JBS SA

BOVESPA:JBSS3

Earnings Call Transcript 2022-Q4

[Operator]

Good morning everyone, and thank you for waiting. Welcome to JBS S.A. and JBS USA Fourth Quarter of 2022 and Full Year 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, and all participants will be in a listen-only mode during the company's presentation. After JBS' remarks, there will be a question-and-answer session. At that time, further instructions will be given. [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, Global CEO]

Good morning, everyone and thank you very much for joining us on this call to present our results for the fourth quarter and the full year of 2022.

2022 once again demonstrated JBS’ ability to anticipated natural cycles of our industry. Thanks to our responsible financial management and our strategy for geography and protein diversification. Our financial balance sheet showed a great resilience in the year marked by a challenged global economic scenario and unnatural normalization of movement of margins in the US beef markets following historical peaks in recent years.

Proof of this is that we entered 2023 with a comfortable cash position, a stable debt profile and no significant debt maturities in the short-term. This allowed us to navigate in the moment we are in the move with a easy and position ourselves well to prepare for the future market opportunities.

Our fourth quarter results showed that the end of the year was practically challenged by the global protein industry. In additional to margin compression in US beef we observed that the inflation remain high in important consumer markets, weakening consumption and causing imbalance between global protein supply and demand.

Looking at these factors continue to pressure our performance in the first quarter of 2023 traditional or weaker period for the sector. The supply and demand relation follows natural adjustment cycles which differ by region and by protein diet, favoring on diversification strategy and that to us historically deliver superior results.

Therefore, our priority in 2023 is cash generation. We remain focused on maintaining our competitive advantages in the various markets where we operate by focusing our operational excellence, cost management, productivity, mix optimization and price opportunities. We also want to strength our cash generation by capturing value from the acquisitions we made in the last two years and our continuous improvement in our product mix to meet the needs to our customers and consumers.

In the last earnings call, I comment on these and I want to reiterate it the market has not given to the value to our multi-protein and global diversified platform which is unparalleled in the global protein industry. This strategy was built to smooth the impact of natural cycles of our business and maintain healthy cash generation allowing the company to reinvest in its growth, continue to innovate and generate returns for shareholders.

I kindly request that you take a look at Page 8 on our presentation. It displays our results from the last 15 years since going public divided into blocks of five years. This page clearly demonstrates that the competitive advantage of our platform.

Firstly, despite of the volatility of each individual business, the average margin is practically upwards the straight-line. Secondly, there is an increase in margin start from 2013, which illustrates the success of our value-added and branding strategy, which began with the acquisition of Seara. This is what we saw once again in 2022, our investment in expanding our operations in acquired assets totaled R$13.1 billion.

This strengthens our global avenues for the future into a special focus on expanding our production on prepared foods, to build a strong brand and generate values.

In 2023, we will take another step on this strategy with the completion of important investment in prepared food in Brazil and the United States including the start of operation of the first two breading line and the hot dog line in new Seara factory in the state of Paraná, Brazil and the new Principe Italian meats facility in Missouri. In February of this year, we also reopened our lamb processing plant in Australia.

Despite robust investment, we continue to generate value for our shareholders. We distributed R$4.4 billion in dividends and repurchased R$2.8 billion in shares. With this, we provide a total return of 15% for the shareholders and our return on investment capital of 18%. As Guilherme will detail further, our liability management strategy allowed us to end 2022 with a healthy financial indicators.

We ended the year with our leverage at 2.26 times in dollars and we extend our debt from 8.1 years to 10 years, fixing most of the financial expenses at the low cost. At the end of 2022, our liquidity was approximately US$5.7 billion, including cash and revolving credit lines. The robustness of our balance sheet we recognized by the global capital markets with the achievement of investment grade status for the three major rating agencies S&P, Moody’s and Fitch.

We reinforced our confidence on our global move to protein platform, competitive operational cost structure, distressed and agility of our experience global team and our robust financial conditions to continue on our growth trajectory and generate value for all of our stakeholders.

