BRF S.A.

Good morning, ladies and gentlemen. Welcome to the web conference of BRF to discuss the results related to the fourth quarter of 2022. This web conference has been recorded and the replay may be accessed at the company's website. The presentation is also available for download at ri.brf.com. At this time, all participants are connected in listen-only mode. We will then begin the Q&A session when further instructions will then be provided. Before proceeding, I would like to point out that forward-looking statements are based on BRFs, beliefs and assumptions, and on information currently available to the company. Forward-looking statements may involve risks and uncertainties, since they refer to future events and, therefore, depend on circumstances that may or may not occur. Here with us at the web conference are Mr. Miguel Goulart, Global CEO, and Mr. Fabio Mariano, CFO. I would now like to turn the call over to Mr. Miguel Goulart, who will begin the presentation. You may proceed, sir. Good morning. I would like to thank you all for attending our fourth quarter 2022 earnings conference call. During this period, we have already begun to reap the benefits of executing the plan drawn up in September of last year with a focus on improving our operating performance. We made progress in virtually all operating indicators with emphasis on feed conversion, manufacturing, productivity and logistics, in addition to expanding the occupation of our industrial assets, providing greater production and sales volumes. To present the results for the quarter, I call our CFO, Fabio Mariano. I will return shortly to detail our advances and make the final remarks on the release. Good morning, everyone attending this event. I point out on the initial page the main financial indicators for our fourth quarter and full year of 2022, starting with net revenue, evolution of 8% compared to the same period of the previous year. reaching more than 14 billion reals in the fourth quarter and 53.8 billion in the year. More than 11% growth versus 2021. Just below, I mentioned the performance of Justed EBITDA, an amount close to 1 billion reals in the quarter, reaching 3.9 billion in the year, which results in an EBITDA margin of approximately 7%. The net result for the period was a loss of R$ 609 million when excluding the impact of the DNC agreement and the hyperinflation in Turkey. Next, we report an operating cash flow of more than R$ 1,300,000,000, 60% higher than the cash generation in the same period of the previous year, which, once again, proves the sequential upward trend since the beginning of 2022. As to working capital, we made substantial advances in inventories with a reduction of 11 days compared to the last quarter, or 25 days versus the same period of 2021. Major reduction is concentrated in finished products, which allow the cash conversion cycle to reach nine days in the period, one of the lowest financial cycles historically. Thus, boosting cash generation. Ending the slide with net leverage, we reached 3.75 times the EBITDA of the last 12 months, still driven by the non-ordinary performance of the quarter. First quarter, we remain committed to expanding cash generation as a driver for reducing net debt and, consequently, interest-related charges so that net leverage can return to adequate levels as quickly as possible. On the next slide, on the left, we show the historic evolution of gross profit. We maintained a profitability of around 80%. We disclosed a gross profit of approximately 2.5 billion reals. On the right, we also noticed the evolution of adjusted habitable a performance already highlighted previously. On the next slide, we present the performance by market and business segment. Starting with Brazil, we noticed a progressive evolution of EBITDA margins quarter on quarter in 2022, but still below historical performance and consistent with the company's potential. I would like to highlight new advances in the business fundamentals in the Brazilian market, which will allow us to become ever more competitive. Among the advances, I mentioned the improvement in the commercial execution, ensuring greater adherence to retail prices and greater performance of the shelf strategy, such as exhibition space, trade material, and by-grant planogram. The best execution allowed us, in another two months, important market share gains in practically all categories, particularly in spreads, 3.6 percentage points, franks and sausages, 1 point, and cold cuts, 0.7 points. I also highlighted a good commemorative campaign and the new round of portfolio simplification related to the reduction of low representative STUs with a focus on value creation, growth, and profitability. On the next slide, we discuss halal. On the chart on the left, we see EBITDA and margins below historical levels as a result of the oversupply of chicken in the region, especially griller and cuts, putting pressure on sales prices. Turkey continues to pose challenges in the face of the current macroeconomic scenario. We increased the offer of value-added products in the Turkish market and balanced production as a way to reverse the price trend locally. we expect a reaction at the beginning of the year. On the chart to the right, we can see the retraction of prices in the region. I also mentioned the increase in the share of exports to the Gulf, a gain of six points according to SESEC's data. I conclude the segment highlighting the advance of more than two points in the share of value-added products in the volumes sold in the GCC. In direct exports, in the graph on the left, we see a material reduction in profitability due to the global imbalance in supply and demand of proteins, especially chicken, with implications on prices, as we can see on the right with information released by CESAX. We continue to expand market alternatives with new qualifications for Japan, Mexico, Canada, and Singapore. On the next slide, we show the performance of Asia. As in the other export markets, we observe a decrease in margin in comparison to the previous quarter due to the slowdown in the local demand in markets such as Japan and Korea, which have higher levels of inventories. We reported 4.7% of