Marfrig Global Foods SA

BOVESPA:MRFG3

Earnings Call Analysis

Marfrig Earnings Boast Strong Performance

Marfrig Global Foods delivered a robust performance in 2023 with consolidated revenue reaching BRL 136.5 billion and adjusted EBITDA at BRL 9 billion, nurturing a solid EBITDA margin of 6.8%. Markedly, the operating cash flow was positively over BRL 11 billion, and recurrent free cash flow hit BRL 1.5 billion. Contributions to these strong figures included record net revenues from North American operations at BRL 12 billion and South American operations generating over BRL 23 billion in revenue with an impressive EBITDA margin of 10%. Notably, the total leverage ratio improved to 3.07x after adjustments for asset sales. Looking at a glimpse into the future, expectations for 2024 are set high, with predictions of cattle prices hitting unprecedented levels while solid beef demand is projected to support higher cutout prices. Throughout 2023, Marfrig has also excelled in ESG commitments, topping the rankings while successfully advancing its BRF capital to 50%, reflecting strides in value generation and operational efficiency improvements.

Marfrig Delivers Strong Performance Amidst Diversification

Investors would be pleased with Marfrig's overall performance in 2023, where it reported a consolidated revenue of BRL 136.5 billion and a consolidated adjusted EBITDA of BRL 9 billion, achieving a robust EBITDA margin of 6.8%. The company's operating cash flow was over BRL 11 billion, signaling strong operational efficiency and financial health. Notably, Marfrig's recurring free cash flow reached BRL 1.5 billion, highlighting its ability to generate cash consistently.

North American Surge and South American Steadiness

The North American operations saw record net revenues of BRL 12 billion, translating to a margin of 4.8%, which underlines the division's strong year. The South American arm wasn't far behind, pulling in more than BRL 23 billion in revenue and delivering an EBITDA of BRL 2.3 billion. The latter's operations boasted a 10% EBITDA margin, which was 160 basis points above its performance in 2023, speaking to its remarkable growth and efficiency.

Strategic Acquisitions and Ownership Stakes

A key strategic movement in 2023 was Marfrig acquiring a 50% stake in BRF. This move is not just an expansion of ownership but a reflection of Marfrig's dedication to enhancing its operational and financial efficiency through the concerted BRF program which has been a focus over the past two years.

Adjusting to Market Fluctuations

2023 saw sales volumes decline by 5.7% year-over-year, which can be partly attributed to the fiscal year having one less week compared to 2022. Despite this setback, Marfrig managed to increase its net revenue by 6%, proving its resilience in face of temporal shifts and market challenges.

Quarterly Analysis Reveals Mixed Results

In the fourth quarter of 2023, Marfrig experienced a significant sales volume dip of 11.3% compared to the same quarter in the previous year. However, it's worth considering that Q4 of 2023 had one less week than Q4 of 2022. Net sales remained stable at $3.1 billion, yet the EBITDA plummeted by 44.5%, resulting in an EBITDA margin of 2.6%. These figures encapsulate a challenging quarter for the company despite stable revenues.

U.S. Market Dynamics and Capacity Investments

U.S. market data indicate cattle prices rose by 17.8%, while the USDA comprehensive cutout escalated by 15.3%. These increases, however, were offset by a 14.3% decline in drop credit, leading to decreased per head gross margins compared to Q4 of 2022. To mitigate the volatility of the cattle cycle, Marfrig injected over $800 million into capacity expansion, product diversification, and facility modernization. These strategic investments align with its goal to enhance efficiency and add value to its offerings.

South American Operations Navigate Price Dynamics

The South American segment faced a drop in the average price of exports by approximately 20% during 2023. Nevertheless, the company countered the decline with price increases in domestic markets, evidencing their agile market strategy. This tactic helped maintain net revenue of BRL 23.5 billion, nearly matching the previous year's performance.

Record EBITDA and Margin Expansion

Marfrig's South American operations set a record with an EBITDA of BRL 2 billion in 2023, marking a 1% uptick from 2022 and achieving a 10% EBITDA margin, which was 1.6 percentage points higher than 2022's margins. Such performance demonstrates the company's continued focus on profitability and robust operational execution.

Q4 Sales Volume and Revenue Increase

There was a 6% increase in total sales volume during Q4 of 2023, reaching 400,000 tonnes compared to the same quarter of the previous year. This rise was fueled by enhanced focus on markets like North America and the Middle East, coupled with growth in domestic sales. Net revenue for the quarter also saw an uptick by 7%, reinforcing Marfrig's solid quarter performance amidst fluctuating global markets.

Export Strategy Shifts Reduce Reliance on China

Marfrig strategically reduced its export dependence on China, cutting it down to about 60% of its total exports from the South American division. This shift in export strategy throughout the year minimized Marfrig's exposure risk while simultaneously increasing the potential for product appreciation, showcasing the company's adaptivity and risk management prowess.

Earnings Call Transcript 2023-Q4

[Operator]

Good morning. Welcome to -- [Technical Difficulty] We have Mr. Marcos Molina, Founder and CEO; Mr. Tim Klein, North America Operations CEO; Rui Mendonca, South America; Mr. Tang David, CFO; and Paul Pianez sustainable Director our Director, Mr. Eduardo Puzziello. [Operator instructions]Future state Marfrig Golden Foods projections, operational and financial goals are based on beliefs as well as currently available information to Marfrig Global Foods assay. [indiscernible]Investors and analysts should understand that economic conditions in the industries, among other operational factors may affect Marfrig results, which may lead to results that are materially different from these future statements.I'll turn the floor over to Mr. Eduardo Puzziello.

