BRF S.A. (NYSE:BRFS) Q3 2023 Earnings Call Transcript

BRF S.A. (NYSE:BRFS) Q3 2023 Earnings Call Transcript November 14, 2023

Operator: Good morning, ladies and gentlemen. Welcome to BRF’s Q3 2023 Earnings Conference. This conference is being recorded and will be available for replay at the company’s website, ir.brf-global.com, where the presentation slide deck can also be downloaded. All attendees are now connected in listen-only mode. Later, the call will be open for questions and further instructions will be provided. Before moving on, we’d like to emphasize that forward-looking statements are based on BRF’s management’s beliefs and assumptions as well as currently available information. These statements may involve risks and uncertainties seeing as they relate to future events and therefore rely on circumstances that may or may not materialize.

Investors, analysts and journalists must acknowledge that events relating to the macroeconomic environment, the industry and other factors may lead to materially different results than those expressed in set forward-looking statements. Joining our conference today are Mr. Miguel Gularte, CEO and CFO, Fabio Mariano. I will now turn over to Mr. Gularte, who will begin the presentation. Please, Mr. Gularte, you may proceed.

Miguel Gularte: Good morning. I would like to thank everyone for attending our third quarter 2023 earnings call. Discipline in the execution of our BRF us efficiency plan has once again contributed positively to our performance. The company has been working consistently and improving its results every quarter. This period was largely characterized by the increased profitability of our processed food portfolio in Brazil, the downswing in product costs and the continued improvement of BRF plus. We strengthened our capital structure by enhancing our operations month after month and using the funds from our follow-on offering, which helped to reduce our financial expenses and leverage. Now I’d like to invite our CFO, Fabio Mariano, to go over our detailed results, after which I’ll return for my final remarks.

Fabio Mariano: Good morning to everyone joining us on the initial slide, I’d like to highlight our main financial indicators for the third quarter, starting with net revenue, which came to BRL 13.8 billion. Our EBITDA was BRL 1.2 billion in the quarter. This gave us a 9% EBITDA margin for the period. Free cash flow performance nearly broke even with the best cash generation yet for the current year. On the working capital front, we continue to make significant progress with a reduced inventory of finished goods, unprocessed goods, in particular, which was offset throughout the quarter by the spike in corn inventory during the double crop harvest and the peak in commemorative goods inventory. The financial cycle reached 7 days, 6 days less than this time last year and inventory turnover was 84 days, 20 days less than in 2022.

Now ending the slide with leverage, we came to 2.66x EBITDA in the last 12 months. Our focus is still to strengthen our capital structure, promoting a decrease in net debt, so our leverage can fall even further. In the next slide, Page 4. We show our gross profit over time coming to 18% in the period. We reported a gross profit of approximately BRL 2.5 billion. On the right, we also see the company’s EBITDA over time, as mentioned earlier. In the next slides, we will go over our performance by market business segment. Starting with Brazil, we continue to progressively improve our EBITDA and our margins. We reported an EBITDA margin of 11.9%. And the result was even more impressive when we look exclusively at the processed foods portfolio where profitability was in line with historical levels despite the country’s more sluggish consumer spending.

On the following page, Slide #6, we make it clear how the drop in prices within the unprocessed foods portfolio in Brazil has held us back from an even more substantial performance in the region. We can see in the chart on the lower left side where base equals 100, how profitability has developed for processed goods in recent quarter, already mirroring the decrease in game presses, the efficiency gains provided by the BRF plus program as well as our improved commercial execution and price positioning. On the right, we can see the behavior of cost per kilogram throughout 2023, making it clear what we anticipated in our last earnings conference call, the positive downward trend in input costs and efficiency gains, which are driving profitability gains.

On Page 7, I’d like to mention in the Brazil market that our commercial execution is still enabling us to grow more competitive. Among the strides we’ve made, I’d like to point out the increased number of active customers and products available in store as well as greater adoption of our suggested retail prices. Service level metrics remain at high levels, allowing for greater sales volumes. Finally, the processed foods and spreads market share ended the period over 39%. The next slide shows the international market performance. Our EBITDA was still heavily impacted by the adverse sonar of protein experts. EBIT margin came to 4.2% and steady when compared to the previous quarter, given the recovering profitability in Chicken and process products, which was offset by the narrower margins in the pork and turkey portfolio.

