BRF SA Q2 FY2023 earnings call

Management Statement and Operational Highlights

• Efficiency Plan: Throughout Q2, BRF captured BRL 540 million from its efficiency plan, with a cumulative BRL 1.2 billion since its implementation. Over 50% of the program is completed, and indicators have exceeded 2019 KPI levels.
• Brazilian Commercial Execution: In Brazil, over 4,500 new customers were added in the quarter, with high logistics service levels. EBITDA margins in Brazil increased by 1.6 percentage points, and adjusted EBITDA was BRL 1 billion with a margin of 8.2%.
• International Operations: The market diversification strategy in international operations continued with 15 new licenses for markets such as China, Japan, etc. Grain prices are expected to have a more significant impact on costs in the coming quarters.
• Employee Development: Over 1,000 leaders participated in professional development programs, and safety levels are at the best historical levels.
• Brand Performance: Sadia is the most valuable brand in the food sector, Kidelli is the most frequently chosen and stored brand, Qualy and Deline are top-selling margarines, and BRF was listed among the Top 5 most innovative companies in the food service.

Segment Performance

• Brazil: The processed goods portfolio in Brazil has shown progressive evolution in EBITDA and margins. The share of processed goods and spreads ended the period at 39%. EBITDA margins in Brazil increased by 1.6 percentage points, with adjusted EBITDA at BRL 1 billion and margins of 8.2%.
• International Market: The EBITDA in the international market was still impacted by the adverse scenario for protein exports, but the EBITDA margin came to 4%, up over 5 percentage points versus the previous quarter due to the gradual recovery in USD prices and the materialization of efficiency gains within the BRF plus program.
• Ingredients and Pet Food: The segment reported an EBITDA margin of 16% and BRL 101 million in the quarter. Improved industrial yield reduced the supply of raw materials for ingredients while strengthening the volume of products in the company's core portfolio.

Guidance

• Efficiency Plan: The BRF Plus program is ahead of schedule, with an expectation of 41%-42% completion by the end of 2023, and it will continue to evolve until 2025.
• Capital Structure: The stock offering raised BRL 5.4 billion in liquidity, reinforcing the capital structure and助力 reducing net debt and interest payments.
• International Business: 15 new licenses were obtained to expand business in Asia, South Africa, etc., and the drop in grain prices will impact costs more significantly in the coming quarters.

Risks

• Macroeconomic Factors: Macro-economic environment and industry factors may lead to materially different results than forward-looking statements.
• International Protein Exports: Adverse scenario for protein exports impacted EBITDA in the international market.
• Brazilian Consumer Spending: Lower consumer spending in Brazil affected the unprocessed goods segment.
• Grain Price Volatility: Fluctuations in grain prices could impact costs.

Q: How does the efficiency plan progress compare to 2019 indicators?

A: The efficiency plan has exceeded 2019 KPI levels, with indicators such as mortality, logistics, manufacturing yields and productivity, and commercial execution indexes all showing improvements.

Q: What is the outlook for the oversupply of poultry in the international Halal market?

A: The global supply exceeds demand, but BRF's new licenses and brand advantages help it navigate the market, and there are signs of adjustment over time.

Q: How is the performance of processed goods in Brazil?

A: Processed goods in Brazil are gradually increasing profitability, with favorable situations in margarines due to oil price drops and room for increased consumer spending.

Q: What is the status of the asset sale in the pet segment?

A: The asset sale in the pet segment is in the final stages with due diligence processes, and nonbinding proposals are expected to be converted to binding proposals soon.

Q: What are the main cash generation drivers and liability management plans?

A: Operations are the main cash generation driver, and liability management will prioritize the international capital market with plans to reduce international finished goods inventory.