BRF S.A.

Good morning, ladies and gentlemen, and welcome to the results video conference for the third quarter 20 for BRFSA. We would like to inform you that this video conference is being broadcast through internet through the site www.brf.com where the presentation is also available. At this moment, all participants are connected as in this and only mode. And in suing this, we will go on to the question and answer session one. Further instructions will be given for you to participate. We request that each participant pose only one question. Should you require assistance during the conference, please press star zero to reach the operator. The forward-looking statements In this conference, referring to the business outlook of the company, projections and results on the potential growth of the company are forecast and are based on the management expectation regarding the company. These expectations are highly dependent on changes in the market, on the general economic performance of the country and the sector, and international markets, and therefore are subject to change. We would like to remind you that this conference is being recorded. This video conference will be presented by Mr. Norival Lu, the global CEO, and the vice presidents are also present. We would now like to give the floor to Mr. Luz, who will begin the presentation. You may proceed, sir. Good morning to all of you. Once again, thank you for participating with us for the results for the third quarter 2020. Once again, we're doing it through a video conference to be able to better interact with you and to perhaps convey our results with greater clarity. Before we begin and go to the presentation, I would like to refer to the satisfaction that I feel with the results that we will be presenting to you. For the sixth consecutive quarter, we are reporting results above the levels that were reported in two or three years ago. And I think this points to how assertive our strategy has been and also points to our ability to execute and deliver. Now, the results that you are going to observe now give us the confidence that we will be able to take new steps for the company to grow. At BRF, we're extremely proud of what we are doing, what we have done, and of the way we are doing things. our culture, our procedures. We don't accept any business at any price. We do things in a highly sustainable way with integrity, with quality, and, of course, with safety. And I believe that BRF is one of the Brazilian companies that this year most invested in the health and safety sector of the people in all of its communities. We did this in detriment of having temporary impacts before and at the cost of our market share. At BRF, we truly believe that health and that the life of people is always the priority. When it comes to this presentation, I'm going to hold a very brief presentation, about 15 minutes, and ensuing this, we will open for questions and answers, where we will have all of the vice presidents of the company here to clarify issues and hold a conversation. We go to the first slide of the presentation, where we will refer to the results in the third quarter, 20. Once again, I would like to underscore the EBITDA margin and the net operating revenue on a cash generation of almost 1 billion reais. Alongside with the liquidity and the availability that we have, 15.3 billion, a leverage of 2.9. Were it not for the variation of the dollar, We could speak about the strength of the company and how far we have come with this net income above 219 million. In the next slide, we show you a sequence of results since the first quarter. And what I would like to do here is reinforce the journey that we are on at present. And the goal, the goal of having more stable margins, appropriate growth, and above all, to avoid any type of volatility in our results. So we have had six quarters of margins, growth margins of approximately 24% and 25%. and an EBITDA margin around 14 to 15%. And even this year, with the impacts of the COVID-19 pandemic, which once again points to the strength and the robustness of our processes and the strategy that we have. Going on to the next slide, I would like to reflect with you and show you what this journey has been like and how it continues to be in BRF. I draw your attention to a very simple comparison based on facts and data of what BRF was like in the nine first months of 2018 and our present day status two years later. with RDS work, with a strategy that we've set forth where all of us within BRF, our team, our employees, are working in an integrated fashion. Growth profit, as you can see, 15%, increasing to 23.5%. EBITDA margin practically increased twofold, going from 7.4%, in the nine months to 18 to 12.9% this year, even with the extraordinary expenses due to COVID-19. We left from $2.4 billion to a profit of almost $500 billion. Now the average debt maturity that reinforces our financial discipline almost increasing threefold, going from 3.4 years to 9.5 years in the third quarter, 20, a leverage that has dropped to half, going from 6.7 times to 2.9 times. Now, were it not for the impact of the dollar, we would be below 2.5 times. But if we put together the leverage and the dead average maturity, the capital structure is strong, sustainable, and adequate for the present moment and for what we are doing. And as a result of this, a significant increase in the ROIC for the company. Therefore, I think it's important to reflect upon this, to truly state what we have been doing, and I have underscored this, We are looking towards the mid and long term of the company so that we can have an ever better company and a stronger one. Evidently, this does not come easily. We go on to the next slide where I would like to show you some of the strategies that we have set forth and that have enabled us to take these steps. The first to work constantly to seek efficiency, a greater efficiency in costs and expenses, ensuring the stability of our margins and adequate profitability. And this will enable the company to continue to invest in new products and new processes. This is a constant quest that we are in efficiency, productivity, and this is but an example. We are comparing this on base 100 of the cost of production index in