Brazil’s BRF shares soar after bold 10-year plan

Brazilian food processor BRF SA was the biggest stock market gainer on Tuesday after announcing an expansion plan focusing on growth at home and in halal markets like Turkey and Saudi Arabia, as it seeks to more than triple its revenue over the next decade

 Reuters

Shares surged almost 9% to 23.13 reais, while the benchmark Bovespa index rose just 0.18%.

BRF, the world’s largest chicken exporter, said it aims to spend about 55 billion reais ($10.8 billion) in the next 10 years to increase the business and tackle competitors like JBS SA.

The plan also includes opening production bases in North America, Europe or selected Asian countries, executives said. They have studied 50 nations for possible investment, including the United States, Canada and Mexico, but they declined to elaborate.

“The plan indicates a move away from BRF’s more commoditized business of selling fresh chicken and pork products in favor of increasing market share in segments such as ready meals, pizzas and chicken nuggets”

The company, which owns the Sadia brand in Brazil and Banvit in Turkey, aims to derive 70% of its revenue from value-added products over 10 years, up from 50% now, management said during a presentation.

The plan indicates a move away from BRF’s more commoditized business of selling fresh chicken and pork products in favor of increasing market share in segments such as ready meals, pizzas and chicken nuggets.

Executives hailed the strategy as the culmination of efforts to turn BRF around after a string of quarterly losses and its alleged involvement in food safety scandals in 2017 and 2018, which sparked a management shakeup.

“We took over leadership of the company more than two years ago,” said Board Chairman Pedro Parente, who also served as chief executive for a time. “We delivered what we promised.”

CEO Lorival Luz, who replaced Parente last year, said the plan is to become the second-biggest pet products company in Brazil in five years. Brazil’s pet products market is worth 40 billion reais, Luz said.

The company pledged not to over-borrow to finance growth and to set limits for indebtedness over the period when the investment will be made. BRF said net debt over the period would not surpass three times EBITDA, or earnings before interest, tax, debt and amortization, a measure of profitability.

BRF also said it could raise net revenue to about 65 billion reais per year between 2021 and 2023.

In the nine months to September, the company reported net revenue of almost 23 billion reais, driven by strong domestic demand fueled by a government cash aid program during the coronavirus pandemic.

BRF said it aims to increase net revenue and EBITDA by around 2.5 times between 2024 and 2026. It expects more than 60% of that revenue growth to come from its home market. It hopes for annual revenue of 100 billion reais by 2030, according to a securities filing on Tuesday.

Reporting by Ana Mano