1Q18 Results May 11, 2018 Disclaimer This presentation may contain - - PowerPoint PPT Presentation

1q18
SMART_READER_LITE
LIVE PREVIEW

1Q18 Results May 11, 2018 Disclaimer This presentation may contain - - PowerPoint PPT Presentation

1Q18 Results May 11, 2018 Disclaimer This presentation may contain certain statements that express BRF S.A. (BRF) managements expectations, beliefs and assumptions about future events or results. Such statements are not historical facts


slide-1
SLIDE 1

1Q18 Results

May 11, 2018

slide-2
SLIDE 2

2

Disclaimer

This presentation may contain certain 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

  • f the industries in which BRF operates.

The verbs “anticipate”, “believe”, “estimate”, “expect”, “forecast”, “plan”, “predict”, “project”, “target” 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 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 government policies related to the domestic and foreign animal protein markets 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 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.

slide-3
SLIDE 3

3

Highlights

 +5.0% y/y in Net Operating Revenues, expansion of

gross margin by 1.1 p.p. y/y to 18.7% and one of the lowest LTM SG&A levels since 2014: 15.9%

 Increase in the number of points of sales in Brazil →

191,000 (+13.5% y/y)

 Adjusted EBITDA reached R$802MM → margin of 9.8%  Europe: none official publication yet published by the

European Commission. In 2017: volume to Europe

  • riginating from Brazil → 3-4% of total volume and 4-

5% of Net Operating Revenues

 Launching of campaigns: Qualy – “A Vida Mais Qualy”

and Perdigão – “É Brasa”

 Election of the Board of Directors → 10 members with a

mandate of 2 years; 6 new members and 4 with experience from previous mandates

1Q18 Volume | 1,225k tons

Poultry 46% Pork 6% Processed Foods 41% Others 7% Brazil 44% OneFoods 23% International 23% Southern Cone 5% Others 5%

(1Q17 Volume | 1,158k tons)

(7%) (43%) (42%) (7%) (7%) (43%) (17%) (29%) (5%)

slide-4
SLIDE 4

4

Consolidated Results

 9.9% growth in sales of In

Natura products and 1.0% growth in Processed Foods

 Free Cash Flow: (R$238) million

in 1Q18, an improvement of R$1,361 million

 CAPEX: R$467 million  Net Debt/Adjusted EBITDA LTM

= 4.44x

 Robust liquidity = R$7.3 billion

in cash + US$1.0 billion in revolver credit facility Indicators 1Q18 1Q17 Var. Volume (Ktons) 1,225 1,158 +5.7% Net Revenues (R$ MM) 8,203 7,809 +5.0% Gross Profit 1,537 1,376 +11.7% Gross Margin 18.7% 17.6% +1.1 p.p. EBIT (R$ MM) 296 68 333.4% EBIT Margin 3.6% 0.9% +2.7 p.p. EBITDA (R$ MM) 783 506 +54.8% EBITDA Margin 9.5% 6.5% +3.0 p.p. Adjusted EBITDA (R$ MM) 802 570 +40.7% Adjusted EBITDA Margin 9.8% 7.3% +2.5 p.p. Net Income (R$ MM) (114) (286) +60.2% Net Margin (1.4%) (3.7%) +2.3 p.p.

Highlights

slide-5
SLIDE 5

5

Poultry 25% Pork 5% Processed Foods 70%

1Q18 Performance – Brazil

 In Natura → +22.7% Processed

Foods → +4.7% y/y

 # Clients: 191,000 points of sales

(+13.5% y/y)

 45.7% market share, +1.1 p.p. y/y,

primarily in the self-service wholesale channel

Indicators 1Q18 1Q17 Var. Volume (Ktons) 545 498 +9.6% Net Revenues (R$ MM) 3,746 3,654 +2.5% Average Price (R$/kg) 6.87 7.34

  • 6.5%

Gross Profit 780 942

  • 17.2%

Gross Margin 20.8% 25.8%

  • 5.0 p.p.

EBIT (R$ MM) 155 307

  • 49.4%

EBIT Margin 4.1% 8.4%

  • 4.3 p.p.