BRATA, and they show you the curve of increase in these costs, and which was the COGS of the company and the ability, the broad ability that we have of moving around with these new prices. Now, what is it that I'm attempting to show you here regarding the main inputs of the company? We do have an adequate capacity. And once again, I would like to reinforce that for us, consumption is strategically And we make the very best decision that we can in this field, even though we have to increase our working capital, because what is important for us is to guarantee the inputs and to ensure they are efficient. We also have several initiatives that we put in place, but I reiterate the priority of of course, is to adjust our cost to the market cost and to ensure that our prices are in accordance with market prices to ensure adequate margins for the company. Now, this is how we sustainably manage our company and our ability to do this for the coming quarter and for the coming semester in the year 2021. will continue based on this trend. We're ensuring that the company will be productive based on planning and, of course, based on these principles. An important factor in the next slide, we have even stronger brands and the most admirable and preferred brands in the market. These are data from Canton for the top of mind as well as other surveys. We have Sadia, Perdigon, and Quala in this category. And this can be shown through the investment and through the way that we do this in the relationship with our consumers with respect, with credibility, by listening to our consumers and which are their needs, and, of course, with consistency in the delivery, consistently delivering quality in our products and making investments in a very robust, appropriate, and cautious way, allowing our products to become ever more accessible to our customers

So we are expanding about 10% versus the previous year. And now we've reached over 260,000 active customers through our commercial strategies and with our position. So we have costs. We can manage productivity appropriately. We have the brand. And the next slide will show how we also have the best position in our portfolio. As we've said, we are positioning our portfolio more and more directed towards products that have higher added value margins. And the results are seen in the presentation itself. Profitability is growing. I bet the margins are going up. And I mentioned the last two points, which are also very important. And we're also making investments into innovation, launching new products, and adapting products to what customers desire. So we are making them easier to prepare with more quality, a better taste with food safety, and we're moving these products to have a greater share of consumers' baskets. So the mix in our portfolio is becoming better and better, and it will ensure sustainability and growth for our margins in our operation. An example of that is shown on the next slide, slide number nine. Here we see the number of products or SKUs that have been launched. We reestablished the investment that our R&D team has had. So we have products for the local market and for the international market. This year, we've launched around 170 SKUs. And we'll have more. We will have new launches which will be very relevant and important also in the third quarter. Our goal is to really be present, to be there during all the moments in which our clients are consuming. We want to be where they have needs for our product. This is how we're designing our So the summary I mean to give is how our consistency and the priorities we set have led to these results. Moving on to the next slide, this is another important point. It's important to report. Of course, we've had an impact from the Chinese market and the expansion that we've had with new approvals for new markets. With regard to China, the demand and their own production is still below what it was in 2018 before we had African swine flu. This has recovered, but as you can see on the left side, the herd is still based on female hogs selected as sows. So on the right, you can see that their monthly yields are still far below what they need. And you have one more perspective, you have a greater perspective that this productivity will go back to the 2018 level, but this won't happen in 2021. or in 2022 to 23. It will probably start happening from 2024 on. So we still have some time where we'll have a great demand. And the foreign market still has high demands, and it will continue to provide opportunities despite volatilities that we see on a monthly basis. But the trend, the expectation we have is that the next month will be consistent. And they will be positive and high. So changing a bit of our conversation and talking about the company's capital structure. I'm very proud to say that we are able to demonstrate what we've done in this last journey. We went from a level of six times down to 2.9 times. This is our leverage. And as I said, even despite foreign exchange impacts, our debt is still denominated in U.S. dollars, and a lot of it was impacted by foreign exchange. We went from a U.S. dollar below 4 EURL to a dollar of 5.6 BRL. So this variation basically made our debt go up substantially. But we've made an effort to generate cash and reduce our nominal debt denominated in BRL. If we were to calculate, if we were to consider it in Brazilian reals, And this is done at the same time as we extend our debt. At the end of the third quarter of 2020, we see that our average term was 7.5 years. And this is a proof form of calculation after the operations we've had throughout the year. So there were some liquidations as you can see that will take place in 2021 and there will be a new issuance. So the company is absolutely net and we will have the right terms and the values will be quite low for the next quarter. Moving on to the next slide. We also manage not only the financial side of the company, but we're also looking towards sustainable development from the field to the table. And this is done by taking care of the environment and with initiatives to reduce waste. This is something that is done by our entire population. We work with the best practices and we take part in the best association. We have a transparent leadership, which