Marfrig reports record net profit of R$1.6 billion in 2Q20
- Free cash flow reaches R$3.3 billion
- All financial indicators improve, reflecting the company’s operational excellence
São Paulo, August 12, 2020 -- Marfrig (B3:MRFG3 and Level 1 ADR: MRRTY), the world’s largest beef patty producer and second largest beef producer, has just filed with the Securities and Exchange Commission of Brazil (CVM) its financial statements for the second quarter of 2020.
The second quarter was marked by new records set by the Company, supported by operating performance that significantly beat the industry average, and by the North and South America operations. Consolidated net revenue was R$18.9 billion in the period from April to June of this year, representing growth of 54% on the same period of 2019. Adjusted EBITDA surged 266%, going from R$1.1 billion in 2Q19 to R$4.1 billion this quarter. Adjusted EBITDA margin stood at 21.5% in the quarter, expanding 1,247 basis points. Net income in the period was R$1.6 billion, compared to R$87 million in 2Q19, for improvement of 1,743%. The numbers delivered, which far exceeded analysts’ expectations, were accompanied by free cash flow of R$3.3 billion.
Supported by strong cash generation, Marfrig’s leverage ratio, based on net debt and Adjusted EBITDA in the last 12 months, fell to its lowest level ever: 1.79x in U.S. dollar and 2.07x in Brazilian real. The US$500 million bridge loan was replaced with a term loan with maturity in 36 months and remuneration of Libor plus up to 4% per annum. After the transaction, Marfrig’s average debt term was lengthened to 4.4 years and long-term liabilities now represent 82% of total debt. “In such an atypical and challenging period, Marfrig demonstrated its capacity to operate the animal protein business,” said Marcos Molina dos Santos, Marfrig’s founder and chairman of the board. “We kept all our plants operational and increased productivity, while guaranteeing what we consider the most precious: the health and safety of our more than 32,000 employees.”
Marfrig has operations in North America, where it is the controlling shareholder of National Beef, the fourth largest beef company in the United States, and in South America, with 20 units located in Brazil, Argentina, Uruguay and Chile. The North America Operation mainly supplies the U.S. market and also is the country’s leading exporter of chilled beef to Asian countries, such as Japan and South Korea. The South America Operation is the largest beef exporter to the Chinese market, one of the world’s largest destinations for products.
In the second quarter of 2020, Marfrig’s two operations, which combined account for a privileged geographic configuration, delivered their best results ever.
NORTH AMERICA OPERATION
In terms of financial results, this was the best quarter ever for Marfrig’s North America Operation. The operation, led by National Beef, set new records for net revenue, EBITDA and margin. Net revenue was US$2.7 billion in the period, advancing 19% on 2Q19. Gross profit was US$687 million, 138.4% higher than in 2Q19. Adjusted EBITDA grew 170.3%, going from US$235 million to US$635 million. Adjusted EBITDA margin reached 23.7%, expanding 133 basis points on the prior-year quarter. As a result, in the quarter, the North America Operation accounted for 77% of Marfrig’s total net revenue and 86% of its consolidated EBITDA.
Underlying this result is the strength of the U.S. market which, due to the isolation imposed by the pandemic, registered growth in consumption and in end-consumer prices and a decline in cattle costs caused by the higher supply in the local market.
SOUTH AMERICA OPERATION
“Marfrig bought well, processed well and sold well. Our result is, in its essence, operational.” That is how the CEO of the South America Operation, Miguel Gularte, explains the company’s performance in the region in 2Q20. Net revenue from the South America Operation came to R$4.4 billion, growing 27.7% on 2Q19. Gross profit was R$802 million, nearly 103% higher than in 2Q19. Gross margin was 18.2%. Adjusted EBITDA was R$613 million, compared to R$216 million in the same period last year. Meanwhile, EBITDA margin stood at 13.9%, expanding 77 basis points.
One of the pillars supporting these results was precisely the operational advances that began to be implemented last year with the launch of the improvement and efficiency program. Under the program, from March to June 2020, the operation achieved gains in hindquarter and forequarter yields, declines in packaging cost per tonne, improvements in primary processing and deboning and reductions in fixed costs in Brazilian real per head processed.
With the largest number of plants authorized to export to China (13), Marfrig’s South America Operation earned 68% of its total revenue from exports, up from 52% last year. Approximately 65% of export revenue came from shipments to the Chinese and Hong Kong markets. “We are extremely well positioned to meet the needs of Asia, one of the world’s fastest growing markets,” said Gularte.
In Uruguay, the region’s second largest exporter, the highlight was the 33% increase in sales of organic products to NAFTA countries (United States, Mexico and Canada), which already represent 13% of total export volume.
Even during the covid-19 crisis, the South American Operation kept is units operating by adopting a strict safety protocol immediately after the World Health Organization declared a pandemic.
INNOVATION, SUSTAINABILITY & SOCIAL RESPONSIBILITY
While it worked to ensure its operational continuity and excellence, Marfrig also launched a number of other initiatives to reinforce its strategic pillars. To provide assistance to local communities, the company distributed millions of liters of alcohol gel, PPEs and food. It also donated 100,000 rapid covid-19 tests to the federal government in the first days of the crisis and pledged to test all its 18,000 employees in Brazil.
An investment of R$50 million was recently announced to increase credit and lengthen payment terms for small food service establishments, which is a sector that was hard hit by the restrictions imposed by the pandemic.
On the innovation pillar, the period highlight was the creation, in May, of a joint venture with U.S.-based ADM back. Christened PlantPlus Foods, the company will produce, distribute and sell plant-based products to the North and South America markets. With the move, Marfrig further consolidates its position in one of the world’s most growing food markets.
On the sustainability front, the company became a pioneer by announcing, in late June, a commitment to trace 100% of cattle acquired and to ensure production with zero deforestation production within 10 years. The Marfrig Verde+ Program, which was developed in partnership with the Sustainable Trade Initiative (IDH), also will work to foster the qualification and inclusion of cattle producers. At the same event, Marfrig announced investment of R$500 million in sustainability through 2030.