BRF Q2 2023 Earnings Call Transcript

Quartr
Provided by Quartr
August 15, 2023

There are 2 speakers on the call.

Operator

Morning, ladies and gentlemen. Welcome to BRF's Q2 2023 Earnings Conference. This conference is being recorded and will be available for download 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 only mode. Recorded.

Operator

Before we move on, I'd like to stress that forward looking statements recorded, are based on BRF's management's beliefs and assumptions as well as currently available information. Recorded. 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. Released. Investors, analysts and journalists must take into account that events relating to the macroeconomic environment, the industry and other factors may lead to materially different results than those expressed in said forward looking statements.

Operator

Joining our conference today our CEO, Mr. Miguel Gularte and CFO, Mr. Fabio Mariano. I will now turn over to Mr. Gularte, who will begin the presentation.

Operator

Pleased, Mr. Gallarte, you may proceed. Good morning. I'd like to thank everyone for joining our Q2 2023 earnings conference.

Speaker 1

Recorded.

Operator

During this period, we remain focused on executing our efficiency plan, BRF Plus, which turns 1 year old this September. Recorded. We've made significant headway across all our work fronts. We're seeing our gains materialize faster than expected, exceeding the target we set for the first half of the year. The impacts of our strong performance can already be seen in the company's balance sheet.

Operator

Recorded. This quarter, we are reporting recovering margins, a result of our improved operating indicators, the high performing processed goods category in Brazil and the gradually increasing prices in U. S. Dollar. Recorded.

Operator

Now I'd like to invite our CFO, Fabio Mariano, to present our results in further detail. I'll be back later to bring you my additional thoughts and final remarks. Good morning to everyone joining us. Recorded. I'd like to point out in the opening slide our most important financial indicators for the Q2, starting with net revenue followed by the management reporting standard, which exceeded BRL13 1,000,000,000 in keeping with the same period of last year.

Operator

As for EBITDA, we reported over BRL1 R1000000000 for the quarter, which led to an 8.2 percent EBITDA margin. Our operating cash flow came to R1000000000,000,000, $166,000,000 more than our cash generation in the same period of 2022 despite the lower nominal EBITDA. Recorded. In terms of working capital, we continue to make significant headway, shortening our financial cycle to 5.5 days the lowest on record. Inventory turnover came to 81 days, 14 days less than 2022.

Operator

Recorded. Concluding the slide with leverage, we came to 3.75x our EBITDA for the last 12 months. Recorded. We also reported pro form a leverage of 2.42 times including the funds that we raised in our capital increased last July. Our focus is still to strengthen our capital structure, lowering our net debt and consequently, the interest payments by allocating our follow on inputs or resources the best way possible.

Operator

On the following slide. To the right, we see the gross profit over time with profitability of about 16%, also gross profit of BRL2 1,000,000,000. To the right, we also see the EBITDA over time, as we said before. In the next slides, we will show you the performance by market or in business segment. Starting with Brazil, we see progressive evolution in EBITDA and margins.

Operator

Recorded. This development is even more substantial when we look at the portfolio of processed goods that's performed in line with its historical record despite the lower consumer spending in the country. In the next slide, we make it evident how the decrease in prices of the on processed goods in Brazil has stopped better performance in the region. We can see the chart recorded. On the lower left hand side, on the Base 100, our profitability for processed goods over the last quarters that's already showing gains in efficiency from the BRF plus program in addition to better commercial execution and price positioning.

Operator

To the right, we see recorded soybean oil prices, which has already fostered better margins for the margarines category and recorded in soybean bran prices that will give great benefits to our costs starting in Q3. Recorded. In the following slide, we see a slightly more attractive macroeconomic scenario when we notice the progress in indicators such as consumer confidence, income and employment, which are closely correlated with the spending on processed goods in Brazil, accounted for about 75% of our sales volume. On Slide 8, I'd like to point out the market in Brazil with new breakthroughs in commercial execution that have allowed us great gains in competitiveness. Recorded.

Operator

I would like to point out among those the increase in active customers, the larger coverage of store promoters recorded and better adoption of suggested prices in retail. Lastly, the share for processed goods and spreads ended the period at 39%. Recorded. In the next slide, we talk a little bit about the international market. We've seen a still very impacted EBITDA by the adverse scenario for protein exports despite greater profitability.

Operator

EBITDA margin came to 4%, up over 5 percentage points versus the previous quarter as a result of the gradual recovery in USD prices and the materialization of efficiency gains within our BRF plus program.