is also ethical. And this is shown by the fact that we are the company, the only company that is in ISE. We're also listed in B3's Novo Mercado and ADR program. And there are other initiatives that were taken this year. The next slide also highlights the fact that we have invested significantly in improving our process and in performing commercial management, meaning that we also invested in digital transformation. This goes for Go Digital and Be Digital. We substantially increased our investment there these last few years, and we will invest even more because we believe that this process will bear fruit for the company. It's going to bring us more adaptability and productivity. And we've had initiatives collecting data from all of our growers and farmers And we've adapted all the pillars in our operational excellence system to have the right measurement and then another number of initiatives that will provide information. And this information will be worked on, analyzed, and will retrofeed into this process. So this is a tireless search to have more productivity and be better suited for our clients so moving on to my closing remarks on the next slide i'd just like to conclude my presentation by recapping what we've had so far and what our results were this quarter during this quarter we sold 1.1 million tons our gross profits was 2.3 billion Our adjusted EBITDA was 1.3 billion BRLs. Our EBITDA margin was 14%, around 14% for the sixth quarter in a row. Profits were 200 million for this quarter. And we advanced in the products that bear the strength of our brands and which have higher added values. And this is our goal. It was, is, and continues to be our goal. And we'll continue moving forward in adapting our capital structure by reducing our leverage and extending average net terms. The last slide. And this is a conclusion for my presentation is an analysis of the journey we've had in the company since 2018. Looking at the results we achieved and everything that we have ahead of us, I want to say that I trust completely not only in where the company is, but also in the company's future. I'm absolutely sure and convinced that we have a team that is engaged united around our purpose. A team that takes care of people and takes care of our employees. And a team that doesn't do business at any price. This is a team that's passionate for what it does. It's passionate for the company and our culture is stronger and stronger. This is the basis for our growth and this is the basis for reaching new opportunities. We have a global demand for food, which continues to go up, despite what might happen from one week to the next or for one month to the next. The demand is growing as the global population grows, and we're reaching 10 billion people in the next year. So this is constant growth, which will continue to go up. We have the products and we have strong brands. We can ensure that we will continue to grow. And it's not only based on strong brands. We have the most skilled brands that continue to grow in consumers' preferences. And we're investing more and more in them and also in innovation, in products, and in products that have higher added values. With these results that we've presented, I can say that we are ready to expand our business into a new journey. We can expand our results, and we can also expand our returns. We built our plan for the next year, and it's focused on our culture, on people. It's focused on our clients and consumers. we're focused on innovation and launching new products and on expanding the company and adding value. Look, what I can tell you is we have paved the way and we've made the foundation so that we can start a new stage where we will be very successful in this new journey. My last slide, is an invitation. So we want to take this opportunity to invite you to be with us on BRF Day on December 8th, where we'll have a hybrid event, which will include people in person and online. This will be done according to all the procedures that will ensure people's safety and health. We'll be able to share with you during this day a little bit about this journey and how it will continue. So we expect you. Thank you once again for listening to this call and thank you very much.

Thank you, ladies and gentlemen. We will now go on to the question and answer session. We would like to remind you that each participant is entitled to a single question. Should you wish to pose a question, please press star 1. To withdraw from the queue, press star 2. Our first question comes from Ms. Simonato from Bank of America. A good day to all of you. Good morning, Lodival. Thank you for the call and congratulations for the results. My question is looking forward, the most important dynamic at present will be the issue of cost and the possibility of maintaining prices as good as they have been during this quarter for the processed foods. The graph that you showed us is very interesting where you compare the cost of Embrapa and how you have been able to outperform the curves. But we know that this cost continues to soar. Now, looking forward, and we see that you have a considerable inventory of raw material for 2021, how can you expand on this? which is the cost increase that you will have for the first semester of 2021. What type of price raise are we referring to compared to what we have observed in this third quarter? On the other hand, which is your vision when it comes to transferring this price to consumers We see that, in fact, prices are increasing because of increased inflation. Do you think it will be easier for you to increase the prices or not, considering that maybe coronavirus will be over? Do you think there will be a limit? Now, if you could speak about this price transfer dynamic of your cost. Thank you. I will begin answering your question and then give the floor to the other vice president. Now, when it comes to the cost and our positioning, what I can say to you is that the trend that you observed in that graph is here to stay for the next quarters because of safety for the coming quarters and because of the first semester in 2021. And because of our transactions and because of all of the operations that we have carried out, we are basing ourselves on this trend. And I can