BRF Annual Report 2019 | Quarterlytics

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FY2019 Annual Report · BRF

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 20-F

REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES

EXCHANGE ACT OF 1934
OR

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT

OF 1934
For the fiscal year ended December 31, 2019
OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE

ACT OF 1934
OR

SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934
Commission file number 001-15148

BRF S.A.

(Exact Name of Registrant as Specified in its charter)

N/A
(Translation of Registrant’s name into English)

Federative Republic of Brazil
(Jurisdiction of Incorporation or Organization)

Av. Das Nações Unidas, 8501 – 1st Floor
Pinheiros – 05425-070
São Paulo – SP, Brazil
(Address of principal executive offices)

Carlos Alberto Bezerra de Moura
Chief Financial and Investor Relations Officer
Tel. (5511) 2322-5005, Fax (5511) 2322-5740
Av. Das Nações Unidas, 8501 – 1st Floor
Pinheiros – 05425-070
São Paulo – SP, Brazil
(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)

Securities registered or to be registered pursuant to Section 12(b) of the Act:

Title of each class

Common Shares, no par value*
American Depositary Shares (as evidenced by American Depositary
Receipts), each representing one share of common stock

Name of each exchange on
which registered
The New York Stock Exchange
The New York Stock Exchange

____________________
* Not for trading purposes, but only in connection with the registration of American Depositary Shares representing
those common shares.

Securities registered or to be registered pursuant to Section 12(g) of the Act:

None

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:

None

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of
the period covered by the annual report:

At December 31, 2019, there were 812,473,246 common shares (including treasury shares), with no par value,
outstanding.

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the

Securities Act. Yes

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file

reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. Yes

Note- Checking the box above will not relieve any registrant required to file reports pursuant to Section 13

or 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections.

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File
required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12
months (or for such shorter period that the registrant was required to submit such files). Yes

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-
accelerated filer or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” and
“emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Non-accelerated filer

Accelerated filer

Emerging growth company

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP,
indicate by check mark if the registrant has elected not to use the extended transition period for complying with any
new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act.

† The term “new or revised financial accounting standard” refers to any update issued by the Financial

Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements

included in this filing:

U.S. GAAP

International Financial Reporting Standards as issued

Other

by the International Accounting Standards Board

If “Other” has been checked in response to the previous question, indicate by check mark which financial

statement item the registrant has elected to follow.

Item 17

Item 18

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in

Rule 12b-2 of the Exchange Act).

Yes

TABLE OF CONTENTS

Page

INTRODUCTION............................................................................................................................................ 1

IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS ................................ 2

OFFER STATISTICS AND EXPECTED TIMETABLE .................................................................. 2

KEY INFORMATION ....................................................................................................................... 2

Selected Financial Data ........................................................................................................ 2

Capitalization and Indebtedness ........................................................................................... 3

Reasons for the Offer and Use of Proceeds .......................................................................... 3

Risk Factors .......................................................................................................................... 4

INFORMATION ON THE COMPANY .......................................................................................... 32

History and Development of the Company ........................................................................ 32

Business Overview ............................................................................................................. 35

Organizational Structure .................................................................................................... 54

Property, Plant and Equipment ........................................................................................... 55

ITEM 4A. UNRESOLVED STAFF COMMENTS ........................................................................................... 59

OPERATING AND FINANCIAL REVIEW AND PROSPECTS .................................................. 59

Operating Results ............................................................................................................... 59

Liquidity and Capital Resources ........................................................................................ 77

Research and Development, Patents and Licenses ............................................................. 88

Trend Information .............................................................................................................. 90

Off-Balance Sheet Arrangements ....................................................................................... 93

Tabular Disclosure of Contractual Obligations .................................................................. 93

Safe Harbor ........................................................................................................................ 94

DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES .................................................... 94

Directors and Senior Management ..................................................................................... 94

Compensation ..................................................................................................................... 99

Board Practices................................................................................................................. 100

Employees ........................................................................................................................ 103

Share Ownership .............................................................................................................. 104

MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS ................................ 106

Major Shareholders .......................................................................................................... 106

Related Party Transactions ............................................................................................... 109

Interests of Experts and Counsel ...................................................................................... 110

FINANCIAL INFORMATION ...................................................................................................... 110

Consolidated Statements and Other Financial Information .............................................. 110

Significant Changes ......................................................................................................... 123

THE OFFER AND LISTING ......................................................................................................... 123

Offer and Listing Details .................................................................................................. 123

Plan of Distribution .......................................................................................................... 123

Markets............................................................................................................................. 123

Selling Shareholders ......................................................................................................... 126

Dilution ............................................................................................................................ 126

Expenses of the Issue ....................................................................................................... 126

ADDITIONAL INFORMATION .................................................................................................. 126

Share Capital .................................................................................................................... 126

Memorandum and Articles of Association ....................................................................... 126

Material Contracts ............................................................................................................ 146

Exchange Controls ........................................................................................................... 147

Taxation ........................................................................................................................... 147

Dividends and Paying Agents .......................................................................................... 158

Statement by Experts ........................................................................................................ 158

Documents on Display ..................................................................................................... 158

Subsidiary Information ..................................................................................................... 158

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK ............... 158

DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES ............................... 164

Debt Securities ................................................................................................................. 164

Warrants and Rights ......................................................................................................... 164

Other Securities ................................................................................................................ 164

American Depositary Shares ............................................................................................ 164

..................................................................................................................................................................... 165

DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES ......................................... 165

MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND

USE OF PROCEEDS ..................................................................................................................... 165

CONTROLS AND PROCEDURES .............................................................................................. 165

Disclosure Controls and Procedures................................................................................. 165

Management’s Annual Report on Internal Control Over Financial Reporting................. 165
Attestation Report of the Registered Public Accounting Firm ......................................... 166

Changes in Internal Control Over Financial Reporting .................................................... 166

[RESERVED] ................................................................................................................................. 166

ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT............................................................................. 166

ITEM 16B. CODE OF ETHICS ........................................................................................................................ 166

ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES ............................................................... 167

ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES ................ 167

ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED

PURCHASERS .............................................................................................................................. 168

ITEM 16F. CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT ................................................ 168
ITEM 16G. CORPORATE GOVERNANCE .................................................................................................... 168

ITEM 16H. MINE SAFETY DISCLOSURE .................................................................................................... 170

.................................................................................................................................................................... 170

FINANCIAL STATEMENTS ........................................................................................................ 170

EXHIBITS ...................................................................................................................................... 170

INDEX TO FINANCIAL STATEMENTS ............................................................................................................... F-1

iii

INTRODUCTION

Unless otherwise indicated, all references herein to (1) “BRF” are references to BRF S.A., a corporation
organized under the laws of the Federative Republic of Brazil (“Brazil”), and its consolidated subsidiaries, (2) the
“Company,” “we,” “us,” “our” or “our company” are references to BRF, together with its consolidated subsidiaries,
and (3) “common shares” are references to the Company’s authorized and outstanding common stock, designated
ordinary shares (ações ordinárias), each without par value. All references herein to the “real,” “reais” or “R$” are to
the Brazilian real, the official currency of Brazil. All references to “U.S. dollars,” “dollars” or “U.S.$” are to the
United States dollar. All references to “euro” or “EUR” are to euros, the official currency of the Eurozone in the
European Union. All references to “TRY” are to the Turkish lira, the official currency of Turkey. All references to
“SGD” are to the Singapore Dollar, the official currency of Singapore.

U.S.$ amounts are disclosed for each transaction at the amount negotiated to be settled in U.S.$ at the

initiation date of the transaction.

Market data and certain industry forecasts used herein were obtained from internal surveys, market research,
publicly available information and industry publications. While we believe that market research, publicly available
information and industry publications we use are reliable, we have not independently verified market and industry
data from third-party sources. Moreover, while we believe our internal surveys are reliable, they have not been verified
by any independent source.

We prepared our annual consolidated financial statements included in this annual report in accordance with
International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board
(“IASB”). We have made rounding adjustments to reach some of the figures included herein. As a result, numerical
figures shown as totals in some tables may not be an arithmetic aggregation of the figures that preceded them.

Forward-Looking Statements

This Annual Report on Form 20-F contains information that constitute forward-looking statements within
the meaning of the U.S. Private Securities Litigation Reform Act of 1995. Many of the forward-looking statements
contained in this annual report can be identified by the use of forward-looking words, such as “believe,” “may,” “aim,”
“estimate,” “continue,” “anticipate,” “will,” “intend,” “plan,” “expect” and “potential,” among others. Forward-
looking statements include information concerning our possible or assumed future results of operations, business
strategies, financing plans, competitive position, industry environment, potential growth opportunities, the effects of
future regulation and the effects of competition. They appear in a number of places in this annual report, principally
under the captions “Item 3. Key Information—D. Risk Factors,” “Item 4. Information on the Company” and “Item 5.
Operating and Financial Review and Prospects” and include statements regarding the intent, belief, projections or
current expectations of the Company, its directors or its executive officers about future events and financial trends
affecting our business. Many important factors, in addition to those discussed elsewhere in this annual report, could
cause our actual results to differ substantially from those anticipated in our forward-looking statements.

These factors include: (i) health risks related to the food industry, including in connection with ongoing
investigations and legal proceedings, (ii) more stringent trade barriers in key export markets and increased regulation
of food safety and security, (iii) the risk of outbreak of animal diseases, (iv) risks related to climate change, (v) risks
related to pandemics or human disease outbreaks, such as the novel coronavirus (COVID-19 virus), (vi) the risk of
any shortage or lack of water or other raw materials necessary for our business, (vii) compliance with various laws
and regulations, (viii) risks related to new product innovation, (ix) the implementation of the principal operating
strategies of the Company, including through divestitures, acquisitions or joint ventures, (x) general economic,
political and business conditions in our markets, both in Brazil and abroad, (xi) the cyclicality and volatility of raw
materials and selling prices, including as a result of ongoing global trade disputes, (xii) strong international and
domestic competition, (xiii) risks related to labor relations, (xiv) the protection of our intellectual property, (xv) the
potential unavailability of transportation and logistics services, (xvi) the risk that our insurance policies may not cover
certain of our costs, (xvii) our ability to recruit and retain qualified professionals, (xviii) the risk of cybersecurity
breaches, (xix) risks related to our indebtedness, (xx) risks related to the Brazilian economy and to Brazilian politics,

(xxi) interest rate fluctuations, inflation and exchange rate movements of the real in relation to the U.S. dollar and
other currencies, (xxii) the direction and future operation of the Company, (xxiii) the Company’s financial condition
or results of operations and (xxiv) other factors identified or discussed under “Item 3. Key Information—D. Risk
Factors.”

Prospective investors are cautioned that any such forward-looking statements are not guarantees of future
performance and involve risks and uncertainties, and that actual results may differ materially from those in the
forward-looking statements. The accompanying information contained in this Annual Report on Form 20-F, including
without limitation the information set forth under the heading “Item 5. Operating and Financial Review and
Prospects,” identifies important factors that could cause such differences. In light of the risks, uncertainties and
assumptions associated with forward-looking statements, you should not place undue reliance on any forward-looking
statements. Additional risks that we may currently deem immaterial or that are not presently known to us could also
cause the forward-looking events discussed in this Annual Report on Form 20-F not to occur.

Our forward-looking statements speak only as of the date of this Annual Report on Form 20-F or as of the
date they are made, and except as otherwise required by applicable securities laws, the Company undertakes no
obligation to publicly update any forward-looking statement, whether because of new information, future events or
otherwise.

IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

Not applicable.

OFFER STATISTICS AND EXPECTED TIMETABLE

Not applicable.

KEY INFORMATION

Selected Financial Data

We present below certain selected financial data derived from our consolidated financial statements as of and
for the years ended December 31, 2019, 2018, 2017, 2016 and 2015, included herein, prepared in accordance with
IFRS. IFRS differs in certain significant respects from the accounting principles generally accepted in the United
States, or “U.S. GAAP.”

In July 2015, we sold the assets of our then dairy segment, including plants and trademarks, to Lactalis do

Brasil – Comércio, Importação e Exportação de Laticínios Ltda. (“Lactalis”).

Following the financial and operational restructuring plan initiated in June 2018, we concluded the sale of
our operations in Argentina, Europe and Thailand in 2019. The operations in Argentina, Europe and Thailand are
reported in our financial statements as discontinued operations for all periods presented.

The selected financial data should be read in conjunction with our consolidated financial statements and the
notes thereto contained in this Annual Report on Form 20-F, as well as the information set forth under the heading
“Item 5. Operating and Financial Review and Prospects.”

STATEMENT OF INCOME (LOSS) DATA

Year Ended December 31,
2019
2015
2017
(in thousands of reais, except share, per share and per ADS amounts and as otherwise indicated)

2016

2018

Statement of Income (Loss) Data
Continuing Operations
Net sales .......................................................
Gross profit .................................................

33,446,980
8,076,938

30,188,421
4,867,668

28,314,160
5,712,945

27,883,943
6,949,865

27,513,997
9,052,829

Year Ended December 31,
2015
2017
2019
(in thousands of reais, except share, per share and per ADS amounts and as otherwise indicated)

2016

2018

Operating income (loss)..............................
Income (Loss) from Continuing

Operations ...............................................

Income (Loss) from Discontinued

Operations ...............................................
Net Income (Loss) .......................................
Attributable to:
Controlling shareholders...............................
Non-controlling shareholders .......................

Earnings (loss) per share - basic from

continuing operations ...............................

Earnings (loss) per ADS - basic from

continuing operations ...............................
Earnings (loss) per share – basic...................
Earnings (loss) per ADS – basic ...................
Weighted average shares outstanding at the

end of the year – basic (millions) ..............
Earnings (loss) per share – diluted ................
Earnings (loss) per ADS – diluted ................
Weighted average shares outstanding at the

end of the year – diluted (millions) ...........
Dividends per share ......................................
Dividends per ADS ......................................

2,748,337

(206,334)

663,184

1,962,881

3,841,789

1,078,333

(2,114,506)

(966,765)

(110,991)

2,630,422

(915,809)
162,524

162,684
(160)

1.32

1.32
0.37
0.37

811,539,167
1.3
1.3

813,867,119
—
—

(2,351,740)
(4,466,246)

(4,448,061)
(18,185)

(2.61)

(2.61)
(5.48)
(5.48)

811,294,251
(2.61)
(2.61)

811,294,251
—
—

(132,089)
(1,098,854)

(1,125,572)
26,718

(1.23)

(1.23)
(1.40)
(1.40)

803,559,763
(1.23)
(1.23)

803,559,763
—
—

(256,348)
(367,339)

(372,383)
5,044

(0.13)

(0.13)
(0.46)
(0.46)

801,903,266
(0.13)
(0.13)

801,903,266
0.76
0.76

317,348
2,497,770

2,928,082
19,688

3.50

3.50
3.72
3.72

842,000,012
3.69
3.69

842,401,821
1.20
1.20

STATEMENT OF FINANCIAL POSITION DATA

2019

2018

2017

2016

2015

(in thousands of reais, except as otherwise indicated)

At December 31,

Statement of Financial Position Data

Cash and cash equivalents .................
Trade accounts receivable, net ...........
Inventories .........................................
Assets held for sale ................................
Total current assets .............................
Property, plant and equipment, net ....
Intangible assets.................................
Total non-current assets ......................
Total assets ...........................................
Loans and borrowings........................
Trade accounts payable ......................
Total current liabilities ........................
Loans and borrowings........................
Total non-current liabilities ................
Equity

Capital ...............................................
Total equity ..........................................
Total liabilities and equity ...................

4,237,785
3,031,046
3,887,916
99,245
15,045,427
12,276,889
4,908,079
26,724,712
41,770,139
3,132,029
5,784,419
13,528,441
15,488,250
20,228,277

12,460,471
8,013,421
41,770,139

4,869,562
2,604,928
3,877,294
3,326,305
19,030,900
10,696,998
5,019,398
23,351,477
42,382,377
4,547,389
5,487,205
14,488,640
17,618,055
20,361,960

12,460,471
7,531,777
42,382,377

6,010,829
3,919,022
4,948,168
41,571
19,185,523
12,190,583
7,197,636
26,042,958
45,228,481
5,031,351
6,445,486
14,874,377
15,413,027
18,641,322

12,460,471
11,712,782
45,228,481

6,356,919
3,085,147
4,791,640
26,126
18,893,738
11,746,238
6,672,554
24,051,198
42,944,936
3,245,004
5,839,838
12,640,423
15,717,376
18,085,160

12,460,471
12,219,353
42,944,936

5,362,890
3,876,308
4,032911
32,448
19,180,049
10,915,752
5,010,911
21,207,965
40,388,014
2,628,179
4,744,993
11,621,113
12,551,104
14,931,048

12,460,471
13,835,853
40,388,014

Capitalization and Indebtedness

Not applicable.

Reasons for the Offer and Use of Proceeds

Not applicable.

Risk Factors

Risks Relating to Our Business and Industry

Health risks related to our business and the food industry could adversely affect our ability to sell our products.

We are subject to risks affecting the food industry generally, including risks posed by contamination or food
spoilage, evolving nutritional and health-related concerns, consumer product liability claims, product tampering and
sabotage, the possible unavailability and expense of liability insurance, public perception of product safety for both
the industry as a whole and also our products specifically, but not exclusively, as a result of disease outbreaks or the
fear of such outbreaks, the potential cost and disruption of a product recall and possible impacts on our image and
brands. Among such risks are those related to raising animals, including disease and adverse weather conditions.

Meat can be subject to contamination during processing and distribution. In particular, processed meat may
become exposed to various disease-producing pathogens, including Listeria monocytogenes, Salmonella enteritidis,
Salmonella tiphimurium and E. coli O157:H7. These pathogens can also be introduced to our products during
production or as a result of improper handling by third-party food processors, franchisees, distributors, foodservice
providers or consumers. Spoilage, especially spoilage due to failure of temperature-controlled storage and
transportation systems, is also a risk. The systems we maintain to monitor food safety risks throughout all stages of
production and distribution could fail to function properly and product contamination could still occur. Failures in our
systems to ensure food safety could result in harmful publicity that could cause damage to our brands, reputation and
image and negatively impact sales, which could have a material adverse impact on our business, results of operations,
financial condition and prospects.

On February 13, 2019, we announced a voluntary recall of approximately 164.7 metric tons of fresh chicken
meat for the Brazilian domestic market and approximately 299.6 metric tons of fresh chicken meat for the international
market due to a potential presence of Salmonella enteritidis. This recall and possible future recalls have resulted and
may result, respectively, in increased costs and could negatively affect our brands’ reputation. In the future, a product
that has been actually or allegedly contaminated could result in product withdrawals or recalls, disposal of product
inventory, negative publicity, temporary plant closings, substantial cost of compliance or remediation and potentially
significant product liability judgments against us. Any of these events could result in a loss of demand for our products,
which may have a material adverse effect on our business, results of operations, financial condition and prospects.

Even if our own products are not affected by contamination, our industry may face adverse publicity in certain
of its markets if the products of other producers become contaminated, which could result in negative public perception
about the safety of our products and reduced consumer demand for our products in the affected category. Significant
lawsuits, widespread product recalls and other negative events faced by us or our competitors could result in a
widespread loss of consumer confidence in the safety and quality of our products. Our sales are ultimately dependent
on consumer preferences, and any actual or perceived health risks associated with our products could cause customers
to lose confidence in the safety and quality of our products and have a material adverse impact on our business, results
of operations, financial condition and prospects.

We have been subject to significant investigations relating to, among other things, food safety and quality control,
and an adverse outcome of any of these investigations could result in penalties, fines or other forms of liability and
could have a material adverse effect on our business, reputation, brand, results of operations and financial
condition.

Brazilian authorities are investigating Brazil’s meat processing industry in the so-called “Carne Fraca

Operation.” The investigation involves a number of companies in the Brazilian industry and, among other things,
includes allegations relating to food safety and quality control. On January 22, 2018, the Attorney General’s Office
of the Third District of the State of Goiás filed a complaint against the industrial manager of our Mineiros plant at
the time of the events subject to investigation in the Carne Fraca Operation, and against the former head of quality
control at our Mineiros plant, who are both no longer working for BRF. Both of them were charged for allegedly
committing crimes against consumers, as provided in article 7, item II of Law 8,137/90. According to the complaint,
laboratory tests (dripping tests) detected excessive levels of water absorbed by the chicken products collected by
authorities at our Mineiros plant. The Attorney General’s Office of the Third District of the State of Goiás alleges

we produced chicken products with higher quantities of water than the limits permitted by the Brazilian Ministry of
Agriculture, Livestock and Food Supply (Ministério da Agricultura, Pecuária e Abastecimento, or “MAPA”), with
potential damages to customers, considering they would potentially be acquiring chicken meat products with a
weight lower than that indicated on the packaging, since part of the weight of the frozen chicken would consist
merely of water contained therein.

On March 5, 2018, BRF learned of a decision issued by a federal judge of the First Federal Court of Ponta
Grossa in the State of Paraná, which authorized the search and seizure of information and documents from us and
certain current and former employees and the temporary detention of certain individuals. In what media reports have
identified as the “Trapaça Operation,” eleven current and former employees of BRF were temporarily detained for
questioning, including former Chief Executive Officer Pedro Faria and former Vice President for Global Operations
Helio Rubens. All such current and former employees were released from custody and those who are still our
employees are on leaves of absence from BRF. A number of other BRF employees and former employees were
identified for questioning. The primary allegations in the Trapaça Operation involve alleged misconduct relating to
quality violations, improper use of feed components and falsification of tests at certain BRF manufacturing plants and
accredited labs.

On October 15, 2018, the Brazilian Federal Police issued the final report on the investigation of the Trapaça
Operation with accusations against 43 people, among which 23 are current or former BRF employees, including
former Chief Executive Officer Pedro Faria, former chairman of the board of directors Abilio Diniz, and three former
vice presidents. Those who are still our employees are on leaves of absence from BRF. Allegations against these senior
employees generally focused on communications relating to alleged dioxin contamination. Since then, the police
investigation has been under review by the Brazilian Federal Prosecutor responsible for the case to determine whether
to bring criminal charges. See “Item 8. Financial Information—A. Consolidated Statements and Other Financial
Information—Legal Proceedings” for additional information.

As a result of the Trapaça Operation, on March 5, 2018, we were notified by MAPA that it immediately
suspended exports from our Rio Verde/Goiás, Carambeí/Paraná and Mineiros/Goiás plants to 13 countries with
specific sanitary requirements related to Salmonella spp. As a precautionary measure, MAPA also suspended exports
from 10 other BRF plants to the European Union on March 15, 2018. On May 14, 2018, the European Union
announced the decision to suspend 12 of our production facilities in Brazil by revoking the export approval of meat
products from such facilities to the European Union’s countries due to increasing pressure from domestic producers’
organizations, supposedly demanding the measure for local market protection. The European Union generally has
stricter requirements related to salmonella levels and other food safety standards compared to Brazil and the
international markets in which we operate. Given the import ban applied to our production facilities, we are unable to
export meat from such facilities to the European Union. Our results of operations may be further adversely affected
due to the need to redirect the production capacity of such facilities, originally destined for the European Union, to
other markets at similar prices or margins.

On December 4, 2019, with respect to the Trapaça Operation, criminal charges were brought against former
or inactive BRF employees for allegedly committing, in the manufacture of animal feed and PREMIX compound
(supplement added to animal feed), aggravated larceny by fraud, false representation, wrapper or container with false
labelling, forgery of substance or food product, forgery of product intended for therapeutic or medicinal purposes and
criminal association, at least during the period between 2012 and 2018. The defendants were notified of the criminal
charges on January 21, 2020, and the proceeding is currently pending responses by the defendants to the charges.

Any of these existing investigations or any other future investigation could result in penalties, fines or other
forms of liability and could have a material adverse effect on our business, reputation, brand, results of operations and
financial condition.

More stringent trade barriers in key export markets may negatively affect our results of operations.

Because of the growing market share of Brazilian poultry, pork and beef products in the international markets,
Brazilian exporters are increasingly being affected by measures taken by importing countries to protect local
producers. The competitiveness of Brazilian companies has led certain countries to establish trade barriers to limit the

access of Brazilian companies to their markets. Trade barriers can consist of both tariffs and non-tariff barriers. In our
industry, non-tariff barriers are of particular concern, especially sanitary and technical restrictions.

As a result of the regulators’ inquiries and the public announcement of allegations of wrongdoing involving
BRF and other companies in the Brazilian meat industry in the context of the Carne Fraca Operation and Trapaça
Operation, some export markets have been temporarily closed, and our average selling prices for some products and
in some markets have decreased. For additional information, see “—Health risks related to our business and the food
industry could adversely affect our ability to sell our products” and “—We have been subject to significant
investigations relating to, among other things, food safety and quality control, and an adverse outcome of any of these
investigations could result in penalties, fines or other forms of liability and could have a material adverse effect on
our business, reputation, brand, results of operations and financial condition.”

Some countries, such as Russia and South Africa, have a history of erecting trade barriers to imports of food
products. Also, the European Union has adopted a quota system for certain poultry products and prohibitive tariffs for
certain products that do not have quotas in order to mitigate the effects of Brazil’s lower production costs on European
producers. Other countries have also imposed trade barriers against our products. For example, in August 2017, the
Chinese government initiated an antidumping investigation in connection with Brazilian exports of whole chicken and
chicken parts, including BRF’s exports. The investigation ended in February 2019, and Brazilian exporters agreed to
certain minimum export prices for sales to China. Additionally, in August 2018, Iraq increased the tariff on poultry
products from 10% to 60%.

Many developed countries use direct and indirect subsidies to enhance the competitiveness of their producers
in other markets. In addition, local producers in some markets may exert political pressure on their governments to
prevent foreign producers from exporting to their market, particularly during unfavorable economic conditions. Any
of the above restrictions could substantially affect our export volumes and, consequently, our export sales and financial
performance. If new trade barriers arise in our key export markets, we may face difficulties in reallocating our products
to other markets on favorable terms, and our business, financial condition and results of operations might be adversely
affected.

Trade disputes between other countries also creates uncertainties that may adversely affect Brazilian exports
and our operations. For instance, the United States and China engaged in a trade dispute for almost 18 months, which
has affected the global economy. On January 1, 2020, the United States and China signed the first phase of a trade
agreement expected to alleviate the tensions between the two countries. A second phase of the agreement is expected
to be even more difficult to achieve. There can be no assurances that the trade dispute will be fully resolved and that
the global economy will not be further affected by it. The United Sates is expected to maintain the 25% tariffs on a
wide range of U.S.$250 billion of Chinese industrial goods and components used by the U.S. manufacturing sector.
Both improvements in the countries’ commercial relations and new mutually beneficial trade agreements at the
expense of other countries may have a material adverse effect on our results of operations.

In addition, in April 2018, Saudi Arabia instituted a no-stunning requirement for the animal slaughtering
process. Saudi Arabia claimed that Brazilian companies’ chicken slaughtering practices violated Halal principles due
to the use of an electric shock to stun the birds. BRF and other Brazilian companies were therefore required to migrate
their production processes to non-stunning slaughters in order to supply the Saudi Arabian market. We have incurred,
and expect to incur, additional costs in connection with these requirements for exporting to Saudi Arabia. In January
2019, the Saudi Arabian Food and Drug Authority published a report authorizing 25 Brazilian facilities to produce
chicken meat for the Saudi Arabian market, which included eight of BRF’s plants. One of BRF’s plants (Lajeado, Rio
Grande do Sul) that had previously produced chicken meat for the Saudi Arabian market was not included as an
authorized plant. The continuous shifting of our production of chicken meat for Saudi Arabia to the authorized plants
may result in decreased revenues and additional expenses.

In August 2019, Saudi Arabia imposed an embargo on seasoned chicken meat produced in our Kizad facility,
in Abu Dhabi, which was restricted from exporting to Saudi Arabia. The embargo was a result of Saudi Arabia’s Saudi
Vision 2030 plan, announced in April 2016 as a national campaign to reduce the country’s dependence on oil, diversify
its economy and substitute imports with local production. Saudi Arabia then expanded the embargo to the other
products from our Kizad facility. In October 2019, we announced that we had executed a non-binding Memorandum
of Understanding with the Saudi Arabian General Investment Authority – SAGIA regarding the construction and

operation by BRF of a poultry processing plant in Saudi Arabia. We estimate that the investment amount will be
around R$634 million (US$120 million, translated to reais at the exchange rate of R$5.2837 as of April 20, 2020).
The location, capacity, investment schedule, capital structure and other conditions related to this plant are still being
discussed. There can be no assurance that the Saudi Arabian government will not further restrict our ability to export
our products to Saudi Arabia, which may result in a material adverse impact on our business, financial condition and
results of operations. In February 2020, we received notification from the Saudi Food and Drug Authority (“SFDA”),
the Saudi Arabian sanitary authority, regarding a report temporarily suspending two of our facilities, specifically the
Dois Vizinhos, State of Paraná and Francisco Beltrão, State of Paraná plants, from exporting chicken meat to Saudi
Arabia. The SFDA informed us that the measure is temporary and, among other measures, requested that the Brazilian
authorities provide more details about the investigations carried out between 2014 and 2018 regarding alleged
violations by BRF in the production of animal feed and PREMIX compound. For more information about these
investigations, see “—We have been subject to significant investigations relating to, among other things, food safety
and quality control, and an adverse outcome of any of these investigations could result in penalties, fines or other
forms of liability and could have a material adverse effect on our business, reputation, brand, results of operations and
financial condition.” Additionally, the Saudi government has been implementing, since January 2020, a previous
import licenses system, which is still not fully in effect at the moment. In the future, this system may adversely affect
our exports to the country, since it might be used by local authorities as a means to control the entry of products and
thus, artificially affect demand and offer and, consequently, prices, which run counter to basic principles of
international trade rules and regulations.

Outbreaks, or fears of outbreaks, of any animal diseases may lead to cancellation of orders by our customers and
create adverse publicity that may have a material adverse effect on consumer demand for our products. Moreover,
outbreaks of animal diseases in Brazil may result in foreign governmental action to close export markets for some
or all of our products, which may result in the loss of some or all of these animals.

Our operations involve raising poultry and hogs and processing their meat, which requires us to maintain
certain standards of animal health and control disease. We could be required to dispose of animals or suspend the sale
or export of some of our products to customers in Brazil and abroad in the event of an outbreak of disease affecting
animals, such as the following: (1) in the case of hogs and certain other animals, foot-and-mouth disease, influenza
(H5N1) and African swine fever; and (2) in the case of poultry, avian influenza and Newcastle disease. In addition, if
the Porcine Reproductive and Respiratory Syndrome (PRRS), which has broken out in Europe and the United States
in 1990 and 1985, respectively, the Porcine Epidemic Diarrhea (PEDV), which has broken out in Europe and the
United States in 2014 and 2013, respectively, or the African swine fever which broke out in China in 2018, were to
break out in Brazil, we could be required to dispose of hogs. While there have been outbreaks of Classical Swine
Fever in Brazil, and although none have occurred in the free zones where we source our hogs for production, any such
occurrence could require us to dispose of affected hogs. Disposal of poultry, hogs or other animals would preclude
recovery of costs incurred in raising or purchasing these animals and result in additional expense for the disposal of
such animals and loss of inventory. An outbreak of foot-and-mouth disease or other similar diseases could have an
effect on livestock we own and the availability of livestock for purchase. In addition, the global effects of avian
influenza or other similar diseases would impact consumer perception of certain protein products and our ability to
access certain markets, which would adversely affect our results of operations and financial condition.

Chicken and other birds in some countries, particularly in Asia but also in Europe, the Americas and Africa,
have on occasion become infected by highly pathogenic avian influenza in recent years. In a small number of highly-
publicized cases, avian influenza has been transmitted from birds to humans, resulting in illness and, at times, death.
Accordingly, health authorities in many countries have taken steps to prevent outbreaks of this viral disease, including
disposal of afflicted poultry flocks.

In recent years, some human cases of avian influenza and related deaths were reported, according to the
World Health Organization (“WHO”). The cases reported were caused by the H5N1 virus. In 2013, direct human-to-
human transmission of the H7N9 virus was proven. Various countries in Asia, the Middle East and Africa reported
human cases in the last five years and various European countries reported avian influenza cases in poultry. In 2014,
there were reports of human cases of avian influenza in Egypt, Indonesia, Cambodia, China and Vietnam, among other
countries. In the Americas, there were reports of human cases of avian influenza in both Canada and the United States.
In early 2015, new cases of H5N1 and H5N2 reported in the United States resulted in restrictions on U.S. exports. In
2016, new outbreaks occurred in bird populations across Northern Europe, including France, the Netherlands,

Switzerland, Finland and Germany. Middle Eastern and African countries also had outbreaks during 2016. In early
2017, Chile, a neighboring country to Brazil, confirmed the occurrence of avian influenza. In 2019, several countries
within Europe, Asia and Africa and Mexico reported cases of highly pathogenic avian influenza in poultry.

Even though Brazil has not yet had a documented case of avian influenza, there are concerns that an outbreak
of avian influenza may occur in the country in the future. Any outbreak of avian influenza in Brazil could lead to the
required disposal of our poultry flocks, which would result in decreased sales in the poultry industry, prevent recovery
of costs incurred in raising or purchasing poultry and result in additional expense for the disposal of poultry. In
addition, any outbreak of avian influenza in Brazil would likely lead to immediate restrictions on the export of some
of our products to key export markets. Preventive actions adopted by Brazilian authorities, if any, may not be effective
in precluding the spread of avian influenza within Brazil.

Whether or not an outbreak of avian influenza occurs in Brazil, further outbreaks of avian influenza anywhere
in the world could have a negative impact on the consumption of poultry in our key export markets or in Brazil, and
a significant outbreak would negatively affect our results of operations and financial condition. Any outbreak could
lead to the imposition of costly preventive controls on poultry imports in our export markets. Accordingly, any spread
of avian influenza, or increasing concerns about this disease, may have a material and adverse effect on our company.

Climate change may negatively affect our business and results of operations.

We consider the potential effects of climate change when evaluating and managing our operations and supply
chain, recognizing the vulnerability of natural resources and agricultural inputs that are essential for our activities. The
main risks we have identified with respect to climate change relate to the changes in temperature, changes in rainfall,
including drought, flooding, storms and lack of water, which may affect agricultural productivity, animal welfare and
the availability of energy. These changes may adversely affect our costs and results of operations, including by raising
the price of agricultural commodities as a result of long periods of drought or excessive rainfall, increasing operating
costs to ensure animal welfare, increasing the risk of rationing and raising the price of electricity. We may fail to
effectively implement programs to reduce our exposure to climate change, which may adversely affect our business
and results of operations in the future.

We are also subject to regulatory changes, such as carbon pricing or taxation, and changes to licensing
legislation for greenhouse gas emissions at the domestic and international levels. Any such changes may increase our
costs and adversely affect our results of operations

Our operations are largely dependent on electricity, and energy-related expenses are one of our highest fixed
costs. Energy costs have historically fluctuated significantly over time and increases in energy costs could result in
reduced profits. A significant interruption in energy supply or outright loss of energy at any of our facilities could
result in a temporary disruption in production and delivery of products to customers and additional costs, materially
adversely affecting our results of operations.

A significant portion of Brazil’s electricity generation capacity is currently dependent upon hydroelectric
facilities. Hydroelectric production is vulnerable to a variety of factors, including the variability of precipitation. There
can be no assurance that our efforts to increase our energy efficiency and reduce electricity demand will be successful.
If the amount of water available to energy producers becomes increasingly scarce due to drought or diversion for other
uses, as has occurred in recent years, our energy expenses may increase and our results of operations may be materially
adversely affected.

Any shortage or lack of water, and any failure to comply with applicable rules and regulations related to water
usage and management, could materially adversely affect our business and results of operations.

In the last century, water use has grown globally at more than twice the rate of the population increase, and
an increasing number of regions in the world are reaching the limit at which water services can be sustainably
delivered. According to a study by the Food and Agriculture Organization of the United Nations (“FAO”), by 2025,
an estimated 1,800 million people are expected to be living in countries or regions with “absolute” water scarcity
(under 500 m3 per year per capita), and two-thirds of the world population may be under “stress” conditions (between

500 and 1,000 m3 per year per capita). Water is an essential input for our businesses and is used in the production of
grains and other agricultural inputs required for our production processes. The industrial use of water may also
adversely affect its availability. As a result, the shortage or lack of water represents a critical risk for our business and
may materially and adversely affect our business and results of operations.

The procedures that we have developed to reduce our water consumption, comply with applicable rules and
regulations, and minimize our impact on the environment and the community may fail or be insufficient. Additionally,
our assessments of the micro and macro watersheds in the regions in which we operate and the industrial activities
and characteristics of the use of water resources may be inaccurate in understanding the local water demand growth.
We may fail to accurately assess the water supply or anticipate water-related risks, and the increased industrial use of
water by water intensive businesses may also adversely affect the continuing availability and quality of water in Brazil.
This may result in us or our key suppliers encountering water shortages. Any of these factors may materially adversely
affect our business and results of operations.

We may fail to ensure compliance with relevant anti-fraud, anti-corruption, anti-money laundering and other
international laws and regulations.

We are subject to anti-fraud, anti-corruption, anti-money laundering and other international laws and
regulations. We are required to comply with the laws and regulations of Brazil and various jurisdictions where we
conduct operations. In particular, we are subject to the Brazilian Anti-Corruption Law nº 12,846, the U.S. Foreign
Corrupt Practices Act of 1977 (“FCPA”) and the United Kingdom Bribery Act of 2010. The FCPA prohibits providing
anything of value to foreign officials for the purposes of obtaining or retaining business or securing any improper
business advantage. As part of our business, we may deal with entities and employees that are considered foreign
officials for purposes of the FCPA. In addition, we participate in certain public tenders and competitive bidding rounds
for contracts involving public authorities in Brazil and potentially in other markets where we operate, which activities
are typically subjected to heightened regulatory scrutiny and often require compliance with specific anti-fraud, anti-
corruption, anti-money laundering and other international laws and regulations.

Although we have internal policies and procedures designed to ensure compliance with applicable anti-fraud,
anti-corruption, anti-money laundering and other international laws and regulations, potential violations of law have
been identified on occasion as part of our compliance and internal control processes. In addition, we were notified of
allegations involving potential misconduct by some of our employees in the context of the Carne Fraca Operation,
Trapaça Operation and other investigations. For more details, see “Item 3.—D. Risk Factors— Risks Relating to Our
Business and Industry—We have been subject to significant investigations relating to, among other things, food safety
and quality control, and an adverse outcome of any of these investigations could result in penalties, fines or other
forms of liability and could have a material adverse effect on our business, reputation, brand, results of operations and
financial condition” and “Item 8. Financial Information—A. Consolidated Statements and Other Financial
Information—Legal Proceedings.” As a result of the Carne Fraca Operation and Trapaça Operation and related
matters, we incurred expenses and recorded provisions for losses in inventories in the total amount of R$79.9 million
in 2019 and R$ 492.8 million in 2018, which negatively impacted our results of operations. Additionally, these or
other proceedings may result in penalties, fines, sanctions or other forms of liability. Furthermore, any negative
reflection on our image or our brand from these or other activities could have a negative impact on our results of
operations, as well as our ability to achieve our growth strategy.

Given the size of our operations and the complexity of our production chain, there can be no assurance that
our internal policies and procedures will be sufficient to prevent or detect all inappropriate or unlawful practices,
including fraud or violations of law or violations of our internal policies and procedures by our employees, directors,
officers, partners or any third-party agents or service providers. Furthermore, there can be no assurance that such
persons will not take actions in violation of our policies and procedures (or otherwise in violation of applicable laws
and regulations) for which we or they may ultimately be held responsible. Violations of anti-fraud, anti-corruption,
anti-money laundering or other international laws and regulations could have a material adverse effect on our business,
reputation, brand, selling prices, results of operations and financial condition, including as a result of the closure of
international markets. We may be subject to one or more enforcement actions, investigations or proceedings by
authorities for alleged infringement of these laws. These proceedings may result in penalties, fines, sanctions or other
forms of liability. Potential negative developments in the Carne Fraca Operation, Trapaça Operation and other

investigations may also negatively affect the market price of our common shares and American Depositary Receipts
(“ADRs”).

We are subject to antitrust and competition laws and regulations and we may fail to ensure compliance with such
laws and regulations.

We are subject to antitrust and competition laws and regulations in the jurisdictions in which we operate.
Consequently, we may be subject to regulatory scrutiny in certain of these jurisdictions. For instance, on March 14,
2019, the Turkish Competition Authority (“TCA”) announced a decision regarding its investigation into our Turkish
subsidiary Banvit and other producers for alleged anticompetitive practices in connection with chicken meat
production in Turkey. The TCA imposed an administrative fine equivalent to R$22,507 thousand (TRY 30,518
thousand), against Banvit. For additional information, see “Item 8. Financial Information—A. Consolidated
Statements and Other Financial Information—Legal Proceedings—Civil, Commercial and Other Proceedings.”

There can be no assurance that our internal policies and procedures designed to ensure compliance with
applicable antitrust and competition laws and regulations will be sufficient to prevent or detect all inappropriate or
unlawful practices. As a result, we may be subject to one or more enforcement actions, investigations or proceedings
by authorities for alleged infringement of these laws. These proceedings may result in penalties, fines, sanctions or
other forms of liability and could have a material adverse effect on our business, reputation, brand, selling prices,
results of operations and financial condition, including as a result of the closure of international markets. Furthermore,
there can be no assurance that the introduction of new competition laws in the jurisdictions in which we operate, the
interpretation of existing antitrust or competition laws, the enforcement of existing antitrust or competition laws by
authorities or civil antitrust litigation by private parties, or any agreements with antitrust or competition authorities,
against us or our subsidiaries will not have a material adverse impact on our business, results of operations or financial
condition.

A failure to comply with export control or economic sanctions laws and regulations could have a material adverse
impact on our results of operations, financial condition and reputation.

We operate on a global basis and face risks related to compliance with export control and economic sanctions
laws and regulations, including those administered by the United Nations, the European Union and the United States,
including the U.S. Treasury Department’s Office of Foreign Assets Control. Economic sanctions programs restrict our
dealings with certain sanctioned countries, individuals and entities. However, we have conducted, and may in the
future seek to conduct, business in certain countries that are subject to sanctions under the laws of the United States
or other countries. Although we have pursued these transactions, and intend to pursue any future transactions, in full
compliance with applicable laws and regulations, we may not be successful in ensuring compliance with limitations
or restrictions on business with companies in any such countries. If we are found to be in violation of applicable
sanctions laws or regulations, we may face criminal or civil fines or other penalties, we may suffer reputational harm
and our results of operations and financial condition may be adversely affected. Additionally, there can be no assurance
that our employees, directors, officers, partners or any third-parties that we do business with, including, among others,
any distributors or suppliers, will not violate sanctions laws and regulations. We may ultimately be held responsible
for any such violation of sanctions laws and regulations by these persons, which could result in criminal or civil fines
or other penalties, have a material adverse impact on our results of operations and financial condition and damage our
reputation.

Failure to maintain adequate internal controls could adversely affect our reputation and business.

Our management is responsible for establishing and maintaining adequate internal controls over financial
reporting that provide reasonable assurance of the reliability of the preparation and reporting of our financial
statements for external use. Inadequate internal controls may result in our failure to meet public reporting requirements
accurately and on a timely basis and harm our reputation. The internal controls over financial reporting may not
prevent or detect all misstatements or fraud, regardless of the adequacy of those controls, and, therefore, we cannot
assure that material weaknesses will not be identified in the future.

Our failure to continuously innovate and successfully launch new products that address our clients’ needs and
requirements, as well as maintain our brand image, could adversely impact our operating results.

Our financial success depends on our ability to anticipate changes in consumer preferences and dietary habits
and our ability to successfully develop and launch new products and product variations that are desirable to consumers.
The resources that we devote to new product development and product extensions may be insufficient and we may
not be successful in developing innovative new products or our new products may not be commercially successful.
For example, trends towards prioritizing health and wellness present a challenge for developing and marketing
successful new lines of products to address these consumer preferences. Furthermore, a reduction in our investment
in product development may negatively affect not only our ability to generate innovative solutions, but also the in-
market success of any such products. Additionally, BRF employees working on innovation and research and
development may move to one of our competitors, which would compromise our ability to deliver new and innovative
products and may also result in our competitors gaining information we view as proprietary. To the extent that we are
not able to effectively gauge the direction of our key markets and successfully identify, develop, manufacture and
market new or improved products in these changing markets in a timely or cost-effective manner, our products, brands,
financial results and competitive position may suffer, which may have a material adverse effect on our business, results
of operations, financial condition and prospects.

We also seek to maintain and extend the image of our brands through marketing, including advertising and
consumer promotions. Due to inherent risks in the marketplace associated with advertising, promotions and new
product introductions, including uncertainties about trade and consumer acceptance, our marketing investments may
not prove successful in maintaining or increasing our market share. A continued global focus on health and wellness,
including weight management, increasing media attention on the role of food marketing and negative press coverage
about our quality controls and products, including in connection with the Carne Fraca Operation and Trapaça
Operation, may adversely affect our brand image or lead to stricter regulations and greater scrutiny of food marketing
practices.

Our success in maintaining, extending and expanding our brand image also depends on our ability to adapt
to a rapidly changing media environment, including increasing reliance on social media and online dissemination of
advertising campaigns. The growing use of social and digital media increases the speed and extent that information or
misinformation and opinions can be shared. Negative posts or comments about us, our brands or our products on social
or digital media could seriously damage our reputation and brand image. If we do not maintain or improve our brand
image, then our sales, financial condition and results of operations could be materially and adversely affected.

We may divest or acquire businesses or enter into joint ventures, which may divert management resources or prove
to be disruptive to our company.

We regularly review and pursue opportunities to rationalize our business through divestitures or expand by
means of acquisitions, joint ventures and other initiatives. We have completed several divestitures and acquisitions in
recent years. For additional details on certain of these transactions, see “Item 4. Information on the Company—A.
History and Development of the Company.” Divestments, acquisitions, new businesses and joint ventures, particularly
those involving sizeable businesses, may present financial, managerial, operational and compliance risks and
uncertainties, including:

•

challenges in realizing the anticipated benefits of the transaction;

difficulties with managing various macroeconomic variables and their impact on the business;

difficulties with managing commercial relationships in various countries;

diversion of management attention from existing businesses;

difficulties with integrating/carving-out personnel, especially to different managerial practices;

disruptions when integrating or carving out financial, technological and other systems;

•

difficulties identifying suitable candidate businesses or consummating a transaction on terms that are
favorable to us;

challenges in retaining an acquired company’s customers and key employees;

challenges related to the loss of key employees in connection with a divestment;

increased compensation expenses for newly-hired employees;

exposure to unforeseen liabilities or problems of the acquired companies or joint ventures;

• warranty claims and claims for damages which may be limited in content, timeframe and amount;

•

legal challenges, including claims for indemnification;

challenges arising from a lack of familiarity with new markets with differing commercial and social
norms and customs, which may adversely impact our strategic goals or require us to adapt our marketing
and sales model for specific countries;

compliance with foreign legal and regulatory systems;

difficulties in transferring capital to new jurisdictions; and

challenges receiving the necessary approvals from governments and international antitrust authorities.

We may be unable to realize the strategic benefits from our divestitures or acquisitions in the timeframe we
anticipate, or at all. In addition, we may be unable to identify, negotiate or finance future divestitures, acquisitions or
other strategic initiatives successfully or on favorable terms. Any future joint ventures or acquisitions of businesses,
technologies, services or products might require us to obtain additional equity or debt financing, which may not be
available on favorable terms, or at all. Future divestitures, acquisitions and joint ventures may also result in unforeseen
operating difficulties and expenditures, as well as strain our organizational culture.

Political and economic risks in regions and countries where we have exposure could limit the profitability of our
operations and our ability to execute our strategy in these regions.

Since we have business operations around the world, we are subject to a variety of risks that may adversely
affect our financial results. In the regions where we have production and distribution activities, we are subject, among
others, to the following risks:

•

governmental instability;

geopolitical risk and conflicts (including war, terrorism and civil unrest);

imposition of exchange or price controls;

imposition of restrictions on exports of our products or imports of raw materials necessary for our
production processes (including embargoes from countries where we have production and/or distribution
activities);

fluctuation of local currencies against the real;

nationalization of our property;

•

political influence by local governments in communities where we operate requiring investments or other
expenditures;

increases in export tax and income tax rates for our products; and

unilateral (governmental) institutional and contractual changes, including controls on investments and
limitations on new projects.

As a result of these factors, our results of operations and financial condition in the regions where we have
production and distribution activities may be adversely affected, and we may experience significant variability in our
revenue from those operations. For instance, it is unclear to us if the ongoing diplomatic crisis between Qatar and
other Arab countries may lead to measures, such as trade embargoes, that could ultimately impact our current
operations in Qatar and in the Middle East. In addition, the Brazilian government opened a business representation
office in Jerusalem in December 2019, which announcement earlier in 2019 had led to protests and unrest throughout
the Middle East, and apprehension among Brazilian exporters who fear possible retaliation or embargoes from Arab
countries on Brazilian exports. The impact of these changes on our ability to deliver on our planned projects and
execute our strategy cannot be ascertained with any degree of certainty, and these changes may, therefore, have an
adverse effect on our operations and financial results.

Deterioration of general economic and political conditions could negatively impact our business.

Our business may be adversely affected by changes in Brazilian and global economic and political conditions,

which may result in increased volatility in our markets and contribute to net losses.

Global economic downturns and related instability in the international financial system have had, and may
continue to have, a negative effect on economic growth in Brazil. Global economic downturns reduce the availability
of liquidity and credit to fund the continuation and expansion of our business operations worldwide. While Brazil
exports a diversified bundle of products to a variety of countries, a significant decline in the economic growth or
demand for imports of any of Brazil’s major trading partners, such as the European Union, China or the United States,
could have a material adverse impact on Brazil’s exports and balance of trade and adversely affect Brazil’s economic
growth.

Furthermore, because international investors’ reactions to the events occurring in one emerging market
country sometimes produce a “contagion” effect, in which an entire region or class of investment is disfavored by
international investors, Brazil could be adversely affected by negative economic or financial developments in other
countries. Such developments may affect the Brazilian economy in the future and, consequently, our results of
operations.

Uncertainty as to whether the Brazilian government will implement significant changes in public policy in
the future may contribute to economic uncertainty in Brazil and to heightened volatility in the Brazilian securities
markets and the securities issued by Brazilian companies. As a result, there may be high volatility in the domestic
financial markets in the short term, and economic recovery in the long term may be hindered. Accordingly,
improvements in the labor market and income growth may be limited, which could have an adverse effect on our
operations and financial results.

Furthermore, on June 23, 2016, the United Kingdom held an in-or-out referendum on the United Kingdom’s
membership within the European Union, the result of which favored the exit of the United Kingdom from the European
Union, or “Brexit.” The United Kingdom was initially expected to depart the European Union on March 29, 2019, but
on March 21, 2019, the European Union and the United Kingdom agreed to extend the deadline for Brexit. The
European Union and the United Kingdom agreed to a further extension on April 10, 2019. On January 2020, the United
Kingdom announced it had officially exited the European Union and entered a transition period. Brexit has caused
and may continue to cause political and economic uncertainty, including significant volatility in global stock markets
and currency exchange rate fluctuations. The effects of Brexit will depend on many factors, including any trade deals
that the United Kingdom makes to retain access to European Union markets. Brexit could lead to legal uncertainty
and potentially divergent national laws and regulations as the United Kingdom determines which European Union

laws to replace or replicate. If no trade deal is reached, there could be increased costs from re-imposition of tariffs on
trade between the United Kingdom and the European Union, shipping delays because of the need for customs
inspections and procedures, and temporary shortages of certain goods. In addition, trade and investment between the
United Kingdom, the European Union, Brazil and other countries will be impacted by the fact that the United Kingdom
currently operates under the European Union’s tax treaties. The United Kingdom will need to negotiate its own tax
and trade treaties with countries all over the world, which could take years to complete. The potential impact of Brexit
on our market share, sales, profitability and results of operations is unclear. Depending on the terms of Brexit,
economic conditions in the United Kingdom, the European Union and global markets may be adversely affected by
reduced growth and volatility. The uncertainty before, during and after the period of negotiation could also have a
negative economic impact and increase volatility in the markets, particularly in the Eurozone.

Pandemics or human disease outbreaks, such as the novel coronavirus (COVID-19 virus), may disrupt
consumption and trade patterns, supply chains and production processes, which could materially affect our
operations and results of operations.

Pandemics or human disease outbreaks, such as the novel coronavirus (COVID-19 virus) originating in China
in late 2019 and declared a global pandemic by the World Health Organization on March 11, 2020, may adversely
affect our business and operations.

While the extent and impact of the COVID-19 pandemic currently remains uncertain, it has already disrupted
consumption and trade patterns, supply chains and production processes at a global scale and specifically relating to
our business, including to the extent that anticipated product shipments may be substantially delayed either as a result
of further spread of the virus or as a result of precautionary measures implemented by governments or commercial
enterprises to limit the spread of the virus.

We continue to operate our plants, distribution centers, logistics, supply chain and administrative offices,
although currently we have implemented a partial remote work program in some of our corporate offices. Our
management has developed and implemented contingency plans to maintain the operations and monitors the effects
of the pandemic through a permanent multidisciplinary monitoring committee, formed by executives, specialists in
the public health area and consultants.

Customers from certain regions and channels in which we operate are being affected by COVID-19, mainly
by the measures of social distancing imposed by authorities. We believe that there will be an increase in general
customer default rates during the second quarter of 2020 and a consequent increase in expected credit losses. The
further deterioration in the credit cycle of our customers may adversely affect our results and cash flows in the future,
which we discuss in Note 36.2 to our consolidated financial statements.

Our operations include global production and distribution facilities, and if there is an outbreak of COVID-19
in our facilities or the communities where we operate and distribute our products, our production, operations,
employees, suppliers, customers and distribution channels could be severely impacted. Ports and other channels of
entry may be closed or operate at only a portion of capacity, as workers may be prohibited or otherwise unable to
report to work, and means of transporting products within regions or countries may be limited for the same reason,
along with the potential for transport restrictions related to quarantines or travel bans.

Such a pandemic could also have an adverse impact on consumer demand, as quarantines may inhibit
consumption, and restrictions on public gatherings or interactions may limit the opportunity for our customers and
consumers to purchase our products. The consequences of such a pandemic could also result in a widespread health
crisis that destabilizes commodity prices and the economies and financial markets of many countries, resulting in an
economic downturn that could affect demand for our products and have a material adverse effect on our results of
operations.

Our results of operations are subject to cyclicality and volatility affecting the prices of commodities, poultry and
pork, which could adversely affect our entire business.

Our business is largely dependent on the cost and supply of corn, soy meal, soybeans, hogs and other raw
materials, as well as the selling prices of our poultry and pork. These prices are determined by supply and demand,
which may fluctuate significantly, and other factors over which we have little or no control. These other factors
include, among others, fluctuations in local and global poultry and hog production levels, environmental and
conservation regulations, economic conditions, weather, animal and crop diseases, cost of international freight and
exchange rate and interest rate fluctuations. In addition, prices for our raw materials, including corn, soy meal and
soybeans, have been affected, and may continue to be affected, by the ongoing trade dispute between the U.S. and
China. It is unclear whether this trade dispute will be resolved and what effects it may have on global political and
economic conditions in the long term. Any changes in the price of raw materials required to produce our products as
a result of the foregoing or other factors could have a material impact on our business.

Our industry, both in Brazil and abroad, is generally characterized by cyclical periods of higher prices and
higher profitability, followed by overproduction, leading to periods of lower prices and lower profitability or losses.
There can be no assurance that we will be able to adequately adapt to any such cyclicality or volatility, which may
have an adverse effect on our operations and financial results.

Natural disasters or extreme weather, including floods, excessive cold or heat, hurricanes or other storms, as
well as any interruption at our plants that may require the temporary re-allocation of plant functions to other facilities
could, among other things, impair the health or growth of livestock or interfere with our operations due to power
outages, damage to our production and processing facilities or disruption in transportation channels or information
systems.

Our external market sales are subject to a broad range of risks associated with cross-border operations.

External market sales account for a significant portion of our global net sales, and represented 44.5% of our
net sales in 2019, 43.3% of our net sales in 2018 and 43.3% of our net sales in 2017. Our external market is reported
within our International business segment, which comprises Islamic markets (including Turkey, North of Africa, Gulf
Cooperation Council (GCC) and Malaysia), Asia, Europe, Eurasia, Africa and Americas, where we are subject to
many of the same risks described below in relation to Brazil. Furthermore, we may seek to expand sales of our products
to additional international markets. Our future financial performance depends, to a significant extent, on the economic,
political and social conditions in those regions as well as on our supply conditions.

Our future ability to conduct business operations in external markets could be adversely affected by factors

beyond our control, such as:

•

exchange rate and interest rate fluctuations and the impact of hyperinflation;

commodities price volatility;

deterioration in global economic conditions;

political risks, such as turmoil and instability, foreign exchange controls and uncertainty regarding
government policies;

decreases in demand, particularly from large markets such as China and Saudi Arabia;

imposition of increased tariffs, anti-dumping duties or other non-tariff trade barriers;

restrictions on international trade and financial flows imposed due to balance of payments deficits;

strikes or other events affecting ports and other transport facilities;

•

unpredictable international border closings that restrict products, materials and people;

compliance with differing foreign legal and regulatory regimes;

strikes, not only of our employees, but also of port employees, truck drivers, customs agents, sanitary
inspection agents and other government agents at the Brazilian ports from which we export several of
our products;

access to adequate infrastructure, which could be affected by flooding or similar events;

sabotage affecting our products; and

negative media exposure related to the Brazilian agriculture and/or meat processing industry, including
in connection with the Carne Fraca Operation, Trapaça Operation and/or other investigations.

We face significant competition from Brazilian and foreign producers, which could adversely affect our financial
performance.

We face strong competition from other Brazilian producers in both the domestic and external markets. In
addition, we compete with foreign producers in our external markets. The Brazilian market for whole poultry, poultry
and pork cuts is highly fragmented. Small producers, some of which operate in the informal economy, are able to
offer lower prices by meeting lower quality standards. With respect to exports, we compete with other large, vertically
integrated producers that have the ability to produce quality products at similarly low costs.

In addition, the size and growth potential of the Brazilian market for processed food, poultry, pork and beef
combined with Brazil’s low production costs are attractive to international competitors. Although the main barrier to
these companies entering the Brazilian market has been the need to build a comprehensive distribution network,
including a network of outgrowers (outsourced farmers), foreign competitors with significant resources could
undertake to build and/or acquire such capabilities.

The Brazilian poultry and pork cuts markets, in particular, are highly price-competitive and sensitive to
product substitution. Even if we remain a low-cost producer, with strong brands, consumers may choose to purchase
other products or brands. We expect to continue to face strong competition in all of our markets and anticipate that
existing or new competitors may broaden their product lines and extend their geographic scope. Any delay or failure
by us in responding to product, pricing and other strategies by competitors may negatively affect our financial
performance.

Increased regulation of food safety and animal welfare could increase our costs and adversely affect our results of
operations.

Our manufacturing facilities and products are subject to governmental inspections and extensive regulation
in the food safety area, including governmental food processing controls in all countries in which we operate. We
incur significant costs in connection with our efforts to comply with applicable food safety and processing rules.
Changes in government regulations relating to food safety or animal welfare could require us to make additional
investments or incur additional costs to meet the necessary specifications for our products. Our products are often
inspected outside of Brazil by foreign food safety officials, and any failure to pass those inspections could result in us
being required to return all or part of a shipment to Brazil, recall certain products, dispose of all or part of a shipment
or incur costs because of delays in delivering products to our customers. Although Brazil currently has limited
regulations regarding animal welfare, we have adopted various international animal welfare standards to address our
customers’ expectations. Any tightening of food safety or animal welfare regulations could result in increased costs
and could have a material adverse effect on our business, results of operations, financial condition and prospects.

Our performance depends on favorable labor relations with our employees, our compliance with labor laws and
the safety of our facilities. Any deterioration of those relations, increases in labor costs or injuries at our facilities
could adversely affect our business.

As of December 31, 2019, we had approximately 93,000 employees worldwide. Our production employees
in Brazil and in countries where organized labor is prevalent are generally represented by labor unions. Upon the
expiration of existing collective bargaining agreements or other collective labor agreements, we may be unable to
reach new agreements with the labor unions and any such agreements may not be on terms satisfactory to us, which
could result in higher payments of wages or benefits to union workers. Additionally, if we are unable to negotiate
acceptable union agreements, we may become subject to work stoppages or strikes.

Labor costs are among our most significant expenditures. Such costs represented approximately 14.3% of
our cost of sales in 2019. In the event of a review of our employee contract structure, additional operational expenses
could be incurred. Additionally, in the ordinary course of business, we outsource some of our labor force, which
subjects us to claims that may arise from these relationships, including claims directly against us as if we were the
direct employer of the outsourced workers. In the event that a significant amount of these claims result in an
unfavorable outcome against us, we may be held liable for amounts higher than our provisions, which may have a
material adverse effect on our business, financial and operational condition and results of operations. In addition, if
the outsourced activities are deemed by the authorities to be core activities, outsourcing may be considered illegal and
the outsourced workers may be considered our employees, which would result in a significant increase in our costs
and could subject us to administrative and judicial procedures by the relevant authorities and fines. We are also subject
to increases in our labor costs due to Brazilian inflation and increases in health insurance costs. Material increases in
our labor costs could have a material adverse effect on our business, results of operations and financial condition and
prospects.

In addition, we face risks related to the safety of our facilities. If we fail to implement safety procedures or if
the procedures we implement are ineffective or are not followed by our employees or others, our employees and others
may be injured, which could result in costs for the injuries and lost productivity. Any of the foregoing could have an
adverse impact on our business, results of operations and reputation.

Environmental laws and regulations require increased expenditures for compliance.

We, like other Brazilian food producers, are subject to extensive Brazilian federal, state and local
environmental laws, regulations, authorizations and licenses concerning, among other things, the interference with
protected areas, such as conservation units, archeological areas and permanent preservation areas, handling and
disposal of waste, discharges of pollutants into the air, water and soil, atmospheric emissions, noise and clean-up of
contamination, all of which affect our business. Water management is especially crucial and poses many challenges
to our operations. In Brazil, water use regulations impact farming operations, industrial production and hydroelectric
power. Any failure to comply with any of these laws or regulations or any lack of authorizations or licenses could
result in administrative and criminal penalties, such as fines, cancellation of authorizations or revocation of licenses,
in addition to negative publicity and civil liability for remediation or compensation for environmental damage without
any caps. Civil penalties may include summons, fines, temporary or permanent bans, the suspension of subsidies by
public bodies and the temporary or permanent shutdown of commercial activities. Criminal penalties include fines,
temporary loss of rights and prison (for individual offenders) and liquidation, temporary loss of rights, fines and
community service (for legal entities). Additionally, pursuant to Brazilian environmental laws, the corporate veil will
be pierced (such that the stockholders of a company will be held liable for its debts) if necessary to guarantee the
payment of costs related to the recovery of environmental damage whenever the corporate veil is deemed by a court
to be an obstacle to obtaining compensation for environmental damage.

We have incurred, and will continue to incur, operating expenses and capital expenditure requirements to
comply with these laws and regulations. Because of the possibility of unanticipated regulatory measures or other
developments, particularly as environmental laws become more stringent in Brazil, the amount and timing of future
expenditures required to maintain compliance may increase from current levels and may adversely affect the
availability of funds for capital expenditures and other priorities. Compliance with existing or new environmental laws
and regulations, as well as obligations in agreements with public entities, may result in increased costs and expenses.

Our plants are subject to environmental and operational licensing based on their pollution potential and use
of natural resources. If one of our plants is built or expanded without an environmental license, or if our environmental
licenses expire, are not timely renewed or have their request for renewal rejected by the competent environmental
authority, we may incur fines and other administrative penalties, such as suspension of operations or closing of the
facilities in question. Those same penalties may also be applicable in the case of a failure to fulfill the conditions of
validity in the environmental licenses already held by us. Furthermore, we cannot operate a plant if the required
environmental permit is not valid or updated. Currently, some of our environmental licenses are in the renewal process,
and we cannot guarantee that environmental agencies will approve our renewal requests. Brazilian CONAMA
(“Conselho Nacional do Meio Ambiente”) Resolution 237 establishes that renewal of environmental licenses must be
requested at least 120 days in advance of their expiration, so that the licenses may be automatically extended until a
final decision from the environmental authority is reached. In addition, the environmental agency may condition the
renewal on expensive facility upgrades if there have been regulatory changes in the environmental standards that the
plant is required to meet, which may result in delays, disruptions or in the denial of the license.

We are also subject to similar environmental laws and restrictions in all jurisdictions where we have plants

and operations, which may require us to incur significant costs.

Unfavorable outcomes in administrative and legal proceedings may reduce our liquidity and negatively affect us.

We are defendants in civil and other proceedings (including administrative, regulatory and environmental),
labor and tax proceedings and are also subject to consent agreements (Termo de Ajustamento de Conduta, or “TAC”).
Unfavorable decisions in our legal proceedings may reduce our liquidity and have a material adverse impact on our
business, results of operations, financial condition and prospects.

With regard to tax contingencies, we are currently defendants in a number of cases, which include, for
example, disputes regarding the offset of tax credits and the use of tax incentives in several states that have not yet
reached a final ruling in the Brazilian courts. In addition, we may face risks arising from potential impairment of input
state VAT that we accumulate on exports.

As of December 31, 2019, we had R$1,794,369 thousand in provisions for contingencies, of which
R$307,177 thousand was for civil and other contingencies (including administrative, regulatory and environmental),
R$583,464 thousand was for tax contingencies, R$603,074 thousand was for labor contingencies and R$300,654
thousand was for contingent liabilities arising from business combinations.

We are also currently being investigated in the Carne Fraca Operation and Trapaça Operation, which may
result in penalties, fines and sanctions from governmental authorities or other forms of liability. For more information
about the “Carne Fraca Operation” and “Trapaça Operation” see “Item 8. Financial Information—A. Consolidated
Statements and Other Financial Information—Legal Proceedings—Carne Fraca Operation” and “Item 8. Financial
Information—A. Consolidated Statements and Other Financial Information—Legal Proceedings—Trapaça
Operation.” Any investigation from governmental authorities currently unknown to us with respect to any potentially
unlawful business practice may also result in penalties, fines and sanctions or other forms of liability.

On March 12, 2018, a shareholder class action lawsuit was filed against us, some of our former managers
and a current officer of ours in the U.S. Federal District Court in the Southern District of New York. On July 2, 2018,
the Court appointed the City of Birmingham Retirement and Relief System lead plaintiff in the action (the “Lead
Plaintiff”). On December 5, 2018, the Lead Plaintiff filed an amended complaint that sought to represent all persons
and entities who purchased or otherwise acquired BRF ADRs during the period from April 4, 2013, through and
including March 2, 2018. The class action alleges, among other things, that BRF and certain of its officers and/or
directors engaged in securities fraud or other unlawful business practices related to the regulatory issues in connection
with the Carne Fraca Operation and Trapaça Operation. On December 13, 2019, we and the other defendants filed a
motion to dismiss. On January 21, 2020, the Lead Plaintiff filed an opposition motion and, on February 11, 2020, we
and the other defendants filed our response. While the court’s decision on the motion to dismiss was still pending, the
parties reached an agreement on March 27, 2020 to settle this class action for an amount equivalent to R$204.44
million (U.S.$40 million), subject to definitive documentation and court approval.

In addition, in 2019 we received two final and unappealable judicial decisions regarding the exclusion of
ICMS from the tax basis of the social contributions of PIS and COFINS, which permitted us to recognize a significant
amount of recoverable taxes, which are described in Note 9.2 to our consolidated financial statements. For a number
of procedural reasons involved in finalizing the settlements for these judgments, it could take an extended period of
time for us to receive these amounts, either as compensation or through obtaining a court ordered financial obligation
(precatório).

In March 2020, three confidential arbitration proceedings were brought against us in the B3’s Market
Arbitration Chamber (Câmara de Arbitragem do Mercado) in Brazil by investors that had purchased our shares traded
on the B3, seeking recovery from alleged losses incurred by them, due to the price fall of our shares, during the period
starting from April 4, 2013 and afterwards. Because these three arbitration proceedings are in their initial stages, we
believe the possible loss or range of losses, if any, arising from these arbitrations cannot be estimated. In the event
that these litigation or arbitration proceedings are decided against us, or we enter into an agreement to settle, there can
be no assurance that an unfavorable outcome would not have a material impact on us.

Our inability or failure to protect our intellectual property and any intellectual property infringement against us
could have a negative impact on our operating results.

Our principal intellectual property consists of our domestic and international brands. Our ability to compete
effectively depends in part on our rights to trademarks, logos and other intellectual property rights we own or license.
We have not sought to register or protect every one of our trademarks in every country in which they are or may be
used, which means that third parties may be able to limit or challenge our trademark rights there. Furthermore, because
of the differences in foreign intellectual property or proprietary rights laws, we may not receive the same level of legal
protection in every country in which we operate. Litigation may be necessary to enforce our intellectual property
rights, and if we do not prevail, we could suffer a material adverse impact on our business, goodwill, financial position,
results of operations and cash flows. Further, third parties may allege that our intellectual property and/or business
activities infringe their own intellectual property or proprietary rights, and any litigation in this regard would be costly,
regardless of the merits. If we are unsuccessful in defending any such third-party claims, or settling such claims, we
could be required to pay damages and/or enter into license agreements, which might not be available under favorable
terms. We may also be forced to rebrand or redesign our products to avoid the infringement, which could result in
significant costs in certain markets. If we are found to infringe on any third party’s intellectual property, we could
suffer a material adverse impact on our reputation, business, financial position, results of operations and cash flows.

We are vulnerable to third party transportation and logistics risks, and we rely on a limited number of available
third party suppliers to deliver certain specialized materials that we require for our production activities.

We depend on fast and efficient transportation and logistics services to, among other things, deliver raw
materials to our production facilities, deliver animal feed to our poultry and pork growers and distribute our products.
Any prolonged disruption of these services may have a material adverse impact on our business, financial condition
and results of operations. For example, on May 21, 2018, a national truckers’ strike commenced in Brazil regarding
increases in fuel prices. The strike materially disrupted the supply chain of various industries across the country,
including the supply chain of raw materials to our production facilities and the delivery of animal feed to our poultry
and pork growers, and, at its peak, led to the suspension of the operation of all of our production facilities located in
Brazil. Furthermore, this strike also materially affected the regular functioning of the ports from where our products
are exported. We incurred increased costs in connection with the truckers’ strike and also were required to dispose of
certain animals as a result of the strike. There can be no assurance that the truckers will not seek to engage in any
further strikes, that the Brazilian federal government or any other relevant party will be able to meet the demands of
the truckers in a satisfactory manner or that any such strike will not adversely affect our supply chain or the operation
of our production facilities. In addition, any other reduction in the dependability or availability of transportation or
logistics services or a significant increase in transportation service rates, including as a result of, among other things,
flooding in ports, warehouse fires or labor strikes, could impair our ability to satisfy our supply chain requirements
and deliver our products economically to our customers. Any such disruption to the transportation or logistics services
that we depend on could have a material adverse impact on our results of operations and financial condition.

In addition, some of our production activities require specialized materials that we acquire from a limited
number of available third party suppliers. For example, we rely on purchases of genetic material used in our livestock

breeding programs from a very small number of livestock genetics companies. If any of these suppliers is not able to
supply the materials in the quantity and at the frequency that we normally acquire them, and we are not able to replace
the supplier on acceptable terms or at all, we may be unable to maintain our usual level of production and sales in the
affected category of product, which may have a material adverse effect on our business and operations and,
consequently, on our results of operations.

Damages not covered by our insurance policies might result in losses for us, which could have an adverse effect
on our business.

Certain kinds of losses cannot be insured against via third-party insurance, and our insurance policies are
subject to liability limits and exclusions. For example, political risks, environmental and climate events, fraud, strike,
product recalls, fines and penalties, terrorism, the livestock itself, ammonia leakage, financial risks such decrease in
stock prices, cybersecurity risks, sabotage, industrial espionage, natural disasters or other catastrophic events may
cause damage or disruption to our operations, international commerce and the global economy, and thus could have a
material adverse effect on us. Additionally, we are exposed to certain product quality risks, such as criminal
contamination, avian influenza, salmonella and other livestock diseases that can impact our operations and which are
not covered under insurance. If an event that cannot be insured occurs, or the damages are higher than our policy
limits, we may incur significant costs. In addition, we could be required to indemnify parties affected by such an event.
Furthermore, even where we incur losses that are ultimately covered by insurance, we may incur additional expenses
to mitigate the loss, such as shifting production to different facilities. These costs may not be fully covered by our
insurance.

From time to time, our facilities may be affected by fires, such as the fires in our facilities in Chapecó, State
of Santa Catarina and Paranaguá, State of Paraná that occurred in 2016, in Lajeado, State of Rio Grande do Sul in
2017 and in Arroio do Meio, State of Rio Grande do Sul in 2019, and by flooding such as the flooding in our facility
in Bandirma/Turkey in 2018, as well as by electrical damages or explosion in substations, or widespread truck driver
strikes. Our business interruption insurance may not cover all of our direct and indirect costs and intangible costs in
connection with disruptions to our operations. For example, the negative impacts on our business from the 2018
Brazilian truckers’ strike, including the suspension of operations at our production facilities and increased
transportation and logistics costs, were not covered by any of our insurance policies. Any similar events in the future
could have a material adverse impact on our business, results of operations, financial condition and prospects.

Moreover, our insurance policies may not cover legal costs in general incurred to defend the company against
legal and administrative proceedings. We have incurred, and expect to continue to incur, significant costs in connection
with the Carne Fraca Operation, the Trapaça Operation and the shareholder class action filed on March 12, 2018.
The costs associated with these investigations and the costs of defending the class action may not be covered by our
insurance policies. Furthermore, there can be no assurance that we will be able to obtain insurance coverage in the
future, related to the foregoing or any other matters, on terms acceptable to us. As a result, we may incur significant
additional expenses which may adversely impact our financial condition and results of operations.

We depend on members of our senior management and on our ability to recruit and retain qualified professionals
to implement our strategy.

We depend on members of our senior management and other qualified professionals to implement our
business strategies. Efforts to recruit and retain professionals may result in significant additional expenses, which
could adversely affect our results. In addition, loss of key professionals may adversely affect our ability to implement
our strategy, as well as expenses associated to these losses can impact our results. In 2017 and 2018, we experienced
a significant number of departures of senior management, including two of our previous CEOs, our CFO, our Chief
Human Resources Officer (“CHRO”), our Brazil General Manager and our Vice President of Operations. In addition,
on March 5, 2018, we called an Ordinary and Extraordinary Shareholders’ Meeting (the “Ordinary and Extraordinary
General Meeting”), which was held on April 26, 2018, at the request of two of our shareholders, Caixa de Previdência
dos Funcionários do Banco do Brasil, or “PREVI,” and Fundação Petrobras de Seguridade Social, or “PETROS,”
which jointly hold approximately 20% of our capital stock. At the Ordinary and Extraordinary General Meeting, the
number of members of our board of directors was set at 10 members, new members were elected to the board of
directors and the Chairman and Vice-Chairman of the board of directors were elected. Only four of the ten board
members elected during the Ordinary and Extraordinary General Meeting were previously members of our board of

directors. Furthermore, pursuant to Novo Mercado rules, we expected Mr. Pedro Pullen Parente’s term as Chief
Executive Officer to end on or before June 18, 2019, as he was only permitted to hold the positions of Chairman of
the Board of Directors and Chief Executive Officer at the same time for a period of one year. In connection with the
end of Mr. Parente’s term as Chief Executive Officer, on March 28, 2019, the Company appointed Mr. Lorival
Nogueira Luz Júnior, the Company’s Chief Operating Officer at the time, as Chief Executive Officer, and he began
his term on June 18, 2019. On January 31, 2019, we appointed Mr. Ivan de Souza Monteiro as Chief Financial Officer,
who took office on March 11, 2019 and remained in the position until April 25, 2019. As a result of Mr. Monteiro’s
departure, Mr. Lorival Nogueira Luz Júnior was temporarily our acting Chief Financial Officer, and on August 13,
2019, we appointed Mr. Carlos Alberto Bezerra de Moura as the new Chief Financial Officer, who took office on
September 16, 2019. These changes, and other potential changes, in the composition of our senior management team
and our board of directors may result in modifications to our business strategy and have a material adverse effect on
us.

Breaches, disruptions, or failures of our information technology systems, including as a result of cybersecurity
attacks, could disrupt our operations and negatively impact our business and reputation.