We’ve also reported gains in the share of chicken and pork experts to several different destinations. On the next slide, we point out the resilience of our results in GCC, especially the strength of the Sadia Brent and local distribution as well as the positive performance in Turkey, which also reflects the increased supply of value-added products in the Turkish market and the greatest balance of supply as a way of reversing the price trend locally. We retained our market share leadership with the Sadia and Banvit brands with a share of 36% and 22% in their respective markets. On the right-hand side, we have the highlights of direct experts. We can see the price impacts of the main cuts, which canceled out our gains and cost competitiveness.

We continue to broaden our business alternatives with 19 new licenses for markets such as Asia, Africa and the Americas. We should come to 50 new expert licenses by 2023. Direct factory experts remain at high levels with reduced logistics costs and unsold inventory continues to decrease, improving our commercial execution and relieving the capital we employed. I’ll end the presentation on business segments on the following slide, showing the performance of our ingredients and Pet operations. The segment reported an EBITDA margin of 15%, EUR 126 million in the quarter. It’s important to remember that the performance of manufacturing output continues to contribute to the maximization of our results in the company’s core portfolio. We’ve continued to make progress in realizing synergies in Pet, we simplified the product portfolio within some brands in the food channel while strengthening our presence in the specialty channel where we have continually cultivated a better relationship with veterinarians.

In ingredients, we are still focused on broadening the markets and increasing our sales and production capacity for value-added items. We’re still adding value to our co-products in order to maximize business integration. Next, we’ll talk about the progress of our efficiency plan, which Miguel will be quantifying in numbers shortly. I’ll be showing you some comparisons with the same period last year of the light gray colored bars. And other basis for comparison can also be seen in our disclosed material. In agriculture and livestock, the feed conversion in the poultry and pigs, fell by 1.7% and 1.6%, respectively. Chicken mortality fell by 2 percentage points and hatching rates rose by 6.8 percentage points. In manufacturing, we increased our factory output by more than 3 percentage points.

And in logistics, we’ve reduced our returns and raised service level in Brazil significantly. On Page 13, we show you the highlights in sustainability ESG with our achievements, such as the certification of 100% of our poultry and pork, slaughter units in Brazil and animal welfare, 8% reduction in water consumption per ton produced versus the base year, which was 2020, which is the equivalent to 2.7 billion liters in 2023. We’ve also already started using an average of 14 megawatts of clean energy on a monthly basis from the wind complex we announced in 2021 in a partnership with AES. We expect to reach 80 megawatts on average in 2023. And finally, our Quality brand has launched a special packaging to celebrate the milestone of 12,000 tons of recycled plastic.

On Page 15, we show you information on the company’s capital structure. The chart on the left side shows the performance of our net debt and leverage over time. These indicators have already been pointed out at the beginning of our conference. On the right, we see the debt profile, which remains diversified and long with no repayments concentrated in the near term and a comfortable liquidity position. The next slide shows the free cash flow. The bridge shows an operating cash flow of BRL 923 million, investment flow of $536 million and $480 million in financial flow, leading to a free cash consumption of BRL 21 million. This was the best cash generation of the current year, as we can see in the chart at the top right-hand side of this slide.

On the final page, we can see the performance of our net debt over quarters. We’ve reported a net debt of BRL 10.3 billion capitalization of the share offering in July. The allocation of funds from the follow-on offering will continue to help reduce interest charges in the coming quarters. Now I’ll turn the floor back to CEO, Miguel Gularte, for his closing remarks.

Miguel Gularte: Thank you, Fabio. To conclude our presentation, I’d like to say that the final stretch of this year shows our BRF plan, BRF plus plan, delivering more than we planned for and increasing the company’s resilience in the face of a challenging scenario. It’s important to note that the planned additional capture amounted to BRL 677 million this quarter, exceeding the target we set for the period. And our continuous improvement journey, we’ve already mapped out and established the priorities for next year and what we’re calling BRF plus 2.0. The plan was built hand-in-hand with the company’s senior leadership and focuses on the improvement of our indicators. Just as in 2023, the commitments we’ve made and the opportunities we’ve identified have motivated us to remain on our path of improvement with simplicity, agility and efficiency.

