BRF SA

BOVESPA:BRFS3

Earnings Call Transcript 2024-Q1

[Operator]

Good morning, ladies and gentlemen. Welcome to the BRF call to show the results referring to the first quarter 2024. This call is being recorded and then can be accessed at the company's website in ri-brfglobal.com. The presentation is also available for downloading. At this moment, all the participants in these are connected as listeners and then we'll start our Q&A session where more instructions will be given. Before we proceed, I'd like to report the statements, the prospective statements are based on the beliefs and assumptions of BRF and the current positions for the company. These statements can involve risks and uncertainties having insights that refers to future events and rely on circumstances that may or may not happen. Investors, analysts and reporters may take into account that events related to macroeconomic environment to the segment and other factors may change the results from those expressed in their respective financial statements. Present in this conference, we have Mr. Miguel Gularte, our CEO; and Fabio Mariano, CFO. I'd like to give the floor now to Mr. Miguel, who will start the presentation. Please, Mr. Miguel, you can proceed.

[Miguel de Souza Gularte, executive]

Good morning. I would like to thank the presence of all of you here in our call for the results in the first quarter 2024. We started a year where the brand Sadia celebrates 80 year of history and Perdigao 90 years with the most efficient more resilient, efficient company and sustainable company. We report EBITDA of BRL 2.1 billion with a margin of 15.8%. The numbers reflect consistent advances in the efficiency of the company quarter-to-quarter. Our management program, BRFS is conducting the company to the next level of operational performance, defined as reference. Now the version 2.0 of our program advances with the objective of leveling the indicators of the units according to the internal benchmarks in each of the work fronts. The accuracy of our system of verification and the new permits for expectations allows us greater agility and capability in responding to potentialize our results. The improvements in commercial execution in Brazil and the excellence of our predictive model for purchasing of grains also allows the growth and profitability of the company. We continue oriented by high performance, more and more competitive and prepared to capture the opportunities that come up. I would like to invite our CFO, Fabio Mariano, to present the results in details, and I'll come back right after that for final remarks and disclosure.

[Fabio Mendes Mariano, executive]

Good morning, everybody who is connected here. I'll start on the first page, the financial indicators for the first quarter of 2024, started by net revenue, which reached BRL 13.4 billion. For EBITDA, we reported BRL 2.1 billion, and this give us a margin of almost 16% for the period. The better results in the first quarter of the company, the free cash flow performance was BRL 844 million. In working capital, we further reduced the financial cycle to 4.7 days. 3 days less than in the same period last year. Inventory turnover remained at lower historic levels at 75 days. Finishing the slides with leverage. We reached 1.5x the EBITDA in the last 12 months. The lowest leverage in 8 years. We show in the next slide, Page 4 on the left, the historic evolution of gross profit with profitability of 24.4% for the period. We disclosed gross profit of around BRL 2.4 billion. On the right, we can also see the evolution of EBITDA, as highlighted earlier. In the next slides, we will present the performance per segment and business. Starting with Brazil, we continue progressively evolving with the operating results. We achieved 51.1% of EBITDA margin after the period, the seasonal period. We highlight the performance of Process products with good levels of profitability in the consumer environment that is still recovering and a marked improvement in fresh products. In the next slide, we make it clear the growth in margins of the record portfolio at the start of 2024 versus the average for 2023. We emphasize on the right side of the slide, again our journey of continuous evolution in commercial execution, reflecting in a greater number of customers, availability of products in the stores and we show improvement in customer service levels, contributing significantly to the performance of domestic market. We also remain focused on leading innovations that meet the needs of our consumers. We launched a new product in the frozen, code cuts and margarine categories. On the next slide, we bring the international market. We observed the evolution, the operational evolution of the segments, sustaining healthy margins as a result of persistent recovery of exporting rates, new markets and good performance in Turkey and GCC, the Gulf countries. EBITDA margin increased by 6% in comparison to the previous quarter. We saw gains in the share and exportation of chicks and for mid to several destinations. In the next slide, we qualitative highlighting the Hallo market, the celebration of Ramadan that moved the market with the highlights of the launching of new products and ease and juice and branded products. our brands and own distribution continue to favor the results in the region. In Turkey, we also recorded good performance as a reflection of the growth in sales of processed products, which enable an increase of 4.7 points in market share and good levels of profitability in inter-portfolio locally. On the right, I show the highlights on the direct expectation market. We can notice the behavior or prices in the main cuts that continue responding. We expanded our business alternatives with 25 new licenses for various markets, maximizing prices. We also highlight inventories at lowest historic levels, which continue to help reduce logistic costs and improve commercial positioning. I'd like to finalize the business segment presentation with the next slide for Ingredients and pets. The segment reported 10.7% of EBITDA margin. It's important to consider that the evolution of the Madden factor in yield continues to convert in the maximizing of the results of the core portfolio of the company. In pact, we highlight new commercial export agreements and advances in mapping the value levers of our efficiency program as well as the start of the integration project for ERP systems in ingredients. We remain focused on expanding markets and increasing sales of value-added items. We also highlight the accreditation of Concordia plant by Abra. We continue to add value to our co-products in order to maximize business integration. Then I'll share the progress of our efficiency program, which will be quantified in numbers by Miguel soon. I will present the comparisons with the same period from last year, bars and light gray color. The comparison with 2022 can also be seen in the material. We noticed that in agriculture, we saw a drop in feed conversion for poultry and pork from 2.9% and 0.6%, respectively. Chicken mortality fell by 1% and pork by 0.7%. Patching rates rose to 2.6 percentage points. An industry increased more than 3.6 percentage in factory output. In logistics, we reduced returns and raise the service levels in Brazil significantly. On Page 12, we consolidated the following highlights of sustainability. Advances in the Sustainalytics rating, best-rated company in the sector, publication of our integrated report, including the complete mapping of Scope 3 greenhouse gas emissions. And finally, achievement for the second consecutive year of the CEO of good environmental practices of our Akida plant and the Emirates, reinforcing sustainable practices in the international market. We now present on Page 14, the information related to the company capital structure. On the table on the left, we see the evolution of the net debt to leverage. These indicators were already highlighted at the beginning of the conference. On the right, we see the debt profile, which remains diversified and elongated with no concentration of repayments in the short term and comfortable liquidity position. The next slide, we show the free cash flow. The charge shows an operating cash flow of over BRL 2 billion, an investment flow of BRL 696 million and BRL 509 million in financial flow, resulting in free cash flow of BRL 844 million. You can also see the evolution in the smaller charge, the evolution of cash flow in the recent quarters. In the final slide, we can see the reduction of net debt between the quarters. We report net debt of BRL 9 billion. Reduction in loans will continue contributing to reduction of interest charges in the coming quarters. I'd like to thank your attendance, and then I hand over to CEO, Miguel Gularte, to his closing remarks.