Speaker 1

Recorded. We can see the highlights of the Halal market. On the left hand side, we can see the recovery in Turkey recorded. As a result of the increased supply of value added product in the Turkish market and production rebalancing as a way to reverse the low co price recorded. We have maintained our market share leadership with the Sadiya and BAMVIT brands, which have 37% 20% market share recorded in their respective markets.

Speaker 1

We also achieved more than 50% share of Brazilian poultry exports to the GCC region. Recorded. Recorded with 15 new licenses for markets such as China, Japan, South Africa and Argentina. Direct exports from plants recorded. I will wrap up the presentation on the different business segments on the next reflected.

Speaker 1

The segment reported an EBITDA margin of 16%, recognized by BRL 101,000,000 in the quarter. It's worth mentioning that the improved industrial yield has reduced the supply of raw materials for ingredients recorded. We continue to make progress in capturing synergies in and we improved our service level and increased our presence in the direct sales channel now also in the South of the country. Recorded. In ingredients, we made progress in new markets, expanding our presence in the Southeast Asia markets and expanding the range of value added items produced.

Speaker 1

Recorded. We continue to add value to our byproducts in order to maximize business integration. Now I will share the advances of our recorded. I will present the comparisons with the same period of the previous year, recorded. Other comparison basis can also be seen in our release materials.

Operator

Recorded.

Speaker 1

In Agriculture and Livestock, there was a 2.3% and 1.3% drop in food conversion of poultry and pork, respectively.

Operator

Recorded.

Speaker 1

Chicken mortality rates decreased by 1.8 percentage points and outbreak rates increased by 3.6 percentage points. Recorded. Industrial yield increased by 2.5 percentage points, while process waste was reduced by 36%. Recorded. In logistics, we reduced return and raised service levels in Brazil by 8 points.

Speaker 1

On Page 14, recorded. We can see highlights such as the launch of 3 recorded. 0 Carbon Products as part of Sadia's portfolio. We started adopting the cage free model for gestating thal in all new projects. Recorded.

Speaker 1

We also carried out for the first time the double materiality process for the publication of an integrated report that takes into account the view recorded of capital providers in a complementary manner. We advanced in the MSCISG rating category. And recorded. Finally, through the BRF Institute, we continue to support initiatives that foster entrepreneurship and social inclusion. Recorded.

Speaker 1

Now on Page 16, we share information related to the company's capital structure. The chart on the left shows the evolution of net debt and leverage, recorded. Also illustrating the impact of our stock offer. Such indicators were highlighted at the beginning of the conference. Recorded.

Speaker 1

On the right, we can see our debt profile, which remains diversified and elongated with a comfortable liquidity position. Recorded. On the next slide, you can see our free cash flow. The bridge shows an operating cash generation of approximately R1 1,000,000,000, recognized as an investment flow of BRL707 million and BRL885 million in financial flow without foreign exchange effect, recorded, resulting in a free cash burn of BRL 425,000,000. There has been quarter on quarter and year over year progress, recorded as we can see on the chart on the top right.

Speaker 1

On the final slide, we can see the quarterly evolution of our net debt. Recorded. Our net debt is stable at BRL15.3 billion despite the cash burn of the quarter. Recorded. The allocation of the follow on proceeds will contribute in a timely manner to a relevant lowering of our debt level and interest payments in the coming quarters.

Speaker 1

Recorded. I would like to thank you all for your attention. And now I'll turn the floor over to our CEO, Miguel Gularte, for his final remarks. Recorded. Thank you, Fabio.

Speaker 1

To wrap up our presentation, I would like to highlight, as we mentioned earlier, that throughout recorded. We evolved on all fronts of our efficiency plan, capturing BRL 540,000,000, recognized. An amount that adds up to R1.2 billion dollars since the beginning of its implementation. Our leaders recorded. We remain dedicated to a high performance culture focused on efficiency, simplicity and agility.

Speaker 1

Recorded. The results of everyone's engagement have already started to show this quarter. The achievements to date, added to the team's engagement, recorded. In Brazil, we advanced in our commercial execution. Recorded.

Speaker 1

In the quarter, we added more than 4,500 new customers, maintaining high levels of logistics services recorded and enhancing our retail footprint with laser focus on consumer experience, shelf space with renewed recorded. Our EBITDA margins in Brazil increased by 1.6 represented by the trend of growing profitability in the Processed Goods portfolio. Our adjusted EBITDA was BRL 1,000,000,000, recorded, reaching margins of 8.2%, up 3.6 percentage points quarter on quarter. Recorded. In international operations, our market diversification strategy remains consistent in export.