Information technology is an important part of our business operations and we increasingly rely on
information technology systems to manage business data and improve the efficiency of our production and distribution
facilities and inventory management processes. We also use information technology to process financial information
and results of operations for internal reporting purposes and to comply with regulatory, legal and tax requirements. In
addition, we depend on information technology for digital marketing and electronic communications between our
facilities, personnel, customers and suppliers. We also process personal data of our employees and customers. We
depend on cryptography technology and electronic authentication programs provided by third parties to securely
process the collection, storage and transmission of confidential information, including personal data.

Our information technology systems may be vulnerable to a variety of interruptions and cybersecurity threats
and incidents. There are numerous and evolving risks related to cybersecurity and privacy, including criminal hackers,
hacktivists, state-sponsored intrusions, industrial espionage, employee malfeasance and human or technological error.
Computer hackers and others routinely attempt to breach the security of information technology systems and to
fraudulently induce employees, customers and other third parties to disclose information or unwittingly provide access
to systems or data. Successful cybersecurity attacks, breaches, employee malfeasance, or human or technological error
may result in, for example, unauthorized access to, disclosure, modification, misuse, loss or destruction of data or
systems, including those belonging to us, our customers or third parties; theft of sensitive, regulated or confidential
data including personal information; the loss of access to critical data or systems through ransomware, destructive
attacks or other means; transaction errors; business delays; and service or system disruptions. In the event of such
actions, we, our customers and other third parties may be exposed to potential liability, litigation, and regulatory or
other government action, the loss of existing or potential customers, loss of sales, damage to brand and reputation and
other financial loss. In addition, if we are unable to prevent security breaches, we may suffer financial and reputational
damage or penalties because of the unauthorized disclosure of confidential information belonging to us or to our
partners, customers, consumers or suppliers. The cost and operational consequences of responding to cybersecurity
incidents and implementing remediation measures may be significant and may not be covered by insurance. Our
cybersecurity risk also depends on factors such as the actions, practices and investments of customers, contractors,
business partners, vendors and other third parties.

Our efforts to monitor, identify, investigate, respond to and remediate security incidents, including those
associated with cybersecurity attacks, may not be adequate or sufficient. The measures that we have implemented
regarding technology security and disaster recovery plan may not be adequate or sufficient. There can be no assurance
that these efforts and measures will be successful in preventing a cybersecurity attack, a general information security
incident or a disruption of our information technology systems. The occurrence of any such events may materially
adversely affect our operations, business and reputation. Furthermore, as our business and the cybersecurity landscape
evolve, we may find it necessary to make significant further investments to protect our data and information
technology infrastructure, which may adversely impact our financial condition and results of operations.

The regulatory environment with regard to cybersecurity, privacy and data protection issues is increasingly
complex and may have impacts on our business, including increased risk, costs and expanded compliance obligations.
For example, on May 25, 2018, the Regulation (EU) 2016/679 of the European Parliament and of the Council of April

27, 2016 on the protection of natural persons with regard to the processing of personal data and on the free movement
of such data (the “General Data Protection Regulation” or “GDPR”) became directly applicable in all member states
of the European Union. Violations of the GDPR carry financial risks due to penalties for data breach or improper
processing of personal data (including a possible fine of up to 4% of total worldwide annual turnover for the preceding
financial year for the most serious infringements) and may also adversely affect our reputation and our activities
relying on personal data processing. The Brazil General Data Privacy Law (Lei Geral de Proteção de Dados Pessoais),
which was signed into law in August 2018 and will become effective in August 2020, and an increased number of
data protection laws around the globe may continue to result in increased compliance costs and risks. See “—We are
subject to risks associated with failure to comply with the data protection laws, and we may be negatively affected by
the imposition of fines and other types of sanctions.” The potential costs of compliance with or imposed by new or
existing regulations and policies that are applicable to us may affect our business and could have a material adverse
effect on our results of operations.

We are subject to risks associated with failure to comply with the data protection laws, and we may be negatively
affected by the imposition of fines and other types of sanctions.

Law No. 13,709/2018, or the Brazilian General Data Protection Law, will come into force and take effect in
August 2020 and will change the way the protection of personal data is regulated in Brazil. The Brazilian General
Data Protection Law establishes a new legal framework to be observed in personal data processing operations and
provides, among other things, for the rights of the owners of personal data, the legal bases applicable to the protection
of personal data, the requirements for obtaining consent, obligations, requirements regarding security incidents, leaks
and data transfers, as well as authorization for the creation of the Brazilian National Data Protection Authority.

If we do not comply with the Brazilian General Data Protection Law, both we and our subsidiaries may be
subject to sanctions, either individually or cumulatively, including warnings, obligations to disclose incidents,
temporary blocking and/or deletion of personal data, and penalties of up to 2% of our revenue or the revenue of our
group or our conglomerate in Brazil in the last year, excluding taxes, up to a total amount of R$50 million per
infraction. In addition, we may be held liable for material, moral, individual or collective damages caused by us, and
may be held jointly and severally liable for material, moral, individual or collective damages caused by our
subsidiaries, on account of failure to comply with the obligations set forth by the Brazilian General Data Protection
Law.

Therefore, the failure to protect personal data processed by us and our subsidiaries, as well as the failure to
adjust to the applicable legislation, may result in significant fines for us and our subsidiaries, disclosure of any
incidents in the media, the deletion of personal data from our database, and even the suspension of our activities,
which could adversely affect our reputation, business, results of operations and financial condition.

Risks Relating to Our Indebtedness

We have substantial indebtedness, and our leverage could negatively affect our ability to refinance our indebtedness
and grow our business.

At December 31, 2019, our total consolidated loans and borrowings was R$18.6 billion.

Our substantial indebtedness could have major consequences for us, including:

•

requiring that a substantial portion of our cash flows from operations be used for the payment of principal
and interest on our debt, reducing the funds available for our operations, capital expenditures or other
capital needs;

limiting our flexibility in planning for, or reacting to, changes in our business and the industry in which
we operate because our available cash flow after paying principal and interest on our debt might not be
sufficient to make the capital and other expenditures necessary to address these changes;

•

increasing our vulnerability to general adverse economic and industry conditions because, during periods
in which we experience lower earnings and cash flows, we would be required to devote a proportionally
greater amount of our cash flows to paying principal and interest on debt;

limiting our ability to obtain additional financing in the future to fund working capital, capital
expenditures, acquisitions and general corporate requirements;

increasing our expenditures due to depreciations of the Brazilian real, which can lead to an increased
amount of capital needed to service indebtedness that are denominated in U.S. dollars;

• making it difficult for us to refinance our indebtedness or to refinance such indebtedness on terms

favorable to us, including with respect to existing accounts receivable securitizations;

•

placing us at a competitive disadvantage compared to competitors that are relatively less leveraged and
that may be better positioned to withstand economic downturns; and

•

exposing our current and future borrowings made at floating interest rates to increases in interest rates.

In view of our current credit metrics and according to the policies and guidelines set by ratings agencies in
order to evaluate a company’s creditworthiness, as well as other factors, our credit rating has been recently
downgraded, and we are currently rated below “investment grade” by all the rating agencies that rate us.

We have substantial debt that matures in each of the next several years.

As of December 31, 2019, we had R$3.1 billion of debt that matures in 2020, R$1.9 billion of debt that
matures in 2021, R$2.1 billion of debt that matures in 2022, R$2.4 billion of debt that matures in 2023 and R$9.0
billion of debt that matures in 2024 and thereafter.

A substantial portion of our outstanding debt is denominated in foreign currencies, primarily U.S. dollars. As
of December 31, 2019, we had R$11.0 billion of foreign currency debt, including R$0.3 billion of short-term foreign
currency debt. Our U.S. dollar-denominated debt must be serviced by funds generated from sales by our subsidiaries,
the majority of which are not denominated in U.S. dollars. Consequently, when we do not generate sufficient U.S.
dollar revenues to cover that debt service, we must use revenues generated in reais or other currencies to service our
U.S. dollar-denominated debt. Depreciation in the value of the real or any of the other currencies of the countries in
which we operate, compared to the U.S. dollar, could adversely affect our ability to service our debt. Foreign currency
hedge agreements may not be effective in covering these currency-related risks.

Any future uncertainty in the stock and credit markets could also negatively impact our ability to access
additional short-term and long-term financing, which could negatively impact our liquidity and financial condition.
If, in future years:

•

the pressures on credit return as a result of disruptions in the global stock and credit markets;

our operating results worsen significantly;

• we are unable to complete any necessary divestitures of non-core assets and our cash flow or capital

resources prove inadequate; or

• we are unable to refinance any of our debt that becomes due, we could face liquidity problems and may
not be able to pay our outstanding debt when due, which could have a material adverse effect on our
consolidated business and financial condition.

The terms of our indebtedness impose significant restrictions on us.

The instruments governing our consolidated indebtedness impose significant restrictions on us. These

restrictions may limit, directly or indirectly, our ability, among other things, to undertake the following actions:

•

borrow money;

• make investments;

•

sell assets, including capital stock of subsidiaries;

guarantee indebtedness;

enter into agreements that restrict dividends or other distributions from certain subsidiaries;

enter into transactions with affiliates;

create or assume liens; and

engage in mergers or consolidations.

The breach of any of the covenants to which we are subject could result in a payment default under the terms
of other existing debt obligations. Upon the occurrence of such an event of default, all amounts outstanding under the
applicable debt instruments and the debt issued under other debt instruments containing cross-default or cross-
acceleration provisions, together with accrued and unpaid interest, if any, might become or be declared immediately
due and payable. If such indebtedness were to be accelerated, we may have insufficient funds to repay in full any such
indebtedness. In addition, in connection with the entry into new financings or amendments to existing financing
arrangements, our subsidiaries’ financial and operational flexibility may be further reduced as a result of the imposition
of covenants that are more restrictive, the requirements for additional security and other terms.

Risks Relating to Brazil

Brazilian economic, political and other conditions, and Brazilian government policies or actions in response to
these conditions, may negatively affect our business, results of operations and the market prices of our common
shares and the ADRs.

The Brazilian economy has historically been characterized by interventions by the Brazilian government and
unstable economic cycles. The Brazilian government has often changed monetary, price controls, taxation, credit,
tariff and other policies to influence the course of Brazil’s economy. Our business, results of operations, financial
condition and prospects as well as the market prices of our common shares and the ADRs may be adversely affected
by, among others, the following factors:

•

exchange rate fluctuations;

expansion or contraction of the Brazilian economy;

inflation rate fluctuations;

changes in fiscal or monetary policies;

commodities price volatility;

increases in interest rates;

•

exchange controls and restrictions on remittances abroad;

volatility and liquidity of domestic capital and credit markets;

natural disasters and changes in climate or weather patterns;

energy or water shortages or rationing;

changes in environmental regulation;

social and political instability, particularly in light of recent protests against the government;

strikes, not only of our employees, but also of port employees, truck drivers, other transport facilities,
customs agents, sanitary inspection agents and other government agents; and

other economic, political, diplomatic and social developments in or affecting Brazil, including with
respect to alleged unethical or illegal conduct of certain figures in the Brazilian government and
legislators, which are currently under investigation.

Following a two-year contraction of 3.5% in GDP both in 2015 and 2016, the Brazilian economy posted
moderate increases of 1.0% and 1.1% in 2017 and 2018, respectively, and again of 1.1% in 2019. Inflation, measured
by the Extended National Consumer Price Index (Índice Nacional de Preços ao Consumidor Amplo, or “IPCA”)
published by the Brazilian Institute of Geography and Statistics (Instituto Brasileiro de Geografia e Estatística, or
“IBGE”), increased to 4.31% in 2019, from 2.95% and 3.75% in 2017 and 2018, respectively. Interest rates decreased
to 4.5% in 2019, from 6.5% in 2018 and 7.00% in 2017. Unemployment had a slight improvement from 12.7% in
2017 to 12.3% in 2018 and to 11.9% in 2019, according to the National Household Sample Survey (Pesquisa Nacional
por Amostra de Domicílio) published by the IBGE.

In addition, various investigations into allegations of money laundering and corruption being conducted by
the Office of the Brazilian Federal Prosecutor, including the largest such investigation, known as the “Lava Jato
Operation,” have indirectly negatively impacted the Brazilian economy and political environment and are still
ongoing.

A number of senior politicians, including current and former members of Congress and the Executive Branch,
and high-ranking executive officers of major corporations and state-owned companies in Brazil were arrested,
convicted of various charges relating to corruption, entered into plea agreements with federal prosecutors and/or have
resigned or been removed from their positions as a result of these Lava Jato investigations. These individuals are
alleged to have accepted bribes by means of kickbacks on contracts granted by the government to several
infrastructure, oil and gas and construction companies. The profits of these kickbacks, which were not publicly
disclosed, allegedly financed the political campaigns of political parties forming the previous government’s coalition
that was led by former President Dilma Rousseff. These funds were also allegedly used for the personal enrichment
of certain individuals. The effects of Lava Jato as well as other ongoing corruption-related investigations resulted in
an adverse impact on the image and reputation of those companies that have been implicated as well as on the general
market perception of the Brazilian economy, political environment and the Brazilian capital markets. We have no
control over, and cannot predict, whether such investigations or allegations will lead to further political and economic
instability or whether new allegations against government officials will arise in the future.

Amidst this background of political uncertainty, in August 2016, the Brazilian Senate approved the removal
from office of Brazil’s then-president, Ms. Dilma Rousseff, following a legal and administrative impeachment process
for infringement of budgetary laws. Mr. Michel Temer, the former vice president, who assumed the presidency of
Brazil following Rousseff’s ouster, was first arrested on March 2019, having been convicted of the crimes of cartel
involvement, active and passive corruption, money laundering and public auction fraud. He was released and arrested
again four days later, in May 2019, and then released once again six days later. He continues to be under several
investigation on corruption allegations. In addition, the former president, Mr. Luiz Inácio Lula da Silva, began serving
a 12-year prison sentence on corruption and money laundering charges in April 2018, but he was released from prison

in November 2019 following a Federal Supreme Court ruling. Mr. da Silva still faces pending charges and could return
to prison if found guilty once all appeals are exhausted. A strong opposition figure, Mr. da Silva’s release from prison
could further deepen political tensions in Brazil.

The new Brazilian president, Mr. Jair Bolsonaro, a former member of the military and three-decade
congressman, was elected on October 28, 2018 and took office on January 1, 2019. During his presidential campaign,
the new Brazilian president was reported to favor the privatization of state-owned companies, economic liberalization
and social security and tax reforms. However, there is no guarantee that Mr. Bolsonaro will be successful in executing
his campaign promises or passing certain favored reforms fully or at all. In addition, the current minister of the
economy proposed during the presidential campaign the revocation of the income tax exemption for the payment of
dividends, which, if enacted, would increase the tax expenses associated with any dividend or distribution by Brazilian
companies. This could impact our ability to receive, from our subsidiaries, future cash dividends or distributions net
of taxes and also our ability to make distributions to our shareholders net of taxes, which could have a material adverse
effect on our results of operations.

Moreover, Mr. Bolsonaro was generally a polarizing figure during his campaign for presidency, particularly
in relation to certain of his social views, and we cannot predict the ways in which a divided electorate may continue
to impact his presidency and ability to implement policies and reforms, all of which could have a negative impact on
our business and the price of our common shares and ADRs.

In November 2019, the Brazilian government passed a pension reform after almost nine months of
negotiations with Congress. In addition, the Brazilian federal government is expected to propose the general terms of
a fiscal reform to stimulate the economy and reduce the forecasted budget deficit for 2020, but it is uncertain whether
the Brazilian government will be able to gather the required support in the Brazilian Congress to pass such reforms.
As of the date of this annual report, many of the proposed public expenses in Brazil’s budget have been maintained
and it is not clear whether other expenses will be reduced or entirely eliminated. If some or all of these public expenses
are maintained, Brazil will continue to run a budget deficit for 2020 and the years going forward. We cannot predict
the effects of this budget deficit on the Brazilian economy. The political and economic instability in 2019 has
negatively affected consumer confidence in Brazil. The Fundação Getúlio Vargas (“FGV”) Consumer index presented
a 1.4 points decrease, from 93 points in 2018 to 91.6 points in 2019.

We cannot predict which policies the Brazilian federal government may adopt or change or the effect that
any such policies might have on our business or on the Brazilian economy. Any such new policies or changes to
current policies may have a material adverse impact on our business, results of operations, financial condition and
prospects. Worsening political and economic conditions in Brazil may increase production and supply chain costs and
adversely affect our results of operations and financial condition. Uncertainty as to whether the Brazilian government
will implement changes in policies or regulations affecting these or other factors in the future may contribute to
economic uncertainty in Brazil and to heightened volatility in our production operations.

Inflation and government measures to curb inflation may adversely affect the Brazilian economy, the Brazilian
securities market, our business and operations, financial condition and the market prices of our common shares
and the ADRs.

Brazil has experienced high inflation rates in the past, while recent downward inflationary pressures caused
the Brazilian consumer price inflation rates to reach 2.95% in 2017, 3.75% in 2018 and 4.31% in 2019, according to
the IPCA, published by the IBGE. See “Item. 5. Operating and Financial Review and Prospects—A. Operating
Results—Principal Factors Affecting Our Results of Operations—Brazilian and Global Economic Conditions” and
“—Effects of Exchange Rate Variations and Inflation.”

Although inflation levels have been relatively stable in 2017, 2018 and 2019, there can be no assurance that
inflation rates will not rise in the near future. Periods of higher inflation slow the growth rate of the Brazilian economy,
which may lead to lower growth in consumption of food products. High inflation also puts pressure on industry costs
of production and expenses, which may force companies to search for innovative solutions in order to remain
competitive. We may not be able to pass any such increase in costs onto our customers and, as a result, it may adversely
impact our results of operations and financial condition. In addition, high inflation generally leads to higher domestic
interest rates, and, as a result, the costs of servicing our debt may increase. Furthermore, inflation and its effect on

domestic interest rates can lead to reduced liquidity in the domestic capital and lending markets, which could affect
our ability to refinance our indebtedness and may have an adverse effect on our business, results of operations,
financial condition and the market prices of our common shares and the ADRs.

Fluctuations in interest rates may have an adverse effect on our business, financial condition and the market prices
of our common shares and the ADRs.

The Central Bank uses interest rates to attempt to keep inflation under control or to stimulate the economy.
If interest rates decrease, there is generally greater access to credit and consumption of goods typically increases. This
increase in demand can in turn result in inflation. On the other hand, if interest rates go up, the cost of borrowing
increases which may inhibit consumption and additional investments. Another consequence of rising interest rates is
that a greater return is paid in respect of government securities, which may impact other investments by making them
less attractive by comparison. As a result, there may be additional investment in public debt, which absorbs money
that could otherwise fund the private sector.

On December 31, 2019, 36.6% of our total loans and borrowings of R$18.6 billion was either (1) denominated
in (or swapped into) reais and bears interest based on Brazilian floating interest rates, such as the Long-Term Interest
Rate (Taxa de Juros de Longo Prazo, or “TJLP”), the interest rate used in our financing agreements with Brazilian
National Bank for Economic and Social Development (Banco Nacional de Desenvolvimento Econômico e Social, or
“BNDES”), the Interbank Deposit Certificate Rate (Certificado de Depósito Interbancário, or “CDI”), an interbank
certificate of deposit rate that applies to our foreign currency swaps and some of our other real-denominated
indebtedness, or the IPCA or (2) U.S. dollar-denominated and bears floating interest based on the London Interbank
Offered Rate (“LIBOR”). Any increase in the CDI, TJLP, IPCA or LIBOR rates may have an adverse impact on our
financial expenses and our results of operations.

Exchange rate fluctuations may adversely affect our financial condition and results of operations.

From time to time, there have been significant fluctuations in the exchange rate between the Brazilian
currency and the U.S. dollar and other currencies. The real depreciated 13.4% and 47.0% in 2014 and 2015,
respectively, appreciated 16.5% in 2016, and depreciated 1.5%, 17.1% and 4.1% in 2017, 2018 and 2019, respectively,
against the U.S. dollar.

Appreciation of the Brazilian real against the U.S. dollar may lead to a dampening of export-driven growth.
Our production costs are denominated in reais, but our international sales are mostly denominated in U.S. dollars.
Revenues generated by exports are reduced when translated to reais in the periods in which the real appreciates in
relation to the U.S. dollar. Any appreciation could reduce the competitiveness of our exports and adversely affect our
net sales and our cash flows from exports. On the other hand, a depreciation of Brazilian real against the U.S. dollar
may lead to higher exports and revenues, but costs may be higher.

Costs are also directly impacted by exchange rates. Any depreciation of the real against the U.S. dollar could
create additional inflationary pressures in Brazil by increasing the price of imported products and requiring
deflationary government policies. In addition, the prices of soy meal and soybeans, which are important ingredients
for our animal feedstock, are closely linked to the U.S. dollar, and many of the mineral nutrients added to our feedstock
must be purchased in U.S. dollars. The price of corn, another important ingredient for our feedstock, is also linked to
the U.S. dollar, but to a lesser degree. In addition to feedstock ingredients, we purchase sausage casings, breeder eggs,
packaging and other raw materials, as well as equipment for use in our production facilities, from suppliers located
outside Brazil whom we must pay in U.S. dollars or other foreign currencies. When the real depreciates against the
U.S. dollar, the cost in reais of our U.S. dollar-linked raw materials and equipment increases, and these increases
could materially adversely affect our results of operations. We have established policies and procedures to manage
our sensitivity to such risks included in our Financial Risk Management Policy. This policy, however, may not
adequately cover our revenue and cost exposure to exchange rates.

We had total foreign currency-denominated debt obligations in an aggregate amount of R$11,006.5 million
at December 31, 2019, representing 59.1% of our total consolidated indebtedness at that date. Although we manage a
portion of our exchange rate risk through foreign currency derivative instruments and future cash flows from exports
in U.S. dollars and other foreign currencies, our foreign currency debt obligations are not completely hedged. A

significant devaluation of the real in relation to the U.S. dollar or other currencies would increase the amount of reais
that we would need in order to meet debt service requirements of our foreign currency-denominated obligations.

Changes in tax laws or changes in their interpretation may increase our tax burden and, as a result, negatively
affect our results of operations and financial condition.

The Brazilian government regularly implements changes to tax regimes that may increase our and our
suppliers’ and customers’ tax burdens, which may in turn increase the prices we charge for the products we sell, restrict
our ability to do business in our existing markets and, therefore, materially adversely affect our results of operations
and financial condition.

These changes include modifications in the tax rates and, on occasion, enactment of temporary taxes, the
proceeds of which are earmarked for designated governmental purposes. In the past, the Brazilian government has
presented certain tax reform proposals, which have been mainly designed to simplify the Brazilian tax system, to avoid
internal disputes within and between the Brazilian states and municipalities, and to redistribute tax revenues. The tax
reform proposals provide for changes in the rules governing the federal Social Integration Program (Programa de
Integração Social, or “PIS”) and Contribution for Social Security Funding (Contribuição para o Financiamento da
Seguridade Social, or “COFINS”) taxes, the ICMS and some other taxes, such as increases in payroll taxes and in the
withholding tax over dividend distributions. It is uncertain whether these proposals will be approved and passed into
law and, if approved, whether they will reflect these or any other changes to tax regimes. Other tax regimes, such as
the research and development tax incentive program (“Lei do Bem”) and the deduction of interest on shareholders’
equity, may be revoked to increase the government’s revenues in light of a possible reduction in the income tax rate,
which has been and is being studied by the new Brazilian government’s financial team. The effects of these proposed
tax reform measures and any other changes that could result from the enactment of additional tax reforms have not
been, and cannot be, quantified yet due to the uncertainty of whether any changes will be implemented. Some of these
measures, if enacted, may result in increases in our overall tax burden, which may adversely affect our overall financial
performance. For more information, see “Item 8. Financial Information—A. Consolidated Statements and Other
Financial Information—Social Contributions.” Moreover, certain tax laws may be subject to controversial
interpretation by tax authorities. In the event that tax authorities interpret tax laws in a manner that is inconsistent with
our interpretations, we may be adversely affected.

Risks Relating to Our Common Shares and ADRs

Holders of ADRs may find it difficult to exercise voting rights at our shareholders’ meetings.

Holders of ADRs may exercise voting rights with respect to our common shares represented by American
Depositary Shares (“ADS”) and evidenced by ADRs only in accordance with the deposit agreement governing the
ADRs. Holders of ADRs face practical limitations in exercising their voting rights because of the additional steps
involved in our communications with ADR holders. For example, we are required to publish a notice of our
shareholders’ meetings in specified newspapers in Brazil. Holders of our common shares are able to exercise their
voting rights by attending a shareholders’ meeting in person or voting by proxy. By contrast, holders of ADRs will
receive notice of a shareholders’ meeting by mail from the ADR depositary if we give notice to the depositary
requesting the depository to do so. To exercise their voting rights, holders of ADRs must instruct the ADR depositary
on a timely basis. This voting process necessarily takes longer for holders of ADRs than for holders of our common
shares. If the ADR depositary fails to receive timely voting instructions for all or part of the ADRs, the depositary will
assume that the holders of those ADRs are instructing it to give a discretionary proxy to a person designated by us to
vote their ADRs, to the extent permitted by the New York Stock Exchange rules.

Holders of ADRs also may not receive the voting materials in time to instruct the depositary to vote our

common shares underlying the ADSs that are evidenced by their ADRs. In addition, the depositary and its agents are
not responsible for failing to carry out voting instructions of the holders of ADRs or for the manner of carrying out
those voting instructions. Accordingly, holders of ADRs may not be able to exercise voting rights, and they have
little, if any, recourse if the common shares underlying the ADSs that are evidenced by their ADRs are not voted as
requested.

Non-Brazilian holders of ADRs or common shares may face difficulties in protecting their interests because we are
subject to different corporate rules and regulations as a Brazilian company, and our shareholders may have less
extensive rights.

Holders of ADRs are not direct shareholders of our company and may be unable to enforce the rights of

shareholders under our bylaws and the Brazilian Corporation Law.

Our corporate affairs are governed by our bylaws and the Brazilian Corporation Law, which differ from the
legal principles that would apply if we were incorporated in a jurisdiction in the United States, such as the State of
Delaware or New York, or elsewhere outside Brazil. Even if a holder of ADRs surrenders its ADRs and becomes a
direct shareholder, its rights as a holder of our common shares under the Brazilian Corporation Law to protect its
interests relative to actions by our board of directors or executive officers may be limited compared to the laws of
those other jurisdictions.

Although insider trading and price manipulation are crimes under Brazilian law, the Brazilian securities
markets are subject to different levels of regulations and supervision compared to the U.S. securities markets or the
markets in some other jurisdictions. In addition, rules and policies against self-dealing or for preserving shareholder
interests may be less well defined and enforced in Brazil than in the United States and certain other countries, which
may put holders of our common shares or ADRs at a potential disadvantage. Corporate disclosures also may be less
complete or informative than for a public company in the United States or in certain other countries.

Non-Brazilian holders of ADRs or common shares may face difficulties in serving process on or enforcing
judgments against us and other persons.

We are a corporation (sociedade anônima) organized under the laws of Brazil, and all of our directors and
executive officers and our independent public accountants reside or are based in Brazil. Most of the assets of our
company and of these other persons are located in Brazil. As a result, it may not be possible for non-Brazilian holders
of ADRs or common shares to effect service of process upon us or these other persons within the United States or
other jurisdictions outside Brazil or to enforce against us or these other persons judgments obtained in the United
States or other jurisdictions outside Brazil. Because judgments of U.S. courts for civil liabilities based upon the U.S.
federal securities laws may only be enforced in Brazil if certain conditions are met, holders may face greater
difficulties in protecting their interests in the case of actions by us or our directors or executive officers than would
shareholders of a U.S. corporation.

Judgments of Brazilian courts with respect to our common shares may be payable only in reais.

If proceedings are brought in the courts of Brazil seeking to enforce our obligations in respect of the common
shares, we may not be required to discharge our obligations in a currency other than reais. Under Brazilian exchange
control limitations, an obligation in Brazil to pay amounts denominated in a currency other than reais may only be
satisfied in Brazilian currency at the exchange rate, as determined by the Central Bank, in effect on the date the
judgment is obtained, and such amounts are then adjusted to reflect exchange rate variations through the effective
payment date. The then prevailing exchange may not afford non-Brazilian investors with full compensation for any
claim arising out of or related to our obligations under the common shares or the ADRs.

Holders of ADRs and non-Brazilian holders of our common shares may be unable to exercise preemptive rights
and tag-along rights with respect to our common shares underlying the ADSs evidenced by their ADRs.

Holders of ADRs and non-Brazilian holders of our common shares may be unable to exercise the preemptive
rights and tag-along rights relating to our common shares (including common shares underlying the ADSs evidenced
by their ADRs) unless a registration statement under the U.S. Securities Act of 1933, as amended, or the “Securities
Act,” is effective with respect to those rights or an exemption from the registration requirements of the Securities Act
is available. We are not obligated to file a registration statement with respect to the shares relating to these preemptive
rights, and we cannot assure you that we will file any such registration statement. Unless we file a registration
statement or an exemption from registration is available, a holder may receive only the net proceeds from the sale of

his or her preemptive rights or tag-along rights, or if these rights cannot be sold, they will lapse and the holder will
receive no value from them.

Provisions in our bylaws may prevent efforts by our shareholders to change our control or management.

Our bylaws contain provisions that may discourage, delay or make more difficult a change in control of our
company or removal of our directors. Subject to limited exceptions, these provisions require any shareholder that
acquires shares representing 33.3% or more of our share capital to disclose such information immediately through a
filing with the Securities and Exchange Commission of Brazil (Comissão de Valores Mobiliários, or “CVM”) and,
within 30 days from the date of such acquisition or event, commence a public tender offer with respect to all of our
shares for a price per share that may not be less than the greater of: (i) 140% of the average trading price on the stock
exchange trading the greatest volume of shares of the capital stock of the Company during the last 120 trading sessions
prior to the date on which the public offer became obligatory; and (ii) 140% of the average trading price on the stock
exchange trading the greatest volume of shares of the capital stock of the Company during the last 30 trading days
prior to the date on which the public offer became obligatory.

These provisions of our bylaws may delay, defer or prevent a transaction or a change in control that might

otherwise be in the best interests of our shareholders.

Holders of ADRs could be subject to Brazilian income tax on capital gains from sales of ADRs.

Historically, any capital gain realized on a sale or other disposition of ADRs between non-Brazilian holders
outside Brazil was not subject to Brazilian income tax. However, a December 2003 Brazilian law (Law No. 10,833,
of December 29, 2003) provides that the acquirer, individual or legal entity resident or domiciled in Brazil, or the
acquirer’s attorney-in-fact, when such acquirer is resident or domiciled abroad, shall be responsible for the retention
and payment of the income tax applicable to capital gains earned by the individual or legal entity resident or domiciled
abroad who disposes of property located in Brazil. The Brazilian tax authorities have issued a normative instruction
confirming their intention to assess income tax on capital gains earned by non-Brazilian residents whose assets are
located in Brazil. It is unclear whether ADSs representing our common shares and evidenced by ADRs, which are
issued by the ADR depositary outside Brazil, will be deemed to be property located in Brazil for purposes of this law.
Accordingly, we cannot determine whether Brazilian tax authorities will attempt to tax any capital gains arising from
the sale or other disposition of the ADRs, even when the transaction is consummated outside Brazil between non-
Brazilian residents.

Brazilian taxes may apply to a gain realized by a non-Brazilian holder on the disposition of common shares to
another non-Brazilian holder.

The gain realized by a non-Brazilian holder on the disposition of common shares to another non-Brazilian
holder (other than a disposition of shares held pursuant to Resolution No. 4,373, as amended of the Brazilian National
Monetary Council (Conselho Monetário Nacional, or “CMN”)) is generally viewed as being subject to taxation in
Brazil. Pursuant to Article 26 of Law No. 10,833/03, Brazilian tax authorities may assess income tax on capital gains
earned by non-Brazilian residents in transactions involving assets that are located in Brazil. In case of a non-Brazilian
holder selling common shares on the Brazilian stock exchange, the withholding tax rate would be 0% (in the case of
a non-Brazilian holder registered as such before Brazilian Central Bank (“Bacen”) under the rules of the CMN
(“Registered Holder”) and not a resident of a tax haven (“Tax Haven Resident”)), 15% (in the case of a non-Brazilian
holder that is not a Registered Holder and not a Tax Haven Resident), or 25% (in the case of a non-Brazilian holder
that is a Tax Haven Resident).

Any other gains realized on the disposition of common shares that are not carried out on the Brazilian stock

exchange:

•

are subject to income tax at the following progressive rate when realized by any non-Brazilian holder that
is not a Tax Haven Resident, whether or not such holder is a Registered Holder:

15% upon the portion of capital gains not exceeding R$5,000,000.00;

ii.

iii.

iv.

17.5% upon the portion of capital gains that exceeds R$5,000,000.00 but not exceeding
R$10,000,000.00;
20% upon the portion of capital gains that exceeds R$10,000,000.00 but not exceeding
R$30,000,000.00; and
22.5% upon the portion of capital gains that exceeds R$30,000,000.00.

•

are subject to income tax at a rate of 25% when realized by an individual or legal entity that is a Tax
Haven Resident, whether or not such holder is a Registered Holder.

The relative volatility and limited liquidity of the Brazilian securities markets may negatively affect the liquidity
and market price of our common shares and ADRs.

The Brazilian securities markets, including the B3 S.A. – Brasil, Bolsa, Balcão (the “B3” or the “São Paulo
Stock Exchange”) are substantially smaller, less liquid and more volatile than major securities markets in the United
States. The Brazilian securities markets are also characterized by considerable share concentration.

The ten largest companies in terms of market capitalization represented approximately 48% of the aggregate
market capitalization of the São Paulo Stock Exchange as of December 31, 2019. In addition, the ten most widely
traded stocks in terms of trading volume accounted for approximately 30% of all shares traded on the São Paulo Stock
Exchange in 2019. These market characteristics may substantially limit the ability of holders of the ADRs to sell
common shares underlying ADSs evidenced by ADRs at a price and at a time when they wish to do so and, as a result,
could negatively impact the market prices of these securities.

Developments and the perception of risks in other countries, especially emerging market countries, may adversely
affect the market price of our common shares and ADRs.

The market for securities issued by Brazilian companies is influenced, to varying degrees, by economic and
market conditions in other emerging markets. Although economic conditions are different in each country, the reaction
of investors to developments in one country may cause the capital markets in other countries to fluctuate.
Developments or adverse economic conditions in other emerging markets have at times resulted in significant outflows
of funds from, and declines in, the amount of foreign currency invested in Brazil. In addition, economic and political
crises in Latin America or other emerging markets may significantly affect perceptions of the risk inherent in investing
in the region, including Brazil.

The Brazilian economy, as well as the market for securities issued by Brazilian companies, is also affected,
to varying degrees, by international economic and market conditions generally, especially economic and market
conditions in the United States. Share prices on the São Paulo Stock Exchange, for example, have historically been
sensitive to fluctuations in U.S. interest rates as well as movements of the major U.S. stock indexes.

Developments in other countries and securities markets could adversely affect the market prices of our
common shares and the ADRs and could also make it more difficult for us to access the capital markets and finance
our operations in the future on acceptable terms or at all.

We may become a passive foreign investment company, which could result in adverse U.S. tax consequences to
U.S. investors.

Based on our financial statements, relevant market and shareholder data, and the projected composition of
our income and valuation of our assets, including goodwill, we do not believe that we were a passive foreign
investment company, or “PFIC,” for U.S. federal income tax purposes for 2019, and we do not expect to be a PFIC
for 2020, although we can provide no assurances in this regard. If we become a PFIC, U.S. holders of our common
shares or ADRs may become subject to increased tax liabilities under U.S. tax laws and regulations and will become
subject to burdensome reporting requirements. The determination of PFIC status is fact-specific and will depend on
the composition of our income and assets from time to time, and a separate determination must be made each taxable
year as to whether we are a PFIC (after the close of each such taxable year). Specifically, for any taxable year we will
be classified as a PFIC for U.S. tax purposes if either (i) 75% or more of our gross income in that taxable year is

passive income or (ii) the average percentage of our assets (which includes cash) by value in that taxable year which
produce or are held for the production of passive income is at least 50%. The calculation of the value of our assets
(including goodwill and certain intangible assets) will be based, in part, on the quarterly market value of our common
shares and ADRs, which is subject to change. Accordingly, it is possible that we may become a PFIC for 2020 or
future taxable years due to changes in our income or asset composition. See “Item 10. Additional Information—E.
Taxation—U.S. Federal Income Tax Considerations—Passive Foreign Investment Company.”

INFORMATION ON THE COMPANY

History and Development of the Company

BRF S.A. is a publicly-held company in Brazil and is therefore subject to the requirements of the Brazilian

Corporation Law and the rules and regulations of the CVM and the B3.

We were founded as Perdigão by the Brandalise and Ponzoni families in 1934 as Ponzoni, Brandalise e Cia.
in the southern State of Santa Catarina and remained under the Brandalise family’s management until September 1994.
In 1940, we expanded our operations from general trading, with an emphasis on food and food-related products, to
include pork processing. During the 1950s, we entered the poultry processing business. During the 1970s, we
broadened the distribution of our products to include export markets, starting with Saudi Arabia. From 1980 through
1990, we expanded our export markets to include Japan in 1985 and Europe in 1990. We also undertook a series of
acquisitions in the poultry and pork processing business and made investments in other businesses.

From 1990 through 1993, we suffered substantial losses because of increased financial expenses,
underinvestment in product development, limited capacity and modest marketing of our products. By September 1994,
we faced a liquidity crisis, as a result of which the Brandalise family sold their interest in our company, consisting of
80.68% of our common shares and 65.54% of our preferred shares, to eight Brazilian pension funds. Upon acquiring
control of our company, the eight original pension funds hired a new team of executive officers who restructured
management and implemented capital increases and modernization programs.

For additional information about our major shareholders, see “Item 7. Major Shareholders and Related Party

Transactions––A. Major Shareholders.”

Our principal executive offices are located at Av. das Nações Unidas, 8501 – 1st Floor, Pinheiros, 05425-
070, São Paulo, SP, Brazil, and our telephone number at this address is +55-11-2322-5000/5355/5048. The U.S.
Securities and Exchange Commission (the “SEC”) maintains a website (http://www.sec.gov) that contains reports,
proxy and information statements and other information regarding registrants, such as BRF, that file electronically
with the SEC. Our internet address is www.brf-br.com/ir. From time to time, we may use our website as a channel of
distribution of material company information. Financial and other material information regarding us is routinely
posted on and accessible at www.brf-br.com/ir. The information on our website is not incorporated by reference into
this Annual Report on Form 20-F.

Business combination with Sadia

On May 19, 2009, we signed a merger agreement with Sadia for a business combination of Sadia S.A. and
Perdigão S.A. The business combination became fully effective on September 22, 2009, and Sadia became our wholly
owned subsidiary. On December 31, 2012, we merged Sadia S.A., then a wholly-owned subsidiary, into BRF, and
Sadia ceased to exist as a separate legal entity. In connection with the business combination, we changed our name
from Perdigão S.A. to BRF – Brasil Foods S.A. On April 9, 2013, we changed our name from BRF – Brasil Foods
S.A. to the current name BRF S.A.

Agreement with Lactalis

On September 3, 2014, we entered into a binding memorandum of understanding with Lactalis, a company
controlled by Parmalat S.p.A., an Italian publicly held company pertaining to the Groupe Lactalis S.A. (or “Groupe
Lactalis”) for the sale of our dairy division, including: (i) manufacturing facilities located in the cities of Bom

Conselho (PE), Carambeí (PR), Ravena (MG), Concórdia (SC), Teutônia (RS), Itumbiara (GO), Terenos (MS), Ijuí
(RS), Três de Maio I (RS), Três de Maio II (RS) and Santa Rosa (RS), and (ii) related assets and trademarks (Batavo,
Elegê, Cotochés, Santa Rosa and DoBon) dedicated to such segment. The transaction closed on July 1, 2015 for a total
sale price of U.S.$697.8 million.

Corporate Reorganization of One Foods

On January 11, 2017, we established a new wholly-owned subsidiary, One Foods Holdings Limited, based
in Dubai International Financial Centre, which is focused on Halal markets. The formation of this subsidiary involved
a restructuring of certain of our operations in Malaysia and some countries in the Middle East and Africa, including
(i) the sale and purchase agreement pursuant to which One Foods acquired equity interests in entities that serve the
Halal market from BRF GmbH, a BRF wholly-owned subsidiary, and (ii) the contribution of the equity interest in
SHB Indústria e Comércio de Alimentos S.A. (“SHB”) to One Foods. SHB held grain storage facilities, feed mills,
outgrower agreements, hatcheries and eight slaughtering and processing plants in Brazil. In addition, we entered into
certain agreements with One Foods that provided for the licensing of certain brands, operational and corporate
activities, cost sharing and supply of raw materials and finished goods.

On September 1, 2018, BRF executed a Share Sale and Purchase Agreement with two of its subsidiaries,
BRF Foods GmbH and One Foods Holding Ltd., to acquire all common shares of SHB. On December 12, 2018 at
BRF’s extraordinary shareholders meeting, the merger of SHB with and into BRF was approved. The merger took
effect on December 31, 2018, following its approval at the extraordinary shareholders meeting of SHB.

Acquisition of Banvit – Turkey

On May 25, 2017, our subsidiary TBQ Foods GmbH (“TBQ”), a joint venture formed with the Qatar
Investment Authority in May 2017, completed a transaction for the acquisition of 79.48% of the shares issued by
Bandirma Vitaminli (“Banvit”), which is the largest poultry producer in Turkey, has fully integrated operations and
owns one of the most recognized brands in Turkey. Through a subsequent tender offer process completed on August
17, 2017, TBQ’s ownership of Banvit increased to 91.71%. The total value of the transaction (including the purchase
price paid in connection with the tender offer) was R$1.277 billion.

Sale of Quickfood

On December 7, 2018, we executed a Share Sale and Purchase Agreement with Marfrig Global Foods S.A.
(“Marfrig”) for the sale of our total ownership interest in Quickfood (which constituted 91.89% of the capital stock of
Quickfood). Quickfood was our subsidiary in Argentina and operated three beef slaughtering plants with a capacity
of 620 heads per day and a processing capacity of approximately 6,000 metric tons per month of hamburgers, franks,
cold products and frozen vegetables. The transaction closed on January 2, 2019, for an amount equivalent to
R$191,291 thousand (US$49,937 thousand).

Sale of Várzea Grande Plant

On December 7, 2018, we executed an agreement with Marfrig for the sale of R$100 million of both real
estate assets and equipment from our plant located in Várzea Grande in the State of Mato Grosso, which produces,
among other items, hamburgers, meatballs and kibbehs (a type of Middle Eastern beef patty popular in Brazil). This
transaction closed on January 23, 2019 and, on April 1, 2019, a Supply Agreement with Marfrig became effective,
under which Marfrig undertook to provide us with finished goods produced in the Várzea Grande plant, such as
hamburgers, meatballs, kibbehs, chicken meat and processed chicken breast products for 60 months.

Sale of Avex

On December 19, 2018, we entered into a Share Sale and Purchase Agreement whereby we agreed to sell all
of the issued and outstanding shares of our Argentinian subsidiary, Avex S.A., to Granja Tres Arroyos S.A. and Fribel
S.A.. Avex S.A. operates three facilities located in Llavalol, Villa Mercedes and Rio Cuarto, in Argentina, for the

production of poultry and margarine. This transaction closed on February 4, 2019, for an amount equivalent to
R$169,726 thousand (US$44,824 thousand).

Sale of Assets in Europe and Thailand

On February 7, 2019, we agreed to sell to Tyson International Holding Co. most of our subsidiaries in Europe,
including our Wrexham (UK) and Oosterwolde (Netherlands) processing plants, and our food processing and poultry
slaughtering operation in Thailand. This transaction closed on June 3, 2019, for an amount equivalent to R$1,488,033
thousand (US$382,106 thousand).

Other Transactions in 2018 and 2019

On December 6, 2018, the Company was notified by VDG Holding S.A. that it was exercising its right to
terminate Minerva S.A.’s shareholders’ agreement entered into by the parties, as shareholders of Minerva S.A., on
November 1, 2013, as a result of the Company holding less than 6% of the outstanding shares issued by Minerva S.A.

On December 18, 2018, the Company created a Brazilian receivables investment fund (“FIDC”) to acquire
trade receivables of commercial transactions entered into by the Company and its customers in Brazil. The fund has
three distinct classes of quotas and may reach an aggregate total volume of R$875 million.

On January 10, 2019, the Company executed an Asset Sale and Purchase Agreement with BOGS S.A. for
the sale of its facility located in the city of Florencio Varela, Argentina, and all assets and liabilities related to it,
including the brands “Bocatti” and “Calchaquí,”. The transaction closed on February 28, 2019, for an amount
equivalent to R$95,036 thousand (US$26,753 thousand).

On January 10, 2019, the Company executed a Share Sale and Purchase Agreement with La Piamontesa de
Averaldo Giacosa y Compañía S.A. for the sale of all of the capital stock of the Company’s Argentine subsidiary,
Campo Austral S.A., including its facilities in San Andrés de Giles and Pilar and the brand “Campo Austral.” The
transaction closed on March 11, 2019 for an amount equivalent to R$29,359 thousand (US$7,619 thousand).

On August 20, 2019, the Company’s wholly-owned subsidiary Badi Limited executed a Share Purchase
Agreement with Al Takamul International Company for Commercial Investment Limited for the purchase of the
remaining 25% of the capital stock that it did not own in Al Wafi Al Takamul International Company for Food
Products Limited (“Wafi”), a company incorporated in the Kingdom of Saudi Arabia responsible for distributing BRF
products in that country. The transaction closed on April 21, 2020 for an amount equivalent to R$100,390 thousand
(US$19,000, thousand translated to reais at the exchange rate of R$5.2837 as of April 20, 2020), at which point Wafi
became a wholly-owned subsidiary of Badi Limited.

On September 5, 2019, the Company executed a Share Sale and Purchase Agreement with Sats Food Services
Pte Ltd, providing for the terms and conditions for the sale of our interest in Singaporean food company Sats BRF
Food Pte Ltd., equivalent to 49% of its capital stock. The transaction was concluded on September 5, 2019 for the
amount equivalent to R$51 million (SGD17 million) and also encompassed the execution of a new contract for the
distribution and licensing of brands owned by BRF.

Carne Fraca Operation

We are currently being investigated in connection with the Carne Fraca Operation. For more information,
see “Item 8. Financial Information—A. Consolidated Statements and Other Financial Information—Legal
Proceedings—Carne Fraca Operation.”

Trapaça Operation

We are currently being investigated in connection with the Trapaça Operation. For more information, see
“Item 8. Financial Information—A. Consolidated Statements and Other Financial Information—Legal Proceedings—
Trapaça Operation.”

Capital Expenditures

The table below sets forth our capital expenditures with respect to operations for the periods indicated:

Property, plant and equipment .............................
Biological assets ..................................................
Business Combinations .......................................
Intangible assets ..................................................
Total capital expenditures ................................
*The amounts disclosed above do not include leases.

2019

For the year ended December 31,
2018
(in millions of reais)
578.0
845.3
-
20.6
1,443.9

417.1
837.9
-
64.3
1,319.3

2017

681.2
681.7
1,119.7
51.1
2,533.7

In 2019, as in the previous year, investments were made a priority to meet the regulation and adaptation of

our asset base to safety and quality principles in line with our organizational culture.

In 2018, we focused our investments on our quality and security standards rather than acquisitions, reflecting

the policies of our new board of directors.

In 2017, BRF focused on executing the nearly R$115.0 million of investments made in 2016 for the
automation of company processes. The goal of these investments was to improve efficiency by increasing productivity
and reducing production costs. We also invested R$136.5 million in international projects, more specifically our
Toledo, Campos Novos and Rio Verde factories to increase pork production for the Chinese market. Additionally, in
2017, we invested R$20.1 million in a new production line for animal ingredients.

In 2020, in addition to existing projects, we expect to focus on pursuing our commitment to maximizing the
use of our assets by making investments to help eliminate production constraints and increase overall efficiency. In
addition, we will increase investments to expand in the markets we serve and take advantage of new commercial
opportunities.

Business Overview

BRF S.A. is one of the largest producers of fresh and frozen protein foods in the world. We are committed
to operating our business and delivering products to our global customer base in line with our core values: quality,
safety and integrity. We have a portfolio of approximately 3,000 stock keeping units (“SKUs”). Our processed
products include marinated and frozen chicken, Chester® rooster and turkey meats, specialty meats, frozen processed
meats, frozen prepared entrees, portioned products and sliced products. We also sell margarine, sweet specialties,
sandwiches and animal feed. We are the holder of brands such as Sadia, Perdigão, Qualy, Perdix, Confidence and
Hilal. In 2019, BRF accounted for 11.6% of the world’s poultry trade, according to Trademap.

Our portfolio strategy is focused on creating new, convenient, practical and healthy products for our
consumers based on their preferences. We seek to achieve that goal through strong innovation to provide us with
increasing value-added items that will differentiate us from our competitors and strengthen our brands.

With 34 industrial facilities in Brazil, we have among our main assets a distribution network that enables our
products to reach Brazilian consumers through more than 555,000 monthly deliveries and 45 distribution centers as
of December 31, 2019, 21 of which are in the domestic market and 24 of which are in our export markets.

In the international market, BRF has a leading brand, Sadia, in various categories in Middle Eastern countries.
We maintain 21 offices outside of Brazil serving customers in more than 130 countries on five continents. We have
one industrial facility in Abu Dhabi, one in Malaysia and three in Turkey.

We have been a public company since 1980. Our shares have been listed on the Novo Mercado of the São
Paulo Stock Exchange as BRFS3 since 2006, and ADRs representing our common shares are traded on the New York
Stock Exchange, or “NYSE.”

A breakdown of our products is as follows, which are sold both in Brazil and to our international customers:

• Meat Products, consisting of in natura meat, which we define as frozen whole and cut chicken, and

frozen pork;

• Processed Food Products including the following:

o marinated, frozen, whole and cut chicken, roosters (sold under the Chester® brand) and turkey;

specialty meats, such as sausages, ham products, bologna, frankfurters, salami, bacon and other
smoked products; and

frozen processed meats, such as hamburgers, steaks, breaded meat products, kibbeh and meatballs;

• Other Processed Products including the following:

o margarine; and

frozen prepared entrees, such as lasagna and pizzas, as well as other frozen foods; and

• Other, consisting of soy meal, refined soy flour and animal feed.

Prior to the divestitures made in connection with our financial and operational restructuring plan, other

processed products included mayonnaise, mustard and ketchup.

In Brazil, we operate 34 meat processing plants, three margarine processing plants, three pasta processing
plants, one dessert processing plant and three soybean crushing plants, all of which are located near our raw material
suppliers or the main consumer centers. We have an advanced logistics system in our domestic market, with 21
distribution centers, six of which are owned by us and 15 of which are leased from third parties, all of which serve
supermarkets, retail stores, wholesale stores, restaurants and other clients.

In our International market, we operate five industrial facilities for meat processing. Additionally, after giving
effect to the divestitures made in connection with our financial and operational restructuring plan, we continue to
operate 24 distribution centers located in Asia, the Southern Cone and the Middle East as well as commercial offices
on four continents.

We are also focused on addressing the impacts of climate change on the environment and our business.
Among the initiatives that we have taken to reduce our exposure to climate change and to maintain our competitiveness
in terms of costs is the monitoring of grain stocks and purchases and the constant monitoring of the weather in
agricultural regions to guide our purchasing decisions, as well as anticipating price movements in the commodity
markets. Other initiatives include technological innovations in our animal-raising facilities to improve efficiency and
safeguard animal welfare. In addition, we recognize that consumers, investors and other stakeholders are more
conscious of social and environmental aspects of the production chain. We have taken steps to address these concerns,
for example by entering into a partnership with the World Wide Fund for Nature (WWF) and joined the Collaboration
for Forests and Agriculture (CFA) in 2019, with the aim of developing a more sustainable grain supply chain.

Our Industry

We manage our business to target both the Brazilian market and international markets.

Brazilian Market

As a Brazilian company, with a significant portion of our operations in Brazil, we are acutely affected by
local economic conditions. Because of our significant operations in Brazil, fluctuations in Brazilian demand for our
products affects our production levels and revenues.

Real GDP in Brazil increased at an average annual rate of 2.3% from 2004 through 2019. For two consecutive
years, in 2015 and in 2016, Brazil’s GDP decreased by 3.5%, after increasing 0.5% in 2014. Reacting to this weak
economic scenario, the Central Bank lowered the Special System for Settlement and Custody (Sistema Especial de
Liquidação e de Custódia, or “SELIC”) interest rate, which is the short-term benchmark interest rate. Overall, the
long-term trend remains downward, from 17.8% as of December 31, 2004 to 4.5% as of December 31, 2019. For the
year ended December 31, 2019, the IPCA increased by 4.31%.

The unemployment rate and consumer confidence levels also have an impact on consumption levels in Brazil.
The average unemployment rate for 2019 was 11.8%, an increase of 0.2 percentage points when compared to the
11.6% of 2018. The Consumer Confidence Index for December 2019 was 91.6%, 1.4 percentage points below that in
December 2018 of 93.0%.

According to the Brazilian Association of Supermarkets (Associação Brasileira de Supermercados, or
“ABRAS”) in December 2019, supermarket sales in real terms (deflated by the IPCA), increased 2.3% compared to
December 2018. For the full year, supermarket sales in real terms rose 3.6% in 2019 as compared to 2018.

Export Markets

The information set forth in this “Export Markets” subsection relates to Brazilian exports as a whole and not

only to exports of our company.

Brazilian chicken exports increased by 2.8% in the year ended December 31, 2019, compared to the year
ended December 31, 2018, in terms of volume. Pork exports registered an increase of 16.2% in volume sold in the
year ended December 31, 2019, compared to the year ended December 31, 2018. Beef exports recorded an increase
of 12.9% in volume in the year ended December 31, 2019, compared to the year ended December 31, 2018.

Brazilian chicken exports in the year ended December 31, 2019 totaled 4.2 million tons on sales of R$28.17
billion. China is the main destination for these exports (13.9%), followed by Saudi Arabia (11.1%), Japan (10.1%)
and the United Arab Emirates (8.1%).

Pork export volume in the year ended December 31, 2019 totaled 750.3 thousand tons, totaling around R$6.45
billion. The leading importers, China, Hong Kong and Chile represented 33.2%, 21.7% and 5.9%, respectively, of
total exports from Brazil.

Beef shipments in the year ended December 31, 2019 totaled 1.81 million tons with sales of around R$29.77
billion. This increase in volume was driven by higher exports sent to China and Hong Kong, which import 27.2% and
18.2% of Brazilian beef exports, respectively.

For a discussion on the global economic conditions and further information on the conditions on our export
markets and the Brazilian market, see “Item 5. Operating and Financial Review and Prospects—D. Trend
Information.”

Products

We are a food company that focuses on the production and sale of poultry, pork and processed foods.

Poultry

We produce frozen whole and cut poultry. In 2019, we slaughtered approximately 1.56 billion heads of
poultry, a 0.9% increase compared to 1.55 billion in 2018. We sold 2,018 thousand tons of frozen chicken and other
poultry products in 2019, compared to 2,064 thousand tons in 2018, excluding our discontinued operations. Most of
our poultry sales are to our export markets.

As a result of the trade barriers imposed by the European Union, we have significantly reduced our production
of turkey since 2018, as the European Union was our main consumer market for this product. For additional
information, see “Item 3. Key Information—D. Risk Factors—Risks Relating to Our Business and Industry—More
stringent trade barriers in key export markets may negatively affect our results of operations.”

Pork and Beef

In 2019, we slaughtered approximately 9.62 million hogs and 34,413 cattle, compared to 9.84 million and
154,571 in 2018, respectively. We raise hogs but do not raise cattle at our facilities. Although most of the hogs that
we slaughter are used for processed products in the domestic market, we also produce frozen pork and beef cuts, such
as loins and ribs, and whole carcasses. In 2019, we sold 270 thousand tons of pork and beef cuts, excluding our
discontinued operations, compared to 252 thousand tons of pork and beef cuts in 2018. We are also further developing
our international customer base for pork and beef cuts.

Processed Food Products

We produce processed foods, such as marinated and frozen chicken, Chester® rooster and turkey meat,
specialty meats, frozen processed foods, frozen prepared entrees, portioned products and sliced products. Part of our
strategy is to develop additional processed food products in these and other categories because these products tend to
be less price-sensitive than our frozen poultry and pork products. We sold 1,830 thousand tons of processed foods in
2019, compared to 1,869 thousand tons in 2018, excluding our discontinued operations. Most of our sales of processed
foods are to our domestic market. We believe that there are opportunities to market value-added products like these
to targeted regions and other market segments in Brazil as well as to expand our sales in the export market.

Our processed food products strategy relies on accurate brand management, a varied product portfolio with
strategic pricing and innovation and service excellence, which we believe will allow our products to expand their
reach both in the Brazilian market and international markets.

Specialty Meats

We process pork to produce specialty meats, such as sausages, ham products, bologna, frankfurters, salamis,
bacon and cold meats. We also process chicken and other poultry to produce specialty meats, such as chicken sausages,
chicken hot dogs and chicken bologna.

Frozen Processed Meats

We produce a range of frozen processed poultry, pork and beef products, including hamburgers, steaks,

breaded meat products, kibbeh and meatballs.

Marinated Poultry

We produce marinated and seasoned chickens, roosters (under the Chester® brand) and turkeys. We
originally developed the Chester® breed of rooster to maximize the yield of breast and leg cuts. In 2004, we sold our
rights to the Chester® breed of rooster to Cobb Vantress, a U.S. poultry research and development company engaged
in the production, improvement and sale of broiler breeding stock, and we entered into a technology agreement under
which Cobb Vantress manages the Chester® breed of rooster. We continue to oversee the production of Chester®
roosters in Brazil from hatching to distribution, and we own the trademarks for the Chester® line of products.

Halal Products

We offer poultry products for Islamic markets in accordance with the Halal method of animal slaughtering.

Margarine

We sell margarine under the Qualy, Deline and Claybom brands. We maintain our leading market position
with the Qualy brand by bringing innovation to the Brazilian market. For example, in 2014 we introduced the first
aerated margarine in Brazil and in 2016 we improved the Qualy portfolio by adding a proprietary mix of vitamins and
minerals to our products, which is called the Q-Mix. Additionally, in 2017 we introduced the first margarine with
whole grains, Qualy Multigrãos. This technology to add grains inside the margarine is protected under a patent in
partnership with our equipment supplier. In 2018, we launched Qualy Light Zero Lactose, the first zero lactose
margarine in the Brazilian market.

Frozen Prepared Entrees

We produce a range of frozen prepared entrees, some of which contain poultry, beef and pork meat that we

produce, including those listed below.

• Pastas and Pizzas. We produce several varieties of lasagna, pizza and other ready-to-eat meals. We

produce the meat used in these products and buy other raw materials in the domestic market.

• French Fries. We sell frozen French fries, which are imported from Belgium where they are produced
and packaged for us by third parties. Prior to the divestitures made in connection with our financial and
operational restructuring plan, we sold other frozen vegetables, including broccoli, cauliflower, peas and
French beans.

• Pies and Pastries. We produce a variety of pies and pastries, such as chicken and heart-of-palm pies.
We produce the meat, sauces and toppings used in our pies and pastries, and we purchase other raw
materials, such as heart-of-palm, lime and other fillings from third parties.

Frozen desserts

We have produced and sold Miss Daisy deserts since 1999. We believe the Miss Daisy brand has a leading
market position and has been highly resilient to market changes. We offer a wide variety of products under the Miss
Daisy brand, including:

• Mousse pie;

• Dutch pie; and

• Frozen mousse.

Other

We produce animal feed mainly to feed poultry and hogs raised by us, although we also sell a small portion
to our integrated outgrowers and to unaffiliated customers. In 2019, we produced 9,480.75 thousand tons of feed and
PREMIX, compared to 9,559.56 thousand tons in 2018. We also produce a limited range of soy-based products,
including soy meal and refined soy flour.

Overview of Brazil’s Poultry, Pork and Beef Position in the World

Poultry

Brazil was the second largest producer and the leading exporter of poultry in the world in 2019 based on
estimates calculated by the United States Department of Agriculture, or the “USDA.” Brazil’s production,
consumption and export volumes for poultry have increased significantly over the past several years. This growth has
been driven by the increase of Brazilian companies’ production dedicated to exports as well as by the competitiveness
of Brazilian poultry.

According to the USDA, global poultry trade increased 4.3% in 2019 compared to 2018, mainly due to higher
exports from the European Union (which increased 8.3%); Thailand (which increased 7.1%) and Ukraine (which
increased 26.2%). According to the Brazilian Association of Animal Protein (Associação Brasileira de Proteína
Animal, or “ABPA”), exports of poultry parts increased 3.4% in 2019 compared to 2018, representing 66.5% of the
total poultry exported volumes. Whole chicken, which represented 26.0% of the total volume, decreased 1.1% in 2019
compared to 2018. The main destinations in 2019 were China, Saudi Arabia, Japan and United Arab Emirates. In
2019, Saudi Arabia decreased total imports from Brazil by 3.6%, China increased total imports from Brazil by 33.6%,
Japan increased total imports from Brazil by 6.5% and United Arab Emirates increased by 10.2% compared to 2018.

The following tables identify Brazil’s position within the global poultry industry for the years indicated:

Primary Broiler Producers

U.S. ..........................................................................
Brazil .......................................................................
European Union (28 countries) ...............................
China ........................................................................
Russia .......................................................................
India..........................................................................
Mexico......................................................................
Thailand ....................................................................
Turkey ......................................................................
Argentina ..................................................................
Japan .........................................................................
Others .......................................................................

Primary Broiler Exporters

Brazil ......................................................................
U.S. ..........................................................................
European Union (28 countries) ...............................
Thailand ...................................................................
China .......................................................................
Others ......................................................................
Total ........................................................................

Primary Broiler Consumers

U.S. ..........................................................................
China .......................................................................
European Union (28 countries) ...............................
Brazil ......................................................................
Russia ......................................................................
India .........................................................................
Mexico .....................................................................

World Broiler Production
2018

2019

2017
(in thousands of tons – “ready to cook” equivalent)

19,906
13,635
12,460
13,100
4,740
4,902
3,625
3,300
2,300
2,171
1,720
17,147

19,361
13,355
12,200
11,700
4,872
4,855
3,485
3,170
2,225
2,110
1,685
16,736

18,938
13,612
11,912
11,600
4,617
4,640
3,400
2,990
2,188
2,150
1,661
16,094

2019

2018
(in thousands of tons – “ready to cook” equivalent)

2017

3,715
3,259
1,545
885
430
1596
11,701

3,687
3,245
1,427
826
447
1596
11,289

3,847
3,137
1,323
757
436
1519
11,043

2019

2018
(in thousands of tons – “ready to cook” equivalent)

2017

16,664
13,235
11,655
9,925
4,785
4,900
4,468

16,184
11,595
11,536
9,671
4,785
4,852
4,301

15,826
11,475
11,281
9,768
4,786
4,638
4,198

Primary Broiler Consumers

2019

2018
(in thousands of tons – “ready to cook” equivalent)

2017

Japan ........................................................................
Thailand ...................................................................
Argentina .................................................................
South Africa ............................................................
Others ......................................................................

2,800
2,455
2,025
1,830
22,263

2,761
2,345
1,955
1,877
21,769

2,688
2,226
1,978
1,778
21,282

Source: USDA, January 2020.

Pork

Brazil was the fourth largest producer, exporter and consumer of pork in the world in 2019, according to the
USDA. Brazil’s production and consumption of pork has increased since 2009. The USDA expects a decrease in
global production of 9.1% and a decrease in pork consumption of 8.9% in 2020. According to the USDA, global pork
exports reached 9,476 thousand tons in 2019. Brazilian pork breeding and slaughtering companies continue to increase
their efficiency of production. Research and development has also helped to reduce fat, cholesterol and calories in
pork produced in Brazil. These enhancements allow for more efficient production of prime cuts, more meat per carcass
and more nutritious and healthier meat. Improved genetic potential of breeders has also contributed to the production
increase.

According to the ABPA, as of December 2019, China was Brazil’s primary destination for pork followed by
Hong Kong, representing 33.2% and 21.7%, respectively, of total Brazilian pork exports. Chinese and Hong Kong
imports from Brazil increased 61.1% and 0.9%, respectively, from December 31, 2018 to December 31, 2019.

The following tables identify Brazil’s position within the global pork industry for the years indicated:

Main Pork Producers

China ........................................................................
European Union (28 countries) ................................
U.S. ..........................................................................
Brazil .......................................................................
Russia .......................................................................
Vietnam ....................................................................
Others .......................................................................
Total .........................................................................

Main Pork Exporters

European Union (28 countries) ................................
U.S. ..........................................................................
Canada ......................................................................
Brazil .......................................................................
China ........................................................................
Chile .........................................................................
Mexico......................................................................
Others .......................................................................

Main Pork Consumers

World Pork Production
2018
(in thousands of tons – weight in equivalent carcass)

2019

2017

46,500
23,980
12,543
3,975
3,240
2,400
13,363
106,001

54,040
24,082
11,943
3,763
3,155
2,811
13,144
112,938

54,518
23,660
11,611
3,725
2,959
2,741
12,851
112,065

2019

2018
(in thousands of tons – weight in equivalent carcass)

2017

3,650
2,856
1,330
860
130
240
215
195

2,933
2,665
1,331
730
203
200
178
205

2,858
2,555
1,351
786
208
171
170
198

2019

2018
(in thousands of tons – weight in equivalent carcass)

2017

48,970
20,345
10,126
3,310

55,398
21,163
9,748
3,035

55,930
20,817
9,541
2,941

Main Pork Consumers

2019

2018
(in thousands of tons – weight in equivalent carcass)

2017

Russia .......................................................................
Vietnam ....................................................................
Others .......................................................................
Total .........................................................................

3,197
2,435
16,968
105,351

3,197
2,796
17,005
112,342

3,296
2,713
16,373
111,611

Source: USDA, January 2020.

Beef

Brazil was the third largest producer and consumer, and the largest exporter of beef in the world in 2019,
according to the USDA. From 2019 to 2020, the USDA estimates an increase in global beef production and
consumption of approximately 0.01% and 0.4%, respectively, and also an increase in exports of 2.5%.

The following tables identify Brazil’s position within the global beef industry for the years indicated:

Main Beef Producers

U.S. ..........................................................................
European Union (28 countries) ...............................
Brazil ......................................................................
China .......................................................................
India .........................................................................
Argentina .................................................................
Australia ..................................................................
Mexico .....................................................................
Pakistan ...................................................................
Turkey .....................................................................
Others ......................................................................
Total ........................................................................

Main Beef Consumers

U.S. ..........................................................................
China .......................................................................
Brazil ......................................................................
European Union (28 countries) ...............................
India .........................................................................
Argentina .................................................................
Others ......................................................................
Total ........................................................................

Main Beef Exporters

Brazil .......................................................................
Australia ...................................................................
India..........................................................................
U.S. ..........................................................................
New Zealand ............................................................
Others .......................................................................
Total .........................................................................

Source: USDA, January 2020.

World Beef Production
2018
(in thousands of tons – weight in equivalent carcass)

2019

2017

12,381
8,030
7,875
6,850
4,287
3,120
2,450
2,020
1,820
0

12,771
61,604

12,256
8,003
9,900
6,440
4,265
3,050
2,306
1,980
1,800
1,400
11,077
62,477

11,943
7,869
9,550
6,346
4,250
2,840
2,149
1,925
1,780
1,399
10,936
60,987

2019

2018
(in thousands of tons – weight in equivalent carcass)

2017

12,408
9,133
7,914
7,862
2,687
2,372
17,108
59,484

12,180
7,910
7,866
8,024
2,709
2,562
19,388
60,639

12,052
7,313
7,750
7,838
2,401
2,547
19,156
59,057

2019

2018
(in thousands of tons – weight in equivalent carcass)

2017

2,356
1,825
1,600
1,372
649
3,512
11,314

2,082
1,662
1,556
1,434
633
3,200
10,567

1,856
1,485
1,849
1,297
593
2,888
9,968

The following graphic is a simplified representation of our meat production chain.

Production Process

We are a vertically integrated producer of poultry and pork products. We raise poultry and hogs, produce animal feed,
slaughter the animals, process poultry and pork to produce processed food products and distribute unprocessed and
processed products throughout Brazil and in our export markets.

The following graphic is a simplified representation of our meat production chain.

Meat Production Chain

Poultry

At the beginning of the poultry production cycle, we purchase breeder chicks in the form of eggs from
Aviagen of Brazil. We send these eggs to our grandparent stock farms, where the eggs are hatched, and the chicks are
raised, constituting our grandparent breeding stock. The eggs produced by our grandparent breeding stock are then
hatched, and our parent breeding stock is produced. We also buy a small percentage of our parent stock from another
supplier, Cobb Vantress. The parents produce the hatchable eggs that result in day-old chicks that are ultimately used
in our poultry products. We produced 1.63 billion day-old chicks and 12.5 million day-old turkeys in 2019. We hatch
these eggs in our 27 hatcheries.

We send the day-old chicks, which we continue to own, to outgrowers, whose operations are integrated with
our production process. The farms operated by these outgrowers vary in size and are near our slaughtering facilities.
These integrated outgrowers are responsible for managing and growing the poultry in their farms under the supervision

of our veterinarians. The payments to outgrowers are based on performance rates determined by bird mortality, the
feed-to-meat conversion ratio and the quantity of meat produced and are designed to cover their production costs and
provide net profits. We provide feed, veterinary and technical support to the outgrowers throughout the production
process. We have business arrangements with approximately 6,900 integrated poultry outgrowers. Many of these
outgrowers also produce and sell corn that we use to produce animal feed.

As of December 31, 2019, we had a fully automated slaughtering capacity of 33.1 million heads of poultry

per week.

Pork

We produce the majority of the pork we use in our products. We also purchase pork on the spot market.

Piglet producers either purchase parent breeder hogs produced by our company or from producers such as
Agroceres and DanBred. We generally purchase piglets from integrated outgrowers near our production facilities,
which raise the piglets until they reach a specified weight, or we purchase young piglets from farmers who own breeder
hogs. We transfer these piglets to separate integrated outgrowers, who raise the hogs until they reach slaughtering
weight, and then transport the hogs from these outgrowers to our slaughtering facilities. We have agreements with a
total of 2,685 integrated outgrowers, including piglet producers and hog raisers. We monitor the production of the
hogs by these outgrowers and provide support from our veterinarians.

The local producers from whom we purchase a portion of our pork needs are also located near our production
facilities but are not parties to partnership agreements with us. These producers generally raise the hogs from birth
until they reach slaughtering weight, but we provide limited technical support. We purchase the hogs raised by these
local producers pursuant to contracts with the local producers.

We slaughter the hogs raised by our outgrowers or purchased from local producers or on the spot market.
After they are slaughtered, the hogs are immediately cut in half. The half-carcasses are then separated based on their
intended use. These parts become the raw material for the production of pork cuts and specialty meats.

As of December 31, 2019, we had a pork slaughtering capacity of 190,950 heads per week.

Beef

We had a beef slaughtering capacity of 14,400 heads per week until October 1, 2014 when BRF and Minerva
signed an Investment Agreement, pursuant to which BRF allocated its beef slaughtering plants in Várzea Grande and
Mirassol as well as the BRF employees involved in these activities to a closed capital company that was incorporated
within Minerva. BRF received an equity interest in Minerva in connection with this transaction. The transaction closed
on October 1, 2014. On December 7, 2018, we executed an agreement with Marfrig for its acquisition in the amount
of R$100 million of real estate and equipment from our plant located in Várzea Grande in the State of Mato Grosso,
which produces approximately 69,000 tons of hamburger meat per year. This transaction closed on January 23, 2019
and, on April 1, 2019, a Supply Agreement with Marfrig became effective, under which Marfrig undertook to provide
us with finished goods produced in the Várzea Grande plant, such as hamburgers, meatballs, kibbehs, chicken meat
and processed chicken breast products for 60 months.

Processed Foods

We sell a variety of processed foods, some of which contain poultry and pork meat that we produce. BRF
has a total production capacity of 197 thousand tons/month across 16 production units in Brazil (Chapecó, Marau,
Capinzal, Toledo, Videira, Lucas do Rio Verde, Rio Verde, Uberlândia, Concórdia, Tatuí, Vitória de Santo Antão,
Herval d’Oeste, Lajeado, Ponta Grossa, Paranaguá and Duque de Caxias) processing meat products (such as
mortadella, franks, sausage, hamburger and breaded) and non-meat products (such as lasagna, ready-to-eat meals and
pizzas) for both the domestic and international markets. In Tatuí, in the State of São Paulo, we produce ready-to-eat
sandwiches, lasagnas, pizzas, cheese breads and other pasta and bakery items. In Ponta Grossa, in the State of Paraná,
we produce pizzas, pastas, desserts (Miss Daisy) and other processed products. Our Rio Verde plant is adjacent to our

Rio Verde poultry and pork slaughtering facilities, and we transport pork from other production facilities to be used
as raw materials. We purchase most of the remaining ingredients for our lasagnas, pizzas, pies and pastries in the
domestic market from third parties. Such seasonings and secondary raw materials are applied to each product type or
line according to established criteria and procedures to ensure consistency of color, texture and flavor. The
presentation of final products is achieved by shaping, casing, cooking and freezing in special machines. Products are
then subjected to quality controls and distributed to the consumer market after having been packaged, labeled and
boxed.

In November 2014, BRF opened its first plant in the Middle East, with a total capacity of 70 thousand
tons/year, aiming to supply the local Middle Eastern market, Europe and Asia. This plant produces franks, breaded,
hamburger, mortadella and marinated chicken breast.

We also sell frozen French fries, which are imported from Belgium where they are produced and packaged
for us by third parties. Prior to the divestitures made in connection with our financial and operational restructuring
plan, we sold other frozen vegetables, including broccoli, cauliflower, peas and French beans. In addition, we produce
soy-based products, such as soy meal and refined soy flour, at our plants in Videira, located in the State of Santa
Catarina, Dois Vizinhos, in the State of Paraná, and in Toledo, also in the State of Paraná.

The raw material for margarine is crude soybean oil, which is subjected to refining and bleaching processes.
We produce margarines in our plants in Paranaguá, State of Paraná, Uberlândia, State of Minas Gerais and Vitória de
Santo Antão, under the Qualy, Deline and Claybom brands and in the State of Pernambuco under the brands Qualy
and Deline. We sell these products as part of our strategy to diversify our product lines and to take advantage of our
distribution network for refrigerated products.

We also sell halal food, which is the food allowed for Islamic consumption. The halal poultry needs to
undergo a specific religious/technical procedure of slaughtering and processing, assuring that it was produced
according to the Islamic requirements and that it had no contact with prohibited foods or ingredients. In addition, the
Brazilian Federal Inspection Service (Serviço de Inspeção Federal, or “SIF”) of MAPA may establish additional
requirements for halal food production that we must comply with. BRF is assisted by Islamic entities that are
responsible for slaughtering and certifying all of our halal products.

Feed

We produce most of the feed consumed at the farms operated by our integrated poultry and hog outgrowers.
We provide feed to most of our integrated poultry and hog outgrowers as part of our partnership arrangements with
them. We also sell animal feed to local hog producers at market rates.

We own 24 feed and PREMIX production plants and have an additional three feed plants from third parties
that are 100% dedicated to BRF. The basic raw materials used in animal feed production are corn and soy meal mixed
with preservatives and micronutrients. In 2018 and 2019, we also purchased corn from rural producers and small
merchants, through cooperatives and from trading companies such as Coamo, Bunge, Cargill and others. The corn is
grown primarily in the states of Paraná, Santa Catarina, Rio Grande do Sul, Goiás, Mato Grosso, Mato Grosso do Sul
and Minas Gerais. We buy soy meal from major producers such as Bunge, Cargill and Amaggi, primarily pursuant to
long-term contracts. The prices of corn, soybeans and soy meal fluctuate significantly, influenced by international
quotes and local currency rates. See “Item 5. Operating and Financial Review and Prospects—A. Operating Results—
Principal Factors Affecting our Results of Operations—Commodity Prices.”

Other Raw Materials

We purchase other materials required for our products, such as prepared animal intestines (for sausage
casings), cardboard boxes and plastic (for packaging), micronutrients (for animal feed), spices and veterinary drugs
from third parties, both in the domestic and international markets.

Suppliers

One of our strategies is to build more efficient relationships with our suppliers by using selection criteria to

assess suppliers based on the quality of the product, the product performance and reliability.