[Miguel de Souza Gularte, executive]

Thank you, Fabio. To finalize our presentation, I would like to highlight that our capital structure optimized capital structure, financial discipline and continued operational recovery, made it viable another quarter of we also recorded in this quarter the lowest leverage in the last 8 years. BRF plus 2.0 presented capturing of BRL 240 million with advances in the main front operational fronts per year. We are now performing above the historic levels in some of the main indicators. For example, mortality rate, feed conversion and logistics service level. Inventory turnover that reached 75 days allowed the lowest historic level in the company with 4.7%. In our international operation, diversification, market diversification was determining to maximize the revenue of the company. We achieved in this quarter, 25 new licenses for expectation. In Brazil, we kept healthy levels of profitability with an increase in the regular portfolio margin sustained by the consistent improvement of commercial execution and contribution from innovations to our results as well as in 2023, the commitments that were taken and the opportunities identified drive us to continue this evolution trajectory with agility and efficiency.We continue to focus on the development of our people, and we concluded in this quarter, our annual engagement service. We have a substantially better result in comparison to the prior cycle and both the companies, the high-performance companies recognized by our employees and a reflection of the management best practices and dedication from the leadership. All of our evolution will not be possible without the commitment from our almost 100,000 employees that we thank them so much. We also thank our Chairman, Marcus Molina for his constant leadership and presence, big thanks to the shareholders' council, integrated producer, customers, vendors and all the communities where we're present.

[Operator]

Thank you. We'll now start our Q&A session for investors and analysts. [Operator's Instructions]Our first question comes from Leonardo Alencar XP.

[Leonardo Alencar, analyst]

Before anything else, I would like to congratulate for the quarter, very good results above the expectation, very good performance. I would like maybe because of the seasonal that really the Brazilian market has always been marked by the seasonal in the first quarter, a weaker first quarter, second quarter, even weaker and the third quarter is a recovery in the fourth quarter is stronger. The picture that you have in 2023 show the sequence of improvements in the context and structure as well. But in this beginning of 2024, in this first quarter of 2024, we discussed a little bit more what is the seasonal effect and operational effect BRFS you have showed the delivered that in the first quarter, very significantly within that number of 1.8 billion expected for the year. Is there a seasonability that we should expect only recurrent for the next quarters that is practically the average for the year. And even the grain effect was strong in this quarter, a very interesting point. But there is room yet for benefits over the grain lines. So both in cost and international parts, you showed a very interesting chart in the fourth quarter for some of the cuts and exportation. This dynamic continues favorably over the first quarter and how much for the second quarter on, can you eventually assure the portfolio or internal or external market to think really that this cycle and the seasonals like a commodity starts to grow in your thesis. So these are the 2 main points, both in costs, brains and also operational and sales internal and external market.

[Miguel de Souza Gularte, executive]

Leonardo, your question is your answer. I think that the set of the foundation for BRF, it's suffered a very important change from -- I'm going to go back a little bit in time in 2022. Marcus has take over the council and the management of the company in 2022. We have this plan and this plan starts to be executed in September 2022. We called BRF+, which is a program I'd like to say that it starts in the upper level but has capillarity at all levels in the company. Our team has been responding properly with all this -- don't need the trajectory of the company, which is a tradition. So together with us, the benchmarking of 2 companies, and it's fundamental to make this change. The strength of our brands, of our company in commercial terms, perfect execution in all aspects they're in the industry and our and our brands. Obviously, our sector has a certain seasonal aspect, but we cannot confuse it with the fundamentals that we can perform better under any conditions. We find today BRF that is much more structured a company that has lower inventory levels, a company that produces directly from the plan to expectation, doing well within domestic market that uses qualified information properly as well. The pricing system that gives -- a system that gives you a very good indicator to have a direction. But obviously, with that information, you're not able to make the operation and the execution that information is useless. Another important aspect, I think that the fact that this company has a very clear strategy. I recall that the strategic company and the controller and the and we go to execution. Obviously, when this strategy makes sense is well thought of and planned and the execution transforms -- so that translates into BRF. We work a lot starting to answer your question more directly now we work a lot and very carefully and very -- on those factors that depend on our management because we are sure that working on the factors that depend on our -- from our management on the face of some events that are not under our control, we're going to perform better. And this makes a company that pursues performance and better compliance. And also answering your question about BRF+ for future possibilities. I recall that BRF us is a performance program of continuous improvement and much more than continuous improvement program. I would say today that BRF+ has incorporated the culture of the company. It's part of our culture, our day-to-day basis. We repeat that. It's really present here at BRF, everything we started every Monday on the morning.

