BRF S.A.

Good morning, ladies and gentlemen. Welcome to the teleconference from BRF to discuss the results referring to the second quarter of 2024. This videoconference is being recorded and then can be accessed at the website of the company at ri.brf. The presentation is also available for downloading. And at this moment, all the participants are connected just as listeners. And then we will start the question and answer session when more instructions will be provided. Before we continue, I would like to reinforce that the prospective statements are based on beliefs and assumptions of BRF and the current information available for the company. This information may involve risk. losses as they talk about future events and depend on circumstances that may or may not happen investors analysts and reporters may take into account that events related to the macroeconomic environment to the segment and other factors may make the results be materially different from those expressed in the statements of the company present in this conference we have mr miguel gular ceo and fabio mariano cfo would like now to give the floor to mr miguel who will start the presentation miguel please start Good morning. I would like to thank the presence of everyone in our teleconference for the results of the second quarter of 2024. BRF, continuing its trajectory of high performance, presents today the best second quarter in its history. reporting significant growth in revenue of 22.3% compared to the same period in 2023, and EBITDA of 2.6 billion reals. We have improved our profitability for the sixth consecutive quarter with 17.6% margin, confirming an excellent performance since the beginning of our transformation journey. We have observed in this quarter a relevant growth both in international and domestic markets. In Brazil, I would like to highlight the growth in sales volumes in all categories, especially in processed products. We've maintained a healthy level of profitability with a new sequential increase in the margins of the regular portfolio. In international market, we have presented the best margin in the last nine years. This result was driven by the recovery of prices in several sales destinations and the acceleration of our market diversification strategy. The consolidation of the company's efficiency journey, guided by BRF Plus 2.0, continues to show improvement in operating indicators and its premises that are already part of the high-performance culture of BRF. We remain focused and sustained by our management model, which has enabled us to capture the best opportunities and will allow us to remain increasingly competitive. I would like now to invite our CFO, Fabio Mariano, to present the detailed results, and then I'll come back to you with the final remarks on the announcement. Good morning, everyone connected. I would like to get on the main indicators in the second quarter of 2024, starting with net income, which reached almost 15 billion rios, 22% higher than the same period in 2023. For EBITDA, we reported 2.6 billion rios. which give us a margin of almost 18% in the period, the company's best result in the first half of the year. The free cash flow performance was 1.7 billion reals. In working capital, we would like to highlight the inventory cycle, which remained at the record of low of 76 days. And in the slide with leverage, we have reached 1.4 times a beta in the last 12 months, lowest leverage in nine years. In the next slide, we show on page 4 on the left the historical evolution of gross profit with profitability of 26.4% in the period. We've reported a gross profit of approximately 3.9 billion Rios. On the right, we can see the evolution of bid and margins showing significant improvement in operating results. In the next few slides, we're going to show the performance per market and business segment. Starting by Brazil, we continue to evolve progressively. We have reached an EBITDA margin of 15.7, with significant growth in volume, especially in processed food categories, which showed an important increase in sales, even in an environment that is still recovering for consumption. In the next slide, page 6, we emphasize our journey of continuous evolution commercial execution, reflecting a greater number of points of sales, availability of products in stores, and an increase in the number of items sold per customers, contributing substantially to the performance of the domestic market. We also continue to focus on leading innovations that meet the needs of our consumers. We have launched new products in frozen, desserts, and cold cuts categories, In the next slides, we bring the international market. We have observed the segment's operational evolution, sustaining health margins as a result of the persistent recovery in export prices. New markets have been enabled and good performance in Turkey and GCC. EBITDA margin improved by 4% percentage points compared to the previous period. We saw gains in the share of chicken and pork exports in various destinations. On the next slides, we highlight the growth in process volumes in halal market, which favored market share of gains of 1.2% versus the previous quarter. Our brands and our own distribution continue to favor the results in the region. Turkey also, we have recorded good performance, also reflecting the growth on sales of processed products, which enabled an increase of 0.5 points in market share. Besides good levels of profitability for Natura portfolio locally. We maintained our market share leadership with Adia and Benefit brands with 38.4% and 19%. and 22% in their respective markets. On the right, I present the highlights of the direct export segment. We can see the behavior of prices of the main cuts and how they react. We expanded our business alternatives with 32 new permits for several markets, contributing to maximize prices. We