This quarter, the drop in grain prices is already impacting our results just as we predicted. Our predictive models and our grain purchasing strategy are a competitive edge for our company and proving to be highly efficient. In Brazil, we’ve returned to double-digit EBITDA margin and approach to our historical levels of profitability. This mirrors the positive performance of our processed foods portfolio alongside our positive commercial execution and improved management. In October, we recorded the lowest FIFO level over the last 34 months. Our results also mirror the strength of our brands, which are still preferred by more than half of our line consumers. Sadia is still a leader in the food sector and was named top of mind by the full De San Paulo newspaper in 4 different categories, and quality was also named for the 18th consecutive year in the margarine segment.

In our international operations, our market diversification strategy is still proving to be decisive in maximizing the company’s revenue. We’ve won 19 export licenses for Latin America, Asia, Eurasia and South Africa by 2023, we’ll have reached 50 new licenses. As always, the best option is to have many options. We’re still focused on the constant search for new markets, continued improvement in our operating results and our reduced financial expenses by using the funds from our follow-on offering have contributed to a balanced cash flow and lower leverage. Lastly, I’d like to thank our nearly 100,000 employees for their work and dedication because of the progress and deliveries we’ve made so far. I’d also like to thank our Chairman, Marcos Molina and the Board of Directors for their trust, presence and continued support and also shareholders, out-growers customer suppliers and all the communities where we have a footprint.

We’re prepared for 2024, convinced and expecting that in the face of a normalized scenario for the effects of everyone’s work and the efficiency plan will be even more impactful. We will continue to build an ever stronger and more competitive BRF. We will now begin the Q&A session for investors and analysts.

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Q&A Session

Operator: Our first question comes from Ricardo Alves with Morgan Stanley.

Ricardo Alves : Thank you for the call. I would like to ask two questions about Brazil one the short term related to the fourth quarter. Do you really understand that the market has been anticipated, what would be a sequential result of the company? We still believe it’s going to be a tailwind. In addition to that, we also have the commemorative events I’d like to understand from you the part where we don’t see a lot of visibility. How do you see that the company is going to perform in the high season in terms of inventory, product in stock, all things related to the high peak season that could impact the result? I don’t believe so, but if you could provide us with this level of detail, it would help us understand the performance and the results.

And the other question is related to the first question as a follow-up. When we look at Brazil, we can see that we reached nearly 12% in terms of Brazil. But if I’m right, Fabio showed the slide, saying that if you want to change the in nature, chicken and the process chicken, we can see that the margins are really high. So I would like to understand if it’s how we should be looking at the results for Brazil division because I think it would be similar to the margin that we have considered that the uncross nature was like this. And if things happen have improved in September, October, we understand that the favorable level is going to be reached. So these are the 2 questions I would like to ask you.

Miguel Gularte: Ricardo, I’m going to start answering your first question, and then I’ll turn the call over to Fabio, and he will answer the second question. You’re right. We are starting the fourth quarter, very enthusiastic. And this is based on financials that we see in our business. We keep on make headway in BRF plus, and this touches upon all the dimensions of our production of operation and our sales as well. It’s also important to mention that the fourth quarter is for BRF, a very special quarter. We know very well that Sadia, Banvit and even quality are brands that associated with the end of the year and also Christmas season. And we have been preparing ourselves to renovation, trading and inventories so that the fourth quarter can really be a very promising quarter as we see it.

On the other hand, we saw at the end of the third quarter, a recovery in relation to prices, not only in the domestic market, when we talk about unprocessed product, but also regarding the international market. When we look at the prices of the third quarter and we look at the prices compared to our price portfolio of the fourth quarter. In other words, the export portfolio that we have for November and December, we can see that prices have recovered in a very significant manner such as in the Middle East of up to $350 per ton. If you go to Americas, some cuts we can see also prices going up, especially for chicken breast. And in some cases, we even see $100 per ton. And there’s something that has been presented, but I would like to draw your attention to is the fact that BRF worked quite hard to get more licenses.

