JBS SA

BOVESPA:JBSS3

Earnings Call Transcript 2023-Q2

[Operator]

Good morning, everyone, and thank you for waiting. Welcome to JBS S.A. and JBS USA Second Quarter of 2023 Results Conference Call. With us here today we have Gilberto Tomazoni, Global CEO of JBS; Guilherme Cavalcanti, Global CFO of JBS; Wesley Batista Filho, CEO of JBS USA; and Christiane Assis, Investor Relations Director. This event is being recorded. [Operator Instructions].

Before proceeding, let me mention that forward-looking 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'll turn the conference over to Gilberto Tomazoni, Global CEO of JBS. Mr. Tomazoni, you may begin your presentation.

[Gilberto Tomazoni, CEO]

Good morning, everyone, and thank you for joining in this conference call of our Q2 2023 results. The figures we are present today testify to the strength of our diversified global platform and our agility and capacity to implement the necessary operational measure, to optimize both our commercial and industrial performance.

We have mentioned in our previous call, in this quarter, we executed a series of important measures to regain efficiency of Seara and U.S. Beef. The first results have started to happen, but still below our expectation. We hope that more significant results will show in the next quarters. Even when we face a global market by an increased supply of poultry and tighter margin of beef business in the United States, a promising prospect we anticipate in 2023 have begun to materialize.

And although the global context remain challenging for the protein sector, we are confident that we have started a gradual recovery of our margin. In this second quarter, we've doubled our margin over the first quarter. Looking ahead, we see a scenario of more balance in poultry supply with potential positive impact on the sector prices.

We have also started capturing the decrease in grain price in our cost structure, benefiting our chicken and pork business globally. Australia is a great example when we speak for strength of our global diversification, geographical -- by geographical and by protein type. The Q2 figures from JBS Australia show we are already capturing the benefit of a greater supply of cattles, which is reflected in the decrease of our margin in the region.

Continuing in Australia, I'd like to highlight that June's performance above our expectation, validating our decision to enter in the aquaculture sector. In Brazil, the current cattle cycle is also favorable. The expansion of sales and of value-added products, strengthening partnership with suppliers and customers, increasing domestic market demand and open a new foreign market, reinforce our perception of a positive situation for beef in the upcoming quarters.

In the United States, the challenge of beef business will persist for the coming months, consider a scenario of tight margin with a lower cattle supply. Our diversification strategy has been complemented by investments in value-add products and strong brands in the country we operate.

In the end of March, we started producing branded products in our plant in Rolândia, a state of Parana in Brazil. And the results of these operations are promising. Even with market challenge, we have a relevant cash flow generation and with that, we kept our net dollar debt stable compared to the first quarter of 2023, while investing in expansion of our operation and distributing BRL 2.2 billion in dividends.

The increase of our leverage was expected, and we prepared ourselves for this moment, having extended the average terms of our debt, increase liquidity and reduce the cost of our debt. All of these factors reinforce our view that JBS has as a unique position in the global protein industry. And we believe that the competitive advantage of our diversified global platform have not yet been fully recognized and priced by the market.

That's why we see our dual listing proposal announced in July, a transformational step to build a new growth avenue just of our IPO was in 2007. Our dual listing strategy will give us more flexibility to financial our growth and deleverage in addition to reduced capital costs. We will have access to a broader investor base with greater financial capacity, favoring the unlocking value of our shares and expanding our investment capacity.

With the registration of our bond in United States, are now -- we are now a company regulated by the Securities and Exchange Commission and we will also disclose our financial results in U.S. dollars. This is aligned with our investors, which for an easier comparison of our performance against our global peers. We must also mention that we have begun this August, the celebration of JBS 70 anniversary, a company that start in a small butcher in the countryside of Brazil. And today, one of the largest food company in the world.

We are confident that with the diversification global platform, our culture and our people will continue to generate value for all stakeholders and create opportunities for the communities and for our more than 260,000 employees worldwide. We also thank you for closely following our journey. And now hand over to Guilherme, who will detail our results. Guilherme, please.