[Eduardo Puzziello, executive]

Thank you very much in margin going through the main pipes of 2023. Consolidated revenue reached BRL 136.5 billion. Consolidated adjusted EBITDA was BRL 9 billion. And solidated adjusted EBITDA margin was 6.8%. Operating cash flow was positive at over BRL 11 billion.I would to highlight the recurring free cash flow, which reached BRL 1.5 billion in 2023. With the effect of the consolidation of results between Marfrig represent a more diversified company from a geographical and protein point of view.As a result of American operation accounts for 44% of the consolidated revenue in 2023, while the South American operation represented 18% and BRF 39%. When we analyze the consolidated adjusted EBITDA [indiscernible] South America operation, 23%. NBRS EBITDA, 51%. The is on this the North American operation posted strong results the year with record net revenue of BRL 12 billion, a margin of 4.8%.The South American operation revenue of more than BRL 23 billion and an EBITDA of BRL 2.3 billion. That is an EBITDA margin of 10%, 160 basis points above the 2023. On our financial the diligent process, the company has shown orders. At the end of 2023, we reached a consolidated leverage of 3.71x, the multiple of net debt over adjusted EBITDA over the last 12 months as compared to 3.91x at the end of Q3 in 2023.Furthermore, if we adjust this ratio by the amount receivable from the assets sold of BRL 6 billion, the consolidated leverage at the end of 2023 would be 3.07x. Moving on to sustainability. Marfrig topped over 2023, the main ESG rankings. Here, I highlight the index where Marfrig was the best rated Biotin company.Still on ESG, it is important to highlight Marfrig's the achieve of the facility growth for its direct and indirect suppliers for 2025. Finally, in December 2023, Marfrig reached 50.0 of BRF capital.That milestone reflects our goal to capture value generation after implementing over the last 2 years, an internal process to improve the company's operating and financial efficiency through the BRF program.I'll now turn it over to Tim Klein, the CEO of the North American operation. Tim, go ahead.

[Timothy Klein, executive]

Thank you, Eduardo. Let's begin on Slide 4, where I will talk about the cumulative results for fiscal year 2023. Starting on the left, sales volume was 5.7% lower than last year.It is important to highlight fiscal year 2023 included 52 weeks of the activity, while fiscal year 2022 included 53 weeks. Net revenue was a new record and recorded 6% previous year, coming in at $11.9 billion.On the chart there were 63.4% compared to fiscal year 2022. As expected, the year started off with strong results and then trended lower through the rest of the year. Fed Cattle supplies in 2023 were prior year.Beef demand at retail and for exports softened versus 2022 as well. Unfortunately, industry slaughter levels remained high, and as a result, the cutout ratio declined from 1.86 to 1.70. USDA reported drop values declined 6.4% as prices for Higson towels declined, which contributed to the decline in EBITDA margins to 4.1% in 2023.Please move now to Slide 5, where I will comment on the results for the fourth quarter. Once again, starting on the left, sales volume was 11.3% lower than the same quarter of last year. Please note that the fourth quarter of 2023 included 13 weeks of activity versus 14 weeks in 2022.Even with the week less, the net sales were $3.1 billion, in line with last year and the EBITDA of $79 million was 44.5% lower than last year with an EBITDA margin of 2.6%. The market dynamics associated with the prospect of declining fed cattle supplies resulted in an improved negotiating leverage for feed yards and contributed to an increase in our Fed cattle prices versus Q4 of 2022.Box beef prices in the quarter increased on improved demand and lower supply. Drop values were lower as towel meat and high prices all declined. Now, I move to Slide 6, where I will talk about U.S. market data. Starting on the left, cattle prices, as reported by the USDA averaged $177.84 per hundredweight, up 17.8%, while the USDA comprehensive cutout averaged $292.08 per hundredweight, up 15.3%.Also the credit declined 14.3% to an average of $1,253 per hundred weight. Higher cattle prices, smaller increases in box P prices and lower values for drop credit items resulted in a decrease in per head gross margins versus Q4 of 2022.Now, move to Slide 7. I would like to have the main characteristics of our company and the actions we have taken to mitigate the effects of the cattle cycle and the inherent volatility of our industry.Over the last 5 years, we've invested more than $800 million in capacity expansion projects, projects that allow us to increase the share of value-added products and in modernizing our facilities.Our strategic partnership with U.S. premium beef and strong customer relationships are essential for the continued growth of our sales. Finally, I emphasize our unique business model that makes a teens the most efficient company in our sector.As we look forward to 2024, we expect cattle prices to reach record levels. We are encouraged that beef demand so far has mostly faced with escalating cattle prices.While we anticipate cattle supplies to decline through 2026, we expect beef demand at the lower production levels will support higher cutout prices and allow the industry to navigate through this cycle better than the previous cycle.Now, I'll pass to Rui.