Thank you very much. And now, I will pass the floor to Guilherme, who will go into details about our quarter and annual results. Guilherme, please.

[Guilherme Cavalcanti, Global CFO]

Thank you, Tomazoni. Let’s go over the operational and financial highlights for the fourth quarter and the year of 2022.

Starting on Slide 16, please, I’d like to start by highlighting all the work in liability management as we carried out throughout the year. We issued more than $6 billion in senior notes and approximately R$3 billion in Agribusiness Receivables Certificates. The use of the proceed is to redeem $2.3 billion in senior notes and paying full of the Term Loan B, in addition to certain other short-term debts.

We also committed to registering our bonds in the SEC, US Securities Exchange Commission by August of this year. This status is essential to ensure that the bonds are part of key indices with added benefit of increasing their liquidity.

In addition, we expanded our unsecured revolving credit lines reaching a total amount of $3.2 billion considering also our cash position at the end of the year of $2.5 billion, this guarantees us a total of the ability of $5.7 billion. These are very profitable levels and they place us in a privileged position sustaining a strong balance sheet.

As a result, the average maturity of our debt was ten years while our secured debt reduced from 15% to 4% leveraging dollars and up 2022 at 2.26 times while interest coverage ratio stood at eight times. This strong financial and operational performance coupled with the improvements on the ESG front earned us S&P investment rating – investment grade rating for the year. Thus, we became full investment grade on the three rating agencies.

Following our acquisition strategy, aimed at adding more value to the portfolio we acquired TriOak Foods assets in the fourth quarter strengthening our ability to offer high quality pork products. During the year, we also completed the acquisition of Rivalea, Australia’s leading hog farming and processing company. King’s Grupo one of the leaders in the production of Italian charcuterie and BiotTech Foods, one of the global leaders in the development of cultivated protein.

Regarding the return to shareholders, we paid dividends in the amount of $877 million equivalent to $0.04 per share. We also returned $552 million to our shareholders through share buybacks. Therefore adding the dividends plus buybacks to shareholder return was 15% in 2022.

Finally, I would like to highlight the return on invested capital, which was 18% last year and the return on shareholders’ equity that was 32%.

Let’s move on to Slide 17 where we have the operational and financial highlights for the year. Net revenue for the fourth quarter was $18 billion, adjusted totaled $870 million and represents a margin of 4.9% for the quarter. Net income was $447 million in the quarter, which represent the earnings per share of $0.02.

On Slide 18, we have the highlights for the year. Net revenue for 2022 was a record and it stood at $73 billion representing an increase of 7% in the annual comparison. The adjusted EBITDA totaled $6.7 billion and represents 9.2% margin for the year. Net income was $3 billion in the year, which represents an earnings per share of 1.35 cents.

Please now moving to Slide 19, the operational cash flow in the quarter was $1.1 billion. Free cash flow for the quarter was $238 million. In the quarterly comparison the generation of free cash flow was positively backed by the release of working capital mainly in three main lines, inventories, accounts receivables and supplies, which combined a total positive valuation of $981 million.

Additionally, we had a reduction in tax payments of $133 million quarter-over-quarter. In the year, operating cash generation was $3.4 billion and free cash flow was $421 million. Excluding the non-recurring payments of $167 million, and the extension CapEx in the amount of $1.2 billion, 2022 free cash flow would have been $1.8 billion, a conversion of 26% of the adjusted EBITDA.

In the chart at the bottom of Slide 20, JBS total CapEx for the year was $2.2 billion and $1.2 billion in expansion CapEx mainly in Seara and some US prepared food plants and $977 million in maintenance CapEx.

Moving on to Slide 21, we have the evolution of our debt profile. Year end net debt for 2022 was $15.2 billion, an increase of $2.8 billion year-over-year explained by higher CapEx in 2022 as previously mentioned. Payments of dividends of $877 million, buybacks in the amount of $552 million and MMS in the total amount of $377 million.

