our expansion of No Antibiotics Ever products and similar products delivered a solid contribution to both product demand and margin.

Third, we saw increased demand and pricing for poultry exports from the US into international markets as export bans from the prior year continued to roll-off. This development increased demand for leg quarters, resulting in greater than 40% increase in prices. In fact, you may recall that in the fourth quarter of 2015, we actually decided to hold the inventory of leg quarters due to decline in prices. That action also contributed to the volume and revenue growth year over year.

The fourth and final theme for the quarter was a beneficial market for many of the commodities we buy. In particular feed prices were down 6.9% year over year.

Now let's turn to the slide and review our fourth quarter results in more detail. As a reminder, we present all Keystone financial data in US dollars. Let's start with the net revenue, which appears in the graph on the lower left of the slide. Fourth quarter net revenue was up 12% compared to the fourth quarter of 2015. Again, one of the keys here was the double-digit volume growth across the whole Company, driven by our expansion in APMEA and our continued success in US key accounts, including our new No Antibiotics Ever products. The increased global demand for and price of leg quarters was also a revenue driver.

Moving up the slide, fourth quarter volume increased 17% year over year. The drivers to the nice volume increase are the same that impacted revenue. In terms of EBITDA and EBITDA margin for the fourth quarter, we generated adjusted EBITDA of $66 million up from $61 million, an increase of 8.6% year over year. Keystone has now maintained an EBITDA margin above 9% for five consecutive quarters.

To conclude, the fourth quarter was a great one for Keystone, driven by strong volume growth across the business, contribution from No Antibiotics Ever products, the recovery of leg quarter exports and a favorable commodity market for feed inputs. This great fourth quarter concluded an outstanding year for Keystone.

I'd like to now pass the call to Andrew Murchie, CEO of Beef Brazil, who will present the results of the overall Marfrig beef business.

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Andrew Murchie, Marfrig Global Foods SA - Beef Brazil, CEO [6]

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Thank you, Frank, and good morning, everyone. Now on slide 7, I will comment on the results of the Beef division which is formed by the Brazilian beef operation and the international beef operations. The fourth quarter reflected the still challenging scenario in the Brazilian operation given the limited supply of feed cattle and a reversal in the recovery in international prices.

Compared to the fourth quarter of 2015, our export spread, which is the difference between our sales price and our cattle cost, in both the Brazilian and Uruguayan operation narrowed in the period by 24% and 10% respectively. As you can see in the chart on the top left, net revenue was BRL2.7 billion, down 8% on the prior-year quarter. The main reason for the lower revenue were the Brazilian real appreciation in 14% and the lower sales volume, which were partially offset by the better performance in the domestic market where prices increased by approximately 7%.

Sales volumes, as you can see in the chart on the lower left, fell by 11,000 tons compared to the fourth quarter of 2015, which is explained by the lower slaughter volume due to the cattle cycle and by the priority given to high margin channels in the domestic market, whereas the food service channel grew by 18%, as well as in the export market, where Asia accounted for 38% of the export volume in the quarter, increasing its shares 1,000 basis points.

I want to take this opportunity to mention that our export volume in the last quarter posted a strong growth of nearly 50% on the previous quarter, reflecting the strategy mentioned in our last call of retaining a portion of exports to capture high average sales price.

On the chart on the top right, you can see the adjusted EBITDA of the Beef division, which was BRL177 million in the quarter with margin of 6.6%, which represents a sharp reduction from the same quarter of 2015. This was due to a sharp drop on the export spreads, which declined -- a decline of 24% in Brazil and 10% in Uruguay, also the 14% appreciation in the local currency and a lower sale volume, with this partially offset by the recovery in prices in the domestic market and also the lower expenses in the sales and administrative due to streamlining.

Compared to the third quarter, however, EBITDA improved by some BRL40 million. The increase is explained by the sales volume growth, by the lower SG&A expenses that I mentioned earlier. In the case of EBITDA margin, the reduction between quarters is explained by the lower slaughter volume and consequent lower dilution of the fixed costs.