[Rui Mendonca, executive]

Thank you, Tim. On to Slide 8. I'll explain South American operation in 2023. On the left, the total sales volume of Marfrig in 2023 reached 1.5 million tons, similar to the volumes we had last year.In the middle, we have net revenue of BRL 23.5 billion below revenue of 2022. This performance can be explained by the drop in the average price of exports throughout 2023, by about 20%, which was partially offset by price increases in domestic markets.On the right, we have adjusted EBITDA. We have achieved a record amount of BRL 2 billion in 2023, up 1% over 2022's EBITDA. With this, we achieved an EBITDA margin of 10%. That is to say, 1.6 percentage points above 22% margins.The good performance there is based on a greater share of value-added products and by the combination between the continuous operational efficiency program and pricing analysis. On to the next slide, I'll make the same comparison, however, focusing on Q4 of last year.On the left, total sales volume reached 400,000 tonnes in Q4 of 23%, up 6% when compared to the same quarter of '22. This growth when compared to the same period of 2022 is justified by greater focus on markets such as North America and the Middle East as well as the growth in sales to domestic market.Moving on to the middle of the chart. Net revenue in Q4 of 2023 was BRL 7.1, up 7% when compared to the same quarter of last year or the previous year. That's justified by higher sales volume and the average price, 1% above that of the Q4 of '22.Finally, on the right, I'll talk about the EBITDA, which reached BRL 732 million in Q4 of '23, up 38% when compared to the same quarter of the previous year. We have achieved in a 10.3% EBITDA margin, 2.3 bps above the same margin of the same period in 2022.On to the next slide. That's the performance of exports in 2023. On this slide regarding exports. China had a smaller weight in this year's exports. And now it accounts for about 60% of the exports of the South American operation, this reduced focus on exports to China throughout almost the entire year of 2023, minimize our exposure risk and increased the potential for appreciation of our products. This benefited Marfrig's results.Moving on to Slide 11. I will conclude my presentation by discussing some strategic details of the ongoing assets. As detailed on the map on the right, we can see our operational structure and the geographical diversification of Marfrig in South America after the completion of the asset sale. Here, I would like to emphasize our organic growth program for continued operations. They received in '22 and '23, investments for water and deboning capacity growth.Today, this industrial park has a slaughter capacity of about 5,100 head per day and a deboning capacity equivalent to about 6,000 head a day. This is a maturation and ramp-up period for these investments throughout 2024.We have a total slaughter capacity of up 8,400 per day and a total deboning capacity equivalent to 11,900 per day in 2025. Despite the divestment of discontinued assets, the impact on sales volume will be partially offset throughout 2024 and 2025 by the expansion of installed capacity of these continued assets and their greater utilization.In conclusion, I would like to emphasize the recent initiatives that Marfrig is implementing in the supply of animals acquired in Brazil. As highlighted in our market release in late November last year, the anticipation of tradability goes, we will integrate part of the acquired cattle supply. This will ensure continuous supply and enhance the quality of raw materials in our supply chain.This strategy will result in a decrease in the time required to prepare for slaughter, ensuring greater capacity use of continued reducing emission levels as well as improving the traceability of raw materials. This integration will primarily conducted throughout the flatforms, reaching up to 25% of the cattle supply required for ongoing operations.We are adapting this spot in South America, replicating the success achieved in North America with the USC, which guarantees 25% national beef slaughter high-quality. This model will allow us to navigate through cycles more resilient and with less volatile margins.With that, I conclude the portion of the South America operation. I'll hand over to Paulo Pianez, who will discuss the highlights of the ability area.

[Paulo Pianez, executive]

Thank you, Rui. [indiscernible] is an important milestone for Marfrig eSG strategy. In addition to the consistent results of 2023 and the international recognition obtained, Marfrig made a series of announcements at COP28 in Dubai that certainly accelerated action on the topic and enhance. It's been transforming large total line with climate and nature-based solutions during COP28 in last December.Marfrig announced the new cycle of the Verdes plus program with an investment of about BRL 100 million in France, such as pasture recovery and transformation, ecological restoration with reported of agriculture improvement of the heart.Furthermore, it anticipates biases in the purchase of animals for slaughter and its units to go now is to have its supply chain 100% traced by the end of 2025 for all biomes in Brazil. In the evaluation of the disclosure inside action, we have achieved the highest score A, and we have maintained a month for water security and forests. This makes Marfrig the highest-rated company within the CDP globally in our industry.For the fourth year in a row, Marfrig remains in the ISC portfolio. And in the Foris 500, it stood out as the best evaluated company in Brazil. The company achieved 100% compliance in the first cycle and audits in the livestock chain conducted by the federal public ministry, demonstrating the robustness of our monitoring and control systems in our supply chain.Among these results, Marfrig announces very robustly in the most challenging issue in the sector, which is traceability with 100% of drug supplies already money to be controlled by [indiscernible].In this Q4 '23, we reached 85% of indirect suppliers in the Amazon region and 73% in Canada purchase power does not come from deforested areas indigenous lights and conservation units. That's why we have anticipated that go to 2025.In the area of regularization and reintegration of farms, we have reached almost 4,000 farms from 2021 up until Q4 of last year. The suppliers are back to operating in accordance with our commitments, demonstrating the strong commitment on the part of the company with the principle of the inclusion within the Marfrig Bus program.Still within this program, actions to expand the sustainable CAF production in Mato Grosso in the Valley region, it's in the Amazon region. By providing tests to small ranges as well as intense as production and forest resorts as reinvestment of 1.75 Marfrig making in conjunction with IDA program initiative for sustainable trade to promote the supply of sustainably sourced raw materials from the breeding phase.The company's consistency in social environmental issues is evidenced this quarter as well as consolidating as a benchmark on the subject, while also contributing to the development of a low-carbon economy and through the maintenance and recovery of bio territories where we operate.I will turn over to final results Eduardo Puzziello

