JBS S.A. – Press Release 3Q10

Document Text
3rd Quarter 2010 Results

JBS S.A.

November 11th, 2010
Investor Relations Contact
Jeremiah O’Callaghan: IR Officer
E-mail: ir@jbs.com.br
Phone: +55 (11) 3144-4447
Website: www.jbs.com.br/ir

3Q10 Conference Call
th

Date: Friday, November 12 , 2010
English: 12:30pm (Brazil time)
09:30am (New York time)
Phone Brazil: +55 11 4688-6361
Phone USA: +1 412 858-4600
Password: JBS
Portuguese: 09:00 am (Brazil time)
06:00am (New York time)
Phone: +55 11 4688-6361
Password: JBS

3rd Quarter 2010 Results
“In God we trust,
Nature we respect”

São Paulo, November 11th, 2010 – JBS S.A. (“JBS”) (Bovespa: JBSS3), the global leading
producer of animal protein announces today its results for the third quarter of 2010 (3Q10). For
the purpose of analysis, this report considers the results for the quarter ended June 30, 2010
(2Q10) and September 30, 2009 (3Q09). All results, unless specified, are reported in IFRS.
The consolidated numbers for the quarter do not consider the results of Inalca JBS due to the
Company request at ICC (International Chamber of Commerce) to arbitrate pending
corporate governance issues at Inalca JBS, which is 50% owned by JBS S.A, according to the
notices to the market on July 07 and August 2, 2010.
The consolidated results of JBS are presented in Brazilian Reais (R$) and when separately
analyzed, each business unit reports its results in the currency of the country in which it
operates. The operations of JBS Australia are an integral part of the subsidiary JBS USA and
both results refer to the period of 13 weeks ended September 26, 2010 (3Q10). The quantitative
data, such as volumes and heads slaughtered, is not audited.

HIGHLIGHTS (Excluding the results of Inalca JBS in 3Q10)
 Net revenue for the 3Q10 was R$14,069.6 million, practically stable in comparison to the 2Q10,
which was R$14,116.3 million.
 Consolidated EBITDA increased by 2.6% q-o-q, reaching R$1,026.4 million for the 3Q10. EBITDA
margin was 7.3% in the quarter. The main operating highlights were:
 JBS Mercosul operations presented EBITDA of R$363.7 million and EBITDA margin of 10.4% for the
quarter, versus 9.5% in 2Q10, despite challenges such as cost of raw materials and FX-rate.
 JBS USA Pork presented EBITDA of US$90.8 million and a historical EBITDA margin of 11.8% in
3Q10.
 JBS USA Chicken (PPC) had an EBITDA of US$170.0 million, 33.2% higher q-o-q, with EBITDA
margin of 9.9%.
 Consolidated customer base grew 15.3% q-o-q, primarily in Mercosul, and now exceeds 350
thousand clients globally.

1

3rd Quarter 2010 Results

Message from the President
Sao Paulo, November 11, 2010.
Many changes have occurred in the marketplace since last quarter. Some of these changes
have a direct influence on our business and I want to talk a little about these changes before
dealing with some specific issues that may be on your mind in dealing with and analyzing our
company.
Brazil has been endorsed and given continuity to a political model by democratic vote and
the positive changes we have seen in the Brazilian economy during recent years are due to
have continuity. Income improvements in the less privileged classes should continue and as
we know, the result is a dieterary revolution where animal protein plays a major role as people
eat better and live better. We have seen this trend over the last number of years in Brazil
regardless of the global economic crisis and we are preparing our business for this continued
growth. Our direct distribution has taken off here and will serve as a model to enhance our
distribution outside of Brazil.
However, Brazil is not the only emerging economy which is back on track. With energy prices
on the rise and the solid Asian markets, more demand for our products is coming from regions
where it is difficult to increase production. Thus, international trade is taking on a new
dimension. Almost one third of our revenues now come from exports and we see this as a
consistent trend. As our penetration increases in these markets, so does our direct distribution.
Our customer base in regions such as the Middle East is growing by the day and we will see the
margin enhancement that comes with this penetration as we move towards 2011.
Meantime, change is also in the air in the US with a perceived degree of discomfort with the
present state of the economy there. While measures are being taken to create new jobs (and
improve protein consumption domestically), the continuation of a weak US dollar consolidates
the US as a production platform from which a growing and more diverse product portfolio can
be exported. We have seen substantial increases in our exports from there across all our
proteins on a seasonable basis and, again, we don’t see this increase as sporadic trade but as
a solid ongoing business which will continue to enhance our margins in the US.
All in all, as we enhance our direct distribution and increase our processed/industrialized
product range taking into account how solid exports have been and will continue to be, in my
opinion, I feel comfortable in saying we are on track to continue outperforming with an
expectation that consolidated margins will continue to grow in line with the expectations we
expressed during our road show in April when we visited many of you.
Now, down to some specific topics I want to address which I am sure are concerns of yours
and I would like to start by talking about the operation that we bought in Italy in 2008:
The issue with Inalca JBS is really very simple in that we bought 50% of Inalca from the
Cremonini Group in 2008 to form Inalca JBS, require that the contract clause related to the
responsibilities of the CFO be respected. We have been unable to enforce this clause due to
2

