Operator: Good morning, ladies and gentlemen. And welcome to BRFS' First Quarter 2020 Earnings Results Conference Call. We'd like to inform you all that this conference call is being webcast online at brf-br.com/ri and a presentation is also available. At this time, all participants are connected in listen-only mode. Later, we will begin the Q&A session when further instructions will be given.

We'd like to request all participants to ask only one question. [Operator Instructions] Forward-looking statements during this conference call regarding the company's business outlook, projections and results as well as the company's growth potential are merely assumptions based on management's expectations regarding the company's future. These expectations are highly dependent on market change, the overall performance of the country and the industry and on international markets and are therefore subject to change. We'd like to remind you all that this call is being recorded. This call will be presented by Mr.

Lorival Luz, Global CEO, and we also have other executives from the company presence. We'd now like to turn it to Mr. Lorival Luz, who will begin the conference call. Mr. Luz, please go ahead.

Lorival Luz: Good morning. Thank you. First of all, I'd like to greet you thank you for listening into our earnings conference call for the first quarter of 2020 at BRFS. First, I'd like to inform you that we are publishing this from home. We are respecting the quarantine regarding COVID-19.

So, if there are any occurrences during this call, I'd like to apologize in advance. This presentation should last for an hour. We're going to be talking for about 15 to 20 minutes at first and then we'll open up for the Q&A session immediately, so that we can talk more about our results in the company. So, we can start off on Slide number 3. And what I'd like to highlight here is shown on the slide we have four indicators, which are very important and relevant for the company and the results are shown here for the quarter.

The first of them is our 8.1% growth in total sales volume. And this is especially true in Brazil 10.7% growth here, and the domestic market grew 6.6%. Important to highlight in Brazil, the growth of processed foods representing 14.9% and other international markets we saw robust growth of over 13%, which was boosted by China, which had 89% of the growth and this is also the result of the effort we put in over the year releasing new plants to export to China. Our net revenues, you can see that we had a relevant growth of 21.6% or Brazil represented a growth of 18% and in the international markets 25.6% of growth. This was especially from Asian and African market, as well as the Americas and Europe, which had a growth of 45.9% and the Halal market also, had a growth of 14.5%.

Now looking at the third item gross profits for the company, the growth we saw was 48.5% year-on-year and this is across all markets. Brazil had a growth of 37.4% and the international market had a growth of 58.3%. Where we can highlight on the growth in other markets as I said, Asia, Africa, the Americas, which grew fourfold to R$523 million. Concerning the adjusted EBITDA, we had an important growth of 67.2% year-on-year, where Brazil presented a growth of 63% and the international market grew by 83.7%. So the international market, as I said had a growth of from R$89 million to R$445 million.

So this is how much in international market grew especially Africa, Asia, and the Americas. The next page of our presentation highlights the consistency of our results, reaching a new level for the fourth consecutive quarter. The both for gross margins where we reach 25% on average, and the adjusted EBITDA, margin reached 14% across the last four quarters. So this shows the alignment that the company has and the discipline we've had in delivering what we've planned in our strategy. So everything that we have published has been followed since 2018.

And it also shows how our management is based on the company's long-term perspectives, where as we've said, decisions are made respecting our chain and respecting the nature of our company, which is to have long-term strategies. And of course, we have to manage the short term, but our goal is to have a long-term performance. So I'd also like to thank the engagement and commitment of the over 90,000 employees that BRF has and also the support of our Board. So in the first quarter, we delivered a gross margin of 25% and an adjusted EBITDA margin of 14%. And then R$1.2 billion And I'd also like to highlight here that among this R$1.2 billion, we also have the provisions that we laid out to prepare the company for the impact we might have due to COVID-19.

So about R$65 million is dedicated towards those provisions for COVID-19 and other contingencies, which are already included in these results here. In addition to that, as you saw in the report, the company had a loss of R$38 million in this quarter. But this was due to these provisions which I've mentioned besides the negative impact of the currency exchange of R$123 million and the provision for the class action which was concluded in the U.S., which also had an impact of R$204 million. So, we had those negative results which received a negative contribution from of around R$390 million due to all of these adjustments and impacts which I just listed. Now to talk about the challenges that we faced during the first quarter, it's important to highlight that 2020 has been a year of many uncertainties have a lot of volatility.