[Guilherme Cavalcanti, CFO]

Thank you, Tomazoni. Before moving on to the operational and financial highlights, and in addition to the comments already made by Tomazoni on the dual listing, I would like to emphasize the need for our investors to participate in the shareholders' meeting that will address this topic. We do not doubt the potential of unlocking value that an event of this magnitude can bring to the company and its shareholders.

Moreover, last year, several bondholders requested that we registered the JBS bonds with the SEC. We have attended that request in July, We will maintain the effectiveness of the registration of the 11 senior notes that we have. This important step is essential to expand the investor base, increasing liquidity and investors' confidence.

Since we announced the registration on May 19, our spread over treasury has dropped approximately 1 percentage point, reducing the company's cost of capital and the interest rates on future funding. With this registration, JBS became a public reporting company disclosing its information to the SEC as of this quarter. We will be filing using the S6K form with financial statements and press release in U.S. dollars. This is aligned as Tomazoni mentioned, with our investors' desire to be able to better compare JBS with its international peers. It's also aligned with the company's operating structure, which has the majority of its revenues in dollars.

Therefore, starting next year, JBS will become a SOX compliant, having financial statements in PCAOB standards will be subject through FCPA compliance as well as other factors that contribute to the company's governance and the dual listing has the potential to introduce further governance enhancements. In June, we also announced the payment of interim dividends in the amount of $448 million, equivalent to $0.20 per share.

Let's now move on to the operational and financial highlights for the second quarter of 2023. Starting with Slide 12, please. Net revenue of the second quarter was $18 billion. Adjusted EBITDA totaled $903 million and represents a margin of 5% for the quarter. Net loss of $53 million for the quarter. As we mentioned on our last earnings call, we were confident in the gradual improvement of results when compared to the weak performance of the first quarter and this materialized in the second quarter.

This confidence of ours is based upon the strategy of geographic and protein diversification but also on the full confidence of our ability to execute its fundamental in this industry. Given that we were quickly able to identify our internal issues and address them appropriately.

Please now move to Slide 13. Operating cash flow in the quarter was $1.1 billion, an important improvement when compared to the first quarter. This result is due to the improvement in the operating income and working capital, which had a positive impact of $355 million. The main gains came from the improvement in accounts receivable and reduction in inventories as a result of reduction in the price of raw materials, mainly grains and live cattle in Brazil and also from the company's better commercial and operational management.

I would like to highlight here some important updates that we committed in the last quarter. The first is related to grains. We mentioned that we would potentially have a gain of $340 million in the year in terms of grain prices. Now we are estimating $450 million because -- due to the decrease in grain prices, mainly corn and we already have captured $150 million this quarter, and we project to capture another $300 million in the second half of the year.

Regarding taxes, the monetization of tax credits of $100 million already happened in the second quarter. Additionally, the tax to be refunded of $85 million in U.S. was already had a $30 million impact in the second quarter and the remaining entered in July. And therefore, it will appear in the next earnings release.

Finally, we had mentioned a reduction of $250 million of finished goods inventory for the year and there has already been a reduction of approximately $110 million in the second quarter. Capital expenditures in the quarter was approximately $394 million, which 51% related to maintenance CapEx. So considering the above factors, free cash flow for the quarter was positive in $366 million.

Moving on to the Slide 14. We have the evolution of our debt profile. Net debt at the end of the second quarter was $16.7 billion, practically stable compared to the first quarter. The adjusted EBITDA of $903 million and the improvement of -- in working capital of $355 million were sufficiently to the payments of the dividends in the amount of $148 million, capital expenditures in the amount of $394 million and accrued interest of $263 million.

Net interest expense for the quarter was $265 million, flat when compared to the previous quarter. It's worth mentioning that 75% of our debt is in the form of dollar-denominated senior notes with a fixed interest rate. Leverage in dollars increased to 4.15. The increase that is explained by 56% reduction of the EBITDA of the last 12 months ended in the second quarter when compared to the same period of the previous years. However, our average debt term is quite comfortable in 9.3 years with the first major maturity occurring only in 2027.

