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Management Report First Quarter 2020 Results: OPERATING HIGHLIGHTS (Continuing Operations)
Management Report First Quarter 2020 Results: OPERATING HIGHLIGHTS (Continuing Operations)
Market Capitalization
OPERATING HIGHLIGHTS (Continuing Operations)
R$15.23bi
US$2.70 bi CONSOLIDATED
• Net revenue of R$8,949 million in 1Q20 (+21.6% y-o-y)
Stock Prices • Adjusted EBITDA of R$1,251 million in 1Q20 (+67.2% y-o-y)
BRFS3 R$18.74 • Adjusted EBITDA margin of 14.0% in 1Q20 (+3.8 p.p. y-o-y)
BRFS US$3.32
• Net loss of R$38 million in 1Q20
Base: 05/08/2020
BRAZIL SEGMENT
Shares outstanding: • Net revenue of R$4,655 million in 1Q20 (+18.1% y-o-y)
812,473,246 common • Adjusted EBITDA of R$611 million in 1Q20 (+63.1% y-o-y)
shares Adjusted EBITDA Margin of 13.1% in 1Q20 (+3.6 p.p. y-o-y)
713,446 treasury
shares
INTERNATIONAL SEGMENT
Base: 04/30/2020
• Net revenue of R$4,013 million in 1Q20 (+25.6% y-o-y)
Conference Call
• Adjusted EBITDA of R$682 million in 1Q20 (+82.7% y-o-y)
Monday • Adjusted EBITDA Margin of 17.0% in 1Q20 (+5.3 p.p. y-o-y)
05/11/2020
10:00 a.m. BRT FINANCIAL HIGHLIGHTS
• Operating cash generation of R$1,520 million in 1Q20
9:00 a.m.EDT • Net leverage (Net Debt/Adjusted EBITDA) of 2.68x in 1Q20
• Cash position of R$9.0 billion at the end of 1Q20
Dial-in • Extension of debt average term from 3.1 to 4.5 years
Brazil:
+55 11 3127-4971 or
+55 11 3728-5971
United States:
+1 929 378-3440 or
+1 516 300-1066
IR Contacts:
Carlos Alberto Moura
CFO and IRO
Eduardo Takeiti Pedro Bueno
IRO IR Manager
+55 11 2322 5377
[email protected]
Disclaimer
The statements included in this report concerning the Company’s prospective business, projections, and
potential growth are merely forecasts based on management’s expectations with regards to the future of the
Company. These expectations are highly dependent on market changes and the general economic performance
of the country, the industry, and the international markets, and are therefore subject to change.
Below, we present our results for the first quarter of 2020 (1Q20), but first, we would like to discuss an issue
that has been affecting all of us, the COVID-19.
We are experiencing unprecedented times in our almost 86 years of history and we have positioned our
Company to act in a determined, resilient, and careful way. All our actions and decisions are motivated by
this administration’s preoccupation with taking care of the public, our employees, customers, the communities
in which we operate, and our stakeholders.
At the first signs of COVID-19, that could potentially affect our operations in Asia, we set up a Permanent
Multidisciplinary Monitoring Committee, composed of the Company’s key executives, advisors, and external
experts, to identify adverse circumstances and define effective countermeasures.
We played a leading role to raise authorities’ and society’s awareness of the relevance of our production chain,
and we assumed a public commitment to remain strong and diligent in the maintenance of our activities.
Since the outbreak began, our top priority has been to guarantee the health and safety of our employees. In
this vein, we remain uncompromising in our commitment to uphold the highest standards of safety and adhere
to the industry’s best practices. Our Essence is to produce quality food for the population while ensuring the
physical integrity of our employees. We total more than 90,000 employees globally, and we cannot surrender
to the challenge to keep our teams healthy, engaged, and determined.
We stress that our social commitment to the communities in which we operate remains unwavering, especially
in the face of this crisis, as we are among the key driving and development forces of the local economies in
several communities. We were among the first companies in the country to pledge significant resources towards
fighting the pandemic. We are donating R$50 million-worth of food, medical supplies, and social research and
development funds, destined to over 50 cities to support more than 150 institutions in the regions in which we
operate. Our roots, history, and mission compel us to search for solutions to this crisis and to take significant
action to mitigate its impact. In addition, we assumed the commitment to keep our workforce in April and May
and initiated a process to hire 5,000 employees to strengthen our operational capacity.
Our economic and financial performance this quarter recorded robust growth – for the fourth consecutive
quarter – when compared to 1Q19, evidencing a consistent long-term oriented management in a Company
with a supply chain as long as ours. Sales volume grew 8%, reaching approximately 1.1 million tons.