3rd Quarter 2010 Results

the constant obstacles placed by the Cremonini group. Thus, we cannot verify the financials
and for that reason refuse to consolidate and publish these numbers until they can be fully
audited and verified. We have requested that Ernst & Young carry out a full audit and that full
audit is in progress. We will continue to seek a satisfactory solution without jeopardizing our
shareholders
Argentina has also been in the news and we want to assure you that regardless of the
structural difficulties encountered in that country, we have been creative and active in seeking
out the best possible solution for our shareholders. Among measures taken are:
Lay-off of 1,500 employees from 4 plants;
Shutdown of 3 plants and end slaughtering in 1 plant;
Commercial agreements that will improve capacity utilization of remaining plants and
the company’s distribution center in Pilar;
Transfer of headquarters to JBS plant in Rosario.
Just as an illustration of how Argentina has been transformed in the last decade, I prepared a
graph showing the herd evolution and the average cattle prices there in the last decade. The
numbers are clear. Argentina has destroyed much of the basics of its ranching industry and it
will take years to recover from whenever we turn the corner there.
LIVESTOCK EVOLUTION IN ARGENTINA
56,000,000

$ 8.00
$ 7.00

54,000,000
$ 6.00

52,000,000
$ 5.00
50,000,000

$ 4.00
$ 3.00

48,000,000

$ 2.00
46,000,000
$ 1.00
44,000,000

$ 0.00
2001

Source: IPCVA and ABC

2002

2003

2004

Herd (# of Heads)

2005

2006

2007

2008

2009

2010

Steer Price

At corporate level, our debt profile has improved substantially while leverage is somewhat
delayed due to increased working capital requirements as we export more. Having issued
US$900 million in 8 and a half year Bonds in 3Q10, less than one third of our debt is now in the
short term while more than 80% of this short term debt is covered by our cash position. We do,
however, need to move forward quickly in balancing our debt with revenue and cash
generation by region. This is a priority and I can assure you we will be much more efficient in this
regard next year.
Our customers are always on my mind. We have been working tirelessly to serve them all better
and this will always be a priority. Sensitive as we are about our customer concerns, we continue
to produce sustainable products, pioneering creative initiatives in this area. We recently
3

3rd Quarter 2010 Results

implemented the use of GPS in our livestock trucks in the Amazon region so that we can have a
verifiable traceability system in a region where there is a focus on the environment.
I want to close with a word about our team. It gives me great personal satisfaction to lead a
team motivated and dedicated as our team is. One and all, thank you for your continued
dedication to JBS and to the effort you all are making to take our Company to the next level.
Finally, I am honored to work under such a dedicated and diverse board. The level of stimulus
and support I enjoy is second to none and your collective intelligence is an inspiration to me
and the whole team.
Thank you,
Joesley Mendonca Batista
CEO

4

3rd Quarter 2010 Results

ANALYSIS OF CONSOLIDATED RESULTS
Analysis of the principal financial indicators of JBS by Business Units

Net Revenue
JBS USA Beef
JBS USA Pork
JBS USA Chicken
JBS Mercosul
EBITDA
JBS USA Beef
JBS USA Pork
JBS USA Chicken
JBS Mercosul
EBITDA Margin
JBS USA Beef
JBS USA Pork
JBS USA Chicken
JBS Mercosul

3Q10

2Q10

∆%

3Q09

∆%

US$
US$
US$
R$

3,358.4
772.2
1,719.9
3,491.0

3,328.9
739.2
1,707.6
3,521.9

0.9%
4.5%
0.7%
-0.9%

2,843.3
559.3
1,498.0

18.1%
38.1%
133.0%

US$
US$
US$
R$

103.5
90.8
170.0
363.7

194.9
48.7
127.6
334.5

-46.9%
86.4%
33.2%
8.7%

108.4
15.3

-4.5%
493.5%
611.9%

%
%
%
%

3.1%
11.8%
9.9%
10.4%

5.9%
6.6%
7.5%
9.5%

-

51.1
3.8%
2.7%
3.4%

-

Consolidated analysis of the principal operational indicators of JBS
R$ million
Net Revenue

3Q10

∆%

2Q10

∆%

3Q09

14,069.6

14,116.3

-0.3%

8,379.9

67.9%

-12,291.3

-12,372.1

-0.7%

-7,635.3

61.0%

Gross Income

1,778.3

1,744.2

2.0%

744.6

138.8%

Gross Margin

12.6%

12.4%

Selling Expenses

-699.4

-654.1

6.9%

-383.0

82.6%

General and Adm. Expenses

-364.5

-443.1

-17.7%

-150.5

142.1%

Net Financial Income (expense)

Cost of Goods Sold

-

8.9%

-

-363.1

-539.8

-32.7%

7.8

Non-recurring Expenses

-80.7

0.4

-

0.0

Other Income (expense)

10.3

43.5

-76.3%

-0.8

-

281.0

151.2

85.8%

218.1

28.9%

-124.5

-136.8

-8.9%

-66.1

88.4%

-23.0

-10.8

Operating Income
Income and social contribution taxes
Minority Interest
Net Income (Loss)
EBITDA
EBITDA margin