The included financial expenses was lower than increasing net debt standing at $832 million in 2022 as a result of previously mentioned liability management.

Let's now quickly go through the business units, so we can dive into the topics you want in the question and answer session. Starting with Seara on Slide 22. Net revenue for the quarter grew 9% in the fourth quarter and 18% in the year as a result of rising prices and volumes, despite the higher cost of wrench cleaning pressure on the quarter’s results, we were able to maintain a stable profitability in 2022 even with extreme volatility in international markets.

Investments in fundamentals were important for this. As a result, Seara reached a record result in brand reference with a presence of 91% in Brazilian homes and being the brand that grows most in terms of repeat repurchases.

Now through Slide 23, JBS Brazil reported a net revenue slightly higher than the fourth quarter of 2021, and 9.6% higher than in 2021. Profitability especially in the quarter was pressured by the imbalance in supply and demand in the latter segments and by worsening in the Chinese market, as a result of the lockdowns.

However, we worked quickly to direct - to redirect our products to other important destinations, while following our strategy of strengthening domestic market through the Friboi+ program, increasing the value-added portfolio and bringing the Friboi and Swift brands closer to retailers and end-customers.

Moving on to Slide 24 and speaking now in dollars and in US GAAP. Net revenues of JBS North America decreased by 6.8% year-over-year with a drop in prices and volumes and grew 2.9% in 2021 from 2022 with slightly higher prices.

EBITDA margin for the quarter was 2.1% and 8.8% in 2022. As expected, the results reflects the scenario of marginal normalization throughout 2022 as a result of the turn of the cattle cycle. Thus we observed an increasing cost of live cattle of more than 15% in the period while wholesale prices fell in the year and in the quarter.

However to mitigate this effect, we continue to increase operational efficiencies offering high value-added portfolio and improving the global distribution of products.

Moving on to Slide 25, we have JBS Australia. Net revenue grew 1.2% in the fourth quarter and 18% in the year. The growth is explained by both increasing and existing business and the incremental revenue from the acquisition of Huon and Rivalea. In the quarter and in the year, EBITDA margin was approximately 5% and it’s still pressured by the high price of cattle as a result of the reconstruction of the herd and the lower availability of animals available to slaughter.

On the other hand, we observe an evolution throughout the year in the other business with highlights support in Primo while the agriculture business will change to show good profitability.

Moving on to JBS USA pork net revenues for the quarter increased 5.9%, compared to the fourth 2021 and 6.9% year-over-year. From the second half of the year, results were impacted by the strong increase in cost given the lower availability of live animals, as well as increasing cost of grains, labor and logistics. On the other hand, demand and an improvement in mix supported prices at high level.

Pilgrim’s Pride on Slide 27 posted a net revenue growth of 2.2% in the fourth quarter and 18% in the annual comparison reflecting the higher average price in the periods despite a challenging scenario due to the diverse inflation in the markets in which it operates and an exceptional market volatility, PPC reported record results in terms of net revenue and adjusted EBITDA for 2022.

This is the result of their commercial and operational execution in addition to the continued investment strategy in a diversified portfolio with greater value-added and brands.

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

[Operator]

[Operator Instructions]

Our first question comes from Carla Casella with JPMorgan. Please Carla, go ahead.

[Carla Casella, JPMorgan]

Hi, thank you for taking the question. You talked about some of your capacity expansion that you've made particularly in pork and in packaged food. What are your thoughts in terms of additional capacity behind packets food? Do you need to buy or build more expansion capacity, or would you do M&A to also build capacity?

[Gilberto Tomazoni, Global CEO]

Thank you, Carla. Wesley, could you answer this question, please?

[Wesley Batista Filho, Global President of Operations]

Good morning, Carla. Yeah, we've done a lot of expansion. Recently, we could - our approach to our position is opportunistic. We look at the opportunities that are out there and decide what makes sense. So that they'll continue to be the same. Having said that we have done a lot of growth recently and we have two new brand new plants that are coming up.

