apresentação do powerpointir.marfrig.com.br/upload/arquivos/3561_3q14_result...

1Focus to Win

FOCUS TO WIN

3Q14

Earnings

2Focus to Win

Key Accomplishments in 3Q14

• All targets in our 2014 guidance have been met, reaffirming the commitmentwe assumed in our Focus to Win strategy.

• Positive free cash flow of R$71 million in 9M14 (R$84 million in 3Q14).

• We have delivered operating performance consistency for four straight

quarters.

• The Productivity Agenda Project in Brazil has yielded savings in costs andexpenses 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.

3Focus to Win

Note:

(1) 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.

Financial Targets|Consolidated

21.0 – 23.0

2014

Target Range (1)

7.5 – 8.5

%

Achieved

%

R$ billion

YTD through

3Q14

72% - 66%

109% - 96%

15.1

8.2

Breakeven

to 100

R$ million

71

600 75%447

R$ million

Adjusted EBITDAMargin

Net Revenue

Free Cash Flow to

Shareholders (2)

CAPEX

4Focus to Win

3Q14 Highlights

Net Revenue

• Consolidated net revenue grows 6% from 3Q13 to R$5.2 billion:

• 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).

+ 10% - 5% + 11%

5Focus to Win

3Q14 Highlights

Adjusted EBITDA (1)

• Consolidated adjusted EBITDA grew 16% on 3Q13 to R$435 million, with adjustedmargin of 8.3%.

• Export growth and operational efficiency gains at Marfrig Beef, combined with

the better sales mix and lower production costs at Moy Park, offset the morechallenging 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 strategy of targeting higher profitability in itsoperations accompanied by lower earnings volatility.

+ 24% - 9% + 25%

7.1% 7.1% 9.4%

(1) Adjusted by non-recurring events

6Focus to Win

3Q14 Highlights

Balance Sheet

• 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), vs. 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.

Cash Flow

• Positive free cash flow of R$84 million in 3Q14 and R$71 million in 9M14, in line with the commitment assumed in the 2014 guidance.

7Focus to Win

Analyst Estimates

Source: Marfrig

BrokerNet Revenue

(R$ million)

Adjusted EBITDA

(R$ million)

Adjusted EBITDA

Margin (%)

BES 5,171 409 7.9%

BRADESCO 5,118 421 8.2%

BTG PACTUAL 5,248 436 8.3%

DEUTSCHE 5,263 411 7.8%

FATOR 5,378 425 7.9%

GBM 5,376 432 8.0%

HSBC 5,293 410 7.7%

ITAÚ 5,011 394 7.9%

JP MORGAN 5,293 424 8.0%

MORGAN STANLEY 5,244 387 7.4%

VOTORANTIM 5,369 448 8.3%

BOFA MERRILL LYNCH 5,300 427 8.1%

SHORE CAPITAL MARKETS 5,508 404 7.3%

CONSENSUS 5,275 418 7.9%

Marfrig 3Q14 5,239 435 8.3%

8Focus to Win

Financial Performance|Consolidated

Net Revenue(R$ million)

Breakdown by Business(%)

3Q13 3Q14

Growth vs. 3Q13:

Moy Park +10%: benefitted from exchange variation (7%) and sales growth in the retail channel

in the UK and Ireland, led by fresh meats and the consolidation of Marfrig’s European beef business.

Keystone -5%: explained by the pricing model in place with several customers in the USA, in

which product prices reflect the lower raw material costs, and by the change in the sales mix in the

QSR channel. In APMEA, the sales mix was impacted by an incident involving a competitor food

supplier to our main client in China.

Marfrig Beef +11%: benefitted from export growth in Brazil and the continued good

performance in Uruguay/Chile, which were partially offset by the lower average price in Brazil's

domestic market due to the shift in the product mix.

+ 6.0%

26%

27%

47%

Receita por Negócio - 3T14

25%

30%

45%

Receita por Negócio - 3T13

9Focus to Win


3Q13 3Q14


Gross Income and Gross Margin(R$ million and %)

+ 11%

22%

13%

65%

Lucro por Negócio - 3T14

21%

16%

63%

Lucro por Negócio - 3T13

Gross margin growth vs. 3Q13:

Moy Park +80 bps: benefitted from the decline in production and labor costs resulting from the

investment in the Grantham Project and lower grain costs.

