JBS SA

BOVESPA:JBSS3

Earnings Call Transcript 2022-Q2

[Operator]

Good morning, everyone, and thank you for waiting. Welcome to JBS S.A. and JBS USA Second Quarter of 2022 Results Conference Call.

With us here today, we have Gilberto Tomazoni, Global CEO of JBS; Guilherme Cavalcanti, Global CFO of JBS; Andre Nogueira, President of Operations in North America; Wesley Batista Filho, President of Operations in Latin America, Oceania and the Global Plant-Based business; and Christiane Assis, Investor Relations Director. This event is being recorded. [Operator Instructions]

Before proceeding, let me mention that forward statements are based on the beliefs and assumptions of JBS management. They involve risks and uncertainties because they relate to future events and therefore, depend on circumstances that may or may not occur.

Now I will turn the conference over to Gilberto Tomazoni, Global CEO of JBS. Mr. Tomazoni, you may begin your presentation.

[Gilberto Tomazoni, executive]

Good morning, everyone, and thank you for your participation in this earnings call for the second quarter of 2022. As we will highlight in the presentation, we reported a consistent result this quarter, starting with 16% growth in dollar. We added $2.5 billion in net revenue in this quarter when compared to the second quarter of 2021. Since 2020, we have invested $4.5 billion in our growth, which includes $2.3 billion in acquisition and $2.2 billion in CapEx for expansion and modernization of our facilities with a significant portion of this investment will start to operate by the end of this year.

In addition to growth, we have also returned to our shareholders in the same period since 2020, $4.9 billion, which includes $2.1 billion in dividends and $2.1 billion in share buybacks. Our liability management, which extends our debt from 6.3 years to 8.8 years and reduced its costs and our leverage of 1.65x in dollars has ensured JBS in a position to maintain its growth track record. Our results in this quarter show how our global platform basing on multi-protein and multi-geography strategy is one of our primary competitive advantages. As U.S. beef business is in the process of normalization margins in North America.

In Brazilian poultry businesses and North America poultry business are strong, as shown by Pilgrim's and Seara's results. In addition, the Brazilian and Australian beef business are starting a positive cycle with a relevant increase in margin from Friboi and JBS Australia. In other words, the decline in margin of the beef business in U.S. was almost totally compensated by the company's other business. This shows that our unique portfolio combination has brought stability to our overall results. Even as we operate in a business segment that can individually be more volatile, as you can see in our Page 3.

Here, we should highlight another great JBS advantage, the ability to manage different business with a consistent operational excellence in different countries and cultures. This allow us to keep opening new avenues for growth as that was the case of plant-based, salmon and cultivated protein. It was this mindset that transformed a butcher shop in the countryside of Brazil into the largest food company in the world. The achievement has been possible because an absolute focus on people, operate with simplicity and autonomy and our strong company culture, which includes the values and beliefs that guide the daily attitude for more than 250,000 team members around the world.

Our commitment to corporate governance, sustainability and operational excellence has been recognized by the S&P investment grade achievement in this quarter. We now have full investment grade status across the 3 main rating agents, S&P, Moody's and Fitch. We have also focused and develop a road map to achieve net zero by 2040. We have still -- we have until July 2030 -- 2023 to submit our roadmap to the SBTi, but ultimately, we will do so before then. We have already started the key initiatives as an important milestone in our ESG strategy, were achieved in the second quarter of 2022.

Circular economy was a highlight with the opening of our third biodiesel production plant in Brazil and the launch of our biofertilizer unit. In U.S., JBS is supporting the construction of the University of Nebraska Feedlot Innovation Center to recharge innovation reduction in feedlots. An initiative is complemented by our partnership with Colorado State University to research carbon capture technology. At a time when food security and sustainability dominate the global agenda, our purpose to feed in the people around the world is even more relevant. Therefore, we remain focused on what we can control and being the best in all we do to help create a better, fairer and more sustainable world for us in the future generation.

Thank you very much. And now I'll go to Guilherme Cavalcanti, who will be making the details of our results. Guilherme, please?