[Leonardo Alencar, analyst]

The BRF is really clear. But just the commercial part, Miguel, if you could -- I understand that this part is stretching the portfolio, but the market remains in the on-demand without Ramadan. This is valid for Middle East and Asia, the United Kingdom with very solid thing. This is valid for the third quarter making it possible this portfolio.

[Miguel de Souza Gularte, executive]

Leonardo we already forecasted a gradual improvement on prices when we closed the fourth quarter 2023. Our pricing system indicated that we were getting ready to take advantage of that and the opportunities. It's important to highlight that we have 66 new license last year. This year, we have 25%. And today, we have 2 more plants license or to export to the Philippines. So when you have more options and opportunities, you end up having more diversity, capturing commercial market as a whole differently from the first quarter 2023. The market as a whole improved in terms of price, more destinations and more licenses. I always say that the best choice is always have many possibilities this happened. We are now starting the second quarter with the guidance, we are seeing the market that in terms of prices resilient and the commercial opportunities are being enjoyed by the company that has the perfect idea and taking advantage of the strengths of the brands, brands, Sadia and Perdigao, not only the internal market that they -- but also for the exportation market, we capitalize that in the best way possible with qualified information and execution in all of our different different geographies and different players, local players, we try to capitalize that, try to capture that, which has become a reality.

[Operator]

Our next question comes from Lucas Ferreira, JPMorgan.

[Lucas Ferreira, analyst]

My first question about international market and especially the chart, I found it interesting, the price of chicken breast increasing well maybe because of new licenses, U.K. explore a little bit more how you are seeing this market, which is a more premium prime market? And if there's any perspective or any visibility of going back to expectation to Europe in some moments. The second question is about Brazil. The result was really strong. The lower cost -- the prices from what I understand, the comparison base is more difficult than last year, and we have some effect of cheaper raw material pulling the prices of some of the process products downwards. So my question is if this effect is over or if you're able to possibly increase prices in some of the categories? Is there any perspective of having an average price -- better average prices in the future and eventually the recovery volume?

[Miguel de Souza Gularte, executive]

I'm going to address the first question and then I'm going to share the second answer with Fabio. Obviously, the international market with the new licenses and opportunities, it was well explored by BRFS as I answered in Leonardo's question. But on the other hand, it's important that within these licenses, we had 8 plants licensed for U.K. This also allows us to have the conditions to continue moving forward that up to a year in markets where we were absent on the other hand, BRF has that trajectory in the sense of working with more added value product participation of this added value products in the portfolio and the general portfolio of the company. And finally, but not least important, we had year 2024, a recovery of markets in general. So obviously, with more licenses with plants performing better working with a criteria that we don't -- we produce wells. So to have the opportunity to capitalize them and make them into commercial actions, and this commercial action materializes into results. So we see this scenario of expectation as I already said, favorable, and we are paying close attention to all opportunities. Obviously, not only paying attention not only to the performance of the company, but also to the possibility of having market choices and internationalization of the portfolio.

[Fabio Mendes Mariano, executive]

I'm going to talk about Brazil, which was the second part of your question. I think that when we compare the average prices from Brazil with the prior quarter, we have to take into account that we don't have the portfolio, the which is in a specific portfolio for the fourth quarter, the holiday product. So that mix is the product. So another element that influences the fresh intra products as we advance in opportunities and sales destinations, we start to have some choices. And among these choices, we can redirect products that before were commercialized traded in the Brazilian market and now were traded in other destinations, expectation. They end up having references and influence in the mix of products. And when we think of process products, it's important to notice that the performance in some categories, for example, margarine. That was a category that has its profitability expanded because of the main input had reduced in value, the soybean oil. We have a little bit more price pressure, and this is still consistent. But talking about expectation, I think that from the consumption, we understand the environment is under recovery, Brazilian income has improved because of the inflation process from the third to the fourth quarter, inflation is still high, employment is resilient. We don't have an ideal scenario yet, but it's a scenario that is more favorable than the scenario that we experienced last year.

[Operator]

Our next question is from Gustavo Troyano Itau BBA.

[Gustavo Troyano, analyst]

We have 2 points here that I would like to explore with you. The first is related to BRF plus 2.0. You've already commented a lot about the process of continuous improvement. What I would like to quantify with you is the point that you have your efficiency versus your benchmarking that you dealt in the beginning for BRF plus 1.0, let's call it like that, and understand how this 2.0 would compare to the 1.0 at the moment, I'm trying to have this order of you see the phase of the efficiency what has been delivered, if you have reached the benchmark that you had proposed at first. And the second question is still about cost, but focused a little bit on commodities. I think that what I would like to explore with you within what you have visibility today, the grain that is already the BRF system, do you think that we have room -- more room to see the cost per tonne dropping in the next coming quarters? I remember that in the middle of last year, you already had a visibility that cost would drop a lot in the second half of 2023. I would like to hear from you if you have some have granularity to -- from what we heard last year from you in regards to commodity. That's the first part about efficiency. Second part about brains.