Keystone -60 bps: impact of an unrealized mark-to-market loss of approximately US$2.3 million in

the quarter related to grain hedges and higher outside meat costs in the USA, which were partially

offset by lower feed costs in the USA, lower raw material costs and the better sales mix of Key

Accounts in APMEA.

Marfrig Beef +50 bps: benefitted from the strategic move to increase export volumes while

passing through the higher cattle prices to export markets and from the various initiatives

implemented to increase profitability, especially at units in Brazil.

10Focus to Win

SG&A/NOR stable vs. 3Q13.

Moy Park +20 bps: driven by the higher freight expenses resulting from the consolidation at Moy

Park of Marfrig's European beef business.

Keystone remained flat at 3.0% of NOR.

Marfrig Beef -50 bps: reflecting the initial gains from the expense management process

launched in mid-2Q14 (Productivity Agenda Project), which this quarter yielded initial savings of

over R$13 million from the implementation of a series of initiatives at units in Brazil.

3Q13 3Q14


SG&A and SG&A/NOR(R$ million and %)


+ 5%

30%

12%

58%29%

13%

58%

11Focus to Win

Diagnosis(Feb-Apr 2014)

Analysis / definition(Apr-Jun 2014)

Budget / execution(July 2014)

Follow-up(Aug-14 to Dec-15)


Productivity Agenda Project in Brazil(efforts to cut costs and expenses by at least R$30MM/year)

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 toincrease the level of performance and optimize each production unit tomeet the company’s internal benchmarks. In a subsequent phase, we willseek to meet even higher market benchmarks.

12Focus to Win

Breakdown by Business (%)

3Q13 3Q14

9M14 consolidated adjusted EBITDA margin of 8.2%, reaching the upper level of the target range in

the Focus to Win strategy.


Adjusted EBITDA and Margin(R$ million and %)

Compared to 3Q13:

+70 bps at Moy Park to 7.1%

–30 bps at Keystone to 6.1%

+120 bps at Marfrig Beef to 10.2%

+ 16%

22%

20%

58%

EBITDA por Negócio - 3T14

21%

25%

54%

EBITDA por Negócio - 3T13

13Focus to Win

Debt(R$ million)

Liquidity and Debt|Consolidated

Strong local-currency depreciation at end of quarter increased net debt to R$7.5

billion, from R$6.7 billion in 2Q14, with no cash effect.

Local-currency depreciation of 11% (R$2.20/US$ at close of 2Q14 vs. R$2.45/US$ at

close of 3Q14).

The operating result has not yet captured 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$2.24/US$ in 2Q14.

14Focus to Win

Net Debt in USD

(US$ million)


Marfrig’s debt in USD remained stable.

15Focus to Win

* Current Liquidity = Current Assets / Current Liabilities

** Excludes the interest paid on the mandatorily convertible debentures

Indicators 3Q14 2Q14

Net Debt / EBITDA LTM 4.84x 3.71x

Net Debt / Annualized Adjusted EBITDA 4.33x 4.23x

Net Debt / Total Assets 0.37x 0.36x

Cash and Equivalents / Short-Term Debt 2.47x 2.52x

Current Liquidity (*) 2.18 2.18

Duration (months) 50 54

Average Cost ** (p.a.) 7.6% 7.0%

Short Term (%) 11.7% 11.2%

Long Term (%) 88.3% 88.8%

In BRL (%) 5.8% 4.1%

Other Currencies (%) 94.2% 95.9%


• 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 leverage ratio excluding exchange variation ended 3Q14 at 3.64x.

• 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.

16Focus to Win

3,061

755

344 36 107

658 637 574

2,468

1,789

2,352

880

Cash 4Q14 1Q15 2Q15 3Q15 4Q15 2016 2017 2018 2019 2020 2021

Maturity Schedule in 3Q14 (R$ million)

Short Term: R$1.2 billion


Transaction Period Amount Coupon Maturity

2020 Bond Re-tap 1Q14 US$275 MM 9.500% 2020

Moy Park Bond Issue 2Q14 GBP 200 MM 6.250% 2021

New Bond Issue 2Q14 US$850 MM 6.875% 2019

Repurchase 2016 2Q14 US$191 MM 9.625% 2016



Liability Management Operations - 2014

17Focus to Win

Cash Flow Bridge – 3Q14 (R$ million)

Cash Flow|Consolidated

Better working capital management, especially at Marfrig Beef Brazil.

