JBS SA

BOVESPA:JBSS3

Earnings Call Transcript 2022-Q3

[Operator]

Good morning, everyone, and thank you for waiting. Welcome to JBS S.A. and JBS USA Third Quarter of 2022 Results Conference Call. With us here today, we have Gilberto Tomazoni, Global CEO of JBS; Guilherme Cavalcanti, Global CFO of JBS; Wesley Batista Filho, Global President of Operations; and Christiane Assis, Investor Relations Director. This event is being recorded. [Operator Instructions]

Before proceeding, lamination 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, and thank you very much for your presence in this call to review the results for the third quarter of 2022. I'd like to note that, after many years, Andre Nogueira is not here with us today. The transition of his role to Wesley Batista Filho has been completed. I want to take this opportunity to thank and address one more for his immeasurable contribution to the company over the years. He remain with us in our advisory board in U.S. and our [indiscernible] board. I would also like to wish wherever he is success in his new role as our Global President of Operations.

We recorded the highest net revenue in our history for a quarter at BRL 98.9 billion. Our annualized revenue is already close to BRL 400 billion, a major milestone for JBS, which is now the largest food company in the world in terms of revenue. We are experiencing a period of rising costs, such as electricity, grain, and other cost, and increasing inflation in several countries, impacting our cost structure and the consumer behavior, especially in Europe. In additional, our beef business in the U.S., United States is returning to the normalizing margin. In 2021, this margin experiencing is very high. This return to normalized margin was already anticipated by the market. Despite this circumstance, our numbers for the quarter once again demonstrate our ability to produce solid results. During the quarter, we posted a net profit of BRL 4 billion and reducing our gross debt by $1 billion compared to the second quarter of 2022, as we are detailed later. The stress and releasing of our global presence once again made a difference. This is the result of our solid geographical and multi-protein strategy diversification, the high quality of our team, our agile leadership and our disciplined management.

Looking at our geographic and potent diversification. I believe that the market has not yet understood our competitive advantage, but I'm glad that some analysts have already recognized this, and I hope that soon it will be evident to all market. Guilherme will present later our liability management strategy has placed us in a comfortable cash position. We have created a leverage ratio of 1.7x in U.S. dollars and increased average terms of our debt from 62 to 10 years. In addition, we have the significant maturities until 2027, and we have reduced our costs and our debt. Our solid financial conditions allow us to navigate it to the challenging market scenario, leaving us well-positioned to take advantage of the opportunity that may arise while we maintain a conservative position that is necessary to consider the global economic scenario. Since 2021, we have invested more than BRL 26 billion in the expansion of our business, including more than BRL 15 billion in greenfield projects in Brazil and United States.

Most of these new plants will be operated by the end of this year and throughout 2023. We have stressed our presence in relevant market with the expansion of our plans, our Seara business in Brazil, and the prepared food business in U.S. Grow remain a core status of the company, and we are confident in the value creation privity of these investments provide include the ability to strengthen our free cash flow.

In this period, we have further diversified our business with our entity in the salmon market in processing of one acquisition in Australia, our especially in the pork market in Australia in the acquisition of rival with relevant investment in alternative proteins with acquisition of Ivera and our investments in technology with a cultivated proteins.

Our area of the responsibility to the future generation in society, we have made progress in our net 0 2004 commitment, focusing on actions that make the company more sustainable and at the same time, more competitive and more productive, increased efficiency in our process and reducing waste across our value chain -- consistent with our sustainability focus in the quality, we have launched Genu-in, which produced peptides and gelatin [indiscernible] by making use of bovine skin, waste become raw materials for another process, increase efficiency and reducing emissions. In U.S., Gigas made an important investment to convert methane in the renewal energy son. In Europe, JugiU.K.is invested to improve energy efficiency projects across several of its facilities. Our journey to Nets will make JBS more efficient, more competitive and more sustainable. Our focus remains putting the best people in the right place to exceed and grow, maintain efficiency and streamline the management structure, reinforce our culture of ownership and execution and the constant improvement of our unique diversified business platform. This what is give us the opportunity to face different scenarios and market conditions. Thank you for your time this morning.

And I will now pass Guilherme who will give details of our results. Guilherme, please.