Commercial execution drove our net revenue, which surpassed R$8.9 billion, 20% higher than in 1Q19. Gross
profit rose by nearly 50% to R$2.3 billion in 1Q20. Thus, gross margin totaled 25.2% in 1Q20, an advance of
4.6 p.p., in line with the fourth quarter of 2019 (4Q19). The highlight was our Adjusted EBITDA, which came
in at R$1.3 billion, 67% higher than in 1Q19. The Adjusted EBITDA margin hit the mark of 14%, 3.8 p.p.
higher than in 1Q19, and in line with 4Q19. In 1Q20, we reported a R$38 million net loss from continuing
operations, due to expenses relating to the settlement made to shelve a class action in the US (R$204 million),
and net exchange rate variation on our indebtedness.
We highlight the performance of Other International Markets (Non-Halal), which recorded significant net
revenue growth of R$1.7 billion, 46% higher than in 1Q19. Our Adjusted EBITDA totaled R$445 million, reaching
its highest level since 2017, and the Adjusted EBITDA margin reached nearly 27% in the period. We also
reported a superb performance in the domestic market, a result of focus on innovation, marketing, and
commercial execution. Sales volume exceeded 560,000 tons, the highest first-quarter volume since 2015. We
also call attention to the processed food category, which grew 14% year-on-year. Thus, the Brazil Segment’s
Adjusted EBITDA totaled R$611 million, 63% higher than in 1Q19, with an Adjusted EBITDA margin surpassing
13%.
We know now it is time to exercise caution and care in our decision-making, but it is also a time to be adaptable
and demonstrate leadership. We do not have answers to all the challenges, but we rely on a team of extremely
engaged and agile experts who are committed to the Company’s long term. The 1Q20 results confirm the
effectiveness of our long-term strategy, which is grounded on operational excellence, growth with profitability,
in a high-performance organization, our complementary push & pull operations, and our financial discipline.
Recently, we announced the election of members of the Board of Directors for the 2020-2022 mandate,
enhancing the gender diversity and competencies of this joint committee. We also maintained the stability of
our management by keeping 70% of our members. The evolvement of our corporate governance has been
central to materializing our performance.
On behalf of over 90,000 BRF employees, we express our condolences to families and friends of all the people
who may have been affected by COVID-19 around the globe.
Lastly, we once again thank our employees, integrated partners, and suppliers for their commitment and the
confidence of our shareholders, Board of Directors, customers, and consumers.
Highlights ( Million R$) 1Q20 1Q19 Chg. % y/y 4Q19 Chg. % q/q
Volume (Thousand Tons) 1,087 1,006 8.1% 1,173 (7.3%)
Net Revenues 8,949 7,359 21.6% 9,290 (3.7%)
Average Price (R$/kg) 8.23 7.32 12.5% 7.92 3.9%
COGS (6,696) (5,842) 14.6% (6,918) (3.2%)
Gross Profit 2,253 1,517 48.5% 2,373 (5.0%)
Gross Margin 25.2% 20.6% 4.6 p.p. 25.5% (0.4) p.p.
Net (Loss) Income Continued Operations (38) (113) (66.2%) 690 n.m.
Net Margin - Continued Op. (%) (0.4%) (1.5%) 1.1 p.p. 7.4% (7.9) p.p.
Net (Loss) Income Total Consolidated (38) (1,012) (96.2%) 680 (105.6%)
Net Margin - Total Consolidated (%) (0.4%) (13.8%) n.m. 7.3% (7.8) p.p.
Adjusted EBITDA 1,251 748 67.2% 1,413 (11.5%)
EBITDA Adjusted Margin (%) 14.0% 10.2% 3.8 p.p. 15.2% (1.2) p.p.
Tributary Impacts ( ICMS and Staple Food Basket) - - n.m. 89 n.m.
EBITDA Adjusted Ex-Tributary Effects 1,251 748 67.2% 1,324 (5.5%)
EBITDA Adjusted Margin Ex-Tributary Effects (%) 14.0% 10.2% 3.8 p.p. 14.3% (0.3) p.p.
Cash Generation (Consumption) 2,774 253 998.1% (114) n.m.
Net Debt (15,589) (15,498) 0.6% (13,269) 17.5%
Leverage (Net Debt/Adj.EBITDA LTM) 2.68x 5.64x (52.5%) 2.50x 7.1%
* In 1Q19, adjusted by effects of asset divestments in Argentina, Europe, and Thailand.