Before moving on to the next slide, I will pass the call back over to Eduardo Miron.

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Eduardo Miron, Marfrig Global Foods SA - IRO & CFO [7]

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Thank you, Andrew. So moving to slide 8, it shows Marfrig's liquidity and debt maturity schedule. As you can see in the chart on the lower right, net debt in US dollar, which is our main metric, remained stable at $1.8 billion, reflecting the stability achieved in our cash flow. In Brazilian real, net debt stood at BRL5.9 billion, also stable.

As you can see in the chart, Marfrig's gross debt ended the fourth quarter at BRL11.2 billion, declining around 4% from the end of the third quarter. In US dollar, gross debt ended up at $3.4 billion, down 5%, explained by the payment of $141 million of the outstanding balance of the 2016 bonds which came due in November. With that, the balance of cash and cash equivalents declined in the same proportion to $1.6 billion or BRL5.3 billion.

I'd like to call your attention that we also had in January of this year repayment of the last installment of the mandatory convertible debenture in the amount of BRL327 million. The leverage ratio measured by net-debt-to adjusted EBITDA in the last 12 months ended the quarter at 3.7 times, which represents an increase of 0.3 times from the ratio of 3.4 times at the end of the third quarter, reflecting the lower 2016 EBITDA as mentioned earlier.

As a highlight for the year is the liability management, which led to an average debt cost of 7.3% per annum, down 60 basis points from the end of 2015. Lastly, I would like to take this opportunity to comment that in January after the conversion of the debentures, Moody's updated its credit report, which reaffirmed our rating and upgraded our outlook from stable to positive.

Let's now go to the next slide please. On slide 9, I will comment on cash flow in the fourth quarter of the year. Operating cash flow before interest and CapEx in the quarter came to BRL528 million, which was positively influenced by the continued solid operating result at Keystone and the improvement in working capital in the period, driven basically by the reduction of inventories in Beef division.

On CapEx, we maintain our investment in both maintenance and improving existing operations such as the organic growth project at Keystone. Note that this figure of BRL182 million was the highest in a single quarter this year. We always like to emphasize this when commenting on cash flow because we have a long-term commitment and we have maintained our investments despite our more rigorous financial discipline and goal of delivering positive cash flow.

Interest expenses came to BRL280 million or 4% lower than in the prior quarter due to the decline in gross debt that I had mentioned. Free cash flow in the quarter was positive at BRL68 million.

I will now pass the call over to Martin Secco for his final comments and closing remarks.

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Martin Secco, Marfrig Global Foods SA - CEO [8]

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Thank you, Miron. I will ask you to share the page number 10 and number 11. I will comment our key financial metrics on our guidance of 2016.

Net revenue in the year was BRL19 billion, practically in line with 2015 and in line with our guidance. The performance of Beef division influenced by the negative movement in Brazil cattle cycle and the lower average size -- sales price in Keystone division due to the lower grain and the fresh prices were the main factors that adversely affected our sales, which were offset by factors as 5% growth in sales -- in volume in Keystone division and the average depreciation in Brazilian real against the US dollar of 4.8%.

In the year, EBITDA came to BRL1.6 billion with the adjusted EBITDA margin of 8.2%, slightly below our guidance. The lower result of Beef division was partially offset by the exceptional result of Keystone.

Our CapEx in the year was BRL526 million, also within the guidance range. The result reflects our commitment to maintain our investment to support growth in our different regions. Free cash flow was BRL39 million, which is within our range to zero to BRL100 million. The result is explained by the solid performance of Keystone and our liability management actions and the opportunity to optimize our working capital.

Marfrig for the fourth straight year was able to generate positive cash flow and support double-digit growth in the CapEx. The result reflects our continuous commitment to creating value without foregoing our investment and improvement in organic expansion project to ensure the growth and the perpetuity of our business.

2016, as Marcos mentioned, was the consolidation of Marfrig Global Foods and its operations, which today were represented by Keystone and Beef Division. The current moment in Brazilian cattle cycle and the stronger Brazilian real that initially affected the result of Beef division. This adverse scenario was partially offset by the operational flexibility on the Beef division.