EBITDA margin in the quarter. We highlight all the right gains in the market share in chicken exports to Japan and China and pork exports to Southeast Asia and Singapore. I finished the presentation of business segments on the next slide with the performance of ingredients and pets. The segment reported 18% of EBITDA margin, 131 million reels in pork. We continue advancing in capturing synergies in PAT, expanding our presence in direct channels in new regions. We promoted efficiencies in logistics and also invested in production flexibility at the company's various units. As to ingredients, we advanced into new market by expanding business alternatives. We remain committed to adding value to our co-products in order to maximize business integration. In the quarter, we also had highlights in sustainability. We see on the next slide achievements such as the mapping of crops using satellite technology reaching 100% traceability of direct grain suppliers in the Amazon and Cerrado biomes and 45% of indirect suppliers. We maintain our presence in EZ portfolio in B3, reinforcing our evolution of our corporate governance and sustainability standards. We signed a leniency agreement with CGU and AGU, and that reinforces the collaboration, transparency, and improvement of the company's processes and internal controls. Closing the year of 2022, we reduced our absolute emissions of this coal one and two greenhouse gases by 20%. We fulfilled our animal welfare commitment to put an end to the surgical castration in the swine herd and completed 10 years of the BRF Institute benefiting communities through initiatives in education, food security and reduction of food waste. We now present the information related to the company's cattle tractor. The chart on the left shows the evolution of net debt and leverage, indicators that were already mentioned in the beginning of the conference. On the right, we highlight the debt profile, which remains diversified and extended, with no concentration of short-term amortizations and a liquidity position of more than 12 billion reals. In 2022, we carried out operations of liability management which allowed us to capture 276 million in final financial results with buyback of international bonds. On the next slides, we show the free cash flow. The bridge shows us an operating cash generation of 1.3 billion real. Investment flow of almost 900 million and 515 million in financial flow without FX effects, thus resulting in free cash consumption of 16 million reals. Cash flow has been sequentially recovering each quarter as shown in the charts on the right. On the final slide, we can analyze the evolution of the net debt. We reduced the net debt by 232 million when compared to the previous quarter. Thank you for attending our conference and I will now hand over to CEO for him to make his final remarks. Thank you, Fabio. I would like to point out, as you saw throughout the presentation, that the new management model focused on operational efficiency and profitability started in September is already bringing positive results in the amount of 210 million reals. We captured approximately 130 million reals with improvements of operational indicators such as mortality, feed conversion and productivity. We reduced idle costs by R$ 50 million and carried out a review of logistic efficiency in transport, distribution and energy. In Brazil, we made progress in simplifying our portfolio and optimizing our innovations, which enabled us to capture R$ 30 million. We improved our commercial execution, pricing model and actions at the point of sale. with a greater mix of products in stores and increasing the exposure of the brand portfolio. We also expanded our active customer base by 3.7%, adding more than 9,000 active customers. As a result, we evolved in market share in all categories. We have grown 2.2 percentage points since the third quarter in process two and spreads, which are categories of extreme importance for us. Our commemorative campaign at the end of last year was a success and maintained Cedia and Perdigão brands as leaders in the Christmas segment with 64% market share in special poetry and 72% in turkeys. On the international front, we continue to advance in our strategy of market and product diversification. We achieve new qualifications for Canada, Japan, Mexico, Singapore, and the United States. capitalizing on the fact that we are recognized worldwide as a company committed to safety, quality, and integrity. We increased our chicken meat export share by 2.5 percentage points and continue to advance in market share in the Halal market, reinforcing our leadership in the region. Sadia achieved 38.1% market share in the Gulf and Banvit brand reached 21.8% in the Turkish market. In the Gulf, we also increased the share of value-added products in the portfolio by 2 percentage points, which reached 23% of our sales volume in the region. In the financial aspect, as already mentioned by Fabio, we maintained a diversified and extended debt profile with adequate liquidity for the current scenario. We reduced working capital and improved the occupation of our assets. We have made important investments in expanding our production capacity in recent years, and we will dedicate it to organic growth. We will remain judicious and disciplined in future decisions regarding the allocation of our financial capital. We have been working simply and in an agile way in business decisions to capture greater competitiveness and opportunities. always committed to consistently maximizing results throughout the year. We remain very confident to continue improving our efficiency and productivity. The advances we present here are just the beginning. I conclude by thanking the entire BRF team for their contribution to these deliveries, which allow the company to be ready for the advantages and take the best opportunities in the face of a more stable and microeconomic scenario as from the coming quarters. We will now start the Q&A session for investors and analysts. If you wish to ask a question, please click on the raise hand icon. If your question has been answered, click on the same button to leave the queue. Please wait while we collect questions.

