BRF Q2 2025 Earnings Call Transcript

Quartr
Provided by Quartr
August 15, 2025

Key Takeaways

  • Positive Sentiment: BRF delivered a record first half with BRL 5.3 billion EBITDA and BRL 1.9 billion net income, achieving its lowest-ever leverage of 0.43 times LTM EBITDA.
  • Positive Sentiment: Through 198 new export licenses since 2022, BRF’s market diversification and operational excellence effectively mitigated avian flu export restrictions.
  • Positive Sentiment: In Brazil, BRF reached its highest Q2 sales volume ever—serving over 330,000 points of sale—and grew processed-product volumes, backed by strong price adherence.
  • Positive Sentiment: Internationally, BRF maintained healthy margins, gained 1.4 pp market share in GCC processed products, and launched the Sadia Fresh chilled line in Saudi Arabia.
  • Positive Sentiment: Efficiency and ESG efforts drove BRF Plus to capture BRL 208 million in gains, supported by ~BRL 850 million of free cash flow and robust liquidity.
AI Generated. May Contain Errors.
Earnings Conference Call
BRF Q2 2025
00:00 / 00:00

Transcript Sections

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Moderator

Good morning, ladies and gentlemen, and welcome to BRF Conference for the Results Related to the 2025. This teleconference is being recorded, and the replay can be accessed at the company website at brf.subgovsouth.com. The presentation is also available for download at this moment. All the participants are connected only as listeners, and then we'll start our session for question and answer when more instructions will be provided. Before we proceed, I would like to take the advantage to reinforce that prospective statements are based on beliefs and assumptions of BRF direction and information available for the company.

Moderator

These statements may involve risks and uncertainties having inside that they are about future events and, therefore, depends on circumstances that may or may not happen. Investors, analysts, and reporters may take into account that events related to the macroeconomic environment segment and other factors may make the results be materially and relevantly different from those expressed in the prospective statements present in this conference, Miguel Goulard and Fabio Mariano. I'd like to give the floor now to Mr. Miguel, who will start the presentation. Please, Mr. Miguel, you can go on. Good morning. We would like to thank everyone for joining our conference for the results for the 2025. We concluded the first half of the year reporting the best first half of the year in the BRF's history with EBITDA of BRL five point three billion and net income of BRL 1,900,000,000.0. The results achieved so far that was the company's operational excellence, strategic vision and financial disciplines.

Moderator

And even in an adverse scenario such as it was the one presented in the quarter, market by restrictions and poultry exports, We continue to make consistent progress in our market diversification strategy, increasing our active customer base and strengthening our portfolio of high quality value added products with the surface of innovations. I'd like now our CFO, Mario Fabriano, to present the detailed results for the quarter, after which I will return for the closing remarks.

Moderator

On the opening page, I would like to highlight the main financial indicators for the 2025. Starting with net revenue, which reached BRL 15,400,000,000.0, 3% higher than in the same period of 2024. EBITDA came to BRL 2,500,000,000.0 for the quarter, totaling 5,300,000,000.0 year to date, the past first half in our history, with performance 11% above the same period last year. This contributed to net income of $735,000,000 in the quarter and 1,900,000,000 for the semester. Free cash flow performance was approximately $850,000,000 or $1,300,000,000 when we excluding the impact of Hannon plan acquisition in China and the exchange rate variation on cash.

Moderator

Concluding this slide with leverage, we've reached 0.43 times the LTM EBITDA, the lowest leverage in our history. On our next slide, Page four, on the left hand side, we show the historical evolution of gross profit with profitability of 26.9% for the period. We reported gross profit of BRL 4,200,000,000.0, 7% higher than in the 2024. On the right hand side, we can also see the evolution of EBITDA and margins, highlighting the stability for operational results. We will now present performance by market business segment.

Moderator

Starting with Brazil, we continue to evolve consistently. We reported EBITDA of $1,300,000,000 of a margin of 16.4% with success of volume growth, especially in the process products category. On the next page, Page six, we emphasize our ongoing journey of commercial execution improvement, enabling us to achieve the highest second quarter sales volume in Brazil and a customer base now exceeding 330 thousands point of sale. We also observed greater adherence to suggested pricing and increase it product assortment in stores. Logistics service levels remain at excellent levels despite the significant increase in volumes.

Moderator

We remain attentive to the needs of our consumers, launching new products in the pies and ready to eat snack categories as well as cold cuts. We also promoted new campaigns and sponsorships, strengthening brand visibility and supporting consumer preference. We also highlight the positive results from the recently implemented initiative to expand our budget portfolio through the partnership between BRF and Marfrig brands. Now on the following page, we present the international market. We observed healthy margins in this segment with the contribution of geographic diversification, helping to mitigate the effects of avian influenza, which imposed numerous restriction on chicken exports to several destination.