Speaker 1

We got 15 new licenses to export to Asia, recorded. Another important point is the continuous drop in grain prices, which will have a more significant impact on costs recorded in the coming quarters. It's worth mentioning that we took action early on and prepared for this movement and we already see improvements as a result of this. Recorded. Our employees continue to be a priority.

Speaker 1

More than 1,000 leaders of our company who are crucial for bringing results have already participated in professional development programs these years. In terms of safety, we are at the best historical levels. Recorded. Our brands are consumer preferred brands. Sadia continues as the most valuable brand in the food sector, recorded.

Speaker 1

Is the most frequently chosen and sold brand and Quali and Deline are the top selling margarines in the country. Europe was again listed recorded by the Valeria Novason ranking among the top 5 most innovative companies in the food service. And we continue making the most of recognized to reinforce the strategic partnerships with relevant clients. I cannot fail to highlight that the stock offering contributed to raising recognized by the company's financial structure and boosted the reduction of the company's final expenses. Recorded.

Speaker 1

Finally, I would like to thank our more than 100,000 employees and the effective support of our Chairman, Marcos Molina, as well as our Board of Directors, shareholders, producers, customers, suppliers and communities where we operate. Recorded. We all continue to work in synergy committed to recovering the company's profitability and looking out for the opportunities that will certainly arise in the coming quarters. Recorded. We'll now start the Q and A session for investors and analysts.

Speaker 1

Recorded. Recorded.

Operator

Recorded. Our first question comes from Gustavo Troiano with Itau BBA. Please, Gustavo, you can open your microphone now. Recorded. Good morning, Miguel and Fabio.

Operator

Thank you for the opportunity. Miguel, I'd like to pick on your final remarks in the presentation. To go a little bit deeper in the science program, you mentioned $540,000,000 gains in the quarter and one point $3,000,000,000 since the program began. And to my understanding, these are all measured by KPIs that go from the field to the final sale. So the first thing I'd like to go into is how much of those gains that we can already see in your balance sheet and how much can we expect to see in the next few quarters?

Operator

According to what you mentioned in your release, the a sequence of decreases is not connected to a more benign grain price dynamic. So I wanted to understand how much recorded. We could see in Cogsworth Kilo comes from BRF trading and how much would that come from grains. And along the same lines, it would be interesting to see an update about the gains in efficiency in Q3. Is that already slowing down?

Operator

Or can we expect the program to continue moving forward? As for tax reform, I just wanted to understand whether the company has any internal study that you could share with us, even if in broad strokes, what could we expect from you in that sense? Thank you. Good morning, Gustavo. Thank you for your questions.

Operator

Recorded. We'll put the efficiency program in context for a little bit because recorded. This, as everyone knows, is a program we started running in Q4 of 2022, recorded, and we've moved forward with it across or throughout the year of 2023. This involves all our processes on the field, manufacturing, marketing, also quality assurance, people as well as our international markets, both Halal and the national market and direct exports as well as our finances. So every factor impacting our company has been involved or encompassed by this program.

Operator

We also had great involvement by our controlling shareholder, through Marcos Molina and their Board of Directors that provided everything that we needed to introduce BRF Plus. Recorded, and this program touched all our 96,000,000 collaborators who are very much engaged. And I would say that this was a recovery of the high performance culture that PRF has always adopted. Recorded. By December, we expect it right now, after 6 months, to have about 42% better, saying and we are now at over 50% of the program, meaning we are ahead of schedule.

Operator

Recorded. So within this operational efficiency improvements programmed. We see indicators already exceeding those levels that we had set as basic KPIs, which are the metrics from 2019, so indexes such as mortality, logistics recorded in other metrics. If we go to manufacturing, for example, yields and productivity, if we look at our commercial execution, the indexed per client or if we go to marketing, we were able to grant new packages, we strengthened the brand, continued with our innovations. If we go to grain, for example, we were able to better positioned our prices with intelligence to capture those efficiencies as fast as possible, inventory management in the Halal management at a perfect timing to make the most of the circumstances in the market.

Operator

In agro quality, we also saw improvements. Recorded. We've also been working on the regulatory side to seize the best efficiencies, the programmed to be called 15 Best Destinations, which excites us very much, and I usually say that the best choice is to have multiple choices. Recorded. When it comes to people, we are proud to say that our safety levels are at the best recorded on record, lowering also absenteeism and we're also preparing our people better.