And we have 50 new authorizations, new licenses and many of them in the third quarter. So we see a very enthusiastic team, powerful brands, a very well done execution in a more normalized cement terms of exports. And we reported a very good performance that will lead to a good fourth quarter. I’m going to turn the call to Fabio, who will complement my first answer, and we’ll answer your second question.

Fabio Mariano: I think your 2 questions related to Brazil are interconnected. I can say that your understanding is perfect. The margin of from processed food in Brazil has to do with the historical level. So we boosted the profitability that makes us confident that when we see what happens in the processed food, as we saw in the data that we showed, we see that in nature on prices, food have already recovered. So we make the transition to the fourth quarter at a very good level of profitability in most of the cuts that we sell in Brazil. So when you combine this element with the element that you have already mentioned, we have a stronger quarter as a result of the seasonable portfolio due to the commemorative events. And in addition, to our inventory turnover, we believe that we are going to have a quarter which is going to be very strong in Brazil.

You also asked about possible events or negative events as to planning, we are very well balanced in terms of how we are going to serve the market. So yes, we are very optimistic because of the margin of processed food and also the margin that we see.

Operator: Our next question comes from Gustavo Troyano with Itau BBA.

Gustavo Troyano: First, I would like to go back to the cost per ton. I would like you to help me understand for the third quarter. What would justify the cost per ton in Brazil dropped quicker than when compared to the international terms? Is it to do with having more process to Brazil? Because I would expect the drop to be more accelerated at the international level. And do you believe this is going to be reversed or is it going to be sustained for the fourth quarter? And since we’re talking about costs, I would like to understand if the sequential drop that we saw in the third quarter could be used as a parameter for us to imagine the performance in the fourth quarter? The second point may be talking about cash flow, we saw that there was a reduction in the result for the half of the year.

But it seems that the annualized reduction was higher than the BRL 600 million that we discussed at the beginning of the year at the offer at the time of the offer. I would like to know if there’s anything going on so that we can understand the breakeven, especially when we talk about the annualized results and also considering the CapEx?

Fabio Mariano: Thank you, Gustavo. I’m going to start from the first part of your question that has to do with the cost per ton. You mentioned that there was a retraction in Brazil cost, and you tried to make an alignment with what happened internationally. So we’re talking about a drop of 7.5% in the domestic market and a 6.9% drop in the international segment. I’m going to explain to you why this difference happened. But I would like you to provide your breakdown about this drop. The first aspect is the reduction of the consumption of grains. This has influenced our COGS. And then we have the captures of the efficiency program, which is the BRF plus that accounts for 25% of this drop. And then we have 15% that has to do with the mix of products sold and another 50% related to other effects.

When you compare the drop Brazil, with the drop in international segments, you have to take into consideration that in the international segment, we have influences of currencies, different currencies in the case dollar. In the Middle East, we prepare an inventory, so we use our distributions, and we maintain the inventory at the local level. So you have the FX effect that influences the dynamic of transfers in Brazil, so that we can then sell the products. We have to remember Turkey as well, which is a business unit where we sell products for the Turkish market. And we also have the translation effect that also affect the results. So this is something that we have to pay attention to. And you asked what we can expect in terms of costs, you asked if we could expect the same behavior in the fourth quarter.

What I can say is that as to grain, yes, we are likely to have another reduction effect that is going to be reflected in the fourth quarter of the year. And we are also confident with the captures from the efficiency program that we have BRF plus. So we can expect a similar behavior before the end of the year. Your second question was about the cash flow. You talked about nonrecurring events and financial expenses. I would say that there is one factor that would affect the financial expenses, but does not affect the free cash flow, which is the rebuy of the tender offer of 2026 note, we bought up to $200 million with a discount. So we were able to account for a premium of approximately BRL 50 million. And we can say that this is a nonrecurring effect.

