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, 2020
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
Telephone. (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
Trading Symbol
BRFS
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, 2020, 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
No
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
No
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
No
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
No
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 whether the registrant has filed a report on and attestation to its management’s
assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-
Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.
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
No
TABLE OF CONTENTS
Page
INTRODUCTION............................................................................................................................................ 1
IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS ................................ 2
OFFER STATISTICS AND EXPECTED TIMETABLE .................................................................. 2
KEY INFORMATION ....................................................................................................................... 2
A.
B.
C.
D.
Selected Financial Data ........................................................................................................ 2
Capitalization and Indebtedness ........................................................................................... 3
Reasons for the Offer and Use of Proceeds .......................................................................... 4
Risk Factors .......................................................................................................................... 4
INFORMATION ON THE COMPANY .......................................................................................... 35
A.
B.
C.
D.
History and Development of the Company ........................................................................ 35
Business Overview ............................................................................................................. 39
Organizational Structure .................................................................................................... 60
Property, Plant and Equipment ........................................................................................... 61
ITEM 4A. UNRESOLVED STAFF COMMENTS ........................................................................................... 65
OPERATING AND FINANCIAL REVIEW AND PROSPECTS .................................................. 65
A.
B.
C.
D.
E.
F.
G.
Operating Results ............................................................................................................... 65
Liquidity and Capital Resources ........................................................................................ 82
Research and Development, Patents and Licenses ............................................................. 97
Trend Information .............................................................................................................. 99
Off-Balance Sheet Arrangements ..................................................................................... 101
Tabular Disclosure of Contractual Obligations ................................................................ 102
Safe Harbor ...................................................................................................................... 102
DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES .................................................. 102
A.
B.
C.
D.
E.
Directors and Senior Management ................................................................................... 102
Compensation ................................................................................................................... 107
Board Practices................................................................................................................. 108
Employees ........................................................................................................................ 112
Share Ownership .............................................................................................................. 113
MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS ................................ 115
A.
B.
C.
Major Shareholders .......................................................................................................... 115
Related Party Transactions ............................................................................................... 117
Interests of Experts and Counsel ...................................................................................... 118
FINANCIAL INFORMATION ...................................................................................................... 118
A.
Consolidated Statements and Other Financial Information .............................................. 118
i
B.
Significant Changes ......................................................................................................... 131
THE OFFER AND LISTING ......................................................................................................... 131
A.
B.
C.
D.
E.
F.
Offer and Listing Details .................................................................................................. 131
Plan of Distribution .......................................................................................................... 131
Markets................................................................................ Erro! Indicador não definido.
Selling Shareholders ......................................................................................................... 134
Dilution ............................................................................................................................ 134
Expenses of the Issue ....................................................................................................... 134
ADDITIONAL INFORMATION .................................................................................................. 134
A.
B.
C.
D.
E.
F.
G.
H.
I.
Share Capital .................................................................................................................... 134
Memorandum and Articles of Association ....................................................................... 134
Material Contracts ............................................................................................................ 154
Exchange Controls ........................................................................................................... 154
Taxation ........................................................................................................................... 155
Dividends and Paying Agents .......................................................................................... 165
Statement by Experts ........................................................................................................ 165
Documents on Display ..................................................................................................... 165
Subsidiary Information ..................................................................................................... 166
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK ............... 166
DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES ............................... 174
A.
B.
C.
D.
Debt Securities ................................................................................................................. 174
Warrants and Rights ......................................................................................................... 174
Other Securities ................................................................................................................ 174
American Depositary Shares ............................................................................................ 174
..................................................................................................................................................................... 175
DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES ......................................... 175
MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND
USE OF PROCEEDS ..................................................................................................................... 175
CONTROLS AND PROCEDURES .............................................................................................. 175
A.
B.
C.
D.
Disclosure Controls and Procedures................................................................................. 175
Management’s Annual Report on Internal Control Over Financial Reporting................. 175
Report of the Registered Public Accounting Firm ........................................................... 176
Changes in Internal Control Over Financial Reporting .................................................... 176
[RESERVED] ................................................................................................................................. 176
ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT............................................................................. 176
ITEM 16B. CODE OF ETHICS ........................................................................................................................ 176
ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES ............................................................... 177
ii
ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES ................ 177
ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED
PURCHASERS .............................................................................................................................. 177
ITEM 16F. CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT ................................................ 177
ITEM 16G. CORPORATE GOVERNANCE .................................................................................................... 178
ITEM 16H. MINE SAFETY DISCLOSURE .................................................................................................... 180
.................................................................................................................................................................... 180
FINANCIAL STATEMENTS ........................................................................................................ 180
FINANCIAL STATEMENTS ........................................................................................................ 180
EXHIBITS ...................................................................................................................................... 180
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 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) the economic, financial, political and social effects of the novel coronavirus
(“COVID-19”) pandemic (or other pandemics, epidemics and similar crises) particularly in Brazil and to the extent
that they continue to cause serious negative macroeconomic effects, thus enhancing the risks described under “Item
3. Key Information—D. Risk Factors,” (ii) general economic, political and business conditions both in Brazil and
abroad, including, in Brazil, developments and the perception of risks in connection with ongoing corruption and other
investigations and increasing fractious relations and infighting within the administration of President Bolsonaro, as
well as policies and potential changes to address these matters or otherwise, including economic and fiscal reforms
and in response to the ongoing effects of the COVID-19 pandemic, any of which may negatively affect growth
prospects in the Brazilian economy as a whole, (iii) our ability to timely and efficiently implement any necessary
measures in response to, or to mitigate the impacts of, the COVID-19 pandemic on our business, operations, cash
flows, prospects, liquidity and financial condition, (iv) our ability to predict and efficiently react to the temporary or
long-term term changes in our customers’ behavior as a result of the COVID-19 pandemic, even when the outbreak
is sufficiently controlled, (v) health and food safety risks related to the food industry, including in connection with
1
ongoing investigations and legal proceedings, (vi) more stringent trade barriers in key export markets and increased
regulation of food safety and security, (vii) the risk of outbreak of animal diseases, (viii) risks related to climate
change, (ix) the risk of any shortage or lack of water or other raw materials necessary for our business, (x) compliance
with various laws and regulations, (xi) risks related to new product innovation, (xii) the implementation of the principal
operating strategies of the Company, including through divestitures, acquisitions or joint ventures, (xiii) the cyclicality
and volatility of raw materials and selling prices, including as a result of ongoing global trade disputes, (xiv) strong
international and domestic competition, (xv) risks related to labor relations, (xvi) the protection of our intellectual
property, (xvii) the potential unavailability of transportation and logistics services, (xviii) the risk that our insurance
policies may not cover certain of our costs, (ix) our ability to recruit and retain qualified professionals, (xx) the risk
of cybersecurity breaches, (xxi) risks related to our indebtedness, (xxii) risks related to the Brazilian economy and to
Brazilian politics, (xxiii) interest rate fluctuations, inflation and exchange rate movements of the real in relation to the
U.S. dollar and other currencies, (xxiv) the direction and future operation of the Company, (xxv) the Company’s
financial condition or results of operations and (xxvi) 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 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 not to occur.
Our forward-looking statements speak only as of the date of this annual report 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.
DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
Not applicable.
AND EXPECTED TIMETABLE
Not applicable.
A.
Selected Financial Data
IDENTITY
OF
OFFER
STATISTICS
KEY INFORMATION
We present below certain selected financial data derived from our consolidated financial statements as of and
for the years ended December 31, 2020, 2019 and 2018, 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.”
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, as well as the information set forth under the heading “Item 5. Operating
and Financial Review and Prospects.”
2
STATEMENT OF INCOME (LOSS) DATA
Year Ended December 31,
2018
(in thousands of reais, except share, per share and per ADS amounts and as otherwise indicated)
2020
2016
2019
2017
Statement of Income (Loss) Data
Continuing Operations
Net sales ............................................
Gross profit ......................................
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 ...........................
39,469,700
9,470,878
3,051,229
33,446,980
8,076,938
2,748,337
30,188,421
4,867,668
(206,334)
28,314,160
5,712,945
663,184
27,883,943
6,949,865
1,962,881
1,524,997
1,078,333
(2,114,506)
(966,765)
(110,991)
—
1,524,997
1,518,492
6,505
1.88
1.88
1.88
1.88
(915,809)
162,524
(2,351,740)
(4,466,246)
(132,089)
(1,098,854)
162,684
(160)
(4,448,061)
(18,185)
(1,125,572)
26,718
1.32
1.32
0.20
0.20
(2.61)
(2.61)
(5.48)
(5.48)
(1.23)
(1.23)
(1.40)
(1.40)
(256,348)
(367,339)
(372,383)
5,044
(0.13)
(0.13)
(0.46)
(0.46)
809,110,872
1.87
1.87
811,539,167
1.31
1.31
811,294,251
(2.61)
(2.61)
803,559,763
(1.23)
(1.23)
801,903,266
(0.13)
(0.13)
811,348,808
—
—
813,867,119
—
—
811,294,251
—
—
803,559,763
—
—
801,903,266
0.76
0.76
STATEMENT OF FINANCIAL POSITION DATA
2020
2019
2018
2017
2016
(in thousands of reais, except as otherwise indicated)
As of 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 ...................
7,576,625
4,136,421
6,802,759
186,025
22,911,984
12,215,580
5,220,102
26,752,922
49,664,906
1,059,984
8,996,206
15,440,328
21,344,442
25,411,044
12,460,471
8,813,534
49,664,906
B.
Capitalization and Indebtedness
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
3
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
Not applicable.
C.
Reasons for the Offer and Use of Proceeds
Not applicable.
D.
Risk Factors
Risks Relating to Our Business and Industry
Pandemics or human disease outbreaks, such as the novel coronavirus (COVID-19), 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) 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. The worldwide spread of COVID-19 has triggered the implementation of significant
measures by governments and private sector entities that, in turn, have disrupted consumption and trade patterns,
supply chains and production processes on a global scale and specifically relating to our business, including with
respect to product shipments. In addition, customers from certain regions in which we operate are being affected,
mainly by the measures of social distancing imposed by authorities and restrictions on public gatherings or
interactions, which may limit the opportunity for our customers to purchase our products. The consequences of the
pandemic could also result in the destabilization of commodity prices or 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. Any deterioration in the credit cycle of our customers as a result of the pandemic
or the measures implemented to address it, may adversely affect our results and cash flows in the future.
Our operations include global production and distribution facilities, and if there is an outbreak of a human
disease such as 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. In addition,
countries to which we export our products may institute bans on the importation of our products, products produced
by our partners or on all or some food products from Brazil in general based on perceived COVID-19 concerns.
Since the beginning of the global pandemic, we have continued to operate our plants, distribution centers,
logistics, supply chain and administrative offices, although currently we have implemented a remote work program in
some of our corporate offices, and we had to close our Lajeado plant for a week in May 2020 and our Rio Verde plant
for 14 days in June 2020, in each case as the result of an outbreak. Our operations may be further affected by COVID-
19 through reduction of the available labor force, reducing the productivity of manufacturing operations, lack of raw
materials and packaging, and delay in line growth and maintenance projects due to reduced availability of third-party
suppliers. We have incurred direct and incremental expenditures, mainly related to personnel, prevention, control,
logistics and philanthropic donations, as a result of the pandemic in the amount of R$499,299 thousand.
Despite having more visibility on the impact of the pandemic compared to March 2020, we may still suffer
changes in our operational performance, which may in turn adversely affect our financial position. We also recognize
that unfavorable operating results may have an adverse impact on our financial metrics, such as leverage. At the same
time, we may experience increases in general customer default rates in connection with the pandemic and a resulting
increase in our expected credit losses. The possible deterioration in the credit cycle of our customers may adversely
affect our results, financial position and cash flows in the future.
The recent increase in volatility of market risks has significantly affected the fair value of our assets and
liabilities, particularly considering wide variations in foreign exchange rates. Additionally, the heightened uncertainty
of projections has increased the challenge of accurately measuring certain of our assets and liabilities.
4
The COVID-19 pandemic also resulted in a widespread health crisis that destabilized commodity prices and
the economic conditions 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. The current pandemic and
any future pandemics could also adversely affect 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. In addition, demand for our products has been affected as a result of the COVID-19 pandemic worldwide,
especially in our international operations, due to the partial discontinuation of our foodservice channel, weakening of
global commercial activities, reduction of population income, and changes in consumption habits. As a result, over
the past year we have observed lower average prices as a consequence of relocating production from foodservice to
other channels with lower prices and profitability, ultimately having an adverse effect on our results of operations and
financial position.
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, packaging (resin,
petrol), food ingredients, animal feed ingredients 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, Covid-19
Pandemic, weather, animal and crop diseases, cost of national and 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, China soybean and corn
purchases and crop results due to the weather conditions, all of them reflecting in the world commodities stock prices.
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.
The prices of 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. For more
information on the trade dispute between the U.S. and China, see “—More stringent trade barriers in key export
markets may negatively affect our results of operations.” Any changes in the price of raw materials required for our
production as a result of the foregoing or other factors could have a material adverse impact on our business.
Health and food safety risks related to our business and the food industry could adversely affect our production
and shipping processes as well as 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. For
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example, the perceived risk of contamination of our food or related packaging by COVID-19 led to production,
shipping and sales disruptions in Brazil and our export markets, particularly in China, in early 2020.
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.
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 disease control. 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: (i) in the case of hogs and certain other animals, foot-and-mouth disease, influenza
(H5N1) and African swine fever and (ii) 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 the 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
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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. The cases reported were caused by the H5N1 virus. In early 2017, Chile, a neighboring
country to Brazil, confirmed the occurrence of avian influenza. In 2019 and 2020, several countries within Europe,
Asia and Africa reported cases of highly pathogenic avian influenza in poultry. Additionally, Mexico also reported
cases in 2019 and the United States also reported cases in 2020.
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.
According to the 16th Global Risks Report published by the World Economic Forum in January 2021, risks
related to climate change are considered to be the most concerning for the world in the next 10 years.
We take into consideration the potential effects of climate change on our operations and supply chain, and
we recognize vulnerabilities associated with natural resources and agricultural products that are essential for our
activities. The main risks to our business that we have identified with respect to climate change relate to the changes
in temperature (global warming) and rainfall, including drought and natural disasters (such as flooding and storms),
which may affect agricultural productivity, animal welfare and the availability of water and 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 or have proper
environmental or sustainability certifications related to reducing 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 in 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 on hydroelectric
facilities. Hydroelectric production is vulnerable to a variety of factors, including levels 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.
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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. According to the SDG6 Brief Report, published by United
Nations Environment Programme, water scarcity affects more than 40% of the global population and this percentage
is expected to increase. Over 1.7 billion people are currently living in river basins where water usage exceeds natural
replenishment. Water is an essential resource 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, including the increasing risk of droughts in the regions where
we operate, represents a critical risk for our business and may materially and adversely affect our business and results
of operations. We are also subject to restrictions on the volume of water that we can collect from the environment
under our water usage permits, which may be lower than the actual water demands of our business in these areas. In
the event we cannot collect enough water to meet our operational demands, due to restrictions under water permits or
otherwise, our business and results of operations may be materially adversely affected.
The procedures that we have developed to reduce our water consumption and increase water reuse in order
to comply with applicable rules and regulations, and to minimize our impact on the environment and the community,
may prove to be ineffective or insufficient. Additionally, the methods we employ to analyze the water vulnerability
of our industrial plants, as well as 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 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.
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
us 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 our 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%. The South African producers’ representatives have repeatedly filed requests with local
authorities for the opening of an anti-dumping investigation against Brazilian poultry exporters.
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
8
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.
However, the current trade deal may not be maintained by the United States under the new Biden
administration, especially since it has generally been regarded unfavorably, particularly for U.S. industry. The U.S.
agribusiness sector, on the other hand, has largely benefited from the agreement, with a significant increase in poultry
and pork exports, the reopening of the Chinese market to U.S. poultry exports, which had been halted since 2015 due
to an avian influenza outbreak, and the accreditation of over 120 U.S. plants. These factors have positively affected
the United States’ market share of Chinese agricultural imports, which in turn has negatively affected Brazil’s market
share. We cannot control whether commercial tensions between China and the United States will increase again, or
whether our business will be adversely affected as a result.
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. We, along with other Brazilian companies, were therefore required to
migrate our 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 our plants. One of our plants (Lajeado,
Rio Grande do Sul), which 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
Vision 2030 plan, announced in April 2016 as a national development plan, which included instruments 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 our construction and operation of a poultry processing plant in Saudi Arabia. We estimate that the
investment amount will be around R$634 million (U.S.$120 million, translated to reais at the exchange rate of
R$5.1967 as of December 31, 2020). The development of this project is currently in the technical specification and
financial modelling phase. 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 SFDA, the Saudi Arabian
sanitary authority, regarding a report temporarily suspending two of our facilities, the Dois Vizinhos and the Francisco
Beltrão plant, both located in the State of Paraná, 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 investigations carried out between 2014 and 2018 regarding alleged violations committed by us 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.
In the future, this system may adversely affect our exports to the country, since it might be used by local authorities
9
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.
Trade barriers may also be imposed in our key export markets as a result of the COVID-19 pandemic, for
example due to outbreaks of COVID-19 in our plants and restrictions that may be imposed on our products because
of these outbreaks. For more information, see “—Pandemics or human disease outbreaks, such as the novel
coronavirus (COVID-19), may disrupt consumption and trade patterns, supply chains and production processes, which
could materially affect our operations and results of operations.”
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, including as a result of the COVID-19 pandemic, 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.
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 sites and permanent preservation areas, handling and
disposing of waste, discharging 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. Civil
penalties may include fines, the suspension of public subsidies 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 defendant may be held liable (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 form 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
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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 requests for renewal. 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.
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. We have observed an
increase in cybersecurity attacks worldwide in 2020, and the remote working arrangements that we have implemented
due to the COVID-19 pandemic have increased our dependence on information technology systems and infrastructure,
and they may further expand our vulnerability to this risk. 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.
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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 Protection Law (Lei Geral de Proteção de Dados
Pessoais), or LGPD, was signed into law in August 2018 and came into effect on September 18, 2020, with the
exception of the administrative sanctions, which are expected to come into effect in August 2021. 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 applicable data protection laws, and we may be
negatively affected by the imposition of fines and other types of sanctions.
The LGPD came into effect on September 18, 2020, with the exception of the administrative sanctions, which
are expected to come into effect in August 2021. The LGPD changed the way the protection of personal data is
regulated in Brazil. It 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
(“ANPD”).
On August 26, 2020, the Brazilian government issued Decree No. 10,474/2020 approving the regulatory
framework and list of commissioned positions for the ANPD, as well as drafting guidelines and setting forth
administrative sanctions for violations of the LGPD. The decree came into effect on October 10, 2020, when the
ANPD’s president Waldemar Gonçalves Ortunho Junior was officially appointed.
If we do not comply with the LGPD, both we and our subsidiaries may be subject to sanctions, either
individually or cumulatively, including warnings, obligations to disclose incidents, temporary blocking 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 the suspension of our activities, which
could adversely affect our reputation, business, results of operations and financial condition.
We are subject 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
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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 reliability 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, global shipping container shortages, or labor strikes, could adversely affect 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.
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 assess and pursue opportunities to focus or generate synergies in our business through
divestitures or expansions through 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, legal, compliance and reputational risks and uncertainties, including:
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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;
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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;
challenges in receiving the necessary approvals from governments and international antitrust authorities;
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restrictions imposed by local regulators, which were not identified before completion of the transaction.
The strategic benefits from our divestitures or acquisitions may not materialize 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.
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. For example, the world has recently been affected by the COVID-19 pandemic, which has triggered
negative global economic developments, the severity of which we cannot quantify. Accordingly, the purchasing power
of the Brazilian population is expected to decrease, which may reduce consumption and investments and adversely
affect our business and 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 a referendum on the United Kingdom’s
membership within the European Union, the result of which, known as “Brexit,” favored the exit of the United
Kingdom from the European Union. 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
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for Brexit. The European Union and the United Kingdom agreed to a further extension on April 10, 2019. On January
31, 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 give rise to potentially conflicting national laws and regulations as the United Kingdom
determines which laws of the European Union will be replaced or replicated. 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 operated 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. The economic conditions
in the United Kingdom, the European Union and global markets may be adversely affected by reduced growth and
volatility. We have undertaken, in the share purchase agreement entered into with Tyson International Holding Co.,
not to do business or otherwise compete in the sale of poultry products for human consumption in certain jurisdictions
in Europe, including the European Economic Area (EEA) and the United Kingdom. The non-compete provision has
partially lapsed for certain products and channels, and in October 2020, we reached a commercial agreement with
Tyson International Holding Co. to accelerate our return to the European continent and regain access to other markets
through a phased removal of the non-compete restrictions between 2021 and 2024. While we aim to expand our sales
to Europe and other international markets as part of our strategy and Vision 2030 Plan, continued uncertainty and
market volatility could undermine those expansion plans and have a corresponding adverse effect on our operations
and financial results.
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, neither of whom works for us any longer. 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 April 20, 2017, based on an investigation by the Brazilian Federal Police, Brazilian federal prosecutors
filed several charges against two of our former employees (one of our regional manufacturing officers and one of our
corporate affairs managers). One such employee was acquitted by lower courts of all charges on September 28, 2018,
while the other employee was convicted on one charge. The Brazilian federal prosecutors and one of our former
employees filed an appeal, which is pending judgment by the court. See “Item 8. Financial Information—A.
Consolidated Statements and Other Financial Information—Legal Proceedings” for additional information.
On March 5, 2018, we 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 pertaining to us
and certain current and former employees, as well as the temporary detention of certain individuals. In what media
reports have identified as the “Trapaça Operation,” eleven of our current and former employees were temporarily
detained for questioning, including former Chief Executive Officer Pedro Faria and former Vice President for Global
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Operations Helio Rubens. All such current and former employees were released from custody and those who are still
our employees are on leave of absence. A number of our current 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, which contained accusations against 43 people, 23 of whom are current or former BRF employees,
including former Chief Executive Officer Pedro Faria, former chairman of our board of directors Abilio Diniz, and
three former vice presidents. Those who are still our employees are on leave of absence. 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 of our 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, in the context of the Trapaça Operation, criminal charges were brought against former
BRF employees for allegedly committing, with respect to 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 complaint was received by the lower court
on January 21, 2020. There was no negative decision against any of the defendants during 2020. As of the date of this
annual report, some of the defendants have presented their response. On November 4, 2020, also in the context of the
Trapaça Operation, a second complaint was filed by the Federal Public Prosecutor’s Office against former and inactive
employees of ours for allegedly committing aggravated larceny by fraud, false representation, selling products harmful
to health and criminal association, between the years 2012 and 2017, related to the presence of Salmonella on food
products. The complaint was received by the lower court on November 20, 2020. As of the date of this annual report,
some of the defendants have presented their response. These proceedings are still pending. For additional information,
see “Item 8. Financial Information—A. Consolidated Statements and Other Financial Information—Legal
Proceedings.”
On February 11, 2020, the Saudi Food & Drug Authority (“SFDA”) temporarily suspended the export
authorization of two of our plants (Dois Vizinhos, SIF 2518, and Francisco Beltrão, SIF 1985) due to the Trapaça
Operation. The Saudi Arabian government agency based its decision on news reports relating to the investigations.
The case has been brought by Brazil as a Specific Trade Concern (STC) in the 4th meeting of the Sanitary and
Phytosanitary Measures (SPS) Committee at the World Trade Organization (“WTO”), held in November 2020. For
additional information, see “—More stringent trade barriers in key export markets may negatively affect our results
of operations.”
