BRF S.A.

Good morning, ladies and gentlemen. Welcome to BRF's Q4 and Full Year 2023 Earnings Conference. This conference is being recorded and will be available for replay at the company's website ir.brf-global.com, where the presentation slide deck can also be downloaded. All attendees are now connected in listen and view only mode. Later, the call will be open for questions and further instructions will be provided. Before moving on, we'd like to emphasize that forward-looking statements are based on BRF's management's beliefs and assumptions, as well as currently available information. These statements may involve risks and uncertainties, seeing as they relate to future events and therefore rely on circumstances that may or may not materialize. Investors, analysts and journalists must acknowledge that events relating to the macroeconomic environment, the industry and other factors may lead to materially different results than those expressed in set forward-looking statements. Joining our conference today are CEO Miguel Gularte and CFO Fabio Mariano. I will now turn over to Mr. Gularte, who will begin the presentation. Please, Mr. Gularte, you may proceed. Good morning. I'd like to start by thanking everyone for attending our earnings conference. BRF has reported net income of 823 million reais in the fourth quarter of 2023. Throughout the year, we focused on efficiency and excellence while executing our business plan. we made progress quarter by quarter and ended the year with positive results, largely driven by the company's improved operational performance and financial discipline. We've closed this period with significantly lower leverage, the lowest in seven years. Our ever-evolving commercial execution, improved product portfolio performance and consistent work with the Saadia, Pertigao and Quali brands have supported our profitability boost in 2023. In the international market, we've returned to double-digit margins, advancing in value-added products and securing a record number of plant licenses in new destinations. Now I'd like to invite our CFO, Fabio Mariano, to present our financial results in further detail, after which I'll come back for our final remarks on the announcement. Good morning to everyone on the call. On the starting page, I'd like to focus on the main financial indicators for Q4 2023, starting with net revenue, which came to R$ 14.4 billion. Our EBITDA was R$ 1.9 billion. This gives us a 13% margin for the period, our best quarterly result in many years. Our free cash flow performance was 613 million reais, that's our largest quarterly cash generation in three years. In working capital, we significantly reduced our inventories, which helped us to secure a financial cycle of 5.8 days, three days shorter than in the same period last year. inventory turnover reached 75 days, 18 days less than in 2022. Ending the slide with leverage, we reached 2 times our EBITDA in the last 12 months, lowest leverage in 7 years. In the next slide, page 4, we show on the left-hand side our gross profit over time with 24% profitability in the period. we've reported a gross profit of approximately 3.5 billion reais. On the right-hand side, we also notice the EBITDA progress as mentioned earlier. In the next slides, we will present our performance by market or business. Starting with Brazil, we continue to progressively improve our operating results. Our EBITDA margin came to 15.6% with the help of our holiday campaign. The best profitability of the year was that even excluding seasonal sales. Note the performance of processed products was consistent with historical levels despite the still suboptimal consumer environment in the country. On page number 6, we highlight the recovery in prices of fresh guts in Brazil, just as we had predicted in the previous quarter. At the bottom of the slide, we emphasize the increased accuracy of new product launches and continued progress of our commercial execution, which can be seen in the greater availability of products. products in store, greater penetration into new points of sales, and a marked improvement in customer service levels, which significantly contributed to the performance of the domestic market. On page 7, we highlight the outstanding performance of our celebratory portfolio. We showed our leadership in the market and the strength of our brands during this special festive period. Our market share was 72% in turkeys and 60% in special poultry, such as Chester. The next slide shows our performance in the international market. We see this business's recovery coming to double-digit margins as new price levels for poultry and griller cuts and the downturn of costs with decreased grains and efficiency gains from the BRF Plus program. Our EBITDA margin increased by 7 percentage points compared with the previous year. We also noticed increased market share in chicken and poultry exports to many destinations. On the next slide, we highlight the growing profitability in the halal market in the Gulf countries. We continue to grow our market share in processed foods, which is in keeping with our plans to expand the range of value-added items in the region. We also reported positive performance in Turkey, mirroring the larger share of processed foods in sales volumes and sound profitability levels in the unprocessed portfolio. We sustained our market share leadership with the Saadia and Banvet brands with 37% and 21% shares respectively in each of their markets. On the right-hand side, I point out the direct exports business. We can see how our prices performed for the main cuts. We grew our business alternatives with 16 new licenses for markets such as the United Kingdom, Africa and the Americas. Our export licenses had 66 new ones in 2023. We also reduced our finished product inventories by almost 80,000 tons internationally versus 22, and direct factory exports remain at high levels. Unsold