BRF SA

BOVESPA:BRFS3

Earnings Call Transcript 2018-Q1

[Operator]

Good morning, ladies and gentlemen. Welcome to BRF S.A. First Quarter of 2018 Earnings Conference Call. We would like to inform you that this call is being broadcast on the Internet at www.brf-br.com Investor Relations, where you will find the presentation for download. [Operator Instructions] Forward-looking statements that might be made during this call in relation to the company's business perspectives, projections, results and to the company's growth potential are mere assumptions and were based on the management's expectations regarding the future of the company. Such assumptions are highly dependent on changes in the market and the general economic performance of the country and of the industry, changes in the international market, therefore, they are subject to change. We would like to remind you that this call is being recorded.

This call will be presented by Mr. Lorival Luz, Global CEO, CFO and IRO.

Now we would like to turn the floor over to Mr. Luz. Mr. Luz, you may proceed.

[Lorival Luz, executive]

Good morning, and thank you very much. Thank you for participating in our call. We will be presenting the results of the first quarter of 2018. We have a presentation that is available for you for download on our new investor relations website that we have launched this week. So I would like to invite you all to go to the new website and see all the information that we have placed there.

On Page 3 of this presentation, we describe some highlights that I would like to mention in relation to our results. In the first quarter, we had a robust expansion of our net operating revenue, 5% with expansion also in the margin by 1.1 percentage point year-on-year and reaching 18.7% of margin. One of the lowest levels of our SG&A, which shows the austerity with which we manage our expenses in our company.

And another point to be mentioned is the active number of point of sales in Brazil. In this quarter, we reached 191,000 active clients, also which shows our strategy of expansion of our operations closer and closer to our end customers and our clients [ via our ] clients.

Also in this quarter, we saw an increase in our adjusted EBITDA that reached BRL 802 million with a margin of 9.8%. Another highlight that, I believe, is important to mention is Europe. It is also important that -- to tell you that up to now, although all the debates that we have had over the last few months from the diplomatic viewpoint and also the Brazilian government and ours, so far, no official publication was made by the European Commission. So this is still pending. And the company continues to be free to make all the exports to Europe, and we are waiting for any decision in this regard. And in this sense, it's also very important to make it clear, the impact that for a reference regarding the previous year in which we had 3.4% of the total volume of the company being exported from Brazil to Europe, and this means 4% to 5% of our net operating revenue. So as far as Europe is concerned, this is the status that we have.

Also, it is important to mention the launching and the return of the company in the campaigns, mainly the Qualy campaign. So we launched a campaign called Life is more Qualy, and good to go, another campaign called É Brasa, which means more or less, it's hot, and it is related to the Russia World Cup. So this is another focus of the company for 2018.

We have already had approved in about it and aligned with our board a return of these investments, so marketing investments above all to strengthen our brands -- or the 3 brands: Sadia, Perdigão and Qualy. And we have started with the launch of these 2 campaigns and besides expanding our client base, this further reinforces our presence in the Brazilian market.

I think it's also important to mention the election in April of the new Board of Directors. And this has already been done, and now we have 10 new members of our Board of Directors that were elected for a term of 2 years. And we have 6 new members and 4 members who have already experience from previous terms. They were already board members. So it's extremely important for the company to have their commitment -- their individual commitment. And I think this shows a very big change vis-à-vis the discussion that we had in the first quarter about the board, composition and the management of the company. And now, I believe, the company is consolidated uniformly and looking ahead and designing its objectives.

On Page #4, you have the information in a nutshell, the consolidated Brazil. And I would like to mention the growth in the sales volumes of the company, and the big highlight here is the growth of the In Natura products. The company has a very clear focus on expanding sales. We need more and more to use this growth driver. And we focus also in the reduction of our inventory levels so as to avoid the peak that could happen in the future. So we are doing this, growing our sales. And another very relevant objective, and this has to do with our objective in terms of the company capital structure, is a very effective and austere management of our free cash flow. So comparing the same period of last year in 2017, we can see that we have an improvement of almost BRL 1.4 billion because in the previous year, we had a free cash flow of over BRL 1.5 billion and in this quarter, the negative free cash flow is still BRL 238 million. But on the other hand, it has to do with seasonality and the effect of the last quarter of the year. So we believe this is very positive as far as results are concerned. And with CapEx discipline, this led us to this result. The company continues to have the net debt adjusted EBITDA ratio of 4.4x, and this is a level that we do not want to keep, as far as the management of the company is concerned, and later on, I will be talking about that. But this is one of our top priorities, and this will be addressed during this year.