Moderator

EBITDA margin was 170.3% for the quarter. On the following slide, we highlight on the hollow market, the launch of said yeah fresh. Chilled chicken line in Saudi Arabia through the investee adoha poultry we recorded 1.4 percentage market share gain in processed products and GCC driven by the breeds products category. In Turkey, we continue to focus on an increasing processed product volumes, which grew 7% year per year, helping to mitigate the effects on of higher local supply of fresh chicken and lower disposable income, both of which have pressured local price levels. We maintain market share leadership with Zadia at $36.02 point cent and Bamford at $24.01 point cent in their respective markets.

Moderator

On the right hand side, we present highlights from direct export segment. We expanded business opportunities with new 11 new export authorizations in 2025 contributing to price maximization. Since 2022, we there had been 198 new exports license, which has allowed us to offset part of the effects caused by restriction on chicken exports. We also highlight the launch of new products, advances in processed products in the Southern Cone and the first shipments of beef cuts under Saadia brand to key destination. Now I would like to conclude the business segment presentation on the next slide with the performance of ingredients and pets.

Moderator

The segment reported EBITDA of 52,000,000. In pet, we complemented SAP implementation, strengthening controls, unlocking administrative synergy capture, and expanding our our customer base by 8%. In ingredients, we continue to diversify both of our product and market portfolio. Next, we share the progress of our efficiency and now also growth program presented in base 100 format. On the left hand side, we can see annual improvements in poultry and swine, feed conversion and yield indicators with relevant gain captured.

Moderator

On the right hand side, we presented improvements in plant utilization and volume sold. We have made significant progress since 2022 at a pace of 50% higher than the historical average of the last six years. On page 12, we consolidate the following ESG highlights, Important recognition in climate change initiatives, especially for greenhouse emission management through supplier engagement and the offsetting of emission from the quality advertising campaign, which earned the carbon free seal. Promotion of the education for future campaign of our institute benefiting over 5,000 people. Lastly, the publication of the fifth transparency integrity report, reaffirming our commitment to ethics and compliance on page 14 we present information related to the company's capital structure.

Moderator

On the left hand side, we can see the reduction in net debt and leverage the lowest indebtedness since 2011. On the right hand side, we can see the debt profile which remains diversified and long term with no short term maturity concentration of very comfortable liquidity position. On the next slide, we show free cash flow. The chart shows operating cash generation of BRL 2,500,000,000.0 in the quarter, investment outflows of BRL 1,300,000,000.0, including the Hanan plant acquisition in China and and financial outflows of BRL 400,000,000, resulting in free cash flow of BRL $842,000,000 or BRL $1.2300000000.0, excluding acquisitions exchange rate variation. On Slide 16, we can see the reduction in net debt during the period.

Moderator

We reported net debt of 4,700,000,000.0 after shareholder remuneration versus BRL 6,000,000 in the first quarter. Lower repayments will continue contributing to lower interest expenses in 2025. Thank you for your attention, and I'll hand it over to our CEO, Miguel Gallart, for his closing remarks.

Moderator

Thank you, Fabio. To conclude our presentation, we would like to highlight that the results the solid results for the period demonstrate our consistent track record of efficiency and value creation, which translated into the best EBITDA for the first half of the year of 5,300,000,000.0, also the lowest leverage ratio ever recorded in the company's history at 0.43 times. We also highlight the maintenance of our efficiency program, BRF Plus, which, through continuous, process improvement, continues to generate gains for the company. In this quarter, we recorded capture of two zero eight million reels, optimizing our results with actions aimed at improving management indicators. We also emphasized an important step towards growth and strengthening of our halal presence in the halal market through a Doha poultry company.

Moderator

We launched it in July, the Sadia Fresh line of chilled, poultry produced in Saudi Arabia, further strengthening our strategic partnership with the kingdom. In addition, we increased our share in process products in the GCC product countries driven by branded products category. In Brazil, we had another quarter of consistent progress in our commercial execution. The growth in volume and net revenue of BRL 15,400,000,000.0 were strongly driven by the increase in the customer base, which now exceeds 330,000. We continue to expand our offering of value added products with assertive innovations in portfolios both for Sadia and Pertigo.

Moderator

We also highlight the positive results of the expansion of our hamburger portfolio through the partnership between Sadia Bassey and Perdigo Montana, brands leveraged by the breadth of our sales and distribution force. We reiterate that the market diversification strategy remains to be essential for BRF. We will continue to expand our export options, strengthening our global presence. Together with our robust data intelligence system, this strategy has given us an important competitive edge for timely decisions according to the scenario at hand. We continue to value our teams.