In June 2018 and in May 2019, we learned of administrative proceedings commenced against BRF by the
Brazilian Comptroller General of the Union (Controladoria-Geral da União, or “CGU”), which is primarily related
to alleged irregularities in connection with conduct that could represent harmful acts to the public administration under
the Brazilian Anti-Corruption Law and other applicable laws, as described in Carne Fraca Operation and Trapaça
Operation. The CGU is an internal control body of the Brazilian federal government responsible for carrying out
activities related to the defense of public property and the increase of management transparency, through actions of
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public audit, correction, prevention and combat of corruption, among others. These CGU administrative proceedings
against BRF remain pending without any adverse decision against BRF as of the date of this annual report. See “Item
8. Financial Information—A. Consolidated Statements and Other Financial Information—Legal Proceedings” for
additional information.
Any of these existing investigations and proceedings, as described in “Item 8. Financial Information—A.
Consolidated Statements and Other Financial Information—Legal Proceedings,” or any other future investigation or
proceeding 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.
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 in the total amount of R$28,004 thousand in 2020 and R$79,207 thousand in 2019,
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”).
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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 (TRY30,518
thousand, translated to reais at the exchange rate of R$0.7375 as of September 30, 2019), against Banvit. The decision
was confirmed on September 17, 2019, and Banvit anticipated the payment of the fine to benefit from a 25% discount
available under Turkish law. 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.
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, our 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
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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.
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 to the
following risks, among others:
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political instability;
geopolitical risks and conflicts, such as war, terrorism and civil unrest;
the imposition of exchange or price controls;
the imposition of restrictions on exports of our products or imports of raw materials necessary for our
production processes, including embargoes from countries where we undergo production or distribution
activities;
the fluctuation of global currencies against the real;
the 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
institutional and contractual changes unilaterally imposed by governments, 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. This risk may be heightened as a result of the COVID-19 pandemic, for example due
to outbreaks of COVID-19 in our plants and restrictions that may be imposed on our products because of these
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outbreaks. For more information, see “—Pandemics or human disease outbreaks, such as the novel coronavirus
(COVID-19), may disrupt consumption and trade patterns, supply chains and production processes, which could
materially affect our operations and results of operations.” In another trade-related development in 2020, certain
member states of the European Union negotiating a trade agreement with the Mercosul trade bloc, of which Brazil is
the largest member, indicated that progress would slow in light of concerns over Brazilian environmental protection
policies and enforcement in connection with fires in the Amazon rainforest. Such delays could undermine efforts to
expand our access to European markets. Additionally, several countries in Asia currently do not tax the importation
of poultry and pork meat, which increases our products’ competitiveness in these countries. However, we understand
that this import tax regulation may be changing in the near future. We are unable to control any such change in import
tax regulation, which may have a material adverse effect on our products’ competitiveness. 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 adversely affect our operations and financial results.
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 43.7% of our
net sales in 2020, 44.5% of our net sales in 2019 and 43.3% of our net sales in 2018. 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 herein 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:
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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;
damage to our products;
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negative media exposure related to the Brazilian agriculture or meat processing industries, particularly
in connection with the Carne Fraca Operation, Trapaça Operation or other investigations; and
negative preconceptions influenced by the worsening international reputation of Brazil due to
deforestation and other environmental and sustainability issues.
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. The main barrier impeding
these companies from entering the Brazilian market has been the need to build a comprehensive distribution network,
including a network of outsourced farmers, known as outgrowers. Nevertheless, foreign competitors with significant
resources could undertake to build 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.
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, 2020, we have approximately 100,000 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 13.5% of
our cost of sales in 2020. 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 results 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
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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.
Unfavorable outcomes in administrative and legal proceedings may reduce our liquidity and negatively affect us.
We are defendants in civil, administrative, regulatory, 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 value-added tax (“VAT”) that we accumulate on exports.
As of December 31, 2020, we have R$1,702,720 thousand in provisions for contingencies, of which
R$343,530 thousand are for civil and other contingencies (including administrative, regulatory and environmental),
R$427,302 thousand are for tax contingencies, R$634,706 thousand are for labor contingencies and R$297,182
thousand are 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 our ADRs during the period from April 4, 2013, through and
including March 2, 2018. The class action alleges, among other things, that we and certain officers or directors of ours
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$204,436 thousand
(U.S.$40,000 thousand, translated to reais at the exchange rate of R$5.1109 as of March 27, 2020). The court approved
this settlement on October 23, 2020.
In addition, in 2020 we received a final and unappealable judicial decision 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 Market Arbitration
Chamber (Câmara de Arbitragem do Mercado) of the B3 S.A. – Brasil, Bolsa, Balcão (the “B3” or the “São Paulo
Stock Exchange”) 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.
In September 2020, the Chairman of the Market Arbitration Chamber of B3 decided to consolidate these three
arbitrations into a single arbitration proceeding. Because this arbitration proceeding is in its initial stage, we believe
the possible loss or range of losses, if any, cannot be estimated. In the event that this litigation or arbitration proceeding
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is decided against us, or we enter into an agreement to settle, there can be no assurance that an unfavorable outcome
or settlement would not have a material adverse 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 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
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 rights, we could suffer a material adverse impact on our
reputation, business, financial position, results of operations and cash flows.
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, swine fever, 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.
On occasion, our facilities may be affected by fires, such as the fires in our facilities 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. In addition, our operations
were adversely affected by the COVID-19 pandemic, and we may not be able to recover compensation for the resulting
losses under our insurance policies. For more information on the effects of COVID-19 on our business, see “—
Pandemics or human disease outbreaks, such as the novel coronavirus (COVID-19), may disrupt consumption and
trade patterns, supply chains and production processes, which could materially affect our operations and results of
operations.” 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 effect on our business, results of operations, financial condition and prospects.
Moreover, our insurance policies may not cover legal costs in general incurred to defend ourselves against
legal and administrative proceedings. We have incurred, and expect to continue to incur, significant costs in connection
with the Carne Fraca Operation and the Trapaça Operation. The costs associated with these investigations and the
costs of defending ourselves against legal and administrative proceedings may not be covered by our insurance
23
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. However,
since 2019 the stability of our Senior Staff improved significantly, with one departure in 2019 – Mr. Ivan de Souza
Monteiro, Chief Financial Officer, who took office on March 11, 2019 and remained in the position until April 25,
2019, and one departure on October 9, 2020 – Mr. Rubens Pereira, who resigned the position of Strategy, Management
and Innovation Vice President. 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.
Our business depends on the supply of raw materials produced by farmers and integrated producers, and our
performance depends on our ability to attract and retain a network of qualified farmers and integrated producers.
We are a vertically integrated producer of food products, and we depend on a large number of raw materials
of animal origin, or animal byproducts, to conduct our business. A substantial portion of the animal byproducts we
use to conduct our business is produced by a network of integrated farmers and producers with whom we have entered
into integrated production contracts. Such integrated producers are responsible for managing and raising the poultry
and pork that we, as integrators, supervise. For the year ended December 31, 2020, we acquired 4,709,640 tons of
animal byproducts from our integrated producers, corresponding to 97.2% of the raw materials we used during the
course of our business.
The selection and retention of farmers and producers is highly competitive, and such competition between
integrators has intensified in recent years. Our integrated producers are primarily located near our industrial units,
where competing integrators conduct activities similar to the activities we conduct. We may be unable to select and
retain such farmers and producers, particularly as a result of greater competition, or we may be obligated to pay higher
prices for such byproducts or offer greater benefits to retain such farmers and producers. Our inability to retain an
adequate number of such farmers and producers may negatively impact our strategic plans and operational
performance.
In addition, our integrated producers are mostly financed through rural credit financing that they contract
directly with financial institutions. Such rural credit financing are offered in the context of financial collaboration
agreements that we enter into with the respective financial institutions, which establish obligations related to: (i)
selecting integrated producers suitable for obtaining financing; (ii) maintaining a sufficient payment stream to such
integrated producers to amortize and settle the financial installments granted within the scope of such financial
collaboration agreements; and (iii) supervising the application of the financial resources granted to such integrated
producers. In exceptional cases, such as the operational suspension, sale or lease of one of the industrial units that we
use to purchase the production of our integrated producers financed through such financial collaboration agreements,
we may be obligated to prepay the financing obtained by our integrated producers, or we may be required to maintain
a sufficient payment stream to such integrated producers to amortize and settle the financial installments until a new
integrator succeeds the affected industrial unit with respect to the integrated production contracts, which may
adversely affect our results.
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
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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.
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.
As of December 31, 2020, our total consolidated debt (comprised of loans and borrowings) was
R$22,404,426 thousand, and while we have not incurred significant increases in indebtedness resulting from the
COVID-19 pandemic since it was declared, an increase in our leverage could result in adverse 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;
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; and
• 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.
If one or more of these consequences or limitations were to materialize, they could adversely affect our results
of operations and financial position.
Our cost of funding is affected by our credit ratings and any risks may have an adverse effect on our credit ratings
and our cost of funds. Any downgrade in our credit rating, would likely increase our cost of funding and adversely
affect our results of operations.
Credit ratings affect the cost and other terms upon which we are able to obtain funding. Rating agencies
regularly evaluate us, and their ratings of our long-term debt are based on a number of factors, including our financial
strength, conditions that generally affect the meat processing industry and the economic environment in which we
operate.
In view of our current credit metrics and according to the policies and guidelines set by rating agencies in
order to evaluate a company’s creditworthiness, as well as other factors, our credit rating is currently rated below
“investment grade” by all of the rating agencies that rate us.
We cannot assure you that those rating agencies that have a negative outlook with respect to us will revise
such outlooks upward. Our failure to maintain favorable ratings and outlooks would likely increase our cost of funding
and adversely affect our results of operations.
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We have substantial debt that matures in each of the next several years.
As of December 31, 2020, we have R$1,059,984 thousand of loans and borrowings that matures in 2021,
R$2,114,622 thousand of loans and borrowings that matures in 2022, R$2,569,063 thousand of loans and borrowings
that matures in 2023, R$1,782,687 thousand of loans and borrowings that matures in 2024, R$599,266 thousand of
loans and borrowings that matures in 2025 and R$14,278,804 thousand of loans and borrowings that matures in 2026
and thereafter.
A substantial portion of our outstanding loans and borrowings is denominated in foreign currencies, primarily
U.S. dollars. As of December 31, 2020, we have R$15,739,134 thousand of foreign currency loans and borrowings,
including R$575,147 thousand of short-term foreign currency debt. Our U.S. dollar-denominated loans and
borrowings 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. In
2020, the real depreciated against the U.S. dollar by 22.4%. 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 coming 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 existing indebtedness impose significant restrictions on us, and the
instruments governing any indebtedness we may incur in the future may also impose the same or additional restrictions
on us. The existing restrictions limit, and any future 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
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•
engage in mergers or consolidations.
Although the covenants to which we are currently subject have exceptions and qualifications, the breach of
any of these covenants 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 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 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.
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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. Due to the global
economic downturn triggered by the COVID-19 pandemic, the Brazilian economy in 2020 contracted by 4.1% of
GDP. 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 4.52% in 2020, from 4.31% in 2019 and 3.75% in 2018. Interest rates decreased
to 2.0% in 2020, from 4.5% in 2019 and 6.50% in 2018. Unemployment had a slight improvement from 12.3% in
2018 to 11.9% in 2019, but increased to 13.9% in 2020, 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 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 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 current 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 certain reforms will be approved or even
presented to Congress for review, which may further deteriorate the fiscal condition of Brazil and worsen the
uncertainty regarding the Brazilian economic. Additionally, statements made by Mr. Bolsonaro during 2020 and 2021,
such as the announcement to replace the Chief Executive Officer of Petrobras following disagreements over fuel price
policies, contributed to significant market volatility in Brazil and also indicate possible deviations from his campaign
promises in favor of liberal economic policies. 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.
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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 the implementation of policies and reforms, all of which could have a negative impact
on our business and the price of our common shares and ADRs.
In addition, Mr. Bolsonaro is under criminal investigation due to allegations by former minister of justice
Sergio Moro that he had unduly interfered in the activities of the Brazilian Federal Police. According to the former
minister, the president asked him to appoint certain officials to positions in the Brazilian Federal Police force. Should
it be determined that Mr. Bolsonaro had committed such crimes or impeachable offenses, any resulting consequences,
including a potential impeachment, could have significant adverse effects on Brazil’s political and economic
environment, as well as on businesses operating in Brazil, including our company. Mr. Bolsonaro has also been
criticized in Brazil and internationally in relation to the destabilizing effects of the COVID-19 pandemic and high
levels of political uncertainty and instability in Brazil, particularly after the resignation of highly ranked federal
ministers, the emergence of corruption allegations against Mr. Bolsonaro and the critical state of the pandemic in
Brazil and ensuing aggravated health crisis.
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 2021, but it is uncertain whether
any such reform would suffice to reduce this budget deficit and improve the Brazilian fiscal condition. Brazil is also
expected to continue to run a budget deficit for 2021 and the years going forward. The 2021 budget bill, which was
introduced in July 2020, is pending congressional approval. We cannot predict the impact of this budget deficit on the
Brazilian economy. The political and economic instability in 2020 has negatively affected consumer confidence in
Brazil. The Fundação Getúlio Vargas (“FGV”) Consumer index presented a decrease of 13.1 points, from 91.6 points
in 2019 to 78.5 points in 2020.
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 ADRs.
Brazil has experienced high rates of inflation in the past, while recent downward inflationary pressures caused
the Brazilian consumer price inflation rates to reach 3.75% in 2018, 4.31% in 2019 and 4.52% in 2020, 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 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 ADRs.
29
Fluctuations in interest rates may have an adverse effect on our business, financial condition and the market prices
of our common shares and ADRs.
The Brazilian 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 a rising
interest rate 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.
As of December 31, 2020, 29.7% of our total loans and borrowings of R$22,404,426 thousand was either: (i)
denominated in (or swapped into) reais and bears interest based on Brazilian floating interest rates, such as 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 (ii) U.S. dollar-denominated and bears floating interest based on the London Interbank Offered Rate
(“LIBOR”). Any increase in the CDI, 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 appreciated 16.5% in 2016, and depreciated 1.5%, 17.1%,
and 4.0% and 22.4% in 2017, 2018, 2019 and 2020, respectively, against the U.S. dollar. Following the start of the
COVID-19 pandemic, the real depreciated significantly against the U.S dollar, reflecting low interest rates, a
deteriorating economic environment and a political crisis. As of December 31, 2020, the real/U.S Dollar exchange
rate was R$5.1967.
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 loans and borrowings in an aggregate amount of R$15,739,134
thousand as of December 31, 2020, representing 70.3% 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.
30
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, ICMS and certain 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 virtually (whenever the shareholders’ meeting is held
under a partial or 100% digital format), by means of the distance voting form (boletim de voto a distância) or by
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.
31
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 Brazilian Corporate Law.
Our corporate affairs are governed by our bylaws and Brazilian Corporate 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 Brazilian Corporate 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 non-Brazilian 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 is 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, non-Brazilian holders of ADRs or
common shares 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 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
32
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 our capital stock 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 our capital stock 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:
i.
15% upon the portion of capital gains not exceeding R$5,000,000.00;
33
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 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 46.5% of the
aggregate market capitalization of the São Paulo Stock Exchange as of December 31, 2020. In addition, the ten most
widely traded stocks in terms of trading volume accounted for approximately 39.9% of all shares traded on the São
Paulo Stock Exchange in 2020. These market characteristics may substantially limit the ability of holders of 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 markets, 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 degree, 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.
The COVID-19 pandemic added a new source of uncertainty to global economic activity and has resulted in
significantly increased volatility in both Brazilian and international financial markets and economic indicators,
including exchange rates, interest rates and credit spreads. For example, as a result of heightened volatility, the B3’s
circuit breaker was triggered eight times in the month of March 2020. Any significant change in the global financial
markets or the Brazilian economy may decrease the interest of investors in assets from Brazil and other countries in
which we do business, including our common shares, which may adversely affect the trading price of our common
shares and ADRs, or decrease liquidity of our common shares and ADRs generally in addition to hindering our access
to the equity capital markets and to financing in the future on acceptable terms.
Additionally, governmental authorities around the world, including Brazil, have taken measures to try to
contain the spread of COVID-19. Restrictions will likely remain in place, suppressing social and economic activity,
if the contagion does not subside or is not addressed through vaccination efforts. It is uncertain how long it will take
to vaccinate substantial portions of the world’s population as well as the Brazilian population, and delays in
vaccination efforts may further increase risks relating to the COVID-19 pandemic. We are unable to estimate or
quantify all economic and operational consequences of the COVID-19 pandemic, or the micro and macroeconomic
effects this pandemic will continue to have on our business. The materialization of these risks has significantly
34
affected global growth. Measures taken by governmental authorities worldwide, including Brazil, to stabilize markets
and support economic growth may not be sufficient to control high volatility or to prevent serious and prolonged
reductions in economic activity. In addition, the social distancing measures imposed by governmental authorities to
contain the COVID-19 pandemic have resulted in a sharp drop or even a halt in certain activities and economic output.
At this moment, there is no way to predict how long these measures will remain in force. These policies and measures
have influenced the behavior of the consumer market and the population in general, the demand for services, products
and credit.
Developments in other countries and securities markets could adversely affect the market prices of our
common shares and 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 2020, and we do not expect to be a PFIC
for 2021, 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 percentage of our assets (which includes cash) by value (determined on the basis of a
quarterly average) 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 2021 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
A.
History and Development of the Company
BRF S.A. is a publicly held company in Brazil and is therefore subject to the requirements of Brazilian
Corporate Law and the rules and regulations of the CVM and the B3. Our commercial name is “BRF.”
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.
35
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 us, that file electronically with the SEC.
Our internet address is https://www.brf-global.com/. On occasion, 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 https://ri.brf-global.com. The information posted on our website or that could be accessed through our
website is not an integral part of, or attached to or incorporated by reference into, this annual report.
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 our current name, BRF S.A.
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, we executed a Share Sale and Purchase Agreement with two of our subsidiaries, BRF
Foods GmbH and One Foods Holding Ltd., to acquire all common shares of SHB. On December 12, 2018 at our
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
36
R$191,291 thousand (U.S.$49,937 thousand, translated to reais at the exchange rate of R$3.8306 as of January 2,
2019).
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 (U.S.$44,824 thousand, translated to reais at the exchange rate of R$3.7865 as of February 4,
2019).
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 (U.S.$382,106 thousand, translated to reais at the exchange rate of R$3.8943 as of June 3, 2019).
Other Transactions in 2018, 2019 and 2020
On December 6, 2018, we were notified by VDG Holding S.A. that it was exercising its right to terminate
Minerva S.A.’s shareholders’ agreement entered into on November 1, 2013, as a result of us holding less than 6% of
the outstanding shares issued by Minerva S.A.
On December 18, 2018, we created a Brazilian receivables investment fund (“FIDC”) to acquire trade
receivables of commercial transactions entered into by us and our 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, we 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 (U.S.$26,753 thousand, translated to reais at the exchange rate of R$3.5523 as of February 28,
2019).
On January 10, 2019, we 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 our 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 (U.S.$7,619 thousand, translated to reais at the
exchange rate of R$3.8534 as of March 11, 2019).
On August 20, 2019, our 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 our products in that country. The
transaction closed on April 21, 2020 for an amount equivalent to R$100,390 thousand (U.S.$19,000 thousand,
37
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, we 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 an amount
equivalent to R$51,197 thousand (SGD17,000 thousand, translated to reais at the exchange rate of R$3.0116 as of
September 30, 2019) and also encompassed the execution of a new contract for the distribution and licensing of brands
owned by us.
On May 7, 2020, our indirect wholly owned subsidiary Badi Limited executed a Share Purchase Agreement
with Hungry Bunny Limited and others, setting forth the terms and conditions for the acquisition of 100% of the
capital stock of Joody Al Sharqiya Food Production Factory, a food processing company in Dammam, Saudi Arabia.
The transaction considered an enterprise value equivalent to R$41,620 thousand (SAR29,793 thousand, translated to
reais at the exchange rate of R$1.3970 as of January 18, 2021). This acquisition was concluded on January 18, 2021.
On June 24, 2020, our indirect wholly owned subsidiary BRF FOODS GmbH agreed to sell 70% of the
outstanding shares of FFM Further Processing Sdn. Bhd., a company incorporated in Malaysia and owner of a food
processing plant in that country, to FFM Berhad, which previously held the remaining 30% of those shares. The
transaction was concluded on the same date and BRF FOODS GmbH received the purchase price equivalent to
R$38,546 thousand (U.S.$7,350 thousand translated to reais at the exchange rate of R$5.2444 as of June 24, 2020).
On December 17, 2020, Nutrinvestment BV and Banvit Bandirma Vitaminli Yem Sanayii AS, companies
indirectly controlled by us, executed a Sale and Purchase Agreement with Aaylex System Group S.A. that provides
for the sale of 100% of the shares that the companies hold in Banvit Foods SRL, which produces animal feed and
manages an egg hatchery in Romania. The transaction value is EUR 20,300 thousand, equivalent to approximately R$
129,471 thousand (translated to reais at the exchange rate of R$6.3779 as of December 31, 2020), which will be paid
at closing, which is expected to occur after the satisfaction of customary conditions precedent, including the approval
of the local antitrust authority.
Acquisition of Remaining Stake in BRF Al Yasra Food K.S.C.C.
On March 9, 2021, we acquired the remaining minority stake that we did not own of 25% of Al Yasra Food
K.S.C.C. (“BRF AFC”), located in Kuwait, through our wholly-owned subsidiary One Foods Holdings Ltd., for the
amount equivalent to R$238,383 thousand (U.S.$40,825 thousand translated to reais at the exchange rate of
R$5.8391 as of March 9, 2021). Following that acquisition, BRF AFC became our wholly-owned subsidiary.
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:
38
Property, plant and equipment .................
Biological assets ......................................
Intangible assets ......................................
Total capital expenditures ....................
2020
For the year ended December 31,
2019
(in thousands of reais)
417,165
837,930
64,320
1,319,415
804,609
1,006,222
96,181
1,907,012
2018
578,037
845,311
20,535
1,443,883
In 2020, we resumed our investment trajectory in growth and innovation projects, in addition to maintaining
investments related to compliance with standardization and quality standards of our products.
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 2021, 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 expect to increase investments to expand our operations in the markets we serve and take advantage of
new commercial opportunities.
B.
Business Overview
BRF S.A. is one of the largest producers of fresh and frozen protein foods in the world in terms of production
capacity, according to WattAgNet, with a portfolio of approximately 7,300 stock keeping units (“SKUs”). 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. 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, butter, cream cheese, sweet specialties, sandwiches, plant-based products and animal
feed. We are the holder of brands such as Sadia, Perdigão, Qualy, Perdix, Confidence and Hilal. For the year ended
December 31, 2020, we were responsible for 10.1% of the world’s poultry trade, according to USDA.
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, as of December 31, 2020, we have among our main assets a distribution
network that enables our products to reach Brazilian consumers through more than 547,000 average monthly deliveries
and 22 distribution centers in the domestic market.
In the international market, we have a leading brand, Sadia, in various categories in Middle Eastern countries.
We maintain over 41 offices outside of Brazil serving customers in 117 countries on five continents. We have one
industrial facility in Abu Dhabi, one in Saudi Arabia, two in Romania and three in Turkey. As of December 31, 2020,
we also have among our main assets a distribution network that enables our products to reach consumers in the Halal
market through more than 250,000 monthly deliveries and 19 distribution centers, in addition to 26 transshipments
points.
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” (ADR level III).
A breakdown of our products is as follows, which are sold both in Brazil and to our international customers:
39
• Meat Products, consisting of in natura meat, which we define as frozen whole chicken and cut chicken,
and frozen pork;
• Processed Food Products, including the following:
o marinated, frozen, whole chicken and cut chicken, roosters (sold under the Chester® brand) and
turkey;
o
o
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, butter and cream cheese;
o
frozen prepared entrees, such as lasagna, macaroni and cheese, pies, ready-to-eat meals, Brazilian
cheese bread and pizzas, as well as other frozen foods;
o plant-based products, such as nuggets, pies, vegetables and burgers; and
o
o
snacks (salamitos);
frozen desserts;
• Other, consisting of soy meal, refined soy flour and animal feed.