inventories continue to fall, improving our commercial execution and relieving the capital we've employed. I'll end the presentation talking about ingredients and PET. The business reported an EBITDA margin of 11.7%, 98 million reais during this quarter. It's important to note that the development of our manufacturing output continued to contribute to the maximization of our results in the company's core portfolio. In the pet business, we increased our share in sales of the super premium natural category with higher profitability and higher exports throughout the year, ending 2023 with our first shipments to the United Arab Emirates. We'd like to underscore the extension of our BRF Plus program to the pet operation in search of growing our efficiency. In ingredients, we continue to focus on expanding our markets and increasing sales of value-added items, such as hydrolysis. We continue to add value to our co-products in order to maximize our business integration. Next, I'll share the progress of our efficiency program, which Miguel will be quantifying in figures shortly. I will show you comparisons with the same period last year. The bars were colored in light gray. The full year comparison can also be seen in the material you've received. In agriculture and livestock, feed conversion of poultry and pigs fell by 2.5% and 1% respectively. Chicken mortality fell by 2 percentage points and hatch rates increased by 5.6 percentage points. In manufacturing, we grew our factory yields by more than 5 percentage points. In logistics, we reduced our returns and increased our service levels in Brazil in a very materialistic way. And the following slide will show you the trend of our costs, a major driver for competitiveness growth. On the left-hand side, we can see that the average cost per kilogram in Brazil fell by 7.5% in the year versus 2022. And more importantly, the cost in the last quarter of the year was 5% lower than the average for the year, showing an excellent transition point for 2024. Internationally, the cost per kilogram in the last quarter was 8% lower than the average for the year. As we've already underscored, the improvement in cost is anchored in the reduction in grain consumption within the BRF Plus program. On page 14, We show you the highlights in sustainability ESG, showing achievements such as a 26% reduction in absolute scope 1 and 2 emissions. Two, we are very close to achieving our clean energy self-production targets. Three, we've achieved 100% traceability in direct grain suppliers and 77% traceability for indirect suppliers in the Amazon and Cerrado biomes. 4. We want recognition for good animal welfare practices. 5. We maintain our presence in the ISE and B3 carbon efficiency index portfolios. And lastly, we continue to generate positive social impact by engaging actions in 100% of the municipalities where we have a footprint. On page 16, we now show you information about the company's capital structure. In the chart on the left-hand side, we see the performance of our net debt and leverage. These indicators were already mentioned at the beginning of the conference. We have the lowest leverage in seven years. On the right, we can see our debt profile, which is still diversified and long, with no concentration of repayments in the near term and comfortable liquidity position. The next slide shows you our free cash flow. The chart shows an operating cash flow of 1.7 billion Reais, an investment flow of 741 million Reais, and a 352 million Reais financial flow. All of that adds up to a free cash flow of 613 million Reais, which is the best cash generation we've reported in any quarter in the last three years. On the final slide, we talk about the performance of our net debt between the quarters. We reported a net debt of R$ 9.4 billion with contributions from the capitalization of our share offering in July. The allocation of funds from that follow-on offering will continue to help us reduce interest charges over the next coming quarters. I'd like now to thank the audience and turn the floor over to our CEO, Miguel Gularte, for his closing remarks. Thank you, Fabio. To conclude our presentation, I'd like to point out that our focus on operational efficiency and the financial discipline we've maintained quarter after quarter is what enabled the net profit and cash generation we've reported for the fourth quarter of 2023. Our efforts and initiatives throughout the year were decisive for our sound performance in the period. The company's predicted intelligence model, combined with the efficiency gains from the BRF Plus program, proved to be assertive throughout the year and allowed us to capitalize on grain origination in due time as prices fell, which led to a material cost reduction in the second half of the year. Additional returns from BRF Plus totaled 525 million Reais in the fourth quarter, bringing the total for the year to 2.2 billion Reais. I should also highlight the progress we've made in major indicators throughout the year, such as feed conversion, unprocessed food yields, animal mortality, commercial execution, and logistics service levels, among others. Moreover, we've recorded the lowest FIFO discount levels in recent years, showing greater integration between our production and sales planning. Not only that, but we've also significantly reduced inventories across the board, bringing in savings in financial and storage costs. The highlights of the year also include our higher profitability in Brazil, supported by our ever-evolving commercial execution and improved performance of our portfolio as a whole. In the fourth quarter, we reported an EBITDA margin almost twice that of the fourth quarter of 2022. Special mention should also be made of the consistency and progress in the profitability of our processed foods portfolio in Brazil throughout 2023. In our international operation, our EBITDA