BRF S A : Transcript - 2021 BRF Day

Conference Call Transcript

BRF Day

BRF (BRFS3 BZ)

December 8, 2021

Gabriela Woge:

Hello, and welcome to our BRF Day 2021 event. My name is Gabriela Woge, I am the Director of Investor Relations at BRF, and it is my pleasure to be ahead of such an important event for us today. We are broadcasting live from an event following every safety protocols within the context of covid 19.

In 2020, we were here presenting to you our 2030 vision, with all our levers and our long term growth strategy. Before we begin the presentations, I would like to recap that strategy in a short video that we have made for you. Let us play.

Vídeo:

A estratégia de crescimento da BRF até 2030 está traçada. E nessa jornada já definimos nossas prioridades. Seremos uma empresa de alimentos com produtos de alto valor agregado, desenvolvidos com inovação e sustentabilidade. Eles chegarão a milhões de pessoas com mais marcas reconhecidas nos maiores centros de consumo do mundo.

O consumidor está no centro de todas as nossas decisões e liderar alimentos práticos e saborosos onde estiver, do jeito que ele quiser. Vamos triplicar a nossa receita estimada em R$100 bilhões. Impulsionar o nosso faturamento e para crescer temos que investir. Estão previstos R$55 bilhões até 2030 e estaremos apoiadas em quatro pilares. Vamos transformar o mercado de alimentos com inovação e muita disciplina financeira. No Brasil cresceremos com inovações para todas as ocasiões de consumo e perfis de consumidores com a força das nossas marcas. Iremos liderar o mercado de pratos prontos e o segmento de suínos de alto valor agregado aqui no país.

Planejamos liderar a inovação no mercado de substitutos de carne e novas fontes de proteínas no Brasil e seremos um dos líderes de mercado pet nos próximos cinco anos no mercado nacional. Vamos expandir a nossa presença local nos mercados internacionais. Queremos acessar dois terços do consumo global através de presença local em mercados relevantes. A sustentabilidade tem um papel fundamental na nossa estratégia e vai nortear todas as nossas ações. E tudo isso vai ser feito com a força da nossa gente que trabalha todos os dias com muita paixão. A BRF vai revolucionar o mercado de alimentos e essa jornada até 2030 já começou.

Gabriela Woge:

As we saw, our growth strategy through 2030 is already set. We will have a company with added value with practical and flavorful products to our customers wherever they are.

2021 was the first year in our journey, a year filled with challenges, but also filled with opportunities. So to tell a little bit more about how our journey was until then, let us call onto the stage our global CEO, Lorival Luz. Take it over, Lorival.

Lorival Luz:

Good morning, everyone, and thank you for being here with us today. This is yet another year where we can share with you our journey, the journey we are making together that began with the communication of our long term strategy at the end of 2020.

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Conference Call Transcript

BRF Day

BRF (BRFS3 BZ)

December 8, 2021

Before we begin, I would like to share with you a few beliefs and stepping-stones that I believe are critical to this journey. Again, I firmly believe there is no such thing as success in a company like ours, a company made of people with about 100,000 employees, without high engagement, without alignment, without a strong, very well-established culture. And this is something we have been working on over the past few years, as we have been telling you.

Another factor that I believe is essential and has everything to do with what we are doing here today is, we must always have ambition, a goal that will set our eyes on the future, because moving toward that goal and that ambition will come from the long term strategy, short term steps and short term strategies that we decide to adopt on our day to day activities.

So it is absolutely indispensable to have a team that is engaged and a culture with a long term guideline, so that everyone knows where they are going and how to get there, and at what pace we will be getting there. That is absolutely critical, and that is what we are working on.

This long term strategy is directing the short term actions we take in the near-term. Steps that we take that are showing we have every indicator in an absolutely well-set strategy, priority filled and a very efficient strategy that is producing results. And we are doing that with integrity and transparency.

That is why we are here today. We want to share with everyone where we have made headway and our prospects for the next years.

Moving forward, I would like to talk to you about a few things. We started in 2021, which was an absolutely challenging year, and I will be talking to you a little bit more about that later, but what I would like to start with is to share with you where we have made headway in a very relevant way.

