BRF S.A.

Good morning, ladies and gentlemen, and welcome to BRF's first quarter 2020 earnings results conference call. We would like to inform you that this conference call is being webcast online at brf-br.com slash ri, where the presentation is also available. At this time, all participants are connected in listen-only mode. Later, we will begin the Q&A session when further instructions will be given. We would like to request all participants to ask only one question. Should you need any assistance during the call, please dial star zero for an operator's assistance. forward-looking statements during this conference call regarding the company's business outlook, projections, and results, as well as the company's growth potential are merely assumptions based on the management expectations regarding the company's future. These expectations are highly dependent on market changes, the overall performance of the country, and the industry, and on international markets, and are therefore subject to change. We would like to remind you that this call is being recorded. This call will be presented by Mr. Louis Val Luce, Global CEO, and we also have other executives from the company present. We would now like to turn it to Mr. Louis Val Luce, who will begin the conference call. Mr. Luce, please go ahead. Good morning. Thank you. First of all, I'd like to greet you. Thank you for listening in to our earnings conference call. for the first quarter of 2020 at BRF. First, I'd like to inform you that we are publishing this from home. We are respecting the quarantine regarding COVID-19. So if there are any occurrences during this call, I'd like to apologize in advance. This presentation should last for an hour. We're going to be talking for about 15 to 20 minutes at first, and then we'll open up for the Q&A session immediately so that we can talk more about our results in the company. So we can start off on slide number three. And what I'd like to hide here is shown on the slide. We have four indicators which are very important and relevant for the company and the results are shown here for the quarter. The first of them is our 8.1% growth in total sales volume and this is especially true in Brazil, 10.7% growth here and the domestic market grew 6.6%. Important to highlight, in Brazil, the growth of processed foods representing 14.9%. In other international markets, we saw robust growth of over 13%, which was boosted by China, which had 89% of the growth. And this is also the result of the effort we put in over the year on releasing new plants to export to China. For our net revenues, you can see that we had a relevant growth of 21.6%, where Brazil represented a growth of 18%, and in the international market, 25.6% of growth. This was especially from Asian and African markets, as well as the Americas and Europe markets, which had a growth of 45.9%. And the halal market also had a growth of 14.5%. Now looking at the third item, gross profits for the company, the growth we saw was 48.5% year-on-year. And this is across all markets. Brazil had a growth of 37.4%. And the international market had a growth of 58.3%, where we can highlight the growth in other markets, as I said, Asia, Africa, the Americas, which grew fourfold to $523 million. Concerning the adjusted EBITDA, we had an important growth of 67.2%, year-on-year where Brazil presented a growth of 63% and the international market grew by 83.7%. So the international market, as I said, had a growth from $89 million to $445 million. So this is how much the international market grew, especially Africa, Asia, and the Americas. The next page of our presentation highlights the consistency of our results, reaching a new level for the fourth consecutive quarter. So both for gross margins, where we reached 25% on average, and the adjusted EBITDA and margin, which reached 14% across the last four quarters. So this shows the alignment that the company has and the discipline we've had in delivering what we planned in our strategy. So everything that we have published has been followed since 2018. And it also shows how our management is based on the company's long-term perspectives, where, as we've said, decisions are made respecting our chain and respecting the nature of our company, which is to have long-term strategies. And, of course, we have to manage the short-term, but our goal is to have a long-term performance. So I'd also like to thank the engagement and commitment of the over 90,000 employees that BRF has, and also the support of our board. So in the first quarter, we delivered a gross margin of 25% and an adjusted EBITDA margin of 14%. of $1.2 billion. And I'd also like to highlight here that among this $1.2 billion, we also have the provisions that we laid out to prepare the company for the impact that we might have due to COVID-19. So about $65 million BRL is dedicated towards that, provisions for COVID-19 and other contingencies which are already included in these results here. In addition to death, as you saw in the report, the company had a loss of $38 million in this quarter, but this was due to these provisions which I've mentioned. besides the negative impact of the currency exchange of $123 million, and the provision for the class action, which was concluded in the U.S., which also had