MARFRIG GENERATES POSITIVE FREE CASH FLOW OF R$84 MILLION IN 3Q14 São Paulo, November 13, 2014 – Marfrig Global Foods S.A. – Marfrig (BM&FBOVESPA NOVO MERCADO: MRFG3 and Level 1 ADR: MRTTY) announces today its results for the third quarter of 2014 (3Q14). Except where stated otherwise, the following operating and financial information is presented in nominal Brazilian real, in accordance with International Financial Reporting Standards (IFRS), and should be read together with the financial reports for the fiscal year ended September 30, 2014 filed at the Securities and Exchange Commission of Brazil (CVM). 3Q14 HIGHLIGHTS Total capital 520,747,405 shares Share price (Nov. 12, 2014) R$6,06/share Market cap (Nov. 12, 2014) R$3.156.000.000 Conference call with Webcast on Nov. 13, 2014 Portuguese: 9:00 a.m. (Brasilia) English: 11:00 a.m. (Brasilia) Dial-in from Brazil: +55 (11) 3193-1001 +55 (11) 2820-4001 English: 11:00 a.m. Dial-in for other countries: +1 (786) 924-6977 Investor Relations +55 (11) 3792-8600 [email protected] www.marfrig.com.br/ir All targets in our 2014 Guidance have been met, reinforcing the commitment we assumed in our Focus to Win strategy. Positive free cash flow of R$71 million in the year to date (R$84 million in 3Q14). We have delivered performance consistency straight quarters. operating for four The productivity agenda in Brazil has yielded savings in costs and expenses of over R$13 million (R$52 million on an annualized basis). Record-high exports at Marfrig Beef Brazil, corresponding to 45% of revenue, with strong position in markets with high beef demand. IR Contacts: Av. Chedid Jafet, 222 Bloco A - 5º andar - Vila Olímpia - São Paulo - SP – CEP: 04551-065 Tel: +55 (11) 3792-8600/8650 www.marfrig.com.br/ri e-mail: [email protected] Focus to Win 1 GUIDANCE 2014 YTD through 3Q14 2014 Target Range (1) % Achieved Net Revenue 15.1 21.0 – 23.0 72% - 66% Adjusted EBITDA Margin 8.2 7.5 – 8.5 109% - 96% % CAPEX 447 600 75% R$ million R$ million Free Cash Flow to Shareholders (2) 71 Breakeven to 100 R$ billion (1) Net Revenue in 2014 calculated in BRL based on the exchange rates of R$2.40/US$1.00 and R$3.80/£1.00. (2) Operating cash flow after investments, variations in working capital, interest expenses and income tax. IR Contacts: Av. Chedid Jafet, 222 Bloco A - 5º andar - Vila Olímpia - São Paulo - SP – CEP: 04551-065 Tel: +55 (11) 3792-8600/8650 www.marfrig.com.br/ri e-mail: [email protected] Focus to Win 2 OPERATING HIGHLIGHTS NET REVENUE Consolidated net revenue grows 6% from 3Q13 to R$5.2 billion: + 10% - 5% + 11% The strong export performance at Marfrig Beef Brazil and sales growth at Moy Park offset the slowdown in Brazil's domestic market and the impact of lower average prices at Keystone in the United States and APMEA (product mix). Adjusted EBITDA Consolidated adjusted EBITDA grew 16% vs. 3Q13 to R$435 million, with adjusted EBITDA margin of 8.3%. + 24% - 9% + 25% Export growth and operational efficiency gains at Marfrig Beef, combined with the better sales mix and lower production costs at Moy Park, offset the more challenging scenario faced by Keystone in the quarter. All divisions are maintaining adjusted EBITDA margins of over 7% in the year to date, reaffirming the Company's commitment of targeting higher profitability across all operations, accompanied by lower earnings volatility. 7.1% 7.1% 9.4% IR Contacts: Av. Chedid Jafet, 222 Bloco A - 5º andar - Vila Olímpia - São Paulo - SP – CEP: 04551-065 Tel: +55 (11) 3792-8600/8650 www.marfrig.com.br/ri e-mail: [email protected] Focus to Win 3 OPERATING HIGHLIGHTS Net Revenue Gross Income and Gross Margin (R$ million) (R$ million and %) + 6% SG&A and SG&A/NOR (R$ million and %) + 11% Adjusted EBITDA and Margin (R$ million and %) + 16% + 5% IR Contacts: Av. Chedid Jafet, 222 Bloco A - 5º andar - Vila Olímpia - São Paulo - SP – CEP: 04551-065 Tel: +55 (11) 3792-8600/8650 www.marfrig.com.br/ri e-mail: [email protected] Focus to Win 4 BALANCE SHEET HIGHLIGHTS Standard & Poor’s upgraded the corporate credit rating on the global scale of Marfrig and Moy Park to “B+” and reaffirmed Moy Park's standalone rating of “BB-”. Fitch Ratings upgraded Marfrig’s corporate credit rating on the global scale to “B+” with a stable outlook and also upgraded its national scale rating to BBB+(bra). The noncash impact on the Company's debt caused by local-currency depreciation does not affect the calculation of the financial leverage for bank financing and capital market transactions. Net debt of R$7.5 billion (US$3.1 billion), compared to R$6.7 billion (US$3.1 billion) in 2Q14. Shorter-dated debt remains at comfortable levels: 11.7% of total debt. Tax liabilities were renegotiated under the REFIS program, helping to reduce risks at the federal tax level and allowing the company to monetize approximately R$ 600 million over time. Positive free cash flow of R$84 million in the quarter and R$71 million in the year to date, in line with 2014 guidance. ANALYST ESTIMATES Broker BES BRADESCO BTG PACTUAL DEUTSCHE FATOR GBM HSBC ITAÚ JP MORGAN MORGAN STANLEY VOTORANTIM BOFA MERRILL LYNCH SHORE CAPITAL CONSENSUS Marfrig 3Q14 Net Revenue (R$ million) Adjusted EBITDA (R$ million) Adjusted EBITDA Margin (%) 5,171 5,118 5,248 5,263 5,378 5,376 5,293 5,011 5,293 5,244 5,369 5,300 5,508 5,275 5,239 409 421 436 411 425 432 410 394 424 387 448 427 404 418 435 7.9% 8.2% 8.3% 7.8% 7.9% 8.0% 7.7% 7.9% 8.0% 7.4% 8.3% 8.1% 7.3% 7.9% 8.3% IR Contacts: Av. Chedid Jafet, 222 Bloco A - 5º andar - Vila Olímpia - São Paulo - SP – CEP: 04551-065 Tel: +55 (11) 3792-8600/8650 www.marfrig.com.br/ri e-mail: [email protected] Focus to Win 5 Over 70 years of tradition and growth A leading food company in the United Kingdom Relationships with leading retailers and food service operators in the United Kingdom and continental Europe Unique and comprehensive poultry production platform with high quality standards Clear opportunities for growth and operational excellence to drive margin expansion IR Contacts: Av. Chedid Jafet, 222 Bloco A - 5º andar - Vila Olímpia - São Paulo - SP – CEP: 04551-065 Tel: +55 (11) 3792-8600/8650 www.marfrig.com.br/ri e-mail: [email protected] Focus to Win 6 OPERATING HIGHLIGHTS Net Revenue Gross Income and Gross Margin (R$ million) (R$ million and %) + 10% + 19% Adjusted EBITDA and Margin SG&A and SG&A/NOR (R$ million and %) (R$ million and %) + 12% + 24% IR Contacts: Av. Chedid Jafet, 222 Bloco A - 5º andar - Vila Olímpia - São Paulo - SP – CEP: 04551-065 Tel: +55 (11) 3792-8600/8650 www.marfrig.com.br/ri e-mail: [email protected] Focus to Win 7 Net Revenue: Net Revenue amounted to R$1,345 million in the quarter, advancing 10% from 3Q13 and 0.5% from 2Q14. Revenue growth in relation to 3Q13 was driven by: (i) the positive impact from exchange variation (7%); (ii) the consolidation of Marfrig’s European beef business into Moy Park, increasing