Operator: Good morning, ladies and gentlemen. Welcome to BRFS' Second Quarter 2020 Results Conference Call. This conference call is being broadcast live at www.brf-br.com/ri where the presentation can also be downloaded. All attendees are connected in listen-only mode. After the company presentation we will open the floor for questions and further instructions will be provided.

Each attendee will be allowed one question. [Operator Instructions]. Any forward-looking statements made during this call in respect to the company's business prospects, projections, results, and the future growth of the company are based on assumptions and belief of the management as well as information currently available. These statements are highly dependent on the local market and on the overall economic performance of the country, the industry, and international markets and therefore they are subject to change. Please note that this conference call is being recorded.

The call will be presented by Mr. Lorival Luz, the Global CEO of BRF and other VPs of the company are also present with us today. Now I will turn over to Mr. Lorival Luz. Mr.

Luz, you may proceed.

Lorival Luz: Thank you. First I'd like to welcome all of you to our quarter two 2020 results conference call. As you can see for the first time, we are using video for this announcement. The purpose of the use of the video is to have a better interaction with all of you as a favored discussion of our results.

I'd like to start by saying very proudly that I am very happy with the results that we are presenting to you today, particularly when we consider the current scenario of extreme adversity with the pandemic, which has been going on for six months already. This was a very difficult quarter, which demanded the best of each of us. We really had to work as a team and that is why I would like to start this call by thanking all our employees, everybody who is a part of our chain, of our production chain, all our partners who have spared no efforts to maintain our production and the supply to the population in such harsh times. Also, I would like to say that we have built a very robust, solid, and consistent result, both from the financial standpoint and also in everything related with social responsibility and the care of our people. We are very proud to say that we are one of the companies who has invested the most in its people's health and also in the health of the communities where they operate.

And we did this even in prejudice of any financial results or market share, this was not our primary concern because we in BRF, we truly believe that people's health and people's well-being is a top priority. The market share can be recovered later, but life cannot. And that is why our top priority was to take care of the people. So with that we are going to present to you now also show the strength of our brands and how assertive our strategy was in expanding our product -- the portfolio of products with high value added. And I'm going to give you more details later.

That is why I am totally confident that we have set the basis to advance with our strategy, seeking growth and generation of value to all our stakeholders. So for the agenda for today, I will start with a brief 15 minute presentation, then we open the floor for questions and we have all our VPs present with us today to help me answer your questions. But before I start my presentation I ask you for a few minutes to pay tribute to our Board Member, Walter Malieni who left us last Friday in a very premature way. You all know that Walter had worked with us for the past three years, not just as a Board Member but also a member of two very important committees. And in the past three years were a very turbulent related to the company, but also vital for us to break our story.

And Walter played a very active role, showed a lot of dedication. He was a unique human being and you all know that. That is why on behalf of the entire company, I would like to pay tribute to Walter for his legacy, for his hard work, and our condolences to the family, to the wife Luciana, and all family members and friends. Now, I will start my presentation, so let's go straight to Slide number 4. The second quarter was a quarter of investment, of taking good care of our people, of our communities, and our business.

We spent about 218 million Reals in countless initiatives that we put in place during this period. We created internal and external campaigns, as you can see here to show our solidarity, our social responsibility, and our corporate citizenship, and also always focusing on animal welfare. The next chart shows the different initiatives that we have put in place. You can also read more about them in our management report. And I would like to highlight two points here, we work with conviction.

We take care of our people. We proactively put on leave more than 8000 employees who were at high risk for COVID-19. Those include older adults and other populations -- other vulnerable populations who were put on leave and we also hired another 7000 employees temporarily. Of course, this had an impact on our operations and our productivity but we know this was the right thing to do. We were probably also one of the companies that tested the most in Brazil.

Thousands of tests in more than 40 different sites to strengthen prevention so that we could take good care and preserve the lives of our people. The next chart also shows different initiatives in commercial and logistics, institutional relations, and the BRF Institute. In the beginning of the pandemic, we announced a donation of 150 million Reals and this money has benefited more than 180 entities around the world. On Page number 7 we show the impact of all this. We have more than 90,000 people working for us and during the pandemic we conducted a survey just trying to understand what was their perception, how they were feeling, and we are very happy to know that according to our employees we were doing the right thing.

We were taking the right measures and we were communicating well with our people, with the right level of transparency. This shows that we have an engaged united team working towards a common goal. Now, moving on to financials. I will not go -- I will not go into the details here. This information is all in our management report and we can also give you more details during the Q&A session.

But on Page 9 of the presentation I would like to stress how consistent our results are and this consistency was maintained through the crisis, through the pandemic, and for the fifth consecutive quarter we are working with gross margins at the level of 24%, 25%, and our EBITDA margin at 13%. Of course, this is for recurring operations and everything we do. We also had a focal impact here both on costs and expenses, as we reported in the results for this quarter. But it is worth noting that in addition to these identified costs, we also had further impacts. We had impact relative to our productivity, relative to servicing certain markets, and the supply of certain products because depending on the timing of some of our plants had to stop or reduce their production, so this could cause focal breakout or short supplies in some markets.

