BRF S.A.

yucca plant extract and corn. The zip system opens and closes, for greater preservation and practicality. It is very easy to identify in each package the flavor and the indicated phase, in addition to the guarantee of a product free of colorants and artificial aromatizers. Tudo isso para garantir o sabor que o seu cachorro vai adorar. Rações Balance. Nutrição saudável ao seu alcance.

and that all participants will be connected in listen-only mode during the company's presentation. The floor will then be open for questions when further instructions will be provided. Should you need any assistance during the call, please press star zero to reach the operator. Before we proceed, we'd like to clarify that any forward-looking statement made during this call with regard to the company's operational and financial targets are beliefs and premises of BRF's management, as well as information currently available to the company. These are not guarantee of performance. They involve risks, uncertainties, and assumptions, seeing as they relate to future events, and therefore depend on circumstances that may or may not materialize. Investors must understand that general economic conditions, the state of the industry, and other operating factors may affect BRF's future earnings and could cause results to be significantly different from those expressed in such forward-looking statements. Now I'd like to turn the conference over to Mr. Lourval Luce, Global CEO of BRF, who will begin the presentation. Mr. Luce, you may proceed. Good morning, everyone, and thank you for being here with us in our earnings release for the second quarter of 2021. As you can see, this release is an attempt for us to make something that's absolutely transparent and adequate to share our information with all of you. I'd like to start by talking to you and asking you to take a look at the company's results, the results that the company are delivering for this second quarter of 2021. And I'd like to give you a little bit of context and also ask everyone to think and to look at these results the same way we are, the same way I am optimistically seeing the company moving forward. We have grown our revenues and gross margins. as well as our adjusted EBITDA, as all of you can see in our presentation. Well, let me paint you some of the context. Last year, coming into this year, we had perhaps one of the most striking increases in costs we've ever seen. We saw an increase of nearly 100%, which is almost 100% of costs for corn, for example, which took them to a new level. We also saw a lot of inflation in our costs with packaging, maritime freight, meal, which was also converted into a nearly 70% increase. That is an absolutely adverse environment from the standpoint of cost structure to any company. That being said, I'd like to call your attention to everything that we have been doing and all that we have been talking about in our previous releases. This was a great effort in terms of efficiency and trade efforts. A fantastic and very efficient work in terms of logistics, implementing the SEO, which you have heard about in our operations, bringing greater efficiency. absolutely appropriate and adequate management of our inventories. It is because that we did all of that, our gross result came to 12%. And if we look at the same period last year, the margin was 21.7%. Yes, this is a decrease, but Look at the inflation and the costs that we have to bear. In some cases, 50% or even 100%. All of this goes to show the management that we've had over all that we have control over and everything that we are able to manage because the adverse external scenario is there and we have to manage as best as we can. But what I like to say is I'm very pleased with the work that BRF has been doing to manage so that we're able to cope and grow our EBITDA and our gross margin over the course of one year. Meanwhile, we're at the same time that we were able to minimize the impact on our margins as all of you can see. So that's what I would like to call your attention to and call you to think that had we not made all that we have done, where would we be right now? So with these new levels that we have currently and the headway that we are about to do, think of everything that we'll be able to deliver moving forward. But it's not only that. There's another absolutely important aspect that we have to talk about. The company's consistency in its earnings. the volatility that we were able to avoid because of changes in the exchange rate and things of that sort. We have been able to sustain our operational margins and our EBITDA margins, adjusting to these changes in our costs, but in a very efficient way, growing both our gross margin and our EBITDA margin in 12 and 23%. This also goes to show everything that we've talked about in terms of our Vision 2030. The fact that we intend to be increasingly more a brand of value-added products, which will bring us increasingly further to a more stable level of margins as a company of products or high value-added products. So now I'd like to reinforce what I've said before. If you look at this chart, what happened to the production index released by Embrapa? The increases we've had and the impact that BRF had to deal with This shows all the effort that we've put into adjusting our sales price. So we're still competitive in the market and we still see room to move back to our prices considering the costs of our raw material. And I'd like to invite you to look at what happened in the United States, for example. as corn prices increased and what happened to pork and poultry prices. They were able to adjust in good time, something that hasn't occurred here in Brazil. Raw material costs have gone up, but consumer product prices have not gone up the same way, but that's something that we are about to see in the near future. Now, considering what we planned, what we determined as a focus, which is to take care of our image and to take care of our customers the best way possible. We want to serve them the best way. So you'll see that our inventories have increased for finished products. That's true. And that's so that we can serve our customers better. We are also managing that so that increasingly more our clients will prefer us and be loyal to us. Here in Brazil, we have over 290,000 active customers. This is something we are sharply focused on and really take care of, which is consumer sentiment about our brands. and their preference for our brands. That is what I understand as loyalty. And today, we have the two top brands, Saadia with 27.8, Perdigal with 15.3, and Quali with over 52% preference. In all categories, we see similar trends as well. And this is something we wanna have more and more. so that we become increasingly more this high value added products brand bringing convenience to all our consumers. And that will come from the way we plan and communicate with you. The market share of these high value added products in Brazil has increased 10 points since 2018. 84% of everything that we sell in Brazil, these are high value added products. And this reflects the strategy that we have adopted and our focus on listing our customers and being attuned to their demands. And this shows how much the products that come from our innovation is having in the market. That came to 7.2% this quarter. And there's more in the pipeline. Here you see our new line of products, Livre and Lev. And that is combined with an efficient work, great management, high value-added products, new launches, innovation steady results with no surprises. And all of this at a time where we are poised to see little economic growth and a number of challenges ahead. But the foundation where our products are being built is still relying on a lot of productivity. When we look at the relationship between cost and prices for four-quarter cuts and whole chicken and pork carcass, we see the competitiveness of these types of protein. That, as you can see, is nearly 12% more expensive in the case of four-quarter and whole chicken and also pork carcass 9% higher. And all of that in an economy that will continue and will rebound. And this should continue after we overcome the COVID-19 pandemic. And this will bring more competitive edge, bearing in mind that per capita sales in Brazil in the first quarter for chicken has gone over 45%. kilograms per citizen and that of pork has also exceeded that and this shows the trend that we're following and what the scenario has showed in exports we have also made headway and grown in foreign markets going into new markets and inaugurating new plants we are bringing the same things that we have been working with here in Brazil, greater innovation, high-value added products, as well as growth and new product launches. And I'd like to point out a trend that we are already seeing in Japan. We have suffered with our inventories in the past few years as inventories were too high, and now they're going lower because of the hike in prices. the halal DDP market in Saudi Arabia as well. And there we have an important operation in food services, enjoying the rise in tourism, especially religious tourism, which is growing, and also Turkey, with a lot of growth in our exports. So this is what I see as a very positive scenario in the international market. where prices are already going up compared to the trend we're seeing in Brazil. Now, I think it's important to talk about how solid the company's growths are right now. We've just released a 2.73 point leverage. So, within what we committed to in terms of financial management that is adequate and efficient, which is below three times. That commitment is something that pervades our decisions, both investment decisions and practical decisions in terms of cuts that we may need to do. In that case, we're always looking at our debt profile simultaneously, and as you can see, the average maturity is high with 9.5 years but I'd like to call your attention to when it is how much is maturing in 2021 to 489 million in 2021 2.1 billion 2022 so the company is at no risk and sees no challenge in terms of liquidity to continue investing the way it planned to. There's nothing in the way of us moving forward with our 2030 strategy. Our report has a lot more details, but I'd like to continue talking about this. As you can see, our debt has been well managed going down to 14.791, obviously impacted by derivatives and also the financial cash, all of which has caused an impact because of the management of our bottom line and our hedge management, which has brought our debt to 14,800. And obviously, this had an impact in our cash flow. And here we split and broke down what is our actual free cash flow, which is a result of everything that we had planned. There's nothing here that's different from what we had thought out and planned, even within our Vision 2030, with a financial and cash impact that is a result of the execution of our derivatives. which, as I said, had an impact on our deadline as well. Now, very quickly, we have also taken a commitment in the next few months to become a net zero company in greenhouse gas emissions. And this is also something that pervades the entire company. And it's very much in line to the attitude and to... the way we do everything that we do. We have done a lot, as you can see in this slide. A number of actual initiatives. And here we're not just talking about financial investments or financial costs, but also in our attitude and in every decision that we make. And there's more to come. Things that we will be communicating to you in the near term. Things that we have already done and initiatives that are already in the pipeline that will show this commitment involving not only sustainability, but also inclusion and diversity. Now, very quickly, I'd like to talk about the headway we've made in pet foods. We have advanced in our partnerships. We have Vegintel and several advances there, as well as Mercado Sadia and Mercado Encasa, which has been extremely successful with our customers. We also have the store-in-store service, which now encompasses over 500 stores. Also, a significant advance in pet food.

