November 20, 2018

Brazil's BRF faces challenging road to recovery, according to CEO

 

 

BRF - the world's biggest poultry exporter, which had seen its business marred by a very public scandal - will not see a turnaround "in less than two years," its CEO, Pedro Parente told Reuters.

 

Parente, who took on the roles of CEO and chairman of BRF, was appointed and charged with orchestrating the company's turnaround following a controversy that linked it to allegations of food safety violations and corruptions.

 

Instead, he expressed skepticism that BRF will soon recover from its damages."...I'm not interested in showing good quarters numbers if they are not sustainable," he commented.

 

There was also a concern of how BRF's Middle East exports would be impacted after Brazil's president elect Jair Bolsonaro announced a possibility of moving the country's embassy in Tel Aviv, Israel, to Jerusalem. BRF had placed high hopes that halal meat exports would sell well in Muslim nations within the region.

 

Complicating matters is BRF's debt to EBITDA ratio, which was calculated at 6.7 times. Parente said that the company's target is to lower that figure to three times by the end of next year.

 

As for the company's inventory, it reached 140,000 tonnes, as a result of the EU's blocking of  imports from 12 of its plants. The inventory had since been reduced to close to 85,000 tonnes, BRF's chief operating officer, Lorival Luz, said.

 

Parente, along with Luz - who will replace him in mid-2019 - revealed that BRF would cut industrial cost by 30% in a process that is forecast o take about a year.

 

A driver to the company's recovery and profitable operations would rest on Brazil's domestic market. One key segment is food service, where BRF has been losing market share after a significant number of its sales staff were let go as part of a cost-cutting exercise.

 

In other parts of the world, the company is already selling assets in Europe, Thailand and Argentina. It may eventually return to expansion, chiefly in Asia, as well as in the Middle East, where it could set up a production unit in Saudi Arabia that would comply with content requirements in the country, Parente said.

 

Through the sales of international assets, BRF could raise BRL3 billion (US$799 million), part of a BRL5 billion (US$1.3 billion) amount it aims to raise to repay debt.

 

Meanwhile, BRF's margins could stop declining by 2019 and reach a historical average in 2020, the company's management recently said. Margins are then expected to rise from that level by 2021.

 

- Reuters