Operator

Recorded. When it comes to training, that is the equivalent to more motivation. So we're very happy about that. On the legal side. We're also working on every indicator.

Operator

And last but not least, our entire Finance and IR recorded. We had the greatest follow on offering in Latin America, which will provide a very solid foundation a financial foundation for the company to deleverage, which is now enjoying the best leverage after this largest a follow on offering in Latin America, all the liability programs that Fabio and his team will be developing supported by our Board of Directors RUP's and Finance team. All of that being said, I would say that looking ahead, we see the BRF Plus program recorded as a very clear possibility for delivery later in 2023 recorded, and starting in 2023, we expect to make even more headway into 2025, and we're very excited about that. Now, Fabio, recorded. Adding to my answer, we'll be able to quantify these gains in the different stages of the program, what we have already captured and what we still have to capture moving forward.

Operator

Fabio, take it away. Good morning, Gustavo. So of the BRL 540,000,000 realized that we reported as what we captured via the program. We could say that 211,000,000 connected with agribusiness in the feed conversion and other indicators. Recorded.

Operator

When it comes to yield, we are talking about $189,000,000 of that. In logistics, dollars 25,000,000 recorded. And lastly, we have a decrease in downtimes and losses, which add up to the remaining $115,000,000 recorded. When we combine everything that we've already quantifying since Q4 of last year, Q1 of this year and now, recorded. The sum of those $540,000,000 would come to 2,100,000,000 recorded, and we could say that 70% of that has already been recognized in our P and L, recorded both in cost items and also in expenses, most importantly.

Operator

Now, to your question about the decrease in costs that was very substantial in Q2 when compared with Q1 and also compared to 1 year earlier, is very much connected with the efficiency program and has very little to do with the overall grain scenario. Recorded. As we said before, we plan to lower our COGS level starting in Q3. Recorded. Now with regard to the tax reform, recorded.

Operator

Our early analysis is very much positive about a few points, first of all, with in regard to what we call tax residues. So we do not have that many tax credits in store. We know that it doesn't work with when it comes to exports, so we are not exporting as many tax costs as well. We are also struggling to interpret what we can take in terms of credit and not, so the reform would eliminate that legal uncertainty, and there is also a decrease in uncertainty. So that also reduces our litigation in that sense as well.

Operator

From the quantitative standpoint, we also don't know what the rate would be both in CBS RBS. They're talking about something between 25% 30%, but what I can tell you is that the tax reform may be representative, especially recorded when we look into the reduced taxes on the basic staples basket and the lower rate that could also apply to food sales, and there's also the wider basis when it comes to obtaining credit. We haven't been able to recognized the tax credits that we're using when it comes to in productive area and our own consumption. So we could have a better rate for loans when it comes to everything, even for credit, even when it comes to tax on services. So recorded.

Operator

We could see significant impact when we look at those aspects I just mentioned. Thank you, Fabio and Miguel. Those answers are very clear. Recorded. Our next question comes from Lucas Ferreira with JPMorgan.

Operator

Please, Mr. Ferreira, you can open your microphone now. Recorded. Good morning, everyone. I have two questions.

Operator

The first one is about this an oversupply of poultry in the international market, particularly the Halal market, which is one for you, especially part of Southeast Asia. How do you see that supply moving forward in the second half of the year? Do you see improvement in supply. Do you see prices getting better in the international market? If you could paint a picture of what you're seeing for the next few recorded.

Operator

Do you already see marginal improvements? And my other question is about processed goods in Brazil. Recorded. I know that you no longer break down your price definition, but if you could give us some broad strokes about how the company has performed recorded. And if you have been able to hold back on that price increase that we saw in April, recorded.

Operator

What does the market look like in terms of competition? What do you see for the second half of the year? Do we also see balance? How will the processed goods market move forward in the next few quarters? Recorded.

Operator

Lucas, I will take the first part of the question and then turn it over to Fabio and talk more to your second question. About supply, recorded. We ended the year seeing supply going up. But if we look at the last few weeks, especially the last month, recorded. We see more of a controlled warehousing market.

Operator

If we look at the outlook for the entire world, in Europe, recorded. Producers are holding back a little bit more in their supply, and the same thing can be said of the United States. It's very important for us, regardless of any mismatch, a one off mismatch. We have to understand that we're still in a market where supply exceeds demand. And these record.