sales by GBP8.5 million; and (iii) the stronger sales in the retail channel in the United Kingdom and Ireland, led by fresh products and the slight increase in convenience ready-to-eat and frozen coated poultry products. Results were partly offset by commodity input cost deflation, the strengthening of the GBP relative to the Euro reducing the GBP value of European revenues, and a modest decline in volumes sold in the European business. Compared to 2Q14, August tends to be atypical in terms of sales due to the summer holiday period in Europe. Gross Income and Gross Margin: Gross Income was R$144 million (gross margin of 10.7%), increasing 19% from R$121 million (gross margin of 9.9%) in 3Q13. The main factors contributing to margin expansion in relation to 3Q13 were: (i) the reduction in production and labor costs captured by the investments made in the Grantham Project; (ii) lower grain costs; and (iii) higher net revenue. Compared to 2Q14, gross Income declined 6% to R$153 million (margin of 11.4%), due to the follow factors: (i) higher outside meat costs; and (ii) lower Retail channel revenue driven by seasonal demand during the traditional UK holiday period of August coupled with the lower level of promotions at Key Accounts. Selling, General and Administrative Expenses: SG&A Expenses as a ratio of NOR in 3Q14 stood at 8.2%, compared to 8.0% in 3Q13 and 8.9% in 2Q14. The 20 bps increase compared to 3Q13 was driven by the higher freight expenses resulting from the consolidation at Moy Park of Marfrig's convenience beef business in Europe. Adjusted EBITDA and Adjusted EBITDA Margin: Adjusted EBITDA was R$96 million (margin of 7.1%), increasing 24% from R$78 million (margin of 6.4%) in 3Q13. Compared to 2Q14, adjusted EBITDA was virtually in line with the R$94 million (margin of 7.0%) posted in that quarter. IR Contacts: Av. Chedid Jafet, 222 Bloco A - 5º andar - Vila Olímpia - São Paulo - SP – CEP: 04551-065 Tel: +55 (11) 3792-8600/8650 www.marfrig.com.br/ri e-mail: [email protected] Focus to Win 8 Statement of Income Net Revenue COGS Gross Income SG&A Selling Administrative Adjusted EBITDA* Other Income/Expenses EBITDA GBP / BRL 3Q2014 R$ %NOR 1,344.6 100.0% (1,200.6) -89.3% 144.0 10.7% (109.8) -8.2% (68.6) -5.1% (41.2) -3.1% 95.9 7.1% (2.5) -0.2% 93.3 6.9% 3.80 2Q2014 R$ %NOR 1,338.2 100.0% (1,185.2) -88.6% 153.1 11.4% (118.6) -8.9% (78.5) -5.9% (40.1) -3.0% 93.7 7.0% (1.2) -0.1% 92.6 6.9% 3.75 Change ∆ Chg. $ Chg.% 6.4 0.5% (15.5) -1.3% (9.0) -5.9% 8.7 7.4% 9.8 12.5% (1.1) -2.8% 2.1 2.3% (1.3) -113.4% 0.8 0.8% 0.04 1.2% 3Q2013 R$ %NOR 1,221.7 100.0% (1,100.3) -90.1% 121.4 9.9% (98.0) -8.0% (61.3) -5.0% (36.7) -3.0% 77.6 6.4% (2.4) -0.2% 75.2 6.2% 3.55 Change ∆ Chg. $ Chg.% 122.9 10.1% (100.3) -9.1% 22.6 18.6% (11.8) -12.1% (7.3) -12.0% (4.5) -12.3% 18.2 23.5% (0.2) -6.8% 18.1 24.0% 0.25 6.9% (*) Excludes the effects from other operating income/expenses. Revenue, Volume and Average Price REVENUE (R$ MILLION) 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 909.3 400.2 362.1 147.0 128.2 35.2 93.0 1,037.5 435.4 455.1 147.0 982.9 427.4 468.4 87.1 148.9 36.6 112.2 1,131.8 464.1 580.6 87.1 1,049.4 428.2 534.8 86.3 172.3 36.0 136.3 1,221.7 464.2 671.2 86.3 1,147.9 482.0 583.0 82.9 184.5 37.2 147.3 1,332.4 519.3 730.3 82.9 1,151.4 485.0 571.2 95.2 169.9 43.6 126.2 1,321.3 528.6 697.4 95.2 1,174.0 489.3 595.8 88.8 164.3 47.6 116.7 1,338.2 536.9 712.5 88.8 1,186.2 488.3 608.2 89.6 158.5 46.0 112.4 1,344.6 534.3 720.7 89.6 VOLUME (‘000 TONS) 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 Domestic Market Fresh Meat Processed Products Other Exports Fresh Meat Processed Products TOTAL MOY PARK Fresh Meat Processed Products Other 127.6 38.6 30.3 58.8 27.7 5.1 22.6 155.4 43.7 52.9 58.8 131.0 40.2 38.6 52.2 29.1 5.6 23.5 160.1 45.8 62.2 52.2 120.9 35.7 39.0 46.2 32.2 3.6 28.6 153.2 39.3 67.7 46.2 124.7 36.3 42.7 45.8 35.0 3.6 31.4 159.7 39.9 74.1 45.8 126.3 37.7 39.4 49.1 31.1 3.6 27.5 157.4 41.3 66.9 49.1 125.8 38.5 42.6 44.7 32.2 3.8 28.4 157.9 42.3 70.9 44.7 123.7 38.2 42.8 42.7 33.9 3.6 30.4 157.7 41.8 73.2 42.7 AVERAGE PRICE (R$/KG) 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 Domestic Market Fresh Meat Processed Products Other Exports Fresh Meat Processed Products TOTAL MOY PARK Fresh Meat Processed Products Other 7.12 10.37 11.96 2.50 4.62 6.90 4.11 6.68 9.96 8.60 2.50 7.50 10.64 12.13 1.67 5.11 6.58 4.77 7.07 10.14 9.34 1.67 8.68 11.99 13.71 1.87 5.34 10.00 4.76 7.98 11.81 9.92 1.87 9.20 13.29 13.66 1.81 5.27 10.38 4.69 8.34 13.03 9.86 1.81 9.12 12.86 14.49 1.94 5.46 12.10 4.59 8.39 12.79 10.42 1.94 9.33 12.71 14.00 1.99 5.10 12.45 4.11 8.47 12.69 10.05 1.99 9.59 12.77 14.20 2.10 4.67 12.92 3.70 8.53 12.79 9.84 2.10 Domestic Market Fresh Meat Processed Products Other Exports Fresh Meat Processed Products TOTAL MOY PARK Fresh Meat Processed Products Other Chg.% 3Q14 / 2Q14 1.0% -0.2% 2.1% 0.9% -3.5% -3.3% -3.6% 0.5% -0.5% 1.2% 0.9% Chg.% 3Q14 / 3Q13 13.0% 14.0% 13.7% 3.8% -8.0% 27.9% -17.5% 10.1% 15.1% 7.4% 3.8% Chg.% 3Q14 / 2Q14 -1.6% -0.7% 0.6% -4.6% 5.5% -6.8% 7.1% -0.2% -1.3% 3.2% -4.6% Chg.% 3Q14 / 3Q13 2.3% 7.1% 9.8% -7.7% 5.3% -1.0% 6.1% 2.9% 6.3% 8.2% -7.7% Chg.% 3Q14 / 2Q14 2.7% 0.5% 1.5% 5.7% -8.5% 3.8% -10.1% 0.7% 0.8% -2.0% 5.7% Chg.% 3Q14 / 3Q13 10.5% 6.5% 3.6% 12.4% -12.7% 29.2% -22.3% 6.9% 8.2% -0.8% 12.4% IR Contacts: Av. Chedid Jafet, 222 Bloco A - 5º andar - Vila Olímpia - São Paulo - SP – CEP: 04551-065 Tel: +55 (11) 3792-8600/8650 www.marfrig.com.br/ri e-mail: [email protected] Focus to Win 9 Over 50 years of history Leading global supplier of products to the food service industry Over 30,000 clients in North America and APMEA Committed to the highest food safety and quality standards Long-standing history of innovation IR Contacts: Av. Chedid Jafet, 222 Bloco A - 5º andar - Vila Olímpia - São Paulo - SP – CEP: 04551-065 Tel: +55 (11) 3792-8600/8650 www.marfrig.com.br/ri e-mail: [email protected] Focus to Win 10 OPERATING HIGHLIGHTS Net Revenue Gross Income and Gross Margin (R$ million) (R$ million and %) - 5% - 13% 4,8% SG&A and SG&A/NOR Adjusted EBITDA and Margin (R$ million and %) (R$ million and %) - 6% - 9% 4,8% 4,8% IR Contacts: Av. Chedid Jafet, 222 Bloco A - 5º andar - Vila Olímpia - São Paulo - SP – CEP: 04551-065 Tel: +55 (11) 3792-8600/8650 www.marfrig.com.br/ri e-mail: [email protected] Focus to Win 11 Net Revenue: Keystone posted net revenue of R$1,412 million, down 5% on 3Q13. The lower revenue primarily reflects the commodity-based pricing model with several QSR clients in the United States, in which product prices reflect variations in input costs, and a shift in the product mix in the QSR channel in the United States. In APMEA, the sales mix was impacted by an incident involving a competitor food supplier to our main client in China, which forced us to immediately prepare to meet the shortfall created by the closure of