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BRF S.A. (BRFS)

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BRF-Brasil Foods S.A. (BRFS)

Q2 2018 Results Earnings Conference Call

August 10, 2018, 09:00 AM ET

Executives

Pedro Parente - Global CEO

Lorival Luz - Chief Financial & IR Officer

Analysts

Isabella Simonato - Bank of America

Victor Saragiotto - Credit Suisse

Lucas Ferreira - JPMorgan

Antonio Barreto - Itaú Corretora de Valores S.A.

Thiago Duarte - Banco BTG Pactual S.A.

Lucas Ferreira - J.P. Morgan

Antonio Barreto - Itaú BBA

Thiago Duarte - BTG Pactual

Presentation

Operator

Good morning, ladies and gentlemen. Welcome to BRF S.A. Conference Call to discuss the results of the Second Quarter of 2018. This call is being broadcast via Internet at our website www.brf-br.com/ir, where you will also find the company’s presentation for download.

[Operator Instructions]. Forward-looking statements about the company's business, perspectives, projections, results and growth potential are assumptions based on the management's expectations regarding the future of the company. Assumptions are highly dependent on market changes, on the country and industry's economic conditions and on international markets. Therefore, they are subject to change. As a reminder, this conference is being recorded. This conference will be presented by Mr. Pedro Parente, Global CEO and Mr. Lorival Luz Global VP, CFO IR officer.

Now we would like to turn the floor to Mr. Pedro Parente, who will start the presentation.

Pedro Parente

Good morning, everyone. First let’s start the presentation for the results of the second quarter of 2018. This is a quarter that has brought average challenge environment for the company, but as you all know this is not only for company but also for different industries and this is especially because of the truckers strike.

Now about our Company, this challenging environment also is also a result of a series of that really starting in December of 2017 by the Russian government measures banning imports of Brazilian protein. After that already in this quarter, the second quarter of 2018 there was another measure by the European Union de-listing 20 clients year-over-year in this our BRF plants. And in China, in June also in the same quarter, they have applied temporary anti doping tariffs over imports of Brazilian poultry meat [ph].

This protection and its measures do have an important impact on our operations. In the domestic markets, we then have a normal supply because of the banning of exports especially, banning coming from Europe and Russia. I have already mentioned the truckers strike. We’ll have more details about that later on. And also as we have informed, we have performed some adjustments in our production change so that we could adjust the demand level and that has the impact of some restructuring cost and also as you know there was an increase in growing [ph] cost that has also affected our gross margin.

But we do have here a scenario of opportunities to recover market and this is on the slide of the presentation and you might experience some delay when we change the slides, so please bear with us there and this happens in this type of conference. So as I said we have market recovery opportunities in Brazil. We may have a recovery of market prices of market – soft markets that reflect these supply adjustments. Also we had a market opening in South Korea, and also we have positive signs regarding the reopening of the Russian market to the Brazilian protein.

And now before turning to the main figures, and I think that in light of this challenging environment, one might ask if the goals that we have especially announced, and especially the one regarding leveraging, this could be harmed because of the figures that we are going to mention and I would like to say that we are working on the company, very much dedicated and since starting of May and June and we’ll have some special managers, drivers to generate value in the short time that will have a positive impact on our EBITDA. And that will be a little bit over BRL500 million for 2018, and over BRL1,200 million for the year 2019.

I will go into further details and also Lorival will talk more about those initiatives. Those plan of action that are totally, we have seen that the results are way beyond of what we can deliver, but we are working exactly to make sure that our leverage goals that have been announced in the beginning of July and also our divestments program and that has been maintained and the figures show an EBITDA, adjusted EBITDA for the second quarter of 2018 of BRL373 million, a figure that is lower than the second quarter of 2017, and we had non-adjusted EBITDA to the adjusted EBITDA, a different non-recurring factors that cause an impact. We’ll go into the details of the figures, but we just want to mention that non-recurring factors and also regarding operation dissection and the hedging of our debt also direct impact of the trucker’s striker. The truckers strike is still has indirect impact over the year, but here we have direct impact from this quarter and other factors that are less relevant.

We have had a net loss of BRL1,574 million that’s negative, the same factor, the non-recurring factors regarding the EBITDA now can be applied through our net income. In addition to that negative result of FX and the real depreciation, all this factors and in addition to all this also made us adjust our net income by this non-recurring factors and also because of the FX variation and we will then have adjusted loss of not BRL1.5 million, but rather BRL340 million still negative.

Read the rest of this transcript on seekingalpha.com