Marfrig Global Foods SA
BOVESPA:MRFG3
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Marfrig Global Foods SA
Earnings Call Analysis
Q2-2024 Analysis
Marfrig Global Foods SA
Marfrig Global Foods reported consolidated net revenue of BRL 34.8 billion for Q2 2024, marking a 16.5% increase from the previous year. This growth was driven by a combination of higher sales volumes and strategic capacity investments, particularly in their North American operations, which represented 47% of total revenue.
In the North American sector, sales volume rose by 2.5% year-over-year, attributed to improved yield efficiencies leading to more sellable product per head. Meanwhile, South America saw a dramatic 31% increase in sales volume for continuing operations, thanks to ongoing capacity enhancements. This momentum positions Marfrig for robust revenue growth as it captures increased market demand.
Despite higher revenues, adjusted EBITDA across regions showcased mixed results. In North America, EBITDA fell by 41.3% year-over-year to USD 90 million, reflecting ongoing challenges such as increased cattle prices which outpaced the rise in box beef prices. However, South America's EBITDA increased by 1.5% to BRL 334 million, illustrating resilience despite external pressures.
Marfrig reported a positive turnaround in net income for Q2, achieving BRL 75 million compared to a loss of BRL 784 million in the same period last year. This marks three consecutive quarters of profitability, indicating a strengthened financial position despite the industry-wide challenges.
Looking forward, Marfrig anticipates lower fed cattle supplies which could potentially limit capacity utilization and margin improvement in the latter half of 2024. However, they expect strong beef demand to counteract some of the margin pressures, maintaining a cautious yet optimistic outlook for the balance of the year.
Marfrig generated positive free cash flow of BRL 419 million in Q2, indicating effective capital management amidst ongoing investments. The consolidation of the business segments has improved their operational efficiency, and a notable reduction in net debt to BRL 7 billion with leverage ratios decreasing further from 3.43x to 3.38x signifying improvements in financial stability.
Marfrig reiterated its commitment to sustainability, achieving 100% compliance in livestock audits for the twelfth consecutive year. The company’s Marfrig Verde+ program has been pivotal in promoting traceability and sustainable practices across its supply chain, a crucial aspect considering increasing consumer demand for responsible sourcing.
With a focus on diversifying protein sources and enhancing value-added products, Marfrig has positioned itself strategically within the global protein market. The attachment to high-quality beef products indicates flexibility in pricing and an ability to capture market share amid fluctuating consumer preferences.
Overall, Marfrig's solid operational performance, combined with strategic financial management and sustainability initiatives, portrays a resilient company ready to navigate the challenges ahead. The coming quarters will be pivotal as they adapt to changing market conditions while aiming to maintain profit margins and expand their operational footprint.
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[Interpreted] Good afternoon, thank you for waiting. Welcome to Marfrig's Q2 2024 Earnings Call. We would like to inform you that this is being recorded and interpreted to both languages. [Operator Instructions].
We have Mr. Marcos Molina, Founder and Chairman of the Board; Mr. Tim Klein, CEO of North American Operations; Rui Mendonca, South American CEO; Tang David, CFO and IR Director; [indiscernible], Corporate Finance Director; Mr. Paulo Pianez, Sustainability Director; and finally, IR Director, Mr. Eduardo Puzziello.
[Operator Instructions]
Before we proceed, we would like to say that any forward-looking statements are related to the business perspectives of Marfrig Global Food or its projections, projections based on the company's premises as well as currently available information for Global -- Marfrig Global Foods S.A.
Forward-looking statements are not any guarantee of performance because they relate to future events that may or may not occur. Investors and analysts should understand that overall economic conditions, among other operational factors, may impact Marfrig's results that will lead to results that are substantially different from those expressed in forward-looking statements.
I'll turn it over to Mr. Eduardo Puzziello for his presentation. You may have the floor now, sir.
[Interpreted] Thank you for attending Marfrig's Q2 2024 Earnings Call. Let me start with the main operational highlights of the quarter. I will start with Marfrig's consolidated net revenue at BRL 34.8 billion, up 16.5% above the net revenue for the same period in 2023.
When we break that down by geography, North American's operation accounted for 47% of the consolidated revenue for the quarter. South America's operation considering only the managerial results of continuing operations represented 10%. And BRF's results accounted for 43%.
When we analyze the revenues separately, the revenue from continuing operations in South America showed net revenue of BRL 3.7 billion, and the adjusted EBITDA margin was 9.1%.