said supplier's plants. As a result, 3Q14 presented atypical inventory levels of basic items for the higher production that became necessary, with this effort not yet reflected in sales. Note that this offsetting effect should be felt as of the fourth quarter. Sales volume in APMEA grew 6% vs. 3Q13, driven by the QSR channel in China and the Middle East, which was partially offset by the lower volumes in the United States due to fewer promotions for poultry and beef items in the QSR channel. Sales to Key Accounts in APMEA grew 25% over 3Q13, with particular strength in the domestic markets of China and South Korea as well as in the QSR and export market in Malaysia. Compared to 2Q14, net revenue was flat. In the United States, revenues from Key Accounts increased substantially due to higher seasonal volumes of proteins used as ingredients in soups / frozen entrées produced by clients, which offset the lower sales to our main client. Gross Margin: Gross Margin decreased 60 bps to 6.0%, compared to 6.6% in 3Q13. Gross margin in 3Q14 benefited from 10% lower feed costs in the United States, which mitigated the impact from the 13% increase in outside meat costs in the United States. Lower grain market prices also resulted in an unrealized mark-to-market loss of approximately US$2.3 million in the third quarter related to grain hedges through the end of the 4th quarter of 2014. Excluding this loss, gross margin would have been 6.3% in 3Q14, compared to 6.6% in 3Q13, a 30 bps decline. In APMEA, gross margin benefitted from the improved sales mix, with an increased share of higher-margin Key Accounts, as well as from lower raw material costs in China. Compared to 2Q14, gross margin increased 30 bps, from 5.7% to 6.0%. The Gross Margin improvement in 3Q14 was driven by lower outside meat and feed costs in the USA. IR Contacts: Av. Chedid Jafet, 222 Bloco A - 5º andar - Vila Olímpia - São Paulo - SP – CEP: 04551-065 Tel: +55 (11) 3792-8600/8650 www.marfrig.com.br/ri e-mail: [email protected] Focus to Win 12 Selling, General and Administrative Expenses: Reported SG&A expenses in the quarter were R$42 million or 3.0% of net revenue, a reduction of 6% from 3Q13 and an increase of R$21 million or 96% from 2Q14. SG&A expenses corresponded to 3.0% and 1.5% of net revenue in 3Q14 and 2Q14, respectively. The result of 1.5% of net revenue in 2Q14 was impacted by a “true-up” of accruals made during fiscal year 2013 and therefore is not directly comparable to the 3Q14 result. On an annualized basis, SG&A expenses in 3Q14 corresponded to between 2.5% and 3.0% of net revenue and therefore were in line with our expectations and represented one of the best ratios in the industry. ADJUSTED EBITDA and Adjusted EBITDA Margin: Adjusted EBITDA amounted to R$87million in 3Q14 (margin of 6.1%), compared to R$95 million in 3Q13 (margin of 6.4%). Excluding the mark-to-market effect mentioned previously, EBITDA margin would have been 6.5% this quarter. Compared to 2Q14, Adjusted EBITDA declined R$14 million (-14%) and Adjusted EBITDA Margin contracted 100 bps. Statement of Income 3Q2014 2Q2014 Change ∆ 3Q2013 Change ∆ R$ %NOR R$ %NOR Chg. $ Chg.% R$ %NOR Chg. $ Chg.% 1,412.3 100.0% 1,414.1 100.0% (1.8) -0.1% 1,482.7 100.0% (70.4) -4.7% (1,327.0) -94.0% (1,333.0) -94.3% 6.0 0.4% (1,385.2) -93.4% 58.2 4.2% 85.3 6.0% 81.0 5.7% 4.2 5.2% 97.4 6.6% (12.2) -12.5% (42.0) -3.0% (21.5) -1.5% (20.5) -95.5% (44.5) -3.0% 2.5 5.6% Selling (5.1) -0.4% (4.8) -0.3% (0.3) -7.0% (7.0) -0.5% 1.9 27.1% Administrative (36.9) -2.6% (16.7) -1.2% (20.2) -120.6% (37.5) -2.5% 0.6 1.6% Adjusted EBITDA* 86.6 6.1% 100.3 7.1% (13.8) -13.7% 95.4 6.4% (8.8) -9.2% Other Income/Expenses (3.3) -0.2% 7.5 0.5% (10.8) -143.6% 0.3 0.0% (3.6) -1299.4% EBITDA 83.3 5.9% 107.9 7.6% (24.6) -22.8% 95.6 6.5% (12.4) -12.9% USD / BRL 2.28 0.05 2.0% 2.29 (0.01) -0.6% Net Revenue COGS Gross Income SG&A 2.23 (*) Excludes the effects from other operating income/expenses. IR Contacts: Av. Chedid Jafet, 222 Bloco A - 5º andar - Vila Olímpia - São Paulo - SP – CEP: 04551-065 Tel: +55 (11) 3792-8600/8650 www.marfrig.com.br/ri e-mail: [email protected] Focus to Win 13 Revenue, Volume and Average Price REVENUE (R$ MILLION) 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 890.5 890.5 322.7 322.7 1,213.2 1,213.2 1,011.5 1,011.5 274.1 274.1 1,285.6 1,285.6 1,131.3 1,131.3 351.4 351.4 1,482.7 1,482.7 1,027.0 1,027.0 363.3 363.3 1,390.3 1,390.3 1,026.0 1,026.0 365.0 365.0 1,391.0 1,391.0 1,051.4 1,051.4 362.7 362.7 1,414.1 1,414.1 1,066.9 1,066.9 345.4 345.4 1,412.3 1,412.3 VOLUME (‘000 TONS) 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 KEYSTONE - USA Processed Products KEYSTONE - ASIA Processed Products TOTAL KEYSTONE FOODS Processed Products 202.9 202.9 36.2 36.2 239.1 239.1 211.2 211.2 33.7 33.7 244.9 244.9 214.0 214.0 35.7 35.7 249.7 249.7 210.1 210.1 36.2 36.2 246.3 246.3 206.1 206.1 35.8 35.8 241.9 241.9 210.7 210.7 37.4 37.4 248.1 248.1 213.3 213.3 37.9 37.9 251.2 251.2 AVERAGE PRICE (R$/KG) 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 KEYSTONE - USA Processed Products KEYSTONE - ASIA Processed Products TOTAL KEYSTONE FOODS Processed Products 4.39 4.39 8.92 8.92 5.07 5.07 4.79 4.79 8.14 8.14 5.25 5.25 5.29 5.29 9.84 9.84 5.94 5.94 4.89 4.89 10.04 10.04 5.64 5.64 4.98 4.98 10.20 10.20 5.75 5.75 4.99 4.99 9.70 9.70 5.70 5.70 5.00 5.00 9.11 9.11 5.62 5.62 KEYSTONE - USA Processed Products KEYSTONE - ASIA Processed Products TOTAL KEYSTONE FOODS Processed Products Chg.% 3Q14 / 2Q14 1.5% 1.5% -4.8% -4.8% -0.1% -0.1% Chg.% 3Q14 / 3Q13 -5.7% -5.7% -1.7% -1.7% -4.7% -4.7% Chg.% 3Q14 / 2Q14 1.2% 1.2% 1.5% 1.5% 1.3% 1.3% Chg.% 3Q14 / 3Q13 -0.3% -0.3% 6.2% 6.2% 0.6% 0.6% Chg.% 3Q14 / 2Q14 0.2% 0.2% -6.2% -6.2% -1.4% -1.4% Chg.% 3Q14 / 3Q13 -5.4% -5.4% -7.5% -7.5% -5.3% -5.3% IR Contacts: Av. Chedid Jafet, 222 Bloco A - 5º andar - Vila Olímpia - São Paulo - SP – CEP: 04551-065 Tel: +55 (11) 3792-8600/8650 www.marfrig.com.br/ri e-mail: [email protected] Focus to Win 14 One of the world's largest beef and lamb producers Strong expertise in supplying food service chains in Brazil Pioneer in new export markets Geographic diversification in South America helps mitigate sanitary risks Recognized for its quality meat IR Contacts: Av. Chedid Jafet, 222 Bloco A - 5º andar - Vila Olímpia - São Paulo - SP – CEP: 04551-065 Tel: +55 (11) 3792-8600/8650 www.marfrig.com.br/ri e-mail: [email protected] Focus to Win 15 OPERATING HIGHLIGHTS Net Revenue (R$ million) Gross Income and Gross Margin (R$ million and %) + 11% SG&A and SG&A/NOR (R$ million and %) + 14% Adjusted EBITDA and Margin (R$ million and %) + 5% + 25% IR Contacts: Av. Chedid Jafet, 222 Bloco A - 5º andar - Vila Olímpia - São Paulo - SP – CEP: 04551-065 Tel: +55 (11) 3792-8600/8650 www.marfrig.com.br/ri e-mail: [email protected] Focus to Win 16 Net Revenue: Net Revenue in 3Q14 was R$2,482 million, increasing 11% on 