already have 57 new export permits for 2024. I will end the presentation of the business segments on the next slide with the performance of ingredients and path. The segment report in 11.9% of bid the margin. It's important to remember that the manufacturer evolution continues to help maximize the results of the company's core portfolio. At path, we highlight new commercial export agreements and advances in the value levers of our efficiency program. as well as the strengthening of the management team, and ingredients will remain focused on expanding markets and increasing sales of value-added items. Then I'll share the progress of our efficiency program, which will be quantified in figures by Miguel shortly. I will present the comparisons with the same period last year, colored bars and dark gray. The comparison with 2022 can also be seen in the material. In the agricultural sectors, the feed conversion of poultry and pigs fell by 1.9% and 0.2% respectively. Chicken mortality fell by 0.6 percentage points and pigs by 0.5. Hatching rates rose by 0.9 percentage points. In industry, we increased increased 2 and 3.4 percentage points the production for poultry and pork. In logistics, we reduced the returns and raised the service levels in Brazil significantly. On page 12, we consolidated the following sustainability highlights. We have reached 90% of traceability of indirect grain suppliers and Amazon and Cerrado biomes. And remember that we have already traced 100% of direct suppliers. We ended the quarter with 35% of our electricity coming from clean sources, coming closer to our goal of reaching 50% by 2030. Sadia started to offset 100% of hot bowls and mac and cheese packaging, extending successfully the recycling project for packaging adopted for margarines of the Quali brand. Through the match-funding initiative led by the BRF Institute, we raised over 6 million rios for the victims of the floods in Rio Grande do Sul. And finally, we have won the first place in the Pro-Twin Sand Med in the MERCO Responsibility Rank in ESG. We now present on page 14 the information related to company capital structure. The chart on the left, we saw the evolution, the decline in the net debt and leverage, which was highlighted at the beginning of the conference. On the right, we can see the debt profile, which remains diversified and prolonged with no concentrations of repayment in the short term and fairly comfortable liquidity position. In the next slide, we show the free cash flow. The chart shows an operating cash flow of almost 2.5 billion Rios, the best cash generation in the history of the company, an investment flow of 756 million and positive financial flow of 69 million, influenced by the Foreign exchange rate variation in cash and financial investments resulted in a free cash flow of 1.7 billion reals. We can also notice in the smaller chart the evolution of cash generation in the recent quarters. In the final slide, we can analyze the decline of net debt between the quarters. We reported net debt of 8.9 billion reals. the reduction in loans will continue contributing to reducing interest charges in the coming quarters. I would like to thank the audience. I would like to give the floor to CEO Miguel Goulart for his closing remarks. Thank you, Fabio. To conclude our presentation, I would like to point out that this quarter, we recorded net income of 1.1 billion rios, the lowest leverage in the last nine years, with free cash flow generation of 1.7 billion rios. This is because of our sequential and consistent operational advances and the optimization of our capital structure. We are maintaining our financial cycle at efficient levels with inventory turnover at sustainable levels. BRF Plus 2.0 continues showing improvement in its indicators and captured 374 million Rios in the quarter, totaling 812 million Rios. In addition to the records delivered, it helped to consolidate the attitudes of the company of simplicity, agility and efficiency, very decisive for the performance. The consistency of our progress is reflected in the markets we act on, we operate. In Brazil, our commercial execution has advanced day after day and resulted in strong volume growth in the quarter, with a special emphasis on the processed category. We continue optimizing our assets and maximizing income in international market, where we have a significant margin of 21%. During the first half of the year, we won 57 new licenses, with accessing to important new markets such as the United Kingdom, U.S., and Southeast Asian countries, reinforcing the diversity of our export platform. BRF's transformation journey is based on the consolidation of a high-performance culture. Our pursuit for excellence is also reflected in our internal indicators such as safety, where BRF is benchmarked. With the right people in the right position, we are consolidating the management model focused on results based on collaboration and team engagement. I would like to specially thank the almost 100,000 professionals who remain steady in our purpose of bringing quality food to millions of consumers every day. We are also thankful to the strategic direction and ongoing support from our chairman, Marcos Molina, and the board of directors. Our big thanks to our shareholders and the ongoing partnerships of our integrated producers, customers, suppliers, and the communities where we are present. I would like to finish by saying that BRF is increasingly resilient to market challenges, taking advantage of the opportunities, and ready to continue evolving. Thank you. We're going to start the Q&A sessions for investors and analysts. If you want to make a question, please press the button, raise your hand. If your question has been answered, you can leave the line pressing the same button. Wait until we collect the questions, please. Our first question comes from Pedro Fonseca