[Eduardo Puzziello, executive]

Thank you, Paulo. In the next slide, we solidated managing for Q4 and for the full year of 2023. Let me start with net revenue and adjusted EBITDA.On the left, in '23, we generated a consolidated net revenue of BRL 136.5 billion, 39% generated by BRF, 44 in North America and 17 plants in South America. On the right, in 2023, we generated BRL 9.3 billion.The representation of BRF in the generation of consolidated EBITDA increased from 30% in '22 to 51 in '23. On to the next slide, consolidated revenue and adjusted EBITDA. Let me start on the left.We generated in Q4 consolidated net revenue of BRL 36.6 billion, 39% generated by BRF, 41% in North America and 19% in South America. In this quarter, 74% of the net revenue was linked to the dollar and other strong currencies and 26% in reals.On the right, we generated TRY 2.9 billion. In adjusted consolidated EBITDA, the margin was 8%. The improvement in the EBITDA margin compared to Q4 '22 confirms our successful strategy to invest in segments with greater resilience, high added value and less volatility to the next slide, free cash flow for 2023.We had positive operational cash flow of BRL 11.1 billion. The amount spent on financial expenses was BRL 5.7 billion, and the amount invested in expansion project and maintenance Industrial Park, which is recurring CapEx was BRL 3.9 billion. As a result, we generated BRL 1.5 billion and positive free cash flow for the year of 2023.On to the next slide, free cash flow of Q4, the operational or the consolidated operational cash flow for the quarter was BRL 2.8 billion. The recurring CapEx for the period was BRL 882 million, and the amount spent on financial expenses was BRL 1.5 billion.We then generated in Q4, BRL 441 million in positive free cash flow. On to the next slide, net debt and leverage. The consolidated net debt at the end of 2022 was USD 7.1 billion. That was our consolidated net debt. Let me point out BRL 1.6 billion invested in the acquisition of a stake in BRF in Q4.We then reached a 50% 0.06 stake. The average price after the entire acquisition cycle was BRL 16 per year, below the average price of 16.4% for the month of March calculated up to the 22nd.The leverage ratio measured by the ratio between net debt and the adjusted EBITDA of the last 12 months was down 3.2x in reals and USD 3.87x on to the next slide. I'll demonstrate the pro forma effect considering the sale of assets announced at the end of August.For comparison purposes, if we were to adjust the indices for the amount to be received, name though BRL 6 billion, the consolidated net debt, BRL 28 billion or USD 5.9 billion, representing a leverage ratio of 3.2x in dollars and 3.07x in reals on to the next slide. That's the debt profile.The cash position at the end of Q4 '23 totaled USD 4.5 billion or USD 5.8 billion pro forma enough to cover our obligations until 2026. Finally, I would like to point out the net profit achieved in Q4 of last year. After 4 consecutive quarters of negative results due to the consolidation of BRF, we have reverted the outcome to a net profit in Q4 '23.The solid performance of the beef segment, combined with the profit generated by BRF, we're responsible reverting the loss of Q4 '22 and achieving a profit of BRL 12 million in Q4 2023. The return to profitability reflects Marfrig's wise decision in protein geographical diversification aimed at maximizing value generation to all shareholders.I'll turn it over back to the operator for the Q&A session. Thank you.

[Operator]

Thank you. We'll now start the Q&A session. [Operator Instructions] Salvo Troyano from Gustavo from Itau BBA.

[Gustavo Troyano, analyst]

I actually have two. When you think about the performance above the industry in every segment, I would like to know more about the main drivers behind that. The first question is about the U.S. I would like to ask Tim, what was the driver to increase the average prudent you see in the U.S. when compared to this.You've always had that premium. But given the difference in the portfolio of natural, what was behind it? What was behind that expansion in Q4? And on to South America, domestic prices that drew my attention. What was behind what was the driver behind that?And here's my second question about capital allocation. Let me go back to the BRL 6 billion, the assets that will be invested in the company still. To have room for capacity investments that would use those EUR 6 billion? Or are you going to be paying up that gross debt? So those are my questions.

[Timothy Klein, executive]

Yes. To answer your question, there was nothing extraordinary in our fourth quarter. We operate our businesses just like we always have. When we do do the competitive analysis, we don't really look at a quarter at a time we look at trailing 12 months. Many things can move around within a quarter but I can't speak for the others, but there was nothing out of the ordinary in our operations that quarter.

[Rui Mendonca, executive]

Let me talk about South America. The main drivers behind our results are the following. Let me explain that to you. The first item is the greater participation of added value products.Our permanent promo efficiency product gains. These gains are accrued year after year. So, we are focusing on more profitable market and focusing on complexes that are more efficient.In Q4, we had a greater volume that was important. That carries part of the capacity gains we've achieved from those investments in continued operations. And last but not least, customer focus.We have established robust partnerships focusing on customers with quality, service and innovation. Looking at the domestic market now and recent prices, I would like to point out brands, they account for 40% of all the bone volumes we have in the country.And boxed products increased, they had 20% of all the revenues. And on top of that, we have been working hard on stronger partnerships that ensures profitability and these special prices. Let me address the capital allocation. Most of that money will be for reducing the gross debt.