In order to manage this, we maintain a very robust liquidity. We have about BRL 7 billion in cash, plus revolving credit facility that we have not withdrawn of BRL 3.1 billion. So this means that we have over BRL 11 billion liquidity, and which allows us to address our priorities of the company for this year.

And another point here, as we have already mentioned, the BRL 800 million EBITDA and the net income of the company, in this case still a negative result of BRL 114 million, negative. Nevertheless, I would like to mention one point. In this BRL 114 million negative, there is the impact of BRL 176 million of the Total Return Swap operation that was carried out in the third quarter of 2017.

And given the impact on the share price, we had already posted a loss regarding this transaction of about BRL 100 million in the last quarter, and now we have an additional BRL [ 166 ] million. And I say this because if it was not for this transaction, which was a totally financial transaction, the company would be posting a net income -- a positive net income in the first quarter of this year vis-à-vis its real operations, the core operations of the company.

Now going to Page #5. Now we talk specifically about Brazil. In the case of Brazil, you can see the EBITDA, BRL 350 million, lower than the first quarter of last year, but it is important to mention the performance from the viewpoint of volume -- of growth in volume and expansion. And I will be talking about that on the next slides. A very strong growth of almost 10%, 23% coming from In Natura, and this changes the mix for Brazil. So up to last year, we had around 25% of our volume in Brazil of In Natura products and in this quarter, we have already exceeded 30%. And of course, this has an impact on the average price. As you can see here, a drop in the average price, and this is explained not only by the change in mix as I have just said, but also by the market conditions that you follow.

And on one hand, there is a deflation in the food sector, and this is also reflected in our figures. And additionally, when we look at the gross margin, we see a drop year-on-year, and this is due mostly to an increase in the freight costs and with a higher volume and the increase in the freight cost of over 2 digit, over 10% increase. And when you sell a larger volume, you feel this impact. And this had a negative contribution on the margin, so the margin was reduced and also an increase in the indirect cost, which is a focus being addressed by the company. We are working very hard in all our industrial units and all our commercial structure looking for a better efficiency in the management of the production process of the company so that we may achieve a better performance in indirect cost as well and overhead. And we are tracking this very closely. And this will be addressed in the next few quarters. And the results will start to be felt over the implementation of all these initiatives.

The impact is, on one hand, planned because of the expansion of sales of In Natura and the growth in sales volumes. And we are addressing the fundamental point as well in order to see a return of profitability to the level that we understand are optimal for the company.

On Page #7 -- no, Page -- no, on Page 6 -- on Page #6, we talk about what happened in the market and also the expansion of In Natura and processed foods. And here, I would like to apologize because -- no, this is not on this slide, it's on the other one. But anyway, this is a growth of 22.5% that you see In Natura, growing from 45,000 tons per month going to 56,000 tons. So a very strong growth, and the proportion being adjusted to 31% in the first quarter of 2018.

Once again, this shows the effect of the mix and price. And looking at processed foods, we see a growth of 4.7%, and I would like to remind you that in processed foods, we have some products and also we have margarine included here. So this is a point that I would like to clarify because in the case of margarine, we had a slightly negative effect due to the price adjustment that we did recently with a specific effect and impact on the first quarter.

So you always have the timing of the adaptation of the price to the volume so this impact is negative volume-wise. However, the price got to the level that we wanted. If it were not for that, our growth in processed foods would have been 9%, given the negative impact that we had in relation to margarine. And this shows the way that we're addressing correctly from the viewpoint of price changes and also volumes that we expect.

On the next slide, now on Page 7. And here is where I would like to apologize because here on the bars on the right, you see the figures that are -- here, we are talking about the first quarter of '17 and second of '17, third of '17, fourth of '17 and the first quarter of '18. So the presentation is already being corrected, updated on our website, but as you opened it before, I would like to apologize and I clarify this point here. So in this case, we show on the left, the increase in our client base, and this is a very clear strategy on the part of the company of going back to 200,000 clients, and we expect to reach this figure in the second quarter of this year. We have a very well planned and realized and implemented commercial execution by our commercial team in Brazil under the leadership of Alexandre Almeida, and that everybody in our team show we are on the right track.