Our first question comes from Gustavo Troiana from Itaú BBA. You may open your microphone, Gustavo. Good morning, Miguel, Fabio. Good morning, everyone.

There are two points that I would like to dive into. First, related to the improvements and similar to the question that I asked on the previous call to you, Miguel. Today, you are now getting into the numbers. I know that you have... all the figures regarding the transportation contract. So I want to understand, are these numbers annualized or where do you expect to reach as far as efficiency? So whatever details you may share with regards to the timing on delivering on those improvements, that'll be really appreciated. Now, the second point that I would like to dive into is with regards to working capital. We see the stocks here on this quarter and we see some clearing of those stocks. And Fabio was talking about finished product adjustments throughout 2022. So I wanted you to shed some light if it was everything on the same line or if there's any other improvements, especially from a finished products perspective. Thank you. good morning gustavo thank you for your question so let me start by answering the question about efficiency and then i'll hand it over to fabio here in our presentation is information that happened in the fourth quarter and that 210 million if we were to measure that We can see that it happened later in the quarter. So we are working with the year 2023 in our program where we are outlining some actions for all categories of improvements and divided by cluster. On chicken, we have better mortality rates, we have better yields. From a swine perspective, we have the same items. And speaking of the industry, we have productivity, energy consumption, input consumption, We also have on logistics, we have freight cost, we have idle fleet, we have detention, storage cost. If you speak about the industrial side, we have operations where we can improve our assets with regards to our facilities, optimizing those, and also the commercial execution, which definitely impacts FIFO and the execution overall. so in the fourth quarter we have 210 million but we didn't include an important effect which we had on FIFA which would add an additional 186 million to that 210 so to us our price structure doesn't allow us to isolate effect and efficiency on what gets converted into price so we chose not to include that as an improvement we are trying to have a more accurate pricing system for us to separate and be able to measure that efficiency and put that on our program. And to answer your question with regards to the year or annualized, if we were to get into the major numbers, BRF without question has a robust program that is all based in its plans and it's going to happen as the quarters unravel. This is a ramp-up process. We are advancing If you ask about the pace, we are advancing at a very rapid pace in those improvements, which should give the company some 4.6 EBITDA. I mean, we are working with our team to make it happen. These are improvements that are definitely here to stay. And our idea, as we make more progress in 2023, is to be able to incorporate, more specifically, these gains in our information so I can tell you that we are very much pleased with the advancements that we have made and I can tell you that 2022 the year that just concluded you know brought us to a good position and the results right now are turning out to be very positive Fabio I'll hand it over to you to answer the second bit of the question I don't know if I answered Gustavo yes it's clear Miguel thank you for your answer

Good morning, Gustavo.

Now to add on to the second part of the question, which is about stocks. First of all, I would highlight that reduction, which is very substantial in finished products, like you said. And on the same token, that happened in a moment where the company is increasing its sales volume. So that's the first highlight right there. Number two, Annalisa, when you analyze our inventory turnover, which is basically an assessment of the sold of the sold product price, our turnover has dropped 11 days with regards to the previous quarter. And if you go back even further in time and if you compare that to the same period in the previous year, well, This reduction in days is actually 25 days in total. So this is an important trend. We have been discussing our efficiency related to stocks quite a bit. And I draw your attention once again that we are talking about finished products, which doesn't involve raw material associated to feed cost or grains, and other lines of secondary stocks like packaging and other additionals. Now, in terms of the future opportunities, I think that this plan already implemented, it really addresses the internal market. We still have some opportunities on the international front, especially in one line that we call non-sale stocks. So we do see some opportunity to reduce this line, which today has approximately 35 to 40 tons. It is possible for us to reduce at least half of the numbers as we advance in our sales and production plan for 2023.

Thank you, everyone.

Our next question comes from Guilherme Palhares from Bank of America. Guilherme, you may ask your question, please. Good morning, everyone. Thank you for taking our questions. Now, the first question... would be with regards to the divestment side. So we heard this communication from the company about the patent business and also with regards to some potential add-ons, some other assets that may be sold. Can you get into the details of the company's strategy if you are focusing on your core business, if there is any specific region that the company could maybe divest in the future, just so we get an understanding of how the company is going to look like after all this adjustment is made, all this operational and trade adjustment in the company. And the second point, just to piggyback on Troiano's question with regards to operating efficiencies, I would like to hear a little bit about the export market. So if you can just maybe give us some clue about what is done about the product that is not sold abroad, and what is the impact of that? And is this already included in the number that you are disclosing for the six points of margin that could be captured? Thank you.

Good morning, Guilherme.

