24/02/2017 09h00

BRF reaches net operating revenue of BRL R$ 8.6 billion in the fourth quarter of 2016

In the year, sales volumes grew 16.7% in international markets compared to 2015

BRF achieved net operating revenue of BRL R$ 8.59 billion (+1% QOQ) in the fourth quarter of 2016. Gross profit was BRL R$ 1.69 billion (-10.1% QOQ) and gross margin was 19.7%, 2.4 pp lower than the third quarter of the same year. EBITDA for the period was BRL R$ 559 million (-36.9% QOQ), with EBITDA margin of 6.5%, 3.9 pp below 3Q16.

CAPEX for the quarter reached BRL R$ 551 million and operating cash flow was BRL R$ 748 million, after investments. Adjusted for the impacts (pro forma) of the acquired companies, BRF obtained: i) financial cycle of 22.4 days, improvement of 10.4 days vs. 3T16; and (ii) ROIC (Return on Invested Capital) of 8.26%.

The year 2016 was marked by challenges that impacted BRF's short-term results. The combination of sectorial, cyclical and political uncertainties, coupled with some internal execution challenges, led to far less than expected results and far below the company's potential.

While the results of short term leave BRF deeply discontented, the company is satisfied with the structural evolutions made for the long-term construction of the business. BRF continues in its process of global growth, with sales volumes in the international markets rising to 16.7% y/y.. Even excluding acquisitions for the period, the increase would still be 5.9%.

In the Halal world, acquisitions in Oman, Malaysia and, more recently, the announcement in Turkey, were important steps towards the realization of OneFoods. With the new entity already operating, BRF will be able to better assess strategic opportunities to accelerate growth in Muslim markets, as well as potential capitalization.

In Brazil, investments were made in commercial execution to improve the level of service through: (i) a new GTM ("go-to-market") strategy that focused a lot on segmentation; (ii) a new commercial strategy for the cash & carry channel; and (iii) the restoration of the Company's launch and innovation flow.

The Supply area played an even more significant role this year, helping to partially mitigate the impacts of feed cost. The company focused on new formulations and improved the technical indicators of productivity and feed conversion, with capacity adjustments, mitigating the impact of the negative cycle while maintaining significant production flexibility.

BRF enters 2017 completely focused on the commercial and operational execution of its business, advancing in the optimization of the productive chain, expanding the portfolio with new launches and getting closer to the consumer. In this way, the company continues to deliver its purpose of feeding the world, making BRF a more profitable and admired company with strong brands and presence in the most diverse regions of the globe.

Regional Performance

Brazil had an atypical fourth quarter in 2016. Seasonality of holidays, which historically leverage margins and the region's performance during the period, was strongly affected by the increase in production costs, mainly due to higher grain prices. With a still weak consumer scenario, the price increase was marginal and did not offset the higher costs. As a result, BRF ended 4Q16 with ROL of BRL R$ 4 billion (+10% QOQ). The company ended 4Q16 with an EBITDA of BRL R$ 444 million and an EBITDA margin of 11% in the region.

In the region known as MENA, which comprises the countries of the Middle East and North Africa, BRF reaches net operating revenue of BRL R$ 1,481 million in 4Q16 (-5.2% QOQ), due to: (i) a 3.0% mainly due to the more challenging macroeconomic scenario in the region; and (ii) lower average prices in Reais (-2.1% QOQ) due to the strategy of defending our volumes in key countries. On the other hand, the volume of processed products continues to grow at an accelerated rate (+15.1% QOQ). However, even with OBZ's efforts to reduce expenses, the EBITDA margin in 4Q16 fell by 3.7 pp QOQ.

The region of Asia totaled ROL of BRL R$ 1,129 million in 4Q16, resulting in a decrease of 12.3% in the quarterly comparison. The decline of 7% QOQ in volumes was impacted by: (i) lower volume in Japan (-29.4% QOQ), depressed by still high local inventories and the devaluation of the local currency against the Brazilian Real (-5,1% QOQ); (ii) suspension of one of the plants authorized to China, leading to a decrease of volumes for the country; and (iii) more aggressive local competition. As a result, the region's EBITDA margin reached 11.8% in 4Q16, a decrease of 2.5 pp QOQ.

Europe continued to suffer from a more challenging macroeconomic and sectoral scenario. Despite the 1.3% t/t growth in sub-region volumes, consolidated volume fell 5.3% QOQ as a result of year-end seasonality in Eurasia. As a consequence, ROL fell 10.6% t/t and totaled BRL R$ 860 million in 4Q16. In view of all these challenges, the region's EBITDA margin contracted 8.5 pp QOQ.

Latam ROL, which comprises all the countries of the Americas except Brazil, totaled BRL R$ 585 million in 4Q16 (+6.3% QOQ), positively impacted by higher volumes (+8.5%: (i) the volume increase for Mexico and Cuba in the quarter; and (ii) increased volume of processed products in the Southern Cone region. On the other hand, the economic crisis in Argentina continued to impact the profitability of the region. In addition, Chile's surplus supply of turkey, which accounts for 50% of the total market, has pushed prices and depressed margins. As a result, the region showed a drop of 8.9pp QOQ in its consolidated EBITDA margin.

Africa continues its volume climb (+6.5% QOQ), despite the specific macroeconomic challenges of the region, such as low oil prices and high inflation. As a result, ROL of the region totaled BRL R$ 201 million in 4Q16, an increase of 5.1% t/t. Despite the growth of QOQ volumes in the region, the higher share of in natura products negatively impacted the EBITDA margin by 2.1 pp QOQ.

About BRF

BRF is one of the largest food companies in the world, with more than 30 brands in its portfolio, including Sadia, Perdigão, Qualy, Paty, Dánica, Bocatti and Vienissima. Its products are marketed in more than 150 countries, on five continents. More than 90,000 employees work in the company, which maintains more than 50 factories in eight countries (Argentina, Brazil, United Arab Emirates, Netherlands, Malaysia, UK, Thailand and Turkey).