EBITDA (R$ MM) 374 514

  • 27.2%

EBITDA Margin 10.0% 14.1%

  • 4.1 p.p.

Adjusted EBITDA (R$ MM) 351 496

  • 29.2%

Adjusted EBITDA Margin 9.4% 13.6%

  • 4.2 p.p.

1Q18 Highlights 1Q18 Volume | 545k tons

slide-6
SLIDE 6

6

142 126 130 120 121 131 147 126

2015 2016 2017 1Q17 2Q17 3Q17 4Q17 1Q18

Brazil | Portfolio and Sales Volume

 Higher sales volume of In Natura products

continued to pressure average price comparisons y/y Sell in – Processed Foods Volume (Ktons), avg./month Sell in – In Natura Volume (Ktons), avg./month

3.0% 4.7% 41 40 47 45 44 48 50 56

2015 2016 2017 1Q17 2Q17 3Q17 4Q17 1Q18

18.4% 22.5%

Portfolio vs. Average Price Evolution (NOR/kg)

7,34 7,13 6,97 7,19 6,87 364 361 393 443 376 134 134 146 148 169

2014 2015 2016 2017 1Q18 Processed Foods In Natura Average Price (NOR/kg)

498 495 539 590 545

slide-7
SLIDE 7

7

Price Index (PI) Evolution – Processed Foods* Price Index (PI) Evolution – Margarines

Source: BRF and Nielsen (*) Filled/ Frozen/ Cold Cuts

 +1.1 p.p. y/y increase in BRF market share  Price index detachment vs. largest

competitor

 Increase of number of clients in +23k

clients a/a, expanding distribution coverage

Brazil | Market Share and Price Index

CLIMOV Index: Number of Clients (000)

168 171 175 187 191

1Q17 2Q17 3Q17 4Q17 1Q18

13.5% 118% 113% 115% 113% 116%

100,0 97,0 96,0 94,0 96,0 1Q17 2Q17 3Q17 4Q17 1Q18

Relativity (%) Processed Foods PI* (100 basis) Share of Processed Food* 42.4% 43.5% 44.1% 44.4% 43.5%

137% 134% 129% 123% 127%

100,0 99,0 97,0 91,0 93,0 1Q17 2Q17 3Q17 4Q17 1Q18

Relativity (%) Margarines PI (100 basis) Share of Margarines 59.7% 59.1% 59.8% 60.2% 59.8%

slide-8
SLIDE 8

8  Ex-Banvit: strong margin expansion

and recovery

 Average prices in US$: +8.8% → best

supply-demand balance

 DDP Volume: 65.9% of total → +9.7%

y/y Indicators 1Q18 1Q18* 1Q17 Var.* Volume (Ktons) 277 199 222

  • 9.9%

Net Revenues (R$ MM) 1,838 1,334 1,316 +1.4%% Average Price (R$/kg) 6.63 6.70 5.94 +12.8% Gross Profit 380 317 213 +48.4% Gross Margin 20.7% 23.7% 16.2% +7.5 p.p. EBIT (R$ MM) 57 49 (44)

  • EBIT Margin

3.1% 3.7% (3.4%) +7.0 p.p. EBITDA (R$ MM) 157 113 21 +435.2% EBITDA Margin 8.5% 8.4% 1.6% +6.8 p.p. Adjusted EBITDA (R$ MM) 148 103 35 +199.0% Adjusted EBITDA Margin 8.0% 7.7% 2.6% +5.1 p.p.

1Q18 Volume | 277k tons

Poultry 87% Processed Foods 13%

* Pro forma ex-Banvit

1Q18 Highlights

1Q18 Performance – OneFoods

slide-9
SLIDE 9

9

1Q18 Performance – International

Indicators 1Q18 1Q17 Var. Volume (Ktons) 276 331

  • 16.7%

Net Revenues (R$ MM) 1,824 2,113

  • 13.7%

Average Price (R$/kg) 6.61 6.38 +3.6% Gross Profit 266 176 +51.1% Gross Margin 14.6% 8.3% +6.2 p.p. EBIT (R$ MM) 82 (44)

  • EBIT Margin

4.5% (2.1%) +6.6 p.p. EBITDA (R$ MM) 227 103 +119.7% EBITDA Margin 12.4% 4.9% +7.5 p.p. Adjusted EBITDA (R$ MM) 239 109 +119.7% Adjusted EBITDA Margin 13.1% 5.2% +8.0 p.p.