Moderator

In the last twelve months alone, we filled more than 70% of leadership positions through recruitment and recognition of our internal talent. Guided by the pursuit of operational excellence and financial discipline, we remain steadfast and optimistic in the company's journey towards sustainable growth based on our commitment to quality, safety and integrity in everything we do. I would like to conclude by thanking our chairman and controller, Marcus Molina, for his support and strategic direction, our shareholders and the board of directors for their support along the way. Our sincere thanks to our customers, integrated producers, suppliers, and communities where we offer it. And finally, I would like to thank you for more than our a 100,000 BRF employees for their commitment for the excellent quarter that we have achieved together.

Moderator

Thank you. Well, we'll now start the q and a session for investors and analysts. In case you wanna make a question, please press the button, raise your hand. If your question has been answered, you can leave the queue clicking on the same button. Wait until we collect the questions.

Moderator

Our first question comes from Gustavo Trojanu from BBA. Please, mister Trojanu, your microphone is open. Morning, everybody. Thank you for taking our questions. People, we have two points that we would like to explore with you today.

Moderator

The first one related to avian flu. When we look at the impact in the semester, it was very limited. The impact was very limited when we look at the numbers. What I wanted to hear from you, Miguel, focus on the part of reallocation and the permits that you developed in the past few years, how was the impact like for the did you mitigate the impact in China with these permits? And more focused on poll cut, which is a relevant market when we look at China and Cisax, it suggests that basically exportations were zero to there.

Moderator

So I understand that in other cuts, you're able to reallocate with more facilitation after all these permits. But I wanted to focus on this cut specifically to understand on the limit, the potential to recover the margin from now on in case we see the rehabilitation of the market. I wanted to hear from you about these reallocations within the international market and how you specifically do with this cut that we know that is very important for the profitability of the company. And the second point related to cost, I when we get the prices of commodities up to the moment in the air, they have dropped, especially grain. And we haven't seen a reflect, reflection in your cost, in your even internationally, it raised a little bit, and you mentioned the effect.

Moderator

But I wanted to hear from you the perspective of this specific line of unit costs going forward in line with the commodities that are decreasing that we have seen over the year, if we should expect any decrease in this unit cost line in 2025? Thank you. Morning, Gustavo. Talking about avian flu, it's very important to analyze the aspect from the perspective. And the perspective aspect in the past two years, BRF has worked and has been able to open permits, to gap permits and planned permits in over a 198, occasions.

Moderator

This obviously allowed us to go through this episode in a much more agile manner and assertive manner than the episode that we had last year, Newcastle disease in Rio Grande do Sul in Brazil. For me, on the other hand, it's important to see that the agricultural ministry has done an excellent work together with BPA in the sense of all the information and agility and transparency would reach all the markets in a timely manner. This allowed that all the process of closing would have its process shortened and more agile. So we knew exactly what to do for that country, and we were able to execute what we should do in an assertive manner. It's also evident that in the case of avian flu, the grief and safety of biosecurity in a Brazilian production system, disease that is endemic.

Moderator

So we only had only one case in in Brazil, and the work and all the technical area, either for production or the ministry, has been doing in the past few years that allowed us very fast to resume most of the markets even with a much shorter time than it was estimated. We continue close today in the Chinese market that is extremely relevant and the markets in Europe. I highlight that on the June 18, Brazil delivered the documents with international bodies, and we should have these reopening taking place in the next coming days or weeks. Everything indicates that this should happen. Over the aspect of reallocation of products, when you have a 198 new options, you are able to transit in different locations and destinations and mitigate impacting volume and price.

Moderator

BRAF also moves really well in the internal market with the Sagia and Fritigome brand. We have been able very quickly to make decision in phase of the episode of the avian flu, we were able to redirect to the internal market products that before or were reallocated from exportation to internal market. And in the case of China, specifically answering your question about PON, obviously, or the China has a compensation value for this product much higher than all the other markets, but it's not the only market We could sell and sell feed in Hong Kong or Africa, then, obviously, there is a downgrade in price that we can mitigate in volume but not in financial impact. And I also like to remind you that BRF has the pet food division, so animal feed can be turned into product for pet food pet feed. So these we always have contingency plans.

Moderator

And what we did, the question of the contingency that we had executed during the new CAFO in Hugo and Dusso last year, we as time passed, the experiences were acquired. We improved these plans that allowed BRF as a company to mitigate in a very effective manner that this episode had an impact is still impacting, for two important destinations, China and Europe. I would, give the floor to Fabio to answer the second question. Morning, Gustavo. I'm gonna address your question about costs.

Moderator

In fact, we see in the market, especially in grains, a retraction, especially in corn, I see that the disclosing of the first quarter, we anticipated that movement. Our strategy was to keep a less long position, especially so in the short harvest, we would have corn origination, and that happened. It happened within the planning. So we were able to acquire the amount that we had imagined. And this happened during the transition from the second to the third quarter.

