20-F: JBS SA Reports Annual Results; Debt Restructuring and Corporate Changes Unveiled

JBS SA's annual report reveals a mixed financial performance alongside strategic corporate restructuring and debt management activities.

Summary

• JBS SA's annual report for the fiscal year ended December 31, 2023, shows a net loss of US$(131.7) million, a decrease from the US$3.1 billion net income in 2022.
• Net revenue increased slightly to US$72.9 billion in 2023 from US$72.6 billion in 2022.
• The company is undergoing a corporate restructuring, including a proposed equity transaction to list JBS N.V. Class A Common Shares on the NYSE.
• JBS USA Lux S.A. merged into JBS USA Holding Lux S. r.l., with the latter assuming obligations as a co-issuer of senior notes.
• The company is addressing sustainability, with certain debt instruments linked to sustainability performance targets related to greenhouse gas emissions.
• J&F, a controlling shareholder, had its obligation to make additional installment payments under a leniency agreement suspended by the Brazilian Supreme Court.
• The company faces risks related to market fluctuations, animal diseases, food safety, and global economic conditions, including the Russia-Ukraine war.
• JBS is subject to various legal and administrative proceedings, including a civil complaint by the Attorney General of the State of New York.

Sentiment

Score: 4

Explanation: The document presents a mixed picture. While there's a slight revenue increase and ongoing strategic initiatives, the significant net loss, ongoing legal issues, and potential risks weigh heavily on the overall sentiment.

Positives

• The company is actively managing its debt through refinancing and extending maturities.
• JBS is committed to sustainability and has set climate reduction goals.
• The company is geographically diversified, with operations in multiple countries.
• JBS has a strong brand portfolio and a proven track record of growth and expansion.
• The company is implementing numerous and material changes to their anti-corruption compliance policies intended to detect and prevent illicit payments and conduct throughout their operations, including the introduction of new policies and practices and the hiring of experienced professionals who have a track record of building effective compliance programs.

Negatives

• The company reported a net loss of US$(131.7) million for 2023.
• Adjusted EBITDA decreased significantly from US$6.7 billion in 2022 to US$3.5 billion in 2023.
• The company faces reputational risk due to past actions involving its controlling shareholders.
• The company is subject to various legal and administrative proceedings, including a civil complaint by the Attorney General of the State of New York.

Risks

• Fluctuations in market prices for livestock and animal feed ingredients can adversely affect the company's results.
• Outbreaks of animal diseases may affect the company's ability to conduct business and harm demand for its products.
• Changes in consumer preferences and negative perceptions of the quality and safety of the company's products could adversely affect its business.
• The company faces competition in its business, which may adversely affect its market share and profitability.
• Deterioration of global economic conditions could adversely affect the company's business.
• The company's exports pose special risks due to currency exchange rate fluctuations, trade barriers, and political risks.
• The company is exposed to emerging and developing country risks, particularly in Brazil.
• The company is subject to reputational risk in connection with U.S. and Brazilian civil and criminal actions and investigations involving its ultimate controlling shareholders.
• Compliance with existing or changing environmental requirements may result in significant costs.
• Natural disasters, climate change, and adverse weather conditions may adversely impact the company's operations and markets.
• Efforts to comply with immigration laws and/or the introduction of new immigration legislation could make it more difficult or costly for the company to hire employees.
• The company is subject to anti-corruption laws in the jurisdictions in which it operates.
• Economic and political crises in Brazil may have a material adverse effect on the company's business, operations, and financial condition.

Future Outlook

The company intends to continue pursuing selective acquisitions of complementary businesses and is working towards achieving its sustainability performance targets.

Industry Context

The beef, pork, and chicken industries are highly competitive, with competition existing in the purchase of livestock and grains, and in the sale of beef, pork, and chicken products. The company faces competition from a number of beef, pork, and chicken producers in the countries in which it operates.

Comparison to Industry Standards

• JBS S.A. is the largest protein company and one of the largest food companies in the world in terms of net revenue for the year ended December 31, 2023, according to Bloombergs Food Index and publicly available sources.
• The company is the #1 global beef producer in terms of capacity, with operations in the United States, Australia, Canada and Brazil and an aggregate daily processing capacity of approximately 75,700 heads of cattle.
• JBS S.A. is the #1 global poultry producer in terms of capacity, with operations in the United States, Brazil, United Kingdom, Mexico, Puerto Rico and Europe, and an aggregate daily processing capacity of approximately 13.8 million chickens.
• The company is the #2 largest global pork producer in terms of capacity, with operations in the United States, Brazil, the United Kingdom, Australia and Europe, and an aggregate daily processing capacity of approximately 142,200 hogs.

Legal Proceedings

• The company is subject to various legal and administrative proceedings, including a civil complaint by the Attorney General of the State of New York alleging misleading statements about greenhouse gas emissions.
• J&F, a controlling shareholder, had its obligation to make additional installment payments under a leniency agreement suspended by the Brazilian Supreme Court.

Related Party Transactions

• The company has entered into an assignment agreement with Banco Original S.A., a direct subsidiary of the parent Group J&F, pursuant to which Banco Original S.A. acquires trade accounts receivables of certain or our customers in Brazil and abroad.
• The company sponsors Instituto J&F (formerly Instituto Germinare), a youth-directed business school, whose goal is to educate future leaders by offering free, high-quality education.
• JBJ Agropecuria Ltda. (JBJ), is controlled by a family member of one of our ultimate controlling shareholders, who does not own any equity interests in J&F. It supplies cattle to JBS S.A.'s slaughterhouses.
• Flora Produtos de Higiene e Limpeza S.A. (Flora), is controlled by J&F. Flora purchases products (beef tallow, palm oil, babassu oil and cans) from JBS S.A. and manufactures soaps.

Stakeholder Impact

• Shareholders may be impacted by the company's net loss and the potential dilution from the proposed equity transaction.
• Employees may be affected by restructuring initiatives and changes in labor costs.
• Customers may be impacted by changes in product prices and availability due to market fluctuations and supply chain disruptions.
• Suppliers may be affected by the company's efforts to ensure compliance with environmental and labor laws.
• Creditors may be impacted by the company's ability to service its debt and the potential for covenant restrictions.

Next Steps

• The company will continue to pursue selective acquisitions of complementary businesses.
• The company will continue to work towards achieving its sustainability performance targets.
• The company will continue to monitor and manage risks related to market fluctuations, animal diseases, food safety, and global economic conditions.
• The company will continue to defend itself against various legal and administrative proceedings.

Key Dates

Keywords

JBS SA, financial results, annual report, debt, restructuring, sustainability, risk factors, legal proceedings, corporate governance, meat processing