[Miguel de Souza Gularte, executive]

BRF Plus program in starts take as a base the year of 2019, a year before COVID, and we had an interesting basis in terms of performance because we could use some indicators as referenced, taken as basis 2019. We proceeded like that, taken as a base 2019. When we designed after the success that BRF plus was the initial BRs,when we design BRF the team, BRFs 2.0, we changed it the reference. We took us based internal benchmarking. We took as base the indicators of performance in each of our locations with geography. And this reference started to be the reference to be pursued by the other locations. So this showed us an excellent opportunity of improvement. We are talking about data and demand, but a concrete basis more than a concrete basis, we had our own basis, and we had the experience in 2023. And and we were able and we're going to be able to better the plan for 2024 as it goes because of continuous improvement. And as I referred to in the first question that I received, it is not only a performance plan, but it's almost a cultural plan for the company, continuous pursuant for improvement, exascale, easy to understand, and that is in our hands to achieve. This has been happening. We have the expectation for 2024, and we continue improving the performance of the company based on BRFs 2.0.

[Fabio Mendes Mariano, executive]

You asked about the expectation in terms of costs thinking of the following quarters, the coming quarters. The first aspect, I can report, there is no symmetry in regards to the efficiency program, captures. We hope it is a continuous improvement program and then we have the conditions that at each quarter improved the indicators. So this should happen with the environment for the next quarters. Specifically thinking about Vita has to do with the grains. We adopted a strategy that is really similar to the strategy from last year. So although we have challenges in the Brazilian harvesting there is an expansion in the case of soybean, we have an expansion close to 5%, corn, 6% -- so we think -- we believe that there is a lot of production, enough production, especially in the case of Brazil, in the case of the smaller output when we can generate products at very competitive prices. So we have a stance of having a less -- that has conditions at the shorter output to increase the position and somehow influence the average prices of inventory. If this market really materializes, we then really have the CTV view for the third quarter and the fourth quarter of this year, we can notice a retraction of costs influencing positively the profitability of the portfolio.

[Operator]

Our next question comes from Isabella Simonato BOFA.

[Isabella Simonato, analyst]

I would like to ask a little bit about the balance sheet and the use of funds. As you pointed out really well, we have a level of leverage much lower than the company had been running. I think the level of CapEx from what I understand and what you've been saying shouldn't go up very much. Yesterday, you announced a buyback program. I would like to explore a little bit how do you see now the allocation of company's capital if the focus is going to be the return of the funds to the shareholders, how do you see eventually new avenues for growth? This is the main point that I would like to talk about.

[Miguel de Souza Gularte, executive]

I think that the first aspect in fact, the leverage decreased at levels that we hadn't observed as it was put at the beginning of the conference, at least 8 years. This doesn't change the focus of the organization of continuing and persisting very energetically on our -- reducing our gross debt. Our intention is to continue to advance on rates and go back to being a company evaluated as an investment breed. And is natural, all the deleveraging process as we have a readjustment of the capital structure that we can have opportunities and possibilities for investment. Specifically talking about CapEx, we still have opportunities of growth for the company with investments, marginal investments, bring a message of idle. We don't have the full occupancy of our planned footprint. So this year, very much likely we should grow the levels of CapEx that we have we observed last year. I mean, in general, that would be -- it hasn't changed in comparison to this trajectory. On liability side, it's important to highlight that we're going to be very attentive and paying very close attention, although we don't have a concentration of that maturity date of 2024. We're going to be paying attention to the possibilities that the marketing offers liability management and exchange liability, so we can reduce the debt costs and favor this process that I have tried to convey here to you.

[Isabella Simonato, analyst]

If you could just emphasize the point of dividend of the buyback, the idea we can think of a minimum dividend? Or is there the possibility of of a higher return on funds to the shareholders.

[Fabio Mendes Mariano, executive]

We are working here at the company that very hard and diligently to improve the results, investments depending on the controller decision for the strategy of the company.

[Operator]

Our next question is from Ricardo Boiati Safra.

[Ricardo Boiati, analyst]

Congratulations for the excellent quarter. Two questions from my side. The first one about international market, more specifically about China. If you could comment a little bit more how you have seen the offer dynamics and demand dynamics in the Chinese market. Talking a little bit about chicken meat and pork meat. So we can understand a little bit how to think of this market, this major market and international operations for you. I think that Halal is also well understood with very favorable. But I'd like to understand a little bit more about Asia and specifically about China. And the second question is about the situation in Guangzhou, if you could comment with a little bit more details, what you have noticed in terms of impact, not only in your operation directly in your plans, production of the company, but also in the integrated chicken farms and partners of the company and also logistically speaking, I think that this is a very important relevant point. The capability of feeding the plants and poultry farms and delivering the production. We have the strike of the truck drivers that generated a logistic discussion that was really relevant at the national scale. But I would like to understand what the situation is like in terms of logistics, the current situation, you have been able to deliver and slow this production outside the plant, and this has happened to your partners as well, integrated or affiliate. We want to know if this situation may complicate the logistics doesn't solve over the next coming weeks.