BRF's net revenue reached BRL 14.9 billion, and the adjusted EBITDA margin was 17.6%.
Finally, the North America operation showed for this quarter, net revenue of USD 3.1 billion and an adjusted EBITDA margin of 2.9%.
The consolidated adjusted EBITDA was BRL 3.4 billion, 64.8% higher than the EBITDA for Q2 of last year. As a consequence, the consolidated adjusted EBITDA was 9.7%, 285 bps higher than the margin for the same period last year.
When we analyze the adjusted EBITDA for the quarter consolidated by geography, North America's operation accounted for 14% of the total, while South America's operation represented 8% and BRF's EBITDA accounted for 78% of that total.
Moving on to the main financial highlights. I would like to point out that the free cash flow was positive, BRL 419 million, and net income for the first quarter of 2024 was BRL 75 million, a turnaround from the loss of BRL 784 million in the same period of last year. Dollar continues to be the main currency of our results, accounting for 74% of the consolidated revenue in Q2 of this year.
Regarding Marfrig's financial leverage, we have been in the process of deleveraging over the past quarters. In that context, at the end of the quarter, we achieved consolidated leverage of 3.38x the net debt to adjusted EBITDA multiple for the last 12 months compared to 3.43x at the end of Q1 of 2024.
Moving on to sustainability. For the 12th year in a row, Marfrig achieved 100% compliance in the audits of the public commitment of livestock in the Amazon.
Finally, on August 9, Marfrig received the experts' opinion from the General Superintendence of CADE, recommending that its court approved the divestment of assets in South America through the execution of a Concentration Control Agreement that provides for the reduction of the material and geographic limitations established in the expansion restriction clause, which will not change the other terms and conditions set forth in the contract and the operation.
I'll now turn it over to Mr. Tim Klein, CEO for North America. Tim, please proceed.
Thank you, Eduardo. Let's begin on Slide 4, where I will comment on the results for the second quarter. Starting with the first chart on the left, sales volume was 2.5% higher than the same quarter of last year, mainly due to heavier weights and better hot yields, resulted in more sellable product per head.
Net sales were $3.1 billion, an increase of 5.5% versus last year. Beef demand in the quarter was good with both retail and export indexes showing gains. EBITDA came in at $90 million, which was 41.3% lower than last year with an EBITDA margin of 2.9%. As expected, the margins in our beef plants were lower versus last year. Box beef prices increased, but not enough to offset the significantly higher cattle prices and lower drop values.
Now I move to Slide 5, where I will talk about U.S. market data. Starting on the left, USDA reported Kansas live cattle prices averaged $185.37 per hundredweight, up 6.1%. The USDA comprehensive cutout averaged $306.31 per hundredweight, up 1.1%, while the drop credit declined 10.4% to an average of $11.53 per hundredweight. The cutout ratio was 1.66 versus 1.75 last year.
As we move forward to the second half of 2024, lower fed cattle supplies will result in reduced capacity utilization across the industry and lower margins. Beef demand continues strong, which should help alleviate some of the margin compression.
Now I'll pass to Rui.
[Interpreted] Thank you, Tim. Moving on to Slide 6. I'll talk about the performance in the Q2 of 2024 for the continuing operations in South America. Let me start with the chart on the left. The total sales volume for the continuing operations reached 190,000 tons in the quarter, up 31% when compared to the same quarter of last year. This growth is primarily due to the investments in capacity increases made by the company over the past few years, which are currently in the ramp-up phase.
Moving on to the net revenue chart in the middle of the slide. We reached BRL 3.666 billion in Q2 of this year, up 17% the revenue year-on-year, mainly explained by the combination of the consolidated volume growth and the lower average sales prices in foreign markets when compared again to the same period of last year.
Finally, in the chart on the right, the adjusted EBITDA was BRL 334 million, up 1.5% over EBITDA of 2023. As a result, EBITDA came in at 9.1%, 1.4% below the margin of Q2 '23. This contraction is mainly a result of our performance in Argentina, which due to the current economic challenges, has faced greater difficulties, especially in the fresh meat operation.
Now in the next slide, I'll talk about the dynamics of exports in the continuing operation. Regarding exports in Q2 of this year, we noticed that sales to China were not as significant in the quarter when compared to the same period last year. They now account for 46% of exports from the continuing operations in South America. Let me point out that even though the Asian region remains the largest importer of Marfrig's beef, we have been focusing on increasing the number of alternatives through our sales channels to address other markets. The goal is to always benefit the most from every business opportunity.