We have a Chain Monitoring System that is structured to strengthen social and environmental risk control,
support an ethical and responsible business model and develop sustainable partnerships. We seek to accomplish this
by undertaking quality audits, distributing and requiring supplier adherence to our Suppliers’ Code of Conduct,
following the Policy for Related-Party Transactions, consulting public data and also including certain related
obligations in our contracts with suppliers. Our Suppliers’ Code of Conduct, which is posted on our website and agreed
to in advance by our suppliers, regulates our relationship and focuses on ethical behavior, social and environmental
responsibility. We are focused on a stronger risk management approach, especially with respect to quality, integrity
and safety, as well as sustainability and compliance.

In 2019, we created the internal process for suppliers to comply with our Suppliers’ Code of Conduct and
established internal procurement standards setting forth this process (“Procurement Standards”). The process was led
by an internal working group focused on ensuring effective Suppliers’ Code of Conduct implementation, mitigating
risks to the Company and strengthening our relationships with our stakeholders. Beginning in September 2019, all
new suppliers are required to confirm compliance with our Suppliers’ Code of Conduct before being registered on our
internal systems.

The Procurement Standards provide for certain exceptions to the rule requiring suppliers to accept our
Suppliers’ Code of Conduct. For example, suppliers are not required to accept our Suppliers’ Code of Conduct if they
are a public entity connected to the government or if they have their own code of conduct, in which case they may fill
out a short form indicating the website where their code of conduct is available or attaching it to the form. If a supplier
refuses to accept our Suppliers’ Code of Conduct and does not fall into the exceptions set forth by the Procurement
Standards, the situation will be directed to our internal critical committee for analysis. Our critical committee consists
of members from the legal, compliance and procurement departments. If our critical committee is unable to reach a
decision, the matter is referred to our executive committee for resolution.

In the case of conflicts of interest with suppliers, we have a specialized team that analyzes the risk of
maintaining or replacing the specified supplier. Additionally, through biweekly reviews of publicly available data in
Brazil, we identify suppliers that do not comply with legal requirements and/or BRF’s standards. When evaluating
suppliers, we regularly analyze, among other things, the following: environmental practices, labor relations and
practices and general compliance with laws and regulations. We are in the process of standardizing our monitoring
program across all of BRF’s departments, but all of BRF’s new suppliers are required to follow the Suppliers’ Code
of Conduct and the Policy for Related-Party Transactions, whether in connection with a contract or spot purchase.

The evaluation and appropriate selection of suppliers and maintaining relationships with those suppliers is
critical to our market competitiveness. The supplier assessment process often involves the simultaneous consideration
of various aspects of the supplier’s performance, including price, innovation, delivery time, quality and post-sales
support, along with its social and environmental policies and performance. Our process follows established guidelines,
supported by systems and rules to be followed by all members of our procurement team. In 2018, we implemented
our purchasing system – Ariba SAP, which is an advanced purchasing tool intended to strengthen our compliance
function. In 2019, we implemented a new module within the purchasing system, called Ariba Network, which is
focused on the relationship between our contract managers and suppliers. This improvement reinforces our
commitment to compliance and transparency in our routine processes by ensuring an accurate evaluation of our
contracted services and facilitating robust communication between our suppliers and our systems.

Tracking and auditing are continually monitored through internal and external audits to ensure that our

processes are constantly improving and aligned with our norms and codes, compliance and sustainability efforts.

Brazilian Market

Brazil is the fifth largest country in the world, both in terms of land mass and population. For 2019, Brazil
had an estimated population of 209.7 million people, according to figures from the IBGE. Brazil’s GDP amounted to
R$6.6 trillion in 2017, R$6.8 trillion in 2018 and R$7.2 trillion in 2019. In 2019, GDP increased by 1.1% in nominal
terms and 0.3% per capita compared to 2018.

Inflation measured by the National Amplified Consumer Price Index (known as the IPCA - Índice Nacional
de Preços ao Consumidor Amplo), published by the IBGE, came to 2.95% 2017, 3.75% in 2018 and 4.31% in 2019
following a trend of relatively high rates. The end-of-period exchange rate, as measured by the Brazilian Central Bank,
was R$3.31/U.S.$1.00 in 2017, R$3.87/U.S.$1.00 in 2018 and R$4.03/U.S.$1.00 in 2019, with the real depreciating
by 4.1% in 2019 compared to 2018.

Brazil is one of the largest meat consumers in the world, with per capita consumption in 2019 of 99.9
kilograms, including beef, chicken and pork products, according to the USDA, an increase of 1.3% compared to 2018.
Demand for poultry and pork products in the domestic market is directly affected by the country’s economic
conditions. Given the slight economic recovery in 2019, meat consumption increased in 2019 compared to 2018. As
further economic improvement is expected for 2020—market analysts consulted by the Central Bank expect that GDP
will increase by 2.3%, while inflation is expected to remain low at 3.47%—meat consumption should increase in
2020. Brazil’s domestic market is highly competitive, particularly for fresh food and frozen poultry and pork products.
Besides BRF, there are many large producers, including Seara Alimentos S.A. (“Seara”) (which was acquired from
Marfrig by JBS in 2013), Cooperativa Central Aurora Alimentos (“Aurora”) and JBS. The main producers in the fresh
food market face strong competition from a large number of small producers which operate in the informal economy
and sometimes offer low quality products at lower prices than those of the large producers. BRF seeks to develop
quality products, focusing on innovative solutions that meet clients’ needs and capture value for the strong brands it
owns, such as Sadia and Perdigão.

The processed food sector is more concentrated than the fresh food sector in terms of the number of
competitors. Consumption of processed products is influenced by a number of factors, including the level of consumer
income and marketing efforts directed at meeting consumer demand for more value-added products. We believe that
processed foods also represent an opportunity for growth in the coming years.

We estimate the following market information based on available data from A.C. Nielsen, which is reported

to them by us and by some of our competitors:

•

the Brazilian industrialized food market had revenues of approximately R$21,543 million in 2019
compared to R$20,187 million in 2018;

the Brazilian frozen food market had revenues of approximately R$4,607 million in 2019 compared to
R$4,174 million in 2018; and

the Brazilian margarine market had revenues of R$3,837 million in 2019 compared to R$3,901 million
in 2018.

These figures do not include BRF data by region or category of products that are not covered by the A.C.

Nielsen figures.

International Markets

Brazil is a leading producer in global export markets due to its natural advantages (land, water, and climate),
competitive inputs costs and increasing efficiencies in animal production. Like other large Brazilian producers, we
have capitalized on these advantages to develop the scope and scale of our business.

Global demand for Brazilian poultry, pork and beef products is significantly affected by trade barriers,
including both (i) tariff barriers, which ultimately protect certain domestic markets, and (ii) non-tariff barriers, mainly

including import quotas, sanitary barriers and technical/religious barriers. See “Item 5. Operating and Financial
Review and Prospects—A. Principal Factors Affecting our Results of Operations––Effects of Trade and Other
Barriers” for additional information.

Sales

We sell our products both in the domestic and export markets around the world. Net sales to the Brazilian
market, including most of our processed foods, accounted for 52.3%, 54.0% and 53.6% of our net sales in 2019, 2018
and 2017, respectively. Net sales to international markets, including most of our frozen whole and cut chickens and
other poultry and frozen pork cuts and beef cuts, accounted for 44.5%, 43.3% and 43.5% of our net sales in 2018,
2017 and 2016, respectively.

The table below sets forth the breakdown of our net sales for the periods indicated:

Brazilian Market
Poultry ...................................................................................................
Pork/Beef ..............................................................................................
Processed food products ........................................................................
Other Sales ............................................................................................
Total Brazilian market ..........................................................................

International Markets
Poultry ...................................................................................................
Pork/Beef ..............................................................................................
Processed food products ........................................................................
Other Sales ............................................................................................
Total International markets ...................................................................

Other Segments
Poultry ...................................................................................................
Pork/Beef ..............................................................................................
Processed food products ........................................................................
Other Sales ............................................................................................
Total Other Segments ............................................................................
Total .....................................................................................................

Seasonality

2019

2018

2017

11.0%
2.8%
38.4%
0.0%
52.3%

33.7%
3.8%
6.3%
0.5%
33.7%

0.1%
0.0%
0.0%
3.0%
3.2%
100%

10.6%
2.7%
40.7%
0.1%
54.0%

33.2%
2.7%
6%
1.2%
33.2%

0.3%
1.8%
0.5%
2.6%
2.7%
100%

9.5%
2.8%
41.3%
0.1%
53.6%

31.6%
5.1%
5.5%
1.5%
31.6%

0.1%
0.0%
0.0%
2.8%
2.9%
100%

See “Item 5. Operating and Financial Review and Prospects—B. Liquidity and Capital Resources—

Seasonality” for information regarding seasonality.

Overall Comparison of the Company’s Net Sales for the Years Ended December 31, 2019 and 2018

Brazil

We cover substantially all of the Brazilian population through a nationwide distribution network. In the
domestic market, we sell our products directly to supermarkets, wholesalers, retail stores, food services and other
institutional buyers. The graphs below set forth our Brazilian net sales to supermarkets, retail stores, wholesalers and
food services buyers as a percentage of total domestic net sales for the periods indicated.

Distribution Channel

2019

2018

2017

Whosale
13%

Food Service
11%

Whosale
12%

Food Service
10%

Whosale
12%

Food Service
9%

Retail
47%

Retail
46%

Supermarket
29%

Retail
45%

Supermarket
32%

Supermarket
34%

Our domestic distribution network comprises 21 distribution centers in several Brazilian states. Refrigerated
trucks transport our products from our processing plants to the distribution centers and from the distribution centers
to our customers. We have 28 transit points, previously referred as cross-docking points, in several areas of the country
that enable us to unload products from large refrigerated trucks onto smaller trucks or vans for transportation to our
customers. We own six of our distribution centers and lease the remaining 15 centers, which are listed below under
“—Property, Plant and Equipment.” We do not own the vehicles used to transport our products—we contract with
carriers to provide this service for us on an exclusive basis.

International

We operate in three business segments which primarily reflect our geographical structure: Brazil,
International (including Islamic markets in the Middle East, North Africa, Malaysia and Eastern Europe, as well as
Africa, Asia, Europe, Eurasia and the Americas) and Other Segments. The graphs below set forth a breakdown of our
export net sales by segment.

2019

Others Segments;
3%

2018

Others Segments;
3%

2017

Others Segments;
3%

International;
45%

Brazil; 52%

International;
43%

Brazil; 54%

International;
44%

Brazil; 54%

Competition

Brazil

Brazil’s domestic market is highly competitive, particularly for fresh food and frozen poultry and pork
products. BRF endeavors to develop quality products, focusing on innovative solutions that meet clients’ needs and
capture value for the strong brands it owns, such as Sadia and Perdigão.

In the processed meat and margarine categories, the most recently available percentage of our market share
in Brazil in 2019 as reported by A.C. Nielsen shows that BRF has significant representation in the domestic market,
as demonstrated in the graph below, which is separated by retail categories:

Market Share $

Frozen Meals

Filled

Cold Cuts

Margarines

Total BRF*

54.0%

49.5%

43.8%

46.4%

37.2%

Source: A.C. Nielsen Bimonthly Retail – Margarines and Ready-Made Dishes (October/November 2019 survey); Filled and Chilled

(November/December 2019 survey)

Because A.C. Nielsen gathers data from those in the industry who report to it voluntarily in the areas of the
country and categories covered by it, the overall market sizes on which these percentages were based are smaller than
our own internal estimates of the market sizes that we describe above under “—Brazilian Market.”

JBS is our main competitor in the domestic market. In the processed meat segment, we compete against JBS.
In the specialty meat market, we compete against Aurora and JBS, while the remainder of the market is represented
by several small producers. In the frozen product market (which includes hamburgers, steaks, breaded meat, meatballs
and pasta), we are the leader in terms of market share, followed by JBS, Aurora and Pif Paf Alimentos S.A. (“Pif Paf”)
and other smaller producers. In the margarine market, we also maintained a leading position with respect to market
share, followed by Bunge Alimentos S.A., JBS (under the brand Doriana) and Vigor Alimentos S.A.

In the Brazilian market for in natura meat (whole poultry, poultry and pork cuts), we face competition from
small producers, some of which operate in the informal economy and offer lower quality products at lower prices.
This competition from small producers is one of the reasons why our production of chicken and pork is more focused
on the external market than the domestic market compared to other players in Brazil.

Considering the current improving macroeconomic context in Brazil and its positive impact on the
consumption of animal protein, the processed food market is growing and the expectations in the medium and long-
terms indicate continued expansion. In that context, to take advantage of growth opportunities, we are focused on
executing an innovation agenda based on consumer needs (healthy, premium and practical), expanding to new
categories and consumption occasions and implementing a targeted brand positioning strategy (communication,
activations, brand architecture and portfolio stretch). In addition, to increase market share, our opportunities are related
to enhancing brand power and value perception, increasing distribution capacity, expanding the offer of superior
quality products and implementing a revenue management strategy.

International

We face significant competition in our international markets, both from Brazilian producers and from
producers in other countries. Cooperatives are increasingly relevant competitors, as they have tax advantages and
certain mobility to reassign their production to foreign markets at times when exports become more attractive than the
domestic market. In addition, JBS is one of our direct competitors in the international market that has many of the

same competitive advantages that we have over producers in other countries, including natural resources and
competitive input costs.

Our chicken and pork cuts, in particular, are price-sensitive and sensitive to substitution with other products.
Customers sometimes seek to diversify their sources of supply in different countries, even though we often have a
lower cost of production.

Protectionist measures among Brazil’s trading partners are also an important competitive factor. Brazilian
exports of poultry and swine are increasingly affected by actions taken by other countries to protect local producers.

Our net sales in the international market reached R$14.9 billion in 2019, an increase of 14.1% from 2018.
Despite the still-challenging international market environment in 2019, we believe we export more than our main
Brazilian competitors, as BRF is one of the largest poultry exporters in the world. In 2019, BRF accounted for 11.6%
of the world’s poultry trade, according Trademap.

In our international markets, our competition is based on quality, cost, prices and service to our customers.

Distribution of Products

Brazilian Market

As of December 31, 2019, we operated 21 distribution centers and 28 transit points. In 2019, we improved

productivity based on new technologies in our Brazilian distribution and a reduction of lead time in deliveries.

International Markets

We export our products mainly through the ports of Itajaí, Navegantes and Itapoá in the state of Santa
Catarina. We also export our products through Rio Grande in the state of Rio Grande do Sul, Paranaguá in the state
of Paraná and Santos in the state of São Paulo. We store our products in refrigerated storages that are owned and
operated mainly by third parties located at ports in the states of Paraná, Santa Catarina and Rio Grande do Sul. In
2019, we packed more than 64% of our export containers at plants, referred to as loading “fresh frozen products.” We
contract with exclusive third-party carriers to transport our products from our production facilities to the ports, and
we ship our products to export markets through independent shipping companies.

All the ports that we use to load our cargo are private terminals from third parties. We have occasionally
experienced disruptions at the ports as a result of logistics challenges, including flooding, strong currents, small drafts,
strong winds/waves and winter fog.

Our sales and distribution efforts abroad are coordinated through offices in Austria, Russia, Singapore, South
Korea, China, Japan, Vietnam, Saudi Arabia, the United Arab Emirates, Qatar, Oman, Kuwait, South Africa, Uruguay,
Chile, Turkey and Malaysia. We coordinate our marketing efforts and provide sales support to customers in our main
international markets through these offices. Our distribution arrangements in our international markets vary according
to the market.

Europe. On May 14, 2018, the European Union released its decision to remove 12 of our production facilities
in Brazil from the list that permits imports of animal products by the countries in the European Union. Given the ban
of imports from our production facilities, we are no longer able to sell our products from such embargoed production
plants in the European Union. This suspension on certain products from Brazilian producers caused challenges for our
operations in Europe and required us to reorganize our sales and distribution network by strengthening our partnerships
with other food processors, food service operators and local distributors. Furthermore, we leveraged our global
sourcing network to supply the European market with products produced outside of Brazil. On February 7, 2019, we
agreed to sell to Tyson International Holding Co. most of our subsidiaries in Europe, including our Wrexham (UK)
and Oosterwolde (Netherlands) processing plants, and our food processing and poultry slaughtering operation in
Thailand. This transaction closed on June 3, 2019 for the amount equivalent to R$1,488,033 thousand (US$382,106
thousand). BRF has undertaken, in the share purchase agreement entered into with Tyson International Holding Co.,

not to trade in poultry products for human consumption in certain jurisdictions in Europe, including the European
Economic Area (EEA) and the United Kingdom. The non-compete provision is valid until June 3, 2021 and June 3,
2022, depending on the sales channel.

In 2019, we continued developing our chicken portfolio in Russia and other countries in Eurasia to maintain

our presence in these markets. We sell our products to local processors and food service operators.

Asia. China, together with Hong Kong, is our largest market in Asia, where we supply a significant volume
and diverse portfolio of products, including chicken wings, chicken feet and pork cuts. Also, with a small distribution
operation in Shanghai, BRF has been partnering with retailers to sell Sadia frozen chicken cuts to Chinese consumers.
In 2019, new factories of BRF were authorized to export products to China, and one of our new product initiatives
focused on strengthening the Sadia brand in this market. In Japan, our local level of service, quality standards and
product range have made us a preferred supplier of chicken products in the market. In South Korea, BRF was the first
Brazilian producer to export pork cuts to this market, which has provided new business opportunities in this country.
In 2019, we concluded the sale of our interest in the joint venture Sats BRF Food Pte Ltd., in Singapore, and signed a
distribution agreement to continue supplying it with our products. See “Item 4. Information on the Company—A.
History and Development of the Company—Other Transactions in 2018 and 2019.” In 2019, we also sold our facilities
in Thailand, along with most of our European assets, to Tyson International Holding Co. See “Item 4. Information on
the Company—A. History and Development of the Company—Sale of Assets in Europe and Thailand.”

Middle East. In the Middle East, Turkey and Malaysia we sell to wholesalers, retailers, small stores
(traditional trade), food service providers, and processors. In these markets, we primarily sell frozen chicken in three
categories: whole, cuts and processed products. We believe we are one of the preferred suppliers of these products in
this region due to our quality standards and our long-standing customer relationships. Our biggest brand, Sadia is
recognized as the leading food brand in the Middle East and enjoys the highest Top of Mind brand within the frozen
meat category, according to a study made by Ipsos Research, a third-party consulting firm. In 2017, we created
separate Halal business operations, which was focused 100% in the Halal market. We also announced the completion
of the acquisition of Banvit in Turkey, through TBQ Foods GmbH, a joint venture formed with the Qatar Investment
Authority in May 2017. See “Item 4. Information on the Company—A. History and Development of the Company—
Corporate Reorganization of One Foods.” In 2019, our Halal operations were reincorporated into BRF S.A. as part of
our International operating segment, and they are currently operating similarly to how they operated prior to 2017.

Africa. Our strategy in Africa has focused on unlocking a number of in-market opportunities that fall under
the attractive and affordable processed category. In 2019, we focused on strengthening our partnerships in the region.
We pursue sales in Africa through sales to distributors with the widest possible distribution. The Sadia and Perdix
brands are the primary brands that we have focused on distributing in the region. Angola remains our main market for
chicken cuts and processed food, such as franks and mortadella. We also expanded the supply of processed food to
South Africa through BRF facilities in Turkey. Going forward, we will continue to carefully consider future growth
markets. Furthermore, our next phase of developments will emphasize more control over the interactions between the
brands and the consumers by gaining additional insight into consumer preferences to strengthen our value proposition
and distribution opportunities.

Americas and Other Countries. We sell our products in the Americas through direct sales to key distributors.
Additionally, in 2019, we strengthened our commercial relationship with Mexican clients that started in 2017, where
we primarily sell frozen chicken cuts. We also sell chicken cuts, including breasts and wings, to processing companies
in Canada. Additionally, Sadia is an established brand and holds important market shares in Chile and Uruguay, where
we maintain local distribution operations, and in Paraguay, where we operate through consolidated local distributors.

Intellectual Property

Our principal intellectual property consists of our domestic and international brands. We sell our products
mainly under the “Sadia,” “Qualy” and “Perdigão” brands in the Brazilian market and mainly under the “Perdix,”
“Perdigão,” “Sadia,” “Confidence,” “Fazenda,” “Qualy,” “Borella,” “Sahtein,” “Hilal,” “Halal,” “Sulina” and
“Deline” brands in our international markets, as described below under “—Marketing.”

We also own several brands for specific products or product lines. In the Brazilian market, these brands
include, but are not limited to, “Sadia Bio,” “Sadia Salamitos,” “Sadia Hot Pocket,” “Perdigão Ouro,” “Chester
Perdigão,” “Perdigão NaBrasa” and “Claybom.” Among our trademarks are: “Halal & Design” (registered in various
Middle Eastern countries), “Unef” (registered in various Middle Eastern countries), “Sulina” (registered in various
Asian and Caucasian countries), “Fazenda” (registered in various European countries) and “Alnoor” (registered in
several Middle Eastern countries). The “Sadia” trademark is registered in various forms in more than 90 countries. In
the Middle East, “Sadia” is registered in various forms in countries such as Saudi Arabia, the United Arab Emirates,
Egypt, Bahrain, Yemen, Iran, Lebanon, Qatar, Kuwait, and Oman, as well as in countries in the Caucasus, in Asia and
in Latin America. The Sadia mascot is protected both as a registered trademark and copyright pursuant to a registration
with the Brazilian National Library, and such protection extends to countries other than Brazil.

In addition, we have patents registered in Brazil and more than 10 other countries. BRF has applied to have
the Sadia, Perdigão and Qualy trademarks recognized as “well known trademarks” by the Brazilian National Institute
for Industrial Property (Instituto Nacional de Propriedade Industrial – INPI), which granted us that recognition for
Sadia and Perdigão in June 2011 and for Qualy in August 2019. BRF has also applied for its corporate trademark
“BRF” (and accompanying design) to be registered in over 125 countries in North and South America, Europe, Asia,
Africa and the Middle East.

Lastly, we own several internet domain names, registered with the competent authorities, such as
“perdigao.com.br,” “claybom.com.br,” “qualy.com.br,” “sadia.com.br,” “brf.com,” “brf-foodservices.com.br” and
“brf-global.com.”

Marketing

BRF maintains an active marketing program using several channels, including television and video, digital,
print and brand experiences. Our marketing efforts are based on (i) adding value to existing categories and diversifying
our product lines; (ii) increasing convenience with respect to our in natura meat and processed products; (iii) ensuring
that our brands are recognized and associated with high quality products; and (iv) strengthening our reputation for
quality by emphasizing high quality service to our customers. Furthermore, we intend to consolidate our brands, while
continuing to tailor our appeal to specific export markets and domestic market segments.

In the Brazilian market, we sell our products primarily under the Sadia, Perdigão and Qualy brands. Apart
from these major brands, we also sell our products under various Sadia brands, including: Soltíssimo, Nuggets, Frango
Fácil and Speciale. Additionally, we sell products under various Perdigão brands, including: Chester, Ouro, Na Brasa
and Meu Menu.

Sadia is our premium brand and it holds a leading position in the Brazilian market. Perdigão is also a leading
brand in the Brazilian food market, including in the processed food segment. Chester is a Perdigão brand well-known
for its Christmas products.

In 2019, we introduced a new positioning concept for our Sadia brand based on consumer perception of
quality, superiority and transparency. Sadia is also the preferred brand in the animal protein market in Brazil based on
Kantar Insights – Brand Equity Tracking 2019. Sadia and Perdigão, together, hold 41.8% of the animal protein market
in Brazil, and Qualy, more than 50% of the margarine market in Brazil, also according to Kantar Insights – Brand
Equity Tracking 2019.

Miss Daisy is BRF’s frozen dessert product line. We have produced and sold Miss Daisy deserts since 1999.
We believe the Miss Daisy brand has a leading market position and has been highly resilient to market changes. We
offer a wide variety of products under the Miss Daisy brand, including mousse pie, Dutch pie and frozen mousse. In
addition, Miss Daisy develops specific products for Christmas kits which have been popular in the Brazilian market.

In our Halal markets, our main brands are Sadia and Banvit, which have been leading brands in terms of
market share and consumer preference. We also use secondary brands such as Perdix, Hilal and Korpe, as well as
other brands such as Confidence, UNEF and Gozde in different countries and distribution channels. The opening of
the Abu Dhabi plant in the Middle East and its current expansion are important milestones in the expansion of our
Halal business. Local production of processed food greatly increases our ability to adapt our products to local
preferences and has assisted with the expansion of our product portfolio in the Middle East, as we seek to provide the
best food products to our customers.

In addition, our acquisition of Banvit in 2017, the largest producer of poultry in Turkey, has provided us with
growth opportunities in processed products beyond the Turkish markets, where we plan to consolidate our leadership
in the Halal animal protein market through a larger portfolio of brands.

Regulation

The MAPA, which is the principal governmental authority overseeing our business, is responsible for the
regulation and inspection activities related to animal health, technical (including labeling) and quality criteria related
to the making of animal food products in all industrial units in Brazil. MAPA also oversees our activities through the
Department of Agriculture Defense (Secretaria de Defesa Agropecuária) and the Department of Inspection of Animal
Products (Departamento de Inspeção de Produtos Animais).

The inspection activity is performed by placing teams from the SIF/MAPA in the facilities. Their scope of
work includes all stages of the production process (including receipt of raw materials, production, labeling and storage)
and they can identify noncompliance with applicable rules, with penalties ranging from a warning to permanent
suspension of business activities.

We are also subject to the oversight of a number of other international and Brazilian governmental authorities
(at federal, state and municipal levels), which include, in Brazil, among others, multiple environmental agencies and
the National Agency for Sanitary Surveillance (Agência Nacional de Vigilância Sanitária, or “ANVISA”), which is
responsible for supervising, among other matters, the food safety of products sold across Brazil.

Organizational Structure

We are an operating company incorporated under Brazilian law, and we conduct business through our

operating subsidiaries. The following table sets forth our significant subsidiaries.

Entities

Country

Main Activity

BRF GmbH

BRF Global GmbH

BRF Austria Gmbh

One Foods Holdings Ltd.

Badi Ltd.

Austria

UAE

Holding

Holding and Trading

Holding

Al-Wafi Al-Takamol International for Foods Products

Saudi Arabia

Import and commercialization of products

BRF Al Yasra Food K.S.C.C. ("BRF AFC")

BRF Foods GmbH

Al Khan Foodstuff LLC ("AKF")

TBQ Foods GmbH

Banvit Bandirma Vitaminli

Kuwait

Austria

Oman

Austria

Turkey

Import, commercialization and distribution of products

Industrialization, import and commercialization of products

100.00%

Import, commercialization and distribution of products

Holding

Import, industrialization and commercialization of products

70.00%

60.00%

91.71%

Interest
in Equity
as
of
December
31, 2019

100.00%

75.00%

49.00%

Federal Foods LLC

Federal Foods Qatar

UAE

Qatar

Import, commercialization and distribution of products

49.00%

The chart below shows our simplified corporate structure.

BRF S.A.

BRF GmbH

BRF Austria

BRF Global
GmbH

OneFoods

Badi

BRF AFC

BRF FoodsGmbH

Federal Foods
LLC

Al-Wafi Al-
Takamol

Al Khan Foodstuff
LLC ("AKF")

TBQ Foods

Federal Foods
Qatar

BanvitBandirma

For a complete list of all of our direct and indirect subsidiaries, see Note 1.1 to our consolidated financial

statements.

Property, Plant and Equipment

Production

Our activities are organized into two regions: Brazil and International (consisting of the Middle East, North

Africa, Malaysia, Africa, Asia, Europe, Eurasia and the Americas).

In our international market, we operate five industrial facilities for meat processing. Additionally, after giving
effect to the divestitures made in connection with our financial and operational restructuring plan, we continue to
operate 24 distribution centers located in Asia, the Southern Cone and the Middle East as well as commercial offices
on four continents.

The table below sets forth our production facilities in Brazil.

Production Plant
Meat Products:

State of Location

Activities

Buriti Alegre**
Campos Novos
Capinzal

Carambeí**/****
Chapecó

Concórdia

Dois Vizinhos**
Dourados
Duque de Caxias
Francisco Beltrão**
Garibaldi**
Herval D'Oeste

Jataí**
Lajeado
Lucas de Rio Verde

Goiás
Santa Catarina
Santa Catarina

Paraná
Santa Catarina

Santa Catarina

Paraná
Mato Grosso do Sul
Rio de Janeiro
Paraná
Rio Grande Sul
Santa Catarina

Goiás
Rio Grande do Sul
Mato Grosso

Marau

Rio Grande Sul

Mineiros***/****

Goiás

Nova Marilândia*
Nova Mutum**
Paranaguá
Ponta Grossa
Rio Verde****

Serafina Corrêa
Tatuí
Toledo

Mato Grosso
Mato Grosso
Paraná
Paraná
Goiás

Rio Grande Sul
São Paulo
Paraná

Uberlândia**

Minas Gerais

Videira

Santa Catarina

Vitória de Santo Antão

Pernambuco

Soybean
Margarine Products:

and

Paranaguá
Uberlândia
Vitoria de Santo Antão
Dois Vizinhos**
Videira
Toledo

Paraná

Minas Gerais
Pernambuco
Paraná
Santa Catarina
Paraná

industrialized products

industrialized products and

Poultry slaughtering
Pork slaughtering and animal feed
Poultry slaughtering and
processing
Poultry slaughtering, animal feed and hatchery
Poultry slaughtering (including turkey), industrialized
products processing, animal feed and hatcheries
Pork and poultry slaughtering, industrialized products
processing, animal feed and hatcheries
Poultry slaughtering, animal feed and hatcheries
Poultry slaughtering, animal feed and hatchery
Industrialized products processing
Poultry slaughtering, animal feed and hatcheries
Poultry slaughtering
Pork slaughtering,
hatchery.
Poultry slaughtering, animal feed and hatchery
Pork, poultry slaughtering and industrialized products
Pork and poultry slaughtering, industrialized products
processing
slaughtering,
Pork
products, animal feed and hatcheries
Poultry and special poultry (Chester®) slaughtering
and processing
Poultry slaughtering
Poultry slaughtering, animal feed and hatchery
Industrialized products processing
Industrialized products processing
Pork and poultry slaughtering, industrialized products
processing
Poultry slaughtering
Industrialized products processing
Pork and poultry slaughtering, industrialized products
processing, animal feed and hatcheries
Poultry and pork slaughtering, industrialized products
processing and hatcheries
Poultry slaughtering, industrialized products, animal
feed and hatcheries.
Industrialized products processing

and poultry

industrialized

Margarine processing
Margarine processing
Margarine processing
Soybean crushing
Soybean crushing
Soybean crushing

Production facilities owned and operated by third-party producers who produce according to our specifications.

** Operates in accordance with the Halal requirements.

*** The activities of the Mineiros plant were suspended by the MAPA on March 17, 2017 in connection with the Carne Fraca Operation. The
plant resumed operations on April 11, 2017. For more details, see “Item 8. Financial Information—A. Consolidated Statements and Other
Financial Information—Legal Proceedings—Carne Fraca Operation.”

**** Exports of the Rio Verde, Carambeí and Mineiros plants were suspended by the MAPA on March 5, 2018 in connection with Trapaça
Operation. For more details, see “Item 8. Financial Information—A. Consolidated Statements and Other Financial Information—Legal
Proceedings— Trapaça Operation.”

Part of our real estate assets are subject to liens incurred in connection with financing agreements, payment

of taxes and lawsuits, as described in Note 17 to our consolidated financial statements.

Distribution Centers

We operate 21 distribution centers throughout Brazil, as set forth in the table below.

Location
Aparecida de Goiânia
Belém
Cuiabá
Duque de Caxias
Embu
Exportação Ponta Grossa
Fortaleza
Itajaí
Jundiaí
Londrina
Manaus
Marau
Nova Santa Rita
Ribeirão das Neves
Rio Verde
Salvador
São José dos Pinhais
Uberlândia
Viana
Videira
Vitória de Santo Antão

State

Owned or Leased

Goiás
Pará
Mato Grosso
Rio de Janeiro
São Paulo
Paraná
Ceará
Santa Catarina
São Paulo
Paraná
Amazonas
Rio Grande do Sul
Rio Grande do Sul
Minas Gerais
Goiás
Bahia
Paraná
Minas Gerais
Espírito Santo
Santa Catarina
Pernambuco

Leased
Leased
Leased
Leased
Leased
Owned
Leased
Leased
Owned
Leased
Leased
Owned
Leased
Leased
Owned
Leased
Leased
Owned
Leased
Owned
Leased

We operate 28 transit points in Brazil in the locations set forth in the table below.

Transit Points
Apucarana
Aracajú
Araçatuba
Bauru
Brasília
Campo Grande
Campo dos Goytacazes
Criciúma
Governador Valadares
Guarulhos
Itabuna
Limeira
Macapá
Maceió
Marau
Monte Claros
Parnamirim
Paraíso do Tocantins
Pelotas

State of Location

Owned or Leased

Leased
Paraná
Leased
Sergipe
Leased
São Paulo
Owned
São Paulo
Distrito Federal
Leased
Mato Grosso do Sul Owned
Leased
Rio de Janeiro
Leased
Santa Catarina
Leased
Minas Gerais
Owned
São Paulo
Leased
Bahia
Leased
São Paulo
Leased
Amapá
Leased
Alagoas
Owned
Rio Grande do Sul
Leased
Minas Gerais
Rio Grande do Norte Leased
Leased
Tocantins
Leased
Rio Grande do Sul

Transit Points
Pouso Alegre
Presidente Prudente
Ribeirão Preto
Santa Maria
São José do Ribamar
São José dos Campos
Seabra
Sorocaba
Teresina

State of Location

Owned or Leased

Minas Gerais
São Paulo
São Paulo
Rio Grande do Sul
Maranhão
São Paulo
Bahia
São Paulo
Piauí

Leased
Leased
Leased
Leased
Leased
Owned
Leased
Leased
Leased

Environment

Our activities are subject to strict environmental laws and regulations at municipal, state and federal levels,
which regulate the aspects related to water, effluents, solid wastes, atmospheric emissions, noise and smells. Our
operations are also subject to environmental licensing procedures at federal, state and/or municipal levels.

Failure to comply with the environmental laws and regulations can result in civil and criminal penalties
against the offender, in addition to indemnification payments for environmental damages. Civil penalties may include
summons, fines, temporary or permanent bans, the suspension of subsidies by public bodies and the temporary or
permanent shutdown of commercial activities. Criminal penalties include fines and prison (for individual offenders)
and liquidation (for legal entities). Fines for operating without a license vary from state to state in accordance with the
environmental damages caused. Furthermore, under Brazil’s environmental legislation, the corporate entity of a
company will be disregarded if necessary to guarantee the payment of costs related to environmental damages.

In the Company’s Health, Safety and Environmental Policy (SSMA Policy), we established guidelines for
environmental management based on the principles of the ISO 14001. This policy seeks to ensure that our activities
and growth are carried out in accordance with applicable environmental regulations. We have established a set of
standards to be used in the company’s environmental management. The monitoring of implementation of these
standards is undertaken through technical indicators, with targets that are established on an annual basis. Corrective
actions are established to resolve deviations that have been found. An assessment is carried out to make sure that the
environmental management system is being observed.

In 2019, we maintained three plants with ISO 14001 certification, all of which are located in Brazil. These

plants were audited by regulatory bodies and undergo regular recertification.

Environmental management is part of our daily operations. Our internal controls are built to improve
sustainability in our operations. We also develop projects and take part in initiatives to monitor and control
environmental matters, and we focus on developing alternative technologies for the generation and use of sustainable
energy. Additionally, we have structured a program with our integrated producers to collect animal waste.

We use our partnerships with integrated producers to leverage standards in our activities and those of our
suppliers. We provide technical support and guidance to help our integrated producers to properly address
environmental issues.

We have professional environmental technicians and have trained them in the main aspects of environmental
regulations. Our plants are built in line with the applicable environmental regulations. Our environmental structure is
composed of experts, engineers and environmental analysts to assist with the implementation and monitoring of legal
requirements and internal guidelines. We also have the support of our environmental legal department for legal
assistance.

Despite our efforts to comply with the legislation and the environmental regulations, we have occasionally
been required to sign environmental agreements with the Brazilian federal and local government related to the non-
compliance with environmental licensing requirements. We are required under these agreements to, among other
things, address the environmental infraction and remediate any environmental damage. If we do not comply with these

obligations, we will be subject to the payment of fines accrued on a daily basis. See “Item 8. Financial Information—
A. Consolidated Statements and Other Financial Information—Legal Proceedings—Civil, Commercial and Other
Proceedings” for additional information.

Health and Safety

We are committed to the safety of our facilities. All BRF employees and contractors in Brazil and as part of
our international operations must follow our safety protocols. In addition, we have hired a consulting firm to assist
with further strengthening our health and safety structure, including with respect to ammonia cooling systems, fire
prevention and other health and safety improvements. Our health and safety policies aim to reduce lost time and non-
lost time accidents, occupational illnesses and material loss incidents. In 2019, we reduced accidents by 45.4%.

Insurance Coverage

We purchase insurance to cover our plant assets, equipment and inventory. Our insurance coverage includes
comprehensive general liability insurance coverage for operations, executives and employer’s liability, products
liability and other claims in connection with the manufacture, production, distribution and sale of our products. We
consider the amounts of our insurance coverage to be typical for a company of our size and adequate to meet the
foreseeable risks associated with our operations.

ITEM 4A. UNRESOLVED STAFF COMMENTS

None.

OPERATING AND FINANCIAL REVIEW AND PROSPECTS

Operating Results

Overview

BRF S.A. is one of the largest producers of fresh and frozen protein foods in the world. We are committed
to operating our business and delivering products to our global customer base in line with our core values: quality,
safety and integrity. We have a portfolio of approximately 3,000 SKUs. Our processed products include marinated
and frozen chicken, Chester® rooster and turkey meats, specialty meats, frozen processed meats, frozen prepared
entrees, portioned products and sliced products. We also sell margarine, sweet specialties, sandwiches and animal
feed. We are the holder of brands such as Sadia, Perdigão, Qualy, Perdix, Confidence and Hilal. In 2019, BRF
accounted for 11.6% of the world’s poultry trade, according to Trademap.

A breakdown of our products is as follows, which are sold both in Brazil and to our international customers:

• Meat Products, consisting of in natura meat, which we define as frozen whole and cut chicken, and

frozen pork;

• Processed Food Products including the following:

o marinated, frozen, whole and cut chicken, roosters (sold under the Chester® brand) and turkey;

specialty meats, such as sausages, ham products, bologna, frankfurters, salami, bacon and other
smoked products; and

frozen processed meats, such as hamburgers, steaks, breaded meat products, kibbeh and meatballs;

• Other Processed Products including the following:

o margarine; and

frozen prepared entrees, such as lasagna and pizzas, as well as other frozen foods; and

• Other, consisting of soy meal, refined soy flour and animal feed.

Prior to the divestitures made in connection with our financial and operational restructuring plan, other

processed products included mayonnaise, mustard and ketchup.

Principal Factors Affecting Our Results of Operations

Our operating results, financial condition and liquidity have been and will continue to be influenced by a

broad range of factors, including:

•

economic conditions in Brazil and globally;

the effect of trade barriers and other restrictions on imports;

concerns over African swine fever, avian influenza and other diseases of human and animal origin;

•

disruptions in consumption and trade patterns, supply chains and production processes resulting from
the novel coronavirus (COVID-19 virus) pandemic;

sensitivity of the domestic market to changes in global demand, including the impact of decisions by our
main Brazilian competitors and temporary increases in supply from producers in other countries;

changes in commodity prices;

fluctuations in exchange rates and inflation;

interest rates; and

freight costs and volume.

We present a more detailed description of each of these factors below.

Brazilian and Global Economic Conditions

The CMN set the target inflation in Brazil at 4.25% for 2019, with a potential range of 1.5 percentage points
higher or lower than this target. The inflation rate, which had been below the target at 2.95% and 3.75% in 2017 and
2018, respectively, increased to 4.31% in 2019. Price increases generally reduce consumers’ purchasing power,
particularly among the lower income class, and ultimately limit consumption.

The Brazilian labor market registered an average unemployment rate of 11.8% in 2019, according to the
IBGE’s National Household Sample Survey (Pesquisa Nacional por Amostra de Domicílios, or “PNAD”), which
represents a slight deterioration when compared to the rate of 11.6% in 2018. Additionally, after increasing to 93.0
points in 2018, Brazilian consumer confidence decreased to 91.6 points in December 2019, according to a Consumer
Survey of Fundação Getúlio Vargas (FGV).

Real GDP in Brazil increased at an average annual rate of 2.3% from 2004 through 2019. For two consecutive
years, in 2015 and in 2016, Brazil’s GDP decreased by 3.5%, after increasing 0.5% in 2014. In 2019, GDP increased
by 1.1% compared to 2018. Reacting to this weak economic situation, the Central Bank lowered the SELIC interest
rate, which is the short-term benchmark interest rate. Overall, the long-term trend in interest rates remains downward,
from 17.8% as of December 31, 2004 to 4.0% as of December 31, 2019.

The Brazilian real depreciated 4.1% against the U.S. dollar in 2019, from R$3.87 per U.S.$1.00 in December

31, 2018 to R$4.03 per U.S.$1.00 in December 31, 2019.

Effects of Trade and Other Barriers

Global demand for Brazilian poultry and pork products is significantly affected by trade barriers, including
(i) tariff barriers, which ultimately protect certain domestic markets, and (ii) non-tariff barriers, mainly including
import quotas, sanitary barriers and technical/religious barriers. In addition, some countries employ subsidies for
production and exports, which tend to distort international trade and interfere with our business. We continuously
monitor trade barriers and other import restrictions, either directly or through specialized consultancy firms, in the
global poultry, pork and beef markets, since these restrictions significantly affect the demand for our products and the
levels of our exports. For more information about risks relating to trade barriers, see “Item 3. Key Information—D.
Risks Factors Risks—Relating to Our Business and Industry—More stringent trade barriers in key export markets
may negatively affect our results of operations.” Certain examples of these barriers are described below.

Tariff barriers

The EU (since 2007), Russia (since 2012) and Mexico (since 2013) have protected their meat industries by

applying import quotas and high tariffs on volumes imported outside of the quota.

In September 2013, South Africa raised duties on chicken products originating in all countries except the EU
(due to a free trade agreement between them that establishes zero tariff on poultry products). Tariffs increased to 82%
on whole chicken, 12% on boneless cuts and 37% on bone-in cuts. The South African government announced in
February 2020 that it is considering new tariff increases on Brazilian poultry.

In December 2016, Saudi Arabia increased its import tariff for poultry meat from 5% to 20%.

In August 2017, the Chinese government initiated an antidumping investigation in connection with Brazilian
exports of whole chicken and chicken parts, including BRF’s exports. In the preliminary determination released in
June 2018, Chinese authorities imposed provisional duties on the imports of poultry products from Brazil. The
investigation ended in February 2019 and Brazilian exporters agreed to certain minimum export prices for sales to
China.

In August 2018, Iraq increased the tariff on poultry products from 10% to 60%.

Non-tariff barriers

Import quotas

In 2005, Brazil obtained a favorable result in a panel against the EU at the World Trade Organization
(“WTO”) regarding the reclassification (and tariff increase) of salted chicken breast meat exports. In return, the EU
introduced quotas on imports of certain tariff codes, especially for salted chicken breast, marinated turkey breast and
processed chicken, and in July 2007, Brazil was awarded the majority of these quotas.

Russia utilizes quotas to control imports of poultry and beef. As part of the negotiations surrounding its
accession to the WTO, Russia made some changes to its quota system in 2013. It abolished its quotas for pork on
January 1, 2020. As a result, imports of pork are subject to a 25% flat import tariff.

With respect to poultry imports, Russia set a quota of 364,000 tons of meat in total. Of the total quota, 100,000
tons correspond to imports of boneless meat, of which 80,000 tons are allocated to the EU and 20,000 tons are allocated
to other countries; 250,000 tons correspond to imports of bone-in products, with no geographical breakdown; and
14,000 tons correspond to boneless and bone-in products allocated to imports from Turkey. The intra-quota tariff is
25% and the extra-quota tariff is 80%. However, not all types of poultry cuts can be imported within the quotas, for
example grillers and whole boneless chicken (shawarma). Products that cannot be imported within the quotas are
subject to a 80% import tariff.

With respect to beef imports, Russia set a quota of 40,000 tons for chilled beef and of 530,000 tons for frozen
beef imports. Of the total quota for chilled beef, 29,000 tons are allocated to the EU and 11,000 tons are allocated to
imports from other countries. Of the total quota for frozen beef, 60,000 tons are allocated to the EU, 60,000 tons are
allocated to the United States, 3,000 tons are allocated to Costa Rica and 407,000 tons are allocated to imports from
other countries. The intra-quota tariff is 15% and the extra-quota tariff is 50%.

In December 2017, Mexico renewed its import poultry meat quota of 300,000 tons, which expired in

October 2019.

Sanitary barriers

Despite progress in trade negotiations, several major markets are not yet open to Brazilian meat products due

to sanitary barriers, including the European Union and Colombia for pork and Taiwan and Panama for chicken.

As a result of the Trapaça Operation, on March 5, 2018, we received notice from MAPA that it immediately
suspended exports from our Rio Verde, State of Goiás, Carambeí, State of Paraná and Mineiros, State of Goiás plants
to 13 countries with specific sanitary requirements related to Salmonella spp. As a precautionary measure, MAPA
also suspended exports from 10 other BRF plants to the European Union on March 15, 2018. This precautionary
suspension was lifted on April 18, 2018 by MAPA. On May 14, 2018, the European Union released its decision to
remove 12 of our production facilities in Brazil from the list that permits imports of animal products by the countries
in the European Union. The European Union generally has stricter requirements related to salmonella levels and other
food safety standards compared to Brazil and the international markets in which we operate. Given the ban of imports
from our production facilities, we are no longer able to sell our products from such embargoed production plants in
the European Union and need to direct excess production capacity resulting from such suspension to other markets,
which may not occur at similar prices or margins.

Technical barriers

In the short term, we must respond quickly to the imposition of any new restrictions, including temporary
health-related restrictions, by redirecting products to other markets or changing product specifications to comply with
the new requirements in order to minimize their effect on our net export sales. In the long term, these restrictions may
affect the growth rate of our business.

In April 2018, Saudi Arabia instituted a no-stunning requirement for the animal slaughtering process. Saudi
Arabia claimed that Brazilian companies’ chicken slaughtering practices violated Halal principles due to the use of an
electric shock to stun the birds. BRF and other Brazilian companies were therefore required to migrate their production
processes to non-stunning slaughters in order to supply the Saudi Arabian market. We have incurred, and expect to
incur, additional costs in connection with these requirements for exporting to Saudi Arabia. In January 2019, the Saudi
Arabian Food and Drug Authority published a report authorizing 25 Brazilian facilities to produce chicken meat for
the Saudi Arabian market, which included eight of BRF’s plants. One of BRF’s plants (Lajeado, State of Rio Grande
do Sul) that had previously produced chicken meat for the Saudi Arabian market was not included as an authorized
plant. However, the eight authorized plants have provided sufficient capacity to meet the demand of this market. We
also expect to be able to continue to shift production of chicken meat for Saudi Arabia to the authorized plants without
a significant disruption to our shipments to Saudi Arabia.

Effect of Animal Diseases

Avian Influenza

Avian influenza has captured the attention of the international community over the years with outbreaks in
poultry having serious consequences on both livelihoods and international trade in many countries. In addition,
although most avian influenza viruses do not infect humans, some, such as avian influenza H5N1 and H7N9, are well
known to the public because of their implication in serious and sometimes fatal infections in people.

Demand for our products can be significantly affected by outbreaks of animal diseases like avian influenza.
If significant numbers of new avian influenza cases were to develop in humans, even if they do not occur in any of
our markets, the demand for our poultry products both inside and outside Brazil would likely be negatively affected
and the extent of the effect on our business cannot be predicted. Even isolated cases of avian influenza in humans
could negatively impact our business due to the public’s sensitivity to the disease.

Brazil has not yet had a documented case of avian influenza, although there are concerns that an outbreak of
avian influenza may occur in the country in the future. Any outbreak of avian influenza in Brazil could lead to the
required disposal of our poultry flocks, which would result in decreased sales in the poultry industry, prevent recovery
of costs incurred in raising or purchasing poultry and result in additional expense for the disposal of poultry. In
addition, any outbreak of avian influenza in Brazil would likely lead to immediate restrictions on the export of some
of our products to key export markets. Preventive actions adopted by Brazilian authorities, if any, may not be effective
in precluding the spread of avian influenza within Brazil. In addition, any future significant outbreak of avian influenza
in Brazil could eventually lead to pressure to dispose of our hogs, even if no link between the influenza cases and pork
consumption is shown. Any such disposal of our hogs would result in decreased sales of pork, prevent recovery of
costs incurred in raising or purchasing our hogs and result in additional expense for the disposal of hogs.

Other Animal Diseases

In addition, demand in our export markets may similarly be influenced by other animal diseases. For example,
pork imports from most Brazilian states were banned in Russia from 2005 to 2007 due to cases of foot-and-mouth
disease affecting cattle in the States of Mato Grosso do Sul and Paraná. We do not raise hogs in Mato Grosso do Sul
and Paraná. However, these bans have affected Brazilian exports into Russia generally and, at the time, required us to
shift pork production for the Russian market to Rio Grande do Sul, the only Brazilian state that was not subject to the
ban, until Russia lifted restrictions on imports from an additional eight Brazilian states in December 2007.

A viral disease named pork epidemic diarrhea (“PED”) was diagnosed in North America and Asia in the last
few years. The principal clinical signs are enteric symptoms, stunting and high mortality. In these places, the disease
was responsible for significant increase in terminated animals and consequent increasing price due to low supply. A
vaccine to prevent the disease has not yet been developed but general management and biosecurity reduce the impact.

Outbreaks of African swine fever have been reported in China since August 2018 and through 2019. The
Chinese market shifted its purchasing as a result of these outbreaks. Consequently, our volumes of pork cuts sold to
China increased, and the Brazilian Minister of Agriculture suspended imports of natural pork casings from China.
This suspension was precautionary and has since been lifted.

Although all of our hogs are sourced in Brazil from zones free of Classical Swine Fever, there have been a
number of recent outbreaks outside of these zones. In October 2018, an outbreak of Classical Swine Fever was
confirmed in the Brazilian State of Ceará. Additionally, in 2019, a case of Classical Swine Fever was confirmed in
the Brazilian States of Alagoas and Piauí. Brazil has two zones regarding the sanitary status of Classical Swine Fever,
the free zone that is comprised of 16 Brazilian states and includes more than 95% of the Brazilian commercial pork
production and a non-free zone, located in the north of Brazil. All three states with confirmed cases of Classical Swine
Fever are located outside the Classical Swine Fever-free zone. The Brazilian government also took action to contain
the outbreak. No formal commercial embargoes were announced as a result of this outbreak.

Effect of Export Market Demand on the Domestic Market

Demand fluctuations for poultry, pork and beef products in our export markets often have an effect on the
supply and selling prices of those products in the Brazilian market. Brazilian exporters generally redirect the products
for international markets to the domestic market, increasing the supply of those products domestically and often
negatively impacting the selling price. This consequently affects our net sales in the domestic market.

For example, in 2017, Russia banned the imports of pork meat from Brazil, alleging the presence of
ractopamine in the animals’ feed meal. As a result, nearly 259.4 thousand tons per year had to be redirected to other
markets, which ultimately generated excess supply in the domestic market and contributed to the decrease in pork
carcass prices in 2018.

In 2019, Chinese demand for imported protein increased significantly because of African swine fever, a
deadly virus that reduced drastically the local supply of pork meat and, consequently, increased local and global
protein prices. In 2019, China enabled nine poultry plants, six pork plants and 22 bovine plants from Brazil to increase
their import volumes and to address the local protein scarcity.

We monitor the actions of our domestic competitors since they are also impacted by external market changes
and may react accordingly, redirecting their products to the domestic or external markets. In addition, we monitor
fluctuations in supply generated by producers in China, the U.S., the European Union and other regions, since
fluctuations in production in those markets can lead to variations in supply in other countries.

Commodity Prices

Many of our raw materials are commodities whose prices consistently fluctuate in response to market forces
of supply and demand. We purchase large quantities of corn, soybean meal, vegetable oils and soybeans (grain), which
we use to produce substantially all of our own animal feed. For the most part, the commodities we purchase are priced
in reais. While input costs are denominated in real, the prices of the commodities we purchase tend to follow
international prices and are influenced by exchange rate fluctuations. Purchases of corn, soybean meal and soybeans
represented approximately 28.1% of our cost of production in 2019, compared to 24.8% in 2018. Although we produce
most of the hogs we use for our pork products, we also purchased hogs on the spot market in 2019. We purchased
2.8% of the total number of hogs slaughtered in 2019 on the spot market.

In addition, the selling prices for many of our products, including substantially all our export products, are
highly sensitive to the market price of those commodities and fluctuate with them. In 2019, the average corn price in
Brazil was 5.8% lower than in 2018. Corn prices in December 2019 were 19.9% higher than in December 2018. In
2019, the average soybean meal price in Brazil was 8.9% lower than in 2018. In December 2019, soybean meal prices
in Brazil were 5.9% higher than in December 2018. The effect of decreases or increases in prices of raw materials on
our gross margin is greater for fresh products relative to value-added products.

Our ability to pass on increases in raw material prices through our selling prices is limited by prevailing

prices for the products we sell in our domestic and export markets, especially for fresh products.

For further information about trends in commodity prices in 2019, see “Item 5. Operating and Financial

Review and Prospects—D. Trend Information––Raw Materials.”

Effects of Exchange Rate Variations and Inflation

The table below sets forth, for the periods indicated, the fluctuation of the real against the U.S. dollar, the
period-end and average daily exchange rates and Brazilian inflation as measured by the National Index of Consumer
Prices (Índice Nacional de Preços ao Consumidor, or “INPC”), IPCA and the General Market Price Index (Índice
Geral de Preços do Mercado, or “IGP-M”).

2019
Depreciation of the real against the U.S. dollar ...............................
(4.02%)
Period-end exchange rate (U.S.$1.00) .............................................. R$4.03
Average (daily) exchange rate (U.S.$1.00)(1) ................................... R$3.95
Period-end Basic interest rate SELIC(2) ............................................ 4.50%
Inflation (INPC)(3) ............................................................................ 4.48%
Inflation (IPCA)(4) ............................................................................ 4.31%
Inflation (IGP-M)(5) .......................................................................... 7.30%

2018
(17.14%)
R$3.87
R$3.66
6.50%
3.43%
3.75%
7.55%

2017
(1.50%)
R$3.31
R$3.19
7.00%
2.07%
2.95%
(0.53)%

Sources: IBGE, Fundação Getúlio Vargas and the Central Bank.

(1)

The average (daily) exchange rate is the sum of the daily exchange rates based on PTAX 800 Option 5, divided by the number of business days in the period.

(2)

The SELIC (Sistema Especial de Liquidação e de Custódia) interest rate is the primary Brazilian reference interest rate.

(3)

INPC is published by the IBGE, measuring inflation for families with income between one and eight minimum monthly wages in 11 metropolitan areas of Brazil.

(4)

IPCA is published by IBGE, measuring inflation for families with income between one and 40 minimum monthly wages in eleven metropolitan areas of Brazil.

(5)

The IGP-M gives different weights to consumer prices, wholesale prices and construction prices. The IGP-M is published by the Getúlio Vargas Foundation (Fundação Getúlio Vargas), a

private foundation.

Our results of operations and financial condition are significantly affected by movements in the exchange
rate of reais to the U.S. dollar, the euro and the Turkish lira. We invoice our export products primarily in U.S. dollars
and, in Europe, in euros and Turkish liras, but we report our results of operations in reais. Appreciation of the real
against those currencies decreases the amounts we receive in reais and therefore our net sales from exports, and the
opposite occurs when the real depreciates against those currencies.

The prices of soy meal and soybeans, which are important ingredients for our animal feedstock, are closely
linked to the U.S. dollar. The price of corn, another important ingredient for our feedstock, is also linked to the U.S.
dollar, albeit to a lesser degree than the price of soy meal and soybeans. In addition to soy meal, soybeans and corn,
we purchase sausage casings, mineral nutrients for feed, packaging and other raw materials, as well as equipment for
use in our production facilities, from suppliers located outside Brazil whom we must pay in U.S. dollars or other
foreign currencies. When the real depreciates against the U.S. dollar, the cost in reais of our U.S. dollar-linked raw
materials and equipment increases, and such increases could materially adversely affect our results of operations.
Although the appreciation of the real has a positive effect on our costs because part of our costs is denominated in
U.S. dollars, this reduction in U.S. dollar costs because of the appreciation of the real does not immediately affect our
results of operations because of the length of our production cycles for poultry and pork.

We had total foreign currency-denominated debt obligations in an aggregate amount of R$11,006.5 million
as of December 31, 2019, representing 59.1% of our total consolidated indebtedness on that date. Although we manage
a portion of our exchange rate risk through foreign currency derivative instruments and future cash flows from exports
in U.S. dollars and other foreign currencies, our foreign currency debt obligations are not completely hedged. A
significant devaluation of the real in relation to the U.S. dollar or other currencies would increase the amount of reais
that we would need in order to meet debt service requirements of our foreign currency-denominated obligations.
Historically, our results of operations and financial condition have been affected by inflation rates in Brazil. Demand
for our products in the domestic market is sensitive to inflation in consumer prices, as reflected in variations in the
INPC and IPCA inflation indexes, and most of our costs and expenses are incurred in reais. Because long-term
contracts with suppliers and customers are not customary in our industry and prices are generally negotiated monthly
or quarterly, increases in inflation have a rapid impact on our net sales and costs.

The IGP-M index is often used as an inflation reference rate in negotiating prices we pay to suppliers. In
addition, we buy energy to run our production facilities pursuant to long-term contracts that contain periodic inflation
adjustments according to the IGP-M index.

In terms of personnel costs, Brazilian salaries are adjusted only once a year, based on collective agreements
between employers’ syndicates and unions. Generally, unions follow the INPC as a parameter for their negotiations.

Effects of Interest Rates

Our financial expenses are affected by movements in Brazilian and foreign interest rates. As of December
31, 2019, 36.6% of our total indebtedness of R$18,602 million was either (1) denominated in (or swapped into) reais
and bears interest based on Brazilian floating interest rates, such as the TJLP, the interest rate used in our financing
agreements with BNDES, the CDI, an interbank certificate of deposit rate that applies to our foreign currency swaps
and some of our other real-denominated indebtedness, or IPCA, or (2) U.S. dollar-denominated and bears floating
interest based on LIBOR. Any increase in the CDI, TJLP, IPCA or LIBOR rates may have an adverse impact on our
financial expenses and our results of operations.

The table below shows the average interest rates to which we were exposed in each of the years as follows:

TJLP ...............................................................
CDI .................................................................
Six-month LIBOR ..........................................

Average Interest for the Year Ended December 31,
2018
(%)
7.0
6.4
2.9

2019
(%)
5.6
4.4
1.9

2017
(%)
7.0
6.9
1.8

Freight Costs and Volume

The cost of transporting our products throughout our domestic distribution network and to our foreign
customers is significant and is affected by fluctuations in the price of oil. In 2019, 2018 and 2017, freight costs from
our continuing operations represented approximately 5.0%, 5.5% and 5.0% of our net sales, respectively. For our
export goods, we ship many of our goods CFR (cost and freight) or DDP (delivered duty paid), which requires us to
pay for freight and insurance costs. In 2019, shipping companies included a bunker oil (the fuel utilized in vessels)
adjustment factor in their agreements due to the uncertainty in future fuel prices as a result of political instability in
the Middle East. In 2019, shipping lines also started preparing themselves for the implementation of the International
Maritime Organization (or “IMO”) Low Sulphur Regulation, which became effective on January 1, 2020. As a result
of the new regulation, our freight levels increased approximately 10% to 12% due to the higher cost of VLSFO bunker
oil, which has lower Sulphur emission when compared to the previous IFO bunker oil. The new IMO regulation is
expected to affect all agents in the shipping industry.

Global protein demand is also expected to exert pressure on freight volume and restrict container availability
due to the African swine flu in China, especially in shipping routes with restricted capacity such as the one from South
America to Asia. Due to the uncertainty of this increase in global demand and the need for bilateral trade agreements
between producing countries and China, we are currently unable to estimate the possible impact on freight volume.

Results of Operations

The following discussion should be read in conjunction with our consolidated financial statements included
elsewhere in this annual report. The following table sets forth the components of our results of operations as a
percentage of net sales for 2019, 2018 and 2017.

Continuing Operations
Net sales...................................................................
Cost of sales .........................................................
Gross profit ............................................................
Operating income (expenses)

Selling expenses ...................................................
General and administrative expenses ....................
Impairment loss on trade and other receivables ....
Other operating income (expenses) ......................
Income (loss) from associates and joint ventures..
Operating income (loss) from Continuing Operations
.............................................................................
Financial expenses ................................................
Financial income ..................................................
Income (loss) before taxes ......................................
Current income and social contribution tax
Deferred income and social contribution tax
Income (loss) from Continuing Operations
Discontinued Operations
Loss from Discontinued Operations .......
Net income (loss) ......................................
Attributable to

Controlling shareholders ........................
Non-controlling shareholders .................

2019
(in thousands
of reais)

33,446,980
(25,370,042)
8,076,938

(4,911,666)
(615,683)
(23,899)
224,384
(1,737)

2,748,337
(3,613,051)
1,747,652
882,938
(94,699)
290,094
1,078,333

(915,809)
162,524

162,684
(160)

(%)

100.0
(75.9)
24.1

(14.7)
(1.8)
(0.1)
0.7
0.0

8.2
(10.8)
5.2
2.6
(0.3)
0.9
3.2

(2.7)
0.5

0.5
0.0

Year Ended December 31,
2018
(in thousands
of reais)

(%)

Restated 2017

(in thousands
of reais)

30,188,421
(25,320,753)
4,867,668

100.0
(83.9)
16.1

28,314,160
(22,601,215)
5,712,945

(4,513,594)
(551,165)
(46,269)
19,311
17,715

(206,334)
(3,891,106)
1,649,632
(2,447,808)
(6,842)
340,144
(2,114,506)

(2,351,740)
(4,466,246)

(4,448,061)
(18,185)

(15.0)
(1.8)
(0.2)
0.1
0.1

(0.7)
(12.9)
5.5
(8.1)
(0.0)
1.1
(7.0)

(7.8)
(14.8)

(14,7)
(0.1)

(4,208,683)
(462,523)
(67,471)
(333,467)
2,383

663,184
(3,445,449)
1,563,691
(1,218,574)
41,227
210,582
(966,765)

(132,089)
(1,098,854)

(1,125,572)
26,718

(%)

100.0
(79.8)
20.2

(14.9)
(1.6)
(0.2)
(1.2)
0.1

2.3
(12.2)
5.5
(4.3)
0.1
0.7
(3.4)

(0.5)
(3.9)

(4.0)
0.1

Unless stated otherwise, the results that we present below do not consider the results from our discontinued

operations.

Presentation of Operating Segments and Net Sales Information

In 2019, following the discontinuation of our operations in Argentina, Europe and Thailand and changes in
our management structure, we changed our operating segments from those in effect on December 31, 2018 to reflect

our business regions. Our current operating segments include: (i) Brazil; (ii) International, which concentrates all the
Company’s operations outside Brazil and has absorbed the former Halal and International segments reported in our
financial statements as of and for the year ended December 31, 2018; and (iii) Other Segments. As a result, the segment
presentations for 2018 and 2017 were adjusted and restated. These segments include sales through all of our
distribution channels and operations, subdivided according to the nature of the following products: (i) poultry (whole
poultry and in natura cuts), (ii) pork and others (in natura cuts); (iii) processed foods (processed foods, frozen and
processed products derived from poultry, pork and beef, margarine, vegetable and soybean-based products); and (iv)
other sales (refined soy flour for food service). Other Segments is divided into commercialization and development
of animal nutrition ingredients, human nutrition, plant nutrition (fertilizers) and health care (health and wellness), as
well as commercialization of agricultural products. Because we use the same assets to produce products for all our
segments, we do not identify assets by segment, except for intangible assets with an indefinite useful life. See Note 5
to our consolidated financial statements for the year ended December 31, 2019 for a breakdown of net sales by segment
and product line and for a breakdown of intangible assets by each reportable segment.

We report net sales after deducting taxes on gross sales and discounts and returns. Our total sales deductions

can be broken down as follows:

•

ICMS Taxes — ICMS is a state value-added tax on our gross sales in the Brazilian market at a rate that
varies by state and product sold. Our average ICMS tax rate for the year ended December 31, 2019 was
9.47%. However, exports are not subject to these taxes.

• PIS and COFINS Taxes — The PIS and the COFINS taxes are federal social contribution taxes levied
on gross revenues from the Brazilian market at the rates of 1.65% for PIS and 7.6% for COFINS for the
year ended December 31, 2019. However, (1) exports are not subject to these taxes, (2) we currently
benefit from a reduction of the tax rate to zero with respect to our in natura pork, poultry and beef cuts
and (3) our financial revenues had benefitted from a PIS and COFINS tax rate of zero since 2004.
However, the enactment of Decree No. 8,426/15 reestablished PIS and COFINS on financial revenues
at the rates of 0.65% and 4.0%, respectively. For more information, see “Item 3. Key Information—D.
Risk Factors—Risks Relating to Brazil—Changes in tax laws or changes in their interpretation may
increase our tax burden and, as a result, negatively affect our profitability.”

• Discounts, Returns and Other Deductions — Discounts, returns and other deductions are unconditional

discounts granted to customers, product returns and other deductions from gross sales.

Most of our deductions from gross sales are attributable to the ICMS, PIS and COFINS taxes. As a result,
our deductions from gross sales in the domestic market, which are subject to these taxes, are significantly greater than
our deductions from gross sales in our export markets.

The table below sets forth our gross sales and deductions for the years ended December 31, 2019, 2018 and

2017:

Gross sales

Brazil ...............................................................
International .....................................................

Other Segments ...............................................

Sales deduction

Brazil ...............................................................
International .....................................................

Other Segments ...............................................

2019

As of December 31,
Restated 2018(1)

in thousands of reais

Restated 2017(1)

20,659,378
14,012,629
941,360

35,613,367

(4,366,842)
(943,958)
(114,146)

(5,424,946)

19,350,033
13,233,323
952,506

33,535,862

(4,161,421)
(983,475)
(76,806)

(5,221,702)

21,645,253
16,191,795
1,167,463

39,004,511

(4,155,774)
(1,292,401)
(109,356)

(5,557,531)

Net sales

Brazil ...............................................................
International .....................................................

Other Segments ...............................................

2019

As of December 31,
Restated 2018(1)

in thousands of reais

Restated 2017(1)

17,489,479
14,899,394
1,058,107

33,446,980

16,292,536
13,068,671
827,214

30,188,421

15,188,612
12,249,848
875,700

28,314,160

(1)

Restated to give effect to the management structure changes that resulted in the new presentation of our operating segments.

The following discussion provides comparisons of our results of our continuing operations for the years
ended December 31, 2019, 2018 and 2017, based on our consolidated financial statements prepared in accordance
with IFRS, as issued by the IASB.

Year Ended December 31, 2019 Compared with Year Ended December 31, 2018

Net Sales

Our net sales increased R$3,258,559 thousand, or 10.8%, to R$33,446,980 thousand in 2019 from
R$30,188,421 thousand in 2018, primarily due to higher average prices (R$/kg), which increased 11.2% and 13.5%
in the Brazil and International segments, respectively.

Net Sales by Operating Segments

In 2019, we recorded the following net sales and volumes in our operating segments.

Operating Segments

Volume
(in thousands
of tons)

Change from
2018

(%)

Brazil .................................................
International ......................................
Other Segments .................................
Total .................................................

2,195
1,909
269
4,373

(3.4)
0.5
0.4
(1.5)

Net Sales
(in thousands
of reais)
17,489,479
14,899,394
1,058,107
33,446,980

Change from
2018

(%)

7.3
14.0
27.9
10.8

Brazil

Our net sales for our Brazil operating segment increased R$1,196,943 thousand, or 7.3%, to R$17,489,479
thousand in 2019 from R$16,292,536 thousand in 2018. This is primarily attributable to the increase in average selling
prices (R$/kg) of 11.2% from 2018, which is mainly due to our profitability recovery strategic plan executed
throughout the year that contemplates (i) reduction in inventory levels, supporting a more efficient commercial
execution; (ii) a more efficient product mix; and (iii) the prioritization of more profitable channels.

The following table provides a breakdown of our net sales and sales volume for Brazil.

Volume
Restated
2018(1)
(in thousands of tons)

2019

504
117
621

533
117
650

2019

Net Sales
Restated
2018(1)
(in thousands of reais)
3,198,356
3,692,377
800,127
943,220
3,998,483
4,635,597

Change
(%)

(5.4)
0.0
(4.5)

Change
(%)

15.4
17.9
15.9

Poultry ............................
Pork and Others ..............
Total in natura meat ....

Volume
Restated
2018(1)
(in thousands of tons)

2019

1,574
NM
2,195

1,623
NM
2,273

Processed foods ..............
Other sales ......................
Total ..............................

NM = not meaningful

Change
(%)

2019

Net Sales
Restated
2018(1)
(in thousands of reais)
(3.0) 12,839,008 12,274,681
NM
19,372
14,874
(3.4) 17,489,479 16,292,536

Change
(%)

4.6
(23.2)
7.3

(1)

Restated to give effect to the management structure changes that resulted in the new presentation of our operating segments.

The following table sets forth our average selling prices in Brazil.

Brazil

International

2019

Average Selling Prices
2018

(in reais per kg)

Change
(%)

7.97

7.17

11.2

Our net sales for our International operating segment increased R$1,830,723 thousand, or 14.0%, to
R$14,899,394 thousand in 2019 from R$13,068,671 thousand in 2018, driven by (i) higher demand from the Asian
market on account of African swine fever, especially from China as of the second half of 2019; (ii) higher volume
exported by us due to an increased number of licensed plants; (iii) increased chicken leg production volume at our
facilities, increasing from lower production in 2018; and (iv) sales expansion to other countries, such as the
Philippines and Vietnam, besides different channels.

2019

Volume
Restated
2018(1)
(in thousands of tons)
1,529
132
1,661
239
NM
1,900

1,504
152
1,656
252
1
1,909

Net Sales
Restated
2018(1)
2019
(in thousands of reais)

Change
(%)

(1.6)
15.2
(0.3)
5.4
NM
0.5

11,262,954
1,342,892
12,605,846
2,119,918
173,630
14,899,394

10,021,923
883,232
10,905,155
1,850,614
312,902
13,068,671

Change
(%)

12.4
52.0
15.6
14.6
(44.5)
14.0

Poultry .............................
Pork and Others ...............
Total in natura meat .....
Processed foods ...............
Other sales .......................
Total ................................

NM = not meaningful

(1)

Restated to give effect to the management structure changes that resulted in the new presentation of our operating segments.

The following table sets forth our average selling prices for our International operating segment.

Average Selling Prices
Restated
2018(1)

2019

(in reais per kg)

Change
(%)

International ...................................................................

7.81

6.88

13.5

(1)

Restated to give effect to the management structure changes that resulted in the new presentation of our operating segments.

Other Segments

Our consolidated net sales for our Other Segments operating segment increased R$230,893 thousand, or
27.9%, to R$1,058,107 thousand in 2019 from R$827,214 thousand in 2018, primarily driven by higher volumes of
ingredients sold in 2019.

The following table provides a breakdown of our net sales and volumes for Other Segments.

Volume
Restated
2018(1)
(in thousands of tons)

2019

Change
(%)

Net Sales
Restated
2018(1)
(in thousands of reais)
827,214
1,058,107

2019

Change
(%)

27.9

Other Segments ..............

269

268

0.4

Restated to give effect to the management structure changes that resulted in the new presentation of our operating segments.

The following table sets forth our average selling prices for Other Segments.

Average Selling Prices
Restated
2018(1)

2019

(in reais per kg)

Other Segments ..............................................................

3.93

3.09

Restated to give effect to the management structure changes that resulted in the new presentation of our operating segments.

Change
(%)
27.2

(1)

Cost of Sales

Cost of sales totaled R$25,370,042 thousand in 2019, an increase of 0.2% in comparison to costs of
R$25,320,753 thousand in 2018. This was primarily due to higher personnel, electricity, maintenance and freight
costs, partially offset by the cost reductions program implemented by our management.

Gross Profit

Our gross profit increased 65.9% in 2019, to R$8,076,938 thousand, from R$4,867,668 thousand in 2018,
with a gross margin of 24.1% in 2019 compared to 16.1% in 2018. This increase was primarily driven by improved
operating results in both Brazil and International operating segments due to our strategy to stimulate the operation’s
profitability through sustainable price management, improved commercial execution, and an optimization of mix of
channels, products and countries to which we export.

Operating Expenses

Our operating expenses increased 1.0% in 2019, to R$5,124,165 thousand, from R$5,074,002 thousand in

2018, primarily due to the drivers described below.

Selling Expenses

Our selling expenses increased 8.8% to R$4,911,666 thousand in 2019 from R$4,513,594 thousand in 2018,
mainly due to (i) greater marketing investments to strengthen our brands; (ii) higher freight expenses in the
international market due to depreciated exchange rates; and (iii) increase in provisions for expenses relating to labor
lawsuits in our Brazil operating segment.

General and Administrative Expenses

Our general and administrative expenses increased 11.7% to R$615,683 thousand in 2019, from R$551,165

thousand in 2018, mainly due to increases in inflation and exchange rate variation in our international operations.

Impairment loss on trade and other receivables

Impairment loss on trade and other receivables decreased 48.4% to R$23,899 thousand in 2019 from
R$46,269 thousand in 2018, primarily due to a general reduction in overdue payments and indebtedness ratios of the
customers.

Other Operating Income (Expenses), Net

Other operating income (expenses), net increased 1,062.0% to an income of R$224,384 thousand in 2019
from R$19,311 thousand in 2018. This increase was mainly due to a favorable court ruling on a lawsuit filed by Sadia
S.A., which recognized the right to exclude ICMS from the calculation basis of PIS/COFINS.

Income (loss) from associates and joint ventures

Income (loss) from associates and joint ventures decreased 109.8% to a loss of R$1,737 thousand in 2019
from an income of R$17,715 in 2018, primarily due to the sale of our equity interests in the joint venture Sats BRF
Food Pte Ltd., in Singapore.

Operating Income (Loss)

As a result of the foregoing, our operating income (loss) before financial expenses increased 1,423.0% to an

income of R$2,748,337 thousand in 2019 from a loss of R$206,334 thousand in 2018.

The table below sets forth our operating income (loss) on a segment basis.

Brazil ..............................................................................
International....................................................................
Other Segments ..............................................................
Subtotal ...........................................................................
Corporate(1) .....................................................................
Total ................................................................

NM = not meaningful

Operating Income (Loss) by Segment

2019 Restated 2018(2)
(in thousands of reais)
590,416
23,778
89,311
703,505
(909,839)
(206,334)

1,818,813
1,275,285
109,138
3,203,236
(454,899)
2,748,337

Change
(%)
208.1
5,263.3
22.2
355.3
(50.0)
1,423.0

(1)

The significant variation in corporate in 2018 and 2019 is attributable to incurred expenses throughout the year, primarily those in connection with the Carne Fraca and Trapaça

Operations, the U.S. class action filed against us in March 2018 and provisions.

(2)

Restated to give effect to the management structure changes that resulted in the new presentation of our operating segments.

Financial Income (Expenses), Net

Net financial expenses amounted to R$1.9 billion in 2019, a decrease of 16.7% compared to R$2.2 billion in
2018, mainly due to (i) a positive foreign exchange rate variation on assets and liabilities denominated in foreign
currency; and (ii) no relevant adjustment in 2019 arising from the expenses associated with the fair value measurement
of Total Return Swap derivative instrument, in the amount of R$214 million registered in 2018.

Income (loss) Before Taxes From Continuing Operations

As a result of the foregoing, our income before taxes from continuing operations was R$882,938 thousand

in 2019, an increase of 136.1% in comparison to a loss of R$2,447,808 thousand in 2018.

Income Tax and Social Contribution

Our income tax and social contribution amounted to R$195,395 thousand in 2019, a 41.4% decrease from
R$333,302 thousand in 2018. The effective tax rate in 2019 was (22.1)% compared to an effective rate of 13.6% in
2018. This variation was primarily due to deferred tax assets that we did not recognize in 2019 because we determined
that the realization of these tax assets was not probable.