And also -- and now always looking for balance regarding growth and price and relative prices. I would like to draw your attention to processed foods, and specifically margarine, and the company has been maintaining processed foods. And looking at the figures here, our premium price vis-à-vis our competitors and also adapting. And here, I -- you see that the measure that we took -- put in place in terms of adapting our price, and we managed this vis-à-vis our share. So we see a recovery of the price index and also a recovery of our premium price. And in this quarter, you have specifically the adaptation or adjustment in the share. And in this 1-year period that we are mentioning an expansion of 1.1 percentage point in the share, which is our long-term strategy. So once again, the company has a long-term objective and manages the company's actions in the short run, aiming at this long-term strategy.

In the case of margarines, the scenario is the same, maintaining the share around 60%. And with the price adjustments that we have carried out in the fourth quarter to the first. So the company has been putting these actions in place in an effective manner.

In relation to the international market, and let's go now to Page #8, the OneFoods volume as a highlight, and we would like to give more transparency in terms of the Banvit acquisition that was made in the second half of last year. So we have to compare -- well, we have the EBITDA BRL 40 million. But OneFoods shows a robust recovery of its EBITDA margin reaching 8%, even excluding that 7.7%, BRL103 million, growing from BRL 35 million to BRL 103 million.

And regarding the discussion about Saudi Arabia and what you have been following, we are free to continue our exports. There is no final decision still regarding that, but the company in a very well-planned manner and with short-term actions, we already have products in that market that are sufficient and are adequate up to September this year for the whole Ramadan period in the right conditions and right cost conditions.

We are also preparing our technical team in our industrial facilities, preparing them for this reality should it happen in order to adapt our production lines and our production system. We are already prepared in some of our industrial units in order to cater to this market should we have a definition from now on. Of course, this has an impact on yield, on productivity, but also with impact on prices that already show a recovery and impact at the end. So we are evaluating -- well, the market is being evaluated and the authorities in Saudi Arabia, and this has an impact on the market.

Patrício has been tracking this very closely and making the decisions together with the production system -- production team in Brazil in order to have this adaptation. And up to September, we will be adequately positioned in this regard, and we also envision an improvement in prices, this is regarding OneFoods.

Regarding the international market, and the following -- on Page #9. And of course, we have an impact of volume because of the restrictions that we had in the first quarter regarding pork exported to Russia and poultry to the European market as well. So there is an impact, and this causes a drop in volume. And likewise, we have an adaptation in terms of prices to these markets and other markets, mainly Africa and mainly some Asian markets, but a negative impact in Japan.

Anyway, as you can see, this market from the results viewpoint, there is a strong expansion in EBITDA to 13% to BRL 139 million.

Undoubtedly, in the international market and namely in Europe, as I mentioned at the beginning of this call, we are waiting for the definitions by the European Community vis-à-vis our exports. And what I can tell you so far is that we are monitoring this very closely, and we are doing our job. We are doing our drill, whatever has to be done. And once we have the definitions, whatever they may be, the company will adapt itself to the market conditions and will adapt its footprint and will adapt its production in order to serve the markets the ways that they are defined, which means that we are working in this direction and there is nothing to inform you right now because we have not received the final report about the subject. But as soon as we have them, we already have our studies and we will be defining this with our Board of Directors, and we will be communicating you about the actions to be taken, aiming at our strategy for margin growth and the adaptation of our capital structure as well.

Regarding the Southern Cone on the next page, Page #10. There was an increase in volume, increase in revenues as well and also our EBITDA, which was negative in 2017, becoming positive in this quarter. The results are still timid, but on the right direction for the second quarter. And for the second quarter, we would be analyzing the impact from the Argentinian team. And George is the leader of the team in Argentina, and he will take the necessary measures understanding the market dynamics in Argentina. And I would like to go now to Page #11.