And this is not quantified here, but everything that we have been doing in the past two years helped us bring to you consistent and sound results. On Page number 10, we have a summary of Brazil and international results, and these are also very well detailed in our management report. And this shows how strong our portfolio and our brands are. Here as I said, we've been working with EBITDA margins of about 14%. But let me focus on Page 11 and the part where we talk about our market share.

Our market share for frozen meals and margarine for April and May show evolution and resumption. And this was a result of our commercial strategy and the launch of that innovation. Always with the preferred brands of the market, which are always top of mind. On the right side, we have the new reading for May and June, both for Sausages and Franks and Cold Cuts. And those precisely reflects the actions and decisions that we took and made over the course of Quarter Two putting the lives of people as top priority.

For example, in Rio Verde, the region where we have our largest processed food plants in Brazil we proactively and preventively interrupted our production. That's where we have the largest mass testing effort. We tested nearly 9000 people with PCR tests, we waited for results and only after that did we resume production. And of course, this had an impact, this had an impact in terms of supply and increased breakout, and also an impact in the mix of products. Because in order to supply the market and avoid breakouts, we focused on the products with the highest volume, not necessarily the most profitable.

On Page 12, we see how strong our brands are and how assertive our strategy has been. This is a snapshot of what we are selling in Brazil based on our product portfolio. Here we see two axis in this chart, the evolution and growth of the products over two years and the growth of our products over one year. What's important to note here is that about 80% of our products are high margin, high value added products which build the strength of our brand. These are branded products with the best trends.

If you think of any global trade or global positioning, you'll know that for these products and this type of operation, it usually has an EBITDA of 13, 14 times. And only 20% of our portfolio is made up of unnatural products with a lower added value, but sell with positive margin. And these products are commoditized products which are traded at about seven times. So the direction, the strategy, and everything that we're putting in place now has the purpose of growing the company more and more and growing -- these products in our portfolio more and more, as you can see here. And in the next two slides, we show you how we have been doing this.

We have numerous launches for example, in Brazil, we have more than 56 new SKUs. You can see some of them here on this illustration. Also, Slide number 14 shows our international launches, about 57 new SKUs internationally. On Slide 15, we see our capital structure, which continues to show this positive trend with seeking the ideal capital structure for the company. We went from 3.74 now we have 2.89 due to the FX effect and if we were to percolate our leverage in dollars to remove this FX effect our leverage would be about 2.3 which shows the current trends and our financial discipline.

And this has also strengthened as you can see here on Slide 16 by all of the operations and initiatives that we had taken onto expand the average debt terms from 3.2 years to 4.2 year and this already considers the operations that we made in July and August or the latest operations. Now let’s talk about our outlook for the future. We have heard about the very good results that we have reported but now we are working towards preparing the company for future growth. We have new license plans in different countries as you can see here. And we also had at a final stage a conclusion we have our new Sausages and Franks unit in Seropédica, Rio de Janeiro which as of quarter one 2021 will add an additional 30K ton per year of capacity to BRF.

We also have the new plant in Dammam, Saudi Arabia and we have already started our expansion process to start producing in Saudi Arabia and expanding the production of sausage products in Saudi Arabia with the highest added value. Before my final considerations, I would like to call your attention to this overdue about the protein supply and demand globally. This shot here shows a relevant drop in the production of animal protein around the world and on the bottom of this slide is seen that there was an increase in trade globally but there was a drop in per capita consumption. And this is a consequence of the growth of the population as the population is growing, more people need to be fed but at the same time production is decreasing. So, if we could go back to the per capita consumption of 2018, the world would have to be producing currently about 350 million tons.

And what I mean with all this is that the market will continue to demand more and more and production is below expected to meet this demand. A list of initiatives, we are managing the company in a very focused manner and with an eye at our responsibility with environment, the community, and our governance, which is a type of governance which ranks high across all aspects. I'd like to call your attention now to the following. It's my final remarks, my conclusions and then we can move on to questions-and-answers. I would like to once again call your attention to this quarter's results, a quarter where we traded above 1 million tons given the moment of pandemic.

We had a gross income of 2 billion EBITDA at 1 billion, even with all the expenses and measures around COVID. Maybe the margins at 14% which shows the stability that we are enjoying. We have reported, even in this quarter an income of around 300 million Reals, we continue to adjust our leverage and our capital structure at a leverage level of 2.89 times and a leverage term of something close to five years. And more importantly, extremely strategic for the company. We have moved forward the products that carry our brands and which have a very high added value which keeps increasing.

That's relevant growth in volume is our objective and our focus. In conclusion and I will move on to the next Slide. My final slide, I'd like to call your attention to the following. I want to talk about the current moment we're going through. Our moment and our feelings as a company I'd like to say that in light of all the results, of everything we have ahead of us, I have total confidence not only in the present, but in the future of BRF our company.

I am totally convinced that we have an engaged team which is committed around our purpose, a team that takes care of people that does not -- at any cost, a team which is passionate for what they do and for the company. And we have increasingly strengthened our culture, that culture of commitment. We have implemented a robust management system across all levels of the company. We are now coming to the close of the implementation phase of our efficiency processes around commercial and operational areas. Now on Slide number 21 just to be sure, and we are going through a reality with the world market is increasingly and consistently increasing demand for protein.