[Miguel de Souza Gularte, executive]

Ricardo answering your question about Asia and China. I think it's interesting to observe the CSX data. If we compare the first quarter of 2023 in Asia, China, 153 tons from China from 2023, 62,000 went to China. If we look at the same number in 2024, 153,000 of chicken in this case, poultry. And in China, 39,000 around that. So if we compare data from CSX for poultry, we're going to see that Asia in Brazilian expectation in the first quarter of 2023 out of 400,000 tonnes, 153 since 2023. Now 2024, looking at the same picture, we're going to find Asia with 125000, 147,000. Here, we have clearly a displacement of performance for expectation in Asia. So Asia, specifically China continue to be a relevant destination for Brazilian expectations. We noticed in the case of poultry, a recovery of price in the first quarter this recovery regardless of the intensity and the magnitude it is happening. And in regards to pork, we have a more balanced situation, but we also see pork performing going back to a level that is more normal in terms of price. Obviously, when you have 66 new licenses in our case in 2023 in 20-plus and 2 more today also for pork in the case of China, we licensed for Philippines, 2 plants for the Philippines today. So we have options of have choices. The straight off as normal for destinations. You can have this cherry par or destinations, both for poultry and pork. In regards to Guangzhou, a state in the South of Brazil, the first thing that we would like to say we would like to sympathize for the inhabitants of you're going to use almost 10,000 employees and 2,000 integrated employees, BRF since the beginning was concerned of it extremely valuable to us, our people and our integrated people in the whole community, we are inserted in. So we opened on Friday, a campaign to raise of fundraising for each real raised in this campaign, the BRF Institute, raised on real the Murphy placed on more Rio BRF, one more Real. So each Real raised by the Bafin BRF turned into 3 Real. And from Friday to today, over BRL 3 million, and you saw that in the opening of our call, we placed in the page the call to the result of the first quarter of 2024. We have the card for donations. This is going to be in our website. So all donations are welcomed. Each donation made through this tool generates 1 extra real and 1 extra real reported by Marfig and on Real from BRF said that. Talking about -- from the operational standpoint, our plants, we have 5 plants in Guangzhou 5 plants, 4 of them went back to operation on Monday. And the fifth plant will go -- went back to operation yesterday. From the logistics standpoint, obviously, the challenges are big, we were able to get to the plant and also slow the out patent production. So you are covering longer distances now. You have challenges that we have to face under the situation. But we are very much focused, so everything is done safely and keeping very close to our employees. We are always close to them. We worked on Friday, Saturday, Saurday, first stop making contact with our employees. On Sunday morning, we have contacted already directly over 95% of our employees and a proof we're really proud of the engagement of our people, our personnel is that we had -- from the standpoint of absent, we had the presence, the industrial occupancy, we had lower absentisms that the average levels, people understanding the importance of production of food production in this moment. So everybody that was present and allowed us to operate. Now we have our commitment not only in solidarity, but also our commitment to help to mitigate the damage in the whole chain. BRF is a company that has a tradition of integration and relationship with the employees. Obviously, the valuation that is more accurate about damage and the consequences that may have happened are still undergoing. And as a very recent fact, we still have some difficulties of finding information because of power failure, telephone, failure -- so we are all the areas in Guangzhou we are in order to support and not only those the integrated parties, but their families. We dedicated time advancing. We are increasing this contact and support. We are very confident in our tradition for integration and relationship. And even more the data was given from the controller and the council, given all the necessary support in this difficult moment. We understand that it's important that BRF behaves as a company that is relevant in the important it has according to that.

[Operator]

Our next question is from Renata Cabral from Citibank.

[Renata Fonseca Cabral Sturani, analyst]

Congratulations to all of you for the results. I have 2 questions. One is a follow-up in regards to CapEx. You commented that about having the growth with CapEx levels with the same level from last year. My question is about what to expect for 2025 in terms of maintenance, if you are expecting to have the factories need possibly -- additional maintenance after going through in the past more critical period in terms of cash generation. Obviously, the company now is at in another level, -- just to understand this question. And my second question is about capability in the industry in 2023, specifically for poultry. It was the post-pandemic period for the industry in general had oversupply, and we had this normalization throughout the year last year. And now that we are in a positive cycle in terms of raw material prices. I would like to hear from you if you observe an increase in capacity, and this is aligned with what you expect and your view over this topic.

[Fabio Mendes Mariano, executive]

I'm going to start by the first question about CapEx. And I would like to make it clear that any situation of the company or in any occasion, we capped assets at very good conditions of operation regardless of the situation. This has always happened. The investments have always been allocated in a way that the footprint could respond to growth and production plans that we had. What is correct, we then this year to have investments at the levels of investments presented last year, we have plans of growth for this year and the view of our investments for 2025 will depend on this performance. So if we understand that the growth speeds up in terms of execution, then in 2025, we will have to reinforce investments and capabilities. So this would be a scenario that would be very positive. So we could anticipate dedicated resources to increase our possibilities of production. In regards to capacity of the industry, your second question, I'm going to hand over to Miguel.

[Miguel de Souza Gularte, executive]

In regards to capacity, we have seen... And not only in this quarter, we ended but the prior quarter that there is a balance, a very interesting balance between offer and demand for reasons that we have approached already the economic thing. So new destinations for expectations, new markets and the environment of consumption, not only in Brazil, but also other geographies, other locations, showing positive signs. So what we have to have present is that this balance today, it is extremely based on this environment, this general environment -- and we don't see, at least in the short run any indicator that this is going to change. We see at least that in the first quarter, very balanced first quarter between demand and offer, and we should expect the signs in the second quarter to project the rest of the year. I would say that we are very much tend to paint close attention to it, and we don't see a problem in this aspect, but we see an opportunity.

[Operator]

Our next question is from Leandro Fontanesi from Banco Bradesco BBI.