Let's now go quickly through the business units. Starting with Seara on Slide 15. Net revenue for the quarter fell 3% year-over-year, reflecting lower global poultry prices due to a global oversupply. On the other hand, profitability improved sequentially as a result of operational corrections to the problems we faced in the previous quarters. Furthermore, I would like to point out that the new chicken branded plant inaugurated in the first quarter is at an accelerated pace of production and with good sales performance, further reinforcing the growth of value-added portfolio.

Moving now to Slide 16. JBS Brasil registered a stable net revenue in relation to the same period of the previous year. Beef exports reported a growth of 10% in net revenue and 2% in the domestic market in the end of comparison. It's worth noting that the results for the first quarter were impacted by the self-embargo of beef exports to China after the confirmation of an atypical case of BC.

That generated a larger inventory of beef in the domestic market and the decline in the exports for the period. Thus, with the end of the self-embargo and favorable beef cycle in Brazil, coupled with a greater international demand for beef both sales and profitability were positively impacted in the second quarter. Moving on to Slide 17 and U.S. GAAP. From now on, JBS Beef North America, net revenue grew 5% year-over-year. EBITDA margin was 1.4%. Although profitability still reflects the turn of the cycle -- the cattle cycle in the end of comparison, the sequential improvement in profitability is a result of a favorable seasonality in the period and the operational and commercial improvements implemented during the quarter.

Moving on to Slide 18. We have JBS Australia. Despite the drop in consolidated net revenue in the end of comparison, EBITDA margin grew significantly to 8.6% in U.S. GAAP. This improvement mainly reflects the lower purchase price of live cattle given the greater rehability of animals due to a more favorable cycle.

Moving now to JBS USA Pork. Net revenue for the quarter was 16% lower compared to the second quarter 2022. The main impact in the business unit continues to be the oversupply of pork in the domestic market, which pressured results for the period. On the other hand, according to the U.S. inventories are on a downward trend, which could benefit the rebalancing of supply and demand in the medium term.

Pilgrim's Pride on the Slide 20 represented a reduction in net revenue of 7% in the second quarter in the end of comparison. In the USA, despite still adverse scenario in the prices of products for the use of raw materials, big birds, we were able to improve profitability through a more diversified branded portfolio and our partnership with key customers. In Mexico, the normalization of supply and demand, coupled with the adjustment in the live chicken operation contributed positively to the profitability.

Finally, in Europe, the positive trajectory of margin growth continued driven by the ongoing optimization of the manufacturing network, cost recovery efforts, consolidation of back office activities and increasing in partnership with key customers. With that, I would like now to open to our question-and-answer session.

[Operator]

[Operator Instructions]. Our first question comes from Lucas Ferreira with JPMorgan.

[Lucas Ferreira, JPMorgan Chase & Co.]

My first question is regarding the initial comments that Tomazoni made about the dual listing, making the company more flexible in the future to grow and also kind of keeping the balance sheet under control. So my question is, if you already see the company, already sees opportunities in M&A, the company was a bit more quiet in terms of M&A over the last few years. You guys invested a bit more in organic growth as opposed to M&A. So my question is, if you see the market already kind of more favorable or more interesting deals happening potentially in this year or next year that could justify eventually when the company raising capital to pursue M&A?

And the second question is regarding China. I mean there were several comments made about the markets in general and the Portuguese call, but I wanted to specifically focus on China, how you see the market there. We've been seeing a very important economic slowdown if this is majorly impacting the protein prices, I was seeing we have a flavor of inventories in China. Any view that the prices of all proteins, pork, chicken, beef could be increasing in the second half versus the first half.

[Gilberto Tomazoni, CEO]

Thank you, Lucas, for the question. About your question related to M&A. We in the last years, we made some greenfields because the price of the assets or the target was we consider that is not value that -- not create value to us in terms of margin, in terms of multiples. And because of that, we start the process to build the greenfield. We see now the market more reasonable. And we -- when you say that this dual list has the potential, transformational potential. Like we had when they IPO in 2007, it's the reality because if we have a great project, we can do our transformational acquisitions that move our multiples.