113.6%

-0.4

-

5645.3%

133.5

3.7

3503.1%

151.5

-11.9%

1,026.4

1,000.0

2.6%

291.9

251.7%

7.3%

7.1%

-

3.5%

-

5

3rd Quarter 2010 Results

Number of Heads Slaughtered and Sales Volume
3Q10

2Q10

∆%

3Q09

∆%

Heads slaughtered (thousand)
Cattle

3,742.0

3,977.1

-5.9%

3,258.9

14.8%

Hogs

3,121.3

3,017.6

3.4%

3,160.9

-1.3%

854.8

1,041.7

-17.9%

644.8

32.6%

Domestic Market

1,642.8

1,684.5

-2.5%

1,387.1

18.4%

Fresh and Chilled Beef

1,375.5

1,424.0

-3.4%

1,232.9

11.6%

41.7

39.5

5.5%

32.1

29.8%

Others

225.6

221.0

2.1%

122.1

84.9%

Exports

559.0

546.8

2.2%

415.4

34.6%

Fresh and Chilled Beef

505.2

478.4

5.6%

391.1

29.2%

Processed Beef

24.2

29.5

-17.8%

20.9

15.6%

Others

29.6

39.0

-24.1%

3.4

766.5%

2,201.8

2,231.3

-1.3%

1,802.5

22.2%

Smalls
Volume Sold (thousand tons) *

Processed Beef

TOTAL
* Not including chicken

6

3rd Quarter 2010 Results

CONSOLIDATED PERFORMANCE
Net Revenues
JBS posted consolidated net revenues of R$14,069.6 million for the quarter, virtually the same
when compared to R$14,116.3 million of the previous quarter.
The main highlight was JBS USA Pork business unit, which presented growth of 4.5% when
compared with 2Q10. JBS USA beef and chicken operations sales grew by 0.9% and 0.7%,
respectively, q-o-q. JBS Mercosul presented a slight decrease in revenues of 0.9% q-o-q,
reflecting a lower availability of raw material and the impact of the FX-rate on the company’s
exports, partially offset by the increase in prices in the period.
Revenue Distribution by Business Unit 3Q10

USA Chicken
22%

Revenue Distribution by Business Unit 2Q10

USA Chicken
22%

Mercosul
26%
USA Pork
9%

USA Pork
10%

USA Beef *
42%

USA Beef
42%

* Including Australia

* Including Australia

Revenue Breakdown by Market 2Q10

Revenue Breakdown by Market 3Q10
Chicken
Pork
Exports 1% Exports 2%

Beef Exports
25%

Pork
Exports 2%

Beef
Domestic 44%

Chicken
Domestic 20%

Chicken
Exports 2%

Beef Exports
25%

Beef
Domestic 44%

Chicken
Domestic 20%
Pork
Domestic 7%

Pork
Domestic 8%

Exports = 28%

Mercosul
27%

Domestic Market = 72%

Exports = 29%

Domestic Market = 71%

SOURCE: JBS

EBITDA
Consolidated EBITDA increased 2.6% compared to 2Q10, reaching R$1,026.4 million, with
margin of 7.3% in the period, 0.2bp and 3.8bp higher when compared to the 2Q10 and 3Q09,
respectively.

7

3rd Quarter 2010 Results

Main highlights were JBS USA Pork, which posted a historical margin of 11.8% for the quarter, on
EBITDA of US$90.8 million, and JBS USA Chicken (PPC), which obtained an EBITDA of US$170.0
million, 33.2% higher than in 2Q10, with EBITDA margin of 9.9%. JBS Mercosul also presented a
solid EBITDA growth in the quarter, reaching R$365.7 million, with margin of 10.4%, despite
challenges such as cost of raw materials and continuing appreciation of the Real.
EBITDA Distribution by Business Unit 3Q10

EBITDA Distribution by Business Unit 2Q10

USA BEEF *
18.1%

Mercosul
36.3%

USA BEEF*
34.7%

Mercosul
33.5%
USA PORK
15.9%

USA PORK
8.7%

USA Chicken
22.7%

USA Chicken
29.7%

* Including Australia

* Including Australia
SOURCE: JBS

Net Income
Consolidated net income came in at R$133.5 million, compared with R$3.7 million in 2Q10 and
R$151.5 million in 3Q09.
Net Revenue (R$ million)

EBITDA and EBITDA Margin (R$ million)
7.1%

6.9%

7.3%

5.4%
3.5%

1,000.0

1,026.4

862.0

14,116.3

14,069.6

12,550.3
8,379.9

-11.6%

3Q09

397.8

7,408.9

69.4%

4Q09

291.9

12.5%

1Q10

36.3%

-0.3%

2Q10

3Q10

3Q09

116.7%

4Q09

16.0%

1Q10

2.6%

2Q10

3Q10

SOURCE: JBS

8

3rd Quarter 2010 Results

Indebtedness
R$ Million
Net debt
Cash and cash equivalents
Short term debt
Long term debt
Net Debt/EBITDA*

09/30/10
10,550.1
4,402.5
5,004.6
9,948.0
2.9x

06/30/10
10,285.3
3,515.1
5,016.5
8,783.9
3.0x

Var.%
2.6%
25.2%
-0.2%
13.3%

* The last twelve months include Bertin and Pilgrim's Pro-Forma.