[Lucas, analyst]

I have 2 questions, actually. Can you please switch the channel to Portuguese and answer your question again? I actually have 2 questions. Could you give us an update on your expectations as to the closure or Minerva? Do you believe you're going to close the deal in the [indiscernible]Have you found opens in approval in Uruguay? Do you envision any hurdles along the way. And my net cattle cycle in Brazil. I think there's some expectation that the cycle will be turning this year, given the stronger us, but players say they still see some positive scenario in 2025 to hear on or the late 2024. But this is the time for the cycle? Will there be any changes in that scenario? Can you give us some color?

[Marcos dos Santos, executive]

In 2025, we can see a healthy cattle supply. And today, the price of cattle in Brazil is the lowest in the world that is in line with our strategy to strengthen in our own her getting to 25% at about BRL 1,500 today.So investments in our own hard replicating National's model, they have 25% of the capital that give resource in terms of the volume to be slaughtered and the stability of operations and the activity of their plants that's why we decided on that strategy.In Q1, with animals, BRL 1,600 a record slaughter of females for the cycle for 2026 might be more challenging and prices might go up again. So, we are preparing ourselves in order to face a lower in cattle cycle, just like National does in today. I forgot the second part of your question.The conclusion of the deal with Mineva the acquisition of our take at BRF from 6 months to 7 months. There was no consolidation in poultry or picked. So, we're conservative. We thought it would be between 9 to 11 months to the deal. All of that had been accounted for first in Uruguay, you already expected what is happening.But we have no doubt about the approval of the deal the antitrust risk lies with Mineva. And if it takes longer, we ask for an adjustment our expectation is for the end of Q3 beginning of Q4 on the conservatives.

[Operator]

Our next question from Isabella Simonato from Bank of America.

[Isabella Simonato, analyst]

I have 2. First goes to Tim about the cattle cycle in the U.S. Although the face is longer, you have a profitability above previous cycles in moments of lower cattle supply. I'd like to understand from you the main drivers behind that because there is a different resilience of beef prices as compared to previous cycles.If you can explain the profitability of this lower cattle cycle being better than in the past? And can you speak about the type of profitability you can expect for this year?And the second question, perhaps to Tang. Tang, you mentioned that those EUR 6 billion will be used part to pay out that. When you think of other sources of cash for company so you have BRF as a source of dividends moving forward. What can we expect? And Marfrig's cash generation ex BRF in a moment of lower cattle cycles, looking at 2024 and 2025 that are tough years in the U.S. What can you say about cash generation for Marfrig?

[Tang David, executive]

Isabella. I'll start with the last question, and then I'll turn it over to Tim. National Beef has shown resilient even when the cycles were worse. We invested strongly in CapEx in the last 5 years. And in June, we concluded most of our CapEx investment National Beef has a lower CapEx for the future.Even despite the lower cattle cycle, they will generate cash. What was the other question again? On BRF. Q4 are very positive for 2024. The cost of grain and cash generation, we are also very positive and we believe we will have dividends to be paid by BRF towards the end of the year. So, we have good expectations about BRF in their contribution to Marfrig. Tim, would you like to add anything?

[Timothy Klein, executive]

Yes. As I said in my comments, we don't expect the cattle supply to bottom until 2026. So, we've got a couple of years of reduced capacity utilization throughout the industry.The big driver externally is beef demand. If you remember back during COVID, beef prices were elevated to very high levels back down. And today, we're at record level on beef cow prices, and cutout values are supporting low single le digit type EBITDA margin. And so, I look at that as a really positive outlook because beef demand appears to be very solid, not here in the U.S. but across the globe.

[Operator]

Lucas Ferreira from JPMorgan is up next.

[Lucas Ferreira, analyst]

My first question is, Tim, back piggybacking on what Isabella as due. Most of the industries are generating cash today. Here's my. Do you see some rationing on the slaughter pace and processing, which means lower capacity production on the data, we should try to strike a balance between the available cattle throughout the year?And my second question is to Marcos about BRF. You've talked about a lot when you acquired the company, saying that there were synergies. So, here's my question, how much of that synergy have been able to explore. Just like in the past, you were combining operations with BRF at some point in time. Does that make sense?

[Timothy Klein, executive]

Yes, to answer your question, the industry process is based on 2 factors. One is the supply of that are available and the second is profitability. So, decisions are made and everybody makes different decisions based on profitability in their own operations.So, as we look at it, we're already seeing fewer cattle available industry utilization has really started to rationalize somewhere between 80% and 85% utilization rates. We expect it to go closer to 80% as we move through the cycle.Given the demand, I believe, even at 80% or less utilization operating margins should be able to provide positive cash flow. Now, the other thing to look at is the USDA data on placements and the inventory and the weekly kiln, which is all available publicly.