So, I think, in the short term, we're going to focus on getting those plants up and running. But regarding our position will always be on the look for that.

[Carla Casella, JPMorgan]

Okay. And any update on the potential for listing the US business?

[Gilberto Tomazoni, Global CEO]

Hi, Carla, as you know, we are…

[Guilherme Cavalcanti, Global CFO]

Okay, go ahead.

[Gilberto Tomazoni, Global CEO]

It’s about the…

[Guilherme Cavalcanti, Global CFO]

Update on the listing.

[Gilberto Tomazoni, Global CEO]

Oh, of the listing. Hi, Carla. We never stop working on this project. It’s our top priority. We are working to list and our bonds in August and part of this work is the same. We will perform in the way that unlock the greatest possible value for the shareholders. It's not time for if, but when.

[Carla Casella, JPMorgan]

Okay. That's great. But is this something where there's enough stuff to the, the when could be in the next year or is it longer - a longer term project?

[Gilberto Tomazoni, Global CEO]

Carla, we cannot establish a time, because, as I said it is, we are working in a way that create unlock value for - best value, greater value to the shareholders. And we are studying all possibilities, any possibilities to do that. This is - we don't want to compromise with the time.

[Carla Casella, JPMorgan]

Okay. Great. And just one last question and I'll pass it on. Your cash flow working capital was very strong this quarter. I'm wondering if there's any kind of a reversal or any kind of kind of guidance you can give us that you expect for working capital for the next quarter or next year?

[Guilherme Cavalcanti, Global CFO]

Hey, thanks Carla. Remind that the first quarter is always the worst quarter of the year for the sector. And we always have negative free cash flow in the first quarter. If you look at the, the last few years, especially because of working capital, because we have suppliers that generally falls after the year-end suppliers payments and inventory recompose.

So this makes always the working capital in the first quarter affecting negative - the free cash flow. But for the year, I think that that was a very good question because of the in the last two years we come with a lot of working capital. Let's see it was $1.2 billion, but the main reasons for that was, first, it was an increase in grain prices, which is something that is difficult to predict, but most likely given the high levels of analysis in the market estimates at least stable prices for the grain prices.

From the grain price sides we don't - we are not expecting consumer working capital. We have, again, we had in the last two years a lot of logistics problems that led us to work with high inventories than usual especially in the lockdowns in China, which we also don't expect for this year. We have also the rough part the Seara plants will consume some working capital, because we are filling the pipeline.

However, we currently estimate a release of working capital. There is positive effect on the free cash flow, but that's what we see today around the $250 million. But again, there is a lot of variables that's out of our control. But our current expectation is more for a release of working capital than a consumption of working capital for the 2023 as a whole.

[Carla Casella, JPMorgan]

Great. Thank you for all that color. I'll pass it on.

[Operator]

Our next question comes from Antonio Hernandez with Barclays. Please Antonio, go ahead.

[Antonio Hernandez, Barclays]

Hi, good morning. Thanks for taking our questions. I have three questions I will be done on CapEx plans for the year if you could provide one more line on that and then a quick follow up on the whole cattle hog supplying pricing, especially in North America, are you seeing different conditions of different timing from what you were expecting and the overall cost competitive environment or everything that should be going as expected? Thanks.

[Guilherme Cavalcanti, Global CFO]

Okay, so, CapEx plans, Antonio, basically in this year we invested $2.2 billion, which was a - because of the high investments on the expansions that we did. For this year, we are forecasting between $1.3 billion to $1.5 billion in total CapEx.

[Gilberto Tomazoni, Global CEO]

Antonio, good morning. Anto, the connection wasn't very good here. So, if I understood, correct you're asking about our opinion on supply of hog and cattle just to confirm in the US?

[Antonio Hernandez, Barclays]

Yes, yes, please.