3Q13 (R$2,240 million) and 5% on 2Q14 (R$2,365 million). This good performance is explained by higher exports from Brazil, with 33% growth in fresh meat export revenue on 3Q13, and by the improvement in the operations in Uruguay and Chile(+9% vs. 3Q13), which combined more than offset the slower sales in Argentina (-17% vs. 3Q13) resulting from our reduced exposure to the country, where we currently operate only 2 production units (vs. 3 units in 3Q13). BRAZIL OPERATION – DOMESTIC MARKET: Net revenue from Brazil's domestic operations was R$1.088 billion, increasing 7% from 3Q13 (R$1.014 billion), mainly due to the 22% increase in sales volume, which was partially offset by 12% drop in prices in relation to 3Q13 due to the shift in the product mix, with more higher-value products directed to export markets. Brazil's domestic market poses a more challenging economic backdrop combined with higher raw material (cattle) costs. The gradual decline in household purchasing power driven by higher inflation and more restricted credit, coupled with the political and economic outlooks marked by uncertainty, had a negative impact on sales, especially sales to large retail clients. On the other hand, sales to the food service segment continued growing to already account for 33% of domestic revenue in Brazil, compared to 30% in 3Q13. In line with the strategy to increase our share of sales to this segment, we have been focusing on expanding our relationships with restaurant chains, hamburger shops and steakhouses, as shown by the partnerships signed recently with the chains Outback Steakhouse and Johnny Rockets to supply meat cuts and exclusive products. BRAZIL OPERATION – EXPORT MARKET: Net revenue from exports in Brazil was R$883 million, advancing 23% from 3Q13 (R$720 million), reflecting the 16% growth in fresh meat sales volume and 15% increase in average price compared to 3Q13. This performance is the result of the Company’s strategy to better balance its sales across markets by gradually increasing the share of exports to take advantage of the strong international demand for Brazilian beef; the BRL depreciation against the USD; the adverse scenario for important global exporters, such as the United States and Australia; Russia’s recent decision to authorize meat exports from a higher number of Brazilian plants; and the gradual increase in beef demand from Asia, particularly in China, which has increased its imports from Brazil. IR Contacts: Av. Chedid Jafet, 222 Bloco A - 5º andar - Vila Olímpia - São Paulo - SP – CEP: 04551-065 Tel: +55 (11) 3792-8600/8650 www.marfrig.com.br/ri e-mail: [email protected] Focus to Win 17 Our shift to a much larger share of exports in our Beef business in Brazil (45% in 3Q14, vs. 41% in 3Q13 and 33% in 3Q12) is underpinned by our positive view of the current supply and demand situation in the international market. The following chart presents the main destinations of exports by Marfrig Beef Brasil: Exports by destination (% of revenue) 1Q14 2Q14 3Q14 Europe Asia South/Central America Middle East Russia Other INTERNATIONAL OPERATIONS: The international operations posted net revenue of R$511 million, virtually flat (+1%) from 3Q13 (R$506 million). This performance is explained by our lower exposure to Argentina, which was offset by the good performance of our businesses in Uruguay and Chile. The growing difficulties imposed on Argentina's beef industry have led us to temporarily pare back our operations in the country, where we currently operate 2 units. Argentina's revenue contribution, which in 3Q13 accounted for 31% of revenue in the international operations, has fallen to 26%. On the other hand, our operations in Uruguay and Chile grew 9% vs. 3Q13, with advances in both sales volume and average price. Gross Income and Gross Margin: Gross income was R$420 million in 3Q14, increasing 14% from R$367 million in 3Q13 and 7% from R$391 million in 2Q14. Gross margin reached 16.9%, compared to 16.4% in 3Q13 and 16.5% in 2Q14. Profitability advanced despite the higher cattle acquisition costs in the quarter. The higher average prices practiced, especially in export markets, combined with the various initiatives implemented to increase profitability, especially at the units in Brazil. IR Contacts: Av. Chedid Jafet, 222 Bloco A - 5º andar - Vila Olímpia - São Paulo - SP – CEP: 04551-065 Tel: +55 (11) 3792-8600/8650 www.marfrig.com.br/ri e-mail: [email protected] Focus to Win 18 Selling, General and Administrative Expenses: SG&A Expenses as a ratio of NOR in the quarter stood at 8.4%, compared to 8.9% in 3Q13 and 9.7% in 2Q14. The decreases of 50 bps vs. 3Q13 and 130 bps vs. 2Q14 reflect the initial gains from the process to improve expense management launched in mid-2Q14 (Productivity Agenda Project), which this quarter already yielded initial savings of over R$13 million from the implementation of a series of initiatives at the units in Brazil. The Productivity Agenda Project in Brazil seeks to obtain annual cost and expense savings of at least R$30 million through initiatives such as: rigorous monthly budget with diminishing cost targets; better management of overtime, attendance and production shifts; restructuring of the sales/marketing team and redesign of current route grid; greater control of travel/transportation expenses; review and renegotiation of various contracts (outsourced services, leases, telecommunications and IT); review of the procurement/expense model with maintenance, laundry and uniforms; use of cheaper energy sources (steam) and reduction loss of temperature in cold storage. In this initial phase of the project, one of the main objectives is to increase the level of performance and optimize each production unit to meet the company’s internal benchmarks. In a subsequent phase, we will seek to meet even higher market benchmarks. Adjusted EBITDA and Adjusted EBITDA Margin: Adjusted EBITDA was R$253 million (margin of 10.2%), increasing 25% from R$202 million (margin of 9.0%) in 3Q13 and 24% from R$204 million (margin of 8.6%) in 2Q14. The higher sales volume coupled with the significant advances in the cost and expense management initiatives implemented, especially at Marfrig Beef Brazil, supported a 120 bps increase in adjusted EBITDA margin. IR Contacts: Av. Chedid Jafet, 222 Bloco A - 5º andar - Vila Olímpia - São Paulo - SP – CEP: 04551-065 Tel: +55 (11) 3792-8600/8650 www.marfrig.com.br/ri e-mail: [email protected] Focus to Win 19 Statement of Income 3Q2014 Net Revenue COGS Gross Income 2Q2014 Change ∆ 3Q2013 Change ∆ R$ %NOR R$ %NOR Chg. $ Chg.% R$ %NOR Chg. $ Chg.