JBS SA

BOVESPA:JBSS3

Earnings Call Analysis

JBS Optimistic Despite Challenges and Losses

JBS faced a challenging 2023, marked by a net loss of $199 million and overall revenue of $73 billion, yet remained optimistic for the coming year. The company reduced short and mid-term debt, effectively eliminating repayments until 2027 with $2.5 billion in senior notes, and generated $448 million in free cash flow. They saw a decreased debt profile after reducing gross debt by $1.6 billion in Q4 and an additional $566 million in early 2024. JBS anticipates a potential Q1 cash burn in 2024 but expects improved results from business units like Australia, U.S. pork, and Pilgrim's Pride. The EBITDA margin for 2024 is projected to be 6.5%, growing to 7.8% by 2026, as they maintain a deleveraging path with leverage ratios decreasing annually.

Navigating Market Challenges and Stabilizing Operations

The company experienced a decrease in net revenue of 5% in Q4 and 4% for the fiscal year, yet remains optimistic for 2024. This optimism is backed by a solid performance in specific segments; JBS Brazil's net revenue climbed 4% compared to Q4 of 2022, supported by higher volumes sold. However, the overall drop was attributed to price reductions in both domestic and international markets. Acknowledging market volatility, the company focused on strengthening international relationships and service levels, while maintaining profitability.

Strategies for Deleveraging and Financial Resilience

The company demonstrated a commitment to reduce its gross debt by $1.6 billion in Q4 and by an additional $566 million by February 2024. Ending the year with a stable net debt of $15.3 billion, it confirmed a deleveraging trajectory, with leverage reducing to figures of $4.42 in USD and BRL 4.32. Market consensus suggests a decrease in leverage to below 3.25x by the end of 2024, further decreasing to below 3x in 2025 and 2.5x in 2026, alongside increasing EBITDA margins: forecasted at 6.5% for 2024, 7% in 2025, and 7.8% in 2026.

Free Cash Flow and EBITDA Break-even Projections

The company projects a cash burn in Q1 2024, likely half of the previous year's, taking into account improvements in Seara results and stable margins in its diversified portfolio. For the break-even point of free cash flow, the estimated EBITDA is around $3.55 billion. Moreover, they anticipate comparable net financial expenses to 2023 and a higher consumption of biological assets due to increased production capacity.

Operational Improvements and Commercial Growth

Throughout 2023, the company faced challenges such as significant rainfall in Australia affecting cattle movement, affecting margins and cash cycles. However, efforts were made to improve commercial aspects and optimize the industrial side. Investments in plant capacity and efficiencies are in the maturing phase; Swift in Brazil, for instance, has been consolidated within JBS Brazil, indicating a growing phase for the operation within the broader set of the company's diversified business segments.

Innovative Approaches to Product Distribution

The company is exploring new business avenues such as frozen products, which aim to mitigate the loss of value that occurs when consumers freeze fresh products. This initiative is in its developmental stage and is receiving positive reception from customers. The growth of this venture is contingent on further consumer acceptance of the company's value proposition.

Positive Market Dynamics and Expansion Outlook

The management conveyed a strong positive outlook for their products, with Seara's prepared foods and other categories showing growth, and a positive consumer demand for chicken and beef in Brazil. They highlighted well-adjusted supply and demand in the international chicken market, leading to balanced margins. While pork presents more challenges due to increased production and competitive exports, they emphasized their well-balanced business strategy across various segments. Furthermore, the expansion of exports, particularly to China with added plant certifications, has improved flexibility and product mix, contributing to a favorable long-term beef outlook in Brazil. The diversification of JBS is underscored as a competitive advantage for sustainable growth, despite market fluctuations and cyclical trends.

Earnings Call Transcript 2023-Q4

[Operator]

Good morning, and welcome to JBS S.A. and JBS U.S.A. Fourth Quarter and Full Year 2023 Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. The link for download of the presentation is available at the RI site and in the chat. Any statements eventually made during this conference call in connection with the company's business outlook, projections, operating and financial targets and potential growth should be understood as nearly forecasts based on the company's management expectations in relation to the future of JBS.

Such expectations are highly dependent on market conditions, on Brazil's overall economic performance and on industry and international market behavior and therefore, are subject to change. Here with us today, we have Gilberto Tomazoni, Global CEO of JBS; Guilherme Cavalcanti, Global CFO of the company; Wesley Batista Filho, CEO of JBS U.S.A.; and Christiane Assis, Investor Relations Director. Now I will turn over to Gilberto Tomazoni, who will start the presentation. Mr. Tomazoni, you may begin your presentation.

[Gilberto Tomazoni, executive]

It's important to highlight that our focus on operational excellence was key to correcting the course of 2 of our businesses that underperformed in '23. U.S. beef and Seara we identified issues and took action to adopt management measures based on our culture with a focus on people and disciplined execution. The results of these measures are already being felt. In -- at Seara, the outlook for 2024 is very positive. With the possibility of margins exceeding double digits in the first quarter of the year, a traditionally challenging period for the sector. Within the positive scenario, of offer and demand and normalization of prices.

Seara is well positioned to reap the rewards of operational improvements implemented in recent months and the investments in expansion made in recent years. I would like to reiterate that our multi-protein and multi-geography strategy puts us in an unmatched position in the global industry. This strength allows us to capitalize on the cattle cycle upswings in Brazil and Australia, whereas our American operation faces margin decline due to current market conditions.

In Australia, the improvement in our outlook is reflected in a significant increase in margin in the fourth quarter of '23 compared to the same period last year. In Brazil, where the situation is similar. Significant growth in cattle processing volume, increased value-added product sales. The authorization of new plants to supply the Chinese market as well as improved profitability of reports offer promising prospects for the leaf business in the short and long term.

The chicken and pork business faced persistent pressure on production costs throughout '23, but are already benefiting from the normalization of grown prices. This is evident in pilgrims and U.S. pork results. The recovery of margins in these businesses also reflects a better rebalancing of supply and demand. Pilgrim's margins have had a strong growth, rising from 1.5% in the fourth quarter of '22 to 6.8% in the fourth quarter of '23.

Likewise, U.S. pork results jumped from 4.8% to 9% in the same period. By means of our global platform, we operate successfully in all relevant protein types. With results exceeding expectations, our growth in aquaculture reaffirms our belief that we will replicate what we have done previously with poultry, pork and value-added products. Likewise, we continue to invest in research and development of alternative proteins such as plant-based and cultivated protein. In '24, we will complete a cultivated protein facility in San Sebastian Spain.

We're also building the JBS biotech innovation center in Brazil, which is a research development and innovation by a technology center. We are a food company, and our focus is to meet consumer demand for all protein options. I would also like to highlight that in 2023, we once again demonstrated our financial strength.

The maintenance of our healthy cash generation allowed us to distribute USD 448 million in dividends for the year, creating value for our shareholders. We reduced our gross debt by USD 1.6 billion from the third quarter to the fourth quarter of '23, which we plan to continue in '24.

As a result of our financial discipline, we began the company's deleveraging process at the end of '23. The leverage ratio decreased from 4.87x in the third quarter to 4.42x in the fourth quarter. In other words, we remain confident in our long-term strategy. We will continue reinforcing our diversified platform, both geographically and by protein type, investing in strong brands, value-added products and strategic partnerships with our customers. This set of actions is crucial for creating better margins and reducing volatility. Investments made and delivered in '23 are significant milestones that support this.

In Brazil, we opened 2 new plants in the state of Parana, which will allow Seara to advance its expansion strategy and value-added products. Likewise, we started operating at the new Principe Italian meats facility in Colombia, Missouri, and invested in our King's pork unit in the U.K. to make it a center of excellence in cold cuts. JBS has demonstrated resilience and strength over its 7 years. The company's diversified platform, commitment to excellence, innovation and sustainability, focusing on people and culture and the impending dual listing in Brazil and the United States put the company in a unique position to embark on a new cycle of accelerated growth and shareholder returns.

We remain focused on the dual listing process in the U.S. And today, we have filed an update to the registration request with the SEC. This includes our figures up to December 31, '23. I thank you all for your participation in this earnings call, and I will now hand over to Guilherme, who will detail our financials. Guilherme, please take the floor.

[Guilherme Cavalcanti, executive]

Thank you, Tomazoni. We're now going to talk about the financial highlights of the year and for the fourth quarter of '23. Starting on Slide 16, please. I would like to start by highlighting some important events that took place over the past year and also update you on some of these processes. The first point to be highlighted is the registration of the 11 senior notes with the SEC in August. This was fundamental for both the company and investors as it brought a series of significant benefits.

Among them, we have the expansion of investor base, the increase in liquidity of notes and the obligation to adapt to rules and regulations such as SOCS, FCPA, and PCAOB. In addition to the publication of new reports such as the 20-F, We have actually just filed it. We have also announced that we will register new senior notes issued in September '23 in the amount of USD 2.5 billion.

We will also use this opportunity to reopen the exchange period for the 11 senior notes, which have already been registered. However, some investors did not exchange their notes at that time, and therefore, we are now offering a new opportunity upon the request of these investors. Given the announcement of the registration of the senior notes, we have made public our intention to have our shares listed in the U.S. and Brazil as mentioned by Tomazoni.

Taking advantage at the end of the fiscal year. We also have filed a new form, which is now available for public consultation. And in relation to the new issuances. On September 23, we issued USD 2.5 billion in senior notes to JBS USA. In October, JBS SA, you should see us in the amount of USD 1.7 billion. Additionally, through our subsidiary, Pilgrim's Pride, we carried out 2 issuances totaling BRL 1.5 billion.

With the resources obtained, we significantly reduced our short and midterm debt, practically eliminating the need for debt payments until 2027.

Now moving on to Slide 17. Net revenue in the fourth quarter of '23 in the order of USD 19.4 billion. EBITDA totaled USD 1 billion, which represents a margin of 5.3% for the quarter. Net profit was USD 17.7 million in the quarter. And on Slide 18, we have the highlights of the year. Net revenue in '23 of USD 73 billion. Adjusted EBITDA totaled USD 3.5 billion, which represents a margin of 4.7% for the year. Net loss was USD 199 million in the year.

Now moving on to Slide 19, before commenting on free cash generation. It is important to highlight that as of the fourth quarter, we began to include the leasing expenses in the calculation of fresh cash flow, aiming at representing the company's cash generation more accurately and to be in greater line with the variation in net debt Operating cash flow in the quarter was USD 1.7 billion. Free cash flow for the quarter was USD 875 million. The free cash flow generation was positively impacted by improved operating results at Pilgrim's JBS Brazil and Australia, release of working capital, mainly inventories and suppliers, which combined total a positive variation of USD 570 million and a reduction in CapEx by USD 253 million in the quarter.

Of the last year, during the results release call of Q1, we had commented on what we would do to compensate the cash burn of [ USD 1.3 billion ] in Q1 of 2023. Remembering that seasonally, the first quarter consumes cash throughout the year. We provided update to the market on the previously discussed value totaling $1.4 billion, considering the necessary revisions. And now as the end of the year, and even in the face of a difficult and volatile year, we not only reverted the first quarter result, but also generated $448 million in free cash in 2023.

The main evolutions were working capital. That was BRL 1.4 billion, so $318 billion, considering inventory, accounts, accounts receivable and suppliers, reduction in CapEx by BRL 3.7 billion and tax refunds in the U.S. monetization of tax [indiscernible] Brazil, which totaled $360 million. Wel 2024 without providing guidance, we expect our cash generation to follow a seasonality similar to last year. This means that it is likely that we will have a cash burn in the first quarter, but we expect it to be around half the value recorded in the same period last year taking into account, the evolution in Seara results and the maintenance of attractive margins in Australia, U.S. pork and pilgrims.

Now for the updated year of the EBITDA necessary for free cash flow breakeven, we can consider net financial expenses of '24 similar to 23 million at $1.1 billion leasing expenses, which we calculate at $500 million vis-a-vis $429 million in 2023, reflecting the increase in installed capacity in the same way as rental expenses, the increase of our production capacity also increases the consumption of biological assets. Therefore, is regarding possible variations of grain prices, we are estimating biological assets consumption of $650 million.

CapEx for 2023 was $1.5 billion, which is $500 million in expansion. 2024 total cash CapEx of $1.3 billion was approved, of which $550 million was for carryover and $200 million for expansion in continuity with the plant inaugurated last year, thus disregarding capital variations outside the company's control.

And again, with out guidance the EBITDA that corresponds to the breakeven point of free cash is estimated around $3.55 billion. It is worth underscoring that the difference above this amount will be subject to the application of the effective average global income tax rate, which is around 25%.

On Slide 21, we can see our debt profile. During Q4, we used cash to reduce gross debt by $1.6 billion. Until February 2024, we used $566 million in our cash position to reduce our gross debt. We intend to continue this moment. The net debt for 2023 ended at $15.3 billion, stable vis-a-vis last year as the company's free cash generation was sufficient to cover the dividend payments that totaled $448 million.

Now our leverage went to $4.42 in and BRL 4.32, confirming the deleveraging trajectory that we had indicated in previous calls. Using the market consensus, the leverage will follow the downward trajectory that began in Q4 of 2023. Therefore, according to the market consensus for 2024, we have 6.5% EBITDA margin. And in 2025, a margin of 7% of EBITDA in 2026, a 7.8% EBITDA margin. This is a market consensus. Therefore, using these figures as a reference, we would reach the end of 2024 with a leverage ratio below 3.25x, and 2025 below 3x and below 2.5x by the end of 2026.

So I will now briefly go through the business units starting with Seara on Slide 22. The net revenue for the quarter fell 5% in Q4 and 4% in the year 2023 was challenged with margins below the ideal levels due to several external and external challenges such as the global excess of poultry and high production cost and challenges in the upstream part for the businesses as well as lower dilution of fixed costs due to the plants inaugurated in '23 are still in the ramp-up process.

However, we ended the year with positive results, and we're highly optimistic for 2024. 2023, Slide 23, JBS Brazil recorded net revenue 4% higher than Q4 of 2022, reflecting higher volumes sold, but 6% lower than 2022 due to the drop in prices in the domestic and international market. 2023 was marked by a high market volatility, mainly due to the self embargo, we export to China, the main destination for Brazilian industry, and the favorable livestock cycle, which increases the availability of animals for slaughter and reduce the prices of live cattle.

In Brazil, in this scenario, we strengthened international relationships, gaining new plants certification, further improved the level of service for key partners and broader brand closer to consumers. For the fourth time, the Friboi brand was stop and mind. And the result, everything above both the quarter and for the year, we improved profitability. Now in U.S. GAAP, the net profit of Beef North America grew 15% during the semester and 6% year-on-year on 2023. Despite the increase in revenue resulting from higher prices in the period, profitability was impacted by the growth in the price of life cap -- of live cattle at a faster pace than the increase in sales price, reflecting the increase in costs resulting from the cattle cycle in the U.S.

Additionally, the company uses future contracts as a short-term production measure. However, the fourth quarter was affected because the price of live cattle fluctuated in a typical way. On September 22, it was approximately $1.87 per pound on December 7, it fell to $1.62 and quickly went back to $1.88 at the beginning of the year. Now JBS Australia in the quarter, revenue growth was the result of volumes sold, reflecting the greater availability of cattle. However, during the year, the increase in volumes so did not fully compensate for the reduction in prices in both the domestic and international market despite this in both periods there was an improvement in profitability, mainly due to the reduction in the price of cattle acquisition, resulting from greater availability of animals due to more favorable cycle in the country and efficiency gains in several areas.

Well, USA pork, well, net revenue for the quarter was 4% higher compared to Q4 of '22, but the reduction of 5%. Comparing year-on-year, the beginning of '23, we faced changes in prices, profitability due to the excess of supply of hogs in the domestic market. However, throughout the year, we observed a normalization production accompanied by the reduction in grain cost as well as the average price of live hobs. Furthermore, through continuous efforts and improvement results such as expanding the value-added portfolio, improving commercial and portfolio execution, the EBITDA margin returned to normalized levels in the second price of the year. Here, we have Pilgrim's Pride. Here, there was an increase of net revenue by 10% on Q4 of 2023. When we compare it to Q4 of 2022 and remained stable in 2023 in the annual comparison like other business units mentioned. 2023 was marked by high volatility of the commodities market at the beginning of the year. Poultry prices began at historically low levels due to the oversupply in the industry, especially in the heavy big bird segment.

In the U.S., however, through the better balance between supply and demand, price gradually stabilized, although cost inflation remained high despite the challenges faced the company remained focused on executing its strategy and managed to improve the results in all the regions. As we saw the improvement in profitability occurred in all the business units throughout 2023, expect the North America. Similarly, the path remains positive for 2024 with emphasis on JBS, Australia, Seara PPC and U.S. pork.

Now we can go to our Q&A session.

[Operator]

[Operator Instructions] Our first question comes from Thiago Bortoluci, Goldman Sachs.

[Thiago Bortoluci, analyst]

I am sure that you have talked about each one of the units in detail, but I wanted to hear from you in this first quarter, how you have felt the demand in the U.S. at the end? And in general, when I look at prices that are bad, especially in the PPC and big bird, but also in pork, this has led to sequentially better spreads in pork. The demand in the U.S., is it reacting better than what we saw last year? What is the mix like between proteins and commodities with added value? And what is the impact this will have in the margins of the international operations in this first year?

And here, perhaps also if you have any upside for being eventually thinking that you have a little bit more pressing power? This is my first question.

The second question, I don't know whether Wesley is present in the call, but this question could be referred to him or to Tomazoni. We've seen an announcement of changes in the Board of Directors to be voted in the next meeting. So the return of the controller more directly in the core of the company, would that somehow change the company's strategy in vision as Tomazoni commented, and would that lead to accelerated growth somehow? And also what is the next step in terms of global expansion for JBS?

[Unknown Executive]

I'm going to answer your first question. The demand in the U.S.A. with the inflation rates we've seen in the U.S., we've seen 2 important things. First of all, of course, we can see the cost of beef at higher levels and a higher demand for pork and poultry. And it also has to do with the availability of the raw materials. So we can see more activity in retail for pork and poultry.

And in poultry, we've also seen -- I'm sorry, in beef, we've seen a higher demand for cuts that have a lower price. This is not necessarily bad even for beef because what really matters at the end of the day is the average price of all of the cuts. So we can see a leveling of the higher cuts. We can see a higher demand for the historically less expensive cuts, and they are compared to other products who are perhaps a little bit more expensive.

But the total demand, we can see a strong demand, but because of the inflation rates in all categories, I'm not talking about proteins and food alone, and this is something that has been a trend in the U.S. lately. So this has to do with the demand in the U.S.A.

[Gilberto Tomazoni, executive]

Good Morning, Thiago. Thank you for your question. Regarding the presence of Wesley and the Board, I wanted to make a comment, they do not have any impediment to take a seat in the Board or to have any executive role. They are those who, along with the founder, they have leveraged the company transforming a small battery in the state of guys into the largest supplier or provider worldwide. And this further contributes to the success of JBS. In terms of the change in strategy, I don't think that there has been a change in the short-term strategy. Of course, the strategy of the company that you can see and we disseminated in our website. It hasn't changed since the IPO, which is a growth in value-added products, the development of strong distribution platforms where I can have operational excellence.

This is a long-term strategy that we have pursued. Along with that, the diversification of our platform, also the start of salmon in Australia, which only shows our diversification strategy. Our experience with this activity has been better than expected. And we believe that we can do with it what we've done with poultry and pork. This long-term strategy will remain. It has been very successful for the company and has enabled the company to become what it is now.

Regarding the listing, we've talked about it for some time now. It is a strategic priority of the company. It has 2 important facts. We can add value and increase the number of our investors, participating in countries where we do not participate right now. This can leverage huge amounts for the company. In addition to that, it provides a lot of flexibility for the company's growth. We are also going to have other equity opportunities to fund our growth, not only in terms of debt. So it is strategic. We have already announced that we have reconfigured our files.

We are also answering or responding to prior questions. We're now going to wait for SEC and we -- when we do not have anything else to provide them, we will move on to the registry and call for an assembly. In the first -- we're only in the first quarter, and we have enough time to be able to conclude it by the end of the year.

[Operator]

Our next question is from Ricardo Alves, Morgan Sterling.

[Ricardo Alves, analyst]

I apologize for having lost the initial part of the call. And so perhaps I will ask you to repeat some aspects. The first question was about the listing and you've just answered about it. I would like to say that we are really focusing on concluding the listing for 2024 and just to confirm my understanding about it.

The second question, regarding U.S. beef. We discussed this in the last call. But in the second and third quarter, your margins were a little bit higher than expected because of the company's spreads. And now according to our accounting, the margin of U.S. beef was below what we had anticipated according to the industry spread. So I wanted to ask you if there are any factors that are specific to your operations or something that we are not aware of in SG&A? But I would like to know what the outlook for U.S. beef is going to be for '24? So I 'wanted to know what really impacted your beef distribution in the U.S. and the outlook for this year?

And my third and last question is about Seara, and once again, apologizing for having lost the beginning of the call. Tomazoni, you mentioned double-digit margins in the quarter. I would like to ask you to confirm that. Taking into account the seasonality because you came from 6% of margin in the fourth quarter, so that we can achieve better results in the first quarter. This seems to be something that is driven by cost.

We do not know what your grain availability is, but I wanted to have a little bit more detail about your operations for this quarter.

[Gilberto Tomazoni, executive]

Well, thank you, and good morning. I will start from the U.S. In the fourth quarter, as Guilherme commented in his presentation, it was somehow a typical for us. There was a relevant decrease in the price -- it was 97% in the beginning of the -- that half of the year and it closed at $962 approximately. And this variation was very relevant. It was not typical and had an impact on our results. it had a relevant impact in the fourth quarter. I would estimate that half of the negative EBITDA we have in the division resulted from this effect.

Regarding the outlook for beef business in the U.S., we do not think that the fourth quarter reflects what we expect for '24. It was a very challenging half of the year. We also had the issue of the strong variation in the future amounts, but we do not think that this volatility of $0.05 will remain, and therefore, we do not expect it to have an impact on '24. '24 is going to be a challenging year. We will have the normal seasonality. The fourth quarter -- and the first quarter is usually weaker. And then I think that our margin will be in the low single digits, or if the worst scenario comes through, we will break even.

This is what we see for the market. Anyway, it is going to be a challenging year, but we do not expect it to be similar to what we had this quarter because of this a typical event.

Well, Ricardo I understand that the first question about the priority in listing has been answered in the prior question. So I will move on to your third question regarding Seara. We've talked about it since the beginning of the year that we had businesses that were performing below their potential. In North America, Wesley has just commented about it. But in the case of Seara, I would like to clarify that Seara did not have and does not have any problems in terms of the market. We have increase the brand's participation to 90% and repurchases reached 80%. These are high numbers.

The problem with Seara had to do with operational inefficiencies related to process, yield and also the lack of availability of equipment. And the causes for these problems have been identified. We are already taking care of some measures to respond to it. And also in the fourth quarter, we had some events that had some impact. When we change processes, there is a whole process that should be in place in terms of capacity building. And this is something that we will see more significantly in the first quarter of the year.

Seara has a potential to deliver margins, 2-digit margins in the first half of this year. And in addition to this, we still have not reached optimal efficiency levels in the Rolandez plant. It is very automated. It demands time to synchronize all of the steps of the process. And this is only normal for a plant that has so much technology involved. But once everything is concluded, this automatization will increase the company's productivity.

You mentioned grains. We have always maintained a strategic inventory. We never take the risk because we never risk the fact of not being able to feed are hurt. And this dilutes with the entry of new volumes. I'm talking about corn and meal. This is natural, and we will see the effect throughout the years, and these are incremental effects that up till. So when the price is stable, this incremental effect no longer exists. The reaction is now we are seeing the effects of all the actions that we have adopted throughout this period. And we observed this during the last month of the year, and it will be more present during Q1.

Due to all of these things, we are highly optimistic in terms of the upcoming quarters that Seara will face.

[Operator]

Our next question from Gustavo Troyano from Itau question.

[Gustavo Troyano, analyst]

There are 2 points that I would like to highlight, one regarding Australia. You have regained relevance within this quarter. I would like to better understand if this margin improvement quarter-on-quarter is due to beef? How did the other segments perform in Australia? Now that I'm talking about Australia and thinking about what is coming. We've seen a significant increase regarding close quarter-and-quarter. I would like to know that if this margin in the cattle business is sustainable, all because of the -- because of food and now cash generation, there is a significant increase in working capital, which were the great drivers, and if there is a seasonal component? I don't know if there are other liabilities within your cash flow that this year released $1 billion. If you could tell us what is the driver of this line?

[Gilberto Tomazoni, executive]

Well, good morning, and thank you for your question. In Australia, all our businesses operate on the blue. We would like to highlight beef starting a very positive beef cycle, and this was the main driver of margin increases. And this year and the upcoming 2 years, this will be drivers of positive margins. And now the other businesses, the salmon business will have had good performance. Pork has also presented good results in terms of the performance. Also, process products, it is an extremely stable business. There are no ups and downs here.

Therefore, our Australian businesses are positive. You talked about the aroba and I've observed this -- well, we underwent a strong rainy period in Australia, and there were -- and we had difficulties in displacing the animals to be processed. And this is why the restriction and availability drove the price of the aroba upwards. But this was just a one-off situation. This has been normalized and rainfalls have gone back to normal. And I believe due to this, we will have a Q1 much more aligned than Q4, but when we compare it to Q1 of next year -- of last year, much better Gustavo, talking about the cash flow.

I'll talk about the Q4 and the year on Q4, we felt the impact that we feel every year. That is something that we call the livestock deferral. We delayed payments of livestocks from December to January at our customers request. This effect was $330 million in Q4. We also had an inventory reduction in Q4. This is due to efforts throughout the year. We've asked our team to focus on working capital. So this was a drop of $170 million of inventory during Q4. And our tax refund in the U.S. of $60 million. Therefore, the -- we have impacts on our free cash flow and to reach $150 million. This was due to operational improvement of EBITDA of $200 million. So this is how we reached $750 million of free cash flow for Q4.

Now as you mentioned, the impact of working capital from $1.4 billion, you can divide this in 3 reasons. We had the tax refund from the U.S. of $60 million, plus the credit monetization of taxes in Brazil and other credits. Here, we have around $400 million of impact here. We also have around $350 million in inventory impact. This is because the price of grains, lower amount of grains and our cash cycle, well, we have accounts receivable, accounts payable.

[Operator]

Our next question from Thiago Duarte from BTG.

[Thiago Duarte, analyst]

I would like to go back to U.S. beef and Seara. And perhaps I know that a lot has been said. I would like more color, more granularity. When we think about U.S. beef, Wesley stated the impact of the typical variation of cattle and this perhaps explains half of the negative EBITDA of the quarter. Now when we make this adjustment, and we compare it to your main competitors that already reported the result. Historically, your margins have been slightly above your competitors. And here, you're talking about the futures adjustments.

I would like you to elaborate how your sector or how the industry, how the industry sees lack of feedstock? I don't know if there are other elements that can explain the margin delta. The I don't know, cattle around the plants of the company or things around these lines. I really don't know if there're other elements that Wesley could point out to.

And going back to Seara, you spoke about productivity indicators, improvement of processes and the pains of growth when you add capacity to the Rolandia plant. Now just to better quantify [indiscernible], I do understand that the ramp-up of [indiscernible] is one of the main explanation, especially when an analyzed Q4 for a margin that is still below par, especially when we compare it to the margins of the competition. Is this interpretation correct? I believe that the efficiency [indiscernible] have already been lower in Q4 in terms of impact when we compare it to the last year.

I would like to better understand the size, how much each element contributes here for this phenomenon?

[Unknown Executive]

Well, starting with beef in the United States, there is no doubt, even with the readjustment, the result is below expectation. We've already mentioned this. We are carrying out a number of improvements in our operations. We do believe that the historic results of 2023 were below what we expected regardless of the market and regardless of this impact of the great variation that we had in the futures market in the end of the year.

Now we have been improving our commercial side. I believe we're highly reassured with this area, especially during Q1 of last year. Our performance was below what we expected. We see market -- our improvement was relevant. Although the industrial improvements, the speed of them are slower in order to turn around the industrial side. But we're highly optimistic, Thiago. We actually see that when it comes to efficiency, when it comes to yields in our units. Well, it is improvement. We haven't closed the cycle. It takes time to mature. There is nothing -- there are no structural problems in a region or in another region. Well, during 2023, we saw that the spread between the cattle prices from north to south was historically high, but we believe that this is -- this doesn't explain a different margin.

This doesn't explain worse performance than the market. And now we're going to focus internally. We're going to focus the in-house stuff and the things that we can control, and it is what we're doing. Now regarding Seara, do you want to better understand how much the Rolandia plant ramp-up has -- is the reason why we performed below par. I just wanted to add that it's not only [indiscernible], remember that when we mentioned this because this is one of the greatest investments.

But during the past 4 years, we invested $8 billion. This is an ensemble of improvements of increase of capacity in a number of plants. Yes, there is an important impact from all of these ramp-ups. But what is important is fine-tuning an entire chain. We work in a very long chain. When you have to synchronize everything, well, it takes some time for everything to be in the same pace.

So it's a machine. So we adopted changes. We changed how we managed our structure. So all of this takes some time to see results. This is why I feel extremely reassured during Q1 because things are moving at the pace that we expect. And as of this, we will just have incremental improvements.

[Operator]

Our next question from Guilherme Palhares, Santander.

[Guilherme Palhares, analyst]

I would like to ask about the U.S. business and also about the adjacent businesses. In the past 2 years, we've seen the company -- we have seen other business, U.S. beef, and you've embarked in the retail market. We see Swift stores in Brazil and in U.S., U.S. beef. We've also seen [indiscernible] that I believe that is within U.S. beef. I would like to better understand how these businesses have contributed to your result?

And looking at the end of the year, if you could make a balance of the businesses that you have carried out in these 2 geographies? Could you talk about your performance in these 2 businesses? And do you believe that if there is some type of deterioration in terms of these businesses?

[Unknown Executive]

Well, we've consolidated Seara within JBS Beef, of course, this is -- this represents an average. It is very small when we compare it as the entire business. I don't believe that the impact that [indiscernible] offers will -- gives great effects. But as the business dimensions are so different, I don't believe that it's sufficiently relevant.

Swift here in Brazil is within JBS Brazil. It's been consolidated in JBS Brazil. We are now at a growth phase, a growth phase of the business. In average, Swift ends up pulling up the margin of the beef operation -- I'm sorry, pushing it down. But I'd like to remind you that whenever we say JBS Brazil, we're not only talking about our beef operation, even though beef is our major operation, but we have businesses, which are a combination of other businesses, energy generation, fertilizers, biodiesel and other businesses that are included, and also a leather operation in JBS Brazil.

So we have to take into account this whole set of businesses we have embedded in JBS Brazil.

[Unknown Analyst]

[indiscernible] if you could make a follow-up on this model of growth in the number of stores. So what we've seen in the last 2 years of more accelerated investments, taking into account what can become in the future. So could you let us know how the operation is doing today? And would you be able to expand that to other markets as well?

[Unknown Executive]

Well, this business is started based on a belief we have that this beef operation chain, all this has significant losses related to refining, among others. And consumers when they go to the market and buy the product, they use the fresh product one day and then they freeze it. This freezing is never optimal, because it creates a large water crystals. When they frost, the value is lost, and that's why we are convinced that we must have a business that is frozen at the origin. And so that you can prevent all of these problems from happening. We started with this project. We are now taking it to our clients in our stores. And it is a maturing product. Our objective is to keep on developing, learning from it, and it can be as large as consumers accept our value proposal.

[Operator]

Our next question is from Isabella Simonato, Bank of America.

[Isabella Simonato, analyst]

I wanted to have a follow-up focusing on market conditions. It is very clear what you can see internally? What you can do in terms of improvements. But could you tell a little bit more about the Seara, especially talking about export prices in the domestic market that will help us better understand what you can do beyond the first quarter. This was my question.

My second question, Wesley, is that I wanted to confirm what you said about margins in the U.S. and break even in low single digits. It wasn't very clear to me. So could you better specify that?

[Wesley Mendonça Filho, executive]

Well, good morning, Isabella. I'm going to answer this for the whole year of '24, to be more specific. Okay. Excellent. Thank you very much. Well, I'd like to remind you that the first quarter and the fourth quarter are always the worst ones and the 2 in the middle are always the best ones. In average, this is our expectation in terms of our results. Whenever we talk about the market and now more specifically about the consumer market, we are very optimistic about it. And if you look at the different categories, where Seara works with prepared foods, all of them increased last year, and they continued growing this year.

We have come to a good point where we are increasing our product offer. We are very positive about the domestic market demand, including chicken, both for chicken and prepared foods, Also, beef is not related to Seara, but beef has also had an increased demand. The consumer market in Brazil is very positive. The international market for chicken also has adjusted offer and demand. And you will see that according to the results that were shared. It's not different from Mexico or England. It's an operation and the chicken business in general has been favored by lower cost, and we have commented about it, and a very balanced offer and demand in all of the markets.

It's a very positive moment for this business. Pork is a lot more difficult. Brazil has increased pork production. International markets have also had a retraction. And I'd like to remind you that the main producers and exporters, the U.S. and European Union. The U.S. has increased its exports. The international demand is not very strong in the markets we are operating at. We have opened our markets, but we still need to grow more. The market is very competitive for work look.

[Operator]

Our next question is from Lucas Ferreira, JPMorgan.

[Lucas Ferreira, analyst]

I have 2 questions. The first one is more specific about pork. We had some adjustments in the market. The prices of commodities went down and good results were reported for the quarter. I want to know what your outlook is for '24? Wesley has said that the demand is doing well, but we can see the number of offers, and so I'd like to know if this is only to accommodate this higher demand and the prices are doing well? And so my question is, if you foresee an upside in profitability for the year with PPC more specifically for the U.S.?

And the other question is about pork in Brazil, you had higher exports to China, and I would like to know if this will significantly contribute for the profitability of the business throughout the year. And also if the average prices are improving in your case? And how the cost of pork has behaved?

[Unknown Executive]

So in response to your question about chicken in the U.S., Lucas, you understood it correctly. There has been a balance between offer and demand. We believe that we're going to have a very balanced year in terms of offer and demand, and therefore, our projection is that this market will remain as it is now in terms of margins. And I would like to remind you that we have a strategy of very well-balanced channels. We are present in 5 segments in value-added products where we've grown a lot with the [indiscernible] brand. it's had excellent growth in the category of branded products with significant gains in the market.

We also have the supermarket trays, [indiscernible] service, and we also have the big bird and small bird segments, and therefore, the set of businesses are well balanced. Right now, we can see a significant growth in big bird, the so-called big birds, which is raw material essentially. But even when it's doing not as well, it still does not harm us.

To summarize, we're very enthusiastic about the chicken business in the U.S.

The other question you raised has to do with the increase in exports, including to China, yes, we had significant improvement. Talking about bovines, we had 41 plants. We added '24, which is significant, and JBS was present in the '24 with 10 plans approved. And that correct that difference we had in terms of the market. And if you compare the market share we have in the processing market now with the number of plants, we're still lying behind. Now what is the impact in the market? Of course, with the increase in the number of plants, you can increase the offer to that market. To us as JBS, this increases our flexibility a lot in terms of what we can produce and also in terms of mix.

It is all very favorable. What we can see in China is that the market, which was suffering a lot of impact immediately after the pandemic, and we had products in the stock with more advanced [indiscernible] and then we had a period where Brazil could not export. And then the figures were normalized. We had a significant improvements. But when we look at the mid and long term, in terms of offer, the natural trend is that the premium we have for these markets might not even exist anymore in the long term. And so the beef scenario is positive in Brazil.

What these market openings, not only China, Brazil, opened its market beautifully. We can add Thailand, Malaysia, the Philippines, among others, Brazil has expanded a lot it's access to markets, which is very positive for Brazilian products. Furthermore, we can see that structurally speaking, especially in China, we are going to have an increase in the per capita consumption. We have more consumers in middle class. Increased income means more protein consumption. In China, beef is aspirational, and we believe that we are going to benefit from this whole process. And the local producers have a lower capacity to meet this demand.

So I emphasize that this is one of the advantages we have in the diversification of the company. In the U.S., we have a cycle, as Wesley has just mentioned. We have had some challenges. The beef cycle has a trend to decrease. But within the same category, we have 3 businesses. Of course, they have different sizes, but in different moments. And regarding check-in, a different protein type, enables the company to continue growing, generating cash, expanding. This is one of the competitive advantages of JBS. I keep on reinforcing this.

The market is beginning to learn more about this competitive advantage, which enable us to have sustainable growth in the mid and short term.

[Operator]

As we have no further questions, I would like to hand it back to Mr. Gilberto Tomazoni for his final remarks.

[Gilberto Tomazoni, executive]

Well, I would just like to thank all of you for participating in our conference call for your questions, for the opportunity to explain our business and to thank all of our employees, over 270,000 employees because these results are due to the effort and dedication of all of them. Thank you very much.

[Operator]

The JBS conference call has come to an end. I would like to thank everybody for their participation, and have an excellent day.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]