• Election of 10 sitting members to compose the Company’s Board of Directors: Messrs. Augusto Marques da
Cruz Filho (independent board member), Dan Ioschpe (independent board member), Mrs. Flávia Buarque
de Almeida (independent board member), Mrs. Flavia Maria Bittencourt (independent board member), José
Luiz Osório (independent board member), Luiz Fernando Furlan (independent board member), Pedro Pullen
Parente (independent board member), Ivandré Motiel da Silva, Roberto Rodrigues (independent board
member) and Marcelo F. Bacci (independent board member), all of them with a two-year term of office;
• Reelection of Mr. Pedro Pullen Parente as Chief Executive Officer and Mr. Augusto Marques da Cruz Filho
as Vice Chairman of the Board of Directors;
• Resumption of Dourados-MS plant operations, whose capacity is approximately 130,000 poultries/day to be
exported to the Chinese market; Plants in Lajeado (RS) and Jataí (GO) are licensed to export to Egypt;
• BRF settlement of US$40 million agreement to shelve the class action filed against the Company, conclude
all pending claims and those to be filed by investors who acquired ADRs (American Depositary Receipts)
issued by the Company, between April 4, 2013, and March 5, 2018. This effect is excluded from the Adjusted
EBITDA;
• Announcement of food, medical supplies donation, and support to social research and development funds,
totaling R$50 million, as a contribution to fighting against the effects of Covid-19 pandemic;
• Lines of credit were contracted with financial institutions in Brazil, in the approximate total amount of R$1.4
billion, with a one-year duration to preventively reinforce liquidity;
• Resumption of margarines operations in Uberlândia- MG unit, to produce Qualy, Deline, Claybom and
Sofiteli brands;
• A share buyback program was created, the maximum number of shares to be acquired is up to seven
million, five hundred thousand (7,500,000) common shares, aiming at complying with the Stock Option
Plan, for shares to held in treasury, canceled or subsequently sold;
• Launch of Sadia Veg&Tal, vegan frozen food, in hamburgers, nuggets, and pies categories;
• The Company acquired for US$8 million, 100% of Joody Al Shargiva Food Production Factory’s share capital,
a processing unit located in Saudi Arabia, whose portfolio of products includes breaded, seared cuts, and
hamburgers, amongst others.
Brazil Segment:
Consistent and disciplined actions have been implemented, which resulted in volume gains, net revenue,
market share, and coverage. Such growth was supported by joint actions in several business areas, such as
Categories, Channels, and Brands, ensuring not only a robust growth in 1Q20 but also paving our path.
We continue investing in innovation and ensuring our brands’ competitive advantage in the market. Thus, we
launched new products across all categories, highlighting:
With regard to marketing, we continued advertising campaigns concerned with products more sensitive to
seasonality, such as “Frios Sadia” and “Na Brasa Perdigão”, we supported major launches with media and/or
dedicated activations.
We also inaugurated our digital hubs for Sadia, Perdigão, and Qualy brands, making available approximately
500 tutorial recipes to help our consumers during the lockdown period.
A combination of marketing and digital activities through our “Performance LAB” is essential to increase our
brands’ preference in the digital environment, and manage consumer knowledge to obtain and create a
consumer insight-based agenda.
We also endeavored our efforts to improve our commercial execution, stressing productivity, and different
activations in a few stores. Thus, we significantly enhanced our out-of-stock levels, services level at store,
and logistics. All these initiatives, coupled with innovation and marketing, contributed to our growth in virtually
all channels.
Referring to people and culture, we underline the following actions: i) the implementation of the People
Indicators Book – executive vision; (ii) the new health, safety and environment (HSE) plan; (iii) the
implementation of the Talent Acquisition hub; (iv) the mapping of critical positions + shielding plan; and (v)
the new People Executive Committee.
International Segment:
1Q20 was the first quarter, after five years that the USA exported poultry again to the Chinese market. In
order to defend our position in the market, we ramped up poultry volumes sold in the region, besides adopting
a pricing strategy for our pork cuts focused on improving profitability. Thus, we launched the Sadia pork line
targeting the Chinese market, for instance, the Hema chain.
We still expect a recovery of swineherd in China but to be seen very slowly, without significant changes in
protein supply in the short term. As a result, we believe that prices will remain under pressure and the Asian
market will continue posing excellent business opportunities, especially when we consider the product
complementarity with the Brazilian market.
In the Halal market, we resumed our exports to Iraq from Turkey, gradually raising volumes during 1Q20. We
also bolstered sales of Sadia and Banvit brands in our portfolio, reaching market shares of 64% and 77% in
Concerning the temporary halt of plants in the cities of Dois Vizinhos-PR and Francisco Beltrão-PR by Saudi
Arabia, we quickly rescheduled our operations to other 5 licensed plants, using these two plants’ production to
serve other markets.
We advanced the International Market Segment’s team engagement survey, reaching a score of 85 points,
above the level of comparable companies in the international market.
Our Operational Excellence System – SEO already trained over 41,000 people, exceeding 350,000 hours of
training. We reached 64%, 58%, and 51% of adhesion to SEO elements in pilot units, first and second wave
of implementation units, respectively. We included the implementation of Digital SEO, aiming for the rapid
decision-making process, scalability, and greater control over the process.
Our Direct and Indirect Supply area, through Value Engineering projects, raised nearly R$15 million in 1Q20.
Also, we guaranteed the supply of materials and inputs for our units with a minimum out-of-stock level, despite
the volatile and adverse scenario of COVID-19 (ex. fast-track of suppliers ratification and less bureaucracy).
We also mitigated, on average, 44% of inflation in procurement spending during 1Q20, decisively contributing
to our cost management.
