JBS relaunches plans for US float

Beef Central, 21/08/2020

GLOBAL meat processor JBS is reviving plans to publicly list on the New York Stock Exchange, after withdrawing float plans back in 2016.

The comments came during an analysts briefing after the company’s surprisingly strong half-year results were announced last Friday.

Global chief executive officer Gilberto Tomazoni said the company’s focus was turning towards the Wall Street listing now that the worst of the COVID-19 outbreak appeared to have passed.

“In the last quarter we said we would prioritise the protection of our people and tackle the operating challenges imposed by the pandemic,” he said. “Now things are more under control, we have learned to deal with the challenges, and we will again be discussing the listing,” he said.

He said the float could not happen this year, given the steps needed to complete such an undertaking.

Strong recent financial results may help boost prospects for the float, analysts were told.

JBS executive Guilherme Cavalcanti said if the reports of ratings agencies like S&P, Moody’s and Fitch were read, JBS’s financial metrics were already ‘investment-grade.’

“Our financial metrics would be compared to a Triple B flat before these financial results were released. Now, I would say that our financial metrics is going towards an A-level, because JBS will continue to de-leverage until the end of the year.”

“My expectation is that these strong metrics will be enough to offset all the qualitative metrics of the scorecard and will bring us a ratings upgrade.”

In 2016, JBS cancelled plans to reorganise its business by floating most of the company on the New York Stock Exchange, and move its management to Ireland. Minor shareholder Brazil’s national development bank BNDES said in a statement that it was against the proposed reorganisation at the time, and was exercising its power of veto to block the move.

COVID recovery

Analysts questions during Friday’s briefing focused on the impact of COVID in the world’s biggest meat processing business, future cattle supply outlook, signs of recovery in the food service sector, and the company’s efforts to develop traceability, to manage supply from the Amazon region.

Analyst Ben Theurer asked about cattle availability across JBS’s operations, given the earlier disruptions to beef and pork operations caused by COVID, followed by the ‘once-in-a-lifetime’ opportunity with low cattle prices and then high beef pricing.

JBS US beef division chief executive André Nogueira said a situation emerged as a result of COVID that was very favourable.

A backlog of cattle and hogs had been created because of the disruption caused by the reduction in production, not only in the US, but also challenging in Canada and Europe, if less so in Australia. It created a backlog of cattle in the US and Canada and a backlog of hogs, which will take time for us to work through,” he said.

“So, the cattle supply perspective is very positive for the next several months – probably this year and next year – and beef demand is pretty strong. Demand is very strong in retail, while we reduced exports from the US and Canada during the quarter by design, because we put priority in the domestic market. Now, export is growing again, production is back to an almost normal level.

“We still have some areas that we need to continue to improve, especially in the value-added side, inside of the beef and pork plants there are more things that we can do to return to the normal meat level. But exports will grow in the second part of this year.

“On the other hand, Australian production will be less. Australia is in a rebound phase of the herd, but grass is now very good and very available in the whole of Australia. So production in Australia will be down because less cattle are available, but for a good reason – we are building the herd back, for the mid and long term this will be positive.

“But in the meantime Australia will export less, while the US and Canada will export more.

China growth

Mr Nogueira said JBS US beef  would start to export beef from the US to China.

“US has a very, very small position in China today, but now with the adjustments in tariff, the US is more competitive and it’s growing, and I believe that today China is the largest import of pork from the US.”

“I believe that China will be one of the top five importers of beef from the US too, that will be very helpful for the demand for the US beef side. US supply is back in very good shape, demand is in very good shape, but can improve further if food service continues to come back. With more recover in food service, we should see even a big improvement.

The outlook for the long-term did not change, he said.

“Asia overall is growing its consumption of protein, and it is growing through import. The US, Canada, Australia and, of course, Brazil are the suppliers of this new demand. So I think that the outlook is very positive. I understand that we are still in the middle of the pandemic, and that we can see and probably will see a lot of volatility – but I am extremely proud of the way that our team’s faced this volatility, the way that we put our priorities, protect our workers and produce food and even with absolute priority of that we were able to deliver a pretty strong result in the quarter.”

Food service recovery

Analyst Carla Casilla asked how trade into the food service sector was progressing, as a result of COVID impact.

“How has the mix changed between retail and food service; are you seeing a shift back to more normal levels, or are these changes more longer-term? she asked.

André Nogueira said from the US business’s perspective, obviously during the depths of the pandemic in April and May, food service slowed down dramatically.

“I’d say that for us – and I’m saying that we are out of the market, but for us – in the beef and pork side, food service in July was only 10pc below of July last year – so pretty strong recovery in my mind, considering all that is still going on in the US and Canada,” he said.

“In Australia, food service is still very, very slow. Our customers in chicken, maybe because of the segments that we operate in chicken, some of the customers in the food service are doing better than the same time of last year.

“So, I’d say that recovery is coming in the US. I don’t think that is a long-term, but more a medium-term perspective, and this will be an upside for the business.”

“I think that as food services recover, retail will slow down a little bit, but will not slow down in the same amount that food service will recover. So it’s coming: it’s not in the level that it was before, but no question that’s improving, especially in the US and Canada and Mexico.

“Australia is still a little bit behind the curve with the resurgence of the virus that has been seen there.”

Asked which of the three main proteins in the US market that grocers were likely to promote during the recovery phase, Mr Nogueira said during COVID, no-one promoted anything.

“It was a question of availability. I’m really proud that our key customers were the ones that gained more market share during the COVID time. So it looks like we kept the supply in very good shape, and they were able to gain market share from other retailers that are not our customers. I think that now we are seeing much more promotion, price has come down in retail, the wholesale price came down way early, retail enjoyed very good margins for a period of time and now they are promoting more aggressively.”

“I think that they are promoting all three proteins – I don’t think that they are putting one ahead of the other. In a period of time some retailers will push more beef, others will push pork, others will push chicken. I think that we are seeing promotion coming back strongly for all three proteins.”




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