And this is kind of a cases, so we are looking forward in the future. We don't have anything now to that. But for sure, we are creating conditions for that in the future. I think is we have a potential to move our multiples in -- with a right acquisition in terms of value-added or the other business that we are mentioned before that it is our strategy to enter in aquaculture. But this is -- we don't have anything for now. Which is, for now we are focused to be approved our dual listing that we can think about greater after that.

About China, then look if you -- whereas we complement -- or Guilherme, I see China as -- we see now in a short term, we had a decline in terms of price and decline in terms of volume. But this was because of the end of the lockdown there and because we have in BSE in Brazil. And then we have this situation that some volume of meat was in order and that decide to enter, not enter, and then was approved in the one moment and everything, that created oversupply or say, oversupply for the moment.

And now the price decreased. But we see from there now that all the price was recomposed. And then I see that market keeps growing because it's structural. We need to focus on the demand for protein. We need to produce until 2050, 70% more protein, this is a fact. And the consumption comes from Asia, it comes from the Sub-Saharan Africa. You made a specific question on China. I see that the China consumption of beef keep growing. And they are not affected by the situation now because beef is consumed for the top of the pyramid and not for the low of the pyramid. And this, for me, it's structural. It will be not changed because of the market situation or not -- because the consumption is too low compared to the other part of the world is one thing.

About beef, about chicken and pork. Pork, 50% of the pork is produced in the consumer in China. This will remain. It's the -- we had the problem before our disease, but this is a composite now. And I see that will be start by -- as they buy it in the past. And it's a small volume compared to the old consumption there. Of course, small volume for China, it's big volume production in the country from Brazil as well, for example.

But still, we will be not a focus to produce pork to supply China. China is an opportunity in terms of supply pork. Other countries there is really an opportunity in supply. And chicken is the same. I don't know if some one of my colleagues want to complete.

[Guilherme Cavalcanti, CFO]

Just let me just put some color. When I joined JBS almost 5 years ago, the per capita consumption per year of beef in China was 4 kilos per person. Today, 7.8.

[Operator]

Our next question comes from Andrew Strelzik with BMO.

[Andrew Strelzik, BMO Capital Markets]

My first one is about the expectations for the margin recovery in Seara for the rest of the year. And how you're thinking about the margin potential for that business in the back half? You talked about fee cost benefits. You've talked about improving poultry supply demand. What are the other puts and takes? How much more efficiency opportunities are there to recover there that you didn't recapture in this quarter?

[Gilberto Tomazoni, CEO]

Andrew, thank you for the question. We see that we -- if you look for our results, the efficiency, we kept it. And this quarter was around 1% in terms of EBITDA. But we see whereas already identified and from the farms to the processor plants and farms with the feed conversion, mortality, and the factory is yield and productivity, we see more 3% to 4% the opportunity to be kept in these sectors. I don't know if I answer your question or?

[Andrew Strelzik, BMO Capital Markets]

That was part of it. That's very helpful. I guess the rest of it is just when you think about how much better given the poultry supply demand, given the feed cost, how much -- and the efficiencies, how much better can the Seara margins be in the back half of the year in your opinion?

[Gilberto Tomazoni, CEO]

It's difficult to say when, but our -- this business, Seara business, with our portfolio we have, with the brand we have, our expectation for this business is from 12% to 50%. This is the margin that we are focused to have. And of course, these -- the conditions to be -- there should be a more reasonable supply in terms of the market. And I mentioned in the Portuguese call, that Seara, we have invested BRL 8 billion in the last 4 years. And now we are start to ramp up new factories most of them in value added.

And this, when we start to ramp up, you have cost per kilo higher than the standards because it's the ramp-up. We have planned during this year, this second half of the year. We have more one plant to ramp up. And the beginning of next year, we have more 2 plants to ramp up. But this is great and additional cost, but they produce much higher in terms of EBITDA because we have an example now for branded product. We ramp up 3 months ago, the plant, and we are full capacity already. That was much quick that we expect to be full. And maybe will be not all of the category at the same. But I can say, look, it's something that we see that Seara in the future, we are investing for growth margins because we are invested in value-added. Then what we expect Seara? The expectation is 12 to 50, more to 50 than 12.