1Q18 Volume | 276k tons

Poultry 61% Pork 12% Processed Foods 19% Others 8%

1Q18 Highlights

 Adjusted EBITDA margin → 13.1%

(+8.0 p.p. y/y)

 Average prices in Reais: +3.6%,

(↑Europe/Africa and ↓Japan)

 Volume restrictions

slide-10
SLIDE 10

10

1Q18 Performance – Southern Cone

Indicators 1Q18 1Q17 Var. Volume (Ktons) 61 54 +13.2% Net Revenues (R$ MM) 592 527 +12.4% Average Price (R$/kg) 9.67 9.74

  • 0.8%

Gross Profit 60 59 +1.6% Gross Margin 10.2% 11.3%

  • 1.1 p.p.

EBIT (R$ MM) (16) (16)

  • 3.0%

EBIT Margin (2.7%) (3.0%)

  • 0.3 p.p.

EBITDA (R$ MM) 2 (3)

  • EBITDA Margin

0.3% (0.5%) +0.8 p.p. Adjusted EBITDA (R$ MM) 3 (2)

  • Adjusted EBITDA Margin

0.5% (0.4%) +0.9 p.p.

1Q18 Volume | 61k tons

Poultry 18% Pork 20% Processed Foods 62%

 DDP Volume: 61.5% of total  Volumes: +13.2% y/y, highest sale of

turkey to Chile

 21.8% depreciation of the Argentine

Peso (ARS) in 2018

 Higher raw material costs pressured

gross margin

1Q18 Highlights

slide-11
SLIDE 11

11

Market Scenario & Perspectives | Grains

 Consolidation of the crop failure in Argentina

  • vs. initial projection (24% corn and 34% soy)

 In Brazil, seasonal climate issues and exchange

rate volatility may impact grain prices

 Cost of feed in 2Q18 will be higher in the

annual and quarterly comparisons

 Potential USA-China relationship issues may

impact commodity prices Soy Meal – CBOT (US$/ton) Corn – BMF (R$/bag)

250 300 350 400

Jan-15 Mar-15 May-15 Jul-15 Sep-15 Nov-15 Jan-16 Mar-16 May-16 Jul-16 Sep-16 Nov-16 Jan-17 Mar-17 May-17 Jul-17 Sep-17 Nov-17 Jan-18 Mar-18 May-18 Jul-18 Sep-18 Nov-18

20 25 30 35 40 45 50

Jan-15 Mar-15 May-15 Jul-15 Sep-15 Nov-15 Jan-16 Mar-16 May-16 Jul-16 Sep-16 Nov-16 Jan-17 Mar-17 May-17 Jul-17 Sep-17 Nov-17 Jan-18 Mar-18 May-18 Jul-18 Sep-18 Nov-18

slide-12
SLIDE 12

12

Perspectives | Producer Spread vs. Placement

Source: SECEX, JOX, BM&F and APINCO; (*) chicken placement volumes in April 2018 are preliminary numbers (APINCO).

Spread of the Brazilian Producer Chicken Placement in Brazil| Monthly Chicken Production in Brazil| LTM

 Higher domestic supply and 14.5% y/y

reduction in average prices for whole chickens in 1Q18

 Slowdown of chicken placement levels by

1.3% y/y in 1Q18

  • 5%

0% 5% 10% 12,0 12,5 13,0 13,5 14,0 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18

Volume (million tons) Variation y/y (%)

  • 15%
  • 10%
  • 5%

0% 5% 10% 15% 450 470 490 510 530 550 570 590 jan/15 mar/15 mai/15 jul/15 set/15 nov/15 jan/16 mar/16 mai/16 jul/16 set/16 nov/16 jan/17 mar/17 mai/17 jul/17 set/17 nov/17 jan/18 mar/18