The ratio of net debt to EBITDA was 2.9x in the quarter, slightly less than 3.0x in 2Q10. It is
important to note that the liquidity of the balance sheet continues to improve, as the cash
position amounted to R$4,402.5 million (25.2% higher than 2Q10), which represents 88.0% of
short-term debt, compared to 70.0% in the previous quarter and 55.0% in 1Q10.
Additionally, the debt profile also improved. ST debt reached 33.0% of total debt in the 3Q10,
compared to 36.0% in the 2Q10 and 40.0% in the 1Q10. The Company will continue to pursue
the target of reducing ST debt to below 30.0%.

60%

64%

67%

40%

36%

33%

1Q10

2Q10

3Q10

Short term

Long term

Source: JBS

9

3rd Quarter 2010 Results

ANALYSIS OF RESULTS BY BUSINESS UNIT
JBS USA Beef (including Australia) – 42% of JBS S.A. Net Revenues
Net sales for the period was US$3,358.4 million, 0.9% and 18.1% superior to the 2Q10 and 3Q09,
respectively. The quarterly results reflected an increase in exports due to strong global
demand for proteins and the gaining competiveness of American products, combined with
the recapturing of important import markets. On the other hand, the appreciation of the
Australian dollar by 8.2% over the US dollar impacted the net income for the period, given that
Australia exports around 70.0% of its products.
EBITDA was US$103.5 million for the period (EBITDA margin of 3.1%), 46.9% lower than the 2Q10,
caused by an increase of 17.6% in cattle prices. More specifically, the sudden rise in prices of
raw materials had a heavy impacted on the results of August, which ended up compromising
the outcome of the quarter. It is important to note that the operations of this segment have
already been normalized, and the Company is confident that it will deliver, for 4Q, similar results
to those obtained in 1S10.
Highlights (IN USGAAP)
US$ million

3Q10

2Q10

∆%

3Q09

∆%

Heads slaughtered (thousand)

2,080.2

2,187.4

-4.9%

2,044.6

1.7%

Net Revenue

3,358.4

3,328.9

0.9%

2,843.3

18.1%

103.5

194.9

-46.9%

108.4

-4.5%

3.1%

5.9%

3Q10

2Q10

∆%

3Q09

∆%

2,352.9

2,384.7

-1.3%

2,075.8

13.3%

829.7
2.87

-1.3%

767.5
2.70

8.1%

Average Price (US$/Kg)

829.6
2.84

0.0%

Exports

3Q10

2Q10

∆%

3Q09

∆%

1,005.5

944.2

6.5%

767.5

31.0%

311.0
3.23

291.1
3.24

6.8%

272.1
2.82

14.3%

-0.3%

EBITDA
EBITDA margin %

3.8%

Breakdown of Net Revenues (IN USGAAP)
Domestic Market
Net Revenue (US$ million)
Volume (tons)

Net Revenue (US$ million)
Volume (tons)
Average Price (US$/Kg)

4.9%

14.7%

10

3rd Quarter 2010 Results

JBS USA Pork – 10% of JBS S.A. Net Revenues
JBS USA Pork division achieved historical results for the quarter. The net revenue was US$772.2
million, an increase of 38.1% y-o-y, reflecting a 33.3% increase in prices for domestic sales and a
35.6% increase in volumes for exports. Net revenue grew 4.5% q-o-q, reflecting a 4.1% increase
in average prices and nearly flat volumes.
EBITDA reached US$90.8 million in the quarter, 493.5% higher y-o-y and 86.4% more than in
2Q10, reaching a historical EBITDA margin of 11.8%. On top of operating efficiencies and
dilution of fixed costs, the margin increase was a result of the strong demand for pork products
(impacting the prices of these products) combined with benefits from mid-term contracts the
Company has with suppliers of livestock (keeping costs under control).
Highlights (IN USGAAP)
US$ million
Animals slaughtered (thousand)

3Q10

2Q10

∆%

3Q09

∆%

3,121.3

3,017.6

3.4%

3,160.9

-1.3%

772.2

739.2

4.5%

559.3

38.1%

90.8

48.7

86.4%

15.3

493.5%

11.8%

6.6%

Domestic Market

3Q10

2Q10

∆%

3Q09

∆%

Net Revenue (US$ million)

679.8

639.1

6.4%

476.8

42.6%

Volume (thousand tons)

308.1
2.21

310.2
2.06

-0.7%

Average Price (US$/Kg)

7.1%

287.7
1.66

33.1%

Exports

3Q10

2Q10

∆%

3Q09

∆%

Net Revenue (US$ million)

92.4

100.1

-7.7%

82.5

12.0%

Volume (thousand tons)

52.9
1.75

49.7
2.01

6.4%

39.0
2.12

35.6%

Net Revenue
EBITDA
EBITDA margin %

2.7%

Breakdown of Net Revenues (IN USGAAP)

Average Price (US$/Kg)

-13.2%

7.1%

-17.4%

11

3rd Quarter 2010 Results

JBS USA Chicken (PPC controlled by JBS USA) – 22% of JBS S.A. Net Revenues
JBS USA Chicken obtained net revenues of US$1,719.9 million for the period, 0.7% higher when
compared to 2Q10. EBITDA increased 33.2% q-o-q, from US$127.6 million to US$170.0 million,
while EBITDA margin reached 9.9%.
Sales volume increased in retail and foodservices segments, areas that have higher margins
and growing demands. The results for the period also reflects the cost control and operational
efficiency achieved by the Company (with continuous synergy gains), and the focus on
improved sales mix and prices.
Highlights (IN USGAAP)
US$ million
Net Revenue
EBITDA
EBITDA margin %