Operator

Eventual imbalances that we're seeing tend to shift back into place over time recorded as circumstances both in terms of the economy and also the benefits for producers and our growth also move to normality. In the case of BRF, we have worked very closely recorded to have these new licenses. With new licenses, you also adjust your destinations according to the licenses you have. Rolled with more destinations, there are more opportunities for you to distribute your production. And BRF also enjoys the advantage with brands such as Saudia and Protego to played from a very advantageous place that adds efficiency recorded and allows you to better execute your logistics plan.

Operator

So every product that you deliver, and you're delivering 9 point 3 to 9.4. When you have this level of logistics efficiency with a motivated sales team, you can also perform better, recorded, and that allows you to face up to any distinguished competition that you may be up against. If we look at the data for July, for example, you'll see that the Halal market is made up of 35% of Brazilian exports, for the first time exceeding the Asian market, which places BRF at a very advantageous position and with very favorable transactions, which also helps to explain the results that we saw in the exports segment. Also in terms of price, but we have seen is in the Q1, we saw a lot of pressure from the excess supply. We also saw feed conversion in May June in a process that has now stabilized.

Operator

Recorded. Given the possibility of bird flu, clients have shown more caution and proved wearier. Recorded. And now that the bird flu is no longer a novelty and that Brazil has gone into international relations agreements to required, allow for that situation, reestablishing its experts in Espiritu Santo and recorded. The exclusion of Japan, which in case of that happened, would suspend the country or would ban the country.

Operator

BRF has alternative destinations that we have recorded in a very good way, but I'd like to turn it over to Fabio to add to the other question that you had. Yes, I think that your answer was very well rounded recorded to his first question. So I'll start by talking about the processed foods segment in Brazil. Of course, when we reported to the Brazilian market. We combine processed goods and unprocessed goods.

Operator

But if we could split the 2, I think we could say that, on the processed goods side, we are gradually increasing our profitability, coming very close to the ideal standards. This has to do with a positive price influence in a few categories, and truth be told, this is still a very fierce market, especially in items that are more affordable, which is the case of packaged goods and also cold cuts to some degree. In margarines, we already have a very favorable situation, which is the decrease in oil, which is the most significant raw material for this category, so we understood that it wouldn't be necessary for us to passed prices through and we also understand the scenario is favorable when it comes to demand. Recorded. There is room for higher consumer spending and, as we tried to show in our presentation, consumer confidence which exceeded 92%, employment which is still very resilient at 8%, recorded, so a very strong figure, and we're now navigating a deflationary scenario.

Operator

So we understand that there will be this opportunity on the demand side, and you should also remember that the Brazilian geography is also affected by BRF plus

Speaker 1

recorded, and

Operator

we will also see a positive scenario as grain prices go down. This really recorded, makes the protein more affordable, which is a feedstock for most of our processed goods.

Speaker 1

Recorded. Our next question is by Thiago Duarte recorded with BTG Pactual. Thiago, we have enabled your mic. Go ahead. Hi, good morning.

Speaker 1

Recorded. Thank you for taking my question. Miguel and Fabio, it's great to talk to you. I'd like to go back to the topic of your

Operator

recorded.

Speaker 1

Indeed, there is a slowdown year over year recorded. And in process good, net revenue drew by dropped by 2% year over year. Recorded. There is a baseline effect of comparison to the Q2 of last year, but there seems to have been

Operator

recorded.

Speaker 1

And although there was a carry on effect of prices last recorded. And in your presentation, you told us about 39% market share in processed in recorded this year, if I'm not mistaken. So there is a feeling here that there has been a drop recorded in volume. Can you give us your take on that? Recorded.

Speaker 1

Fabio mentioned this in his last answer, but can you tell us about the competitive landscape and

Operator

recorded.

Speaker 1

So that's my first question. Recorded. Moving on to my second question, still talking about Brazil. Fabio mentioned this earlier, but I'd like to make a provocation here. When we start to understand the margin recorded.

Speaker 1

We have a feeling that these margins closed the quarter better than they started. Recorded. So there is an upward trend in margins throughout the quarter. That's my feeling. Is that correct when you look recorded at Profitability Evolution throughout the quarter.

Speaker 1

Now can you give us an update about the recorded. Asset sell in process, especially the pet segment assets. This is a topic that hasn't been mentioned yet, which I find recorded. Thank you very much. Good morning, Thiago.

