“We have begun the IPO process in the US market and the teams continue to work on updating all of the documents required so that we can conclude the process during the second [half], depending on market conditions,” Marfrig CEO Martin Secco Arias told analysts during a discussion of the company’s financial performance.
Marfrig reported a loss before taxes of R$296 million in the second quarter and a loss after tax of R$156 million, an improvement of R$44 million year-over-year. The result reflects only the net result of continuing operations.
Net revenue in the second quarter was R$4.3 billion down 9 percent from R$4.7 billion reported in the year-ago comparable period.
But Keystone delivered a strong performance for Marfrig, accounting for 52 percent of the meat packer’s total revenues in the second quarter. Keystone net revenue was $697 million for the quarter an increase of 4 percent from 2016. In Brazilian real, net revenue was R$2.2 billion.
Frank Ravndal, president and CEO, Keystone Division, attributed the strong performance to the company’s strategy strategic movement of sales toward higher-value products. Strong demand in key regional domestic markets and in international export markets also provided tailwinds.
“Due to strong demand and growth in our customer base over the past few years, we’re very tight on capacity I many of our plants in the US and in several facilities in APMEA,” Ravndal told analysts. “Consistent with the priorities we established during the longer-term strategy workweek, we concluded at the end of last year, our strategy 2021 plan, we’re actively investing in strategic projects that will expand both our capabilities and our capacity, including fresh beef lines, additional par-fried and fully cooked chicken capacity, and additional grow-out capacity in the US to support the growth in or further-process value-added businesses.”
APMEA led growth at Keystone with an 8 percent increase in value-added volume, particularly in Thailand, Malaysia and Korea. In the US, value-added volumes advanced 5 percent in the foodservice channel, which was partially offset by a small decrease in the retail and convenience and industrial segments, the company said. Continued favorable pricing for dark meat by-product exports also contributed to results.
During the second quarter, Marfrig invested R$152 million in its operations, of which Keystone accounted for 65 percent. The expenditures included a new plant in Thailand and the expansion and improvement of other production lines in Malaysia and growth projects in the US.
In a move that seemed to run counter to Marfrig’s goal of debt reduction, company executives discussed plans to re-open three meat plants in the Brazilian states of Rondônia (Ji-Paraná), Mato Grosso do Sul (Paranaiba) and Rio Grande do Sul (Alegrete). Eduardo de Oliveira Miron, chief financial and administrative, said reopening the plants will require working capital in advance.
“Additionally, there will be a natural mismatch between this investment and the cash distribution of this reopening in the short term,” he told analysts. “So, we should expect our free cash flow to remain negative for 2017.”
But Marfrig decided to re-open the plants, which had been idle since the second quarter of 2015, to seize an opportunity to benefit from larger supplies of slaughter-ready cattle.
“We end the second quarter with a slaughter volume of 200,000 head per month and along with the expansion capacity announced in early July, we should bend the third quarter with monthly production of 250,000 heads,” Secco Arias said.
Marfrig expects to slaughter more than 300,000 head of cattle before the end of 2017.
“We are prepared to capture this growth opportunity in the Beef Division,” he continued. “On the operational front, we have a leaner and more efficient structure, and we have not lost sight of the financial front.”
“We understand that we have an important role to play as one of the world’s largest protein companies, and we are highly motivated to capture this opportunity,” he said.