But again, it affected the financial expense line in a positive way in terms of financial revenues. But that does not impact the free cash flow because this is regarded data amortization, it was a lower amortization where we redeemed the bond. Generally speaking, some of the elements that we could discuss related to the current , we continue reducing the inventory of finished product. And this cannot be seen in the inventory because we reached the level of commemorative product inventory, and this is going to be used in the sales in November and December, which is typically what happens in this period of the year. And also due to the off-season harvest, we replenished the grain inventory, especially corn for the quarter. So that would help us explain why we are sure, we have confidence that in the third fourth quarter, we are going to generate cash.

We had a very strong third quarter. And this is also going to impact the generation of cash also in this line. I hope I addressed all the aspects of your question.

Gustavo Troyano: Yes, everything is so clear. Thank you, Fabio.

Operator: Our next question comes from Leonardo Alankar with XP.

Leonardo Alankar: I would like to ask a question as a follow-up so that we can understand if there is a higher position in the position of grains and also the expectation for the consumption of Christmas products and also if there is an expectation that the international performance will improve. And if the net result would be an improvement in the working capital, just to confirm what we have already discussed. The variable volumes tracked mutation because I look at the volume record as the expectations of what happened in the past. And we can see the margins continue to be low. The increase for the next years, Brazil has a margin of 11.9%, which is a very positive surprise and processed performing better than in Ignacio or — So what are we going to see in terms of performance?

Is it going to sacrifice international performance? So I would like you to give us a breakdown in terms of volume and what’s the space for next quarter? I asked this because when we look at sectorial data, we can see there was a drop of some areas. It seems that the market is leaner. So it seems that the market made adjustments to the offer. So we see a positive dynamic. I would like to see that if your trend is different from that, that we see in the market and how do you compare to the peers so that we can understand the whole situation?

Miguel Gularte: Leonardo I will take your questions, starting by the second part and then turn it over to Fabio, who will finish taking the other parts. I think it’s important to have or to keep in mind that we use a predictive model, both in terms of origination and the commercial side as well that’s very fine-tuned. So we worked in such a way that we would go into the market to purchase grain at the right moment. We understand that, that’s working capital intensive, but we recovered that with our ultimate results. On the other hand, it’s also important to point out something that you’ve said. And in this case, we add more explicit color, so to speak, BRF was the first company to have posting in the U.K. This was for a very important unit of ours.

And we went back to that market, a market BRF has been absent of since 2017 or 2018, which is very exciting for us right now. Now another thing that you also mentioned, which I think is important to quantify because it’s a very important aspect. BRF operated very interesting work when it comes to production, BRF had a very important work in terms of going for commercial assets. Now these assets include these 50 new licenses that we’ve acquired, 19 of which were secured in the second half of 2023 alone. This is a project we have been working on and will continue to work on to obtain new licenses. These new licensed plants are being working on. And they will serve not only to improve our capillarity, but also to enable us to offer larger volumes.

Now on the other hand, something that we’ve talked about in the last conferences, BRF has attempted to and have been managing to produce to sell and not sell to produce, which allows us in such a way to arbitrate and choose the best choices, which ultimately allows BRF to grow and take the lead again when it comes to efforts. Last year and at the beginning of this year, this is something we worked toward and already getting ahead of myself and answering part of what Fabio will say, it is likely that this continued growth will be seen again in 2024 and also in the following years. Now Fabio, if you could please go ahead.

Fabio Mariano: Now, Leonardo, I could tell you about your question with regards to what you should expect from or in terms of the net results, I will list a few factors, but overall, we expect the net results to be positive. Considering the sales of commemorative products, that’s the first part. What we will see as a normalized inventory in our portfolio, which should take place in the last 2 months of the year, as I’ve said before, from the grain perspective, I can say that we are at a very coin a very comfortable position from a supply standpoint. So we’ll continue to measure whether the market is offering as much as it has, but we do not have the chance to originate if conditions are not attractive in our opinion. And the most substantial part of this half of the year, as we’ve said before, is in the unfinished inventories in our international operations.

So we’ve identified an opportunity without any interference with the levels of service to maintain an inventory of at least 30 million to 35 million tons less, which if you consider a cost of BRL 10 Bikila, could represent as much as $350 million now that prices are picking up, and Miguel mentioned this at the beginning, we are gaining confidence to add that volume to our commercial operation. To some extent, this has already begun in early November. And if everything conspire positively, we’ll continue to do that moving forward until the end of the month.