And we have been working here intensely from the beginning of the year to try to mitigate them. We're learning of course with the experience that we saw in other countries. We're making our data decisions on the information that we've received from other places so that we can make the best decisions for the company. So in 2020, it's been a very challenging moment. And the company is trying to do its best.

And of course, we have to have solidarity with everyone else. So we see that in the beginning of the year, we were already facing some challenges. There were many questions on contract negotiations in China. You might remember that and the company since then, has done all it could to have a very relevant position to have a good long-term contract with China. It didn't suffer any impacts from that.

That shows in our results. In February, we all showing in our results. In February, we also had additional challenges regarding a suspension of our exports in couple of plants. But we manage to redistribute that to other plants, so that we didn’t suffer great impact. And end March, with the pandemic being declared for COVID-19 that is something that we had to work on in managing our operations here in Brazil.

And the class action, which I have mentioned before came to a conclusion and I just want to highlight, how important it was to conclude it right now, which is really our strategy to turn the page so that we can move forward and operating the company. Now to talk specifically about everything we have done regarding COVID-19, I think from the beginning, we started focusing on three main goals. One of that was or the first of them was to take care of the health and safety of all of our employees and everyone who is involved in our production process. Our second was to work effectively, being aware of our responsibility in this moment. We learn an essential activity, which is to produce and distribute food to the population.

So we are protagonist during this moment. And the third was to also work effectively and with solidarity to others in such a difficult moment, and that’s why we announced from the beginning that we were going to provide donations of over R$150 million in food. But are also included hospital equipment, hospital supplies and our research funding for -- in order to find a treatment for COVID-19. So we also announced that we were hiring about 5,000 employees, and the goal was to ensure production capacity during the pandemic. Moving on to the next page, we’re now on page seven.

And it discusses COVID-19 and its impact on the first quarter of 2020. The demand as we’ve said before was stable and it remains stable and on an aggregate basis in Brazil, of course there was an impact on channels especially food service. Exports were not affected by COVID-19. And we have kept the same workflow as we had planned before, from the beginning. Continuing with the next slide.

I’d just like to briefly make a side note from COVID19, just to remind you that African Swine Fever AFS is not being so widely discussed, but it still continues. Its still there, its at proper mechanism and solve so far and we see that the production in China drop by 26% and we expect to see further drop of 20% and obviously as with that and other opportunities this is reflected in the number of about 50%, since September 2018. I’d just like to reinforce the message that, I am previously said, the demand from China for protein will continue, it will remain strong throughout 2020. So we are still far from the end of this cycle. We see that our breeding sales are recovering, but they are low to -- slow to recover, which makes this recovery a little bit slower.

So referring to some of the operational highlights we had in the first quarter of 2020. In Brazil, we thought that our client's base is and the number of items per client went up as well as our net revenue, as I've said. And we also focus on innovation with a new line being launched in this quarter. Also in the international market, we saw robust growth, which demonstrates once again that the company has been present and effective in international markets and it's also working very effectively in the logistics so that we can supply for the robust growing demand that we see internationally. That's how we're working.

And then the Halal market we all had a market share growth, lower growth in terms of volume and revenue, but I just wanted to highlight the three points. In the first quarter of 2019, and if you remember, was when the Halal market suspended a number of exports from Brazil, which mean prices go up and that generated an opportunity we had in the first quarter of 2019. And in the first quarter of 2020, we had some challenges in Turkey regarding exports to the Iraqi market, which started again in the last quarter. So we've suffered impacts there. And also the suspended exports to Saudi Arabia, which ended up having a negative effect.

Moving on to the next slide, Slide 10. Just to make sure, this is our strategy. We've been talking about it, that's how we've been operating 2019-2020 in the expectations for 2021. Of course, in 2020, we have this challenge presented by COVID-19. And all we are talking about what kinds of impacts that might have.

On the next slide, Slide 11. We have a picture of how robust our financial strategy is to talk about better financial leverage. We are now sitting at around six signs early '90s. And now, today first quarter 2020 we are 2.68x the numbers on the top of this line are worth noting. The growth of that came mainly from an FX variation, especially as it relates to our dollar fact that at around R$3.3 billion.