[Marcos dos Santos, executive]

Hi, Lucas, let me address the BRF and free question. As we have always stated, the 2 companies working together can be stronger. We've been working on commercial side to supply our customers with the company portfolio. These are more commercial synergies, more than operational synergies.Actually, we combine our efforts so that we can provide customers with the best service possible. That contributes to both companies. What was the other question? In 2024, just like in '23, the focus was to adjust BRF. In Q4 of '23, things are back on track. BRF has still a long way to go. There's a lot of room for improved.We have been working hard in the past 2 years, but there's still room for improvement product portfolio, efficiencies, speed, innovation. This is what we've been trying to do at BRF, but there is still some work left to do in 2024 as well as the operational part of it and the commercial side, as I said.In other words, there's a lot of opportunities there. The BRFs plus program, BRL 3.8 billion in 2023. And now in 2024, we expect another BRL 1.8 billion for the BRF +2 plan. We're focusing on the BRF operations.On the other hand, Marfrig has the discontinued or continued operations. They are going to be with Minerva and the continued operations. will conclude all the investments we expect to make in the industrial complexes to bring those volumes up. We see some reflections in greater numbers in Q4 and more brands and added value products that will contribute to the company's profitability.In 2024, in other words, we have to conclude the Minerva assets transaction and EBITDA growth of continued operations, to your own added value. We are now at 40% in brands, 20 in process products. So, the continued part of it remains with only 40% in commodity exports.We are now reaching, just like Rui said, we can now pick and choose the best destination with the [indiscernible] so when it comes down to the time of operations for continued operations are even more efficient margins will be even better.Portfolio placements and with our own slaughterhouse operations that would be replicating the national model so that we have more resilience and less volatility in our business. Again, the market is about the Merck corporate structure.I'm not concerned about that now. My focus is to have better operations, the major synergies we had when we had Sadia, Perdigao times or days, we still have a lot of opportunities to extract even more synergies out of BRF.Beef in Marfrig's South America, the National Beef division has a lot of energy or synergies with Uruguay. We are the largest organic beef out of Uruguay. This is within the Tacuarembo division. 900 head a day. We are up to 1,400 heads, reaching 2,000. That's the goal, 2,000 head a day.In Argentina, 600 in Georgia and 615 San Luis, we sold the San Luis unit to Minerva. So, Georgia now we added 1,100 reaching 1,300 head. The total capacity can be 1,500 head of cattle day within the same industrial complex.So, these are the operational challenges ahead of us. The corporate structure is in the backdrop for the time being. That's not the focus for the company as we speak. Thirdly, we have to maintain the financial discipline we've always had.We made investments in BRF, and we made those investments when National Beef was generating cash. We had that CapEx to invest in the modernization of plants at the same time. At the same time, we were generating cash, as I said, that helped improve efficiency and having more processed products, not jeopardizing the sustainability indices, and we even have an upgrade in our rating scores.Now, in conclusion, once we conclude the transaction, those 6 billion that we have in receivables. Most of it, as we said, will be to pay the debt and let me remind you that back in 2023, we were very conservative. We had a very challenged start of the year in '23. We were the only company that did not distribute dividends in 2023, quite the opposite.We allocated increased capital at Marfrig. I myself allocated $1.8 billion at Marfrig to maintain the low leverage of the company. So, first of all, the focus is on the finance. We'll try to keep on working in that direction, bring the financial costs down to focus on every business.Tim focused in the U.S., Rui focused in South America with the challenges I've just mentioned and Miguel at BRF focusing on improvements. So, the company remains focused, and we know what we have to do now in 2024...

[Lucas Ferreira, analyst]

If I can just follow up on that money to be received from that deal with Minerva, the bulk of it will be to pay debt. Do you think it would make sense to buy back BRF shares or to buy back Marfrig shares, do you see value in buyback?

[Marcos dos Santos, executive]

Lucas, you want privileged information, don't you? I can't give you that. But the biggest point is we must keep an eye on the results. For example, what will the first half of the year look like at BRF, it is better than we expected in the U.S., in line with what we expected, South America a little below expectations.We just have to keep on it in order to make decisions. It will depend on cash generation and how the businesses are doing, and that's how we define what we do. If there is more cash generation, if the shares are cheap, we can do something that would be interesting for all shareholders and generate value to the company. We are beginning the year overall better than we did in 2023, but it's still early to make a decision. That's what we can say.

[Operator]

Our next question from Thiago Duarte from BTG.

[Thiago Duarte, analyst]

I wanted to focus my questions on South America beef. First, I'd like to try and hear from you a little more than what you have already disclosed about your continued and discontinued operations.Point number one, volumes, 410 million. I don't know if you can give us an order of magnitude, how much of that is related to continued operations based on the slaughter and boning activity that you have, what can we conclude about volume of your continued operations moving forward?Question number two, on your CapEx. In your press release, when you mentioned your cat operations in North and South America, this last quarter, BRL 338 million. It's not clear if you're talking just about continued operation or the total operations continued and discontinued operations. When we annualize that figure, do you believe that is realistic and reasonable for your CapEx in 2024?And lastly, I don't know if you can comment on your export mix. We saw not only very good export volumes out of South America, but also an important mix change as compared to last year with an increased participation of the U.S. So, if you could comment on that or the sustainability of that approach looking at 2024.