[Guilherme Cavalcanti, executive]

Thank you, Tomazoni. Let's go over the operational and financial highlights for the second quarter 2022, starting on the Slide 23, please. I would like to start by highlighting that S&P recently assigned an investment-grade rating to JBS, as a result of solid operational and financial performance, coupled with substantial improvements on the ESG front. With S&P's investment-grade ratings, JBS is now rated investment-grade by the 3 rating agencies as Moody's and Fitch had already upgraded their ratings last year.

As a result, several note holders have requests that we register the bonds with the SEC. Accordingly, as per the announcement to the market released on August 2, 2022, we announced an offer to exchange senior notes in a solicitation of [indiscernible] to amend the identities of some bonds in order to confirm the identities of the investment-grade book, in order to confirm to the identities of the investment-grade bonds issued in June 2022. Registering, our notes will be important to broaden the potential investor base, increase liquidity and investment confidence. In addition, it will simplify the company's capital structure.

As previously mentioned, I would like to highlight the 3 investment grade bonds issued last -- in June last year, which totaled $2.5 billion as follows: $500 million due to 2028, $1.25 billion due to 2023 and $750 million due to 2052. The funds were used in such a way as to have no impact on leverage through the prepayment of $1.8 billion in senior notes, $500 billion in Term Loan B and $400 million in short-term debt with $200 million will be paid with the company's available cash.

In Brazil earlier this month, we also retained an unsecured revolving credit facility in the amount of $450 million, maturing in 2035. All these liability management that we carried out led JBS to increase its leverage -- to increase its average that from 6.3 years in the second quarter of 2021 to 8.8 years in the second quarter of 2032. For the same period, our average cost of debt dropped from 4.75% to 4.45% and financial leverage in dollars remained at a very comfortable level at 1.65x.

Moving to the Slide 24. In the quarter, we invested approximately $1.1 billion as follows: We returned $451 million to shareholders through interim dividends, which represents $0.20 per share. We carried out share buybacks in the quarter totaling $206 million. It's worth mentioning the cancellation of 27 million treasury shares that we acquired in April 2022 and the opening of a new buyback program of 113 million shares. We also invested $303 million in the modernization and expansion of our production units. We also invested more than $90 million globally in ESG initiatives. Finally, I would like to point out that the return on invested capital was 26.1%, considering the last 12 months.

Now move to Slide 26, where we present the financial and operational highlights for the quarter. In the second quarter of 2022, we achieved net revenues of $19 billion, which represents an increase of 7.7% in the annual comparison. The adjusted EBITDA for the quarter was $2.1 billion, which represents an EBITDA margin of 11.2%.

Net income was a total of $803 million in the quarter, which represents an earnings per share of $0.30 per dollar. I would also like to highlight that considering the second quarter of 2022 last 12 months, net revenue was a record $71.2 billion. Adjusted EBITDA was $9.1 billion and net income $4.4 billion or $1.86 per share of earnings.

Please now move -- moving to the Slide 28. The operational cash flow in the quarter was $839 million. Free cash flow for the quarter was $77 million. The lower free cash flow was a result of higher investments in expansion and increase in tax paid. In the second quarter, 2022, last 12 months, the operating cash flow was $4.6 billion. Free cash flow generation was $1.8 billion. Excluding non-recurring payments of $676 million and expansion CapEx of about $1.1 billion, free cash flow for the last 12 months would have been $3.6 billion of which represents a conversion of 41% of adjusted EBITDA.

We also have increased investments in the company's organic growth. In the graph on the bottom of the slide, we have our capital expenditures in the quarter totaling $534 million, of which 57% is related to investments in modernization and expansion.

Now please, let's move to Slide 29, where we have the evolution of our debt profile. The net debt in the second quarter 2022 was $15 billion, which represents an increase of $873 million in the quarter comparison due to working capital consumption of $523 million, mainly impacted by the increase in accounts receivables driven by the increase in average prices, mainly Seara and PPC and inventories as a result of higher capital purchase in the end of the quarter, taking advantage of market opportunities in Brazil and higher grain costs.

In the quarter, we also spent $658 million as part of the shareholder return through buybacks and dividends. Capital expenditures of $534 million as already told and paid taxes in the amount of $508 million. Net leverage was 1.65x in dollars and 1.64x in reais, while interest coverage increased from 9.2x to 11.2x in the second quarter, both ratios extremely comfortable. In addition, it is important to highlight our comfortable liquidity position. We ended the quarter with a cash position of $3.7 billion, which, together with the revolving credit facility of $2.2 billion in the U.S. and $450 million in Brazil, gives us a total liquidity of $6.4 billion. Considering the payments in July of the Term Loan B of $500 million and the short-term debt in the amount of $400 million, the average debt maturity increased from 6.3 years to 8.8 years in the second quarter.