In terms of CapEx, we're around 490. And I'd like to highlight our operating cash flow which sits at an amount R$1.5 billion. So our debt went up but it was driven by a non-cash effect, mainly due to effects variation in such a way that our leverage now at 2.58 have an impact of point 0.36 times, which of course, as I said, was impacted by the FX variation on our debt. That FX impact if you were talking about [Indiscernible] at around 4.0, we will be having a leverage level of around 2.3x. Our cash on the next slide, Slide 20, remains quite robust.

Our net cash sits at around R$9 billion headwinds forced throughout March, our cash position with new hiring to maintain our cash in a robust level. And we have our credit facility at around R$1.5 billion, which provides a liquidity level of around R$10.5 billion. It's also important to note about average term for debt has been going up with the new operations that were contracted last year. So the average fits at around 4.5 years now. The maturities in foreign currency were will only start in mid 2022.

Investment made in 2020 2021, mainly coming from operations done in Brazilian reals. Moving to the close of our presentation we have a lift of our pillars for our long-term strategy and that’s what grounds our company’s long-term expectation, working towards achieving those objectives. In more detail, we seek to have a high performance organization, focused on management stability, diversity and of course looking at company’s assets. I like also to reinforce this next pillar of our strategy at the Arab market, they're important. We would have just acquired a company in Saudi Arabia to produce a process items and we'll increasing our production capacity by five fold.

And of course aims at reducing the effect of other companies, especially the one in Abu Dhabi, which has been brought to a halt. And that of course has consequences on all the other initiatives. And you can see the results in our excellence program aiming at more efficiency, better management in the operating commercial and logistics front. We've seen the results with operating margin going up and also the EBITDA margin which has been delivered this quarter. Moving onto the final slide of the presentation, summary of the four main events for this first quarter.

Once again, a very solid and robust results has taken the numbers to a different level. We have taken proactive measures to fight COVID-19. The focus has been on people, continuing production and be able to bring food to people's table, always following a very strict financial discipline. And before I'd like to say that the pandemic is a recent event and started early March. So in the second quarter we'll certainly have all the main impacts coming from this last three months, but we are trying to address and manage those impacts.

My expectation is that from the demand side, which we always address from the mid to the long run. So I can tell you that demand tends to be somewhat stable, but of course there'll be differences between different channels, different categories, but the perspective is somewhat positive given the effects coming from a potential recession across the globe. But we came to benefit, especially from chicken protein given the quality that we offer in terms of chicken protein. Also in cattle, our quality is recognized, so in recession environment we tend to believe that quality will be much valued on the offer side from the supply side, of course we're going to face big challenges in terms of low supply and as the disease of the virus advances in different areas of the globe, at different cities, different plants, production plants will be affected. And of course we also have to keep in mind that the figures might be taken by government or local administration that will affect us as well.

And with that, I close this first part of the presentation and we'll start the Q&A session.

Operator: [Operator Instructions] First question from Citibank. Mr. Soares. Good morning, Soares.

JoãoSoares: Good Morning. Can I ask you a question? Okay. Well, first one about the processed item. The price of the swine in Brazil dropped significantly. So that might have led to some kind of impact and because of the release in the price of processed items in Brazil, can you give us some more color on that? And you also mentioned about chicken, the supply of chicken relative to COVID-19.

Specifically for chicken we saw in the U.S. quite a time adjustment especially in the second half of April. They drop the health conditions of the chicken, eggs being broken. Can we see a positive impact in price in the second quarter globally speaking? And do you see any kind of or somewhat similar adjustments being made here in Brazil?
LorivalLuz: Thank you for your question. I'll address your two questions together.

Number one, under this scenario, in the second quarter, we need to pay attention to the short run dynamic. I'm sure we'll have a very volatile scenario as I mentioned, you might see a drop in local market prices for swine and chicken. But we're always looking at the mid run when we make our decision, and then try to look at the overall picture. And then we go through your second question. Then based in our experience and based on what we see happen in the U.S.

right now. And based on the level of the stock that they have right now, we imagine they'll be a reduction in production capacity and in their production for the second quarter coming from two factors, a different pace of advance for COVID in different regions that might need plants to operate with fewer employees, depending on where they're located. And others might reduce the number of employees as a preventive measure to avoid a higher impact on production. So, that what we have been seeing around the world and what I mean by all of that, that drop in pricing, which we might see happening sometime in the second half, I do not expect it to affect the price of process items. And why not, because given that production scenario we have now.

So, this would lead to a different level once again in terms of supply. So, we see a scenario, where we'll have a higher instability of prices, both for process items and for prices as a whole. But of course, we need to keep close attention impact which might have both in terms of housing and in terms of production capacity. And then depending upon measures that are taken by government officials and local authorities, when we have that in hand, then we might have some difficulties in supply that might lead to product lacking in the market. And then we'll have an imbalance in supply and demand and that will reflect and market prices.

Operator: Next question from Isabella Simonato from Bank of America. IsabellaSimonato: Good morning, everyone. Thank you for taking my question. I'd like to address two issues. Number one Brazil's revenues, the volume of process items and then we see a lot of share in the first quarter when compared to last year's fourth quarter.

I like you to share with us how you see that dynamic by category and how -- what kind of impact will have market share in the cycle the second quarter and also cost which is quite control despite increasing grain prices. You had enough grain stock for the first quarter but how can we look forward in terms of cost, especially if we do have stable demand as you just predicted. Thank you.
LorivalLuz: Okay, Isabella. Thank you for the question.

As for revenues in Brazil, it is a very important pillar of our strategy. And I'd like to congratulate our commercial team and all channels all categories for the strategy they put in place. And by the level of service they provided to meet demand. While last year as we had predicted, we prioritize the company's profitability even under a scenario or we had some loss of market share. But I do believe we have recovered that in the past two months.

When we look at the last few months we can see it recovery in margin and other categories for process items. And that is our strategy. Profitability but with a strong positioning of our market share, when you see a growth of 50% year-on-year. It's somewhat goes against that drop in market share year-on-year. But that also goes to prove that our activity in different channels will reflect that.

When you have a cash and carry channel things operate different in this division, difficult to have another overview of that. But again, we always have eyes on high profitability, and the right position in different channels, different categories, always with a focus on innovation, new launches, value added product that the company intends to trade throughout this year. Of course, we'll need to make adjustments because it's a very special difference in because of the COVID-19. As for your question about costs, we have been announcing our cost reduction measures. I do believe we are well positioned especially for the first half of this year in terms of costs.

And we are well positioned to buy input from the four different regions. And that number dropped in the first quarter. And we hope to extend this strategy throughout the second quarter as well. And that has allowed us to avoid the possibility of making purchases at the peak of the crisis because we were well adjusting in terms of inventory. So we suffered, we didn't go through the all the stress presented by the peak of the crisis.

We really have to operate in a stress market because of our high inventory levels are enough to face the period. The strategic management of inputs and these inventories was key to our strategy of keeping prices and costs under control and be able to likely manage our working capital. That's how we've been working and that's, that's how you're going to be working, going forward. Thank you.

Operator: Our next question comes from Thiago Duarte from BTG Pactual.

ThiagoDuarte: Hello, good morning, everyone. I have two questions. Number one, I like to go back to the filings of process items in Brazil. If you could give us some more color in terms of how demand advanced in the quarter. We know that starting in March some retail categories saw an important meaningful demand.

I like to understand if that level of growth was somewhat spread throughout the quarter, or was it concentrated at the end of the quarter as the effects of COVID-19 changed consumption habits? And if you could tell us that have you seen something different in April so that we can understand, the commercial dynamics that you mentioned in the previous question. And the second question as to the how are markets, in the last earnings call you highlighted some concerns you have in terms of price, demand coming from Saudi Arabia. And that of course pressure margin to the fourth quarter. I was under the expectation there would just something similar now. Margins though they were lower than others, they were surprisingly positive when compared to the past quarter.

How can you interpret that? Can we see some recovery in terms of profitability, can we assert that profitability has improved, can we say that an FX variation was also an important driver, so if you could give us some more color on the how our market. I'd appreciate it, please.
LorivalLuz: Okay. Thank you, Thiago. Just to let you know, we have other people connected to answer, but since we're working remotely, that is each one in one location, we're trying to concentrate on questions here just to avoid any problems with connections.

I just wanted to make that clear before I answer you. Now, Thiago, regarding processed foods, I think your question was very important. It's true, the company's strategy had a drop and that was the fact. In the first quarter you saw, especially from March, some changes to that trend. So you see, for example, our margins regaining market share.

We also had an expectation for people to buy more since people are staying more at home. So they end up consuming some more margins and then generate an opportunity for us given the leadership we have in that sector. Also cold cuts saw some recovery, which was important and relevant in terms of market share. So there was a growth there. And again, that was an impact from the consumption changes that people have had overall.

So Thiago, it is important to highlight that we're on the right path, we're launching new products in terms of processed foods. But now to answer your question about how things are doing in April. Well, Thiago, how people behave and how they consume is variable that we are trying to serve as indifferent now. So really in fact, we had a relevant reduction in the food service channels. And on the other hand you had an improvement in a relevant side of the business, which is retail, especially local retail.

Our cash and carry, which ended up bringing some stability to offset the losses that we had and the lower demand that on the food service side. So what we've been doing is this for also directing and trying to adjust our production and our production capacity to service this demand, which has shown to be more stable for now. Where we should see more variability and volatility is especially In Natura market. In Brazil 25% to 30% of what is sold in the domestic market and that means that we have a lower margin. So, as I said, we need to have a good understanding of the market because it also will generate uncertainties in terms of supply.

And in terms of our production capacity for the entire industry, not only for BRS. So that's what we need to keep in mind. And we've seen that these categories are growing. Now, just to comment on the Halal market. It really is the market, as you said had challenging results in the fourth quarter of 2019.

We thought there was a slight improvement, but I think we still have many opportunities to develop further. And that improvement also will come in part from the recovery in Iraq. As well as the results we expect from Turkey. This is a situation that hasn't been resolved yet, but we need to look at the exports to Saudi Arabia. This is something we haven't solved, obviously with the current conditions, it will be difficult -- on Friday we're going to start producing processed foods in Saudi Arabia.

So that will be the first Brazilian company to produce foods in Saudi Arabia. So, that might also show an improvement towards our results. So, these are the main things that we are seeing right now that are showing some improvement. So, we see that the Halal in the Saudi market are still challenging in terms of volume growth, especially now with the COVID pandemic.

Operator: Our next question comes from Victor Saragiotto from Credit Suisse.

VictorSaragiotto: Congratulations on your results. I just like to refer back to your introduction just to see if I understood it well. I see there's an important discussion in the U.S. about absenteeism. So if you could talk a bit about your opposition with egg laying.

Are you reaching the same level that the industry has or does BRF getting prepared to have a lower egg laying considering the current scenario? My second question is about your working capital dynamic. In the first quarter a peculiar dynamic with inventory levels and suppliers. So if you could tell us a bit about that, how should -- what should we expect from working capital dynamic, because your cash conversion is reduced. Also, just I'd like to ask about Iraq again. You mentioned that some discussions have been raised.

But I just want to ask if this is already going back to the pre-crisis levels, and if you see it normalizing from now on. Thank you. LorivalLuz: Thank you, Victor. All right, so let me answer your first question about absenteeism. I would say that it's not just a matter of absenteeism.

There are two things there that are important to highlight and to state clearly. So from one side to let's call it the supply itself and absenteeism as you said. What tends to happen here first, as cities and states and other countries open, as they have a higher contamination level, what will around them leads to a reduction in the number of staff, production capacity and that's why in the past, we have made additional hiring too, in a way offset this reduction in our production capacity. So I again have to say that it does tend to happen, it would be impossible not to -- not for it to happen, because, of course, the contamination is still spreading. But on the other hand, you can have some measures taken by some local authorities that might, start a lockdown or might suspend your activities and plant.

So you also have bad effect. So I've seen overall and other markets that we have to be careful and look at what's being done. And this is what we have been doing, we've been very careful about these factors. The idea is to adapt our housing and adapt our future slaughter capacity. You know how our chain works.

It's a living chain which cannot be contained immediately. So you have to anticipate what will happen. So that's what's idea. The idea is to avoid stress points where the alternative would be culling. So that needs to be done very carefully with a lot of responsibility.

And you can be sure that BRF has been doing this very effectively. Regarding your question on working capital. We've been very efficient in managing our working capital. But I have to say that I want to reinforce that right now our management is being done in order to supply our clients, supply their needs and to hold back some effective inventory. So that we can serve as our consumers.

So what you can expect for the second quarter, Victor, is that BRF will do everything it can, everything that's necessary to supply the population and our consumers with what they need. Even if at a certain point, we might have to hold back more inventory than we usually do. Because in the future, we might have challenges the market have some challenges and operating that supply. So that's what we're going to do. Managing working capital is important.

We do it with a lot of discipline, but it's not what's going to dictate the decisions we make. We have to make sure that we have the capacity to have the inputs we need, such as grain at the appropriate levels of inputs to avoid any kind of difficulties or stress that we might have. Regarding exports to Turkey, I'm going to ask Patricio to answer. He is here and he can give you some more detail, because he's working on that every day. Patricio, you might be able to give you some more information on how that curve is going and how that responses then we feel.

Patricio?
PatricioRohner: Perfect. Victor, thank you. To answer your question on Iraq. Iraq started recovering earlier this quarter. But we’re working on strategy of diversifying our exports.

So, we are developing products

for 0:51:13.0 [Indiscernible] and then we see that we are able to exports to other countries, like Libya which were unexpected. So exports are higher than our historical level. I don’t know if that answers your

question
VictorSaragiotto: What did you say at the end, you said that you have historical highs?
PatricioRohner: Right, so our experts are at a higher than the historical levels, because we had some opportunities and we had already worked months before to try to diversify our exports to offer some specific products for the Golf countries, so that was a pleasant surprise, we didn’t that these exports would come so quickly. So right now we’re at a very healthy position in terms of exports.

Operator: Our next question comes from Mr.

Lucas Ferreira, from JP Morgan.
LucasFerreira: Good morning, everyone. Lorival, my first question is about China, if you could tell us a bit more about how the Chinese recoveries doing in the last few weeks so to say, so what should we expect for the second quarter if your -- I know that there are some logistic issues but how is the deal flow right now towards China growing. And if you could tell us about results specifically not necessarily only about China, but how much did it contribute to your strong results and should we see any changes in the trends we saw so far.
LorivalLuz: Okay, I'll answer your question and then I'll ask Patricio to add some information.

But, Lucas, as we said from early January when we got several news that China was asking for contract renegotiation, we said that in our case we were not open to that and we can see that what we had believed was true. It really did end up happening. So we work in China in a very structured way. We have consistent partnerships with clients. So in terms of logistics, definitely there will be challenges.

There were many challenges in the first quarter. There are new challenges now in the second quarter, but we've been working ahead of the problem to try to avoid any impact on logistics. So it is a challenge, but our teams based on the relationships that we have and our way of working, I've been doing very well. So we've been able to minimize the impacts we've had. And another important point that I have to mention before I pass it forward to Patricio is that remember what we showed in terms of protein production in China; African swine fever is still there.

Their herd has gone down significantly, it hasn't recovered. So 2020 will no doubt be a very relevant year for exports to China. They're going to have a strong demand and high prices given the scenario on the contract. So I'll let Patricio to answer, anything that I didn't.
PatricioRohner: So Lucas, just to make a quick comment.

China started some -- started pressured this year. They had excess supply, many containers being renegotiated and China was improving it stocks despite all the problems that Lorival explained. Our estimate was that the demand would go up for exports and what the results we saw were higher than the expectation. After the Chinese New Year, people tend to have a higher demand. So the local stock was pressured significantly and the logistics right now are a bit difficult.

So releasing the container so that they could go back to exporting countries. So, in February and March, we had some issues with that but then March begin to normalize back and the situation has improved. There was also a volume that we're expecting from the U.S. But you might know that this situation for production in the U.S. has led to different results.

The prohibition of the consumption of animals from wet market was imposed, and that ended up resulting in a better situation than we expected. Thank you.
LucasFerreira: Thank you, Lorival. Well, if I may have a second question. This has been thoroughly discussed.

But maybe Sidney could add something to the discussion. What you expect for different channels vis-à-vis this new COVID-19 reality? Where do you see consumers going? Are they going to consume merchandise that they can reach out to closer to home? Or what kind of change in the channel dynamics are you expecting? And another I'll comment on the product mix if you could, as consumers gotten used to this new supply dynamic? Would they not be looking for products with higher added value or not? What can you tell us about -- what you witnessed for the past few weeks in terms of consumer habits?
LorivalLuz: Thank you, Lucas. I'll turn the floor over to Sydney. And he'll comment on the change of behavior for the different consumption channel. Sidney, Can you hear us?
SidneyManzaro: Yes, Lucas.

Thank you for your question. What we have seen in terms of changing behaviors is the following. People used to consume outdoors and now they consume indoors. That's a very concrete change we have witnessed. Because of course, restaurants are closed.

And of course, that leads to a change and the channels especially in what relates to transformation in the food service area. As consumption migrates to homes, consumers will do buy more in retail, and that's a concrete change. So the mix for retail is different from the retail from the mix and food service. And that makes retail of course rose. And we are well structured to meet a high demand coming from retail.

And of course, as you said people are buying from places close to home, mom and pop stores, larger chain. Many event we have strong brand. And we do have a very large footprint across all those channels. And we do have of course, supply plans in place which are monitored closely so that we can follow up on the growth of that close to home retail if I may. That's where we see the main impact in terms of behavior change.

Once again we are well positioned. We have good market share, strong brand. And all of that combined allows us to keep up with this change.

Operator: Our next question comes from Ms. Luciana Carvalho from Banco do Brasil.

LucianaCarvalho: Good morning, everyone. Lorival, thank you for taking my question. Quick question about CapEx. Just to see if I got it right. Given this higher concern with liquidity, how can we look at CapEx spending going forward? Are you thinking about the reaping opportunities that might emerge? Or would you think about new acquisition, just ratify to make sure I understood what you said in the presentation.

LorivalLuz: Thank you, Luciana, for your question. Yes, we got adopt, in this scenario, you're adopting a more cautious stand in terms of CapEx, those initiatives towards improving production, improving efficiency. We're taking gradual, cautious step. Of course, we have continued to build our plants to serve the sausage market that will continue. But of course with all caution in terms of CapEx management, as to acquisition and other investments which are not organic.

We are being much more selective and this will continue to be the case until we have a clear scenario ahead. We won't be making any significant move in that front until then.
LucianaCarvalho: Thank you. If I may, just one more question about the last acquisition you mentioned, you mentioned -- you announced that last Friday, can you give us more detail in terms of expectations of EBITDA, figures? Thank you.
LorivalLuz: Yes.

That acquisition is quite relevant quite strategic for the company because we now are able to produce higher added value products in Saudi Arabia territory. And that brings to immediate effect. We can bridge the gap which was created because we closed our plant in the region in Ethiopia and we're now producing locally, to serve the local market. We have a very strong footprint in that market with our brand Sadia. Initially, you have a capacity produce 6,000 tons food products and related product.

And we are positioning to invest another US$7 billion that will allow us to grow our capacity fivefold and keep up with demand as it grows. So as I said that acquisition was quite strategic and quite relevant for the company.

Operator: Our next question comes from Mr. Marcel Moraes from Santander. MarcelMoraes: Good morning, everyone.

My first question is about something you have already mentioned market share, and recent news. Can see while quite difficult in terms of fact on pricing. And you are closely monitoring grant preference. So can you give us an idea of how that has been involving for the past quarters? I'd appreciate it. Thank you.

LorivalLuz: Okay, Marcelo. I'll then call Sidney to help me out here. But you are correct. This is a very relevant topic. And we have working to position our brand based on campaign, marketing campaign.

And we'll do that both for Sadia and Perdigao, and Qualy and other brands in Turkey. And then has increased the preference of the brand, no doubt. And therefore for more details, other indicators give the floor over to Sidney, who can help me out. Please Sidney. SidneyManzaro: Yes.

Thank you for the question. We need to be in line with our strategic planning. That's very important. That's right off the back. What's important for us to have been able to reposition the brand under a sustainable approach? That allows us to move ahead with our plans, both in terms of brand positioning and in terms of sales growth.

So what can we see already? Well, we can see results come from that combination. If we analyze market share, we have -- with the measures we have exceeded the level of 55 of market share in large ring. We have also evolved in cold cuts getting close to our ideal level, which is around 50% in cold cut. And after three consecutive periods, we are now, have not exceeded the 45% level for frozen items. So that combination as I said, good positioning of the brand and effectively executing as Lorival mentioned our excellence program, our models and plans to better structure our services, better logistics and our go to market approach in sales.

All of that combined allows us to show in a consistent manner, strong results. In other words, better process, better discipline executing our processing.
MarcelMoraes: Okay. Can you share EBITDA number an indicator for brand preference? Do you have an updated number so that we can understand if that's going forward at the same pace as market share? Was there any loss, in other words, in terms of brand preference?
LorivalLuz: If we compare this quarter to last quarter, we see a more mid-run or mid-term change. We haven't brought the numbers today but we can share those numbers with you later.

And you'll have a better idea of how Sadia, Perdigao, and Qualy have moved forward. If you remember from our last earnings call, we have exceeded the level of 30% in preference for Sadia. We exceeded the 50% level for Perdigao. And we retained the 50% level with Qualy. So for the three brands when we look at the first few months of 2019 of the first quarter of this year, and even on an annual basis, when we compare growth, we see numbers going up even though we have recovered gross margin.

We feel investors in our brand, which are of course, our main assets. And those campaigns go on. Those campaigns are well adjusted between two brands as they continue to grow. MarcelMoraes: Thank you. Just one more question.

As to hiring those new employees to cover a potential absenteeism issue at the plant. How do you expand to impact costs? How can we see that going forward for the next three or four quarters? Thank you.
LorivalLuz: All right, Marcelo. Thank you for your question. Not only the cost of the new hires and as I said, the priorities to be able to maintain our production capacity.

That overall, the risk of operating in this condition has been higher. And that will have an impact in the second quarter. And that of course, affect transportation, equipment, imports, PPEs. We offering all of that will impact costs, expenses. And they will emerge in the second quarter and the second half.

And but of course adjusted to the overall expenses of the company. Thank you.

Operator: Our next question comes from Bradesco BBI Leandro Fontanesi. LeandroFontanesi: Good morning. Thank you for taking my question.

My question is a follow-up. You did mentioned throughout the presentation a few things I’d like to touch upon, but just to be sure, when we look at the demand for process, the overall demand in Brazil. We see an effect in retail, we can tell consumers giving up stocks because of the COVID-19. That happened early on, right in February and March. How has that affected Company’s performance? And what type of effect will we have now May and June as those inventories first those early on inventory strategies sort of insights.

And also about China, if I may, do you already see a higher demand in that area? And then when you compare consumption preference for protein both in house and outside of the home, what kind of dynamics do you see there and what kind of an impact on demand for chicken that might have?
LorivalLuz: Okay, Leandro. And then I'll ask Patricia to help me out in China. specifically, but as Sidney has said actually in the first quarter in an aggregate basis, the impact of, as you said, of people going out and giving up home inventory that happened early on. And that in fact is not that relevant actually. Of course you can stock some products, but not all products.

Our product, because it's a frozen product, you are limited to the size of your fridge. So the impact is not as relevant as it is on other products which can be stocked in the garage or under the bag. For example. In our specific case, we see an impact but it is less relevant than in other industries. And that of course a similar scenario as to what we saw in China, in Europe, on weekends you see a slightly higher demand.

Those products are consumed throughout the week. And then the weekend I've been following week you see a big demand once again. So it is a more random or erratic type of dynamic. But in summary, no major impact because as I said, in aggregate terms, it was if we made stable because it in a way it offset the drop we saw in the food service industry. And I'd like to call Patricia to help me out in terms of China, how things have been playing out in China.

PatricioRohner: Thank you, Lorival. Leandro just as a complement to what Lorival has said. I am in line with what he said. Fish protein is more consumed in China. China also set up their chicken production and we're talking about 13 million tons in China.

And then when we speed up that production, you lose control of sanitary measures of course. And so it's difficult for them to reach the level of say one and then of course, it is very complex market. And of course they do have this issue of having to distribute items nationally in a very vast country and a situation affected by the COVID. It's a very complex situation. So be able to build inventory and distribute, it's always evolving issue.

And then you have also to allow consumers to get ready for that. So once we saw there was an increase in demand earlier in the year, fish price went up last year, also because of supply demand creation, and it's such a huge market trying to feed 1 billion people the same type of protein is a complex issue. So there is a gap which is difficult to bridge because to be able to do that you lend single protein to have an impact.

Operator: We now close the Q&A session. I'd like to give the floor back over to Mr.

Lorival for closing remarks.

Lorival Luz: Thank you. Thank you everyone for participating. Once again, I'd like everyone to thank for the commitment, the support from all our employees, our Board and all our executive team. Thank you all for participating in our call.

Have a nice day. Nice week. Thank you.

Operator: BRF SA' audio conference is now over. Thank you for participating.

Have a nice day everyone.