Leonardo Alankar: Very clear. Now just other clarifications about BRF. If you had more pages detailing that, that would be great. But thank you so much for the answer so far. Thank you.

Operator: Our next question comes from Isabella Simonato with Bank of America.

Isabella Simonato: Good morning, Miguel and Fabio. I’d like to go back a little bit in our discussion to unprocessed foods in Brazil and how your margins are performing or have delivered over the course of the quarter. If you could please give us more detail breaking down by category, maybe in terms of how we could compare across the many industries that you work on in processed foods, considering also margining and the categories that work with larger volumes, how could we expect your performance moving forward? And you’ve also mentioned your prospects for Q4, but if you could add a bit more color in terms of demand and competition that would also help us a lot.

Miguel Gularte: Hi, Isabella. Before going straight into the analysis that you asked us to offer with regard to categories, I think it’s safe to say that the performance of our processed goods has to do with 2 main aspects. First of all, the commercial execution that we’ve delivered is something that we’ve pointed out recurrently. So this is something the company is very actively focusing on ensuring coverage and ensuring that the store plan is planned for and executed in an optimum way, which has allowed us to be better positioned in pricing terms even. And in our commercial strategy at large, ensuring our share on the shelf and why not also influencing customer decisions as well. Now the second aspect has to do with cost, and it couldn’t be any different.

We’ve just talked about the reduced costs per kilo. So that also affects our profitability. And also helps you to understand the second part of my answer when it comes to category. So I’ll give you an example of spreads in general. This is a category that benefited significantly from the increase in cost of soybean oil. So at present, we’re seeing a trend in the market for this category, which is one where the profitability exceeds the effort of recent years. So you have a price competition in the market that is only natural for the margarine categories. Now the sausages and franks where, I mean, prices have been more fragile because of our protein supply, that’s ultimately appealing for producers to make their products more elaborate.

So that affects the market, but we’ve been navigating that really well, and that’s a matter of our execution going back to the first part of the question. So as anticipated, we expect prices to go down in Q4. There’s also the layout of our commemorative products portfolio. So our competitive edge is likely to improve. We should work well in all our categories I mentioned to you, but frozen products is no different, for example.

Operator: Our next question comes from Thiago Duarte with BTG Pactual.

Thiago Duarte : I just wanted to go back to the point of the previous question where you mentioned the volumes and also clarify, just as I think Leonardo said, your increase in volume, so was a positive surprise. And it’s interesting, you no longer release your slaughter figures, but we still have access to your animal inventory figures and that has actually decreased versus Q2 and versus last year as well. So that gives us the impression that you had more product precisely because of the increased production yield and the execution of BRF. So first of all, I just wanted to confirm whether that increased volume comes from the increased production yield when we look at that result because animal inventory is actually going down.

And with that in mind, I’d like to hear from you what are the company’s plans moving forward when it comes to adding animal on the field. So increased housing of breeders and whether those increases will be connected to increased yields still? And my second question about BRF plus, I heard a few comments, I can’t remember if that was on the release were in Miguel’s presentation saying that many of the indicators that you were seeking are already doing equal as well as or even better than they did in 2019, considering what you planned for the plan the BRF plus at the beginning of the year. So I wanted to hear from Miguel when we look at the aggregate figures, how are we doing compared to where you were back in 2019? We wanted to understand, considering that point of reference, how close to that you are when it comes to profitability, service level.

You also mentioned the increased FIFO and so on and so forth. But if you could please quantify the gains that you still expect to have considering all of that. And lastly, if you could talk a little bit about your asset sales this week, you mentioned the cancellation of your pet food business sale. And so considering the nonsale of that asset, which was one of the most significant you plan to work with everything else that you have, is there anything relevant in terms of reference? What could we expect for your divestment?