Speaker 1

Sure. I will take your first question, then I'll turn the floor over recorded. And I'll come back for the 3rd question, which is related to the sales of assets. Recorded. So if I understood well, you want to understand the top line recorded.

Speaker 1

What I can tell you is that our process recorded. Now we are having recorded. Recorded. And the prices are at a lower level in this annual comparison, but the positive highlight

Operator

recorded.

Speaker 1

As we mentioned in the previous question asked by Lucas, recorded. There is a positive landscape for processed goods, and we are also betting recorded on the recovery of unprocessed goods and protein prices in general. Looking back, recorded. We can say that we are quite reassured that this is going to happen because this is a cyclic industry. We just don't know

Operator

recorded.

Speaker 1

Now I'll turn the floor over to Miguel to talk about the margin trends from the beginning to the end of the quarter.

Operator

Recorded.

Speaker 1

Thiago, you answered your question yourself. Indeed, we see this growing trend recorded. In our results, April, May June, there was indeed growth in our top line.

Operator

Recorded.

Speaker 1

With the BRF plus program advancing, our execution

Operator

recorded.

Speaker 1

On the other hand, recorded. When you close the month of March, this is a month with many other expenses in family incomes, recorded. Going back to classes, purchasing school materials, school supplies, and then the recovery comes back recorded. In April, May June, I mean, the families go back to spending more, and we felt that here at BRF. Recorded.

Speaker 1

And we're very confident that the second half of the year in the Brazilian market will be quite robust.

Operator

Recorded. We

Speaker 1

also have the holiday season and Christmas is a synonym for Sadia and Perdigao. Recorded. We are aware of that and we are ready to run an effective campaign recorded during the holiday season, so the last couple of months in the year. So your analysis is This is correct. We had a growing top line in the Brazilian market here this quarter.

Speaker 1

Okay, Thiago. Now I'll answer your last question.

Operator

Recorded. These

Speaker 1

are the final stages for the sales of the most important assets in recorded. Recorded. We have a due diligence process to follow in cases like this, and we expect to convert recorded. We have always said that we would be willing recorded to sell as long as we got the right conditions to do so. So we would not recorded.

Speaker 1

We were not planning to sell assets for unfair amounts, especially now recorded after we raised proceeds, and we are now in a very comfortable position with a more balanced capital structure. Recorded. So we believe we will have news about these processes soon. Recorded. Excellent.

Speaker 1

Thank you very much. Recorded. Our next question is by Isabella Cimorato with Bank of America. Recorded. Good morning, Miguel, Fabio.

Speaker 1

Recorded. I would like to hear about cash generation. Recorded. You showed some significant operational improvements, and there was also the follow on recorded. A few calls ago, we talked about recorded.

Speaker 1

The EBITDA breakeven for the company when it comes to cash generation. So recorded. Can you give us your take about this now? There will be a significant reduction in financial expenses with recorded. So can you tell us about the main recorded.

Speaker 1

Cash generation drivers, including CapEx and how financial expenses are expected to stabilize from now on. Recorded that will help us to define our view for the rest of 2023 2024. Thank you. Recorded. Good morning, Isabella.

Speaker 1

When we talk about our cash performance and free cash generation. The main driver is our operations itself, as you mentioned. We believe recorded for many reasons that were already mentioned that we have the right conditions to perform in the second half of the year recorded with a much better performance than our year to date performance. That's going to improve recorded on our operating cash generation potential. When it comes to working capital, we know that we have work to do with

Operator

recorded. The finished

Speaker 1

goods inventory in the international market, we think that we have 25,000 to recorded. 30,000 tons to be reduced in our inventory levels, and this is already part of our plans. Recorded. This hasn't been done yet because we haven't yet reached the ideal market conditions because of the excess supply. But as recorded.

Speaker 1

Now about CapEx, another important recorded. The idle capacity that we still have at our company, recorded. The idle capacity level improved in the last two quarters, but this means that the company can grow a lot recorded without any significant capital allocation. So we expect recorded to have a CapEx close to TRY 3,000,000,000 by the end of the year, as we mentioned in our guidance. Recorded, and we will probably have a similar budget for 2024 and then only 2025 we think that we'll need to invest more recorded in order for the company to grow.

Speaker 1

Now in terms of using the follow on offering proceeds, recorded. If we look at annualized numbers, we have a chance to save from BRL 550,000,000 to BRL700,000,000

Operator

recorded

Speaker 1

depending on how we execute on our debt repurchasing plan. So the recorded.

