SYS-CON MEDIA Authors: Carmen Gonzalez, Sean Houghton, Glenn Rossman, Ignacio M. Llorente, Xenia von Wedel

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BRF: EBITDA grows 25% in the 2Q14

SAO PAULO, July 31, 2014 /PRNewswire/ -- BRF's performance in the second quarter of 2014 is indicative of senior management's focus on profitability and value maximization. The Company posted strong free cash flow generation during the quarter, reaching R$954.0 million in 2Q14 versus R$365.0 million in 2Q13. This is a result of BRF's operating improvements, Capex optimization and efforts towards the consistent and sustainable reduction of its financial cycle, which improved from 57.4 days in June 2013, representing 14.6% of net operational revenues (NOR), to 36.4 days in June 2014, representing 9.8% of NOR. The Company envisages the continued active management of payables, receivables and inventories.

In relation to the operating results, the Company reported positive figures for the international markets, where performance was favorable across various regions, as well as the domestic market, despite macroeconomic adversities.

Domestic Market

The Company reported an operating result of R$384.2 million, 70.4% more than in 2Q13, with an operating margin of 11.6% versus 7.3%, an increase of 4.3 p.p. in comparison to the same quarter in 2013. On a quarter-on-quarter basis (vs. 1Q14) there was an increase of 0.6 p.p. in operating margin.

Dairy Products

In relation to the second quarter of 2013, net sales of dairy products held steady, totaling R$702.9 million. Volumes registered a decline of 13.5%, reflecting the strategy of enhancing the sales mix. Average prices increased by 15.3%, partially offsetting higher costs which rose 20.5% in relation to the same period of 2013. Operating results amounted to R$26.2 million, a margin of 3.7% (versus 3.5% in 2Q13).

The segment reported an operating result of R$26.2 million, representing a strong recovery in relation to 1Q14. Operating margins rose by 5.4 p.p.

Food Services

BRF recorded growth in net sales of 6.6% in 2Q14 versus 2Q13 in line with the market, reaching R$383.8 million. Volume rose by 4.6%, especially in the elaborated/processed product categories. Some factors prevented the Company from growing volumes at a faster pace: 1) the World Cup, which was negative for food consumption away from home, impacting Food Services, and 2) lower beef volumes sold in the quarter.

We reported an EBIT of R$25.8 million with a fall in margin of 3.5 p.p. to 6.7 % year-on-year to higher production costs (notably grains and in natura beef), which rose 7.4%. We are working to restore margins in this division and expect improvements in the coming quarters.

International Markets

On an annual comparative basis, BRF achieved some important results in 2Q14, despite certain challenges faced by the Company in the period such as cost pressures and a global decline in beef cattle and hog supply.

We continue to pursue our strategy of withdrawing volume from regions with lower margins and this approach has proved effective. Volume exported to International Markets in 2Q14 was 549.5 thousand tons, a 18.4% fall versus 2Q13, with a net operating revenue of R$3.3 billion.

Net operating revenue from this division posted a slight year-on-year fall of 2.2% while there was a 7.3% increase in net revenue from 1Q14. Operating margins were 7.8% in 2Q14, compared to 6.4% in 2Q13 and 6.0% in 1Q14.

SOURCE BRF

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