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BRF S.A. (BRFS)

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BRF-Brasil Foods S.A. (BRFS)

Q4 2015 Earnings Conference Call

February 26, 2016 08:30 AM ET

Executives

Pedro Faria - Chief Executive Officer

Augusto Ribeiro - Chief Financial Officer

Alex Borges - VP of Finance

Analysts

Lauren Torres - UBS

Luca Cipiccia - Goldman Sachs

Jeronimo de Guzman - Morgan Stanley.

Jose Yordan - Deutsche Bank

Alex Robarts - Citigroup

Pedro Leduc - JPMorgan

Presentation

Operator

Good morning ladies and gentlemen and welcome to BRF S.A. conference call to discuss Fourth Quarter 2015 Earnings. This conference call is being transmitted via webcast in our website www.brf-br.com/ir. At this time all participants are in listen-only mode and after the presentation we will conduct a question-and-answer session. Instructions will be given at that time. We would appreciate if each participant made only one question. [Operator Instructions].

Forward-looking statements related to the Company’s businesses, perspectives, projections, results and the Company’s growth potential are provisions based on expectations of the management as to the future of the company. These expectations are highly dependent on market changes, economic conditions of the country and the sector and international markets, thus are subject to changes.

As a reminder this conference is being recorded. This conference will be presented by Mr. Pedro Faria, Chief Executive Officer and Mr. Augusto Ribeiro Jr., Chief Financial and Investor Relations Officer.

We now hand the call over to Mr. Pedro Faria, who will begin the conference call. Mr. Pedro, you may begin.

Pedro Faria

Good morning ladies and gentlemen. Thanks for taking part in today’s teleconference. I’m very pleased with the results we’re presenting for this quarter, particularly as far as our international regions are concerned. These were the results of our international expansion strategy, implemented over the last three years, which was intensified during 2015 both in terms of acquisitions and improving our operation efficiency.

We had good results in 2015 with net revenues totaling BRL32 billion, 11% higher on an annual comparison. Despite the fall of 4% in total volumes year-over-year, we managed to improve our mix of products and markets. As a result, our total average price rose by more than 16%. For its part, our EBITDA came to BRL5.738 billion in 2015, with a margin of 17.8%, our ROIC rose to 13.2% from 11.7% in 2014.

Another highlight in our results was the free cash flow generation that came to a total of BRL3.4 billion. The strong operating cash generation in 2015 combined with the divestment of our dairy segment which brought BRL2.1 billion easily financed our entire CapEx program of BRL2.1 billion, a share buyback program amounting to BRL3.7 billion and acquisitions of around BRL314 million.

Thanks to this, I am satisfied to announce that we have distributed over BRL1 billion in dividends and interest on equity to our shareholders. Even then, our company ended the year with BRL8.5 billion in cash and equivalents and a net debt of EBITDA ratio of 1.28 times.

The increasingly more global operation combined with a strong balance sheet ensure BRF to keep its BBB credit ratings, maintaining our investment grade. The fourth quarter was marked by one of the biggest inorganic growth movements the company has ever experienced. We announced three acquisitions in three different regions amounting to approximately $500 million. This shows that we are reinforcing our strategy of globalizing our operations and moving increasingly closer to the final consumer.

In Asia, we acquired Golden Foods Siam. This company is the third largest producer of cooked value added items in Thailand, which adds a higher added value portfolio to compliment BRF, and reinforces our presence on important markets such as Japan and the U.K.

In the U.K. we acquired Universal Meats, strengthening our distribution and presence in the food service segment. The universal operation combined with Invicta, BRF and Golden Foods Siam operations put us in a heavyweight position on this market.

We also signed a binding contract in Argentina to [indiscernible], a verticalized hard production company with strong brands in the cold meat category. These fit in perfectly with our processed product brand portfolio in Argentina.

In line with our global growth strategy, we move ahead our organization model which is based on growing the centralization and presence in the region. It is against this backdrop that we made an announcement to the market yesterday on a change in our organizational model in which Africa, given its growth potential will become a region with the same autonomy and structure as orders.

In another strategic movement we aim to bring together in a single vice-presidency the processes of innovation and product positioning. Under this model, the former VPs of marketing, innovation and quality will become integrated. As a result, the strategic pillars of brands, quality and innovation will be interlinked within obligatory way under the leadership of Rodrigo Vieira.

Besides this, we are continuing to invest in appreciating our main asset which is Our People. We have thus showed Alex Borges as our new VP of Finance after winning cycle in-charge of Latin America.

Given the importance and complexity of the Brazilian market, we are strengthening our team substantially. We are promoting Rafael Vanesky [ph] who was our Commercial Executive Director to assume the position of General Manager of Sales and Marketing Brasil. At the same time we’re bringing Leonardo Beeho [ph] to assume the position of General Manager of Planning and Distribution.

Looking now at Brasil operations, we see that 2015 was marked by the return of Perdigão in two of the most iconic categories. This was a very important breakthrough for BRF as it gave us the opportunity to finally carryout in an integral way the position of Brasil to leading food brand.

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