Net Income (loss)

As a result of the foregoing, our net income from continuing operations increased 151.0% to R$1,078,333
thousand in 2019, from a net loss of R$2,114,506 thousand in 2018. When taking into account discontinued operations,
our net income increased 103.6% to R$162,524 thousand in 2019 from a net loss of R$4,466,246 thousand in 2018.

Year Ended December 31, 2018 Compared with Year Ended December 31, 2017

Net Sales

Our net sales increased R$1,874,261 thousand, or 6.6%, to R$30,188,421 thousand in 2018 from
R$28,314,160 thousand in 2017, primarily due to higher volumes sold in the Brazil segment, which increased 7.1%
from 2017.

Net Sales by Operating Segments

In 2018, we recorded the following net sales and volumes in our operating segments.

Operating Segments

Volume
(in thousands
of tons)

Change

(%)

2,273
1,900
268
4,441

6.9
(0.9)
6.3
3.4

Net Sales
(in thousands
of reais)
16,292,536
13,068,671
827,214
30,188,421

Change

(%)

7.3
6.7
(5.5)
6.6

Brazil

Our net sales for Brazilian operations increased R$1,103,924 thousand, or 7.3%, to R$16,292,536 thousand
in 2018 from R$15,188,612 thousand in 2017. This is primarily attributable to the increase in volume sold in the Brazil
segment, which increased 7.1% from 2017, as well as the average price increases in the Brazilin markets.

The following table provides a breakdown of our net sales and sales volume for Brazil.

Volume
Restated
Restated
2018(1)
2017(1)
(in thousands of tons)

533
117
650
1,623
NM
2,273

454
109
563
1,560
3
2,126

Poultry ............................
Pork and Others ..............
Total in natura meat ....
Processed foods ..............
Other sales ......................
Total ..............................

NM = not meaningful

Change
(%)

Net Sales
Restated
Restated
2018(1)
2017(1)
(in thousands of reais)
2,689,908
3,198,356
793,331
800,127
3,483,239
3,998,483
4.0 12,274,681 11,688,008
17,365
NM
6.9 16,292,536 15,188,612

17.4
7.3
15.5

19,372

Change
(%)

18.9
0.9
14.8
5.0
11.6
7.3

(1)

Restated to give effect to the management structure changes that resulted in the new presentation of our operating segments.

The following table sets forth our average selling prices in Brazil.

2018

Average Selling Prices
2017

(in reais per kg)

Change
(%)

Brazil

International

2018

Average Selling Prices
2017

Change

7.17

7.14

0.4

Our net sales for the International segment increased R$818,823 thousand, or 6.7%, to R$13,068,671
thousand in 2018 from R$12,249,848 thousand in 2017, driven by improved balance between supply and demand of
products and the consolidation of Banvit for the full year in 2018, partially offset by (i) volume restrictions in Russia;
(ii) excess supply in the Japanese market; (iii) temporary anti-dumping measures imposed by China; and (iv) saturation
of the Hong Kong market. In addition, the increase in grain prices and a suboptimal channel and product mix offset
our restructuring savings. Volumes of pork cuts sold to China increased due to Russia’s partial ban on Brazilian pork
imports. The following table provides a breakdown of our net sales and volumes for International.

Volume
Restated
Restated
2017(1)
2018(1)
(in thousands of tons)
1,476
159
1,635
171
112
1,918

1,529
132
1,661
239
NM
1,900

Change
(%)

3.6
(17.0)
1.6
39.8
NM
(0.9)

NM = not meaningful

Net Sales
Restated
Restated
2018(1)
2017(1)
(in thousands of reais)
10,021,923
883,232

8,926,311
1,369,886
10,905,155 10,296,197
1,534,163
419,488
13,068,671 12,249,848

1,850,614
312,902

Change
(%)

12.3
(35.5)
5.9
20.6
(25.4)
6.7

(1)

Restated to give effect to the management structure changes that resulted in the new presentation of our operating segments.

The following table sets forth our average selling prices for International.

2018

Average Selling Prices
2017

(in reais per kg)

Change
(%)

International ...................................................................

6.88

6.39

7.7

Other Segments

Our consolidated net sales for the Other Segments decreased R$48,486 thousand, or 5.5%, to R$827,214

thousand in 2018 from R$875,700 thousand in 2017, primarily driven by lower prices in 2018.

The following table provides a breakdown of our net sales and volumes for Other Segments.

Volume
Restated
Restated
2018(1)
2017(1)
(in thousands of tons)

Change
(%)

Other Segments ..............

268

252

6.3

Net Sales
Restated
Restated
2018(1)
2017(1)
(in thousands of reais)
875,700

827,214

Change
(%)

(5.5)

(1)

Restated to give effect to the management structure changes that resulted in the new presentation of our operating segments.

The following table sets forth our average selling prices for Other Segments.

Other Segments ..............................................................

3.09

3.47

Cost of Sales

2018

Average Selling Prices
2017

(in reais per kg)

Change
(%)
(11.0)

Cost of sales totaled R$25,320,753 thousand in 2018, an increase of 11.9% compared to R$22,601,215
thousand in 2017. This increase was driven by an increase in grain prices and changes in our product mix to expand
the share of in natura products. In addition, non-recurring factors also negatively influenced cost of sales, including:
(i) R$403 million related to the Trapaça/Carne Fraca Operations; (ii) R$196 million from the Operating and Financial
Restructuring Plan; and (iii) R$73 million resulting from the Brazilian truck drivers’ strike.

Gross Profit

Our gross profit decreased 14.0% in 2018, to R$4,867,668 thousand, from R$5,712,945 thousand in 2017,
with a gross margin of 16.1% in 2018 compared to 20.2% in 2017. This decrease was primarily driven by the operating
challenges that impacted our business chain, such as higher grain prices, antidumping measures imposed by China
and adjustments to the production process to meet the new non-stunning requirements of Saudi Arabia. We also had
a negative impact of R$184 million related to the effects of hedge accounting of export debt (established upon its
designated) in 2018.

Operating Expenses

Our operating expenses increased 0.5% in 2018, to R$5,074,003 thousand, from R$5,049,761 thousand in
2017. This increase was mainly driven by (i) higher logistics expense as a result of the expansion of our logistics
network to serve a higher average number of points of sale; (ii) increases in inflation; and (iii) exchange rate variation
in our international operations. As a percentage of net sales, operating expenses decreased to 16.8% in 2018 from
17.8% in 2017.

Selling Expenses

Our selling expenses increased 7.1% to R$4,513,594 thousand in 2018 from R$4,208,683 thousand in 2017,
mainly due to higher logistics expense as a result of the expansion of our logistics network to serve a higher average
number of points of sale.

General and Administrative Expenses

Our general and administrative expenses increased 19.2%, to R$551,165 thousand in 2018, from R$462,523
thousand in 2017, mainly driven by increases in inflation and exchange rate variation in our international operations.

Impairment loss on trade and other receivables

Impairment loss on trade and other receivables decreased to R$46,269 thousand in 2018 from R$67,471

thousand in 2017, primarily as a result of the initial adoption of IFRS 9.

Other Operating Income (Expenses), Net

Other operating income (expenses), net, increased to an income of R$19,311 thousand in 2018 from
R$333,467 thousand of expenses in 2017, mainly because of a decrease in provisions for civil contingencies and the
recognition of tax credits after a favorable court decision regarding the exclusion of the ICMS from the PIS/COFINS
calculation basis.

Income (loss) from associates and joint ventures

Income (loss) from associates and joint ventures decreased to R$17,715 thousand in 2018 from R$22,383
thousand in 2017, primarily due to the termination of the Unilever Brasil Alimentos Ltda. joint venture, which was
partially offset by increased profit from the joint venture SATS BRF Food in Singapore.

Operating Income (Loss)

As a result of the foregoing, our operating income (loss) before financial results and income taxes decreased

to a loss of R$206,334 thousand in 2018 from an income of R$663,184 thousand in 2017.

The table below sets forth our operating income (loss) on a segment basis.

Operating Income (Loss) by Segment

Restated 2018(2) Restated 2017
(in thousands of reais)

590,416
23,778
89,311
703,505
(909,839)
(206,334)

987,163
19,991
79,016
1,086,170
(422,986)
663,184

Change
(%)

(40.2)
18.9
13.0
(35.2)
115.1
(131.1)

(1)

The significant variation in Corporate in 2017 and 2018 is attributable to incurred expenses throughout the year, such as those in connection with the Carne Fraca Operation and

provisions.

(2)

Restated to give effect to the management structure changes that resulted in the new presentation of our operating segments.

Financial Income (Expenses), Net

Net financial expenses amounted to R$2,241,474 thousand in 2018, an increase of 19.1% compared to
R$1,881,758 thousand in 2017, mainly attributable to the negative impact of (i) a higher foreign exchange rate
variation on assets and liabilities denominated in foreign currency; and (ii) the fair value adjustment of the Total
Return Swap derivative instrument, which expense totaled R$214 million in 2018.

Loss Before Taxes from Continuing Operations

As a result of the foregoing, our loss before taxes from continuing operations was R$2,447,808 thousand in

2018 and R$1,218,574 thousand in 2017.

Income Tax and Social Contribution

In 2018, income tax and social contribution amounted to income of R$333,302 thousand. In 2017, income
tax and social contribution amounted to income of R$251,809 thousand. The effective tax rate in 2018 was 13.6%
compared to an effective rate of 20.7% in 2017. This variance is primarily attributable to the increase in losses in
2018, deferred tax assets related to tax loss and negative basis not being recognized because the realization was not
probable, exchange rate variation on foreign investments, results of our foreign subsidiaries and a write-off of
unrealized tax assets due to the merger of SHB with and into BRF.

Net Loss

As a result of the above, our net loss from continuing operations increased to R$2,114,506 thousand in 2018
from R$966,765 thousand of net loss in 2017. Including the discontinued operations, our net loss increased to
R$4,466,246 thousand in 2018 from R$1,098,854 thousand of net loss in 2017.

Liquidity and Capital Resources

As of December 31, 2019, we held R$4,237.8 million in cash and cash equivalents. Of that amount,
R$3,187.5 million, or 75.2%, was held in jurisdictions outside Brazil. We regularly review the amount of cash and
cash equivalents held outside of Brazil to determine the amounts necessary to fund the current operations of our foreign
operations and their growth initiatives and amounts needed to service our Brazilian indebtedness and related
obligations. If these amounts are moved out of these jurisdictions or repatriated to Brazil, we may be subject to
Brazilian tax upon repatriation.

Our main cash requirements are the servicing of our debt and capital expenditures. Our primary cash sources
have been cash flows from operating activities, loans and other financings, offerings of our common shares and sales
of marketable securities. Although we have substantial debt that will mature in the next several years (see “Item 3.
Key Information—D. Risk Factors—Risks Relating to Our Indebtedness—We have substantial debt that matures in
each of the next several years”), we believe that our solid position in cash and cash equivalents, along with our cash
flows from operating activities and the extension of the maturity of a portion of our current indebtedness will be
sufficient to cover our working capital needs and the service of our indebtedness in the ordinary course of our business.

On December 27, 2019, we entered into a three-year revolving credit facility with Banco do Brasil for a
committed maximum amount of R$1.5 billion to provide additional liquidity for working capital needs. As of
December 31, 2019, there were no amounts outstanding under the revolving credit facility. To further strengthen our
liquidity in light of recent market volatility, in March 2020, we entered into one-year credit facilities with Brazilian
financial institutions in the aggregate amount of, approximately, R$1.4 billion.

Cash Flow

The following table sets forth certain consolidated cash flow information for the periods indicated:

Cash Flow
Net cash provided by operating activities ..............................................
Net cash provided by (used in) investing activities ...............................
Net cash provided by (used in) financing activities ...............................

Effect on exchange rate variation on cash and cash equivalent

Net increase (decrease) in cash and cash equivalents .......................

Cash Flows Provided by Operating Activities

Year Ended December 31,

2019

2018

2017

(in thousands of reais)

2,521,230
1,443,106
(4,817,102)

295,685
(1,415,879)
73,924

649,356
(2,134,513)
1,057,083

54,540

71,452

81,984

(798,226)

(974,818)

(346,090)

We recorded net cash flows provided by operating activities of R$2,521,230 thousand in 2019, compared to
cash flows provided by operating activities of R$295,685 thousand in 2018. The increase of R$2,225,545 thousand is
mainly due to an increase in income from continuing operations to R$1,078,333 thousand for the year ended December
31, 2019 (compared to a loss of R$2,114,506 thousand for the year ended December 31, 2018), adjusted by the non-
cash inflow effects of R$4,519,842 thousand for the year ended December 31, 2019 (compared to non-cash inflow
effects of R$4,425,222 thousand for the year ended December 31, 2018), in addition to an improvement of 9.3 days
in the average financial cycle in 2019.

We recorded net cash flows provided by operating activities of R$295,685 thousand in 2018, compared to
cash flows provided by operating activities of R$649,356 thousand in 2017. The reduction of R$353,671 thousand is
mainly due to an increase in net loss to R$2,114,506 thousand for the year ended December 31, 2018 (compared to a
net loss of R$966,765 thousand for the year ended December 31, 2017), adjusted by the non-cash inflow effects of
R$4,425,222 thousand for the year ended December 31, 2018 (compared to non-cash inflow effects of R$3,752,518
thousand for the year ended December 31, 2017), which was mainly related to financial results of R$2,241,474
thousand, partially offset by R$340,144 thousand of deferred income tax.

Cash Flows Provided by (Used in) Investing Activities

We recorded net cash flows provided by investing activities of R$1,443,106 thousand in 2019, compared to
cash flows used in investing activities of R$1,415,879 thousand in 2018. The increase of R$2,858,985 thousand is
mainly due to the sale of our operations in Europe, Thailand and Argentina in the amount of R$1,664,073 thousand
and the price adjustment from the sale of our then dairy segment to Lactalis in 2015 in the amount of R$242,051
thousand.

We recorded net cash flows used in investing activities of R$1,415,879 thousand in 2018, compared to cash
flows used in investing activities of R$2,134,513 thousand in 2017, a decrease of R$718,634 thousand mainly due to
the business combination with Banvit in 2017.

Cash Flows Provided by (Used in) Financing Activities

We recorded cash flows used in financing activities of R$4,817,102 thousand in 2019, compared to cash
flows provided by financing activities of R$73,924 thousand in 2018, mainly due to the amount of debt repaid in 2019,
which was R$4,081,980 thousand, net of the proceeds from debt issuance, compared to an amount of R$276,139
thousand of debt issuance in 2018, net of repayments.

We recorded cash flows provided by financing activities of R$73,924 thousand in 2018, compared to cash
flows provided by financing activities of R$1,057,083 in 2017, mainly due to the amount of debt issuance in 2018,
which was R$276,139 thousand net of repayments, compared to an amount of R$687,720 in 2017, in addition to the
disposal of R$509,875 thousand in treasury shares in 2017.

Dividends and Interest on Shareholders’ Equity

We have not made any distributions for the years ended December 31, 2017 or 2018, and we will propose no
distribution of dividends for the year ended December 31, 2019 at our annual shareholders’ meeting to be held in April
2020 because, despite reporting our profit for the year ended December 31, 2019, we have been reporting accumulated
losses since 2018.

Debt

We use the net proceeds of our indebtedness primarily for capital expenditures, liquidity and purchases of
raw materials. The following table sets forth our indebtedness (according to the type of debt and currency) net of cash,
cash equivalents, marketable securities, restricted cash and derivative financial instruments for the periods indicated.

Total debt .................................................................
Derivative financial instruments, net .........................
Cash, cash equivalents and marketable securities and
restricted cash
Local currency ...........................................................
Foreign currency .......................................................
Total ..........................................................................
Net debt ....................................................................

As of December 31, 2019
Current

Non-current

As of December 31,

2019

2018

(in millions of reais, except where indicated)

(3,132.0)
41.7

(15,488.3)
50.0

(18,620.3)
91.7

(22,165.4)
(52.7)

1,743.6
3,208.7
4,952.3
1,861.9

14.9
292.5
307.4
(15,130.9)

1,758.5
3,501.2
5,259.7
(13,269.0)

5,041.8
1,487.0
6,528.8
(15,689.43)

The table below provides a further breakdown of our indebtedness by the type of debt.

Current

Non-current

Total Loans and borrowings as of
December 31,

As of December 31, 2019

2019

2018

(in millions of reais)
-

Development bank credit lines.....................
Export credit facilities ..................................
Working capital facilities .............................
PESA loan facility .......................................
Agribusiness Receivables Certificate ...........
Debentures ...................................................
Other ............................................................
Local currency ...........................................

Export credit facilities ..................................
Bonds ...........................................................
Advances on foreign exchange rate
contracts .......................................................
Working capital facilities .............................
Foreign currency ........................................
Total: ...........................................................

45.5
26.6
1,568.6
284.3
891.4
13.0
5.7
2,835.2

105.0
115.3

-
76.6
296.8
3,132.0

The maturity schedule of our indebtedness is as follows:

1,585.7
1,744.0

706.1
742.7
-
4,778.6

302.3
10,292.2

-
115.2
10,709.7
15,488.3

45.5
1,612.4
3,312.6
284.3
1,597.4
755.8
5.7
7,613.8

407.3
10,407.5

-
191.8
11,006.5
18,620.3

264.5
1,625.3
5,863.0
273.4
2,597.5

3.3
10,627.1

1,383.2
9,746.5

214.2
194.5
11,538.3
22,165.5

As of December 31, 2019
(in millions of reais)

2020 .....................................................................................................................
2021 .....................................................................................................................
2022 .....................................................................................................................
2023 .....................................................................................................................
2024 .....................................................................................................................
2025 onwards ......................................................................................................
Total ....................................................................................................................

3,132.0
1,907.0
2,123.5
2,422.0
2,340.7
6,695.1
18,620.3

Our principal debt instruments as of December 31, 2019 are described below. For more information on these
facilities, including information on average interest rates and weighted average maturities, see Note 16 to our
consolidated financial statements.

Local Currency Debt

Revolving Credit Facility

Banco do Brasil RCF. On December 27, 2019, we entered into a revolving credit facility with Banco do
Brasil for a committed maximum amount of R$1.5 billion to provide additional liquidity for working capital needs.
As of December 31, 2019, there were no amounts outstanding under the revolving credit facility.

Development Bank Credit Lines

BNDES FINEM Facilities. We have a number of outstanding obligations with BNDES, including loans under
its FINEM program in the amount of R$45.5 million as of December 31, 2019. The loans from BNDES were entered
into to finance purchases of machinery and equipment and construction, improvement or expansion of our production
facilities. Principal and interest on the loans are generally payable monthly, with remaining maturity dates varying
through 2020. The principal amount of the loans is denominated in reais and bears interest at the TJLP or SELIC rates
plus a margin. These loans are included in the line “Development bank credit lines—Local currency” of the table
above.

Export Credit Facilities

Export Credit Notes. In September 2019, we refinanced our outstanding export credit facilities with Banco
Bradesco, totaling R$ 1,612.4 million as of December 31, 2019. These export credit notes bear interest at floating
rates (CDI), with maturity dates from 2023 through 2028. These credit lines are included in the line “Local currency—
Export credit facilities” in the table above

Working Capital Facilities

Rural Credit Financing. We have short-term rural credit loans in the amount of R$3.312,6 million as of
December 31, 2019 with several commercial banks under a Brazilian federal government program that offers favorable
interest rates, as an incentive to invest in rural activities, with maturity dates from 2020 through 2022. Generally, the
proceeds of such loans are used for working capital. From September to December 2019, we prepaid some of those
loans, totaling R$ 2.32 billion. These credit lines are included in the line “Working capital facilities—Local currency”
in the table above.

PESA Loan Facility

PESA. We have a loan facility obtained through the Special Sanitation Program for Agroindustrial Assets
(Programa Especial de Saneamento de Ativos, or “PESA”) for an outstanding amount of R$284.31 million as of
December 31, 2019, subject to the variation of the IGP-M plus interest of 4.9% per year, secured by endorsements
and pledges of public debt securities.

Tax Incentive Financing Programs

State Tax Incentive Financing Programs. We also had R$5.7 million outstanding as of December 31, 2019
under credit facilities offered by the State of Goiás under tax incentive programs to promote investments in such state.
Under these programs, we are granted credit proportional to the payment of ICMS tax generated by investments in the
construction or expansion of manufacturing facilities in that state. The credit facilities have a 20-year term and fixed
or variable interest rates based on the IGP-M plus a margin. This credit line is included in the line “Other—Local
currency” in the table above.

Agribusiness Receivables Certificate

Agribusiness Receivables Certificate (“CRA”). On December 16, 2016, BRF concluded the CRA issuance
related to the public offer of distribution of the first and second series of the first issuance of Vert Companhia
Securitizadora, in the amount of R$1.5 billion, net of interest. The CRAs of the first series were issued at a cost of
96.00% of the DI rate, with the principal maturing in a single installment on December 16, 2020 and interest paid
every eight months. The second series of CRAs were issued at a cost of 5.8970% restated by the variation of the IPCA,
with the principal maturing in a single installment on December 18, 2023 and interest paid every 16 or 18 months.

On December 31, 2019, the balance of these transactions totaled R$1,597.5 million. These transactions

comprise the line “Agribusiness Receivables Certificate” in the table above.

First Issuance of Debentures

On April 30, 2019, we issued 750,000 of debentures with a nominal unit value of R$1,000.00, totaling
R$750.0 million, in three series. The debentures are simple, non-convertible and unsecured, and they were distributed
with restricted placement efforts. The amounts subscribed for the 1st, 2nd and 3rd series were R$70.0 million, R$411.7
million and R$268.3 million, respectively. As of December 31, 2019, the outstanding balance of the debentures totaled
R$755.8 million. The balances for the 1st, 2nd and 3rd series totaled R$70.3 million, R$416.0 million and R$269.4
million, respectively, as of December 31, 2019.

Foreign Currency Debt

Export Prepayment Facility. We had an export prepayment facility in an outstanding amount of R$407.3
million as of December 31, 2019. The indebtedness under this facility is denominated in U.S. dollars, with maturity
dates between 2020 and 2023. Interest under this export prepayment facility accrues at LIBOR plus a spread. Under
the facility, we receive a loan secured by the accounts receivable relating to exports of our products to specific
customers. The facility is guaranteed by BRF S.A. The covenants under these agreements include limitations on liens
and mergers. These credit lines are included in the line “Export credit facilities—Foreign currency” in the table above.

Working Capital Facilities

Working capital in foreign currency. These are funds obtained from financial institutions, mainly used for
working capital and short-term import financing operations of subsidiaries mainly located in Turkey in the amount of
R$191.8 million. This funding is denominated in Turkish lira and have maturity dates between 2020 and 2021. These
credit lines are included in the line “Working capital facilities—Foreign currency” in the table above.

Bonds

BFF Notes 2020. On January 28, 2010, BFF International Limited issued senior notes in the amount of
U.S.$750 million, guaranteed by BRF S.A., bearing a nominal interest rate of 7.25% per year and effective rate of
7.54% per year, and maturing on January 28, 2020 (“BFF Notes 2020”). On June 20, 2013, U.S.$120.7 million of the
BFF Notes 2020 was replaced by the Senior Notes BRF 2023 (as defined below) and, on May 15, 2014, U.S.$409.6
million of the BFF Notes 2020 were repurchased with part of the proceeds from the Senior Notes BRF 2024 (as
defined below). On May 28, 2015, we completed a tender offer for the BFF Notes 2020 in the amount of U.S.$101.4
million so that the remaining balance totaled U.S.$118.3 million on June 30, 2015. On September 21, 2016, we
completed a repurchase offer for the BFF Notes 2020 in the amount of U.S.$32.2 million and premium was paid in
the transaction, net of interest, in the amount of U.S.$4.1 million. The premium paid to holders of existing bonds was
recorded as a financial expense. On November 22, 2019, we completed a make-whole redemption of the remaining
outstanding amount equivalent to R$363.7 million (U.S.$86.1 million) and premium was paid in the transaction, net
of interest, equivalent to R$ 3.4 million (U.S.$0.8 million). The premium paid to holders of existing bonds was
recorded as a financial expense.

BRF Notes 2022: On May 29, 2015, we completed a senior notes offering totaling EUR500.0 million, with
principal due on May 3, 2022, which bear interest at a rate of 2.75% per year. On September 18, 2019, an amount
equivalent to R$795.9 million (EUR175.2 million) of the BRF Notes 2022 were repurchased through an any and all
tender offer, and premium was paid in the transaction, net of interest, in the amount equivalent to R$39.2 million
(EUR8.5 million). The premium paid to holders of existing bonds was recorded as a financial expense. On December
31, 2019, the outstanding notional amount of these notes was equivalent to R$1,471.4 million (EUR324.8 million).

BRF Notes 2022. On June 6, 2012, we issued senior notes in an aggregate amount of U.S.$500.0 million. The
bonds were guaranteed by BRF S.A., bear interest at a rate of 5.875% per year and mature on June 6, 2022. Later the
same month, we issued an additional U.S.$250.0 million of senior notes under the same indenture and with the same
terms and conditions (collectively, the “BRF Notes 2022”). On May 28, 2015, we completed a tender offer for the
BRF Notes 2022 in the amount of U.S.$577.1 million so that the remaining balance totaled U.S.$172.9 million on
June 30, 2015. On September 21, 2016, we completed a repurchase offer for the BRF Notes 2022 in the amount of
U.S.$54.2 million, and premium was paid in the transaction, net of interest, in the amount of U.S.$5.7 million. The
premium paid to holders of existing bonds was recorded as financial expense. On September 18, 2019, an amount
equivalent to R$38.9 million (U.S.$9.4 million) of the BRF Notes 2022 were repurchased through an Any and All
tender offer, and premium was paid in the transaction, net of interest, in the amount equivalent to R$1.5 million
(U.S.$0.4 million). The premium paid to holders of existing bonds was recorded as a financial expense. On December
31, 2019, the outstanding notional amount of these notes was equivalent to R$440.6 million (U.S.$109.3 million).

BRF Notes 2023. In May 2013, we issued senior notes in an aggregate amount of U.S.$500.0 million, with
principal due on May 22, 2023 and bearing interest at a rate of 3.95% per year (“Senior Notes BRF 2023”). On
September 18, 2019, an amount equivalent to R$641.4 million (U.S.$154.0 million) of the BRF Notes 2023 were
repurchased through an any and all tender offer, and premium was paid in the transaction, net of interest, in the amount

equivalent to R$7.2 million (U.S.$1.7 million). The premium paid to holders of existing bonds was recorded as a
financial expense. On December 31, 2019, the outstanding notional amount of these notes was equivalent to R$1,394.6
million (U.S.$346.0 million).

BRF Notes 2024. On May 15, 2014, we completed a senior notes offering totaling U.S.$750 million (“Senior
Notes BRF 2024”). The principal is due on May 22, 2024 and bears interest at a rate of 4.75% per year. Of the proceeds
from the offering, U.S.$470.6 million was used for a debt repurchase tender offer. To implement the tender offer, BRF
made a payment of U.S.$86.4 million (equivalent to R$198.6 million) to the holders of existing bonds, which was
recorded as an interest expense. On September 24, 2019, an amount equivalent to R$961.8 million (U.S.$230.9
million) of the BRF Notes 2024 were repurchased through an early capped tender offer, and premium was paid in the
transaction, net of interest, in the amount equivalent to R$38.5 million (U.S.$9.2 million). On October 8, 2019, an
amount equivalent to R$4.8 million (U.S.$1.2 million) of the BRF Notes 2024 were repurchased through the final
capped tender offer, and premium was paid in the transaction, net of interest, in the amount equivalent to R$0.05
million (U.S.$0.01 million). Both premiums paid to holders of existing bonds were recorded as a financial expense.
As of December 31, 2019, the outstanding notional amount of these notes was equivalent to R$2,087.5 million
(U.S.$517.9 million).

BRF Notes 2026. On September 29, 2016, we, through our wholly-owned subsidiary BRF GmbH, issued
senior notes in the aggregate amount of U.S.$500.0 million, which bear interest at a rate of 4.35% per year and mature
on September 29, 2026. As of December 31, 2019, the outstanding notional amount of these notes was equivalent to
R$2,015.4 million (U.S.$500.0 million).

BRF Notes 2030. On September 24, 2019, we issued senior notes in the aggregate amount of U.S.$750.0
million, which bear interest at a rate of 4.875% per year and mature on January 24, 2030. As of December 31, 2019,
the outstanding notional amount of these notes was equivalent to R$3,023.0 million (U.S.$750.0 million).

Derivatives Financial Liabilities, Net

We entered into foreign currency exchange derivatives under which we had a fair value of R$115.3 million
and commodity derivatives under which we had a fair value of negative R$23.6 million, in each case as of December
31, 2019. The counterparties include several Brazilian financial institutions and involve interest rate swaps, and the
purchase and sale of currencies and commodities. Their maturity dates vary from 2018 through 2028. These
transactions do not require any guarantees and follow the rules of the B3, a trading and securities registration company.
These derivatives are recorded in our balance sheet as other financial assets and liabilities. See “Item 11. Quantitative
and Qualitative Disclosures About Market Risk.”

Seasonality

Brazil

Our net sales of meat and processed products in the Brazilian market are not subject to large seasonal
fluctuations. However, our fourth quarter is generally slightly stronger than other quarters due to increased demand
for our products during the holiday season, particularly turkeys, Chester® roosters, ham and pork loins. We also
market certain products specifically for the holiday season, such as gift packages of our products that some employers
distribute to their employees. Our results are also affected by the dry and rainy seasons for corn, soybeans and soy
meal, which are our primary raw materials in feed production.

In 2019, total Brazilian sales by quarter were as follows: 22.5% for the first quarter, 23.3% for the second

quarter, 25.1% for the third quarter and 29.1% for the fourth quarter.

International

Our sales to international markets as a whole are not materially affected by seasonality, partly because
seasonal buying patterns vary according to our international markets. However, net sales in specific markets

sometimes vary with the season. In the Halal market, for example, we experience lower net sales during Ramadan and
the summer months.

In 2019, total International sales by quarter were as follows: 21.4% for the first quarter, 26.7% for the second

quarter, 25.5% for the third quarter and 26.3% for the fourth quarter.

Critical Accounting Policies

We have prepared our consolidated financial statements included in this Annual Report on Form 20-F in

accordance with IFRS, as issued by the IASB.

The preparation of these consolidated financial statements required management to make estimates and
assumptions that affected the reported amounts of assets and liabilities and the disclosure of contingent assets and
liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses
during the reporting period. Management evaluates its estimates and judgments on an ongoing basis and bases its
estimates and judgments on historical experience and on various other factors that it believes to be reasonable under
the circumstances. Actual results may differ from these estimates under different assumptions or conditions.

The following is a description of the critical accounting policies, estimates or judgments that are important

to the presentation of our consolidated financial statements.

Revenue Recognition

Sales revenues comprise the value of the consideration received or receivable for the sale of products, net of

applicable taxes, returns, rebates and discounts.

Sales revenues are recognized in accordance with the accrual basis of accounting, when the sales value is
reliably measurable and the Company no longer has control over the product sold or any other liability related to its
ownership and it is likely that the economic benefits will be received by the Company.

The sales process begins with sales orders and formal agreements, in general executed with large retail and
wholesale chains. The discounts and rebates may be negotiated on a spot basis or may have their conditions formally
defined in the agreements. In all cases, the performance condition is satisfied when control over the goods is
transferred to the client.

The Company has sales with cash and installment payments, which are adjusted to present value for

recognition of the financial component.

Expected credit losses

Accounting practice applied until December 31, 2017

The Company assessed at each reporting period whether there was any objective evidence of impairment for
the financial assets recognized. The main evidence considered was overdue amounts. For each group of receivables
overdue, the Company analyzed the financial conditions of the customer and guarantees in place, recognizing
impairment losses when applicable.

Accounting practice applied from January 1, 2018

The Company regularly assesses the historical losses on the customer portfolios it has in each region, taking
into consideration the dynamics of the markets in which it operates and instruments it has for reducing credit risks,
such as: letters of credit, insurance and collateral, as well as identifying specific customers whose risks are significantly
different than the portfolio, which are treated according to individual expectations.

Based on these assessments, estimated loss factors are generated by portfolio and aging class, which, applied
to the amounts of accounts receivable, generate the expected credit losses. Additionally, the Company evaluates
macroeconomic factors that may influence these losses and, if necessary, adjusts the calculation model.

Securities receivable with legal proceedings in place are reclassified to noncurrent as are the related estimated
credit losses. The securities are written off against the estimated loss when our management considers that they are
no longer recoverable after taking all appropriate actions to collect them.

Assets held for sale and discontinued operations

Assets held for sale are measured at the lower of the carrying amount and the fair value less costs to sell and
are not depreciated or amortized. These items are only classified under this item when their sale is highly probable
and they are available for immediate sale in their current conditions. Losses due to impairment are recorded under
Other Operational Expenses.

The statements of income and cash flows from discontinued operations are presented separately from those
of continuing operations of the Company. The comparative periods are reclassified in the statements of income and
cash flows. However, the statements of financial position remain as previously reported.

Goodwill

Goodwill is initially measured as the excess of the consideration transferred in relation to the fair value of
the net assets acquired (identifiable assets and liabilities assumed, net). If the consideration is lower than the fair value
of the net assets acquired, the difference should be recognized as a gain in the statement of income.

Under IFRS, goodwill is not amortized and is subject to an annual impairment test. We identify our reporting
units and determine the carrying amount of each reporting unit by assigning the assets and liabilities, including the
existing goodwill and intangible assets. The recoverable amount of each reporting unit is the greater of its value in use
and its fair value less cost to sell. We determine the value in use of each reporting unit by expected discounted
operating cash flows generated by the reporting unit. If the carrying amount of a reporting unit exceeds its recoverable
amount, an impairment loss is recognized first to goodwill until it is reduced to zero and then proportionally to other
long-lived assets.

The use of different assumptions for valuation purposes, including estimates of future cash flows and discount

rates, could have resulted in different estimates.

The carrying amount of goodwill and the key assumptions used in the annual impairment test are disclosed

in Note 15 to our consolidated financial statements.

Contingencies

We establish provisions when we have a present obligation, formalized or not, as a result of a past event, the

outflow of resources to settle the obligation is more likely than not to occur and reliable estimate can be made.

We are party to various lawsuits, including, tax, labor and civil claims. The assessment of the likelihood of
loss in these lawsuits include an analysis of the available evidences, the hierarchy of the laws, available jurisprudence,
the most recent court decisions and their relevance in the legal system, as well as the assessment of outside lawyers.
We review and adjust the provisions to reflect changes in the circumstances, such as the applicable limitation period,
conclusions of tax inspections or additional exposures identified based on new matters or court decisions.

In cases where there are a large number of lawsuits and the amounts are not individually material, we use

historical studies to determine the probability and amounts of losses.

Contingent liabilities from business combinations are recognized if they arise from a present obligation that

arose from past events and if their fair value can be measured reliably.

Inventory

We record inventories at average acquisition or formation cost, not exceeding their net realizable value. The
cost of finished products includes purchased raw materials, labor, production cost, transportation and storage, which
are related to all processes necessary for bringing the products to sales conditions. Provisions for obsolescence,
adjustments to net realizable value, impaired items and slow-moving inventories are recorded when necessary. Normal
production losses are included in the production cost for the respective month, while abnormal losses, if any, are
expensed in cost of products sold when incurred.

Income Tax and Social Contribution

In Brazil, we are subject to income tax (Imposto de Renda Pessoa Jurídica, or “IRPJ”) and social contribution
(Contribuição Social sobre o Lucro Líquido, or “CSLL”), which are calculated monthly based on taxable income,
after offsetting tax losses and negative contribution base, limited to 30% of the taxable income, applying the rate of
15% plus an additional 10% for IRPJ and 9% for CSLL.

The results obtained from foreign subsidiaries are subject to taxation by the countries where they are based,
according to applicable rates and legislation. The Company analyzes the results of each subsidiary for the application
of its income tax legislation, in order to respect the treaties signed by Brazil and avoid double taxation.

Deferred taxes represent credits and deductions on IRPJ tax losses and negative CSLL bases, as well as
temporary differences between the tax and accounting bases. Deferred taxes and social contribution assets and
liabilities are classified as non-current. When the Company’s internal studies indicate that the future use of these
credits over a 10-year horizon is not probable, the asset is derecognized.

Deferred tax assets and liabilities must be measured by rates applicable in the period in which the asset is
realized or the liability is settled, based on the rates (and tax legislation) that are in force on the financial position date.

On January 1, 2019, the interpretation IFRIC 23 became effective, which deals with the recognition and

measurement requirements when there is uncertainty about the treatments of tax on profit.

The Company analyzed relevant tax decisions of higher courts and whether they conflict in any way with the
positions adopted by the Company. Regarding the known uncertain tax positions, the Company reviewed the
corresponding legal opinions and jurisprudence and did not identify impacts to be recorded, since it concluded that
the tax authorities are not likely to reject the positions adopted.

The Company will periodically evaluate the positions it took in which there are uncertainties about the

adopted tax treatment and will create a provision when applicable.

Financial instruments

Financial instruments are contracts that give rise to a financial asset for one entity and a financial liability or
equity instrument for another. Their presentation in the statement of financial position and explanatory notes takes
place according to the characteristics of each contract.

Classification of Financial Assets

Financial assets are recognized when the entity becomes party to the contractual provisions of the instrument
and are classified based on the characteristics of their cash flows and on the management model for the asset. The
table below shows how BRF classifies and measures financial assets:

Category

Amortized Cost

Initial Measurement
Accounts receivable from Clients and other
receivables: billed amount adjusted to
present value and, when applicable, reduced
by expected credit losses

For other assets: Fair value less costs
directly attributable to its issuance

Subsequent Measurement

Interest, changes in amortized cost and
expected credit losses recognized in the income
statement.

Fair Value through Profit and Loss
(“FVTPL”)

Fair Value

Fair Value through Other Comprehensive
Income (“FVTOCI”).

Fair value less costs directly attributable to
its issuance.

Variation on the fair value recognized in the
income statement.

Changes in fair value recognized in other
comprehensive income. Upon settlement or
transfer, accumulated gains or losses are
directly reclassified to Retained earnings or
accumulated losses.
For debt instruments, expected credit losses
are recognized directly in the statement of
income.

Since the adoption of IFRS 9 in January 1, 2018, the Company evaluates expected credit losses in each
reporting period for instruments measured at amortized cost and for debt instruments measured at fair value through
Other Comprehensive Income. Losses and reversals of losses are recorded in the statement of income (loss). The
policy for the year 2017 is described in the section “Expected credit losses” above.

A financial asset is only derecognized when contractual rights expire or are effectively transferred.

Cash and cash equivalents comprise the balances of cash, banks and securities of immediate liquidity,
maturities of which, at the time of acquisition, are equal to or less than 90 days, readily convertible into a known
amount of cash and which are subject to an insignificant risk of change in value. Securities classified in this group, by
their very nature, are measured at fair value through profit or loss.

Hedge accounting

We have chosen to apply the requirements of IFRS 9 in relation to hedge accounting.

With respect to cash flow hedge, the effective portion of the gain or loss on the hedge instrument is recognized
under Other Comprehensive Income and the ineffective portion in the Financial result. Accumulated gains and losses
are reclassified to the income statement or statement of financial position when the hedge is recognized, adjusting the
item in which the hedge was accounted for.

When the instrument is designated in a cash flow hedge relationship, changes in the fair value of the future
element of the forward contracts and the time value of the options are recognized under Other Comprehensive Income.
When the instrument is settled, these hedge costs are reclassified to the income statement together with the intrinsic
value of the instruments.

With respect to fair value hedge, the effective portion of the hedge instrument’s gain or loss is recognized in
the income statement or statement of financial position, adjusting the item under which the hedge is or will be
recognized. The hedge, when designated in this relationship, is also measured at fair value.

With respect to net investment hedge accounting, as of August 31, 2019, the Company adopted the practice
of performing net investment hedge accounting. In this relation, the effective result of the exchange variation of the
instrument is recorded under Other Comprehensive Income, in the same item in which the accumulated translation
adjustments of the investments (hedges) are recognized. Only when the hedged investments are sold, the accumulated
amount is reclassified to the income statement, adjusting the gain or loss on the sale.

Adjustment to present value

The Company measures the adjustment to present value on short and long-term balances of accounts
receivable, suppliers and other obligations, being recognized as a deduction in the asset accounts against the financial
result. The Company adopts the weighted average cost of capital to determine the adjustment to present value of the
mentioned assets and liabilities, which corresponded to 11.3% per year on December 31, 2019 (10.4% per year on
December 31, 2018).

Leasing

Accounting practice applied until December 31, 2018

Leasing operations with risks and benefits inherent to ownership are substantially transferred to the Company
and are classified as finance leases. If there is no significant transfer of the risks and benefits inherent to the property,
the operations are classified as operating leases.

Financial leasing contracts are recognized in property, plant and equipment or intangible assets, against
liabilities, at the lower of the present value of the minimum mandatory installments of the contract and the fair value
of the asset, plus, when applicable, the initial direct costs incurred in the transaction. The amounts recorded in property,
plant and equipment and intangible are depreciated and the interests implicit in the liability are recognized on the
income statement according to the term of the contract.

Operating lease agreements are recognized as an expense over the lease period.

Gains or losses arising from the Company’s sale and leaseback transactions, classified after the sale of the

assets as an operating lease, are recognized as follows:

- Immediately in the income for the year when the transaction is measured at fair value;

- If the transaction price is established below or above the fair value, the profit or loss is immediately

recognized in the result, except if the result is offset by future lease payments below the market value.

Accounting practice applied from January 1, 2019

On January 1, 2019, the Company adopted IFRS 16 and opted for the modified retrospective approach
without restating comparative periods. Accordingly, all balances related to the year ended on December 31, 2018
(Note 19.1 to our financial statements) are presented in accordance with the standards previously in force (IAS 17),
as described above.

In the transition process, the Company chose not to use the practical expedient that would allow the Company
to not reassess whether a contract is or contains a lease. Consequently, the new lease definitions contained in IFRS 16
were applied to all contracts in force on the transition date. A contract is, or contains a lease, if the contract transfers
the right to control the use of an identified asset for a period in exchange for consideration, for which it is necessary
to assess whether:

•

the Company has the right to obtain substantially all the economic benefits from using the asset
during the contract period; and

the Company has the right to direct the use of the asset. The Company has the right to decide to
change how and for what purpose the asset is used, if it:

has the right to operate the asset, or

o designed the asset in a way that predetermines how and for what purpose it will be used.

At the beginning of the contract, the Company recognizes a right-of-use asset and a lease liability that

represents the obligation to make payments related to the underlying asset of the lease.

The right-to-use asset is initially measured at cost and comprises the initial amount of the lease liability
adjusted for any payment made on or before the contract start date, plus any direct initial costs incurred and estimated
disassembly, removal costs, restoration of the asset in the place where it is located, less any incentive received.

The right-to-use asset is subsequently depreciated using the straight-line method from the start date to the
end of the useful life of the right to use or the end of the lease term. The options for extending the term or early
termination of contracts are analyzed individually considering the type of asset involved as well as its relevance in the
Company’s production process. The estimated useful life of the right-of-use asset is determined on the same basis as
the assets owned by the Company. Additionally, the right-to-use asset is periodically reduced to recoverable value in
accordance with IAS 36, when applicable, and readjusted by remeasurement of the lease liability.

The lease liability is initially measured at the present value of the payments not made, less the incremental

loan rate.

The lease liability is measured at amortized cost using the effective interest method. It is remeasured when
there is a change (i) in future payments resulting from a change in index or rate (ii) in the estimate of the expected
amount to be paid in the guaranteed residual value or (iii) in the assessment of whether the Company will exercise the
purchase option, extension or termination.

When the lease liability is remeasured, the corresponding adjustment amount is recorded in the book value
of the right-of-use asset or in the profit and loss statement, if the book value of the right-of-use asset has been reduced
to zero.

As a result of the adoption of IFRS 16, on January 1, 2019, there was recognition of a right-of-use asset of
R$2,397,743 thousand, a lease liability of R$2,391,456 thousand, and the difference between the balances in the
amount of R$6,287 thousand, which was caused by provisions for operating leases already recorded on December 31,
2018, in Shareholders’ Equity. Such contracts were previously disclosed as an operating lease, according to the annual
financial statements for the year ended December 31, 2018.

The Company used the following practical steps to transition to the new lease accounting requirements:

•

chose not to recognize assets with right to use and lease liabilities with a contract term of less than
12 months, and with no purchase option and of low value. Payments associated with such contracts
are recognized as an expense in the income statement on a straight-line basis over the lease period;

use of a single discount rate for each lease portfolio with reasonably similar characteristics. In this
sense, the incremental loan rate was obtained, as of January 1, 2019, applicable to each of the leased
asset portfolios. Through this methodology, the Company obtained a weighted average rate of
7.92%.

Additionally, contracts with an indefinite term with no fixed payment are expensed as incurred.

Capital Expenditures

See “Item 4. Information on the Company—A. History and Development of the Company—Capital

Expenditures.”

Research and Development, Patents and Licenses

In 2019, we launched 233 new products for consumers, of which 136 were released for the domestic market
and 97 for the international market. Of the international market releases, 43 were in Asia, 9 in Africa, 10 in the
Americas, 16 in the Southern Cone and 19 in the Middle East.

Our Research, Development and Innovation activities (“RD&I”) incorporate agricultural research and
innovation, as well as products and processes research and development. The Research and Development of Meat
Products’ team is based in Jundiaí city, in the state of São Paulo, where our BRF Innovation Center (“BIC”) is based.

The agricultural RD&I area aims to strengthen our international competitiveness through the continuous
introduction of new technologies. The goal of these activities is to reduce production costs, improve product quality
and client satisfaction and meet consumer demands. For this purpose, we maintain a qualified and experienced team
of specialists to experiment with new products and innovations. This team includes highly qualified researchers with
advanced degrees, specialists working in animal production, researchers, veterinarians, agronomists and technical
support. In addition, we have collaborative arrangements with several universities, government research institutions
and innovative private companies, and we use several research incentives made available by government research and
development agencies.

In recent years, we have been promoting the introduction of professionals with doctorate degrees (PhDs) in
our technical team in association with governmental agencies as FINEP, CNPq (PNPD – National Post-Doctorate
Program and RHAE – Human Resources Formation in Strategic Areas Program), Araucária Foundation (Post-
Doctorate Program in company) and the FAPESP (Foundation for Research Support of the State of São Paulo). As a
result, we have hired 17 researchers to date. We have also been developing a robust trainee and internship program as
well as encouraging our employees to participate in undergraduate and graduate courses. In 2019, we started a new
program called “PhD in Agro,” in which five PhD positions were created to develop specific projects in different areas
– nutrition, animal breeding, animal health, swine production and poultry management.

We have one of the largest poultry and swine agricultural experimental research groups in the world. Our
research system includes one experimental feed meal plant and 19 experimental barns, which are distributed across
four experimental farms in the state of Santa Catarina, with a total of 1,380 experimental pens to evaluate the impact
of new technology and innovation on the production chain. We also have six bromatological and five animal health
laboratories supporting research and operational activities.

In addition to our formal research department, we have field research initiatives in the production system that
allows us to evaluate all technologies under real production conditions. We also use this field research to calculate the
productivity and financial impact of innovations and establish the appropriate moment to introduce a technology. We
believe that the field research system provides us with an advantage in relation to other research centers and other
companies in the sector. With respect to RD&I product projects, we have ongoing research projects on the reduction
of additives in meat products, natural solutions for ingredients to extend the products’ due date with the food safety
guarantee, new packaging and the reduction in the use of packaging materials.

Beginning on June 20, 2013, BIC was financed by FINEP for a total amount of R$106.0 million, of which
R$53.9 million was used for building the facilities. BIC has total space of 13,500m². The building exemplifies our
commitment to investing in RD&I in order to create and add value in our products, processes and services. Its structure,
which was developed to set technological development standards in the food industry, includes research and
development areas for meat, pasta, margarine, vegetables, packaging, graphic arts, visual standardization of
packaging, supplier quality, regulatory matters, sustainability and animal welfare. The facility also has meeting rooms,
a pilot plant, areas for tests and sensorial evaluation, packaging laboratories, kitchens for food service clients, a library
and spaces for brainstorming and benchmarking with potential partners.

We see investments in RD&I as a key factor in maintaining our competitive advantages, including by
optimizing our production chain, improving our sustainability, launching innovative products and reaching the
expectations and needs of consumers, clients and markets.

Furthermore, we have our own swine breeding program in eight exclusive farms, which we believe have
competitive genetic packages compared to the most significant international breeding programs. The breeding
program has a team of seven highly qualified geneticists. We are incorporating genomic evaluation into the swine

evaluation process in 2020. In order to implement this new technology, we established partnerships with six research
centers of the Brazilian Company for Agricultural and Farming Research (Empresa Brasileira de Pesquisa
Agropecuária, or “EMBRAPA”), as well as with universities and governmental agencies (including BNDES, Finep
and CNPq).

In recent years, we have established research partnerships on projects funded by EMBRAPA, FINEP, CNPq
and BNDES, and, since 2009, we have been benefiting from tax credits from the Science, Technology and Innovation
Ministry (Ministério da Ciência, Tecnologia e Inovação) to incentivize innovation research, called Lei do Bem. This
program supports technological innovation based on the development of new products and new manufacturing
processes and incremental improvement in actual products or processes.

The RD&I teams were integrated under the same business unit in 2015 in order to encourage efficiencies
among the teams, to increase the speed to market of products and to improve consumer and technological connections.

More than 100 researchers and project managers are dedicated to continuously contributing innovative ideas
to the RD&I pipeline, while running cost, process and formulation optimization. BRF has developed a unique stage
gate process, which is managed by a multifunctional team to make bi-monthly decisions regarding potential
innovations. This allows us to accelerate the decision-making process in a very complex chain while considering
multiple points of view.

We define our growth platforms based on consumer preferences. Our main platforms for the Sadia brand are
day-by-day meals, helpers, happy meals, well-being, premium and special dates. Our main platforms for the Perdigão
brand are day-by-day meals, barbecue, Christmas and indulgent snacks. Our main platforms for the Qualy brand are
breakfast, new occasions and margarine 2.0. The project managers are now able to navigate through different
categories, such as ready meals, cold cuts, in natura meat, spreads, snacks and even food services, to design and apply
solutions that either fulfill an unmet need or enhance a specific consumer preference. Accordingly, we invested
R$206.9 million, R$53.5 million and R$52.0 million in 2019, 2018 and 2017, respectively.

In 2019, we launched multiple pork cuts products in line with our strategy of developing new consumer habits
for pork cuts in the Brazilian market. We launched a robust portfolio of pork cuts under both the Sadia and Perdigão
brands, including day-by-day pork cuts under the Sadia brand, along with special pork cuts for Christmas and seasoned
pork cuts for barbecues under the Perdigão brand. We also launched important sub-brands under our Sadia brand: the
Speciale Sadia sub-brand, with a premium cold cuts portfolio that includes raw ham and salami with a pepper border,
and the Na receita Sadia sub-brand, with a new line of pre-prepared chicken to be used in various recipes in both the
retail and food service markets. Under our Sadia brand, we also focused on refreshing the ready meals and cold cuts
categories, including launching a new item, namely Mac’n cheese, for the retail channel. In addition, we expanded the
portfolio of our Perdigão brand through our Ouro sub-brand by launching mini sausages snacks and relaunching our
pizza line, which is a volume-driven category that we expect will bring greater visibility to the brand on supermarkets’
gondolas.

Trend Information

In addition to the information set forth in this section, additional information about the trends affecting our
business can be found in “—Results of Operations—Principal Factors Affecting our Results of Operations.” You
should also read our discussion of the risks and uncertainties that affect our business in “Risk Factors.”

Before the onset of the COVID-19 pandemic, global GDP was expected to grow 2.5% in 2020 after a post-
crisis level of 2.4% in 2019, according to a report released in January 2020 by the World Bank. However, any
economic estimates for growth in 2020 made prior to recent events, especially connected to the developments of the
COVID-19 pandemic, are likely to be revised or otherwise modified, given the high current degree of uncertainty and
volatility in global markets. For additional information, see “Item 3. Key Information—D. Risk Factors—Risks
Relating to Our Business and Industry—Pandemics or human disease outbreaks, such as the novel coronavirus
(COVID-19 virus), may disrupt consumption and trade patterns, supply chains and production processes, which could
materially affect our operations and results of operations.”

A threat to global economic growth is the intensification of protectionist pressures, because of a potential
widening of global imbalances coupled with sharp exchange rate movements. According to the International Monetary
Fund (“IMF”), increased restrictions on global trade and migration would hurt productivity and incomes and have an
immediate impact on market sentiment. Another potential risk discussed by the IMF is a tightening of global financing
terms. The World Bank expects growth of 1.8% in 2020 and 1.7% in 2021 for the U.S. and of 1.0% in 2020 and 1.3%
in 2021 for European Union. For emerging markets and developing countries in 2020, the World Bank expects a
growth rate of 5.8% for India and 1.6% for Russia, along with a more modest growth in China of 5.9% for 2020. The
same report expects Brazil’s GDP to increase 2.0% in 2020 and 2.5% in 2021. The SELIC interest rate (the primary
Brazilian interest reference rate) is expected to end 2020 at 4.25%, according to reports by Focus.

Exports

Brazilian chicken exports increased by 2.8% in the year ended December 31, 2019, compared to the year
ended December 31, 2018, in terms of volume. Pork exports registered an increase of 16.2% in volume sold in the
year ended December 31, 2019, compared to the year ended December 31, 2018. Beef exports recorded an increase
of 12.9% in volume sold in the year ended December 31, 2019, compared to the year ended December 31, 2018.

In international markets, we and other Brazilian producers compete with local and other foreign producers.
Traditionally, Brazilian producers have emphasized exports of frozen whole and cut poultry and frozen pork and beef
cuts. These products continue to account for a substantial portion of export volumes in recent years. Brazilian food
companies have also expanded the sales of processed food products. We anticipate that, over the next several years,
we and our main Brazilian competitors will sell greater volumes of frozen whole and cut poultry and frozen pork as
well as increasing volumes of processed food products.

Brazilian chicken exports in the year ended December 31, 2019 totaled 4.2 million tons on sales of R$28.17
billion (equivalent to U.S.$6.99 billion). China is the main destination for these exports (13.9%), followed by Saudi
Arabia (11.1%), Japan (10.1%) and the United Arab Emirates (8.1%).

Pork export volume in the year ended December 31, 2019 totaled 750.3 thousand tons, totaling around R$6.45
billion (equivalent to U.S.$6.99 billion). The leading importers, China, Hong Kong and Singapore represented 33.2%,
21.7% and 5.9%, respectively, of total exports from Brazil.

Beef shipments in the year ended December 31, 2019 totaled 1.81 million tons with sales of around R$29.77
billion (equivalent to U.S.$7.39 billion). This increase in volume was driven by higher exports sent to China and Hong
Kong, which import 27.2% and 18.2% of Brazilian beef exports, respectively.

According to the West Texas Intermediate index, which benchmarks oil prices, oil prices decreased 11.9%
in 2019, from an average of U.S.$64.77 in 2018 to an average of U.S.$57.03 in 2019. Since the start of 2020, oil prices
have dropped drastically following from the global economic slowdown brought on by the COVID-19 pandemic as
well as an oil supply dispute among key oil producers. A decrease in oil prices will generally result in decreased GDP
growth and decreased revenues for oil producing countries, which can devalue the local currency and negatively affect
disposable income due to an increase in inflation. In the past, declines in the price of oil reduced the ability of certain
countries to import Brazilian products. A price improvement may help protein prices to rise since countries dependent
on revenue from oil production will be able to import additional products. Food products are less sensitive than other
goods to foreign exchange and to income variations. Rich oil producing countries that are located in warm regions
with a low availability of grains rely on government subsidies in order to cope with much higher chicken production
costs than countries with moderate climates and a high availability of grains, such as Brazil. Thus, falling oil prices
will not necessarily lead to lower chicken imports from Brazil as governments might reduce subsidies leading to a
decline in local production of chicken.

Brazilian Market

Brazil is one of the largest meat consumers in the world, with per capita consumption in 2019 of 99.9
kilograms, including beef, chicken and pork products, according to the USDA, an increase of 1.3% compared to 2018.
Demand for poultry and pork products in the domestic market is directly affected by the country’s economic
conditions. Given the slight economic recovery in 2019, meat consumption increased in 2019 compared to 2018.
Before the onset of the COVID-19 pandemic, further economic improvement was expected for 2020, which would
have meant that meat consumption should increase in 2020. However, economic forecasts for Brazilian GDP growth
in 2020 have been revised downwards or otherwise modified, given the high current degree of uncertainty and
volatility resulting from the COVID-19 pandemic and other factors. For additional information, see “Item 3. Key
Information—D. Risk Factors—Risks Relating to Our Business and Industry—Pandemics or human disease
outbreaks, such as the novel coronavirus (COVID-19 virus), may disrupt consumption and trade patterns, supply
chains and production processes, which could materially affect our operations and results of operations.”

Brazil’s domestic market is highly competitive, particularly for fresh food and frozen poultry and pork
products. Besides BRF, there are many large producers, including Seara (which was acquired from Marfrig by JBS in
2013), Aurora and JBS. The main producers in the fresh food market face strong competition from a large number of
small producers which operate in the informal economy and sometimes offer low quality products at lower prices than
those of the large producers. BRF seeks to develop quality products, focusing on innovative solutions that meet clients’
needs and capture value for the strong brands it owns, such as Sadia and Perdigão.

Raw Materials

In 2019, Brazil harvested its historic second best soybean crop. Additionally, the trade dispute between the
U.S. and China, which began in April 2018, carried on through 2019 with China making purchases only to meet its
short-term demand. Such scenario negatively affected Brazilian prices for raw materials as Chinese demand for
Brazilian soybean decreased as well. Average soybean prices in Brazil decreased 4.4% in 2019 compared to 2018,
while soybean prices on the Chicago Board of Trade (“CBOT”) decreased 10.4% in 2019.

In the Brazilian market, average corn prices increased 3.1% in 2019 compared to 2018 as Brazilian exports
reached historically high levels, boosted by the depreciation of the Brazilian real. According to Brazil’s national food
supply agency (Companhia Nacional de Abastecimento), the corn crop totaled 100 million tons in 2018/19, after
totaling 81.4 million tons in 2017/18. In the international market, corn crop in the United States in 2017/18 (371.10
million tons) and a slightly lower crop in 2018/19 (364.26 million tons) increased the CBOT corn prices by 4.1% in
2019.

Social Contributions

Brazilian Provisional Measure No. 774/17, valid as of July 2017, required that we pay a social contribution
equal to 20% of our payroll, which is higher than the social contribution we had previously paid based on our gross
operating revenue (between 1% and 2.5%). This provisional measure was revoked on August 2017 by Provisional
Measure No. 794/17 and thus was not converted into law. In May 2018, Law No. 13,670/18 reestablished paying the
social contribution based on gross operating revenues instead of payroll until December 2020. Although the new
Brazilian government is considering granting Brazilian companies permanent relief from social contributions, we
cannot assure that the current relief will available after December 2020.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements, other than the ones described below, that have or are reasonably
likely to have effects on our financial condition, revenues or expenses, results of operations, liquidity, capital
expenditure or capital resources that are material to investors.

BRF provides guarantees to loans obtained by certain outgrowers located in the central region of Brazil as
part of a special development program for that region. These loans are used to improve the outgrowers’ farm facilities
and are expected to be repaid in ten years. The loans guaranteed by BRF are in the amount of R$12,949 thousand as
of December 31, 2019 (compared to R$29,794 thousand as of December 31, 2018). In the event of a default, we
would be required to assume the outstanding balance. As a result, we have recorded provisions in the amount of
R$1,491 thousand as of December 31, 2019 (compared to R$2,506 thousand as of December 31, 2018), which is equal
to our assessment of the fair value of the non-contingent portion of these obligations, and a reversion of provision in
the amount of R$1,015 thousand in our statement of income for the year ended December 31, 2019 (compared to
R$1,540 thousand as of December 31, 2018).

BRF guarantees a loan to the Sadia Sustainability Institute (Instituto Sadia de Sustentabilidade) from BNDES
to set up biodigesters on the properties of the rural producers that are participating in BRF’s integration system as part
of BRF’s sustainable hog breeding program, which seeks to develop mechanisms for clean development and reduction
of emission of carbon gases. The total amount of these guarantees as of December 31, 2019 was R$3,897 thousand
(compared to R$5,956 thousand as of December 31, 2018). In the event of a default, BRF would be required to assume
the outstanding balance. Based on our assessment of the fair value of the non-contingent portion of these obligations,
we have not recorded provisions as of December 31, 2019, and we did not reverse provisions in our statement of
income for the year ended December 31, 2019 (compared to R$28 thousand reversed as of December 31, 2018).

The aggregate amount of BRF’s off-balance sheet guarantees as of December 31, 2019 was
R$16,846 thousand (compared to R$35,750 thousand as of December 31, 2018), and we reversed provisions for the
non-contingent portion of these obligations in the amount of R$1,015 thousand, which had been included in our
statement of income for the year ended December 31, 2019 (compared to R$1.569 thousand as of December 31, 2018).

Tabular Disclosure of Contractual Obligations

The following table summarizes significant contractual obligations and commitments due by period, at

December 31, 2019.

Payments Due by Period

Obligation

Loans and financing(1) ......................................................
Interest on loans and financing(2) ......................................
Lease liabilities.................................................................
Commitments for purchases of goods and services(3) .......
Total .................................................................................

Total

18,620.3
4,538.9
2,430.7
5,996.0
31,585.8

Less than
1 year

1-3 years
(in millions of reais)

3-5 years

3,132.0
583.1
521.6
4,306.2
8,542.9

4,030.5
1,528.1
785.9
812.6
7,157.0

4,762.7
1,121.7
528.2
392.1
6,804.7

More
than 5
years

6,695.1
1,306.0
595.0
485.1
9,081.1

(1)

(2)

(3)

Includes both current and non-current loans and borrowings.

Represents expected interest obligations on the loans and financing set forth in the table above, assuming the interest rates in effect on each facility as of December 31, 2019.

These purchase commitments include future purchase commitments for corn and soy meal and service fees to our integrated outgrowers. Amounts payable under contracts for goods or

services that allow termination at any time without penalty have been excluded. With respect to contracts for goods and services that allow termination at any time without penalty after a

specified notice period, only amounts payable during the specified notice period have been included.

We also recorded R$1,794.4 million as contingencies with probable losses as of December 31, 2019.

Safe Harbor

See “Part I—Introduction—Forward-Looking Statements.”

DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

Directors and Senior Management

Board of Directors

Our board of directors provides our overall strategic direction. At least two members or 20% of our board of
directors, whichever is greater, must be independent under the Novo Mercado rules. Our board members are elected
at Ordinary General Shareholders’ Meetings for a two-year term and may be reelected. Our board of directors currently
consists of 10 members. Our bylaws do not contemplate alternates to board members. There is no mandatory
retirement age for our board members. In case of any vacancy, the remaining members will nominate a board member
who will serve until the next shareholders’ meeting, and the shareholders shall elect another board member to serve
for the remaining term of office at such meeting. If more than one-third of the positions on the board of directors are
vacant at the same time, then an extraordinary shareholders’ meeting shall be called within 30 days counted from such
vacancy event. The following table sets forth information about our current Board members:

Name

Position Held

Pedro Pullen Parente.............................................. Chairman
Augusto Marques da Cruz Filho(1) ......................... Vice-Chairman
Dan Ioschpe(1) ........................................................ Board Member
Flavia Buarque de Almeida(1) ................................ Board Member
Francisco Petros O. L. Papathanasiadis(1) .............. Board Member
José Luiz Osório(1) ................................................. Board Member
Luiz Fernando Furlan(1) ........................................ Board Member
Roberto Antônio Mendes(1) ................................... Board Member
Roberto Rodrigues(1) .............................................. Board Member
Walter Malieni Jr. .................................................. Board Member

(1)

Independent member (as defined in the Brazilian Novo Mercado regulations).

Director

Since

April 26, 2018
April 26, 2018
April 26, 2018
April 26, 2018
April 26, 2018
April 26, 2018
April 26, 2018
April 26, 2018
April 26, 2018
April 26, 2018

Age

67
67
55
52
55
68
73
67
77
50

On March 5, 2018, we called for the Ordinary and Extraordinary General Meeting, which was held on April
26, 2018, at the request of two of our shareholders, PREVI and PETROS, which jointly hold approximately 20% of
our capital stock. Additionally, on April 12, 2018, we received from Aberdeen, on behalf of the investment funds and
portfolios managed by it and its subsidiaries, a request that a cumulative vote system be adopted for the election of
members of our board of directors at the Ordinary and Extraordinary General Meeting.

On April 19, 2018, PREVI, PETROS, Tarpon Investimentos S.A. (“Tarpon”) and Mr. Abilio Diniz, holders,
directly and indirectly, of 32.80% of the shares issued by us, entered into a voting agreement regarding matters to be
discussed at the Ordinary and Extraordinary General Meeting (the “Voting Agreement”). On the same date, our board
decided that if Aberdeen were to withdraw its request for the adoption of a cumulative vote system, it would nominate
the following individuals to serve as board members: Mr. Augusto Marques da Cruz Filho, Mr. Dan Ioschpe, Mrs.
Flávia Buarque de Almeida, Mr. Francisco Petros Oliveira Lima Papathanasiadis, Mr. José Luiz Osório, Mr. Luiz
Fernando Furlan, Mr. Pedro Pullen Parente, Mr. Roberto Antonio Mendes, Mr. Roberto Rodrigues and Mr. Walter
Malieni Jr. Our board of directors nominated Mr. Pedro Pullen Parente and Mr. Augusto Marques da Cruz Filho as
Chairman and Vice-Chairman, respectively.

On April 25, 2018, Aberdeen withdrew its request for the adoption of a cumulative vote system at the
Ordinary and Extraordinary General Meeting. However, minutes before the start of the Ordinary and Extraordinary
Shareholders’ Meeting, we received a letter from the CVM requesting that such a system be adopted given that some

shareholders previously delivered their votes based on such system. Therefore, we adopted the cumulative vote system
at the Ordinary and Extraordinary General Meeting. Under a cumulative voting system, Brazilian Corporation Law
provides that the dismissal or other vacancy of any board member shall mean the dismissal of all other board members
and a new election will have to be called. As a result, the adoption of the cumulative voting system would have created
a greater degree of instability at our board of directors because the departure of any director would result in the early
termination of the term of office of all other board members. However, on November 8, 2018, the CVM confirmed
that the election of our board members at the Ordinary and Extraordinary General Meeting occurred via an adequate
slate-based voting system and, therefore, none of the effects of the cumulative voting system are applicable to the
election.

At the Ordinary and Extraordinary General Meeting, the number of members of our board of directors was
set at 10 members, new members were elected to the board of directors and the Chairman and Vice-Chairman of the
board of directors were elected. Only four of the 10 board members elected during the Ordinary and Extraordinary
Shareholders’ Meeting were previously members of our board of directors.

Below is a summary of the professional experience and areas of activity of our current board members.

Pedro Pullen Parente – Mr. Parente received a bachelor’s degree in electric engineering from the University
of Brasília in 1976. He held the position of Global CEO and Chairman of the Board of Directors of the Company from
June 2018 to April 2019, when he stepped down from the Global CEO position. He remains as Chairman of the Board
of Directors of the Company. Mr. Parente started his professional career at Banco do Brasil in 1971 and was transferred
to the Brazilian Central Bank in 1973. He has been a consultant for the International Monetary Fund and public
institutions in Brazil, including several State Departments and the National Constituent Assembly of 1988, and has
occupied various government positions focusing on economics. As deputy minister of Finance, he was part of the
team leading Plano Real which succeeded in reducing inflation in Brazil. Between 1999 and 2002, he served as the
Chief of Staff to President Fernando Henrique Cardoso, Minister of Planning, and led the transition team after
President Luiz Inácio Lula da Silva’s election in 2002. During this period, he played an important role as Chairman
of the Energy Crisis Management Chamber when he coordinated the efforts that allowed Brazil to avoid an energy
crisis. During president Cardoso’s government, Mr. Parente was chairman of Petrobras’ board, the state-owned oil
company, later becoming its CEO in July 2016, after an invitation from president Temer. In the private sector, he
served as the Chief Operating Officer for media group RBS, as chairman and CEO of Bunge Brasil and has also served
on the board of directors of private and state-owned companies, including CPFL, B3, Duratex, Banco do Brasil and
others. Currently, he is chairman of the board of directors of General Atlantic in Brazil, associate of EB Capital and
member of the board of directors at Prumo S.A., Continental Grain Corporations and Syngenta AG.

Augusto Marques da Cruz Filho – Vice-Chairman of our Board of Directors and member of the People,
Governance, Organization and Culture Committees. Mr. Cruz Filho holds a PhD in Economic Theory from the
Institute of Economic Research (IPE) of the University of São Paulo, graduated in Economic Sciences from the
Economic and Administration University of the University of São Paulo (FEA-USP) and attended development abroad
at INSEAD – Institut Européen d’Administration des Affaires. Mr. Cruz Filho worked at Grupo Pão de Açúcar for 11
years holding the positions of executive officer of the company, administrative and financial officer and, for over two
years, CFO, until leaving the position in 2005. Between 2005 and 2010, Mr. Cruz Filho was member of the Board of
Directors and Audit Committee of B2W. From April 2016 to August 2019, Mr. Cruz Filho acted as the Chairman of
the Board of Directors of BR Distribuidora. He is also member of the Board of Directors of JSL S.A. and General
Shopping.

Dan Ioschpe – Mr. Ioschpe graduated from the Federal University of Rio Grande do Sul. He also holds a
postgraduate degree from ESPM – SP and an MBA from the Tuck School of Dartmouth College. He started working
at Iochpe-Maxion in 1986, where he held several positions until June, 1996, when he left to act as President of AGCO
in Brazil. He returned to Iochpe-Maxion in January, 1998, where he held the position of President. On April 2014, he
left such position to become president of the Board of Directors. Mr. Ioschpe acted as presidet of Fórum of Empresas
Transnacionais Brasileiras (FET). Currently, he is member of the Board of Directors of WEG, Profarma, Cosan and
Marcopolo, president of Institute for Industrial Development Studies (IEDI) and president of the Board of Directors
of Sindipeças.Additionally, he acts as Coordinator of the People, Governance, Organization and Culture Committee
and is a member of the Finance and Risk Management Committee of BRF. Mr. Ioschpe has not been subject, in the
last five years, to any conviction (i) of a criminal nature, (ii) in a CVM administrative proceeding or (iii) of a final,

judicial or administrative decision that has suspended or disqualified him for the practice of any professional or
commercial activity.

Flavia Buarque de Almeida – Board member at BRF since 2017. Ms. Almeida has been the Chief Executive
Officer at Peninsula Capital Participações since 2019. She has also been an associate and officer at Peninsula Capital
Participações S.A. and, indirectly, an associate and officer at O3 Gestão de Recursos Ltda. She is a board member of
the Carrefour S.A. (France), W2W E-Commerce de Vinhos S.A (wine.com.br), Vitamina Chile S.P.A, and Instituto
Península. In 2019, Ms. Almeida was elected to the position of independent member of the board of directors of
Ultrapar Participações S.A. Ms. Almeida was a board member of Harvard University (Board of Overseers) from 2011
to 2017, GAEC S.A.-Anima Educação from 2014 to 2017, and also an independent member of the board of directors
of Lojas Renner S.A. from 2011 to 2016. Between 2009 and 2013, she was a senior partner of Monitor Group
(currently Monitor Deloitte). Prior to that, between 2003 and 2009, Ms. Almeida was the general director of
Participações Morro Vermelho S.A., a family holding company that controls the Camargo Corrêa Group. During the
years 1989 to 2003, Ms. Almeida worked at McKinsey & Company, where she was a partner. Ms. Almeida holds a
degree in Business Administration from Fundação Getúlio Vargas and an MBA from Harvard Business School.

Francisco Petros Oliveira Lima Papathanasiadis – Board member, Coordinator of our Audit and Integrity
Committee and member of the Finance and Risk Management Committee. Mr. Papathanasiadis is an economist and
a lawyer specializing in corporate law, compliance, capital markets and corporate governance. He is the managing
director of Fernandes, Figueiredo, Françoso and Petros - Sociedade de Advogados. He has worked for more than 30
years in the Brazilian capital and financial markets, in the areas of investment analysis, corporate finance and asset
management, in several institutions, including Unibanco, Brasilpar and Grupo Sul América. He was vice president
and president of the Brazilian Association of Capital Markets (ABAMEC - São Paulo) between 1999 and 2001 and
the first Chairman of the Supervisory Council of the Association of Capital Markets Analysts and Investment
Professionals (APIMEC). From July 2015 to January 2019, he was a member of the Board of Directors of Petrobras
and its Audit Committee.

José Luiz Osório – Board member and member of the Quality and Sustainability Committee. Mr. José Luiz
Osório has Bachelor’s and Master’s degrees in Engineering from PUC-Rio and a Master’s degree in Engineering from
Stanford University in the United States. He founded Jardim Botânico Investimentos in 2003 and he has been a
member of the Board of Elba Equipamentos e Serviços S.A., since 2010. He held executive positions at Bank Boston
and Banco Garantia, between 1978 and 1993. In addition, he was the managing partner of investment banking at
Banco Icatu (1993 – 1997), country manager at Lehman Brothers Brasil (1997-1999), executive officer of
BNDES/BNDESPar (1999) and President of the CVM (2000-2002). He was member of the board of directors of Lojas
Renner (2005-2007), Invest Tur (2007 – 2008), Merger and Acquisitions Committee (2013 – 2015), Banco Triângulo
(2003 – 2017), MZ Group (2009 – 2018) and was member of the Advisory Council of the Millstein Center for Global
Markets and Corporate Ownership, Columbia University (2013 – 2016) and Millstein Center for Global Markets and
Corporate Ownership, Columbia University (2007 – 2012). He also was the CEO of Icatu Securities and Garantia Inc.,
both in New York, and CEO of Instituto Ibero Americano de Mercado de Capitais.

Luiz Fernando Furlan – Board member and member of the Quality and Sustainability Committee and
Strategy and Marketing Committee. Mr. Furlan was Chairman of the board of directors of Sadia S.A. from 1993 to
2002 and from 2008 to 2009, and he also occupied several different executive positions from 1976 to 1993. He was
Vice-Chairman of the board of directors of BRF S.A. from 2009 to 2011, as well as a member of the board of
Telefónica S.A. (Spain) from 2008 to 2019, Global Board of Panasonic (Japan) from 2008 to 2013, Walmart
Internacional (USA) from 2011 to 2013, AMIL Participações S.A. from 2008 to 2013, AGCO Corporation (USA)
from 2010 to 2017 and a member of the Advisory Board of ABERTIS Infraestruturas S.A. (Spain) from 2013 to 2015.
He served as Minister of Development, Industry and Foreign Trade of Brazil from 2003 to 2007. From 2008 to 2016,
he was Chairman of the Board of Fundação Amazonas Sustentável (FAS), and since then has been an honorary
member. He was also a member of the Global Commission for the Conservation of Oceans (Global Ocean Commission
– USA) from 2013 to 2015 and, currently, is a member of the board of directors of Telefonica Brasil S.A. (Brazil),
Chairman of the board of LIDE and President of Deliberative Council of SP Negócios (appointed by the Mayor of the
São Paulo City). He is also a member of the Wise Group Brazil-Japan (which seeks the strengthening of strategic
economic partnership between Brazil and Japan). Mr. Furlan graduated with a degree in Chemical Engineering from
FEI (the Industrial Engineering School) and a degree in Business Administration from the Universidade de Santana -
São Paulo, with extension and specialization courses in Brazil and abroad.

Roberto Antônio Mendes – Board member and member of the Audit and Integrity Committee and Financial
and Risk Management Commitee. Mr. Roberto Mendes is currently a member of the board of directors of Hermes
Pardini Institute, Pottencial Insurance Company and Hapvida. He also participates in the Audit and Finance
Committees of Localiza Rent a Car. He was Director of Finance and Investor Relations of Pottencial Insurance
Company from 1985 to 2018 and CFO from July 2018 to January 2019. He graduated with a degree in Business
Administration and Accounting Sciences from the Federal University of Minas Gerais. He attended the Executive
STC of FDC and Kellogg School of Management in Chicago and the Strategy and Innovation in Business at Wharton
University of Pennsylvania in 2011. He began his career in 1971 at PWC, worked at KPMG and was Controller of
Valep (now Fosfertil) and Mendes Junior.