Below, the evolution of a few indicators of industrial and agribusiness areas versus 1Q19:
• Turnover: 23% global decline, especially the Agricultural Extensionists, with a plunge of 34%;
• Yield: 1% improvement;
• Productivity: 2.4% evolution;
• Idleness (Agribusiness + Industrial): 46% reduction.
The Quality, Sustainability, and R&D department underwent a restructuring and created an executive board
focused on Quality so that to carry on its approach to the markets, efficiency gains, and prioritization of
excellence in Quality and Innovation.
We also have been diligently working to select technological and product initiatives. Only in 1Q20, we launched
20 new products to bolster our portfolio.
Our efforts towards Quality continue delivering positive results. In 1Q20, we achieved a 23% reduction in
complaint index for products sold in Brazil and the foreign market compared to 1Q19.
Also, as a result of BRF’s proactive response to Brazil’s regulations, we highlight our participation in the review
of chicken breast condemnation criterion adopted by the Ministry of Livestock and Supply– MAPA, through the
Official Circular Letter No. 17/2019. This initiative will have an impact on reducing food waste, estimated at
5,500 tons/year.
Referring to the foreign market, we point out 29 licenses/renewals for five different countries in 2020.
We moved forward in the development of growth alternatives in relation to our last announcement on BRF
Day: bolster our local presence in the Middle East, consolidate our position in Turkey and assess alternatives
for higher growth in China. We are building on and adjusting these assessments to the new trends and the
timing originated from COVID-19.
It is worth noting that we continue developing the project of a new food processing plant in Saudi Arabia, with
total investments estimated at US$120 million, according to the memorandum of understanding signed with
SAGIA – Saudi Arabian Investment Authority. Currently, this project has been undergoing technical
specifications and financial modeling.
In 1Q20, BRF core values transformation made its headway: the Company adjusted people management
processes, such as individual performance evaluation, and bolstered communication in events, such as the
Sales and Operations Leaders Meetings and training courses – developing behaviors named ‘Above the Line
Attitude’ and ‘Honest and Respectful Conversations’. We also continue building a solid training and development
platform, making available our global new learning tools, such as LinkedIn Learning and GetAbstract. We
began our annual succession plan and we extended such practice not only to executives but also to managerial
and critical positions.
With HR’s digital transformation, we concluded the implementation of the Human Resources global platform in
Turkey. We also carried on the implementation of online platforms for key processes (ex.: development and
succession) and the HR services digitalization and centralization project.
Concerning COVID-19, we have been working with Employee Protection since January 2020, by creating
contingency plans and defining supporting actions for employee and family members. Besides a quick execution
of containment actions, such as suspension of travels, home-office for administrative employees and leave for
employees under the risk group, we also expanded medical services offered to our employees, by making
available telemedicine and psychological assistance, extended 24h hotline (Dr. BRF) and anticipation of the
influenza vaccination campaign, among others.
Referring to the teams physically working in our operations, we reinforced health protocols and processes, with
actions, such as availability of masks, hand sanitizer gel, individual protection equipment, places measuring
temperature, higher frequency of environmental disinfection, traffic and dining hall service adjustments and
an increased fleet of chartered vehicles. All these actions are evaluated by Dr. Esper Kallás, from the Faculty
of Medicine of the University of São Paulo, and specialized consultants of the Albert Einstein Hospital; we also
research and we conform with the best global practices.
BRAZIL SEGMENT
1Q20 x 1Q19
Sales volume grew by 10.7% y-o-y to 562,000 tons in 1Q20, reflecting improved business performance across
all channels. It is worth noting that such growth was steeper in processed food (+14.9% y-o-y), fueled by
advertising campaigns, trade activations, disciplined execution, and improved services, as well as booming
demand. Thus, Brazil Segment’s net revenue rose 18.1% y-o-y in 1Q20, in line with a strategy of boosting
service level profitability.
This favorable performance of net revenue, offset the 2.0% y-o-y increase in unit average cost, due to higher
grain costs. Hence, the gross margin increased by 3.5 p.p. y-o-y, reaching 24.7% in 1Q20. This effect is
reflected in the Adjusted EBITDA margin, despite higher marketing investments in the period. Thus, Adjusted
EBITDA totaled R$611 million (+63.1% y-o-y) in 1Q20, with an Adjusted EBITDA margin of 13.1%.
Market Share
At the end of 1Q20, the Company’s consolidated market share reached 43.0%, down 2.0 p.p. y-o-y, a result
of its strategy to stimulate the operation’s profitability by repositioning prices.
In the short term, compared to the last period, we recorded growth across all value-added categories: Cold
Cuts (+0.8 p.p.), Frozen Meals (+0.6 p.p.), and Margarines (+0.9 p.p.), highlighting Qualy brand, which grew
1.1 p.p. y-o-y. It is worth mentioning that Nielsen's measurement partially reflects our sales volume.