% 2,482.1 100.0% 2,365.3 100.0% 116.8 4.9% 2,239.7 100.0% 242.4 10.8% (2,062.4) -83.1% (1,974.5) -83.5% (87.9) -4.5% (1,872.3) -83.6% (190.1) -10.2% 419.7 16.9% 390.8 16.5% 28.9 7.4% 367.4 16.4% 52.3 14.2% (209.0) -8.4% (228.5) -9.7% 19.6 8.6% (199.9) -8.9% (9.0) -4.5% Selling (152.0) -6.1% (158.7) -6.7% 6.7 4.2% (147.0) -6.6% (5.0) -3.4% Administrative SG&A (57.0) -2.3% (69.8) -3.0% 12.8 18.4% (52.9) -2.4% (4.0) -7.6% Adjusted EBITDA* 252.9 10.2% 203.5 8.6% 49.4 24.3% 202.2 9.0% 50.7 25.1% Other Income/Expenses (35.1) -1.4% (24.2) -1.0% (11.0) -45.3% (7.2) -0.3% (27.9) -387.9% EBITDA 217.8 8.8% 179.3 7.6% 38.5 21.5% 195.0 8.7% USD / BRL 2.28 0.05 2.0% 2.29 2.23 22.8 11.7% (0.01) -0.6% (*) Excludes the effects from other operating income/expenses. Revenue, Volume and Average Price REVENUE (R$ MILLION) 1,970.9 1,088.4 748.2 108.8 231.4 882.5 730.8 60.7 90.9 511.2 260.6 191.2 8.5 Chg.% 3Q14 / 2Q14 6.3% -0.1% 1.0% -1.4% -2.6% 15.3% 22.1% -4.6% -12.1% 0.1% 24.3% 37.7% -8.2% Chg.% 3Q14 / 3Q13 13.7% 7.3% 38.4% -60.0% 14.9% 22.6% 33.3% -27.1% 3.6% 1.0% -11.7% -11.4% -56.1% 60.9 250.6 219.6 5.3 25.7 2,482.1 1,889.8 183.3 409.0 -1.0% -16.7% -16.7% 12.4% -21.4% 4.9% 8.5% -2.5% -6.1% 1.3% 18.8% 20.8% 11.0% 5.3% 10.8% 27.1% -51.7% 9.4% 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 MARFRIG BEEF - BRAZIL Domestic Market Fresh Meat Processed Products Lamb, Leather and Other Exports Fresh Meat Processed Products Lamb, Leather and Other MARFRIG BEEF - INTERNATIONAL OP. Domestic Market Fresh Meat Processed Products 1,579.2 1,029.0 559.6 281.4 188.1 550.2 334.1 98.3 117.8 544.7 294.5 220.3 19.3 1,488.5 953.4 494.8 276.3 182.3 535.1 342.7 105.3 87.1 549.4 302.8 221.6 19.5 1,733.6 1,014.0 540.7 272.0 201.4 719.6 548.5 83.3 87.8 506.2 295.1 215.7 19.3 1,825.1 1,033.1 603.4 209.8 220.0 792.0 612.9 70.5 108.6 430.6 234.0 182.0 11.8 1,645.1 936.6 629.3 121.3 186.0 708.4 561.0 54.2 93.2 430.2 196.0 137.3 11.4 1,854.7 1,089.1 741.1 110.3 237.7 765.6 598.5 63.7 103.5 510.6 209.6 138.9 9.2 Lamb, Leather and Other Exports Fresh Meat Processed Products Lamb, Leather and Other TOTAL MARFRIG BEEF Fresh Meat Processed Products Other 54.8 250.2 218.9 4.0 27.3 2,123.9 1,332.9 403.0 388.0 61.7 246.6 215.8 3.4 27.5 2,037.9 1,274.8 404.5 358.6 60.1 211.0 181.8 4.8 24.4 2,239.7 1,486.7 379.3 373.7 40.2 196.6 172.0 4.2 20.4 2,255.7 1,570.3 296.3 389.1 47.3 234.1 205.7 4.7 23.8 2,075.2 1,533.4 191.5 350.3 61.5 301.0 263.5 4.7 32.7 2,365.3 1,741.9 187.9 435.5 IR Contacts: Av. Chedid Jafet, 222 Bloco A - 5º andar - Vila Olímpia - São Paulo - SP – CEP: 04551-065 Tel: +55 (11) 3792-8600/8650 www.marfrig.com.br/ri e-mail: [email protected] Focus to Win 20 277.2 Chg.% 3Q14 / 2Q14 13.2% Chg.% 3Q14 / 3Q13 17.0% 200.5 79.6 9.8 16.0% 12.7% 21.5% 21.6% 18.5% -54.4% 94.2 72.0 55.1 111.1 76.8 63.1 17.9% 6.6% 14.6% 45.8% 6.4% 15.9% 3.9 11.9 54.1 4.6 12.3 75.7 2.8 10.8 72.4 -39.4% -12.1% -4.4% -57.3% -2.6% 7.4% 39.9 17.1 1.1 21.7 16.7 12.7 35.1 12.7 1.1 21.3 19.0 14.1 48.8 15.1 1.0 32.7 27.0 19.9 51.7 20.0 0.9 30.9 20.7 15.0 6.0% 32.0% -7.7% -5.6% -23.2% -24.3% 5.4% -12.7% -52.4% 26.7% 12.8% 10.4% 0.2 4.6 304.4 0.1 3.8 287.0 0.2 4.8 288.0 0.1 7.0 320.7 0.2 5.5 349.7 15.4% -20.8% 9.0% -16.1% 21.1% 14.9% 139.1 158.2 154.9 139.9 160.7 177.7 10.6% 12.4% 31.7 145.7 30.0 116.2 21.0 111.1 13.8 134.3 13.7 146.2 13.6 158.3 -1.0% 8.3% -54.7% 36.2% 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 MARFRIG BEEF - BRAZIL Domestic Market Fresh Meat Processed Products Lamb, Leather and Other Exports Fresh Meat Processed Products Lamb, Leather and Other 6.38 5.44 7.89 13.79 1.92 9.41 9.65 12.49 7.38 6.50 5.45 8.31 13.09 1.94 9.84 9.80 12.95 7.70 7.32 6.15 8.05 12.67 2.64 9.97 10.06 12.77 7.89 7.92 6.70 8.90 14.57 3.05 10.40 10.69 13.17 8.09 7.03 5.62 10.20 14.03 1.93 10.51 10.89 13.85 7.80 7.57 6.30 10.50 13.69 2.52 10.63 10.86 13.86 8.39 7.11 5.43 9.40 11.11 2.08 11.50 11.57 21.82 8.39 Chg.% 3Q14 / 2Q14 -6.1% -13.8% -10.4% -18.8% -17.4% 8.2% 6.6% 57.4% 0.0% Chg.% 3Q14 / 3Q13 -2.8% -11.7% 16.8% -12.3% -21.2% 15.3% 15.0% 70.8% 6.3% MARFRIG BEEF - INTERNATIONAL OP. Domestic Market Fresh Meat Processed Products Lamb, Leather and Other Exports Fresh Meat Processed Products Lamb, Leather and Other TOTAL MARFRIG BEEF Fresh Meat Processed Products Other 5.78 4.42 8.28 9.26 1.44 9.07 11.43 19.33 3.33 6.21 8.81 13.18 2.42 6.30 4.85 8.63 8.34 1.79 9.94 11.41 24.11 4.76 6.44 9.17 12.75 2.46 7.50 6.01 9.43 10.47 2.47 11.49 13.35 26.11 5.35 7.36 9.40 12.64 3.22 7.61 5.87 10.67 10.66 1.85 11.77 13.50 31.62 5.32 7.86 10.13 14.11 3.50 7.96 5.59 10.84 10.06 2.23 12.32 14.61 30.28 4.99 7.20 10.96 13.83 2.61 6.74 4.30 9.18 9.70 1.88 11.16 13.27 35.49 4.69 7.38 10.84 13.68 2.98 7.06 5.04 9.57 9.65 1.97 12.10 14.60 34.56 4.65 7.10 10.63 13.47 2.58 4.7% 17.3% 4.3% -0.5% 4.9% 8.4% 10.0% -2.6% -0.8% -3.8% -1.9% -1.5% -13.3% -6.0% -16.2% 1.5% -7.8% -20.1% 5.3% 9.4% 32.3% -13.0% -3.5% 13.1% 6.6% -19.7% VOLUME (‘000 TONS) 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 MARFRIG BEEF - BRAZIL 247.7 229.2 237.0 230.4 234.0 244.9 Domestic Market Fresh Meat Processed Products 189.2 70.9 20.4 174.8 59.5 21.1 164.8 67.2 21.5 154.3 67.8 14.4 166.6 61.7 8.6 172.9 70.6 8.1 Lamb, Leather and Other Exports Fresh Meat 97.9 58.5 34.6 94.2 54.4 35.0 76.2 72.1 54.5 72.1 76.1 57.4 96.3 67.4 51.5 Processed Products Lamb, Leather and Other MARFRIG BEEF - INTERNATIONAL OP. 7.9 16.0 94.2 8.1 11.3 87.3 6.5 11.1 67.4 5.4 13.4 56.6 Domestic Market Fresh Meat Processed Products Lamb, Leather and Other Exports Fresh Meat 66.7 26.6 2.1 38.0 27.6 19.1 62.4 25.7 2.3 34.4 24.8 18.9 49.1 22.9 1.8 24.4 18.4 13.6 Processed Products Lamb, Leather and Other TOTAL MARFRIG BEEF 0.2 8.2 341.9 0.1 5.8 316.4 Fresh Meat 151.3 Processed Products Other 30.6 160.1 AVERAGE PRICE (R$ / KG) IR Contacts: Av. Chedid Jafet, 222 Bloco A - 5º andar - Vila Olímpia - São Paulo - SP – CEP: 04551-065 Tel: +55 (11) 3792-8600/8650 www.marfrig.com.br/ri e-mail: [email protected] Focus to Win 21 CONSOLIDATED RESULTS 3Q2014 Net Revenue COGS Gross Income SG&A R$ %NOR 2Q2014 R$ %NOR Change ∆ Chg. $ Chg.% 3Q2013 Change ∆ R$ %NOR Chg. $ Chg.% 5,239.1 100.0% 5,117.6 100.0% 121.5 2.4% 4,944.1 100.0% 294.9 6.0% (4,590.1) -87.6% (4,492.7) -87.8% (97.4) -2.2% (4,357.9) -88.1% (232.2) -5.3% 649.0 12.4% 624.9 12.2% 24.1 3.8% 586.3 11.9% 62.7 10.7% (360.8) -6.9% (368.6) -7.2% 7.8 2.1% (342.4) -6.9% (18.4) -5.4% Selling (225.7) -4.3% (241.9) -4.7% 16.2 6.7% (215.2) -4.4% (10.5) -4.9% Administrative (135.1) -2.6% (126.6) -2.5% (8.5) -6.7% (127.2) -2.6% (7.9) -6.2% Adjusted EBITDA* 435.3 8.3% 397.5 7.8% 37.7 9.5% 375.2 7.6% 60.1 16.0% Other Income/Expenses (40.9) -0.8% (17.8) -0.3% (23.1) -129.9% (9.3) -0.2% (31.6) -340.4% EBITDA 394.4 7.5% 379.7 7.4% 14.6 3.9% 365.9 7.4% 28.5 7.8% Equity income (loss) (3.3) -0.1% (3.0) -0.1% (0.3) -9.8% (2.8) -0.1% (0.5) -16.1% Depreciation/Amortization (147.1) -2.8% (141.2) -2.8% (5.9) -4.2% (131.4) -2.7% (15.7) -12.0% Financial Result (718.1) -13.7% (306.3) -6.0% (411.8) -134.5% (481.1) -9.7% (237.0) -49.3% Financial Income and Expenses (491.9) -9.4% (316.5) -6.2% (175.4) -55.4% (352.3) -7.1% (139.5) -39.6% Exchange Variation (226.3) -4.3% 10.2 