And as we saw production drop in the past few years, which grants us a perspective of growth going forward for the next decade. So once again, demand is there and the demand for protein is growing. We have the most admired brands in the market and they keep growing in consumers preferences. We are moving ahead in innovation, we are launching new products, and we are focusing once again on higher added value products. We have worked hard for the past two years and you know that, you have witnessed our efforts for the past two years.

So now we are poised to expand our business, expand our results, and our returns with the best teams, the best brands, and the best products. And I tell you this with a lot of confidence because we have paved the way to get to where we are and to have the foundations to start a new chapter, which will be quite successful in our journey here. Thank you very much.

Operator: Thank you. [Operator Instructions].

Our first question comes from Luca Cipiccia from Goldman Sachs.

Luca Cipiccia: Good morning, Lorival, good morning, everyone. Thank you. About the last operations, could you help us understand about the margins around oil [ph] numbers for the second quarter was quite exceptional, I agree that the stability is there but I'd like to understand what kind of legacy we will have going forward in the third quarter and also in the long run? Can we expect BRF to emerge lighter, more expedited, what kind of legacy are you expecting to have in terms of cost structure, which was in fact during the second quarter?

Lorival Luz: So, no. I'm not to look for the short term, medium short term if you will.

Thank you Luca. We have my colleagues here with us, I'll start answering and our executives might feel free to jump in whenever they want. The trend for the next quarters concerning the impacts coming from COVID are smaller, smaller both in terms of costs and in terms of expenses. Much of what has been done in the second quarter was one off items, not recurring. Other expenses would become recurrent throughout some periods until the pandemic plays out.

But that will drop significantly along the next quarters. I'd like to ask Vinícius, our operational VP to complement and give some information about our productivity, because in this period we took on one of preventive initiatives aiming at welfare for the animals and health for people that included a reduction of some products and the availability, some product lines. But also, as I said, a one off decision not to return. Vinícius please.
Vinícius G.

Barbosa: Hi Luca. Good morning. What happens about the split in order to protect people, people who were moved away from operation was significant. So we had high absenteeism not because people didn't want to work and people said that happened in last, but not here. Proactively we decided to send those people home.

And this is not around productivity. It was because we simply did not have people to produce all items across all lines across all locations. So we had to adapt not only to protect our employees health but also animal welfare. We decided not to have sanitary slaughter throughout the period. So that forced us to work with a mix of whatever I mentioned, slightly less profitable and with lower volumes.

But that has improved already. We have a number of plants today where we run a very low risk of coming to a halt. So we are quite confident that in this quarter, our productivity level, our volume levels will be very close to what we had planned earlier in the year.

Luca Cipiccia: Thank you. The sound is very, very choppy, I apologize.

The question is about the volatility of the market going forward. So now to look for the remainder of the years, the bottom line of the question.

Lorival Luz: Patricio, can you address that?

Patricio Rohner: Thank you Luca for the question. The halal segment is one that suffered the brunt of the impact, different things happened, especially a lower level of lodging. As Vinicius mentioned, we were we were trying to preserve animal health and people's health.

So what we did was to have a higher transference to the disease. So we punish somewhat our revenue in terms of direct exports so that you can have an ideal stock for the second half of the year. During the pandemic, we had lockdowns, tourism suffered, foodservice suffered. Those countries suffered because of transportation problems. Expatriate workers had to leave the country.

But the main impact on our halal line was -- came from 30, because we have production there and we had it just with our people to protect the houses and so high on people. But we had inconsistency in exports to Iraq. And the devaluation of the Turkish currency, the lira. So we're going now going through a transition. You know that Turkey has opened for tourism to have a similar consumption to what they had last year.

We have increased our market share out there that was quite positive. We were very fast in guiding our volume towards retail and also to our distribution centers in the countryside. In the case of those countries. The other countries are splitting up or they are opening. Others are still in lock down and lower prices are quite healthy in U.S.

dollars, and our nukes will be even more favorable as we conduct other adjustments. So why do I say the mix is better. When you reduce production that affects volume, but it affects the breakdown and the product mix. So the priority is to even if we lose opportunity to reap revenue in the quarter, we decide to do that so we'll have a better second half. The third quarter will be a transition and the fourth quarter we expect for the fourth quarter a better performance so that we can start 2021 on the right foot.

Thank you.

Patricio Rohner: Thank you, Patricio.

Operator: The next question comes from Isabella Simonato from Bank of America.

Isabella Simonato: Good morning, everyone. Good morning, Lorival.

Thank you for the questions. My question is focused on In Natura poultry market, when we look at the data that you showed in terms of demand and supply globally, you got to the conclusion that protein is lacking around the world and that prices should be going up. And we see that in terms of pork and beef but not so much in poultry. What do you see in terms of supply adjustments to reach a balance within poultry both internally and globally? And also how do you see things in terms of exports, how are we going to be seeing different prices, higher volumes, so if we could have some color please, what you expect in terms of poultry prices, both domestically and abroad, exports because the trend doesn't seem to be coherent when we look at the balance of supply and demand?

Lorival Luz: Thank you, Isabella. I'll start answering your question and I'll give the floor over to Patricio and then Sidney so they can comment and compliment on this dynamic of international markets.

