3Q18 Earnings November 8, 2018

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Transcription:

Earnings November 8, 2018 1

Disclaimer This presentation may contain statements that express BRF S.A. ( BRF ) management s expectations, beliefs and assumptions about future events or results. Such statements are not historical facts and are based on currently available competitive, financial and economic data of the industries in which BRF operates. The verbs "anticipate", believe", "estimate", "expect", forecast", "plan", "predict", target, aim, seek and other similar verbs are intended to identify these forward-looking statements, which involve risks and uncertainties that could cause actual results to differ materially from those projected in this presentation and do not guarantee any future BRF performance. The factors that might affect performance include, but are not limited to: (i) market acceptance of BRF s products; (ii) volatility related to the Brazilian economy, as well as the economies of the other countries in which BRF also has relevant operations, the financial and securities markets and the highly competitive industries BRF operates in; (iii) changes in domestic and foreign legislation and taxation, as well as in government policies related to the domestic and foreign animal protein and related markets; (iv) increasing competition from new entrants to the Brazilian and international markets; (v) ability to keep up with rapid changes in the regulatory and technological environments; (vi) ability to maintain an ongoing process for introducing competitive new products and services while maintaining the competitiveness of existing ones; (vii) ability to attract customers in domestic and foreign jurisdictions. Other factors that could materially affect results can be found in BRF s Reference Form and in the annual report on Form 20-F, as filed with the U.S. Securities and Exchange Commission, particularly under the Risk Factors session. All forward-looking statements in this presentation are based on information and data available as of the date they were made and BRF undertakes no obligation to update them in light of new information or future development. This presentation does not constitute an offer to sell or a solicitation to purchase any security. 2

Results Income Statement (shorten) 2T18 Var t/t 3Q17 Adjusted EBITDA R$604mm R$371mm 63.0% R$939mm Non-recurring adjustments (operating) (R$189mm) (R$672mm) (71,9%) (R$135mm) Reported EBITDA R$415mm (R$301mm) n.m. R$1,074mm Depreciation (R$488mm) (R$490mm) (0.5%) (R$515mm) Net Financial Results (R$507mm) (R$644mm) (21.2%) (R$351mm) Taxes (R$218mm) (R$219mm) n.m. (R$70mm) Argentinean Hyperinflation (R$15mm) (R$11mm) (31.2%) - Net Income (R$812mm) (R$1,466mm) 44.6% R$138mm 3

Results Income Statement (shorten) Fronts of Action Adjusted EBITDA Non-recurring adjustments (operating) R$604mm (R$189mm) ❶1 ❷2 1 Reported EBITDA R$415mm Depreciation (R$488mm) ❸3 Net Financial Results Taxes Argentinean Hyperinflation Net Income (R$507mm) (R$218mm) (R$15mm) (R$812mm) 4 4 4

1 Improvement of commercial and operational results Strategic plan BRF Day (Management in operational excellence) Revenues commercial strategy» Markets (Brazil / Halal / Asia)» Pricing (Sadia / Perdigão / Kidelli)» Mix (in natura vs. Processed Foods)» Commercial execution (FIFO / disruption / #client / itens per client)» Channels /push-pull optimization (C&C, retail, DDP vs. CFR, food service)» Innovation Costs / Expenses operational excellence» ZBB Zero Base Budget» OES Operational Excellence System (cost reduction of 20%-30% (~R$200 million)» MBG Management by Guidelines» Corporate PMO» Quality Assurance System 5