[Leandro Fontanesi, analyst]

I would like to the question about processed products, brands, Sadia, Perdigao in the presentation you mentioned, you have 39% market share for process products. I would like to hear from you what you see in terms of potential for these brands? And how do you see the pressure on the volume versus price? And your competitor some time ago had announced an expansion plan? How do you see this competitive scenario in terms of process products? And the second question, please. You talked about the question of dividends that would be a controller's decision. This line, your leverage evolved a lot, which is something very welcomed. But in case of cash generation continues strong and you reduces leverage, or what options would you have in using this capital.

[Fabio Mendes Mariano, executive]

I'm going to start answering with my market share. And I can tell you that according to the last reading, the last quarter, the market share kept stable in regards to the prior quarter. In the current context, I believe there are changes in price relativity, BRF continues to influence positively the value of categories that it acts on in specific cases, we tried to take the first step in regard to the whole price dynamics. This is associated as you placed to main brands, the leadership that the company exerts in all the subcategories we have act on. So to give you a highlight in the last rating the category that most advanced was the category for cold cuts. So in regards to dividends and possibilities of investments I just mentioned in the prior answer, CapEx, the investments related to growth. And obviously, this is going to depend on the execution of our plans and also depend on the context of market context. But especially in the question of compensating shareholders, Miguel and we from management, we are taking the effort to improve BRF profiles, making the conditions to be profitable and create -- add more and more value to shareholders. The way of compensation for the capital, it depends on the controller and the console to determine.

[Operator]

Our next question comes from Thiago Callegari from BTG Pactual.

[Thiago Duarte, analyst]

I have 2 questions. The first, taking the opportunity, I think this is something that consolidates the efforts in the past few years of improvement and efficiency and profitability. And I would like to take this opportunity to bring a discussion that I think that was really present in the history of the company in the past and the more disinfect that is not present -- hasn't been present for the past few years, but just to hear from you a little bit what you understand to be the margin, the profitability structural profitability of the business? What levels of margin do you understand to be able to deliver at the light of all which a... That we are... In the profitability of the business. So I think that this would be my first question within that, if you could -- within what you can share and be factual. And the second question more focused on the quarter I would like to ask you to talk about -- a little bit about the revenue dynamics in Brazil. We see a drop in the year-end when we break by segment, it was pulled mostly by process products. At the same time, when we looked at inventory composition, we see highs in finished products inventories. And I don't know how much of this is Brazil or domestic or foreign market, but it draws the attention a little bit. And I don't know if there's any mismatching between sales, I believe it can come back -- go back to normal or something carried from the prior quarter. I would like to understand the dynamics of top line in Brazil at the light of the comments that are being made over good demand and a good scenario for consumption in the internal domestic market. Those would be my questions.

[Miguel de Souza Gularte, executive]

I'm going to answer first, and I think Fabio will take the second question. Eventually, BRF as a footprint. Brands and all aspects that we had it's a company that should perform within that just making a comment based on what we know from the potential of the company. I think that when you have the performance program like BRF plus, you have somehow you not only changed the fundamental, the foundations, the operational foundations of the company, but you also make a process that these foundations makes the company more resilient. So we've been working on that at all segments and divisions. Another important aspect, the BRFS has a characteristic that gives funds or provides foundation to this possibility, such as all the aspects of our business starts in the field, KPIs in the field, inclusion, mobility goes to the industry where you have yelling, you have productivity, costs, man, our advances to commercial area, you have commercial execution. You can add new customers, over 7,000 customers in this quarter, and you make that at all locations. If you go to logistics, a very important thing in our business. You have a company that today has rates that are really high, and these rates are improving. Not only you sell to new customers, but you deliver the products that you sold. So this is critical. Another important aspect is you start to have within the process of licenses that's the 23, 24. You also have a very interesting possibility of choice. You can choose to be able to choose in our business is something extremely complex from the variable standpoint to be able to choose the commercial destinations. This also helps the resilience of the results. All these factors end up influencing and give us the conviction that the company should perform. We also had an increase in expectations, BRF expectations in regards to the prior quarter, continuous improvement in gains. Obviously, when you increase the participation of process products and products have been exported, you increased the possibility of bringing better results. And another very important aspect is premium price that is embedded not only the Sadia brand that is fully known, both domestic and foreign market and the Perdigao brand, very much present in all locations. So I think that this set of attributes and circumstances makes us really confident to work to be resident a company. Factors that are independent of our will and from our side, we're going to continue working to be a high performance and higher-portfolio company delivering the value that the market expects from us. I'm going to hand over to Fabio to answer your second question.

[Fabio Mendes Mariano, executive]

Your question was about revenue in Brazil or income in Brazil to talk a little bit more about that, 2 angles to perspectives to explore. The first one, volume. I wanted to make it clear that we don't have any change in demand. It's not that we have the volume, the trade-offs that I already commented in prior questions, volumes that were traded in Brazil and started to be destined to other markets, new possibilities of trade associated to new licenses. We also faced one of in this first pad in 2024 difficulties because of the inspector strike. So additional challenges in regards to sales volumes, it's important to remember that we made this work over the last 9 months of simplification of market portfolio, domestic market portfolio, basically 20% of SKUs, the company decided to eliminate SKUs that actually destroyed value. So had a strategic role, could maximize or minimize damage to the company. This was a factor that I would like to remind you of. And then the question of price, I have already highlighted some categories like margarine that was already mentioned. And we have spotted a mix change embedded, especially sausage volume and some other SKUs, but that's what justifies the movements that you have seen in Brazilian market.

[Operator]

Our next question comes from Thiago Bortoluci from Goldman Sachs.