an impact of $204 million. So we have that negative result, which received a negative contribution of around $390 million due to all of these adjustments and impacts which I just listed. Now to talk about the challenges that we faced during the first quarter. It's important to highlight that 2020 has been a year of many uncertainties, of a lot of volatility, and we have been working here intensely from the beginning of the year to try to mitigate them. We're learning, of course, with the experience that we saw in other countries. We're basing our decisions on the information that we've received from other places so that we can make the best decisions for the company. So in 2020, it's been a very challenging moment. And the company is trying to do its best. And of course we have to have solidarity with everyone else. So we see that in the beginning of the year we were already facing some challenges. There were many questions on contract negotiations in China. You might remember that. And the company since then has done all its to have a very relevant position to have a good long-term contract with China. So we didn't suffer any impacts from that. And that shows in our results. In February, we also had additional challenges regarding a suspension of our exports in a couple of plans. So we managed to redistribute that to other plants so that we didn't suffer a great impact. And in March, with the pandemic being declared for COVID-19, that is something that we had to work on in managing our operations here in Brazil. And the class action, which I've mentioned before, came to a conclusion. And I just want to highlight how important it was to conclude it right now, which is really our strategy to turn the page so that we can move forward in operating the company. Now to talk specifically about everything we've done regarding COVID-19. I think from the beginning, we started focusing on three main goals. One of them or the first of them was to take care of the health and safety of all of our employees and everyone who is involved in our production process. Our second was to work effectively being aware of our responsibility in this moment. we run an essential activity, which is to produce and distribute food to the population. So we are protagonists during this moment. And the third was to also work effectively and with solidarity to others in such a difficult moment. And that's why we announced from the beginning that we were going to provide donations of over 150 million BRL in food. But it also included hospital equipment, hospital supplies, and research funding in order to find a treatment for COVID-19. So we also announced that we were hiring about 5,000 employees and the goal was to ensure production capacity during the pandemic. Moving on to the next page, we're now on page seven, and it discusses COVID-19 and its impact on the first quarter of 2020. The demand, as we've said before, was stable, and it remains stable And on an aggregate basis in Brazil, of course, there was an impact on channels, especially food service. Exports were not affected by COVID-19. And we've kept the same workflow as we had planned before from the beginning. Continuing with the next slide, I'd just like to briefly make a side note from COVID-19, just to remind you that African swine fever, ASF, is not being so widely discussed, but it still continues. It's still there. It's a problem that hasn't been solved so far. And we see that the production in China dropped by 26%, and we expect to see further growth drop of 20%. And obviously, as was said in other opportunities, this is reflected in the number of hogs of about 50% since September 2018. I'd just like to reinforce the message that I previously said. The demand from China is for protein will continue, it will remain strong throughout 2020. So we are still far from the end of this cycle. We see that breeding cells are recovering, but they are low to recover, excuse me, slow to recover, which makes this recovery a little bit slower. So referring to some of the operational highlights we had in the first quarter of 2020. In Brazil, we saw that our client bases and the number of items per client went up as well as our net revenue, as I've said. And we also focused on innovation with a new line being launched in this quarter. Also in the international market, we saw robust growth which demonstrates once again that the company has been present and effective in international markets and it's also working very effectively in the logistics so that we can supply for the robust growing demand that we see internationally. That's how we're working. And in the halal market, we also had a market share growth, a lower growth in terms of volume and revenue, but I just wanted to highlight the three points. In the first quarter of 2019, if you remember, was when the halal market suspended a number of exports from Brazil, which made prices go up and that generated an opportunity we had in the first quarter of 2019. And in the first quarter of 2020, we had some challenges in Turkey regarding exports to the Iraqi market, which started again in the last quarter. So we suffered an impact there, and also the suspended exports to Saudi Arabia, which ended up having a negative effect. Moving on to the next slide, slide number 10.