Operator

Recorded.

Speaker 1

Our next question is by Thiago Portelluti from Goldman Sachs. Recorded. Thiago, we have enabled your mic. Go ahead. Thank you.

Speaker 1

Good morning, everyone. Thank you for your presentation.

Operator

Recorded.

Speaker 1

I would like to address 3 points here in my question. The first point is related

Operator

recorded.

Speaker 1

During this quarter, we heard that this excess recorded.

Operator

The supply

Speaker 1

is now stabilizing at least on the Brazil side, but we still recorded. Maybe investors are implemented more capacity, but when we talk about smaller players in the south of the country, they also have a more optimistic recorded. Thank you. So given the size of beer app, I would like to understand the supply logic here. What is the size or the magnitude of this adjustment that you're making in the second quarter?

Speaker 1

And what do you expect for the second half of the year? Recorded. Now my second question is about grain cost deflation. Recorded. In the Q1, you mentioned that you had a smaller long position in grains, recorded.

Speaker 1

Given that there has been a significant improvement in the grain landscape, recorded. Your inventory recomposition is Now my last point recorded related to your top line improvements because of the follow on. Can you give us recorded. More details about your liability management plan for now from now on and what are the next steps for us to see those recorded. BRL540,000,000 lowered in your P and L from now on.

Speaker 1

Thank you.

Operator

Recorded. Thiago, I will take your first question and then turn over to Fabio, who will be answering the other two questions. So recorded. Your question brings part of the answer. Yes, we are seeing a part of a supply via warehousing that has decreased in the month of June and what we're seeing is a trend of a decrease in the next few months when it comes to Brazil.

Operator

On the other hand, when we look at the United States and I talked about this in recorded. We see the same a trend taking place both in the United States and in Europe. On the other hand, when BRF outlines a strategy. We do not disclose that strategy right away because we understand that this is a very significant part of our competitiveness strategy, which isn't and shouldn't be available to the public. And taking your question from the a perspective of what we expect for the next few quarters.

Operator

Here at BRF, we are very much on the same page and very much aligned when when it comes to our supply and demand. We have our new licenses coming recorded. And on the other hand, there is another important aspect, which is BRF, with its brands and where strategic expert destinations can navigate precisely in those markets that are responding more quickly than expected. For example, what I mentioned to Isabella, in the Halal market, for example, we see recorded the market exceeding the national market in July and we see that this mismatch recorded that we saw before for a number of different reasons that had to do with market trends. I mean, this was a business that was growing with thriving demand and a very interesting producer yield is now going through an adjustment, and this is something that was already anticipated, and we have to quantify that because We do not have enough elements to be more accurate than we are.

Operator

We had to sort of predict when recorded. It's going to take place, but we can see very clear signs both in Brazil and the rest of the market. And One should assume that it is likely to become more intense, considering that we are in a market where recorded. Supply exceeds demand, so whenever there is a mismatch, that tends to be corrected in time. So I will now turn it over to Fabio to take your second and third requested about the deflation in grain prices and the funds from our follow on offering.

Operator

Thank you, Thiago, for your questions. Recorded. So starting with grain prices, you mentioned the recovery of raw material inventories and how that could affect our results in the next few quarters, if I understood you correctly. Recorded. So, yes, it is only natural that as we restore our inventories from the second grain harvest in Brazil.

Operator

The effect on our working capital will not be immediate, recorded because you will now be relying on very extended payment terms, especially when we negotiate directly with farmers. This is not what we expect to see in Q3. Recorded. It should be less apparent in Q3 and from then on also in Q1 of next year. This is a natural trend, which is why we mentioned that there's still a lot of room for us to optimize our working capital on the inventory levels for processed goods, and that's where we have to focus our efforts.

Operator

In addition to the efforts that we've made in finished products in Brazil. We also need to broaden those initiatives to the international market as well. Recorded. Now, to your last question about our liability management, this is a ticklish a subject, but I'll try to give you a few indicators without precisely telling you what we will do. In fact, we plan to give the international market priority in terms of bilateral relations.

Operator

And this is not to say that we will not address transactions with banks, but we will prioritize the capital market. We are not as inclined to given in terms of ratio even because it doesn't make sense considering the current circumstances. So, what I understand is that in the next few months we should have some news in terms of asset purchasing. Recorded. Recorded.

Operator

Our next question comes from Pedro Fonseca with XP. Please Mr. Fonseca, you can open your microphone now. Recorded. Good morning, Miguel.