Moderator

So it's natural that respecting this movement of the inventory cycle until this consumption cost has an impact, our product, sold product cost. This should happen now in the second half of the year. We imagine that the impact in CPV is going to happen. We have the possibility of seeing a retraction for the cost of animal feed around 2 percent in the second half of the year. I'd like to mention that we'd like to mention in the case of soybean flour that we could prolong the orders not only for the second half of the year, but also thinking of the 2026.

Moderator

So we understand that we can have the benefit in the consumption in the next year. Perfect, Miguel Fabio. Thank you so much. Our next question comes from Giulia Zamiello, Bank of Americas. Your mic is enabled. I would like to talk a little bit about prices. We saw prices very strong for this quarter.

Moderator

And I would like to understand what is going to be the capacity of carrying this price at a higher point. And if you're going to increase additional prices when it comes to the international side with this volume recap, should we see a better mix prices for the next quarters? I will get started. Julia, and then Fabio will complement. Let's remember what was happening when it comes to the price dynamics in this quarter.

Moderator

So we started the first forty five days of the quarter with increasing prices at all markets, including the local market, the domestic market. And on May 15, with the focus declaration of avian flu, we saw many markets closing down. The markets that opened or closed partially regionally, they showed a bit inflection, regarding decrease, but this inflection wasn't like a sharp decrease, which explains a mild impact on the international market prices with excellent results that we were able to gather. On the other side, the possibility of having all the destinations quickly reestablished in this 108 new licenses also mitigated the effect of the price impact without providing you with a guidance, which is not the case we expect that if we can keep the licenses conditions, because since. June 26 has also has been publishing Brazil as a country that is free of avian flu.

Moderator

We still have some other markets like China and Europe, they beat the expectation that these markets will open. This happened. So we will have possibilities of gain gain some traction in these destinations. When it comes to Brazil, we live a we're experiencing a moment of, like, full employment. The consumption is very high.

Moderator

Numbers shows that. And in consequence, the possibility that prices are going to be resilient. This is concrete. Now I would like to pass the floor over to Fabio for him to complement our what my question my answer. Excuse me.

Moderator

Good morning, Julia. The only compliment that I would make has to do with the process goods portfolio. So volumes have a big association with income, which has an also an association with employment, which something that he has just said. We had the opportunity to lead some adjustments, right, in good part of the portfolio. And the market accommodated this prices rounds when it comes to the consumption as well as the sales channels.

Moderator

The competitive environment always enhanced this reallocation of prices. So we observed that in Brazil prices year per year, it increased 11%, specifically when it comes to processed portfolio. Prices advanced 8%. And on the quarter after quarter, we've seen an advancement of almost 3%. So we understand that we can have other possibilities in terms of leading new rounds.

Moderator

I'm not gonna say that it's going to happen for the entire portfolio of processed goods. We have to respect the strategies of each category as well as the regional strategy understanding where we should act, what are the channels, and this should happen still on the third quarter. This is what we believe in. Okay. Thank you so much.

Moderator

[SPEAKER UNIDENTIFIED Mr. Brussellini, your microphone is good morning Miguel Fabers. Good talk to you. I would like to make another question in this discussion about Brazil. You delivered a gross margin in this quarter that was the largest ever since 2015, if I'm not wrong.

Moderator

And the discussion the price discussion, cost discussion from the prior question, they seem to be really favorable when we look forward. My question is if there is any seasonal component or mix effect that was relevant in this quarter during the gross margin composition, or does it make sense to think at least, carryover of these levels when we look ahead? Well, in this question, was there any relevant mix effect that we should consider? And the second, also in Brazil, you have been delivering growth that is really relevant in terms of processed products volume. The question is, how can we think about that ahead?

Moderator

There's been that discussion over the past few years about the idle capacity and how you have been doing that, especially the filling of this capacity. The question is how much idle capacity you still have and if we should think of this pace of growth slowing down a little bit, even the investments that are being made now they have reached a point that they can be more mature? Thank you. Morning, Heiko. I'm going to start answering this question.

Moderator

I'll pass it over hand it over to Miguel. In terms of about the profitability of Brazil, you talked about the gross margin. I would say that in the mix aspect, we have advanced in some categories versus others. For example, margarine and processed products categories. But this is not enough to provoke a change in profitability of the company.

Moderator

I would say that, structurally, we shouldn't expect some regression in the second half of the year. I would like to remind you of the first of what said in the first question. This is their cost aspect, which is an advantage. So the animal feed cost is a margin benefit over the reduction of CPV. This is going to happen gradually in the third and fourth quarter.

Moderator

Imagining that we also would have the possibility of readjusting prices. Obviously, depending on the market conditions, we have the potential of increasing profitability in Brazil, specifically talking about processed products. And about the capacity, idle capacity, I think that we have already been doing the work since 2022 of intensifying the use of our assets, and this has a lot to do with the growth of volumes that we have observed in the company. We grew we have grown since 2022 in a pace that one and a half fold compared to the pace that we had in the past six years. And, obviously, that has been said before, but we have to invest in our capacity because we identify a very steady, solid demand for the next coming year.