Volume* (thousand heads) Variation y/y (%)

Poultry price / Feed Cost Average

4 4,5 5 5,5 6 6,5 7 7,5 Mar-11 Sep-11 Mar-12 Sep-12 Mar-13 Sep-13 Mar-14 Sep-14 Mar-15 Sep-15 Mar-16 Sep-16 Mar-17 Sep-17 Mar-18

slide-13
SLIDE 13

13

Qualidade & Food Safety

Adequance of Quality and Food Safety Structure

▪ Centralization of Quality Regulatory

area:

✓ Agribusiness ✓ Factory ✓ Logistics ✓ Markets ▪ Specialization of factory quality: ✓ By protein ✓ By activity ✓ By factory ▪ International

Senior Technical Consultant dedicated for Food Safety;

▪ Ajusted and skilled teams for support.

Reorganization of Governance and Management of Indexes

▪ Formation of “Techinical Consultant

Committees” with KPIs management;

▪ External certifications and internal

audit in the chain with weekly management of KPIs deviations;

▪ IFS Certification for more than 50% of

third-parties / suppliers, expectative

  • f 100% up to December/18

▪ Partnerships

with institutions and research entities (Embrapa, USP, MAPA, etc.);

▪ Lower

  • ccurrence
  • f

container returns to below 0.7%, the best result compared to competition.

Consolidation of Quality Culture as Business Modeo

▪ Formation of Quality MBA in company

with 120 employees from several areas of BRF, 18-month program;

▪ BRF Representation at Food Safety

Conference and GFSI 2018;

▪ Closer

relationship between employees and clients: SAC VIVO;

▪ Sample Plan with statistic significance

and 14 million tests/month in our internal laboratories.

slide-14
SLIDE 14

1Q18 Financial Highlights

slide-15
SLIDE 15

15

Free Cash Flow & Working Capital

Free Cash Flow (FCFF, in R$ million)

1Q17 4Q17 1Q18 Cash Flow from Operating Activities (264) 1.027 215 Cash Flow from Investing Activities (474) (275) (448) Cash Flow from Financing Activities (862) 7 (5) Free Cash Flow (1,599) 758 (238) Ending Cash (liquidity) 8,148 7,434 7,274

 Financial cycle: average of 35.3 days in 1Q18

→ down by 2.8 days vs. average in 1Q17 and down by 3.9 days vs. average in 4Q17

 Free cash flow generation (FCFF) of (R$238)

million, improved by R$1,361 million y/y

 CAPEX discipline

Financial Cycle (Acc. Receivable + Inventories - Acc. Payable)

10,8% 10,8% 8,9% 6,8% 9,2% 11,2% 12,2% 9,6% 10,3% 37,7 37,1 32,8 22,4 32,9 38,2 42,4 31,8 35,6 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 Working Capital / NOR Financial Cycle* (*) End of period.

slide-16
SLIDE 16

16

7.274 4.045 5.070 1.491 124 9.583

Cash & Equivalents 2018 2019 2020 2021 2022+ Capital markets

Leverage & CAPEX

Real Other currencies

44% 56% 62%

Trade finance Other and tax incentives; 4% Agribusiness loans

10% 22%

Subsidized lines; 2%

Debt Profile (R$ MM)

Average Maturity: 3.1 years

CAPEX (R$ MM)

2.048 2.482 2.595 1.617 1.615

2014 2015 2016 2017 LTM1Q18

(*) Revolver = US$1 billion

3,500*

Financial Leverage (R$ MM)

12.243 13.310 14.019

4,73x 4,46x 4,44x 1Q17 4Q17 1Q18 Net Debt Net Debt / Adjusted EBITDA LTM

Debt Breakdown| R$21.3 Bn (March 31, 2018)

slide-17
SLIDE 17

1Q18 Q&A

slide-18
SLIDE 18

Investor Relations acoes@brf-br.com +55 11 2322 5377 ri.brf-global.com/en/