3Q10

2Q10

∆%

3Q09

1,719.9

1,707.6

0.7%

1,736.1

-0.9%

170.0

127.6

33.2%

184.4

-7.8%

9.9%

7.5%

10.6%

12

3rd Quarter 2010 Results

JBS Mercosul - 26% of JBS S.A. Net Revenues
Revenues of JBS Mercosul showed a slight decrease of 0.9% in comparison to 2Q10, reaching
R$3,491.0 million, impacted by diminished livestock availability and FX-rate, partially
compensated by the continuous expansion of our distribution chain and a favorable
macroeconomic environment, which enabled important price increases.
The EBITDA grew 8.7% q-o-q, reaching R$363.7 million in 3Q10, despite high raw material costs,
principally due to: (i) initial gains with restructuring of Argentine operations (which showed
smaller losses this quarter compared to the previous), (ii) continuous efficiency gains in the
integration with Bertin and (iii) expansion of the distribution channel.
Highlights
R$ million

3Q10

2Q10

∆%

3Q09

∆%

Heads slaughtered (thousand)

1,661.8

1,789.8

-7.1%

1,107.9

50.0%

Net Revenue

3,491.0

3,521.9

-0.9%

1,498.0

133.0%

EBITDA

363.7

334.5

8.7%

51.1

611.9%

EBITDA margin %

10.4%

9.5%

3Q10

2Q10

∆%

3Q09

∆%

1,523.1

1468.2

3.7%

732.8

107.9%

Processed Items

124.5

121.8

2.2%

77.2

61.4%

Others

447.8

410.9

9.0%

92.0

386.8%

2,095.5

2,000.9

4.7%

901.9

132.3%

237.8

284.1

-16.3%

143.9

65.3%

41.7

39.5

5.5%

32.1

29.8%

Others

225.6

221.0

2.1%

122.1

84.9%

TOTAL

505.1

544.6

-7.2%

298.0

69.5%

Fresh and Chilled Product

6.40

5.17

23.9%

5.09

25.8%

Processed Items

2.99

3.08

-3.1%

2.40

24.4%

Others

1.98

1.86

6.7%

0.75

163.3%

3.4%

Breakdown of Net Revenues

Domestic Market
Net Revenue (million R$)
Fresh and Chilled Product

TOTAL
Volume (thousand tons)
Fresh and Chilled Product
Processed Items

Average Price (R$/Kg)

13

3rd Quarter 2010 Results

JBS Mercosul - 26% of JBS S.A. Net Revenues
Breakdown of Net Revenues
3Q10

2Q10

∆%

3Q09

∆%

Fresh and Chilled Beef

972.3

993.0

-2.1%

457.3

112.6%

Processed Beef

184.7

226.5

-18.4%

127.1

45.4%

Others

238.5

301.5

-20.9%

11.6

1962.2%

1,395.5

1,521.0

-8.2%

596.0

134.2%

141.4

137.6

2.8%

74.0

91.2%

Processed Beef

24.2

29.5

-17.8%

20.9

15.6%

Others

29.6

39.0

-24.1%

3.4

766.5%

TOTAL

195.2

206.0

-5.3%

98.3

98.6%

Fresh and Chilled Beef

6.88

7.22

-4.7%

6.18

11.2%

Processed Beef

7.63

7.69

-0.7%

6.07

25.7%

Others

8.06

7.73

4.2%

3.39

138.0%

Exports
Net Revenue (million R$)

TOTAL
Volume (thousand tons)
Fresh and Chilled Beef

Average Price (R$/Kg)

14

3rd Quarter 2010 Results

CAPITAL EXPENDITURE
The total amount of JBS capital expenditure for property, plant and equipment was R$358.8
million in 3Q10.
Below are the relevant investments made by the Company in the period, among which are
acquisitions of new equipment and maintenance of manufacturing facilities.
JBS USA Beef
Investments were made in the Grand Island plant allowing it to double its carcass chilling
capacity thereby decreasing the time it takes for the products to reach the market. The
Dumas plant received investments to purchase equipment that would improve loading
efficiency and to increase the current distribution capacity by enlarging the storage facility.
JBS USA Pork
JBS USA Pork continued investing in the Marshalltown plant to begin stage two of the storage
facility construction that will improve the plants distribution capabilities and received
equipments that will increase loading speed.
JBS USA Chicken
The Douglas (GA) plant is receiving investments to prepare its reopening. Various other
investments in maintenance were made at plants in Texas, Alabama, Louisiana, and Arkansas.
JBS Australia
In Australia, investments were made at the Beef City facility to improve and increase
distribution capabilities. The Longford Plant received investments to increase its packaging
capabilities and production of further processed beef products.
JBS Mercosul
In Brazil, investments were made in the plants located in Iturama (MG) and Vilhena (RO) to
increase chilling, production, and packaging capacity. Teófilo Otoni (MG) and Campo
Grande (MS) received investments to improve and increase energy capacity. The Company
also invested in wastewater treatment equipment located in Goiânia (GO) and Campo
Grande (MS) plants. Investments were also made in Argentina to improve the hamburger
production line of Ponte Vedra plant and improvements to the Distribution center in Rosário.