from XP. Mr. Fonseca, your microphone is cleared. Good morning, Miguel, Fabio. Thank you for answering my questions and everyone in the BRF team. I have two points. First, about the international market, I gained a very strong result. i would like to get from you is if you can share what you have in terms of view of the portfolio what we can expect in the future in the second half of 2024 and also uh gradually of the market if you can share it would be really interesting And it was also another quarter where we saw new permits for plants, if I'm not wrong, since the new management is over 100. And my question is if there is more room for new permits and new markets. This would be my first point. And the second point I would like to explore together with you is about offer. I think that this non-acceleration of offer has several factors. And what I would like to explore with you is if you have a view of what would be the main driver. If it is, in fact, a rationality of the market, or if, in your opinion, there is any gap in terms of capability for storing. We're talking about genetics of matrices, any color in this reading of the offer reading. How can we think about this question looking ahead? These are my two points. Thank you. good morning pedro you make an analysis of the market you're going to see that we are living some quarters a situation that is really interesting at the same time that we have a market that is a stable between offer and demand this stability is in all geographies all locations usually at other occasions we had a market There was stable somewhere, but in somewhere else, we had to offset. Today, we see market stable with offer and demand balanced everywhere in all locations, including in Brazil. On the other hand, we should also take into account that the number of permits in the case of BRF, which were 57 BRF, permits in this first half of the year, this quarter 32, it helped us in a very important manner to place our production and more than our production, choose where to place this production. And it's not as small the importance and relevance of that. I say because when you have new permits, and this also happened at the Brazilian level, you end up not getting the pressure of offer in some markets and this balance between offer and demand it becomes more resilient and more present on the other hand we have important markets that brazil is reaching outcome of these new permits like for example in brfks and united kingdom we started and came back where the memories of our brands are still strong but also japan came back to buy and strongly we have now the philippines getting into the market we have mexico participating as well in this market. And we see that this has an important effect, both in offer placed as in the demand that comes to the offer of finding customers. I also like to draw your attention in this And if you looked at the SISEC's data, you're going to see that Asia in the first quarter of 2024, it had bought 25 million tons. And it came back now in the second quarter to buy almost 147,000 tons. It was always an important demander. It also helps build the market both in volume and price. And lastly, we have a situation where we see that the future perspectives are good perspectives as well, because we see from the standpoint, it's important to remember that the market is an ecosystem, it works demand and offer, but also what comprises this ecosystem. If we look at the side of grain that has an impact, in our cost and also in the competitiveness of the protein we sell, we're going to see the world showing a growth in soybean of almost 8% and corn of 4%. What does that tell us? It tells us that we have an ecosystem, an environment where production of grains and cost and competitiveness of our products remains favorable. and the future perspectives are good. And you see, on the other hand, that all locations demanding and demanding consistently on the other hand the brazilian market with full employment works as a balance factor and an adjustment of this relationship of demand and offer this from the standpoint of the market both domestic and international the second question i'm going to leave it to fabio to answer Good morning, Pedro. I'm going to give a little bit more color in terms of segmentation of international market. I'm going to share some qualitative aspects because, as you know, we don't open the figures for each of sales destination. I think that the first aspect to portray is that international performance, as Miguel highlighted, has, of course, the permits. We increase sales at the nations and then favors maximization of income through prices. The halal regions, which is a strong region for the company, we have an excellent moment. This is valid for the Gulf countries, but also for Turkey itself, where we have a domestic market where the consumption has increased. We went back to have the flexibility of exportation so we went back to having more volume produced in turkey that we can offer to international markets i would like to remind you that we remain focused on increasing the participation of processed products in this region So from the implementation of the ex tension of process important demon we increase the offer of products, these products are more resilient in terms of price, and this has helped increase profitability. In the Gulf region, where we have a higher offer of process products and by result, we have a throttle vector in margins and it's worth remembering. that the recovery of prices of protein favored basically all sales destinations. Miguel emphasized in important regions for the market and also for BRF. And adding to your answer, Fabio, I would also like to say that we are working on 40 new permits until the end of this year that will add to this 57 new destinations that BRF was able to enable for 2024.

Perfect, everyone.