Just to make sure, this is our strategy. We've been talking about it, and that's how it's been acting. It's been operating. 2019, 2020, and the expectations for 2021. Of course, in 2020, we have this challenge presented by COVID-19. And we'll be talking about what kinds of impacts that might have. On the next slide, slide number 11, we have a picture of how robust our financial strategy is. We talk about our financial leverage. We are now sitting at around six times early 19. And now today, first quarter 2020, we are at 2.68 times. The numbers on the top of the slide are worth noting. The growth of that came mainly from an FX variation, especially as it relates to our dollar-packed debt at around 3.3 billion. In terms of capex, we are around 490. But I'd like to highlight our operating cash flow, which sits at an amount of $1.5 billion. Our debt went up, but it was driven by a non-cash effect, mainly due to effects variation. In such a way that our leverage, now at $2.58, has an impact of 0.36 times. which, of course, as I said, was impacted by the FX variation on our debt. That FX impact, if you were talking about a US LRF at around 4.0, we would be having a leverage level of around 2.3 times. Our cash on the next slide, slide 20-20, remains quite robust. Our net cash sits at around $9 billion. have reinforced throughout March our cash position with new hirings to maintain our cash in a robust level. And we have our credit facility at around $1.5 billion, which provides a liquidity level of around $10.5 billion. It's also important to note that our average earn for the debt has been going up with the new operations that were contracted last year, so the average sits at around 4.5 years now. And the maturities in foreign currency will only start in mid-2022. Investments made in 2020 and 2021 may be coming from operations done in Brazil and Riyadh. moving to the close of our presentation we have a list of our pillars for our long term strategy and that's what grounds our company's long term expectations working towards achieving those objectives in more detail we seek to have a high performance organization focused on management stability, diversity, and of course looking at the company's assets. I'd like also to reinforce this next pillar of our strategy and the Arab market, very important. We have just acquired a company in Saudi Arabia to produce processed items. And we're increasing our production capacity by five fold. And that, of course, aims at reducing the effect of other companies, especially the one in Abu Dhabi, which has been brought to a halt. And that, of course, has consequences on all the other initiatives. And you can see the results in our excellence program. aiming at more efficiency, better management in the operating, commercial, and logistics front. We've seen the results with operating margin going up and also the EBITDA margin, which has been delivered this quarter. Moving on to the final slide of the presentation, a summary of the four main events for this first quarter. Once again, A very solid and robust result had taken the numbers to a different level. We have taken proactive measures to fight COVID-19. The focus has been on people, on continuing production, and to be able to bring food to people's tables, always following a very strict financial discipline and before I would like to say that the pandemic is a recent event. It started early March. So in the second quarter, we'll certainly have all the main impacts coming from this last three months. But we are trying to address and manage those impacts. My expectation is that from the demand side, which we always address from the mid to the long run, so I can tell you that demand tends to be somewhat stable. But of course, there'll be differences between different channels, different categories. But the perspective is somewhat positive given the effect coming from a potential recession across the globe. but we tend to benefit, especially from chicken protein, given the quality that we offer in terms of chicken protein. And also in cattle, our quality is recognized. So in a recession environment, we tend to believe that quality will be much valued. On the offer side, on the supply side, Of course, we're going to face big challenges in terms of low supply. And as the disease of the virus advances in different areas of the globe, in different cities, different plants, production plants will be affected. And of course, we also have to keep in mind that decisions might be taken by government or local administration that will affect us as well. And with that, I close this first part of the presentation and we'll start the Q&A session. Ladies and gentlemen, we'll now start the Q&A session. Once again, participants will have the right to ask one question. To make a question, please dial star 1. To remove your question from the list, dial or press star 2. First question from Citibank, Mr. Soares. Good morning, João. Morning. Can I ask two questions? Yeah. Yeah, okay. Well, first one about processed items. The price of the swine in Brazil dropped significantly. So that might have led to some kind of impact and could have a relief in the price of processed items in Brazil. Can you give us some more color on that? And you also mentioned about chicken and the supply of chicken, the COVID-19. Specifically for chicken, we saw in the U.S. quite a strong adjustment, especially in the second half of April with a drop of the health conditions of the chicken, eggs being broken. Can we see a positive impact in pricing the second quarter, globally speaking? And do you see any kind of or somewhat similar adjustments being made here in Brazil? Well, thank you for your question. I'll address your two questions together. Number one, under this scenario in the second quarter, we need to pay attention to the short-run dynamics. I'm sure we'll have a very volatile scenario, as I mentioned. We might see a drop in local market in terms of prices for swine and chicken. But we're always looking at the mid-run when we make our decisions. And we try to look at the overall