[Guilherme Cavalcanti, executive]

Thank you, Tomazoni. Let's go over the operational and financial highlights for the third quarter starting on Slide 17, please. I would like to start highlighting all the liability measurement that we carried out throughout the quarter and the significant benefits of obtained with. The reopening and pricing of $2 billion of senior notes with maturities in 2028 2033 and 2052, with which JBS used the net proceeds to pay in full the term loan B. With this payment, the company reduced its secured debt from 15% to 4% remaining in its balance sheet, only the secured debt of Pilgrim's Pride. Moreover, the proceeds were also used to redeem the 2028 and 2029 bonds with a components of 6.75% and 6.5%, respectively, in addition to the payment of other short-term debt.

At the beginning of October, we conducted the issuance of agribusiness receivable certificates in the amount of $289 million in 3 series with maturities of 27, 32, and 37 -- we also announced last week the net expansion of $600 million in availability of revolving credit lines. We currently have a total amount of $3.2 billion, of which $2.8 billion at JBS S.A. and $550 million at JBS Brazil.

In the quarter, other important highlights were the registration rights of our senior notes with the U.S. Securities and Exchange Commission, the simplification of the debt structure through the consolidation of the issues of all the nodes, and the removal of collateral from the subsidiaries of our JBS USA indebtedness. These steps are essential to expand the potential investor base, the liquidity of the notes in the investors' confidence in addition to improving comparability with the companies with investment-grade credit risk due to the permanent removal of all high-yield covenants from the notes. The impact of all these liability management led JBS to increase its average debt term from 6.2 years to 10 years in the third quarter 2022 while reducing the cost of debt with a positive net present value impact of the interest reduction of the last 2 lab management of $75 million.

Our financial leverage in dollars remained at very comfortable levels of 1.76x. Yesterday, we announced that we will pay the interim dividends in November 2022 in the total amount of $133 million, which represents a $0.20 dollars per share. Finally, I would like to point out the return on invested capital was 22%, considering the third quarter last 12 months results. Now moving on to Slide 18. We were present the financial and operational highlights for the quarter. In the third quarter of 2020, we achieved net revenues of $19 billion, which represents an increase of 7% in the annual comparison. The adjusted EBITDA for the quarter was $1.8 billion, which represents an EBITDA margin of 9.6%. Net income was a total of $765 million in the quarter, which represents an earnings per share of $0.30 per share. I would also like to highlight that considering the third quarter of 2022 last 12 months, net revenue was a record of $72 billion, adjusted EBITDA of $8.2 billion and net income of $3.7 billion. and the earnings per share of $1.63. Please now moving to Slide 19. The operating cash flow in the quarter was $1.3 billion. Free cash flow for the quarter was $615 million. In the quarterly comparison, free cash flow generation was positively impacted by the lower consumption of working capital, mainly given the improvements in accounts receivable of $280 million. Considering the better flow of sales to China with less restrictive measures in relation to COVID-19 during the quarter. Additionally, we had a reduction in tax payments of $242 million quarter-over-quarter. In the third quarter of 2022 last 12 months, the operating cash flow was $4.1 billion. Free cash flow generation was $1.2 billion.

Excluding nonrecurring payments of $486 million and expansion CapEx in the amount of $1.2 billion, free cash flow of the last 12 months would have been $2.9 billion, which represents a cash conversion of 35% of the adjusted EBITDA. We have also increased investments in the company's organic growth. In the graph on the bottom of the slide, total CapEx was $566 million, of which $286 million was expansion CapEx, mainly given investment in expansion at the Seara and prepared food plants in the U.S. Now please let's move to Slide 20, where we have the evaluation of our debt profile. Net debt in the third quarter 2002 was $14.5 billion, which represents a decrease of $432 million from the second quarter on the back of the higher free cash flow generation and also positive reversion of operating working capital. Our gross debt was reduced in $1 billion from the second quarter to the third quarter. Net leverage was 1.76x in dollars and 1.81x in reais, while interest coverage was 10.2x in the third quarter of 2022, both extremely comfortable radios.

In addition, it is important to highlight our comfortable liquidity position. We ended the quarter with a cash position of $3.1 billion, which together with our revolving credit facilities available of $3.2 billion allows us a total liquidity of $6.3 billion. Finally, as mentioned above, with all ability management carry out in the period, the average debt term increased from 6 to 10 years. Let's move to the business unit's performance. Starting with Seara on Slide 21, net revenue grew 22% in Q3, mainly as a result of the 20% increase in the average sales price and 2% growth in volume. In the domestic market, the main highlight was the prepared food category. -- with 11% increase in prices, while volumes remained stable compared to the third quarter 2021. Seara continued to invest in innovation, capacity expansion, commercial and operational execution.