Roberto Rodrigues – Board member, Coordinator of the Quality and Sustainability Committee and member
of the People, Governance, Organization and Culture Commitee. Mr. Rodrigues graduated with a degree in agricultural
engineering from the Luiz de Queiroz College of Agriculture of the University of São Paulo (ESALQ-USP) in 1965.
He was awarded an Honorary Doctorate degree in Rural Administration from the São Paulo State University (UNESP)
in 1998. Mr. Rodrigues was a professor at UNESP until 2012, and member of the board of directors of Minerva S.A.
from 1967 until 2017. He has been a member of the Advisory Council of the Organization of Cooperatives of the State
of São Paulo (OCESP) since 1990 and Coordinator of the Agribusiness Center of the Fundação Getúlio Vargas (FGV)
since 2006. He was President of the Organization of the Brazilian Cooperatives from 1985 to 1991, the Brazilian Rural
Society from 1994 to 1996, the Brazilian Association of Agribusiness from 1999 to 2002, the International
Cooperative Alliance from 1997 to 2001 and the Agribusiness Council of the Federation of Industries of the State of
São Paulo (COSAG FIESP) from 2006 to 2012. He also was Minister of the Agriculture of Brazil from 2003 to 2006.
He is currently a member of the Agribusiness Council of the Federation of Industries of the State of São Paulo
(COSAG FIESP).

Walter Malieni Júnior – Board member, member of the Audit and Integrity Committee and member of the
Finance and Risk Management Committee. Mr. Malieni Junior holds a degree in Economics from Universidade
Presbiteriana Mackenzie, an MBA in Capital Markets and Finance from Ibmec, a postgraduate degree in General
Training for Executives from USP and a Master’s Degree in Business Administration from Universidade Presbiteriana
Mackenzie. Currently, he is the CEO of BrasilPrev. Mr. Malieni has been a civil servant at Banco do Brasil since
1984, when he joined the company in the Minor Apprentice program. In addition to his most recent position as Vice
President in the Wholesale Business area, he also served as Vice President of Retail Distribution and Personnel
Management, Vice President of Internal Controls and Risk Management and Statutory Commercial Director of Cia.
De Seguros Alliance of Brazil. His career also includes experience as a Director of companies such as BRF, Eletrobrás,
Kepler Weber S.A, Neoenergia and Previ.

Executive Officers

Our executive officers are responsible for our day-to-day operations and implementation of the general

policies and guidelines approved from time to time by our board of directors.

Our bylaws require that the board of executive officers consist of a Chief Executive Officer, a Chief Financial
and Investor Relations Officer and up to thirteen additional Vice Presidents, each with the designation and duties
assigned by our board of directors.

Our executive officers are elected by our board of directors for two-year terms and are eligible for reelection.
Our board of directors may remove any executive officer from office at any time with or without cause. Under the
Brazilian Corporation Law, our executive officers must be residents of Brazil but do not need to be our shareholders.
Our executive officers hold ordinary monthly meetings, as well as extraordinary meetings, when called by our Chief
Executive Officer.

The following table sets forth the name, position and the applicable date of appointment of each of our current

executive officers.

Name

Position Held

Appointment Date

Age

Name
Lorival Nogueira Luz Júnior* ................... Global Chief Executive Officer
Carlos Alberto Bezerra de Moura .............
Vinícius Guimarães Barbosa ..................... Operations and Procurement Officer
Sidney Rogério Manzaro ..........................

Position Held

Chief Financial and Investor Relations Officer

Alessandro Rosa Bonorino........................

Comercial Brazil Market Vice President
Human Resources and Shared Services Vice
President
Strategy, Managing and Innovation Vice
President

Rubens Fernandes Pereira .........................
Neil Hamilton dos Guimarães Peixoto Jr .. Quality and Sustainability Vice President

Leonardo Campo Dall’Orto ......................

Sales & Operations Planning and Supply Chain
Vice President

Appointment Date

Age

March 28, 2019
September 16, 2019
August 1, 2018
May 30, 2019

May 30, 2019

May 30, 2019
May 30, 2019

May 30, 2019

48
45
51
53

47
54

The following is a summary of the business experience in the sector, areas of expertise and principal outside

business interests of our current executive officers.

Lorival Nogueira Luz Júnior — Mr. Luz has more than 28 years of professional experience. In September
2017, he was appointed as Chief Financial and Investor Relations Officer (CFO) at BRF, and in April 2018, he was
appointed as interim CEO. In June 2018, he was appointed as Global Chief Operating Officer (COO) and on March
28, 2019, he was named Mr. Parente’s successor as the Global CEO of the Company following the end of Mr. Parente’s
term. From 2013 to September 2017, he was the Vice President of Finance and Investor Relations at Votorantim
Cimentos S.A. Between 2010 and 2011, he was Executive Officer of Treasury and Investor Relations at Votorantim
Industrial, and in March 2011 he was elected as Finance and Investor Relations Officer of CPFL Energia S.A. and
subsidiaries of the CPFL Energia group. From 2008 to 2009, he was CFO and Investor Relations Officer at Estácio
Participações. Prior to that, Mr. Luz worked at Citibank for 17 years, holding different positions in the Corporate and
Investment Bank, Treasury, Retail Bank and Financial Control divisions. He was also Executive Officer of Treasury
at Credicard and held the same position at Banco Citicard until 2008. Mr. Luz holds a degree in Business
Administration at Fundação Armando Álvares Penteado - FAAP, with several specialization courses abroad.

Carlos Alberto Bezerra de Moura -Mr. Moura worked as Executive Officer and CFO at Companhia Brasileira
de Metalurgia e Mineração (CBMM). Previously, he held the position of Corporative Vice President and Chief
Financial Officer of Diagnósticos da América S.A. (DASA) from November 2009 to May 2011. He was Officer and
Partner of Itaú Unibanco Financial Holding for the retail sector from December 2001 to November 2009, and he has
previous positions at Banco Bozano, Simonsen and Deloitte Touche Tohmatsu. He graduated in Accounting Sciences
from the Federal University of Rio de Janeiro - UFRJ, he holds a post-graduation in Financial Administration from
the Getúlio Vargas Foundation of Rio de Janeiro (FGV/RJ) and an MBA from the Dom Cabral Foundation, with
coursework at the Kellogg School of Management. Mr. Moura also acted as a member of the Board of Director at
companies in various sectors, including information technology, financial services and loyalty programs.

Vinícius Guimarães Barbosa — Mr. Barbosa graduated in Production Engineering from the University of
Rio de Janeiro and holds an MBA from IBMEC. He began his career as a trainee at Brahma and served in several
positions in procurement, operations and logistics. At Brahma, he was responsible for the integration of several M&A
transactions in the supply chain department. Before joining BRF, Mr. Barbosa was Vice President of Operations and
Logistics at Anheuser-Busch for the United States and Canada. He took over the position of Operations and
Procurement Officer of BRF in 2018.

Sidney Rogério Manzaro — Mr. Manzaro holds a degree in Business Administration from the University of
Santana and an MBA in Advertising and Marketing from School of Higher Education in Advertising and Marketing
(ESPM), with a 38-year experience in business management in the food sector, with extensive experience in the
commercial and restructuring areas. Mr. Manzaro began his career as a trainee at AmBev in 1991, where he worked
for 14 years, with a distinguished career in the commercial area, leading restructurings, the go-to-market (GTM)
strategy and various projects in multiple sales channels. At BRF, his career started in 2005 in the AS channel, where
he headed the business of the Rezende/Wilson brand, the TAC/CADE project. He also led the GTM strategy of dairy
products and route channel. In 2013, he led the GTM project and he took over the retail commercial executive board,
directly managing the teams for Sadia, Perdigão, Lácteos (dairy products) and Food Service. In 2015, he was appointed

to the São Paulo regional executive board, in charge of Brazil’s highest volume for BRF. Between 2015 and 2018,
Mr. Manzaro served as Grano’s CEO and in 2018, he returned to BRF as Chief Commercial Officer for Brazil.

Alessandro Rosa Bonorino – Mr. Bonorino graduated in Economics from the Federal University of Rio de
Janeiro – UFRJ, and he holds an Executive MBA from the Dom Cabral Foundation. Mr. Bonorino has more than 30
years of professional experience, having spent the past 19 years in executive positions. He started his career as an
auditor at KPMG. In the human resources field, he began his career at IBM in 1992, where he led transformative
projects across multiple areas of people management on a national, regional and global scale. Recognized for several
years as one of the top human resources professionals in Brazil by industry publications, Mr. Bonorino has had
extensive experience in multiple corporate cultures, and he has worked in various countries as a human resources
specialist. In particular, he was the global Vice President of Recruitment at IBM Corporation in China, he led the
human resources department for South America in Argentina, and he was the head of human resources for Brazil and,
subsequently, of all of Latin America. In 2017, he joined BRF as Vice President of Human Resources and, in 2018,
he also became the head of Shared Services.

Rubens Fernandes Pereira — Mr. Pereira holds a degree in Electronic Engineering from Aeronautics
Institute of Technology (ITA), with an MBA from the Massachusetts Institute of Technology. He has over 20 years
of professional experience following the start of his career in strategy and management consulting in 1995 at Booz-
Allen & Hamilton in Brazil. In 1999, he joined the team of Boston Consulting Group, where he served until 2004,
working in several projects in Brazil, the United States and Canada. From 2004, he served at Cargill where he held
several executive positions. In 2012, Mr. Pereira became Managing Director of Vegetable Oil and Consumption
Products unit in Brazil and by mid-2016, he cumulated the position of Global Strategy and Innovation Officer of the
referred unit. Since 2018, at BRF, he has been acting as VP of Strategy, Management, and Innovation.

Neil Hamilton dos Guimarães Peixoto Junior — Mr. Peixoto Junior holds a degree in Chemical Engineering,
with a master’s degree in Biochemical Processes Engineering and an MBA, all from the Federal University of Rio de
Janeiro. Mr. Neil Peixoto has had a 27-year career with national and international experience in the food industry.
With a solid background in R&D, Quality, Manufacturing, and Business, he began his career at Fleischmann & Royal
in 1997. From 1997 to 2000, he held the position of Manager of R&D and Quality in Latin America for the Division
of Industrial Products at Nabisco, which was subsequently acquired by Kraft Foods. At Kraft Foods, he acted as
Associated Officer of Scientific, Regulatory and Nutrition Issues in Latin America for almost seven years and, in
2007, he was appointed to the position as Manager of R&D for beverages and foods covering Latin America, based
in the United States, and later in Mexico. After the spin-off of Kraft Foods into two new companies (Mondelez
International and Kraft Foods), Mr. Neil continued his career at Mondelez International, where, in 2012, he held the
position of Executive Officer of R&D of Food in Europe and, subsequently, Executive Global Officer of R&D of the
Food Category based in Switzerland. Since 2018, Mr. Neil has been serving as Vice President of Quality, Research,
Development and Sustainability at BRF.

Leonardo Campo Dall’Orto – Mr. Dallorto holds a degree in Mechanical Engineering from the Federal
University of Espírito Santo, with a master’s degree and a doctorate in industrial engineering from the Pontifical
Catholic University of Rio de Janeiro (PUC-RJ) and an MBA from the Dom Cabral Foundation. Mr. Dallorto has 18
years of experience, the last 10 years of which holding executive positions. He began his career at Vale in 2002 in the
Railway and Port Logistics area, and he took part in the company’s international expansion, working in projects in
Canada, India and Africa. Between 2007 and 2011, he served with the consulting firm McKinsey & Company, focused
on Supply Chain, Procurement, Strategy and M&A of companies across different sectors in Latin America. Mr.
Dallorto joined BRF in 2011, serving as Officer, heading the Supplies and Integrated Planning area. As Officer of the
Commercial VP Brazil, he led the Logistics and South Region units, developing customer relationship programs, GTM
strategies and the review of distributors’ role in the region. As the Industrial Operations Officer, he took part in
defining the company’s manufacturing footprint and led the productivity project (Guide). Since 2018, Mr. Leonardo
has been BRF’s Vice President of Integrated Planning & Supply Chain.

Compensation

In 2019, the total salary paid by us to all our executive officers and the total compensation paid by us to all
members of our board of directors and fiscal council for services in all capacities was R$59.6 million. In addition, the
amount paid to our executive officers in 2019 as part of our profit sharing plan was R$18.7 million. The aggregate

total compensation paid to members of the board of directors, fiscal council and audit and integrity committee and
executive officers in 2019 (including salaries, profit sharing payments, as described below, and benefits) was R$60.9
million.

The amount of variable compensation paid to each executive officer in any year pursuant to our profit sharing
plan is primarily related to financial and non-financial results such as EBIT, leverage, net income and quality. It is
also based on an assessment of individual performance of each officer conducted by the CEO and members of Board
of Directors. This methodology follows best market practices and provides reasonable maximum amounts keeping
compensation / retention competitiveness at same time.

Our executive officers are also eligible to participate in our Stock Option Plan and Restricted Stock Plan. As
of December 31, 2019, a total of 1,363,159 stock options, RSUs and PSUs were held by our executive officers, with
a cost to our company of R$12.0 million. In 2019, a total of 598,949 stock options and shares of restricted stock were
granted to our executive officers. For additional information regarding our Stock Option Plan and Restricted Stock
Plan, see “—E. Share Ownership—Stock Option Plan and Restricted Stock Plan.”

The table below shows information about the stock options and RSUs granted to executive officers of BRF

in previous years that are still outstanding as of December 31, 2019:

Grant

# Options /
Restricted
Stock Units

Grant Price(1)

Strike Price as
of December
31, 2019(2)

2016 ........................................... 34,180
2018 (Restricted Stock Units) .... 276,000
2018 (Restricted Stock Units) .... 135,000
2018 (Restricted Stock Units) .... 319,030
2019 (Restricted Stock Units)
598,949
Total ........................................... 1,363,159

R$46.68
R$22.29
R$20.00
R$21,44
R$30,61

R$48.87
N/A
N/A
N/A
N/A

Expiration Date

May 30, 2022
June 30, 2020
June 30, 2020
October 1, 2021
June 1, 2022

(1)

(2)

(3)

The grant price refers to the average stock price at B3 of the last 20 trading days before the grant date.

Strike price updated with IPCA from January 2019 through November 2019.

The grant price refers to the stock price at B3 on the day of the grant date.

The executive officers receive certain additional benefits generally provided to employees and their families,
such as medical assistance, educational expenses, development and supplementary social security benefits, among
others. They also participate in our private pension plan. At age 61, we cease making contributions to pension plans
for executive officers and other employees. In 2019, the amount paid as benefits and private pension plan to the
executive officers totaled R$1.1 million.

Our executive officers and the members of our board of directors, audit and integrity committee and fiscal
council are not parties to employment agreements or other contracts providing for benefits upon the termination of
employment. However, non-compete agreements may be entered into with executive officers departing the Company.
In 2019, we paid severance benefits to former executive officers in the amount of R$16.3 million.

Board Practices

For information about the date of expiration of the current term of office and the period during which each
member of the Board of Directors and executive officer has served in such office, see “—A. Directors and Senior
Management.” For information about contracts for benefits upon termination of employment, see “—B.
Compensation.”

100

Fiscal Council

Under the Brazilian Corporation Law, the fiscal council is a corporate body independent of management and
the company’s external auditors, which has authority, among other matters, to supervise certain acts of management,
to issue a report on the financial statements prepared by management and to give an opinion on management proposals
to be submitted to general shareholders’ meetings regarding changes in the capital stock, issuance of debentures or
warrants, investment plans or capital budgets, dividend distribution, transformation, merger, consolidation or
demerger. The fiscal council is not the equivalent of, or wholly comparable to, a U.S. audit committee.

We have a permanent fiscal council composed of three members and their alternates who are elected at the
ordinary general shareholders’ meeting, with terms lasting until the succeeding ordinary general shareholders’ meeting
with reelection being permitted.

The following table sets forth information with respect to the current members of our fiscal council and their

respective alternates.

Position Held

Name
Attilio Guaspari(1) .............................. President of the Fiscal Council
Susana Hanna Stiphan Jabra(1) .......... Alternate
Maria Paula Soares Aranha (1) ........... Member of the Fiscal Council
Mônica Hojaij Carvalho Molina1) ..... Alternate
André Vicentini(1) .............................. Member of the Fiscal Council
Valdecyr Maciel Gomes(1) ................. Alternate

Current Position
Held Since

April 26, 2018
April 26, 2018
April 29, 2019
April 29, 2019
April 26, 2018
April 26, 2018

Age
73
62
63
50
38
64

(1)

Independent Member (as defined under the Brazilian Novo Mercado rules).

Below is a summary of the professional experience and areas of activity of our current fiscal council

members:

Attilio Guaspari —President of the Fiscal Council. Mr. Guaspari holds a degree in Civil Engineering from
the Polytechnic School of the University of São Paulo (POLI-USP) and a Master’s degree in Business Sciences. He
was a member of the Audit Committee of the National Development Bank – BNDES and President of the Fiscal
Council and the Audit Committee of both Perdigão and BRF, with the designation of audit committee financial expert.
He has extensive experience in the position of Internal Audit Committee Head, Financial Director and member of
boards of directors. Mr. Guaspari qualifies as an independent member of the Fiscal Council under the Novo Mercado
rules.

Maria Paula Soares Aranha – Mrs. Aranha has a bachelor’s degree in administration by FGV-EAESP, a
postgraduate degree in Administration with specialization in Finances by FGV-EAESP, a postgraduate degree in
Accounting Sciences by FGV-RJ, an MBA Controller by Universidade de São Paulo – USP and a Master’s degree in
Controllership and Accountability by FEA/USP. She was (i) Member of the Board of Directors of Fibria Celulose
S.A. (2013-2018), acting as coordinator of CAE–Committee of Statutory Audit, since its implementation, (ii) Member
of the Board of Directors of Paranapanema S.A. (2014-2016), also as coordinator of the Audit Committee, in this case
non-statutory, (iii) Tax Advisor for 2 years in Fibria Celulose S.A. (2011-2013) and another 2 years in Invepar S.A.
(2016-2018). Currently, she acts in the Audit and Risks Committee of Grupo Hapvida as specialist in management of
risks and studies of financial statements. She is a certified Board Member by the ICSS-A, with participation in the
commission of Management of Risks and Controls of IBGC and participation in the Board Members of EY. She is a
specialist adviser in controllership, internal controls and systems of corporate management. Mrs. Aranha was an
employee of Banco do Brasil from 1981 to 2007, having held the position of Executive Manager of the Controllership
Board and Distribution Board. She has experience with 28 financial institutions, both in the conception of models and
in the implementation and development of tools and management systems. She also has experience with planning and
budget, costs, management accounting, risks management, management in the area of distribution of bank services,
and management of agency network, of service terminals, of the process and of service to clients.

101

André Vicentini — Mr. André Vicentini graduated in Mechanical Production Engineering by Escola
Politécnica of the University of São Paulo – USP with specialization in ALM (Asset Liability Management) and in
Risk Management. Working as Corporate Superintendent of Treasury and Financial Services, he has more than 20
years’ experience in the financial management of large corporations, such as BM&FBOVESPA S.A., Telefonica S.A.,
Perdigão S.A. and Banco Votorantim.

Audit and Integrity Committee

Our shareholders approved the establishment of a statutory audit committee at our ordinary and extraordinary
general shareholders’ meeting held on April 3, 2014. On November 5, 2018, shareholders at our extraordinary general
shareholders’ meeting voted to rename the committee the Audit and Integrity Committee. The Audit and Integrity
Committee is composed of three to five members, a majority of whom must be independent members, one of whom
cannot be a member of the board of directors and none of whom may be an executive officer (in accordance with the
independence standards of the CVM, in particular CVM Instruction No. 509/11).

The members of the Audit and Integrity Committee must be appointed by the board of directors for terms of
two years, but for a total period not to exceed ten years. They are subject to removal from their positions by the board
of directors at any time. The members of the Audit and Integrity Committee who are also members of the board of
directors shall terminate concomitantly with his or her termination as a board member.

Our Audit and Integrity Committee complies with CVM Instruction No. 509/11 of November 16, 2011, and
accordingly, allows us to rely on the exemption from the audit committee requirements of the SEC contained in
paragraph (c)(3) of Rule 10A-3 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The
Audit and Integrity committee is not the equivalent of, or wholly comparable to, a U.S. audit committee.

The following table sets forth information with respect to the current members of our Audit and Integrity

Committee.

Name
Francisco Petros Oliveira Lima
Papathanasiadis(2) ........................................... Coordinator
Roberto Antônio Mendes(2) ............................ Member

Position Held

Fernando Maida Dall’Acqua(1)(2) ....................
Walter Malieni Júnior .................................... Member
Thomas Tosta de Sa(2)(3) ................................. External Member

External Member and Financial
Expert

Current Position
Held Since

Age

June 14, 2018
June 14, 2018

June 14, 2018
June 14, 2018
January 31, 2019

55
67

70
50
80

(1)

(2)

Audit Committee Financial Expert (as defined under the rules of the SEC)

Independent Member (as defined under the Brazilian Novo Mercado rules).

(3) On December 31, 2018 Mr. Sergio Ricardo Silva Rosa was an external member and was replaced by Mr. Thomas Tosta de Sa on January 31, 2019.

Below is a summary of the professional experience and areas of activity of our current members of the Audit

and Integrity Committee:

Please see “—A. Directors and Senior Management” for the biographical information of Mr. Papathanasiadis,

Mr. Roberto Antônio Mendes and Mr. Malieni Júnior.

Fernando Maida Dall’Acqua – External Member of the Audit and Integrity Committee and its Financial
Expert. Mr. Dall’Acqua holds a master’s degree in business administration from the Getulio Vargas Foundation, a
PhD in Economic Development from the University of Wisconsin-Madison, USA, and received the post-doctoral title
of “Livre Docente” in Business Administration from the Getulio Vargas Foundation. He is a Professor of Economics
at the School of Administration of São Paulo (Getulio Vargas Foundation) and provides consulting services to major
companies on mergers and acquisitions, economic and financial valuation and macroeconomic and tax advisory
services. He was the Chairman of the Fiscal Council of Grupo Pão de Açúcar and Via Varejo. He is currently a board

102

member and chairman of the Audit Committee of ISA-CTEEP and the chairman of the Audit Committee of O Estado
de São Paulo newspaper. He was the Finance Secretary of the state of São Paulo, in addition to serving as a member
of the São Paulo State Privatization Council. He was director of the Project Center for Latin America and the Caribbean
of the IICA/OEA. He was also a member of the Board of Directors and the Audit Committee of Sabesp and a member
of the Boards of CESP, PRODESP, DERSA, Banco Nossa Caixa and Banespa, as well as served on the Advisory
Board of Grupo Pão de Açúcar. He was president of the People Bank of the São Paulo Government. He was also a
Fellow at Michigan State University, U.S.A. and adviser of the World Bank for fiscal policy and credit market.

Thomas Tosta de Sa – External Member of the Audit and Integrity Committee. Mr. Tosta is an Engineering
graduate from PUC-RJ and received an MBA from New York University. He is CEO of Ibmec (Brazilian Institute of
Capital Markets). He also acts as coordinator of the Executive Committee of the Capital Markets Master Plan, member
of the Board of Abrasca (Brazilian Association of Public Companies) and member of the Advisory Board of ABVCAP
(Brazilian Association of Private Equity & Venture Capital). He is former president of the CVM (Securities Exchange
Commission in Brazil) and Cosra (Securities Regulators Board of the Americas) - 1995.

For more information about the Audit and Integrity Committee, see “Item 10. Additional Information –– B.

Memorandum and Articles of Association––Audit and Integrity Committee.”

Advisory Committees for our Board of Directors

Under our bylaws, our board of directors may, for advisory purposes, set up technical or consultative

committees, of a non-deliberative nature, to undertake special tasks or general activities of interest to us.

In addition to the Audit and Integrity Committee, we have other three advisory committees for our board of
directors: (i) Finance and Risk Management Committee, (ii) People, Governance, Organization and Culture
Committee and (iii) Quality and Sustainability Committee. They are composed of members of our board of directors,
as well as other professionals. The Strategy and Marketing Committee was extinguished following the meeting of our
Board of Directors held on December 19, 2019.

The People, Governance, Organization and Culture Committee is responsible for advising the board of
directors in setting compensation policies and the compensation of executives and employees, provides support to the
executive officers in the assessment, selection and development of top leadership, advises the board of directors in the
formulation and practice of BRF culture to monitor and encourage proper behavior of leaders, and proposes actions
to align the expectations of shareholders and executives. This committee is not the equivalent of, or wholly comparable
to, a U.S. compensation committee.

The Finance and Risk Management Committee is responsible for evaluating recommendations to the board
of directors concerning financial and risk policies of the Company; analysis of financial information, issuing
recommendations in accordance with the annual plan of objectives and goals, and taking into consideration the
Company’s more relevant risks; follow-up regarding financial statements, financial operations and M&A transactions,
report to the board of directors the limits of exposure to risks of the Company, request adjustments, when applicable.

The Quality and Sustainability Committee is responsible for evaluating the social, environmental, economic
and quality aspects pertaining to the business model of the Company, assisting in the development of products,
guidelines, certifications, and policies; follow-up on compliance matters regarding ISO standards, specific standards
on food safety, sustainability, and customers of the Company; and, monitor the Quality Assurance System.

Employees

The table below sets forth the number of our employees by primary category of activity as of the dates

indicated:

Administration ..........................................................................

18,904

21,839

21,189

As of December 31,
2018

2017

2019

103

Production ................................................................................
Total .........................................................................................

As of December 31,
2018

2019

73,938
92,842

83,782
105,621

2017

87,045
108,234

All of our employees listed above are located in Brazil, except for approximately 6,717 employees in 2019
(20,558 in 2018 and 16,022 in 2017) who are located abroad, mainly in our offices and processing plants in the Middle
East.

We do not employ a material number of temporary employees. However, during the Christmas holiday season

in Brazil we contract a company that furnishes sales representatives to assist us with holiday sales.

All of our employees in Brazil are represented by labor unions and each location has a different union. The
terms of our collective bargaining agreements vary in accordance with the union. In each case, however, salary
negotiations are conducted annually between workers’ unions and us. The agreement reached with the local or regional
union that negotiates the applicable collective bargaining agreement for a particular facility is binding on all
employees, whether or not they are members of the union. In general, collective bargaining agreements are applicable
to all employees of that union or region, respecting the different professional categories. In other countries, where
applicable, a union represents our employees and all of them are covered by collective bargaining agreement. We
believe that our relations with our employees and their labor unions are satisfactory.

We offer to our employees all legally required benefits according to each country’s laws and in some
locations complementary benefits are also offered. We have competitive benefit plans for each office around the world.
In Brazil, the main benefits are: (1) the private pension plan, administered by BRF Previdência (formerly BFPP –
Brasil Foods Sociedade de Previdência Privada), (2) a credit cooperative that offers to the associated employee credit
lines with attractive interest rates, (3) supplementary health plan that allows the employee to use the network
agreements with costs subsidized by us, (4) meals, offered in our own restaurants or restaurant cards for subsidies of
up to 80% by us, (5) basic consumer products granted to employees with salary of up to five times the minimum wage
and 80% subsidized by us and (6) a collective insurance life policy.

We have implemented productivity incentive programs, such as the Profits and Results Sharing Program,
which is available to all employees, as well as variable compensation systems linked to targets for operating and sales
personnel. The purpose of those programs is to institute and regulate employee participation in our profits and results,
thus encouraging improved performance, the recognition of team and individual effort and accomplishment of our
targets.

Share Ownership

Share Ownership of Directors, Executive Officers and Members of the Fiscal Council and the Audit and
Integrity Committee

As of December 31, 2019, members of our board of directors, our executive officers and members of our
Fiscal Council (and alternates) and Audit and Integrity Committee owned the common shares of our company set
forth on the table below. The share numbers set forth below show the shares held by such persons in their individual
capacity and exclude any shares held by shareholders who have nominated certain of our directors.

Directors, Executive Officers and Members of the
Fiscal Council (and Alternates) and the Audit and Integrity Committee

Common Shares

Members of the Board of Directors

Pedro Pullen Parente ..............................................................................................

Augusto Marques da Cruz Filho.............................................................................

303,175
—

0.04
—

104

Directors, Executive Officers and Members of the
Fiscal Council (and Alternates) and the Audit and Integrity Committee

Common Shares

Dan Ioschpe ............................................................................................................

Flavia Buarque de Almeida ....................................................................................

Francisco Petros O. L. Papathanasiadis ..................................................................
José Luiz Osório .....................................................................................................

—
—
—
—

Luiz Fernando Furlan .............................................................................................

6,171,243

Roberto Antônio Mendes .......................................................................................

Roberto Rodrigues ..................................................................................................

Walter Malieni Jr. ...................................................................................................

Subtotal .................................................................................................................
Executive Officers(1)
Lorival Nogueira Luz Júnior .................................................................................

Carlos Alberto Bezerra de Moura...........................................................................

Sidney Rogério Manzaro........................................................................................

Neil Hamilton dos Guimarães Peixoto Junior........................................................

Rubens Fernandes Pereira......................................................................................

Alessandro Rosa Bonorino .....................................................................................

Leonardo Campo Dallorto ......................................................................................

Subtotal .................................................................................................................
Fiscal Council (and alternates)
Attilio Guaspari .....................................................................................................

Susana Hanna Stiphan Jabra ...................................................................................
Maria Paula Soares Aranha……………………………………………………….
Mônica Hojaij Carvalho Molina………………………………………………….
André Vicentini ......................................................................................................

Valdecyr Maciel Gomes .........................................................................................

Subtotal .................................................................................................................
Audit and Integrity Committee (1)
Thomás Tosta de Sá................................................................................................

Fernando Maida Dall’Acqua..................................................................................

Subtotal .................................................................................................................

—
2
—

6,474,420

80,115

—
66,924

9,018

11,272

52,777
—
236,338

—
—
—
—
600
—
600

—

—
—
—
—
0.76
—
0.00
—
0.79

0.01

—
0.01

0.00

0.01
—
0.03
—
—
—
—
—
0.00
—
0.00

—

(1)

The other members of the audit and integrity committee, Francisco Petros O. L. Papathanasiadis, Roberto Antônio Mendes and Walter Malieni Júnior, are members of the Board of

Directors whose share ownership is already included above.

For information about the stock options held by the persons listed above, including information about

exercise prices, expiration dates and exercises, see “—B. Compensation.”

Stock Option Plan and Restricted Stock Plan

We have a long-term incentive program for the executive officers and other employees of BRF and its
subsidiaries for the award of stock options. This plan is part of the eligible executives’ compensation and is intended

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to attract, retain and motivate our executives in order to generate value for our companies and align their interests with
the interests of our shareholders.

The long-term incentive program is available for our executive officers, directors and executive managers,
such as plant managers. It is a significant element of our compensation strategy, and we rely more on this long term
compensation component than our direct competitors or the overall food industry in Brazil. For senior leadership roles,
over 1/3 of their direct compensation is based on the long-term incentive program, which is the element with the
heavier weight in their compensation mix. The long-term incentive program is intended to attract, retain and motivate
our executives to generate long term value for our companies and align their interests with the interests of our
shareholders.

The current stock option plan (“Stock Option Plan”) was approved at the shareholder meeting held on April

8, 2015.

The Stock Option Plan is managed by our board of directors. Exercise prices of stock options granted under
the Stock Option Plan are determined by our board of directors on the grant date based on the average closing price
of our shares for the 20 trading days preceding the grant date. Exercise prices are adjusted monthly based on the
IPCA.

On April 26, 2017, a restricted stock units program (“Restricted Stock Plan”) was approved at our shareholder
meeting eventually to replace the Stock Option Plan. This change in the long-term incentive program was proposed
to align it with best market practices with the objective to retain and align the interests of top management and our
shareholders. Since then, no more stock options units were granted by the company under its long-term incentive
program.

There are currently two programs under our Restricted Stock Plan, the Restricted Share Units program
(“RSU”) mentioned above and the Performance Share Units program (“PSU”). The Restricted Stock Plan enables the
company to make a partial grant in RSUs and a partial grant in PSUs. Our board of directors approved a grant under
the Restricted Stock Plan in May 2019. In June 2019, the RSU grant represented 80% and the PSU grant represented
20%. The amount to be granted to a particular executive is subject to programs rules, based on market practices,
company and individual performance evaluation, and it is submitted to our Board of Directors for approval. Vesting
conditions are time-based and performance based for RSUs and for PSUs, respectively, and our Board of Directors
sets forth the collective goals for the performance indicators, which is currently ROIC (Return on Invested Capital).

With respect to the Stock Option Plan, as of December 31, 2019, a total of 20,941,681 options had been
granted, of which 2,923,302 were outstanding and held by approximately 102 people. During the year ended
December 31, 2019, no options were exercised. As of December 31, 2019, the weighted average strike price of our
outstanding options was R$55.59 per share, and the weighted average of the remaining contractual terms was 28
months.

With respect to the Restricted Stock Plan, the RSU and PSU programs are managed by our board of directors.
As administrator of the Restricted Stock Plan, our board of directors approves the program rules, eligibility, payment
levels, severance rules of the Restricted Stock Plan, to guarantee the program competitiveness and the alignment of
interests with shareholders. The total number of shares of restricted stock that may be granted under the RSU and PSU
programs shall not exceed 0.5% of the common stock, with no par value, representing the total capital stock of the
Company. As of December 31, 2019, a total of 5,238,043 RSU/PSUs had been granted, of which 3,377,560 were
outstanding and held by approximately 230 people.

MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

Major Shareholders

The capital stock of BRF is comprised of common shares. As of March 17, 2020, we had outstanding
811,759,800 common shares, or 99.91% of our total common shares (excluding 713,446 common shares held in
treasury), 113,019,018, or 13.91%, of which correspond to ADRs. On March 17, 2020, we had approximately 53,309

106

shareholders, including approximately 252 registered U.S. resident holders of our common shares (including The
Bank of New York Mellon, as depositary).

Major Shareholders

The following table sets forth certain information as of March 17, 2020 (except to the extent disclosed below),
with respect to (1) any person known to us to be the beneficial owner of more than 5% of our common shares (including
treasury shares) and (2) certain other shareholders who disclose their share ownership in Brazil.

Major Shareholders
Fundação Petrobras de Seguridade Social – PETROS(1) .............................................
Caixa de Previdência dos Funcionários do Banco do Brasil – PREVI(1).....................

These pension funds are controlled by participating employees of the respective companies.

(1)

Quantity

%
92,716,266 11.4
76,477,152 9.41

Our major shareholders do not have differing voting rights.

Changes in Ownership

There has been no significant change in the percentage ownership held by any major shareholder since

January 1, 2017, except as described below.

• On February 2, 2017, GIC Private Limited informed us that its aggregate shareholding position had
reached 40,467,128 common shares, representing approximately 4.98% of our share capital as of
February 2, 2017.

• On May 5, 2017, Tarpon informed us that its aggregate shareholding position had reached 69,485,935

common shares, representing approximately 8.55% of our share capital as of May 5, 2017.

• On May 9, 2017, GIC Private Limited informed us that its aggregate shareholding position had reached
51,913,800 common shares and/or other securities and derivatives referred in such shares, representing
approximately 6.39% of our share capital as of May 4, 2017.

• On June 2, 2017, BlackRock, Inc. informed us that its aggregate shareholding position had reached
30,643,993 common shares and 6,912,165 ADRs, representing approximately 4.62% of our share capital
as of May 31, 2017.

• On August 18, 2017, Standard Life Aberdeen plc. informed us that its aggregate shareholding position
had reached 41,421,259 common shares and/or other securities and derivatives referred in such shares,
representing approximately 5.09% of our share capital as of August 14, 2017.

• On September 21, 2017, Standard Life Aberdeen plc. informed us that its aggregate shareholding
position had reached 40,164,585 common shares and/or other securities and derivatives referred in such
shares, representing approximately 4.94% of our share capital as of September 18, 2017.

• On September 25, 2017, Standard Life Aberdeen plc. informed us that its aggregate shareholding
position had reached 41,205,885 common shares and/or other securities and derivatives referred in such
shares, representing approximately 5.07% of our share capital as of September 20, 2017.

• On October 17, 2017, Standard Life Aberdeen plc. informed us that its aggregate shareholding position
had reached 40,586,026 common shares and/or other securities and derivatives referred in such shares,
representing approximately 4.99% of our share capital as of October 12, 2017.

107

• On October 20, 2017, Standard Life Aberdeen plc. informed us that its aggregate shareholding position
had reached 40,748,226 common shares and/or other securities and derivatives referred in such shares,
representing approximately 5.02% of our share capital as of October 20, 2017.

• On December 6, 2017, GIC Private Limited informed us that its aggregate shareholding position had
reached 40,618,045 common shares and/or other securities and derivatives referred in such shares,
representing approximately 4.99% of our share capital as of December 4, 2017.

• On June 1, 2018, BlackRock, Inc. informed us that its aggregate shareholding position had reached
37,594,345 common shares and 3,425,202 ADRs, representing approximately 5.04% of our share capital
as of May 30, 2018.

• On June 15, 2018, BlackRock, Inc. informed us that its aggregate shareholding position had reached
37,508,775 common shares and 3,069,935 ADRs, representing approximately 4.99% of our share capital
as of June 14, 2018.

• On July 5, 2018, BlackRock, Inc. informed us that its aggregate shareholding position had reached
37,309,516 common shares and 3,413,575 ADRs, representing approximately 5.01% of our share capital
as of July 3, 2018.

• On July 13, 2018, BlackRock, Inc. informed us that its aggregate shareholding position had reached
36,965,486 common shares and 3,535,739 ADRs, representing approximately 4.98% of our share capital
as of July 12, 2018.

• On July 24, 2018, BlackRock, Inc. informed us that its aggregate shareholding position had reached
37,112,724 common shares and 3,550,231 ADRs, representing approximately 5.00% of our share capital
as of July 23, 2018.

• On August 8, 2018, BlackRock, Inc. informed us that its aggregate shareholding position had reached
37,147,915 common shares and 3,436,208 ADRs, representing approximately 4.99% of our share capital
as of August 7, 2018.

• On August 9, 2018, BlackRock, Inc. informed us that its aggregate shareholding position had reached
37,211,315 common shares and 3,436,208 ADRs, representing approximately 5.00% of our share capital
as of August 8, 2018.

• On August 10, 2018, BlackRock, Inc. informed us that its aggregate shareholding position had reached
37,128,021 common shares and 3,396,733 ADRs, representing approximately 4.98% of our share capital
as of August 9, 2018.

• On September 28, 2018, Tarpon informed us that its aggregate shareholding position had reached
40,229,235 common shares, representing approximately 4.95% of our share capital as of September 26,
2018.

• On October 26, 2018, BlackRock, Inc. informed us that its aggregate shareholding position had reached
36,795,404 common shares and 3,881,447 ADRs, representing approximately 5.00% of our share capital
as of October 25, 2018.

• On October 30, 2018, BlackRock, Inc. informed us that its aggregate shareholding position had reached
36,584,167 common shares and 3,881,447 ADRs, representing approximately 4.98% of our share capital
as of October 26, 2018.

108

• On October 31, 2018, BlackRock, Inc. informed us that its aggregate shareholding position had reached
36,857,067 common shares and 3,823,935 ADRs, representing approximately 5.00% of our share capital
as of October 30, 2018.

• On December 6, 2018, Standard Life Aberdeen plc. informed us that its aggregate shareholding position
had reached 40,485,544 common shares and/or other securities and derivatives referred in such shares,
representing approximately 4.98% of our share capital as of December 5, 2018.

• On February 12, 2019, Standard Life Aberdeen plc. filed a Schedule 13G/A reporting beneficial
ownership of 39,027,817 common shares and/or ADRs, representing approximately 4.8% of our share
capital.

• On May 31, 2019, GIC Private Limited informed us that its aggregate shareholding position had reached
40,776,747 common shares and/or other securities and derivatives referred in such shares, representing
approximately 5.02% of our share capital as of May 31, 2019.

• On August 14, 2019, GIC Private Limited informed us that its aggregate shareholding position had
reached 40,408,499 common shares and/or other securities and derivatives referred in such shares,
representing approximately 4.97% of our share capital as of August 12, 2019.

• On August 29, 2019, Caixa de Previdência dos Funcionários do Banco do Brasil – PREVI informed us
that its aggregate shareholding position had reached 81,121,752 common shares and/or other securities
and derivatives referred in such shares, representing approximately 9.4% of our share capital as of
August 28, 2019.

Related Party Transactions

From time to time we have entered into transactions with related parties, including with entities involving

certain members of our board of directors or senior management.

We have a Related Party Transactions Policy which sets forth rules and principles to ensure transparency and
arm's-length terms in our transactions with related parties and other situations of potential conflicts of interest. The
definition of related party is based on applicable accounting standards and on this internal policy, which may be more
restrictive than applicable laws and regulations under certain circumstances. This policy establishes the corporate body
responsible for approving related party transactions. Our Audit and Integrity Committee is also responsible for, among
other things, reviewing whether the procedures set forth in the Related Party Transactions Policy are followed. For
further details regarding our related party transactions, see Note 31 to our consolidated financial statements included
elsewhere in this annual report.

None of the members of our board of directors, our executive officers or close members of their families has
had any direct interest in any transaction we effected that is or was unusual in its nature or conditions, or material to
our business during the year, and which remains outstanding or unperformed. In addition, we have not entered into
any transaction with related parties which is or was unusual in its nature or conditions during the current or the three
immediately preceding financial years, nor is any such transaction proposed, that is or would be material to our
business. Our Related Party Transactions Policy prohibits us from extending loans or guarantees to the members of
our board of directors, our executive officers, our key management personnel or any close member of their families.

Arrangements with BRF Previdência

We leased properties owned by BRF Previdência. The total amount of rental payments paid to BRF
Previdência was R$18,200 thousand and R$16,924 thousand for the year ended December 31, 2019 and 2018,
respectively. The rent value was set based on market conditions.

Transactions with Sustainability Institutes

109

We are the guarantors of a loan obtained by the Sadia Sustainability Institute (Instituto Sadia de
Sustentabilidade) from BNDES. The loan was obtained with the purpose of allowing the implementation of
biodigesters in the farms of the outgrowers which take part in Sadia’s integration system, targeting the reduction of
greenhouse gases emission.

We had a liability in the amount of R$0.8 million as of December 31, 2019 related to the fair value of these
guarantees (for more details, see “Item 5. E—Operating and Financial Review and Prospects—Off-balance Sheet
Arrangements”).

In addition, we had, as of December 31, 2019, a liability in the amount of R$3.1 million in other obligations

with this entity in connection with our acquisition of biodigesters from the Sadia Sustainability Institute.

Indemnification Agreements

We have entered into indemnification agreements with our executive officers (the “indemnified parties” and
each, an “indemnified party”). Pursuant to these agreements, we have agreed to indemnify and hold harmless each
indemnified party with respect to losses which they may be subject to in connection with any administrative or judicial
proceedings in Brazil or abroad so long as the proceeding arises from their relationship with us in such role (or related
roles), among other circumstances (the “covered risks”), excluded from the coverage of these indemnifications
agreements any action of the indemnified parties taken with bad faith or scienter. Under the terms of these agreements,
we have also agreed to either advance or reimburse expenses incurred by the indemnified parties in connection with
the covered risks (including legal counsels’ fees). We have also agreed to contract director and officer insurance
coverage for acts carried out by the indemnified parties in the course of their duties. Each agreement will remain in
force during and after the period of the indemnified party’s employment with us, for an indefinite period of time. In
our extraordinary shareholders’ meeting held on May 25, 2018, our shareholders approved the execution of
indemnification agreements by us with current and former members of our board of directors.

Interests of Experts and Counsel

Not applicable.

FINANCIAL INFORMATION

Consolidated Statements and Other Financial Information

Our consolidated financial statements are appended at the end of this Annual Report starting at page F-1, and

form a part hereof.

Legal Proceedings

We are involved in certain legal proceedings arising from the regular course of business, which include civil,

commercial, administrative, regulatory, environmental, tax, social insurance and labor lawsuits.

We classify the risk of adverse decisions in the legal suits as “remote,” “possible” or “probable.” We record
provisions for probable losses in our financial statements in connection with these proceedings in an amount
determined by our management on the basis of legal advice. We disclose the aggregate amounts of these proceedings
that we have judged possible or probable, to the extent those amounts can be reasonably estimated, and we record
provisions only for losses that we consider probable. However, the amounts involved in certain of the proceedings are
substantial, and the losses to us could, therefore, be significantly higher than the amounts for which we have recorded
provisions, if any. Even for the amounts recorded as provisions for probable losses, a judgment against us would have
an adverse impact on our cash flow if we are required to pay those amounts. See “Item 3. Key Information—D. Risk
Factors—Risks Relating to Our Business and Industry—Unfavorable outcomes in legal proceedings may reduce our
liquidity and negatively affect us.”

110

Tax Proceedings

Contingencies for Probable Losses

We are engaged in several legal proceedings with Brazilian tax authorities for which we have recorded
provisions for probable losses. As of December 31, 2019, our provision for such tax proceedings was R$583.5 million,
compared to R$230.1 million as of December 31, 2018.

The tax contingencies classified as probable losses involve the following main legal proceedings:

•

ICMS: We are involved in a number of administrative and judicial tax disputes regarding the recording
and/or use of amounts paid in respect of the ICMS as tax credits against other taxes assessed on certain
transactions, such as exports, acquisition of consumption materials and monetary correction. The
provision amount is R$419.0 million as of December 31, 2019 (R$100.7 million as of December 31,
2018).

Staple basket products: In December 2019, the Federal Supreme Court rendered its final judgment on
the case involving the provision of stable basket products (cesta básica) and the maintenance of ICMS
tax credits on the acquisition of staple basket produtcs (cesta básica) with a reduced tax burden. As this
decision was rendered by the Federal Supreme Court with general applicability, we recognized a liability
in the amount of R$749.2 million. This amount has been partially paid and the remaining amount of
R$333.7 million was outstanding as December 31, 2019.

• PIS and COFINS: We are involved in administrative proceedings related to the use of federal PIS and
COFINS tax credits to offset other federal taxes, in the amount of R$139.7 million as of December 31,
2019 (R$125.1 million as of December 31, 2018).

• PRODEPE: On March 16, 2020, we also received a tax assessment notice of ICMS in the total amount
of R$107 million, due to alleged non-compliance with the requirements of the Pernambuco Economic
Development Program (“PRODEPE”), provided for in art. 21-A, III, of Decree No. 21.959 / 1999, as
amended, for the period from January 2017 to July 2019. With the publication of the State
Complementary Law No. 424/2020, on March 24, 2020 (amending Complementary Law No. 393/2018),
which provides a partial exemption for the assessed amounts related to operations with tax incentives,
we decided to settle the case with the authorized cash payment, made on March 31, 2020, with an 80%
discount on the total amount involved.

• Other tax contingencies: We recorded other provisions for lawsuits related to the payment of social
security contributions under various Brazilian government programs (SAT, INCRA, FUNRURAL,
Education Salary) and tax liabilities relating to accessory obligations, the payment of legal fees and other
tax matters.

Contingencies for Possible Losses

The amount of tax contingencies for which the probability of loss was classified as “possible” was

R$11,811.7 million as of December 31, 2019 (R$12,336.9 million as of December 31, 2018).

The most significant of these tax cases for which the risk of loss is classified as possible are described below:

• PIS and COFINS: We are involved in administrative proceedings regarding the use of PIS and COFINS
credits arising from a divergence in the definition of inputs in the non-cumulative tax system and their
use as important and essential products in our industry. We are also involved in proceedings concerning
PIS and COFINS that discuss (i) tax revenues for purposes of ICMS credits as a tax benefit, (ii) liabilities
relating to the tax classification of seasoned meats, (iii) Decrees-Law Nos. 2,445/88 and 2,449/88, which
were considered unconstitutional by the Federal Supreme Court as they established different basis and
rates of calculation, as well as determined different timing for payment (semi-annual), among others.

111

Such proceedings amount to R$4,915.3 million as of December 31, 2019 (R$4,363.1 million as of
December 31, 2018).

•

ICMS: We are involved in a number of disputes relating to the ICMS tax, including: (i) the alleged
improper granting of ICMS tax credits generated by states of origin (known as the guerra fiscal dispute)
in a total amount of R$1,457.9 million as of December 31, 2019 (R$1,724.8 million as of December 31,
2018); (ii) the absence of evidence to prove the balances of exports in the amount of R$261.9 million as
of December 31, 2019 (R$396.2 million as of December 31, 2018); and (iii) R$2,291.6 million as of
December 31, 2019 (R$2,061.8 million as of December 31, 2018) related to other tax lawsuits regarding
ICMS.

• Tax credits: In October 2019, we received a tax assessment notice from the State of Rio de Janeiro
charging amounts corresponding to the tax benefits that were subject to the Special Regime Agreement
(Termo de Acordo de Regime Especial) that we executed with the State of Rio de Janeiro, for the period
between October and December 2014, in the total amount of R$52.5 million. In February 2020, we
received another tax assessment notice, also related with the same charge, for the period between 2015
and 2018, in the amount of R$484.3 million. The total amount under discussion is of R$536.8 million,
including applicable interest and fine.

• Profits earned abroad: We were assessed by the Brazilian Federal Revenue (Receita Federal do Brasil)
for alleged underpayment of income tax and social contribution on profits earned by subsidiaries
established abroad. The total amount is R$534.8 million as of December 31, 2019 (R$524.5 million as
of December 31, 2018). We have presented our defense based on the fact that our subsidiaries located
abroad are only subject to full taxation in the countries in which they are based as a result of treaties
regarding double taxation. We will continue to address the remaining cases in the judicial system.

•

Income tax and social contribution: We are involved in administrative disputes regarding the use of
income tax and social contribution losses, refunds and credits to offset other federal tax debts, including
credits generated by legal disputes related to the Plano Verão, an economic stabilization plan from 1989.
In addition, on February 5, 2015, BRF received a tax assessment notice related to the compensation of
tax loss carryforwards and negative calculation basis up to a limit of 30% when it incorporated one of
the group’s entities during calendar year 2012. The judgment of our appeal to the superior administrative
court remains pending. The income tax and social contribution disputes total R$1,238.6 million as of
December 31, 2019 (R$1,311.1 million as of December 31, 2018).

IPI: We are involved in administrative proceedings relating to the failure to permit the use of credits
under the sales tax for industrial products (Imposto sobre Produtos Industrializados, or “IPI”) generated
from purchases of goods not taxed, sales to the Manaus Free Zone and purchases of supplies by non-
taxpayers to offset PIS and COFINS taxes, We have secured favorable decisions in some of these
proceedings. The amount involved in such proceedings was R$291.7 million as of December 31, 2019
(R$445.1 million as of December 31, 2018).

Social security charges: We are involved in disputes related to social security charges allegedly due on
payments to service providers and social contributions allegedly due to civil construction service
providers and others in the aggregate amount of R$274.3 million as of December 31, 2019 (R$244.5
million as of December 31, 2018).

• Other contingencies: We are involved in other tax contingencies involving a variety of matters, including
cases related to the requirement of a 50% fine over the amount of PIS/COFINS and IRPJ compensation
not ratified but pending final judgment before the compensation proceedings, the tax basis for calculating
social contribution on net income, tax assessment notice referring to taxes on services, IPTU, import tax,
IOF as well as an isolated fine resulting from alleged inaccuracies in EFD (accessory obligation) totaling
R$493.1 million as of December 31, 2019 (R$449.3 million as of December 31, 2018).

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As noted above, we are involved in other lawsuits for which we classify our risk of loss as remote, and the

amounts involved in certain of those proceedings are substantial.

Exclusion of VAT (ICMS) from PIS and COFINS Tax Base

On March 15, 2017, the Federal Supreme Court decided in the judgment of the Extraordinary Appeal (“RE”)
No. 574.706/PR, brought by the Import, Export and Oil Industry (“IMCOPA”), that the amount of ICMS levied on
the sale of products or services should not be included in the taxable basis of PIS/COFINS.

In June 2019, the court issued a final decision on one of our proceedings, which was originally filed by
Perdigão Agroindustrial (a company that was merged with and into BRF). In August 2019, the court issued a final
decision on another proceeding, filed by Sadia (also a company that was merged with and into BRF). The effects of
these proceedings are disclosed in Note 9.2 to our consolidated financial statements.

Labor Proceedings

On December 31, 2019, we were involved in 12,812 labor claims in the total amount of R$798.2 million
(amount includes risks deemed “remote”, “possible” and “probable”), compared to R$863.6 million as of December
31, 2018. These cases are mainly related to overtime, time spent by employees when changing clothes for uniforms,
work-related travel time, rest breaks, article 253 of the Labor Code (Consolidation of Labor Laws), illnesses allegedly
contracted at work and work accidents. Labor claims are being processed mainly at the Brazilian lower court level
and our provisions for “probable” losses from these labor claims are recorded in the amount of R$603.1 million on
December 31, 2019, compared to R$468.5 million on December 31, 2018. These provisions were recorded based on
our past historical payments and the opinions of our legal counsel.

Included in these proceedings is a series of lawsuits filed by the Public Ministry of Work and Union related
to overtime, mandatory rest breaks and other labor-related issues. Of the 108 cases pending, some have no assigned
value and the largest has a value of approximately R$43.4 million, which is included in the total amounts disclosed
above as of December 31, 2019.

Civil, Commercial and Other Proceedings

As of December 31, 2019, we were defendants in 4,209 civil, commercial and other proceedings
(administrative, environment, regulatory and other matters) amounting to total claims of R$2.0 billion (such amount
includes risks deemed “remote,” “possible” and “probable”). We were defendants in several civil, commercial and
other proceedings related to, among other things, alleged breach of contracts, alleged breach of civil and commercial
law, traffic and other accidents, consumer claims and alleged infringement of environmental and regulatory standards.
We have recorded provisions for probable losses in the amount of R$307.2 million in connection with our pending
civil, commercial and other proceedings as of December 31, 2019 (R$282.0 million as of December 31, 2018). We
recorded these provisions based on our historical payments and on the opinions of our legal counsel.

The most significant of these civil, commercial and other proceedings are described below. We are involved,
or may become involved, in other legal proceedings from time to time and the amounts involved in certain of those
other proceedings could be substantial.

On May 18, 2001, a declaratory action together with a condemnatory request was filed by Texaco do Brasil
S/A Produtos de Petróleo (currently Ipiranga Produtos de Petróleo S/A), where the plaintiff claimed that Perdigão
Alimentos S/A (currently BRF) did not comply with the three contracts executed by the parties (the Tax Incentives
Implementation Commitment and Promise of Share Purchase and Sales, the Share Purchase and Sale Contract and
Resale Promise and the Private Instrument of Tax Incentives Implementation Commitment and Promise of Share
Purchase and Sales). Such contracts were related to the structuring and acquisition of common and preferred shares
of Perdigão Amazônia S.A, whose project would be financed by Texaco via tax incentives. The case ended with an
unfavorable decision against BRF, ordering the company to indemnify Ipiranga for the damages related to the project.
Although the damages are currently subject to a court-appointed expert evaluation, we recorded a provision with

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respect to this dispute, which is based on the opinion of a valuation and accounting expert hired by BRF to calculate
an estimate of the damages amount.

On October 6, 2004, a public civil action was filed by the Federal Public Prosecutor Office seeking moral
and material damages resulting from the integrated production contracts executed with public resources of an
agricultural fund. BRF was ordered to pay an award with respect to the material damages, but this decision was
suspended by the Court of Appeals. BRF filed an appeal to the Superior Court of Justice and, since September 8, 2015,
the admissibility of such appeal has been pending. Based on the report of our outside counsel, we have not included
any provision for this lawsuit regarding the material damages (the amount of which will be determined in a future
procedure).

In 2008, 2012 and 2018, the Federal Public Prosecutor’s Office filed three public civil actions in order to
obtain a judicial decision compelling us not to use overweight trucks on federal highways and sought indemnification
for collective damages. The first two proceedings resulted, at first, in favorable decisions for us in the Court of Appeals
and Superior Courts, with no provisions recorded. On September 3, 2019, the Superior Court of Justice, by a majority
of votes decision, granted the special appeal filed by the Federal Public Prosecutor’s Office and found that the public
civil action filed in 2012 has grounds. On November 18, 2019, we filed an appeal against such decision, which has
not yet been ruled on. With respect to the public civil action filed in 2008, the Superior Court of Justice has not yet
decided on the appeal filed by the Federal Public Prosecutor’s Office, although some of the judges have already
indicated that they are favorable to the Federal Public Prosecutor’s Office’s case. With respect to the public civil action
filed in 2018, the first instance decision was favorable to BRF, and we are currently awaiting a decision by the Court
of Appeals on the appeal filed by the Federal Public Prosecutor’s Office.

On August 20, 2008, the Federal Public Prosecutor’s Office filed a public civil action against BRF due to
alleged damages to consumers related to the excess of water absorbed by the chicken products manufactured at
Francisco Beltrão, State of Paraná and Dois Vizinhos, State of Paraná. The Federal Public Prosecutor’s Office requests
indemnification for all consumers individually who acquired products with any quality issues related to water in
excess, as well as that BRF publicly discloses this problem via newspaper, radio and other means. After an unfavorable
judgment was issued ordering the us and other defendants to (i) indemnify consumers for the irregularity of the
products, (ii) pay R$700.0 thousand as collective damages, and (iii) publicly disclose a message describing this matter
via local media (newspaper, radio and other means), BRF and the other defendants filed their respective appeals,
which the Court of Appeal rejected in 2011. On January 30, 2012 BRF filed an appeal to the Superior Court. The case
is currently awaiting judgment at the Superior Court. We recorded a provision with respect to this dispute based on
the opinion of our legal advisers.

On January 28, 2009, Valore Participações e Empreendimentos Ltda. and Ama Participações e
Empreendimentos filed an execution proceeding based on extrajudicial title requesting the payment of the fifth and
sixth installments (R$84.4 million, in total) of their industrial plant sales contract signed with BRF. On June, 2018,
the process was suspended by the lower court for purposes of producing evidence.

On October 1, 2009, we received an environmental infraction notice for allegedly not complying with
licensing conditions related to air condenser equipment and gas tank facility and constructing buildings in a permanent
preservation area. The value of the fine on the date of the assessment was R$811.0 thousand. An administrative appeal
is pending in this proceeding.

On September 21, 2011, the Association of the Villagers of Paraíba and Mudau River Ares filed an action
seeking indemnification for moral and material damages due to the “Açude das Nações” dam rupture. The case is in
the pre-trial phase and evidence is being produced. This action is still at its preliminary stages and we have classified
the risk of loss as possible, with no provisions recorded. As of December 31, 2019, the amount at issue in the case is
estimated to be R$145.2 million.

On December 7, 2011, we executed a consent agreement (“TAC”) with the Public Prosecutors’ Office of the
Rio Grande do Sul State. Their objective is to fill the non-vegetated areas and provide adequate soil cover with native
tree species. In addition, they are seeking to minimize the effects of erosion near the facility located in Lajeado.
Satisfaction of the TAC is in progress and an evaluation of the evidence is pending.

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BRF and WJ Produtos Alimentícios Ltda. (“WJ”) had a leasing contract for an industrial plant, which was
terminated by BRF. On April 11, 2012, WJ filed an action to require BRF to comply with the leasing contract and to
pay an early termination fine of R$3.7 million and material damages of up to R$5 million. The expert report indicated
that the industrial plant was destroyed and calculated a loss value of R$28 million. The judge found in favor of WJ
and ordered BRF to pay for the losses and damages caused by the early termination of the leasing contract, which are
not limited to the R$28 million calculated by the expert since part of the alleged losses and damages still need to be
estimated due to their nature. The judge ruled that another expert assessment of the case is necessary to determine the
total loss value in the execution stage of the proceeding. BRF filed an appeal against such decision, which is awaiting
judgment by São Paulo State Court. The risk of loss in this proceeding has been classified as possible. The amount at
issue in the case is currently estimated to be R$70.6 million. Such amount does not consider the losses and damages
that still need to be estimated in the execution stage.

On October 10, 2013, an action for damages was filed by Attilio Fontana’s heiresses in order to require BRF
to pay damages for the destruction and/or concealment of Sadia S.A.’s statutory books. Such books were not exhibited
in the preliminary proceeding, which would have prevented the plaintiffs from discovering eventual illegal donations
made by Mr. Fontana to his other heirs and their other siblings. On December 12, 2018, the case was dismissed on the
grounds that the lack of the statutory books did not cause any harm to the plaintiffs since they could investigate the
existence of potential illegal donations through other statutory documents that were available to them. The plaintiffs
filed an appeal to the Court of Appeals and BRF then filed its response. The plaintiffs’ appeal was dismissed. The
plaintiffs filed an appeal to the Superior Court of Justice and to the Federal Supreme Court. Since the decision is not
final and conclusive, we have classified the risk of loss as possible, with no provisions recorded.

In the last few years, BRF has been sued by ex-carriers seeking indemnification for the absence of the
previous payment for road toll fees, as established under Brazilian federal law. BRF currently has ten ongoing cases
related to this matter: six cases have initially resulted in unfavorable decisions for us (two of such cases are being
processed before the Court of Small Claims) and four cases are pending decisions (one of such cases is being processed
before the Court of Small Claims). For all ten cases, we recorded a provision with respect to the disputes based on the
opinion of our legal advisers.

On October 17, 2013, Mr. Marcus Macedo Cazarré filed an indemnification action as a result of the alleged
exploitation of his Patent MU 8300298-7 by BRF in the biodigesters used in farms. Mr. Cazarré requested damages
of over R$300.0 million. An expert report favorable to BRF was issued, which indicated that there was no violation
of Mr. Cazarré’s patent. On September 22, 2017 the lower court judge dismissed the requests made by Mr. Cazarré.
On December 1, 2017 Mr. Cazarré filed an appeal and BRF presented its counterarguments on February 2, 2018. On
June 20, 2018 the Court of Appeals ruled and granted the appeal on the merits and, therefore, the trial decision was
overturned. As a result, Mr. Cazarré’s requests were granted and BRF was ordered to pay material damages (in an
amount to be calculated in the execution proceedings) and R$150,000 for moral damages. On February 20, 2019,
BRF filed an appeal with the Court of Appeals to elevate the proceeding to the Superior Court of Justice, and on March
27, 2019, Mr. Cazarré responded to such appeal. On April 15, 2019, the Court of Appeals ruled dismissing BRF’s
appeal. On May 13, 2019, BRF filed an appeal directly to the Superior Court of Justice and on June 29, 2019, Mr.
Cazarré presented his defense. On July 11, 2019, the Court of Appeals reviewed its decision and admitted BRF’s
appeal, determining that the proceeding’s records be sent to the Superior Court of Justice. BRF’s appeal is pending
before the court. We have classified the risk of loss as possible, with no provisions recorded for this case.

On April 24, 2014, we executed a consent agreement (“TAC”) with the public prosecutors’ office of the State
of Goiás because of irregularities in the ground activity resulting from approximately 300 tons of solid material, which
did not have proper treatment in the facility located in Rio Verde. Satisfaction of the TAC is in progress.

On April 30, 2014, we received an environmental infraction notice for allegedly improperly disposing of
certain waste. The value of the fine on the date of assessment was R$7.0 million. BRF presented a defense requesting
that the proceeding be declared void, which is currently pending with the court

On August 22, 2014, Transfood Logística filed a lawsuit against BRF seeking moral and material damages
resulting from the termination of contracts between them. After BRF’s defense on October 30, 2014, oral evidence
was produced and several witnesses were heard. On July 11, 2019, a decision was rendered in BRF’s favor. The

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majority of the claims was dismissed and BRF was ordered to pay R$57 thousand. The plaintiff filed an appeal and
the case is pending a decision by the State Court of Santa Catarina.

On March 24, 2014, we signed a TAC with the Consumer Protection Agency of the Municipality of Rio de
Janeiro (Procon Carioca) due to problems with the distribution of skimmed UHT milk in Rio de Janeiro. Because of
that agreement, we paid a fine of R$150,000 and undertook other obligations that have already been fulfilled by us.
On October 23, 2014, the Consumer Protection Agency of the State of Rio de Janeiro (Procon Estadual) filed a civil
action against BRF related to a similar claim with respect to the distribution of skimmed milk. In May 2016, a judgment
was issued recognizing that BRF had diligently taken all necessary actions to mitigate damages on this case, including
signing a TAC on the matter. Nevertheless, the lower court determined that any consumers that manage to prove they
suffered material losses as a result of the milk shall be reimbursed. The PROCON Estadual appealed the decision and
their appeal was dismissed, but they made a Special Appeal which was granted and BRF was ordered to pay
R$100,000. The case currently awaits judgment in the Superior Court of Justice following BRF’s appeal. We recorded
a provision with respect to this dispute based on the management’s evaluation and also on the opinion of our legal
advisers.

On October 23, 2015, Perdue Foods LLC (“Perdue”) filed an enforcement lawsuit against BRF. Perdue
sought to order BRF to comply with the obligations undertaken in the Coexistence Agreement, as amended, entered
into by both parties related to the trademarks of Perdue and Perdix. In the event that BRF does not comply with these
obligations, Perdue also seeks the imposition of a daily fine, in the amount of R$50,000 for each day of delay. BRF
has presented its defense in the case and the case is currently pending judgment in the lower court. Concurrently, the
parties are assessing the possibility of entering into a new Coexistence Agreement and settling the case. Since the
enforcement lawsuit has no measurable economic value, no provisions have been recorded for these proceedings.

On August 20, 2015, a city councilor filed a popular action against BRF in connection with alleged
irregularities identified on a competitive bid for the supply of school meal to the Municipality of São Paulo. We have
filed our defense. On December 9, 2019, the court-appointed expert presented a technical report informing that there
is no evidence of irregularity. The plaintiff and the Public Prosecutors’ Office of the State of São Paulo filed motions
against the technical report and requesting that it be complemented. The court-appointed expert was notified to
respond. We have classified the risk of loss as possible, with no provisions recorded.

On September 18, 2015, we executed a consent agreement (“TAC”) with the Public Prosecutors’ Office of
Rio de Janeiro State in order to restore the environmental license of the facility located in Duque de Caxias.
Satisfaction of the TAC is in progress.

On December 14, 2015, the Public Prosecutors’ Office of the State of Pernambuco filed a public civil action
against BRF in connection with alleged irregularities identified on dairy products sold by BRF. On March 19, 2019,
the plaintiff’s claims were partially granted and BRF was ordered to: (i) pay damages in the amount of R$1 million;
(ii) under the penalty of payment of a R$5 million fine for each instance of non-compliance, (a) recall the batches of
sausages that present risk to consumers’ health and (b) provide a public notice regarding such recall through the
company’s website and social media; (iii) publish the trial court decision in a newspaper of general circulation in the
city of Recife, under the penalty of a R$1 thousand daily-fine for non-compliance; and (iv) pay 50% of the court fees.
On Abril 23, 2019, BRF filed an appeal to the Pernambuco Court of Appeals. On June 12, 2019, the court granted an
interim relief to stay the trial’s court decision. The appeal is still pending a decision on its merits. Since the decision
is not final and conclusive, we have classified the risk of loss as possible, with no provisions recorded.

On March 14, 2016, a public civil action was filed by Abracon-Saúde – Associação Brasileira de Defesa dos
Consumidores de Plano de Saúde, an association for health insurance customers, seeking to require BRF to insert the
following warning on the package of its products: “CONTAINS GLUTEN – gluten is harmful to celiac patients” or
another similar alert to demonstrate how gluten can be harmful to consumers. After BRF presented its defense, a
judgment was issued on September 14, 2016 ordering BRF to include said information on the package of all of its
products that contain gluten. BRF filed an appeal and on December 20, 2019, the Federal Regional Court (TRF3)
ruled that the Superior Court of Justice is the competent authority to rule on this proceeding. No substantial provisions
were deemed necessary for this proceeding.

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On April 4, 2016, we executed a consent agreement (“TAC”) with the public prosecutor office of the Goiás
State in order to compensate for the environmental damage caused by the disposal of industrial waste without proper
treatment in the “Córrego Lageado” by the Jataí facility. Satisfaction of the TAC is in progress, pursuant to which the
Company will implement its environmental remediation.

On October 11, 2017, the Public Prosecutor’s Office of Rio Grande do Sul filed a public civil action
requesting that BRF restore native vegetation at BRF’s property in Porto Alegre. The case is in its preliminary stages.

On May 9, 2018, the Public Prosecutors’ Office of the State of Pernambuco filed a public civil action against
BRF in connection with alleged irregularities identified in meat products (sausages) sold by BRF. BRF filed its defense
on May 3, 2019. On February 15, 2019, the trial court judge rendered a decision granting the injunction requested by
the Public Prosecutors’ Office to order BRF to, under the penalty paying a R$5 million fine for each instance of non-
compliance, (i) cease commercialization of sausages with irregularities; (ii) comply with the legislation on sausage
manufacturing; (iii) cease using deteriorated or mislabeled ingredients in sausage manufacturing; (iv) recall the
batches of sausages that present risk to consumers’ health; (v) provide a public notice regarding such recall through
the company’s website and social media. On April 24, 2019, BRF filed an interlocutory appeal with a request for an
interim relief in order to stay the injunction, which is still pending decision. We have classified the risk of loss as
possible, with no provisions recorded.

BRF also has potential regulatory liabilities corresponding to 1,025 cases, with a total provision of R$28.7
million (probable losses) as of December 31, 2019. The cases refer to MAPA fines and other administrative sanctions
(especially the suspension of a plant’s activities for a period of some days), for alleged noncompliance with the sanitary
legislation and, individually, they do not represent significant losses. These fines are a result of routine inspections of
the quality processes by the MAPA. The cases are addressed directly with the MAPA, and when BRF does not
successfully defend against these penalties, the payments are made to the MAPA, or BRF may initiate legal
proceedings to attempt to nullify the penalties imposed.

On March 14, 2019, the TCA (“Turkish Competition Authority”) announced a decision regarding its
investigation into Banvit and other producers for alleged anticompetitive practices in connection with chicken meat
production in Turkey. The TCA imposed an administrative fine equivalent to R$22,507 thousand (TRY 30,518
thousand) against Banvit. The decision was confirmed on September 17, 2019, confirming that the alleged
anticompetitive practices took place before the acquisition of Banvit’s control by BRF. Banvit anticipated the payment
of the fine to benefit from a 25% discount, under the terms of the Turkish law. The Company seeks to recover the fine
paid and costs associated through an insurance policy and through contractual provisions for losses related to the
period prior to the acquisition of Banvit by BRF, as per the purchase agreement signed with Banvit’s previous owners.

On May 16, 2019, BRF executed the Commitment Term nº 009/2019 with the Rio Verde Municipal
Secretariat for the Environment for the purpose of granting a deadline for BRF to fulfill its obligation contained in the
Technical Opinion 340/2019 regarding the intervention in aerated lagoon. Satisfaction of this term is in progress.

On October 11, 2019, the Consumer Protection Police Unit of Recife, State of Pernambuco, opened a Police
Inquiry in order to investigate a possible crime against consumer relations. The facts under investigation were the
subject of the Notice of Infraction No. 005/2018/SIF2999 issued by the MAPA against BRF’s plant located in Vitória
de Santo Antão, State of Pernambuco. According to the notice, on October 30, 2018, during an inspection carried out
by the MAPA, the inspector verified that frozen raw material was being used in the production line, such as expired
turkey ham. The inspector alleged that the plant’s production line was operating with the use of expired raw materials.
Certain employees of BRF were heard, who clarified that expired products were not used in the production of sausages,
that all expired raw materials were separated for disposal and that such expired raw materials were not used in the
production line. These employees also clarified that the possible error of grouping products with different expiration
dates, even if separated in trays by their expiration date, could have occurred when these products were palletized in
an outsourced warehouse that stores products for BRF, but that the packages are individually verified on the production
line and the expired products were not used. BRF is cooperating with the authorities.

On March 27, 2020, we filed confidential arbitration proceedings against Usina Paulista Lavrinhas de Energia
S.A., Usina Paulista Queluz de Energia S.A. and Electra Comercializadora de Energia Ltda. with Fundação Getúlio
Vargas - FGV’s Arbitration Chamber (Câmara de Mediação e Arbitragem da FGV). The proceedings seek the

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termination of two electric power sales and purchase agreements, executed in 2007 and expiring in 2025. Alternatively,
we request that the terms of the contracts be reviewed and amended by the arbitral tribunal. We believe that both
claims are supported by the excessive financial burden imposed by external and unforeseeable events occurring during
the term of the agreements. Since the proceedings are in their initial stages, we cannot estimate the risk of loss nor the
range of a possible loss.

Pasteur Operation

Brazilian authorities are investigating Brazil’s dairy industry in the so-called “Pasteur Operation.” The
Federal Police announced the operation on December 27, 2014 with the purpose of investigating improper payments
and bribery to Ministry of Agriculture and Livestock auditors. One of such auditors and a former employee of BRF
entered into plea bargains with the Brazilian authorities confirming that such improper payments were made between
2009 to 2013.

On November 29, 2019, the Chief of the Federal Police filed criminal charges against two public servants for
supposedly requesting bribes and also against former employees of BRF and other individuals for allegedly seeking
to bribe the Ministry’s public auditors from 2009 to 2013. BRF itself is not a party to such proceedings and
investigations.

On January 19, 2020, the Federal Court of Lajeado in the State of Rio Grande do Sul transferred the case to
the Federal Court of Caxias do Sul, also in the State of Rio Grande do Sul. The case is now with the Public Prosecutor’s
Office, which may offer formal charges, which, if received by the judge, will result in a criminal lawsuit, a dismissal
of the case, or a request for a further investigation by the police, which would need to be specified.

Police inquiry – Mr. Antonio Palocci Filho’s Plea Bargain Agreement

A police inquiry was opened on June 17, 2019 by the Federal Police of São Paulo (Delecor) to investigate
allegations reported by Mr. Antonio Palocci Filho (former Finance Minister of Brazil) in the annex 18 of his plea
bargain agreement in relation to the Lava Jato Operation. In such document, Mr. Palocci described the financial
difficulties that Sadia was going through in 2008 due to contracts involving exchange derivatives. He also described
that, in this context, the CEO of Sadia at that time instructed Mr. Palocci to request a meeting with former president,
Mr. Luiz Inácio Lula da Silva. Mr. Palocci reported that two alternatives were considered at the meeting in the context
of the financial difficulties of Sadia: enabling the merger between Sadia and Perdigão with support and contribution
from BNDES; or BNDESPAR injecting resources into Sadia through a loan and equity interest. According to Mr.
Palocci’s plea bargain agreement, Mr. da Silva took steps to support the merger option, and his assistance was
necessary since Perdigão was under the control of state-controlled pension funds. According to Mr. Palocci, Mr. da
Silva was instrumental in compelling the pension funds to carry out the transaction without proper analysis, and
influencing BNDES, which extended financing in record time.

After the merger was approved, on July 13, 2011, Mr. da Silva allegedly complained to Mr. Palocci about
BRF’s lack of reciprocity. Mr. Palocci passed on the message and the CEO of Sadia at that time and allegedly promised
to donate resources to the Lula Institute and to political campaigns by Mr. da Silva’s political party, PT (Partido dos
Trabalhadores).

Mr. Palocci also mentioned a donation to a future campaign in the amount of R$3.6 million. Furthermore,
BRF allegedly donated to PT’s financial committee or through a party donation amounts of R$800 thousand in 2010,
R$70 thousand in 2012 and R$2.2 million in 2014.

According to the Federal Public Prosecutor’s Office, crimes of active and passive corruption, money
laundering and fraudulent management of financial institution were allegedly committed. BRF is cooperating with the
authorities in connection with these matters.

Civil inquiry - Public Prosecutor’s Office of the State of Rio de Janeiro (Tax Benefits involving dairy factory in
Barra do Piraí, State of Rio de Janeiro)

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The Public Prosecutor’s Office of the State of Rio de Janeiro opened a civil inquiry to investigate alleged
acts by the government through which tax benefits would have been irregularly granted to BRF and another competing
company, through irregular electoral donations. The investigation is being conducted by the Public Prosecutor’s Office
of the State of Rio de Janeiro (Specialized Acting Group to Combat Tax Evasion and Illicit Acts against the Tax Order
– GAESF).

With respect to BRF, the inquiry is investigating the concession of tax benefits granted based on the future
construction of a dairy factory by the Company in Barra do Piraí, in the State of Rio de Janeiro. The city government
of Barra do Piraí assigned the land for the facility, but based on an internal decision, BRF chose to terminate the
project although the tax benefit had already been granted. The land and initial construction by BRF, amounting to
R$26 million, were returned in 2014 to the city government free of charge.

Since the inquiry is investigating conduct relating to two competing companies, this legal proceeding and
related documentation are confidential and we do not have access to most of the documents. BRF is cooperating with
and providing all requested clarifications to the authorities.