Thank you. And about offer, I don't know if you have any visibility or if you could share your view of what you have been holding back this offer in the local market. I'm going to talk a little bit about offer, but Miguel already explored really well what we believe as a good equation. We need also to discuss demand that remains really steady in all markets. But talking about Brazil, the data from PINCOL that you follow up, they suggest an increase of storing. When we translate the storing capability, Brazilian production is expected in terms of production. below this storing uh increase this has to do with slaughtering weights so we don't see there are no signs we don't see uh apparently any balance coming soon so the cycle should continue when we leave brazil and start to analyze a little bit the us where we have a storage capability but this also go through the hatching in china we see an important production it's a highlight that we have to follow up and also in europe we see the stability so it's useless to talk about offer only brazil it's not brazil that explains the prices of protein internationally And again, demand, we have an excellent environment for consumption in Brazil. Miguel mentioned the occupation at levels that for very long we hadn't seen it. And the income available has continued to improve, not to the proper levels, but has improved sideways and increases consumption in Brazil. And we have excellent penetration with our products and with our brands in Brazilian households. And international is not different, especially for poultry protein. Excellent, everyone. Thank you for your answers and congratulations for your quarter. Our next question comes from Gustavo Troiano, Itaú BBA. Your microphone is clear, Mr. Gustavo. Good morning, everyone. Miguel, Fabio, thank you for the questions. I have two points from my side. The first related to cost. I think Miguel already introduced the perspective of grains looking ahead. And the second question is concentrated more in 2024 and try to reconcile with the strategy of storage that you have. So if you could share with us a little bit the levels of inventory in the company. Miguel's always commented of the productive model, but to understand your view for this type of deadline and what we should expect this curve for costs as evolving as we get into the second half and the third quarter, this would be the first point. The second point more related to the new castle disease that we saw in brazil there was a lot of things about the themes there was some uh flexing about it what i wanted to hear from you if you can uh granulate this a little bit more for us the impact of this on your operation both from the standpoint if there was any volume that was reallocated to external market in the third quarter, at least from July until now. Or if you can explain a little bit the impact on exportations, any volumes that you ended up had to direct with the permits that you had, try to quantify a little bit of the impact on the average price. If you were able to build up volumes to export back as some imports were made it flexible again, any granularity will be welcome. Gustavo, let's start by what you commented on inventory and stock because the inventory is the target of your first question has influence on the second question. BRF has been doing the management work in the sense of increasing the indirect load in the plant and has less transit and obviously that goes when you have an unsanitary event like that you have your products that have to go through a destination or redirecting in smaller amounts Newcastle disease it was a disease that Brazil stated as a sanitary issue since July on the 20th. It was published for the World Health Organization for Animals, the survey of the focus. Brazil lives a situation today where you have the markets all reopened. Yesterday, it reopened Brazil for China, an extremely relevant market for all companies. It's not different for BRF. And Mexico had also communicated reopening a few days ago. Today, basically, all countries enabled Brazil again as a whole. And some restrictions remain for the state of Rio Grande do Sul, BRF. And now we're going to go to the efficiency, operational efficiency program. BRF Plus makes the company more efficient, more agile, more efficient company, a more agile company is able not only to manage better the inventory, but also make decisions that are more assertive. I have said in previous calls that we have the... The pricing system added to a good market feeling. It allows us to make good decisions. You ended up making good choices. When you have to make choices and these choices demand assertiveness, the pricing system makes this assertiveness to be higher. We at PRF had the Newcastle disease as communicated by the health ministry on Wednesday night. On Thursday morning, we had designed a plan in case that happened, not in Newcastle specifically, but the avian flu. But on Thursday morning, we had an action plan in execution on Friday morning. All the redirection that BRF should and could make, they were already put in place and executable. And there is something else, which is the strength of Regigo and Sagiya brand that allows us to redirect to the internal market without losing income and results. Obviously, we have a challenge ahead in the third quarter. where in Rio Grande do Sul we should recover the status it expected to recover but we don't have yet the impact of the result that this could cause on the third quarter we are very confident we've been working taking uh the opportunity of these 52 new permits and the strength of our brands that they have in the internal market So we are aware that we are going to overcome this. On the other hand, and not least important, it's important to emphasize taking the opportunity here to say that Brazil in 26 days since the Newcastle disease has been declared as an issue had already been enabled as a market. This shows a strong work for the agricultural ministry and also from the private sector through the associations and its technicians. I think that we faced a situation that was complex with a very fast response and very assertive.