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BRF-Brasil Foods S.A. (BRFS)

Q4 2018 Results Conference Call

February 28, 2019 08:00 AM ET

Company Participants

Pedro Parente - Global CEO

Lorival Luz - Global Deputy CEO

Elcio Ito - CFO and IR Director

Sidney Manzaro - Vice-President of Brazilian Market

Patricio Rohner - Vice President

Conference Call Participants

Luca Cipiccia - Goldman Sachs

Leandro Fontanesi - Bradesco BBI

Lucas Ferreira - JPMorgan

Marcel Moraes - Santander

Thiago Duarte - BTG Pactual

Antonio Barreto - Itaú BBA

Luciana Carvalho - Banco do Brasil

Alex Robarts - Citigroup



Good morning, ladies and gentlemen. You are welcome to the earnings release Q4 2018 of BRF S.A. We would like to let you know that this call is being broadcasted through the Internet on company's website at www.brf-br.com/ir, where the presentation is available at the webcast platform [Operator Instructions].

Before proceeding, let me clarify that any forward-looking statements made during this teleconference regarding business prospects, its forecast and operational financial targets are based on the management's expectations for the future of the company. These forward-looking statements are highly dependent on market conditions, overall economic situation in the country, the industry and international markets and are subject to changes. I would like to remind you that this teleconference is being recorded.

This conference will be presented by Mr. Pedro Parente, Global CEO; by Lorival Luz, Global Deputy CEO; and by Elcio Ito, CFO and IR Director.

I would now like to turn the conference over to Mr. Pedro Parente, who will start the presentation. Mr. Parente, you may proceed.

Pedro Parente

I'm going to restart since apparently we had some sound problems. But I would like to start by once again thank you all for your presence, and wish you a good day.

Our Executive Committee is present here today. And I'm going to make this presentation. I'm Pedro Parente, and Lorival, the whole Executive Committee will be available to answer your questions you may have when we have our Q&A session. Undoubtedly, this is one of the most relevant earnings release of BRF in the last few years.

I would like to start by Slide number 4, where you can see what the year of 2018 was like for BRF. Actually, we start in December 2017 with the closure of the Russian market, and we move on with the events of -- the events leading to 2019. But you can see that the red arrows demonstrate all of the events that the red arrows demonstrate all of the events that caused a negative impact, which were relevant for the company. And then the green arrows indicate all of the measures that were taken starting in April last year when we had the election of the new Board of Directors. On benefit of time, I do not want to get into details of each one of them, but this only shows how challenging the year of 2018 was for the company.

Of course, I should also mention that despite all of these events and all of the problems we faced regarding the organization of the company and the need to have a very broad restructuring plan for the team with different process, different systems, which were emphasized as of the second half of the year, we concluded the year with a restructuring plan, a financial restructuring plan. We met all of our objectives and reached 81% of our goal according to our plan.

We refinanced BRL 6.3 billion in debts in 2018, closing 2018 with strong cash of BRL 6.9 billion. And because we did not comply with 100% of our goal, we revisited the financial leverage guidance for 2019 and went to approximately 3.65. And as I mentioned, we concluded our organizational structure. We defined a team in our Executive Committee of a leader in animal protein worldwide. And therefore, we concluded our team by adding Mr. Ivan Monteiro as Chief Financial Officer and Investor Relations Officer. We also made an important change with the merger of our Vice Presidents, including Patricio Rohner, who is now our Deputy President for the International Market.

And now moving on to the next slide, please. I would like to give a look at 2018 under two different perspectives. One of them has to do with the results and net losses of our company, but I would also like to analyze this from the point of view of generating future results for the company. There is no doubt that when we show you net loss of almost BRL 4.5 billion, this figure is very expressive. But when we detail these figures analyzing nonrecurring events, actually the number that we would like to show as losses for 2018 would be around BRL 939 million in losses, and therefore, it is much lower than the BRL 4.5 billion.

Of course, we should also take into account that we have a Total Return Swaps of about BRL 214 million. And so what the number shows us from the point of view of adjustments is in the order of 4.5 billion. But from an operational point of view, what we see when we deduct these 214 million in swaps, the number is inferior to 2017. And what is more relevant in all of these adjustments, in these nonrecurring adjustments, is the impairment, which takes into account the losses of operations in Argentina, Europe, Thailand and Várzea Grande, which result from the sales of the operations as extensively informed throughout the second half of 2018 and the first month of 2019.

So the relevant question here is, is these sales a problem for our ability to generate future results? No. It is not. It actually improves these operations. So for example in Europe, there was a positive result in the first half in Europe and Thailand. In Argentina, the results was approximately zero and negative throughout most of the year. But in Thailand, as you all know, in the second half of the year, these numbers were very poor as well. And therefore, by maintaining these operations with very low margins or negative margins, we are actually improving the ability to provide results for the company. And we should also take into account that we're going to concentrate precious resources in terms of energy, time and leadership in the assets which are more strategic for BRF, including Brazil, ROLA and Asia.

Read the rest of this transcript on seekingalpha.com