[Andrew Strelzik, BMO Capital Markets]

Okay. That's very helpful color. I appreciate it. And if I can squeeze in one more question. Just on the beef businesses outside of the United States, I mean Brazil is making progress on the margins. Australia put a very, very strong margins. Where are we in the cattle rebuilding cycle in those 2 markets? And how should we expect that to impact margins as we think about the rest of this year and into next year for Australian beef and Brazil beef?

[Gilberto Tomazoni, CEO]

Andrew, in Australia, we -- Australia and Brazil, both we are at the beginning of the cycle. We are -- we just start, we are mentioned that last quarter when the results of Australia was really below our expectations. I mentioned that it's not, the herd is in the land, it's in the farm. It's not -- not come yet to the processor plant because of the favorable weather conditions to the farmer to keep cattles in the land. But now because there is an optimal moment to sell. Now the herd, that cattle start to go to the factories, we are in the beginning.

Australia, we ramp up our operation before we work some plants for 3 days. Now we have 5 days or weeks. Now we are looking for labor to have the second shift in the beginning of next year. Then we see Australia for good conditions for the next 2 years. It will be no different from Brazil. We see that the favorable conditions for Brazil for the next 2 years because both are at the beginning. They are opposite to the U.S. I think when they are at the end of the cycle U.S., started new good cycle there. I think this is the beauty of our diversification because we have in the same business, we have different geography and we have different moment of the cycle. This is how I put a lot of emphasis. Look, there is the strong competitive advantage of JBS to have this diversified platform.

[Operator]

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

[Priya Ohri-Gupta, Barclays Bank]

Priya Ohri-Gupta from Barclays. I was hoping we could start with sort of the pork market in the U.S., as you mentioned, some of the more recent data seems to be a little bit encouraging. How should we think about margin performance for that trending over the back half of the year? I know you mentioned some of the USDA data for the mid-medium term, but trying to get a little bit more of a shorter-term perspective, maybe the next 6 months or so?

[Wesley Batista Filho, CEO, JBS South America]

Like I said in the Portuguese call, we believe that the third quarter is going to be a good quarter, better than the first half of the year. Fourth quarter still early to tell for these margins to really, really change and go back to what historical has been. We still think that there will be a need for a bigger adjustment in a number of sales and the total production of pork in the U.S. So we are optimistic about third quarter. Fourth quarter, we're not. It's not yet clear to us, but we expect that the second quarter should be -- second half of the year should be better than the first half, overall.

[Priya Ohri-Gupta, Barclays Bank]

As you think about some of the production capacity that's out there, does that need to come down at all? Do you need to be facility closures in order to support what's going on the pork side?

[Wesley Batista Filho, CEO, JBS South America]

Priya, from our side, we -- on our end, we have very, very efficient plants. Most of our plants are double shift. So this is not from our side, and it's very difficult for me to try to estimate what this looks for, for the rest of the industry. But overall, we think that the -- we are seeing on the production side, not talking here about facilities, but talking about the production side. We're seeing more inefficient and older south facilities coming out of market overall and the newer facilities being more productive overall.

So we believe that that's something that is a trend. But talking about facilities will be very difficult. On our side, it's -- all of our plants are double shift, very efficient, very stable customer base and a stable supply base.

[Priya Ohri-Gupta, Barclays Bank]

Okay. That's helpful. And then, Guilherme, if we could switch a little bit to talking about your free cash flow performance. Congratulations on the working capital improvement in the quarter. As we think about the dividend that was paid in this quarter and the potential for the special dividend to be paid in the fourth quarter. Should we anticipate that the company will be able to pay that with cash flow generation? Or could there be a need to take on a little bit of extra debt to help fund that?

[Guilherme Cavalcanti, CFO]

Thank you, Priya. Now we expect that we will be generating free cash flow in the second half to fund this possible special dividends if the dual listing is approval in the general assembly. So from now to the time that we would have to pay these dividends, we expect to generate free cash flow basically because of our EBITDA improved and because of the working capital release from the grain side, which we released at $150 million this quarter, and we expect more $300 million of working capital release given the future markets of the grain prices.