Moderator

So if we wanna have the opportunity of capitalizing this possibility of new volumes, we have to go back to investing in our plants that is of very much occupied idle capacity. I don't wanna give you a percentage because it depends on category line. It depends if you're referring to the field or to slaughtering or to processing. But I'll tell you the the idle capacity, the large idle capacity that we had in the company in the past, it doesn't exist anymore, and much of many of the categories that we operate. I'm gonna hand it over to Miguel so he can add.

Moderator

So adding to Fabio's answer, we saw the occupancy of idle capacity, but we continue at a growth pace and productivity. And if we compare our internal benchmark and among some unit or some locations, we see that we created the capacity to grow many of the lines and categories that we work with. So BRF continues being a company with organic growth capacity beyond investments that are forecast and that are in execution. In that only in this quarter, we have BRF Plus delivering gain of 208,000,000, real. So we are in the half of the year, in the middle of the year, and our expectation, our planning is extremely assertive in this aspect.

Moderator

We have an important aspect opportunity to capture synergy of organic growth. All of this makes us provoke even some elasticity in our operational capacity. And, also, we have the combination of organic capacity and investment, so we have sustainable growth for the company for the coming years.

Moderator

It's very clear. Thank you. Our next question from Lucas Ferreira from JPMorgan. Your mic is on. Hello, everyone.

Moderator

Good morning. I know that it's still early to talk about 2026, but when you look at the fundamentals of the industry of chicken industry as well as swine industry in Brazil as well as the main markets that you operate, my question is whether you see a change a relevant change when it comes to fundamentals to the future, or have you been seeing, like, some matrix reimbursement? If you see, like, markets reacting to increase the offer, as well as Asian markets as well, like Saudi Arabia. My question is to understand how do you see this moment of the cycle? And if you see any fundament when it comes to the changes considering this cycle?

Moderator

My second question, maybe it might be a little bit more difficult to answer. So we talked a lot about Brazil's profitability. There aren't many factors, right, that explain. But since 2023, you've been operating in Brazil with EBITDA margin that it's over 15% even though we have some exchange variation rate, raw material in the market. I know that we are in a favorable scenario when it comes to grains.

Moderator

But on the other side, we have many questions regarding the company like BRF plus as well as the other commercial aspects and the advancements that you've been making. My question is, imagine that we go through a more competitive market or maybe a more enhanced level a little bit over the history. Do you do you think that this level of operation of 15% of margin, it's a level that makes sense looking at at to the future in the categories that we are operating nowadays? This is the question. Thank you.

Moderator

Lucas, when you see the international scenario starting with exports as well as the different geographies that BRF works on, Do you see, like, a perfect balance between offer and demand? Having a perfect balance, very it's not likely for you to see an alteration that will touch the fundaments of the business. We're talking about a business that the demand is perfectly balanced with the offer. I would say that on our segment, food segment of chicken as well as poultry as well as the beef, we have a demand that will keep overcoming the the demand. So we don't see any scenario where this can see an a change.

Moderator

You have some episodes like the sanitary episode that we saw with avian flu. But even though these things happen, the importance of, like, having Brazil, it's something that we can go about the opening of markets that close. Maybe in the in the past, these markets would be closed. On the other hand, the company has been investing in the last years in products of, like, added value. Products of added value, it means products with constant demand and price resilience.

Moderator

So this is also something that makes us excited, and we see this in the old geographies. So the strategical moments that our controller referred to the company, Especially in The Middle East, they we are started seeing, like, results, our BRF association, our choice for The Middle East with a growth focus. If you take a look at the CEEZx data, you will see that quarter after quarter, The Middle East has a consumption in its higher destination. We've also seen growth. In other words, you see all the international scenario.

Moderator

And in this scenario, we also apply the same metrics of management and measurements that we apply in Brazil. So we always think and pursue the possibility of getting better in all scenarios that we act. If it's related to export or the local market when it comes to Brazil, we have to understand that it's not only what the Brazilian market offers us opportunities, but also the way that we, as company, we grasp these opportunities. BRF has constantly, through the commercial excellence of its teams as well as the acknowledgment of its brands, we've we've been grasping these opportunities. Right?

Moderator

The market finds a company that delivers what it sells. A company, it delivers quality according to demand. And we also cover, like, innovation aspects that fill out in a very clear way and assertive way the expectation of the consumer of having quality with practice practicity. So I believe we are on the right track. We don't see, like, in a short term that I would risk maybe talking about, like, the long term.

Moderator

Nothing that justifies the scenario. Lucas, I will try to translate what Miguel mentioned when it comes to numbers, right, regarding the fundamentals of the industry. In Brazil, we see that even though we have an increase of around 3%, we don't really predict a production growth that goes above one and a half. In The United States, this growth won't go over 2%, maybe in Europe, it won't go beyond 2%. Maybe the only exception would be China that might present a higher growth.