But again, the outlook going forward and that's where we base our decisions, it's not about we're looking at the mid to the long run because they are one off events that might take a month or a couple of weeks. But they are not recurring. The overall context is a context that we showed where we have a lack of protein around the globe. So I give the floor over to Patricio and he can talk about poultry, chicken specifically, about Japan for a very specific reason. So please, please, Patricio, you have the floor.

Patricio Rohner: Thank you. Good morning, Isabella. As for chicken and poultry just to give you an internal piece of data, we have a higher demand than we can eat. So overall demand is very high. But because we do not have that availability, be it because of validation, be it for production issues, be it because of the COVID situation in the short run, you will remember that early on when we talked about April there were no containers to be filled, containers coming back from Asia were taking too long, especially in February when the COVID-19 reached its peak in Asia.

So in the short run, this materialized and safe. So it's purely operational, if I may, but we have companies having to get ready to work throughout the COVID situation. Social distancing inside the plant, speed of production lines, space time moving people away from work. When you look at the mid run and even in the long run, those who were able to absorb that poultry in the short run, they went for a fish, which is also being pressured. So we see an opportunity for poultry to grow with one off items that Lorival said, we did not have higher consumption for chicken breast in Europe compared to previous years, especially because in the second quarter when clients and processing companies are getting ready for the summer.

Today, Europe, is receiving fewer people, fewer tourists so that pressure was felt. So that's why I received a lot of pressure from the Middle East for poultry. Japan the same. Japan receives many, many tourists in July and August and they had planned on the Olympic Games, they have just canceled the Games. So it was a one off situation, but they had a higher level of inventory and that supply is being diverted to South Korea, for example.

But the overall picture, the following poultry is the ideal protein to replace both pork and beef. That's why we're quite confident that this demand is real, it is concrete, you can feel that coming from our clients. And when we see countries opening up for tourism and Lorival just mentioned that and also the number of new plants being planned, I have no doubt that demand will peak. But in the short run, we've seen a lot of volatility both in demand and supply production.
Sidney R.

Manzaro: Isabella, there's higher per capita consumption, the increase in per capita consumption of chicken also has a reflection in Brazil. Of course, these two -- the two proteins which grew in detriment of beef one was chicken first, and of course pork. And now with the more attractive prices when compared with beef, it will continue to grow, which is what we are seeing in Brazil. The increase in the per capita consumption of chicken and the restriction of pork due to China's new requirements, poultry will be the ideal replacement for these other two types of protein to meet Brazilian demand. And you talk about prices as well.

It's important that we put BRF in one segment. Yes, the price did show a small decrease in April and May, but this was not followed by BRF. BRF has its trend, has its services, and it's very strong in innovation as you heard from Lorival, 80% of our portfolio including its products are high added value. So we have not really been following these temporary oscillations, we have consistent results, we already talked about the poultry crisis. We were able to maintain our profitability, the profitability that we defend under our strategic plan.

So first, we do believe in an increase in the per capita consumption of chicken, as we have been seeing. And second, we have been adding value and increasing our profitability through the strength of our brands, through our innovations, and our strongest distribution networks. We have more than 1000 clients spread throughout Brazil for In Natura products. I hope I have answered your two questions, but I'm at your service if you have more questions.

Isabella Simonato: No, thank you.

That was very clear. Just a follow-up question. We know that the data is very volatile, not necessarily consistent with the price data. So how do you see the issue of supply in Brazil?

Lorival Luz: I will let Vinícius talk about housing, and if Leonardo wants to add more comments, we can talk about the other part of your question.
Vinícius G.

Barbosa: Hello, Isabella. Good morning. Due to all these uncertainties, you know that once you decrease a housing, it's very difficult to go back or correct that with stocks. So right now, we're not taking on any drastic measures in terms of housing. This is something that we have been regularly discussing.

Of course, during the pandemic, we did reduce some of the housing stocks, but these decreases, when you think of the entire year, they are marginal. It's less than 1%. So, we are paying close attention to this point that you raised, but in the short-term, we don't have any plans of any dramatic changes compared with our initial plan, but we will keep an eye on that. Leonardo C. Dallorto: Isabella, of course, there was this decrease during the COVID crisis, due to the current contract, but we should continue to see strong numbers for chicken in the second half of the year due to this animal protein deficit that we see around the world.

So, we truly believe in a resumption of production and that we will be able to sell both in Brazil and internationally.

Isabella Simonato: Thank you Vinicius, thank you, Leonardo.

Operator: The next question comes from Thiago Duarte, BTG Pactual.

Thiago Duarte: Hello, good morning. Thank you for the opportunity.

My first question is to Sidney and the second question to Patricio. Sidney, in Brazil you got some really nice data about the number of launches. It's very nice to see the company resuming its efforts and going back to launching products. I think that the quantification of the negative effects of the COVID crisis on costs was very clear, but I'm under the impression that there was also a positive effect from the standpoint of demand. For example, the evolution of your market share in margarine.

So, could you please tell us what was this one-off positive effect, because people were staying home and I'm sure that contributed to the sales of some of your products, we heard that from other companies that sell consumer goods that some of their sales were boosted by the people staying home? And the second question to Patricio. Patricio, how do you see the margins in Asia, because margins are still very high, but they have decreased this quarter compared with last quarter. We know that stock data in Japan are a little worse than last year's lows. So, how do you see this margins performing looking forward, you talked about the global animal protein production deficit, which is caused by the Asian swine fever, but part of this effect has already been incorporated in the price of products so, I'd like to hear your take on the Asian margins?
Sidney R. Manzaro: Hello, Thiago.