We also have better margins compared to the first half. So we expect to generate cash flow and we would not have need for funding to pay these dividends. However, we may access the market for liability management purposes. As you see in our press release, we have $2.2 billion of short-term debt. And then if we have opportunities to extend the short-term debt, we may do it.

[Priya Ohri-Gupta, Barclays Bank]

So if we think about, I guess, that short-term debt, and this brings me to my next question around your CRA notes or the agribusiness receivable certificates, there is a net leverage threshold of 4.75x in real that would sort of limit additional incurrence. Is that something that you could potentially look to address? Are there any concerns that you might come close to this threshold or need a waiver? How should we think about that? .

[Guilherme Cavalcanti, CFO]

Priya, no, there's no concern on that. First, you're right, it's the only covenant that remained is on part of this agriculture receivables, which comprise of around $1 billion. So the first is that we can just fund from trade finance or any other capital market and pay this $1 billion. However, as you mentioned, it's an incurrence covenant, and we have several baskets beyond that threshold.

So if we reach 475 , let's say, by the third quarter, we still can raise more 1% of our assets, plus more 25% of our EBITDA and plus other refinances and we'll be able to refinance all the debt that we had at that time. So there's absolutely no concern, especially because as we mentioned before, we don't expect any need -- any funding needs given that we expect free cash flow generation. And these agriculture receivables that we still have covenants because we issued them before granted investment grade.

This will be amortizing also in the next year, then we can accelerate the amortization with other types of funding. But given that we think that as of the fourth quarter, we start to leverage, given that the status quo effect of getting the last 12-month EBITDA will be -- status quo effect will be ended in the third quarter. We start to deleverage on the fourth quarter and beyond. So this maybe be one or at most 2 quarter event of being above that threshold.

[Priya Ohri-Gupta, Barclays Bank]

Okay. Very helpful. And then my final question is just a technical one. If the listing goes through and I realize we still need to sort of get past that in the coming months. But if that were to happen, should we expect you to move the bonds to that listed entity as well as you think about better aligning your capital structure?

[Guilherme Cavalcanti, CFO]

Priya, yes. We have this possibility in our documentation. U.S. will always be a co-issuer, but we can move the Luxembourg issued to the Dutch company. But we don't have any urgency in doing that. But it's -- because the financials that we'll be filing SEC as of this quarter, it's already the consolidated numbers. So if there's any simplification of gain in doing that, we have this flexibility for sure.

[Operator]

Our next question comes from Antonio Hernández.

[Antonio Hernández, Barclays Bank]

Just a quick follow-up on the Australia segment. I mean you already mentioned where could we see some upside there, but if you could quantify that, that would be appreciated. And then I have another follow-up.

[Gilberto Tomazoni, CEO]

Antonio, thank you for the question, but I have a problem to understand your question. If you don't mind, please, could you repeat?

[Antonio Hernández, Barclays Bank]

Yes, sure. Regarding Australia, you already mentioned where could we see some upside going forward, but if you could quantify that, that would be appreciated. And then I have a quick follow-up.

[Gilberto Tomazoni, CEO]

We don't give forecast about our business. It's not our policy. But I can tell you, we are in the beginning of the cycle. And if you look for the past, our results, it's a good perspective, how we can deliver. But we are saying that in Australia, Beef is our big segment and we are just in the beginning. We see that the margin will be similar or could be higher, could be low because, of course, the Australia export 70% of the production.

If the marketing conditions will be help Australia. For example, in U.S., we have now reduced in terms of availability of cattle, could be help Australia to be more active in international market because we are competing in some markets. This is -- we see that -- we see for Australia from the common quarters, the results in the similar we have released it.

[Antonio Hernández, Barclays Bank]

Okay. And just a quick follow-up regarding the U.S. as you mentioned. Overall, what do you think are the cattle costs in the U.S., especially after live cattle prices are being higher after another one. So if you could provide more light on the U.S. in that sense, that will be helpful.