Source: Nielsen
1Bi19 2Bi19 3Bi19 4Bi19 5Bi19 6Bi19 1Bi20 2Bi19 3Bi19 4Bi19 5Bi19 6Bi19 1Bi20 2Bi20
2Bi19 3Bi19 4Bi19 5Bi19 6Bi19 1Bi20 2Bi20 1Bi19 2Bi19 3Bi19 4Bi19 5Bi19 6Bi19 1Bi20
Source: Nielsen Retail Bimonthly – Margarines and Frozen Meals (Feb/Mar reading); Processed Food and Cold Cuts (Jan/Feb reading).
HALAL MARKET
1Q20 x 1Q19
Net revenue in the Halal Market grew by 14.5% y-o-y to R$2.4 billion in 1Q20, favored by the depreciated
exchange rate of 18.2% y-o-y and +2.7% y-o-y growth in volumes, reflecting larger exports to the Saudi
market. In January 2019, the Saudi government restricted the number of Brazilian plants licensed for exports,
including BRF’s plants. Thus, prices reacted to such constraint, increasing profitability in early last year. During
2019, BRF suited other production units authorized to export to Saudi Arabia and gradually ramped up export
volumes to the region.
On the other hand, the US average prices were pressured by (i) the Iraq market partially restricting products
imported from Turkey, which negatively affected prices, both in the Turkish market and in neighboring
countries; and (ii) the temporary halt by Saudi’s authority of the operations at our food processing plant in
Abu Dhabi and shipments to Saudi Arabia.
Market Share
We ended 1Q20 with a market share of 35.9%, maintaining our broad market leadership position, despite the
impacts of the Abu Dhabi plant being suspended to export to Saudi Arabia. Below is BRF’s market share in all
categories, according to the latest Nielsen reading:
In Turkey, our market share grew by 4.0 p.p. y-o-y to 20.6% in 1Q20, a result of our effective strategy to
strengthen the Banvit brand to the detriment of retailers’ private label brands. We were able to maintain our
leadership position in virtually every category in which we operate in the Turkish market.
Other International Markets 1Q20 1Q19 Chg. % y/y 4Q19 Chg. % q/q
Volume (Thousand Tons) 180 159 13.2% 207 (13.0%)
Poultry (In Natura) 117 112 4.5% 134 (12.5%)
Pork and Others (In Natura) 44 30 46.3% 44 0.1%
Processed foods 19 17 12.6% 30 (34.7%)
Net Operating Revenues (R$, Million) 1,657 1,136 45.9% 1,729 (4.1%)
Average price (R$/Kg) 9.19 7.14 28.8% 8.34 10.3%
COGS (1,134) (1,005) 12.9% (1,264) (10.3%)
Gross Profit (R$, Million) 523 131 297.7% 464 12.6%
Gross Margin (%) 31.5% 11.6% 20.0 p.p. 26.9% 4.7 p.p.
Adjusted EBITDA (R$, Million) 445 89 401.7% 401 10.8%
Adjusted EBITDA Margin (%) 26.8% 7.8% 19.0 p.p. 23.2% 3.6 p.p.
1Q20 x 1Q19
In 1Q20, net revenue totaled R$1.7 billion, up 45.9% y-o-y, due to higher volumes shipped in the quarter
(+13.2% y-o-y) and higher average prices in Brazilian reais (+28.8% y-o-y), deriving from US price increase
(+8.9% y-o-y) and exchange rate depreciation (18.2% y-o-y). The outbreak of African swine fever is still
impacting supply in several Asian countries, resulting in higher demand for imported products. In China, our
volumes stepped up 89.5%, also impacted by a higher number of licensed plants during the second half of
2019, and U.S. prices climbing 24.6% y-o-y. Japan and Singapore, also saw improved commercial dynamics,
with importers fearing an eventual chicken shortage in the market due to higher demand from China.
Our gross profit reached R$523 million in 1Q20, with a gross margin of 31.5% (+20.0 p.p. y-o-y). The best
commercial and operational performance, especially in Asia, were key drivers to stimulate profitability in the
region. Thus, Adjusted EBITDA totaled R$445 million in 1Q20, with a margin of 26.8% (+19.0 p.p. y-o-y).
Other Segments + Ingredients 1Q20 1Q19 Chg. % y/y 4Q19 Chg. % q/q
Volume (Thousand Tons) 67 69 (2.6%) 67 (0.0%)
Poultry (In Natura) 1 2 (31.7%) 3 (56.8%)
Pork and Others (In Natura) 1 1 109.7% 1 106.4%
Processed foods 1 3 (60.7%) 1 13.8%
Others Sales 63 64 (0.5%) 63 1.3%
Net Operating Revenues (R$, Million) 278 225 23.7% 281 (1.0%)
COGS (224) (202) 10.6% (215) 4.03%
Gross Profit (R$, Million) 55 23 138.9% 66 (17.3%)
Gross Margin (%) 19.7% 10.2% 9.5 p.p. 23.5% (3.9) p.p.
Adjusted EBITDA (R$, Million) 41 6 536.9% 45 (8.2%)
Adjusted EBITDA Margin (%) 14.9% 2.9% 12.0 p.p. 16.0% (1.2) p.p.