Thank you for the question and the positive comments. Let me try to explain. Certainly, when this crisis started, we saw a decrease in foodservice and an increase in retail and, of course, the company could benefit from that. We captured part of this move of the market and the most symbolic example of that is margarine. People were cooking more at homes, so they started buying more margarine and also as a spread for their bread, right.

But what we could capture was a part of that. According to what Lorival said, we also had an impact on our production chain. Rio Verde is the largest plant in Brazil and many items are produced there exclusively. And of course, there was -- that was reflected on the market share. Due to our strategy of consistent profitable growth, innovation-based and based on commercial execution, we saw this resumption of the market share in all product lines and this was interrupted now due to the points that we raised that we are not meeting the demands due to shorter supply, particularly in the plants that service Brazil.

So yes, in the beginning, we were able to capture this higher consumption at home in BRF's brands, which are very strong, had a very good appropriation of this market movement, but only partially because there was another side to that with the restricted production, which hindered how much we could use of this market movement. So now, when things go back to normal gradually we are going to recover this market share and go back to that growing market share that we had before. I don't know if I answered your question, but I am here if you need any more information.

Patricio Rohner: Now, about Asia. In respect to Asia, we have different situations.

Yes, we do sell more fresh or In Natura products. The markets import more In Natura products. For example, Japan, they import products In Natura and a good part is imported by local processing companies and they process the product, they cook the product, they sell in local food services which what we call on-the-go. We have a lot of stores that sell products on-the-go, for example in subway stations. So, people are coming back from work, they buy something in a subway station to prepare at home when they get home, the everyday menu that they consume in Japan, and it's a cyclical.

So, when there is a high level of local production with low demand, either because of the lockdown and exports are still high, this is what happens in Japan. In the past, it would actually happen once or twice a year. So what happened now during the past months is really normal to us, because we monitor local stocks, we monitor local production. So, we know what's happening and that is why we were less affected, because of course, we had a decrease in production and also we had problems in June because of the problems in Brazil. So, what we expect for the future? We expect to offer supply to rebalance themselves and that the movement of lowering prices and still capture good margin is not happening right now.

But when prices in Brazil start to increase, they will change their mix and sell the products in an internal market. And this is the normal, the regular dynamics. So in Japan, we expect prices to improve. The current prices will improve, but of course, that depends on the behavior of Brazil and the comeback of Europe, particularly for chicken breast, because we know that this international mix -- we have to balance this international mix between breast and legs. In China, pork prices are still very high and that put more pressure on chicken.

A good part of that was due to a speculation, due to the increased imports to the U.S. and they sell a mix with lower added value with very aggressive prices. And Brazil, in particular, has minimum prices according to the agreement between the countries. And the third variable is the product mix. We sold more than half a month in griller for some governments, for example, Singapore.

And part of this margin is also due to the product mix. So three variables. The normal market dynamics, the normal dynamics of the markets that we know and with which we work it in our everyday interactions with them, also the product mix, breast, and legs and boneless products and also the variable of related with exports. When we reduce our production volume, the griller tends to lose its ideal markets and look for alternative markets, both for volumes and price. So, they generate a lower margin compared to the previous mix that they sold in Asia.

Do you have any more questions?

Operator: The next question comes from Lucas Ferreira, J.P. Morgan.

Lucas Ferreira: Good morning. I have two questions, one for Sidney. Sidney, your sales channel, what was the behavior of your sales channel during the pandemic and also, I'd like to know about the price of processed products, do you see any room for price adjustment, considering that scenario that you described with the lower production and if not, do you think you can use any discounts or change your sales mix, so that you can increase your average sales price for the coming quarters? And the second question, I think, could be for Lorival or Vinicius.

I heard that China detected the virus in chicken. It was not BRF chicken, but it's Brazilian chicken. So what types of control do you have in place, you talked about what you did for your employees, but what have you been doing to prevent any contamination of your products, your exported products?
Sidney R. Manzaro: So I'll go first, and then Lorival will answer your second question. Thank you for the questions.

So you asked two questions. First, the channel mix. Well, initially this consumption at home and reduction in food services, of course, caused a relevant decrease in our foodservice segment, close to 35%, but this was totally absorbed by the increase in retail consumption. Retail grew a lot, and has a larger weight in our sales portfolio. So whatever we lost with foodservice was offset by the increase in retail.

Even cash, which is a mix channel, the larger presence of final consumers in our cash channel also helped this channel grow in sales. So considering the equation of sales channels and the adjustment of our product portfolio and product categories, we were able to offset with the increase in retail, whatever loss we've had with foodservice. What I can tell you about the short term is that, we see -- we already see recovering foodservice. Actually, it was -- it has been very positive. A positive surprise was, because initially, there was a 35% drop in foodservice and now it's only one digit.

So the decrease is only one digit currently and with stores reopening, with businesses reopening and considering the capillarity vis-à-vis we have in our very good capacities of distribution, this will help our volumes go back to pre-COVID volumes very fast. So foodservice is recovering. And consumption at home, we don't think that it will go back to pre-COVID levels. I think it is a new normal, either due to the macroeconomic reason, which is that people are more used to being at home, cooking at home, and because some people even experimented for the first time, consuming our home cooking. So we think that this will continue to be a trend.