Thus, the Seara brand continues to increase its preference penetration in the Brazilian households and repurchases by consumers. In the export market, net revenues in dollars increased 36% compared to third quarter 2021. It is worth mentioning the strong growth of poultry sales in the period with a 29% growth in prices and 13% volumes in the annual comparison. In the third quarter of 2022, the higher production cost was offset by higher -- by price pass-through -- combined with a better mix of markets, channels, and products, in addition to the management's focus on operational efficiency and innovation.

Thus, adjusted EBITDA reached BRL 1.8 billion with an EBITDA margin of 15.1%. Now moving to JBS Brazil. On Slide 22, we see the revenue for the quarterly growing by 5% year-over-year, reaching $3.1 billion. In the export market, strong international demand, mainly from Asia contributed to a 12% growth in net revenues in dollars with a growth of 4% in volume 7% in the average price. In the domestic market, even with a challenging macroeconomic scenario sales in the fresh beef category grew 4.3% year-over-year as a result of higher volumes following the strategy of increasing the number of clients through the loyalty programs and approaching the [ free buoyancy swift ] brands to the end consumers.

Finally, I would like to highlight an important achievement. The free Boy brand was once again chosen as top of mind brand. That is the most remembered and preferred brand by Brazilian according to the [ issued data for you ].

Moving to the Slide 23. At JBS Beef North America, and now we're speaking in dollars and in U.S. GAAP, JBS Beef North America revenue reached $5.6 billion in the third quarter, a decrease of 5.2% year-over-year and the adjusted EBITDA totaled $403 million, with a 7.3% margin. This quarter, beef margins in North America faced a relevant impact year-over-year given the acceleration of expected changes in the market conditions.

In the domestic market, wholesale beef prices declining sequentially, incentivizing retailers should promote sales and promotions are likely to accelerate going forward. On the other hand, [ life cattle ] remained at high levels during the quarter, increasing 15% year-over-year. In the export markets year-to-date, the U.S. beef exports continued to outperform 2021 in volumes, 5% more, and in prices 14% more as a result of better international demand and a significant improvement of logistics in the American ports.

Moving on to Slide 24. We have JBS Australia net revenue was $1.7 billion, an increase of 19% compared to the third quarter 2021, and adjusted EBITDA of $59 million with a margin of 3.6%. Sales in the domestic market, which represented 41% of total revenue in the period were 26% higher in the third quarter of 2021, driven by the additions of 1 and Rival, 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 15% compared to the third quarter 2021 expanded by higher average prices. Now moving on to JBS USA Pork in the third quarter 2022. Net revenue was $2.1 billion and increasing 1.6% year-over-year. Adjusted EBITDA reached $92.7 million with a 4.4% EBITDA margin. In the domestic market, the results year-over-year were impacted by an increase in costs given the lower availability of live animals as well as the increase in the cost of grains as well as higher labor and logistics costs. On the other hand, the mean sustained prices at high levels.

In the international market, the USDA figures show that U.S. sports volumes fell 13.3% year-over-year from January to September, given the lower volume exported to key customers markets. For JBS Pork net revenue increased due to the higher volumes from the value-added portfolio of Swift Prepared Foods business unit. Swift Repair Foods margin grew 56% in the third quarter compared to the last year. Therefore, the company continues to make important investments to expand its plans while expanding its value-added portfolio.

Degrassi on Slide 26 presented a net revenue of $4.5 billion in the quarter, an increase of 17% year-over-year. Adjusted EBITDA totaled $561 million, with an EBITDA margin of 10.3%. And -- in the U.S., quarterly results continue to reflect the benefits of the consistent execution of the strategy focus on customers having a value-added portfolio and the relentless pursuit of operational excellence. In Mexico, a more challenging macroeconomic scenario affected sales in the quarter. In addition, seasonal disease impacted production, especially broiler readers. To mitigate these risks, the company has focused on service level and key customers. In Europe, despite a weak consumption environment and high-cost inflation, the gradual recovery of results was a consequence of production optimization and the focus on partnerships with key customers, promoting innovation and a better service level. To finish, I would like to move on to Slide 27. That shows that our exports totaled $5.4 billion in the third quarter with approximately 190 countries being reached by these exports.

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

[Operator]

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

[Benjamin Theurer, analyst]

Two questions, if I may. First, could we go a little bit into the outlook? And that's so much into what the most recent quarter was, but really looking ahead into maybe a little bit of next year, what your expectations are, particularly in beef and pork in North America.