guarantee that we will continue to operate at levels much lower than those of Embrapa, which we showed you earlier. And of course, going forward, they will be better. We're extremely well positioned and we're going to enter the year 2021 better positioned than before. This is what I can say at this moment. Now, when it comes to price transfers and inflation and much more, we believe in the new markets. What has happened in terms of price transfer makes sense, and it is due to cost increases, not only for BRF, but for all companies as a whole. The cost of production, the cost of managing a company, all of this has increased for all companies, not only in our segments, This is a general trend. Therefore, what is going to happen and what has been happening is an adjustment, an adjustment to the cost, to the expenditure, and the final price of the product, ensuring that we will have a sustainable value chain and economic cycle. Therefore, it's not only an issue for BRF. It's a general problem. and we will continue to manage as we have done in these last quarters and that you were able to observe. We will proceed in the same fashion, and this is how we manage the company. Regarding the corona voucher impact, it is possible that it will end up having an impact But I tend to look at a half-full glass. I'm an optimist because we have received positive information, vaccines that are coming closer to materializing and growth, increased growth in several sectors and increase in demand, a resumption of activity, and the outlook of resumption in terms of employment levels and much more. And we produce food with brands that are desired and admired. And very generally, the population will continue to try our brand now. perhaps they will postpone the decision to try out other brands. In our case, they will continue to consume our brands. And I say this because of the price ratio between different products, beef, pork, and poultry meat, for example. Now, if you look at the relation between these, we're at a very top level. Therefore, my vision in terms of this is positive when it comes to the first semester of 2021, a competitive edge in cost and expenditure, the strength of our distribution and our brands, and the food sector and its relationship with other products in the food chain. I hope to have answered your question. Thank you. Yes, thank you, Lodival. Thank you very much. The next question comes from Juan Suarez from Citibank. You may proceed. Good morning, Lodival and the rest of you. I have two questions. In fact, the first, what is going to happen in the short-term, we're having changes in prices. Once again, of course, the situation of consumers has changed considerably. So if you could refer to this dynamic looking forward and include all of these factors, which will be this specific dynamic that was caused by the government aid and that perhaps will no longer exist. And if you could refer to your market share, You have been working more extensively in terms of promotions during this entire period. Now, which will be the percentage of promotions that you will base yourself on going forward? Thank you, João. Excellent questions, of course. And I will begin answering them and then give the floor so that you can obtain more details. When it comes to price and consumption, once again, at present, we do not face a problem with demand. Consumption and demand continue to be very strong. As I mentioned, we're speaking about food. People will continue to feed themselves, and we have that cost-benefit of our products vis-à-vis demand. other products of the competition. Therefore, this demand still exists. We have not felt any impact regarding the demand. Now, when it comes to prices, what we have done is adjust the prices, and this adjustment suits the market very broadly. Now, if you follow up on all of these sectors, you will see that this adjustment has been done in terms of the cost and expenditures of the company. Now, to refer to the issue that you raised, the market share, the reading that we have at present is that it is but one of the tools that we use for management and to set priorities. But we have full information. When I say full, it's based on our reading of all of the categories of all of the products that are not covered by this reading and all of the points of sales. Do remember that the reading does not extend to points of sales and we do adopt a very comprehensive approach. Now, We look at the growth at the beginning of the year, the impact that we have had throughout the year because of the pandemic. And we took decisions for the adjustment of plans to care for the health and safety of people. And I believe that presently we will be able to continue on in all of the markets and in all of the categories that we manage. including those that are in a worse situation. I would like to give the floor to any of the vice presidents if they wish to add something. Thank you, Dorival, and thank you as well for the question. I would like to underscore what Dorival mentioned in terms of the impact of prices on our business. reminding you that the work that we have carried out of bringing together innovation and product mix has enabled us to have an increase of market share in added value products. 80% is the new level. So we have a mix that is more exposed to price. The commodities, and this represents only 15% of our sales, And as Lorival mentioned regarding our sales, what the survey shows us is 40% to 45% of what we market. But regardless of all of this, we are growing in terms of processed food and margarine, 8%, a very robust growth. And if we compare the BRF market share with With the same period in 2019, we had a growth of two points in margarine, a growth in frozen food. We maintained the cold cut market share. And of course, where we truly felt a recovery in the first semester and where we had an impact because of production restriction was in cold cuts. where we have a concentration of our mix of the green products and others, it's important to base yourself on that reading because to compare ourselves to last year, our market share has grown vis-a-vis to 19, and it represents 40% to 45% of our sales while we sell in Natura and otherwise. That's what I wanted to add. Thank you, Lorival.