With this in mind, in the first half of 2024, we obtained 29 new certifications in our continuing units, which also explains the reduced dependence on China. Additionally, we have observed excellent commercial opportunities in various markets with highlights in North America and Middle East. Therefore, when I look at the export chart for Q2 2024, we see significant growth in the participation of these 2 regions.
This concludes the portion on South America operations. And I'll turn it over to Paulo Pianez. He will be talking about the highlights of Sustainability.
[Interpreted] Thank you, Rui. This is yet another quarter in which Marfrig's journey in sustainable development shows consistency, and results show that, and it has been through the Marfrig Verde+ program that the company has been demonstrating its true ability to transform Brazilian livestock aligned with climate and nature-based solutions.
Among the results, Marfrig made significant progress in the most challenging issue, traceability, with 100% of direct suppliers already monitored and controlled by satellite. In Q2 2024, we reached 87% of indirect suppliers in the Amazon and 73% in the Cerrado, ensuring that the company purchased by the company does not come from deforestation, indigenous land, conservation units, areas with social environmental embargoes or places with forest labor. More than 30 million hectares monitored daily, an area bigger than the U.K. or the state of São Paulo.
Still on traceability, for the 12th consecutive year, Marfrig achieved 100% compliance in the audit concerning the public commitment of livestock. The report confirms Marfrig's compliance to social environmental preservation practices, which reflects the company's commitment with the best practices in sustainability in managing its supply chain.
In this quarter, Marfrig, with the support of specialized consultancy, initiated 2 projects to support its climate strategy, focusing on a plan to mitigate Scope 3 emissions and adapt the climate of its indirect operations and supply chain.
Still within the scope of the Marfrig Verde+ program, which has the regularization and inclusion producers as its premise, 470 farms were reinstated. These are suppliers that resumed operations in accordance with our commitments, demonstrating strong adherence to the principle of inclusion. Over 4,000 farms have been reincluded from 2021 to 2024. More than 1,600 new suppliers have joined the Marfrig Club program, which spreads good sustainability practices throughout the supply chain.
This quarter, we published our 2023 Sustainability Report, with highlights related to our business strategy, governance, management, operations, impacts and economic and financial results as well as ESG aspects that permeate our operations and the guidelines that drive us.
The company's consistency on social environmental issues are proven by our results and also by international assessments, establishing Marfrig as a benchmark in this area while contributing to the development of low carbon economy and the maintenance and recovery of biodiversity in the territories where we operate.
I'll now turn it over to Tang, who will present our financial results.
[Interpreted] Thank you, Paulo. In the following slides, we'll show the consolidated managerial financial results for Marfrig Global Foods for Q2. I think it's worth highlighting that the audited consolidated financial statements of Marfrig Global Foods are prepared and presented according to the accounting practices adopted in Brazil, corporate legislation NBC and CVM as well as international standards, IFRS, issued by the IASB. Thus, the consolidation of the FS covers the business segments: Beef North America, Beef South America and BRF according to Note 34.
And since Q1 2024, for a better understanding of the new portfolio and Marfrig's optimized business profile, we will show the consolidated managerial operational results by summing these segments: Beef North America plus BRF plus Beef South America continuing operations.
On Slide 11, let me start with the chart on the left. In Q2 '24, we generated BRL 34.8 billion in consolidated net revenue, up 16.5% when compared to Q2 '23. Of this revenue, 43% was generated by BRF, 47% in North America and 10% in South America.
In terms of currency, in the quarter, 76% of net revenue was backed to the dollar plus other strong currencies and 24% in reals. And on the right, we generated BRL 3.4 billion in adjusted consolidated EBITDA, with margin of 9.7%. The EBITDA for Q2 is 65% higher year-on-year with a strong contribution from BRF, 78% of the adjusted consolidated EBITDA for Q2 of this year.
Let me highlight our strategic decision to invest in BRF and our diversified business model in protein and by geography with a greater focus on value-added products.
On Slide 12, free cash flow. In Q2, the consolidated operational cash flow was positive at BRL 2.6 billion. The investments made in CapEx in the period amounted to BRL 1 billion and the amount spent on financial expenses was BRL 1.1 billion. As a result, the free cash flow for the quarter was positive at BRL 419 million.
Slide 13, net debt and managerial leverage. The consolidated net debt was USD 7 billion at the end of Q2 '24. In turn, the leverage ratio measured by the net ratio, net debt and the adjusted EBITDA in the last 12 months fell from 3.39x to 3.05x in U.S. dollars. When measured in reals, the ratio fell from 3.43x to 3.38x, highlighting strong operational results mainly from BRF.