Let's move to the business unit's performance. Starting with Seara on Slide 30, net revenue grew 20% in the second quarter as a result of higher prices in both domestic and international markets. In the domestic market, despite revenue growth in all categories, the prepared foods category was the main highlight with an increase of 19% in average sales price and 5% in volume. This performance is the result of investments in quality, preference and innovation made by Seara in recent years.

In the export market, net revenues in dollars increased 28% compared to 2021 due to an increase in the average sales price as volumes were stable in the period. It is worth noting that the world's supply of chicken has been limited by avian influenza in North America and Europe, lower productivity in poultry genetics and the conflict between Ukraine and Russia. In terms of cost, the scenario for our production costs, especially for feed continue to be very challenging despite the improvement in corn prices in the annual comparison. However, through better commercial execution, mix of markets and channels and operational efficiency, Seara reached the highest EBITDA in its history of $306 million.

In the quarter, the Seara brand received 2 important achievements according to Kantar Brand Footprint 2022 ranking. Seara is among the 5 most chosen brands by Brazilian gaining 91 positions in 8 years, and Seara brand was considered the most available Brazilian brand in each sector according to IstoE Magazine.

Now moving to JBS Brazil on Slide 31, we see the revenue for the quarter growing 10.8% year-over-year, reaching $2.9 billion. In the export market, despite the average export price reaching the high historical level during the quarter, the drop in volumes to China, given the lockdown in the country and the suspension of important JBS plant for exports, pressured export sales. On the other hand, the company has been increasing its exports to other destinations, such as Philippines and Emirates.

In the domestic market, 13% growth in the natura beef category is explained by the company's strategy to continue increasing the value-added portfolio and growing brand awareness with consumers. In addition to increasing the number of key customers with a high service level through the loyalty program of Acougue Nota 10. As a result, the profitability despite being impacted by the increase in the average acquisition price of cattle increased by 2.3 percentage points in the annual comparison.

Moving to Slide 32. At JBS Beef North America is and now is speaking in dollar terms and in U.S. GAAP, JBS Beef North American revenue reached $5.5 billion in the second quarter, an increase of 2.7% year-over-year, and the adjusted EBITDA totaled $624 million with an 11.3% margin. In the domestic market, even with the delay in the start of the grilling season due to atypical weather conditions for the period, demand for beef remained strong, contributing positively for the net revenue growth.

In the international market, despite the continued slowdown of American ports, beef exports increased 7.4% in volume during the second quarter. The Asian market continues to be the most important buyer, notably China, which despite the lockdowns during the period kept its purchase volumes high by more than 35% year-to-date according to USDA data.

Moving on to Slide 33, we have JBS Australia. Net revenue was $1.7 billion, an increase of 32% compared to second quarter 2021 and an adjusted EBITDA of $106 million with a margin of 6.3%. Sales in the domestic market, which represented 39% of the total revenue in the period were 12% higher than in the second quarter 2021, driven by the additions of Huon and Rivalea, which have a strong focus on the domestic market and by the recovery in demand in the retail and food service channels. In the export market, net revenue increased 49% compared to the second quarter in Q1, explained by the demand that remains strong in key markets such as United States, South Korea and Japan.

Now moving to JBS USA Pork in the second quarter 2022, net revenue was $2.1 billion, an increase of 4.2% year-over-year. Adjusted EBITDA reached $214 million with a 10.1% EBITDA margin. The domestic market according to USDA information, pork production was slightly lower in the period as a result of the reduced availability of hogs for slaughter, impacting the cost of live animals. On the other hand, need for demand sustained prices at higher levels, albeit lower compared to the same period in 2021.

In international market, the USDA figures show that U.S. pork export volumes were down 18% year-over-year in the second quarter, given the lower volume exported to the key customer markets. For JBS, the pork business in USA grew in both revenue and margins in the annual comparison due to the better sales mix of add value products, which continues to add relevant results for the company.