margin returned to double digits in Q4 with a significant recovery in prices in all locations. Our market diversification strategy remained consistent as we resumed our exports to the United Kingdom. In 2023, we secured 66 plant licenses for new locations in Latin America, Asia, Europe and South Africa. I should also underscore Saadia's leadership in the GCC region's halal market, where we gain market share in processed foods, in keeping with our strategy of increasing the volume of value-added items. Our results also mirror the consistent work of our leading brands in their respective markets, Saadia in quality in South America and Banvit in Turkey. We also saw an improvement in our people management indicators, such as engagement, absenteeism, and turnover, and continued to invest in our team's development. I'd like to point out our performance in occupational safety, where we reported the best rates in history, cementing BRF's benchmark position in the market. Our performance in the last quarter of 2023 confirms our team's ability to manage with focus and discipline. We step into 2024 motivated by the results we've achieved and with version 2.0 of BRF Plus already well underway. As I often say, here the future begins every Monday and we will continue to devote ourselves to pressing on with BRF Plus 2.0 in 2024, always striving for our company's continued evolution. We've opened a new chapter in our history with Morphrix consolidation as controlling shareholder with more than a 50% stake, and we are confident we will continue our journey with commitment, agility, simplicity, and efficiency. I'd like to thank our dedicated associates for our progress and achievements. I'd like to thank our chairman, Marcos Molina, and the board of directors for their unwavering trust, constant presence, and continued support. And I'd also like to thank our shareholders, our integrated outgrowers, our customers, our suppliers, and all the communities where we operate. Thank you. We will now begin the Q&A session for investors and analysts. If you have a question, please press the reaction button and select raise hand. If at any point your question is answered, you can leave the queue by clicking lower hand. Please wait as we pull for questions. Our first question comes from Guilherme Pallares from Santander. Please, Mr. Pallares, your mic is open. Good morning, everyone.

Thank you for taking my questions.

Well, I'd say that the first question is more on the cost side. We're noticing this significant decrease the company has achieved from the unit cost standpoint. And we wanted to understand how much of that comes from operational leverage and how much comes from the slightly lowered fee costs. And what could we... look forward to in 2024 when it comes to the benefits of that factor. And my second question is, I'd like to understand a little bit more about the exports movements. We understand the better prices and the licenses. So if you could update the company's perspective, thinking about the beginning of 2024, that would be great. Thank you. Good morning, Guilherme. As to your question with regard to prices, and considering that we are operating under BRF+, that ultimately touches on all the links of the chain. We start with improvements on the agricultural side, and then you have food conversion, food aspects which is benefited by aspects in the industry and then you look at manufacturing where you have costs and better performance and you complement that with the commercial sense and will need better or more rational service and you can seize all of that on the cost side. Evidently this is a continued process It started at the end of Q4 2022 and operated throughout 2023, which led to, as we reported, over 2.2 million excluding the FIFO effect, which would lead that to over 3 million. We've talked about the design of BRF Plus 2.0 for 2024. And that continued to bring in effects throughout the year. And we expect this improved efficiency also enabled by a better situation in terms of international costs and prices. we should be able to report a satisfying performance at the end of the year. I will now turn over to Fabio who will add to the first part of your first question and also add to the second question because obviously I only gave you the answer in broad strokes. Good morning. As was already said, I will try to add a little bit to the answer with regard to costs, and then we can talk a little bit about our prospects for the markets, especially the international market. I think that Q4... was when we saw the lowest level of costs. And it does have to do with the decrease in feed prices, but also has to do with the efficiency plan that we've adopted BRF+. SAAT plan also involves what you mentioned, which is the operational leverage, seeing as we've increased our volumes and really made the most of our operational structure. As we transition now to 2024, comparing this level with our cost in 2023, on the international side, you see a difference of 8%. And in Brazil, you see that difference is 5%. All of that should help us in terms of gross profit to have a very positive start of the year. And when we combine that with the cost benefits and the favorable prices, all of that makes us optimistic about the beginning of the year. So we're seeing healthy prices and a very competitive cost ratio that lead us to believe that the company has reason to believe we will have great results also in the first quarter of 2024. That was perfect, guys. If you could also talk a little bit about your prospects for the export market. Well, Guilherme, we're seeing the export market end the year with prices on the rise. And it's important to highlight the 66 new licenses that BRF's team was able to secure. is very important these new licenses take us to that um quote that we've repeated over and over across the throughout the year which is the best uh option is to