Operator

Good morning, Fabio. Thank you for taking my question. The first thing I'd like to hear from you is your efficiency indicators. It's very interesting for us to monitor how you guys are progressing. But when we look at the year over year recorded.

Operator

We sort of lose track of where those levels are. Miguel mentioned that you have already exceeded the levels of 2019, which was the company's target. But it would be interesting if you could recorded. Give us some more granularity. Of course, each indicator is at a different level, but how are those how do those indicators stacked up versus those of 2019, even so we can understand how much gain there has been from your manufacturing and farming improvements so that we can get a better grasp of your efficiency metrics.

Operator

Recorded. Now, I also wanted to follow-up on your working capital issue. We talked a lot about stock prices, but we also saw a significant improvement on the customer side. So I wanted to understand whether it makes sense to think that this a customer line could improve as the improvement gains from BRF Plus are incorporated and if you also see improvement on your supply lines as well. Those will be my questions.

Operator

Thank you. Recorded. Our indicators are a work in progress. We ramped up and within that ramp up, we expected 31% to 45% conclusion in the first half of the year. We are above 51% now and recorded.

Operator

We will move forward with that process. If you look at all our indicators, we're already doing better in unexpected incidents and absentee and we're also at record levels in productivity. When it comes to costs, on operating costs, I'm not talking about grain costs, and in logistics, we have also exceeded the KPIs that we have set for ourselves. If we move to the commercial side, to the sales side, our FIFO and recorded. Store and sales execution are also doing better.

Operator

We've added 4,500 with clients this quarter alone. We have over 250,000 clients and recorded. As we get better logistics, a more active sales force and better execution, we can perform better there as well. And you can also analyze that we have invested in new packages, positioning our brands in a more competitive place, and we are also leveraging our sales. When it comes to grain, recorded.

Operator

The program also includes a strategy to position BRF to seize the decrease in grain prices the best way possible. It's important to remember that by November or December of last year, we participated in an event in the Brazilian market and our forecasts were very much talked about, recorded, but our entire strategy and Grain Group supported us in our statement. Our team turned out to be right, and recorded. We saw the results of our strategy so much so that now, as we make our purchases at the right time again, we will be able to released. Also, what Miguel mentioned in terms of our inventories, not only for grains, but our meat inventories.

Operator

We worked very strongly so that there would be no unsold inventory. We worked with our with experts of some part of our inventories. They are also part of a plan that will take place in the second half of the year and that was already expected, recorded, considering that we are in a position to liquidate our inventories, but we have been very accurate in our timing to market, and in the last month, we invested all our pricing strategy. And when it comes to pricing, this is something we've talked about in the last conferences. BRF enjoys excellence in information, and also recorded.

Operator

Pricing is qualified information that allows us a better position when it comes to commercial operations. Recorded. Also, when you go to the international market, there are also those aspects that allow us more competitiveness, the strategic positioning of some of our brands and the growth of this market, for example. For the second half of the year. For example, we plan to continue to perform well in all our indicators and I can tell you very confidently recorded that we will deliver 100% of BRF plus and even more than 100%.

Operator

We will continue to perform and deliver and this will be just our starting point, because this is a program for continued improvement. When we budget for 2024, We will incorporate all of those gains that we had in 2023 over 2029 and replaced, new challenges for this team that has performed so well in 2023, for 2024 as well. Pedro, I will take your second question about working capital, and I'll try to be as to the point as possible. The greatest opportunity is in the inventory line looking ahead. And I'm not saying that there are no opportunities recorded with suppliers, but the company already has a payable cycle of over 50 days.

Operator

So we're already very efficient in that. Recorded. Consequently, we are working to improve our payment terms with suppliers. On the customer side, we also have receivables turnover of over 50 days. And when you consider that nearly half of our business has to do with the international market in exports, especially via maritime recorded.

Operator

It's important to say that payment terms of everything that we sell in Brazil is usually below close to 2 weeks. So there are opportunities, but from a quantitative standpoint, that's not recorded where we understand there is much efficiency to be had. There is a lot of work to be done on the inventory level, though. I've already mentioned that on the international side, we will be decreasing our finished goods inventory. That was perfect.

Operator

Thank you so much. This question and answer session and BRF's conference has now concluded. We'd like to thank everyone for joining us and wish you a great day.

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Earnings Conference Call
BRF Q2 2023
00:00 / 00:00