Pilgrim's Pride on Slide 35 presented net revenue of $4.6 billion in the quarter and an increasing 27% year-over-year. Adjusted EBITDA totaled $623 million with an EBITDA margin of 13.5%. In the U.S., demand remained robust operational improvement, the diversified product portfolio, the good profitability in big birds business and the continuous growth of branded products were the main drivers for growth in profitability for the period.

In Mexico, the profitability was impacted by seasonal disease, which reduced production efficiency, but which were partially offset by strong demand in the country and continued operation improvements. In Europe, the recovery in results was explained by the greater product diversification, production optimization and focus on partnerships with key customers to offset inflationary costs.

To finish, I would like to move to Slide 36 that shows that our exports totaled $5 billion, with approximately 170 countries taking part of these exports.

With that, I would like to open to our question-and-answer session, please.

[Operator]

[Operator Instructions] And our first question comes from Ben Theurer with Barclays.

[Benjamin Theurer, analyst]

Yes. Congrats on the results. First question on U.S. Beef, and if I think I got this right on the call earlier this morning, but maybe you can help me with some clarification. So obviously, margins were under pressure on, I guess, no surprise here. But given what's going on with industry dynamics, a little bit of herd liquidation, how should we think about the near-term future in terms of capital availability and ultimately cattle pricing and how that's going to impact your profitability? And where do you think the -- what you've thing called the new normal is going to end up for beef in North America? That would be my first question.

[Gilberto Tomazoni, executive]

I think Ben, thank you for the question. Andre, I think you are in better position to answer the details of the industry dynamic and the normalization of the beef in U.S.

[Andre Nogueira, executive]

So the near-term cattle availability for the next 6 months are already defined with the Cattle on Feed report that was yesterday released on July 1 with more -- a little bit more Cattle on Feed now than we had in the same time of last year. I think that the exact number is 0.4% more Cattle on Feed now than we had in the same quarter of last year and the same time of last year. So we know the amount of cattle that we have availed for the next 5, 6 months. Margins continue to trend in the direction of more normal margins, whatever will be the normal margin. It's hard to say then at this point, I think that we need to wait some more quarters because we are going to have less cattle next year. How much less? It depends on how the drought to continue or not continue in U.S. So when we start to hike of herd in the U.S., and that's weather-related, we will know when we have more rain in the areas that are in drought right now.

And then right now, we have around 40% of the areas that grow cattle in the U.S. that's under drought. But we have a new dynamic in terms of access of U.S. beef in the global base, we have been calling the attention for this -- for quite a period of time since China opened for U.S. beefs and now China is the third largest import of U.S. beefs. And in spite of prices have been high in a historical level. We view U.S. probably the year to have to achieve the record number in terms of export of beef. So there's a new dynamic in terms of global demand. There's a new dynamic in terms of the value-added that we're doing inside of our operation. And we need to wait a little bit more in terms of what will be the new normal level for U.S. beef production.

Let me use this opportunity to your question, to talk a little bit about pork because I think that -- we had a pretty strong quarter in the pork business with 10.5% margin, EBITDA in U.S. GAAP. And I think that we need to recognize that our operation and been doing extremely well compared with our competitors. I think that this is a consequence of the strategy, the supply strategy that we define, the quality of our product, the value-added products, and we have been delivering this type of margin around 9% to 10% for several years now. And again, even with all the challenges related to China, importing less pork, U.S. export down, our pork business was able to deliver pretty strong quarter.

[Benjamin Theurer, analyst]

It was funny. That was my -- actually my second question, so I don't have to ask this anymore. And with that, we can go to Brazil and maybe some comments on Seara. I wanted to kind of understand. Obviously, we've seen an impressive improvement, not only on a year-over-year basis, but even more so on a sequential basis within Seara. Can you elaborate a little more on some of the competitive dynamics and some of the market dynamics? And what made it -- what helped you guys during the second quarter to get to those margins of 14%, which were clearly well above any expectations, I guess. So just to understand what drove it and how should we think about the second half in context of what the second quarter was?