Police inquiry - Superintendence of the Federal Police of Rio de Janeiro (dairy factory in Barra do Piraí, State of
Rio de Janeiro)

On October 29, 2018, the Federal Police of Rio de Janeiro opened an investigation into possible illegal
payments made by a third party (a BRF competitor) to Sérgio Cabral (former governor of the State of Rio de Janeiro)
and another person. On January 6, 2020, an excerpt from a report issued by the Specialized Acting Group to Combat
Tax Evasion and Illicit Acts against the Tax Order – GAESF within the Public Prosecutor’s Office of the State of Rio
de Janeiro became publicly available. Information in that document indicated that the inquiry is investigating benefits
granted to the J&F Group, including a 400,000 m² land in Barra do Piraí, State of Rio de Janeiro, where a factory of
VIGOR (a company of J&F Group) was built. The report also mentions how the land was previously granted to BRF
and later transferred by the government to VIGOR. In this context, a notice was sent to BRF to clarify how the land
in Barra do Piraí, State of Rio de Janeiro was granted to BRF, returned to the city of Barra do Piraí, State of Rio de
Janeiro and then transferred by the city government to VIGOR (a company of J&F Group).

BRF is cooperating with and providing all requested clarifications to the authorities.

Carne Fraca Operation

Brazilian authorities are investigating Brazil’s meat processing industry in the so-called “Carne Fraca
Operation.” The investigation involves a number of companies in the Brazilian industry and, among other things,
includes allegations relating to food safety, quality control and misconduct related to improper offers and/or promises
to government inspectors.

On March 17, 2017, we learned of a decision issued by a federal judge of the state of Paraná authorizing the
search and seizure of information and documents from us, and the detention of certain individuals in the context of
the Carne Fraca Operation. Two BRF employees were detained (both of whom have been released) and three others
were identified for questioning (of which only two were questioned).

In addition, our Mineiros plant was temporarily suspended by the MAPA on March 17, 2017, so that MAPA
could conduct an additional audit on its production process. After conducting an audit, the MAPA authorized the
Mineiros plant to resume operations as of April 8, 2017. The Mineiros plant reopened on April 10, 2017 and resumed
its operations on April 11, 2017.

On April 15, 2017, the Brazilian Federal Police issued a report on the investigation and recommended charges
against three BRF employees. On April 20, 2017, based on the Brazilian Federal Police investigation, Brazilian federal
prosecutors filed charges against two former BRF employees (one of our regional manufacturing officers and one of
our corporate affairs managers). One of the employees was acquitted of all charges and the other employee was
convicted and sentenced to six months of imprisonment. Both the defendant and the federal prosecutors appealed the
judgment and those appeals are awaiting a decision by the Federal Court of Appeals.

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In June 2018 the Company learned of an administrative proceeding commenced by the Comptroller General
of the Union (“CGU”), which is primarily related to alleged irregularities in the relationship between BRF employees
and government inspectors from the MAPA at BRF’s plants located in: Rio Verde (State of Goiás), Mineiros (State
of Goiás), Uberlândia (State of Minas Gerais) and at the Paranaguá Harbor (State of Paraná). This administrative
proceeding remains pending.

On January 22, 2018, the Attorney General’s Office of the Third District of the State of Goiás filed a
complaint against the industrial manager of our Mineiros plant at the time of the events subject to investigation in the
Carne Fraca Operation, who is currently a member of our corporate engineering team, and the former head of quality
control at our Mineiros plant, who was dismissed on August 16, 2016. Both of them were charged for allegedly
committing crimes against consumers, as provided in article 7, item II of Law 8,137/90. According to the Attorney
General’s Office of the Third District of the State of Goiás, laboratory tests (dripping tests) have detected excessive
levels of water absorbed by the chicken products collected by authorities at our Mineiros plant. The Attorney General’s
Office of the Third District of the State of Goiás alleges we produced chicken products with higher quantities of water
than the limits permitted by the MAPA, with potential damages to customers, considering they would potentially be
acquiring chicken meat products with a weight lower than that indicated on the packaging, since part of the weight of
the frozen chicken would consist merely of water contained therein. The complaint does not contain any allegations
of corruption.

BRF informed certain regulators and governmental entities of the Carne Fraca Operation, including the SEC

and the U.S. Department of Justice. BRF is cooperating with the authorities.

BRF’s Audit and Integrity Committee initiated an investigation with respect to the allegations involving BRF
employees in the Carne Fraca Operation, CGU proceedings, and related conduct with the assistance of outside
counsel. Following this initial investigation, the Audit and Integrity Committee started a new internal investigation to
address the allegations related to the Trapaça Operation, as described below. The internal investigations remain
ongoing with the assistance of outside counsel. The effects of the Carne Fraca Operation had operational
consequences for us, which are disclosed together with the Trapaça Operation below.

The outcome of the Carne Fraca Operation may result in penalties, fines and sanctions from governmental
authorities or other forms of liabilities, which may have a material adverse impact on our results of operations,
financial position and cash flows. Currently, the losses related to this matter are not possible to be estimated, and, as
a result, no provision has been recorded.

For information about the risks related to this investigation, see “Item 3. Key Information—D. Risk Factors—
Risks Relating to Our Business and Industry—We may fail to ensure compliance with relevant anti-fraud, anti-
corruption, anti-money laundering and other international laws and regulations.”

Trapaça Operation

On March 5, 2018, BRF learned of a decision issued by a federal judge of the 1st Federal Court of Ponta
Grossa in the State of Paraná, which authorized the search and seizure of information and documents from us and
certain current and former employees and the temporary detention of certain individuals. In what media reports have
identified as the “Trapaça Operation,” eleven current and former employees of BRF were temporarily detained for
questioning, including former Chief Executive Officer Pedro Faria and former Vice President for Global Operations
Helio Rubens. All such current and former employees were released from custody and those who are still our
employees are on leaves of absence from BRF. A number of other BRF employees and former employees were
identified for questioning. The primary allegations in the Trapaça Operation involve alleged misconduct relating to
quality violations, improper use of feed components and falsification of tests at certain BRF manufacturing plants and
accredited labs.

On October 15, 2018, the Brazilian Federal Police issued the final report on the investigation of the Trapaça
Operation with accusations against forty-three people, among which twenty-three are BRF current or former
employees, including former Chief Executive Officer Pedro Faria, former chairman of the board of directors Abilio
Diniz, and three former vice presidents. Those who are still our employees are on leaves of absence from BRF.
Allegations against these senior employees generally focused on communications relating to alleged dioxin

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contamination. Since then, the police investigation has been under review by the Brazilian Federal Prosecutor
responsible for the case to determine whether to bring criminal charges.

As a result of the Trapaça Operation, on March 5, 2018, we received notice from MAPA that it immediately
suspended exports from our Rio Verde, State of Goiás, Carambeí, State of Paraná and Mineiros, State of Goiás plants
to 13 countries with specific sanitary requirements related to Salmonella spp. As a precautionary measure, MAPA
also suspended exports from 10 other BRF plants to the European Union on March 15, 2018, which was lifted on
April 18, 2018. On May 14, 2018, the European Union released its decision to remove 12 of our production facilities
in Brazil from the list that permits imports of animal products by the countries in the European Union. The European
Union generally has stricter requirements related to salmonella levels and other food safety standards compared to
Brazil and the other international markets in which we operate. Given the ban of imports from our production facilities,
we are no longer able to sell our products from such embargoed production plants in the European Union and,
therefore, our results of operations may be further adversely affected if we are not able to direct excess production
capacity resulting from such suspension to other markets at similar prices or margins.

On December 4, 2019, in the context of the Trapaça Operation, a complaint was filed by the Federal Public
Prosecutor’s Office against former and inactive employees of BRF for allegedly committing, in the manufacturing
of animal feed and PREMIX compound (a supplement added to the animal feed), aggravated larceny by fraud, false
representation, wrapper or container with false indication, forgery of substance or food product, forgery of product
intended for therapeutic or medicinal purposes and criminal association between the years 2012 and 2018. The
complaint was received by the judge on January 21, 2020. The process currently awaits for the defendants to present
their response. The inactive employee of BRF who is involved in this proceeding is on a leave of absence and,
therefore, has been removed from his duties in the Company.

BRF informed certain regulators and governmental entities of the Trapaça Operation, including the SEC and
the U.S. Department of Justice. BRF is cooperating with the authorities. BRF’s Audit and Integrity Committee has
initiated an investigation with respect to the allegations and related conduct involving BRF employees in the Trapaça
Operation. The investigation involves outside counsel and is still in progress. The effects of the Carne Fraca and
Trapaça Operations had operational consequences for us, as we incurred expenses in the amount of R$79.9 million in
2019 mainly with law firms, recorded as other operating expenses. In 2018, we incurred expenses of R$78.9 million
(R$78.3 million in 2017) recorded as other operating expenses, such as media and communication expenses, law
firms, freight and storage, as well as provision for losses in inventories in the amount of R$403.8 million (R$285.0
million in 2017), arising from closed external markets and/or blocked products, recorded as cost of goods sold.

The outcome of the Trapaça Operation may result in penalties, fines and sanctions from governmental
authorities or other forms of liabilities, which may have a material adverse impact on our results of operations,
financial position and cash flows. Currently, the losses related to this matter are not possible to be estimated, and, as
a result, no provision has been recorded.

See “Item 3.—D. Risk Factors— Risks Relating to Our Business and Industry—Health risks related to our
business and the food industry could adversely affect our ability to sell our products” and “Item 3.—D. Risk Factors—
Risks Relating to Our Business and Industry—We have been subject to significant investigations relating to, among
other things, food safety and quality control, and an adverse outcome of any of these investigations could result in
penalties, fines or other forms of liability and could have a material adverse effect on our business, reputation, brand,
results of operations and financial condition.”

Romanos Operation

Arising from the Trapaça Operation, the Romanos Operation was launched to investigate MAPA auditors
who were identified by BRF as having received improper benefits to take actions in favor of BRF. On September 25,
2019, in response to requests made by the Federal Public Prosecutor’s Office, precautionary measures were carried
out, such as searches and seizures, suspension of the exercise of public functions and inquiry of inspectors. BRF itself
is not a party to such proceeding and investigations.

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U.S. Class Action

On March 12, 2018, a shareholder class action lawsuit was filed against us, some of our former managers
and a current officer of ours in the U.S. Federal District Court in the Southern District of New York. On July 2, 2018,
the Court appointed the City of Birmingham Retirement and Relief System lead plaintiff in the action (the “Lead
Plaintiff”). On December 5, 2018, the Lead Plaintiff filed an amended complaint that sought to represent all persons
and entities who purchased or otherwise acquired BRF ADRs during the period from April 4, 2013, through and
including March 2, 2018. The class action alleges, among other things, that BRF and certain of its officers and/or
directors engaged in securities fraud or other unlawful business practices related to the regulatory issues in connection
with the Carne Fraca Operation and Trapaça Operation. On December 13, 2019, we and the other defendants filed a
motion to dismiss. On January 21, 2020, the Lead Plaintiff filed an opposition motion. On February 11, 2020, we and
the other defendants filed our response. While the court’s decision on the motion to dismiss was still pending, the
parties reached an agreement on March 27, 2020 to settle this class action for U.S.$40 million, subject to definitive
documentation and court approval. The effects of these proceedings are disclosed in Note 36.1 to our consolidated
financial statements.

Brazilian Investor Arbitrations

In March 2020, three confidential arbitration proceedings were brought against us in the B3’s Market
Arbitration Chamber (Câmara de Arbitragem do Mercado) in Brazil by investors that had purchased our shares traded
on the B3, seeking recovery from alleged losses incurred by them, due to the price fall of our shares, during the period
starting from April 4, 2013 and afterwards. Because these three arbitration proceedings are in their initial stages, we
believe the possible loss or range of losses, if any, arising from these arbitrations cannot be estimated. In the event
that any of these arbitrations is decided against us, or we enter into an agreement to settle, there can be no assurance
that an unfavorable outcome would not have a material impact on us. We intend to defend these claims.

Dividends and Dividend Policy

Our dividend policy has historically included the distribution of periodic dividends, based on quarterly
balance sheets approved by our board of directors. When we pay dividends on an annual basis, they are declared at
our annual shareholders’ meeting, which we are required by the Brazilian Corporation Law and our bylaws to hold by
April 30 of each year. When we declare dividends, we are generally required to pay them within 60 days of declaring
them unless the shareholders’ resolution establishes another payment date. In any event, if we declare dividends, we
must pay them by the end of the fiscal year in which they are declared.

As permitted by the Brazilian Corporation Law, our bylaws specify that 25% of our adjusted net profits for
each fiscal year must be distributed to shareholders as dividends or interest on shareholders’ equity. We refer to this
amount as the mandatory distributable amount. Under the Brazilian Corporation Law, the amount by which the
mandatory distributable amount exceeds the “realized” portion of net income for any particular year may be allocated
to the unrealized income reserve, and the mandatory distribution may be limited to the “realized” portion of net
income. The “realized” portion of net income is the amount by which our net income exceeds the sum of (1) our net
positive results, if any, from the equity method of accounting for earnings and losses of our subsidiaries and certain
associated companies, and (2) the profits, gains or income obtained on transactions maturing after the end of the
following fiscal year. As amounts allocated to the unrealized income reserve are realized in subsequent years, such
amounts must be added to the dividend payment relating to the year of realization.

During the years ended December 31, 2019, 2018 and 2017, no dividends and interest on shareholders’ equity

were paid to holders of our common shares.

Any decision to declare and pay dividends and/or interest on shareholders’ equity in the future will be made
at our discretion and will be subject to our continuing determination that such payments are in the best interests of our
shareholders and are in compliance with all laws and agreements to which we are subject.

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Amounts Available for Distribution

The section of this form entitled “Item 10. Additional Information––B. Memorandum and Articles of
Association––Description of Share Capital” contains a description of the calculation and payment of dividends and
interest on shareholders’ equity under the Brazilian Corporation Law. See “—Allocation of Net Income and
Distribution of Dividends” and “—Payment of Dividends and Interest on Shareholders’ Equity” under Item 10.

Disclosure pursuant to Section 13(r) of the Exchange Act

Section 13(r) of the Securities Exchange Act of 1934 requires issuers to make specific disclosure in their
annual reports of certain types of dealings with Iran, including certain transactions or dealings with persons or entities
who meet the definition of Government of Iran pursuant to 31 C.F.R. § 560.304. In 2019, we won a tender process
for a one-time contract to supply up to a maximum of 1,500 metric tons of agricultural commodities to a livestock
product and feedstuff company in Iran, which we understand to be affiliated with the Government of Iran. Sales
consisted of 367.027 metric tons of frozen chicken. This limited business was conducted by a non-U.S. affiliate of
the Company. The turnover from these sales was €467,959.48, representing less than 0.006% of our global revenue
for the year ended December 31, 2019. Sales were pursuant to a single contract for the supply of agricultural
commodities and are expected to continue pursuant to the terms of that contract until the maximum value of 1,500
metric tons of frozen chicken is reached.

In addition to Section 13(r) of the Exchange Act, U.S. law generally restricts dealings by persons subject to
U.S. jurisdiction with certain countries or territories that are the target of comprehensive sanctions, currently Crimea,
Cuba, Iran, North Korea, and Syria. We do business, via non-U.S. entities (which are not owned or controlled by U.S.
entities), in certain of these jurisdictions. While we believe any such dealings comply in all material respects with all
applicable U.S. sanctions, such laws are complex and continue to evolve rapidly.

Significant Changes

None.

THE OFFER AND LISTING

Offer and Listing Details

Our common shares trade on the São Paulo Stock Exchange. ADRs representing our common shares trade
on the NYSE. On December 31, 2019, there were 811,759,800 common shares without par value issued and
outstanding (excluding 713,446 common shares held in treasury), and there were 113,235,218 ADRs outstanding,
representing 13.93% of our outstanding common shares.

Plan of Distribution

Not applicable.

Markets

Our common shares trade on the São Paulo Stock Exchange. ADRs representing our common shares trade

on the NYSE.

Trading on the B3

The B3 S.A. – Brasil, Bolsa, Balcão, or the São Paulo Stock Exchange, is a public company which resulted
from the merger among Bolsa de Mercadorias e Futuros (BM&F, the Brazilian commodities and futures exchange),
Bolsa de Valores de São Paulo (“Bovespa”), Companhia Brasileira de Liquidação e Custódia (“CBLC,” the
Bovespa’s securities clearing system) and CETIP S.A. - Balcão Organizado de Ativos e Derivativos.

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Trading on the São Paulo Stock Exchange is limited to member brokerage firms and a limited number of
authorized non-members. The São Paulo Stock Exchange currently has trading sessions, from 10:00 a.m. to 5:00 p.m.
local time. There is also trading in the so-called After-Market, only through the automated quotation system of the
São Paulo Stock Exchange, from 5:30 p.m. to 6:00 p.m. local time. Only shares that were traded during the regular
trading session of the day may be traded in the After-Market of the same day. Trades are made by entering orders in
the Mega Bolsa electronic trading system, created and operated by the B3.

Settlement of transactions conducted on the São Paulo Stock Exchange is effected three business days after
the trade date without any adjustment for inflation. Delivery of and payment for shares is made through Central
Depositária, the São Paulo Stock Exchange’s securities clearing system. The seller is ordinarily required to deliver the
shares to the exchange on the third business day following the trade date.

In order to maintain better control over the fluctuation of the São Paulo Stock Exchange index, the São Paulo
Stock Exchange has a “circuit breaker” system in which the trading session is suspended for a period of 30 minutes
or one hour in the event the São Paulo Stock Exchange index were to fall below the limit of 10% or 15%, respectively,
in relation to the closing rate of the index of the previous trading session.

The São Paulo Stock Exchange is significantly less liquid than the NYSE and the world’s other major stock
exchanges. While all of the outstanding shares of a listed company may trade on the São Paulo Stock Exchange, in
most cases fewer than half of the listed shares are actually available for trading by the public. The remaining shares
are often held by a single or small group of controlling persons or by governmental entities.

Trading on the São Paulo Stock Exchange by a holder not deemed to be domiciled in Brazil for Brazilian tax
and regulatory purposes, or a non-Brazilian holder, is subject to certain limitations under Brazilian foreign investment
regulations. With limited exceptions, non-Brazilian holders may trade on the São Paulo Stock Exchange only in
accordance with the requirements of Resolution No. 4,373 of September 29, 2014 of the CMN. Resolution No. 4,373
requires securities held by non-Brazilian holders to be maintained in the custody of, or in deposit accounts with,
financial institutions that are authorized by the Central Bank and the Brazilian Securities Commission. In addition,
Resolution No. 4,373 requires non-Brazilian holders to restrict their securities trading to transactions on the São Paulo
Stock Exchange or organized over-the-counter markets. With limited exceptions, non-Brazilian holders may not
transfer the ownership of investments made under Resolution No. 4,373 to other non-Brazilian holders through private
transactions. For more information, see “Regulation of Foreign Investment” under Item 10.

Regulation of Brazilian Securities Markets

The Brazilian securities markets are regulated by the CVM, which has authority over stock exchanges and
the securities markets generally, by the CMN and by the Central Bank, which has, among other powers, licensing
authority over brokerage firms and which regulates foreign investment and foreign exchange transactions. The
Brazilian securities market is governed by Brazilian Law No. 6,385/76, as amended, and by the Brazilian Corporation
Law and other CVM rulings and regulations.

Under the Brazilian Corporation Law, a company may be either public (companhia aberta), as we are, or
closely held (companhia fechada). All public companies are registered with the CVM and are subject to periodic
reporting requirements. A company registered with the CVM may have its securities traded on the Brazilian stock
exchanges or in the Brazilian over-the-counter market. The shares of a listed company, like those of our company,
also may be traded privately subject to certain limitations.

The Brazilian over-the-counter market consists of direct trades between persons in which a financial
institution registered with the CVM serves as intermediary. No special application, other than registration with the
CVM, is necessary for securities of a public company to be traded in this market. The CVM must receive notice of all
trades carried out in the Brazilian over-the counter market by the respective intermediaries.

Trading of a company’s securities on the São Paulo Stock Exchange may be suspended in anticipation of a
material announcement. A company must also suspend trading of its securities on international stock exchanges on
which its securities are traded. Trading may also be suspended by the São Paulo Stock Exchange or the CVM, among

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other reasons, based on or due to a belief that a company has provided inadequate information regarding a material
event or has provided inadequate responses to an inquiry by the CVM or the relevant stock exchange.

Brazilian Law No. 6,385/76, as amended, the Brazilian Corporation Law and regulations issued by the CVM
provide for, among other things, disclosure obligations, restrictions on insider trading and price manipulation and
protections for minority shareholders. However, the Brazilian securities markets are not as highly regulated and
supervised as securities markets in the United States and some other jurisdictions. In addition, rules and policies
against self-dealing or for preserving shareholder interests may be less well-defined and enforced in Brazil than in the
United States, which may put holders of our common shares and ADRs at a disadvantage. Corporate disclosures also
may be less complete than for public companies in the United States and certain other jurisdictions.

São Paulo Stock Exchange Corporate Governance Standards

The São Paulo Stock Exchange has listing segments:

• The Bovespa Mais;

• The Bovespa Mais Level 2;

• Corporate Governance Level 1;

• Corporate Governance Level 2; and

• The Novo Mercado (New Market) of the São Paulo Stock Exchange.

These listing segments have been designed for the trading of shares issued by companies that voluntarily
undertake to abide by corporate governance practices and disclosure requirements in addition to those already required
under the Brazilian Corporation Law. The inclusion of a company in any of the new segments requires adherence to
a series of corporate governance rules. These rules are designed to increase shareholders’ rights and enhance the
quality of information provided by Brazilian corporations.

In April 2006, we entered into a listing agreement with the São Paulo Stock Exchange, under which we
agreed to comply with stricter corporate governance and disclosure requirements established by the São Paulo Stock
Exchange in order to qualify as a company admitted to the Novo Mercado.

As a company listed on the Novo Mercado and subject to its regulations, we agreed, among other things, to:

• maintain a share capital structure composed exclusively of common shares;

•

ensure the free float of shares representing at least 25% of our total outstanding share capital or 15%, in
case of average daily trading volume greater than R$25 million;

adopt offering procedures that favor widespread ownership of shares whenever making a public offering;

comply with minimum quarterly disclosure standards;

follow stricter disclosure policies with respect to transactions involving our securities made by any
controlling shareholders and our directors and executive officers;

• make a schedule of corporate events available to our shareholders;

•

offer tag-along rights to minority shareholders (meaning that, upon the acquisition of a controlling
interest, the purchaser must also agree to purchase the shares of minority shareholders for the same price
paid for the shares in the controlling stake);

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•

in the event of a delisting of shares, conduct a public tender offer for our common shares at a price at
least equal to the economic value determined according to CVM and Novo Mercado rules;

present an annual balance sheet prepared in accordance with, or reconciled to, IFRS;

establish a maximum of two-year term for all members of the board of directors;

require that at least 2 members or 20% of our board of directors, whichever is greater, consist of
independent directors; and

submit to arbitration by the Market Arbitration Chamber (Câmara de Arbitragem do Mercado) all
controversies involving our company, members of our board of directors, board of executive officers,
fiscal council and audit and integrity committee or shareholders relating to the application, validity,
efficacy, interpretation, violation or effect of the Novo Mercado listing agreement and rules, our bylaws,
the Brazilian Corporation Law or the rules of the CMN, the Central Bank, the CVM or the Market
Arbitration Chamber or other rules within the jurisdiction of the Market Arbitration Chamber.

All members of our board of directors and board of executive officers executed a management compliance
statement (Termo de Anuência dos Administradores) under which they take personal responsibility for compliance
with the Novo Mercado listing agreement, the rules of the Market Arbitration Chamber and the Novo Mercado rules.

Selling Shareholders

Not applicable.

Dilution

Not applicable.

Expenses of the Issue

Not applicable.

ADDITIONAL INFORMATION

Share Capital

Not applicable.

Memorandum and Articles of Association

Description of Share Capital

Set forth below is a summary of the material terms of provisions of our common shares. This description
does not purport to be complete and is qualified in its entirety by reference to our amended and restated bylaws (filed
herewith as Exhibit 1.01), the Brazilian Corporation Law, the rules and regulations of the CVM and the rules of the
Novo Mercado. We have described some of the amendments below.

Under the Novo Mercado listing agreement that we entered into with the São Paulo Stock Exchange (B3)
and our bylaws, we may not issue preferred shares or shares with restricted voting rights. Accordingly, this section
does not discuss the Brazilian statutory rights conferred upon holders of preferred shares.

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General

We are a publicly held corporation (sociedade por ações de capital aberto) incorporated under the laws of
Brazil. Our headquarters are located in Itajaí, State of Santa Catarina. We are duly registered with the Junta Comercial
do Estado de Santa Catarina under NIRE 42.300.034.240 and with the CVM under No. 01629-2.

On December 31, 2019, our paid-in capital was R$12,553,417,953.36, which is composed of 812,473,246
book-entry common shares without par value. The Board is authorized to increase our capital stock to 1 billion
common shares.

Corporate Purpose

Article 3 of our bylaws provides that our corporate purpose consists of:

•

the manufacture, sale, in the retail and wholesale sector, and transaction of business relating to food in
general, particularly animal protein by-products and food items that use the cold chain for support and
distribution;

the manufacture and sale of animal feed, nutrients and food supplements for animals;

the provision of food services in general;

the manufacture, refining and sale of vegetable oils, fats and dairy products;

the production, conservation, storage, silage and sale of grains, their derivatives and by-products;

the sale on the retail and wholesale market of consumer and production goods, including equipment and
vehicles for the development of its logistical activity;

the export and import of production and consumer goods;

the provision of services of transport, logistics and distribution of freight and food in general;

holding equity stakes in other companies, with the aim of achieving the corporate purposes to the fullest
extent; and

•

the participation in any projects needed for the operation of our business.

We may further engage directly, or indirectly through others, in any support activities for the core business

described above, such as:

•

administrative, technical or operational support activities, aimed at creating conditions to improve our
core business;

transport services, in general;

product storage and stocking services and other related ancillary services;

activities to promote and replace our products in the retail market and at points of sale exposed to the
final consumer, including the support needed by clients which allows the packaging and visualization of
the products;

•

services for receiving and allocating raw materials to be used in production;

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•

the provision of machine and vehicle repair, maintenance and overhaul services;

the promotion of the growth of agribusiness in Brazil through programs, technical assistance and supply;

the manufacture, development and sale of packaging products of any kind;

the processing and raising of livestock in general;

the sale of commodities in general;

research and development of techniques for the production and improvement of our genetic matrixes;

the activities of reforestation, extraction, manufacturing and sale of timber;

the sale of mobile assets, real estate, including machines, equipment and vehicles, fixed assets, to meet
the activities within our corporate purpose; and

services to supply fuel for our own fleet or outsourced service providers, particularly freight, transport,
logistics and distribution.

Our bylaws prohibit our managers from engaging in any practices that involve us in matters or activities
inconsistent with our corporate purpose and core business or contrary to our bylaws. Any such practices shall be null
and void and may result in civil or criminal liability, as the case may be, of the individuals involved.

Rights of Common Shares

At our shareholders’ meetings, each share of our common stock is entitled to one vote. Pursuant to our bylaws
and to the Novo Mercado listing agreement, we may not issue shares without voting rights or with restricted voting
rights. In addition, our bylaws and the Brazilian Corporation Law provide that holders of our common shares are
entitled to dividends or other distributions made in respect of our common shares ratably in accordance with their
respective participation in the total amount of our issued and outstanding shares. See “— Payment of Dividends and
Interest on Shareholders’ Equity” for a more complete description of the payment of dividends and other distributions
on our shares. In addition, upon our liquidation, holders of our common shares are entitled to share our remaining
assets, after payment of all of our liabilities, ratably in accordance with their respective participation in the total amount
of our issued and outstanding shares. Common shareholders have, except in certain circumstances listed in the
Brazilian Corporation Law and in our bylaws, the right to participate in our company’s future capital increases, in
proportion to their participation in our capital stock, and also the right to dispose of shares in a public offering in case
of acquisition of shares in quantities equal to or in excess of 33.3% of total shares issued in the offering, in compliance
with the terms and conditions provided in Article 41 of our bylaws.

According to the Brazilian Corporation Law, neither our bylaws nor actions taken at a shareholders’ meeting

may deprive a shareholder of the following rights:

•

the right to participate in the distribution of profits;

the right to participate equally and ratably in any remaining residual assets in the event of our liquidation;

preemptive rights in the event of issuance of shares, convertible debentures or warrants, except in certain
specific circumstances under Brazilian Corporation Law described under “—Preemptive Rights”;

the right to monitor our management in accordance with the provisions of the Brazilian Corporation
Law; and

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•

the right to withdraw from our company in the cases specified in the Brazilian Corporation Law, which
are described under “—Withdrawal Rights.”

Meeting of Shareholders

Under the Brazilian Corporation Law, our shareholders are generally empowered at our shareholders’
meetings to take any action relating to our corporate purposes and to pass resolutions that they deem necessary to our
interests and development at duly called and convened general meetings. Shareholders at our annual shareholders’
meeting, which is required to be held within four months of the end of our fiscal year, have the exclusive right to
approve our audited financial statements and to determine the allocation of our net profits and the distribution of
dividends with respect to the fiscal year ended immediately prior to the relevant shareholders’ meeting. The election
of our board members typically takes place at the annual shareholders’ meeting, every two years, although under
Brazilian Corporation Law it may also occur at an extraordinary shareholders’ meeting. Members of the fiscal council
(conselho fiscal) may be elected at any shareholders’ meeting.

An extraordinary shareholders’ meeting may be held concurrently with the annual shareholders’ meeting and

at other times during the year.

Under our bylaws and the Brazilian Corporation Law, the following actions, among others, may be taken

only at a shareholders’ meeting:

•

amendment of our bylaws;

election and dismissal, at any time, of the members of our board of directors and fiscal council and
approval of their aggregate compensation;

approval of management accounts and our audited financial statements;

granting stock awards and approval of stock splits or reverse stock splits;

approval of stock option plans for our management and employees or individuals who provide services
to us, as well as those of companies directly or indirectly controlled by us;

authorization of the issuance of convertible debentures exceeding the authorized capital stock;

suspension of the rights of a shareholder;

approval of the distribution of our profits and payment of dividends, as well as the establishment of any
reserve other than the legal reserve;

acceptance or rejection of the valuation of in-kind contributions offered by a shareholder in consideration
for issuance of shares of our share capital;

approval of our transformation, merger, consolidation, spin-off;

approval of any dissolution or liquidation, and the appointment and dismissal of a liquidator, as well as
the members of our fiscal council, which shall be installed in the event of our liquidation if it does not
already exist at the time;

authorization to delist from the Novo Mercado, as well as the approval of the waiver of the presentation
of the Public Offer of Purchase of Shares in such circumstances; and

•

authorization to petition for bankruptcy or file a request for judicial or extra-judicial restructuring.

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Quorum

As a general rule, the Brazilian Corporation Law provides that the quorum for our shareholders’ meetings
consists of shareholders representing at least a quarter of our issued and outstanding shares on the first call and, if that
quorum is not reached, any percentage on the second call. If the shareholders are convened to amend our bylaws, a
quorum at a shareholders’ meeting consists of shareholders representing at least two-thirds of our issued and
outstanding share capital entitled to vote on the first call and any percentage on the second call. In most cases, the
affirmative vote of shareholders representing at least the majority of our issued and outstanding shares present in
person or represented by proxy at a shareholders’ meeting is required to approve any proposed action, and blank votes
are not counted as shares present in person or represented by proxy. However, the affirmative vote of shareholders
representing not less than one-half of our issued and outstanding shares is required to, among other measures:

•

reduce the percentage of mandatory dividends;

change our corporate purpose;

consolidate with or merge our company into another company;

spin off assets of our company;

approve our participation in a centralized group of companies;

apply for cancellation of any voluntary liquidation; and

approve our dissolution.

A quorum smaller than the quorum established by the Brazilian Corporation Law may be authorized by the
CVM for a public company with widely traded shares and that has had less than half of the holders of its voting shares
in attendance at its last three shareholders’ meetings.

Elimination of or amendment to limit shareholders’ rights under Article 41 of our bylaws, which requires
any shareholder who becomes the holder of 33.3% or more of our total capital stock to effect a public offer for all of
our outstanding stock, is permitted only when approved by the majority of shareholders present at the shareholders’
meeting.

Notice of Shareholders’ Meetings

Under the Brazilian Corporation Law, notice of our shareholders’ meetings must be published at least three
times in the Diário Oficial do Estado de Santa Catarina, the official newspaper of the State of Santa Catarina, and in
another widely circulated newspaper in the same state, which is currently the Valor Econômico.

Notices of shareholders’ meetings must contain the agenda for the meeting and, in the case of an amendment
to our bylaws, a summary of the proposed amendment. Under the Brazilian Corporation Law, the first notice must be
published at least 15 days before the date of the meeting on the first call, and no later than eight days before the date
of the meeting on the second call. However, under our bylaws and CVM Instruction No. 559 of March 27, 2015,
Brazilian issuers of depositary receipts, such as our company, must call their shareholders’ meetings not less than 30
days prior to the meeting in the first call, and no later than eight days before the date of the meeting on the second
call. In addition, upon request of any shareholder, the CVM may suspend for up to 15 days the required prior notice
of an extraordinary shareholders’ meeting so that the CVM can become familiar with, and analyze, the proposals to
be submitted at the meeting and, if applicable, inform the company, up to the end of the suspension period, about the
reasons why it believes that a proposed resolution violates legal or regulatory provisions.

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Location of Shareholders’ Meetings

Our shareholders’ meetings take place at our head offices in the City of Itajaí, State of Santa Catarina. The
Brazilian Corporation Law allows our shareholders to hold meetings in another location in the event of force majeure,
provided that the meetings are held in the same city in which the company’s head office is located and the relevant
notice includes a clear indication of the place where the meeting will occur.

Calling of Shareholders’ Meetings

Our board of directors may call shareholders’ meetings. Shareholders’ meetings also may be called by:

•

any shareholder, if our board of directors fails to call a shareholders’ meeting within 60 days after the
date it is required to do so under applicable law and our bylaws;

shareholders holding at least 5% of our common shares, if our board of directors fails to call a meeting
within eight days after receipt of a request to call the meeting by those shareholders indicating the reasons
for calling such a meeting and the proposed agenda;

shareholders holding at least 5% of our common shares if our board of directors fails to call a meeting
within eight days after receipt of a request to call a meeting to approve the creation of a fiscal council;
and

our fiscal council, if the board of directors fails to call an annual shareholders’ meeting within one month
after the date it is required to do so under applicable law and our bylaws. The fiscal council may also
call an extraordinary general shareholders’ meeting if it believes that there are important or urgent
matters to be addressed.

Conditions of Admission

Our shareholders may be represented at a shareholders’ meeting by a proxy appointed less than a year before
the meeting, which proxy holder must be either a shareholder, a corporate officer, a lawyer or, in the case of a publicly
traded company, such as our company, a financial institution. An investment fund shareholder must be represented by
its investment fund officer or by a proxy holder.

Pursuant to our bylaws, to ensure the efficiency of the works during our shareholders’ meetings shareholders
attending a shareholders’ meeting are required to deliver, at least five days prior to the shareholders’ meeting, proof
of their status as shareholders and proof that they hold the shares they intend to vote by delivery of proper identification
and, if necessary, a receipt issued by the custodian agent, a power of attorney (if the shareholder is represented by a
third party) and/or an extract evidencing the holding of registered shares. Notwithstanding the above and in accordance
with Brazilian Corporation Law and our bylaws, shareholders who are able to make proof of their status as
shareholders of the Company may participate and vote at our shareholders’ meeting.

In addition, shareholders may vote by sending the distance voting form or by public request for proxy made
available by the Company, duly filled and signed directly to the Company at Avenida das Nações Unidas, 8501, 1st
Floor, Zip Code 05425-070, São Paulo – SP – Brazil to the attention of the Corporate Legal Department, with copies
of the following documents:

•

certified copies of an identification document with a photo for individuals and the bylaws, corporate and
proxy documents and an identification document with a photo of the proxy holder for legal entities; and

in the case of investment funds, the rules of the fund, the bylaws of the manager or the administrator,
according to the voting policy of the fund, corporate and proxy documents and an identification
document with a photo of the proxy holder.

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It is not mandatory to notarize the signature on the distance voting form. Corporate and proxy documents of
legal entities and investment funds in foreign languages shall be notarized and accompanied by a sworn translation.

The holders of ADRs will be represented by The Bank of New York Mellon, in its capacity as a depository

institution within the terms of the Deposit Agreement signed with the Company.

Shareholders may also vote by means of instruction transmitted to the Company’s bookkeeping agent. This
option is aimed exclusively to shareholders whose shares are kept with the bookkeeping agent and that are not held in
the central depositary.

Shareholders with shares which are not held in the central depositary and who choose to exercise their voting
right through service providers may transmit their instructions to the bookkeeping agent of the shares issued by the
Company, in accordance with the service provider’s rules. Shareholders should contact the bookkeeping agent and
verify the procedures it has established for distance voting form along with the documents and information it requires
to exercise this service.

The shareholders whose shares are deposited in the central depositary of the B3 and who choose to exercise
their voting right through service providers should transmit their instructions to the respective custodian agents, in line
with their rules, which, in turn, will forward these voting instructions to the central depositary of the B3. This option
is aimed exclusively at shareholders whose shares are in the custody of the B3. Voting will be exercised by the
shareholders according to the procedures adopted by their custodian agents.

Board of Directors

Under our bylaws, our board of directors is composed of nine to eleven members. The members of our board
of directors are elected at the shareholders’ meeting for a period of two years and may be reelected. Our bylaws do
not contemplate alternates to board members. At least 2 of the directors or 20% of the board of directors, whichever
is greater, must be independent (as defined in the Novo Mercado rules). The Board of Directors must annually assess
and disclose the independent board members and describe any event that may compromise their independence. There
is no mandatory retirement age for our directors. In case of any vacancy, the remaining members will nominate an
alternate director who will serve until the next shareholders’ meeting, when shareholders shall elect another director
to serve for the remaining term of office. If more than 1/3 of the seats on the board of directors are vacant at the same
time, then an extraordinary shareholders’ meeting shall be called within 30 days counted from such vacancy event to
elect the substitutes for such positions, who will serve for a term of office coinciding with the term of the other
members.

Pursuant to our bylaws, whenever the shareholders’ meeting is convened to elect the board of directors, the
board members are required to vote on and submit to the shareholders’ meeting a slate with candidates for all of the
vacant board seats, including for the positions of chairman and vice chairman of the board. A shareholder who intends
to nominate one or more members that are not on the slate prepared by the board must notify us, preferably in writing,
at least five days prior to the shareholders’ meeting at which the members of the board of directors will be elected,
providing us with the name, a complete list of qualifications and resume of the candidate. If we receive such a
notification, we will be responsible for immediately disclosing this information through a Shareholders’ Notice to be
posted on the CVM website and our website.

The Brazilian Corporation Law sets forth that a cumulative vote system must be made available upon request
of shareholders representing at least 10% of our voting share capital. The cumulative vote system entitles each share
held by a shareholder to as many votes as there are members of the board of directors and to give each share the right
to vote cumulatively for only one candidate or to distribute its votes among several candidates. Whenever the election
has been carried out by the cumulative vote process, the dismissal of any member of the board of directors by the
shareholders’ meeting will imply the dismissal of all other members, and a new election shall be held.

Pursuant to CVM regulations, the minimum percentage of voting capital required for the adoption of the
cumulative vote system by a publicly held company may be reduced based on its share capital, varying from 5% to
10%. In our case, considering the amount of our share capital, shareholders representing 5% of the voting capital may

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request the adoption of the cumulative vote system to elect the members of our board of directors. Pursuant to our
bylaws, if a shareholder requests the adoption of the cumulative vote system, as provided by Section 141, paragraph
one of the Brazilian Corporation Law, we must disclose our receipt and the contents of such notification immediately
through a Shareholder Notice, available on the CVM website or in accordance with applicable laws or CVM rules.

At the Company’s Ordinary and Extraordinary General Meeting held on April 26, 2018, a cumulative voting
system was adopted for the election of our board members, pursuant to the applicable CVM rules. However, in a
decision published on November 8, 2018, after an appeal that was presented by the Company, the CVM overruled this
decision and agreed that the votes cast for the election of our board members should be considered under a slate-based
voting system. See “Item 6. Directors, Senior Management and Employees—A. Directors and Senior Management—
Board of Directors.”

Board of Executive Officers

Our bylaws provide for a board of executive officers composed of at least two and no more than 15 members,
one of which is the Global Chief Executive Officer, one of which is the Chief Financial and Investor Relations Officer
and all other members as Vice President. The titles and duties of the remaining executive officers are proposed by the
Global Chief Executive Officer to the board of directors.

The members of our board of executive officers are elected by our board of directors for two-year terms and
are eligible for reelection. Our board of directors may remove any executive officer from office at any time with or
without cause. Under the Brazilian Corporation Law, our executive officers must be residents of Brazil but need not
be shareholders of our company.

In accordance with the Novo Mercado rules and our bylaws, the position of Chairman of the Board of
Directors and Chief Executive Officer may not be occupied by the same individual, except in the event of a vacancy
in the position of Chief Executive Officer, in which case, the company should: (i) disclose the occurrence of an
individual holding both positions as a result of the vacancy; (ii) disclose, within 60 days, counted from the vacancy,
the measures taken to end any such occurrence; and (iii) end any such occurrence within one year.

Pursuant to Novo Mercado rules, Mr. Pedro Pullen Parente’s term as Chief Executive Officer ended on June
18, 2019, as he was only allowed to hold the positions of Chairman of the Board of Directors and Chief Executive
Officer at the same time for a period of one year. In connection with the end of Mr. Pedro Pullen Parente’s term as
Chief Executive Officer, our board of directors appointed Mr. Lorival Nogueira Luz Júnior as our new Chief Executive
Officer on March 28, 2019 and he took office on June 18, 2019.

Fiscal Council

Under the Brazilian Corporation Law, the fiscal council is an auditing body independent from the company’s
management. Its main responsibility is to inspect the management actions and audit our consolidated financial
statements, reporting its conclusions to the shareholders.

We have a permanent fiscal council composed of three members and an equal number of alternates. The
Brazilian Corporation Law and our bylaws provide that, if there is a controlling shareholder, then minority
shareholders jointly representing 10% or more of the company shares will have the right to elect, in a separate vote,
one member of the fiscal council and one alternate.

Members of the fiscal council may not be members of the board of directors, officers or employees of the
company or of a controlled company or a company from the same group. The Brazilian Corporation Law also requires
that members of the fiscal council receive compensation, at a minimum, in the amount of 10% of the average
compensation paid to the Company’s officers, excluding other benefits.

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Audit and Integrity Committee

At our shareholders’ meeting held on April 3, 2014, our shareholders approved the establishment of a
permanent audit and integrity committee. Our bylaws provide that the permanent audit and integrity committee shall
be comprised of a minimum of three and a maximum of five members, provided that (i) the majority of the members
shall be independent, (ii) at least one of the independent members of the board of directors shall be a member of the
audit and integrity committee, (iii) at least one of the audit and integrity committee members shall not be a member
of the board of directors, and (iv) none of them can be an officer. The audit and integrity committee is designed to
comply with CVM Instruction No. 308, as amended, and to allow us to rely on the exemption from the audit committee
requirements of the SEC contained in paragraph (c)(3) of Rule 10A-3 under the Exchange Act. See “Item 16D.
Exemptions from the Listing Standards for Audit Committees.”

The audit and integrity committee is an advisory body directly linked to the board of directors. The members
of the audit and integrity committee are appointed by the board of directors for terms of two years and will serve for
no more than 10 years. At least one of the members of the audit and integrity committee must be a financial specialist,
having knowledge of corporate accounting, auditing and finance.

The audit and integrity committee has the following functions:

•

opine on the engagement and removal of the independent external auditors for the preparation of the
outside independent audit or for any other service;

supervise the activities (a) of the independent external auditors to evaluate their independence, the
quality and suitability of the services rendered and the annual work plan, (b) of our internal controls
department, (c) of our internal audit department and (d) of our financial reporting department;

• monitor the quality and integrity of our internal control mechanisms, our quarterly information, our
interim and annual financial statements and additional information and metrics published on the basis of
adjusted account data and non-accounting data which may incorporate information not typically reported
in the financial statements;

•

evaluate and monitor our exposure to risk, including requiring detailed information on policies and
procedures related to management compensation, the use of our assets and expenses incurred in our
name, and integrity (compliance) practices;

evaluate and monitor, jointly with management and the internal audit department, the policy, suitability
and reasoning of transactions with related parties, and internal policies;

evaluate, monitor and recommend to the board of directors the remediation or improvement of the
Company’s internal policies, including the Related Parties Transactions Policy;

evaluate the Company’s compliance practices and suggest improvements;

evaluate and discuss the annual work plan for the independent external auditor and submit it to the board
of directors for its assessment; and

prepare a summarized annual report to be presented together with the financial statements containing a
description of its activities, results and conclusions reached and recommendations offered, and any
situations where there is significant divergence between our management, the independent external
auditors and the audit and integrity committee in relation to our financial statements.

The audit and integrity committee must also have mechanisms to receive, retain and respond to whistleblower
complaints, including of a confidential nature, on matters related to the scope of the company’s internal or external
activities, related to the violation of legal provisions and rules applicable to the Company (including those of an

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accounting, internal controls and auditing nature), in addition to internal codes and rules, including with provisions
for specific procedures for the protection of whistleblowers and the confidentiality of the information.

The audit and integrity committee has a written charter, which was approved by the board of directors and

describes in detail the committee’s functions and operating procedures.

Transactions in Which Members of the Board of Directors and Executive Officers Have a Conflict of Interest

Our bylaws contain a specific provision limiting the right of a member of the board of directors to have access
to information, participate in the discussions or vote on a proposal, arrangement or contract in which he or she has an
interest that conflicts with our interests. In addition, the Brazilian Corporation Law prohibits a member of the board
of directors or board of executive officers from intervening in any transaction that conflicts with the interests of the
company.

Allocation of Net Income and Distribution of Dividends

Calculation of Distributable Amount

At each annual shareholders’ meeting, our board of executive officers and our board of directors are required
to recommend how to allocate our net profits, if any, from the preceding fiscal year. This allocation is subject to
consideration by our shareholders.

The Brazilian Corporation Law defines “net profits” for any fiscal year as net profits after income and social
contribution taxes for that fiscal year, net of any accumulated losses from prior fiscal years and any amounts allocated
to employees’ and management’s participation in our net profits in such fiscal year. Our bylaws provide that the
shareholders may allocate the participation of directors, executive officers and employees on our net profits as follows:
up to 10% to employees and up to the limit established under applicable laws to our directors and executive officers.

Our bylaws provide that an amount equal to 25% of our net profits, if any, as reduced by amounts allocated
to our legal reserves and contingency reserves, and increased by any reversals of our contingency reserves, if any,
must be allocated for dividend distributions in any particular year. This dividend is limited to the realized portion of
our net profits, which amount is the minimum mandatory dividend. Such amount must be calculated after excluding
the allocation of profits to employees and directors. The calculation of our net profits, allocations to reserves and
distributable amounts are determined on the basis of our unconsolidated financial statements prepared in accordance
with the Brazilian Corporation Law.

Profit Reserve Accounts

The financial statements of corporations constituted under Brazilian law include two principal reserve
accounts: profit reserves and capital reserves. Except for the legal reserve, allocations to any reserve are subject to the
approval of our shareholders at our annual shareholders’ meetings.

Profit Reserves

Under the Brazilian Corporation Law, our profit reserves account is comprised of the legal reserve, unrealized
profits reserve, contingency reserve, bylaw reserves and retained earnings reserve. Allocations to each of these
reserves (other than the legal reserve) are subject to approval by company’s shareholders at annual shareholders’
meeting.

Legal Reserve

Under the Brazilian Corporation Law and our bylaws, we are required to maintain a legal reserve to which
we must allocate 5% of net profits for each fiscal year until the aggregate amount in the reserve equals 20% of share
capital. However, we are not required to make any allocations to legal reserve in a fiscal year in which the legal
reserve, when added to the established capital reserves, exceeds 30% of total capital. The amounts to be allocated to

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such reserve may only be used to increase share capital or to absorb losses, but are not available for distribution. This
amount must be calculated after excluding the allocation of profits to employees, officers and directors. As of
December 31, 2018, we did not have a legal reserve.

Unrealized Profit Reserve

Under the Brazilian Corporation Law, the amount by which the distributable amount exceeds realized net
profits in a given fiscal year may be allocated to unrealized profits reserves. The Brazilian Corporation Law defines
realized net profits as the amount by which net profits exceed the sum of (1) the portion of net income, if any,
attributable to earnings and losses of subsidiaries and affiliates accounted for using the equity method of accounting
and (2) the profits, gains or returns that will be received by company after the end of the next fiscal year. The profits
allocated to the unrealized profits reserves must be added to the next mandatory minimum dividend distribution after
those profits have been realized, if they have not been used to absorb losses in subsequent periods. As of December
31, 2018, we did not have an unrealized profits reserve.

Contingency Reserve

Under the Brazilian Corporation Law, a percentage of net profits may be allocated to a contingency reserve
for estimable losses that are considered probable in future years. Any amount so allocated in a prior year must either
be reversed in the fiscal year in which the loss had been anticipated if the loss does not occur as projected or be offset
in the event that the anticipated loss occurs. As of December 31, 2018, we did not have a contingency reserve.

Bylaw Reserves

Under the Brazilian Corporation Law, any corporation may provide in its bylaws for additional reserves,
provided that the maximum amount that may be allocated, the purpose and allocation criteria of the reserve are
specified. Our bylaws provide for the following additional reserves:

• Reserves for increases in capital. 20% of adjusted net profits for each fiscal year must be allocated to
reserves for increases in capital until the aggregate amount in such reserve equals 20% of share capital.
This amount must be calculated after excluding the allocation of profits to employees, officers and
directors. As of December 31, 2018, we did not have increases in capital reserve.

• Expansion reserves. Shareholders may decide at a meeting to retain up to 50% of our net profits to
allocate to an expansion reserve, up to a limit of 80% of share capital. This amount must be calculated
after excluding the allocation of profits to employees, officers and directors. This reserve is intended to
ensure investment in fixed assets or the increase in our working capital. As of December 31, 2018, we
did not have an expansion reserve.

In addition, under the Brazilian Corporate Law, shareholders may decide at a meeting to retain the portion of
net profits arising from government donations or subsidies for investment and allocate them to a reserve for tax
incentives. This reserve can be excluded from the calculation basis of the mandatory minimum dividends. As of
December 31, 2018, we did not have a reserve for tax incentives.

Retained Earnings Reserves

Under the Brazilian Corporation Law, our shareholders may decide at a general shareholders’ meeting to
retain a portion of our net profits that is provided for in a capital expenditure budget. As of December 31, 2018, we
did not have a retained earnings reserve.

Capital Reserves

Under the Brazilian Corporation Law, the capital reserve consists of the share premium from the issuance of
shares, goodwill reserves from mergers, sales of founders’ shares and sales of subscription warrants. Amounts
allocated to our capital reserve are not taken into consideration for purposes of determining the mandatory minimum

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dividends. We are not allowed to issue founders’ shares. In addition, the remaining balance in the capital reserve may
only be used to increase share capital, to absorb losses that surpass accumulated profits and the profit reserves or to
redeem, reimburse or purchase shares. As of December 31, 2018, we had a capital reserve of R$115.4 million.

Payment of Dividends and Interest on Shareholders’ Equity

The bylaws of a Brazilian company must specify a minimum percentage of profit available for distribution,
which must be paid to shareholders as mandatory dividends or as interest on shareholders’ equity. Consistent with the
Brazilian Corporation Law, our bylaws provide that an amount equal to 25% of our net profits, adjusted as described
in “—Allocation of Net Income and Distribution of Dividends” above, must be allocated for dividend distributions or
payment of interest on shareholders’ equity in a particular year.

While we are required under the Brazilian Corporation Law to pay a mandatory dividend each year, we may
suspend the mandatory dividends if our administrative bodies report to our annual shareholders’ meeting that the
distribution is incompatible with our financial condition. Our fiscal council, if in operation, must review any
suspension of mandatory dividends recommended by our management. In such case, our management would be
required to submit a report to the CVM setting forth the reasons for any suspension of dividends. Profits not distributed
by virtue of such a suspension are allocated to a special reserve and, if not absorbed by any subsequent losses, are
required to be distributed as dividends as soon as our financial condition permits their distribution.

We are able to allocate mandatory dividends in the form of interest on shareholders’ equity, which is
deductible when calculating our income tax and social contribution. We have done so in the past and expect to continue
to do so in the foreseeable future.

Dividends

We are required by the Brazilian Corporation Law and our bylaws to hold an annual shareholders’ meeting
no later than the fourth month following the end of each fiscal year at which, among other things, the shareholders
must vote to declare an annual dividend. The annual dividend is calculated based on our audited financial statements
prepared for the immediately preceding fiscal year.

Any holder of shares on the date the dividend is declared is entitled to receive the dividend. Under the
Brazilian Corporation Law, dividends are generally required to be paid within 60 days of the declaration date, unless
the shareholders’ resolution establishes another date of payment, which, in any case, must occur before the end of the
fiscal year in which the dividend is declared.

Our bylaws do not require that we index the amount of any dividend payment to inflation.

Our board of directors may declare interim dividends or interest on shareholders’ equity based on realized
profits reflected in semiannual financial statements. The board of directors may also declare dividends based on
financial statements prepared for shorter periods, but they cannot exceed the amount of capital reserves. Any payment
of interim dividends may be set off against the amount of mandatory dividends relating to the net profits earned in the
year in which the interim dividends were paid.

Interest on Shareholders’ Equity

Since January 1, 2006, Brazilian companies are permitted to pay interest on shareholders’ equity and treat
those payments as a deductible expense for purposes of calculating Brazilian income tax and social contribution tax.
The amount of the deduction is limited to the greater of: (1) 50% of our net profits (after deduction of social
contribution and before payment of any interest or any deduction for income taxes) relating to the period to which the
payment is made; and (2) 50% of our accumulated profits. The payment of interest on shareholders’ equity is an
alternative to the payment of mandatory dividends. The rate applied in calculating interest on shareholders’ equity
cannot exceed the TJLP rate for the applicable period. The amount distributed to our shareholders as interest on
shareholders’ equity, net of any income tax, may be included as part of the mandatory dividends. In accordance with
applicable law, we are required to pay to shareholders an amount sufficient to ensure that the net amount they receive

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in respect of interest on shareholders’ equity, after payment of any applicable withholding tax plus the amount of
declared dividends, is at least equivalent to the mandatory dividend amount. For more information, see “E. Taxation—
Brazilian Tax Considerations—Income Tax.”

Any payment of interest on shareholders’ equity to holders of common shares or ADRs, whether or not they
are Brazilian residents, is subject to Brazilian withholding tax at the rate of 15%, except that a 25% withholding tax
rate applies if the recipient is a Tax Haven Resident. A tax haven jurisdiction is a country (1) that does not impose
income tax or whose income tax rate is lower than 20% or (2) that does not permit disclosure of the identity of
shareholders of entities organized under its jurisdiction. Under our bylaws, we may include the amount distributed as
interest on shareholders’ equity, net of any withholding tax, as part of the mandatory dividend amount.

There are no restrictions on our ability to distribute dividends that have been lawfully declared under
Brazilian law. However, as with other types of remittances from Brazil, the Brazilian government may impose
temporary restrictions on remittances to foreign investors of the proceeds of their investments in Brazil, as it did for
approximately nine months in 1989 and early 1990, and on the conversion of Brazilian currency into foreign
currencies, which could hinder or prevent the depositary from converting dividends into U.S. dollars and remitting
these U.S. dollars abroad.

Statute of Limitations

Our shareholders have three years to claim dividend distributions made with respect to their shares, from the
date that we distribute the dividends to our shareholders, after which any unclaimed or not received dividend
distributions legally revert to us. We are not required to adjust the amount of any distributions for inflation that occurs
during the period from the date of declaration to the payment date.

Withdrawal Rights

Shareholders who dissent from certain actions taken by our shareholders at a shareholders’ meeting have
withdrawal rights. Under the Brazilian Corporation Law, a shareholder’s withdrawal rights may be exercised in the
following circumstances, among others:

•

spin-off (as described below);

reduction in our mandatory dividends;

change in our corporate purpose;

consolidation with or merger into another company;

participation in a group of companies (as defined in the Brazilian Corporation Law); or

the acquisition by our company of the control of any company if the acquisition price exceeds the limits
established in the second paragraph of Article 256 of the Brazilian Corporation Law.

However, under the Brazilian Corporation Law, a spin-off will not trigger withdrawal rights unless, as a

result:

•

there is a change in our corporate purpose, except to the extent that the principal business purpose of the
entity to which the spun-off assets and liabilities were transferred is consistent with our business purpose;

•

there is a reduction in our mandatory dividend; or

• we are made part of a centralized group of companies, as defined in the Brazilian Corporation Law.

In cases where we:

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• merge into or consolidate with another company;

•

participate in a group of companies (as defined in the Brazilian Corporation Law);

participate in a merger of shares; or

acquire the control of any company if the acquisition price exceeds the limits established in the second
paragraph of Article 256 of the Brazilian Corporation Law,

our shareholders will not be given withdrawal rights if our shares (1) are “liquid,” which means that they are part of
the São Paulo Stock Exchange Index or another traded stock exchange index, as defined by the CVM, and (2) are
widely held, such that our controlling shareholders and their affiliates jointly hold less than 50% of the type or class
of shares that are being withdrawn.

The right to withdraw expires 30 days after publication of the minutes of the relevant shareholders’ meeting.
We are entitled to reconsider any action giving rise to withdrawal rights for ten days after the expiration of this period
if we determine that the redemption of shares of dissenting shareholders would jeopardize our financial stability.

Any shareholder who exercises withdrawal rights is entitled to receive book value for its shares, based on
our most recent audited balance sheet approved by our shareholders. However, if the resolution giving rise to the
withdrawal rights is made more than 60 days after the date of our most recent balance sheet, a shareholder may request
that its shares be valued in accordance with a new balance sheet dated no more than 60 days prior to the date of the
resolution. In such case, we are obligated to pay 80% of the refund value of the shares based on the most recent balance
sheet approved by our shareholders, and the remaining balance must be paid within 120 days after the date of the
resolution at the shareholders’ meeting that gave rise to withdrawal rights based on the new balance sheet.

Redemption

Under the Brazilian Corporation Law, we may redeem our shares by a decision taken in an extraordinary

shareholders’ meeting by shareholders representing at least 50% of our share capital.

Preemptive Rights

Except as described below, each of our shareholders has a general preemptive right to participate in any
issuance of new shares, convertible debentures and warrants, in proportion to its shareholding at such time, but the
conversion of debentures and warrants into shares, the granting of options to purchase shares and the issuance of
shares as a result of the exercise of options are not subject to preemptive rights.

A period of at least 30 days following the publication of notice of the issuance of shares, convertible
debentures or warrants is allowed for the exercise of the preemptive right, and the right may be transferred or disposed
of for value. Under the terms of Article 172 of the Brazilian Corporation Law and our bylaws, our board of directors
may exclude preemptive rights or reduce the exercise period with respect to the issuance of new shares, debentures
convertible into our shares and warrants up to the limit of our authorized stock capital if the distribution of those
securities is effected through a stock exchange, through a public offering or through an exchange offer for shares in a
public offering the purpose of which is to acquire control of another company.

Anti-Takeover Effects of Provisions in Bylaws

Our bylaws contain provisions that have the effect of avoiding concentration of our common shares in the
hands of a small group of investors, in order to promote more widespread ownership of our common shares. These
provisions require each shareholder who becomes the holder of 33.3% or more of our total share capital to immediately
disclose that fact and within 30 days from the date of such event or acquisition, commence a public tender offer to
buy all of our outstanding shares in accordance with the CVM and the São Paulo Stock Exchange regulations and our
bylaws. These provisions are triggered by the acquisition of beneficial ownership as well as record ownership of our
common shares.

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These provisions are not applicable to shareholders who become holders of 33.3% or more of our common
shares as a result of (1) legal succession, provided that the shareholder sells any shares in excess of the 33.3% limit
within 60 days of the event, (2) the merging of another company into us, (3) the merging of the shares of another
company by us and (4) the subscription of shares of the Company carried out in a single primary issue.

Involuntary capital increases resulting from cancellation of treasury shares or capital reductions with

cancellation of shares will not be considered in the calculation of the 33.3% of total shares issued by us.

The public tender offer must be (1) directed to all our shareholders, (2) made through an auction to take place
at the São Paulo Stock Exchange, (3) launched at a fixed price in accordance with the procedure set forth below and
(4) paid upfront in Brazilian currency. The takeover should be immediately disclosed through a material fact notice,
and a public tender offer must be commenced within 30 days from the date of such acquisition or event and must be
done with respect to all of our shares for a price per share that may not be less than the greater of: (i) 140% of the
average trading price on the stock exchange trading the greatest volume of shares of the capital stock of the Company
during the last 120 trading sessions prior to the date on which the public tender offer became obligatory; and (ii) 140%
of the average trading price on the stock exchange trading the greatest volume of shares of the capital stock of the
Company during the last 30 trading days prior to the date on which the public tender offer became obligatory.

The realization of the public tender offer does not exclude the right of another of our shareholders or of our

company to launch a competing public tender offer in accordance with applicable regulations.

Restriction on Certain Transactions by Controlling Shareholders, Directors and Officers

We are subject to the rules of CVM Instruction 358, of January 3, 2002, relating to the trading of our
securities. We, the members of our board of directors, executive officers and members of our fiscal council and
members of any technical or advisory body, any current or future controlling shareholders, or whomever or whatever,
by virtue of their or its title, duty or position with us, or with any such controlling shareholder, controlled company or
affiliates, has knowledge of a material fact, and any other person who has knowledge of material information and
knows it has not been disclosed to the market (including auditors, analysts, underwriters and advisers), are considered
insiders and must abstain from trading our securities, prior to the disclosure of such material information to the market.

This restriction also applies:

•

to any of our former officers, directors or members of the fiscal council for a twelve-month period after
leaving the Company;

if we intend to merge or combine with another company, consolidate, spin off part or all of our assets or
reorganize, until such information is disclosed to the market;

to us, if an agreement for the transfer of our control has been executed, or if an option or mandate to
such effect has been granted, until such information is disclosed to the market;

during the public distribution of securities issued by us;

at any time, to the trading of derivatives based on securities issued by us;

during the 15-day period before the disclosure of our quarterly and annual financial statements required
by the CVM; or

to the controlling shareholders, our officers, and members of our board of directors, whenever we, or
any of our controlling companies, affiliates or companies under common control, are in the process of
purchasing or selling shares issued by us.

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Arbitration

In accordance with our bylaws, we, our shareholders, directors and members of our fiscal council agree to
resolve through arbitration any disputes or controversies that may arise between us relating to or derived from, in
particular, the application, validity, enforceability, interpretation or breach (and its effects) of the provisions under
Law No. 6,385/1976, Novo Mercado listing agreement, Novo Mercado rules, our bylaws, the Brazilian Corporation
Law, the rules published by the CVM, the other rules applicable to the Brazilian capital markets in general, other B3
rules, as well as the rules of the Market Arbitration Chamber of the São Paulo Stock Exchange itself, in each case in
accordance with the rules of the Market Arbitration Chamber.

Going-Private Process

We may become private if our controlling shareholder or any company which controls us, directly or
indirectly, as the case may be, conducts a public tender offer to acquire all of our outstanding shares in accordance
with the rules under the Novo Mercado rules. The offered price per share must be fair and shareholders holding more
than 33.33% of the outstanding shares must agree to the public tender offer or otherwise expressly agree to voluntarily
exit the Novo Mercado without the effective sale of shares. The voluntary exit from the Novo Mercado may occur
regardless of the public tender offer, if approved by shareholders in a meeting pursuant to the rules and conditions of
the Novo Mercado rules.

The compulsory exit from the Novo Mercado must be preceded by a public tender offer pursuant to the CVM
rules. Our shares will remain listed under the Novo Mercado segment for an additional six months in the event the
minimum percentage for delisting is not reached after completion of the public tender offer. In addition, BRF will
remain subject to other penalties that may be imposed by B3.

Delisting from the Novo Mercado

Our delisting from the Novo Mercado, either by voluntary or compulsory action or by virtue of a corporate
restructuring, shall observe the rules contained in the Regulation of the Novo Mercado. At any time, we may delist
our shares from the Novo Mercado, provided that a public tender offer for the acquisition of our outstanding shares is
carried out.

Such tender offer shall observe the procedures provided in the regulation issued by CVM on the tender offer
for the cancellation of registration as a publicly held company, including the following requirements: (i) the price
offered shall be fair, and a request of new valuation of the Company shall be in the form established in the Brazilian
Corporation Law; and (ii) shareholders holding more than 1/3 of the outstanding shares shall accept the tender offer
or expressly agree with the delisting from the Novo Mercado without the effective sale of the shares.

The voluntary delisting from the Novo Mercado may occur regardless of the completion of the tender offer
mentioned above in the event of a waiver approved at a General Shareholders’ Meeting, which must observe the rules
and conditions of the Regulation of the Novo Mercado. The compulsory delisting from the Novo Mercado shall be
preceded by a tender offer that observes the procedures provided in the regulation issued by CVM on public tender
offers for purchases of shares for cancellation of registration of a publicly held company and the requirements
established in Article 43 of our bylaws. Our shares will remain listed under the Novo Mercado segment for an
additional six months in the event the minimum percentage for delisting is not reached after completion of the public
tender offer. In addition, BRF will remain subject to other penalties that may be imposed by B3.

With the exception of tender offers related to the delisting from the Novo Mercado and/or to the cancellation
of registration of a publicly held company, the unified tender offer may only be initiated by a shareholder who holds
an amount equal or higher than 33.33% of our total shares, observing the minimum price to be paid per share
established in Article 41 of our bylaws.

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Change of Control

Under the rules of the Novo Mercado, the direct or indirect sale of our control, in one transaction or in a series
of transactions, creates an obligation by the acquirer to complete, subject to applicable regulations, a public tender
offer for the acquisition of all other outstanding shares on the same terms and conditions granted to the selling
controlling shareholder.

The change of control concept provided for in our bylaws and the situations in which the acquiring
shareholder is required to make a public tender offer includes and may be broader than the concepts and situations
provided for in the Brazilian Corporation Law and in the Novo Mercado rules.

The acquirer must take all necessary measures to reconstitute the minimum percentage of the free float

required under the Novo Mercado regulations within eighteen months of the acquisition.

Holders of 33.3% or More of Our Shares

Any person who acquires or becomes a shareholder through an offering for quantities of shares equal to or
greater than 33.3% of the total issued shares should undertake or apply for registration of a takeover bid of all shares
of our offering and should comply with CVM rules, the regulations of the São Paulo Stock Exchange, and the
provisions of our bylaws.

The takeover should be immediately disclosed through a material fact notice, and a public tender offer must
be commenced within 30 days from the date of such acquisition or event and must be done with respect to all of our
shares for a price per share that may not be less than the greater of: (i) 140% of the average trading price on the stock
exchange trading the greatest volume of shares of the capital stock of the Company during the last 120 trading sessions
prior to the date on which the public tender offer became obligatory; and (ii) 140% of the average trading price on the
stock exchange trading the greatest volume of shares of the capital stock of the Company during the last 30 trading
days prior to the date on which the public tender offer became obligatory. For a detailed description of the procedures
applicable to takeover bid by increased participation, see our bylaws filed as exhibit 1.01 to this Annual Report on
Form 20-F.

Suspension of Rights of Acquiring Shareholder for Violation of Our Bylaws

In the event an acquiring shareholder violates the provisions of our bylaws regarding the need to conduct a
public offer as a result of a change of control or of the purchase of shares representing 33.3% or more of our share
capital, the rights of such acquiring shareholder may be suspended by a decision taken at our shareholders’ meeting.
If such a violation occurs, we must hold a shareholders’ meeting and the acquiring shareholder will not be entitled to
vote at such meeting.

Purchases of Our Shares by Our Company

Our bylaws entitle our board of directors to approve the acquisition of our shares, except when approval by
the shareholders is mandatory pursuant to CVM rules. The acquisition of our shares for cancellation or maintenance
in treasury may not, among other actions:

•

be used to purchase shares of the controlling shareholder;

be carried out in organized markets at a price greater than market price;

be carried out during a public tender offer for the acquisition of shares issued by us;

require the use of resources greater than those available, pursuant to the CVM rules;

create, directly or indirectly, any artificial demand, supply or share price condition, or use any unfair
practice as a result of any action or omission; or

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•

be carried out when there is a material information not yet disclosed to the market.

The decision to purchase our own shares, when taken by the board of directors, which must specify, among
other information: (i) the purpose and economic effects of the purchase; (ii) the amount of shares to be purchased; (iii)
price; (iv) impacts on the shareholding structure; (v) maximum term for the liquidation of the purchase; (vi)
intermediary institutions, if any; and (vii) the reasons why the board believes the purchase will not affect the
compliance with obligations with creditors or the payment of mandatory dividends.

We cannot hold in treasury more than 10% of our total shares, including the shares held by our subsidiaries

and affiliates.

Reporting Requirements

We are subject to the reporting requirements established by the Brazilian Corporation Law and the regulations
of the CVM. In addition, as a result of our listing on the Novo Mercado, we must meet the reporting requirements of
the Novo Mercado rules.

Information Required by the CVM

Brazilian securities regulations require that a publicly held corporation must provide the CVM and the

relevant stock exchanges with the following periodic information, among others:

•

financial statements prepared in accordance with IFRS and related management, fiscal council, audit and
integrity committee and auditors’ reports, within three months from the end of its fiscal year or on the
date in which they are published or made available to shareholders, whichever occurs first, together with
the Demonstrações Financeiras Padronizadas (a report on a standard form containing financial
information derived from our financial statements required to be filled out by us and filed with the CVM).
Due to subsequent events, the consolidated financial statements included herein differ from those filed
with the CVM, as detailed in Note 36.1 to our consolidated financial statements;

notices of our annual shareholders’ meeting on the date of its publication;

a summary of the decisions taken at the annual general shareholders’ meeting on the day the meeting is
held;

a copy of the minutes of the annual shareholders’ meeting within seven business days of its occurrence;

report on good governance practices, pursuant to the Brazilian Code of Corporate Governance for
Publicly Listed Companies (Código Brasileiro de Governança Corporativa - Companhias Abertas);

• Formulário de Referência – a report on a standard form containing annual corporate, business, and
selected financial information, five (5) months from the end of our fiscal year; and we must update this
document in accordance with Instructions 480 and 481 of the CVM;

•

Informações Trimestrais – ITR (a report on a standard form containing quarterly corporate, business and
financial information), together with a special review report issued by our independent auditor, within
45 days from the end of each quarter (except for the last quarter of each year) or upon disclosure of such
information to the public if it occurs within 45 days from the end of the relevant quarter.

In addition to the foregoing, we must also file with the CVM and the São Paulo Stock Exchange the following

information, among others:

•

a notice of any extraordinary shareholders’ meeting on the same date it is published;

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•

a summary of the decisions taken at any extraordinary shareholders’ meetings on the day the meeting is
held;

• minutes of any extraordinary shareholders’ meeting within seven business days of the date the meeting

occurred;

• minutes of board of directors' meetings, whenever its decisions are to be effective in relation to third

parties;

•

a copy of any shareholders’ agreement within seven business days it is filed with us;

any press release giving notice of material facts, on the same date it is published in the press;

information on any filing for plan of reorganization, as well as a copy of any judicial decision on such
request, on the same date it is filed and on the date, we take notice of the judicial decision, respectively;

request for bankruptcy, on the same day that the Company becomes aware of such requests; and

a copy of any judicial decision granting a bankruptcy request and appointing of a bankruptcy trustee, on
the date we become aware of it.

Information Required by the São Paulo Stock Exchange from Companies Listed on the Novo Mercado

The shares of the Company have been listed to trade on the Brazilian Securities and Derivatives Stock
Exchange special listing segment named Novo Mercado, of B3. Accordingly, the Company, its shareholders, the
directors and officers and the fiscal council members (if the council is active) are bound by B3’s Novo Mercado Listing
Rules. Whenever a provision of our bylaws is detrimental to our shareholders who may benefit from any tender offer,
the Novo Mercado Regulations shall prevail over the provisions of the bylaws.

As a Novo Mercado company, we must observe the following additional disclosure requirements, among

others:

• we must publish the internal rules of our board of directors and its advisory committees, and of the fiscal

council;

• we must inform the market that an officer or a director has resigned or has been removed;

• we must publish statements of material facts, information on earnings and press releases of our results

in English;

• we must make a public presentation on our quarterly results and on our financial statements within five

(5) days of their publishing; and

• we must make a calendar available up to December 10th each year with the dates of the following events:
(i) publishing of our financial statements and our standardized financial statements (DFP); (ii) publishing
of our quarterly information (ITR); (iii) ordinary general shareholders’ meeting; and (iv) filing of our
Formulário de Referência (FR).

Information Regarding Any Trading Carried Out by Any Controlling Shareholders, Members of Our Board
of Directors, Our Board of Executive Officers or Members of Our Fiscal Council

Pursuant to the rules of the CVM and the Novo Mercado, any controlling shareholders, officers, directors,
members of the fiscal council, if active, and members of any other technical or advisory committee created by our
bylaws, must disclose to us, the CVM and the São Paulo Stock Exchange information in connection with the total

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amount and characteristics of our securities owned, directly or indirectly, or any derivatives with reference to such
securities, as well as any subsequent trading of such securities and derivatives. In the case of individuals, this
information must also include securities held by the spouse, companion or dependents of such persons and be included
in the annual income tax statement of the controlling shareholder, officer, director or member of the fiscal council.
This information must be communicated to the CVM and the São Paulo Stock Exchange by the Investor Relations
Officer within ten days after the end of each month.

In addition, our shareholders who have caused the election of members of our board of directors or fiscal
council, as well as any individual, legal entity or group of persons acting jointly to conduct relevant negotiations (i.e.,
transactions by means of which the direct or indirect equity of such persons surpasses, upwards or downwards, 5%,
10%, 15% and so on of the specie or class of shares that represent our capital stock) must provide to us, the CVM and
the São Paulo Stock Exchange the following information:

•

the name and qualifications of the person acquiring the shares or other securities, with their respective
enrollment number before the Taxpayers’ Registry;

the number of shares and other securities and derivative financial instruments benchmarked on such
shares, either physically or financially settled, informing the amount, class and type of the benchmarked
shares;

the reason and purpose of the acquisition containing, if applicable, statement that such negotiations do
not intend to modify our equity or management structure;

information on any agreement regarding the exercise of voting rights or the purchase and sale of our
securities; and

in case the shareholder is resident or domiciled abroad, the name or corporate name and the Taxpayer
enrollment number of its attorney or legal representative in the country.

Disclosure of Material Developments

According to Law No. 6,385 of December 7, 1976 and subsequent amendments, and the rules published by
the CVM, we must disclose any material development related to our business to the CVM and to the São Paulo Stock
Exchange and must publish a notice of the material development. A development is deemed to be material if it impacts
the price of our securities, the decision of investors to trade in our securities or the decision of investors to exercise
any rights as holders of any of our securities. Under special circumstances, we may request confidential treatment of
certain material developments from the CVM when our management believes that public disclosure could result in
adverse consequences to us.

Annual Calendar

Novo Mercado regulations require that companies and their management, by December 10 of each year,
disclose an annual calendar, and send a copy to the São Paulo Stock Exchange, containing the dates for the following
events: (i) the publishing of our financial statements and our standardized financial statements (DFP); (ii) the
publishing of our quarterly financial information (ITR); (iii) our ordinary general shareholders’ meeting; and (iv) the
filing of our Formulário de Referência (FR). Amendments to the calendar must be communicated to the São Paulo
Stock Exchange.

Trading on Stock Exchanges

Our shares trade on the Novo Mercado segment of the São Paulo Stock Exchange under the symbol “BRFS3.”
The CVM and the São Paulo Stock Exchange have discretionary authority to suspend trading of the shares of a
particular issuer under certain circumstances.

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The São Paulo Stock Exchange operates a central clearing system. A holder of our shares may choose, in its
discretion, to participate in this system and elect all shares to be deposited in the custody of the São Paulo Stock
Exchange (through a Brazilian institution duly authorized by the Central Bank and with a clearing account with the
São Paulo Stock Exchange). The fact that those shares are held in the custody of the São Paulo Stock Exchange will
be reflected in our register of shareholders. Each participating shareholder will, in turn, be registered in our register
of beneficial shareholders maintained by the São Paulo Stock Exchange and will be treated in the same way as
registered shareholders.