We will continue to see a higher in-home consumption and since we have this very good capillarity in our distribution, and very good quality of our brands and products, this will help us greatly. So we see this mix of channels very positively in the light of the recovery of foodservice and the residual permanence of this increase in-home consumption. In respect to prices, when we announced our previous results we had already said that we had anticipated the price adjustment for Q1. Then in Q2, I'd say the price still doesn't reflect the second price adjustment that we made in June. So it only partially reflects it.

You will only see it fully in quarter three. So our price strategy has, of course, the pillar of profitability. Our contribution margins are defended and maintained. And whenever we are challenged from the grain, from the cereal perspective, we will revisit our margins based on our market positioning. So we had a new price adjustment that will be fully 100% reflected on Q3.

I don't know if you have any more questions. I think you had a second question that is going to be answered by Lorival.

Lorival Luz: Thank you, Sidney. I think that was a very relevant question, considering the news that we heard today in the morning. So I would like to ask our Quality VP, Mr.

Peixoto. Neil Peixoto, can you answer his question please?
Neil Hamilton dos

Guimaraes Peixoto: Yes, good morning. Thank you for the question. There are two relevant points here. First, the quality division is following very closely all scientific data related with COVID.

And today, there is no scientific evidence that foods or food packages are sources or routes of contamination for COVID-19. And this is not said by me, this is being said by the WHO, the Food and Drug Administration, and EFSA, the European Food and Safety Association. So this is the first point that we need to demystify. And as I said, we are following the facts closely and trying to understand what happened in China. And the second point about our measures, the measures of the Company, there's something really important here.

We do not have any employees work in our plants contaminated with COVID-19 and this is due to all the preventive measures that we take -- that we took that were described by Lorival in the beginning of the presentation. We intensified the access control, we're testing people, we're measuring temperature, we have implemented social distancing, self-isolation measures, we intensified all the hygiene processes and this includes production line hygiene, container hygiene for our exported products, and finally PPEs. We have also implemented the use and the correct to use of PPE in our sites. That's why I can -- you can -- I can reassure you that we are 100% sure that we're doing the right thing in respect to our products. Thank you for your question.

Operator: Our next question is from Joao Soares from Citibank.

Joao Soares: Good morning, everyone. Thank you for taking my questions. Number one, for Lorival and Sidney, when we look at the internal market, how do you see the Coronavoucher, as it's being called, benefits coming from the government. Do you think that demand depends on those incentives or not and looking forward, how do you see the possibility of a trend down and how do you position the Company around that issue? And also, many things happening, and I'd like to understand what you expect to see in terms of financial expenses, cash position, financial management going forward, and what other transactions could impact what kind of target you have in terms of cost reduction for the year also? Thank you.

Lorival Luz: Once again, making the most of our interaction, I'll give the floor over to Sidney to address the internal market and then, Carlos will take on your second question; Carlos, our CFO, about liability management. Sidney R. Manzaro: Thank you, Joao, for the questions. As for the Coronavoucher, the benefits without a doubt, that was a positive measure in terms of consumption and of course, food consumption. But as we see it, the food market is not very elastic, not very flexible.

People might change income brackets, but consumption especially if we look at the last crisis we've been through, consumption was quite resilient even with what important drops in the economy. But when we look ahead, we see of course a change. When we lose that benefit comes from the government, this will affect, but on the other hand, when we look at the drop in revenue and an increase in unemployment, this will lead people to change consumption habits, and with this recent experience of cooking at home this will help encourage that level of consumption, in-house consumption, which will benefit us because of our portfolio, our brands, and more than that it does have two aspects. We see Netflix taking off, we see 4G networks taking off as well, and that shows that people will be more at home than before either because they're concerned about the COVID or because they found entertainment that fits their wallet. So, those two variables have a very positive impact on our business either because it's due to entertainment or because of our higher added-value portfolio, people will be cooking at home more as I said.

And our portfolio is quite convenient, quite practical in that respect. So we understand that this market will continue to benefit from this new normal as it's been said. That's how we see it even with a drop of incentives from the government. Now, as for the trade down, I think we do have a very important role to play here. Our Company is a market leader, we have a good reputation in terms of market share, and also in terms of preference for our brands.

So, what we have been doing in terms of increasing innovation and recently we were working at a level below 2%. Today, it's above 4%. This will meet the demand coming from consumers who now want products that deliver to their desire. That includes practical items, and in that respect we have a very important role of fostering the consumption of higher added-value products and we're doing just that through our brands and through our brand communication. We continue to grow preference and also through new products that meet new trends and also through the accessibility of our products that are now reaching more clients that through different channels, digital channels, B2B, B2C.

So that combination of factors places us in a very comfortable position in terms of meeting a higher demand for added-value products. Lorival, back to you. Carlos Alberto Bezerra

de Moura: No, it's me, this is Sidney [ph] now. Good morning, Joao, good morning, everyone. Our liability management for us is to combine prudence, financial discipline, and economic efficiency.