[Marcos dos Santos, executive]

Good morning, Thiago, and thank you for your question. I'll start talking about continued operations, we are not talking about discontinued operation. That growth plan is doable. We use part of that increased capacity in Q4. Increased volume came because of that. There was a favorable market, both in terms of cattle price and exports.We want to use part of that capacity. The idea is to keep on growing throughout the year until we reach the volumes that we mentioned over slaughter per day and $110 for boning in 2025.As for the market mix, we should speak about pricing. We work on pricing to define the best market. North America has favorable demand with very attractive price. Proof of that is our lower dependence on China.Mexico and the U.S. became very attractive. Normally, those sales are to the industry. They sell products at National Beef. There are some markets in the Middle East with very attractive prices. That's our deli work always looking for the best and most profitable destination for our production and volume.So, we believe that the U.S. and North America, especially in Mexico, will keep their good demand. There is an important demand from indeed to pay a good price to guarantee that in Brazil is a very relevant expert partners.We expect to have an 8% increase that is likely to continue. As for CapEx, quarterly CapEx also undergoes certain fluctuations. If you look at a longer period, it depends on certain investments and some maturity. That CapEx is enough. The main investments made ASH was generated. We are now investing in our industries in South America, and that CapEx isn't bad for that. I hope I have answered your questions.If I may add, Thiago, our continued operations, there will be 2 in Brazil, 1 in Uruguay and 1 in Argentina, our industry with branded products and value-added products from, not to mention the support of our own herd that we will slaughter that will allow us to use more our capacity than we used in the past above 90% throughout the year. A high scale production of branded products.So, we have more efficiency and more profitability of the continued operations.

[Operator]

Our next question is from Guilherme from Santander.

[Guilherme Palhares, analyst]

I just wanted to ask a follow-up question to your last point, Marcos, you have emphasized this verticalization model and the lessons you learned with National Beef, when you talk about your own cattle, where do you stand today percentage-wise, so that you can get to those 25%?And what will this model look like in South America? Because at National Beef, the Rangers are shareholders in the company. So, how are you thinking about that structure in Brazil? And how different will that be from the U.S. model?Question number two, since Rui is here, we know the company is very strong in boxed beef and hamburgers. When you separate foodservice from retail in terms of pricing and demand between the 2, can you give us some color to that?

[Rui Mendonca, executive]

Let me start with the second question. Hi, good morning. Hamburgers we believe that's a product for the future. He has the texture, the softness, the practical product that will meet that continued demand.The volumes in Brazil than retail, and it's going very well. On top of food services, we work with BRF very closely. They have several brands also and the results have been positive. And as far as hamburgers are concerned, let me address exports. They have shown to be a viable option.We started out this year. The potential is huge. Brazil has that capacity, and we do that capacity to with these 2 production units. And I am very optimistic about hamburger exports in Brazil. That's a new and additional channel for the food services.Let me address the question about integration. We have been working in that direction in the playing the role of the USP is an extend. My cattle raising operation, it belongs to my family. We account for 5% of the cattle supply for Marfrig.Based on continued operations only, that would be about 10%. These farms are genetic leaders in the sale of balls and the sale of Siemens. So, we are now integrating that to Marfrig. And by doing so, the reason behind it is the Veris plus program. We have that commitment to be 100% traceable herds for all biomes that will contribute to having that by 2025, 100% of the cattle will be traced and I mean, for the entire supply chain.Joint investments between Marfrig and MFG that will require some investments to get 25% cash flow, large herds. We believe it can be from EUR 2 billion to EUR 3 billion depending on cattle prices, but that will be offset throughout this year by selling Minerva assets not using our working capital.These operations demand between EUR 1.5 billion to EUR 2 billion of working capital to offset that capital investment when cattle prices reached its lowest point in Brazil to maintain that integration strategy similar to a certain extent to BRF and with the PEG operations.We're going to be delivering affords, bowls and having some breathing reducing emissions, improving the genetics and productivity in Brazil. This is the type of forward on top of providing Marfrig with better conditions that will help Brazil improve its genetics.And we are raising the bar as far as traceability is concerned. It's going to be 100% that will help Brazil export to even more countries. Just like Uruguay, Uruguay has 14 to 15 more markets than Brazil.

[Guilherme Palhares, analyst]

Marcos, In order to have that 10% and get to 25% of slaughterhouse operations verticalized BRL2 million to BRL 3 billion. Some of it, 1.5 million will be financed by releasing working capital once you sell mineral assets. Is that correct? Is that my summary, correct?

[Marcos dos Santos, executive]

Yes, mostly between EUR 1.5 billion to EUR 2 billion consumption between 2 to 3. That will depend on cattle prices, mostly.Two years ago, 3,000 was the price, 3,200. 420, that was the price of 15 kilos, [indiscernible] was 16 and the 15 kilo is 220. So, we expect to make that investment at this more advantageous time that will be more beneficial to Marfrig and will serve as a buffer when you balance that offer.Once you have less supply once you have your own slaughter operations, you can have better control in striking that balance. You can control the overall production chain. You do not operate on the spot market.You have in BRF, for example, total integration. But National Beef with USPB, they have 25%. They have more stability and providing better quality for the product at the same time. USPB today produces premium cattle. We are the largest prime producer in the U.S. and the largest called beef to Japan, which has the highest added value.

[Operator]

Pedro Fonseca from XP. It is up next.