These steps show that our decisions and our short term initiatives have taken us and will take us to our long term goals and ambitions. We have made significant headway in the pet food market, one of our growth avenues. Marcel will be talking to you more in depth about that later.

We have acquired Hercosul and Mogiana Alimentos, two very strong brands, innovative and filled with credibility, in line with our ambition and our culture. We have also taken significant strides in ready meals dishes and value added pork with a number of products that are increasing to be well positioned to be able to grow our market and increasingly become more rooted in those industries.

About another growth avenue, which is omnichannel, in our strategy to serve the market that way, we have also made substantial headway in the Mercato at Home and the Sadia brands, and our partnerships with Magalu and, starting next year, the partnership we are starting with BEES, which will allow us to reach a vast number of new customers.

We have about 300,000 new customers in Brazil currently, and we will have access to another 900,000, which are already in the BEES platform. We want to increase their pace of purchases and the number of items they are acquiring.

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Conference Call Transcript

BRF Day

BRF (BRFS3 BZ)

December 8, 2021

Likewise, we are also advancing in alternative proteins, having released the first carbon neutral plant based poultry, and also in our cultivated cells meat in a partnership with Aleph Farms.

So we are making headway in all our initiatives. We have also made headway, and substantially so, in value added products, because we have an ambition to become a Company with more value added products. This year, we invested about R$1.8 billion in a number of fronts and in a number of units.

So as to increase our capacity and adding to our industrialized products and high value added pork products, we have opened a plant within the 4.0 industry model, which is absolutely a high end, in Seropedica, in the state of Rio de Janeiro.

Also, within billion BRL investment, we have also invested in our Bardirma unit in Turkey, and we have already expanded our processing unit in Damman, Saudi Arabia. So we are still investing in all of these units.

We have also grown in all our initiatives in terms of efficient cost management of our productions, reducing our losses, our idleness levels, our loading time and accidents, and a number of other indicators.

We have efficiency indicators that show we have improved in all segments, and we did that in a sustainable way as well. We have made strides in our partnerships with AES to build a wind farm, which will account for 90% of all energy BRF consumers today. We will be more sustainable, cleaner, and will generate benefits at about R$1.7 billion for the next 15 years. So we are investing efficiently and sustainably.

On the issue of digital transformation, this, as we said, is something we are investing on and we will invest even more. This is going paramount today, and here, to give you a few examples on this slide, which is ranging from a wide array of initiatives.

In the relationship with our outgrowers, our internal initiatives amount to over 80 projects in terms of improving the Company's digital transformation. We have had nearly 5,000 people being trained in the agile culture, now ready to unfold those initiatives within the Company.

So we are working within our Company and our culture and initiative so that we can capture even more. This is a definitive journey, and we will not forego. We will continue to advance.

I also wanted to share with you a few things about 2021, an absolutely challenging year, but which also showed that our journey and everything that we are doing is bringing results.

Deliver, profits, sustainability and resilience throughout challenging times. We have had an inflationary shock, perhaps unprecedented in a generation. Since the start of the Real Plan, this had not been seen. We saw corn prices increasing more than twofold. Soybean meal and packaging as well, a number of items which had their prices escalate, and we had to manage those cost increases very efficiently across every front.

In addition to that, there were also pandemic related costs, which last year we expected not to have to bear in 2021, but we had to maintain them. Changes in our production in

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Conference Call Transcript

BRF Day

BRF (BRFS3 BZ)

December 8, 2021

China and protectionist measures, trade barriers. That management showed that we are doing things right in a very challenging scenario.

But despite that scenario, we have had very comprehensive and effective initiatives, with a top line increase and gains in our grain purchases, our cost management, maintaining an absolutely robust cost structure, a very strict management of our costs with the gains that you see on this slide.

And I would also like to share with you and call your attention to what are the effects of all that we are doing. On this slide, if you take a look at the bars on this graph, between 2016 and 2018, our deliveries and the EBITDA that the Company reported were below R$3 billion, with EBITDA margins below 9%.

