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Currency oscillations swell Marfrig revenues

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The Brazilian livestock processing and exporting business Marfrig has reported reduced losses from 16% higher revenues from the three month trading period ended March 31 2016. Yet despite the higher revenues, it warns the global protein market is still challenging.

The Sao Paulo-based company has posted a net loss of R$106.2 million on revenues of R$4.91 billion in the three months ended March 31 2016. This amount compares to a net loss of R$570m on adjusted sales of R$4.23bn in the first quarter of 2015.

Weak Brazilian real assists sales

The business generated 62% of its revenues from international sales through its Keystone (50%) and Marfrig Beef International brands (12%), with the remaining 38% gained from domestic activities in Brazil.

It benefited strongly from a 36.6% appreciation of the US$ against the R$ in the period, with 81% of its revenues paid in foreign currencies.

The Keystone brand, which makes 70% of sales in the Asia, Pacific, Middle East and Africa (APMEA) markets, saw revenues increase by 5.7%.

APMEA sales were hindered by ongoing food price deflation in line with lower meat and feed costs. This result, however, was offset by a strong performance in the US.

Lower throughput

Marfrig Beef saw a lower number of beef cattle coming forward in Brazil and Uruguay, as was expected for seasonal supply reasons. As a result, its processing plants worked to 83% capacity.

Domestic sales dropped by 9%, but this was offset by a 21.4% increase in exports, increasing revenues by 6% to R$2.4bn.

The outlook remains difficult, notes Marfrig, citing International Monetary Fund forecasts of global GDP falling to 3.2% in 2016. With overall GDP growth prospects poor in the company's key markets of Brazil, China and Russia.

Cost reduction remains key to strategy

Marfrig says its strategy remains focused on capturing value from the global protein industry, particularly the foodservice sector in Asia, and increasing its beef exports. At the same time, there will be tight focus on cost control and debt reduction to return the business to profitability. The company has taken strong actions to reduce its debt, selling the Moy Park chicken operation (which generated 26% of its revenues) to Brazil's JBS in June 2015 for US$1.5bn. This deal followed its earlier divestment of the Seara beef operation in Brazil, also to JBS.

By Jamie Day

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