Moderator

But let's consider that 2024 was a retraction year. When it comes to swine, it's not very different. We work with a global growth of around 2% as well. So I don't think this would be enough to provoke, like, a offer on on balance, and, eventually, it will be converted in, like, change in prices or trend to reversion. About the margins, right, if you ask if we can ensure it, obviously, we we cannot.

Moderator

We are part of a cycling industry, but we can say that BRF nowadays, it's much stronger, resilient, and competitiveness to navigate the different scenarios as well as the more challenging scenarios. This is something that we can ensure. Okay. Thank you so much.

Moderator

Our next question comes from Guilherme Padares from Santander. Two questions here from our side. If you already commented very well about the question of cost of animal feed looking ahead, we were looking inside your demonstration. We saw in your statements, we saw we have seen some advances in this second quarter. I would like to hear when we think about others' costs in this environment of employment that is very low in Brazil, what can we expect given that we have some inflationary inflation pressure in terms of salaries?

Moderator

And I would like to hear something in this sense. And also hear about ask and he gets questions. The product, we had a certain increase in expenditure if you could go through expenditure in this third quarter. And, Miguel, I'd like to hear from you given that we have all this experience with avian flu. I would like to get a little bit of your impression about the learnings that come from the operational standpoint to going through periods that, by any chance, obviously, we don't want that happen.

Moderator

But if this ever happens again, does it change anything in terms of operation for you so you can get ready for an event like that, having an inventory in other countries? I would like to hear a little bit now try looking back and if there would have been anything different to be done that you could have prepared to deal with the situation if by any chance it happens again. Thank you. I'm gonna start by your second question, then I'll hand it over to Fabo to answer the first one. Obviously, last year, we had the episode of Newcastle disease in Rio Grande do Sul, an episode that was traumatic.

Moderator

Let's remember you are from Hilger and Dusu, a person from Hilger and Dusu. So we had, recently come from the tragic process of the floods in Hilger and Dusu That that had been an extremely challenging, not only from the human standpoint that really concerned us, but also from the logistic and execution standpoint. In that moment, when we had a Newcastle, Brazil was facing the situation that was uncertain. We didn't have the dimension exactly what the consequences would be. The outcomes would be of an episode that had been left behind for many years in the modern world, and the path that we trailed were completely unknown.

Moderator

The choice that we made as a country and as a company today shows to be correct and assertive. The path chosen was transparency, and the way was done with competence. So the agricultural ministry made the communications timely. The also the animal the world animal division provided all the information. Countries acted and received the information timely.

Moderator

And we, as a sector and association, MBPA, together with MAPPA, we had the perfect disclaimer of all the actions, all the events. This brought us two consequences, two outcomes. The first one and the most important was high credibility. And credibility, once earned, it has to be kept. Avian flu now in May.

Moderator

I think that the learnings from Newcastle came back, and they were put on the table. And recently and evidently, credibility earned in the prior episode had an important role. First, because we had a fluid communication, and we knew the communication channels with different countries. Second, we as a company, I'm talking the case of BRF, it was also we had the lessons learned, and there we established a strategy that was preparing to have similar episodes. Although, in any moment for us, it was placed any doubt about Brazil's biosecurity or the Brazilian production system.

Moderator

We truly believed and believe in the system still, and we have contingency plans that should be active. When the avian flu sets in on May 15, we quickly, as a company, took a position of choosing options and that we had been working in the past two years at a 198 new permits that showed to be extremely assertive for the moment that we were facing of the avian flu. So we were a company much more solid with very strong brands in the internal market with commercial execution that was extremely assertive in the local market in addition to exportations being more fluid. So when you have this possibility of brands like Saadia and Perdigon to be well executed in the local market, you can mitigate the effect, which is an impacting effect of the avian flu. I repeat, as I said in the prior question, still persists in two markets, China and Europe, extremely relevant.

Moderator

I would say that the good thing in our sector is that we always have the possibility of continued learning, and humility also tells us that we can do better. This is not a speech in the company. This is the practice. And I would say that we have three times a week here at BRF talking a little bit at the backstage. Three times a week, we we get together.

Moderator

We meet, and we discuss the aspects of avian flu as with the perspective of learning and decision making, and the decision making is collective. In this company, there is not an individual level. We have a group working together to mitigate a challenging situation for the company and for the sector. And we I would say that looking at this perspective with humility, we have navigated really well in this scenario. Would say, as I repeat, this is a very challenging scenario.

Moderator

I hand over to Fabio so he can answer the first question that you made. Good morning, Guillermo. I'm gonna talk about the costs. As it was said, the cost of animal feed should provide a reduction of CPV in the second half of the year very much because of origination of, the corn and the short harvest and prolonged on, soybean meal. When we refer specifically to labor, the labor cost, and we compare this for the half of the year with the prior half of the year, we see the correlation with inflation.