[Thiago Bortoluci, analyst]

Congratulations for the results, impressive the speed of your turnaround. I would like to explore a little bit the perspective of growth. We talked a lot about costs and maybe for Miguel with the size and the amount -- the volume, the size of volume that we would like to see from now on. Correct me if I'm wrong, but when we look at the trend of in the first quarter in '24. You had a slight drop in volume in Brazil with an external international expansion, but still consolidated the production. It seems that your production with 60, 70 days, which seems to us that the first decision was to have a BRF lean or BRF focusing on profitability of the operation and then go back to growth. So I think that from this angle, the first question, are we in a moment of refining volume or in the second angle of this question? If so, what is the impact of BRF, a little bit more focused on volume could have on this balance of offer and demand that we have seen over the past 6 months that in the moment that maybe the perspective of grain would suggest a more aggressive market. So the question about growth where BRF is in this volume recovery cycle? And what is the role that BRF has in this supply operation? How could this impact the operation or the balance between offer and demand.

[Miguel de Souza Gularte, executive]

Answering your question, obviously, when you start the process of turnaround, the first thing you do is to correct some type of situation from the commercial standpoint dedicated through the BRF program in this process created in 2023. Fabio explained really well the SKUs that were not profitable, and many of them still produced in third parties. On the other hand, BRF still has a very major challenge in the sense of occupying the idle capacity. The company has idle capacity to occupy could be an advantage that allows us to grow organically, but it's a challenge that we have and should perform. From the standpoint of future, obviously, the strategic guidance of the company -- the companies have always had growth and change in growth is part of the strategy for BRF, Obviously, the trend -- the natural trend and more the natural, the pursuit trend is the trend of growth always without giving off profitability. So growth with our profitability doesn't make sense. So this serves to not only the strength of our brands, such in Fredrico but also the great capability of innovation of the company. This continues to be an innovative company, focused on innovation, and working with added value products Growth for growth, it's useless. So we have to have innovative products. We're proud to be in this fourth quarter, we already worked with our portfolio of innovation, performing really well, not only in volume, creations and innovation, but also in results of these innovations. This makes us really excited for the future.

[Thiago Bortoluci, analyst]

Thank you, Miguel. If you allow me a very brief follow-up, you commented about the continuous focus between growth and profitability. We got over almost 6 and you understand that this could run 2 digits, although the range of 2 digits, it makes sense to imagine that -- there would be an appetite in this level of profitability to reinvest in growth?

[Miguel de Souza Gularte, executive]

Our focus, our priority focus at the moment with this idle capacity is clear, and we have been working to make that happen. But the growth in organic growth for the company or market opportunities, they're going to find a company the leverage and very, very careful in the sense that these opportunities is real and factual. I think that the growth aspect goes through certain degrees, a very important degree of responsibility. The company cannot grow at any cost, but it has to grow. It has to grow. In this aspect, our controller gave us a strategic drive that is really near the company has to continue growing. We are working, so this growth is sustainable and profitable and makes sense from the strategic standpoint, commercial standpoint operational standpoint and especially harmonized in all these aspects, growth, the industrial growth that is factual only from the commercial standpoint. But we are working very carefully and criteriously to capture and to have opportunities, so this growth is healthy and resilient.

[Operator]

Our next question comes from Lucas Mussi from Morgan Stanley.

[Lucas Mussi, analyst]

I would like to go back to the topic of costs. I understand that you have an expectation that generating more favorable costs from the third quarter on, maybe in the fourth quarter. I'd like to focus on a short run in the second quarter. If it's reasonable to think that there is a possibility for the grain cost goes up quarter-over-quarter. Given your inventories a little bit more in the short term and more favorable than last year, if there is the possibility in the short term in the second quarter to see a little bit of increase. And my second question is in the international side in prices. We see that part of the improvement of sequential prices, the improvement of some cuts and mixes. But I would like to see at the end in the second quarter, if you see the sustainability of these prices, there have been some seasonable follow-up that is not repeating in the second Isramadantat was more concentrated in the first quarter or a different mix of countries. I'd like to hear a little bit more from you how you see costs and price international cost and prices in the second quarter in comparison to the first quarter.

[Miguel de Souza Gularte, executive]

In comparison to transition to the second quarter, I think that the trend of maintaining just to clarify that we don't have an inventory in grains and for short term. That's not how we work. We never put at risk the supply of the company. That's why I refer to our position as a position, less stretched. So we could have condition in the smaller output production originated a little bit more of this production that we see is abundant. So you can expect cost from the feed side, stable in the second quarter in comparison to the first quarter. And on the other hand, we've been discussing here in our efficiency plan, we expect the quarter-per-quarter to improve the indicators for performance, and this could have an effect -- a positive effect in this transition. But now directing to the second question about the market expectation markets and prices. I think that several elements justify the performance and profitability of this segment of the company. The first one is that we had a recovery, price recovery basically at all destinations that we operate in, not only to Halal with the Gulf region countries, but Africa, America, Asia, within Asia, China. This was observed, and this has a positive influence and what we talked today, we have more choices and we capitalize choices in regards to the maximization of prices and Hella,we live a very good moment substantially. We had the Ramadan operations that intensify a little bit the local consumption, but we follow our strategy of continue with the offer of added value products. This makes our business more resilient and we can take advantage of our local distribution. We have distribution in all Gulf countries where we operate. Talking a little bit about Turkey, we live a very good moment of profitability that has to do with decisions that we commented, for example, of expanding the line of industrialized products that we are already at 90% more than expected. This increase of representativeness have the valid products in regards to the sold volume. So the trend for the second quarter is not observing so much variability that we believe that because we took the decision of stretching portfolio. So the moment that we understood that prices were at good levels. We opted to stretch verification orders. This brings a little bit more resilience in a good part of the months that we have to trade expectations.