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 these industrial facilities are located near
our raw material suppliers or main consumer centers. We have an advanced logistics system in our domestic market,
with 22 distribution centers, five of which are owned by us and 17 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 operate 28
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 impact 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. From 2014 until
2020, we allocated R$1,123.6 million (€321.6 million) to projects with environmental benefits, and we planted a
renewable forest covering 30 thousand hectares (the amount referring to the investments made in 2020 is still subject
to a second opinion from an external certifier, which may result in an adjustment of this amount).
Our Industry
We manage our business to target both the Brazilian market and export markets.
40
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 affect our production levels and revenues.
Real GDP in Brazil increased at an average annual rate of 9.0% from 2005 through 2020. For two consecutive
years, in 2015 and in 2016, Brazil’s GDP decreased by 3.5%. Reacting to this weak economic environment, 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 18% as of December 31, 2005 to 2.00% as of December 31, 2020. For the year ended December 31,
2020, the IPCA increased to 4.52% in comparison to 4.31% for the year ended December 31, 2019.
The unemployment rate and consumer confidence levels also have an impact on consumption levels in Brazil.
The average unemployment rate for 2020 was 13.9%, an increase of 2.1 percentage points when compared to the
11.8% of 2019. The Consumer Confidence Index for December 2020 was 78.5%, 13.1 percentage points below that
in December 2019 of 91.6%.
According to the Brazilian Association of Supermarkets (Associação Brasileira de Supermercados, or
“ABRAS”) in December 2020, supermarket sales in real terms (adjusted using the IPCA), increased 11.54% compared
to December 2019. For the full year, supermarket sales in real terms rose 9.36% in 2020 as compared to 2019.
Export Markets
The information set forth in this “Export Markets” subsection is derived from SECEX and relates to Brazilian
exports as a whole and not only to exports of our company.
Brazilian chicken exports increased by 0.2% in the year ended December 31, 2020, compared to the year
ended December 31, 2019, in terms of volume. Pork exports registered an increase of 36.9% in volume sold in the
year ended December 31, 2020, compared to the year ended December 31, 2019. Beef exports recorded an increase
of 9.4% in volume in the year ended December 31, 2020, compared to the year ended December 31, 2019.
Brazilian chicken exports in the year ended December 31, 2020 totaled 4.13 million tons on sales of R$30.9
billion (equivalent to U.S.$5.99 billion). China is the main destination for these exports (16.3%), followed by Saudi
Arabia (11.3%), Japan (9.9%) and the United Arab Emirates (7.3%).
The volume of pork exports in the year ended December 31, 2020 totaled 1.01 million tons, representing
approximately R$11.6 billion. The leading importers, China, Hong Kong and Singapore represented 50.7%, 16.4%
and 5.2%, respectively, of total exports from Brazil.
Beef shipments in the year ended December 31, 2020 totaled 1.85 million tons, with sales of approximately
R$ 41.73 billion (equivalent to U.S.$8.09 billion). This increase in volume was driven by exports to China (46.9%),
Hong Kong (12.0%) and Egypt (6.6%).
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.
41
Poultry
We produce frozen whole and cut poultry. In 2020, we slaughtered approximately 1.54 billion heads of
poultry, a 1.3% decrease compared to 1.56 billion in 2019. We sold 1,904 thousand tons of frozen chicken and other
poultry products in 2020, compared to 2,018 thousand tons in 2019, 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 2020, we slaughtered approximately 10.21 million hogs compared to 9.62 million in 2019. 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 January
2019, following the closing of the transaction in which Marfrig acquired our beef slaughtering facility, we and Marfrig
signed a supply agreement under which Marfrig agreed to provide us with finished goods from the Várzea Grande
plant. In 2020, we sold 319 thousand tons of pork and beef cuts, excluding our discontinued operations, compared to
270 thousand tons of pork and beef cuts in 2019. 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 1,986 thousand tons of processed foods in
2020, compared to 1,830 thousand tons in 2019, 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®
42
roosters in Brazil from hatching to distribution, and we own the trademarks for the Chester® line of products. In 2020,
Perdigão launched a new edition of Chester® to celebrate the brand’s 40th anniversary.
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, Claybom and Becel 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.
Butter, Cream cheese and Cheese bread
Qualy, a notable margarine brand in Brazil, expanded its portfolio in 2020 by offering new products such as
butter and curd and introducing a line of cheese breads. These new products have been available since December 2020
and are consistent with Qualy’s pursuit to become the leading brand in breakfast and afternoon meals, which are
relevant markets for the brand. Qualy’s cheese bread line also offers the options of buttered cheese bread and buttered
cheese bread with pieces of Sadia ham.
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. In 2019,
we expanded our portfolio in this category by launching new products, such as the Mac’n Cheese under
the Sadia brand. We believe that this new product is an innovative product in the Brazilian market, with
greater added value to the ready-to-eat meals sub-category. Inspired by one of the favorite dishes in the
United States, the Sadia Mac’n Cheese was launched in October 2019 with three variants: Mac’n Cheese
Cheddar, Mac’n Cheese Cheddar with Bacon and Mac’n Cheese Cheddar with Sausage.
• French Fries. We sell frozen French fries, which are imported from Belgium where they are produced
and packaged for us by third parties.
• 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.
Plant-based products
In 2020, we launched Sadia Veg&Tal, our brand for vegan and vegetarian frozen food, including hamburgers,
nuggets and pies categories. We also started to expand the Veg&Tal frozen food portfolio in 2020 and launched frozen
vegetables, including broccoli, cauliflower, peas and French beans. Our sales represented 25% of the vegan nuggets
segment in Brazil in 2020.
In March 2021, we executed a memorandum of understanding with Aleph Farms, Ltd, an Israeli start-up
company that develops laboratory proteins from animal cells. The agreement contemplates: (i) the development and
production of cultivated meats using the patented production of Aleph Farms (BioFarm™); and (ii) the distribution
43
of cultivated proteins from Aleph Farms, with exclusivity, in Brazil. In connection with our Vision 2030 Plan, which
includes a “meat substitutes” growth segment, this partnership will strengthen our business generation and
diversification to meet the growing demand of customers for a wider variety of meat-based products. In addition to
addressing the commercial potential of cultivated meat in the Brazilian market, this partnership demonstrates our
commitment to sustainability, innovation and food safety.
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, lemon pie, chocolate and vanilla pie, and mousse pie with chocolate shavings; and
• Dutch pie.
Inspired by seasonal flavors, the Miss Daisy brand also launched three new flavors as a limited edition:
condensed milk fudge mousse pie with caramelized nuts and two new hot pie desserts, hazelnut cream and guava
paste with cream cheese.
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 2020, we produced 9,669 thousand tons of feed and
PREMIX in Brazil, compared to 9,480 thousand tons in 2019, and 820,540 thousand tons in Turkey. We also produce
a limited range of soy-based products, including soy meal and refined soy flour.
Vision 2030 Plan
In December 2020, we announced our Vision 2030 Plan, which is a growth strategy that aims for us to reach
approximate annual revenue of R$100 billion in the end of next decade. To accomplish this goal, the plan is expected
to entail investments of approximately R$55 billion, primarily funded from our own cash flow and debt refinancing,
focusing on strengthening our leadership position as a global food company with high added-value, strong brands,
high-quality products, and even more admired by consumers, providing increased return and expanded margins. We
will also target the establishment of a local presence internationally in some of the world’s largest added-value
consumer centers, and to expand our share of the Brazilian market in ready meals, increasing our presence in the high-
added value pork and pet markets, in addition to the production of meat substitutes and new sources of protein, in
which significant food industry transformation is expected.
Our Vision 2030 Plan also includes a macro-sustainability plan with public commitments involving
Environmental, Social and Governance (“ESG”) features. Beginning in 2021, our management has started setting
ESG-related goals, and in January 2021, we named a new vice president for Institutional Relations, Reputation and
Sustainability to support the advancement of our ESG agenda.
One of our key objectives under our Vision 2030 Plan is to become one of the two largest food companies
for pets in Brazil. Brazil is the second-largest market in the world for pet products, after the United States, with a
market value of R$20 billion in 2020. It is estimated that the market potential for pet products will total approximately
R$40 billion by 2030. This growth is driven mainly by the verticalization of cities and by the humanization of animals
that brings about different needs for the feed. Premium brands for pet food are expected to be favored the most by
consumers. We are already present in that segment for both of the key retail channels, including supermarkets (roughly
30% of the market) through our Balance brand, and the specialized trade channel (remaining 70% of the market) with
our Güd brand. Despite regional and still limited distribution for both brands, we enjoyed substantial revenue growth
of 416% over the last two years. . To serve this segment, the synergies with our production chain provide us with
competitive advantages as to costs and quality. We are already the second-largest producer of feed in the southern
hemisphere. We are already a producer of the main ingredients for the formulation of feeds. We expect this fact will
44
assist us with higher efficiency and lower production costs, because of both the scale of our grain purchases and our
access to specific materials, such as hydrolyzed protein and special oils, which we produce and distribute to the pet
food market. We believe that these synergies provide us with advantages in the pet food market that are difficult for
other companies to replicate. Additionally, we have access to the distribution channel of the traditional retail segment,
and we plan on developing our capabilities in the specialized retail market and the technical products market.
We also believe that this new growth path anticipated for Brazil can be replicated in other regions and
geographies in which we operate, which we expect will offer us new opportunities and new growth avenues in the
future.
Overview of Brazil’s Poultry, Pork and Beef Position in the World
Poultry
Brazil was the third largest producer and the leading exporter of poultry in the world in 2020 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 1.0% in 2020 compared to 2019, mainly due to higher
exports from the United States (which increased 4.1% in comparison to 2019), Turkey (which increased 11.8% in
comparison to 2019) and Russia (which increased 25% in comparison to 2019). According to the Brazilian Association
of Animal Protein (Associação Brasileira de Proteína Animal, or “ABPA”), exports of poultry parts increased 1.2%
in 2020 compared to 2019, representing 68.7% of the total poultry exported volumes. Whole chicken, which
represented 25.3% of the total volume, decreased 2.5% in 2020 compared to 2019. The main destinations in 2020
were China, Saudi Arabia, Japan and United Arab Emirates. In comparison to 2019, in 2020 Saudi Arabia decreased
total imports from Brazil by 0.3%, China increased total imports from Brazil by 15.0%, Japan decreased total imports
from Brazil by 3.2% and United Arab Emirates decreased total imports from Brazil by 11.2%.
The following tables identify Brazil’s position within the global poultry industry for the years indicated:
Primary Chicken Producers
U.S. ..........................................................................
China ........................................................................
Brazil ......................................................................
European Union (28 countries) ...............................
Russia .......................................................................
India..........................................................................
Mexico......................................................................
Thailand ....................................................................
Turkey ......................................................................
Argentina ..................................................................
Malaysia ...................................................................
Others .......................................................................
Total ........................................................................
Primary Chicken Exporters
Brazil ......................................................................
U.S. ..........................................................................
European Union (28 countries) ...............................
Thailand ...................................................................
Turkey .....................................................................
World Chicken Production
2019
2020
2018
(in thousands of tons – “ready to cook” equivalent)
20,239
14,600
13,880
12,200
4,715
4,000
3,725
3,250
2,200
2,190
1,790
17,624
100,413
19,941
13,750
13,690
12,560
4,668
4,350
3,600
3,300
2,138
2,171
1,775
17,373
99,316
19,361
11,700
13,355
12,260
4,684
4,062
3,485
3,170
2,157
2,068
1,650
16,615
94,567
2020
2019
(in thousands of tons – “ready to cook” equivalent)
2018
3,760
3,391
1,450
855
456
3,811
3,259
1,541
881
408
3,675
3,244
1,421
826
418
45
Primary Chicken Exporters
2020
2019
(in thousands of tons – “ready to cook” equivalent)
2018
Others ......................................................................
Total ........................................................................
2,004
11,916
1,934
11,834
1,712
11,296
Primary Chicken Consumers
U.S. ..........................................................................
China .......................................................................
European Union (28 countries) ...............................
Brazil ......................................................................
Russia ......................................................................
Mexico .....................................................................
India .........................................................................
Japan ........................................................................
Thailand ...................................................................
Argentina .................................................................
South Africa ............................................................
Others ......................................................................
Total ........................................................................
Source: USDA, February 2021.
Pork
2020
2019
(in thousands of tons – “ready to cook” equivalent)
2018
16,960
15,200
11,370
10,125
4,715
4,549
3,999
2,809
2,385
2,040
1,895
22,306
98,353
16,702
13,902
11,743
9,884
4,713
4,469
4,347
2,789
2,469
2,021
1,829
22,343
97,211
16,185
11,595
11,543
9,683
4,785
4,301
4,059
2,761
2,354
1,955
1,877
21,466
92,564
Brazil was the fourth largest producer and exporter and the fifth largest consumer of pork in the world in
2020, according to the USDA. Brazil’s production and consumption of pork has increased since 2009. The USDA
expects an increase in global production of 6.1% and an increase in pork consumption of 6.0% in 2021. According to
the USDA, global pork exports reached 11.34 million tons in 2020. 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 2020, China was Brazil’s primary destination for pork followed by
Hong Kong, representing 50.7% and 16.4%, respectively, of total Brazilian pork exports. Chinese and Hong Kong
imports from Brazil increased 106% and 2.4%, respectively, from December 31, 2019 to December 31, 2020.
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
World Pork Production
2019
(in thousands of tons – weight in equivalent carcass)
2020
2018
38,000
24,000
12,841
4,125
3,520
2,240
13,031
97,757
42,550
23,956
12,543
3,975
3,324
2,380
13,250
101,978
54,040
24,082
11,943
3,763
3,155
2,811
13,146
112,940
2020
2019
(in thousands of tons – weight in equivalent carcass)
2018
European Union (28 countries) ................................
4,350
3,548
2,838
46
Main Pork Exporters
U.S. ..........................................................................
Canada ......................................................................
Brazil .......................................................................
Mexico......................................................................
Chile .........................................................................
Russia .......................................................................
Others .......................................................................
Total .........................................................................
Main Pork Consumers
China ........................................................................
European Union (28 countries) ................................
U.S. ..........................................................................
Russia .......................................................................
Brazil .......................................................................
Japan .........................................................................
Others .......................................................................
Total .........................................................................
Source: USDA, February 2021.
Beef
2020
2019
(in thousands of tons – weight in equivalent carcass)
2018
3,318
1,525
1,178
345
275
110
238
11,339
2,867
1,284
861
234
223
68
250
9,335
2,666
1,277
722
177
190
37
339
8,246
2020
2019
(in thousands of tons – weight in equivalent carcass)
2018
43,050
19,668
10,021
3,420
2,949
2,685
15,364
97,157
44,866
20,424
10,066
3,363
3,116
2,714
16,394
100,943
55,295
21,258
9,747
3,202
3,043
2,774
16,911
112,230
Brazil was the second largest producer, the fourth largest consumer and the largest exporter of beef in the
world in 2020, according to the USDA. From 2020 to 2021, the USDA estimates that there will be an increase in
global beef production, consumption and exports of approximately 1.5%, 1.3% and 2.5%, respectively.
The following tables identify Brazil’s position within the global beef industry for the years indicated:
Main Beef Producers
U.S. ..........................................................................
Brazil ......................................................................
European Union (28 countries) ...............................
China .......................................................................
India .........................................................................
Argentina .................................................................
Australia ..................................................................
Mexico .....................................................................
Pakistan ...................................................................
Russia ......................................................................
Others ......................................................................
Total ........................................................................
Main Beef Consumers
World Beef Production
2019
(in thousands of tons – weight in equivalent carcass)
2018
2020
12,381
10,100
7,800
6,550
3,650
3,210
2,115
2,090
1,820
1,380
9,186
60,282
12,384
10,200
7,878
6,670
4,270
3,125
2,432
2,030
1,820
1,374
9,459
61,642
12,256
9,900
8,003
6,440
4,240
3,050
2,306
1,980
1,800
1,357
9,339
60,671
2020
2019
(in thousands of tons – weight in equivalent carcass)
2018
U.S. ..........................................................................
China .......................................................................
European Union (28 countries) ...............................
Brazil ......................................................................
India .........................................................................
Argentina .................................................................
12,558
9,258
7,755
7,611
2,600
2,393
12,408
8,826
7,889
7,929
2,776
2,379
12,181
7,808
8,071
7,925
2,729
2,568
47
Main Beef Consumers
2020
2019
(in thousands of tons – weight in equivalent carcass)
2018
Others ......................................................................
Total ........................................................................
16,798
58,973
17,379
59,586
17,375
58,657
Main Beef Exporters
2020
2019
(in thousands of tons – weight in equivalent carcass)
2018
Brazil .......................................................................
Australia ...................................................................
India..........................................................................
U.S. ..........................................................................
Argentina ..................................................................
Others .......................................................................
Total .........................................................................
2,539
1,455
1,331
1,050
830
3,298
10,503
2,314
1,738
1,373
1,494
763
3,210
10,892
2,021
1,582
1,433
1,511
501
3,058
10,106
Source: USDA, February 2021.
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 broiler production cycle, we purchase day-old grandparent’s breeder chicks from
Aviagen of Brazil. We send these birds to our grandparent stock farms, forming our grandparent breeding stock. With
respect to turkeys, we purchase hatched grandparent’s eggs and then send those eggs to our grandparent stock hatchery,
where the eggs are hatched, and the chicks are raised, forming 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 1.60 billion day-old chicks and
11.4 million day-old turkeys in 2020. We hatch these eggs in our 27 hatcheries (23 broiler, 1 turkey, 3 breeders).
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
48
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 6,318 integrated poultry outgrowers. Many of these
outgrowers also produce and sell corn that we use to produce animal feed.
As of December 31, 2020, we have a fully automated slaughtering capacity of 33.4 million heads of poultry
per week and 190 thousand heads of turkey 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 us 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 3,282
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, 2020, we had a pork slaughtering capacity of 208,092 heads per week.
Beef
We had a beef slaughtering capacity of 14,400 heads per week until October 1, 2014, when we signed an
Investment Agreement with Minerva, pursuant to which we allocated our beef slaughtering plants in Várzea Grande
and Mirassol, as well as our employees involved in these activities, to a closed capital company that was incorporated
within Minerva. We 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 produced 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. We have
a total production capacity of 190 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 meat) and non-meat products (such as lasagna, ready-to-eat meals
and pizzas) for both the domestic and international markets. The company has one plant under construction in
Seropedica, in the State of Rio de Janeiro, expected to initiate its operations in 2021. 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
49
Grossa, in the State of Paraná, we produce pizzas, pastas, desserts (such as 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, we opened our 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.
In January 2021, BRF concluded the acquisition of Joody Al Sharqiya Food Production Factory, its first
production plant in Saudi Arabia with a total capacity of 3.6 thousand tons/year. We have an expansion plan to grow
the capacity to 18 thousand tons/year of processed chicken products.
We also sell frozen French fries, which are imported from Belgium where they are produced and packaged
for us by third parties. 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. In 2020, we launched Sadia Veg&Tal, our brand for vegan and vegetarian frozen food, including
hamburgers, nuggets, and pies categories. We also started to expand the Veg&Tal frozen food portfolio in 2020 and
launched frozen vegetables, including broccoli, cauliflower, peas and French beans. Our sales represented 25% of the
vegan nuggets segment in Brazil in 2020.
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 and Becel 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 and 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. We are 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 in Brazil and three feed production plants in Turkey.
Additionally, we lease three feed plants from third parties that are 100% dedicated to our operations and one PREMIX
production plant that is not 100% dedicated to our operations. The basic raw materials used in animal feed production
are corn and soy meal mixed with preservatives and micronutrients. In 2019 and 2020, 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.”
50
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
our risks 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.
For cases 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 or our 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 our departments, but all of our 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.
51
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 in terms of land and has the sixth largest population on the
globe. As of December 31, 2020, Brazil had an estimated population of 211.7 million people, according to figures
from the IBGE. Brazil’s GDP amounted to R$6.8 trillion in 2018, R$7.2 trillion in 2019 and R$7.4 trillion in 2020. In
2020, GDP decreased by 4.1% in nominal terms and 0.2% per capita compared to 2019.
Inflation measured by the National Amplified Consumer Price Index (known as the IPCA - Índice Nacional
de Preços ao Consumidor Amplo), published by the IBGE, was 3.75% in 2018, 4.31% in 2019 and 4.52% in 2020,
following a trend of relatively high rates. The end-of-period exchange rate, as measured by the Brazilian Central Bank,
was R$3.87/U.S.$1.00 in 2018, R$4.03/U.S.$1.00 in 2019 and R$5.20/U.S.$1.00 in 2020, with the real depreciating
by 22.4% in 2020 compared to 2019.
Brazil is one of the largest meat consumers in the world, with per capita consumption in 2020 of 97.23
kilograms, including beef, chicken and pork products, according to the USDA, a decrease of 2.7% compared to 2019.
Demand for poultry and pork products in the domestic market is directly affected by the country’s economic
conditions. Given the GDP contraction, meat consumption decreased in 2020 compared to 2019. As economic
improvement is expected for 2021 in comparison to 2020 (as of March 5, 2021, market analysts consulted by the
Central Bank expected that GDP will increase by 3.26%, while inflation is expected to remain low at 3.98%) meat
consumption should increase in 2021. Brazil’s domestic market is highly competitive, particularly for fresh food and
frozen poultry and pork products. Besides us, 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. We seek to develop quality products, focusing on innovative solutions that meet clients’ needs and
capture value for the strong brands we own, 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$26,775 million in 2020
compared to R$21,622 million in 2019;
the Brazilian frozen food market had revenues of approximately R$5,740 million in 2020 compared to
R$4,387 million in 2019; and
the Brazilian margarine market had revenues of R$4,285 million in 2020 compared to R$3,910 million
in 2019.
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.
52
Global demand for Brazilian poultry, pork and beef 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. 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 53.2%, 52.3% and 54.0% of our net sales in 2020, 2019
and 2018, 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 43.7%, 44.5% and 43.3% of our net sales in 2020,
2019 and 2018, 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
2020
2019
2018
9.5%
3.2%
40.4%
0.1%
53.2%
31.0%
5.9%
6.0%
0.8%
43.7%
0.0%
0.0%
0.0%
3.0%
3.2%
100%
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%
See “Item 5. Operating and Financial Review and Prospects—B. Liquidity and Capital Resources—
Seasonality” for information regarding seasonality.
Overall Comparison of Our Net Sales for the Years Ended December 31, 2020 and 2019
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.
53
Note: There may be small variations in the percentages presented in the chart above when compared with past reports due to rounding and migration
of customers between the sales channels.
Our domestic distribution network consists of 22 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 five of our distribution centers and lease the remaining 17 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.
2020
Others Segments,
3%
2019
Others Segments,
3%
2018
Others Segments,
3%
International,
44%
Bra zi l, 53%
International,
45%
Bra zi l, 52%
International,
43%
Bra zi l, 54%
Competition
Brazil
Brazil’s domestic market is highly competitive, particularly for fresh food and frozen poultry and pork
products. We endeavor to develop quality products, focusing on innovative solutions that meet clients’ needs and
capture value for the strong brands we own, such as Sadia and Perdigão.
In the processed meat and margarine categories, the most recently available percentage of our market share
in Brazil in 2020 as reported by A.C. Nielsen shows that we have significant representation in the domestic market,
as demonstrated in the graph below, which is separated by retail categories:
54
Source: A.C. Nielsen Bimonthly Retail – Margarines and Frozen Meals (October/November 2020 survey); Filled and Cold Cuts
(September/October 2020 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.”
Nationally, our main competitor within the Brazilian market for the processed meat segment is JBS (which
owns the brands Seara and Rezende) followed by Aurora. The remainder of the market is represented by several small
producers, such as Pif Paf Alimentos S.A. (“Pif Paf”) and Frimesa, which have relevant performance in the
Southeastern and Southern regions of the country, respectively.