[Gilberto Tomazoni, Global CEO]

Yes, so cattle, we've been, we have a good supply of cattle in the short-term. We know that in the long run, we're going to have lower supply. We look at the - our reports on cattle on feed then we can already see that. So, that's coming at the later end of the year. On the hog side, we still have good supply of hogs. Health has been doing well. We're not going to have a challenge on volumes of hog in the short term in this year. We don't expect that. We see that there is a more of a challenge of the cost of raising those hogs and especially on our live operations.

[Antonio Hernandez, Barclays]

Okay. Perfect. Thanks everyone and have a great day.

[Operator]

Our next question comes from Priya Ohri Gupta with Barclays. Please Priya, go ahead.

[Priya Ohri Gupta, Barclays]

Thank you, so much for taking the call. I was wondering if we - around your free cash flow for the year, specifically around your dividend payment, I believe that there's some flexibility given the amount of dividends that you paid into 2022 that you could hold off on making any cash outlays around the dividend in 2023. Would that currently be your plan at this stage? Or is that something that we'd have to wait and see depending on how the environment shakes out?

[Guilherme Cavalcanti, Global CFO]

Thanks, Priya. Okay, so for the free cash flow for the year, so your first question, if you, if you have a, if you look at Page 11 of the press release, we have that all the details impact on our net debt. So there are items that that most of them will not be present this year and including, for example, share repurchase, working capital consumption that I discussed in the previous, biological assets, you have a $865 million that was - we are building the herd for the expansion plants that we also don't have.

Taxes here on the, of $1 billion we paid $230 million more because we paid taxes with an estimate for the year. And the hedges quarter realized figure on the next year. So we have $230 million of tax credit that will come this year. So decreasing the tax expenses for 2023. CapEx, as I mentioned also in the previous questions from $2.2 billion, we can consider going down to $1.3 billion.

Then we have the interest payments $832 million. So, we can expect for this year not much, because 77% of our debts are bonds with fixed coupon. So we can consider $850 million of interest expenses for 2023. Acquisitions of $277 million, also we are more selective on them. So we don’t expect that. Lease payments of $435 million. We always have that. So we can go see this $450 million.

Then we have we will talk about dividends later. We have the buyback shares that we also more selective. So we are not expected to repurchase shares in 2023. Then we have derivatives that can always be positive or negative. And the buyback shares of the PPC, which they didn't renew the repurchase product. So basically, for the year, free cash flow, you can consider $850 million of interest expenses, $450 million of leasing, then $1.3 billion in capital expenditures.

So we have - with that we have $2.6 billion of expenses. Taxes depends on the profit and working capital - it’s then certain cost depends on grain prices and other variables. So, for the year, then you can get your EBITDA estimate and I would say and then make the difference from $2.6 billion $2.8 billion, that would be roughly estimate for the year’s free cash flow.

Now the - you are right. We anticipated the payment of dividends last year given our strong cash generation and our access to capital markets. So we anticipated $877 million, which we could be paying in $2050 but we anticipated for last year. Remember that in Brazil, we have a minimum payout ratio for the corporate law. That requires a 25% of our net profit should be distributed to the shareholders.

And in the end that's what we really anticipated 28% because it will be used an estimate if, but this is given. So these meaning, but then it will depend on our net profit. So we have to see what's your forecast of net profit. You have to get 25% of that. And that's to be the payment dividends. That we can - as you may - and as you highlighted, we need to pay that only in 2024 regarding the 2023.

However, if we have cash generation, access to market, we think that is a good advantage for the shareholders of something that will have to be done in the next year, we may be willing to anticipate it again and give this benefit. But this is something that - it's not decided yet, but there's always a possibility of we anticipated the dividends for the – that would be paid next year. For this year, we have this flexibility for sure.

[Priya Ohri Gupta, Barclays]

Okay, that's very helpful. And then, as we're thinking about normalization of these margins, I think, in the past, you've talked about, potentially the mid-single-digit range for 2023. Could you update us on how you're thinking about that for this year just given some of the dynamics that we've seen in fourth quarter that are persisting into 1Q? Are we potentially going to be weaker than that just given the recent dynamics? Thank you.

