Operator: Our next question comes from Thiago Duarte with BTG Pactual. Mr. Duarte, you may proceed sir.
Thiago Duarte: Hello. Good morning, everyone. Miguel, Fabio thank you for the opportunity. I would like to go back to address volume. In other questions, you mentioned some aspects of volumes. But when we look at the result of the quarter, we have a feeling that at a certain time, you prioritized the profitability in relation to volumes. You lose some share in the exports of poultry against the third quarter. The volumes in the Brazilian market, in spite of the seasonability, it does not have any evolution year-on-year. Fabio mentioned oftentimes that the CapEx level is low, maybe even a little lower than the CapEx from ’23 to 2024. What is a consistent assumption for volumes to evolve, considering there is no relevant investments in capacity increase?
So it seems that the company is focused on profitability. Could you address this topic? I know that Fabio mentioned about long-term growth plan, you have idle capacity in the processed products. But it’s difficult for us to see where the volume will come from considering your prioritizing profitability. And the second question is almost a follow-up of the questions that was given in terms of unit cost, I think it was the first question asked. I would like to understand how you see when you move from ’23 to the first half of 2024. Do you see any possibility of an additional drop of your unit cost? Because based on your answer, it seems that you would maintain the cost at those levels. I would like to know if we can reduce even further the unit price, even considering the raw material inventories that you have today.
Miguel Gularte: Answering in a very direct way your question, we do not see any equation of profitability to compete with the relation of volumes. I believe that when you have more commercial destinations as we can see what BRF has done with 66 new licenses, we can increase volume and we can maintain profitability. It’s important to mention this because 2023 was a very atypical year. The first half of the year was extremely challenging with a depressed price of unprocessed food and the international market, we had the perfect storm, with the retraction in demand in different locations. But also you saw a situation where the offer would exceed the demand. This is left behind after the second half of the year, and we entered a new situation of normalcy.
And then there’s a very important aspect to consider, adding value process that has been our effort. This not affect only the Brazilian geography but also international geographies. We have growth of value-added products in Turkey and Middle East, and we are very focused on this. And this will allow us to increase volume and add value. Because I have an industrial complex that can still grow organically, it’s not of a concern to us because we do not understand that our investment capacity is limited. We understand that our investment capacity is proper, adequate to the need of the company. So we started 2024 well suited as we usually see in Brazil, with low levels of stock levels – low levels of stock with the market with high demand and the domestic market and the external market operating according to our availability and with the pricing information system that allows us to capitalize this opportunity.
So we understand the equation of profitability will not affect the volumes. And our industrial complex and our CapEx is proper at the proper level for that purpose.
Fabio Mariano: Good morning, Thiago. About the question related to costs in an objective way, we see considering the price of the feed cost when we compare ’24 and ’23, we see more stability. So the stability associated with raw material and the cost can be better, of course, considering we are implementing – we are running the efficiency program. It’s a continuous journey, continuous improvement. And in our budget, we have the 2.0 version of BRF Plus. So we are very focused on materializing the productivity gains. Now considering the raw material dimension, we see an environment that can offer opportunities. We expect for the next production cycle of soybeans and maize because market projections see an expansion of 5% for soybeans and 7% for maize, the global level.
So we have windows of opportunities and better crops. And this can – will have effect in our costs, and we’re going to see this in the transition from the first and the second half of 2024 provided that this is going to be materialized.
Miguel Gularte: I’m going to add to Fabio’s question, Thiago. And we would like to say that we did not lose any share in exports. On the opposite, there are some variations, of course, on a quarterly basis, we see some variations from the third to the fourth quarter. And if you see the data provided by the CSX, you see that the share increased and considering the new licenses, we see that this is going to be even better. And considering the FX rate is stable and by reaching different locations, we are going to grow share, and we are also going to diversify this movement. It’s also important to draw your attention to the fact that the U.K. established system of prelist and BRF is the establishments that had more plants to be licensed.
Thiago Duarte: That’s very clear. Thank you very much for the questions. Miguel was making reference to the share that you announced in the results, specifically of the fourth quarter in relation to the third quarter.
Miguel Gularte: Yes, this is an option because when we have the commemorative products, which is a very important moment for BRF, we capitalize this market leadership and – we – but it’s clear that our focus in the domestic market and also in exports.