Miguel Gularte: Thank you, Thiago. I will start by taking the second part of your question, and then Fabio can take the first part. On BRF plus, we met back in September, outlined a new project that we named BRF plus 2.0. That program will continue the ongoing improvement we’ve experienced since Q2 2022. In the 3 quarters that we’ve had so far in 2023 and which from now on, we’ll have opportunity to conclude in 2024 by Q4. Just to answer your question in a more well-rounded way, many of the indices that we had planned to reach in Q4, we’ve already reached in Q3 and those that we had as a benchmark in 2019 have already been exceeded. There are still a few challenges as we expected to have from the outset, which we now plan to address with BRFs 2.0. Many of those aspects such as production yield and so on and all of those operation indicators, both on the field and in manufacturing have already been exceeded in 2019.

Some of them have actually exceeded even BRF’s best times historically. What we expect to see now in 2024, we’re already comparing within the business units of our operation where we’re performing better to establish that performance isolated from the company’s contextual performance. And it’s important to point out that this will now be part of our budget in 2024. Once we deliver our 2024 budget, that will be cascaded down to the entire company affecting not only compensation but also the activities of all our collaborators and business units. So we are very confident that the continued improvement that we are working on still has a way to go and we should see progress in 2024. I will turn over to Fabio to add his comments to the answer. And if necessary, I can come back and close it.

Fabio Mariano: All right, Thiago, if I’m not mistaken, you asked 3 questions, right? BRF plus, and that’s what Miguel addressed was the second. The first one had to do with sales volumes. You mentioned slaughter levels. And what I could tell you about that is we are highly focused on what we call the use of our industrial operations. And this includes not only the industrialization lines or processing lines, but obviously, our slaughter lines as well and also our farming operations. And I think that these figures have to do with the energy we’ve devoted to reducing any idleness that we could call systemic from our operations. Now with regard to slaughter, we have maintained our slaughter shares, and this is true for chicken and pork.

I do not want to go into detail this sensitive information, but the company has made no structural adjustment so far. No structural adjustment has been made except for the end of operations in one of our plants, but one which was not that significant. So it was the only adjustment that we could call a structural one. This has no significant impact on what we should consider a biological factor that has been affecting our performance, and this is something that’s not expected to change in the near term. This is what I could tell you to that part of your question. And lastly, when it comes to divestment, if memory serves, I will first talk about our most recent announcement which we made yesterday that we will no longer be selling our Pet operation, and that was simply because we didn’t come to an offer that nor opinion was fairly priced.

This is an operation that we consider very significant. So, we are now devoting some of our energy to develop that part of the business, looking for synergies that we were once in some measure, been able to realize. We’ve made progress in the processed food segment. We are strengthening our relationship with veterinarians. This is a large market in Brazil. We’re talking about over EUR 40 billion in sales. Brazil has the third largest PET population in the world. Market growth projections, not for Brazil, but for the market is over 2 digits. So we have a lot to make sure that our operations progress in that sense as well. You also mentioned other sales. So I’d like to say that we no longer have anything significant except for a few assets that we’re still operating, these are nonoperative assets and our overall operation did not rely on that even because the contingent tax credits, there have been offers.

But again, a value that we do not believe is fair considering the pricing or the valuation of each one of those shares. So you shouldn’t expect any significant share or any significant sale of assets within the pipeline that we had mentioned before.

Miguel Gularte: Complementing Fabio’s answer, it’s important to know that BRF has been in the process of decreasing idleness and occupying production. And according to our budget of 2024, we plan for organic growth and considering the investments that have already been made. So you made a very, very appropriate question, and let me give you an answer to that. When you look at the yield aspect, BRF opened a new plant by means of yield, you have percentage and the slaughter of chicken, you have an additional 400 chicken being slaughtered only by improving processes. So considering the moment when we maximize our production, we can have a very, very expressive organic growth, which was the case.

Operator: Our next question comes from Lucas Ferreira with JP Morgan.

Lucas Ferreira: It’s a follow-up on the international market. You said that you have seen improvements in terms of prices in some regions. But it’s a question on Asia, Japan and China are a relevant market. And in the past few months, it seems that they haven’t been perfect. So well, in terms of prices, my question is, is there any visibility of price improvement? I understand the United States had some restrictions related to imports, related to avian flu in nearly 40 states. But at the time, the prices on to CSX are still very low, specifically about Japan and China do you have any prospects, any positive prospects in the field? And that’s my question.