I mean we all know it's a tough comp versus what it was last year, and we're seeing still a relatively good operating income environment. But given what we're seeing in the market, life-catching prices, you've called it out, these going up. How do you feel about the levels of profitability into next year? Just very particular USB and U.S. parts? That would be my first question.

[Wesley Mendonça Filho, executive]

We see that beef margins in the U.S. will come back to normal history, which is around mid-single digits. We think that a good perspective of what the margins should -- the range it should have. It's whatever -- what has always been the history of the historic of the beef margin, which is about that mid-single digits. So we expect this to this adjustment to a normal cycle to be happening. But this is -- just talking about beef before I move on to pork. We don't take that as a surprise. We've seen that coming, and this is something we've been talking on the call. It's coming back to a normal be margin range. So we take that -- it's very normal for us.

But more than that, I think that this will -- this highlights this changing cycles that we are analyzing. -- change we'll highlight a very big advantage that JBS has, which is the geographic and the platform, the different protein diversification we have, right? So we have been highlighting this very much. And I think that this adjustment to a normal beef cycle is going to highlight that even more, and it's going to make that advantage that JBS has even more clear.

So we're very positive that this is going to be a very highlight a big highlight in our strategy because, again, it's not just one characteristic of our company. I think it's one of the fundamentals of our business is that cycles in our business happen and they're sometimes more positive, sometimes more challenging, but our diversification allows our margin to be -- to have a more stable profile. Regarding work, then we're also very confident about our business in pork going forward. Our business -- our pork business in the U.S. is probably one of the most consistent businesses we have as in margin, very consistent in their performance. It reflects their performance. So on our live production, on our pork processing plants, it's probably one of the most consistent businesses we have.

And on top of that business, Ben, we have been building a lot on value added. So I mentioned on the Portuguese call a while ago that inside of this specific business unit that we look at, which is the pork, the JBS Pork USA -- we already have a 1.5 -- reaching a $1.5 billion prepared foods business in this business unit. So this is a business that we've been growing a lot on top of the Plumrose acquisition, and we've done a lot of investment in that field, some acquisitions, but a lot of greenfield. We have more coming online.

So we have expansion of our Mobile plant in Missouri. We have the new plant in Columbia that's going to do salamis and [ Posera ]. So very -- on top of that very consistent business, we have been growing a lot on this prepared business that will add value to our overall pork business. So overall, we're confident that, that business will perform well going forward. And just to complement that -- we have new capacity going online and we'll be able to continue to add value.

[Gilberto Tomazoni, executive]

Well, just to add what you said, Ben, when Wesley say to that return to normal margin, there is -- it's important to take in consideration that normal margins are is normal margins because -- and what is the difference in terms of what is business today, what was before. If you look for the past, U.S. export to U.S. was really not significant. Today, exporting from US international market become important. How this will affect the margin in the future? I don't know. And other things and taking cone of JBS, we are investing in our facility. We are investing in value-added programs that all of these will be impacting the margin. But for sure, it's too early to understand what is the scale of the impact of these initiatives.

[Benjamin Theurer, analyst]

Okay. Perfect. And my second question was on Seara, definitely our quarter here, a slight price increase, very strong volume. But it sounds like the domestic market was a little softer, maybe on the volume versus half of just benefit environment volume, what you're seeing maybe on elasticities to kind of get a…

[Gilberto Tomazoni, executive]

Sorry doing to interrupt. We had a bad disconnect here, and we couldn't hear your question. Do you mind repeating that question about CR again?

[Benjamin Theurer, analyst]

No problem. So a question on satellites, if you could elaborate on what you're seeing on elasticities from consumers down trading or not? Just to get a little better understanding what's been driving, still growth? Is it price offset by volume and how you think about the Brazilian economy and the consumer going forward.

[Wesley Mendonça Filho, executive]

Then cut off again, but I'll talk about Seara if I miss anything, please let me know on a follow-up. So we are very positive about the Seara. Seara has been performing quite well. And all of the basis of our performance -- our current performance, it's not something that's short term. It's not something that has been happening, right? It has been something of work a few years. It's been since the very beginning is our foundation of our business, which is we've been investing in quality. We've been investing in mix, innovation. We have done a lot of improvements in our facilities, and we've been performing quite well on operations side.

So going forward, we expect Seara to continue to perform very well independent of -- again, we obviously are aware of what's going on from a macroeconomic perspective, but that's not in our plans. We don't plan our quality, our product launches. We don't plan our efficiencies. We focus on -- based on that if there is going to be what's going to happen on the macroeconomic. We're going to focus on our basics and on our foundation, which has been what brought us here.