[Pedro Fonseca, analyst]

Congratulations on the results. I have 2 questions. It's a follow-up on what Rui talked about China. Could you share the company's stake on China inventory cycle, economic cycles? And what about those variables impacting prices?My second question is about discontinued operations. The approval date of the deal is just around the corner. Are you considering any strategic changes as far as inventory levels, more focus on the domestic market. You said you're not talking about discontinued operations, but whatever you could share with us, that will be wonderful even to think about continued operations further down the road.

[Rui Mendonca, executive]

Hi, Pedro, this is Rui. As far as China is concerned, it is the largest market in terms of international beef exports that remain the same. USDA estimates, there will be 3.6 million tonnes about the same in recent years.Of course, there are many other markets that can consume Brazilian beef base is a major exporter of course. Even despite this recent approval of these 26 beef units, prices were not that impacted because the market had already envisioned that because China has to supply the demand. And Brazil is a player that can supply that demand.To a certain extent, Chinese prices are not coming down because that's the word because as far as market opportunities. Europe, U.S., the Middle East, Mexico, you have the entire combination even the domestic market. So these are important players that can compete with the Chinese market.Of course, China will remain as the largest importer because the Chinese prefer beef, and this should remain the same in the following years. Markets are strong at stable prices. There won't be major changes as the way we see it. These 26 beef units, one of them was the first units of tox products to China in regrades.The initial contacts, it's almost a new business in that relationship between Brazil and China. It's a Marfrig China relation in actual fact. As to the discontinued operations, flows remain the same because that will happen in Q3. So, discontinued operations remain the same business as usual.

[Operator]

Our next question from Ben from Barclays.

[Benjamin Theurer, analyst]

I wanted to follow up, and this might be for Marcos or maybe for Rui, just on the investments into the own cattle supply. I just wanted to understand, you just talked about currently having about 5% integrated. But adjusting for the assets to be sold, it would be more like 10%. So, I just want to clarify, is that 10% based on today's capacity as you've laid it out in your presentation?Or is that 10% based on the capacity you expect to have by 2025? Just to understand, is that 25% of supply going to be based on the capacity foreseen in 2, 3 years' time? Or is that based on the capacity you currently have? That would be my first question.And then the second question goes to Tim on the U.S. business as it relates -- you talked about the capacity utilization rates that 85% likely to go down to 80%. Just wanted to clarify, is that industry capacity? Is that National's specific capacity? Or is it just both because you're running like the industry?

[Rui Mendonca, executive]

So, Tim, could you start with your question first?

[Timothy Klein, executive]

Yes. I was talking about industry capacity utilization, and it will be driven by those 2 factors: profitability and predominantly the supply of cattle. So, our projections on cattle supply based on USDA data would indicate that the industry will be operating at 80% or below by the time we get to 2026.

[Benjamin Theurer, analyst]

And that applies to you as well, Tim

[Timothy Klein, executive]

That's correct.

[Rui Mendonca, executive]

So, to your first question. So, today, it's 5% of slaughter capacity. When we talk about 10%, it's 10% of slaughter. When we talk about 25%, it's 25% of our slaughter.In the future, as we will operate above 90% of our capacity, it will be 25% of that slaughter volume. In 2023, we had been operating a little below considering continued and discontinued operation. I don't have the number off the top of my head, but it's a little below. But with the integration, we will increase the utilization percentage using our own cattle.

[Operator]

Our next question from Renata Cabral from Citi bank.

[Renata Fonseca Cabral Sturani, analyst]

My question is about the cattle cycle in the U.S. Taking into account that today, your inventory --

[Operator]

Well, due to technical problems, this concludes the Q&A session of our earnings call. I now turn over to Marcos Mulina for his final comments.

[Marcos dos Santos, executive]

I want to thank everyone for participating in our earnings call in Marfrig, one of the plants. I wanted to reiterate is the investment we made at BRF in the past 2 years. When was it that we started? In 2021 the total investment.Today, the shares are BRL 16, and we got to a breakeven of our investment, and we see BRF as a growth opportunity producing added value and branded products. So, we see a bright future for the investment Marfig made at BRF.Another point, I wanted to comment our whole team for their focus and dedication throughout 2023. That was a challenging year. It began as a very challenging year, and we were able to end the year. It wasn't excellent but it was a year of survival, and we were able to weather the challenges better than what we imagined earlier in the year.So, I wanted to congratulate the team for their dedication. I'm very proud of the team. One more point is that this year, the investments Marfrig made. The Sadia brand celebrates 80 years. BRF celebrated 90 years. Marfrig celebrates 30 years, National 40 years.If we add all companies, we have over 200 years of experience in order to face market challenges. The market is not easy. There is so much fluctuation in the prorating market in Brazil and global.Today, Marfrig is prepared to face any challenge Investing in added value products in efficiency, improve our capital structure. When we invested at BRF, one of the first things we did to improve our capital EUR 5.7 billion, another EUR 5.7 billion with almost a total of EUR 12 billion in capital. And last year our Capital Marfrig we brought out along Besides the sale of assets to mine 7.5.During 2023, we brought almost EUR 1 billion in equity to more in year as we [indiscernible] that vote of trust we got from investors, that gives us even more confidence to make 2024 one of the best years for our company. [indiscernible] Thank you all very much. Marfrig's earnings conference call ends here. If you have other questions, you can send your questions to our IR team. Thank you very much, and have a pleasant day.