picture. And then we go to your second question. based on our experience and based on what we see happening in the U.S. right now, and based on the level of the stock that they have right now, we imagine there will be a reduction in production capacity and the production for the second quarter coming from two factors. a different pace of advance for COVID in different regions that might lead plants to operate with fewer employees, depending on where they are located. And others might reduce the number of employees as a preventive measure to avoid a higher impact on production. So that's what we have been seeing around the world. And what do I mean by all of that? That drop in pricing, which we might see happening sometime in the second half, I do not expect it to affect the price of process items. And why not? Because given that production scenario we have now, this would lead to a different level once again in terms of supply. So we see a scenario where we'll have a higher stability of prices, both for processed items and for prices as a whole. But of course, we need to keep close attention at impact we might have, both in terms of housing and in terms of production capacity. And then depending on measures that are taken by government officials and local authorities. When we have that in hand, then we might have some difficulties in supply that might lead to product lacking in the market. And then we'll have an imbalance in supply and demand, and that will reflect in market prices, no doubt. Okay, Ludivar, thank you. Thank you for your question. Next question from Ms. Isabella Simonato from Bank of America. Good morning, everyone. Good morning, Rosal. Thank you for taking my question. I'd like to address two issues. Number one, Brazil's revenues. The volume of processed items. And then we see a loss of share in the first quarter when compared to last year's fourth quarter. I'd like to share with us how you see the dynamic by category and how what kind of impact will have market share in the second the second quarter and also cost we see a cost which is quite controlled despite increasing grain prices you had enough grain stock for the first quarter but how can we look forward in terms of cost, especially if we do have stable demand, as you just predicted. Thank you. Okay, Isabella, thank you for your question. As for revenues in Brazil, it is a very important pillar of our strategy, and I'd like to congratulate our commercial team and all channels, all categories for the strategy they put in place and by the level of service they provided to meet demand. Throughout last year, as we had predicted, we prioritized the company's profitability even under a scenario where we had some loss of market share. But I believe we have recovered that in the past two months. When we look at the last few months, we can see recovery in margarine and other categories for process items. And that is our strategy. Profitability, but with a strong positioning of our market share. When we see a growth of 15% year on year, uh it's from what goes against uh that drop in market share down here but that also goes to prove that uh our activity in different channels will reflect that uh when you have a cash and carry channel things operate different and that's why it would be different difficult to have another overview of that but again We always have our eyes on high profitability and direct position in different channels, different categories. Always really focus on innovation, new launches, value-added products. That's the path the company intends to tread throughout this year. Of course, we'll need to make adjustments. because this is a very special different year because of the COVID-19. As for your question about cost, we have been announcing our cost reduction measures. I do believe we are well positioned, especially for the first half of this year, in terms of cost. And we are well positioned to buy inputs from the four different regions and that number dropped in the first quarter and we hope to extend this strategy throughout the second quarter as well and that has allowed us to avoid the possibility of making purchases at the peak of the crisis because we were well just in terms of inventory. So we suffered, we didn't go through all the stress presented by the peak of the crisis. We didn't have to operate in a stress market because of our high inventory levels are enough to face that period. So the strategic management of inputs and inventories was key to our strategy of keeping prices and costs under control and be able to rightly manage our working capital. That's how we've been working, and that's how we are going to be working going forward. Thank you. Our next question comes from Tiago Duarte from BTG Paxwell. Hello, good morning, everyone. I have two questions. Number one, I'd like to go back to the volumes of process items in Brazil. If you could give us some more color in terms of the In terms of how demand advanced in the quarter, we know that starting in March, some retail categories saw an important leap in demand. I'd like to understand if that level of growth was somewhat spread throughout the quarter, or was it concentrated at the end of the quarter as the effects of COVID-19 changed consumption habits and if you could tell us have you seen something different in April so that we can understand the commercial dynamics that you mentioned in the previous question and the second question as to the halal market in the last earnings call you highlighted some concerns you have in terms of price, demand coming from Saudi Arabia, and then, of course, pressure, margin to the fourth quarter. I was under the expectation we would see something similar now. Margins, though they were lower than others, they were surprisingly positive when compared to the past quarter. How can you interpret that? Can we see some recovery in terms of profitability? Can we assert that profitability has improved? Can we state that an FX variation was also an important driver? So if you could give us some more color on the halal market, I'd appreciate it, please.