In the margarine market, we maintained a leading position with the Qualy brand by a wide margin. Our main
competitor is also JBS, which recently acquired Bunge’s margarine operation (consequently becoming the owner of
the brands Delicia and Primor, as well as their previous brands, such as Doriana) followed by 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. The
in natura meat market is volatile and cyclical (higher costs and protein offer). In order to prevent low margins by
competing with small producers and keep a stronger market presence, we have changed our price strategy and
developed a high aggregate value and innovative portfolio. The initiative has increased our revenue on this portfolio
from 1.6% in 2019 to 6.7% in 2020, and we captured opportunities focused on consumer needs for healthy, premium
and ready-made products with 27 new products released in 2020. In line with our goal of building stronger margins
for in natura meat, we are aiming to increase the per capita consumption of pork cuts in the Brazilian market with a
high aggregate value and premium portfolio, capturing bovine meat share of Brazilians consumers.
Considering Brazil’s anticipated economic recovery from the COVID-19 pandemic, with more emphasis
from the second half of 2020 onwards, 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 innovative agenda based on
consumer needs for healthy, premium and practical products. We are also focused on expanding to new consumption
categories and implementing a targeted brand positioning strategy through communication, activations, brand
architecture and portfolio expansion. In addition, to increase our market share, our efforts 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.
55
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$17,240,194 thousand in 2020, an increase of 15.7% from
2019. Despite the still-challenging international market environment in 2020, we believe we export more than our
main Brazilian competitors, as we are one of the largest poultry exporters in the world. In 2020, we accounted for
10.1% of the world’s poultry trade, according USDA.
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, 2020, we operated 22 distribution centers and 28 transit points.
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 and Paranaguá in the
State of Paraná. 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 2020, we packed more than 60% 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, and Turkey. 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
56
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 (U.S.$382,106
thousand, translated to reais at the exchange rate of R$3.8943 as of June 3, 2019). We have undertaken, in the share
purchase agreement entered into with Tyson International Holding Co., not to do business or otherwise compete in
the sale of poultry products for human consumption in certain jurisdictions in Europe, including the European
Economic Area (EEA) and the United Kingdom. That non-compete provision has partially lapsed for certain products
and channels. In October 2020, after reaching a commercial agreement with Tyson International Holding Co., we
resumed the export of poultry breast cuts to Europe, accelerating our return to the continent. The arrangements with
Tyson include a phased removal of the non-compete restrictions in three stages, including our access to (i) B2B, CFR
(cost and freight) and wholesalers in Europe by June 2021, (ii) the retail channel in the European market by 2022 and
(iii) the Thai market in 2024. By June 2022, we may also invest in businesses that hold import quotas to Europe.
Asia. Asia is a highly diverse continent, both in terms of cultural and economic development characteristics,
where we serve over 13 countries, from mainland China to the islands in the South Pacific region. In 2020, China,
along with Hong Kong, continued to be our largest market in Asia, led by a strong demand for protein due to the
African swine fever crisis affecting the Chinese domestic production. We optimized our production facilities to
prioritize the supply of pork cuts, chicken wings and chicken feet to Chinese clients. At the same time, our local
distribution operation in Shanghai expanded partnerships with retailers by selling Sadia frozen chicken cuts and by
launching a new portfolio of pork cuts to strengthen the Sadia brand presence in China. 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, we were the first Brazilian producer to export pork cuts to this market, which has provided new business
opportunities in this country. In Singapore, we consolidated our Sadia brand presence with our distribution partner
and with a new brand campaign, maintaining modern retail prominence in key product categories. Additionally, in
Southeast Asia, we developed new channels and clients in Vietnam and the Philippines, serving these markets with a
diverse portfolio of chicken and pork cuts. In 2020, we concluded the sale of our stake in the joint venture “FFM
Further Processing Sdn. Bhd.,” in Malaysia, while maintaining the export leadership to this country.
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. In
2020, we sold our food processing plant in Malaysia and, in 2021, we concluded the acquisition of a food processing
plant in Dammam, Saudi Arabia. See “Item 4. Information on the Company—A. History and Development of the
Company—Other Transactions in 2018, 2019 and 2020.”
Africa. Our strategy in Africa has focused on unlocking a number of in-market opportunities that fall under
the attractive and affordable processed foods category, but also value-added opportunities in key markets. In 2020, we
focused on strengthening our partnerships in the region, further improving our leadership position in exports of
processed foods to the continent. Our approach to exports in Africa targets 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 and Mauritius through our facilities in Turkey. Going forward,
we will continue to carefully consider future growth markets. Furthermore, our next phase of development 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, for example by expanding
our portfolio of breaded items in South Africa’s main retailers, which we started in 2020.
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Americas and Other Countries. We sell our products in the Americas through direct sales to key distributors.
Additionally, in 2020, we continued selling chicken cuts, including breasts and wings, to processing companies in
Canada, and processed items to the Caribbean. Additionally, Sadia and Qualy are established brands that enjoy
significant market shares in Chile and Uruguay, where we maintain local distribution operations, and in Paraguay,
where we operate through consolidated local distributors. An example of our commercial strength in the Americas is
our leadership in the margarine segment in Chile with our brand Qualy and in the breaded and ready meals segments
in Chile and Uruguay with Sadia.
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 “BRF
Ingredients,” “Perdix,” “Perdigão,” “Sadia,” “Confidence,” “Qualy,” “Borella,” “Sahtein,” “Unef,” “Hilal,” “Halal &
Design,” “Amineau,” “Natvie,” “Gud,” “Onefoods,” 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.” The “Sadia” trademark is registered in various forms in more than
110 countries. In the Middle East, “Sadia” is registered in various forms in countries such as Saudi Arabia, the United
Arab Emirates, Egypt, Jordan, Bahrain, Yemen, Iran, Lebanon, Qatar, Kuwait, and Oman, as well as in countries in
Europe, the Caucasus, Asia and 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. We have 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. We have also applied for our corporate trademark
“BRF” (and accompanying design) to be registered in over 100 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
We maintain 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 Sadia 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.
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We sell margarine under the Qualy, Deline, Claybom and Becel 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. In 2019, we launched Qualy Vita, a margarine enriched with Omega 6 and vitamins
A, D and E and focused on heart health. Through our technical knowledge combined with a deep understanding of
consumers’ preferences, we will seek to maintain our leading market positions.
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 food market in Brazil according to Kantar
Insights – Brand Equity Tracking 2020. Sadia and Perdigão, together, hold 39.9% of the food market preference in
Brazil, and Qualy, more than 50% of the margarine market in Brazil, also according to Kantar Insights – Brand Equity
Tracking 2020.
The pandemic has brought about important changes to our customer’s routines, which have required
significant shifts in our brand strategy. Among them, we highlight the development of a website designed as a recipe
hub, which registered 48.8 million online visits in 2020, and which featured more than 870 different recipes for our
customers who needed to migrate from eating out to preparing homecooked meals. In addition, the visibility of our
brands significantly increased on our commercial partners’ e-commerce platforms as well as on delivery platforms
through partnerships. The number of interactions on social networks and visits to our websites in 2020 significantly
increased, by 186%, compared to the same period in 2019. Even with such substantial growth, we maintained generally
positive feedback on these initiatives, with an average NPS of 8.10. We have made important improvements in actively
listening to our customers through several consumer and market insight initiatives.
In 2020, Sadia launched new products to enhance occasions for culinary indulgence, such as Mac’n Cheese,
two news brands to meet consumer demand, including the plant-based Sadia Veg&Tal sub-brand and organic Sadia
Organic in natura meat products, as well as a premium sub-brand, Sadia Speciale. With respect to our communications
strategy, Sadia developed ways to help consumers adapt to their new pandemic routines by advertising, e-commerce
and the online hub for recipes. Sadia also aired campaigns to promote both its current and new product portfolio. At
the end of 2020, Sadia opened its first store, Mercato Sadia, to promote a full brand experience.
Perdigão focused throughout 2020 on different forms of communication for its brands and products, such as
co-branded initiatives with McDonalds & Perdigão Ouro and musical and merchandising projects for Perdigão Na
Brasa, a line of barbecue products. At the end of 2020, Chester®Perdigão celebrated its 40th anniversary with a
strong communications campaign promoting generosity and donations; for example, more than one million Chester®
Perdigão brand meats were donated in the last five years). In addition, Perdigão launched two new flavors of
Mortadela Ouro Perdigão, new cuts of Perdigão Na Brasa, such as pork filet mignon and chicken boneless leg, sliced
bacon, Assa Fácil chicken breast and news Chester® Perdigão flavors at the end of the year.
Qualy started new programs involving its sustainability pillar, reinforcing the reuse of our margarine
packaging by launching attractive and resistant collectible containers for our core products, and we also started to
extend the Qualy portfolio by entering new product categories, such as butter, “requeijão” and cheese bread balls
(both considered to be local delicacies). Beyond innovation, Qualy also launched a new brand positioning under the
motto “Fazer com Qualy diz muito” (“To make it with Qualy says/means a lot”), inviting consumers to express their
feelings and affection through recipes made with Qualy, facilitated by the launch of our online recipe hub with
different ideas for food preparations, which is the most accessed page on brand’s website.
In addition, we relaunched our Claybom brand with modern packaging using a new image, and we introduced
a new product for the portfolio by launching a butter-flavored margarine.
Miss Daisy is our 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, lemon pie, chocolate and vanilla
pie, chocolate and shavings pie, and Dutch pie. In addition, Miss Daisy develops specific products for Christmas kits
59
which have been popular in the Brazilian market. Inspired by seasonal flavors, the Miss Daisy brand also launched
three new flavors as a limited edition: condensed milk fudge mousse pie with caramelized nuts and two new hot pie
desserts, hazelnut cream and guava paste with cream cheese.
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, as well as the acquisition of a food processing plant
in Dammam, Saudi Arabia in 2021, 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
MAPA, which is the principal governmental authority overseeing our business, is responsible for the
regulation and inspection of activities related to animal health, technical components (including labeling) and quality
criteria related to the production 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 SIF/MAPA in our 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 oversight from a number of other international and Brazilian governmental authorities
at the federal, state and municipal levels, which include 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.
C.
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
Austria
Austria
UAE
UAE
Holding
Holding and Trading
Holding
Holding
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
Federal Foods LLC
Kuwait
Austria
Oman
Austria
Turkey
UAE
Import, commercialization and distribution of products
Industrialization, import and commercialization of products
Import, commercialization and distribution of products
Holding
Import, industrialization and commercialization of products
Import, commercialization and distribution of products
Interest in
Equity as
of December
31, 2020
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
75.00%
100.00%
70.00%
60.00%
91.71%
49.00%
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Federal Foods Qatar
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 Foods GmbH
Federal Foods
LLC
Al-Wafi Al-
Takamol
Al Khan Foodstuff
LLC ("AKF")
TBQ Foods
Federal Foods
Qatar
Banvit Bandirma
For a complete list of all of our direct and indirect subsidiaries, see Note 1.1 to our consolidated financial
statements.
D.
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 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 22
distribution centers, five of which are owned by us and 17 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 operate 28
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.
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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 and
Margarine Products:
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.”
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**** Exports of the Rio Verde and Mineiros plants were suspended by 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. In 2020, Rio Verde plant was withdrawn from the suspension list and started to export again.”
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 13 to our consolidated financial statements.
Distribution Centers
We operate 22 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
Paranagua
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
Paraná
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
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
State of Location
Owned or Leased
Leased
Paraná
Leased
Sergipe
Leased
São Paulo
Leased
São Paulo
Distrito Federal
Leased
Mato Grosso do Sul Owned
Leased
Rio de Janeiro
Leased
Santa Catarina
Leased
Minas Gerais
Leased
São Paulo
Leased
Bahia
Leased
São Paulo
Leased
Amapá
Leased
Alagoas
Owned
Rio Grande do Sul
Minas Gerais
Leased
Rio Grande do Norte Leased
Leased
Tocantins
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Transit Points
Pelotas
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
Rio Grande do Sul
Minas Gerais
São Paulo
São Paulo
Rio Grande do Sul
Maranhão
São Paulo
Bahia
São Paulo
Piauí
Leased
Leased
Leased
Leased
Leased
Leased
Owned
Leased
Leased
Leased
Environment
Our activities are subject to strict environmental laws and regulations at the municipal, state and federal
levels, which regulate aspects related to water, effluents, solid waste, atmospheric emissions, noise and smells. Our
operations are also subject to environmental licensing procedures at the federal, state 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
fines, 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). 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 form of a company will be disregarded if necessary, to guarantee the payment of costs related
to environmental damages.
In our Sustainability Policy, our Health, Safety and Environmental Policy (SSMA Policy) and the
Sustainability Pillar of the BRF Operational Excellence System (“SEO”), we established guidelines for environmental
management based on national and international references. These instruments seek 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 our environmental management. The monitoring of implementation of these standards is undertaken
through technical indicators, such as the Environmental Sustainability Index (ISA), 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 2020, we maintained four 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 and the sustainable use of water. The diversification of the energy matrix through the inclusion of clean energy
sources, such as solar and wind, is among our most relevant initiatives to mitigate the possible negative impact of
climate change on energy availability. Additionally, we analyzed the water vulnerability of our industrial plants by
applying two complementary analytical approaches: an internal operational analysis, related to the operations, and an
environmental, external analysis, linking the characteristics of the hydrographic basin where the plant is located to the
multiple uses of water in the region. Ultimately, the indicators from these approaches are integrated, allowing us to
quantitatively review the plant’s water vulnerability.
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. Additionally, we have structured a program with our integrated producers to collect animal
health waste.
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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 of our employees and contractors in Brazil and abroad
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. Between 2019 and 2020, we began to create the framework for and implemented
the Health and Safety Pillars applicable to our employees and third-party personnel. These pillars are part of the BRF
Operational Excellence System. In this way, we plan to reduce the accident frequency rate, calculated based on the
Occupational Safety and Health Administration (“OSHA”) requirements, by 56% in three years (2020 to 2023), which
we believe demonstrates our commitment to safety.
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
A.
Operating Results
Overview
BRF S.A. is one of the largest producers of fresh and frozen protein foods in the world in terms of production
capacity, according to WattAgNet, with a portfolio of approximately 7,300 stock keeping units (“SKUs”). 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. 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, butter, cream cheese, sweet specialties, sandwiches, plant-based products and animal
feed. We are the holder of brands such as Sadia, Perdigão, Qualy, Perdix, Confidence and Hilal. For the year ended
December 31, 2020, we were responsible for 10.1% of the world’s poultry trade, according to USDA.
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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, as of December 31, 2020, we have among our main assets a distribution
network that enables our products to reach Brazilian consumers through more than 547,000 average monthly deliveries
and 22 distribution centers in the domestic market.
In the international market, we have a leading brand, Sadia, in various categories in Middle Eastern countries.
We maintain over 41 offices outside of Brazil serving customers in 117 countries on five continents. We have one
industrial facility in Abu Dhabi, one in Saudi Arabia, two in Romania and three in Turkey. As of December 31, 2020,
we also have among our main assets a distribution network that enables our products to reach consumers in the Halal
market through more than 250,000 monthly deliveries and 19 distribution centers in addition to 26 transshipments
points.
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” (ADR level III).
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 chicken and cut chicken,
and frozen pork;
• Processed Food Products, including the following:
o marinated, frozen, whole chicken and cut chicken, roosters (sold under the Chester® brand) and
turkey;
o
o
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, butter and cream cheese;
o
frozen prepared entrees, such as lasagna, macaroni and cheese and pizzas, as well as other frozen
foods;
o plant-based products, such as nuggets, pies, vegetables and hamburgers; and
o
frozen desserts;
• Other, consisting of soy meal, refined soy flour and animal feed.
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 these industrial facilities are located near
our raw material suppliers or main consumer centers. We have an advanced logistics system in our domestic market,
with 22 distribution centers, five of which are owned by us and 17 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 operate 28
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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 impact 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. From 2014 until
2020, we allocated R$1,123.6 million (€321.6 million) to projects with environmental benefits, and we planted a
renewable forest covering 30 thousand hectares (the amount referring to the investments made in 2020 is still subject
to a second opinion from an external certifier, which may result in an adjustment of this amount).
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;
disruptions in consumption and trade patterns, supply chains and production processes resulting from
the novel coronavirus (COVID-19 virus) pandemic;
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;
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% for 2020, 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% in 2018, increased to
4.31% in 2019 and to 4.52% in 2020. 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 13.9% in 2020, according to the
IBGE’s National Household Sample Survey (Pesquisa Nacional por Amostra de Domicílios, or “PNAD”), which
represents a deterioration when compared to the rate of 11.8% in 2019. Additionally, after decreasing to 91.6 points
in 2019, Brazilian consumer confidence decreased to 78.5 points in December 2020, according to a Consumer
Survey of Fundação Getúlio Vargas (FGV).
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Real GDP in Brazil increased at an average annual rate of 9.0% from 2005 through 2020. For two consecutive
years, in 2015 and in 2016, Brazil’s GDP decreased by 3.5%. In 2020, GDP decreased by 4.1% compared to 2019.
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 18% as of December
31, 2005 to 2.00% as of December 31, 2020.
The Brazilian real depreciated 22.4% against the U.S. dollar in 2020, from R$4.03 per U.S.$1.00 in
December 31, 2019 to R$5.20 per U.S.$1.00 in December 31, 2020.
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.”
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. In 2020, the South African government announced
increases in import tariffs, applied to imports of bone-in (37% to 62%) and boneless (12% to 42%) chicken in South
Africa, which had a negative impact on our competitiveness and profitability in the country.
In December 2016, Saudi Arabia increased its import tariff for poultry meat from 5% to 20%, which was
followed, in 2020, by an increase in VAT applicable to poultry and poultry parts, from 5% to 15%.
In August 2017, the Chinese government initiated an antidumping investigation in connection with Brazilian
exports of whole chicken and chicken parts, including our 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 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.
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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 an 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. No subsequent negotiations have taken place since the expiration. As a result, during 2020, we were unable to
export poultry meat to the Mexican market due to the absence of import quotas.
Additionally, the Saudi Arabian government has announced the adoption of an import license system, which
has not been implemented yet. Once it is implemented, Saudi Arabia may have the ability to strengthen its control
over imported volumes and set limitations.
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.
Between April 29 and April 30, 2020, our production facility located in Rio Verde, in the State of Goiás, was
temporarily suspended in compliance with the determination by the local Federal Inspection Service, or SIF, due to
deviations found in the local water supply system.
In 2020, China’s General Customs Administration suspended the authorization for chicken and pork exports
from two BRF plants, located in Dourados (SIF 18) and Lajeado (SIF 3975). The suspension was due to alleged
concerns over COVID-19 in Brazil. These two plants had their suspensions reversed by the Chinese authorities later
in 2020, and they received clearance to resume exports.
In 2020, the Philippines imposed a temporary ban on poultry meat imports from Brazil after two cities in
China found traces of COVID-19 in cargoes of imported frozen food, including chicken wings, from Brazil. The
Philippines lifted the embargo on imports of Brazilian chicken products in December 2020. Since no other countries
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followed the Philippine government’s embargo and we have not been notified, whether directly or through the
Brazilian government, of other countries adopting a similar position, we believe that it is unlikely that other similar
embargos will occur.
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. We, along with other Brazilian companies, were therefore required to migrate our
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 our plants. One of our plants (Lajeado, State of Rio Grande
do Sul) which 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.
In 2020, Saudi Arabia continued its practice of creating import barriers, such as by suspending imports from
the Francisco Beltrão (SIF 2518) and Dois Vizinhos (SIF 1985) plants in February 2020 without providing technical
justifications, increasing the costs of Halal certification by requiring accreditation at the SFDA Halal Center, and
adopting import licenses to control the volume of imports. The import license requirements have not yet been fully
implemented, and we do not know if the Saudi government will use this tool as a trade barrier. Saudi Arabia also
imposed an informal import ban in 2020 against products originating from Turkey, which affected our subsidiary
Banvit’s exports.
Additionally, since 2018, the government of South Africa has threatened to launch an anti-dumping
investigation against Brazil related to certain protein cuts allegedly being exported at lower prices than those in the
South African domestic market.
In 2020, the Indonesian government appealed a WTO decision in a case filed by the Brazilian government
against chicken import restrictions imposed by Indonesia. The WTO’s appellate body’s activities are suspended
waiting the appointment of judges to the appellate body. As a result, we are unable to estimate when this case may be
resolved. In 2020, we have also observed increased efforts in Malaysia in enforcement activities concerning the Halal
certificate regulations, resulting in increased difficulty in fulfilling all the requirements. Although as of the date of this
annual report we have been able to overcome these difficulties for cargo release, we anticipate that this trend may
continue in Malaysia, with the imposition of trade barriers.
Angola also imposed certain controls over the issuance of import licenses in 2020 as a way of reducing
imports. Angola is facing a foreign currency shortage, mainly U.S. dollars, which has impacted their import volumes.
Additionally, also in 2020, Iraq imposed technical barriers by means of a ban on importing poultry parts. In 2019, Iraq
had already banned the imports of whole poultry.
In Turkey, there is a risk related to the expiration and non-renewal of the license relating to the validity of
transgenic events, which would impact Turkish imports of transgenic soybeans, thereby affecting the cost of our
production in Turkey.
COVID-19 Pandemic
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On March 11, 2020, the World Health Organization declared COVID-19 as a global pandemic. The
worldwide spread of COVID-19 has triggered the implementation of significant measures by governments and private
sector entities which, in turn, have disrupted consumption and trade patterns, supply chains and production processes
on a global scale and specifically relating to our business, including with respect to product shipments. In addition,
customers from certain regions in which we operate are being affected, mainly by the measures of social distancing
imposed by authorities and restrictions on public gatherings or interactions, which may limit the opportunity for our
customers to purchase our products. The consequences of the pandemic could also result in the destabilization of
commodity prices or 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. Any deterioration
in the credit cycle of our customers as a result of the pandemic or the measures implemented to address it, may
adversely affect our results and cash flows in the future.
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. In addition, countries to which
we export our products may institute bans on the importation of our products, products produced by our partners or
on all or some food products from Brazil in general based on perceived COVID-19 concerns.
Since the beginning of the global pandemic, we have continued to operate our plants, distribution centers,
logistics, supply chain and administrative offices, although currently we have implemented a remote work program in
some of our corporate offices and we had to close our Lajeado plant for a week in May 2020 and our Rio Verde plant
for 14 days in June 2020, in each case as the result of an outbreak. As of the date of this annual report, there has been
no significant change in our production plan, operation or commercialization. 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. We implemented a comprehensive testing program using RT-PCR and serological methodologies as part
of the actions to prevent the spread of the virus in our plants. Our operation can be affected by COVID-19 through
reduction of the labor available by COVID-19, reducing the productivity of manufacturing operations, lack of raw
materials and packaging, and delay in line growth and maintenance projects due to reduced availability of third parties
suppliers.
However, we have incurred direct and incremental expenditures, mainly related to personnel, prevention,
control, logistics and philanthropic donations, as a result of the pandemic in the amount of R$499,299 thousand. We
have approved the donation of food, medical supplies and other support to research and social development funds, in
an amount equal to approximately R$50 million, in order to contribute to the efforts to combat the effects of the
COVID-19 pandemic, including support to hospitals, philanthropic entities, social assistance organizations and health
professionals in the states and municipalities in which we operate.
Overall, we have not experienced significant negative financial effects arising from the COVID-19 pandemic
since it was declared. However, despite having more visibility on the impact of the pandemic compared to March
2020, we may still suffer changes in our operational performance, which may in turn adversely affect our financial
position. In March 2020, we sought to strengthen our liquidity profile in light of prevailing market uncertainty, and,
between March 26, 2020 and May 15, 2020, we procured bank loans in Brazil totaling R$2.4 billion, with an average
term of approximately one year. During the second half of 2020, we prepaid R$2 billion of these precautionary short-
term loans and further extended our average debt maturity profile to 9.9 years as of December 31, 2020. We currently
have R$3 billion undrawn and available under a revolving credit facility with Banco do Brasil. We have adopted
several guidelines, as part of our Financial Risk Management Policy, to ensure that we maintain an appropriate level
of liquidity by setting minimum cash and liquidity requirements depending on future expectations and obligations.