Meanwhile, Keystone division continued to deliver a solid performance. The ongoing and successful strategy to diversify its client base combined with a better sales mix with an important contribution coming from the No Antibiotic Ever product led the subsidiary to post record EBITDA of BRL252 million in the year.

In keeping with this commitment to the financial discipline, Marfrig continued to execute its liability management process, with focus on reducing the debt cost and the lengthening of the debt term, while maintaining an important liquidity position to confront the still volatile scenario in Brazil. And the commitment to deliver positive free cash flow was met, as I commented, a very important target of the Company.

I also want to comment on the important mark that we reached now in January that has yet to reflect in the Company's result and which was a recurring topic during 2016. As Marcos mentioned, this conversion brings important saving in our annual interest payment of around BRL300 million and will make a material contribution on our free cash flow.

Before concluding today's presentation, I want to comment on the outlook for the coming quarters. As you all know, with the reporting of each annual result, Marfrig typically announces its guidance for the current year for the key financial indicators. However, Marfrig now is starting on a new phase of this evolution. We are gladly working in a strategic plan for the next five years, our 2021 vision. The focus will be on building a solid foundation in identifying our competitive advantage and potential opportunities, so we can assure the perpetuity of our business and continue to make Marfrig a more solid and profitable Company.

And since we are still in the end of this process to formulate this vision, we have decided not to announce our guidance on this time. This is a position that maybe you consider conservative, but we believe is pertinent in this moment, given that the strategic plan for the coming years is still in the finalization process and it will present in the short term.

Last, but certainly not the least, I want to emphasize what does not change in the new phase of our firm dedication to the financial discipline.

We conclude now our presentation and we are open to start the question-and-answer session.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Isabella Simonato, Bank of America Merrill Lynch.

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Isabella Simonato, Bank of America Merrill Lynch - Analyst [2]

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I have two questions, first on the beef operation. If you could provide in a quality basis -- qualitative basis what are you seeing in terms of margins for the sector in 2017 considering that cattle prices started to decline, but at the same time the BRL appreciated? So what's your view on margins for the sector in 2017?

And also, the second question on Keystone. I think top line growth was really strong in the fourth quarter ending 2016. Considering the new capacity that you are also investing, what sort of growth can we expect for Keystone in 2017? Thank you.

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Martin Secco, Marfrig Global Foods SA - CEO [3]

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Regarding the first question, we are optimistic for the year 2017. As you know, it's very difficult to predict the result at the beginning of the year. There are some topics that help us to be optimistic.

Regarding the which are these topic, we are beginning the -- at the beginning of the year having a very good offer of cattle and in the first year in the last three years, now the price of a cattle is reducing during this part of the year, that most of the time disappear at the second semester of the year.

The other thing is important for us is the relation between the cost of the grain and the cost of the arroba or the kilo of the animal for the farmers, that is in a very good scenario for the second semester of the year that will be very important for the feed lot animals that is very important source in the second semester.

Regarding the -- the exchange rate is another challenge for the Company. It's very difficult to predict, but we are very confident that with the market that we opened last year like China and US we will have a very good balance between export and internal market that, as you know, Marfrig is very strong in the last years.

Regarding the second question, I will ask Frank to answer to you.

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Frank Ravndal, Marfrig Global Foods SA - Keystone Foods, CEO [4]

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As Martin mentioned earlier, we aren't going to be providing guidance for 2017 specifically. But what I can tell you is that with respect to formulating that longer term strategy, Keystone has actually concluded the work over the last couple of months and in looking to do through a really deep dive process. And so that five-year growth strategy I think really shows exciting continued longer term opportunities for Keystone to continue to grow in the existing strongest channels over the last few years as well as building out more recent successes in newer channels like more SKUs and the higher end retail private label, convenience, et cetera.

So without focusing on 2017 volumes specifically, I think we really feel good after that work, that when we look back now on an excellent sort of consistent build on both volume and EBITDA growth over the past four years, we feel great about what the 10-year picture will look like when we look back in 2022 on it.