[Guilherme Cavalcanti, executive]

So regarding Seara's profitability in the quarter, so we saw a decrease in corn prices in Brazil in reais, that hasn't affected our second quarter, it won't affect a big part of the third quarter, but it will be something that could be very positive for us going forward into the fourth quarter and the next year. Obviously, we also have to be aware that this can change depending on what happens with the exchange rate in Brazil and also what happens with the American harvest here in the U.S. that could change the overall price of corn in the world. So having said that, it's a positive for the future and something that we're optimistic about.

Regarding the individual businesses within Seara, so the chicken business, for sure, was a business that performed pretty well. In the domestic market and in the export market, we have a very high demand for beef or pork -- or excuse me, for chicken. A lot of that has to do with the demand for chicken as a competitive protein that's very accessible, especially in this inflationary time. So that has been -- either -- in all markets, it has been a very good. There has been a very good demand. And also, there is the supply side. So we know that worldwide hatchability in generic production, productivity has been relatively lower. And that has -- in some places, we have the Ukraine production of chicken that has been lower and that affects a lot, some of the European and Middle East markets. But we also have some -- especially in the North America and some places in Europe, we have the avian influenza. So all of those things combined, you have a scenario which demand for chicken has been very, very strong and supply has been restricted.

So that was a business that performed pretty well. Pork within Seara, we obviously not where it used it to be when we were exporting a lot of our pork to China, but there has been a rebound in the pork prices and in the profitability of pork. We know that in Brazil, the per capita consumption of pork is quite low. And most of the consumption of pork in Brazil is in the prepared category, very little fresh or consumption of pork, and that has been changing. We've seen a lot of movement in Brazil to grow the pork consumption, retailers promoting more pork. We have been doing a lot of work together with our retailers to promote more pork. We are doing very similar to what we have in the beef area [indiscernible] which is a program that we support retailers with -- in the loyalty program, we have been developing that in part. So we've seen a rebound and has been pretty good to see.

The other thing is the prepared business. Prepared business has been very strong for us for quite a period of time. It has been very resilient. We had a lot of price increases to compensate for costs. We have improved a lot of our mix. Our productivity in those businesses has been pretty well, pretty good. So there isn't one thing, Ben. There isn't one single business within Seara that delivered this result has been -- all of the businesses had a very good quarter, and we are very optimistic about the second half of this year.

[Benjamin Theurer, analyst]

Perfect. And then last question…

[Gilberto Tomazoni, executive]

Ben, sorry, just to add in terms of -- because you talk about what will we expect for the future of Seara.I'll add to what where as we said, that you can see in Seara 2 competence, I'd say, one is the competence for manage mix very well and take the advantage for opportunities in the market, external and internal market. This is make a lot of difference in the market like we have today. And the second one is the power of the brand, the preference of the consumer and the penetration, when you increase the penetration and increase the repurchases rates, you can predict what will be the future. We keep growing. I think this is -- it's important to understand how Seara keeps growing because of one was built this advantage for a long period of focus on quality and the other is the strong operating team that we have managed in the company.

[Benjamin Theurer, analyst]

Yes. That makes sense. And then just one final question. Do you have any update in terms of your plans, timing and the dependency of the BNDES for reselling part of its stake or all of its stake to move forward with the listing in the U.S. You've done all -- you could have done basically now on the fixed income side. But on the equity side, I know you still have this little project pending with the U.S. listing. So any update you can share on that?

[Gilberto Tomazoni, executive]

No, Ben, we -- about the listing invest, it's no news. We -- it's our priority. We have focused on to find the -- to design what will be the process that release more value from the -- from our shareholders, we don't need to work up. We need to be -- because we don't need the money for growth, we have the balance sheet that supports our future strategy. But for sure, it's a really -- our great opportunity for create value for the shareholders that you are focused on. The second thing is about being this, I think we are not to be able to answer because these are shareholders, and they take a decision by himself.

[Operator]

Our next question comes from Rodrigo Almeida with Santander.

[Rodrigo Reis de Almeida, analyst]

I have a couple of things from my side here I just wanted to explore with you. I think first talking about the export market. I wanted to get some color, both, maybe try to blend here Brazil and U.S. and just to get some color from you on demand, how that has been behaving, especially as in we here, at least we expected Australia to be a little bit stronger this year?

[Gilberto Tomazoni, executive]

U.S. for -- Rodrigo, if I understood, how we see the export market globally?