If you look at the last quarter, even with the effect of the foreign exchange variation on interest, which of course affects taxes, we had a drop in interest costs benefited by Real bad debt. So, we moved towards the direction of having higher portion of our debt bagged to the Brazilian BRL, 36% now. Also, maintaining a prudent level of liquidity, enough to support our business around 11.5 billion BRL, including our rotating credit lines. The trend for the year is for us to be able to at least reduce at around 40 million BRL in terms of financial expenses, given this new structure and also given the behavior of the CDI as mentioned before. Thank you.

Joao Soares: Thank you, Carlos. If I could have a brief follow-up, looking at non-recurring financial gains, you had -- you saw an impact coming from a sale. I'm looking at the explanatory note here, but if you could give more detail about that -- about this financial gain specifically and looking forward what can we expect along those lines?
Carlos Alberto Bezerra

de Moura: Okay. I'll just explain the context and then its respective effect. It has to do with an acquisition contract, actually an option to acquire minority shareholders have in Turkey.

That's a -- they have a put option against the company and that's measured as a multiple of EBITDA in EBITDA in Turkish lira, times -- 6.1 times discounted the net debt of the Turkish operation. They have a separate balance sheet. So, we managed that and Patricio, our Chairman of the Board there and I sit on the Board with him. So we have this -- the measurement of that put option defined on a quarterly basis. What happened in this quarter specifically is that we had a different series of factors involved.

Number one, the change in channels, the drop in demand which generated a smaller EBITDA, and also the depreciation of the Turkish lira, combined with the exports issues with Iraq. That's why that option was reevaluated. Last year, the Company provisioned 203 million BRL. So, to consider that as a one-off issue is not correct, that is part of the business, it's seen as a financial result, even though it is connected to a contract, which is operational, but for accounting norms, we have to account for that this way with all the scrutiny strictly from our auditors. But what we see looking forward is a stability trend as the business improves.

The put option will probably improve as the business improves and we provision for that until our minority shareholders decide on exercising that option. I hope I was clear enough.

Joao Soares: No, it's clear. Thank you, Carlos and thank you, Sidney for your answers. Thank you.

Operator: Thank you. Our next question comes from Ricardo Alves from Morgan Stanley.

Ricardo Alves: Good morning, Lorival. Thank you for the call. All my questions have been answered.

The margin was quite impressive at 14% and I'd like to have an outlook for the second half. You talked about processed products, which are coming on strong you mentioned. And you have also pressure coming from the other side. So I'd like to hear from you what you expect for the second half of the year and what could affect the Company's profitability and I'm talking about the next half of the year, the next quarters? And also, if you could discuss in more detail, if you could recap your purchase policy or inventory levels in terms of grains and corn for the second half? Thank you.

Lorival Luz: Thank you, Ricardo.

As I said, we look at the impact as a general thing. In terms of production costs, operating performance, plant management, and also the expenses concerning COVID. So, we see a down trend of that impact across all issues, all fronts. Some expenses were one-off, one-timers, and so there is a trend of reduction for the second half, the third quarter, which will become more relevant in the fourth quarter. As for the cost impact, I'll turn the floor over to our colleague because of the impact of the corn and then he will complement my answer concerning the second half and he can also tackle other measures we are taking about corn.

Sidney R. Manzaro: Thank you, Ricardo, for your question. We have been doing this for the past few years. Our input purchases for feed is non-speculative. So, we conduct a consistent study in the market.

We've been doing this for a long time. We look at the short, mid and long run. Our main objective is to make sure we have enough supply to feed our animals, but we also -- we want to maintain our company's competitiveness. So for the last few years, we increased our storage capacity. We have more warehouses to have a higher storage capacity and we use that according to our market view.

We also have been using alternative materials. Along with our nutrition team, we have increased the consumption of sorgo, for example. When we do that in Mato Grosso for the first time, we identify areas who are more prone to that crop, we work with partner growers and then we have a better margins. Of course, our strategy in terms of storing more or less is strategic as I said. I cannot tell you how much we store, but when you look at carryover stocks in Brazil and the U.S., we are in a safe position and we make decisions based on the Company's risk policy.

It's not only at the short run, but looking at 2021. That's what makes us consistent in terms of decision making and then of course reflects on our results when we see the impact of grain costs on our performance when we compare to markets.

Lorival Luz: Thank you, Ricardo, for your question. I remain available.

Ricardo Alves: Thank you.

Thank you very much.

Operator: Our next question from Barbara Halberstadt from J.P. Morgan.

Barbara Halberstadt: Good morning. I have two questions, I would like to have a follow-up about the liability management.

What is your focus for the next 12 months to 18 months that swap in the radar, what kind of a strategy do you see going forward? And in terms of working capital, if you could give us some more color about how you've been managing working capital and what do we expect to see for the remainder of the year?

Lorival Luz: Carlos, you have the floor. Carlos Alberto Bezerra

de Moura: As for liability management Barbara, good morning first. Our objective is to always have an extension, to have a comfortable profile for the company with the most efficient economic policy. Of course, we try to obtain more resources in BRLs, Reals, but we need to think that the depth of the capital market in BRLs is different from the depth of capital markets in strong currency abroad. So, that's why we manage our hedge positions, so that they can come out neutral.

