On the money: Marfrig eyes growth opportunities despite 2013 losses
Marfrig CEO Rial said all three business units were "performing well"
Marfrig CEO Sergio Rial was upbeat about the progress he saw at the Brazil-based meat processor yesterday (11 March), insisting the company was "more stable" than in previous years despite falling into the red in 2013.
The owner of Europe-based meat products group Moy Park and US-based poultry supplier Keystone Foods booked a net loss of BRL816m (US$347.6m), which compared to a profit of BRL264m in 2012.
Marfrig's bottom line was hit by foreign exchange and losses from derivatives, as well as costs to servce debts. However, other measures of profitability showed the business came under some pressure last year.
The company reported a 26% fall in EBITDA, which dropped to BRL1.38bn. Adjusted EBITDA, which excluded one-off items, was still down, sliding 4% to BRL1.45bn.
Alongside the results, Rial announced Marfrig was looking at possibly listing subsidiaries overseas, which prompted industry watchers to make the link between a potential IPO with the company's debt pile, built up over acquisitions in recent years.
Three-and-a-half years ago, Marfrig made a significant acquisition, buying Keystone, then one of the largest privately-held meat products businesses in the US, for US$1.26bn. The deal came just months after Marfrig paid Cargill $706.2m for Brazilian poultry business Seara Alimentos.
In the immediate aftemath of the Keystone deal, there were concerns the buying spree - which also included a smaller deal in the UK - would cause problems at Marfrig.
In June, Marfrig sold its domestic Seara Brasil unit to Brazilian rival JBS, insisting the deal would allow it to focus on opportunities to grow other parts of its business.
2013 was the third consecutive year when Marfrig was in the red. However, Rial pointed to the company's fourth-quarter results and said the group's financial footing was improving.
"[There was] a reduction in net loss. There is a lot to do, nothing to celebrate but going in the right direction," Rial said. "This is partly explained by a much more stable company from a cash generation point of view. We have generated the highest cash flow before capex and interest expense for a long time - not enough yet to pay down capex but enough to pay down interest expense and in the direction to allow us to meet guidance in 2014 to deliver a neutral to positive cash flow."
Rial, who joined Marfrig from Cargill as head of its processed foods arm in 2012, said the company's gross profits in the fourth quarter were "a lot more stable and predictable" than in the recent past.
"We're pleased to share with the market that all three of the businesses are performing well, steadily and certainly above expectations, with highlights Moy Park and Marfrig Beef," Rial said.
"Marfrig Beef benefited tremendously from our strategy and decision to increase exports. Moy Park had phenomenal 19% gross profit growth. If you take out any exchange impact, Moy Park was still delivering 10-11%, a pretty solid performance."
Rial added: "Not everything is perfect but, on a relative basis, if we were sitting here in the fourth quarter of 2012, it's a very different group. We have certain things to celebrate and we shouldn't be shy about it but we have got to be better and improve our performance. We are absolutely committed to creating value."
In the course of the conference call, Rial revealed the company is considering listing parts of its business overseas. "One of the things we are exploring - and I would like to reinforce it is exploring - is the possibility of taking our subsidiaries public abroad," Rial said. "It could be one [of the subsidiaries], two or none," he said.
The admission prompted one analyst to question whether any IPO was designed to grow the company or simply cut its debt. Rial insisted growth was central to Marfrig's considerations.
"The risk of sharing what we just did is people not understanding why we're doing it," Rial said. "This is not a target. We're basically sharing and observing that today the activity around companies of a similar stature [and] there is definitely significant interest in public markets. We are obliged to look at it and say 'How would that help us to grow faster?' and, if on top of that we can accerate the deleveraging of the group, we are obliged to think, look at the math and understand the implications of a potential dual listing."
However, he added: "We will not do that just for the sake of deleveraging. We will do that for the sake of the growth story."
The growth of Moy Park in 2013 was in part thanks to the higher prices of beef and consumers switching to its poultry products. The unit's largest market is the UK but Rial, outlining a potential "growth story" that could benefit from an IPO, said Marfrig could look at expanding Moy Park further in Europe.
"We haven't articulated a story for Moy Park outside the UK. Where would you go with Moy Park? That comes on the back of not only capital but the right set of investors that really like the European story. We have received a number of European investors buying Marfrig stock. There are a couple of European investors holding almost more than 10% of the stock today. We also see that sometimes there are a host of investors that would love to have Moy Park stock but may not necessarily be interested in the beef side."
The Marfrig boss said an IPO could happen this year, if market conditions allow.
"Could it happen in 2014? I don't know. We would certainly work towards that if we feel the market is there, which is not in our control." He added: "This does not in any way replace the need to focus on what we control."
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