On Page 11, I would like to give you a highlight about the market scenario area for grains and the perspective for the market. When we look at the first quarter, and you know how this affects our result, end of the first quarter and the end of the second quarter. Our costs benefited. They were positively impacted by the lower prices of soybean meal and corn and the cost of our feed. And since the third quarter of last year, we saw an escalation of prices, there was an increase in these prices of about 20%. And depending on the average price and the amount that is bought, so this is something that happened and that should be impacting, undoubtedly, not only the production costs of BRF, but also the whole market will feel this impact. And as of the second quarter from now on, given the conditions that we see regarding the price of soy meal and corn and other ingredients. And there are some points of attention here as well, and that we are monitoring. We have the impact of the crop shortfall in Argentina, and there is a climate issue in Brazil as well and that should bring about an impact along the same lines. And we have to monitor the U.S.-China relationship issues as well because there may be impact from the second half -- second quarter on for the production costs, not only for BRF, but for the whole sector. And now going to Page #12. You see that -- on Page #12, you can see that this also has a direct impact on Brazilian producers' market -- margins. These are public data, and they reflect the market dynamics with the price of feed at lower levels and the higher prices for chicken, you have an expansion in the margin. And you see what is happening already from the last quarter of 2017 to the first quarter of '18, which is the margin of the producers dropping significantly. And this brings to a bigger pressure so that producers have to adapt their prices. The costs are going up and there will be an impact. And of course, this is the market dynamics, and this also impacts the housing of chicken in Brazil and production of chicken in Brazil as well.

So the market tends to -- or will have to adapt in the next few months vis-à-vis the price and supply dynamics.

I would like to mention that this is a market situation not only for BRF, but also for the whole sector.

Now let's go to Page 13. I would like to talk about the theme that is extremely important and relevant and indispensable, and this has the total focus of the company and has always been, which is focus on quality. The company has been working on that and has been working on adapting its quality structure of reorganization of governance and the management of indicators and consolidation of the quality culture. This is totally relevant for the company, and it has to be present in the training of our whole team. So from the viewpoint of structure, we have a centralization of this area, regulatory and quality and the legislation of quality for all sectors, logistics and market with a very strong specialization for each one of the items of protein, productivity. And we have in all our industrial facilities, we have our experts, we have consultants, international experts regarding food service and adjusting this more and more and everybody's involved in the company in the improvement of quality. And these are very effective indicators that we use about quality.

And in terms of quality, we have launched, and we already have information of an in-company MBA in quality, we already have 120 employees of BRF enrolled, and this is a very strong program, an 18-month program. And at each cycle, we train professionals that are more and more dedicated to quality. And there is another initiative that I would like to mention, and that is called SAC VIVO, S-A-C VIVO, which is to place our people, our employees listening to our clients. This is being done in all our industrial facilities. And it is very important to connect our clients to our people, our staff, at the plant level, so that our people who work in the industrial facilities can hear what our clients say about us. And there are many items here.

And now, let's go to Page 15, where we talk about free cash flow and working capital. As we mentioned before, going from the free cash flow of BRL 1.7 billion to BRL 238 million in this period, maintaining our cycle and our working capital NOR ratio at 10%. Regardless of the changes and the extremes of the balance sheet, I think it is important to highlight our behavior during this period. On the right, you have the average for the first quarter of 2018, '17. In '17, there was inefficiency in our financial cycle, and this always -- is always impacted by weekends and other things in the financial cycle. But our objective is always to manage the financial cycles of the company in a consistent fashion and not in a one-off situation.

On Slide #16, let's talk about our leverage. And you are familiar with our figures because we have a very robust cash situation in the company. We are totally comfortable regarding the liquidity of the company, and I would like to clarify that there is no discussion regarding follow-on or additional capitalization for the company. Nothing is being discussed or assessed differently from what we see -- said in the market. This is not happening. This is not on our radar screen. We are not doing anything like that. The company has its objectives. It is the company's objective to roll out the average duration of the debt so that we might have a better liability management. And the objective is also to bring about some initiatives to further reduce CapEx and reduce investments and the expansion of our cash generation and inventory reduction of raw materials and not of grains effectively in such a way as to allow us to reach the objective and be close to 3x by the end of this year net debt-to-EBITDA ratio.

So this is the direction that we want to take, and this is where we are taking the company. And once again, I would like to clarify that there is no discussion about follow-on or additional capitalization of the company.

With that, I close the presentation, and I hope this has been clear. And now, we would like to open for questions from you.