[Rodrigo Reis de Almeida, analyst]

Yes. Sorry. Can you hear me now? Can you hear me?

[Gilberto Tomazoni, executive]

No. Yes, go ahead.

[Rodrigo Reis de Almeida, analyst]

Yes, sorry about that. So yes, the export market on a global basis, I think the tight supply. So I want to see how things are going out of the U.S. to the other regions, especially to Asia and out of Brazil as well. I think that's the first question. The second question is related to Seara in investments in the Middle East, I think it's one of the -- let's say, given the constraints in supply of poultry, I think one of the interesting things that we've seen in that region is that you're demanding a lot, right? And I just wanted to get a take on how Seara has been working. And what is the strategy of Seara in the Middle East, especially as we talk about local investments over there? I think that's my second question -- my second question.

[Gilberto Tomazoni, executive]

Well, Rodrigo, about export, I think is U.S. and Brazil, Andre can complement after I say, look, the market -- the international demand for our protein is huge. We see Asia is strong demand. Beef is structural in the regions. You know that the per capita consumption is low compared for the other parts of globally, and this is aspirational. Beef that will be not changed, chicken now, it's a global demand for chicken is everywhere. It's not one region. We are seeing from Brazil. We see Brazil export higher volume in U.S. is important and all the regions is important because increased demand. I don't know if Andre, you want to complement this.

[Andre Nogueira, executive]

Okay, Tomazoni. For export from the U.S. is what we said. Pork is weak but chicken is being pretty strong and beef will be the record year for U.S. export of beef, U.S. and Canada contribute, very important player. And Asia is the biggest demand. So global demand will be very strong for protein overall, but now, especially for beef and chicken.

We are very similar from the Brazil side. So I wouldn't add too much from that comment. Rodrigo about the Middle East, it has been a priority this year for us. We have established our distribution network there. We use it to distribute in the Gulf through third-party distributors, we still have partners that help us with distribution of some brands. But Seara in the main markets in the Gulf, the 6 main markets, so Saudi, UAE, Qatar, Gulf, Bahrain and Oman. We are more involved than we're doing it ourselves. So this is new. This is something that is maybe a few months -- we're a few months into it, and it has been progressing really, really strong and will be an advantage for us going forward and we'll prepare the way for us to continue to build brands in the Middle East. So the other comment is, we have 2 production facilities now in the Middle East. So we have one production facility in Bahrain of Saudi Arabia, and we have a production facility in [indiscernible] UAE.

So those 2 production facilities are focused on prepared foods. We're able now to produce chicken, beef, prepared items in the region. And that will also be a big important platform for us to develop our brands in the region. We will also continue to invest in production capabilities in the region to be able to grow our brand in the region. And to put it similar to what Thomas Lopez said in the previous call in Portuguese, we believe that there is a very good space and very good chance for us to really work hard and repeat what we did in Seara in Brazil, in the Middle East region. We already have the distribution. We're going to have the -- we have the production capability, which will grow, and we think we can continue to develop our product portfolio there and our brand in the region. And that's an important priority, especially for our Seara base.

[Guilherme Cavalcanti, executive]

Rodrigo taking consideration that we not just export from Brazil. We export the Middle East from U.S. We export from Canada with products from Australia with products from New Zealand and with products from Europe. And this is a combination of opportunity we have globally for the region that was explained that we are creating our own network distribution, we are a creator brand and you take that advantage that we have more our global platform.

[Operator]

Our next question comes from Priya Ohri-Gupta with Barclays.

[Priya Ohri-Gupta, analyst]

I was hoping that I could just ask a couple of follow-ups on the process that you're undergoing with regards to the exchange and the consent for some of the bonds that you have outstanding. So assuming that the exercise goes according to plan, is it -- your intent is to add reg right to all of the bonds that are issued under sort of the 3 co-issuer USA structure. Is that correct?

[Gilberto Tomazoni, executive]

Yes. If the council is accepted by the majority of the outstanding notes, we will automatically -- will give reg rights for all of our notes, for all our bonds, which means that in the next 365 days, we will have registered these bonds in SEC.

[Priya Ohri-Gupta, analyst]

Okay. And what -- sorry, go ahead.

[Gilberto Tomazoni, executive]

Go ahead. What exactly?