15

3rd Quarter 2010 Results

RECENT EVENTS
JBS announces a Joint Venture with Jack Link's Beef Jerky
In September, JBS S.A. reached an agreement with Jack Link`s Beef Jerky whereby the largest
beef producer in the world is uniting with the number 1 U.S. meat snack brand to form a Joint
Venture (JV) to operate two meat snack facilities owned by JBS in Brazil. Under the terms of
the agreement, JBS will supply the raw material at market prices and will jointly operate the
facilities in Brazil with Jack Link`s. JBS will then sell the semi-manufactured product to Jack Link`s
Beef Jerky for further processing, packaging and distribution in the U.S. and elsewhere.
Proceeds from the JV will be shared on a 50/50 ratio and is expected to become operative
before the end of this year.
In addition to the JV, JBS also announced that it has reached an agreement with the same
Jack Link’s Beef Jerky group to sell its United States based meat snack plant in Mankato,
Minnesota, for an undisclosed sum.
Completion of the Acquisition of the Assets of Rockdale Beef
Also in September, JBS S.A completed, through its wholly owned Subsidary, Swift Australia, the
acquisition of the Assets of Rockdale Beef. JBS paid AUD 40.5 Million (Approx USD 37.3 Million)
for the business. With a meat works capacity of approximately 200,000 cattle per annum, and
a feedlot capacity of over 53,000 cattle, Rockdale Beef will further enhance JBS’s Australian
presence.

Vigor announces the results of its consent solicitation
Still in September, Vigor JBS, wholly-owned subsidiary of JBS announced the results of
their consent solicitation relating to its U.S.$100.0 million in aggregate principal amount
of 9.25% Step-up Notes due 2017 conducted in accordance with Vigor’s Consent
Solicitation Statement, dated September 1, and expired on September 24, 2010. As of
the Expiration Time, Vigor received consents from holders representing more than 86,6%
of the aggregate principal amount of the Notes. Accordingly, Vigor received the
requisite consents to execute a supplemental indenture containing all of the provisions
of the Proposed Amendments as described in the Consent Solicitation.
JBS Increased its Participation in Pilgrim’s Pride
8th of November, JBS S.A. announced that it had negotiated the block purchase of 7 million
common Pilgrim's Pride shares listed on the New York Stock Exchange under the ticker PPC from
Pilgrim Interests (which belongs to the Pilgrim family) at a unit price of US$5.96 per share,
totaling US$41.7 million paid to the seller. The purchase price was based on the 30-day average
closing price of PPC stock. This block of shares represents 3.27% of the total number of
outstanding PPC shares and now elevates JBS ownership of Pilgrim's Pride from 64% to 67.27%.
The transaction was approved by PPC’s audit and equity committees, as required by its
Shareholders Agreement. JBS has been advised by representatives for Pilgrim Interests and
16

3rd Quarter 2010 Results

Lonnie Bo Pilgrim that the stock sale was intended to further diversify the Pilgrim family’s
investment holdings. Pilgrims interest remains a significant shareholder in Pilgrim’s Pride
Corporation.
Senior Notes Offering
Focusing on the continuous improvement of JBS debt profile, as well as the financial indicators,
JBS issued in the quarter US$900 million in bonds with a maturity of 8.5 years, expiring on January
29th, 2018 and a semiannual coupon of 8.25% per annum. The issuance was achieved in two
transactions: one of US$700 million, issued in July; and another one of US$200 million, issued in
September, 2010. The bond's main purpose is to refinance short-term debt and strengthen
cash position to fund the operations of the company.

Inalca JBS
The issue with Inalca JBS is really very simple in that JBS, who bought 50% of Inalca from
the Cremonini Group in 2008 to form Inalca JBS, requires that the contract clause
related to the responsibilities of the CFO be respected. JBS has been unable to enforce
this clause due to the constant obstacles placed by the Cremonini group. Thus, JBS
cannot verify the financials and for that reason refuses to consolidate and publish
these numbers until they can be fully audited and verified. JBS has requested that Ernst
& Young carry out a full audit and that full audit is in progress. The Company will
continue to seek a satisfactory solution without jeopardizing our shareholders.

17

3rd Quarter 2010 Results

STOCK PERFORMANCE (JBSS3)
130,0

130,0

Stock Performance of JBSS3 vs Ibovespa

Stock Performance of JBSS3 (US$) vs S&P 500

125,0

125,0

120,0

120,0

115,0

115,0

110,0

110,0

105,0

105,0

100,0

100,0

95,0

95,0

90,0

90,0

85,0

85,0

80,0

80,0
Jul-10

Aug-10

JBSS3

Sep-10

IBOV

Jul-10

Aug-10

JBSS3 (in US$)

S&P 500

Sep-10

Source: Bloomberg (Base 100 = 07/01/2010)

In the graphs above we can see the stock performance of JBS S.A. in 3rd Quarter 2010. JBS’
shares fell 7.5% when compared with the 2nd Quarter closing price. The Ibovespa and the S&P
500 Indexes increased 13.4% and 11.1% respectively, in 3rd Quarter 2010. The average daily
trading volume of JBS decreased 33.9% from R$50.4 million in 2Q10 (period influenced by the
follow on) to R$33.3 million in 3Q10.
JBS shares represented by the JBSS3 ticker make up part of a number of the indexes of the
BM&FBovespa, such as Ibovespa, IBrX-50, Corporate Governance Index (IGC) as well as The
Consumer Index (ICON). Besides, the Company’s stock is traded in the US through an OTC ADR
(American Depositary Receipt) program under the JBSAY ticker.
ADRs’ traded volume (JBSAY)
140.000