0.2% (236.5) -2323.3% (128.8) -2.6% (97.5) -75.7% (4.3) -0.1% (4.6) -0.1% 0.3 6.3% (3.3) -0.1% (1.1) -32.3% (478.5) -9.1% (75.4) -1.5% (403.1) -534.9% (252.7) -5.1% (225.8) -89.4% Non-controlling interest Net income before income and soc. contr. taxes Income and soc. contr. taxes Net Income 175.2 3.3% 20.3 0.4% 154.9 764.2% 58.6 1.2% 116.6 198.8% (303.3) -5.8% (55.1) -1.1% (248.2) -450.6% (194.1) -3.9% (109.2) -56.3% USD / BRL – Average 2.28 2.23 0.05 2.0% 2.29 (0.01) -0.6% USD / BRL – Final 2.45 2.20 0.25 11.3% 2.23 0.22 9.9% GBP / BRL – Average 3.80 3.75 0.04 1.2% 3.55 0.25 6.9% GBP / BRL – Final 3.98 3.77 0.21 5.5% 3.61 0.37 10.2% (*) Excludes the effects from other operating income/expenses. IR Contacts: Av. Chedid Jafet, 222 Bloco A - 5º andar - Vila Olímpia - São Paulo - SP – CEP: 04551-065 Tel: +55 (11) 3792-8600/8650 www.marfrig.com.br/ri e-mail: [email protected] Focus to Win 22 Financial Result: Excluding currency translation effects, the financial result was an expense of R$492 million, compared to the expense of R$316 million in 2Q14. The increase is explained by: the expense of R$93 million related to surcharges and interest arising from the renegotiation of federal tax liabilities under the REFIS program; the R$44 million gain from the mark-to-market adjustment of swap transactions (for more details see Note 32 to the 3Q14 Financial Statements) explained by the depreciation in the BRL against the USD in the period; and the full consolidation of the interest on the Moy Park bonds of approximately R$12 million in the period. Exchange variation generated a loss of R$226.3 million in the period, influenced by the non-cash effect from the higher gross debt due to the depreciation in the BRL against the USD (end of period). FINANCIAL INCOME AND EXPENSES (R$ million) FINANCIAL INCOME 3Q14 2Q14 3Q13 129.1 58.9 72.7 - Interest income, income from marketable securities 27.0 20.7 34.5 - Market transactions 89.0 33.6 34.6 - Other Income 13.1 4.6 3.6 FINANCIAL EXPENSES (621.0) (375.3) (425.0) - Interests Provisioned, debentures and lease (286.3) (279.6) (322.4) - Market transactions (132.8) (15.0) (53.3) - Bank fees, commissions, financ. disc. and other (201.9) (80.7) (49.3) EXCHANGE VARIATION (226.3) 10.2 (128.8) (718.1) (306.2) (481.1) NET FINANCIAL RESULT IR Contacts: Av. Chedid Jafet, 222 Bloco A - 5º andar - Vila Olímpia - São Paulo - SP – CEP: 04551-065 Tel: +55 (11) 3792-8600/8650 www.marfrig.com.br/ri e-mail: [email protected] Focus to Win 23 Net Income (Loss): The non-cash exchange variation loss in the period contributed to higher financial expenses and consequently increased the net loss in 3Q14, which amounted to R$303 million. 3Q13 4Q13 (83.4) 1Q14 2Q14 3Q14 Currency variation (R$226 MM) (55.1) (96.4) REFIS Expenses (194.1) (R$93 MM) - 56% (303.3) Gross Debt and Debt Profile: The leverage ratio (net debt/EBITDA LTM) ended the period at 4.84x, reflecting exclusively the non-cash impact from exchange variation, with the USD/BRL exchange rate ending 3Q14 at R$2.45/US$ compared to R$2.20/US$ at the end of 2Q14, which represents local-currency depreciation of 11% that impacts only the net debt in the ratio. The operating result has yet to capture a weaker R$ that occurred mainly at the end of the quarter, since the average exchange rate in 3Q14 was R$2.28/US$, virtually flat from R$2.23/US$ in 2Q14. It is important to note that the contracts of bank and market financing transactions include provisions that allow for excluding the effects of exchange variation from the calculation of the leverage ratio. The ratio excluding exchange variation ended 3Q14 at 3.64x (see note 32.6 to the financial statements). In our opinion, the leverage ratio calculated based on EBITDA in the last 12 months reflects a situation in which EBITDA growth has not yet fully capitalized on a weaker R$. In the last 12 months, the average exchange rate was R$2.29/US$, compared to the exchange rate at end of the 3rd quarter of R$2.45/US$ used to calculate debt. Therefore, in addition to the leverage ratio based on EBITDA LTM, we believe it is important to evaluate projected annualized EBITDA based on the 3Q14 result, IR Contacts: Av. Chedid Jafet, 222 Bloco A - 5º andar - Vila Olímpia - São Paulo - SP – CEP: 04551-065 Tel: +55 (11) 3792-8600/8650 www.marfrig.com.br/ri e-mail: [email protected] Focus to Win 24 indicating a significantly lower leverage ratio of 4.33x and closer to where business actually was. Another no less important aspect in this analysis is the Company’s debt profile, which today is structurally longer, with the first large maturity due only in 2018. Debt (R$ million) Marfrig’s debt in USD remained stable. Net Debt in USD IR Contacts: Av. Chedid Jafet, 222 Bloco A - 5º andar - Vila Olímpia - São Paulo - SP – CEP: 04551-065 Tel: +55 (11) 3792-8600/8650 www.marfrig.com.br/ri e-mail: [email protected] Focus to Win 25 Indicator LTM EBITDA 3Q14 2Q14 1,558.9 1,813.6 Net Debt / LTM EBITDA 4.84 3.71 Net Debt / Annualized Adj. EBITDA 4.33 4.23 Cash and Equiv./Short-Term Debt 2.47 2.52 Net Debt/Total Assets 0.37 x 0.37 x Current Liquidity * 2.18 2.18 Duration (months) 50 54 Avg. Cost (p.a.) 7.6% 7.0% Short-Term Debt (%) 11.7% 11.2% Long-Term Debt (%) 88.3% 88.8% Debt in R$ (%) 5.8% 4.1% Debt in other currencies (%) 94.2% 95.9% (*) Current Liquidity = Current Assets / Current Liabilities Maturity Schedule in 3Q14 (R$ million) 3.061 2.468 1.789 Short Term: R$1.2 billion 880 755 344 Cash 4Q14 2.352 1Q15 36 107 2Q15 3Q15 658 637 574 4Q15 2016 2017 2018 2019 2020 2021 Cash Flow: In 9M14, free cash flow was positive R$71 million, reaffirming our commitment to deliver positive cash flow for the year. In 3Q14, free cash flow was positive R$84 million, despite higher export volumes which demand higher working capital and payments/compensation related to the renegotiation of tax liabilities under REFIS. IR Contacts: Av. Chedid Jafet, 222 Bloco A - 5º andar - Vila Olímpia - São Paulo - SP – CEP: 04551-065 Tel: +55 (11) 3792-8600/8650 www.marfrig.com.br/ri e-mail: [email protected] Focus to Win 26 The improvement in working capital management, especially at Marfrig Beef Brazil, made a positive contribution to cash flow in the period. We focused on the line suppliers and shortened the receivable term from 28 days in 2Q14 to 27 in 3Q14. On the other hand, the line inventories increased by R$150 million, which was partially and temporarily impacted by the incident involving a competitor in China (higher inventory at Kesytone). The line “Other” increased R$192 million, mostly due to non-cash items related to market transactions, such as swap and commodity contracts. Cash Flow Bridge (R$ million) 232 501 192 33 463 336 (127) (150) (42) (252) (303) Net Income/ Loss Not Trade Inventories affecting account cash items receivables Trade account payables Other Taxes Op. Cash Flow before Investiments Capex Op. Cash Flow Financial expense 84 