We consider our liquidity position to be adequate taking into account our payment obligations, including through our
capital expenditure plans, in line with our Vision 2030 Plan. We nevertheless recognize that unfavorable operating
results may have an adverse impact on our financial metrics, such as leverage. At the same time, we may experience
increases in general customer default rates in connection with the pandemic and a resulting increase in our expected
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credit losses. The possible deterioration in the credit cycle of our customers may adversely affect our results, financial
position and cash flows in the future.
The recent increase in volatility of market risks has significantly affected the fair value of our assets and
liabilities, particularly considering wide variations in foreign exchange rates. Additionally, the heightened uncertainty
of projections has increased the challenge of accurately measuring certain of our assets and liabilities. However, the
judgments used have not been changed significantly, and we are still able to prepare our financial statements on a
timely basis. Our management has taken into account the effects and uncertainties regarding the pandemic in the
projections of our results and cash flows. As described in note 13.1 to our consolidated financial statements, no
impairment has been recognized to our cash generating units. Due to the high volatility and uncertainty around the
length and impact of the pandemic, we will continue to monitor the situation in the markets in which we operate and
evaluate any necessary adjustments to the assumptions and estimates we use in preparing our financial statements.
The COVID-19 pandemic also resulted in a widespread health crisis that destabilized commodity prices and
the economic conditions 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. The current pandemic and
any future pandemics could also adversely affect 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.
In addition, demand for our products has been affected as a result of the COVID-19 pandemic worldwide,
especially in our international operations, due to the partial discontinuation of our foodservice channel, weakening of
global commercial activities, reduction of population income, and changes in consumption habits. As a result, over
the past year we have observed lower average prices as a consequence of relocating production from foodservice to
other channels with lower prices and profitability, although we did not register excess inventory.
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.
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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 through 2020. 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. In 2020, two additional cases were reported in the State of 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 August 2017, the Chinese government initiated an antidumping investigation in connection with Brazilian
exports of whole chicken and chicken parts, including our 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 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. We, along with other Brazilian companies, were therefore required to migrate our
production processes to non-stunning slaughters in order to supply the Saudi Arabian market.
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.
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In 2020, as a result of the Trapaça Operation, the Saudi Food & Drug Authority (“SFDA”) temporarily
suspended the export authorization of two of our plants, Dois Vizinhos (SIF 2518) and Francisco Beltrão (SIF 1985).
The Saudi Arabian government agency based its decision on news reports relating to the investigation. The case has
been brought by Brazil as a Specific Trade Concern (STC) in the 4th meeting of the Sanitary and Phytosanitary
Measures (SPS) Committee at the World Trade Organization (“WTO”), held in November 2020. Similarly, in the
same year, we have received governmental approval from China to export from two of our plants, Dourados (SIF 18)
and Lajeado (SIF 3975).
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 32.3% of our cost of production in 2020, compared to 28.1% in 2019. Although we produce
most of the hogs we use for our pork products, we also purchased hogs on the spot market in 2020. We purchased
4.9% of the total number of hogs slaughtered in 2020 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 2020, the average corn price in
Brazil was 29.95% higher than in 2019. Corn prices in December 2020 were 38.74% higher than in December 2019.
In 2020, the average soybean meal price in Brazil was 36.58% higher than in 2019. In December 2020, soybean meal
prices in Brazil were 47.07% higher than in December 2019. 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 2020, 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”).
Depreciation of the real against the U.S. dollar ...............................
Period-end exchange rate (U.S.$1.00) .............................................. R$5.20
Average (daily) exchange rate (U.S.$1.00)(1) ................................... R$5.16
Period-end Basic interest rate SELIC(2) ............................................ 2.00%
Inflation (INPC)(3) ............................................................................ 5.45%
Inflation (IPCA)(4) ............................................................................ 4.52%
Inflation (IGP-M)(5) .......................................................................... 23.14%
2020
(22.44%)
2019
(4.02%)
R$4.03
R$3.95
4.50%
4.48%
4.31%
7.30%
2018
(17.14%)
R$3.87
R$3.66
6.50%
3.43%
3.75%
7.55%
Sources: IBGE, Fundação Getúlio Vargas and the Brazilian 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.
74
(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. Outside of Brazil, we invoice our sales primarily in U.S.
dollars or U.S. dollar equivalents such as Saudi riyal and Emirati dirham, as well as 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 loans and borrowings in an aggregate amount of R$15,739,134
thousand as of December 31, 2020, representing 70.3% 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, 2020, 29.7% of our total indebtedness of R$22.4 billion was either: (i) denominated in (or swapped into) reais and
bears interest based on Brazilian floating interest rates, such as 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 (ii) U.S.
dollar-denominated and bears floating interest based on LIBOR. Any increase in the CDI, 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:
75
CDI .................................................................
Six-month LIBOR ..........................................
Freight Costs and Volume
2020
Average Interest for the Year Ended December 31,
2019
(%)
4.4
1.9
2.8
0.7
6.4
2.9
2018
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 2020, 2019 and 2018, freight costs from
our continuing operations represented approximately 5.1%, 5.0% and 5.5% of our net sales, respectively. For our
export goods, we ship many of our goods CFR (cost and freight), CIF (cost, insurance and freight) or DDP (delivered
duty paid), including the payment of freight and insurance costs. In recent years, due to global political instability that
could affect oil prices, we have included in our agreement with shipping lines a bunker oil (the fuel utilized in vessels)
adjustment factor. In 2019, shipping lines also started preparing themselves for the implementation of the International
Maritime Organization (or “IMO”) Low Sulphur Regulation, which entered into force on January 1, 2020. As a result
of the new regulation, our freight levels increased approximately 11% 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 has
affected all agents in the shipping industry. Similarly, between March and May 2020, due to uncertainties regarding
the effects of the COVID-19 pandemic, oil prices dropped drastically, and our sea freight was adjusted as well using
the abovementioned Bunker clause. Oil prices had partly recovered by year-end 2020.
Global protein and all other refrigerated cargo demand are also expected to exert pressure on freight volume
and restrict container availability, 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 limited offer of reefer containers, 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 2020, 2019 and 2018.
Continuing Operations
Net sales...................................................................
Cost of sales .........................................................
Gross profit ............................................................
Operating income (expenses)
Selling expenses ...................................................
General and administrative expenses ....................
Impairment loss on receivables ............................
Other operating income (expenses) ......................
Income (loss) from associates and joint ventures..
Operating income (loss) from Continuing Operations
.............................................................................
Financial expenses ................................................
Financial income ..................................................
Foreign exchange and monetary variations
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 ........................
Year Ended December 31,
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
(3,096,716)
1,304,187
(72,870)
882,938
(94,699)
290,094
1,078,333
(915,809)
162,524
100.0
(75.9)
24.1
(14.7)
(1.8)
(0.1)
0.7
0.0
8.2
(9.3)
3.9
(0.2)
2.6
(0.3)
0.9
3.2
(2.7)
0.5
2018
(in thousands
of reais)
30,188,421
(25,320,753)
4,867,668
(4,513,594)
(551,165)
(46,269)
19,311
17,715
(206,334)
(2,130,194)
869,534
(980,814)
(2,447,808)
(6,842)
340,144
(2,114,506)
(%)
100.0
(83.9)
16.1
(15.0)
(1.8)
(0.2)
0.1
0.1
(0.7)
(7.1)
2.9
(3.2)
(8.1)
(0.0)
1.1
(7.0)
(2,351,740)
(4,466,246)
(7.8)
(14.8)
162,684
0.5
(4,448,061)
(14,7)
(%)
100.0
(76.0)
24.0
(14.2)
(2.0)
0.0
(0.1)
0.0
7.7
(4.8)
1.1
(0.6)
3.4
(0.2)
0.6
3.9
0.0
3.9
3.8
2020
(in thousands
of reais)
39,469,700
(29,998,822)
9,470,878
(5,587,488)
(770,282)
(12,137)
(49,742)
-
3,051,229
(1,889,454)
420,757
(230,298)
1,352,234
(77,373)
250,136
1,524,997
-
1,524,997
1,518,492
76
Non-controlling shareholders .................
2020
(in thousands
of reais)
6,505
(%)
0.0
Year Ended December 31,
2019
(in thousands
of reais)
(%)
(160)
0.0
2018
(in thousands
of reais)
(18,185)
(%)
(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 of
our 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 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, butter, 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 2
to our consolidated financial statements for the year ended December 31, 2020 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, 2020 was
9.69%. 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, 2020. However: (i) exports are not subject to these taxes; (ii) we currently
benefit from a reduction of the tax rate to zero with respect to our in natura pork, poultry and beef cuts;
and (iii) 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%, 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, 2020, 2019 and
2018:
77
Gross sales
Brazil ...............................................................
International .....................................................
Other Segments ...............................................
Sales deduction
Brazil ...............................................................
International .....................................................
Other Segments ...............................................
Net sales
Brazil ...............................................................
International .....................................................
Other Segments ...............................................
Year ended December 31,
2020
2019
2018
(in thousands of reais)
26,017,981
18,514,099
1,378,344
45,910,424
(5,032,862)
(1,273,905)
(133,957)
(6,440,724)
20,985,119
17,240,194
1,244,387
39,469,700
21,645,253
16,191,795
1,167,463
39,004,511
(4,155,774)
(1,292,401)
(109,356)
(5,557,531)
17,489,479
14,899,394
1,058,107
33,446,980
20,659,378
14,012,629
941,360
35,613,367
(4,366,842)
(943,958)
(114,146)
(5,424,946)
16,292,536
13,068,671
827,214
30,188,421
The following discussion provides comparisons of our results of our continuing operations for the years
ended December 31, 2020, 2019 and 2018, based on our consolidated financial statements prepared in accordance
with IFRS, as issued by the IASB.
Year Ended December 31, 2020 Compared with Year Ended December 31, 2019
Net Sales
Our net sales increased by R$6,022,720 thousand, or 18.0%, to R$ 39,469,700 thousand in 2020 from
R$33,446,980 thousand in 2019, primarily due to an expansion of our value-added product mix portfolio in the Brazil
and International segments, as well as other drivers described below.
Net Sales by Operating Segments
In 2020, we recorded the following net sales and volumes in our operating segments.
Operating Segments
Volume
(in thousands
of tons)
Change from
2019
(%)
Brazil .................................................
International ......................................
Other Segments .................................
Total .................................................
2,321
1,880
277
4,479
5.7
(1.5)
3.1
2.4
Net Sales
(in thousands
of reais)
20,985,119
17,240,194
1,244,387
39,469,700
Change from
2019
(%)
20.0
15.7
17.6
18.0
Brazil
Our net sales for our Brazil operating segment increased by R$3,495,640 thousand, or 20.0%, to
R$20,985,119 thousand in 2020 from R$17,489,479 thousand in 2019. This is primarily attributable to (i) investments
in our brands; (ii) a portfolio expansion of our value-added product mix; (iii) the growth of our presence in new
channels and the strengthening of our presence in our existing channels; and (iv) the improvement of the level of
service to our customers.
78
The following table provides a breakdown of our net sales and sales volume for Brazil.
2020
Volume
2019
(in thousands of tons)
466
119
585
1,735
1
2,321
504
117
621
1,574
NM*
2,195
Poultry ............................
Pork and Others ..............
Total in natura meat ....
Processed foods ..............
Other sales ......................
Total ..............................
*NM = not meaningful
Change
(%)
2020
Net Sales
2019
(in thousands of reais)
3,692,377
3,738,560
(7.6)
943,220
1,275,690
1.8
(5.8)
4,635,597
5,014,250
10.3 15,944,162 12,839,008
NM*
14,874
5.7 20,985,119 17,489,479
26,707
Change
(%)
1.3
35.2
8.2
24.2
79.6
20.0
The following table sets forth our average selling prices in Brazil.
Brazil
International
2020
Average Selling Prices
2019
(in reais per kg)
Change
(%)
9.04
7.97
13.4
Our net sales for our International operating segment increased by R$2,340,800 thousand, or 15.7%, to
R$17,240,194 thousand in 2020 from R$14,899,394 thousand in 2019, primarily driven by (i) an increase in the share
of our value-added product mix; (ii) an increase in the number of our licensed plants, aiming at strengthening our
presence in our existing markets, as well as in new regions and products; (iii) a higher demand from the Asian market
due to African swine fever; and (iv) the devaluation of the Brazilian real versus the U.S. dollar that favored prices in
reais.
2020
Volume
2019
(in thousands of tons)
1,504
152
1,656
252
1
1,909
1,435
194
1,629
248
4
1,880
Change
(%)
Net Sales
2019
2020
(in thousands of reais)
Change
(%)
(4.6)
27.7
(1.7)
(1.8)
NM*
(1.5)
12,246,499
2,324,121
14,570,620
2,366,204
303,370
17,240,194
11,262,954
1,342,892
12,605,846
2,119,918
173,630
14,899,394
8.7
73.1
15.6
11.6
74.7
15.7
Poultry .............................
Pork and Others ...............
Total in natura meat .....
Processed foods ...............
Other sales .......................
Total ................................
*NM = not meaningful
The following table sets forth our average selling prices for our International operating segment.
International ...................................................................
9.17
7.81
17.4
2020
Average Selling Prices
2019
(in reais per kg)
Change
(%)
Other Segments
Our consolidated net sales for our Other Segments operating segment increased by R$186,280 thousand, or
17.6%, to R$1,244,387 thousand in 2020 from R$1,058,107 thousand in 2019, primarily driven by more favorable
prices practiced in our ingredients business and higher volumes marketed in our global desk.
The following table provides a breakdown of our net sales and volumes for Other Segments.
79
2020
Volume
2019
(in thousands of tons)
Change
(%)
Other Segments ..............
277
269
3.1
2020
Net Sales
2019
(in thousands of reais)
1,058,107
1,244,387
Change
(%)
17.6
The following table sets forth our average selling prices for Other Segments.
Other Segments ..............................................................
4.48
3.93
2020
Average Selling Prices
2019
(in reais per kg)
Change
(%)
14.2
Cost of Sales
Cost of sales totaled R$29,998,822 thousand in 2020, representing an increase of 18.2% in comparison to
costs of R$25,370,042 thousand in 2019. This was mainly due to higher volumes and an increase in average grains’
prices, as well as the currency devaluation of the Brazilian real that impacted our cost of acquisition of supplies.
Gross Profit
Our gross profit increased by 17.3% in 2020, to R$9,470,878 thousand in 2020 from R$8,076,938 thousand
in 2019, with a gross margin of 24.0% in 2020 compared to 24.1% in 2019. This increase was primarily driven by
more favorable operational results both in the Brazil and International operating segments.
Operating Expenses
Our operating expenses increased by 20.5% in 2020, to R$6,419,649 thousand in 2020 from R$5,328,601
thousand in 2019, primarily due to the drivers described below.
Selling Expenses
Our selling expenses increased by 13.8% in 2020, to R$5,587,488 thousand in 2020 from R$4,911,666
thousand in 2019, primarily due to (i) costs related to preventing and combatting the effects of the COVID-19
pandemic on our operations; (ii) higher expenses denominated in Brazilian reais, in the international market, due to
currency devaluation; and (iii) higher freight expenses in Brazil given the greater supply and demand of trucks.
General and Administrative Expenses
Our general and administrative expenses increased by 25.1% in 2020, to R$770,282 thousand in 2020 from
R$615,683 thousand in 2019, mainly due to (i) costs related to preventing and combatting the effects of the COVID-
19 pandemic on our operations; and (ii) higher expenses denominated in Brazilian reais, in the international market,
due to currency devaluation.
Impairment loss on receivables
Impairment loss on receivables decreased by 49.2% in 2020, to R$12,137 thousand in 2020 from R$23,899
thousand in 2019, primarily due to a general decrease in overdue payments and general default rates of our customers.
Other Operating Income (Expenses), Net
Other operating income (expenses), net decreased by 122.2% in 2020, to an expense of R$49,742 thousand
in 2020 from an income of R$224,384 thousand in 2019. This decrease was mainly due to the fact that in 2019 we
recognized a gain related to the exclusion of the ICMS from the PIS and COFINS tax assessable basis.
80
Income (loss) from associates and joint ventures
Income (loss) from associates and joint ventures increased by 100% in 2020, to R$0 in 2020 from a loss of
R$1,737 in 2019, primarily due to the sale of our equity interests in the joint venture Sats BRF Food Pte Ltd. in 2019.
Operating Income (Loss)
As a result of the foregoing, our operating income (loss) before financial expenses increased by 11.0% in
2020, to an income of R$3,051,229 thousand in 2020 from an income of R$2,748,337 thousand in 2019.
The table below sets forth our operating income (loss) on a segment basis.
Brazil ..............................................................................
International....................................................................
Other Segments ..............................................................
Subtotal ...........................................................................
Corporate ........................................................................
Total ................................................................
Financial Income (Expenses), Net
Operating Income (Loss) by Segment
2019
2020
(in thousands of reais)
1,818,813
1,275,285
109,138
3,203,236
(454,899)
2,748,337
2,081,150
1,100,212
197,233
3,378,595
(327,366)
3,051,229
Change
(%)
14.4
(13.7)
80.7
5.5
(28.0)
11.0
Net financial expenses amounted to R$1,698,995 thousand in 2020, representing a decrease of 8.9%
compared to R$1,865,399 thousand in 2019, primarily due to (i) the positive impact of the remeasurement of the put
option granted by us in the context of a business combination referring to Banvit in the amount of R$579,946 thousand;
and (ii) lower net charges on general obligations and rights.
Income (loss) Before Taxes From Continuing Operations
As a result of the foregoing, our income before taxes from continuing operations was R$1,352,234 thousand
in 2020, representing an increase of 53.2% in comparison to R$882,938 thousand in 2019.
Income Tax and Social Contribution
Our income tax and social contribution amounted to R$172,763 thousand in 2020, representing a decrease of
11.6% from R$195,395 thousand in 2019. The effective tax rate in 2020 was (12.8)% compared to an effective rate
of (22.1)% in 2019. This variation was primarily due to (i) the effects of differences in tax rates on results of our
foreign subsidiaries; (ii) the effect of foreign currency exchange variation in subsidiaries with different functional
currencies; and (iii) deferred tax assets not recognized in 2020.
Net Income (loss)
As a result of the foregoing, our net income from continuing operations increased by 41.4% in 2020, to
R$1,524,997 thousand in 2020 from R$1,078,333 thousand in 2019. When taking into account discontinued
operations, our net income increased by 838.3%, to R$1,524,997 thousand in 2020 from R$162,524 thousand in 2019.
81
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
1,574
NM
2,195
533
117
650
1,623
NM
2,273
Poultry ............................
Pork and Others ..............
Total in natura meat ....
Processed foods ..............
Other sales ......................
Total ..............................
NM = not meaningful
Change
(%)
2019
Net Sales
Restated
2018(1)
(in thousands of reais)
3,198,356
3,692,377
(5.4)
800,127
943,220
0.0
(4.5)
3,998,483
4,635,597
(3.0) 12,839,008 12,274,681
NM
19,372
14,874
(3.4) 17,489,479 16,292,536
Change
(%)
15.4
17.9
15.9
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
2019
Average Selling Prices
2018
(in reais per kg)
Change
(%)
7.97
7.17
11.2
82
International
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)
(1)
83
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 the 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 5.0% in 2019, to R$5,328,601 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 receivables
Impairment loss on 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.
84
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 years, primarily those in connection with the Carne
Fraca and Trapaça Operations, the U.S. class action filed against us in March 2018 and provisions. For more information on Corporate, see Note 24 to our
consolidated financial statements.
(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.
B.
Liquidity and Capital Resources
As of December 31, 2020, we held R$7,576.6 million in cash and cash equivalents. Of that amount,
R$3,797,3 million, or 50%, 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 taxation 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
85
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, 2020, there were no amounts outstanding under this revolving credit facility.
On October 28, 2020, we entered into an additional three-year revolving credit facility with Banco do Brasil
for a committed maximum amount of R$1.5 billion. Thus, the total committed amount with Banco do Brasil in the
revolving credit facilities is R$3.0 billion. As of December 31, 2020, there were no amounts outstanding under this
revolving credit facility. We also carried out, using our own resources, the early repayment of a loan agreement with
Banco do Brasil, which would mature between August 2021 and January 2022, the amount of which totals R$1.57
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,
2020
2019
2018
(in thousands of reais)
4,417,630
(1,430,989)
(587,042)
939,241
3,338,840
2,521,230
1,443,106
(4,817,102)
295,685
(1,415,879)
73,924
54,540
71,452
(798,226)
(974,818)
We recorded net cash flows provided by operating activities of R$4,417,630 thousand in 2020, compared to
cash flows provided by operating activities of R$2,521,230 thousand in 2019. The increase of R$1,896,400 thousand
is mainly due to an increase in our income from continuing operations adjusted for non-cash effects, a decrease of
R$294,522 thousand in the payment of tax, civil and labor provisions.
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.
Cash Flows Provided by (Used in) Investing Activities
We recorded net cash flows used in investing activities of R$1,430,989 thousand in 2020, compared to cash
flows provided by investing activities of R$1,443,106 thousand in 2019. The decrease of R$2,874,095 thousand is
mainly due to the proceeds from 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 in the amount of R$242,051
thousand, both in 2019. Additionally, in 2020, we increased our investments in biological assets in the amount of
R$168,292 thousand and in property, plant and equipment in the amount of R$387,444 thousand.
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
86
and the price adjustment from the sale of our then dairy segment to Lactalis in 2015 in the amount of R$242,051
thousand.
Cash Flows Provided by (Used in) Financing Activities
We recorded cash flows used in financing activities of R$587,042 thousand in 2020, compared to cash flows
used in financing activities of R$4,817,102 thousand in 2019, mainly due to our refinancing strategy and increase in
liquidity for 2020. The amount of proceeds from debt issuance net of repayments in 2020 was of R$172,974 thousand,
compared to R$4,081,980 thousand of repayments of debt net of proceeds in 2019.
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.
Dividends and Interest on Shareholders’ Equity
We have not made any distributions for the years ended December 31, 2018 or 2019, and we will propose no
distribution of dividends for the year ended December 31, 2020 at our annual shareholders’ meeting to be held in April
27, 2021 because, despite having reported profits for the years ended December 31, 2020 and December 31, 2019, we
reported accumulated losses in 2020.
Debt
We use the net proceeds of our indebtedness primarily for capital expenditures, liquidity and the purchase 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.
As of December 31, 2020
Current
Non-current
As of December 31,
2019
2020
(in thousands of reais)
Total debt .................................................................
Derivative financial instruments, net .........................
Cash, cash equivalents and marketable securities and
restricted cash
Local currency ...........................................................
Foreign currency .......................................................
Total ..........................................................................
Net debt ....................................................................
(1,059,984)
(7,213)
(21,344,442)
(493)
(22,404,426)
(7,706)
(18,620,279)
91,703
4,091,829
3,798,955
7,890,784
6,823,587
39,401
329,533
368,934
(20,976,001)
4,131,230
4,128,488
8,259,718
(14,152,414)
1,758,495
3,501,118
5,259,613
(13,268,963)
The table below provides a further breakdown of our indebtedness by the type of debt.
Development bank credit lines.....................
Export credit facilities ..................................
Working capital facilities .............................
PESA loan facility .......................................
Agribusiness Receivables Certificate ...........
Debentures ...................................................
Other ............................................................
Local currency ...........................................
Current
Non-current
Total Loans and borrowings as of
December 31,
As of December 31, 2020
2020
2019
(in thousands of reais)
-
2,387,852
-
-
822,685
2,969,918
-
6,180,455
-
2,408,697
368,681
-
821,093
3,022,005
44,816
6,665,292
45,516
1,612,365
3,312,639
284,308
1,597,447
755,760
5,720
7,613,755
-
20,845
386,681
-
(1,592)
52,087
44,816
484,837
87
Current
Non-current
Total Loans and borrowings as of
December 31,
As of December 31, 2020
2020
2019
(in thousands of reais)
Export credit facilities ..................................