[Operator]

Our last question comes from Guilherme Palhares from Santander.

[Guilherme Palhares, analyst]

Good morning, everybody. I don't want to extend too much because I think people have already talked over most of the topics, but I would like to thank the management for the support to the Hoganas region. I think that it's going to be important this 1 to 3 real campaign. It's to encourage everybody who's participating on the call to donate because the region is really going through a very difficult situation. Said that, I would like to explore a little bit on the industrial side of the company. We saw an improvement in the profit, the yielding and mortality. We saw improvements in -- even compared to the quarters in 2023, had some of the benefits that the company was pursuing. I would like to understand, when we look at the capability of the company today, looking at the same basis of -- we looked at this drop in mortality and the patching. I would like to check the -- it seems that the capability of the company has expanded like around 20% since 2022 using this base of assets. And in the same sense, looking a little bit ahead, it seems that somebody made a comment I would like to make understand that that's the case. Looking ahead, given this improvement in the field, it seems that we're going to have a cost -- unit cost looking ahead and the question of feed is going down because this is going to generate inventory and finished product this result for the company looking at that line until the end of the year, if this understanding is correct. So I'd like you to go into more details, the level of game because the mortality has a major effect. And what are the next lines of this BRF plus 2.0, where you're going to be tackling, I think -- most of it is already in the house.

[Fabio Mendes Mariano, executive]

But I'm going to start by giving you a little bit of the color to the captures that we have observed and quantified the numbers. 438 million disclosed. We have 227 indicators associated to the field, hatching mortality of animals and food conversion from the industry side, especially in yielding it totaled BRL 107 million in logistics, BRL 32 million, especially the reduction in costs in storage -- and finally, when we combine waste reduction and margin and innovation products because of the simplification of the portfolio that follows, we accounted BRL 72 million remaining. So this new phase of the efficiency program, Miguel mentioned, we still have within our control because it's a spreading of results between locations. So we can still have like -- we can transfer best practices from one place to another. So we are not in a situation of having to copy anyone or find an external benchmarking. We have well-defined internal benchmarking that will give the possibilities as long as well executed, so we can continue on this journey of continuous improvement. Your understanding is correct as we make advances in the field we have a cycle until the animal is slaughtered, and we have the preparation of products, and we observed a natural inventory turnover of finished products to fill this effect on the price of the sold product. So if we execute the plan as it is designed, we're going to see an evolution or in the case of CTV retraction as we advance until the end of this year. I'll hand over to Miguel and Miguel will add something.

[Miguel de Souza Gularte, executive]

I think that just to add to what Fabio but it's important to have present that BRF is very competitive from the cost standpoint. Even for the geographical distribution, we have a very competitive advantage. We are in the moment of totaling this all plants in all aspects, on the other hand, we can we shouldn't underestimate both capacity and the strength of our brands and the reference they are in both internal and foreign market. But it's really evident that this trajectory of continuous improvement, several challenges, challenges that we've been talking to brands increasing the portfolio with the customer, making the strength of the brand into opportunities, commercial opportunities, both internal and foreign market is a challenge as production aspect and then you fix logistic aspects productive, I mean, field and logistics. And finally, you transit as through this universe of the commercial execution in internal and external markets, taking the opportunity of the expertise of all we have in marketing and trading and our commercials in both national and international. We are really proud of the team and the opportunities of work and here at BRF. So we are excited with the possibilities the process of continuous improvement started in 2023 and may continue happening in 2024 as it is happening and effect. We understand that very humble. We see the opportunities. They exist, and we are going to continue working in the sense of capturing and capitalizing these opportunities. We always have the willingness to learn and especially when the BRF plus 2.0, the process is about learning something so tangible is the fact that a location can learn what the teams can learn with each other. So in the end, different locations, may have different aspects, but they are all BRF.

[Guilherme Palhares, analyst]

Perfect. If you could comment a little bit about capability, this yielding of the capability increasing 20% in comparison to 2022. Just a question of efficiency. And then about this question of idle capacity. When you look ahead, if you could bring a little bit of the level of idle capacity today and to reach this full capacity if today's necessary higher investments or only with these initiatives of BRF plus, the company should already reach this new level of operation.

[Miguel de Souza Gularte, executive]

It's very important to see that BRF has $1 billion 600,000 heads of poultry and pork. And when you think of -- when you increase the efficiency process, any efficiency increase and yield an increase to increase at 1% or 2% the yield and in the plant and you start like opening a new plant. Your capacity of 6 million you increase yielding in the quarter, the last quarter of 23 was almost like opening a new plant this idle capacity, it is already installed. So we readjusted the cost, so these costs would be a dead weight. And but an opportunity we have to capture as the efficiency program increases, we are able to measure the opportunities and more than measuring opportunities, we capture these opportunities. If we look from the standpoint of CapEx, this makes us really peaceful because the level of investment, the performance, the efficiency we are pursuing the level of investments that we have allocated is enough. Obviously, a company that has a characteristic of owner now. The agility, but very fast will respond to this challenge as an opportunity but a response in time and shape. So this opportunity can be captured. We are really confident and all the attributes 2024 in the coming years, where a company extremely focused on growth, quality, people, all these aspects in the quarter. I think as time passes, it's easier to explain and be understood.