2A BRF Commitments Reduction on non-recurring itens EBITDA - R$ Million 3Q17 Var y/y 2Q18 Var q/q EBITDA 415 1,074 (61.3%) (301) n.m. EBITDA Margin (%) 4.7% 12.3% (7.6) p.p. (3.7%) 8.5 p.p. Impacts of Carne Fraca/Trapaça operations 102 0 n.m. 288 (64.5%) Debt designed as Hedge Accounting 0 13 n.m. 185 n.m. Corporate Restructuring 47 0 n.m. 144 (67.3%) Impacts of Trucker Strike 10 0 n.m. 75 (86.5%) Tax recoveries (4) (142) (97.0%) (19) (78.3%) Non controlling shareholders 13 (8) n.m. (13) n.m. Items with no cash effect 0 0 n.m. 0 n.m. Costs on business diposed 4 1 162.3% 0 n.m. Others 16 0 n.m. 13 31.2% EBITDA Adjusted 604 939 (35.7%) 371 63.0% EBITDA Adjusted Margin (%) 6.9% 10.8% (3.9) p.p. 4.6% 2.3 p.p. 6

2B BRF Commitments Nonnegotiable pillars of our strategy SECURITY INTEGRITY QUALITY 7

3 Depreciation Optimization of assets base» Improvement in Asset turnover» Higher installed capacity utilization» Divestments of operational assets 8

4A Reduction of Indebtedness / Financial Leverage Monetization plan of approx. R$5 billion - Status of divestment process Iniciatives Concluded Ongoing Working Capital R$274 million R$700-800 million Sale of Non-Core Assets R$214 million R$50-100 million Receivables Invest. Fund (quiet period) 0 R$750 million Other Initiatives 0 R$0-100 million Total R$488 million R$1,500-1,750 million 9

Phase 2 Phase 1 4B Reduction of Indebtedness / Financial Leverage Monetization plan of approx. R$5 billion - Status of divestment process Phases Argentina Europe/Thailand Teaser NDAs InfoMemo Non-Binding Offers # Offer 14 8 Data Room Open Open Mgmt Presentation Nov 15-26 Nov 5-9 Due Dilligence # Players 8 5 Binding Offer Ongoing Ongoing Dec 15 Dec 15 10

4C Reduction of Indebtedness / Financial Leverage Monetization plan of approx. R$5 billion - Summary» Divestments of operational assets: ~R$3 billion» Other initiatives: ~R$2 billion» Total: ~R$5billion» ~R$500 million concluded 11

Operational and Financial Performance 12

Brasil Segment Price adjustments to increase profitability and offset cost inflation Volume 568 Thousand tons (Volume 3Q17 539 Thousand tons)» Combination of volume growth (mainly processed), price increase and improved commercial execution Processed 72% (73%) Poultry 23% (22%)» Operating leverage + cost reduction Pork 5% (5%) Innovation: Qualy Light 0% Lactose first lactose free margarine in Brazil 13

Brasil Segment Price adjustments to increase profitability and offset cost inflation 2Q18 x 3Q17 x Net Revenue (R$ MM) Adjusted EBITDA (R$ MM) Adj. EBITDA Margin (%) Net Revenue (R$ MM) Adjusted EBITDA (R$ MM) Adj. EBITDA Margin (%) 3.683 +11.9% 4.121 +4.7 p.p. 5.0% +117.9% 183 9.7% 398 3.757 +9.7% 4.121 13.6% 512-4.0 p,p, 9.7% -22.2% 398 2Q18 2Q18 3Q17 3Q17» Average sale price increase: +5.9%» Increase in prices linked to higher volumes sold (with a higher value-added portfolio)» Adjusted EBITDA margin: up +4.7p.p.» Grains cost increase: +45%» Increased prices and volumes (of lower value added) were not enough to offset inflation of costs and expenses» Adjusted EBITDA margin: down -4.0p.p. 14