Free cash flow Free Cash Flow (R$ million) IR Contacts: Av. Chedid Jafet, 222 Bloco A - 5º andar - Vila Olímpia - São Paulo - SP – CEP: 04551-065 Tel: +55 (11) 3792-8600/8650 www.marfrig.com.br/ri e-mail: [email protected] Focus to Win 27 Capital Expenditure: Investment (R$ million) Investments in fixed assets 3Q14 2Q14 1Q14 4Q13 3Q13 119.3 172.7 139.0 236.1 204.7 Fixed Assets 75.0 130.8 95.5 192.8 165.7 Breeding stock 44.3 41.9 43.5 43.3 39.0 8.0 4.1 3.6 3.3 3.2 127.3 176.8 142.6 239.4 207.9 Investments in intangible assets Total investment in the period IR Contacts: Av. Chedid Jafet, 222 Bloco A - 5º andar - Vila Olímpia - São Paulo - SP – CEP: 04551-065 Tel: +55 (11) 3792-8600/8650 www.marfrig.com.br/ri e-mail: [email protected] Focus to Win 28 FINAL REMARKS CONSOLIDATED RESULTS We are on track to delivering our 2014 guidance, which is an important milestone for Marfrig and for our shareholders. We delivered another quarter of steady performance that included: (i) an undivided commitment to Free Cash Flow (FCF); (ii) a totally re-designed debt maturity profile (with the first material maturity only in 2018); and (iii) improved operating performance. All businesses posted EBITDA margins above 7% in the year to date, which has allowed the group to stay on the high end of its 2014 EBITDA target margin. The business portfolio is well positioned to capture this unique high margin/price environment in the animal protein industry, which is further supported by a potentially stronger dollar in the near future. MARFRIG BEEF The world needs beef and we are well positioned (world's third-largest beef producer) to capture this opportunity. Our shift to a much higher share of exports in our Beef business in Brazil (45% in 3Q14, vs. 41% in 3Q13 and 33% in 3Q12) is underpinned by our belief in the current supply and demand situation in the international market. We believe there are plenty of opportunities to improve results further, especially in terms of FCF and margin. We assumed a commitment to a serious productivity agenda at Marfrig Beef Brazil, which is starting to pay off, as seen in this quarter with the improvement in cost management. Note that the same productivity agenda is being rolled out in Uruguay, Argentina and Chile. The gains captured in the third quarter signal a good probability of delivering annual cost savings (in Brazil alone) greater than the initial target of R$30 million. Uruguay continues to post strong results, but we believe the best is yet to come in the fourth quarter of the year. We do not see any short term concerns, with cattle prices most likely remaining under pressure, but with relatively strong international demand helping to keep domestic margins at reasonable levels. IR Contacts: Av. Chedid Jafet, 222 Bloco A - 5º andar - Vila Olímpia - São Paulo - SP – CEP: 04551-065 Tel: +55 (11) 3792-8600/8650 www.marfrig.com.br/ri e-mail: [email protected] Focus to Win 29 KEYSTONE FOODS Our further processing operations in the US will benefit as meat costs are moving toward seasonal lows. Lower grain costs are flowing through our integrated operations in the US leading to improved cost. We have secured new volumes in APMEA and expect to see an impact in Q4 2014 as consumer confidence begins to return. We are focused on managing costs and expect to drive SG&A savings in the 4th quarter. We expect growth in EBITDA in the 4th quarter due to improving market dynamics in both the US and Asia. MOY PARK The fourth quarter should be strong, with turkey sales adding to the bottom line and a better grain environment. We will also focus more intensely on SG&A expenses, but while keeping an eye on making good inroads in terms of innovation and service quality. Moy Park is an unquestionable growth story. Annual sales increased from GBP 800 million in 2008 (at the time of its acquisition by Marfrig) to approximately GBP 1.45 billion estimated for 2014, which confirms the enormous potential of the European market, which remains promising. CAPITAL STRUCTURE Our operating performance has not yet benefitted from the stronger dollar, but the fourth quarter will hopefully provide some signs of this. In 2015, if market conditions permit, we will carry out Moy Park’s IPO. FINAL REMARKS We will remain very focused on our full-year results. We want to finish 2014 with strong operating performance and meeting all targets in our 2014 guidance. We see ourselves as a multi-year deleveraging story marked by (i) improved operating performance; (ii) lower interest expenses (and consequently expanding FCF); and (iii) attracting equity through the subsidiaries to accelerate debt reduction in absolute terms. It is important to say that #(ii) is helped by #(iii). IR Contacts: Av. Chedid Jafet, 222 Bloco A - 5º andar - Vila Olímpia - São Paulo - SP – CEP: 04551-065 Tel: +55 (11) 3792-8600/8650 www.marfrig.com.br/ri e-mail: [email protected] Focus to Win 30 NEXT STEPS: 1. Continue expanding margins by fully capitalizing on the current positive trends in the animal protein industry. 2. Share our two-year plan (part of our current Focus to Win strategy), which will set more comprehensive targets that will enable a better assessment of the Group’s operating performance and capital structure. 3. We are planning a Marfrig Day event in the first half of 2015 to share management's views for the next two years, culminating in January 2017. On that occasion, the BNDES will convert its R$ 2.1 billion mandatory convertible bond into equity, which should provide annual cash flow relief of around US$100 million (based on the exchange rate of R$2.50/US$), representing another concrete step towards strengthening our capital structure. 4. Management, across all businesses, remains highly committed and aligned to improving current performance. Worth sharing that management 2014 current variable compensation program, is tied up to meeting our 2014 guidance. We are on track. IR Contacts: Av. Chedid Jafet, 222 Bloco A - 5º andar - Vila Olímpia - São Paulo - SP – CEP: 04551-065 Tel: +55 (11) 3792-8600/8650 www.marfrig.com.br/ri e-mail: [email protected] Focus to Win 31 EARNINGS CONFERENCE CALL Date: November 13, 2014 Portuguese: 9:00 a.m. (Brasília) / 6:00 a.m. (US EDT) / 11:00 a.m. (GMT) English: 11:00 a.m. (Brasília) / 10:00 a.m. (US EDT) / 2:00 p.m. (GMT) Dial-in from Brazil: +55 (11) 3193-1001 / 2820-4001 Dial-in from other countries: +1 (786) 924-6977 Code: Marfrig Live audio webcast with slide presentation. Replay available for download on our website: www.marfrig.com.br/ri ABOUT MARFRIG Marfrig Global Foods is a global food company operating in the food service, retail and export segments that offers innovative, safe and healthy food solutions to its clients. With a diversified and comprehensive product portfolio, the Company is committed to excellence and quality and to ensuring the presence of its products in the