Having said that, we don't see that the domestic market has been soft. We think that it has been performing well. And we're very confident that we'll continue to continue to perform well in the next year and will be a source of strength for Seara. To add to that, Ben, I think when we're looking at Seara and when we're looking at how Seara is going to perform going forward and growth in Seara, you know that we have been investing quite a lot in CapEx.

For Seattle, we're going to expand our capacity in Seara with -- these are all projects that are not only approved, but they are in process of -- or being done finished, then we're going to start production pretty soon. We have invested to increase our capacity in Seara, which probably will be around a 20% increase in our volumes going forward. And we're going to be investing -- we have invested on the items that we see that we can most add value.

And in the items that we see that there is biggest demand and biggest potential in the domestic market, so especially in the domestic market. So we're very confident that Seattle will continue to perform well, but the company will grow to a different level.

[Operator]

The next question comes from Carla Casella with JPMorgan.

[Carla Casella, analyst]

One of your thoughts here, if there's any change in your talks around a potential U.S. listing and what hurdles remain to get there?

[Christiane Assis, executive]

Carla, can you hear me?

[Carla Casella, analyst]

Yes, I can hear you. Yes. Okay.

[Christiane Assis, executive]

Carla, we not really lose this information so far. We -- this year, we opened the information about Australia -- and maybe in the future will be released this information about prepared because we have prepared in different businesses we are prepared in Seattle. We are preparing [indiscernible]. We are prepared in the pork U.S. where as we mentioned, we have prepared in Europe, we are prepared in Australia. We are preparing Mexico. And we are looking for how we can disclose this information. It's difficult to say to you now, how will be the amount of debt because it's come from different business that will be changed all of the way that we release our results.

[Carla Casella, analyst]

Okay. That's helpful. And then just one more. Can you give us a sense for what percentage of your business today is food service versus retail? And does that vary dramatically by category? By protein, I should say.

[Christiane Assis, executive]

Well, it can -- I don't know if you have that information will be the same challenge I mentioned about prepared. I don't know if you all have best information that answer for this.

[Wesley Mendonça Filho, executive]

No, Carla. So we -- I don't have that information right here. We can follow up. But actually, we don't -- it's not something that we manage that way. We don't look at that exposure that way. It's -- Foodservice is a relevant part of our business, but it's not -- we don't look at our information of channels by total company. We look by business units. So we could follow up with that, but that's not how we operate our business and look at our operations.

[Operator]

The next question comes from Kenneth Zaslow with Bank of Montreal.

[Kenneth Zaslow, analyst]

I just have 2 questions. My first one is, can you walk us through your capital investments this year as well as next year? Just giving us kind of a flavor of how you're going to be spending the money, which divisions you think that will have the greatest impact? I know you did say that Seattle volume is going to be up 20%, I think, in 2023, based on the capital investment. But could you put a little bit more color on this stuff? I think this is really key.

[Christiane Assis, executive]

I'll let Guilherme to make the details of this. But I want to say that the huge investment we have made in greenfield, it's already done. We still to have some investment to finalize investment -- but the main part of the greenfield is that the station of Seattle is patient in U.S. Prepared Foods is already done. But I'll let Guilherme to explain more in details on that.

[Guilherme Cavalcanti, executive]

Thank you, Ken. So Ken, in 2021, our expansion CapEx was $1 billion. This year, expansion CapEx will probably be in the range of $850 million. So for next year, if we don't announce any other greenfield will be something lower than that. So given that we are in the process of getting ready and commissioning the plants, this number tends to decrease. In terms of business units, most of this CapEx was at Seattle with the expansion of Seattle.

And another relevant was the Thailand meats plant in U.S. and the Bacon plant in U.S.  And in terms of maintenance CapEx, just to give you an idea, we had around $1.2 billion maintenance CapEx in the last years. Now with Hale, who own and other acquisitions, we will be probably forecasting $1.4 billion maintenance CapEx for next year, but we don't have the budget ready yet. So these final numbers will still be in approval process.

[Christiane Assis, executive]

Ken, I don't know if it was clear for you, but our main investment in greenfield was done. We need to finish the investment, but you need to mature the investment, a huge investment in Seattle investment in U.S. Now we are seeing the future low investment in the greenfield because you need to mature all of these investments.

[Kenneth Zaslow, analyst]

What do you think the return will be on your growth CapEx in 2023 as you think about it as all this -- as you harvest the investment?