Miguel Gularte: Lucas, thank you for your question. We analyze the market to Japan, and we understand that this market was in a recovering process in the second quarter. We had some cases of confirmation of this status. And when Brazil-when Japan came back to the market, the prices were lower. And we have to understand that inventory levels were lower and Japan needed to purchase more and Brazil is a good supplier. And now we resumed the market. And we can see that there’s going to be a price recovery, still not very significant recovery, but it’s materializing. The price is still lower than that, that we expect for 2024. But we are in the process of price recovery. On the other hand, it’s important to mention, am sorry I insist on that, when we talk about new destinations, new auctions and new licenses, we see as for Japan is a very specific case, when Japan close some states, BRF because it had a license to Korea.

We made a decision, a timely decision, and we managed very quickly to redirect the exports to that market without offsetting prices. And we doubt we’re incurring any losses in the sales process. On the other hand, we focused quite a lot on the execution of the international market plans. Remember that when we started talking about the efficiency program of BRF plus, BRF was a company that worked with an inventory without sales. And we no longer do that because of risk and also the working capital. And we started to bring to the port directly. Before that, it was shipped from deposit to another deposit and then consolidate the broad for sale. We suspended this and somehow it has allowed us to capture a market in a quicker way than thinking about the advantage of better prices.

So the product is not waiting for the market to lower prices. You are practically on line. If it is rising, you are there capturing this advantage. So we did very well when we applied the dynamics, and it was again important to mention the predictive model adopted by BRF. As I have insisted since the first two results earnings call, if you make a mistake in the management of BRF, it’s not because of lack of quality and information. The information quality is very high, and this is the main input for us to make the good decision. If you do not make decisions only by using experience or feeling, you are based on proper information. We have a very accurate predictive system at BRF. We have also been working on the pricing system. So this price system allows us to make or take advantages in the domestic and also in the international market.

So if we have a price recovery opportunity, we respond quickly and responding answering the last question of your question, China is more challenging, but it doesn’t have such an impact on our portfolio at this time. Fabio, can you add to what I said?

Fabio Mariano: I have nothing to add, Miguel.

Lucas Ferreira: Let me make a follow-up, a quick follow-up. You talked about the process margin that went back to historical levels. At the international level, as we don’t have much information per region in relation to margin, but it seems that allow us closer to this normalized level that was close to 13%. But other destinations for export are much lower. Is this correct the way I see this? And what about the new price levels and the licenses? Do you see that you’re going to have a direct imports, such as in Asia going back to 2-digit in terms of margin, considering China, do you see that there’s going to be a 2-digit margin in the near horizon and considering China?

Miguel Gularte: Answering your question, I would say, yes, Halal is getting closer to historical levels. It’s in the process of recovery. We have also been making an effort to gain share and looking very closely on the import processes. When you improve logistics, you prove how you serve your clients. And if you improve your service to your clients, you will have the preference in the markets where you operate. And we have been focusing on this quite a lot. In relation to the other markets, we still see this challenge because the prices are still at a lower performance when considered the historic records. And we are very attentive in waiting for this recovery. And considering this experience we’ve had for many years, what we see, Lucas, is that the market usually offers a logic.

So if you have a downward market, it’s not down at all times. It tends to level up and balance back again. And this is what we have been seeing lately. You have the communication being aligned with the others. So you see this happening. And if you have a market which is performing below, it’s not adjusted, you can direct your products to another market, you would lower your offer in the market, which is at a downward trend and that market will retake normal price dynamics. In that is why we say whenever it brings, it stops. So, it’s a trend to level up. These are normal trends, and we are likely to see those natural trends may it realize is long 2024. What we do not need to know for sure is when this is going to happen, if it’s going to happen in the first half or in the second half.

What I can say is that we are on the right path, but I don’t know for sure when this is going to actually materialize.

Lucas Ferreira: Okay. Thank you.

Operator: The Q&A session and the conference of BRF has come to an end. We would like to thank you for attending this call, and have a great day, everyone.