So rather the 2016 was very nice kind of volume growth across the year and we feel really good about the longer term prospects. Like you said, we have some -- a new plant that will be commissioned mid-year, probably a little bit later than mid-year, but we'll have some other investments we will have to make to fuel the rest of that growth. But the underlying market opportunity looks very, very exciting for us.

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Isabella Simonato, Bank of America Merrill Lynch - Analyst [5]

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Thank you.

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Operator [6]

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[Alessandro Alerang], Bank of America Merrill Lynch.

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Alessandro Alerang, Bank of America Merrill Lynch - Analyst [7]

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The first question would be potential for additional liability management. When we look at the dollar bonds of Marfrig, there is the opportunity to make or to exercise a call particularly on the 2020 dollar bonds. We're talking about almost $500 million now in March. And then you would have the opportunity to do another call on the 2019 bonds of almost $700 million in June 2017.

When I look at your cash balance, you have approximately $1.5 billion, $1.6 billion in cash and given that these are still expensive debts that you have and that the performance of the dollar bonds have been quite strong with the improvement on the operations of the Company, what could we expect in terms of activity on this front this year for you? Thank you.

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Eduardo Miron, Marfrig Global Foods SA - IRO & CFO [8]

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As you know, the liability management program is an ongoing process, that we keep our eyes very close to any opportunity to meet the two main objectives, which is to reduce the cost and extend terms.

At the same time, we had to take into consideration the overall scenario of the different markets we play and the risks that we have to address. So the fact that we have a strong cash position, it is in some way the reflection of this overall situation, which has been quite challenging over the years.

So having said that, we don't necessarily discuss our specific plans on liability management, but we will keep our eyes and if the window is open we will act.

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Alessandro Alerang, Bank of America Merrill Lynch - Analyst [9]

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Okay, let me try to ask then in another way. Given the $1.5 billion, $1.6 billion cash position that you have and the fact that the short-term debt for the Company is only 15% of total debt, which is really good, right, that means you pushed out a lot of the maturities already for more than a couple of years down the road -- from a financial policy perspective, what would be the optimal cash balance for the Company?

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Eduardo Miron, Marfrig Global Foods SA - IRO & CFO [10]

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Alessandro, again thanks a lot for your question and recognition of our good work on the liability management. The cash size is a definition that is taken by the Board of the Company. So it's taken not lightly. And we all understand the carry cost and we all understand the details around this.

At the same time, we have a very conservative approach given the scenario that we evaluate. So there is evaluation of the scenario and we feel that the current level is okay, although, as you see, we are using this cash to liquidate debt that are maturing.

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Alessandro Alerang, Bank of America Merrill Lynch - Analyst [11]

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Okay, thank you, Eduardo. And then just one last question on Keystone. I noticed that the Company engaged in securitizing accounts receivable in last December. And is it reasonable to say that the working capital line in the fourth quarter of last year was positively impacted by the securitization of receivables? And the amount that I see here is around BRL174 million. If you could just confirm that, that would be great. Thank you.

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Eduardo Miron, Marfrig Global Foods SA - IRO & CFO [12]

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Yes, I don't want to go into specific details, but I can assure you that we work very diligently in improving our working capital. And as part of this, we have different operations in different countries, in different regions, where we try to bring liquidity to our cash flow.

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Alessandro Alerang, Bank of America Merrill Lynch - Analyst [13]

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Okay. Thank you so much.

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Eduardo Miron, Marfrig Global Foods SA - IRO & CFO [14]

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No problem.

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Operator [15]

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Ian Luketic, JPMorgan.

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Ian Luketic, JPMorgan - Analyst [16]

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A quick question here. Can you help us understand when we can expect a reduction in financial expenses and how the Company plans to reach this reduction? Thank you.

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Eduardo Miron, Marfrig Global Foods SA - IRO & CFO [17]

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Ian, I am sorry I could not follow your question. Could you repeat that?

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Ian Luketic, JPMorgan - Analyst [18]

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Yes, of course. I was just wondering if you can help us understand when we can expect the Company to reduce its financial expenses and how the Company plans to do that?