Adjusted EBITDA for “Other Segments” totaled R$41 million in 1Q20, with an adjusted EBITDA margin of
14.9%. Such improvement is explained by a more solid operating performance at BRF Ingredients and lower
raw material liquidation.
Corporate
Adjusted EBITDA amounted to negative R$81 million in 1Q20, mainly impacted by: (i) R$41 million of provisions
for civil and tax contingencies; (ii) additional provision of R$24 million referring to the expectation of accounts
receivable losses due to Covid-19; and (iii) asset retirement expenses totaling R$14 million.
FINANCIAL PERFORMANCE
Net Operating Revenue (NOR)
Volumes - Thousand Tons 1Q20 1Q19 Chg. % y/y 4Q19 Chg. % q/q
Poultry (In Natura) 487 470 3.7% 516 (5.7%)
Pork and Others (In Natura) 75 61 24.2% 75 (0.2%)
Processed foods 460 412 11.8% 518 (11.1%)
Others Sales 64 64 0.6% 63 1.7%
Total 1,087 1,006 8.1% 1,173 (7.3%)
NOR (R$ Million) 8,949 7,359 21.6% 9,290 (3.7%)
Average Price (NOR) 8.23 7.32 12.5% 7.92 3.9%
In 1Q20, net revenue totaled R$8.9 billion, up 21.6% y-o-y, reflecting: (i) an improved business performance
in the Brazil Segment, which recorded a volume growth of 10.7% y-o-y and price increase of 6.7% y-o-y; (ii)
45.9% y-o-y increase in net revenue from Other International Markets, fueled by better prices (+28.7% y-o-
y) and volume (+13.3% y-o-y), especially in the Asian markets; (iii) a more favorable exchange rate scenario.
COGS per kg increased by 6.1% y-o-y in 1Q20, reflecting grain average price increase (+11.1% y-o-y
considering the three months preceding the end of the quarter), as well as the exchange rate depreciation
(+18.5% y-o-y in 1Q20) which impacted acquisition costs of inputs and supplies. However, these increases
were partially mitigated by gains deriving from our Matrix Management Expenses program. It is worth noting
that, according to Embrapa (Brazilian Company of Agribusiness Research), poultry and swine production
theoretical costs rose 10.2% and 13.3%1 in the period, respectively.
Gross Profit
Gross Profit - R$ Million 1Q20 1Q19 Chg. % y/y 4Q19 Chg. % q/q
Gross Profit 2,253 1,517 48.5% 2,373 (5.0%)
Gross Margin (%) 25.2% 20.6% 4.6 p.p. 25.5% (0.4) p.p.
Gross margin stood at 25.2% (+4.6 p.p. y-o-y) in 1Q20, fueled by improved operational results in both Brazil
Segment and in the International Segment. During most of the quarter, before the COVID-19 pandemic, we
moved forward with our strategy to stimulate the operation’s profitability through gross margin maintenance,
allocation of volume in more profitable channels, and improved commercial execution. Hence, unit price
increase fully exceeded higher unit costs of products sold. It is worth noting the maintenance of gross margin
levels in line with 4Q19.
Operating Expenses
Operating Expenses - R$ Million 1Q20 1Q19 Chg. % y/y 4Q19 Chg. % q/q
Selling Expenses (1,317) (1,141) 15.5% (1,363) (3.4%)
% of the NOR (14.7%) (15.5%) 0.8 p.p. (14.7%) (0.0) p.p.
General and Administrative Expenses (143) (141) 0.9% (197) (27.5%)
% of the NOR (1.6%) (1.9%) 0.3 p.p. (2.1%) 0.5 p.p.
Operating Expenses (1,460) (1,282) 13.9% (1,560) (6.4%)
% of the NOR (16.3%) (17.4%) 1.1 p.p. (16.8%) 0.5 p.p.
Operating expenses surged 13.9% y-o-y in 1Q20, on account of (i) greater marketing investments to
strengthen our brands; and (ii) higher expenses in Brazilian reais in the international market due to depreciated
exchange rates. However, total expenses, as a percentage of net revenue, improved 1.1 p.p. y-o-y in 1Q20,
reflecting higher operating leverage.
Other Operating Results - R$ Million 1Q20 1Q19 Chg. % y/y 4Q19 Chg. % q/q
Other Operating Results (239) (77) 211.1% (14) 1,564.9%
% of the NOR (2.7%) (1.0%) (1.7) p.p. (0.2%) (2.5) p.p.