I'm going to answer your first question, and I'll hand it over to Miguel so he can answer your second question. Now, regarding the divestment plan, I think you've had access early last morning to this communication, to this press release in the market about the potential divestment in our pet division. And yes, you are correct. That has to do with a guidance from the company to dedicate 100% to our core business. And we do see some advantage on that. The indicators were very much appealing, so we made a decision to initiate that process, this competitive process. In our understanding, as a side effect, there is also a liquidity injection in that estimated level and that could also strengthen our capital side and it could also accelerate our deleverage process. As a complementary benefit, we have a pipeline that we've been studying for other assets. Now, in this case, These are assets that the core business does not depend on. So we're talking about some adjacent assets that could help us get to a significant number once we include in this math some tax credit or other assets. that we could also make a similar decision about to monetize them in the short term. So that's the range, right? This is what we are recommending. And we are talking about a potential total amount of 4 billion. The only decision that we have made so far is a decision that came in yesterday's press release. But we are also talking about one other side. These are assets that if we execute, it's going to be pretty much fast. Now, about the second question with regards to exportation, I'm going to hand it over to Miguel to answer this one. Good morning, Guilherme. Your question was about the impact of this process to reduce our stocks and to the commercial execution. Well, when you and on a operating improvement process like we did you start working on your logistics and operations indicators much better and you have a more integrated system between your different geographies we have seen this happen at more freak so you start working you start getting more efficiency you start doing a better planning and in a way just to simplify the answer to your question you can work a little more on a concept where the company sells to produce and it doesn't produce to sell. In rough terms, that would be it. Now, evidently, when you are more assertive and spot on on your planning and execution, you start working in a more efficacious way. So, yeah, that reduces your in-transit stocks, that reduces your consolidation stocks, and what you do is you work on demand. A clear example is the following. You may do your production plan to where your load will be directed to a storage which is near a port, and then you consolidate the load and you put it on board. If you have a program where you start your planning from the production side and from the sales side, what you do is you avoid that step because that step entails money. It entails cost, loss of efficiency, and it also reduces the value and the volume of the stocks. So you can monetize it with that. And there is also an important aspect when it comes to the international export, because a company like BRF, which used to navigate in a range of 45, some thousand tons in stocks in sale. In a certain way, we were exposed to the market variations. When the market is up, what you have is an advantage. But when the market is down, a lot of times you have to give back that advantage and then some. So what we did was in the internal market, you know, this is a measure that we can use to plan and apply right away. This is what we did. We got into 2022 roughly with 220,000 tons of finished products, and we lowered in 22 and 23 to 109,000. So in 2023, we are in a much better position. And that also influences on FIFO and the products that we have to sell at some discount because of the date. And that also has some consequences throughout the year. It's not as immediate on the international side, speaking about that 40,000 tons, which is already 36,000 today, because that's not the ideal moment for you to liquidate or sell in the international market. You have to wait for the market to pick back up and you have to reposition the company gradually. And you do that in a way to capture the best opportunity. And we're going to have an event, which I think it's really important to consider, which is the international market is very, very challenged right now in this first quarter, still from a price perspective. But there are some events that we have to keep our radar on They are happening and they are going to have an impact. Recently, we had the Chinese New Year, where we had a record movement of people after nearly three years of lockdown in China. So people are now traveling, food service went back up, and that is going to bring some consequences and interesting possibilities to our business so we can sell our production volume to this market. Now, on the other hand, last saturday to be more precise we had the dubai event which is the largest fair in the middle east that fair was actually a record-breaking event in terms of public attendance and we are now starting to see some trends even though they are still modest we have a lot of interest and a price recovery still slow of course it has to be consolidated but we have to be confident enough that it's going to happen but again this is a good sign as the market moves and things go back to normal to normal we have an opportunity as we have this opportunity a company like ours which has agility in the decision making well it is in a position to capture that opportunity and turn it into a result you mentioned that leverage