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Eduardo Miron, Marfrig Global Foods SA - IRO & CFO [19]

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Well, I mean in fact we are reducing, right. So if you see the comparison of expenses from last quarter to this quarter, there is a reduction I think. We have already mentioned that given the liability management we were expecting something around $10 million of saving with the previous liability management exercise. We just mentioned about the $300 million in a reduction of expenses that will occur given the conversion.

As long as we see the opportunity, we will bring a lower interest debt to our Company. And with that, we believe that the trend of reducing debt interest is just there.

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Ian Luketic, JPMorgan - Analyst [20]

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Okay, thank you.

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Eduardo Miron, Marfrig Global Foods SA - IRO & CFO [21]

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No problem.

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Operator [22]

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Thiago Duarte, BTG Pactual.

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Thiago Duarte, BTG Pactual - Analyst [23]

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Two quick questions actually. First, I understand you're not providing a guidance, but I think it would be interesting to hear what you are projecting in terms of CapEx for the year. I understand you have a new plant and there's a cost restructuring for Keystone. On the other side, you had the CapEx for 2016 coming at the higher end of your guidance. So it will be interesting to hear what your guidance range is or some kind of expectations for CapEx for the year.

And the second question is related to financial expenses. There is one line within the financial results actually that's been pretty tricky for us to track and to forecast going forward, which is related to this other revenues and of course the bank fees, commissions, finance and other expenses. So I don't know if you have a sense or any level that you expect this line to come in 2017 and forward in your financial results. Any help with that would be great. Thank you.

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Martin Secco, Marfrig Global Foods SA - CEO [24]

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We are not providing guidance in any of our financial topics. But as you know, there are some important things that are not changing in Marfrig and one of them is our CapEx policy. It's very important for us to continue in the same way that we used to have in the last three, four years. That's an important amount of CapEx regarding our future and regarding our develop new products, regarding new factories and regarding our expansion, mainly in Asia. For that we are not going to share any amount, but will be a very important part of our strategy for the future.

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Eduardo Miron, Marfrig Global Foods SA - IRO & CFO [25]

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Thiago, if you want I can address the second part if you're okay with the first part of your question. Okay, so --

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Thiago Duarte, BTG Pactual - Analyst [26]

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Oh, the second part of the -- yeah.

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Eduardo Miron, Marfrig Global Foods SA - IRO & CFO [27]

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Yes, the -- okay.

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Thiago Duarte, BTG Pactual - Analyst [28]

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Yes, it's regarding the other line within the financial results. Yes.

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Eduardo Miron, Marfrig Global Foods SA - IRO & CFO [29]

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Got it, got it. Yes, I got it. So, Thiago, as you can identify and you can see in the financial, so this line is trending down, right. So we have -- it has been reduced. We don't expect any major movement in this specific line. This line -- and we can take this upside. So we have already provided the details around this and the components of this account. But just giving a little bit of your perspective, so this line as any other expense line should be trending down.

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Thiago Duarte, BTG Pactual - Analyst [30]

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Okay, thanks.

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Operator [31]

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Alex Robarts, Citigroup.

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Alex Robarts, Citigroup - Analyst [32]

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Two questions really from my side. I wanted to first ask about Keystone in terms of the (inaudible), but also on some of the -- the capital market transactions that might be around that business. 2016, it seems a record margin for Keystone. I think there were clearly some execution factors, but also some favorable macro factors. And I guess as we think about 2017 -- I appreciate you can't give -- that you have decided not to give guidance in. But as we think through some of the commodity and other macro factors, is it safe to assume that perhaps the commodity tailwinds might be a little bit less I mean clearer or present in the business? In other words, how are you seeing the commodity cost outlook for you guys in the next, I'd say, couple of quarters?

And related to that, how are you seeing the trends in quick serve restaurants, the foot traffic there? Is that channel, do you think, able or kind of holding up in terms of recovery, which we've been noting in other types of information sources? So commodity, quick serve restaurant trends, if you could comment a little bit about that as you're looking to Keystone USA in the first half of the year?