[Operator]

[Operator Instructions] Isabella Simonato, Bank of America.

[Isabella Simonato, analyst]

Two questions, Lorival. I think this is great, the chart that you showed about the price index for processed foods, gives much better visibility of what is happening regarding your pricing strategy. And I would like you to say a few words about this premium vis-a-vis your competition. And what is the ideal level? Do you have one? Or the 18% is already considered by you as a normal level and this is what you intend to keep? So how do you look at this decoupling from now on? And the second one has to do with leverage. I would like you to say a few words about potential actions on your part like the divestment of assets. And I understand there are some noncore assets that you're already considering, but maybe more relevant assets. Would it make more sense to do anything about it. You mentioned Argentina. We see a complicated situation in Argentina. So how are you looking at your portfolio as a whole vis-à-vis leveraging above all?

[Lorival Luz, executive]

Isabella, thank you for the questions. I would like to say a few words first about premium price. We do not have like an ideal figure. What we aim at is the adequate balance between expansion, maintenance of profitability and maintenance of share. So there is no magic figure to say like 18 or 16. This is a very surgical, so to say, management that has been very well done and executed ever since Alexandre and his team came onboard. So I wouldn't be able to quantify that. But the objective is to keep our solid position regarding leadership and share, making the right moves in terms of adapting our prices whenever necessary. So this is what we seek, a balance and this is a science, the science of listening to our clients and adapting ourselves to the different segments where we operate and the different categories where we operate and always, once again, seeking balance. So I believe we are on the right track vis-à-vis that. And I would like to reinforce one point as well, reinforcing what I have just said. Our investments in marketing and in media that we are already making in order to drive and to show our competitive advantages vis-à-vis the market and also to reinforce our quality and the quality of our products. So it has to do with balance between investment in marketing, investment in media investment in quality. And one thing leads to another so that we may sustain our leadership position and also the premium price. Regarding leverage, yes, there are nonoperating assets, and we are working on that and things are going on. They are happening gradually, but still in a very timid fashion. There are many transactions involved of small amounts. And right now, there is no decision or any definition or any discussion, a more effective discussion regarding divestment of assets, operating assets, be them geographies, be them categories or whatever. So the company is keeping its portfolio, it's keeping its footprint as it is right now. Nevertheless, looking at the very strong objective in the capital structure, and this is undoubtedly our direction. And this is what will be the basis of definition that we might make from now on.

[Operator]

Our next question comes from João Pedro Soares from Bradesco.

[João Soares, analyst]

I have 2 questions. The first one is regarding the second quarter, we are already half way gone in the second quarter. And I would like to understand some of the impacts of the volume to the European Union and how that has impacted the domestic market. And also, if you can talk a little bit about the current margins cost-wise and inventory levels and also considering the third and the fourth quarters ahead. And my last question is regarding management. I saw today in Valor Econômico, that a possibility that Pedro would take over as a CEO. Can you comment anything on that? That would help us very much.

[Lorival Luz, executive]

Thank you very much for your questions. I will start addressing -- these 2 questions of yours are very complex. About the second quarter, as you may imagine, it's not our objective to provide any type of guidance. That's what we can say in a very timid fashion. And we may say that the company is prepared and is taking the needed actions to adjust itself to any movement or to any adjustment in its costs or adaptations regarding demands from the market. I may say that the team is working together, all companies, areas are working towards the same goal, analyzing the market dynamics, whether in its cost structure coming from the grains impact as I mentioned or impact from expenses that the company has, as I said, indirect costs. And obviously, we are paying attention to the market conditions, whether Brazilian market or the sanctions are not from Europe. And we're waiting for that to be defined. So I can't say anything else about future results or the impacts in the second quarter results. But I should say that now, we do have a team that is working together, focused. And it is very well aligned with the Board of Directors. We are working on results for the year and for the company in the long term and the decisions will be made. Thinking about the long term and adjustment that might need to be made, will make, will be made. And we are managing that the best way possible, both regarding finished products, inventory, raw material, inventory and everything else. So there is a strong expansion in our client space. A growth of our sales of In Natura products in Brazil, and that is our direction. And I will be very straightforward regarding Pedro Parente being CEO. I would like you to check our communication published today, this morning, and it talks about the process that will define the CEO. I'm not the best person to talk about that. I would like you to check the official communication published by the company regarding the subject.