Could you provide more color on that? When you talk about accelerating the location for the company, is there any internal purpose for 2023 or even looking forward? Do you think that could be applied? We are thinking about 3.75, but we are talking about a quarter that was out of the ordinary. So if you could disclose your objectives and considering all those divestments, where can we get and how soon can we get to this level? Thank you. Well, Guilherme, basically everything that we mentioned so far is related to net leverage, right? At first, this discussion of recovering the operating result that was mentioned by in the medium and long term. We made some comments on the working capital. We also talked about divestments. So when you ask about where we are going, we have the financial policy published on the website where we declare that we intend to manage this company with a net leverage of about two times. Obviously, this process does not take place overnight. What I can say to you is that the major objective of the organization is to accelerate this reversal of this leverage trend. And all of those initiatives that we have mentioned so far would contribute to this objective. Thank you, Fabio. Our next question comes from Henrique Bustolin with BTG Pactual. Henrique, your line is open. Good morning, Miguel. Good morning, Fábio. I would like to discuss some points related to Brazil, starting with volume, where we see a drop of 1% year-on-year. In spite of the gains in market share that we see in all categories of processed food. So I would like you to help us understand this performance, how this plays when we think about in Natura and processed foods. What have you seen in terms of processed foods as to demand? And what are the expectations for the year? And this would be my first question. The second question is related to Brazil. When we look at the profitability in the third quarter, not considering the commemorative portfolio, have we seen any expansion of margins quarter on quarter, or is this stronger recovery likely to take place along 2023? So these are the two questions. Good morning, Henrique. Thank you for the questions. As regards Brazil, what I can say is that the comparison you made has to take into consideration the reduction of volumes because we wanted to know if you're including the portfolio of Natura. So I can say that in this comparison that you made when you excluded the Natura portfolio, the processed food level is going to grow. So I'm comparing year on year. If you compare the full year, 22 and 21, you will see the volume of processed food showing some stability that will justify the conversation we had about market share. And as we mentioned in the final remarks, provided by Miguel during the presentation. We have the third reading of Nielsen, three times in a row, that's showing a very important trend in terms of gaining market share in all categories in which we operate. And this is based on our commercial execution. We have been mentioned this. quite repeatedly because this is essential since this is what would allow us to gain market share without affecting the prices. As long as you work well in the points of sales, as long as the store owners comply with the suggested prices and use the shelf strategies. And this all reflects in the gain in market share. In relation to the consumption environment in Brazil, we understand that there has been an improvement, not a significant improvement, because consumers had some fragilities considering the purchasing power, which is still deteriorated, inflation pressures, but we understand that there are clear signs that this can be reverted. In the short and medium terms, we had a very good campaign related to the commemorative items, and that helped a lot. And moving on to your second question, this helped us improve the profitability quarter on quarter. So we got this result, even considering this extraordinary portfolio, which is associated with the sales of the fourth quarter. We can see all this being materialized. And along 2023, we are going to see, according to our projections, something favorable in terms of costs, something that we haven't seen for some years. This is a result of the crops of corn, And so we are likely to see a downturn in the cost of the feed, and this is going to increase the profitability in Brazil. But also we are going to see this favorable result in the exports market. This is going to be more visible in the transition from the first to the second half of the year. This is going to favor our profitability as we move along the fiscal year of 2023. That's clear, Fabio. Thank you. Our next question comes from Lucas Ferreira with JP Morgan. Lucas, your line is open. You may proceed. Good morning, everyone. I have two questions. The first one may be addressed to Fabio. Fabio, as you implemented this divestment agenda and with those four What is going to be the priority when you allocate this capital? I imagine that you have some bilateral debts with some banks. So what would be the priority when you allocate this capital? And how, to which degree you can decrease your indebtedness cost after this possible divestment? And the other question is probably addressed to Miguel. There's an external factor that we have seen and that is making investors concerned is that avian flu reached South America in some scattered places. So how would BRF be favored if the avian flu does not reach Brazil? Are you looking at markets where it can break into as a result of the situation? And if you consider the scenario where the avian flu would reach Brazil, how would the company be prepared in terms of violent security and considering this other scenario? Thank you, Lucas. Good morning. I'm going to start answering the question and then I'll turn it over to Miguel in relation to the use of proceeds, the demobilization plan. So from the mathematical viewpoint, this is very simple. The priority is to reduce the gross indebtedness. And we see a great opportunity in the market because we have a curve in the secondary wages also applied to the international bonds. And we understand that we can have very good discount with those bonds. So the priority would be to address each and every liquidity level of the company in order to reduce the gross debt. And we're going to remove this high cost of opportunity, which is part of the 13% mentioned. So as soon as we start, it will be better to reduce the debt service.

Good morning, Lucas.

Thank you for the question. I went for my veterinarian diploma. That's why I took a bit to answer this. It's important before I answer. The question is that OEA was superseded by another organization. It's the International Organization of animal health. And there is an article which establishes that the aspects and the consequences related to the even flu will only have an effect on the market closing if they are industrial animal production. If they are wild animals or animals for other purposes, they are not going to be applied for the closing of the market. This is what the 10.4 article Having said that, it's important to understand that Brazil has a very strong track history of prevention and security in the sanitary area. Brazil has a very active program called MAPA, M-A-P-A, that has

contingency plans that are used timely. And Brazil has been doing this has been doing this effectively in order to limit

all this problem, respond quickly and limit all the damages and consequences related to this scenario. So this is according to the MAPA and all those terms are implemented. Back to Brazil, let's talk from the BRF viewpoint. Our company has access to more than 150 markets and obviously it's not likely that we are we are going to have a general closing of the market, even at the temporary basis. This is not likely. If we consider this to be likely, so if we consider that some markets would be closed and then the authorities would control the problem, and as the time goes by, the information would come up and the contingency plans would be implemented. So BRF has 150 markets as options, and BRF is a company that has a very strong position in Brazil. We have the domestic market in Brazil, we have the market of processed food, and the risk will be mitigated for the company. On our side, we are doing everything we can, not only for our company, but also including integrated growers, and we are taking all the possible precautions. We have all the contingency plans designed, all the alternatives have been considered, and we have been working the in-day out so that this possibility that we expect not to happen, because we understand that this might not happen, but if it does happen, we are very well prepared. Okay, perfect. Thank you.

