Financial performance

GRI 103-2 GRI 103-3

A leader in South America in the exportation of beef in-natura and its by-products, and operations in the segment of processed meats, the Company is listed on the B3 (Brasil, Bolsa, Balcão) and has its American Depositary Receipts (ADR) negotiated in the United States over-the-counter market (OTC), thereby relying on the Nasdaq International program. The following is a presentation of the financial and operational information for 2018 according to the BR GAAP guidelines and the International Financial Reporting Standards (IFRS).

In 2018, the Company recorded free cash flow of R$ 752 million, after financial expenses, capital expenses and working capital. The cash flow from operational activities reached R$ 1.3 billion. The gross income was R$ 17.2 billion, a record revenue of 33% higher than in 2017.

Last year, exports reached 62% of the gross income, consolidating the Company as the biggest exporter of beef in South America, with a Market participation of more than 21% in the region.

Adjusted earnings before interest and taxes, depreciation and amortization (Ebitda) for 2018 totaled R$ 1.6 billion, with an adjusted Ebitda of margin 9.6%. Therefore the Company’s cash position at the end of the year was R$ 4.4 billion, having a net debt of R$ 6.1 billion, while the financial leverage, measured from the multiple net debt/Ebtida of the last 12 months was 3.9x, resulting in 1.1x less than recorded in the third quarter of 2018.

On December 20, 2018, the Company completed an increase on its private capital totaling approximately R$ 965 million. Using resources from the operation, an offer for early settlement of its perpetual bonds in the amount of U$ 224.5 million was made, contributing to a reduction of its gross debt.

Gross income by division

Beginning with the first quarter of 2018, the Company adopted a new format for disclosing its income based on business operations with the objective of improving communications between the market, and to facilitate understanding of its business areas, which can be observed below:

Brazil Industry Division

In 2018, the gross income of the Brazil Industry Division reached R$ 7.5 billion, an 8.5% higher than the results from 2017.

Foreign market

The foreign market was responsible for 65.9% of the gross income of 2018. Exports generated an income of R$ 4.927 billion to the division in 2018, reaching 13.3% above the previous year.

The primary markets for the Brazil Industry Division in 2018 were Asia and the Middle East, which respectively accounted for 27% and 25% of the total amount exported. The development of the division’s export revenues by region, can be seen as follows:

• Africa: In 2018, the participation of Africa in the division of exports demonstrated an increase of two percentage points when compared to the previous year, accounting for 16% of the total amount exported.

• Americas: In 2018, of the total amount of exports for the division, the Americas accounted for 15%, an increase of seven p.p. when compared to 2017. The increase can be explained by a greater routing to the Chilean and Argentinian markets throughout the year.

• Asia: In 2018, the participation of Asia in the division of exports demonstrated five p.p. higher than the previous year, and the region was responsible for 27% of its exports, thereby becoming a principal destination.

• Commonwealth of Independent States (CIS): The participation of the CIS, represented chiefly by Russia, in exports for the division was 2% in 2018, which represents a reduction of seven p.p. compared to 2017. It is important to remember that in December 2017, Russia blocked the imports of beef from Brazil which remained in effect until October of the following year.

• Europe: Europe was the destination for 15% of the exports for the division in 2018, an increase of two p.p. compared to 2017.

• The Middle East: The second largest market for 2018. The Middle East accounted for 25% of the exports for the division, which represented a decrease of seven p.p. when compared to the previous year. Some of the beef cuts destined for this region were redirected through the asian market.

Domestic market

In 2018, the domestic market was responsible for 34.1% of the gross income of the Brazil Industry Division. In a comparison between year 2018 and 2017, there was stability in performance, resulting in a gross income of R$ 2.554 billion, 0.4% greater than that of 2017.

It is important to emphasize that in the first semester of the year, in addition to having had low performance due to the seasonal effect, ended up being impacted by the adverse conditions imposed by the trucks strike that took place in May, leading to an impact on the reduction of slaughter. However, the positive performance recorded in the second semester mitigated this effect. The key factors that boosted sales in the domestic market for 2018 were the optimization of the distribution model with an increase in distribution focused on more resilient markets; an increase in the confidence and purchasing power of the local consumer resulting in the economic revival of Brazil; and the positive seasonal effect due to vacation and end of the year holiday festivities.

Athena Foods

In 2018, the gross income of Athena Foods Division, consisting of the operations of the production units in Argentina, Colombia, Paraguay, Uruguay and the distribution in Chile, amounted to R$ 6.907 billion, resulting in an 81.4% when compared to 2017.

Foreign Market

In 2018, the foreign market accounted for 72.3% of the gross income of Athena Foods Division. This performance represents a gross income of R$ 4.994 billion in the year, resulting an 87.8% above the result reached in 2017.