[Priya Ohri-Gupta, analyst]

No, I was just going to ask if you can remind us what process you would have to undergo to actually do the registration given sort of some of the structural considerations and SOX compliance for some of your boxes, if you could just remind us exactly what the next steps will be to get from reg rights to registration for the bonds?

[Gilberto Tomazoni, executive]

Yes. The next -- the registration rights is just a filing on SEC and then we start to make the publicly we will file not only in CVA and Brazil, but we start filing our financial results at SEC. And this requires the company to be SOX compliance. And then we already have this process already done in some parts of the world, others we are developing. But we intend to register this bond next year, which means that we will need SOX compliance only by 2024, which is enough time for us to complete our projects.

[Priya Ohri-Gupta, analyst]

And so that would assume that the current organizational structure largely stays the same. Is that fair?

[Gilberto Tomazoni, executive]

Yes. No, we are talking about registering the bonds on the current group structure. We can do some simplified structure within the group, but not the current entity.

[Priya Ohri-Gupta, analyst]

Okay. And then I was hoping that you could give us a little bit more color around the dynamics that you're seeing in terms of demand for North America beef to retail versus food service. We saw some commentary come across the tape on the call this morning. If you could just share some of that insight with us on this call, that would be helpful.

[Gilberto Tomazoni, executive]

Andre?

[Andre Nogueira, executive]

Sorry, Tomazoni, could you repeat the question? I missed the last part of the question.

[Priya Ohri-Gupta, analyst]

Yes. So I was just asking if you could hit on the commentary on earlier calls that you have around the demand dynamics that you're seeing in North America beef to some of the inflationary impact sort of on the retail side and then what you're also seeing in food service.

[Andre Nogueira, executive]

They are all have been fair in the domestic market. I would say that for the high price cuts a little bit slow, like the Middle East have been a little bit slow. And you can see that how the price of the east coasts are behaving, we're good in the ground beef side and externally very strong, food services are being okay. But retail price have been pretty high. So if you compare now the sale price that is higher than the same time of last year, despite of the cutout has been lower. I think that retail have a lot of incentive to start to promote more beefs and maybe they will start now in this holiday season. But I would say that overall, domestically, this demand has been okay. Considering that you have to import much more beef in the first part of this year. And I think that this import will slow down in the second part of the year. So probably for the domestic beef, we are going to see a good to fair demand for the remainder of the year.

[Operator]

Our next question comes from Carla Casella with JPMorgan.

[Carla Casella, analyst]

Can you just talk about your views towards leverage going forward? And have you set a leverage target for the consolidated entity or the U.S. business that you're talking about registering in the U.S. market?

[Gilberto Tomazoni, executive]

Carla, yes, in March 2019, the Board approved that we should pursue to have a net debt to EBITDA between 2 and 3x. So this is our long-term target, which is a target that rating agencies requires for companies of our sector should be investment-grade. So basically, the idea is we want to keep the investment-grade. We won't continue to improve -- is to improve our ratings because given our financial metrics, we think we can improve our ratings, which would give us access to even other instruments, cheaper instruments in the debt capital market. So that's our policy, and this is valid for the entire group.

[Carla Casella, analyst]

Okay. Great. And is the plan still to lift the U.S. business at some point in the future?

[Gilberto Tomazoni, executive]

We still have plans on that. We don't need to rush. We don't need money because our leverage is low. We have balance sheet to continue to grow the company, and we still have plan and we are taking steps towards that. I would say, registering our bonds in SEC part of something that we facilitate this process in the future.

[Guilherme Cavalcanti, executive]

But for sure, it's our priority because it is a real opportunity for create value for the shareholders. We are find the best way that create more value to the shareholders. But we are keeping work on that.

[Operator]

This concludes today's question-and-answer session. I would like to invite Mr. Tomazoni to proceed with his closing statements. Please go ahead, sir.

[Gilberto Tomazoni, executive]

Thank you, everyone, to be part of this conference, and thanks to our team members that allow us to present these great results and to say that we are very confident of the strength of our team, our balance sheet, our platform to take advantage of the market opportunities in new fields to maintain profitability and growth. Thank you.

[Operator]

That does conclude the JBS audio conference call for today. Thank you very much for your participation. Have a good day, and thank you for using Chorus Call.