have a range of options and when it comes to experts that opens a range of choices for us in terms of new markets and from a situational standpoint we're seeing the entire market respond in time so when the entire market is responding in terms of price a company that has new licenses for new destinations and can leverage all of its brands, which are leaders in several different places, that allows you to predict and seize on those opportunities throughout the year. So in 2024, we go into a process where the company is performing well, in terms of operations in a market that's also performing well. So there's a better balance between demand and supply. Excellent, Miguel and Fabio. Thank you so much for your answers. Our next question comes from Gustavo Troiano with Itaú BBA. Please, Mr. Troiano, your line is already open. Good morning, Miguel and Fabio. Thank you for the opportunity. Well, there are two things I'd like to go over with you. The first has to do with the cash flow. In our last conversations, we talked a little bit about the break even and EBITDA, especially focusing on CapEx and financial flow. And it's interesting the financial result in Q4. So I just wanted to know if we can assume that this is the new break-even point, if it's reasonable to consider this the new normal. And when it comes to cash flow, I know it's difficult to advance the results because of the average grain prices. But when it comes to finished goods inventory, is there any room for... reductions or has all of that been tackled with brf plus in 2023 now on uh housing we had some preliminary data pointing to uh higher inventories in january and february and i'd like to hear from you if there's any uh movement from the company in terms of increasing or expanding housing which could lead to lower prices moving forward or if there's any other other side to that that we're not seeing. Thank you. Hi, Gustavo. Good morning. I will start with your first question talking about the break-even point and free cash generation. Well, what I can tell you is from a structural perspective, Our focus would be to invest around the same level as we did in 2023, so around $3 billion, maybe with a capacity for the biological assets, maybe even a little less than that, between $2.8 and $3 million. And then we need to consider the financial expenses. So we're working with a range between $1.8 and $2 billion, considering interest charges and other factors as well. That would take us to a structural break even that would fluctuate between 4.6 and 6 billion. Also, depending on the interest rate charges that also affect that and the debt that's incurred in strong currency. So that's essentially the equation for the company to generate cash flow. It needs an EBITDA around that size. On finished goods inventories, we've significantly reduced levels over the course of 2022. And just to remind you, in finished products inventories in Brazil, reported in advance that we had already identified opportunities to reduce the finished goods inventories internationally throughout the year. And we decided to wait for the right moment because for most of the year, we navigated the market with outstanding prices. So it's not the right environment to solve inventory problems. Now Q4, because there was a recovery in prices, we saw the opportunity to tackle that. So that's why we're seeing inventories with a turnaround time of 75 days. So pretty optimized. So any gains after that should be marginal. They should not be as representative as those we were able to secure throughout 2022 and 23. And lastly, when it comes to housing, Well, we have data for chicken housing of over 600 animals, but there are prospects for February and March that point to a decline. It's important to note that Brazil's supply is not what explains the production volume when it comes to poultry protein. Of course, Brazil is very representative, but we need to consider data from housing in the United States, Europe and Africa as well. In the United States, we already have figures showing that 2023 was a year when housing decreased when compared to 2022 and even 21. We must also consider In that equation, the supply and the demand side. In Brazil, we see a consumer environment, although not as attractive, a lot better than the environment we had in 2023. Per capita income is going up. Employment is resilient. Consumer confidence is at a sound level. And on the international side, we see strong demand in areas where we are dominant in the market, such as in the Middle East. We plan to have a very successful campaign during the Hamadan period. We have the spread with beef and poultry returning to levels which are just slightly above the historical average. So we also need to assess demand. and not only the supply side. And our understanding is the environment today is a lot more balanced than the one we had to navigate last year and even the year before that. So I'll now turn over to Miguel to add to my answer. Well, I think you were very comprehensive. We should navigate a more normalized environment and it's to be expected that The less efficient the environment is, the less efficient we will be in that market. And it's also important to remember that BRF is currently in a commercial position from the international standpoint that's very special. In Q3 and Q4 of 2023, for example, we saw a and exceeding Brazilian exports to Asia, even more than to the Middle East. And BRF has been a dominant, dominance in that case, sometimes exceeding 50% market share. So we're ready for that. And evidently a company with lower inventories unsold inventories with no uh stopped inventory and that's capitalizing a lot more agile in a much more agile way that type of situation that's that's a huge plus so we expect to see gains not only in the international market but also in the domestic market as well thank you miguel and fabio that was great