Okay, thank you, Tiago. Just to let you know... We have other people connected to answer, but since we're working remotely, that is each one in one location, we're trying to concentrate questions here just to avoid any problems with connections. I just wanted to make that clear before I answered you. Now, Thiago, regarding processed foods, I think your question was very important. It's true, the company's strategy had a drop, and that was a fact. In the first quarter, you saw, especially from March, some changes to that trend. So you see, for example, margarine's regaining market share. We also had an expectation for people to buy more since people are staying more at home. So they end up consuming some more margarine, and that generates an opportunity for us, given the leadership we have in that sector. Also, cold cuts saw some recovery, which was important and relevant in terms of market share. So there was a growth there, and again, that was an impact from the consumption changes that people have had overall. So, Tiago, it is important to highlight that we're on the right path. We're launching new products in terms of processed foods. But now to answer your question about how things are doing in April. Well, Tiago, how people behave and how they consume is a variable that we are trying to serve has been different now. So really, in fact, we had a relevant reduction in the food service channels. And on the other hand, you had an improvement in a relevant side of the business, which is retail, especially local retail, cash and carry, which ended up bringing some stability to offset the losses that we had and the lower demand that went on the food service side. So what we've been doing is this. We're also directing and trying to adjust our production and our production capacity to service this demand, which has shown to be more stable for now. Where we should see more variability and volatility is especially in the Natura market. In Brazil, 25% to 30% of what is sold is in the domestic market, and that means that we have a lower margin. So, as I've said, we... need to have a good understanding of the market because it also will generate uncertainties in terms of supply and in terms of our production capacity for the entire industry, not only for BRF. So that's what we need to keep in mind and we've seen that these categories are growing. Now, just to comment on the halal market, it really is the market, as you said, had challenging results in the fourth quarter of 2019. We thought there was a slight improvement, but I think we still have many opportunities to develop further. And that improvement also will come in part from the recovery in Iraq. as well as the results we expect from Turkey. This is a situation that hasn't been resolved yet, but we need to look at the exports to Saudi Arabia. This is something we haven't solved. Obviously, with the current conditions, it will be difficult. On Friday, we're going to start producing processed foods in Saudi Arabia. So that will be the first Brazilian company to produce foods in Saudi Arabia. So that might also show an improvement towards our results. So these are the main things that we are seeing right now that are showing some improvements. we see that the halal results on the Saudi market are still challenging in terms of volume growth, especially now with the COVID pandemic. Okay, thank you, Derval. Our next question comes from Victor Sergio from Credit Suisse. Mr. Luce, congratulations on your results. I'd just like to refer back to your introduction just to see if I understood it well. I see there's an important discussion in the U.S. about absenteeism. So if you could talk a bit about your position with egg laying. Are you reaching the same level that the industry has or is BRF getting prepared to have a lower laggling considering the current scenario. My second question is about your working capital dynamic. We saw in the first quarter a peculiar dynamic with inventory levels and suppliers. So if you could tell us a bit about that. What should we expect from your working capital dynamic? Because your cash conversion is reduced. Also, I'd just like to ask about Iraq again. You mentioned that some discussions have been raised, but I just want to ask if this is already going back to the pre-crisis levels and if you see it normalizing from now on. Thank you. Thank you, Victor. All right, so let me answer your first question about absenteeism. I would say that it's not just a matter of absenteeism. There are two things there that are important to highlight and to state clearly. So from one side, let's call it the supply itself and absenteeism, as you said. What tends to happen here is, first, as cities and states and other countries open up as they have been, a higher contamination level around them leads to a reduction in the number of staff and capacity. And that's why in the past we have made additional hirings to in a way offset this reduction in our production capacity. So I, again, have to say that it does tend to happen, it would be impossible not for it to happen because, of course, the contamination is still spreading. But on the other hand, you can have some measures taken by some local authorities that might start a lockdown or might suspend your activities in a plant. So you also have that effect. So I've seen overall in other markets that we have to be careful and look at what's being done. And this is what we have been doing. We've been very careful about these factors. The idea is to adapt our