Marfrig has its best first quarter ever with net revenue of r$13.5 billion and net margin of 9.1%
- Net revenue advanced 26.6% on the same quarter last year
- Adjusted EBITDA reached R$1.2 billion in the period
- Record reduction in financial expenses and record-low debt cost
São Paulo, May 18, 2020 -- Marfrig (B3: MRFG3 and Level 1 ADR: MRRTY), one of the world’s leading beef producers and the world’s largest beef patty producers, submitted today to the Securities and Exchange Commission of Brazil (CVM) its financial statements for the first quarter of 2020.
In an extremely challenging global scenario adversely affected by the impacts from the COVID-19 pandemic, Marfrig registered some of the best financial results in its history. Net revenue reached R$13.5 billion, advancing 26.6% on the same quarter of 2019. The factors that led to this growth include the 65% expansion in exports from the South America Operation exports (comprising Brazil, Argentina, Uruguay and Chile) and the performance of the North America Operation, represented by National Beef.
Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) in 1Q20 came to R$1.2 billion, representing growth of 109% on the first quarter of 2019. Adjusted EBITDA margin stood at 9.1%, up from 5.5% in 1Q19. Net income (continuing operations, excluding the non-recurring financial expense of R$169 million) amounted to R$32 million.
“Despite all the challenges posed by the tragic COVID-19 pandemic, Marfrig has demonstrated operational excellence and the strong bonds of trust it enjoys with its global clients,” said Marcos Molina dos Santos, founder and chairman of the board. “The numbers we delivered in these initial months of 2020 are the fruit of much hard work to boost productivity, drive innovation and ensure financial discipline.”
Focus, Simplicity, Operational Excellence and Lower Financial Costs
In January this year, as part of the plan to deleverage and to reduce financial expenses, Marfrig prepaid, using own funds, US$446 million in Senior Notes due in 2023 with interest of 8% p.a. Simultaneously, it settled an amount corresponding to R$938 million in working capital operations and reduced by R$616 million its federal tax liabilities. As a result, the company’s average borrowing cost fell to 5.8% p.a., its lowest level ever. Financial leverage, measured in U.S. dollar, stood at 2.84 times the ratio of net debt to EBITDA in the last 12 months.
In addition to its liability management actions, which, combined with the settlement of working capital operations, resulted in a R$135 million reduction in interest expenses in the quarter, Marfrig carried out a series of measures to simplify and streamline its operations, which included dissolving the holding company. As a result, Miguel Gularte, CEO of the South America Operation, and Tim Klein, CEO of the North America Operation, now report directly to their respective board of directors.
On the operating front, various actions to capture operating efficiency gains were carried out, especially in Brazil. Units with low productivity, such as the Tucumã Unit in Pará state, were shut down, with their production transferred to plants with higher economies of scale, such as the Várzea Grande Unit in Mato Grosso state.
North America Operation
In 1Q20, the North America Operation posted its best performance ever, with net revenue growing by 7.5% on the prior-year quarter to US$2.2 billion (R$9.7 billion) to account for 72% of Marfrig’s total sales. “The result reflects various market factors, including the solid demand for beef in the domestic market, the higher cattle supply and consequent growth in primary processing, and the higher sales volume of ready-to-eat products in the U.S. market,” said Tim Klein, CEO of the operation.
Gross income came to US$229 million (R$1.1 billion), up 29.1% on 1Q19, while gross margin expanded to 10.5%, from 8.7% in 1Q19. Adjusted EBITDA also set a new record, of US$175 million (R$812.2 million), with record margin of 8% in USD (8.3% in BRL).
South America Operation
In 1Q20, the South America Operation delivered record higher operational results. Net revenue was R$3.8 billion, advancing 26.1% on 1Q19, led by the strong growth in exports of 65%.
The majority of exports were shipped to China and Hong Kong. “Marfrig is the company with most plants authorized to export to China and that played a big role,” said Miguel Gularte, CEO of the South America Operation. “Another important factor is our long-term relationships based on trust with our clients in these markets. When the coronavirus crisis began to abate in China, we benefitted.” Exports currently account for 60% of the operation’s total revenue, compared to 45% in 1Q19.
The main financial highlight in South America in the quarter was the expansion in EBITDA margin, which stood at 12.3%, compared to 3.5% in the first quarter last year. Adjusted EBITDA was R$464 million, growing by 345% on the year-ago quarter.
Net Revenue 1Q19 – 10.67 billion
In March, when the COVID-19 outbreak started to spread in the Americas, Marfrig rolled out a contingency plan to simultaneously safeguard the safety and health of its more than 30,000 employees and keep all its units operating. Hygiene and physical distancing protocols were adopted, following the guidelines of the World Health Organization and local health authorities.
Marfrig also started making contributions to the fight against the coronavirus and to communities near its operating sites. The company donated 100,000 rapid COVID-19 tests to the Ministry of Health. It started producing, at its unit in Promissão, São Paulo, 100 million tons/month of alcohol hand sanitizer gel, which was distributed to plants as well to hospitals and charitable organization in the municipalities where it operates. Approximately R$8 million worth of beef is being donated to employees. In Uruguay, baskets of food staples are being donated. Recently, Marfrig donated R$1 million and baskets of food staples to the hospital ship maintained by Franciscan monks in the Amazonia. The vessel provides healthcare to some 1,000 riverside communities in the region.