[Wesley Batista Filho, CEO, JBS South America]

Sorry, Antonio, could you repeat that question, please?

[Antonio Hernández, Barclays Bank]

Yes. So on your perspective on cattle costs in the U.S., especially after cattle prices are being higher, a little bit unexpected on that book? Any perspective on the U.S. beef business?

[Wesley Batista Filho, CEO, JBS South America]

Yes. So Antonio, what exactly the cattle cost is going to be is going to depend a lot on the activity level of the industry on the supply on any given month. But we know that from a supply perspective, we are in a tight supply of cattle right now. We're going into 2024 in which we're going to start seeing a herd rebuild, hopefully, and all signs point to that.

So we're going to start seeing herders coming out of the -- not going to feed lots and actually going to breeding herds, which should, in 2024, actually restrict supply further, which is all the public data points to. So this is no news. So we expect that we already are in a tight supply situation. And going into next year, we're probably going to see a tighter supply for cattle.

[Operator]

Our next question comes from Carla Casella with JPMorgan.

[Carla Casella, JPMorgan Chase & Co.]

Just a couple of follow-up clarification questions, the dividend that you expect to pay with the listing, can you just talk about the thought process before that -- around that, sorry? And if that's contingent on the listing and the time frame of it?

[Guilherme Cavalcanti, CFO]

Okay, Carla. Yes, first, it is contingent on the approval of the listing on the general assembly. So expectations is to be paid only by year-end of this dividend despite it has been announced in the last quarter.

[Carla Casella, JPMorgan Chase & Co.]

Okay. And is that assumed the amount, assuming that would be the typical Brazilian 25% of net income payout? Or was it just a -- I'm guessing how you arroved -- I'm wondering how you arroved to that number?

[Guilherme Cavalcanti, CFO]

Now the number which we already announced, which is BRL 1 per share or $0.20 per share, that is the same that we paid in June, $448 million and this amount was just because we want to -- we'll try as all other food companies, we want to try to make our dividends more stable for predictability purposes. So last year, we paid $900 million in dividends. This year, if it's approved on general assembly will be another $900 million. But the main reason for us to put this special dividend is to -- for the shareholders that faces any capital gains in the exchange on the listing process, they have the funding to pay for this capital gain.

[Carla Casella, JPMorgan Chase & Co.]

Okay, great. So you haven't set a policy yet for dividend payout after the listing, but do you expect it to be similar to where it was before? Or would it be lower since you don't have the 20% -- 25% Brazilian requirement for payout?

[Guilherme Cavalcanti, CFO]

That's a good question. Yes, we will not have the 24% or 25% minimum dividends payout. It's something that's very particular to Brazil. We'll have -- we will be designing and mentioning a new policy that we already been working that since the last trials will be more generic. Basically, will be a language, the new dividend policy will be a language that it is based on our free cash flow generation. .

Because we are a cyclical company, we have to have the flexibility, although we'll be trying to make it more stable as possible but we cannot commit ourselves to more specific pyramids given the cyclicality of our business. So it will be something that we'll mention -- that will be based on our free cash flow generation.

[Carla Casella, JPMorgan Chase & Co.]

Okay. Great. And then you commented that third quarter will be your peak leverage and you should start deleveraging by the fourth quarter as the cycles, easier comparisons in the cycle. Do you think you'll be able to keep your leverages out of the 5x? Or could you have ratings risk on third quarter earnings?

[Guilherme Cavalcanti, CFO]

Yes, I remember that the rating agencies, they work on a moving average of 2 historical years and 3 forecasted years. So 1 quarter being on levels of 4 to 5x, it's not enough for them to make a revision. And this third quarter peak will not come from an increase in the debt. But a status quo effect that the denominator will be exchanged last year's EBITDA of third quarter of $1.9 billion to something lower. But on the fourth quarter, we already had a more tough fourth quarter last year. We expect to be better this year.