1 Variation in the average production cost index of Embrapa (ICPPoultry and ICPSwine) between 1Q19 and 1Q20.
Financial Result
Financial Results R$ Million 1Q20 1Q19 Chg. % y/y 4Q19 Chg. % q/q
Net Interest (296) (314) (5.9%) (267) 10.8%
Interest over assets and Net Liabilities (296) (314) (5.9%) (267) 10.8%
Adjusted Present Value (91) (69) 32.7% (80) 13.1%
Net Charges on Rights and Obligations (92) (94) n.m. (132) (30.0%)
Interest on Rights 67 28 141.7% 50 33.7%
Interest over ICMS based on PIS/COFINS - - n.m. 12 (100.0%)
Other Rights 67 28 141.7% 38 76.1%
Charges on Obligations (160) (122) 31.0% (182) (12.4%)
Charges on ICMS over Staple Food Basket - - n.m. 40 n.m.
Actuarial Liabilities - - n.m. (50) n.m.
Contigent Liabilities (57) (19) 199.5% (88) (35.7%)
IFRS 16 (52) (41) 28.9% (41) 26.9%
Commission and other charges (50) (62) (19.0%) (43) 17.6%
Exchange Rate Variation and Fair Value (MtM) (123) (3) 3,942.8% 39 n.m.
Exchange Rate Variation (Assets and Liabilities) (119) 69 (272.5%) 42 n.m.
Hedge Accounting Ineffectiveness (Cash Flow) (1) (55) (97.4%) - n.m.
Net Investment Hedge Ineffectiveness (15) - n.m. - n.m.
Fair Value Total Return Swap - 5 n.m. - n.m.
Fair Value of other Derivatives 12 (21) n.m. (3) n.m.
Other Financial Results (4) 32 n.m. (101) (96.1%)
Argentinian Hyperinflation (23) - n.m. (17) 33.7%
Liabilities with Minorities 53 21 152.5% (90) (158.8%)
IOF and PIS/COFINS over Financial Results (5) (5) 10.7% (6) (17.6%)
Other Effects (29) 15 n.m. 12 n.m.
Net Financial Results (606) (448) 35.3% (541) 12.1%
The net financial result was an expense of R$606 million in 1Q20. The main components were grouped into
the following categories:
(i) Net Interest on gross debt and cash amounted to a net expense of R$296 million in 1Q20, 6% lower than
in 1Q19. Despite a 34.7% y-o-y decrease in net debt and a substantial drop of accumulated DI (Interbank
Deposit), higher exchange rates compared to the same quarter last year, increased the interest expense
referring to the foreign currency-denominated debt in Brazilian reais, offsetting the two factors previously
mentioned.
(ii) Adjustment to Present Value (APV) totaled expenses of R$91 million in 1Q20, R$22 million higher than in
1Q19. The APV refers to the financial income (expense) linked to clients' and suppliers' accounts. This amount
is offset in the gross profit.
(iii) Net Charges on Rights and Obligations amounted to an expense of R$92 million in 1Q20, 2% lower than
in 1Q19, impacted (i) by contingent liabilities expenses of R$57 million; (ii) the adoption of IFRS16, which
increased leasing expenses to R$52 million; (iii) commission and other charges by R$50 million; and (iv)
revenue from Other Rights by R$67 million.
(iv) Exchange Rate Variation and Fair Value (MtM) came negative at R$123 million in 1Q20, reflecting (i) the
exchange rate variation over foreign currency-denominated assets and liabilities of negative R$119
million; (ii) an expense deriving from effectiveness tests of derivatives designated as hedge accounting
and hedge of net investment abroad of R$16 million; and (iii) an income deriving from adjustments to
the market value of derivative financial instruments totaling R$12 million.
(v) Other Financial Results totaled an expense of R$4 million in 1Q20, compared to an income of R$32 million
in 1Q19. The item Argentina Hyperinflation refers to the restatement of non-monetary equity balances
of the Company’s subsidiaries in Argentina, whose economy is considered hyperinflationary.
Net Income / (Loss) - R$ Million 1Q20 1Q19 Chg. % y/y 4Q19 Chg. % q/q
Consolidated Net / (Loss) Income - Continued Op. (38) (113) (66.2%) 690 n.m.
Net Margin (%) (0.4%) (1.5%) 1.1 p.p. 7.4% (7.9) p.p.
Consolidated Net / (Loss) Income - Total Consolidated (38) (1,012) (96.2%) 680 n.m.
In 1Q20, the Company posted a net loss for continuing operations of R$38 million, mainly reflecting higher
expenses recorded under “Other Operational Results” relating to the settlement of class action and the
exchange rate variation over foreign currency-denominated assets and liabilities, as mentioned above.
Adjusted EBITDA
Adjusted EBITDA in 1Q20 amounted to R$1,251 million, up 67.2% y-o-y. Adjusted EBITDA margin was
14.0%, an increase of 3.8 p.p. y-o-y, reflecting higher profitability in Other International Markets, especially
in Asia, and the Brazil Segment, signaling an improved commercial execution in both markets focused on
stimulating the operation’s profitability. It is worth noting that the Adjusted EBITDA excludes the impact of
provision for class action totaling R$204 million.