Agreements within Our Group

According to CVM Instruction no. 480, we must disclose and send the São Paulo Stock Exchange information
relating to any agreements entered into by our company with our controlled companies and affiliates, officers and any
controlling shareholders, and, moreover, any agreements entered into by our company with controlled companies and
affiliates of the officers and controlling shareholders as well as other companies that, together with these persons,
compose a single group, in fact or in right, provided that such agreements, whether or not they involve one single
agreement or successive agreements or the same or different purposes, in the explanatory notes.

The information disclosed should include a description of the purpose of the relevant agreement, its term,
value, termination provisions and any influence that this agreement may have over the management and operations of
our company.

Regulation of Foreign Investment

Investors residing outside Brazil, including institutional investors, are authorized to purchase equity
instruments, including our common shares, on the São Paulo Stock Exchange, provided that they comply with the
registration requirements set forth in Resolution No. 4,373 and CVM Instruction No. 560.

With certain limited exceptions, Resolution No. 4,373 investors are permitted to carry out any type of
transaction in the Brazilian capital markets involving a security traded on a stock, future or organized over-the-counter
market, but may not transfer the ownership of investments made under Resolution No. 4,373 to other non-Brazilian
holders through private transactions. Investments and remittances outside Brazil of gains, dividends, profits or other
payments under our common shares are made through the foreign exchange market.

In order to become a Resolution No. 4,373 investor, an investor residing outside Brazil must:

•

appoint at least one representative in Brazil who will be responsible for complying with registration and
reporting requirements and procedures with the Central Bank and the CV, which shall be a financial
institution or institution authorized by Central Bank to operate in Brazil.

appoint at least one custodian duly authorized by CVM.

Securities and other financial assets held by foreign investors pursuant to Resolution No. 4,373 must be registered or
maintained in deposit accounts or under the custody of an entity duly licensed by the Central Bank or the CVM. In
addition, securities trading by foreign investors is generally restricted to transactions on the São Paulo Stock Exchange
or in organized over-the-counter markets licensed by the CVM.

Material Contracts

For the two years immediately preceding the publication of this annual report, we were not a party to any
material contract outside the ordinary course of business, except for the M&A contracts described in Item 4.
Information on the Company—A. History and Development of the Company—Sale of Quickfood, —Sale of Avex,
and —Sale of Assets in Europe and Thailand.

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Exchange Controls

Brazilian law provides that, whenever there is a significant imbalance in Brazil’s balance of payments or
reasons to foresee such an imbalance, temporary restrictions may be imposed on remittances of foreign capital abroad.
For approximately six months in 1989 and early 1990, for example, with the goal of preserving Brazil’s foreign
currency reserves, the Brazilian government froze all dividend and capital repatriations that were owed to foreign
equity investors and held by the Central Bank. These amounts were subsequently released in accordance with Brazilian
government directives. There can be no assurance, however, that the Brazilian government may not take similar
measures in the future.

There are no restrictions on ownership of capital share of the Company by individuals or legal entities
domiciled outside Brazil. However, the right to convert dividend payments and proceeds from the sale of common
shares into foreign currency and to remit such amounts outside Brazil is subject to exchange control restrictions and
foreign investment legislation that generally requires, among other things, obtaining an electronic registration under
the Resolution No. 4,373 of the CMN. Under such resolution, qualified foreign investors registered with the CVM
and acting through authorized custody accounts managed by local agents may buy and sell shares on Brazilian share
exchanges without obtaining separate electronic registration for each transaction. Investors under the Resolution
No. 4,373 are also generally entitled to favorable tax treatment.

Electronic registrations by the Brazilian Central Bank have been issued in the name of the Company with
respect to the ADRs. Pursuant to the electronic registration, the custodian will be able to convert dividends and other
distributions with respect to the shares represented by the ADRs into foreign currency and remit the proceeds outside
Brazil.

Taxation

The following summary contains a description of certain Brazilian and U.S. federal income tax consequences
of the acquisition, ownership and disposition of common shares or ADRs, but it does not purport to be a comprehensive
description of all the tax considerations that may be relevant to a decision to purchase common shares or ADRs. The
summary is based upon the tax laws of Brazil and regulations thereunder and on the tax laws of the United States and
regulations thereunder as in effect on the date hereof, which are subject to change. Prospective purchasers of common
shares or ADRs should consult their own tax advisors as to the tax consequences of the acquisition, ownership and
disposition of common shares or ADRs.

Although there is at present no tax treaty to avoid double taxation between Brazil and the United States, the
tax authorities of the two countries have had discussions that may culminate in such a treaty. No assurance can be
given, however, as to whether or when a treaty will enter into force or how it will affect the U.S. Holders (as defined
below under “—U.S. Federal Income Tax Considerations”) of common shares or ADRs. Prospective holders of
common shares or ADRs should consult their own tax advisors in order to clarify the tax consequences of the
acquisition, ownership and disposition of common shares or ADRs in their particular circumstances.

Brazilian Tax Considerations

The following discussion summarizes the material Brazilian tax consequences of the acquisition, ownership
and disposition of common shares or ADRs by a holder that is not domiciled in Brazil for purposes of Brazilian
taxation (a “Non-Resident Holder”) and does not specifically address all the Brazilian tax considerations applicable
to any particular Non-Resident Holder. Each Non-Resident Holder should consult its own tax adviser concerning the
Brazilian tax consequences of an investment in common shares or ADRs. The information below is based on Brazilian
law as currently in effect. Any change in that law may change the consequences described below.

Income Tax

Dividends. Dividends paid by a Brazilian corporation, such as BRF, including stock dividends and other
dividends paid to a Non-Resident Holder of common shares or ADRs, are currently not subject to Brazilian
withholding income tax, as far as such amounts are related to profits generated on or after January 1, 1996. Dividends

147

relating to profits generated prior to January 1, 1996 may be subject to Brazilian withholding tax at varying rates,
depending on the year the profits were generated.

Interest on Shareholders’ Equity. Law No. 9,249, dated as of December 26, 1995, as amended, permits a
Brazilian corporation to make distributions to shareholders of interest on shareholders’ equity. These distributions
may be paid in cash. Such payments represent a deductible expense from the payer’s corporate income tax and social
contribution on net profits tax basis. For tax purposes, this interest is limited to the daily pro rata variation of the TJLP
(the Brazilian government's long-term interest rate), as determined by Brazilian Central Bank from time to time, and
may not exceed the greater of:

•

50% of net income (after the social contribution on net profits tax, and before the provision for corporate
income tax and the amounts attributable to shareholders as interest on shareholders’ equity) for the period
in respect of which the payment is made; and

50% of the sum of retained profits and profit reserves as of the date of the beginning of the period in
respect of which the payment is made.

Payment of interest to a Non-Resident Holder is subject to withholding income tax at the rate of 15%, or 25%
if the Non-Resident Holder is resident of a tax haven. For this purpose, a “tax haven” is a country or location that does
not impose income tax, where the income tax rate is lower than 20% or where the local legislation imposes restrictions
on disclosing the shareholding composition or the ownership of the investment. These payments of interest on
shareholders’ equity may be included as part of mandatory dividends.

We recommend prospective investors to consult their own tax advisors from time to time to verify any
possible tax consequences arising from Normative Instruction No. 1,037/2010 (that provides an exhaustive list of all
jurisdictions considered by Brazilian legislation as “tax havens.”

Distributions of interest on shareholders equity to Non-Resident Holders may be converted into U.S. dollars
and remitted outside Brazil, subject to applicable exchange controls, to the extent that the investment is registered
with the Brazilian Central Bank.

Gains

According to Law No. 10,833/03, capital gains recognized by Non-Resident Holders on the disposition of
assets located in Brazil, such as common shares are subject to income tax in Brazil. This rule is applicable regardless
of whether the disposition is conducted in Brazil or abroad and/or if the disposition is or is not made to an individual
or entity resident or domiciled in Brazil.

Generally, capital gains realized as a result of a disposition transaction are the positive difference between

the amount realized on the disposition of the common shares and the respective acquisition cost.

Capital gains realized by Non-Resident Holders on the disposition of common shares sold on the Brazilian
stock exchange (which includes the transactions carried out on the organized over-the-counter market) are subject to
the following taxes:

•

0% income tax with respect to gains realized by a Non-Resident Holder that (i) is a Registered Holder
(according to Resolution 4,373 from Brazilian Central Bank) and (ii) is not a Tax Haven Resident;

income tax at a rate of 15% with respect to gains realized by a Non-Resident Holder that is neither a
Registered Holder nor a Tax Haven Resident.

income tax at a rate of 15% with respect to gains realized by a Non-Resident Holder that is a Tax Haven
Resident if such holder is a Registered Holder. For Non-Registered holders domiciled in a Tax Haven
withholding income tax should be applied at a 25% rate. In addition, a withholding income tax of 0.005%

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will apply and can be offset against any income tax due on the capital gain, except in the case of a
Registered Holder that is not resident or domiciled in a tax haven jurisdiction.

Any other gains realized on the disposition of common shares that are not carried out on the Brazilian stock
exchange:

•

are subject to income tax at the following progressive rates when realized by any Non-Resident Holder
that is not a Tax Haven Resident, whether or not such holder is a Registered Holder:

i.
ii.

iii.

iv.

15% upon the portion of capital gains not exceeding R$5,000,000.00;
17.5% upon the portion of capital gains that exceeds R$5,000,000.00 but not exceeding
R$10,000,000.00;
20% upon the portion of capital gains that exceeds R$10,000,000.00 but not exceeding
R$30,000,000.00; and
22.5% upon the portion of capital gains that exceeds R$30,000,000.00.

•

are subject to income tax at a rate of 25% when realized by Non-Resident that is a Tax Haven Resident,
whether or not such holder is a Registered Holder.

In the cases described above, if the gains are related to transactions conducted on the Brazilian non-organized
over-the-counter market with intermediation, the withholding income tax of 0.005% shall also be applicable and can
be offset against any income tax due on the capital gain.

Any exercise of preemptive rights relating to common shares will not be subject to Brazilian withholding
income tax. Gains realized by a Non-Resident Holder on the disposition of preemptive rights will be subject to
Brazilian income tax according to the same rules applicable to disposition of common shares.

In the case of a redemption of common shares or a capital reduction, the positive difference between the
amount received by the Non-Resident Holder and the acquisition cost of the common shares redeemed in reais is
treated as capital gain derived from the sale or exchange of shares not carried out on a Brazilian stock exchange market
and is therefore subject to income tax at the above-mentioned progressive rate, or 25%, as the case may be.

There can be no assurance that the current favorable tax treatment of Registered Holders will continue

in the future.

Sale of ADRs by U.S. Holders to Other Non-Residents in Brazil

As discussed above, the sale of property located in Brazil involving Non-Resident Holders is subject to
Brazilian withholding income tax. Our understanding is that ADRs do not qualify as property located in Brazil and,
thus, should not be subject to the Brazilian withholding tax. Insofar as the regulatory norm referred to in Article 26 of
Law No. 10,833/03 is generic and has not been tested through the administrative or judicial courts, we are unable to
assure the final outcome of such discussion.

Gains on the Exchange of ADRs for Common Shares

Although there is no clear regulatory guidance, the exchange of ADRs for common shares should not be
subject to Brazilian withholding tax. Non-Resident Holders may exchange the ADSs evidenced by ADRs for the
underlying common shares, sell the common shares on a Brazilian stock exchange and remit abroad the proceeds of
the sale within five business days from the date of exchange (in reliance on the depositary’s electronic registration)
with no tax consequences.

Upon receipt of the underlying common shares in exchange for ADSs evidenced by ADRs, Non-Resident
Holders may also elect to register with the Brazilian Central Bank the U.S. dollar value of such common shares as a
foreign portfolio investment under Resolution 4,373, which will entitle them to the tax treatment discussed above.

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Alternatively, the Non-Resident Holder is also entitled to register with the Brazilian Central Bank the U.S.
dollar value of such common shares as a foreign direct investment under Law 4,131/62, in which case the respective
sale would be subject to the tax treatment applicable to transactions carried out on the Brazilian stock exchange.

Gains on the Exchange of Common Shares for ADRs

The deposit of common shares in exchange for the ADRs may be subject to Brazilian withholding income
tax on capital gains if the amount previously registered with the Central Bank as a foreign investment in common
shares or, in the case of other market investors under Resolution No. 4,373, the acquisition cost of the common shares,
as the case may be, is lower than:

•

the average price per common share on the Brazilian stock exchange on which the greatest number of
such common shares were sold on the day of deposit; or

if no common shares were sold on that day, the average price on the Brazilian stock exchange on which
the greatest number of common shares were sold during the 15 preceding trading sessions.

The difference between the amount previously registered, or the acquisition cost, as the case may be, and the
average price of the common shares, calculated as set forth above, is considered a capital gain subject to income tax
at the above-mentioned progressive rate from 15% to 22.5%, or 25% for Tax Haven Residents.

Tax on Foreign Exchange and Financial Transactions (“IOF”)

Brazilian law imposes a tax on financial transactions involving foreign exchange, securities, credit and
insurance. The rate of IOF applicable on foreign exchange transactions (“IOF exchange”) involving common shares
is currently 0%, but the Minister of Finance is permitted to prospectively increase such rate at any time up to 25%.

IOF may also be levied on transactions involving bonds and securities (“IOF securities”), including those
carried out on a Brazilian stock, futures or commodities exchanges. The rate of the IOF securities applicable to most
transactions involving common shares is currently 0%, but the Brazilian government may also prospectively increase
the rate of the IOF up to 1.5% per day at any time.

Other Brazilian Taxes

There are no Brazilian inheritance, gift or succession taxes applicable to the ownership, transfer or disposition
of common shares or ADRs, except for gift and inheritance taxes imposed by some Brazilian states on gifts or bequests
by individuals or entities not domiciled or residing in Brazil to individuals or entities domiciled or residing within
such states. There are no Brazilian stamp, issue, registration or similar taxes or duties payable by holders of common
shares or ADRs.

U.S. Federal Income Tax Considerations

The following summary describes certain U.S. federal income tax consequences of the acquisition, beneficial

ownership and disposition of our common shares and ADRs as of the date hereof.

Except where noted, this summary deals only with U.S. Holders (as defined below) that hold our common
shares or ADRs as capital assets for U.S. federal income tax purposes (generally, property held for investment). As
used in this summary, the term “U.S. Holder” means a holder of our common shares or ADRs that is for U.S. federal
income tax purposes:

•

an individual citizen or resident of the United States;

a corporation (or other entity treated as a corporation for U.S. federal income tax purposes) created or
organized in or under the laws of the United States, any state thereof, or the District of Columbia;

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•

an estate the income of which is subject to U.S. federal income taxation regardless of its source; or

a trust if it (1) is subject to the primary supervision of a U.S. court and one or more U.S. persons have
the authority to control all substantial decisions of the trust or (2) has a valid election in effect under
applicable U.S. Treasury regulations to be treated as a U.S. person for U.S. federal income tax purposes.

A “non-U.S. Holder” is a beneficial owner of our common shares or ADRs that is neither a U.S. Holder nor

a partnership for U.S. federal income tax purposes.

This summary does not represent a detailed description of the U.S. federal income tax consequences
applicable to you if you are subject to special treatment under the U.S. federal income tax laws, including if you are:

•

a broker or dealer in securities or currencies;

a bank or other financial institution;

a regulated investment company;

a real estate investment trust;

a holder who holds our common shares or ADRs in a retirement account or other tax-deferred account;

an insurance company;

a tax-exempt organization;

a holder who holds our common shares or ADRs as part of a hedging, integrated or conversion
transaction or a straddle;

a holder deemed to sell our common shares or ADRs under the constructive sale provisions of the U.S.
Internal Revenue Code of 1986, as amended (the “Code”);

a trader in securities that has elected the mark-to-market method of accounting for your securities;

a holder liable for alternative minimum tax;

a holder who owns or is deemed to own 10% or more of our stock (by vote or value);

a controlled foreign corporation or a passive foreign investment company;

a partnership or other pass-through entity for U.S. federal income tax purposes;

a holder who is required to accelerate the recognition of any item of gross income with respect to our
common shares or ADRs as a result of such income being recognized on an applicable financial
statement;

a holder who is a U.S. expatriate, former U.S. citizen or former long-term resident of the United States;
or

•

a holder whose “functional currency” for U.S. federal income tax purposes is not the U.S. dollar.

The discussion below is based upon the provisions of the Code, existing and proposed income tax regulations
issued under the Code and judicial decisions and administrative rulings thereunder, all as of the date of this Annual
Report. All of the foregoing are subject to be replaced, revoked or modified at any time, and any such action could be

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retroactive and could affect the accuracy of this discussion. This discussion is not binding on the IRS or the courts,
and there can be no assurance that the IRS or a court will not take a different position concerning the U.S. federal
income tax consequences of an investment in our common shares or the ADRs or that any such position would not be
sustained. In addition, this summary is based, in part, upon representations made by the depositary to us and assumes
that the deposit agreement relating to the ADRs, and all other related agreements, will be performed in accordance
with their terms.

If a partnership (including for this purpose any entity treated as a partnership for U.S. federal income tax
purposes) holds our common shares or ADRs, the U.S. tax treatment of a partner will generally depend upon the status
of the partner and the activities of the partnership. If you are a partner of a partnership holding our common shares or
ADRs, you should consult your tax advisors.

This summary does not contain a detailed description of all the U.S. federal income tax consequences to you
in light of your particular circumstances and does not address the Medicare tax on net investment income, U.S. federal
non-income tax laws, such as U.S. federal estate and gift tax laws, or the effects of any state, local or non-United
States tax laws. If you are considering the purchase, beneficial ownership or disposition of our common shares or
ADRs, you should consult your own tax advisors concerning the U.S. federal income tax consequences to you in light
of your particular situation, as well as any consequences arising under the laws of any other taxing jurisdiction.

ADRs

If you hold ADRs, for U.S. federal income tax purposes, you generally will be treated as the owner of the
underlying common shares that are represented by the ADSs evidenced by ADRs. Accordingly, deposits or
withdrawals of common shares for ADRs will not be subject to U.S. federal income tax. The U.S. Department of
Treasury has expressed concerns that intermediaries in the chain of ownership between the holder of an ADS and the
issuer of the security underlying the ADS may be taking actions that are inconsistent with the claiming of foreign tax
credits for U.S. holders of ADSs. Accordingly, the credibility of foreign taxes, if any, as described below, could be
affected by actions taken by intermediaries in the chain of ownership between the holder of an ADS and the Company.

Taxation of Dividends

Subject to the discussion under “—Passive Foreign Investment Company” below, if you are a U.S. Holder,
the gross amount of distributions on the ADRs or our common shares (including amounts withheld to reflect Brazilian
withholding taxes and distributions of interest on shareholders’ equity, as described above under “—Brazilian Tax
Considerations”) will be taxable to you as dividends, to the extent paid out of our current or accumulated earnings and
profits, as determined under U.S. federal income tax principles. Such income (including withheld taxes) will be
includable in your gross income as ordinary income on the day actually or constructively received by you, in the case
of our common shares, or by the depositary, in the case of ADRs. Such dividends will not be eligible for the dividends
received deduction generally allowed to U.S. corporations in respect of dividends received from other U.S. or, in
certain circumstances, non-U.S. corporations.

With respect to non-corporate U.S. Holders, certain dividends received from a qualified foreign corporation
may be subject to reduced rates of taxation so long as certain holding period and other requirements are met. Subject
to certain limitations, a foreign corporation generally is treated as a qualified foreign corporation if its shares (or ADRs
backed by such shares) are readily tradable on an established securities market in the United States, such as the NYSE,
and such corporation is not a PFIC (as discussed below under “— Passive Foreign Investment Company”) in the
taxable year in which dividends are paid or in the preceding taxable year. U.S. Treasury Department guidance indicates
that the ADRs (which are listed on the NYSE), but not our common shares, are readily tradable on an established
securities market in the United States. Thus, although we believe that dividends received with respect to ADRs
currently meet the conditions required for those reduced tax rates, we do not believe that dividends received with
respect to common shares (rather than ADRs) currently meet the conditions required for those reduced tax rates. We
cannot assure you that the ADRs will be considered readily tradable on an established securities market in later years.
Additionally, even if we are a qualified foreign corporation, the reduced rates on dividends will apply only if such
dividends are paid with respect to the ADRs that a non-corporate U.S. Holder has held for at least 61 days during the
121-day period beginning 60 days before the “ex-dividend date.” Also, regardless of our status as a qualified foreign
corporation, the reduced rates will not apply if a non-corporate U.S. Holder elects to treat the dividend income as

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“investment income” for purposes of the investment interest expense limitations of Section 163(d) of the Code. In
addition, the rate reduction will not apply to a dividend if the recipient of the dividend is obligated (whether pursuant
to a short sale or otherwise) to make related payments with respect to positions in substantially similar or related
property. This disallowance applies even if the minimum holding period has been met. The dividend rules are complex,
and you should consult your own tax advisors regarding the application of these rules given your particular
circumstances.

The amount of any dividend paid in reais will equal the U.S. dollar value of the reais received calculated by
reference to the exchange rate in effect on the date the dividend is received by you, in the case of common shares, or
by the depositary, in the case of ADRs, regardless of whether the reais are converted into U.S. dollars. If the reais
received as a dividend are converted into U.S. dollars on the date they are received, you generally will not be required
to recognize foreign currency gain or loss in respect of the dividend income. If the reais received as a dividend are not
converted into U.S. dollars on the date of receipt, you will have a basis in the reais equal to their U.S. dollar value on
the date of receipt. Any gain or loss of a U.S. Holder realized on a subsequent conversion or other disposition of the
reais generally will be treated as U.S. source ordinary income or loss.

Subject to certain conditions and limitations, if you are a U.S. Holder of our common shares or ADRs,
Brazilian withholding taxes on distributions (including distribution of interest on shareholders’ equity) paid to you
with respect to the common shares or ADRs generally will be treated as foreign taxes eligible for credit against your
U.S. federal income tax liability. For purposes of calculating the foreign tax credit, dividends paid on the ADRs or
our common shares will be treated as income from sources outside the United States and will generally constitute
passive category income. In addition, in certain circumstances, if you have held ADRs or common shares for less than
a specified minimum period during which you are not protected from risk of loss or are obligated to make payments
related to the dividends, you will not be allowed a foreign tax credit for foreign taxes imposed on dividends paid on
the ADRs or common shares. The rules governing the foreign tax credit are complex. You are urged to consult your
tax advisors regarding the availability of the foreign tax credit under your particular circumstances. Instead of claiming
a credit, you may, at your election, deduct such otherwise creditable Brazilian withholding taxes in computing your
taxable income, but only for a taxable year in which you elect to do so with respect to all foreign income taxes paid
or accrued in such taxable year and subject to generally applicable limitations under U.S. law.

Subject to the discussion under “—Passive Foreign Investment Company” below, to the extent that the
amount of any distribution (including amounts withheld to reflect Brazilian withholding taxes and distributions of
interest on shareholders’ equity, as described above under “—Brazilian Tax Considerations”) exceeds our current and
accumulated earnings and profits for a taxable year, as determined under U.S. federal income tax principles, the
distribution will first be treated as a tax-free return of capital, causing a reduction in the adjusted basis of the ADRs
or common shares (but not below zero), and the balance in excess of adjusted basis will be taxed as capital gain
recognized on a sale or exchange (as discussed below under “—Taxation of Dispositions”). However, we do not expect
to calculate earnings and profits in accordance with U.S. federal income tax principles. Therefore, you should assume
that a distribution will generally be treated as a dividend (as discussed above).

Distributions of common shares or ADRs, or rights to subscribe for common shares or ADRs, which are
received as part of a pro rata distribution to all of our shareholders generally will not be subject to U.S. federal income
tax.

If you are a non-U.S. Holder, dividends paid to you generally will not be subject to U.S. income tax unless
the dividends are “effectively connected” with your conduct of a trade or business within the United States, and the
dividends are attributable to a permanent establishment (or in the case of an individual, a fixed place of business) that
you maintain in the United States if that is required by an applicable income tax treaty as a condition for subjecting
you to U.S. taxation on a net income basis. In such cases you generally will be taxed in the same manner as a U.S.
Holder. If you are a corporate non-U.S. Holder, “effectively connected” dividends may, under certain circumstances,
be subject to an additional “branch profits tax” at a 30% rate or a lower rate if you are eligible for the benefits of an
income tax treaty that provides for a lower rate.

Taxation of Dispositions

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For U.S. federal income tax purposes, a U.S. Holder generally will recognize taxable gain or loss on any sale,
exchange or redemption of its common shares or ADRs in an amount equal to the difference between the amount
realized for the common shares or ADRs (including any amounts withheld to reflect Brazilian withholding taxes) and
the U.S. Holder’s adjusted tax basis in the common shares or ADRs, both determined in U.S. dollars. Subject to the
discussion under “—Passive Foreign Investment Company” below, such gain or loss will generally be capital gain or
loss. Capital gains of U.S. Holders who are individuals (as well as certain trusts and estates) derived with respect to
capital assets held for more than one year are generally eligible for reduced rates of taxation. The deductibility of
capital losses is subject to limitations. Any gain or loss recognized by a U.S. Holder will generally be treated as U.S.
source gain or loss. Consequently, in the case of gain from the disposition of common shares or ADRs, U.S. Holders
may not be able to use the foreign tax credit arising from any Brazilian tax imposed on the disposition of our common
shares or ADRs unless such credit can be applied (subject to applicable limitations) against tax due on other income
treated as derived from sources outside the United States in the appropriate category for foreign tax credit purposes.

A U.S. Holder’s initial tax basis on our common shares or ADRs will be the U.S. dollar value of the reais
denominated purchase price determined on the date of purchase. With respect to the sale, exchange or other taxable
disposition of common shares or ADRs, the amount realized generally will be the U.S. dollar value of the payment
received determined on (1) the date of actual or constructive receipt of payment in the case of a cash basis U.S. Holder
and (2) the date of disposition in the case of an accrual basis U.S. Holder. If the common shares or ADRs are traded
on an “established securities market,” a cash basis U.S. Holder, or an electing accrual basis U.S. Holder, will determine
the U.S. dollar rate of the cost of the common shares or the amount realized based on the exchange rate on the
settlement date of the sale. If a U.S. Holder sells or otherwise disposes of our common shares or ADRs in exchange
for currency other than U.S. dollars, any gain or loss that results from currency exchange fluctuations during the period
from the date of the sale or other disposition until the date that the currency is converted into U.S. dollars generally
will be treated as ordinary income or loss and will not be eligible for the reduced tax rate applicable to long-term
capital gains. Such gain or loss generally will be U.S.-source income or loss. If the currency is converted into U.S.
dollars on the date of receipt, a U.S. Holder generally would not be required to recognize foreign currency gain or loss
in respect of the amount realized. U.S. Holders are urged to consult their own tax advisors regarding the treatment of
any foreign currency gain or loss realized with respect to any currency received in a sale or other disposition of the
common shares or ADRs that is converted into U.S. dollars (or otherwise disposed of) on a date subsequent to receipt.

If you are a non-U.S. Holder, you will not be subject to U.S. federal income tax on gain recognized on the

sale, exchange or other disposition of your common shares or ADRs unless:

•

the gain is “effectively connected” with your conduct of a trade or business in the United States, and
the gain is attributable to a permanent establishment (or, in the case of an individual, a fixed place
of business) that you maintain in the United States if that is required by an applicable income tax
treaty as a condition for subjecting you to U.S. taxation on a net income basis, or

•

you are an individual, you are present in the United States for 183 or more days in the taxable year
of such sale, exchange or other disposition and certain other conditions are met.

In the first case, the non-U.S. Holder will be taxed in the same manner as a U.S. Holder. In the second case,
the non-U.S. Holder will be subject to U.S. federal income tax at a rate of 30% on the amount by which such non-U.S.
Holder’s U.S. source capital gains exceed non-U.S. source capital losses.

If you are a corporate non-U.S. Holder, “effectively connected” gains that you recognize may also, under
certain circumstances, be subject to an additional “branch profits tax” at a 30% rate or at a lower rate if you are eligible
for the benefits of an income tax treaty that provides for a lower rate.

Passive Foreign Investment Company

The Code provides special rules regarding certain distributions received by U.S. persons (which would
include U.S. Holders as defined above for purposes of this discussion) with respect to, and sales, exchanges and other
dispositions, including pledges, of, shares of stock (or ADRs backed by such shares) in a PFIC. In general, we will be
a PFIC for any taxable year in which:

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•

at least 75% of our gross income is passive income, or

at least 50% of the value (based on the average of the fair market values of the assets determined at the
end of each quarterly period) of our assets is attributable to assets that produce or are held for the
production of passive income.

For this purpose, passive income generally includes dividends, interest, royalties, rents (other than royalties
and rents derived in the active conduct of a trade or business and not derived from a related person), gains from
commodities and securities transactions, and gains from passive assets. Passive assets generally include the assets that
produce passive income or are held for the production of passive income. For this purpose, cash is treated as passive
asset. If we own (directly or indirectly) at least 25% (by value) of the stock of another corporation, we will be treated,
for purposes of the PFIC tests, as owning our proportionate share of the other corporation’s assets and receiving our
proportionate share of the other corporation’s income.

Based on our financial statements, relevant market and shareholder data, and the projected composition of
our income and valuation of our assets, including goodwill, we do not believe we were a PFIC for U.S. federal income
tax purposes for 2019, and we do not expect to be a PFIC for 2020, although we can provide no assurances in this
regard. The determination of whether we are a PFIC must be made annually. Accordingly, it is possible that we may
become a PFIC in the current or any future taxable year due to changes in our income or asset composition. Because
we have valued our goodwill based on the market value of our equity, a decrease in the price of our ADRs or common
shares may also result in our becoming a PFIC. If you are a U.S. Holder and we are a PFIC for any taxable year during
which you hold our ADRs or common shares, you will be subject to special tax rules discussed below and could suffer
adverse tax consequences.

If we are a PFIC for any taxable year during which a U.S. Holder holds our ADRs or common shares, such
U.S. Holder will be subject to special tax rules with respect to any “excess distribution” received and any gain realized
from a sale or other disposition, including a pledge, of ADRs or common shares. Distributions received in a taxable
year that are greater than 125% of the average annual distributions received during the shorter of the three preceding
taxable years or the U.S. Holder’s holding period for the ADRs or common shares will be treated as excess
distributions. Under these special tax rules:

•

the excess distributions and gains are allocated ratably to each day of the U.S. Holder’s holding period
during which we were a PFIC,

amounts allocated to the taxable year in which the excess distribution or disposition occurs and amounts
allocated to any period in the U.S. Holder’s holding period before the first day of the first taxable year
that we were a PFIC will be treated as ordinary income (rather than capital gain) earned in the taxable
year of the excess distribution or disposition,

the amount allocated to each other year will be subject to tax at the highest tax rate in effect for that year
and the interest charge generally applicable to underpayments of tax will be imposed on the resulting tax
attributable to each such year, and

the tax liability for amounts allocated to years before the year of disposition or excess distribution cannot
be offset by any net operating losses for such year, and gains (but not losses) realized on the sale of the
common shares or ADRs cannot be treated as capital gain, even if the U.S. Holder held such common
shares or ADRs as capital assets.

If we are a PFIC for any taxable year during which a U.S. Holder holds the common shares or ADRs, then
we generally will continue to be treated as a PFIC with respect to the U.S. Holder for all succeeding years during
which the U.S. Holder holds the common shares or ADRs, even if we no longer satisfy either the passive income or
passive asset test described above, unless the U.S. Holder terminates this deemed PFIC status by making a “deemed
sale” election. If such election is made, the U.S. Holder will be deemed to have sold the common shares or ADRs at
their fair market value on the last day of the last taxable year for which we were a PFIC, and any gain from such
deemed sale would be subject to the excess distribution rules as described above. After the deemed sale election, the

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common shares or ADRs with respect to which the deemed sale election was made will not be treated as shares in a
PFIC unless we subsequently become a PFIC.

In addition, non-corporate U.S. Holders will not be eligible for reduced rates of taxation on any dividends
received from us if we are a PFIC in the taxable year in which such dividends are paid or in the preceding taxable year
(as described above under “—Taxation of Dividends”). You will generally be required to file Internal Revenue Service
Form 8621 if you hold our ADRs or common shares in any year in which we are classified as a PFIC.

If we are a PFIC for any taxable year and any of our non-U.S. subsidiaries is also a PFIC, a U.S. Holder
would be treated as owning a proportionate amount (by value) of the common shares of the lower-tier PFIC for
purposes of the application of these rules. You are urged to consult your tax advisors about the application of the PFIC
rules to any of our subsidiaries.

In certain circumstances, in lieu of being subject to the excess distribution rules discussed above, a U.S.
Holder may make an election to include gain on the stock of a PFIC as ordinary income under a mark-to-market
method, provided that such stock is regularly traded on a qualified exchange. Under current law, the mark-to-market
election may be available to the U.S. Holders of ADRs because the ADRs are listed on the NYSE, which constitutes
a qualified exchange, although there can be no assurance that the ADRs will be “regularly traded” for purposes of the
mark-to-market election. It should also be noted that only the ADRs and not the common shares are listed on the
NYSE. Our common shares are listed on the Novo Mercado (New Market) of the São Paulo Stock Exchange, which
must meet certain trading, listing, financial disclosure and other requirements to be treated as a qualified exchange
under applicable Treasury regulations for purposes of the mark-to-market election, and no assurance can be given that
the common shares will be “regularly traded” for purposes of the mark-to-market election.

If a U.S. Holder makes a valid mark-to-market election for the first taxable year in which such U.S. Holder
holds (or is deemed to hold) the common shares or ADRs when we are determined to be a PFIC, such U.S. Holder
generally will not be subject to the PFIC rules described above in respect of its common shares or ADRs. Instead, a
U.S. Holder that makes a mark-to-market election will be required to include in income each year an amount equal to
the excess, if any, of the fair market value of the common shares or ADRs that the U.S. Holder owns as of the close
of the taxable year over the U.S. Holder’s adjusted tax basis in the common shares or ADRs. The U.S. Holder will be
entitled to deduct the excess, if any, of the U.S. Holder’s adjusted tax basis in the common shares or ADRs over their
fair market value as of the close of the taxable year, but only to the extent of the net mark-to-market gains with respect
to the common shares or ADRs included by the U.S. Holder in prior taxable years as a result of the mark-to-market
election. If the U.S. Holder makes a valid mark-to-market election, in each year that we are a PFIC amounts included
in income of such U.S. Holder pursuant to a mark-to-market election, as well as gain on the sale, exchange or other
disposition of its common shares or ADRs will be treated as ordinary income, and any loss will be treated as ordinary
loss, but only to the extent of the net amount previously included in income as a result of the mark-to-market election.

If a U.S. Holder makes a valid mark-to-market election, its adjusted tax basis in the ADRs or common shares
will be increased by the amount of any income inclusion and decreased by the amount of any deductions under the
mark-to-market rules. Any distributions made by us in a year in which we are a PFIC and a mark-to-market election
is in effect would generally be subject to the rules discussed above under “—Taxation of Dividends,” except the lower
rate applicable to qualified dividend income would not apply. In addition, gain or loss realized by the U.S. Holder on
the sale of our common shares or ADRs will be ordinary gain or loss provided a valid mark-to-market election is in
effect.

Once properly made, a mark-to-market election will be effective for the taxable year for which it is made and
all subsequent taxable years unless the common shares or ADRs are no longer regularly traded on a qualified exchange
or the IRS consents to the revocation of the election. The excess distribution rules generally do not apply to a U.S.
Holder for taxable years for which a mark-to market election is in effect. If we are a PFIC for any year in which the
U.S. Holder owns our common shares or ADRs but before a mark-to-market election is made, the interest charge rules
described above will apply to any mark-to-market gain recognized in the year the election is made. Generally, if we
cease to be a PFIC, the U.S. Holder’s mark-to-market election would no longer require the income inclusion (or permit
the deduction of loss) described above. However, cessation of our status as a PFIC will not terminate a mark-to-market
election and if we become a PFIC again, mark-to-market inclusion may be required. You are urged to consult your

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tax advisor about the availability of the mark-to-market election, and whether making the election would be advisable
in your particular circumstances.

Additionally, if we are a PFIC and have any non-U.S. subsidiaries that are PFICs (each a “Subsidiary PFIC”),
a U.S. Holder will be treated as owning its proportionate amount (by value) of the common shares of each such
Subsidiary PFIC and will be subject to the PFIC rules with respect to each such Subsidiary PFIC. A U.S. Holder may
not make a mark-to-market election with respect to the common shares of any Subsidiary PFIC. Thus, the mark-to-
market election is not available to mitigate the adverse tax consequences attributable to any Subsidiary PFIC.

Alternatively, the excess distribution rules may be avoided if a U.S. Holder makes a qualified electing fund
(“QEF”) election effective beginning with the first taxable year in the U.S. Holder’s holding period in which we are
treated as a PFIC with respect to such U.S. Holder. However, the QEF election is not available to our U.S. Holders
because we do not intend to comply with the requirements necessary to permit our U.S. Holders to make this election.

U.S. Holders are urged to consult their tax advisors as to our status as a PFIC, and, if we are treated as a
PFIC, as to the effect on them of, and the reporting requirements with respect to, the PFIC rules and the desirability
of making, and the availability of, a mark-to-market election with respect to our common shares or ADRs.

Information with respect to Foreign Financial Assets

U.S. Holders that are individuals (and, to the extent provided in regulations, certain entities) that own
“specified foreign assets,” including possibly the common shares or ADRs, with an aggregate value in excess of
$50,000 at the end of the taxable year or $75,000 at any time during the taxable year are generally required to file IRS
Form 8938 with information regarding such assets. Depending on the circumstances, higher threshold amounts may
apply. Specified foreign financial assets include any financial accounts maintained by foreign financial institutions,
as well as any of the following, but only if they are not held in accounts maintained by financial institutions: (i) stock
and securities issued by non-U.S. person, (ii) financial instruments and contracts held for investment that have non-
U.S. issuer or counterparties, and (iii) interests in non-U.S. entities. If a U.S. Holder is subject to this information
reporting regime, the failure to timely file IRS Form 8938 may subject the U.S. Holder to penalties. In addition to
these requirements, U.S. Holders may be required to annually file FinCEN Report 114 (Report of Foreign Bank and
Financial Accounts) with the U.S. Department of Treasury. U.S. Holders are thus encouraged to consult their U.S. tax
advisors with respect to these and other reporting requirements that may apply to their acquisition of the common
shares and ADRs.

Information Reporting and Backup Withholding

In general, information reporting requirements will apply to distributions made on the common shares or
ADRs within the United States to a non-corporate U.S. holder and to the proceeds from the sale, exchange, redemption
or other disposition of common shares or ADRs by a non-corporate U.S. Holder to or through a U.S. office of a broker.
Payments made (and sales or other dispositions effected at an office) outside the U.S. will be subject to information
reporting in limited circumstances.

In addition, backup withholding of U.S. federal income tax may apply to such amounts if the U.S. Holder
fails to provide an accurate taxpayer identification number (or otherwise establishes, in the manner provided by law,
an exemption from backup withholding) or to report dividends required to be shown on the U.S. Holder’s U.S. federal
income tax returns.

Backup withholding is not an additional income tax, and the amount of any backup withholding from a
payment to a U.S. holder will be allowed as credit against the U.S. Holder’s U.S. federal income tax liability provided
that the appropriate returns are timely filed.

A non-U.S. Holder generally may eliminate the requirement for information reporting and backup
withholding by providing a properly completed and duly executed certification of its foreign status to the payer, under
penalties of perjury, on IRS Form W-8BEN or, W-8BEN-E or other appropriate W-8, as applicable. You should

157

consult your own tax advisor as to the qualifications for exemption from backup withholding and the procedures for
obtaining the exemption.

The foregoing does not purport to be a complete analysis of the potential tax considerations relating to the
acquisition, beneficial ownership and disposition of common shares or ADRs. Prospective investors should consult
their own tax advisors as to the particular tax considerations applicable to them relating to the acquisition, beneficial
ownership and disposition of common shares or ADRs, including the applicability of the U.S. federal, state and local
tax laws or non-tax laws, foreign tax laws, any tax treaties, and any changes in applicable tax laws and any pending
or proposed legislation or regulations.

Dividends and Paying Agents

Not applicable.

Statement by Experts

Not applicable.

Documents on Display

The Company makes its filings in electronic form under the EDGAR filing system of the SEC. Its filings are
available through the EDGAR system at www.sec.gov. In addition, the Company’s filings are available to the public
over the Internet at BRF’s web site at http://www.brf-br.com/ir. Such filings and other information on its website are
not incorporated by reference in this Annual Report on Form 20-F. You may request a copy of this filing, and any
other report, at no cost, by contacting BRF at:

Investor Relations Department
BRF S.A.
Avenida das Nações Unidas, 8501 - 1st Floor
05425-070 – São Paulo – SP – Brazil
Tel.: +55 11 2322-5377
E-mail: acoesri@brf-br.com

Subsidiary Information

See Note 1.1 to our consolidated financial statements for a description of the Company’s subsidiaries.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to a variety of market risks related to potential losses resulting from adverse changes in
interest rates, exchange rates and the price of some commodities. We have established policies and procedures to
manage our sensitivity to such risks in our Financial Risk Management Policy. These procedures include the
monitoring of our level of exposure to each market risk through an analysis based on our balance sheet exposure
combined with an analysis of expected cash flows. We also use derivative financial instruments to mitigate our
exposure to these risks, guided by our risk policy under the management of our Financial Risk Management
Committee, our board of executive officers and our board of directors.

Our risk management department is responsible for monitoring, evaluating and reporting our financial risk.
Our board of directors is responsible for approving our risk policy and periodically evaluating improvements to it,
defining the limits of risk tolerance for different types of risks to which we are exposed and defining action plans to
align the risks within these limits. Our Financial Risk Management Committee is in charge of the execution of our
risk policy, which includes supervising the risk management process, planning and verifying the impact of the
decisions implemented, evaluating and approving hedging alternatives, and monitoring the exposure levels to risks in
order to ensure compliance with our risk policy. Our risk policy defines the risk management strategies to be adopted.
Among other things, our risk policy does not authorize us to engage in leveraged transactions in derivative markets

158

and states that the notional amount of individual hedging transactions must be limited to 2.5% of our shareholders’
equity.

Under IFRS, we have accounted for our derivative instruments using the fair value method. For more

information on our financial instruments and risk management, see Note 4 to our consolidated financial statements.

The following section describes the significant market risks associated with our activities and the related

financial instruments.

Interest Rate Risk

We are exposed to risk from changes in interest rates, which may be caused by factors related to the global
economy, changes in monetary policy in the Brazilian and foreign markets, and other factors. Our interest rate
exposure under our indebtedness is primarily to the LIBOR rate, the TJLP rate, the UMBNDES rate and the CDI rate.
We also have indebtedness denominated in reais and U.S. dollars that bear interest at fixed rates. With respect to our
marketable securities, our principal exposure is to the CDI rate for investments in the Brazilian market. Our marketable
securities in foreign markets are generally U.S. dollar instruments at a fixed coupon.

The table below provides information about our financial instruments that are sensitive to changes in interest
rates as of December 31, 2019. For debt obligations, the table presents principal cash flows and related weighted
average interest rates by expected maturity dates. The information is presented in real equivalents. The instruments’
actual cash flows are denominated in U.S. dollars, euro and reais, as applicable, once these currencies are subject to
interest rate risks. See also “—Foreign Exchange Risk” below, which describes our foreign exchange derivatives.
Even though these derivatives were entered into primarily to manage foreign exchange risk, they may also have an
interest rate risk component because certain derivatives are linked to variable interest rates such as the CDI rate.

To facilitate the analysis of market risk, the table below includes cash, cash equivalents and debt (amounts

in millions of reais, except weighted average annual interest rates).

Financial
Instruments

Assets
Fixed rate
In US dollar
In US dollar
In Reais
Variable rate
In Reais
In Reais
In Reais

Floating rate
In Reais
MTM
Other currencies
Without rate
In Reais
In Euros
Other currencies

Liabilities
Fixed rate
In US dollar
In Euros
In Reais
In Turkish Lira
Variable rate
In Reais
In Reais
In Reais

All-in weighted
average annual
interest rate

2.89%
Overnight rate
2.47%

100% of CDI
100% of SELIC
IGPM+012%

Floating rate

-
-
-

4.63%
2.74%
6.93%
16.56%

100% of CDI+1.79%
111.13% of CDI
SELIC+2.26%

Short
Term
4,952.3
3,204.7
979.9
2,118.7
106.0
1,573.0
903.9
397.0
272.2

3.5
3.5
-
-
171.0
167.1
3.8
0.2

2020

2021

2022

2023

26.7
-
-
-
-
-
-
-
-

-
-
26.7
26.7
-
-
-
-

-
-
-
-
-
-
-
-
-

-
-
-
-
-
-
-
-

280.7
265.8
265.8
-
-
-
-
-
-

14.9
14.9
-
-
-
-
-
-

Thereafter Fair value
-
-
-
-
-
-
-
-
-

5,259.6
3,470.4
1,245.7
2,118.7
106.0
1,573.0
903.9
397.0
272.2

-
-
-
-
-
-
-
-

18.4
18.4
26.7
26.7
171.0
167.1
3.8
0.2

-
-
-
-
-
-
-
-
-

-
-
-
-
-
-
-
-

(3,132.0)
(1,390.2)
(88.9)
(26.4)
(1,198.4)
(76.6)
(1,741.8)
(406.0)
(794.6)
(26.3)

(1,907.0)
(115.2)

-
-
-

(115.2)
(1,791.8)

(1,691.0)

(2,123.5)
(1,900.1)
(433.8)
(1,466.3)

-
-

(223.4)
(69.6)
(53.0)

(2,422.0)
(1,363.6)
(1,363.6)

(2,340.7)
(2,073.9)
(2,073.9)

(6,695.1)
(4,954.6)
(4,954.6)

-
-
-

(1,058.3)
(251.5)

(266.8)
(266.8)

(1,740.5)
(1,334.1)

-
-

(18,620.3)
(11,797.6)
(8,914.8)
(1,492.7)
(1,198.4)
(191.8)
(6,822.7)
(2,328.1)
(2,538.6)
(26.3)

159

Financial
Instruments

In Reais
In Reais
In Reais
In US dollar

Net

All-in weighted
average annual
interest rate
IGPM+4.90%
IPCA+5.76%
TJLP+2.28%
LIBOR6M+2.90%

Short
Term
(284.3)
(106.4)
(19.2)
(105.0)

2020

2021

2022

2023

-
-
-

(706.1)

(100.8)

-
-
-
-

Thereafter Fair value
(284.3)
-
(1,218.9)
(19.2)
(407.3)

(406.4)

-
-

1,820.2

(1,880.3)

(2,123.5)

(2,141.3)

(2,340.7)

(6,695.1)

(13,360.7)

Foreign Exchange Risk

In managing our foreign exchange risk, we seek to balance our assets denominated in foreign currency against
our liabilities also denominated in foreign currency. We also consider future cash flows resulting from transactions in
foreign currency, especially exports denominated in U.S. dollars, euro and pounds sterling. We usually enter into
derivative instruments, mainly local short-term swaps, to manage such foreign exchange risk, but these derivatives
generally do not cover all of the principal amount of our U.S. dollar-denominated obligations.

The table below provides information about our financial instruments and presents such information in real
equivalents as of December 31, 2019. The table summarizes information on instruments and transactions that are
sensitive to foreign currency exchange rates. The table presents principal cash flows and related weighted average
interest rates by expected maturity dates (amounts in millions of reais, except average annual interest rates).

On-balance Sheet Financial
Instruments
US dollars instruments
Assets
Short/Long-term investments
Average annual interest rate
Short/Long-term investments
Average annual interest rate
Liabilities
Loans and borrowings
Average annual interest rate

Euro instruments
Assets
Short/Long-term investments
Average annual interest rate
Liabilities
Loans and borrowings
Average annual interest rate

Other currencies instruments
Assets
Short/Long-term investments
Average annual interest rate
Short/Long-term investments
Average annual interest rate
Liabilities
Loans and borrowings
Average annual interest rate

Short Term
2,997.8
3,098.6
979.9
2.63%
2,118.7
O.night rate
(100.8)
(100.8)
4.88%

2021

(100.8)

-
-
-
-
-

2022

(275.6)
265.8
265.8
3.82%

-
-

2023
(1,495.3)

2024
(2,087.3)

Thereafter
(5,038.4)

-
-
-
-
-

(100.8)
(100.8)
4.88%

(541.4)
(541.4)
5.69%

(1,495.3)
(1,495.3)
4.01%

(2,087.3)
(2,087.3)
4.75%

(5,038.4)
(5,038.4)
4.66%

Fair value

(5,999.6)
3,364.4
1,245.7
2.89%
2,118.7
O.night rate
(9,364.0)
(9,364.0)
4.64%

3.8
3.8
3.8
-
-
-
-

31.7
106.2
106.2
2.43%

-
-

(74.5)
(74.5)
17.28%

-
-
-
-
-
-
-

(1,471.4)

-
-
-
(1,471.4)
(1,471.4)
2.74%

(88.5)
26.7
-
-
26.7
MTM
(115.2)
(115.2)
16.06%

-
-
-
-
-
-
-
-
-

-
-
-
-
-
-
-

-
-
-
-
-
-
-
-
-

-
-
-
-
-
-
-

-
-
-
-
-
-
-
-
-

-
-
-
-
-
-
-

-
-
-
-
-
-
-
-
-

(1,467.6)
3.8
3.8
-
(1,471.4)
(1,471.4)
2.74%

(56.8)
132.9
106.2
2.43%
26.7
MTM
(189.7)
(189.7)
16.54%

(1)

(2)

Includes overnight deposits, time deposits, long-term Brazilian government bonds, credit linked notes and other short-term investments.

Denominated in U.S. dollars.

The table below presents our derivative financial instruments under which we have exposure to foreign
exchange risk and interest rate risk, using the notional amounts and weighted average exchange rates by expected
(contractual) maturity dates.

160

Exchange / Interest rate
derivatives

Total Notional

Short Term
14,870.8

Cross currency swaps
Receive Reais Pay US Dollar
Notional amount
Average interest received in
CDI+1,43%
Average interest paid in US
dollar
Duration

Non-deliverable forward
Receive Reais Pay US Dollar
Notional amount
Average interest paid in US
dollar
Duration

Receive Euros Pay Reais
Notional amount
Average interest paid in reais
Duration

Receive Euros Pay Iene
Notional amount
Average interest paid in iene
Duration

Receive Euros Pay RUB
Notional amount
Average interest paid in
Russian ruble
Duration

Receive Euros Pay US Dollar
Notional amount
Average interest paid in US
dollar
Duration

Receive US dollar Pay Reais

Notional amount

Average interest paid in reais

Duration

FX Options:
Notional amount US dollar
Duration

FX Futures:
Notional amount
Duration

-
-

4,964.6

2,037.8

2.09%
0.3

1,016.4
3.76%
0.3

92.4
0.22%
0.5

95.7

7.37%
0.3

157.9

2.53%
0.3

1,564.4

1.37%

0.3

9,122.2
9,122.2
0.4

784.0
784.0
0.1

2021

2022

2023

2024

Thereafter

Fair value

4.3

-
-

4.3

3.07%
1.1

-
-
-

-
-

-
-
-

-
-

-
-
-

-
-

-
-
-

-
-

-
-
-

-
-

-
-
-

-
-

-
-
-

-
-

-
-
-

1,601.1

115.3

1,601.1

49.8

5.83%

4.24%
8.9

-
-

-
-
-

-
-

-
-
-

4.24%
8.9

17.0

40.0

2.09%
0.3

(5.1)
3.76%
0.3

0.0
0.22%
0.5

(0.8)

7.37%
0.3

0.8

2.53%
0.3

(18.0)

1.37%

0.3

53.4
53.4
0.4

(4.9)
(4.9)
0.1

The table below provides further detail on our foreign currency-denominated assets and liabilities as of the

dates indicated below.

(in millions of R$)
Cash and cash equivalents ................................................................
Trade accounts receivable – third parties .........................................
Trade accounts payable ....................................................................
Loans and financing .........................................................................
Hedge(1) ............................................................................................
Investments, net ................................................................................

161

As of December 31,

2019

2018

329.6
32.4
(2,057.1)
(7,863.0)
1,734.5
7,424.2

127.3
65.8
(861.3)
(7,348.0)
5,209.2
2,571.9

(in millions of R$)
Other assets and liabilities, net .........................................................
Foreign exchange exposure in R$ ....................................................

As of December 31,

2019

2018

0.1
(399.2)

0.3
(234.8)

(1)

Swaps, U.S. dollar futures and embedded derivatives not designated as hedge accounting instruments, which impact our financial results.

We account for the exchange rate variation clauses of our export prepayment facilities as hedging instruments
that mitigate the risk of exchange rate variations relating to our exports. See “Item 5. Operating and Financial Review
and Prospects—B. Liquidity and Capital Resources—Export Credit Facilities—Export Prepayment Facilities” for a
general description of our export prepayment facilities. For more information about our accounting relating to these
facilities, see Note 25 to our consolidated financial statements.

The table below presents a sensitivity analysis relating to our foreign exchange risk that considers five
scenarios in the next twelve months for the variations in exchange rates between the real and the U.S. dollar, the real
and the euro, and the real and the pound sterling. We have adopted what we believe is the most likely scenario shown
in the table. The total of export sales analyzed corresponds to the total of derivative financial instruments plus the
amortization flow under export prepayment facilities designated as hedge accounting instruments.

Parity - Brazilian Reais x U.S. Dollar

4.0307
Current

Transaction/Instrument

Risk

Scenario

Designated as hedge accounting

3.6276
Scenario I
10%
appreciation

3.0230
Scenario II
25%
appreciation

5.0384
Scenario III
25%
devaluation

6.0461
Scenario IV
50%
devaluation

Non-deliverable forward
Options – currencies
Bonds
Exports (object)
Costs (object)

Devaluation of R$
Devaluation of R$
Devaluation of R$
Appreciation of R$
Appreciation of R$

46,325
52,954
(518,452)
442,051
(22,878)

248,991
428,644
(413,931)
(149,406)
(114,298)

552,991
1,072,548
(257,149)
(1,116,964)
(251,426)

(460,341)
(880,094)
(779,754)
1,914,520
205,669

(967,007)
(1,953,268)
(1,041,056)
3,527,114
434,217

Not designated as hedge accounting
NDF – Purchase
Options – Purchase
Futures – Purchase – B3
Net effect

Appreciation of R$
Devaluation of R$
Appreciation of R$

(18,635)
-
1,605
(17,030)

(173,817)
5,886
(76,792)
(244,723)

(406,590)
14,955
(194,388)
(586,023)

369,319
(11,391)
197,598
555,526

757,274
(26,506)
393,591
1,124,359

Parity - Brazilian Reais x Euro

4.5305
Current

Transaction/Instrument

Risk

Scenario

Not designated as hedge accounting

4.0775
Scenario I
10%
appreciation

3.3979
Scenario II
25%
appreciation

5.6631
Scenario III
25%
devaluation

6.7958
Scenario IV
50%
devaluation

NDF - Purchase EUR x U.S.$ Appreciation of EUR
Appreciation of EUR
NDF - Purchase EUR x RUB
Appreciation of R$
NDF – Purchase
Net effect

442
(1,764)
(7,825
(9,147)

(15,415)
(11,323)
(109,762)
(136,500)

(39,200)
(25,660)
(262,666)
(327,526)

40,083
22,132
247,015
309,230

79,725
46,028
501,856
627,609

Commodity Price Risk

In the normal course of our operations, we purchase commodities, including corn, soy meal and live hogs,

which make up a significant portion of our raw materials and costs of production.

Corn and soy meal prices are subject to volatility resulting from weather conditions, crop yield, transportation
costs, storage costs, agricultural policy of the government, foreign exchange rates and the prices of these commodities
on the international market, among other factors. The price of hogs acquired from third parties is subject to market
conditions and is determined by supply and demand in the international market, among other factors.

162

Our risk policy provides guidelines to hedging against increases in the price of corn and soy meal. In 2019,

we used derivative instruments such as corn futures in addition to inventory management for this purpose.

The table below presents the notional amounts of our derivative financial instruments under which we have

exposure to corn prices:

2020

2021

2022

2023

Commodities derivatives

Commodities Futures
Receive Corn Pay US dollar
Notional amount (Ton/USD)
Duration
Receive Soybean Meal Pay
US dollar
Notional amount (Ton/USD)
Duration
Receive Soy Oil Pay US dollar
Notional amount (Ton/USD)
Duration
Receive US dollar Pay Corn
Notional amount (Ton/USD)
Duration
Receive US dollar Pay Soy
Notional amount (Ton/USD)
Duration
Corn Futures
Notional amount (Ton/USD)
Duration

Short
Term
1,753.4

369.7
0.2

170.9
0.4

11.0
0.4

6.5

-
-

1,103.3
0.5

6.5
1.0

35.0
0.7

63.6
0.1

-
-

Thereafter Fair value
(29.5)
-

-
-

(38.9)
0.2

(0.1)
0.4

3.7
0.4

9.3
0.5

(3.1)
0.7

(0.5)
0.1

The table below presents a sensitivity analysis relating to our commodity price risk that considers five

scenarios in the next twelve months for the variations in corn, soybean meal and soybean prices.

Price parity CBOT - Corn - U.S.$/Ton

Risk

Transaction/Instrument
Designated as hedge accounting
NDF - Corn Sale
NDF - Corn purchase
Put
Corn Options
Costs (object)

Increase in corn price
Decrease in corn price
Increase in corn price
Decrease in corn price
Increase in corn price

Net effect

Price parity CBOT - Soybean meal - U.S.$/Ton

Transaction/Instrument
Designated as hedge accounting
NDF - Soybean meal
purchase

Risk

Decrease in soybean meal
price
Decrease in soybean meal
price
Increase in soybean meal
price

Soybean meal Options

Cost (object)

Net effect

156.76
Current
Scenario

141.08
Scenario I

117.57
Scenario II

Decrease 10% Decrease 25%

195.95
Scenario III
Increase 25%

235.14
Scenario IV
Increase 50%

13,878
(34,285)
(875)
-
21,282
-

83,998
(57,645)
(15,946)
-
(10,407)
-

189,178
(92,685)
(38,552)
(1,718)
(56,223)
-

(161,423)
24,115
-
2,975
134,333
-

(336,723)
82,515
-
6,118
248,090
-

122.14
Current
Scenario Decrease 10% Decrease 25%

91.61
Scenario II

109.93
Scenario I

152.68
Scenario III
Increase 25%

183.21
Scenario IV
Increase 50%

(24)

(8,435)

(21,052)

21,004

(2,656)

(8,912)

7,573

42,032

18,000

11,091

29,964

(28,577)

(60,032)

Price parity CBOT - Soybean - U.S.$/Ton

Transaction/Instrument
Designated as hedge accounting

Risk

359.21
Current
Scenario Decrease 10% Decrease 25%

269.41
Scenario II

323.29
Scenario I

449.01
Scenario III
Increase 25%

538.81
Scenario IV
Increase 50%

163

Price parity CBOT - Soybean - U.S.$/Ton

Transaction/Instrument
NDF - Soybean sale
Cost (object)

Risk
Increase in soybean price
Increase in soybean price

Net effect

Price parity CBOT - Soybean oil - U.S.$/Ton

Risk

Transaction/Instrument
Designated as hedge accounting
NDF - Soybean purchase Decrease in soybean oil price
Decrease in soybean oil price
Soybean oil options
Cost (object)
Increase in soybean oil price
Net effect

323.29
Scenario I

269.41
Scenario II

359.21
Current
Scenario Decrease 10% Decrease 25%
9,603
(9,603)
-

(3,056)
3,056
-

2,007
(2,007)
-

773.62
Current
Scenario Decrease 10% Decrease 25%

580.22
Scenario II

696.26
Scenario I

449.01
Scenario III
Increase 25%
(15,715)
15,715
-

538.81
Scenario IV
Increase 50%
(28,373)
28,373
-

967.03
Scenario III
Increase 25%

1,160.43
Scenario IV
Increase 50%

3,686
-
(3,686)
-

255
252
(507)
-

(4,892)
(745)
5,637
-

12,263
4,562
(16,825)
-

20,840
7,657
(28,497)
-

DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

Debt Securities

Not applicable.

Warrants and Rights

Not applicable.

Other Securities

Not applicable.

American Depositary Shares

The following table sets for the fees and charges that a holder of ADRs may have to pay pursuant to our
Amended and Restated Deposit Agreement, dated as of November 2, 2011 (the “Deposit Agreement”), with The Bank
of New York Mellon, as depositary, in connection with our ADR program:

Fees and Reimbursement Provisions

Rates and Fees
1. U.S.$0.05 (or less) per ADR

2. U.S.$0.02 (or less) per ADR
3. U.S.$0.02 (or less) per ADRs per calendar

year

4. A fee equivalent to the fee that would be

payable if securities distributed to you had
been shares and the shares had been
deposited for issuance of ADRs

5. Registration or transfer fees

Service
Issuance of ADRs, including issuances resulting from a
distribution of shares, rights or other property; and
Cancellation of ADRs for the purpose of withdrawal,
including if the deposit agreement terminates.
Any cash distribution to ADR holders.
Depositary services.

Distribution of securities distributed to holders of deposited
securities which are distributed by the Depositary to ADR
holders.

Transfer and registration of shares on BRF’s share registry
to or from the name of the Depositary or its agent when you
deposit or withdraw shares.

164

Rates and Fees
6. Expenses of the Depositary

7. Taxes and other governmental charges the

Depositary or the Custodian may have to pay
on any ADR or share underlying an ADR
8. Any charges incurred by the Depositary or its
agents for servicing the deposited securities

Service
Cable, telex and facsimile transmissions (when expressly
provided in the deposit agreement); and Converting foreign
currency to U.S. dollars.
As necessary.

As necessary.

The fee and reimbursement provisions described in rows 3. and 8. of the table above may, at the depositary’s
discretion, be billed to the holders of ADRs or deducted from one or more cash dividends or other cash distributions.

For the year ended December 31, 2019, pursuant to a letter agreement between BRF and the depositary, the
depositary reimbursed us for fees, expenses and related taxes in the gross amount of U.S.$3.1 million or net amount
of U.S.$2.28 million.

A form of the Deposit Agreement is filed as Exhibit 2.01 to this Annual Report on Form 20-F. We encourage

you to review this document carefully if you are a holder of ADRs.

DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

None.

MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF

PROCEEDS

None.

CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

As of the end of the period covered by this Annual Report on Form 20-F, management, with the participation
of the Company’s Chief Executive Officer and Chief Financial Officer, performed an evaluation of the effectiveness
of the design and operation of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) of
the Exchange Act. Our disclosure controls and procedures are designed to ensure that information required to be
disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported
within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and
communicated to our management, including the Chief Executive Officer and the Chief Financial Officer, to allow
timely decisions regarding required disclosures. Any controls and procedures, no matter how well designed and
operated, can provide only reasonable assurance of achieving the desired control objective. For information about the
significance of these entities, see “—B. Management’s Annual Report on Internal Control Over Financial Report.”
Based on our management’s evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as
of December 31, 2019, our disclosure controls and procedures were effective at the reasonable assurance level.

Management’s Annual Report on Internal Control Over Financial Reporting

In 2019, we implemented changes in our controls related to recognition, measurement, presentation and
disclosure of leases. There were no other significant changes in our controls that have materially affecteded, or are
reasonably likely to materially affect, our internal control over financial reporting.

165

Management is responsible for establishing and maintaining adequate internal control over financial
reporting for the Company. In order to evaluate the effectiveness of internal control over financial reporting, as
required by Section 404 of the Sarbanes-Oxley Act, management has conducted an assessment, including testing,
using the 2013 criteria in Internal Control-Integrated Framework, issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). Our system of internal control over financial reporting is
designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting principles. Because of its
inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may
deteriorate.

Based on its assessment, management has concluded that we maintained effective internal control over
financial reporting as of December 31, 2019, based on criteria in Internal Control-Integrated Framework, issued by
the COSO (2013).

KPMG Auditores Independentes, an independent registered public accounting firm, which has audited and
reported on the consolidated financial statements contained in this Annual Report on Form 20-F, has issued an
attestation report on management’s assessment of our internal control over financial reporting.

Attestation Report of the Registered Public Accounting Firm

See “Item 18—Financial Statements.”

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and
15d-15(f) under the Exchange Act) that occurred during the year ended December 31, 2019 that have materially
affected, or are reasonably likely to materially affect, our internal control over financial reporting.

We have not made any significant change in internal controls over financial reporting during the year ended

December 31, 2019.

[RESERVED]

ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT

The Board of Directors has determined that Fernando Maida Dall’Acqua, a member of the Company’s Audit
and Integrity Committee, is an “audit committee financial expert,” as such term is defined in the SEC rules. Mr.
Dall’Acqua is independent, as such term is defined in the Novo Mercado listing rules. The Company has determined
that Mr. Dall’Acqua is independent under the standards of the NYSE listing rules and Rule 10A-3 under the Exchange
Act that would apply if the Company were not relying on the exemption provided in paragraph (c)(3) of Rule 10A-3,
as described in “Item 16D. Exemptions from the Listing Standards for Audit Committees.” See “Item 6. – A. Directors,
Senior Management and Employees—C. Board Practices” for information regarding the experience of Mr.
Dall’Acqua.

ITEM 16B. CODE OF ETHICS

Under NYSE Rule 303A.10, each U.S. listed company must adopt and disclose a code of business conduct
and ethics for directors, officers and employees and promptly disclose any waivers of the code for directors or
executive officers. We are subject to a similar requirement under Brazilian Decree 8.420/2015, article 42 item 2, and
we have adopted a code of conduct and ethics that applies to our directors, officers and employees.

Our code of conduct and ethics, called the “Transparency Guide,” as well as further information concerning
our corporate governance practices and applicable Brazilian law, is available on our website at https://www.brf-

166

global.com/wp-content/uploads/2018/08/transparency_guide-eng.pdf. Information on our website is not incorporated
by reference in this Annual Report on Form 20-F. Copies of our “Code of Ethics and Conduct” are also available
without charge upon request to our Investor Relations Office.

If we make any substantive amendment to the code of ethics or grant any waivers, including any implicit
waiver, from a provision of the code of ethics that apply to our principal executive officer, principal financial officer,
principal accounting officer or controller, or persons performing similar functions, we intend to disclose the nature of
such amendment or waiver on our website. During the year ended December 31, 2019, no such amendment was made
or waiver granted.

ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES

Audit and Non-Audit Fees

The following table sets forth the fees billed to BRF by its independent auditors responsible for auditing the
financial statements included in the Annual Report on Form 20-F, which was KPMG Auditores Independentes for the
fiscal years ended December 31, 2019 and 2018. No payments of consultancy fees were made to the independent
auditors during 2019 and 2018. The hiring of our auditors for consultancy services is subject to Board of Directors’
and Audit and Integrity Committee’s approvals and presupposes that the service in question does not risk the
independence and objectivity of our auditors in the performance of the outside audit. The Board’s approval also takes
into account restrictions on certain services under the Sarbanes-Oxley Act.

Aggregate fees for professional services rendered to us by KPMG Auditores Independentes for the years

ended December 31, 2019 and 2018 were:

Audit fees ..........................................................................
Audit-related fees ..............................................................
Tax fees .............................................................................
All other fees .....................................................................
Total fees ..........................................................................

Year Ended
December 31,

2019

2018

(in thousands of Reais)

9,272.3
547.1
-
-
9,819.4

10,071.9
430.4
1,924.7
-
12,427.0

Audit fees in the above table are the fees billed by our independent auditors in connection with the audit of
our annual consolidated financial statements, the review of our quarterly financial information, the audit of our internal
control over financial reporting and the statutory audits of our foreign subsidiaries.

Audit-related fees in the above table for 2019 and 2018 refer to services related to debt offerings. In 2018,

tax fees related to claims for a refund of import taxes paid in Europe.

There were no other fees in 2019 or 2018.

ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES

Our audit and integrity committee meets the requirements for the exemption available to foreign private
issuers under paragraph (c)(3) of Rule 10A-3 under the Exchange Act. The audit and integrity committee is not the
equivalent of, or wholly comparable to, a U.S. audit committee. Among other differences, it is not required to meet
the standards of “independence” established in Rule 10A-3 and is not fully empowered to act on all the matters that
are required by Rule 10A-3 to be within the scope of an audit committee’s authority. Nonetheless, with the attributes
provided to the audit and integrity committee under the Company’s bylaws to the extent permitted by Brazilian law,
the Company believes that its corporate governance system, taken as a whole, is materially equivalent to a system
having an audit committee functioning as a committee of its board of directors. Accordingly, the Company does not
believe that its reliance on the exemption in paragraph (c)(3) of Rule 10A-3 materially adversely affects the ability of

167

the audit and integrity committee to act independently and to satisfy the other requirements of Rule 10A-3 to the extent
permitted by the Brazilian Corporation Law.

The Company also has a permanent Fiscal Council. However, as of April 3, 2014, the Company no longer
relies on the Fiscal Council to avail itself of the exemption contained in paragraph (c)(3) of Rule 10A-3 under the
Exchange Act.

ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED

PURCHASERS

We did not engage in any share repurchases during 2019.

On March 26, 2020, our board of directors approved a share repurchase program for an aggregate amount of
up to 7,500,000 common shares potentially to be repurchased during a one-year period ending on March 26, 2021.
Our board of executive officers will determine the specific dates and terms for executing repurchases in accordance
with the program, which may be executed in compliance with Rule 10b-18 under the Exchange Act. Any of the
common shares acquired under the program may be held in treasury, cancelled or later resold, or they may be used to
comply with the obligations assumed by the Company under the Stock Option Plan and the Restricted Stock Plan,
which are further described under “Item 6. Directors, Senior Management and Employees—E. Share Ownership—
Stock Option Plan and Restricted Stock Plan.”.

ITEM 16F. CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT

None.

ITEM 16G. CORPORATE GOVERNANCE

We adopt corporate governance practices for a continual process of organizational improvement aimed at

greater transparency, liquidity and return for our investors.

We were the first company in the food sector to list on B3’s Novo Mercado (2006), which requires us to
comply with stringent regulations, including, among them, diffused control, protection mechanisms and equality of
rights among shareholders. In addition, the Company has adhered to Level A of the Global Reporting Initiative
guidelines for the publication of its annual reports under Brazilian law.

Further information concerning our corporate governance practices and applicable Brazilian law is available
on the Company’s website (https://ri.brf-global.com). Information on our website is not incorporated by reference in
this Annual Report on Form 20-F.

Under Section 303A.11 of the NYSE Listed Company Manual (the “LCM”), we are required to disclose any
significant differences in our corporate governance practices from those required to be followed by U.S. companies
under the NYSE listing standards. We have summarized these significant differences below.

We are permitted to follow practices in Brazil in lieu of the provisions of the LCM, except that we are required
to have a qualifying audit committee under Section 303A.06 of the LCM or avail ourselves of an appropriate
exemption. As a foreign private issuer, we have established an audit and integrity committee in order to avail ourselves
of an exemption from the listing standards for audit committees. See “Item 6.—A. Directors, Senior Management and
Employees—C. Board Practices—Audit and Integrity Committee.” In addition, our chief executive officer is
obligated, under Section 303A.12(b) of the LCM, to promptly notify the NYSE in writing after any of our executive
officers becomes aware of any material non-compliance with any applicable provisions of the LCM. We are also
required under Section 303A.12(c) of the LCM to submit an annual written affirmation of compliance with applicable
provisions of the rules and, under certain circumstances, an interim written affirmation.

168

Majority of Independent Directors

Under Section 303A.01 of the LCM, each U.S. listed company must have a majority of independent directors.
Under the Novo Mercado rules, at least 2 directors or 20% of our board of directors, whichever is greater, must be
independent, and a majority of our directors currently meet that standard. In addition, the independence standards
under the LCM are different from the independence standards under the Novo Mercado rules.

Separate Meetings of Non-Management Directors

Under Section 303A.03 of the LCM, the non-management directors of each U.S. listed company must meet
at regularly scheduled executive sessions without management. In addition, if a listed company chooses to hold regular
meetings of all non-management directors, such listed company should hold an executive session including only
independent directors at least once a year. We do not have a similar requirement under Brazilian practice, but in any
event, all members of our board are non-executive directors. However, our independent directors do not meet
separately from directors who are not independent.

Nominating/Corporate Governance Committee

Under Section 303A.04 of the LCM, each U.S. listed company must have a nominating/corporate governance
committee composed entirely of independent directors. We are not required to have such a committee under Brazilian
law. However, we have a People, Governance, Organization and Culture Committee composed of independent
members according to Novo Mercado rules. This committee is not the equivalent of, or wholly comparable to, a U.S.
nominating/corporate governance committee.

Compensation Committee

Section 303A.05 of the LCM requires each U.S. listed company to have a compensation committee composed
entirely of independent directors and contains more specific guidance regarding the independence standards for those
directors. Listed companies must grant the compensation committee, in its sole discretion, the authority to retain or
obtain a compensation adviser and to be directly responsible for the compensation and oversight of any compensation
adviser so retained with appropriate funding from the listed company. In addition, the compensation committee must
assess the independence of any compensation adviser, subject to certain exceptions.

We are not required to have such a committee or to comply with similar requirements under Brazilian rules.
However, we have established the People, Governance, Organization and Culture Committee, which is responsible
for advising the board of directors in setting compensation policies and the compensation of executives and employees,
providing support to the executive officers in the assessment, selection and development of top leadership, advising
the board of directors in the formulation and practice of BRF culture to monitor and encouraging proper behavior of
leaders, and proposing actions to align the expectations of shareholders and executives. This committee is not the
equivalent of, or wholly comparable to, a U.S. compensation committee.

In accordance with Brazilian Corporation Law, our shareholders approve the aggregate compensation of the
members of our board of directors, audit and integrity committee and fiscal council for each fiscal year. Our board of
directors then decides the allocation of the compensation among its members and the members of the audit and
integrity committee and the fiscal council. In addition, our board of directors is directly responsible for employee and
executive compensation and recruitment, incentive compensation and related matters.

Audit and Integrity Committee

Under Section 303A.06 of the LCM and the requirements of Rule 10A-3 under the Exchange Act, each U.S.
listed company is required to have an audit committee consisting entirely of independent members that comply with
the requirements of Rule 10A-3. In addition, the audit committee must have a written charter compliant with the
requirements of Section 303A.07(b) of the LCM, the listed company must have an internal audit function and the
listed company must fulfill all other requirements of the NYSE and Rule 10A-3. The SEC has recognized that, for
foreign private issuers, local legislation may delegate some of the functions of the audit committee to other bodies.

169

We have established the Audit and Integrity Committee as approved at the Annual and Extraordinary General Meeting
of April 3, 2014. Our Audit and Integrity Committee meets the requirements for the exemption available to foreign
private issuers under paragraph (c)(3) of Rule 10A-3 under the Exchange Act. The Audit and Integrity Committee is
not the equivalent of, or wholly comparable to, a U.S. audit committee. Among other differences, it is not required to
meet the standards of “independence” established in Rule 10A-3 and is not fully empowered to act on all the matters
that are required by Rule 10A-3 to be within the scope of an audit committee’s authority.

Corporate Governance Guidelines

Under NYSE Rule 303A.09, each U.S. listed company must adopt and disclose their corporate governance
guidelines. We do not have a similar requirement under Brazilian law. However, we have listed our common shares
on the Novo Mercado of the São Paulo Stock Exchange, which requires adherence to the corporate governance
standards described under “Item 9. The Offer and Listing—C. Markets —São Paulo Stock Exchange Corporate
Governance Standards.” In addition, we have adopted a written policy on trading of securities and relevant disclosure
matters.

Further information concerning our corporate governance practices and applicable Brazilian law is available

on our website. Information on our website is not incorporated by reference in this Annual Report on Form 20-F.

ITEM 16H. MINE SAFETY DISCLOSURE

Not applicable.

FINANCIAL STATEMENTS

Not applicable.

FINANCIAL STATEMENTS

See our consolidated financial statements beginning at page F-1.

EXHIBITS

The agreements and other documents filed as exhibits to this Annual Report on Form 20-F are not intended
to provide factual information or other disclosure other than with respect to the terms of the agreements or other
documents themselves, and you should not rely on them for that purpose. In particular, any representations and
warranties made by us in these agreements or other documents were made solely within the specific context of the
relevant agreement or document and for the benefit of the other parties to the agreements and they may not describe
the actual state of affairs as of the date they were made or at any other time.