Operator: Our next question comes from Isabella Simonato with Bank of America. Your microphone is open, ma’am.
Isabella Simonato: Good morning. Can you hear me?
Operator: Yes, we can hear you. You may continue.
Isabella Simonato: Okay. Perfect. Thank you. Could we continue talking about volume? I believe that the external market strategy to gain profitability and go into new markets. I think it’s very clear. It becomes evident every quarter. But when we look at the domestic market, in the outlook of short and medium terms, can we consider this volume growth and contextualize the macro environment when we think of 2024? And also considering the basis that you have in terms of volume posted last year, what can we expect for 2024? How do you see at the beginning of this year that would help us in our analysis? And also, SG&A, you had a pickup in the period. There is seasonability levels and also transport. What can we think in terms of dilution looking into 2024? Thank you.
Miguel Gularte: Good morning, Isabella. Now answering about volumes, I understand that the question was directed to the domestic market, but I will provide context before I answer your question objectively. I believe that the volume point, in addition to the licenses that we mentioned, and with that, we had some alternatives. We can increase volumes and prices, and we can choose among destinations. Sometimes the decision would involve removing the products from Brazil and direct to international market and also to remove products from the international market and direct them to Brazil. Market volume grew year after year at the international level by 11%. And this is not perceived in the revenues because the prices were very depreciated in relation to the previous year.
And this is also applicable to unprocessed food in Brazil. We grew 3% year-on-year. We did not notice this in the revenues because in 2023, the prices were lower for three quarters in relation to the previous year. And now reaching the domestic market in processed food, yes, we expect to expand in the main categories where we lead in Brazil. We have the capacity to produce in order to meet this expanded volumes. And we are going to work in order to grow beyond the growth of the categories, and this is related to our intention to gain market share. In relation to SG&A, yes, you’re right. In the fourth quarter, we concentrate in marketing and trade marketing lines because of the campaigns of the seasonal products and also the concentration of communication funds that involve all the brands in our portfolio.
So when we understand the structure of SG&A, we have – I would say, we have from 6.5% and 7% related to variable expenses where the freight prices have a very important role and 1.5%, a little bit less of administrative expenses, and this difference is associated to expenses related to sales, sales force of nearly 2,000 people, promoters, more than 4,000 promoters. And this explains the funds for marketing and trade marketing. What we can expect for 2024 or gains with freight considering the negotiations that we have already started with some players? We expect opportunities with the reduction in fuel prices. And that will impact that numbers of 6.5% and 6, 7 points. We are going to – as to fix the expenses, we are likely to maintain the same sales structures, and we are going to keep the investment levels at the same point.
This is what I can say.
Isabella Simonato: It’s clear. Thank you.
Operator: Our next question comes from Renata Cabral with Citi. Your line is open, ma’am.
Renata Cabral: Hello, everyone. Good morning. Thank you for the opportunity. I would like to have a follow-up on the BRF Plus program, maybe the version 2.0. We saw the results of the program for 2023, very relevant results, positively impacting the COGS costs. And we would like to understand of what to expect for 2024. I’m not sure if we could have information in terms of amounts and values, but I would like to know whether it’s going to be relevant when compared to 2024 in terms of total magnitude, which was over to – okay. And what are the main focus the company is looking at under the program? I understand that 2.0 is a continuity of the previous program. In the release, we see a lot about service level improvement and also logistics improvement and also poultry conversion.
But could you provide some more information about what can be done and what will be done in 2024, both in terms of actions? And if you could give us an idea of magnitude, that would be very helpful. Thank you.
Miguel Gularte: Now answering your question, BRF has a principle, which is continuous improvement. Of course, when there is a program that is mature because it has been in operation for more than a year. Every quarter, there is a feedback with the opportunities and we keep our KPIs active in all locations in all locations, in all geographies. And you see the new opportunities and you transform those opportunities into results. What is important to stress is that BRF Plus 2.0 is a little bit different from the previous version. So the previous version used 2019 as a baseline year. Today, we are looking into details and when we use as a basis, our operations in different geographies, different locations. For example, there is a location where the mortality rate is lower.