Financial Cycle (end of the period –Continuing Operations): Clients + Inventories1 - Suppliers
20.0% 55.0
50.0
45.0
15.0% 40.0
35.0
28.6 28.2 30.0
10.0% 24.3
25.0
20.1
17.1 18.1 20.0
16.2 15.4 15.8
5.0% 15.0
10.0
8.55%
7.51%
8.17%
5.16%
5.19%
5.96%
5.28%
5.36%
5.33%
5.0
0.0% -
1Q18 2Q18 3Q18 4Q18 1Q19 2Q19 3Q19 4Q19 1Q20
The cash flow of investments totaled a consumption of R$491 million in 1Q20, versus a generation of R$18
million in 2019. The difference is related to a cash inflow of R$440 million in 1Q19 within the scope of the
Company’s Divestment Plan announced and initiated in 2018.
Lastly, free cash flow totaled R$2,774 million in 1Q20, also positively impacted by exchange rate variation of
foreign currency-denominated cash (R$781 million) and the positive result in the approximate amount of R$1.0
billion, referring to exchange derivatives which hedge the Company’s balance sheet against exchange rate
fluctuations (R$3.90/US$ in March 2019 vs. R$5.20/US$ in March 2020).
* Amounts referring to Derivatives composing the variation in the balance of gross debt in 1Q20 are mainly associated with hedging
operating exposure in the next 12 months, as provided for in the Financial Risk Management Policy, published on December 19, 2019.
* Cash considered is comprised of Cash and Cash Equivalents, Financial Investments, Restricted Cash, and Derivative Financial Assets
Total gross indebtedness of continuing operations in the amount of R$24,577 million, as reported above,
includes the item, current and non-current Derivative Financial Instruments Liabilities, totaling R$1,572 million,
according to the Note 24.3 of Interim Financial Information (ITR). In 1Q20, amortizations net of funding totaled
R$709 million. Adjusted gross leverage ended 1Q20 at 4.23x versus 8.62x in the same period last year. Also,
the average term of indebtedness was extended to 4.5 years, an increment of 1.4 years from 1Q19.
The Company’s net debt totaled R$15,589 million in 1Q20, R$2,320 million higher than the R$13,269 million in
4Q19, mainly reflecting (i) non-cash effects over gross debt, such as the exchange rate variation of R$3,546
million and liabilities derivatives of R$1,414 million2, and (ii) free cash generation of R$2,774 million. Thus, the
Company’s net leverage, measured by the ratio between the net debt and LTM Adjusted EBITDA, reached
2.68x in 1Q20 versus 2.50x in 4Q19 and 6.14x in 1Q19.
Finally, the Company reaffirms that it does not have financial leverage covenants.
Cash Flow from Operating Cash Flow from Invest. Cash Flow from Financing Activities
Activities -R$491 milions +R$1,745 millions
+R$1,520 millions
INVESTMENTS (CAPEX)
Investments made in the quarter amounted to R$501 million, representing an increase of 19% from 1Q19, of
which R$139 million was allocated to growth, efficiency, and support; R$217 million to biological assets; and
R$146 million to leasing and others.
2
Derivatives relating to the operational result exposure in the next 12 months (hedge accounting), which impacts the item “Other
Comprehensive Income” under shareholders’ equity.
• Market Demand:
(i) Projects to manufacture industrialized products to meet the demand of the domestic market,
highlighting investments in the new Seropédica plant (RJ);
(ii) Measures to increase the production of in natura items to meet the demand of the domestic and foreign
markets, highlighting investments in adjustments to Mineiros-GO and Buriti Alegre-GO units
(underway);
(iii) Project to increase egg production in Uberlândia (MG) to expand production volume.
• Efficiency:
(i) Projects connected with the 4.0 Industry Program in chicken slaughtering units;
(ii) Projects to reduce costs through greater operating efficiency (e.g. higher yield in the production
process);
(iii) Energy efficiency projects for production units.
• Support/IT:
(i) Projects to replace industrial assets;
(ii) Improvements in working conditions for employees in the production process;
(iii) Optimization projects and control of processes related to the commercial and supply chain areas;
(iv) IT projects to meet the Compliance and Corporate Governance requirements.
(v) Renewal of licenses necessary to maintain the Company’s activities concerning information technology.
• Support/Quality:
(i) Projects to improve control and quality processes in meatpacking units, factories, and farms.
Pursuant to CVM Instruction No. 381/03, in the quarter ended March 31, 2020, KPMG Auditores Independentes
was not engaged in providing services unrelated to external audits.
Pursuant to CVM Instruction No. 480/09, the Company’s management states that at a meeting held on
05/08/2020 it discussed, reviewed, and agreed with the information included in the independent auditor’s
review of the 1Q20 interim financial information.
Consolidated Net Income (Loss) - Continued Operations (38) (113) (66.2%) 690 (105.5%)
Consolidated Net Income (Loss) - Total Consolidated (38) (1,012) n.m. 680 (105.6%)
Assets
Current Assets
Non-Current Assets
Other Receivables 81 86
Investments 17 15
Current Liabilities
Non-Current Liabilities
Shareholders’ Equity