$12,00

120.000

$10,00

100.000
$8,00

80.000
$6,00
60.000

$4,00

40.000

$2,00

20.000

0

$0,00

Dec-08

Feb-09

Apr-09

Jun-09
Volume

Aug-09

Oct-09

Dec-09

Feb-10

Apr-10

Jun-10

Aug-10

Closing Price (U$)

Source: JBS

18

3rd Quarter 2010 Results

Tables and Charts
Table I – Breakdown of Production Cost by Business Unit (%)
3Q10 (%)

Consolidated JBS Mercosul

USA Beef

USA Pork

USA Poultry

Raw material (livestock)

78.7%

86.5%

85.5%

82.4%

52.4%

Processing (including ingredients and
packaging)

10.4%

7.5%

5.9%

6.6%

25.1%

Labor Cost

11.0%

5.9%

8.7%

11.0%

22.5%

Source: JBS

Table II – Exchange rates to Real (R$)
Currencies

2006

2007

2008

2009

2Q09

3Q09

2Q10

3Q10

Argentinean Peso - ARS
End of period

0.6998

0.5625

0.6774

0.4577

0.5426

0.4628

0.4584

0.4280

Average

0.7081

0.6257

0.5783

0.5385

0.5570

0.4880

0.4597

0.4441

End of period

2.8202

2.6086

3.2382

2.5073

2.8039

2.6011

2.2043

2.3104

Average

2.7347

2.6647

2.6734

2.7699

2.8261

2.6711

2.2790

2.2630

2.1380
2.1761

1.7713
1.9479

2.3370
1.8346

1.7412
1.9981

2.0343
2.0748

1.7781
1.8677

1.8015
1.7921

1.6942
1.7493

Euro - EUR

American Dollar - USD
End of period
Average

Source: The Central Bank of Brazil (Banco Central do Brasil)

To obtain the value in local currency, multiply the amount in the currency informed by the respective exchange rate.

Graph I – Shareholders Base
Source: JBS (09/30/2010)

Treasury
1.7%
PROT - FIP
8.0%
Market
18.7%

FB Participações S.A.
54.5%
BNDESPAR
17.0%

19

3rd Quarter 2010 Results

Graph II – JBS Consolidated Exports Distribution

JBS Exports 3Q10
US$ 2,326.9 Millions

Taiwan
Canada 2%
5%
China
4%

Others
13%

Africa and Middle East
20%
Mexico
14%

E.U.
7%

Russia
10%

South Korea
6%

Japan
13%

Hong Kong
5%

USA
1%

JBS Exports 2Q10
US$ 2,331.0 Millions

China
4%
South Korea
5%

Taiwan
Canada 2%
4%

USA
7%

Others
12%

Africa and Middle East
19%
Mexico
12%

E.U.
7%

Russia
10%

Hong Kong
8%

Japan
10%

Source: JBS

20

3rd Quarter 2010 Results

INDEX

CONTACTS

Head Office
Avenida Marginal Direita do Tietê, 500
CEP: 05118-100 – São Paulo – SP
Brazil
Phone: (55 11) 3144-4000
Fax: (55 11) 3144-4279

www.jbs.com.br
Investor Relations
Phone: (55 11) 3144-4447
E-mail: ir@jbs.com.br
www.jbs.com.br/ir

21

3rd Quarter 2010 Results

CONSOLIDATED FINANCIAL STATEMENT – JBS S.A.
JBS S.A.
Balance sheets
(In thousands of Reais)
September 30,
2010

December 31, 2009

ASSETS
CURRENT ASSETS
Cash and cash equivalents
Trade accounts receivable, net
Inventories
Recoverable taxes
Prepaid expenses
Other current assets

4,402,454
3,889,885
4,694,983
1,369,647
125,790
952,323

5,067,530
3,201,437
3,726,263
1,066,033
131,915
810,407

15,435,082

14,003,585

Long-term assets
Credits with related parties.
Judicial deposits and others
Deferred income taxes

181,574
635,647
717,427

326,972
558,615
807,526

Recoverable taxes

614,881

615,748

2,149,529

2,308,861

15,107,738
12,705,092
3,122

15,017,688
13,363,842
3,984

27,815,952

28,385,514

TOTAL NON-CURRENT ASSETS

29,965,481

30,694,375

TOTAL ASSETS

45,400,563

44,697,960

TOTAL CURRENT ASSETS

NON-CURRENT ASSETS

Total long-term assets

Property, plant and equipment, net
Intangible assets, net
Other investments

22

3rd Quarter 2010 Results

JBS S.A.
Balance sheets
(In thousands of Reais)
September 30,
2010

December 31, 2009

LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Trade accounts payable
Loans and financings
Payroll, s ocial charges and tax obligation
Declared dividends
Debit with third parties for inves tm ent
Other current liabilities