Improvement in trade accounts receivable, with the receivables term falling from 28 days

in 2Q14 to 27 days in 3Q14.

Incident involving a competitor food supplier to our main client in China worked to

temporarily raise inventories.

The line “Other” increased R$192 million, mostly due to non-cash items related to market

transactions, such as swap and commodity contracts.

(303)

501

232

(150)(42)

192 33463

(127)

336

(252)84

Net Income/Loss

Notaffecting

cash items

Tradeaccount

receivables

Inventories Tradeaccountpayables

Other Taxes Op. CashFlow beforeInvestiments

Capex Op. CashFlow

Financialexpense

Free cashflow

18Focus to Win

In 3Q14, free cash flow was positive R$84 million, despite higher export volumeswhich demand higher working capital and payments/compensation related to the

renegotiation of federal tax liabilities under REFIS.

In 9M14, free cash flow was positive R$71 million, reaffirming our commitment todeliver positive cash flow for the year

Free Cash Flow (after CAPEX and Interest)

(R$ million)

Cash Flow|Consolidated

19Focus to Win

Net Income (Loss)(R$ million)


(194.1)

(83.4) (96.4)

(55.1)

(303.3)

3Q13 4Q13 1Q14 2Q14 3Q14

- 56%

Currency variation

(R$226 MM)

REFIS Expenses

(R$93 MM)

20Focus to Win

Positive contribution from currency variation in the period (7%)

Consolidation of Marfrig's European beef business, increasing revenues by £ 8.5 million

Stronger sales to UK retail outlets, with the highlight fresh products and the slight growth inconvenience ready-to-eat and coated products

Reductions in production and labor costs (Grantham Project)

Lower grain costs

Moy Park 3Q14 Highlights



+ 10%+ 24%

9M14

7.1%

21Focus to Win

Lower revenue explained by the cost pass through pricing model with key QSR clients in the USA.

In APMEA, the sales mix was impacted by an incident involving a competitor food supplier to ourmain client in China.

Sales volume grew 6% in APMEA vs. 3Q13, driven by the QSR channel in China and the Middle East,which was partially offset by lower volumes in the USA due to fewer promotions for poultry andbeef items in the QSR channel.

The reduction in grain market prices led to an unrealized mark-to-market loss of around US$2.3million in the third quarter related to grain hedges through the end of the 4th quarter.

Keystone 3Q14 Highlights



- 5%- 9%

9M14

7.1%

22Focus to Win

Gradual increase in the share of exports from Brazil to take advantage of strong internationaldemand for Brazilian beef and the BRL depreciation against the USD, with strong growth in freshmeat sales (+33% vs. 3Q13).

Growth of 9% in the operations in Uruguay/Chile vs. 3Q13.

Reductions in SG&A/NOR of 50 bps vs. 3Q13 and 130 bps vs. 2Q14 reflects the initial gains from theprocess to improve expense management launched in mid-2Q14, which has already yieldedinitial savings of R$13 million from the implementation of a series of initiatives at the units in Brazil.

Marfrig Beef 3Q14 Highlights



+ 11%+ 25%

9M14

9.4%

23Focus to Win

Europe

Asia

South/Central America

Middle East

Russia

Other

Marfrig Beef | Export growth

Share of Exports in SalesMarfrig Beef Brazil (%)

Destination of Marfrig Brazil Exports 3Q14 (% of sales)

Scenario for Brazilian Beef Industry exports(beef)

Country

Import

volume

‘000 t/year

Share of

global

imports (%)

Restrictions

on Brazil

USA 1,055 13.6% Negotiation

Russia 1,020 13.1% Open

Japan 760 9.8% Closed

Hong Kong 575 7.4% Open

China 550 7.1% Negotiation

EU 380 4.9% Hilton

South Korea 360 4.6% Closed

Venezuela 300 3.9% Open

Canada 290 3.7% Closed

Chile 255 3.3% Open

Mexico 235 3.0% Closed

1.473

1.734

1.97132,9%

41,5% 44,8%

3T12 3T13 3T143Q12 3Q13 3Q14

24Focus to Win

Share Performance|2014

MRFG3 Peers* Ibovespa

Source: BM&FBovespa

To November 12, 2014.

* Peers: average of JBS, BRF and Minerva

52%

27%

3%

-20%

0%

20%

40%

60%

80%

100%

Dec-13 Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14 Aug-14 Sep-14 Oct-14 Nov-14

25Focus to Win

Bond Performance| 2014

Source: Bloomberg

To November 12, 2014.