Our next question comes from Ricardo.

Good morning, Fabio and all the participants. Well, two questions from my side. First, with regards to the resume of Ukraine exports. Now, in your perspective, the Ukrainian exports, are they already at a normal level? I know that you put in your release that you went back to pre-war levels. But maybe there is an extraordinary factor involved or maybe a higher volume due to pending orders from the past that might have happened or come to fruition in this quarter. Is that the case? Or do you believe that you actually went back to regular pre-war levels with Ukraine? I think this is one of the highlights, one of the leading offerings that you had in some of your export regions. So that would be my first question. Now, a second question, I just want to get a little detail, if you may, with regards to the execution in the internal domestic market in Brazil. What were some of your main initiatives? What has really propelled this level of service, this level of execution, which is looking much better with the company? We just want to have an understanding about your leverages in terms of gaining market share and the company's presence in the domestic market. Thank you. Good morning, Ricardo. I'm going to start speaking about the Ukraine exports topic. We believe that yes, we already went back to previous levels, to our normal levels, but I just want to bring your attention that the price deterioration that we have seen in the market in every destination is not only related to the Ukraine or Poland production. This is a This is a surplus that is happening globally. There are some important players that have increased their production. And as a consequence, it has caused this disbalance in the supply and demand offering here. Now, it's important for us to mention that we have some initial signs of a price reversal. We cannot state if this is a structural and coherent change, but it is definitely a trend. And we can see that week in and week out, the prices are starting to react in the regions that we work. And I'm going to hand it over to Miguel. He's going to tell you a little bit about the commercial execution in Brazil, which is your second question.

Good morning, Ricardo.

Thank you for your question. Obviously, when you start executing a process which is an operating improvement process, there is no way that you can fail to include the commercial execution as a factor. Now, the commercial execution goes hand in hand. with planning and logistics. So you start improving your view rate, your indicators, you start improving what you sell in time and in form. So in this way, what you do is you go to the market with a product that is in a position to meet the customer's demand and to do that real time. We have been working very strongly on this aspect. BRF really had a gap that was very significant, very substantial in terms of logistics deficiency that we had to cover. So we established an action plan to precisely cover this gap, which we've been executing. And we are pleased enough to assess and see in the first few months that we have made a lot of progress. Of course, there's still some opportunity out there and we are seeing this thing take place. And I can tell you that from a logistics perspective, all the way to the execution, you know, all the way from the strategic location of our promoters, our commercial alliances, and it also has to do with simplifying our portfolio. We have a simpler portfolio that is higher impact, which enables us to do a better job as well. So, to piggyback on your question, I also have to mention that there's been an amazing effort from our sales staff in terms of production, logistics, and sales. They are very dedicated to their jobs, and they were able to own those indexes and indicators, and they executed out there in the field. This is a continuous improvement process. Of course, we can always do better, and we're still going to see those indexes advancing throughout 2023.

Outstanding.

Thank you. Our next question comes from Rodrigo Reis de Almeida from Santander. You may ask your question. Good morning, Miguel, Fabio, everyone from BRF. I have two questions on my side. First, I would like to... hear a little bit more about the halal market and maybe not focusing on the short term, but perhaps your strategy overall in the region and how this is aligned to your core business. In fact, you know, we have seen some other relevant players internationally doing some investment on the local production. You yourselves, you had announced something last year, you know, in terms of more local investment. So I want to understand how much of a priority is this business in your plan.

And you have new people coming into the market.

So how do you intend to defend this market share? If I can get some of your perception around that. And how, why is this in line with your strategy? Or how is this in line with your strategy? And additionally, I would like to talk a little bit about the tax matter.

You talked about the tax credit.

So if you can dive just a little bit more on that, it would be great. And I want to understand if there's any plan, perhaps something out of the obvious, in terms of how you can monetize this tax situation, whether it's by selling some asset or reducing costs or something outside of the box that can really help us attribute the right value to this credit for you. So that would be my two questions. Thank you.

Good morning, Rodrigo.