The total amount of long-term debt of the Company authorized under each instrument does not exceed 10%
of the total assets of the Company and its subsidiaries on a consolidated basis. The Company undertakes to furnish to
the SEC any instruments relating to long-term debt of the Company and its subsidiaries upon request by the SEC.

The following are filed as exhibits hereto:

Exhibit
Number
1.01

Description
Amended and Restated Bylaws of the Registrant, approved at the extraordinary meeting of the
shareholders of BRF S.A. on November 5, 2018 (incorporated by reference to Exhibit 1 to the Report
on Form 6-K filed on November 6, 2018, SEC File No. 001-15148).

170

Exhibit
Number
2.01

2.02

4.01

4.02

8.01

12.01

12.02

13.01*

13.02*

Description
Form of Deposit Agreement among BRF S.A. (Perdigão S.A.), The Bank of New York Mellon, as
depositary, and the owners and beneficial owners of American Depositary Shares, as amended and
restated as of November 2, 2011 (incorporated by reference to Exhibit 1 to the Registration Statement
on Form F-6, filed on November 2, 2011, SEC File No. 333-177676).

Form of American Depositary Receipt (incorporated by reference to Exhibit A to Exhibit 1 to the
Registration Statement on Form F-6, filed on November 2, 2011, SEC File 333-177676).

Stock Options Grant Plan of BRF S.A., approved at the ordinary and extraordinary general
shareholders’ meeting held on April 8, 2015 (incorporated by reference to Annex I to the Report on
Form 6-K, filed on April 10, 2015, SEC File No. 001-15148).

Restricted Stocks Plan of BRF S.A., approved at the ordinary and extraordinary general shareholders’
meeting held on April 29, 2019 (incorporated by reference to Exhibit 1 to the Report on Form 6-K,
filed on April 29, 2019, SEC File No. 001-15148).

Subsidiaries of the Registrant.

Certification of the Chief Executive Officer pursuant to Securities Exchange Act Rules 13a-14(a) and
15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

Certification of the Chief Financial Officer pursuant to Securities Exchange Act Rules 13a-14(a) and
15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.

Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.

101

eXtensible Business Reporting Language (XBRL)

This certification will not be deemed “filed” for purposes of Section 18 of the Exchange Act (15 U.S.C. §78r), or otherwise
subject to the liability of that section. Such certification will not be deemed to be incorporated by reference into any filing
under the Securities Act or the Exchange Act, except to the extent that the Registrant specifically incorporates it by
reference.

171

SIGNATURES

Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, the registrant, BRF S.A.,
hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused this annual
report to be signed on its behalf by the undersigned, thereunto duly authorized, in the city of São Paulo, in the state of
São Paulo, Brazil, on April 24, 2020.

BRF S.A.

By: /s/ Lorival Nogueira Luz Júnior
Name: Lorival Nogueira Luz Júnior
Title: Global Chief Executive Officer

By: /s/ Carlos Alberto Bezerra de Moura
Name: Carlos Alberto Bezerra de Moura
Title: Chief Financial and Investor Relations Officer

172

INDEX TO FINANCIAL STATEMENTS

Consolidated Financial Statements:

Report of Independent Registered Public Accounting Firm .............................................. R-1
Consolidated Statement of Financial Position as of December 31, 2019 and 2018 ........... F-4
Consolidated Statements of Income (Loss) for the Years Ended December 31, 2019, 2018

and 2017 ....................................................................................................................... F-5

Consolidated Statements of Comprehensive Income (Loss) for the Years Ended

December 31, 2019, 2018 and 2017 ............................................................................. F-6

Consolidated Statements of Changes in Equity for the Years Ended December 31, 2019,

2018 and 2017 .............................................................................................................. F-7

Consolidated Statements of Cash Flows for the Years Ended December 31, 2019, 2018

and 2017 ....................................................................................................................... F-9
Notes to the Consolidated Financial Statements ................................................................ F-10

Report of Independent Registered Public Accounting Firm

To the Shareholders and Board of Directors
BRF S.A.:

Opinions on the Consolidated Financial Statements and Internal Control Over Financial Reporting

We have audited the accompanying consolidated statements of financial position of BRF S.A. and subsidiaries
(the Company) as of December 31, 2019 and 2018, the related consolidated statements of income (loss),
comprehensive income (loss), changes in equity and cash flows for each of the years in the three-year period
ended December 31, 2019, and the related notes (collectively, the consolidated financial statements). We also
have audited the Company’s internal control over financial reporting as of December 31, 2019, based on
criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects,
the financial position of the Company as of December 31, 2019 and 2018, and the results of its operations and
its cash flows for each of the years in the three-year period ended December 31, 2019, in conformity with
International Financial Reporting Standards as issued by the International Accounting Standards Board. Also in
our opinion, the Company maintained, in all material respects, effective internal control over financial reporting
as of December 31, 2019 based on criteria established in Internal Control – Integrated Framework (2013)
issued by the Committee of Sponsoring Organizations of the Treadway Commission.

Change in Accounting Principle

As discussed in Note 3.14 to the consolidated financial statements, the Company has changed its method of
accounting for lease arrangements as of January 1, 2019 due to the adoption of IFRS 16 “Leases”.

Emphasis of matter

We draw attention to explanatory note 1.2 to the consolidated financial statements, which describe the
investigations involving the Company, as well as their current and potential developments. In the current stage
of the investigations, it is not possible to determine the potential financial and non-financial impacts to the
Company as a result of those investigations and their potential developments and, consequently, to recognize
potential losses which could have a material adverse impact on the Company´s financial position, results of
operations and cash flows in the future.

Basis for Opinions

The Company’s management is responsible for these consolidated financial statements, for maintaining
effective internal control over financial reporting, and for its assessment of the effectiveness of internal control
over financial reporting, included in the accompanying Management’s Annual Report on Internal Control over
Financial Reporting. Our responsibility is to express an opinion on the Company’s consolidated financial
statements and an opinion on the Company’s internal control over financial reporting based on our audits. We
are a public accounting firm registered with the Public Company Accounting Oversight Board (United States)
(PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal
securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the
PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we
plan and perform the audits to obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement, whether due to error or fraud, and whether effective internal
control over financial reporting was maintained in all material respects.

Our audits of the consolidated financial statements included performing procedures to assess the risks of
material misstatement of the consolidated financial statements, whether due to error or fraud, and performing
procedures that respond to those risks. Such procedures included examining, on a test basis, evidence
regarding the amounts and disclosures in the consolidated financial statements. Our audits also included
evaluating the accounting principles used and significant estimates made by management, as well as
evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over
financial reporting included obtaining an understanding of internal control over financial reporting, assessing the
risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of
internal control based on the assessed risk. Our audits also included performing such other procedures as we
considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our
opinions.

Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. A company’s internal control over financial reporting
includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide
reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements
in accordance with generally accepted accounting principles, and that receipts and expenditures of the
company are being made only in accordance with authorizations of management and directors of the company;
and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use,
or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the
consolidated financial statements that were communicated or required to be communicated to the audit
committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial
statements and (2) involved our especially challenging, subjective, or complex judgments. The communication
of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as
a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the
critical audit matters or on the accounts or disclosures to which they relate.

Assessment of recoverability of deferred tax assets

As discussed in Notes 3.8 and 10 to the consolidated financial statements, the Company has deferred tax
assets of R$ 1,845.9 million as of December 31, 2019. The deferred tax assets relate to tax losses, negative
basis of social contribution and temporary differences. The estimate of probable future taxable profit is based
on subjective judgments regarding prospective assumptions such as sales prices of the products, commodity
costs, operating and administrative expenses and are recorded to the extent that the Company considers
probable the generation of future taxable income against which the deferred tax assets will be realized. The
process of estimating the recoverability of deferred tax assets involves high degree of judgment required in

assessing the significant assumptions and the interpretation of tax laws that are considered in the forecast of
future taxable income. Therefore, we consider this as a critical audit matter.

The primary procedures we performed to address this critical audit matter included the following. We tested
certain internal controls over estimate of probable future taxable profit relating to the recoverability of deferred
taxes assets, including controls related to the determination of assumptions used in the preparation and review
of the business plan, budget, technical studies and analysis of forecast of future taxable income prepared by
the Company. We involved corporate finance professionals with specialized skills and knowledge, who assisted
in: evaluating the main assumptions and methodology used in the Company’s forecast in the preparation of the
future taxable income, especially those related to expectations of sales prices of the products, commodity
costs, operating and administrative expenses and the consistency of these assumptions with the five-year
strategic plan approved by the Board of Directors. We performed sensitivity analysis over the key assumptions
to assess their impact on the Company’s forecast of the future taxable income. In addition, we involved tax
professionals with specialized skills and knowledge, who assisted in assessing the Company’s application of
the tax laws and tax deductions. We also evaluated the disclosures made by the Company on the expected
recoverability of the deferred tax assets.

Trade discounts recognition

As discussed in Notes 3.21 and 27 to the consolidated financial statements, in the course of business, the
Company provides to its customers trade discounts, which are recorded as deductions from net sales in the
consolidated statements of income (loss). These trade discounts are recognized based on contractual
agreements for which the terms and conditions are negotiated separately with each customer. We identified the
measurement of Company’s trade discounts as a critical audit matter due to the high volume of transactions,
the relevance of the amounts involved and judgment to evaluate the Company’s assessment on the specific
terms and conditions of each contract used in the recognizing trade discounts and to evaluate the timing of
recognition in the consolidated financial statements.

The primary procedures that we performed to address this critical audit matter included the following. We tested
certain internal controls over the Company’s trade discounts process related to recognition of accruals. We
compared, on a sample basis, trade discounts recognized with underlying documentation (including the terms
and conditions of the contracts signed with customers), to assess the amount and the respective accrual
period. We obtained confirmations from third parties for a sample of the Company’s customers over the
outstanding amount of trade discounts at year-end and compared with the amount recorded by the Company.
For a sample of trade discounts, we tested the settlements that occurred after period end and compared them
to the recorded trade discounts. We also evaluated the Company’s disclosures in relation to the accounting
policies adopted for the recognition of trade discounts.

/s/ KPMG Auditores Independentes

We have served as the Company’s auditor since 2017.

São Paulo, Brazil
April 24, 2020

(in thousands of Brazilian reais)

Consolidated
Financial
Statements
December 31, 2019 and 2018

BRF S.A. | 2019 AND 2018 CONSOLIDATED FINANCIAL STATEMENTS

F-1

Index

CONSOLIDATED STATEMENT OF FINANCIAL POSITION ..................................................................................................................................... 4

CONSOLIDATED STATEMENT OF INCOME (LOSS) .................................................................................................................................................. 5

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (LOSS)........................................................................................................... 6

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY ....................................................................................................................................... 7

CONSOLIDATED STATEMENT OF CASH FLOWS ....................................................................................................................................................... 9

10.

11.

12.

13.

14.

15.

16.

17.

18.

19.

...........................................................................................................................................................................10

BASIS OF PREPARATION AND PRESENTATION OF FINANCIAL STATEMENTS ................................................................15
COMPANY’S OPERATIONS

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ....................................................................................................................16

CASH AND CASH EQUIVALENTS ...............................................................................................................................................................26

MARKETABLE SECURITIES .........................................................................................................................................................................26

TRADE ACCOUNTS RECEIVABLE AND OTHER RECEIVABLES ...................................................................................................27

INVENTORIES ....................................................................................................................................................................................................28

BIOLOGICAL ASSETS ......................................................................................................................................................................................29

RECOVERABLE TAXES ...................................................................................................................................................................................31

INCOME AND SOCIAL CONTRIBUTION TAXES ..................................................................................................................................32

JUDICIAL DEPOSITS ........................................................................................................................................................................................34

ASSETS AND LIABILITIES HELD FOR SALE AND DISCONTINUED OPERATIONS .............................................................34

INVESTMENTS ...................................................................................................................................................................................................38

PROPERTY, PLANT AND EQUIPMENT, NET ........................................................................................................................................39

INTANGIBLE ASSETS ......................................................................................................................................................................................41

LOANS AND FINANCING ...............................................................................................................................................................................43

TRADE ACCOUNTS PAYABLE .....................................................................................................................................................................46

SUPPLY CHAIN FINANCE ..............................................................................................................................................................................47

LEASES ..................................................................................................................................................................................................................47

SHARE-BASED PAYMENT ............................................................................................................................................................................49

EMPLOYEES BENEFITS PLANS ..................................................................................................................................................................52

PROVISION FOR TAX, CIVIL, LABOR AND OTHER RISKS ..............................................................................................................58

............................................................................................................................................................................61

EARNINGS (LOSS) PER SHARE ..................................................................................................................................................................62
SHAREHOLDERS’ EQUITY

FINANCIAL INSTRUMENTS AND RISKS MANAGEMENT ...............................................................................................................63

SEGMENT INFORMATION ............................................................................................................................................................................73

NET SALES ...........................................................................................................................................................................................................75

OTHER OPERATING INCOME (EXPENSES), NET ..............................................................................................................................76

BRF S.A. | 2019 AND 2018 CONSOLIDATED FINANCIAL STATEMENTS

F-2

FINANCIAL INCOME (EXPENSES), NET .................................................................................................................................................77

STATEMENT OF INCOME BY NATURE ...................................................................................................................................................78

RELATED PARTIES ..........................................................................................................................................................................................78

GOVERNMENT GRANTS ................................................................................................................................................................................79

COMMITMENTS ................................................................................................................................................................................................80

INSURANCE COVERAGE - CONSOLIDATED .........................................................................................................................................80

TRANSACTIONS THAT DO NOT INVOLVE CASH ...............................................................................................................................80

EVENTS AFTER THE REPORTING PERIOD ..........................................................................................................................................81

APPROVAL OF THE CONSOLIDATED FINANCIAL STATEMENTS .............................................................................................82

BRF S.A. | 2019 AND 2018 CONSOLIDATED FINANCIAL STATEMENTS

F-3

(in thousands of Brazilian reais)

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

ASSETS

CURRENT ASSETS

Cash and cash equivalents

Marketable securities

Trade and other receivables

Inventories

Biological assets

Recoverable taxes

Recoverable income tax and social contribution

Derivative financial instruments

Restricted cash

Assets held for sale

Other current assets

Total current assets

NON-CURRENT ASSETS

LONG -TERM RECEIVALBLES

Marketable securities

Trade and other receivables

Recoverable taxes

Recoverable income tax and social contribution

Deferred income taxes

Judicial deposits

Biological assets

Derivative financial instruments

Restricted cash

Other non-current assets

Total long-term receivables

Investments

Property, plant and equipment, net

Intangible assets

Total non-current assets

TOTAL ASSETS

Note

12.31.19

12.31.18

LIABILITIES

Note

12.31.19

12.31.18

4,237,785

418,182

3,090,691

3,887,916

1,603,039

473,732

152,486

195,324

296,294

99,245

590,733

CURRENT LIABILITIES

4,869,562

Loans and borrowings

507,035

Trade accounts payable

2,720,041

3,877,294

1,513,133

560,389

506,483

182,339

277,321

Supply chain finance

Lease liability

Payroll, related charges and employee profit sharing

Tax payable

Derivative financial instruments

Provision for tax, civil and labor risks

Employee benefits

3,326,305

Liabilities directly associated with the assets held for sale

690,998

Other current liabilities

15,045,427

19,030,900

Total current liabilities

307,352

71,029

5,169,547

269,263

1,915,370

575,750

1,081,025

49,991

85,537

9,524,864

NON-CURRENT LIABILITIES

290,625

96,922

Loans and borrowings

Trade accounts payable

Lease liability

3,142,547

Tax payable

7,246

Provision for tax, civil and labor risks

1,519,652

Deferred income tax

669,098

Employee benefits

1,061,314

Derivative financial instruments

Other non-current liabilities

584,300

177,372

7,549,076

Total non-current liabilities

EQUITY

Capital

Capital reserves

14,880

12,276,889

4,908,079

86,005

Accumulated losses

10,696,998

Treasury shares

5,019,398

Other comprehensive loss

26,724,712

23,351,477

Total equity

Attributable to controlling shareholders

Non-controlling interests

3,132,029

5,784,419

842,037

376,628

825,254

517,208

153,612

1,084,308

95,919

717,027

13,528,441

4,547,389

5,487,205

875,300

75,712

618,669

402,971

235,035

495,584

94,728

1,131,529

524,518

14,488,640

15,488,250

17,618,055

12,347

2,054,552

190,257

710,061

85,310

593,555

12,803

167,041

162,239

854,667

65,774

373,423

1,093,942

1,107,958

20,228,277

20,361,960

12,460,471

192,845

115,354

(4,131,913)

(4,279,003)

(38,239)

(722,469)

7,760,695

252,726

8,013,421

(56,676)

(1,275,519)

6,964,627

567,150

7,531,777

41,770,139

42,382,377

TOTAL LIABILITIES AND EQUITY

41,770,139

42,382,377

See accompanying notes to the consolidated financial statements.

BRF S.A. | 2019 AND 2018 CONSOLIDATED FINANCIAL STATEMENTS

F-4

(in thousands of Brazilian reais, except share and per share)

CONSOLIDATED STATEMENT OF INCOME (LOSS)

CONTINUED OPERATIONS

NET SALES

Cost of sales

G ROSS PROFIT

OPERATING INCOME (EXPENSES)

Selling expenses

General and administrative expenses

Impairment loss on trade and other receivables

Other operating income (expenses), net

Income (loss) from associates and joint ventures

INCOME (LOSS) BEFORE FINANCIAL RESULTS AND INCOME TAXES

Financial expenses

Financial income

INCOME (LOSS) BEFORE TAXES FROM CONTINUING OPERATIONS

Income taxes

Note

12.31.19

12.31.18

Restated
12.31.17

33,446,980

30,188,421

28,314,160

(25,370,042)

(25,320,753)

(22,601,215)

8,076,938

4,867,668

5,712,945

(4,911,666)

(4,513,594)

(4,208,683)

(615,683)

(23,899)

224,384

(1,737)

(551,165)

(46,269)

19,311

17,715

2,748,337

(206,334)

(462,523)

(67,471)

(333,467)

22,383

663,184

(3,613,051)

(3,891,106)

(3,445,449)

1,747,652

1,649,632

1,563,691

882,938

195,395

(2,447,808)

(1,218,574)

333,302

251,809

INCOME (LOSS) FROM CONTINUING OPERATIONS

1,078,333

(2,114,506)

(966,765)

DISCONTINUED OPERATIONS

LOSS FROM DISCONTINUED OPERATIONS

(915,809)

(2,351,740)

(132,089)

INCOME (LOSS) FOR THE YEAR

162,524

(4,466,246)

(1,098,854)

Net In c ome (Loss) from Con tin u in g Operation Attribu table to

Con trollin g sh areh olders

Non -c on trollin g in terest

Net Loss From Disc on tin u ed Operation Attribu table to

Con trollin g sh areh olders

Non -c on trollin g in terest

1,067,312

(2,114,968)

11,021

462

1,078,333

(2,114,506)

(984,245)

17,480

(966,765)

(904,628)

(2,333,093)

(141,327)

(11,181)

(18,647)

9,238

(915,809)

(2,351,740)

(132,089)

INCOME (LOSSES) PER SHARE FROM CONTINUING OPERATIONS

W eigh ted average sh ares ou tstan din g - basic

811,539,167

811,294,251

803,559,763

In c ome (losses) per sh are - basic

W eigh ted average sh ares ou tstan din g - dilu ted

In c ome (losses) per sh are - dilu ted

LOSSES PER SHARE FROM DISCONTINUED OPERATIONS

W eigh ted average sh ares ou tstan din g - basic

Losses per sh are - basic

W eigh ted average sh ares ou tstan din g - dilu ted

Losses per sh are - dilu ted

1.32

(2.61)

(1.22)

813,867,119

811,294,251

803,559,763

1.31

(2.61)

(1.22)

811,539,167

811,294,251

803,559,763

(1.11)

(2.88)

(0.18)

811,539,167

811,294,251

803,559,763

(1.11)

(2.88)

(0.18)

See accompanying notes to the consolidated financial statements.

BRF S.A. | 2019 AND 2018 CONSOLIDATED FINANCIAL STATEMENTS

F-5

(in thousands of Brazilian reais)

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (LOSS)

In c ome (Loss) for th e year

Oth er c ompreh en sive in c ome (loss)

Gain on foreign currency translation adjustments

Unrealized gains on cash flow hedge

Taxes on unrealized gains on cash flow hegde

Net oth er c ompreh en sive in c ome, to be rec lassified to th e statemen t of in c ome in
su bsequ en t periods

Gains (Losses) on marketable securities at FVTOCI (1)

Taxes on unrealized gains (losses) on marketable securities at FVTOCI (1)

Actuarial gains (losses) on pension and post-employment plans

Taxes on realized gains (losses) on pension and post-employment plans

Net oth er c ompreh en sive in c ome (loss), with n o impac t in to su bsequ en t statemen t
of in c ome

Total c ompreh en sive in c ome (loss), n et of taxes

Attribu table to

Con trollin g sh areh olders

Non -c on trollin g in terest

(1) FVTOCI: Fair Value Through Other Comprehensive Income.

See accompanying notes to the consolidated financial statements.

Note

12.31.19

12.31.18

Restated
12.31.17

162,524

(4,466,246)

(1,098,854)

528,770

58,865

(19,421)

568,214

151,182

(48,277)

(218,462)

67,941

84,361

264,311

(88,324)

260,348

(126,951)

20,783

1,474

(1,147)

33,354

(49)

3,758

37,063

(41,732)

11,472

1,533

(19)

(47,616)

(105,841)

(28,746)

683,122

(4,311,739)

(1,090,537)

715,734

(4,363,771)

(1,223,733)

(32,612)

52,032

133,196

683,122

(4,311,739)

(1,090,537)

BRF S.A. | 2019 AND 2018 CONSOLIDATED FINANCIAL STATEMENTS

F-6

(in thousands of Brazilian reais)

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

Attribu ted to of c on trollin g sh areh olders

In c ome reserves

Oth er c ompreh en sive in c ome (loss)

Paid-in
c apital

Capital
reserve

Treasu ry
sh ares

Legal
reserve

Reserve
for
c apital
in c reases

Reserve
for tax
in c en tives

Ac c u mu lated
foreign
c u rren c y
tran slation
adju stmen ts

Marketable
sec u rities
at FVTOCI

Gain
(losses)
on c ash
flow
h edge

Ac tu arial
losses

Retain ed
earn in gs
(losses)

Total equ ity

Non -
c on trollin g
in terest

Total
sh areh olders'
equ ity
(c on solidated)

12,460,471

41,006

(721,856)

540,177

170,756

639,742

(693,835)

(25,998)

(575,861)

5,376

BALANCES AT DECEMBER 31, 2016

Compreh en sive in c ome (loss) (1)

Loss on foreign currency translation adjustments

Unrealized loss in marketable securities at FVTOCI

Unrealized gains in cash flow hedge

Actuarial gains (losses) on pension and post-employment plans

Loss for th e year
SUB-TOTAL COMPREHENSIVE INCOME (LOSS)

Appropriation of in c ome (loss)

Loss absorbing with legal reserve

Loss absorbing with future capital increase

Loss absorbing with reserve for tax incentives

Share-based payments

Acquisition of non-controlling interest

Treasury shares sold
Losses in treasury shares sold
BALANCES AT DECEMBER 31, 2017

Adoption of IFRS 9

Restatement by hyperinflation

Compreh en sive in c ome (loss) (1)

Gains on foreign currency translation adjustments
Unrealized losses in marketable securities at FVTOCI (2)

Unrealized gains in cash flow hedge
Actuarial gains (losses) on pension and post-employment plans
Realized losses in marketable securities at FVTOCI (2)

Loss for th e year

SUB-TOTAL COMPREHENSIVE INCOME (LOSS)

Appropriation of in c ome (loss)

Absorption of losses with income reserves

Share-based payments

Loss on participation changes
BALANCES AT DECEMBER 31, 2018

-
-

25,621

48,470

-
-

650,373
-

-
-

(438,810)

-
-

12,460,471

115,097

(71,483)

101,367

-
-

-
-
-

-
-

-
-
-

-
-

-
-
-

477

(220)

14,807

12,460,471

115,354

(56,676)

-
-

-
-
-

(101,367)

-
-

(30,258)

-
(140,498)
-

-
-

-
-
-

-
-

(639,742)

-
-
-

-
-

-
-
-

-
-

(73,124)

(30,260)

-
(73,124)

-
(30,260)

3,709

-
3,709

(15,248)

-
(15,248)

16,762

11,839,978

379,375

12,219,353

(73,124)

(30,260)

3,709

1,514

106,478

33,354

(30,260)

3,709

1,514

(1,125,572)
(1,108,810)

(1,125,572)
(1,223,733)

26,718
133,196

(1,098,854)
(1,090,537)

-
-

(766,959)

(56,258)

(572,152)

14,144
-

-
(42,193)

-
-

-
-
-

175,987
-
-

-
-
(9,872)

-
-

-
(18,216)
-

438,810

30,258

639,742

-
-
-

(17,087)

130,210

-
-

-
18,543
(63,975)

25,621

48,470

650,373
(140,498)
11,200,211

(17,087)

130,210

14,144
(42,193)

175,987
327
(63,975)

-
-

512,571

2,547

70,217
-

-
-
-

25,621

48,470

650,373
(140,498)
11,712,782

(14,540)

130,210

84,361
(42,193)

175,987
327
(63,975)

(4,448,061)

(18,185)

(4,466,246)

14,144

(42,193)

175,987

(18,216)

(4,493,493)

(4,363,771)

52,032

(4,311,739)

101,367

(752,815)

(98,451)

(396,165)

(28,088)

(4,279,003)

15,284

(220)
6,964,627

567,150

15,284

(220)
7,531,777

(1) All changes in other comprehensive income are presented net of taxes.
(2) FVTOCI: Fair Value Through Other Comprehensive Income.

BRF S.A. | 2019 AND 2018 CONSOLIDATED FINANCIAL STATEMENTS

F-7

(in thousands of Brazilian reais)

BALANCES AT DECEMBER 31, 2018

Adoption of IFRS 16
Compreh en sive in c ome (loss) (1)

Gains on foreign currency translation adjustments
Unrealized gains on marketable securities at FVTOCI (2)
Unrealized gains in cash flow hedge
Actuarial gains (losses) on pension and post-employment plans

In c ome (loss) for th e year
SUB-TOTAL COMPREHENSIVE INCOME (LOSS)

Realized loss in marketable securities at FVTOCI (2)
Employee benefits remeasurement - difined benefit
Appropriation of in c ome (loss)

Dividends

Share-based payments
Acquisition (sale) of non-controlling interests
BALANCES AT DECEMBER 31, 2019

Attribu ted to of c on trollin g sh areh olders

Oth er c ompreh en sive in c ome (loss)

Paid-in
c apital

Capital
reserve

Treasu ry
sh ares

Ac c u mu lated
foreign
c u rren c y
tran slation
adju stmen ts

Marketable
sec u rities
at FVTOCI

Gain
(losses)
on c ash
flow
h edge

Ac tu arial
losses

Retain ed
earn in gs
(losses)

Total equ ity

Non -
c on trollin g
in terest

Total
sh areh olders'
equ ity
(c on solidated)

12,460,471

115,354

(56,676)

(752,815)

(98,451)

(396,165)

(28,088)

(4,279,003)

6,964,627

567,150

7,531,777

-
-
-
-
-
-

-
-

-
-
-

12,460,471

-
-
-
-
-
-

-
-

-
(6,861)
84,352
192,845

-
-
-
-
-
-

-
-

18,437

559,436

-
-
-
-

102,905

-
-
-

559,436

102,905

-
-

-
-
-

-
-

-
-
-
4,454

6,287

-
-

39,444

-
-
39,444

-
-

-
-
-

(148,735)

-
-

-
-
-

-
-
-
-

162,684
162,684

(52,493)
30,612

-
-
-

559,436
102,905
39,444
(148,735)
162,684
715,734

(52,493)
30,612

(30,666)

-
-
(1,786)
(160)
(32,612)

-
-

6,287

528,770
102,905
39,444
(150,521)
162,524
683,122

(52,493)
30,612

-
11,576
84,352
7,760,695

(4,988)
-

(276,824)
252,726

(4,988)
11,576
(192,472)
8,013,421

(38,239)

(193,379)

(356,721)

(176,823)

(4,131,913)

See accompanying notes to the consolidated financial statements.

BRF S.A. | 2019 AND 2018 CONSOLIDATED FINANCIAL STATEMENTS

F-8

(in thousands of Brazilian reais)

CONSOLIDATED STATEMENT OF CASH FLOWS

OPERATING ACTIVITIES
Income (loss) from continuing operations
Adju st men t s for:

Depreciation and amortization
Depreciation and depletion of biological assets
Result on disposals of property, plant and equipments
Provision for losses in inventories
Provision for tax, civil and labor risks
Tax Amnesty Program ("PERT")
Income from associates and joint ventures
Financial results, net
Gains in tax lawsuit
Deferred income tax
Employee profit sharing
Others (4)

Trade accounts receivable
Inventories
Biological assets - current
Trade accounts payable
Supply chain finance

Cash gen erat ed by operat in g ac t ivit ies
Investments in securities at FVTPL (2)
Redemptions of securities at FVTPL (2)
Interest received
Dividends and interest on shareholders' equity received
Payment of tax, civil and labor provisions
Payment of interest
Payment of income tax and social contribution
Other operating assets and liabilities

Net c ash provided by operat in g ac t ivit ies

Net cash (applied) provided by operating activities from discontinued operations

Net c ash provided by operat in g ac t ivit ies

INVESTING ACTIVITIES

Investments in securities at amortized cost
Redemptions of securities at amortized cost
Investments in securities at FVTOCI (3)
Redemptions of securities at FVTOCI (3)
Redemption (Investments) in restricted cash
Additions to property, plant and equipment
Additions to biological assets - non-current
Proceeds from disposals of property, plant, equipment and investments
Additions to intangible assets
Business combination, net of cash
Sale (acquisition) of participation in joint ventures and associated entities

Net c ash u sed in in vest in g ac t ivit ies

Net cash provided (used in) investing activities from discontinued operations

Net c ash provided (u sed in ) in vest in g ac t ivit ies

FINANCING ACTIVITIES

Proceeds from debt issuance
Repayment of debt
Treasury shares disposal
Acquisition of non-controlling interests
Lease

Net c ash provided by fin an c in g ac t ivit ies

Net cash provided (used in) by financing activities from discontinued operations

Net c ash provided by fin an c in g ac t ivit ies
EFFECT OF EXCHANG E RATE VARIATION ON CASH AND CASH EQUIVALENTS
Net increase (decrease) in cash and cash equivalents
At the beginning of the year (1)
At the end of the year

(1) The cash includes the amount of R$166,449 related to assets held for sale (note 12).
(2) FVTPL: Fair Value Through Profit and Loss.
(3) FVTOCI: Fair Value Through Other Comprehensive Income.
(4) Contemplates the effects of the class action (note 1.3).

See accompanying notes to the consolidated financial statements.

12.31.19

12.31.18

Restated
12.31.17

1,078,333

(2,114,506)

(966,765)

962,677
784,524
51,004
352,164
214,439

-
(17,715)
2,241,474

895,528
736,768
8,423
224,659
443,318
(449,822)
(22,383)
1,881,758

(340,144)

(210,582)

1,503,039
798,239
15,402
149,517
836,357

-
1,737
1,865,399
(1,218,993)
(290,094)
269,755
589,484
5,598,175
(182,126)
(130,646)
(94,087)
(392,533)
(31,760)
4,767,023
(92,911)
39,189
180,686
15,551
(891,359)
(1,290,853)
(98)
(96,764)
2,630,464
(109,234)
2,521,230

(15,362)
95,638
-

264,965
356,444
(417,165)
(837,930)
215,147
(64,320)
-
(3,005)
(405,588)
1,848,694
1,443,106

176,799
2,310,716
992,512
(226,046)
(50,093)
(1,051,368)
170,940
2,146,661
(273,678)
143,669
177,299
3,606
(355,605)
(1,147,351)
(737)
(265,480)
428,384
(132,699)
295,685

(213,697)
179,667
(5,194)
140,886
(249,366)
(578,037)
(845,311)
261,576
(20,535)
-
3,351
(1,326,660)
(89,219)
(1,415,879)

5,399,158
(9,481,138)

6,500,102
(6,223,963)

(183,672)
(553,017)
(4,818,669)
1,567
(4,817,102)
54,540
(798,226)
5,036,011
4,237,785

-
-

(102,397)
173,742
(99,818)
73,924
71,452
(974,818)
6,010,829
5,036,011

244,852
2,785,754
(682,100)
35,173
224,854
1,085,360
(621,242)
2,827,799
7,609
53,336
405,502
26,828
(509,285)
(1,323,275)
(37,177)
(781,530)
669,807
(20,451)
649,356

(97,552)
118,593

238,349
74,742
(681,184)
(681,681)
150,284
(51,056)
(1,119,651)
(1,208)
(2,050,364)
(84,149)
(2,134,513)

8,020,243
(7,332,523)
509,875

(149,924)
1,047,671
9,412
1,057,083
81,984
(346,090)
6,356,919
6,010,829

BRF S.A. | 2019 AND 2018 CONSOLIDATED FINANCIAL STATEMENTS

F-9

1. COMPANY

S OPERATIONS

’

BRF S.A. (“BRF”) and its subsidiaries (collectively the “Company”) is a publicly traded company, listed
on the segment Novo Mercado of Brasil, Bolsa, Balcão (“B3”), under the ticker BRFS3, and listed on the
New York Stock Exchange (“NYSE”), under the ticker BRFS. The Company’s registered office is at Rua
Jorge Tzachel, nº 475, Bairro Fazenda, Itajaí - Santa Catarina and the main business office is in the city
of São Paulo.

BRF is a Brazilian multinational company, with global presence, which owns a comprehensive portfolio of
products, and it is one of the world’s largest companies of food products. The Company operates by
raising, producing and slaughtering poultry and pork for processing, production and sale of fresh meat,
processed products, pasta, margarine and others.

The Company holds as main brands Sadia, Perdigão, Qualy, Chester®, Kidelli, Perdix and Banvit,
present mainly in Brazil, Turkey and Middle Eastern countries.

BRF S.A. | 2019 AND 2018 CONSOLIDATED FINANCIAL STATEMENTS

F-10

1.1. Equity interest

En tity

BRF Energia S.A.
BRF GmbH

BRF Foods LLC
BRF France SARL
BRF Global Company Nigeria Ltd.
BRF Global Company South Africa Proprietary Ltd.

BRF Global Company Nigeria Ltd.

BRF Global GmbH
BRF Foods LLC
Qualy 5201 B.V.
Xamol Consultores Serviços Ltda.
SPE Khan GmbH

BRF Japan KK
BRF Korea LLC
BRF Shanghai Management Consulting Co. Ltd.
BRF Shanghai Trading Co. Ltd.
BRF Singapore Foods PTE Ltd.
BRF Germany GmbH
BRF Holland B.V.

Campo Austral S.A.
Eclipse Holding Cöoperatief U.A.
BRF B.V.
ProudFood Lda
BRF Hungary LLC
BRF Iberia Alimentos SL
BRF Invicta Ltd.

Invicta Food Products Ltd.
BRF Wrexham Ltd.
Invicta Food Group Ltd.
Invicta Foods Ltd.
Invicta Foodservice Ltd.

Universal Meats (UK) Ltd.

BRF Italia SPA
Compañía Paraguaya Comercial S.A.
Campo Austral S.A.

Itega S.A.

Eclipse Holding Cöoperatief U.A.
Buenos Aires Fortune S.A.
Campo Austral S.A.
Eclipse Latam Holdings

Buenos Aires Fortune S.A.
Campo Austral S.A.

Campo Austral S.A.
Itega S.A.

Golden Foods Poultry Limited

Golden Poultry Siam Limited

Golden Poultry Siam Limited
BRF Thailand Limited
BRF Feed Thailand Limited

Golden Foods Sales (Europe) Limited
Golden Quality Foods Europe BV

Golden Quality Foods Netherlands BV

Golden Foods Siam Europe Limited
Golden Quality Poultry (UK) Ltd

Perdigão Europe Lda.
Perdigão International Ltd.
BFF International Ltd.
Highline International
Sadia Overseas Ltd.

ProudFood Lda
Sadia Chile S.A.
SATS BRF Food PTE Ltd.
BRF Global Namíbia

Wellax Food Logistics C.P.A.S.U. Lda.

BRF Luxembourg Sarl
BRF Austria GmbH

One Foods Holdings Ltd

Al-Wafi Food Products Factory LLC
Badi Ltd.

Al-Wafi Al-Takamol International for Foods Products

BRF Al Yasra Food K.S.C.C. ("BRF AFC")
BRF Foods GmbH

Al Khan Foodstuff LLC ("AKF")
FFM Further Processing Sdn. Bhd.
FFQ GmbH
TBQ Foods GmbH

Banvit Bandirma Vitaminli

Banvit Enerji ve Elektrik Üretim Ltd. Sti.
Banvit Foods SRL
Nutrinvestments BV
Banvit ME FZE
Banvit Foods SRL

One Foods Malaysia SDN. BHD.
Federal Foods LLC

Federal Foods Qatar

BRF Hong Kong LLC

Main ac tivity

Cou n try

12.31.19 12.31.18

% equ ity in terest

Commercialization of eletric energy
Holding
Import, industrialization and commercialization of products
Marketing and logistics services
Marketing and logistics services
Administrative, marketing and logistics services
Marketing and logistics services
Holding and trading
Import, industrialization and commercialization of products
Import, commercialization of products and holding
Import and commercialization of products

(n)

(b)

(b) (m)

(n)
(j) (n) Holding and trading

Marketing and logistics services, import, export, industrialization and
commercialization of products

Marketing and logistics services
Provision of consultancy and marketing services
Import, export and commercialization of products
Administrative, marketing and logistics services
Import and commercialization of products
Import and commercialization of products
Industrialization and commercialization of products
Holding
Industrialization, import and commercialization of products
Import and commercialization of products
Import and commercialization of products
Import and commercialization of products
Import, commercialization and distribution of products
Import and commercialization of products
Industrialization, import and commercialization of products
Import, commercialization and distribution of products
Import, commercialization and distribution of products
Import, commercialization and distribution of products

Import, Industrialization, commercialization and distribution of products
Import and commercialization of products
Import and commercialization of products
Industrialization and commercialization of products
Holding
Holding
Holding
Industrialization and commercialization of products
Holding
Holding
Industrialization and commercialization of products
Industrialization and commercialization of products
Holding
Holding
Holding
Holding
Import, Industrialization, commercialization and distribution of products
Import, Industrialization, commercialization and distribution of products
Holding and trading
Import, commercialization and distribution of products
Import, commercialization and distribution of products
Import, commercialization and distribution of products
Import, commercialization and distribution of products
Import, export of products and administrative services

Import and export of products
Financial fundraising
Financial fundraising
Financial fundraising
Import and commercialization of products
Import, export and commercialization of products
Import, industrialization, commercialization and distribution of products
Import and commercialization of products

Import, commercialization of products and administrative services

Holding
Holding
Holding
Import, export, industrialization and commercialization of products
Holding
Import and commercialization of products
Import, commercialization and distribution of products
Industrialization, import and commercialization of products
Import, commercialization and distribution of products
Industrialization, import and commercialization of products
Industrialization, import and commercialization of products
Holding
Import, industrialization and commercialization of products
Generation and commercialization of electric energy
Industrialization of grains and animal feed
Holding
Marketing and logistics services
Industrialization of grains and animal feed
Marketing and logistics services
Import, commercialization and distribution of products
Import, commercialization and distribution of products
Import, commercialization and distribution of products

(n)

(f)

(e)

(n)

(m) (n)

(n)

(b) (m)

(n)

(b) (m)

(n)

(a)

(i)

(h)

(f) (i)

(i)

(h)

(n)

(b) (m)

(n)

(a)

(a) (s)

(p)

(a)

(q)

(r)

(a)

Brazil
Austria
Russia
France
Nigeria
South Africa
Nigeria
Austria
Russia
The Netherlands
Portugal
Austria

Japan
Korea
China
China
Singapore
Germany
The Netherlands
Argentina
The Netherlands
The Netherlands
Angola
Hungary
Spain
England
England
England
England
England
England
England
Italy
Paraguay
Argentina
Argentina
The Netherlands
Argentina
Argentina
Spain
Argentina
Argentina
Argentina
Argentina
Thailand
Thailand
Thailand
Thailand
Thailand
England
The Netherlands
The Netherlands
England
England
Portugal
Cayman Island
Cayman Island
Cayman Island
Cayman Island
Angola
Chile
Singapore
Namibia

Portugal
Luxemburgo
Austria
United Arab Emirates
United Arab Emirates
United Arab Emirates
Saudi Arabia
Kuwait
Austria
Oman
Malaysia
Austria
Austria
Turkey
Turkey
Romania
The Netherlands
United Arab Emirates
Romania
Malaysia
United Arab Emirates
Qatar
Hong Kong

100.00
100.00
99.90
-
99.00
100.00
1.00
100.00
0.10
-
-
-

100.00
100.00
100.00
100.00
100.00
-
-
-
-
-
10.00
100.00
-
-
-
-
-
-
-

-
-
99.00
-
-
99.99
5.00
-
100.00
95.00
-
-
-
-
-
-
-
-
-
-
-
-
-
100.00
100.00
100.00
100.00
100.00
90.00
40.00
-
100.00

100.00
-
100.00
100.00
49.00
100.00
75.00
49.00
100.00
70.00
70.00
100.00
60.00
91.71
100.00
0.01
100.00
100.00
99.99
100.00
49.00
49.00
100.00

100.00
100.00
99.90
100.00
99.00
100.00
1.00
100.00
0.10
100.00
100.00
-

100.00
100.00
100.00
100.00
100.00
100.00
100.00
2.66
0.01
100.00
10.00
100.00
100.00
69.16
100.00
100.00
100.00
100.00
100.00
100.00
67.00
99.00
50.48
96.00
99.99
5.00
8.44
100.00
95.00
6.53
31.89
4.00
48.52
51.84
48.16
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
98.00
90.00
40.00
49.00
100.00

100.00
100.00
100.00
100.00
49.00
100.00
75.00
49.00
100.00
70.00
70.00
100.00
60.00
91.71
100.00
0.01
100.00
100.00
99.99
100.00
49.00
49.00
100.00

BRF S.A. | 2019 AND 2018 CONSOLIDATED FINANCIAL STATEMENTS

F-11

En tity

Main ac tivity

Eclipse Holding Cöoperatief U.A.
Establecimiento Levino Zaccardi y Cia. S.A.

BRF Pet S.A.

PP-BIO Administração de bem próprio S.A.
PR-SAD Administração de bem próprio S.A.
PSA Laboratório Veterinário Ltda.
Sino dos Alpes Alimentos Ltda.

Quickfood S.A.
Sadia Alimentos S.A.

Avex S.A.

Sadia International Ltd.
Sadia Chile S.A.
Sadia Uruguay S.A.

Avex S.A.
Compañía Paraguaya Comercial S.A.
Sadia Alimentos S.A.

Sadia Overseas Ltd.
Sadia Uruguay S.A.
UP Alimentos Ltda.
Vip S.A. Empreendimentos e Participações Imobiliárias

Establecimiento Levino Zaccardi y Cia. S.A.
PSA Laboratório Veterinário Ltda.
Sino dos Alpes Alimentos Ltda.

(e)

(a)

(k)

(o)

(a)

(c)

(d) (g)

(a)

(a) (s)

(l)

(a)

Holding
Industrialization and commercialization of dairy products
Industrialization, commercialization and distribution of feed and nutrients for
animals
Management of assets
Management of assets
Veterinary activities
Industrialization and commercialization of products
Industrialization and commercialization of products
Holding
Industrialization and commercialization of products
Import and commercialization of products
Import, export and marketing of products
Import and commercialization of products
Industrialization and commercialization of products
Import and commercialization of products
Holding
Financial fundraising
Import and commercialization of products
Industrialization and commercialization of products
Commercialization of owned real state
Industrialization and commercialization of dairy products
Veterinary activities
Industrialization and commercialization of products

(a) Dormant subsidiaries. The Company is evaluating the liquidation of these subsidiaries.

% equ ity in terest

Cou n try

12.31.19 12.31.18

The Netherlands
Argentina

0.01
99.94

-
99.94

Brazil

100.00

Brazil
Brazil
Brazil
Brazil
Argentina
Argentina
Argentina
Cayman Island
Chile
Uruguay
Argentina
Paraguay
Argentina
Cayman Island
Uruguay
Brazil
Brazil
Argentina
Brazil
Brazil

33.33
33.33
99.99
99.99
-
43.10
-
100.00
60.00
5.10
-
1.00
56.90
-
94.90
-
100.00
0.06
0.01
0.01

66.66
-
99.99
99.99
91.21
43.10
33.98
100.00
60.00
5.10
66.02
1.00
56.90
2.00
94.90
50.00
100.00
0.06
0.01
0.01

(b) The wholly owned subsidiary BRF Global GmbH operates as a trading for the International market and owned until June 02,
2019, 62 direct subsidiaries in Madeira Island, Portugal, with an investment of R$4,133 (R$4,913 as of December 31, 2018)
and a direct subsidiary in Den Bosch, The Netherlands, denominated Qualy 20 with an investment of R$7,299 (R$7,360 as of
December 31, 2018). The wholly owned subsidiary Qualy 5201 B.V. owned 133 subsidiaries in The Netherlands being the
amount of this investment until disposal date of R$19,467 (R$20,725 as of December 31, 2018). The indirect subsidiary Invicta
Food Group Ltd. owned 120 direct subsidiaries in Ashford, England, with an investment until disposal date of R$44,837
(R$44,805 as of December 31, 2018). The indirect subsidiary Universal Meats (UK) Ltd owned 99 direct subsidiaries in Ashford,
England with an investment until disposal date of R$41,112 (R$45,052 as of December 31, 2018). The indirect subsidiary
Golden Foods Siam Europe Ltd (GFE) owned 32 subsidiaries in Ashford, England with an investment until disposal date of
R$(157) (R$44 as of December 31, 2018). The purpose of these subsidiaries was to operate in the European market to increase
the Company’s share in this market, which is regulated by a system of poultry and turkey meat import quotas.

On March 15, 2019, mergers were realized in the direct subsidiaries of BRF Global GmbH in Madeira Island, and the 101 existing
subsidiaries were merged into 62 companies. On the same date, mergers were realized in the Qualy 5201 B.V. subsidiaries in
Den Bosch, and the 212 existing subsidiaries were merged into 133 companies.

(c) On January 02, 2019, the Company sold its equity stake in Quickfood S.A.
(d) On January 03, 2019, Sadia Alimentos S.A. sold all held shares of Avex S.A. to BRF S.A. and Sadia Uruguay sold 61.02% of

Avex S.A. to BRF S.A., holding a 5% interest.

(e) On January 14, 2019, BRF Holland B.V. sold its equity stake in Eclipse Holding Cöoperatief U.A. to BRF S.A.
(f) On January 14, 2019, BRF Holland B.V sold its equity stake in Campo Austral S.A. to Eclipse Holding Cöoperatief U.A.
(g) On February 04, 2019, BRF S.A. and Sadia Uruguay S.A. sold all their equity stake in Avex S.A.
(h) On March 11, 2019, Eclipse Latam Holdings sold its equity stake in Itega S.A.
(i) On March 11, 2019, BRF GmbH, Eclipse Latam Holdings, Eclipse Holding Cöoperatief U.A. and Buenos Aires Fortune S.A. sold

all their equity stake in Campo Austral S.A.

(j) On April 1st, 2019, SPE Khan Gmbh was incorporated with the purpose of contributing the assets and liabilities from BRF Global

GMBH to be later sold to Tyson International Holding Co.

(k) On April 1st, 2019, 33.33% of equity stake in PP-Bio Administração de Bem Próprio S.A. was sold.
(l) On April 03, 2019, UP Alimentos was liquidated.
(m) On May 31, 2019, BRF Gmbh acquired the minority stake in BRF Invicta Ltd. equivalent to R$ 217,393 (GBP 43,716). The
goodwill arising from this transaction was recorded as capital reserve, in the amount equivalent to R$99,327 (GBP 19,974).
(n) On June 03, 2019, the companies were sold to Tyson International Holding Co. as part of Europe and Thailand operations (note

12).

(o) On August 1st, 2019, 33.33% of equity stake in PR-SAD Administração de Bem Próprio S.A. was acquired.
(p) On September 05, 2019, all the equity stake in SATS BRF Food PTE Ltd. was sold.
(q) On December 04, 2019, BRF Luxembourg SARL was liquidated.
(r) As from December 04, 2019, BRF S.A. holds 100% of BRF Austria GMBH.
(s) As from December 20, 2019, Perdigão International holds 100% of Sadia Overseas Ltd.

Except for the associates PP-BIO and PR-SAD in which the Company records the investments by the
equity method (for December 31, 2018 or until the period that the participation was sold in 2019, the
joint ventures SATS and UP Alimentos were recognized by the equity method), all other subsidiaries
shown in the table were consolidated.

BRF S.A. | 2019 AND 2018 CONSOLIDATED FINANCIAL STATEMENTS

F-12

1.2. Investigations involving BRF

The Company has been subject to two external investigations, denominated “Carne Fraca Operation” in
2017 and “Trapaça Operation” in 2018, as detailed below. The Company’s Audit and Integrity Committee
conducted independent investigations, along with the Independent Investigation Committee, composed
of external members and with external legal advisors in Brazil and abroad with respect to the allegations
involving BRF employees and former employees in the scope of the aforementioned operations and other
ongoing investigations.

For the year ended on December 31, 2019, the main impacts observed as result of the referred
investigations were recorded in other operating expenses in the amount of R$79,937 (R$78,889 in the
same period of the previous year), mostly related to expenditures with lawyers, legal advisors and
consultants.

In addition to the impacts already registered, there are uncertainties about the outcome of these
operations which may result in penalties, fines and normative sanctions, right restrictions and other
forms of liabilities, for which the Company is not able to make a reliable estimate of the potential losses.

The outcomes may result in payments of substantial amounts, which may cause a material adverse
effect on the Company’s financial position, results and cash flows in the future.

1.2.1. Carne Fraca Operation

On March 17, 2017, BRF became aware of a decision issued by a judge of the 14th Federal Court of
Curitiba - Paraná, authorizing the search and seizure of information and documents, and the detention
of certain individuals in the context of the Carne Fraca Operation. Two BRF employees were detained
and subsequently released, as well as three others were identified for questioning.

In April 2017, the Brazilian Federal Police and the Brazilian federal prosecutors filed charges against BRF
employees, which were accepted by the judge responsible for the process, and its main allegations in
this phase involved misconduct related to improper offers and/or promises to government inspectors.

On June 04, 2018, the Company was informed about the establishment of a responsibility administrative
process (“PAR”) by the Office of the Comptroller General (“CGU”), under the Law Nº 12,846/2013 (“Anti-
corruption Law”), which aims to verify eventual administrative responsibilities related to the facts object
of the criminal lawsuit Nº 5016879-04.2017.4.04.7000, (“Criminal Lawsuit”) in progress under the 14th
Federal Court of the subsection of Curitiba/PR, as a consequence of the Carne Fraca Operation.

BRF has informed certain regulators and governmental entities, including the U.S. Securities and
Exchange Commission (“SEC”) and the U.S. Department of Justice (“DOJ”) about the Carne Fraca
Operation and is cooperating with such authorities, which are conducting their own investigations.

On September 28, 2018, the sentence of the Criminal Lawsuit in first instance was published, discharging
one of the BRF employees and convicting a former employee for six months of detention with the
possibility of substitution for a right-restricting penalty. The Brazilian federal prosecutors presented
appeal to the first instance decision. The appeal is being analyzed by the Federal Regional Court of the
4th region.

1.2.2. Trapaça Operation

On March 5, 2018, the Company learned of a decision issued by a judge of the 1st Federal Court of
Ponta Grossa/PR, authorizing the search and seizure of information and documents due to allegations
involving misconduct relating to quality violations, improper use of feed components and falsification of
tests at certain BRF manufacturing plants and accredited labs. Such operation was denominated as
Trapaça Operation. On March 5, 2018, BRF received notice from the Ministry of Agriculture, Livestock
and Food Supply (“MAPA”) immediately suspending exports from its Rio Verde/GO, Carambeí/PR and

BRF S.A. | 2019 AND 2018 CONSOLIDATED FINANCIAL STATEMENTS

F-13

Mineiros/GO plants to 12 countries that require specific sanitary requirements for the control of the
bacteria group Salmonella spp and Salmonella pullorum.

On May 14, 2018, the Company received the formal notice that twelve plants located in Brazil were
removed from the list that permits imports of animal origin products by the European Union’s countries.
The measure came into force as of May 16, 2018 and affects only the plants located in Brazil and which
have export licenses to the European Union, not affecting the supply to other markets or other BRF
plants located outside Brazil and that export to the European market.

On October 15, 2018, the Federal Police Department submitted to the 1st Federal Criminal Court of the
Judicial Branch of Ponta Grossa – PR the final report of its investigation in connection to the Trapaça
Operation. The police inquiry indicted 43 people, including former key executives of the Company.

On December 04, 2019, the Public Prosecution filed charges against eleven people related to allegations
about Premix (compound of vitamins, minerals, and amino acids for the inclusion of micro ingredients
in the feed for the ideal nutrition of the animals) as outcome of the Trapaça Operation. No administration
member, director or executive in current management position has been identified. Of the employees
who were identified, only one person still remained active in his function and has preventively been
removed after the filing of the charges, according to the current policy of the Company, which provides
removal until the resolution of the case.

BRF informed certain regulators and government entities, including SEC and DOJ about the Trapaça
Operation and has been cooperating with such authorities, which are conducting their own investigations.

1.2.3. Governance enhancement

The Company is cooperating with the investigations and collaborates to the clarification of the facts. The
Company has been taking actions to strengthen the compliance with its policies, procedures and internal
controls. In this sense, the Company has decided to move away, independently of the results of the
investigations, all employees mentioned in the Federal Police’s final report of the Trapaça Operation until
all facts are clarified.

The Company believes that its efforts strengthen and consolidate its governance to ensure the highest
levels of safety standards, integrity and quality.

Among the actions implemented, are: (i) strengthening in the risk management, specially compliance,
(ii) continuous strengthening of the Compliance, Internal Audit and Internal Controls departments, (iii)
review and issuance of new policies and procedures specifically related to applicable anticorruption laws,
(iv) review and enhancement of the procedures for reputational verification of business partners, (v)
review and enhancement of the processes of internal investigation, (vi) expansion of the independent
reporting channel, (vii) review of transactional controls, and (viii) review and issuance of new
consequence policy for misconduct.

1.3. U.S. Class Action

On March 12, 2018, a shareholder class action lawsuit was filed against us, some of our former managers
and a current officer of ours in the U.S. Federal District Court in the Southern District of New York. On
July 2, 2018, the Court appointed the City of Birmingham Retirement and Relief System lead plaintiff in
the action (the “Lead Plaintiff”). On December 5, 2018, the Lead Plaintiff filed an amended complaint
that sought to represent all persons and entities who purchased or otherwise acquired BRF ADRs during
the period from April 4, 2013, through and including March 2, 2018. The class action alleges, among
other things, that BRF and certain of its officers and/or directors engaged in securities fraud or other
unlawful business practices related to the regulatory issues in connection with the Carne Fraca Operation
and Trapaça Operation. On December 13, 2019, we and the other defendants filed a motion to dismiss.
On January 21, 2020, the Lead Plaintiff filed an opposition motion and, on February 11, 2020, we and
the other defendants filed our response. While a decision on the motion to dismiss was still pending, on
March 27, 2020 the parties reached an agreement to settle this class action for an amount equivalent to

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R$204,436, subject to documentation and court approval. This is an event which evidences an existing
condition at the end of the reporting period, therefore requires adjustment to the financial statements
as disclosed in note 36.1.

1.4. Plant in Saudi Arabia

On October 29, 2019, the Company announced to the market that it has executed a non-binding
memorandum of understanding with the Saudi Arabian General Investment Authority (“SAGIA”), with
respect to the construction and operation, by BRF, of a chicken processing plant in Saudi Arabia.

The Company estimates the investment to be around R$634,044 (USD120,000, translated to Reais at
the exchange rate of 5.2837 as of April 20, 2020), which will allow BRF to expand and consolidate its
presence in the Saudi market.

The plant will produce breaded and marinated products, hamburgers, among others, and will be destined
primarily for the Saudi market.

1.5. Seasonality

During the months of November and December of each year, the Company is impacted by seasonality
in the Brazil operating segment due to Christmas and New Year’s Celebrations. The products that are
relevant contributors are: turkey, Chester®, ham and pork cuts (hind leg/pork loin).

In the International operating segment, seasonality is due to Ramadan, which is the holy month of the
Muslim calendar. The beginning of Ramadan depends on the beginning of the moon cycle and therefore
can vary each year.

2. BASIS OF PREPARATION AND PRESENTATION OF FINANCIAL STATEMENTS

The consolidated financial statements were prepared in accordance with the IFRS - International Financial
Reporting Standards, issued by the IASB - International Accounting Standards Board. All the relevant
information applicable to the consolidated financial statements, and only them, are being evidenced and
correspond to those used by administration in its management.

The consolidated financial statements are expressed in thousands of Brazilian Reais (“R$”) and the
disclosures of amounts in other currencies, when applicable, were also expressed in thousands, unless
otherwise stated.

The preparation of the financial statements requires Management to make judgments, use estimates
and adopt assumptions that affect the reported amounts of revenues, expenses, assets and liabilities,
as well as the disclosures of contingent liabilities. The uncertainty inherent to these judgments,
assumptions and estimates could result in material adjustments to the carrying amount of certain assets
and liabilities in future periods.

Any judgments, estimates and assumptions are reviewed at each reporting period.

The consolidated financial statements were prepared based on the recoverable historical cost, except for
the following material items recognized in the statements of financial position:

(i)

derivative financial instruments and non-derivative financial instruments measured at fair value;

(ii)

share-based payments and employee benefits measured at fair value;

(iii)

biological assets measured at fair value; and

(iv)

assets held for sale in the cases the fair value is lower than historical cost.

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The accounting policies adopted by the Company are described in note 3, which includes those adopted
during the year, which are: IFRIC 23 - Uncertainty over income tax treatments (note 3.8) and IFRS 16
- Leases (note 3.14). For the policies adopted during the year, the adoption has been made prospectively,
as such the prior year is not comparative.

The Company prepared the consolidated financial statements under the going concern assumption and
disclosed all relevant information in its explanatory notes, in order to clarify and complement the
accounting basis adopted.

During the year of 2019, the Company continued with the operational and financial restructuring started
in 2018 and restructured its operating segments (note 26) and, thus, 2018 presentation of segment
information was adjusted and consequently restated for all periods presented.

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
3.1. Consolidation

The consolidated financial statements include BRF and the subsidiaries (note 1.1) where BRF has direct
or indirect control, obtained when the Company is exposed to or has right to variable returns in such
subsidiaries and has the power to influence these returns.

The financial information of the subsidiaries was prepared using the same accounting policies of Parent
Company.

All transactions and balances between BRF and its subsidiaries have been eliminated upon consolidation,
as well as the unrealized profits or losses arising from these transactions, net of taxes. Non-controlling
interests are presented separately.

3.2. Accounting judgments, estimates and assumptions

The Management made the following judgments which have a material impact on the amounts recognized
in the consolidated financial statements:

Main judgments:

» control, significant influence and consolidation (note 1.1);
» share-based payment transactions (note 20);
»
»

transfer of control for revenue recognition (note 27);
the probability that will exercise renewal option or anticipated termination of the lease
agreements (note 19).

Main estimates:

fair value of financial instruments (note 25);

»
» annual analyses of impairment of non-financial assets (note 15);
» expected credit losses (note 6);
» net realizable value provision for inventories (note 7);
»
» annual analyses of recoverability of taxes (note 9 and 10);
»
» useful lives of property, plant, equipment and intangible with definite useful life (note 14

fair value of assets held for sale (note 12);

fair value of biological assets (note 8);

and 15);

» employee benefits (note 21);
» provision for tax, civil and labor risks (note 22);

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The Company reviews the estimates and underlying assumptions used in its accounting estimates in
each reporting period. Revisions to accounting estimates are recognized in the period in which the
estimates are revised.

3.3. Functional currency and foreign currency transactions

The financial statements of each subsidiary included in consolidation are prepared using the currency of
the main economic environment where it operates.

The financial statements of foreign subsidiaries with functional currency different from Reais are
translated into Brazilian Reais, under the following criteria:

» Assets and liabilities are translated at the closing exchange rate;
»
» The cumulative effects of gains or losses upon translation are recognized in other

Income and expenses are translated at the monthly average rate;

comprehensive income.

Goodwill arising from business combinations with foreign entities is expressed in the functional currency
of that entity and translated by the closing exchange rate for the reporting currency of the acquirer, with
the exchange variation effects recognized in other comprehensive income.

The transactions in foreign currency follow the criteria below:

» Non-monetary assets and liabilities, as well as incomes and expenses, are translated at

the historical rate of the transaction;

» Monetary assets and liabilities are translated at the closing exchange rate;
» The cumulative effects of gains or losses upon translation of monetary assets and

liabilities are recognized in the statements of income (loss).

3.4. Hyperinflationary economies

The Company has subsidiaries in Argentina, which is considered a hyperinflationary economy. For these
subsidiaries the accounting policies below are adopted:

Non-monetary items, as well as incomes and expenses, are adjusted by the changes in the inflation
index between the initial recognition and the closing date, so that the balances are stated at current
value.

As only the subsidiaries located in Argentina are subject to hyperinflation, and the parent company is
not in a hyperinflationary economy, the Company did not restate prior balances. The monetary correction
(measured by the General Consumer Price Index from Argentina – “IPC”) was recorded in the result of
discontinued operations for the subsidiaries sold during the year, and recorded in the result of continued
operations for the subsidiaries in which the Company maintains an equity participation (note 1.1).

The translation of the balances of the subsidiaries with a hyperinflationary economy to the reporting
currency were made at the closing rate of the reporting period for both financial position and income
statement balances.

The inflation rates used in 2018 and 2019 are demonstrated in the table below:

Period

2018
2019

Ac c umulated
inflation rates

48.01%
53.46%

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3.5. Business combination

Are registered according to the acquisition method, which determines that the cost of an acquisition is
measured by the sum of the consideration transferred, assessed based on the fair value on the
acquisition date, and the value of any non-controlling interest in the acquired company. The Company
measures the non-controlling interest based on its participation in the net assets identified in the acquired
company. Costs directly attributable to the acquisition are recorded as expense when incurred.

Business combinations with related parties are recognized using the acquisition method when the
agreements have a substance and at cost when no substance is observed in the transaction.

In the acquisition of a business, Management assesses the acquired assets and liabilities assumed in
order to classify and allocate them in accordance with the contractual terms, economic circumstances
and relevant conditions on the acquisition date.

Initially, goodwill is measured as the excess of the consideration transferred in relation to the fair value
of the net assets acquired (identifiable assets and liabilities assumed, net).

After the initial recognition, goodwill is measured at cost less any accumulated impairment losses. For
purposes of testing the recoverable amount, goodwill is allocated to each of the cash-generating units
that will benefit from the acquisition.

3.6. Inventories

Inventories are measured at the lower of the average cost of acquisition or cost of production of finished
products and the net realizable value. The cost of finished products includes purchased raw materials,
labor, production costs, transportation and storage, which are related to all the processes necessary for
bringing the products to sales conditions. Provisions for obsolescence, adjustments to net realizable
value, impaired items and slow-moving inventories are recorded when necessary. Normal production
losses are included in the production cost for the respective month, while abnormal losses, if any, are
expensed in Cost of Products Sold when incurred.

3.7. Biological assets

The consumable and production biological assets (live animals) and forests are measured at their fair
value, using the cost approach technique to live animals and the revenue approach for forests. In
determining the fair value of live animals, all losses inherent to the breeding process are already
computed.

3.8. Income taxes

In Brazil, it comprises income tax (“IRPJ“) and social contribution on profit (“CSLL“), which are calculated
monthly based on taxable profit, after offsetting tax losses and negative social contribution base, limited
to 30% of the taxable income, applying the rate of 15% plus an additional 10% for the IRPJ and 9% for
the CSLL.

The results obtained from foreign subsidiaries are subject to taxation by the countries where they are
based, according to applicable rates and legislation. In Brazil, these results suffer the effects of taxation
on universal basis established by the Law No. 12,973 / 14. The Company analyzes the results of each
subsidiary for the application of its Income Tax legislation, in order to respect the treaties signed by
Brazil and avoid double taxation.

Deferred taxes represent credits and debits on IRPJ tax losses and negative CSLL bases, as well as
temporary differences between the tax and accounting bases. Deferred tax and social contribution assets
and liabilities are classified as non-current. When the Company’s internal studies indicate that the future
use of these credits over a 10-year horizon is not probable, the asset is derecognized (note 10.3).

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Deferred tax assets and liabilities are presented net if there is an enforceable legal right to be offset,
and if they are under the responsibility of the same tax authority and under the same taxable entity.

Deferred tax assets and liabilities must be measured at the rates applicable in the period in which the
asset is realized or the liability is settled, based on the rates (and tax legislation) that are in force on
the financial position date.

On January 01, 2019, the interpretation IFRIC 23 became effective, which deals with the recognition and
measurement requirements when there is uncertainty about the treatments of tax on profit.

The Company analyzed relevant tax decisions of higher courts and whether they conflict in any way with
the positions adopted by the Company. Regarding the known uncertain tax positions, the Company
reviewed the corresponding legal opinions and jurisprudence and did not identify impacts to be recorded,
since it concluded that the tax authorities are not likely to reject the positions adopted.

The Company will periodically evaluate the positions assumed in which there are uncertainties about the
adopted tax treatment and will set up a provision when applicable.

3.9. Assets held for sale and discontinued operations

Are measured at the lower of the book value and the fair value less selling costs and are not depreciated
or amortized. Such items are only classified under this item when its sale is highly probable and they
are available for immediate sale in their current conditions.

Losses due to impairment are recorded under Other Operational Expenses.

Discontinued operations for all periods have been presented in a like-captioned line item in the statement
of income and cash flows. Prior periods were restated for comparative purposes. The statement of
financial position remains as disclosed in prior periods.

3.10. Investments

Investments classified in this group: i) in associated companies, that are entities over which the
Company has significant influence, which is the power to participate in decisions on the investee’s
financial and operational policies, but without individual or joint control of these policies, and; ii) in joint
ventures, in which the control of the business is shared through contractual agreement and decisions
about the relevant activities require the unanimous consent of the parties.

Investments are initially recognized at cost and subsequently adjusted using the equity method.

3.11. Property, plant and equipment

Measured by the cost of acquisition, formation, construction or dismantling, less accumulated
depreciation. Loan and financing costs are recorded as part of the costs of property, plant and equipment
in progress, considering the weighted average rate of loans and financing effective on the capitalization
date.

Depreciation is recognized based on the estimated economic useful life of each asset using the straight-
line method. The estimated useful life, residual values and depreciation methods are reviewed annually
and the effects of any changes in estimates are accounted for prospectively. Land is not depreciated.

The Company annually performs an impairment analysis for its cash-generating units, which include the
balances of property, plant and equipment (note 15).

Gains and losses on disposals of property, plant and equipment are determined by comparing the sale
value with the residual book value and are recognized in the statement of income on the date of sale
under Other Operational Income (Expenses).

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3.12. Intangible assets

Acquired intangible assets are measured at cost at the time of their initial recognition, while those arising
from a business combination are recognized at fair value on the acquisition date. After initial recognition,
it is presented at cost less accumulated amortization and impairment losses, when applicable. Intangible
assets generated internally, excluding development costs, are not capitalized and the expense is
recognized in the income statement when incurred.

Intangible assets with definite useful lives are amortized on a straight-line basis over their economic
useful lives. The amortization period and method for an intangible asset with definite life are reviewed
at least at the end of each fiscal year, and any changes observed are applied prospectively. The
amortization of intangible assets with finite lives is recognized in the income statement in the expense
category related to their use.

Intangible assets with indefinite useful lives are not amortized, but are tested annually for impairment,
being allocated to the cash-generating units (note 15). The Company records in this subgroup mainly
goodwill for expected future profitability and the Company’s brands, which are expected to contribute
indefinitely to its cash flows.

3.13. Contingent assets

Are possible assets whose existence needs to be confirmed by the occurrence or not of one or more
uncertain future events. The Company does not record contingent assets, however when the inflow of
economic benefits is more likely than not to occur, the contingent assets are disclosed.

3.14. Leasing
3.14.1. Accounting practice applied until December 31, 2018

Leasing operations whose risks and benefits inherent to ownership are substantially transferred to the
Company, are classified as finance leases. If there is no significant transfer of the risks and benefits
inherent to the property, the operations are classified as operating leases.

Financial leasing contracts are recognized in property, plant and equipment or intangible assets, against
liabilities, at the lower of the present value of the minimum mandatory installments of the contract and
the fair value of the asset, plus, when applicable, the initial direct costs incurred in the transaction. The
amounts recorded in property, plant and equipment and intangible are depreciated and the interests
implicit in the liability are recognized on the income statement according to the duration of the contract.

Operating lease agreements are recognized as an expense over the lease period.

Gains or losses arising from the Company’s sale-leaseback transactions, classified after the sale of the
assets as an operating lease, are recognized as follows:

- Immediately in the income for the year when the transaction is measured at fair value;

- If the transaction price is established below or above the fair value, the profit or loss is immediately
recognized in the result, except if the result is offset by future lease payments below the market value.

3.14.2. Accounting practice applied from January 01, 2019

On January 01, 2019, the Company adopted IFRS 16 and opted for the modified retrospective approach
without restating comparative periods. Accordingly, all balances related to the year ended on December
31, 2018 (note 19.1) are presented in accordance with the standards previously in force IAS 17, as
disclosed above.

In the transition process, the Company chose not to use the practical expedient that allows not to
reassess whether a contract is or contains a lease. Consequently, the new lease definitions contained in

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IFRS 16 were applied to all contracts in force on the transition date. A contract is, or contains a lease,
if the contract transfers the right to control the use of an identified asset for a period in exchange for
consideration, for which it is necessary to assess whether:

the contract involves the use of an identified asset, which may be explicit or implicit, and
may be physically distinct or represent substantially the entire capacity of a physically
distinct asset. If the supplier has a substantial right to replace the asset, then the asset
is not identified;
the Company has the right to obtain substantially all the economic benefits from using
the asset during the contract period; and
the Company has the right to direct the use of the asset. The Company has the right to
decide to change how and for what purpose the asset is used, if:

o has the right to operate the asset, or
o designed the asset, in a way that predetermines how and for what purpose it will

be used.

At the beginning of the contract, the Company recognizes a right-of-use asset and a lease liability that
represents the obligation to make payments related to the underlying asset of the lease.

The right-to-use asset is initially measured at cost and comprises the initial amount of the lease liability
adjusted for any payment made on or before the contract start date, plus any direct initial costs incurred
and estimated disassembly, removal costs, restoration of the asset in the place where it is located, less
any incentive received.

The right-to-use asset is subsequently depreciated using the straight-line method from the start date to
the end of the useful life of the right to use or the end of the lease term. The options for extending the
term or early termination of contracts are analyzed individually considering the type of asset involved
as well as its relevance in the Company’s production process. The estimated useful life of the right-of-
use asset is determined on the same basis as the assets owned by the Company. Additionally, the right-
to-use asset is periodically reduced to recoverable value in accordance with IAS 36, when applicable,
and readjusted by remeasurement of the lease liability.

The lease liability is initially measured at the present value of the payments not made, less the
incremental loan rate.

The lease liability is measured at amortized cost using the effective interest method. It is remeasured
when there is a change (i) in future payments resulting from a change in index or rate (ii) in the estimate
of the expected amount to be paid in the guaranteed residual value or (iii) in the assessment of whether
the Company will exercise the purchase option, extension or termination.

When the lease liability is remeasured, the corresponding adjustment amount is recorded in the book
value of the right-of-use asset or in the profit and loss statement, if the book value of the right-of-use
asset has been reduced to zero.

As a result of the adoption of IFRS 16, on January 01, 2019, there was recognition of a right-of-use asset
of R$2,397,743, a lease liability of R$2,391,456, and the difference between the balances in the amount
of R$6,287, which was caused by provisions for operating leases already recorded on December 31,
2018, in Shareholders’ Equity. Such contracts were previously disclosed as an operating lease, according
to the annual consolidated financial statements for the year ended December 31, 2018 (note 23.1).

The Company used the following practical steps to transition to the new lease accounting requirements:

» chose not to recognize assets with right to use and lease liabilities with a contract term
of less than 12 months, and with no purchase option and of low value. Payments
associated with such contracts are recognized as an expense in the income statement on
a straight-line basis over the lease period;

» use of a single discount rate for each lease portfolio with reasonably similar
characteristics. In this sense, the incremental loan rate was obtained, as of January 01,

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2019, applicable to each of the leased asset portfolios. Through this methodology, the
Company obtained a weighted average rate of 7.92%.

Additionally, contracts with an indefinite term with no fixed payment are expensed as incurred.

3.15. Share based payments

The Company offers to its executives stock option plans and restricted stock plans of its own issuance.
The Company recognizes as an expense the fair value of the options or shares, measured at the grant
date, on a straight-line basis during the period of service required by the plan, with a corresponding
entry to: the shareholders’ equity for plans exercisable in shares; and to liabilities for cash exercisable
plans. The accumulated expense recognized reflects the vesting period and the Company’s best estimate
of the number of shares to be delivered.

The expense of the plans is recognized in the income statement in accordance with the function
performed by the beneficiary. The expense is reversed when vesting conditions are not met.

The outstanding stock options are considered as an additional dilution in the calculation of diluted
earnings per share when the exercise price is lower than the current share price.

3.16. Pension and other post-employment plans

The Company sponsors supplementary defined benefit and defined contribution pension plans, as well
as other post-employment benefits for which an actuarial appraisal is annually prepared by an
independent actuary and is reviewed by Management. The cost of defined benefits is established
separately for each plan using the projected unit credit method.

The measurements comprise the actuarial gains and losses, the effect of the limit on contributions and
returns on the plan assets and are recognized in the financial position against other comprehensive
income when incurred, except Award for Length of Service, which its recognition occurs against
statement of income. These measurements are not reclassified to statement of income in subsequent
periods.

The Company recognizes the net defined benefit asset when:

» controls the resource and has the ability to use the surplus to generate future benefits;
»
»

the control is the result of past events;
future economic benefits are available for the Company in the form of a reduction in
future contributions or cash refunds, either directly to the sponsor or indirectly to another
loss-making fund. The effect of the asset limit (irrecoverable surplus) is the present value
of these future benefits.

Past service costs are recognized in income for the year on the following dates, whichever comes first:

»
»

the date of changing the plan or significantly reducing the expected length of service;
the date in which the Company recognizes the costs related to restructuring.

The cost of services and net interest on the value of the defined benefit liability or asset are recognized
in the expense categories related to the function the beneficiary performs and to the financial result,
respectively.

3.17. Employee and management profit sharing

Employees are entitled to profit sharing based on certain targets agreed upon on an annual basis,
whereas directors are entitled to profit sharing based on the provisions of the bylaws, proposed by the

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Board of Directors and approved by the shareholders. The profit-sharing amount is recognized in the
statement of income when the targets are achieved.

3.18. Provision for tax, civil and labor risks and contingent liabilities

The provisions are recognized when the Company has a present obligation, formalized or not, as a result
of a past event, the outflow of resources to settle the obligation is likely to occur and a reliable estimate
can be made.

The Company is involved in several legal and administrative procedures, mainly in Brazil. Assessments
of the likelihood of loss in these lawsuits include an analysis of the available evidences, the hierarchy of
laws, the available jurisprudence, the most recent court decisions and their relevance in the legal system,
as well as the assessment of outside lawyers. Provisions are reviewed and adjusted to reflect changes in
circumstances, such as the applicable limitation period, conclusions of tax inspections or additional
exposures identified based on new matters or court decisions.

In cases where there are a large number of lawsuits and the amounts are not individually relevant, the
Company use historical studies to determine the probability and amounts of losses.

Contingent liabilities from business combinations are recognized if they arise from a present obligation
that arose from past events and if their fair value can be measured reliably.

3.19. Financial instruments

Are contracts that give rise to a financial asset for one entity and a financial liability or equity instrument
for another. Their presentation in the statement of financial position and explanatory notes takes place
according to the characteristics of each contract.

3.19.1. Financial Assets

Are recognized when the entity becomes party to the contractual provisions of the instrument and
classified based on the characteristics of its cash flows and on the management model for the asset.
The table below shows how to classify and measure financial assets: