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Marfrig pins hopes on beef exports to China and US

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Brazilian protein-giant Marfrig Global Foods is closing slaughterhouses and focusing on overseas exports, as it continues its battle its way out of the red.

With Chinese and US markets in the process of opening up to Brazilian beef, which has long been restricted because of fears of BSE, or mad cow disease, Marfrig has stated its intention to rebalance its beef business toward exports.

Marfrig said the opening of "of US and Chinese markets to Brazilian beef imports "should generate volume growth in the medium term".

"We have already begun shipments to China and hope to make our first shipments to the United States before year-end," Marfrig said.

Losses fall

In the three months to June 30, Marfrig made a total loss of R$6.1m, down 89% from a loss of R$55.1m in the same period last year.

Marfrig grew its earnings before interest, taxes, depreciation and amortization (ebitda) by 68% to R$465.7m, and grew its net revenues totalled by 25% to R$4.728bn.

Marfrig benefited from Brazil's plunging domestic currency the tune of R$25m, as dollar-denominated income from overseas ventures grew.

Exports rise

Real-denominated income from the group's US business Keystone grew by over 50%, mostly attributable to currency factors.

The rebalancing toward exports for Marfrig's beef business has already begun, as in the three months to June 30, exports accounted for 46% of the revenue of Marfrig's Brazilian beef business, compared to 41% over the same period last year.

Marfrig Beef grew its net revenue by 9% to R$2,581m over the three months to June 30, while adjusted ebitda rose 10% to R$250m, from R193m last year.

Slaughterhouses closed

Brazil has seen a steep rise in the price of slaughter-ready fed cattle, thanks to lower supply.

Marfrig's rate of cattle slaughter in Brazil fell by 1%, or 14,000 head of cattle, and the company expects the current low level of fed cattle availability "to remain stable".

The scarcity of fed cattle has led Marfrig to mothball 5 of its 15 units, cutting capacity by 29%.

Debt ratio falls

Shares in Marfrig surged last month after the group announced the sale of its European poultry business for $1.5bn, which was widely regarded as a high price for the asset.

The Moy Park poultry business was sold to Marfrig's Brazilian rival JBS.

The sale, which is not included in this quarter's results, has helped to ease fears about the scale of Marfrig's debts.

Not including the Moy Park sale, Marfrig's leverage, or debt-to-earnings ratio, stood at 4.8 times earnings before interest, tax, depreciation and amortisation (ebitda), compared to 6.3 times in March 31.

Factoring in the proceeds of the Moy Park sale, "the leverage ratio would be 3.8 times," Marfrig said.


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