I'm going to try and address all at once. And then I'll check back with you to see if I was able to actually clear your doubts. I'm going to start with Halal. Well, the Halal market is very much representative for the company and obviously is at the core of our priorities. And our main strategy, which we can say we are developing, is to increase the representation of added value products, especially in the Gulf region. We have already attained 23% of our portfolio on those items where we can capture a whole lot of value. And just to give you an idea, This is a growth compared to last quarter of over two points. One other highlight for Halal, even though we see a retraction on our profitability because of everything that we mentioned in terms of the product offering. In this case, we have griller and chicken cuts. Well, we have increased a lot of our exportation share to the region. So we have been making use of our leadership power. With regards to competition, it is also important to mention that we have some competitive advantages, which is not something that you do overnight. That enables you to have a premium price on products that may seem like out of the box, as you said, And we also have a distribution power in almost all of the regions that we operate. So we have distribution in Saudi Arabia, we have it on Kuwait, we have it in Oman, we have distribution in Qatar, and we have distribution in the Emirates. So this networking enables us to have those products delivered to the retailers. where the consumer effectively does the purchasing options. Now, speaking a little bit about Turkey, even though this is not as appealing an environment from a macro and micro economic perspectives, we have taken some actions and we were actually positively surprised in the beginning of the year. I'm going to mention some of them. First of all, we had a readjustment of our portfolio for exportation in a way that you can reduce the domestic offer and you can also protect yourself from the devaluation or depreciation from the local currency. One other initiative is to increase the representation of the added value. We have done some investments in the last few months And on that transition from 22 to 23, we have actually inaugurated an added value product line. And that, in the context or in that scenario in Turkey, enables us to be more efficient and more resilient. And last but not least, we have been trying to adjust our domestic offerings so we can properly adjust the price on the domestic market. So that set of actions already shows that there is a great result in terms of reversing our profitability for 2023.

Now, the last question, which is related to the leniency agreement.

I just want to remind you that we have signed an agreement and, matter of fact, we have spoken about it in some press releases. It's in the order of 580 million reais. And in that negotiation, what we can do is we can use up to 70% of our fiscal losses accumulated And if you analyze it on the note number 10 about the deferred taxes, you can see that in our balance, we have 3.8 billion BRL in terms of accumulated tax losses. And then we also mentioned in a paragraph that we have an additional 3.3 billion. of tax losses that are not registered. All of that is to say that we have a lot of assets to solve 70% of our leniency agreement. Now, the other 30%, we can use our tax credit, and I bring your attention to note number nine, taxes to be recovered. We have 6 billion in assets, so we could not consider 2 billion from state level taxes and there would be 4 billion from the state taxes that we can consider for the remainder. So that's 30% of the agreement. With regards to the speed in which we monetize it, it's like we said, we have to recover the profitability in the company to have a taxable profit and that's the path. And we have some alternatives and I also included that on our our package which is the tax credit in a way that we can try to accelerate by commercializing some of the federal credits to potential interest parties so I believe that this covers your question your three-part question but I want to hear from you yes Fabio absolutely you did cover it thank you for your answer Our next question is from Tiago Bertolucci from Goldman Sachs. Mr. Tiago, you may ask your question. Hello, good morning, Miguel. Good morning, Fabio. Thank you for your presentation and your questions. I have two questions, which is more of a follow-up from comments that we heard in the release. So, Miguel, you mentioned in your closing remarks One point that BRF has executed, which is the expansion of the production capacity in Brazil. And we know that in parallel to that movement, your main competitor is now putting some significant efforts and resources in the next few years, starting in 2023. And to the consumer, this is still a question mark. So I want to understand from your perspective, as this supply increases significantly in Brazil, What is your take on the competition and the pricing dynamics from now on? That would be my first question. And the second question, perhaps for Fabio, in this context, as far as the company and the cost of grain and what should happen by the middle of the year, what is your hedging and grain strategy looking like for the next few months? That's my question. Thank you.

Good morning, Thiago.

Thank you for your question. Obviously, BRF has made some investment in 2021 and 2022, and this investment is already concluded. Now, what we are doing is we are working to maximize our assets based on a philosophy to work with added value products. to optimize cost and so this is ongoing is really competitive and we are going to extract the better yield from those investments and we are going to do that supported by our brands sadia and perdigal we're working on it And for this production, we are going to add an entire logistics system, delivery and commercial execution to transform that into an actual product on the consumer's table. We are very confident in that program. We already see some of the effects materializing and we're going to continue working on this. I'm going to also mention what is related to BRF in that sense. I think the market is going to be challenging, but it is a challenging marketing for everyone. On our side, you're going to have a company that produces well, executes well, and sells well. This is what matters to us. We're going to take care of our own backyard. We're going to work on the potentialities and on our potential rather, and we are very much confident. We believe that in this healthy competitive environment, as we have it in Brazil, there is still room for growth. There is room for an efficient company that has brands and the people like BRF to have a good result.