[João Soares, analyst]

Just a quick follow-up, if you allow me. In terms of capacity, you have the plants and I would imagine that some of the lines are not working to adjust to the sales levels. So can you tell us a little bit about how that has impact -- impacted your costs, your expenses?

[Lorival Luz, executive]

João Pedro, as I said, yes -- today, we have 5 plants that will have -- that will go into collective vacation. We usually have those planned, and they are planned for June. And that is regarding our adequation or the adjustment in order to meet the market demands. Once again, this will be done. It's not the way we work providing you guidance in term of cost impact that we are going to have in the third, second or fourth quarters. What I can say is that depending on the market conditions and depending on what's better for the company, and we always aim the cash generation of company, the profitability of the company and what is best for the company, which is if we need to have that mandatory vacation leave, we will have that naturally. The company will make the decisions that have to be made in a clear fashion. As we have been doing and as we have done in this first quarter, considering all movements and considering our employees and the market in general.

[Operator]

Our next question is from Thiago Duarte, BTG Pactual.

[Thiago Duarte, analyst]

I have 3 topics, please. The first one, when we analyze the adjusted EBITDA of the company of BRL 802 million, I don't know if we can work with this, Lorival. That would be interesting to know if how this level of profitability and the EBITDA generation happen on a monthly basis over the quarter so that we can understand the trend, the performance. We have seen several variables in cost and prices that you mentioned. And we would like -- I would like to understand how that has resulted, that monthly EBITDA margin over the quarter? My second question is on the top line dynamics in Brazil. That has been discussed somehow, but I would like to say that in the prior call, you mentioned your intention or your objective to recover the 5 percentage points of market share. When we look at this market share chart with this new methodology, including cash and carry, it was 44% last year, so we would be talking about 49.6% now. So can we think about the market share dynamics like this? And would it still make sense for you? And finally, I would love to understand it now this top line dynamics in OneFoods. Is this a reversion in the trend of several trends that we had in the prior quarters? But you started losing market share, so I would like to understand if we should see now an interruption of this process of price recovery considering that market share is going down a little bit. So I want to understand that because I want to know how we can think about prices in the future and profitability in the future especially at OneFoods here.

[Lorival Luz, executive]

Thank you, Thiago, for your questions. About the first quarter, the BRL 802 million, to tell you the trend of what is our monthly EBITDA, and I understand your question, but I rather not tell you our monthly figures because we will not disclose monthly results. And within a month, especially in the first quarter, we have longer months and months that are very short. So it's very difficult to interpret that monthly trend and come out with a curve that might indicate a scenario for the second quarter. Because we have different conditions there, whether -- because of the cost impact that we might have for grains, this is one of the factors, freight and other indirect costs that we might have. And also regarding the market dynamics, the impact from Russia, Europe and also from Brazil. So I apologize, but unfortunately, I cannot disclose monthly figures. Now about share of Brazil, what I should say is that, as I said to Isabella, what we want is to have the best balance between maintaining a relevant share to our liquidity condition, keeping the right premium price that will reflect our quality standard and also the strength of our brands, and that will have also the support of our marketing and also paying attention to the company's profitability. So the management will aim that balance. We will maintain profitability, the right margin, the adequate margin and the right cash generation so that we can have the right capital structure for the company. So if these conditions are in a way that we reach 49%, 50% or that figure we will be much better. But what is important was -- is to look for that balance in our profitability and maintain our market condition, our premium price and our leadership. About OneFoods? Yes, we do have growth. But remember, it's also in this quarter, we might have an impact, as you said, of share. But we do have absolute leadership in that market. And we have here that adjustment, that adequation. Remember, that we had that strategic action in the last few years of having our distributors in the region and considering that well-led action by Patrício that is there in the market. We have also dedicated more products to maintain the inventory there. So we're able to have a balance there with our products, so that we can have that impact. So you might have reflect here in the share rating that has to do with the balance and that management that we have been doing and that has been done. And I should say that this has been done in the right fashion. Therefore, we are very confident about the next quarters.

[Thiago Duarte, analyst]

Okay. I would -- just would like to ask you one more thing about Brazil. I didn't ask about Kidelli. Can you give us an idea how was its introduction and how it's related to the other figures related to the market share and volumes?