Bonds ...........................................................
Working capital facilities .............................
Foreign currency ........................................
Total: ...........................................................
132,801
215,218
227,128
575,147
1,059,984
259,835
14,614,775
289,377
15,163,987
21,344,442
392,636
15,829,993
516,505
15,739,134
22,404,426
407,275
10,407,484
191,765
11,006,524
18,620,279
The maturity schedule of our indebtedness is as follows:
2020 .....................................................................................................................
2021 .....................................................................................................................
2022 .....................................................................................................................
2023 .....................................................................................................................
2024 .....................................................................................................................
2025 onwards ......................................................................................................
Total ....................................................................................................................
As of December 31, 2020
(in thousands of reais)
1,059,984
2,114,622
2,569,063
1,782,687
599,266
14,278,804
22,404,426
Our principal debt instruments as of December 31, 2020 are described below. For more information on these
facilities, including information on average interest rates and weighted average maturities, see Note 15 to our
consolidated financial statements.
Local Currency Debt
Revolving Credit Facilities
Banco do Brasil RCF 2019. 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, 2020, there were no amounts outstanding under this revolving credit facility.
Banco do Brasil RCF 2020. On October 28, 2020, 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, 2020, there were no amounts outstanding under this revolving credit facility.
Export Credit Facilities
Export Credit Notes. In September 2019, we refinanced our outstanding export credit facilities with Banco
Bradesco, totaling R$2,408,697 thousand as of December 31, 2020. These export credit notes bear interest at floating
rates (CDI), with maturity dates from 2022 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$368,681 thousand as of
December 31, 2020 with several commercial banks under a Brazilian federal government program that offers favorable
interest rates, as an incentive to invest in rural activities, with maturity in 2021. Generally, the proceeds of such loans
are used for working capital. From September to December 2019, we prepaid some of those loans, totaling R$ 2.32
billion. These credit lines are included in the line “Working capital facilities—Local currency” in the table above.
88
Tax Incentive Financing Programs
State Tax Incentive Financing Programs. We also had R$44,816 thousand outstanding as of December 31,
2020 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 taxes 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”) 2016. On December 16, 2016, we concluded a 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 “2016 CRAs”). 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, 2020, the balance of these transactions totaled R$821,093 thousand.
First Issuance of Debentures
On April 30, 2019, we issued 750,000 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, 2020, the outstanding balance of the debentures totaled
R$771,138 thousand.
Second Issuance of Debentures
On July 14, 2020, we concluded a debenture issuance in the amount of R$2.2 billion. We issued 2,200,000
non-convertible unsecured debentures with nominal unit value of R$1,000.00, which were privately placed with
VERT Companhia Securitizadora to back its 46th issuance of CRAs. The principal amount of the 705,000 debentures
of the 1st series matures in a single installment on July 15, 2027, with interest payable every six months. The principal
amount of the 1,495,000 debentures of the 2nd series matures in three installments, the first on July 17, 2028 (33.33%
of the updated outstanding principal amount), the second on July 16, 2029 (50% of the updated outstanding principal
amount) and the third on July 15, 2030 (100% of the updated outstanding principal amount), with interest payable
every six months. The debentures of the 1st series bear interest equal to IPCA plus 5.30% per year and the debentures
of the 2nd series bear interest equal to IPCA plus 5.60% per year. On December 31, 2020, the balance of these
transactions totaled R$2,250,867 thousand.
Foreign Currency Debt
Export Prepayment Facility. We had an export prepayment facility in an outstanding amount of R$392,636
thousand as of December 31, 2020. The indebtedness under this facility is denominated in U.S. dollars, with maturity
in 2021. 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 us. 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$516,505 thousand. This funding is denominated in Turkish lira and have maturity dates between 2021 and 2023.
These credit lines are included in the line “Working capital facilities—Foreign currency” in the table above.
89
Bonds
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 July 24,
2020, an amount equivalent to R$722.7 million (EUR119.1 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$10.8
million (EUR1.8 million). The premium paid to holders of existing bonds was recorded as a financial expense. On
September 24, 2020, an amount equivalent to R$253.8 million (EUR39.1 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$6.1 million (EUR0.9 million). The premium paid to holders of existing bonds was recorded as a
financial expense. As of December 31, 2020, the outstanding notional amount of these notes is equivalent to
R$1,063,017 thousand (EUR166,672 thousand).
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, 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 senior notes under the same indenture and with the same terms and
conditions (collectively, the “BRF Notes 2022”). On May 28, 2015, an amount equivalent to R$1,832.2 million
(U.S.$577.1 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$251.9 million (U.S.$79.4 million). On September
21, 2016, we completed a repurchase offer for the BRF Notes 2022 in an amount equivalent to R$175.7 (U.S.$54.2
million), and premium was paid in the transaction, net of interest, in an amount equivalent to R$18.9 (U.S.$5.7
million). The premium paid to holders of existing bonds was recorded as a 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). On July 24, 2020, an amount equivalent to R$141.1 million (U.S.$27.2 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$7.1 million (U.S.$1.4 million). On September 24, 2020, an amount equivalent to
R$62,366 thousand (U.S.$11,194 thousand), or approximately 13.63% of the principal amount outstanding, of the
BRF 2022 Notes was validly tendered, and not validly withdrawn, through an any and all tender offer. The premium
paid to holders of existing bonds was recorded as a financial expense. As of December 31, 2020, the outstanding
notional amount of these notes is equivalent to R$368.6 million (U.S.$70.9 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 July 24, 2020, an amount equivalent to R$316.0 million (U.S.$60.6 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$5.8 million (U.S.$1.1 million). The premium paid to holders of existing bonds was
recorded as a financial expense. On September 24, 2020, an amount equivalent to R$286.3 million (U.S.$51.4 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$10.4 million (U.S.$1.9 million). The premium paid to holders of existing
bonds was recorded as a financial expense. As of December 31, 2020, the outstanding notional amount of these notes
is equivalent to R$1,216.2 million (U.S.$234.0 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, we
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.$231.0
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
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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.
On July 24, 2020, an amount equivalent to R$334.3 million (U.S.$64.1 million) of the BRF Notes 2024 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$10.4 million (U.S.$2.0 million). Both premiums paid to holders of existing bonds were recorded as a
financial expense. On September 28, 2020, an amount equivalent to R$881.5 million (U.S.$158.4 thousand) of the
BRF 2024 Notes were repurchased through an early capped tender offer, and premium was paid in the transaction, net
of interest, in the amount equivalent to R$57.7 million (U.S.$10.4 million). As of December 31, 2020, the outstanding
notional amount of these notes is equivalent to R$1,534.9 million (U.S.$295.4 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. On September 28, 2020, an amount equivalent to R$3.9 thousand (U.S.$0.7 million) of the
BRF 2026 Notes were repurchased through an early capped tender offer, and premium was paid in the transaction, net
of interest, in the amount equivalent to R$0.151 million (U.S.$0.028 million). As of December 31, 2020, the
outstanding notional amount of these notes is equivalent to R$2,594.6 million (U.S.$499.3 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, 2020,
the outstanding notional amount of these notes is equivalent to R$3,897.5 million (U.S.$750.0 million).
BRF Notes 2050. On September 21, 2020, we issued senior notes in the aggregate amount of U.S.$500.0
million, which bear interest at a rate of 5.750% per year and mature on September 21, 2050. On October 26, 2020, we
issued an additional U.S.$300.0 million of senior notes under the same indenture and with the same terms and
conditions. As of December 31, 2020, the outstanding notional amount of these notes is equivalent to R$4,157.4
million (U.S.$800.0 million).
Derivatives Financial Liabilities, Net
We entered into foreign currency exchange derivatives with a fair value of R$151,000 thousand, commodity
derivatives with a fair value of negative R$144,057 thousand and interest rate derivatives with a fair value of negative
R$14,649 thousand, in each case as of December 31, 2020. 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 2021 through 2022. Only a small number of these transactions involve asset guarantees, which in each
case are in compliance with the rules of the B3. 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 2020, total Brazilian sales by quarter were as follows: 52.0% for the first quarter, 51.0% for the second
quarter, 53.2% for the third quarter and 55.7% for the fourth quarter.
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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 2020, total International sales by quarter were as follows: 44.9% for the first quarter, 46.2% for the second
quarter, 43.3% for the third quarter and 41.0% for the fourth quarter.
Critical Accounting Policies
We have prepared our consolidated financial statements included in this annual report 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. Our 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.
All the relevant accounting practices adopted by us are disclosed in Note 3 to our consolidated financial
statements. The following is a description of the critical accounting policies, estimates or judgments that are important
to the presentation of our consolidated financial statements.
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.
Financial Assets
Financial assets are recognized when the entity becomes a 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 financial assets are classified and measured:
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.
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We evaluate 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 income statement.
The interests of financial assets are recorded on Financial Income (Expenses), net.
A financial asset is only derecognized when contractual rights expire or are effectively transferred.
Cash and cash equivalents: comprises the balances of cash, banks accounts and securities of immediate
liquidity whose maturities, 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.
Expected credit losses in accounts receivable from customers and other receivables: we regularly assess the
historical losses on the customer portfolios that we have in each region, taking in consideration the dynamics of the
markets in which we operate and instruments that we have 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, we evaluate macroeconomic
factors that may influence these losses and, if necessary, adjust the calculation model.
Securities receivable with legal proceedings in place are reclassified to noncurrent as well as the related
estimated credit losses.
Financial liabilities
Financial liabilities are recognized when the entity becomes a party to the contractual provisions of the
instrument. The initial measurement is at fair value and subsequently at amortized cost using the effective interest rate
method. The interests of financial liabilities are recorded on Financial Income (Expenses), net.
A financial liability is only derecognized when the contractual obligation expires, is settled or canceled.
Adjustment to present value
We measure 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. We adopt the
weighted average cost of capital to determine the adjustment to present value of the mentioned assets and liabilities,
which corresponded to 9.8% per year on December 31, 2020 (11.3% per year on December 31, 2019).
Hedge accounting
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 object is recognized, adjusting
the item in which the hedge object 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.
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Fair value hedge: the effective portion of the hedge instruments’ gain or loss is recognized in the income
statement or statement of financial position, adjusting the item under which the hedge object is or will be recognized.
The hedge object, when designated in this relationship, is also measured at fair value.
Net investment hedge: 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 (hedge
objects) 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.
Reference interest rate reform
We do not have transactions designated for hedge accounting that involve operations indexed to the reference
interest rates that are the object of reform. Additionally, existing liabilities indexed to the reference interest rates have
contractual arrangements foreseeing the replacement for similar rates. Thus, we do not expect any significant impact
on us if such interest rates cease to exist or are replaced.
Revenue from contracts with customers
Sales revenues are recognized and measured observing the following steps: (i) identification of the contracts
with customers, formalized through sales orders; (ii) identification of the performance obligations in the contract; (iii)
determination of the transaction price; (iv) allocation of the transaction price to the performance obligations in the
contract; and (v) revenue recognition, as it satisfies the performance obligations.
Revenues are recognized by the amount that reflects our expectation to receive for the sale of products, net
of applicable taxes, returns, rebates and discounts.
The sales process begins with sales orders. The discounts and rebates may be negotiated on a spot basis or
may have its conditions formally defined in the agreements, generally signed with large retail and wholesale chains.
In all cases, the performance condition is satisfied when the control of the goods is transferred to the client.
We have sales with immediate and deferred payments, for which the adjustment to present value is recognized
for the financial component. See Note 3.19.3 to our consolidated financial statements.
Inventories
Inventories are measured at the lower of the average cost of acquisition or 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.
Write-down to net realizable value due to obsolescence, impaired items, slow-moving and realizable value through
sale are evaluated and recorded in each reporting period, as appropriate. Normal production losses are included in the
production cost for the respective month, while abnormal losses, if any, are expensed in cost of sales without
movement through inventories.
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. We analyze 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.
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Deferred taxes represent credits and debits on unused tax losses carried forward and negative CSLL base, as
well as temporary differences between the tax and accounting bases. Deferred income tax assets and liabilities are
classified as non-current. When our internal studies indicate that the future use of these credits over a 10-year horizon
is not probable, the asset is derecognized. See Note 10.3 to our consolidated financial statements.
Deferred tax assets and liabilities are presented net if there is 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.
In compliance with the interpretation IFRIC 23, we analyzed relevant tax decisions of higher courts and
whether they conflict in any way with the positions adopted by us. Regarding the known uncertain tax positions, we
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.
We periodically evaluate the positions assumed in which there are uncertainties about the adopted tax
treatment and will set up a provision when applicable.
Property, plant and equipment
Property, plant and equipment are measured by the cost of acquisition, formation, construction or
dismantling, less accumulated depreciation. Loans and borrowings costs are recorded as part of the costs of property,
plant and equipment in progress, considering the weighted average rate of loans and borrowings 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.
We annually perform an impairment analysis for our cash-generating units, which include the balances of
property, plant and equipment. See Note 13 to our consolidated financial statements.
Gains and losses on disposal 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 operating
income (expense).
Leasing
A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for
a period of time in exchange for consideration. We 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;
• we have the right to obtain substantially all the economic benefits from using the asset throughout
the period of use; and
• we have the right to direct the use of the asset throughout the period of use, which occurs in either
of the following situations: (i) we have the right to direct how and for what purpose the asset is used,
or (ii) the conditions are predetermined such that we have the right to operate the asset or has
designed the asset in a way that predetermined how and for what purpose it will be used.
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At the beginning of the contract, we recognize a right-of-use asset and a lease liability, which represents the
obligation to make payments related to the underlying asset of the lease.
The right-of-use asset is initially measured at cost and comprises: the initial measurement of the lease liability
adjusted for any payment made at or before the commencement date, less any incentive received; any initial direct
costs incurred; and an estimate of costs in dismantling and removing the asset, restoring the site on which it is located
or restoring the asset to the condition required by the terms of the lease. Renewal or early termination options are
analyzed individually considering the type of asset involved as well as its relevance in our production process.
The right-of-use asset is subsequently depreciated using the straight-line method from the commencement
date until the end of the useful life of the right-of-use asset or until the end of the period of the lease. The estimated
useful life of the right-of-use asset is determined on the same methodology used for the assets owned by us.
Additionally, the right-of-use asset is adjusted by the subsequent measurement of the lease liability and when
applicable, an impairment is recognized.
The lease liability is initially measured at the present value of the future lease payments using the incremental
borrowing rate, and subsequently, measured at amortized cost using the effective interest method.
The liability is remeasured when there is a change in (i) future payments resulting from a change in index or
rate, (ii) the amount expected to be payable under a residual value guarantee, or (iii) the assessment of whether we
will exercise the purchase, renewal or termination option.
When the lease liability is remeasured, the corresponding adjustment is recorded in the book value of the
right-of-use asset, or in the statement of income if the book value of the right-of-use asset has been reduced to zero.
We do not apply lease accounting model to: leases with a term of 12 months or less and that do not contain
a purchase option; and leases for which the underlying asset is of low value. For these exemptions, the lease payments
are recognized as an expense on a straight-line basis over the lease term.
Additionally, contracts with indefinite term and no fixed payments are expensed as incurred.
IFRS 16 has been modified for the inclusion of an optional practical expedient related to benefits granted on lease
agreements due to the COVID-19 pandemic, effective for periods beginning on or after June 1, 2020. We were not
granted benefits in leases related to the pandemic and, therefore, we have not adopted this expedient.
Intangible assets
Acquired intangible assets are measured at cost at initial recognition, while those arising from a business
combination are recognized at fair value on the acquisition date. After initial recognition, are presented at cost less
accumulated amortization and impairment losses, when applicable. Internally generated intangible assets, 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 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. See Note 14 to our consolidated financial statements. We record in this subgroup
mainly goodwill and brands, which are expected to contribute indefinitely to its cash flows.
Business combinations
Business combinations are recorded 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
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acquisition date, and the value of any non-controlling interest in the acquired company. We measure the non-
controlling interest based on our 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, our 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 over 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.
The IFRS 3 has changed the definition of a business, applicable as from January 1, 2020. This change did
not generate impacts on our accounting practices nor our financial statements.
Provision for tax, civil and labor risks and contingent liabilities
The provisions are recognized 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 likely to occur and a reliable estimate can be made.
We are 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 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. The initial measurement is done by the fair
value and subsequent measurements by the higher value between: the fair value on its acquisition date and the amount
by which the provision would be recognized.
Capital Expenditures
See “Item 4. Information on the Company—A. History and Development of the Company—Capital
Expenditures.”
C.
Research and Development, Patents and Licenses
In 2020, we launched 288 new SKUs for consumers, of which 139 were released for the domestic market
and 149 for the international market. Of the international market releases, 54 were in Asia, 36 in the Halal market and
59 in our direct exports operations.
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.
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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.
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. As a result, one of these PhD experts has already been
invited to join our permanent staff.
We have one of the largest poultry and swine agricultural experimental research facilities 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 in the production chain. We also have nine bromatological laboratories and six
receiving and classification laboratories, all equipped with NIR infrared technology, in addition to five animal health
laboratories supporting research and operational activities. We expect to enhance our capacity with a new health
laboratory in Toledo, in the State of Paraná, in 2021.
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. In 2020, we incorporated genomic evaluation in our breeding
program and in 2021 we expect to start the selection using the genomic breeding values. 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 the Brazilian National Bank for Economic and Social Development (Banco
Nacional de Desenvolvimento Econômico e Social, or “BNDES”), Finep and CNPq).
In recent years, we have established research partnerships on projects funded by EMBRAPA, FINEP, CNPq
and BNDES, in different research areas. 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
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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 180 researchers and project managers are dedicated to continuously contributing innovative ideas
to the RD&I pipeline, while running cost, process and formulation optimization. We have 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$196
million, R$206.9 million and R$53.5 million in 2020, 2019 and 2018, 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.
In 2020, to reinforce our strategy of developing new consumer habits for pork cuts in the Brazilian market,
we expanded our portfolio under the Sadia brand with multiple products, including new formats such as cubes, strips
and IQF (individual quick freezing). In order to expand the Sadia brand to encompass associations with natural
products, we formed a partnership with a Brazilian co-packer to market a new portfolio of organic chicken cuts. We
also launched Sadia Veg&Tal, our sub-brand focused on vegan and vegetarian consumers that offers a product
portfolio including plant-based hamburgers, breaded, frozen vegetables and frozen pies. We also extended our
premium portfolio under our Sadia Speciale sub-brand with beef and chicken hamburgers, pork cuts and a turkey
marinated with sparkling wine for our Christmas campaign. In order to increase the market penetration of our Sadia
brand, we expanded our portfolio focused on volumetric categories with new formats of frozen fries and the return of
the Sadia brand to the bulk hamburger category. To refresh our breaded portfolio under the Sadia brand, we also
launched the Sadia chicken breaded wings, a pioneering product in the Brazilian market. Launched in 2019, Mac'n
Cheese Sadia also played an important role in increasing the brand’s market share in the ready meals category. In
addition, we expanded the portfolio of our Qualy brand to butter, cheese spread and frozen cheese bread.
D.
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, due to the
global economic downturn connected to the developments of the COVID-19 pandemic, global GDP contracted 4.3%
in 2020. Global GDP is expected to grow 4.0% in 2021. For additional information, see “Item 3. Key Information—
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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 GDP growth of 3.5% in 2021 and 3.3% in 2022 for the U.S. and of 3.6% in 2021 and
4.0% in 2022 for the European Union. For emerging markets and developing countries in 2021, the World Bank
expects a growth rate of 5.4% for India, 2.6% for Russia and 7.9% for China. The same report expects Brazil’s GDP
to increase 3.0% in 2021 and 2.5% in 2022. The SELIC interest rate (the primary Brazilian interest reference rate) is
expected to end 2021 at 4.0%, according to reports by Focus.
Exports
Brazil is a leading producer in global export markets due to its natural advantages (land, water, and climate),
competitive input 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.
Brazilian chicken exports increased by 0.2% in the year ended December 31, 2020, compared to the year
ended December 31, 2019, in terms of volume. Pork exports registered an increase of 36.9% in volume sold in the
year ended December 31, 2020, compared to the year ended December 31, 2019. Beef exports recorded an increase
of 9.4% in volume sold in the year ended December 31, 2020, compared to the year ended December 31, 2019.
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, 2020 totaled 4.13 million tons on sales of R$30.9
billion (equivalent to U.S.$5.99 billion). China is the main destination for these exports (16.3%), followed by Saudi
Arabia (11.3%), Japan (9.9%) and the United Arab Emirates (7.3%).
Pork export volume in the year ended December 31, 2020 totaled 1.01 million tons, totaling approximately
R$11.6 billion (equivalent to U.S.$2.26 billion). The leading importers, China, Hong Kong and Singapore represented
50.7%, 16.4% and 5.2%, respectively, of total exports from Brazil.
Beef shipments in the year ended December 31, 2020 totaled 1.85 million tons with sales of approximately
R$41.73 billion (equivalent to U.S.$8.09 billion). This increase in volume was driven by China (46.9%), Hong Kong
(12.0%) and Egypt (6.6%).
According to the West Texas Intermediate index, which benchmarks oil prices, oil prices decreased 30.9%
in 2020, from an average of U.S.$57.03 in 2019 to an average of U.S.$39.40 in 2020. 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 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
100
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 2020 of 97.23
kilograms, including beef, chicken and pork products, according to the USDA, a decrease of 2.7% compared to 2019.
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 meant
that meat consumption was expected to increase in 2020.
Brazil’s domestic market is highly competitive, particularly for fresh food and frozen poultry and pork
products. Besides us, 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. We seek to develop quality products, focusing on innovative solutions that meet clients’
needs and capture value for the strong brands we own, 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.
Raw Materials
In 2020, Brazil harvested its second-best soybean crop in history. Additionally, the trade dispute between the
U.S. and China, which began in April 2018 and continued through 2020, with China making purchases only to meet
its short-term demand. These circumstances negatively affected Brazilian prices for raw materials as Chinese demand
for Brazilian soybean decreased as well. Average soybean prices in Brazil increased 48% in 2020 compared to 2019,
while soybean prices on the Chicago Board of Trade (“CBOT”) increased 5.0% in 2020.
In the Brazilian market, average corn prices increased 45.9% in 2020 compared to 2019, driven by the record
export volumes occurred in 2020 in addition to other factors such as weather anomalies in the USA corn crop
production and the increase of the Chinese corn imports reflecting lower world stocks and higher international prices.
According to Brazil’s national food supply agency (Companhia Nacional de Abastecimento), the corn crop totaled
102.5 million tons in 2019/20, after totaling 100.0 million tons in 2018/19. In the international market, corn crop in
the United States in 2019/20 totaled 360.25 million tons, compared with 364.26 million tons in 2018/19.
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 the payments
of 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.
E.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements 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, except for the commitments for purchases of goods and services presented in the table below.
101
F.
Tabular Disclosure of Contractual Obligations
The following table summarizes significant contractual obligations and commitments due by period, as of
December 31, 2020.
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
Less than 1
year
1-3 years
3-5 years
More than
5 years
(in thousands of reais)
21,958,151
12,351,882
3,277,861
704,399
1,027,318
409,409
4,767,013
2,130,787
991,242
2,419,382 14,067,358
7,526,686
1,667,091
1,215,583
661,627
6,797,966
5,293,415
672,799
420,636
411,116
44,385,860
7,434,541
8,561,841
5,168,736 23,220,742
(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$1,702,720 thousand as contingencies with probable losses as of December 31, 2020.
G.
Safe Harbor
See “Part I—Introduction—Forward-Looking Statements.”
DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
A.