And the second Keystone question relates to, how are you really thinking about capital market transactions around this business? And you've announced the strategic possibility of looking into joint venture, IPO. Could you give us kind of an update on your thinking regarding that for the first half or for 2017? Thanks very much.

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Martin Secco, Marfrig Global Foods SA - CEO [33]

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Alex, I will just try to --

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Frank Ravndal, Marfrig Global Foods SA - Keystone Foods, CEO [34]

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Thanks, Alex.

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Martin Secco, Marfrig Global Foods SA - CEO [35]

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Okay, go ahead, Frank.

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Frank Ravndal, Marfrig Global Foods SA - Keystone Foods, CEO [36]

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Yes, I think -- let me take those in the order you put them out there, Alex. So I think from a kind of the macro and the favorable macros on some of the commodity inputs kind of broadly over the last couple of years, I think that the outlook we have right now is for not sort of dramatic changes to that environment.

So I mean, recently there has been a decent rally over the last six weeks or so that has cooled off somewhat more recently in the last week. But we believe that recent corn and soy meal price up trends have been influenced largely by non-fundamental sort of money flows into the market and renewed interest in the broader commodity complex. There is also a strong real that's I think impacted it. Record Chinese soybean demand.

But you've got US and world inventories remaining really well above a year ago levels. South American supply looks really good. And you put that in the context of potentially record US bean acres that were just updated yesterday by the USDA, a comfortable corn acreage estimate.

So we anticipate the valuations in both corn and meal could take on and should take on a more bearish tone over the next six months. Severe weather issue that deteriorates yield could -- remains the top risk to that outlook, as is always the case. But I mean, how we see those markets developing, it doesn't look like anything significantly off of the environment we saw in 2016 from those inputs.

On some of the meat input prices, it's really too varied to talk about. There isn't one overall trend, it depends. As you know, we're not 100% vertically integrated in the US, so we're on the market from time to time. So often depending on what parts we're looking to purchase, softness in the market can actually help us even though it might hurt us on the revenue line.

So those tradeoffs are a little bit more complicated than a short answer about kind of just overall meat market inputs. And then of course we have exposure to meat raw material purchases outside of the US as we aren't vertically integrated. And so we've managed those margins very well over the last few years.

So I think relative to those macro trends, we don't really see anything out there right now on the horizon that looks very troublesome relative to 2016 actuals. I think the QSR trend you talked about, I mean that's sort of been challenging for the last couple of years and we've managed to continue to grow significantly within that not great macro environment.

When I listen to what many of the top operators talk about in their recent quarterlies and their outlooks for the year, there have been more recent kind of upticks in favorable comp sales. A lot of people are focused on the guest count, what's behind that, and then you still see a little bit of a mixed bag.

So I think that when you look at the strategies that several of those operators have to continue to drive guest counts into their business, we feel pretty good about where some of those operators are looking to take their business and the strategies that are driving that. So we don't see kind of dramatic changes there either.

On the last piece, I would say that that's just not something that we're prepared as Marfrig overall to comment relative to plans, capital market plans or options with respect to Keystone at this time.

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Alex Robarts, Citigroup - Analyst [37]

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Sure. Okay. No, fair enough. And thanks for the comments on the trends.

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Frank Ravndal, Marfrig Global Foods SA - Keystone Foods, CEO [38]

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Thank you.

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Operator [39]

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This concludes today's question-and-answer session. I would like to invite Mr. Martin Secco to proceed with his closing statements. Please go ahead, sir.

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Martin Secco, Marfrig Global Foods SA - CEO [40]

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Thank you. I would like to thank you again for joining us in this new call of Marfrig and we will be more than open to continue in contact with you through our IR department in the next days. Thank you.

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Operator [41]

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Thank you. That does conclude our Marfrig's conference call for today. Thank you very much for your participation and have a nice weekend.

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Editor [42]

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Portions of this transcript that are marked (interpreted) were spoken by an interpreter present on the live call. The interpreter was provided by the Company sponsoring this Event.