[Lorival Luz, executive]

Well, about Kidelli, Kidelli is launching -- was done officially in January. We, in fact, started selling it in February. Once again, these are 13 SKUs so far. And this share figure I should say -- it should not be considered because volumes are too low so far considering our last rating. So figures here are not including Kidelli and when that is relevant we'll disclose information. What I can tell you is, once again, that launching happened in February. We do have a ramp up planned for this brand. It is very transparent, and I can say that the volumes that we had planned for February and March, and those volumes were higher than the effective sales. But that's not too relevant, that's a little bit lower only. But that shows the start of a new brand. It's focused on specific segment of selling and so, in fact, in the first quarter, we won't have anything relevant regarding to that.

[Operator]

Next question is from Alex Robarts, Citigroup.

[Alexander Robarts, analyst]

Let me go back to the first question about the market share in Brazil and also regarding the fourth quarter. It looks like there was a drop in 100 basis points in the first quarter. And it looks like it happened in the field category, field product category that we have loss 2 basis points. Can you comment why you had that strong competition movement or maybe a change in the portfolio, something that could explain that drop in those share? And my second question is on how we should think about Europe considering this embargo situation? Do you have an idea of the volume that is suspended in terms of Brazil's exports to Europe? But you do have Golden Foods in Argentina that -- and they're still selling to Europe. Are you increasing capacity in Golden Argentina for poultry? Are you trying to offset that or it's still too early to do that? So these were my 2 questions.

[Lorival Luz, executive]

Thank you very much for your question. Now talking about the share regarding the last quarter and comparing it to this quarter, and you talked about a share loss. Yes, this is because of that balance that we aim to have between our profitability and our market position. So in the last quarter of last year when we compare it to the first quarter of this year, when we have here the price index and our relative prices, there has been a movement of price increase, especially in field products. So this did happen, that price movement and of course, that when you change prices, it will have an impact on sales and therefore, you will have a time for the market to follow that up fully or not follow that up. So here we have the competition dynamics that we have especially in Brazil. And it all has to adjust itself. So that's what happened. The price movement, the price changed, the prices increased. There was a share impact and there was an impact in the relative prices. So that's what happened. And Brazilian team with Alexandre and everyone else, they are following that up in each one of our regions in the regions where we have a footprint, in each geography, in each of the segments and also in each one of the categories. This is a balance and this is a fine management of each one of these categories. But that is what has happened. Now regarding Europe, again, no decision has been published, no definition has been disclosed regarding Europe, so I should say that it is too early to comment on the final impact and consequences considering we don't have reports and details about it. And what we have, as you mentioned, what has been exported from Brazil to Europe last year. Regarding Argentina, the answer is no, we have not exported anything there because competitiveness regarding that. And also the agreement between these 2 countries have to be adjusted and established so that we have that movement, so we don't have that right now. And what we are doing, once again, is waiting for the report in case it is published. And then, once the report is published, we will define how we are going to work so that we can show our side. What we can say very clearly and in a very technical manner is that the quality of our product is right, is adequate. We have all technical proofs of all shipments sent to Europe, and they are in compliance with the demands and requirement from the European communities, so there is no technical subsidy for any decision that might come out from the European communities. So we are waiting. And as I said, once this is ready and depending how it's done, it will direct the next steps for the company.

[Operator]

Our next question is from Luciana Carvalho, Banco do Brasil.

[Luciana de Carvalho, analyst]

I would like to know more about SG&A. You reported low levels since 2014, and we saw that in the release you have postponed some marketing initiatives. So I would like to understand, what is your expectation? How can we see this SG&A line from now on since you are sponsoring the World Cup, and you might have other expenses regarding Europe from now on?

[Lorival Luz, executive]

Thank you, Luciana, for your question. As I said, the investments in marketing, we understand that they are absolutely important and relevant for companies such as ours. As I said, the campaigns have been launched just recently, both for quality -- Qualy as well as for Perdigão e brasa. And by the way, I would like to invite you all to check the campaign especially at the time of the World Cup. I would suggest that you follow the World Cup with our products. But for the next quarters and the next quarter for sure considering the focus of the campaign, I'm sure that there will be an increase in those expenses and in marketing investments for the next quarter considering this campaign has just been launched. So about the first quarter of this year and when we compare it to the next quarter, I am sure that the marketing line, for sure, will have an increase.