housing and adapt our future slaughter capacity. You know how our chain works. It's a living chain which cannot be contained immediately. So you have to anticipate what will happen. So that's what's ideal. The idea is to avoid stress points where the alternative would be culling. So that needs to be done very carefully with a lot of responsibility And you can be sure that BRF has been doing this very effectively. Regarding your question on working capital, we've been very efficient in managing our working capital. But I have to say that I want to reinforce that right now, our management is being done in order to supply our clients, to supply their needs, and to hold back some effective inventory so that we can service our consumers. So what you can expect for the second quarter, Victor, is that BRF will do everything it can, everything that's necessary to supply the population and our consumers with what they need. Even if at a certain point we might have to hold back more inventory than we usually do because in the future we might have challenges. The market has some challenges in operating that supply. So that's what we're going to do. Managing working capital is important. We do it with a lot of discipline but It's not what's going to dictate the decisions we make. We have to make sure that we have the capacity to have the inputs we need, such as grain, have the appropriate levels of inputs to avoid any kind of difficulties or stress that we might have. Regarding exports to Turkey, I'm going to ask Patricio to answer. He is here and he can give you some more detail because he's working on that every day. Patricio might be able to give you some more information on how that curve is going and how that response is then. Patricio? Perfect, Victor. Thank you. To answer your question on Iraq, Iraq started recovering earlier this quarter, but we're working on a strategy of diversifying our exports. So we are developing products for WorldCom, and then we see that we are able to export to other countries like Libya, which were unexpected. So exports are higher than our historical level. I don't know if that answers your question. What did you say at the end? You said that you have a historical high? Right. So our exports are higher than the historical level because we had some opportunities and we had already worked months before to try to diversify our exports to offer some specific products for the Gulf countries. So that was a pleasant surprise. We didn't expect that these exports would come so quickly. So right now we're at a very healthy position in terms of exports. Thank you, Patricio, and thank you, Lourival. Our next question comes from Mr. Lucas Cejeda from JP Morgan. Good morning, everyone. My first question is about China. If you could tell us a bit more about how the Chinese recovery is doing in the last few weeks, so to say. So what should we expect for the second quarter? I know that there are some logistic issues but how is the flow right now towards China going? And if you could tell us about results specifically, not necessarily only about China, but how much did it contribute to your strong results and should we see any changes in the trends we saw so far? Okay, I'll answer your question and then I'll ask Patricio to add. on some information. But look, as we said, from early January, when we got several news that China was asking for contract renegotiation, we said that in our case, we were not open to that and we can see that what we had believed was true, it really did end up happening. So we work in China in a very structured way. We have consistent partnerships with clients. So in terms of logistics, definitely there will be challenges. There were many challenges in the first quarter. There are new challenges now in the second quarter, but we've been working ahead of the problem to try to avoid any impact on logistics. So it is a challenge, but our teams, based on the relationships that we have and our way of working, have been doing very well. So we've been able to minimize the impacts we've had. And another important point that I have to mention before I pass the floor to Patricio is Remember what we showed in terms of protein production in China. African swine fever is still there. Their herd has gone down significantly. It hasn't recovered. So 2020 will no doubt be a very relevant year for exports to China. They're going to have a strong demand and high prices given the scenario on the context. So I'll let Patricio answer anything that I didn't. So, Lucas, just to make a quick comment, China started pressured this year. They had excess supply, many containers being renegotiated, and China was improving its stocks despite all the problems that Larry Powell explained. Our estimate was that the demand would go up for exports And the results we saw were higher than the expectation. After the Chinese New Year, people tend to have a higher demand. So the local stock was pressured significantly, and the logistics right now are a bit difficult. so releasing the container so that they could go back to exporting countries. So in February and March, we had some issues with that, but then March began to normalize that, and the situation has improved. There was also a volume that they were expecting from the U.S., But you might know that the situation for production in the US has led to a different result. The prohibition of the consumption of animals from wet markets was imposed, and that ended up resulting in a better situation than we expected. Thank you.