[Christiane Assis, executive]

I don't know you said -- pointed must our business…

[Guilherme Cavalcanti, executive]

Yes, okay. Our business is cyclical. So to talk about a return on a specific year is difficult. I would say that, for example, for M&As, we have a hurdle rate of around 14%. So we don't do an M&A unless we have at least a 14% return when we forecast. But what I can say is what we've been generating in return on invested capital. If you look the last 12 months, our return on invested capital was 22%. So given that we are talking about expansion of operations, which will increase free cash flow and dilute our fixed costs. This tends to improve. But of course, it all depends on market prices of our products as well.

[Kenneth Zaslow, analyst]

Okay. My second question is -- on U.S. core, the margins sequentially improved while the actual core packer margin didn't really do that much different. So I'm assuming that there's internal improvement, and I know you did talk about the value added, what do you think the key driver sequentially was to improve your Port packer margin your margins in the U.S. business. It just seemed like it really did kind of improve pretty dramatically sequentially.

[Wesley Mendonça Filho, executive]

Ken, so our business -- our pork business in the U.S. are performing pretty consistent, but the -- going forward, we expect it to perform as well as we have performed this year. Now a specific -- more specific into details there, we think that we're going to probably have a little bit more hogs next year due to better health. And we expect that there is a potential for the cutout of pork to improve given that there is going to be a reduction in overall in protein production given because -- especially because of beef in the United States. Now those are some of the details. But overall, we think that we're going to have a pretty good year going forward for parking next -- in the United States next year.

[Operator]

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

[Unknown Analyst]

This is [ Argus ] in for Priya. Two questions from our end. Can you talk a bit about the increased promotions you're seeing at retail on beef given that they are accelerating. How much of this activity is falling from demand from 4 products?

[Wesley Mendonça Filho, executive]

Sorry, can you repeat that question?

[Unknown Analyst]

Yes. Can you just talk a little bit about the increased promotions that you're seeing at retail on beef, considering that those promotions have been accelerating, are you seeing beef pulling demand from pork products?

[Wesley Mendonça Filho, executive]

No. Look, we see that, obviously, with the -- going forward, there could probably be more features, more ads. We have been looking at that, and we're following that. But that doesn't necessarily pull the demand from -- has been pulling the demand from pork to beef. We don't see that necessary. So that's not something that we look like that. What will happen in the United States next year, and that's more given to suppliers, we're going to have a reduction in the production of beef in a slight increase in the production of pork and chicken. So that probably will be something that we're going to see from a consumption perspective, but that's more given related to the supply of those 3 proteins more so than the demand for -- and the retailer ads and promotions.

[Unknown Analyst]

And one more question from our end. Now that you have simplified your capital structure, how are you thinking about the medium-term ratings objective?

[Wesley Mendonça Filho, executive]

Yes, that's -- yes, exactly.

[Guilherme Cavalcanti, executive]

If you look at our financial metrics, for sure, we will be higher than a BBB-minus that we are today. I think just looking at the financial metrics, we would be around BBB -- so we still have some work to do in order in other not quantified metrics, including management and governments, which we still have on discount factor sector volatility. That's another discount factor, which we intend to show that our business diversification makes the consolidated margin much more stable. So maybe we could also take this volatility sector notch down. And if we manage to do that, I think we can put our ratings to a BBB+ level, which will be a good target because, with that level, we have access to very cheap commercial papers. BBB+ companies can raise commercial papers at software mice 5 bps while BBB flat, it's software plus 45 bps and the BBB is more plus 90 bps. So it's a -- if we can increase our ratings, we can have also a significant reduction in our cost of capital as well.

[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 for all of you for the presence. I would like to say that I recognizing the importance of discussing the beef margin in U.S. because of the size of the business because of the importance in our portfolio. but I would like to put light on our diversified platform. We are not just beef advanced. In U.S., we have chicken, we have  pork we are prepared foods. We have present in Australia. We are present in Brazil. We are present in Europe. I think is JBS a diversified platform that is practically unmatched globally.

And this has allowed us to navigate in these different cycles, the natural cycles of our business. I believe that market is still not recognized is a huge competitive advantage that JBS because this you can neutralize the one cycle to the other cycle, one geography to the other protein business. I think this is really a huge competitive advantage. And I hope and Mark will be recognizing as soon as possible because I think this is stress as the market will show how important this is a diversified platform. And I will take the opportunity to thank you our 250 team members, 1,000 team members that is a great hard work and commitment that lives to deliver a great result as we had released today. Thank you.

[Operator]

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