[Gilberto Tomazoni, Global CEO]

Morning, Priya. No, we still have the same outlook for beefing in the medium term even though for first quarter - and fourth quarter and first quarter will be more challenging. We have the same mid-single-digits, also for beef in the US.

[Priya Ohri Gupta, Barclays]

But is that - is that, I appreciate that as mid-term, but is that how we should be thinking about ’23, as well? Or is it going to be below that line, below that again?

[Gilberto Tomazoni, Global CEO]

Well, ‘23 We could be a little bit little bit below that line. We will be around that level during the year ‘23. That's our impression for now.

[Priya Ohri Gupta, Barclays]

Okay, wonderful. Thank you. I'll pass it on.

[Gilberto Tomazoni, Global CEO]

Thank you.

[Operator]

Our next question comes from Rodrigo Almeida with Santander. Please Rodrigo, go ahead.

[Rodrigo Almeida, Santander]

Hey, good morning. It’s [Indiscernible]. I want to go back a little bit about capital allocation and financial leverage and maybe try to connect with the U.S. listing that you talked about also. In understanding in the market as a whole, I agree in this financial position that’s very solid and controlled financial expenses. I wanted to know if you have a target in terms of leverage, in terms of net debt to EBITDA?

Maybe that's not so much of a concern for you given that you have a very comfortable ability to cover financial expenses as you could make sure doing the presentation. And then I just wanted to get a sense here in trying to connect with the topic of the U.S. listing and things like this, because, correct me if I'm wrong, but in the case of the U.S. listing, you could be looking at some sort of capital raising or something like this in order to have a bigger company, a bigger float.

And my point here is, where you could be looking or aiming to reduce net debt in absolute terms? Again, I understand that your financial position is very comfortable, but trying to connect this point here with the thing that that as you maintain liability at a certain level for example, as you may now have a reason to go and ask the market.

And I think that what you guys was willing to accept it, right? What to go and ask. Okay? So, raise some money and reduce bad debt that. I wanted to try to connect these two points here. It could be great while if you could also maybe jump in next part of the controlling portion of the company here. Give us your perception on how could that take place given the current share price you are talking about individual listing and potential capital increase. Not that's a big concern but, it's in terms if you want to get your take.

And then, I wanted to go into a second point here, specific point in – I saw in the Portuguese coin. Sorry. I wasn't able to take part in the food discussion there. But I wanted to do a follow-up on the topic about the US GAAP and IFRS differences in understanding the beef division. It's related to inventories.

So in the beef division, specifically in North America, I wanted to understand a little bit from you guys, how much of days of inventories are we talking about in terms of finished products in order to have such an impact there we saw in this quarter?

And then, on U.S. pork we see the hog price is going down. We just talked about – and I wanted to understand if we could see the US. GAAP margins converting back to the IFRS margins that we saw maybe in the next quarter or so? And that's the main questions I wanted to ask you guys. Sorry for the long questions. Thank you.

[Guilherme Cavalcanti, Global CFO]

Thank you, Rodrigo. So, let’s address it by part. So the first part of the question, we approve in March 2019, a policy that is stated on our website. This is our indebtedness policy that states that we should pursue to be between two and three times net debt to EBITDA in the long term. And why this range because it’s the range that generally investment grade companies of the sector are in. So that's our long-term target.

Also in this policy says that, if for any reasons and they have been passively, we reach 375, I cannot be repurchase shares and I cannot pay extraordinary dividends only the minimum required by the Brazilian, corporate law. And we have to present to the Board a plan to leverage the company. How we would bring this leverage through the long-term target. It take two and three times net debt to EBITDA.

Remember, and now getting on your starting already into your question of capital raising, remember that in the last and short, I would say that we could estimate EBITDA break-even of $2.8 billion. So you get your EBITDA estimate minus $2.8 billion. That’s roughly estimate of free cash flow. So most likely we will have a free cash flow.