Finally, on Slide 14, I would like to highlight the return to profitability in our operations. For the third consecutive quarter, we reported net income, BRL 75 million in Q2 versus a loss of BRL 784 million in Q2 '23. Our protein diversification significantly contributes to creating value for Marfrig shareholders.
These results reflect the solidity of our diversified strategy and also the positive impact of our value-added business model. We remain focused on capturing operational efficiency, controlling costs and reducing leverage, resulting in maximizing returns for all of our shareholders.
I'll now turn it over to the operator so that we can start the Q&A session.
[Interpreted] [Operator Instructions] Ricardo Alves from Morgan Stanley.
[Interpreted] I have a couple of questions about North America, therefore, for Tim. We do see evidence, Tim, of higher slaughter numbers. What are the data points you have been monitoring? What would you have to see in the next -- comes to see? So when will the cycle turn around? I mean, more with the long-term perspective.
Still about North America, usually expect lower profitabilities in Q3, especially after Labor Day. But spreads are not that bad when compared to our expectations. There is a perspective to improve better drop credits, and labor has been properly addressed. So the outlook is not that negative. So my question is, do you believe that there's a possibility that margins even be more resilient? Could you give us some more short-term color about Q3 taking into account these variables?
And finally, my last question is still about North America. What's your take on the behavior of retailers on beef, maybe to prepare for Labor Day? Cold storage, we monitor, is still low but not enough to trigger a more aggressive move on the part of retailers. And we don't have any visibility about August. If you could give us some color based on your conversations and negotiations, that would be very helpful to predict their behavior for the holiday.
Sorry, I was on mute. Regarding the cattle cycle, what we are seeing is a year-over-year decline in the cattle slaughter. That's generally a precursor to heifer retention. Although we haven't seen meaningful heifer retention happen yet, we expect in the coming quarters that we're going to start seeing a bump up in that retention. So it's hard to say when that's going to occur and then, of course, that will have an impact on when the cycle bottoms. But at this point, we're encouraged by the cow slaughter being lower year-over-year and what that might portend for heifer retention going forward.
Generally, the second half of the year, Q3, Q4 is lower than the first 2 quarters
[Audio Gap]
strongest quarter because of the barbecue season. So we don't expect to see anything different this year. We are encouraged by the beef demand that really holds up, has held up well, and that kind of goes into the third question as far as retailers.
Retail prices are at record levels, but consumers are still buying beef. They are trading down to less expensive cuts but they are still buying beef, and that's very encouraging. So retail activity for Labor Day is strong features and that should be good for clearing the product through the system.
[Interpreted] Gustavo Troyano from Itau BBA asks the following question.
[Interpreted] Actually I have 2 questions, both about South America. The first question is about the cycle, thinking about the animal availability in Brazil. We've been talking about these favorable cycles. And we see some potential inflection points for next year. Could you share your perspective about this adjustment of animal availability? Is it taking place in early 2025 or later down the year? What's your take about this possible turnaround?
And my second question is about South America, but now focusing on the demand side. With less animal availability in the U.S., there may be some opportunities for both Brazil and other countries to export to the U.S., just like Australia, Brazil has been gaining ground there. So what's your take? How can Marfrig benefit from that situation based on the certification of the capacity you have to export to U.S.? If you could please elaborate on that, that will be very nice to hear.
[Interpreted] Gustavo, since 2022, we have seen that good supply this quarter. Specifically, we had increased slaughter in Brazil, 15% as compared to the same period in 2023, a 15% price drop. In 2024, we will have a positive cycle. We understand that the transition begins in 2025. It's important that we are preparing for that. Our supply through feedlots will guarantee enough supply. So it's important to plan for that situation.
As for Brazil, in terms of demand, we have seen very strong world demand. For instance, significant growth to Mexico, Indonesia. These were just potential markets. I think Brazil is a front runner in the world scenario, strong demand. So we are optimistic. Brazil can supply those markets.
As for the cycle, we see increased number of animals ready to be slaughtered. This minimizes the effect of the cycle.
[Interpreted] Isabella Simonato from Bank of America is up next.
[Interpreted] I have 2 questions.
[Interpreted] Please ask the question in the Portuguese channel.