Thank you, Lori, if I may. I have a second question. This has been thoroughly discussed, but maybe Sydney could add something to the discussion. What do you expect for different channels vis-a-vis this new COVID-19 reality? Where do you see consumers going? Are they going to consume nationwide that they can reach out to closer to home? So what kind of change in the channel dynamics are you expecting? And an overall comment on the product mix, if you could. Have consumers gotten used to this new supply dynamic? Would they not be looking for products with higher added value or not? What can you tell us about what you've witnessed? for the past few weeks in terms of consumer habits. Thank you, Lucas. I'll turn the floor over to Sydney, and he'll comment on the change of behavior for the different consumption channels. Sydney, can you hear us? Yes. Lucas, thank you for your question. What we have seen in terms of changing behaviors is the following people used to consume outdoors and now they consume indoors that's a very concrete change we have witnessed because of course restaurants are closed and of course that leads to a change in the channels especially in what relates to transformation in the food service area As consumption migrates to homes, consumers will buy more in retail. And that's a concrete change. So the mix for retail is different from the mix in food service. And that makes retail, of course, gross. And we are well-structured to meet that high demand coming from retail. And, of course, as you said, people are buying from places close to home mom-and-pop stores larger chain in the event we have strong brand and we are and we do have a very large footprint across all those channels and we do have of course supply plans in place which are monitored closely so that we can follow up on the growth of of that close to home retail, if I may. That's where we see the main impact in terms of behavior change. Once again, we are well positioned. We have good market share, strong brand, and all of that combined allows us to keep up with this change. Okay, Lucas? Thank you. Our next question comes from Mrs. Luciana Carvalho from Banco do Brasil. Good morning, everyone. Thank you for taking my question. Quick question about CapEx. Just to see if I got it right. Given this higher concern with liquidity, how can we look at CapEx spending going forward? Are you thinking about a ripping opportunity that might emerge, or would you think about new acquisition, just to rectify, to make sure I understood what you said in the presentation. Thank you Luciana for your question. Yes, without a doubt, in this scenario, you're adopting a more cautious stance in terms of capex. Those initiatives towards improving production, improving efficiency, we're taking gradual cautious steps. Of course, we have continued to build our plan to serve the sausage market. That will continue. But of course, with all caution in terms of capex management. as to acquisition and other investments which are not organic, we are being much more selective and this will continue to be the case until we have a clear scenario ahead. We won't be making any significant move in that front until then. Thank you. If I may, just one. One question about the last acquisition you mentioned. You mentioned, you announced that last Friday. Can you give us more detail in terms of expectations, EBITDA, figures? Thank you. Yes. That acquisition is quite relevant, quite strategic for the company because we now are able to produce higher added value products and solve the iridia territory and that brings to immediate effect we can bridge the gap which was created because we closed our plant in the region in ethiopia and we're now producing locally to serve the local market we have a very strong footprint in that market with our brand's idea. So initially, you have a capacity to produce 6,000 tons with, you know, seared products and breaded products. And we are positioned to invest another 7 million US dollars. That will allow us to grow our capacity fivefold. and keep up with demand as it grows. So as I said, that acquisition was quite strategic and quite relevant for the company. Thank you very much. Thank you. Thank you. Our next question comes from Mr. Marcelo Morais from Santander. Good morning, everyone. My first question is about something you have already mentioned, market share. and recent news. I can see you are quite disciplined in terms of fashion on prices. And you are closely monitoring brand preference. So can you give us an idea of how that has been evolving for the past quarters? I'd appreciate it. Thank you. Okay, Marcelo. I'll then call Sydney to help me out here, but you are correct. This is a very relevant topic. And we have working to position our brand based on campaigns, marketing campaigns. And we do that both for Tigea and PrettyGown and Quali and other brands in Turkey. And that has increased the preference for the brand, no doubt. And that's for more details. Other indicators, I'll give the floor over to Sydney, who can help me out here. Please, Sydney. Yes, well, thank you for the question. We need to be in line with our strategic planning. That's very important. That's right off the bat. It was important for us to have been able to reposition the brand under a sustainable approach that allows us to move ahead with our plans, both in terms of brand positioning and in terms of sales growth. So what can we see already? we can see results coming from that combination. If we analyze market share, we have, with the past measures, we have exceeded the level of 55 of market share in margarine. We have also evolved in cold cuts, getting close to our ideal level, which is around 50% in cold cuts. And after three consecutive periods, we have now exceeded the 45% level for frozen items. So that combination, as I said, good positioning of the brand and discipline in executing, as