So then this status quo effect finishes and our free cash flow begins our deleveraging process. This is not a guidance, but just to give you an account that let's see what is necessary to happen for us to be at 2.5x, which is our long-term target by 2025. If we -- so for making this calculation backwards, if you have 5% margin this year and an average of 6.5% of margin in the next 2 years, we will reach the 2.5 by 2025, in the third or fourth quarter.

So this is the natural path of the leverage that the rating agencies can consider in their forecast. Remembering that the last 5 years, our EBITDA margin averaged 10%; in the last 10 years, this average was 9%; and in the last 15 years, the average is 7.5%. So if we consider margins below those levels, we still managed to reach 2.5x by the end of 2025.

Basically, these calculations I mentioned in calls before, 75% of our debt is bonds that has fixed coupon. So our interest expense is in the range of $1 billion to $1.1 billion per year. Our leasing is around $500 million per year, our capital expenditures in the range of $1.3 billion to $1.4 billion per year. Tax will be -- this year will be much lower than last year given the tight margins that we are presenting. So breakeven EBITDA, we can continue to assume around the $3 billion figure. So you see that those margins, you can make the calculation of the excess free cash flow that deleverage the company.

[Carla Casella, JPMorgan Chase & Co.]

That's fantastic. Maybe I'll just ask one more business question. You've made some management changes in additions over the last 6 months. Are you still looking for any key members of your team? Or are you fully staffed at this point?

[Gilberto Tomazoni, CEO]

Sorry, can you, Carla, could you repeat the question, please?

[Carla Casella, JPMorgan Chase & Co.]

Yes, yes. You've made some management hires over the last 6 months or management changes. And I'm just wondering if all of your key roles are filled at this point? Or are there any missing links of holes you're expecting to fill between now and year-end? On the management.

[Gilberto Tomazoni, CEO]

Carla. Okay. It's clear. Thank you for the question and the opportunity to clarify. We have made some change in our structure in order to accelerate the change we need to do in our operations. We are now designed after the delisting what will be the right structure for managing our business. So far, we are not in the market for look at someone for any position. But all the time, we are -- use our internal team to promote for different positions. But if you look for the top level now, C level, we are not looking for anyone for any position at the moment.

[Operator]

Our next question comes from Ben Black with RBC.

[Unidentified Analyst]

Just a quick question on a go-forward basis. I know that in the infographic that you guys set up showing how the dual listing will go. You had mentioned the possibility to raise money to potentially deleverage. Maybe just help frame how you see accessing -- potentially accessing the market in the future to deleverage the balance sheet under what circumstances you would do that, one And second of all, your comments about potential M&A in the future earlier in the call. Maybe just speak about how using equity to do acquisitions would be considered?

[Guilherme Cavalcanti, CFO]

Thank you, Ben. Just as I mentioned before, we don't need an equity raising to deleverage the company, as I mentioned in the previous question. Only if we wanted to speed up this deleverage. So I think situation that could -- might raise equity, I would say, first on a transformational M&A that we could use this currency, which we don't have anything right now, but that's a possibility.

And it will also depend on how fast the re-rating of our shares happens. Just to give you a sense, PPC, which we own 82% has a market cap of $6.1 billion, while JBS has a market cap of $8.8 billion, more or less. So PPC multiples, it's in the range of 9x while our boats falls in the range of 6x. So in order to have an efficient equity raising, we would need this re-rating to happen then so the dilution will be less for the shareholders.

[Unidentified Analyst]

And then just one last follow-up question. I know you said earlier that the rating agencies were very aware of your deleveraging path and are comfortable with it. I guess if you were to come into a situation where they were less comfortable, would you feel comfortable raising equity to preserve the investment-grade rating?

[Guilherme Cavalcanti, CFO]

That's something that you have to think when it comes. As I mentioned, it will all depend on the level of the share price will be the multiples that we have. So this is something that we have to discuss on the contest to when it appears.

[Operator]

Thank you. 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, CEO]

I'd like to thank you, all of you, to be part of our conference call, and thank you for our investors, for our suppliers and our 260 team members that made these companies be the great company and one of the largest food company in the world. Thank you.

[Operator]

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