So this free cash flow accumulated is enough to bring us our leverage down in two years timeframe. For example, if it reaches for – if it reaches 375 or higher, our free cash flow on a two-year timeframe generally given that the calculation that I did in the last question could bring us below three times. So that will be a plan.

So we would not need capital raising to bring this leverage down because we generate free cash flow most likely in other years. So, that's why I’ll resist. And the listing, Tomazoni already asked we don't have time for that. So in terms of access to the market of our new debt that we don't need – we don’t have necessity to go to the market. And lastly we decide to anticipate dividends as also the previous question, that I m mentioned. If you decide to anticipate dividends, we may raise debt to that.

And now on the US GAAP and IFRS, in fact, we have a difference of $328 million. So IFRS EBITDA of JBS USA was 777 while US GAAP EBITDA was $349 million. The difference is because of treatments - accounting treatments of first listing – listing in IFRS doesn't impact if that goes into the depreciation while US GAAP it impacts. So we have a $75 million dollars effect on that.

Now inventories of beef, that in US GAAP, you adjusted as on a market value and in IFRS is at the cost made an impact of $67 million positive. The pork - the same thing was $12 million for the same reason of the inventories. Now, then now we have the biological assets that in US GAAP, it is a cost, in the IFRS is in as a market. So this is a difference of say $62 billion.

Biological assets is now straight up a difference of $29 billion. And then the depreciation of the chicken brand was in USA is $86 million, because in US GAAP, it's on the CPV and cost of products sold, and in IFRS it’s depreciation. So, generally, we have – so this accounting treatment of listing, inventories and biological assets generate sometimes they goes in different directions and then turns to offset each other.

This quarter, we had all these differences moving in the same direction that was increasing in magnitude and also, yes, it was a very volatile year in terms of the price of the raw materials. When you have this kind of volatility, the market value and cost value, it's a bigger difference and that reflected on these.

[Rodrigo Almeida, Santander]

Thank you. That’s clear.

[Operator]

Our next question comes from Carlos Laboy with HSBC. Please Carlos, go ahead.

[Carlos Laboy, HSBC]

Yes, good morning, everyone. Guilherme, you've done a terrific job over the last few years of taking a lot of cost out of the business and transforming your balance sheet. Are there any major issues left to do other than the registration of your bonds in the U.S. or the SEC? Are there any other steps that you need to accomplish or you feel you need to accomplish to get a New York Stock Exchange listing done.

[Guilherme Cavalcanti, Global CFO]

Thank you. So, in terms of liability management, you right, we made all everything that we needed to do and it took an advantage of very low interest rates in the market when we issued bonds at 3% - 10-year bonds at 3%, 30-year bond of 4.3%. And this is basically then. Now that the cost of issuance is high given the higher level of interest rates, we don't need to come to the market.

I think the only that that I would say is to remain for liability management is the remaining 4% of debt that has guarantees, which is $480 million of a Term loan A at different level and a bond of - that matures in 2037 that is callable, it’s $850 million, plus in that these two debts could be so that there is still we have opportunities for to stay on the maturities.

But it will all depend on the on the market. We are working to list the bonds. We have to list them up to August unless I’ll have 25 increase in interest rate. So we are very advanced on that and this will bring more opportunities, maybe for the liquidity of the bonds. And part of the work for equity listing is the same work for a bond listing in terms of SEC requirements.

So it's whenever as, Tomazoni said, whenever we decide to go for the listing, we will have part of the job already done makes it easier and quicker although we don't have a timeline yet for that.

[Carlos Laboy, HSBC]

Okay. Thank you, Guilherme.

[Operator]

Ladies and gentlemen, 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, Global CEO]

I would like to thank you all of you to participate this call and especially our 250,000 team members that with dedication, hard work make JBS strong and fulfill our purpose to feeding the world with the best. Thank you so much.

[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. You may disconnect your lines now.