Lodiva mentioned, our excellence program, our models and plans to better structure our services, better logistics in our go-to-market, approaching sales, all of that combined allows us to show in a consistent manner strong results. In other words, better process, better discipline executing our processes. Okay. Can you share with us a number, an indicator for brand preference, if you have an updated number, so that we can understand if that's going forward at the same pace as market share. Was there any loss, in other words, in terms of brand preference? If we compare this quarter to last quarter, we see a more mid-run or mid-term change. We haven't brought the numbers today, but we can share those numbers with you later. and you'll have a better idea of how Segea, Perdigal, and Quali have moved forward. If you remember from our last earnings call, we have exceeded the level of 30% in preference for Segea. We exceeded the 50% level for Perdigal, and we maintained the 50% level with Quali. So for the three brands, when we look at the three brands, The first few months of 2019, the first quarter of this year, and even on an annual basis, when we compare growth, we see numbers going up. Even though we have recovered growth margins, we still invested in our brand, which are, of course, our main asset. Those campaigns go on. Those campaigns are well adjusted to the three brands as they continue to grow. Thank you. Just one more question as to hiring those new employees to cover a potential absenteeism issue at the plant. How do you expect that to impact cost? How can we see that going forward for the next three or four quarters? Thank you. All right, Marcelo, thank you for your question. It's not only the cost of the new hires, and as I said, the priority is to be able to maintain our production capacity. But overall, the risk of operating in this condition has been higher, and that will have an impact in the second quarter. And that, of course, affects transportation, Equipment, input, PPEs, all of that will impact cost, expenses. And they will emerge in the second quarter, in the second half. But they are, of course, adjusted to the overall expenses of the company. Okay, thank you. Our next question comes from Leandro Fortanelli from . Good morning. Thank you for taking my question. My question is a follow-up. You did mention throughout the presentation a few of the things I'm going to touch upon. But just to be sure, when we look at the demand for process items or overall demand in Brazil, we see a new fact in retail where we can tell consumers building up stocks because of COVID-19. That happened early on, right, in February and March. Now, how has that affected the company's performance? And what kind of effect will we have now, May and June, as those inventories, those first, those early on inventory building strategies sort of ease up? and also about China, if I may. Do you already see a higher demand in that area? And then when you compare consumption preference for protein both in-house and outside of the home, what kind of dynamics do you see there? and what kind of impact on demand for chicken that might have. Okay, Leandro. And then I'll ask Patricia to help me out with China, specifically bugs. And as Cindy has said and we've all have said, actually in the first quarter, in an aggregate basis, the impact of, as you said, of people going out and giving out home inventories. That happened early on. And that, in fact, is not that relevant, actually. Of course, you can stock some products, but not all products. Our product, because it is a frozen product, you are limited to the size of your fridge. So the impact is not as relevant as it is on other products, which can be stocked in the garage or under the bed, for example. In our specific case, we see an impact, but it is less relevant than in other industries. And that, of course, leads to a similar scenario as to what we saw in China and Europe. On weekends, we see a slightly higher demand. Those products are consumed throughout the week. And on the weekends of the following week, we see a peak in demand once again. So it is a more random or erratic type of dynamic. But in summary, no major impact because, as I said, in aggregate terms, it remained stable. because it, in a way, it offset the drop we saw in the food service industry. And I'd like to call Patricia to help me out in terms of China, how things have been playing out in China. Thank you, Loliba. Leandro, just as a compliment to what Loliba has said, I am in line with what he said. Fish protein is more consumed in China. China also sped up their chicken production. And we're talking about 13 million tons in China. And then when you speed up that production, you lose control of sanitary measures of course. And so it's difficult for them to reach the levels they want. And then of course, it's a very complex market. And of course, they do have this issue of having to distribute items nationally in a very vast country in a situation affected by the COVID. It's a very complex situation. So to be able to build inventory and distribute is always an issue. And then you have also to allow consumers to get ready for that. So what we saw was an increase in demand earlier in the year. Fish price went up last year. Also because of a supply-demand issue. It's a huge market, right? To feed one billion people the same type of protein, it is a complex issue. So there is a gap which is difficult to bridge because to be able to do that, With one single protein, it's not an easy task. Thank you, everyone, for participating. Once again, I'd like to give a word of thanks for the commitment, the support from all our employees, our board, and all our executive team. And thank you all for participating in our call. Have a nice day nice week thank you BRF as a audio conference is now over thank you for participating have a nice day everyone