This was a challenging year, but in no other time in the past there were cost increases and cost increments as well as what we are seeing right now. And here we can see the increase in BRF costs and how much that basket of production costs increased for our industries. That includes core and packaging, all of that.

And what we can see by looking at this is that all of this work, including the introduction of our SEO, grain management, agricultural management, every initiative that we set out to implement allowed us to efficiently manage our costs, and that allowed us, despite of this adverse scenario in terms of cost increase, to continue maintaining our profitability at about R$5 billion, with EBITDA margins about 13%, 12%.

Yes, we have been impacted, but there is no question that everything we did allowed the Company to sustain its results at those levels. If we were to say only that we would keep up with the market results without anything that we did, that delta that you see on the chart applied on the on BRF's cost base for its direct inputs, indirect raw materials, the Company's SG&A, that would account for about R$2 billion.

All of this is to say that these gains are in here. Had we not taken the steps we did, the Company would be feeling this impact and reporting results a lot closer to what we had in previous years.

Another way of showing that, looking on the positive side, is that looking at the result that we have today, with mitigated costs, discounting for such a steep increase in prices in a more normal scenario, which is what we expect for the coming years, those gains begin to appear. Discounting for that, we would be in the same path that we had planned for when we determined our 2030 vision, because we knew everything that we would benefit with the plans that we set out to achieve.

So we know we are delivering effectively, and I am confident and optimistic about the scenario ahead of this, where I believe this will be even clearer, and we will be able to see all these gains and efficiency.

As a reflection of these two past results, the robustness of our Company, as I said, because of our people and our well-determined, a well outlined strategy, combined with competitive advantages that we enjoye with our strong brands, some of the most admired brands, both in Brazil and abroad, everything that we have access to with our absolutely efficient trade structure and a very engaged team, provide us with a future, and a very bright future.

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Conference Call Transcript

BRF Day

BRF (BRFS3 BZ)

December 8, 2021

And that is what we believe in. That is what we are moving towards. And we are confident that we are always doing that, respecting the ESG pillars in every decision we make, with integrity, thinking about the social aspects, about the environment and our governance aspects, with net zero initiatives, and initiatives such as building the wind farm and the investments we are making together with our integrated outgrowers, and really leveraging the investments in our structure, we want to become, or we are the only company in the B3 ISE symbol.

So now, I would like to take a break, and then I will be back to talk a little bit more about our prospects for the future. Gaby, take it away, and let us move forward.

Gabriela Woge:

Thank you, Lorival. Thank you for sharing your vision with us. We have made a lot of headway in terms of delivering our strategy, and now, to give you more details about everything we have done in Brazil, I would like to call onto the stage our Vice-President for Brazil, Sidney Manzaro. Sidney, you have the floor.

Sidney Manzaro:

Thank you, Gaby. A pleasure to be with all of you again, and thank you for being with us. Let me talk a little bit more about Brazil very quickly, just to give you a little bit more color about how we are within our 2030 vision.

Even in the face of such a challenging scenario, as Lorival said, Brazil presents a number of opportunities, and we truly believe that. I would like to mention two factors that place Brazil in such a promising pace.

The first of them is the change in consumer habits. This opens wide opportunities for a company like BRF, because increasingly more, and even this has accelerated during covid 19, consumers are seeking what is practical and convenient.

Another huge opportunity is that consumers are still seeking balance between indulgence and healthiness. And even more than that, by showing confidence in food safety, strong brands, leading brands are ultimately more sponsors to transform the food segment in Brazil.

Let us not forget, 61% of consumers do not want to cook at home anymore. And that also provides another huge opportunity to access those consumers via new channels, or even new purchase models.

On the other hand, we see that consumer spending will increase in the next few years, both because of this restrained demand that they are still seeking for things such as readymade dishes, whose participation is still restricted, or for plant based products whose penetration is below 1%.

And another huge opportunity is the per capita consumption of pork. Today, Brazil has half of the per capita consumer spending in pork of developed countries such as the United States and the Netherlands; bearing in mind that pork is the most purchased protein in the world, and this is an opportunity to grow in value added.

So, yes, Brazil has a very strategic and very important role for our Company. And with this scenario, and considering the leaderships and the scenario that we are facing, all

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