2,604,687
5,004,589
816,954
124,658
505,766

2,546,036
5,123,099
721,854
122,953
427,523
363,797

TOTAL CURRENT LIABILITIES

9,056,654

9,305,262

9,947,999
3,462,212
1,885,847
315,819

9,304,014
3,462,212
1,948,804
431,249

156,268
546,463

162,976
932,922

16,314,608

16,242,177

18,046,067
709,172
108,168
885,392
761
(1,077,790)
240,737

16,483,544
714,503
112,352
810,538
(914)
(612,392)
-

18,912,507

17,507,631

1,116,794

1,642,890

TOTAL SHAREHOLDERS' EQUITY

20,029,301

19,150,521

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY

45,400,563

44,697,960

NON-CURRENT LIABILITIES
Loans and financings
Convertible debentures
Deferred incom e taxes
Provis ion for contingencies
Debit with third parties for inves tm ent
Other non-current liabilities

TOTAL NON-CURRENT LIABILITIES

SHAREHOLDERS' EQUITY
Capital s tock
Capital res erve
Revaluation res erve
Profit res erves
Valuation adjus tm ents to s hareholders ' equity
Accum ulated trans lation adjus tm ents
Accum ulated profit

MINORITY INTEREST

23

3rd Quarter 2010 Results

JBS S.A.
Statements of income for the three months period ended September 30, 2010 and 2009
(In thousands of Reais)
Adjusted IFRS
2010
NET SALE REVENUE
Cost of goods sold
GROSS INCOME

2009

14,069,599

8,379,905

(12,291,272)

(7,628,472)

1,778,327

751,433

OPERATING INCOME (EXPENSE)
General and administrative expenses
Selling expenses
Financial income (expense), net
Non-recurring expenses
Other (expense) income, net

NET INCOME BEFORE TAXES
Current income taxes
Deferred income taxes

(364,491)
(699,374)
(363,072)
(80,722)
10,334

(92,026)
(438,340)
11,429
3,423

(1,497,325)

(515,514)

281,002
(58,288)
(66,245)
(124,533)

235,919
(1,433)
(49,532)
(50,965)

RESULT BEFORE MINORITY INTEREST

156,469

184,954

Minority interest (expense) income

(22,981)

NET INCOME OF THE PERIOD

133,488

184,510

Net Income (Basic) per thousand shares reais

52.91

131.70

Net Income (Diluted) per thousand shares reais

52.96

131.70

(444)

Statement of EBITDA (Earnings before income taxes, interest, depreciation
and amortization)

Net income before taxes
Financial income (expense), net
Depreciation and amortization
Non-recurring expenses
AMOUNT OF EBITDA

281,002
363,072
301,616
80,722
1,026,412

235,919
(11,429)
290,636
515,126

24

3rd Quarter 2010 Results

JBS S.A.
Statements of cash flows for the three months period ended September 30, 2010 and 2009
(In thousands of Reais)

2010

2009

Cash flow from operating activities
. Net income of the period
Adjustments to reconcile net income to cash provided

133,488

151,495

. Depreciation and amortization
. Allowance for doubtful accounts
. Minority interest
. Write-off of fixed assets
. Deferred income taxes
. Current and non-current financial charges
. Provision for contingencies
. Adjustment of assets and liabilities to present value

301,616
2,557
22,981
15,985
66,245
(93,760)
(24,657)
-

81,609
4,779
444
5,276
65,830
159,980
4,175
1,242

424,455

474,830

Variation in operating assets and liabilities
Decrease (increase) in trade accounts receivable
Decrease (increase) in inventories
Increase in recoverable taxes
Increase in other current and non-current assets
Decrease (increase) in credits with related parties
Decrease (Increase) in trade accounts payable
Increase in other current and non-current liabilities
Valuation adjustments to shareholders' equity
Adjustments to first-time adoption of IFRS

69,106
(277,823)
(156,606)
(410,298)
151,248
(62,748)
153,650
(240,270)
145,831

(18,708)
374
(35,060)
(131,075)
(43,136)
172,013
124,490
(371,889)
-

Net cash used in operating activities

(203,455)

171,839

Cash flow from investing activities
Additions to property, plant and equipment and intangible assets
Increase in investments
Net effect of the working capital of acquired company

(358,845)
(212,573)

(325,840)
(157)
-

Net cash used in investing activities

(571,417)

(325,997)

Cash flow from financing activities
Loans and financings
Payments of loans and financings
Transaction costs for the issuing of titles and securities
Shares acquisition of own emission

2,538,563
(877,297)
(18,889)
(5,331)

444,153
(509,176)
(15,504)

Net cash provided by financing activities

1,637,046

(80,527)

25,190

(28,721)

Net decrease in cash and cash equivalents
Cash and cash equivalents at the beginning of the period

887,364
3,515,090

(263,406)
2,298,658

Cash and cash equivalents at the end of the period

4,402,454

2,035,252

Effect of exchange variation on cash and cash equivalents

25

3rd Quarter 2010 Results

DISCLAIMER

This release contains forward-looking statements relating to the prospects of the business, estimates for
operating and financial results, and those related to growth prospects of JBS. These are merely
projections and, as such, are based exclusively on the expectations of JBS’ management concerning
the future of the business and its continued access to capital to fund the Company’s business plan. Such
forward-looking statements depend, substantially, on changes in market conditions, government
regulations, competitive pressures, the performance of the Brazilian economy and the industry, among
other factors and risks disclosed in JBS’ filed disclosure documents and are, therefore, subject to change
without prior notice.

26

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