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 (1) .......................................... Chairman
Augusto Marques da Cruz Filho(1) ......................... Vice-Chairman
Dan Ioschpe (1) ....................................................... Board Member
Flavia Buarque de Almeida (1) ............................... Board Member
Flavia Maria Bittencourt(1) ..................................... Board Member
José Luiz Osório (1) ................................................ Board Member
Director
Since
April 30, 2020
April 30, 2020
April 30, 2020
April 30, 2020
April 30, 2020
April 30, 2020
Age
68
68
56
53
51
69
102
Name
Luiz Fernando Furlan (1) ........................................ Board Member
Ivandré Montiel da Silva ....................................... Board Member
Roberto Rodrigues (1) ............................................. Board Member
Marcelo Feriozzi Bacci (1) ...................................... Board Member
Position Held
Director
Since
April 30, 2020
April 30, 2020
April 30, 2020
April 30, 2020
Age
74
52
78
51
(1)
Independent member (as defined in the Brazilian Novo Mercado regulations).
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 positions of Global CEO and Chairman of the Board of Directors of our company
from June 2018 to April 2019, when he stepped down from the Global CEO position. He remains as Chairman of our
Board of Directors. 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 Brazil, Chairman of the board of directors of General
Atlantic in Brazil, and has also served on the board of directors of private and state-owned companies, including
CPFL, B3, Duratex, Banco do Brasil, Prumo S.A., and others. Currently, he is chairman of the board of directors of
Açú Petróleo, independent member and coordinator of the Nomination Committee at Vale, partner at EB Capital and
member of the board of directors at Empreendimentos Pague Menos, Continental Grain Corporation and Syngenta
AG. He is also Chairman of the Board of Directors (pro bono) of the Symphonic Orchestra of the State of São Paulo.
Augusto Marques da Cruz Filho – Mr. Cruz Filho is the Vice-Chairman of our Board of Directors. 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 the development abroad course at INSEAD – Executive Program at Institut Européen
d’Administration des Affaires. Mr. Cruz Filho worked at Grupo Pão de Açúcar for 11 years holding the positions of
executive officer, 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 SIMPAR S.A. (former Grupo JSL S.A.),and General Shopping. Mr. Cruz
Filho also acts as the Coordinator of our Audit and Integrity Committee.
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 CEO of AGCO in
Brazil. He returned to Iochpe-Maxion in January, 1998, where he held the position of CEO. On April 2014, he left
such position to become Chairman of the Board of Directors. Mr. Ioschpe acted as a Chairman of Fórum of Empresas
Transnacionais Brasileiras (FET) and member of the Board of Directors of Profarma. Currently, he is a member of
the Board of Directors of WEG, Embraer, Cosan and Marcopolo, President of Institute for Industrial Development
Studies (IEDI) and Chairman of the Board of Directors of Sindipeças. Additionally, he acts as a member of the People,
Governance, Organization and Culture Committee and Coordinator of our Finance and Risk Management Committee.
Flavia Buarque de Almeida – Ms. Almeida holds a degree in Business Administration from Fundação Getúlio
Vargas and an MBA from Harvard Business School. Ms. Almeida has been a member of our board of directors since
2017 and CEO at Peninsula Capital Participações since 2019. She has also been an associate and officer at Peninsula
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Capital Participações S.A. and an associate and officer at O3 Gestão de Recursos Ltda. She is a board member of
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 officer 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 is also the
Coordinator of our People, Governance, Organization and Culture Committee and a member of our Consumer
Intelligence Committee.
Flavia Maria Bittencourt – Ms. Flavia Bittencourt has a degree in Chemical Engineering from the Federal
University of Rio de Janeiro – UFRJ, an MBA in Marketing from the Escola Superior de Propaganda e Marketing –
ESPM and an Executive MBA from Fundação Dom Cabral. She served as a member of the Board of Directors of
Lojas Marisa between 2018 and 2019 and was a Senior Consultant at The Carlyle Group from 2012 until 2013. Ms.
Flávia Bittencourt has a long history at Oi – Telemar, with over 10 years of experience in positions as Voice Market
Manager (2001 – 2003), General Marketing Manager at Oi Móvel and, later, at Oi Group (2003 – 2005) ) and also
held the position of Chief Marketing Officer and Chief Marketing Officer (2005 – 2011). In addition, she occupied
the position of officer of Lácteos Brasil, co-founder of STORIES4FUN, and Senior Vice President of Latin America
and National President (Brazil) of Sephora Brasil. She is currently CEO of Adidas and a member of the Board of
Directors of Tim Brasil. Ms. Flavia Bittencourt is the Coordinator of our Consumer Intelligence Committee and a
member of the Quality and Sustainability Committee.
José Luiz Osório – Mr. Osório has a Bachelor’s degree 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 and BRADESPAR since 2020.
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 a
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 acted
as member of the Independent Committee at Smiles/GOL (2019), Claro/Embratel/NET (2014) and Votorantim
Celulose e Papel/Aracruz (2009). 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. Mr. Osório is also a member of our Quality and
Sustainability Committee.
Luiz Fernando Furlan – 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. Mr. Furlan was Chairman of the board of directors of Sadia
S.A. from 1993 to 2002 and from 2008 to 2009, where he also occupied several different executive positions from
1976 to 1993. He was Vice-Chairman of our board of directors 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, President of Deliberative Council of SP Negócios (appointed by the Mayor of the
São Paulo City) and a member of the Wise Group Brazil-Japan (which seeks the strengthening of strategic economic
partnership between Brazil and Japan). Mr. Furlan is also a member of our Quality and Sustainability Committee.
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Ivandré Montiel da Silva – Mr. Montiel da Silva graduated in Economic Sciences, with a postgraduate degree
in Finance from the Pontifical Catholic University of Rio Grande do Sul (PUC-RGS) and a Masters in Economics
from the University of Brasília (UNB), in addition to having taken several courses in training and specialization for
Board of Directors with a focus on corporate governance, management and capital markets by the Brazilian Institute
of Corporate Governance (“IBGC”) and Fundação Dom Cabral. He served as Deputy Secretary of the Economic
Policy Secretariat in the Ministry of Finance from December 2015 to January 2019, in addition to serving as Executive
Manager of the Agribusiness Directorate (2012 – 2015) and Vice President of Agribusiness (2019 – 2020) of the
Banco do Brasil S.A. and CEO of Mapfre BB SH1 Participações (BrasilSeg) in 2020. Mr. Montiel da Silva has also
held the position of member of the Board of Directors of BrasilSeg from January 2019 until January 2020 and Banco
da Amazônia S.A. Mr. Montiel da Silva is also a member of our Finance and Risk Management Committee, Audit
and Integrity Committee and Consumer Intelligence Committee.
Roberto Rodrigues – 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
Chairman 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 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). Mr. Rodrigues is also
the Coordinator of our Quality and Sustainability Committee.
Marcelo Feriozzi Bacci – Mr. Bacci holds a degree in Public Administration from Fundação Getúlio Vargas
– FGV, as well as an MBA in Finance and Capital Markets from IBMEC – Brazilian Institute of Capital Markets and
the title of “Master” in Business Administration through the Stanford Graduate School of Business, also holding
certificates focused on the effectiveness of the Boards of Directors and Public and Global Management by institutions
such as Harvard Business of School and Stanford GSB. Mr. Bacci was elected one of the most admired CFOs in Brazil
by Análise Editorial Magazine in the years 2017, 2018 and 2019 and was the winner of the IBEF 2018 Equilibrist
Award (CFO of the year). He held several positions at UNIBANCO – União de Bancos Brasileiros, starting his career
as a Trainee in 1991 and later holding the positions of Associate – Corporate Finance (1991–1993), International
Capital Market Manager (1994-1997) and International Treasury Manager (1998). As a result, he worked at several
companies, acting as Summer Associate – Financial Institutions Group at Lehman Brothers, Inc.; Financial Manager
(2000-2001), Finance and Administration Officer (2001-2004) and Executive Officer – CFO (2004-2005) at
PROMON S/A; also occupied the positions of CFO – Northern Latin America (2005-2009) and CFO – Bioserv (2009-
2011) by Louis Dreyfus Company. He is currently the CFO of Suzano Group, company in which he has worked for
more than tenyears, and holds the position of member of the Board of Directors of Veracel Celulose S/A. He has
already served on the Boards of Directors of companies such as Biosev, Terminal de Exportação de Açúcar Guarujá
(TEAG), Companhia Nacional de Açúcar e Álcool (CNAA) and Trópico Sistemas, and also acted as Chairman of the
Board of Directors of Ibema Papel Cartão S.A. Mr. Bacci acts as member of our Audit and Integrity Committee and
Finance and Risk Management Committee.
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 13 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
Brazilian Corporate Law, our executive officers must be residents of Brazil but do not need to be our shareholders.
105
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
Lorival Nogueira Luz Júnior ..................... Global Chief Executive Officer
Carlos Alberto Bezerra de Moura .............
Vinícius Guimarães Barbosa ..................... Operations and Procurement Officer
Sidney Rogério Manzaro ..........................
May 28, 2020
Chief Financial and Investor Relations Officer May 28, 2020
May 28, 2020
May 28, 2020
May 28, 2020
Comercial Brazil Market Vice President
Human Resources and Shared Services Vice
President
Alessandro Rosa Bonorino........................
Neil Hamilton dos Guimarães Peixoto Jr .. Quality and Sustainability Vice President
Leonardo Campo Dall’Orto ......................
Sales & Operations Planning and Supply Chain
Vice President
May 28, 2020
May 28, 2020
49
46
52
54
51
55
47
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 our Chief Financial and Investor Relations Officer, 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 our Global CEO 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
occupied 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 a 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 Directors to
different 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 a 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 our Operations and
Procurement Officer in 2018.
Sidney Rogério Manzaro — Mr. Manzaro holds a degree in Business Administration from the University of
Santana and a 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, as well as 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
106
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 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 our company as Vice President of Human Resources and, in
2018, he also became the head of Shared Services.
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 a 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 Research & Development (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 a 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 their 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 their
manufacturing footprint and led their productivity project (Guide). Since 2018, Mr. Leonardo has been our Vice
President of Integrated Planning & Supply Chain.
B.
Compensation
In 2020, the total salary and compensation paid by us to all our executive officers and members of our board
of directors and fiscal council for their services was R$67.8 million. In addition, the amount to be paid in 2021 to our
executive officers with respect to the year ended 2020 as part of our profit-sharing plan is R$18.8 million. The
aggregate total compensation paid to members of the board of directors, fiscal council and audit and integrity
committee and executive officers in 2020 (including salaries, profit sharing payments, as described below, and
benefits) was R$71.9 million.
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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 while
ensuring our market competitiveness in terms of compensation and retention.
Our executive officers are also eligible to participate in our Restricted Stock Plan. As of December 31, 2020,
a total of 1,398,509 stock options, RSUs and PSUs were held by our executive officers, with a cost to our company
of R$17.4 million. In 2020, a total of 1,262,326 stock options and shares of restricted stock were granted to our
executive officers. For additional information regarding our Stock Option Plan and Restricted Stock Plan, see “—E.
Share Ownership—Stock Option Plan and Restricted Stock Plan.”
The table below shows information about the stock options and RSUs granted to executive officers of BRF
in 2020 and in previous years that are still outstanding as of December 31, 2020:
Grant
2018 (Restricted Stock Units)
2019 (Restricted Stock and
Performance Shares Units)…
2020 (Restricted Stock and
Performance Shares Units)……
Total…………………………...
# Options /
Restricted
Stock Units
Grant Price(1)
Strike Price as
of December
31, 2019
246,458
229,046
R$ 21.44
R$ 30.61
923,005
R$ 21.28
N/A
N/A
N/A
1.398,509
Expiration Date
October 1, 2021
June 1, 2022
June 1, 2023
(1)
The grant price refers to the average stock price at the B3 of the last 20 trading days before the grant date.
Our 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 2020, the amount paid as benefits and private pension plan to the
executive officers totaled R$4.1 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 our company.
In 2020, we paid severance benefits to former executive officers in the amount of R$11.06 million.
C.
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.”
On November 26, 2020, our board of directors approved: (i) our Appointment Policy for members of the
board of directors, advisory committees and the board of executive officers, which aims to establish guidelines
regarding the practices and definition of criteria for the selection and hiring of those members; and (ii) our
Management Compensation Policy, to determine the compensation of the members of our board of directors, advisory
committees and executive officers. Both policies were prepared and implemented in accordance with applicable legal
requirements, best corporate governance practices and the Novo Mercado rules.
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Fiscal Council
Under Brazilian Corporate Law, a company’s fiscal council is a corporate body independent of the company’s
management and external auditors, and 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 ............. Alternate
Maria Paula Soares Aranha(1) ............ Member of the Fiscal Council
Mônica Hojaij Carvalho Molina(1) .... 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
74
63
64
51
39
66
(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 — Mr. Guaspari is the president of our 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.
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André Vicentini — Mr. 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.
On September 25, 2020, our board of directors, with the recommendation of the Audit and Integrity
Committee, approved the Extra-Audit Services Hiring Policy with the following objectives: (i) to ensure that any
extra-audit services that may compromise the independence of our independent auditors are not engaged; (ii) to set
forth minimum standards required by us, pursuant to applicable law, to engage such services or other services provided
by consulting companies formed by our independent auditors; and (iii) to ensure the independence of our independent
auditors so that they can provide audit services objectively and issue an impartial opinion, contributing to the formation
of an environment of trust and credibility among managers, employees, shareholders and other interested parties.
The following table sets forth information with respect to the current members of our Audit and Integrity
Committee.
Name
Augusto Marques da Cruz Filho(2) ................. Coordinator
Ivandré Montiel da Silva ................................ Member
Marcelo Feriozzi Bacci(2) ............................... Member
Valmir Pedro Rossi ........................................ External Member
Jerônimo Antunes(1) ....................................... External Member
Position Held
(1)
(2)
Audit Committee Financial Expert (as defined under the rules of the SEC)
Independent Member (as defined under the Brazilian Novo Mercado rules).
Current Position
Held Since
April 30, 2020
April 30, 2020
April 30, 2020
May 28, 2020
May 28, 2020
Age
68
52
51
59
65
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. Cruz Filho, Mr.
Montiel da Silva and Mr. Bacci.
110
Valmir Pedro Rossi – Mr. Rossi holds a bachelor’s degree in Accounting Sciences from the University of
Passo Fundo, with a postgraduate degree in Finances by the University of Caxias do Sul and a Marketing degree by
PUC-RJ. He also has an MBA in Administration by the University of São Paulo and in Business Management by the
National University of Brasília. In recent years, he has served as a member of the Board of Directors and the Fiscal
Council of several companies, such as Metalúrgica Gerdau S.A., Brasilprev S.A., BB Seguridade S.A., Banco da
Amazônia S.A. and Kepler Weber S.A., and he currently holds the position of Deliberative Advisor for several entities
and associations. He occupied several positions at Banco do Brasil S.A. for 30 years, between 1983 and 2015.
Currently, Mr. Rossi holds the position of member of the Fiscal Council at Cadam S.A. – Kamim LLC and Companhia
Siderúrgica Nacional, of alternate member of the Fiscal Council at Banco Santander S.A. (Brasil), of member of the
Audit Committee of SIMPAR S.A. (former Grupo JSL S.A.), and of member of the Ethical Commission of IBGC.
Jerônimo Antunes – Mr. Antunes has a PhD and a Master’s degree in Accounting Sciences in the area of
Controllership and Accounting Specialization from the University of São Paulo (1998 and 2005, respectively) and
holds a bachelor’s degree in Business Administration (1981) and in Accounting Sciences (1987) also from the
University of São Paulo. Mr. Antunes was a member of the Board of Directors, Audit Committee and Appointment,
Remuneration and Succession Committee at Petrobras and Petrobras Distribuidora. He also occupied the position of
board member of and Chairman of the Audit Committee of SABESP, Chairman of the Audit Committee of Desenvolve
SP, board member of Paranapanema, member of the Board of Directors and Officer of Instituto Brasileiro de Auditores
Independentes – IBRACON. Currently, Mr. Antunes is a professor at University of São Paulo, member of the Board
of Directors and Chairman of the Audit Committee of Companhia do Metropolitano de São Paulo – Metrô,
Coordinator of the Audit Committee of the IRB-Brasil Resseguros and member of the Audit Committee of
Paranapanema and Desenvolve SP. He is also a member of the Board of Trustees of the Fundação Instituto de
Pesquisas Contábeis, Atuariais e Financeiras – Fipecafi, member of IBGC and reviewer ad hoc of the Accounting &
Finance Magazine and Accounting Universe Magazine. Mr. Jerônimo Antunes has experience in the Administration
area, with emphasis in Accounting Sciences, acting mainly in the following activities: independent auditing, assurance
services, business consulting, accounting expertise, evaluation of companies, coordination of audit committees and
board of directors.
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 four other advisory committees for our board of
directors: (i) Finance and Risk Management Committee; (ii) People, Governance, Organization and Culture
Committee; (iii) Consumer Intelligence Committee; and (iv) 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 establishing the compensation of our executives and employees. This committee also provides our
executive officers support in the assessment, selection and development of top leadership, and advises our board of
directors in the formulation and practice of our corporate culture in order to monitor and encourage the proper behavior
of our leaders. Further, it proposes actions to align the expectations of our 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 our board
of directors concerning our financial and risk policies; analysis of financial information, issuing recommendations in
accordance with the annual plan of objectives and goals, and taking into consideration our more material risks; follow-
up regarding financial statements, financial operations and M&A transactions, report to the board of directors the
limits of our risk exposures and request adjustments, when applicable.
111
The Quality and Sustainability Committee is responsible for: (i) evaluating the social, environmental,
economic and qualitative aspects pertaining to our business model; (ii) assisting in the development of products,
guidelines, certifications, and policies; (iii) following-up on compliance matters regarding ISO standards, specific
food safety standards, sustainability and our customers; and (iv) monitoring our Quality Assurance System.
The Consumer Intelligence Committee is responsible for assisting our board of directors and management in
acquiring knowledge about the habits, interests and trends of the consumers of our products with the following
assignments: (i) assisting in the evolution of our digital process (“Go Digital”); and (ii) proposing processes and
systems to improve the “Go Digital” campaign.
D.
Employees
The table below sets forth the number of our employees by primary category of activity as of the dates
indicated:
Administration ..........................................................................
Production ................................................................................
Total .........................................................................................
20,493
80,509
101,002
18,904
73,938
92,842
As of December 31,
2019
2020
2018
21,839
83,782
105,621
All of our employees listed above are located in Brazil, except for approximately 7,335 employees in 2020
(6,717 in 2019 and 20,558 in 2018) who are located abroad, mainly in our offices and processing plants in Europe,
Southern Cone, Middle East and Asia.
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: (i) the private pension plan, administered by BRF Previdência (formerly BFPP –
Brasil Foods Sociedade de Previdência Privada); (ii) a credit cooperative that offers to the associated employee credit
lines with attractive interest rates; (iii) supplementary health plan that allows the employee to use the network
agreements with costs subsidized by us; (iv) meals, offered in our own restaurants or restaurant cards for subsidies of
up to 80% by us; (v) basic consumer products granted to employees with salary of up to five times the minimum wage
and 80% subsidized by us; and (vi) 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, sales
personnel and staff. 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.
112
E.
Share Ownership
Share Ownership of Directors, Executive Officers and Members of the Fiscal Council and the Audit and
Integrity Committee
As of December 31, 2020, 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.............................................................................
Dan Ioschpe ............................................................................................................
Flavia Buarque de Almeida ....................................................................................
Flavia Maria Bittencourt ........................................................................................
José Luiz Osório .....................................................................................................
Luiz Fernando Furlan .............................................................................................
Ivandré Montiel da Silva ........................................................................................
Roberto Rodrigues ..................................................................................................
Marcelo Feriozzi Bacci. .........................................................................................
Subtotal .................................................................................................................
Executive Officers (1)
Lorival Nogueira Luz Júnior .................................................................................
Carlos Alberto Bezerra de Moura. ..........................................................................
Vinícius Guimarães Barbosa...................................................................................
Sidney Rogério Manzaro........................................................................................
Neil Hamilton dos Guimarães Peixoto Junior........................................................
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)
113
685,822
0.08
-
-
-
-
-
6,179,478
-
2
-
6,865,302
152,568
40,000
47,797
210,708
34,437
90,805
29,587
605,902
-
-
-
-
600
-
600
-
-
-
-
-
-
0.76
-
0.00
-
0.84
0.02
0.00
0.01
0.03
0.00
0.01
0.00
0.07
-
-
-
-
0.00
-
0.00
-
Directors, Executive Officers and Members of the
Fiscal Council (and Alternates) and the Audit and Integrity Committee
Valmir Pedro Rossi ................................................................................................
Jerônimo Antunes...................................................................................................
Subtotal .................................................................................................................
Common Shares
2,000
-
%
0.00
-
2,000
0.00
(1)
The other members of the audit and integrity committee, Augusto Marques da Cruz Filho, Ivandré Montiel da Silva and Marcelo Feriozzi Bacci, 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 Options Plan, Performance Shares Plan and Restricted Stock Plan
We have a long-term incentive program for our executive officers and other employees. This plan is part of
the eligible executives’ compensation and is intended 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.
Our current long-term incentive 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 unit program (“Restricted Stock Plan”) was approved at our shareholder
meeting 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 us under our 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 us
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. As of 2020, the RSU grant represented 70% and the PSU grant represented 30%.
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 our Stock Option Plan, as of December 31, 2020, a total of 20,941,681 options had been
granted, of which 2,420,330 were outstanding and held by approximately 85 people. During the year ended December
31, 2020, no options were exercised. As of December 31, 2020, the weighted average strike price of our outstanding
options was R$57.71 per share, and the weighted average of the remaining contractual terms was 16 months.
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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 2.5% of the common stock, with no par value, representing our total capital stock. As of
December 31, 2020, a total of 7,873,348 RSU/PSUs had been granted, of which 3,459,647 were outstanding and held
by approximately 260 people.
MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
A.
Major Shareholders
Our capital stock is comprised of common shares. As of March 02, 2021, we had outstanding 807,707,162
common shares, or 99.41% of our total common shares (excluding 4,766,084 common shares held in treasury), of
which 159,042,518, or 19.58%, correspond to ADRs. As of March 2, 2021, we had approximately 94,160
shareholders, including approximately 223 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 2, 2021 (except to the extent disclosed below),
with respect to: (i) any person known to us to be the beneficial owner of more than 5% of our common shares
(including treasury shares); and (ii) 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).....................
Kapitalo Investimentos Ltda.
Quantity
%
80,447,828 9.90
74,449,152 9.16
40,784,398 5.02
(1)
These pension funds are controlled by participating employees of the respective companies.
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, 2018, except as described below.
• On February 2, 2017, GIC Private Limited informed us that its aggregate shareholding position had
• 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.
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• 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.
• 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 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 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 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 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 or other securities and
derivatives referred in such shares, representing approximately 9.4% of our share capital as of August
28, 2019.
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• On September 10, 2020, Kapitalo Investimentos Ltda., on behalf of some of its clients and as their
investment fund manager, informed us that it has acquired our common shares, and that, on September
10, 2020, their interests in us reached, on an aggregated basis, 40,760,522 common shares and ADRs,
representative of common shares, corresponding to approximately 5.02% of our share capital.
• On December 23, 2020, Kapitalo Investimentos Ltda., on behalf of some of its clients and as their
investment fund manager, informed us that it has sold our common shares, and that, on December 22,
2020, their interests in us reached, on an aggregated basis, 40,126,298 common shares and ADRs,
corresponding to approximately 4.94% of our share capital.
• On January 22, 2021, Kapitalo Investimentos Ltda., on behalf of some of its clients and as their
investment fund manager, informed us that it has acquired our common shares, and that, on January 21,
2021, their interests in us reached, on an aggregated basis, 40,784,398 common shares and ADRs,
representative of common shares, corresponding to approximately 5.02% of our share capital.
• On January 27, 2021, Fundação Petrobras de Seguridade Social (Petros) informed us that it has sold our
common shares, and that, on January 27, 2021, its interests in us reached 80,447,828 common shares
and ADRs, representative of common shares, corresponding to approximately 9.90% of our share capital.
B.