In any event, the Company is always ready and prepared to move depending on when market windows open so that we can explore opportunities, just as we did at the recent tender offer. So, we might extend terms, provide more comfort to our debt in terms of expense -- the expenses -- financial expenses load and, of course, we try as best as we can to increase the BRL portion of that. As for the working capital, that's a very good question, because it provides me with the opportunity to express the efforts we've been making to meet clients and suppliers with a series of efforts. Sidney has been leading that on a movement to have publicly announced to the market and in our communication materials as well, but we also made several internal efforts to support our client base, especially the small retail clients. So, they will suffer the least with the pandemic.

We've managed to maintain default levels very low for clients. And in terms of suppliers, we've managed to meet their demands, we anticipated resources, and we also obtained expansion of payment terms. And with that, we could provide a comfort level to our inventory, Lorival mentioned. We're always trying to extend that, so that we can have a cautious inventory to be able to meet our supply needs, and we manage to do that quite efficiently. In terms of other variations of working capital I'd like to highlight, we've managed to monetize our tax credits quite well, quite efficiently, especially those from the PIS and COFINS, and that has helped us out quite significantly in managing our working capital.

Barbara Halberstadt: Thank you.

Operator: Next question from Filipe de Souza [ph] from EOI [ph].

Unidentified Analyst: Good afternoon. Thank you for the question. Talking about strategy, BRF is coming from a period of restructuring of operations and I'd like to know on top of reducing the leverage level, what other alternatives do you plan to follow with the business, are you looking for M&A opportunities, are you planning on concentrating or expanding your product portfolio, so my question is around strategy rather than a more focused approach on the current results, I understand your numbers will only improve after all we've seen today, but in terms of strategy going forward, please? Thank you.

Lorival Luz: Thank you, Filipe. I'll address that. You said it well. I think the Company has been rebuilding. I have total -- we have paved the way and prepared the foundations of the Company to face was coming ahead.

We have a better management system in place, better processes, more operating and commercial efficiency, also personnel training, strengthening of our culture. In short, today, we have a very committed aligned team with us and all of us have a purpose. In what direction are we going to follow now? We're going to move toward what I've just shown you during the presentation and we mentioned that in our last BRF Day last year. We're going to invest increasingly in innovation, product launches, so that we will grow those 80% of our portfolio which brings -- or which bring higher added value, higher margins, and also to explore the strength of our brands. So, the idea is to strengthen that strategy to grow more towards that direction.

Once again focused on higher added value products, adding new lines, new products so that we can move, as I said and as we've done, towards that direction. In other words, to migrate from a more volatile market where we have more commodity-based products to a product line, to a portfolio where we have more profit, more return, and more stability in terms of result generation and in terms of cash generation. Of course, we are now going through a cycle where we are working on our strategic planning for the Company. So for the next month, we'll be discussing along with our Board to discuss to align and define our next steps. What I can tell you right now is that we are quite confident that we do have plenty of opportunities ahead of us.

And as I said, our team is quite able, quite engaged, and we will step into this new normal, if I may, this new moment, with all its energy focused on that. And this is about to start in the next coming months and then we will be, as I said, in line with our communication during our BRF Day and communicating our strategy and our advances, but in short, we have paved the way for that and we are now ready to try and capture more growth opportunities, margin opportunities with an eye at increasing the Company's return and positioning the Company where it belongs, including the multiples, of course, given the product base that we have.

Unidentified Analyst: Thank you. Just a short follow-up. In terms of the process, the costs that you have today, I understand that the Company is close to reaching long-term efficiency.

Is that sort of your understanding or do you still have a lot of efficiency gain before you can get there?

Lorival Luz: Well, things are being implemented now. So we are completing the implementation of these processes that we mentioned. Of course, that in the first half of the year, considering the crisis and the pandemic it was difficult to keep up with the schedule, to keep the pace. So, we had to adapt to the current moment, but as I said, we have paved the way to all these initiatives and some of them are already ongoing. Some are at its -- their final stages of implementation.

Some of them are being completed. So, there are still opportunities. There are still further gains that we can capture, either in our plants or sites or in logistics or in commercial efficiency.

Unidentified Analyst: Okay, thank you.

Operator: We are now closing the question-and-answer session.

Now, I turn over back to Mr. Lorival Luz.

Lorival Luz: Well, thank you all for attending. Thank you for being here with us today for this new format of our conference call. We tried to make it more interactive and I think that we could achieve that.

We were successful achieving that. I'd like to take this chance to communicate for those who still don't know and I would like to recognize and thank our Investor Relations Director, Eduardo Takeiti. He made decision to leave the Company. He has new plans for his life. So, he told us he would like to leave the Company.

He will still be with us for the next month and he will be replaced by Gabriella dal Vesco [ph]. She will be with us in -- for our next conference call. So, I take this chance to recognize all his hard work and dedication and everything he was able to achieve with the IR team in the nearly three years he was with us in the Company. He was able to raise the bar and I hope you also think so, but he raised the bar in terms of communication with our investors, with the analysts, and all the interactions, the information provided, the clarity of the information, the quality of the information. So, I would like to express my gratitude and my recognition for Eduardo's work, his brilliant work, and I wish him lots of success in his new ventures in life.

I'm sure that you will be brilliant in anything you do. I hope you can become an investor in the future, Eduardo. Thank you all and have a great day.

Operator: Thank you. BRF conference call is now closed.

We would like to thank you all for attending and we wish you a great day.