Moderator

This is also valid for, goods and services. So the expectation is that full employment should place a challenge of a higher adjustment than the inflation. I don't know if it's gonna be the case. I can't anticipate that, but nothing that would significantly change the representativeness of labor costs in regards to the total cost of sold product. Miguel is gonna add something.

Moderator

I wanna add I wanted to say when I mentioned our work, our teamwork, I wanted to take advantage of your question to thank our a 100,000 employees in all geographies. They have worked really hard so we could overcome the challenging episode of avian flu. When the avian flu was informed, we in the following day, we executed the contingency plans that we had designed, a lot of work, a lot of effort and dedication and delivery. So we are thankful to all of them. I'm gonna close with the second half of the first question about expenditure.

Moderator

What I can tell you is that, structurally, at BRF, we have expenditure equivalent to 15 points of the revenue. This hasn't changed and shouldn't change. What we have done, especially on the commercial side, is to increase the sales force, sales for salespeople and promoters. This wouldn't affect productivity. On the opposite, when we analyze expenses in comparison to revenue, this should bring captures equally even.

Moderator

We have six points of variable expenses. At the moment that we increased volumes, these nominal expenses, they increase. But structurally, SG and A as representation of revenue should continue. It's 15 points. This quarter specifically, we have a one off adjustment that we have highlighted in other operational results, which was the adhesion of renegotiation in the state of Minas Gerais.

Moderator

But excluded that, it's going to value to the 15 points that I have just mentioned. Our next question comes from Lucas from Morgan Stanley. My first question has to do with the domestic market. The price and volume combination was very strong when it comes to the domestic division. It really called our attention. So if you could provide us with more details, what were some of the main highlights of the water perhaps in the processed goods?

Moderator

Maybe if we if you can see a big collaboration with Marfrig and the hamburger line or if it was another processed line that you've invested more in the last years. So if you could just provide us with a little bit more details, maybe the highlights of the processed goods category. And my second question, perhaps focusing more on the detail of what you mentioned, Fabio, about storage around 3%, but the production expectation is still on the 1.5% or 2%. So clearly, we can see a loss between one stage and another. I would like to hear a little bit about what are you seeing in terms of supply or the industry performance, if it's connected to mortality or hatchability.

Moderator

So maybe a little bit more of perspective in terms of what we're seeing in terms of the supply. And how do you see this for next year? If you can see, like, improvement of the indicators, like, regarding the genetics companies, like a new line. So more detail considering this specific part here of supply in Brazil. Thank you so much.

Moderator

Lucas, we would like to take advantage of well, since Marfrig and BRF, when they started working together, a combination that starts very well, like iconic brands like Saadia and Perdigon as well as Basi combined with Saadia and Perdigon combined with Montana. So the result, it's evident. So when we put this combination on the hands of the commercial teams, Marfrig and BRF, the excellence of commercial execution, and then you have a result that we see happening and practically wise And it makes us very enthusiastic towards the future because this combination it's a combination that we've been using in the internal market, but we also started using Zadia as a beef brand in the international market. So we see this future scenario being unfolded in a combined performance, it will represent gains without a shadow of a doubt. We have plans of growing, of adding value.

Moderator

This is something that we've been looking for by the controller orientation. In the sense of working with added value products, this is something that's suitable for BRF or Marfrig. We've been working a lot on that. Fabio, in last questions, he mentioned the increase of our processed goods of our value added product. This happened not only in Brazil, but in different geographies as well, like in Turkey and The Middle East.

Moderator

It happens considering the investments that we've made as well as the construction of a new factory in agenda. So this is something that has been happening. It's going to be a constant practice. A company that looks at future opportunities and works for it to be concrete and concluded. Lucas, just to complement, and then I will also answer your second question according to the production.

Moderator

But I believe that in figures, Brazil's revenue grew 18% during this period versus the last year. So we have a combination of the two elements that you've mentioned. So the volume increased. The average prices as well advanced. I don't think we have only one explanation.

Moderator

We have all the processed goods portfolio performing very well in all the categories and also the contribution of the Innatura process even though we don't have as much opportunities. We took competitive decisions of redirecting products due to the exports restrictions. So when this is done in an adequate moment, we can perform prices in a very competitive way. Everything influenced like a very good development of the domestic market. The second question, obviously, right, we have a very specialized industry in genetics.

Moderator

So the continuous improvements work they they exist either for us to solve the equation problem or, like, the conversion the food conversion of poultry of as well as the swine, industry. This is something that is will never end. It's applied science. What happens, it we have an imbalance. Right?

Moderator

So we see that the growth doesn't really translate into the production growth. So this should happen for a while. I cannot really precise how long, but maybe we might see an opportunistic scenario, like, in 2025, in the 2026.