Brasil Segment» Market share BRF 45.8%, -0.6p.p. y-o-y» Price Index Evolution vs. largest competitor» +18 k new active clients over last year, expanding distribution coverage CLIMOV Index: Active Clients (000) 10.5% Price Index (PI) Evolution Processed Foods* Relativity (%) PI* (base 100) Share 100 99 100 99 103 112% 111% 112% 114% 116% 44.1% 44.4% 43.5% 44.5% 42.8% 3Q17 4Q17 1Q18 2Q18 Price Index (PI) Evolution Margarines 100 97 106 99 103 175 187 191 195 193 118% 116% 122% 125% 129% 59.9% 60.2% 59.1% 58.9% 58.9% 3Q17 4Q17 1Q18 2Q18 3Q17 4Q17 1Q18 2Q18 (*) Filled / Frozen / Cold cuts Source: BRF and Nielsen Retail Bimonthly Margarines and Frozen (reading Aug/Sep); Filled and Cold Cuts (reading Jul/Aug). 15

Halal Segment Initiatives to increase profitability deliver the best performance in the last 2 years Volume 280 Thousand tons (Volume 3Q17 305 Thousand tons) Market Share Processed 14% (11%) Poultry 86% (89%) 61.9% (+1.9 p.p. y/y) Chicken cuts 50.1% (+1.2 p.p. y/y) Griller 23.3% (+3.2 p.p. y/y) Processed Relevant presence with profitability in sustainable operational levels 16

Halal Segment Initiatives to increase profitability deliver the best performance in the last 2 years 2Q18 x 3Q17 x Net Revenue (R$ MM) Adjusted EBITDA (R$ MM) Adj. EBITDA Margin (%) Net Revenue (R$ MM) Adjusted EBITDA (R$ MM) Adj. EBITDA Margin (%) +5.0% 2.208 +4.8 p.p. 13.7% +14.3% 2.208 +4.8 p.p. 13.7% 2.104 8.8% 186 302 1.932 8.9% +62.5% +75.3% 172 302 2Q18 2Q18 3Q17 3Q17» Processed volumes up+6.3% in line with strategic guidelines to leverage GCC leadership» Better product mix, GCC pricing, Turkey and favorable currency allowed average price increase (+10.4%) offsetting grain inflation» Highlight: Turkey» Processed volumes up+19.0% in line with strategic guidelines to leverage GCC leadership» Better product mix, GCC pricing, Turkey and favorable currency allowed average price increase (+24.6%) offsetting grain inflation» Highlight: Saudi Arabia 17

International Segment Region still impacted by restrictions and excess of supply Volume 264 Thousand tons (Volume 3Q17 319 Thousand tons) Processed 18% (23%) Other 2% (9%)» Restructuring plan: divestment of assets located in Europe and Thailand Pork 12% (15%) Poultry 68% (52%) Challenging business environment 18

International Segment Region still impacted by restrictions and excess of supply 2Q18 x 3Q17 x Net Revenue (R$ MM) Adjusted EBITDA (R$ MM) Adj. EBITDA Margin (%) Net Revenue (R$ MM) Adjusted EBITDA (R$ MM) Adj. EBITDA Margin (%) 1.643 2Q18 +8.6% 1.784-2.2 p.p. 0,2% 3 (0,2%) -36 2Q18» Average sales price: +7.0%» Increased prices in Europe due to lower supply» Higher volumes in Africa» Domestic price recovery in Thailand -21.6% 2.274 1.784 3Q17» Average sales price: -5.2% 14.6% -16.6 p.p. 332 0.2% -36 3Q17» Volume restrictions in Europe and Russia» Deduction of anti-dumping measures in China» Oversupply in Japan 19

Southern Cone Processed 63% (67%) Volume 60 Thousand tons (Volume 3Q17 59 Thousand tons) Poultry 14% (12%) Pork 23% (20%) Adoption of IAS 29 Hyperinflationary Economies in 2018 cumulative inflation rate >100% in the last 3 years; definition determined by international accounting regulators companies start to treat their balance sheet in inflated currencies (remeasured by inflation). 20