* Peers: average of bonds issued by JBS, BRF and Minerva with same maturities

MRFG3 Peers*

13%

1%

-4%

0%

4%

8%

12%

16%

20%

24%

Jan

-14

Feb

-14

Mar

-14

Ap

r-1

4

May

-14

Jun

-14

Jul-

14

Au

g-1

4

Sep

-14

Oct

-14

No

v-14

13%

2%

-4%

0%

4%

8%

12%

16%

20%

24%

Jan

-14

Feb

-14

Mar

-14

Ap

r-1

4

May

-14

Jun

-14

Jul-

14

Au

g-1

4

Sep

-14

Oct

-14

No

v-1

4

15%

1%

-4%

0%

4%

8%

12%

16%

20%

24%

Jan

-14

Feb

-14

Mar

-14

Ap

r-1

4

May

-14

Jun

-14

Jul-

14

Au

g-1

4

Sep

-14

Oct

-14

No

v-14

26Focus to Win

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 Positive 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%, 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.

27Focus to Win

Final Remarks

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.

28Focus to Win

Final Remarks

MARFRIG BEEF

• 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.

29Focus to Win

Final Remarks

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 solid growth in EBITDA in the 4th quarter due to improving

market dynamics in both the US and Asia.

30Focus to Win

Final RemarksMOY 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.

2013 1Q14 2Q14 3Q14

Pricing Dynamics of UK IPOs

Source: Dealogic (main transactions >$50MM, excluding GDRs), to Oct. 10, 2014.

31Focus to Win

Final Remarks

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. Is important to

say that #(ii) is helped by #(iii).

32Focus to Win

Final Remarks

NEXT STEPS:

• Continue expanding margins by fully capitalizing on the current positive

trends in the animal protein industry.

• 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.

• 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.

• 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.

33Focus to Win

Disclaimer

This material is a presentation of general information about MarfrigGlobal Foods S.A. and its consolidated subsidiaries (jointly the“Corporation”) on the date hereof. The information is presented insummary form and does not purport to be complete.

No representation or warranty, either expressed or implied, ismade 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 anylosses or damages arising from any of the information presented orcontained in this presentation. The information contained in thispresentation is up to date as of September 30, 2014, and, unlessstated otherwise, is subject to change without prior notice. Neitherthe Corporation nor any of its affiliated companies, consultants orrepresentatives have signed any commitment to update suchinformation after the date hereof. This presentation should not beconstrued as a legal, tax or investment recommendation or anyother type of advice.

The data contained herein were obtained from various externalsources and the Corporation has not verified said data throughany independent source. Therefore, the Corporation makes nowarranties as to the accuracy or completeness of such data,which involve risks and uncertainties and are subject to changebased on various factors.

This presentation includes forward-looking statements. Suchstatements do not constitute historical fact and reflect the beliefsand expectations of the Corporation’s management. The words“anticipates,” “hopes,” “expects,” “estimates,” “intends,”“projects,” “plans,” “predicts,” “projects,” “aims” and other similarexpressions are used to identify such statements.

Although the Corporation believes that the expectations andassumptions reflected by these forward-looking statements arereasonable and based on the information currently available to itsmanagement, it cannot guarantee results or future events. Suchforward-looking statements should be considered with caution,since actual results may differ materially from those expressed orimplied by such statements. Securities are prohibited from beingoffered or sold in the United States unless they are registered orexempt from registration in accordance with the U.S. SecuritiesAct of 1933, as amended (“Securities Act”). Any future offering ofsecurities must be made exclusively through an offeringmemorandum. This presentation does not constitute an offer,invitation or solicitation to subscribe or acquire any securities, andno part of this presentation nor any information or statementcontained herein should be used as the basis for or considered inconnection with any contract or commitment of any nature. Anydecision to buy securities in any offering conducted by theCorporation should be based solely on the information containedin the offering documents, which may be published or distributedopportunely in connection with any security offering conductedby the Company, depending on the case.

34Focus to Win

IR Contacts

E-mail

[email protected]

Website

www.marfrig.com.br/ri

Address

Av. Chedid Jafet, 222

Bloco A - 5º andar

+55 (11)

3792-8650

3792-8600

Telephone

@

apresentação do powerpointir.marfrig.com.br/upload/arquivos/3561_3q14_result...

Documents