largest restaurant chains and supermarkets, as well as consumers' homes, in over 110 countries. IR Contacts: Av. Chedid Jafet, 222 Bloco A - 5º andar - Vila Olímpia - São Paulo - SP – CEP: 04551-065 Tel: +55 (11) 3792-8600/8650 www.marfrig.com.br/ri e-mail: [email protected] Focus to Win 32 DISCLAIMER This material is a presentation of general information about Marfrig Global Foods S.A. and its consolidated subsidiaries (jointly the “Corporation”) on the date hereof. The information is presented in summary form and does not purport to be complete. No representation or warranty, either expressed or implied, is made regarding the accuracy or scope of the information herein. Neither the Company nor any of its affiliated companies, consultants or representatives undertake any responsibility for any losses or damages arising from any of the information presented or contained in this presentation. The information contained in this presentation is up to date as of September 30, 2014, and, unless stated otherwise, is subject to change without prior notice. Neither the Corporation nor any of its affiliated companies, consultants or representatives have signed any commitment to update such information after the date hereof. This presentation should not be construed as a legal, tax or investment recommendation or any other type of advice. The data contained herein were obtained from various external sources and the Corporation has not verified said data through any independent source. Therefore, the Corporation makes no warranties as to the accuracy or completeness of such data, which involve risks and uncertainties and are subject to change based on various factors. This presentation includes forward-looking statements. Such statements do not constitute historical fact and reflect the beliefs and expectations of the Corporation’s management. The words “anticipates,” “hopes,” “expects,” “estimates,” “intends,” “projects,” “plans,” “predicts,” “projects,” “aims” and other similar expressions are used to identify such statements. Although the Corporation believes that the expectations and assumptions reflected by these forwardlooking statements are reasonable and based on the information currently available to its management, it cannot guarantee results or future events. Such forward-looking statements should be considered with caution, since actual results may differ materially from those expressed or implied by such statements. Securities are prohibited from being offered or sold in the United States unless they are registered or exempt from registration in accordance with the U.S. Securities Act of 1933, as amended (“Securities Act”). Any future offering of securities must be made exclusively through an offering memorandum. This presentation does not constitute an offer, invitation or solicitation to subscribe or acquire any securities, and no part of this presentation nor any information or statement contained herein should be used as the basis for or considered in connection with any contract or commitment of any nature. Any decision to buy securities in any offering conducted by the Corporation should be based solely on the information contained in the offering documents, which may be published or distributed opportunely in connection with any security offering conducted by the Company, depending on the case. IR Contacts: Av. Chedid Jafet, 222 Bloco A - 5º andar - Vila Olímpia - São Paulo - SP – CEP: 04551-065 Tel: +55 (11) 3792-8600/8650 www.marfrig.com.br/ri e-mail: [email protected] Focus to Win 33 BALANCE SHEET (R$ million) ASSETS Sep/14 Jun/14 CURRENT ASSETS LIABILITIES Sep/14 Jun/14 CURRENT LIABILITIES Cash and cash equivalents 848,775 644,636 Marketable securities 2,212,689 2,012,407 Accounts receivable from domestic clients 1,008,653 Trade accounts receivable – intern. clients 1,856,627 1,765,099 Accrued payroll and related charges 357,158 339,833 955,544 Taxes payable 200,120 147,763 633,888 690,674 Loans and financing 1,106,807 972,848 2,050,257 1,866,702 59,696 47,883 441,020 386,168 1,817,574 1,185,618 Prepaid expenses 150,033 140,380 Notes receivable 70,278 92,185 Advances to suppliers 58,291 68,367 Other receivables 78,219 63,936 9,369,677 8,106,615 Inventories Biological assets Recoverable taxes Suppliers Leasing payable Notes payable 189,162 85,909 Prepaid accounts from clients 233,307 144,730 Interest on Debentures - Convertible 135,010 81,115 Other payables 152,162 125,851 4,290,048 3,711,031 9,358,579 8,336,305 LONG-TERM LIABILITIES Loans and financing Leasing payable LONG TERM RECEIVABLES Marketable securities Demand deposits Notes receivable Deferred taxes Recoverable taxes Other receivables 985 1,000 65,111 72,902 293,738 219,795 1,594,912 1,535,072 973,550 972,362 38,548 29,804 2,966,844 2,830,934 81,803 89,557 Taxes payable 695,315 189,788 Deferred taxes 633,236 619,599 Provisions Notes payable Mandatory convertible instruments Other 35,779 31,397 285,507 216,721 2,118,100 2,114,730 120,955 107,463 13,329,274 11,705,561 105,658 92,294 Share Capital 5,276,678 5,276,678 Share issue expenses (108,210) (108,210) 184,642 184,642 NON-CONTROLLING INTEREST CONTROLLING SHAREHOLDERS' EQUITY PERMANENT ASSETS Investment Property, plant and equipment Biological assets Intangible Assets TOTAL ASSETS 43,762 41,875 4,798,308 4,658,184 123,304 112,140 Capital reserve Profit reserves Other comprehensive income 2,871,540 2,691,461 Accumulated losses 7,836,914 7,503,661 Net Income for the period 20,173,436 18,441,210 TOTAL LIABILITIES 36,152 35,774 (225,296) (42,198) (2,260,696) (2,262,856) (454,814) (151,504) 2,448,455 2,932,325 20,173,436 18,441,210 IR Contacts: Av. Chedid Jafet, 222 Bloco A - 5º andar - Vila Olímpia - São Paulo - SP – CEP: 04551-065 Tel: +55 (11) 3792-8600/8650 www.marfrig.com.br/ri e-mail: [email protected] Focus to Win 34 CASH FLOW (R$ million) 1Q14 2Q14 3Q14 Net income (96,4) (55,1) (303,3) Non Cash Items 424,4 427,0 501,0 Depreciation & Amortization 141,7 141,2 147,1 Foreign Exchange Variation 31,0 (10,2) 226,3 Accrued Interest Expenses 250,1 231,7 253,6 6,0 3,0 3,3 (4,4) 61,3 (129,2) 128,3 185,1 40,8 Clients Account Receivables 261,3 (17,2) 232,5 Stocks & Biologic Assets (99,0) (26,4) (149,8) Suppliers & Advancements (34,0) 228,8 (41,8) (48,8) (179,6) 224,9 Other (10,8) (127,6) 192,0 Current and deferred taxes (38,0) (52,0) 32,9 407,5 377,4 463,4 (142,6) (176,9) (127,3) 264,9 200,6 336,1 (248,6) (230,3) (252,1) 16,3 (29,7) 84,0 Equity Earning/Loses Other Working Capital Variation Other Working Capital Variation Operational Cash Flow Before CAPEX CAPEX Operational Cash Flow Financial Revenues/Expenses Free Cash Flow IR Contacts: Av. Chedid Jafet, 222 Bloco A - 5º andar - Vila Olímpia - São Paulo - SP – CEP: 04551-065 Tel: +55 (11) 3792-8600/8650 www.marfrig.com.br/ri e-mail: [email protected] Focus to Win 35
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