Two acquisitions that we are very proud of, two fantastic companies regarding their products and human capital, Ecosol and Modiana. Both of them having approval of the CADE. Modiana is at the later stages of closing. Both of them bringing BRF into a relevant market position with approximately 10% of the market share, becoming one of the three major players in share value in the segment that we are focusing on. So in conclusion, I would like to call your attention once again to our strategy and the consistency of what we are doing. We are consistent in our actions and we want to drive our actions, but always maintaining financial sustainability. Always carrying out our strategic plan, moving forward despite the challenges, having productivity gains, and you've noticed that even if we have adverse cost scenario, we continue to deliver results in a scenario that perhaps had never seen before in terms of facing the rising of cost. So that shows the strides that we are making in terms of management and the scenario will improve and we'll have the basis to grow faster and in a more agile fashion. We are absolutely confident in the resumption of business, the fostering of the economy. With that, I'd like to close my presentation. I thank you all for your being here, and I open for the questions and answers session. We are now going to start the Q&A session, and we ask the remaining speakers executives to join Mr. Loreval. To ask a question, please press star one, and to remove it from the list, press star two. Our first question is from Isabella Simonato from Bank of America. Your line is open. You may go ahead. Thank you. Sorry. Unfortunately, due to some technical difficulties, I wasn't able to listen to your question. I'm going to apologize. But if you can repeat that, I would thank you very much. Can you hear me now? Yes, perfectly now, Isabella. Thank you. My question, the first one, I have a little bit of echo, but it's in terms of processed. When we look at the breakdown in terms of revenue and volume, there was an increase in the price of processed, and I would like to understand the dynamics of this category throughout the quarter. and the increase in prices. And regarding SG&A in Brazil, we see an acceleration in the percentage of revenue for this semester. So I'd like to understand what that's all about. Is it clear now? Isabella, thank you very much for your question. It's very clear. I'm going to quickly address this, and then I'll let Carlos and Sydney talk a little bit about SG&A, the shares, and the process segment. So talking about SG&A, looking at the context as a whole, it is growing. It's going to grow. This is the environment that we have, but what we are looking at is a more efficient management of our expenses, and we are looking at that quarter by quarter and throughout the year. And we have been doing that very efficiently. Regarding processed products, I think we are very dynamic. We are very confident and very satisfied with what has been going on. But I'm going to ask Sidney to talk about processed products, and Carlos can talk a little bit more about SG&A. Hi, Isabella. Thank you very much for your question.