[Operator]

Next question that will be translated from English to Portuguese is from Botir Sharipov, HSBC.

[Botir Sharipov, analyst]

I have 2 of them. One on Saudi Arabia. Just trying to understand if Saudi Arabia puts those measures in place, how would that impact not only Brazilian producers, obviously, but your global peers, global competitors like Ukrainian, Thai, Turkish poultry producers? Do you see the risk of Brazilian industry losing market share in Saudi Arabia? And in that context, what are you guys doing exactly to maybe prepare for that and how would that possibly impact your OneFoods margins? And the second question is on European situation. We understand that there hasn't been an official export done, but yet you guys are putting 5 plants on collective vacationing. Is that in response to the potential ban? Or just challenging domestic environment or both? So just trying to gauge the reasoning behind that.

[Lorival Luz, executive]

Thank you for your question. About OneFoods, I have 2 things to mention. First, as I said, the company and our plants are already working to a possible adequation and tests and evaluations are being held. Now regarding the market supply, in case that happens, I -- we understand that is going to be very difficult, let's say, that the whole world will be able to adjust to meet those demands. We believe that it's going to be very difficult for that to happen. That all exporters, Ukraine, France and everyone else will be able to adjust themselves. So in fact, there will be an impact for Saudi Arabia. In terms of cost increase for poultry send there, the markets will not adapt totally even in Brazil. There's adjustments that might be possible to be made, it will have a reduction in the industry productivity, that is not only for BRF, that is for everyone. And I believe this is the point of balance that the Saudi authorities are right now discussing. One, is the capacity to meet that condition. And the effect that they will have in terms of final cost for consumers. So that is what I think that would address your question. Now regarding Europe, and your question regarding the collective vacation, the answer -- the real answer is that this mandatory vacation have been defined and decided not only because of Europe, Europe is a relevant factor as I mentioned because we had a period in the first quarter without that market and also Russia is a matter that is impacting pork. And also, we have to adjust our inventory for finished products. So this is a whole set of factors so that we can have that adjustment between supply and demand and the level of inventories of the company. Therefore, we have decided to have that mandatory vacation period in these 5 plants. We did have an impact in the first quarter of vis-à-vis prices in Brazil. So what I should say is that we will be paying attention to the market conditions, whether the domestic market or our export and the conditions that will be there. And I am sure that the collective vacation will be part of our tool, part of our management if the conditions to adjustment are needed. So that's what we can tell you and clearly, answering your question. This is the combination of Russia, Europe and Brazilian conditions that have taken us to decide and to plan this collective vacation.

[Botir Sharipov, analyst]

And just a quick follow-up, if I may, very quickly. Are these plants operating currently? And what about the other 7 plants? I think the news were that in total 12 plants could be impacted by European [indiscernible]. And do you have any plans to adjust capacity there?

[Lorival Luz, executive]

A plan for these plants? There is a technical agenda for these plants, but this mandatory vacation period is planned to happen in a phased manner up to July of this year. So we do have plants that are going to have vacation in May, other plants in June and other plants in July. And for each one of them, depending on the product that is manufactured, this planning term will be around 30 to 90 days. Up to the moment when we really implement the collective vacation and the reduction in the shifts. Because once we already have chicken being produced, we cannot interrupt that cycle. I have to go up to the end in housing and that has a cycle depending on the product.

[Operator]

Now to close the Q&A session. We would like to give the floor over to Mr. Lorival Luz.

[Lorival Luz, executive]

Thank you very much to all of you to be with us -- for being with us during this earnings conference call. And I would like to thank you for the support, for the questions. I know that there are more questions here, but unfortunately, due to time constraints, we have already 1 hour and 20 minutes of call. We apologize for not answering them, but we place ourselves at your disposal in order to answer your questions and our whole Investor Relations team will be available to you.

So I would like to thank the BRF team very warmly over 110,000 people, all our partners and integrated partners, and those who work with us to offer a top-quality product to our consumers, to our clients. Thank you very much. Have a good afternoon.

[Operator]

BRF S.A. conference call is closed. Thank you for participating in. We wish you a good day.