04 Mar Jonathan Cartu Announces: BRF S.A. (BRFS) Q4 2019 Earnings Call Transcript
BRF S.A. (NYSE:BRFS)
Q4 2019 Earnings Call
Mar 3, 2020, 8:00 a.m. ET
- Prepared Remarks
- Questions and Answers
- Call Participants
Good morning, ladies and gentlemen. Welcome to BRF Fourth Quarter 2019 Earnings Results Conference Call. We’d like to inform you all that this conference is being webcast at brf-br.com/ir, and a presentation to support this webcast is also available. At this time, all participants are connected in a listen-only mode. [Operator Instructions]
Forward-looking statements during this conference call regarding the company’s business outlook, projections and results and the company’s growth potential are merely assumptions based on management’s expectations regarding the company’s future. These expectations are highly dependent on market change, the overall economic performance of the country and the sector, and on international markets that are subject to change. I’d like to remind you all that this call is being recorded.
This call will be presented by Mr. Lorival Luz, Global CEO; by Mr. Carlos Moura, VP, CFO and IRO; by Mr. Sidney Manzaro, VP for the Brazilian market; and Mr. Patricio Rohner, VP of the international market.
Now, I’d like to turn it to Mr. Lorival Luz, who will begin the conference call. Mr. Luz, please go ahead.
Lorival Luz — Global Chief Executive Officer
Thank you very much. I’d like to start by thank you — by thanking you for joining us for our fourth quarter earnings release and also to discuss the 2019 results.
On Page 4, for those of you who are following the presentation, we are sharing our strategic planning, as well as the metrics used and what we had expected for 2019 and what to expect for 2020 and 2021 to 2023. I can say that we are very proud for delivering 2019 with results that led us to achieving historical levels. Actually, we have excelled the margins to historical levels, and we have also now reverted our losses of BRL2 billion. And you can see that today, we have a profit that goes above BRL1 billion.
This is really the consequence of hard work guided by discipline, financial discipline, strategic alignment throughout the company and also with our Board of Directors. The board has always supported us throughout the entire path. So, we have surpassed the goals for 2019. And now for 2020, we also expect to see the growth that we — first, we had expected only in 2021.
Obviously, we have a long-term vision. All is marked by financial discipline. Our goal is to manage the company and to achieve a leverage of 1.5 times to 2 times the net debt based on EBITDA.
On the following page, we have an overview of our results. First, gross margin of 24.1% in 2019, an 8 percentage point increase year-on-year. We have achieved margins above 20% in every single quarter of 2019, and for the last three quarters, solid margins achieving 25%, which demonstrates the effectiveness of our commercial strategy in Brazil and abroad. And it’s also very important to highlight the fact that for the second half of the year, more specifically, when we had the impact of the African swine fever and that led to a price increase and also increased demand. But that certainly — that supplemented all initiatives that had already been implemented in 2018 and at the beginning of 2019.
As for adjusted EBITDA, we delivered BRL5.3 million, more than double of what was delivered in 2018, an EBITDA margin of approximately 16%.
I’d like to clarify the fact that, throughout 2019, the company also had an impact of some tax-related proceedings, ICMS, and PIS and COFINS, in which we won at the court and that had this impact. But the net result was positive BRL884 million.
So, the EBITDA — and we are being very clear, so the EBITDA result that tax-related impact was of BRL4 billion, and adjusted EBITDA margin of 13.3%, also above our historical margins.
I also would like to clarify and highlight the fact that for 2020, we don’t expect a tax-related impact of such scope, also regarding net income, which is a very important metric for all of us. As for continued operations, we had a loss of BRL2.1 billion to a profit of BRL1.2 million in 2019. Once again, a very relevant result, indicating that [Technical Issues] we had a leverage of 5.12, in which we already included, and I think you remember the impact of our divestiture plans and that took place in the first quarter of 2019.
So, we had published 5.12. And without that, the company leverage was approximately 5.97. And now it went down to 2.5 times, so according to what we had planned. And we want to achieve a number below 2 in the long term. And I think you already saw that we also have a new material fact today. And our — my colleague is going to talk about that later on, Mr. Moura. But when we consider once again the number of 2.5 in net leverage reduction, we had that impact of BRL884 million coming from tax-related proceedings. So, we expect to see also improvement regarding our EBITDA out of BRL4.4 million. So, for 2020, we expect to continue with our debt leverage process.
On the next slide, it’s also very important for us, and as I have said before, a lot on our BRF, it’s a priority for our company. And I don’t believe there might be any other successful company with results above the average, with high performance, without a culture that is very strong.
So, along 2019, we have launched BRF Essence, and we work in a very effective way to build a culture in the company, building a strong culture that is based on our commitments and in our values.
Along 2019, already as an effect of the work that we have been conducting internally, we have had a significant reduction of our turnover by about 7% and in leadership of a reduction of 50%, which provides the stability and continuity of our management, so that we may…