Southern Cone 2Q18 x 3Q17 x Net Revenue (R$ MM) Adjusted EBITDA (R$ MM) Adj. EBITDA Margin (%) Net Revenue (R$ MM) Adjusted EBITDA (R$ MM) Adj. EBITDA Margin (%) 461-12.3% 404-0.8% +3.4 p.p. 2.5% 10 562-1.5% 554 1.4% 8 +0.4 p.p. +23.4% 1.8% 10-4 2Q18¹ ¹ 1 Adjusted by hyperinflation effects 2Q18¹ ¹ 3Q17 Ex-hyperinflation 3Q17 Exhyperinflation» Volumes: -0.7%» Average sales price: -11.7%» Better control of costs and expenses in the quarter» Volumes: +0.9% y/y» Average sales price: -2.4%» Better sales mix» Better efficiency in expense management 21

Working Capital 37,7 37,1 Financial Cycle (Clients + Inventories - Suppliers) Working Capital / NOR Financial Cycle * 32,8 22,4 32,9 38,2 42,4 31,8 35,7 32,6 35,9 11% 11% 9% 7% 9% 11% 12% 10% 10% 9% 10% 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18» Financial cycle: average of 37.2 days in : +2.5 days vs. 2Q18 average and -6.5 days vs. 3Q17 average» Higher working capital discipline» Financial cycle increase q-o-q: mainly due to the change of ~R$480 million in inventories:» Grain: +R$457 million» Festive products: +R$135 million» Finished products: +R$58 million» Frozen raw material: -R$104 million» Biological assets: -R$68 million» Outlook of inventory reduction in 4Q18 (seasonality) (*) End of period Note 1: As IAS-29 adoption in September 2018, there was a change in Financial Cycle of March 2018 of 35.6 days to 35.7 days and of June 2018 from 32.5 days to 32.6 days. 22

Free Cash Flow Free cash flow (FCFF, in R$ million) 1Q17 2Q17 3Q17 9M17 1Q18 2Q18 9M18 Adjusted EBITDA 570 704 939 2,213 801 371 604 1,775 Adjustments (63) (129) 136 (56) (24) (672) (189) (885) EBITDA 506 575 1.074 2.155 777 (301) 415 891 Working Capital (738) (319) (459) (1,516) (340) 188 (270) (422) Other (32) 243 (13) 198 (220) 262 (39) 3 Cash Flow from Operating Activities (264) 500 602 838 217 148 106 471 Capex (481) (457) (369) (1,307) (470) (378) (384) (1,232) M&A and Assets Sales 7 (523) (247) (763) 20 18 8 46 Cash Flow from Investing Activities (474) (981) (617) (2,072) (450) (360) (376) (1,186) Cash Flow from Operating Activities + Capex (745) 42 233 (470) (253) (229) (278) (760) Cash Flow from Financing Activities (862) (232) (144) (1,238) (5) 148 (48) 95 Free Cash Flow (1.599) (713) (158) (2,470) (238) (63) (318) (619)» Free Cash Flow: R$(318) million in» FCF 9M18 already 75% lower than 9M17» FCF mainly impacted by inventories» Up by R$457 million due to grain purchase (end of 2nd crop) 23

Indebtedness Financial Leverage (R$ million) Gross Debt R$22.7 billion 4,46x 4,44x 13.310 14.019 5,69x 15.696 6,74x 6.49x * 16.323 15,718* Exchange rate variation impact in Subsidized lines Agribusiness loans Other and tax incentives 23% 2% 2% 15% 58% Capital Markets Other currencies 56% BRL 44% Trade finance 4Q17 1Q18 2Q18 Net Debt Net Debt / Adj. Ebitda LTM * To FX = R$3,80/US$ Debt Profile Pro Forma² (R$ million) 4.004 1 R$5.0 bi Average Maturity: 3.5 years 11.533 6.368 239 4.714 2.484 3.082 Cash & Equivalents 2018 2019 2020 2021 2022+ (1) Revolving credit facility = US$1 billion (2) Includes Banco do Brasil refinancing 24

Q&A 25

IR Contacts: Elcio Ito CFO and Investor Relations Officer Eduardo Takeiti Investor Relations Director +55 11 2322 5377 acoes@brf-br.com 26