Moderator

Our next question from Thiago Bertolucci from Goldman Sachs. Bertolucci, please, your microphone is open. Miguel, Fabio, it's always a pleasure to talk to you. I have one follow-up. It's somehow related to the avian flu topic.

Moderator

I don't wanna be exhausting on this topic, but, obviously, as everybody, pondered so far, the surprising results for such a challenging scenario. And we understand that we have a lot of moving parts, so I wanted to explore particularly the topic of, inventory formation and properly the company and the market in general chose for a strategy of preserving domestic demands and not throwing the exceeding production at once. And we noticed that at BRF, an increase of a little bit more than one and a half billion of the inventory of finished product, which is natural for this moment. The question is more, what is the pay of releasing for this level of storage that we should have that we should imagine for the second half of the year? And how dependent is this release or strategy of product of BRF product positioning today depends on an evolution, particularly from the trade with China?

Moderator

Thank you. With Thiago, we work here in the company with the philosophy of not keeping inventory without sales. We have been repeating that. We sell to produce, we don't produce to sales. So even in a continuous chain sector, like in the case of swines and poultry, so our idea as the markets reopen, we have today most of them reopened.

Moderator

And I repeat, we still have European market and Chinese market too. I would say these two markets resume. The trend is to go back to inventory levels that are basically zero inventory without sale in the company. This doesn't mean that we are not gonna have the care in the sense of not destroying value because you have today, the, with the the company has conditions to make this movement and reduce this inventory. We have an inventory that is not exorbitant.

Moderator

So the along the next quarters, the there's no chance of destroying value. Even if I have to make an analysis, I think that we have because seasonality, great possibility of resuming at the international market level, the price dynamics that we had before. So you see that happening in certain geographies already, and we are paying a lot of attention to these movements. BRF works here with the pricing system that allows us quickly to identify opportunities. And over these opportunities, we can act as it happened during the avian flu.

Moderator

One thing is to know what needs to be done, and the other thing is to see what can be done. And something else is to do what you saw happening. So in this quarter, we clearly had the example of that. We identified the opportunity and executed in time and way the destined of products without destroying value, either in internal market or other destinations, a 188 that has opened. Thiago, what I would like to add to Miguel's answer is just to remind that that there is a stock formation of celebration products that influences this picture that you report.

Moderator

So it is correct. The magnitude, the inventories are elevated very much because of important restrictions to exportation, and the pace is to enjoy the best opportunities. So depending on market conditions, the speed of opening the original markets like China and the market in Europe. But we have already established all the targets so we can have the inventory normalized as fast as possible. Is it clear?

Moderator

Thank you, Miguel Fabio. Just an international follow-up. Excellent results. Given the moment we're going through, in spite of that, when we look at the Bembit, we see an EBITDA margin that is negative in the quarter. In the in your remarks, you commented a scenario that it's a little bit more tight in terms of supply and more focused on, prepared product, processed products, mix and added value within the portfolio.

Moderator

I just wanted to understand how these two forces should have an impact in the P and L, particularly benefit in the perspective of six months helping us understand this, location until the end of the year. Well, Thiago, I think that the context of the benefits performance go through what we have influence on, but also go through what So today, we live in the region, excess of poultry offer, growth of the production of 12% for the half of the year, for half of the year, and this puts pressure on poultry prices. A little bit of 70 more, 70%, though we sell in Turkey. We are talking about chilled poultry.

Moderator

And we have, as possible, we have increased our added value products offer that is over 25%. So the company's strategy is to continue increasing this added value product offer much more resilient to this offer shocks. Recently, we have adopted an adjustment of slaughter in the region to decrease a little bit our offer, our own offer. So this because the variable cost part is higher in this in the platform in Turkey than it is in the platform in Brazil, so we relieve the cost structure to influence positively price reaction. So we already have an action plan.

Moderator

We understand that the performance in this region is gonna improve gradually. This is not gonna happen overnight, but we see an improvement in the second half of the year when you compare to the performance in the first half of the year. On the other hand, Thiago, we also have been doing the work in the past few months in a way to integrate better the Turkish platform with the Brazilian operation, both for the agribusiness and industry, as you could call the Turkey Plus, like BRF Plus for Turkey. And we are very confident that there are many opportunities to apply knowledge in the way we work both in agro and in the industry. In the Turkey platforms, you have commercial different aspects for the internal and exportation markets, the company as a whole has looked at this more challenging moment for benefit operation, and we're really confident that the foundations of these operations can recover in short as possible that we could indicate that any analysis, more surface analysis, could indicate for that.

Moderator

Thank you, and Fabio Miguel. Congratulations for the results again.

Moderator

The Q and A session as well as BRF teleconference is over. I would like to thank everyone's participation, and have a wonderful day.

Analysts
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