Throughout the last year, the exports of Athena Foods Division were impacted mainly by the positive performance in Argentina, which had resumed exports to important markets, such as China, Europe and the United States. In Paraguay, whose exports demonstrated a great increase, especially to Russia, as a result of the embargo Russia had placed on Brazilian exports.

Below, it is possible to see in detail, the development of the division’s export revenues by region between 2017 and 2018:

• Africa: In 2018, the participation of Africa in the exports of the division showed a decrease of two p.p., when compared to 2017, responding for one percent of the total amount exported.

• Americas: Of the total amount of exports for the division, the Americas had a participation of 19% in 2018, a decrease of 11 p.p. when compared to 2017. The result is a reflection of greater routing to the Russian market, with a reduction of focus on the Chilean market.

• Asia: In 2018, the participation of Asia the exports of the division, demonstrated an increase of 10 p.p. when compared to 2017, making it responsible for 36% of the total amount exported contributing to the region becoming its main export destination.

• CIS: The participation of CIS, represented chiefly by Russia, accounted for 22% of the exports of the division in 2018, an increase of 16 p.p. greater than in 2017. As previously explained, with the block of imports from Brazil imposed by Russia, the demand was redirected to the Athena Foods Division, mainly to plants Paraguay.

• Europe: The exports to Europe accounted for 12% of the total exports by the division in 2018, a steady performance when compared to 2017.

• Region of the North American Free Trade Agreement (Nafta): In 2018, the Nafta region accounted for 5% of the exports of Athena Foods Division, which represented a decrease of four p.p. compared to the previous year.

• The Middle East: The Middle East was responsible for 5% of the exports from Athena Foods Division in 2018, a decrease of about nine p.p. when compared to 2017.

Domestic market

In 2018, the domestic market accounted for 27.7% of the gross income of the Athena Foods Division. Thus, the division had a gross income of R$ 1.914 billion in the year, a 66.7% higher result when compared to 2017, a performance of 3.3% higher when compared to the same period in 2017.

It is worth mentioning that in 2018, the processed meats segment reached a gross income of R$ 630.6 million, about three times higher than in 2017. In order to achieve this positive performance, it was fundamental to optimize the distribution with in the internal market, looking to capitalize on the expansion of the food service segment, as well as the brand architecture in niche markets and an expansion of the product portfolio.

Trading Division

The Trading Division which comprises the results of the segments of live cattle, protein and energy trading, as well as third-party resales, reported a gross income of R$ 2.838 billion, a 24.4% higher result than the previous year.

Foreign market
In 2018 the Trading Division obtained 26.6% of its gross income from the foreign market, which corresponds to R$ 755.7 million.

Domestic market
In 2018, the domestic market accounted for 73.4% of the gross income of the Trading Division. The sales from the division in the domestic market reached R$2.082 billion in the year, an increase of 23.3% when compared to 2017.

Trading Division

Reported a gross income of R$ 2.838 billion,
a 24.4% higher result than the previous year.

In 2018, the domestic market accounted for 73.4% of the gross income of the Trading Division

Athena Foods

In 2018, the gross income of Athena Foods amounted to R$ 6.907 billion, resulting in an 81.4% when compared to 2017.

In 2018, a gross income of R$ 4.994 billion in the year, resulting an 87.8% above the result reached in 2017.

The division had a gross income of R$ 1.914 billion in the year, a 66.7% higher result when compared to 2017.

Brazil Industry Division

The gross income of the Brazil Industry Division reached
R$ 7.5 billion,
an 8.5% higher than the results from 2017.

Foreign market:

Exports generated an income of R$ 4.927 billion to the division in 2018, reaching 13.3% above the previous year.

Domestic market:

In a comparison between year 2018 and 2017, there was stability in performance, resulting in a gross income of R$ 2.554 billion, 0.4% greater than that of 2017.

FINANCIAL PERFORMANCE

2017
A gross revenue was approximately R$ 13.0 billion, 26.5% higher than in 2016, making it a new all-time record.

2018
The gross income was R$ 17.2 billion, a record revenue of 33% higher than in 2017.

Exports reached 62% of the gross income, consolidating the Company as the biggest exporter of beef in South America, with a Market participation of more than 21% in the region.

MAIN ECONOMIC INDICATORS

Net Income – R$ Million

  • R$ 16.214,9

2018

  • R$ 12.103,8

2017

  • R$ 14.033,5 (proforma)

2017

EBITDA/Mg.EBITA – R$ Million

  • 1.550,4 / 9,6%

2018

  • 1.265,8 / 9,0%

2017

Capital goods – R$ Million

  • 189,1

2018

  • 1.386,1

2017

Cash – R$ Million

  • 4.397,0

2018

  • 3.807,3

2017

Return on invested capital

Net Debt / Ebitda LTM

Duration of Debt (years)