I'm going to continue answering the question related to the physician. of grains. This is a very sensitive topic for the company, so I'm going to give an answer which would not disclose so much. Otherwise, I'm going to expose our hedge strategy. But what I can say to you is that first we are going to ensure and prioritize the supply. So we are at a very comfortable position so far.

And that wouldn't

put our supply at any risk. So this is the first aspect, and this is something that cannot be questioned. The second aspect, considering that we see a downturn in terms of volumes because of the crops. So we are not going to adopt a very extended attitude. And this is what we have been doing so that we can capture the best benefits related to the prices of the grain. So this is what I can say to you about the topic, and I hope that I provided you with enough clarification. Okay, thank you. Our next question comes from Lucas Mussi with Morgan Stanley. You may proceed, sir. Good morning, everyone. Thank you very much for the opportunity. I have two quick questions. The first is, again, related to halal markets. I would like to understand the share of benefit brands in Turkey. How do you see the sequential performance of this division? I understand that in the California, you were delivering negative EBITDA margins, and you had already made some changes in terms of volumes of domestic products and export products. So what do you expect in the future down the road? How do you see the local demand considering all the points and all those events? Was there any significant change in the mix? Because we saw a lot of change quarter on quarter. And the second question related to direct exports. We saw a sequential margin drop, which was very steep. So what was the outliers in terms of the mix of destinations? What was the country? Was there any other country where the mix was much worse when we compared to Asia and Halal segment that pressured the margins down? Thank you.

Thank you for the question.

So I'm going to start. from what we had already mentioned. So we'll go back to Turkey and I'll try to provide you with some more color. What I can say is that we have already been working on the performance in a positive terrain in 2023, has a lot to do with the actions that have been previously taken as mentioned in the previous question. And this is not, to just directing part of the portfolio to exports, but we want to increase the share of added value products. And this is something for which we have been preparing. And it has to do with adopting a more flexible approach with our volumes. We have capacity to be very agile in Turkey to control the fixed cost with more or less volume and also the effects related to variable costs. So this is something that we have been doing and we have seen good level of recovery in the short term, as I mentioned previously. Now, when we think about the environment down the road, we are going to have an election period. So there's a level of instability in the air. So we intend not to offer any expectation because I think it's way too early. But we are very happy with the actions that we have implemented so far. And we have seen the results, positive results, at least so far. As to the earthquake, I could say that we did not have any serious implications. The affected area is not the area where we have the most of our production footprint. Therefore, we did not have any side effects as to consumption and demand In fact, there's nothing significant that we could point out right now as related to what you asked. And also related to your question about direct exports, I'm going to turn to Miguel for him to discuss this topic. Lucas, we have seen as to direct exports that this generalized offer considering different geographies, because I'm not going to specify them, because this affected all the geographies. It's important to mention that in the past 45 or 60 days, BRF had more than nine qualifications. Mexico, Canada, China, So considering this new diversification, considering the new qualifications, we open the breadth of possibilities and we increase all those possibilities. I tend to say that the best option is to have many options and BRF has been working on this aspect of increasing the number of plants that have been qualified. We have more than 150 qualifications for the plants in 2023. So this is a very daring pipeline and we are doing our part. We are visiting the plants, we are preparing all the plants from the viewpoint of facilities and also from the viewpoint of certifications and permits so that we can cater to those markets and therefore we increase the capillarity and we mitigate the risks. So we are working hard on this. And because there was a drop in the general market, it is to be expected that this is related to circumstances related to time. So there's no way we could provide the guidance because that wouldn't be prudent. But we already see that this process is starting to materialize because of the two factors, among others, One would be that one that I mentioned that happened in the last 60 days, the new Chinese year, since there's an important market. And in January, we saw a record consumption level with the decrease in the strategic inventories in China. And demand from China is much more aggressive now. We also see that prices have recovered. Of course, it's still in the beginning, but we see this increase in China and in Korea and Japan. And we expect that as the relationship of offer and demand would come to a more stable level, a more reasonable level. And we understand that trend will reverse. So this is why I always mention this. Sometimes we look at a plan. to improve the operational efficiency. And we do not consider the commercial aspect, but our plan would consider the commercial aspect. We are building a company that has agility to identify the opportunities and very quickly will make all the necessary changes and go in the direction where it would make sense in the market. We had a problem in Turkey, for example, which was very complex. and we had the Halal team involved in this issue. So we looked at value-added product and we also encouraged exports and we saw immediate impact. I'm sorry, I like to insist on this, but I would like to draw your attention to a BRF characteristic. Qualified information would allow us to make quick and assertive decisions. We have all the team involved working so that this information could be converted into action and in the correct time. Thank you. The Q&A session and the web conference of BRF has come to an end. We would like to thank everyone for having attended the conference and have a great day, everyone.