We go there. We see the indicators and we replicated those rates in other locations. It’s an internal benchmarking that is implemented, that can be used for the agro business, for the industry, for the exports, for logistics. It can be applied in all areas. So it’s a domestic benchmark that will lead what we are going to do in the 2.0 version. As to the magnitude, I can say that in 2024, it’s going to continue to be relevant. It’s no longer a high-performance program, and it becomes cultural characters for the company. A high-level company where all the teams would perform based on the KPIs that are observed on a daily basis. We say that the future starts every Monday here and in all locations of BRF to our joy. So we are very enthusiastic.
We learned a lot in 2023. We perfected the process in 2023, and we are implementing all the process in 2024. So taking advantage of your question, still using your question, I would like to thank our team for their dedication and resilience because BRF is a program that permeates the company as a whole.
Renata Cabral: It’s very clear. Thank you.
Operator: Our next question comes from Lucas Mussi with Morgan Stanley. Your line is open, sir.
Lucas Mussi: Good morning. Thank you for taking my question. I have a question related to prices. We saw the net prices as Thiago mentioned is – it has posted a very slight improvement. And part of it has to do with the pressure of some processed items such as spreads and margarine and maybe pork and maybe competition from other players. How do you see that looking at 2024, considering that you expect better grain costs? So how you think about the prices of 2024, considering that you are expecting lower prices for grains? And what if the price of the spreads increases and also sausages and prices? I would like to understand how you see this considering that you see favorable prices for 2024?
Fabio Mariano: Lucas, if you allow me, I will make a comment. When we analyze year-on-year and the prices in Brazil the drop – price drop has to do with the unprocessed food, as we previously mentioned. If we separate this from the equation, the processed food price year-on-year in Brazil has improved by 3%. I would like to make this consideration before I answer your question. Thinking about perspective, I think that the market dynamics will depend on the consumer. As I reported the consumption environment is more attractive in Brazil, even though it is not at the ideal levels. We understand that the income in Brazil is still impacted negatively and deflation process has started. It started last year. And with a more favorable consumption environment and demand will increase.
And we will have opportunities to have price rounds – better price rounds in the main categories. There are some other categories that show that the price of the raw materials have changed. So we do not have a lot of incentives in the market to purchase cheap raw material and industrialized products. So from this viewpoint, the competition may decrease for those specific categories. So this is what we see for 2024.
Lucas Mussi: It’s very clear, Fabio. Thank you.
Operator: Our next question comes from Pedro Fonseca with XP. Mr. Fonseca, your line is open.
Pedro Fonseca: Good morning, Miguel, Fabio. Thank you for taking my question. I would like to ask two questions and then two follow-up questions. The first one is in relation to the capital allocation. Fabio said that one of the focus would be the reduction in gross debt. Along those lines, which would be the main priorities? And what is the potential of a reduction in debt cost that you expect for 2024? Fabio mentioned BRL1.8 billion and BRL2.0 billion of financial expenses in 2024. I would like to know how would affect the reduction in costs considering this liability management. I know this depends on break costs. And – but it would be nice to understand how you see this reduction in gross debt. And I would like to make a quick follow-up in terms of working capital.
I think the inventory levels points are very well explained. But in the fourth quarter, we saw a slight deterioration of suppliers. I understand that there is the purchase of grains impacting a little, but can we see the supply levels going back to the average lines in 2024?
Fabio Mariano: Thank you, Pedro. Good morning. I’m going to start from the second question about working capital. I can say that in the line of suppliers, yes, we have an effect on the inventory levels when we acquired in the maize of season and considering the payment conditions, we had a concentration in the fourth quarter. So I would like to say that no structural changes have been made in terms of the payment terms with the suppliers. And from the structural viewpoint, we’ll go back to reach the same turnover levels that we observed in 2023. In relation to the net debt – the gross debt, we are going to consider the last additive debts. And we might settle this in advance or repurchase when we consider the market bonds. We did not consider – in the breakeven analysis, we did not consider any spread reduction.
But we considered the new interest levels, especially in Brazil. So our focus is to promote this liability exchange or replacement so that we can reduce the financial burden. So we have been very active in monitoring the market conditions, both in Brazil and internationally. But this is what I can disclose now to you.
Pedro Fonseca: Okay Fabio. It’s very clear. Thank you.
Operator: BRF conference call has come to an end. We would like to thank you for attending this call, and have a great day.