[Interpreted] I'm sorry. Once again, I have 2 questions. The first one has to do with the domestic market, mostly Brazil and South America. You've been investing in verticalizing earlier this year. And I believe it's, now, it's the time for the feed lot focus maybe to reap the harvest of these investments made especially in Q1. Could you give us some color as to the acquisition price? What can we expect as far as the contribution to the profitability of the business? That will be very helpful.
And my second question is about capital allocation. When we look at BRF especially, you have that time to generate cash and the possibility of paying out dividends, which we haven't seen for quite some time. And Marfrig still maintained the debt in the holding company, you maintain the Minerva assets.
But I would like to hear from you what would be the alternatives for the deleveraging in the holding company? What should be BRF's role in that effort and your take on the capital allocation for BRF?
[Interpreted] Isabella, as for the feedlots, we can say that our strategic plan has been successful. We will achieve 30% of our supply through that feedlot system through that verticalization and the release of cattle ready to be slaughtered, it will happen soon. Our feedlots are full. The purchasing time was perfect. The prices were good. This is a successful model based on the same model National Beef adopts. We believe in greater margins, avoiding idleness. And the quality of the cattle and the beef, the certification to export to Europe, that gives us important gain.
So we see that strategy is successful and the beginning of the slaughter, still this year.
[Interpreted] Isabella, this is Marcos. I think I'm the best person to speak about capital allocation. Marfrig, along with BRF, are focusing on the reduction of gross debt and the financial cost and deleveraging. So you only mentioned Marfrig. If we had a pro forma, we would have 2.8x the debt to EBITDA. Obviously, BRF with cash generation is prepared to pay out dividends. Yesterday, we discussed about it, very likely there will be a dividend payout, but how much, we prefer to define that next quarter in November to give you more color to that number.
[Interpreted] Mr. Guilherme Palhares from Santander asks the next question.
[Interpreted] I would like to discuss Argentina. Could you give us the outlook for the region, especially with the retentions in the cattle in Argentina. That would be very helpful.
My next question is to Tim. Tim, what's your take on the price gap between beef cuts and the impact in the overall profitability in National Beef when compared to competitors?
I'm sorry, I don't really understand the question. You're talking about the performance gap or the price gap?
[Interpreted] I wanted to understand how you see price gaps between Prime Beef, Choice and Select and what we can expect for the rest of the year.
Okay. You want me to go first? I'll go first. Normally, what's we see is -- and we watch the spreads between Prime, Choice and Select, and what we've seen over many years is that consumers want the higher quality beef. So even though we have record numbers of Prime and Choice, we're still able to maintain spreads on the higher quality beef to the lower quality. So that's a real positive sign and really demonstrates the consumers' willingness to pay record prices for beef.
[Interpreted] Guilherme, speaking a little about Argentina. True, the margin was below our expectation. The highlights are not positive, kept smaller cattle supply, higher cattle price, inflation is still high, about 6% a month on average. The spread of the BLU is back, generating imbalance and a drop in purchasing power. But we are optimistic about Argentina.
First, because if we remember a recent past, we had restrictions to exports, the BLU spread above 100%, a 2-digit inflation in July ended with 4%. So we are transitioning to a better situation in Argentina.
We have an operation of processed beef, which is 50% of our operation, not only fresh beef. But it's very positive to see that the government is concerned with the segment. This is an important segment to Argentina. The removal of retention is a sign that the government is concerned with the industry. We are optimistic with the future of Argentina based on what is happening.
[Interpreted] Mr. Thiago Duarte from BTG Pactual is up next.
[Interpreted] I actually have 2 questions looking at the South American operation. The first one has to do with volumes. I believe that part of that growth quarter-on-quarter and year-on-year come from capacity buildup you've had in recent years. Is there any room to exceed these 200,000 tons. Is it reasonable? Is it -- should we expect that for the future? Or can you expand that even further based on that new capacity?
And my second question is about margins, especially with that packed in Argentina. Can you talk about the margin of fresh and processed meat, which is relevant to the South American business.
Thiago, let us begin with our expansions. We had increased sales volume of 31% this quarter, a capacity increase of about 20% this year. Part of the growth is because of higher occupancy, but we are in a ramp-up phase. Early next year, we will have an additional 30%. So we can expect higher volume compared to those 200,000 tons that we had this first half.
As for margins, for fresh and boxed products, we think about 2 digits for boxed products and they deliver that. Our fresh beef is more for branded products in Brazil, for instance. They account for 40% of our bone beef in Uruguay. We work with organic beef. And also our fresh beef today is directed through branded products and different quality, and we will also deliver higher feedlot numbers. So the fresh will be at the same level of boxed beef.
[Interpreted] And Ricky Brustolin from Bradesco.
[Interpreted] The first one is a follow-up about second half volumes, Rui. And the feedlot cattle will be coming in closer to year's end. This is the growth in volume. Would that growth be more concentrated later this year, early next year when you bring that cattle from feedlot? Or do you believe it's going to be a gradual process, the ramp-up of that 30% increase would start as we speak?
My second question is along the same lines. This is the first year in which the company is more verticalized. I would like to better understand the working capital policy for advanced payments for suppliers. You've discussed that in the previous quarter, you've accrued it through the first half so that you can build that cattle for the second half. And how is this release going to take place? Thinking about the seasonality this year and for future years as well.
[Interpreted] Henrique, as for volumes in our feedlots, obviously, this is a drawback in feedlot. We can include animals as we need, as we have a positive cycle, obviously, we can delay a little. Irrespective of occupancy, that won't affect our occupancy in the third or fourth quarter with the level of supply in the Brazilian market, we can maintain our growth levels independent of that factor. It is strategic. But in terms of the occupancy, it has a lot to do with the moment when you need it. It doesn't depend on the positive cycle as we have.
I'll turn it over to Tang who will speak about working capital.
[Interpreted] Henrique, in Q2, we had a supplement of BRL 230 million for this working capital because we are now filling our feedlots. But moving forward, it should remain at that level, [ 2 billion ] total. Depending on market conditions, that might go up a little, that advancement in working capital. So as we deliver cattle, that's the level of working capital that we're talking about.
[Interpreted] Lucas Ferreira from JPMorgan asks the next question.
[Interpreted] Two follow-ups, actually. Tang, still on the subject of working capital, let me make sure I understood that properly. This additional volume that Rui mentioned, about 30% that is coming in the following quarters, has it been contemplated in the pricing? Or are you going to purchase even more cattle? And what is the net result? Because you have some assets that will be leaving the company. What's that net balance in the next 12 months?
And the other follow-up is about Tang or Marcos. My question is about BRF's dividends. Since Marfrig consolidated BRF, paying more dividend would mean more leverage for Marfrig. So here's my question. Would additional dividends for BRF, what would that contribution will be like for Marfrig? The average life cycle cost, liability management? Or will that help Marfrig in other capital allocation issues so that Marfrig can also pay more dividends or maybe speed up the buyback program? So my question is, what's the impact of BRF's dividends on Marfrig?
[Interpreted] Lucas, this is Marcos. I'll answer the first and the second question. That 30% increase Rui mentioned will consume more working capital, 25% to 30% of our own capital. I don't know if you remember that the sale of Minerva assets does not include working capital. So we will have the receivables of the sales of assets and the release of working capital from discontinued operations that will also help to consume as little cash as possible. So we don't expect many changes. That growth will consume, but there will be enough working capital from Minerva. So I don't see major fluctuations in those numbers, as Tang mentioned before.
And as you slaughter ahead, you replace it with another one. So today, one arroba costs BRL 190. So when we have supply in the market and you gain more weight to be more efficient, and we have a high occupancy rate, you will be able to see that in the first half of next year when there is a cycle change, when there is a change in supply. You will be able to see that and we will be able to show you that our strategy was right.
Another point on trace cattle, Marfrig has a commitment by the end of 2025 to have 100% traceability of our cattle. We will achieve that because we signed that commitment. We're going to be the first company in Brazil to have 100% traceability of our feedlot cattle.
On dividends, today, BRF, because of its performance, it is flexible to invest, to buyback. It is prepared to pay out dividends in Marfrig with the money coming from Minerva. A debt of [ 2.8 ] in our pro forma. I think we are very flexible so that in November, as I said, we will appropriately allocate capital, buyback, dividend payout. I think our shares are discounted so we can do some buybacks. So we're very flexible in all those fronts, always been conservative financially. And our financial team has that challenge of improving our rating constantly. Our latest CRA was very successful, both at Marfrig and BRF.
So we expect for next year, interest rates will come down in Brazil, and we will be able to lower our financial cost and the gross debt to enter into a better profitability cycle, not only at BRF but also at Marfrig.
[Interpreted] If I may add, both BRF and Marfrig have an accumulated fiscal loss. And now with more profitability, we will use that fiscal loss. We will have a greater cash conversion.
[Interpreted] Thank you. This concludes Marfrig's earnings call. If you have any questions, please submit them to our IR department. Thank you for attending the call. Have a great day. Thank you.
[Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]