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 29 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 make contributions related to the post-employment benefit plans of our employees to BRF Previdência,
which holds these plans. See Note 19 to our consolidated financial statements. Additionally, we lease properties owned
by BRF Previdência, and for the year ended on December 31, 2020, the total amount of lease payments was R$19,528
(R$18,200 for the year ended on December 31, 2019). The rent value was set based on market conditions.
Other transactions with related parties
We maintain other transactions with related parties resulting from guarantees, transfers and donations to
related associations and institutes, as well as leasing and other commercial transactions with related parties, both
individuals and entities. Such transactions are compliant with our Related Party Transactions Policy and are not
material, individually or in the aggregate.
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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. In a meeting of the
Board of Directors held on July 30, 2020, the members of our board of directors approved the execution of
indemnification agreements with Jerônimo Antunes and Valmir Pedro Rossi.
C.
Interests of Experts and Counsel
Not applicable.
FINANCIAL INFORMATION
A.
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 and statistical models. 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.”
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, 2020, our provision for such tax proceedings is R$427,302
thousand, compared to R$583,464 thousand as of December 31, 2019. This decrease is mainly related to payments
made with discounts authorized under law relating to “staple basket products.”
The tax contingencies classified as probable losses involve the following main legal proceedings:
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•
ICMS: We are involved in a number of administrative and judicial tax disputes regarding the recording
or use of amounts paid for ICMS taxes, mainly related to the maintenance of credits on acquisition of
products which subsequent exit is made with a calculation reduction (staple basket products), materials
for use and consumption, property and equipment, electricity, disallowance of presumed credit, tax
substitution, isolated fines, differential rate of tempered products and others. The provisioned amount is
R$248,560 thousand as of December 31, 2020 (R$418,963 thousand as of 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$149,945 thousand as of December
31, 2020 (R$139,711 thousand as of December 31, 2019).
• Other tax contingencies: We recorded other provisions for lawsuits related to the payment of social
security contributions under various Brazilian government programs (INCRA, FUNRURAL,
SESI/SENAI/SEBRAE), debts included in a refinancing program (REFIS) with deposits that await
consolidation and conversion into payment, in addition to debts arising from divergence in accessory
obligations, import tax, IOF, industrialized products tax and others. The provisioned amount is R$75,360
thousand (R$61,731 thousand as of December 31, 2019).
Contingencies for Possible Losses
The amount of tax contingencies for which the probability of loss is classified as “possible” is R$12,536.5
million as of December 31, 2020 (R$11,811.7 million as of December 31, 2019).
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.
Such proceedings amount to R$5,549,431 thousand as of December 31, 2020 (R$4,915,293 thousand as
of December 31, 2019).
•
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$416,238 thousand as of December 31, 2020 (R$1,457,867 million as of December
31, 2019). The decrease in this amount occurred with the publication of Convênio Confaz 190/17 and
LC 160/17, which validated the tax benefits and allowed the remission of these credits; (ii) the absence
of evidence to prove the balances of exports in the amount of R$265,590 thousand as of December 31,
2020 (R$261,880 thousand as of December 31, 2019); (iii) tax assessment notices from the State of Rio
de Janeiro, received on October 1, 2019 and February 11, 2020, referring to the period from 2014 to
2018, due to alleged non-compliance with the Term of Agreement (TARE), which provided for a tax
benefit in the State of Rio de Janeiro, in the amount of R$550,367 thousand (R$536,799 thousand on
December 31, 2019); (iv) ACP/MP/RJ due to the use of tax benefits, in the amount of R$239,845
thousand; (v) ICMS tax assessment notice from the State of Goiás referring to the exclusion of the credit
from the PROTEGE calculation base, in the amount of R$105,866 thousand and (vi) R$2,228,462
thousand (R$2,291,608 thousand on December 31, 2019) related to other tax lawsuits regarding ICMS.
• 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$629,341 thousand as of December 31, 2020 (R$534,819
thousand as of December 31, 2019). 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
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•
•
•
result of treaties regarding double taxation. The Superior Administrative Court (CSRF) issued a final
decision unfavorable to us, the tax enforcement has started, and we have offered a guarantee.
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, we received a tax assessment notice related to the compensation of tax
loss carryforwards and negative calculation basis up to a limit of 30% from when we incorporated one
of the group’s entities during calendar year 2012. The Superior Administrative Court (CSRF) issued a
final decision unfavorable to us, the tax enforcement has started, and we have offered a guarantee. The
income tax and social contribution disputes total R$1,249,062 thousand as of December 31, 2020
(R$1,238,564 thousand as of December 31, 2019).
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 or intermediate products. The amount involved in such proceedings
was R$209,314 thousand as of December 31, 2020 (R$291,723 thousand as of December 31, 2019).
Social security charges: We are involved in disputes related to social security charges on payroll
compensation, our profit-sharing plan, additional payments of GILRAT to finance employee’s special
retirement, SAT/RAT as well as joint responsibility claims in connection with the acquisition of GALE.
We also have disputes involving civil construction service providers and others in the aggregate amount
of R$418,957 thousand as of December 31, 2020 (R$274,278 thousand as of December 31, 2019).
• 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, drawback
evidence, IPTU, import tax, IOF as well as an isolated fine resulting from alleged inaccuracies in EFD
(accessory obligation) totaling R$674,055 thousand as of December 31, 2020 (R$493,104 thousand as
of December 31, 2019).
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 October 2020, the
Federal Supreme Court issued a final decision in favor of Eleva Alimentos S.A., a former subsidiary of ours merged
into us, related to the exclusion of the ICMS from PIS/COFINS tax base. The effects of these proceedings are disclosed
in Note 9.2 to our consolidated financial statements.
Labor Proceedings
As of December 31, 2020, we are involved in 11,256 labor claims in the total amount of approximately
R$957.3 million (which amount includes risks deemed “remote,” “possible” and “probable”), compared to R$798.2
million as of December 31, 2019. 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
R$634,706 thousand on December 31, 2020, compared to R$603,074 thousand on December 31, 2019. These
provisions were recorded based on our past historical payments, statistical models and the opinions of our legal
counsel.
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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 81 cases pending, some have no assigned
value and the largest has a value of approximately R$49.2 million, which is included in the total amounts disclosed
above as of December 31, 2020.
Civil, Commercial and Other Proceedings
As of December 31, 2020, we are defendants in 4,328 civil, commercial and other proceedings
(administrative, environment, regulatory and other matters) amounting to total claims of R$3.0 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$343,530 thousand in connection with our pending
civil, commercial and other proceedings as of December 31, 2020 (R$307,177 thousand as of December 31, 2019).
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 we
(previously Perdigao S/A) 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 us, and an order 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 respect to this
dispute, which is based on the opinion of a valuation and accounting expert hired by us 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. We ordered to pay an award with respect to the material damages, but this decision was suspended
by the Court of Appeals. We 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
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. We filed other appeals against such decision, which were denied by the Superior
Court of Justice. However, we expect to file another appeal with the court of last instance. With respect to the public
civil action filed in 2008, in March 2020, the Superior Court of Justice, by a majority of votes, denied the appeal filed
by the Federal Public Prosecutor’s Office and found that the proceeding had no grounds. With respect to the public
civil action filed in 2018, the first instance decision was favorable to us, 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 us 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 that we
individually indemnify all consumers who acquired products with any quality issues related to water in excess, and
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that we publicly disclose 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 thousand as collective damages; and (iii) publicly disclose a message describing this matter via local media
(newspaper, radio and other means), we, along with the other defendants, filed our respective appeals, which the Court
of Appeal rejected in 2011. On January 30, 2012, we 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 an 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 us. On June 2018, the
process was suspended by the lower court for producing evidence.
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, 2020, the amount at issue in the case is
estimated to be R$165 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.
We had a leasing contract with WJ Produtos Alimentícios Ltda. (“WJ”) for an industrial plant, which was
terminated by us. On April 11, 2012, WJ filed an action to require we comply with the leasing contract and 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 decided in favor of WJ and
ordered us 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 is necessary to determine the total loss
value in the execution stage of the proceeding. We 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$83 million. Such amount does not consider the losses and damages that still
need to be estimated in the execution stage, depending on the judgment, by the São Paulo State Court, of the appeal
filed by us and any other appeal that may be filed with the Superior Court of Justice.
On October 10, 2013, an action for damages was filed by Attilio Fontana’s heiresses in order to require we
pay damages for the destruction 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 potentially 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 we subsequently filed our 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 plaintiff’s
claims were dismissed by the trial court judge and the Court of Appeals, and plaintiff’s special appeal is pending with
the Superior Court of Justice, we have classified the risk of loss as possible, with no provisions recorded.
In recent years, we have been sued by ex-carriers seeking indemnification for the absence of previous
payment for road toll fees, as established under Brazilian federal law. We currently have thirteen ongoing cases related
to this matter: three cases have initially resulted in unfavorable decisions for us and five cases have initially resulted
in favorable decisions for us (two of such cases is being processed before the Court of Small Claims) and five cases
are pending decisions (two of such cases is being processed before the Court of Small Claims). For all thirteen cases,
we recorded a provision with respect to the disputes based on the opinion of our legal advisers.
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On October 17, 2013, Mr. Marcus Macedo Cazarré filed an indemnification action as a result of our alleged
exploitation of his Patent MU 8300298-7 in the biodigesters used in farms. Mr. Cazarré requested damages of over
R$300.0 million. An expert report favorable to us 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 we presented our 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 we were 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, we
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 our appeal.
On May 13, 2019, we 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 our appeal,
determining that the proceeding’s records be sent to the Superior Court of Justice. Our appeal is pending before the
court. On April 13, 2020, we filed a petition requesting the suspension of the lawsuit until the decision on the merits
of the nullity action filed by us against Mr. Cazarré and Instituto Nacional de Propriedade Industrial-INPI (BPTO)
before the Federal Court of Rio de Janeiro became final. On June 12, 2020, Mr. Cazarré filed a new power of attorney.
On June 18, 2020, we filed a petition repeating the request for suspension and informing that BPTO had presented its
opinion in the nullity action agreeing with our arguments for the nullity of Mr. Cazarré’s patent. We have classified
the risk of loss as possible, with no provisions recorded for this case.
On April 24, 2014, we executed a TAC with the Public Prosecutors’ office of the State of Goiás because of
irregularities in our treatment of soil 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 August 22, 2014, Transfood Logística filed a lawsuit against us seeking moral and material damages
resulting from the termination of contracts we had with them. After our defense on October 30, 2014, oral evidence
was produced, and several witnesses were heard. On July 11, 2019, a decision was rendered in our favor. The majority
of the claims was dismissed, and we were 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 executed a TAC with the Consumer Protection Agency of the Municipality of Rio
de Janeiro, or 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, or Procon Estadual, filed a civil
action against us related to a similar claim with respect to the distribution of skimmed milk. In May 2016, a judgment
was issued recognizing that we had diligently taken all necessary actions to mitigate damages on this case, including
executing 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 we were ordered to pay
R$100,000. On October 28, 2020, we paid R$ 216.069,40, related to the condemnation plus monetary restatement and
penalty interest, as well as legal fees. The case currently awaits judgment in the Superior Court of Justice following
our appeal.
On October 23, 2015, Perdue Foods LLC (“Perdue”) filed an enforcement lawsuit against us. Perdue sought
an order for us to comply with the obligations undertaken in the Coexistence Agreement, as amended, entered into by
both parties related to the trademarks of Perdue and our trademark Perdix. In the event that we do 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.
We have presented our defense in the case and the case is currently pending judgment in the lower court. Concurrently,
we and Perdue 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 us 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, a court-appointed expert presented a technical report informing that there was 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. On September 11, 2020, due to a request from the Public
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Prosecutors’ Office of the State of São Paulo, the trial court judge determined the Health Surveillance Coordination
(“COVISA/SP”) to be notified in order to clarify whether there is any difference between the school meal (sausages)
described in the bid procedure and the one regularly sold in supermarkets. On December 14, 2020, an official notice
was sent to COVISA/SP, and their response is still pending. We have classified the risk of loss as possible, with no
provisions recorded.
On September 18, 2015, we executed a TAC with the Public Prosecutors’ Office of Rio de Janeiro State in
order to restore an environmental license of our 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 us in connection with alleged irregularities identified on dairy products sold by us. On March 19, 2019, the
plaintiff’s claims were partially granted and we were 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 presented risk to consumers’ health and (b) provide a public notice regarding such recall on our 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 April 23, 2019,
we 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 us 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 we presented our defense, a
judgment was issued on September 14, 2016 ordering us to include such information on the package of all of our
products that contain gluten. We 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.
On April 4, 2016, we executed a TAC with the Public Prosecutor Office of the State of Goiás 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.
On May 9, 2018, the Public Prosecutors’ Office of the State of Pernambuco filed a public civil action against
us in connection with alleged irregularities identified in meat products (sausages) sold by us. We filed our 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 us to, under the penalty of 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 on our website and social
media. On April 24, 2019, we 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.
We also have potential regulatory liabilities corresponding to 1,135 cases, with a total provision of
approximately R$33 million as of December 31, 2020. 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 MAPA. The cases are addressed directly with MAPA, and when we do not
successfully defend against these penalties, the payments are made to MAPA, or we 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 (TRY30,518
thousand, translated to reais at the exchange rate of R$0.7375 as of September 30, 2019) against Banvit. The decision
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was confirmed on September 17, 2019, reaffirming that the alleged anticompetitive practices took place before the
acquisition of Banvit’s control by us. Banvit anticipated the payment of the fine to benefit from a 25% discount, under
the terms of the Turkish law. We have recovered from Banvit’s previous owners approximately 80% of the amount
we had paid under a settlement agreement.
On May 16, 2019, we executed the Commitment Term nº 009/2019 with the Rio Verde Municipal Secretariat
for the Environment for the purpose of granting a deadline for us to fulfill our obligation contained in the Technical
Opinion 340/2019 regarding the intervention in aerated lagoon. Satisfaction of this term is in progress.
On March 27, 2020, we filed confidential arbitration proceedings against two energy generation companies
and one energy trading company with Fundação Getúlio Vargas - FGV’s Arbitration Chamber (Câmara de Mediação
e Arbitragem da FGV). The proceedings involve two electric power sales and purchase agreements, executed in 2007
and expiring in 2025, and the amount at issue in the case is currently estimated to be R$29.6 million, which does not
consider possible losses and damages, if any, depending on the decision of the arbitral tribunal. The arbitration
proceeding is currently pending, and we have classified the risk of loss as possible, with no provisions recorded.
In March 2017, an administrative proceeding was filed by the National Consumer Secretariat (SENACON –
Ministério da Justiça) in order to ascertain whether there were violations of consumer law by us, in view of the findings
by the MAPA, in 2017, regarding excess water in frozen chicken carcasses. In May 2017, we presented our preliminary
defense motion, and in December 2020, we presented our final brief in our defense. In January 2021, the Secretariat
ruled against us, finding that we breached consumer law, and it imposed a fine of approximately R$5 million. On
February 8, 2021, we filed an administrative appeal, which is still pending review. The proceeding is currently pending
a final ruling, which is subject to judicial discussion.
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 the MAPA 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 and 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 the support and contribution
from BNDES; or BNDESPAR injecting resources into Sadia through a loan and an 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.
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After the merger was approved, on July 13, 2011, Mr. da Silva allegedly complained to Mr. Palocci about
our 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,
we 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. We are 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)
The Public Prosecutor’s Office of the State of Rio de Janeiro opened a civil inquiry to investigate alleged
acts by the government by means of which tax benefits would have been irregularly granted to us 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 us, the inquiry is investigating the concession of tax benefits granted based on the future
construction of a dairy factory by us 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, we chose to terminate the project although
the tax benefit had already been granted. The land and initial construction by us, amounting to R$26 million, were
returned in 2014 to the city government free of charge.
Since the inquiry is investigating the 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. We are cooperating with
and providing all requested clarifications to the authorities.
Confidential Proceeding in Connection with Civil Inquiry Described Above
In May 2020, the Rio de Janeiro State Prosecutor filed a lawsuit against us seeking (i) to freeze assets in the
amount of R$235.6 million associated with alleged improper tax benefits obtained in Rio de Janeiro, (ii) additional
payments of other amounts in tax benefits that had been received by us associated with the matter, if any, and (iii) that
we be prohibited from receiving incentives, subsidies, grants, donations or loans from public agencies or entities and
public financial institutions or those controlled by the government. Before we had a chance to present a defense, an
injunction was granted by the trial court. A requirement to suspend the injunction was presented and granted in our
favor by the Court of Appeals on July 10, 2020. The case is still at an early stage.
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 competitor of ours to the former governor of the State of Rio de Janeiro, Sérgio Cabral,
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 us
and later transferred by the government to VIGOR. In this context, a notice was sent to us seeking we clarify how the
land in Barra do Piraí, State of Rio de Janeiro was granted to us, 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).
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We are cooperating with and providing all the 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 or promises
made to government inspectors.
On March 17, 2017, we learned of a decision issued by a federal judge of the 14th Federal Court of Curitiba
in 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 of our 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 MAPA on March 17, 2017, so that MAPA
could conduct an additional audit on its production process. After conducting an audit, 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 20, 2017, based on the Brazilian Federal Police investigation, Brazilian federal prosecutors filed
several charges against two of our employees (one of our regional manufacturing officers and one of our corporate
affairs managers). One such employee was acquitted by lower courts of all charges on September 28, 2018, while the
other employee was convicted on one charge. The Brazilian federal prosecutors and one of our former employees filed
an appeal, which is pending judgment by the court. On January 22, 2018, the Attorney General’s Office of the Third
District of the State of Goiás filed a criminal complaint against the industrial manager of our Mineiros plant at the
time of the events subject to investigation in the Carne Fraca Operation. The employee was charged for allegedly
committing crimes against consumers, as provided in article 7, item II of Law 8,137/90. The complaint does not
contain any allegations of corruption.
We informed certain regulators and governmental entities of the Carne Fraca Operation, including the SEC
and the U.S. Department of Justice. We are cooperating with the authorities, and there has been no adverse action
taken against the employee as of the date of this annual report. On February 25, 2021, we were informed by the SEC
that it had concluded its investigations with respect to the Carne Fraca Operation, and based on the information
reviewed, the SEC Division of Enforcement did not recommend enforcement action against us. We announced that
we reinforced our commitment to collaborate regarding these matters with Brazilian authorities and the U.S.
Department of Justice.
Our Audit and Integrity Committee initiated an investigation with respect to the allegations and related
conduct involving our employees in the Carne Fraca Operation. The investigation involves external legal counsel and
is still in progress. 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, including any potential future developments therefrom, may
result in penalties, fines and sanctions from governmental authorities or other forms of liabilities, which may have a
material adverse impact on our reputation, brands, 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.”
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Trapaça Operation
On March 5, 2018, we 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,” 11 of our current and former employees 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 were placed on leave of absence. A number of our other 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 of our manufacturing plants and
accredited labs.
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 of our other 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 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 our 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 were placed on leaves of absence.
On December 4, 2019, in the context of the Trapaça Operation, a complaint was filed by the Federal Public
Prosecutor’s Office against our former employees 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 lower court on January 21, 2020. There was no negative decision against any of the defendants during
2020. As of the date of this annual report, some of the defendants’ have presented their response and the proceedings
are still pending, without an adverse decision against the defendants. Our employee who is involved in this proceeding
is on a leave of absence and, therefore, has been removed from his duties in our company.
On November 4, 2020, also in the context of the Trapaça Operation, a second complaint was filed by the
Federal Public Prosecutor’s Office against our former and inactive employees for allegedly committing aggravated
larceny by fraud, false representation, selling products harmful to health and criminal association, between the years
2012 and 2017, related to the presence of Salmonella on food products. The complaint was received by the lower court
on November 20, 2020. As of the date of this annual report, some of the defendants’ have presented their response.
We informed certain regulators and governmental entities of the Trapaça Operation, including the SEC and
the U.S. Department of Justice. We are cooperating with the authorities. On February 25, 2021, we were informed by
the SEC that it had concluded its investigations with respect to the Trapaça Operation, and based on the information
reviewed, the SEC Division of Enforcement did not recommend enforcement action against us. Our Audit and
Integrity Committee has initiated an investigation with respect to the allegations and related conduct involving our
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$28,004 thousand in 2020 mainly with law firms, recorded as other operating expenses (R$79,207
thousand in 2019).
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The outcome of the Trapaça Operation, including any potential future developments therefrom, may result
in penalties, fines and sanctions from governmental authorities or other forms of liabilities, which may have a material
adverse impact on our reputation, brands, 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
On October 1, 2019, we 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 by Federal
Inspectors from MAPA in several of our production locations. A limited number of inspectors were still located in
our production units. None of our employees were involved in this operation, and we are not a party to such proceeding
and investigation.
Controladoria-Geral da União (CGU) Proceedings
In June 2018 and in May 2019, we learned of administrative proceedings commenced against BRF by the
Brazilian Comptroller General of the Union (Controladoria-Geral da União, or “CGU”), which is primarily related
to alleged irregularities in connection with conduct that could represent harmful acts to the public administration under
the Brazilian Anti-Corruption Law and other applicable laws, as described in Carne Fraca Operation and Trapaça
Operation. The CGU is an internal control body of the Brazilian federal government responsible for carrying out
activities related to the defense of public property and the increase of management transparency, through actions of
public audit, correction, prevention and combat of corruption, among others. These CGU administrative proceedings
against BRF remain pending without any adverse decision against BRF as of the date of this annual report. When BRF
is subpoenaed, we intend to present our defense in this matter. We will continue to discuss a possible resolution of
these proceedings with CGU, and to cooperate with the governmental authorities. The outcome of the CGU
proceedings may result in penalties, fines, compensation, sanctions from governmental authorities or other forms of
liabilities, which may have a material adverse impact on our reputation, brand, results of operations, financial position
and cash flows. Currently, any losses related to this matter cannot be estimated, and, as a result, no provision has been
recorded.
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 our ADRs during the period from April 4, 2013, through and
including March 2, 2018. The class action alleges, among other things, that we and certain officers or directors of ours
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, translated to reais at the exchange rate of R$5.1109 as of March 27, 2020). The court approved this
settlement on October 23, 2020.
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Brazilian Investor Arbitrations
In March 2020, three confidential arbitration proceedings were brought against us in the Market Arbitration
Chamber (Câmara de Arbitragem do Mercado) of the B3 in Brazil by investors that had purchased our shares traded
on the B3, seeking recovery from alleged losses incurred by them, due to a drop in our share price. In September 2020,
the Chairman of Market Arbitration Chamber of B3 decided to consolidate these three arbitrations into a single
proceeding. Because this arbitration proceeding is in its initial stage, we believe the possible loss or range of losses,
if any, arising from this arbitration cannot be estimated. In the event that this proceeding is decided against us, or we
enter into an agreement to settle, there can be no assurance that an unfavorable outcome or settlement would not have
a material impact on us.
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 Brazilian Corporate 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 Brazilian Corporate 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 Brazilian Corporate 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: (i) our net positive results,
if any, from the equity method of accounting for earnings and losses of our subsidiaries and certain associated
companies; and (ii) 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, 2020, 2019 and 2018, no dividends and interest on shareholders’ equity
were paid to holders of our common shares.
Any decision to declare and pay dividends 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.
Amounts Available for Distribution
The section of this annual report 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 Brazilian Corporate 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
our 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
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commodities and were initially expected to continue pursuant to the terms of that contract until the maximum value
reached 1,500 metric tons of frozen chicken. However, our non-U.S. affiliate cancelled the contract and returned the
related prepayment in December 2019. In 2020, we made no sales involving any persons or entities in Iran.
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.
B.
Significant Changes
None.
THE OFFER AND LISTING
A.
Offer and Listing Details
Our common shares trade on the São Paulo Stock Exchange. ADRs representing our common shares trade
on the NYSE. As of December 31, 2020, there are 807,707,162 common shares without par value issued and
outstanding (excluding 4,766,084 common shares held in treasury), and 139,420,918 ADRs outstanding, representing
17.16% of our outstanding common shares.
B.
Plan of Distribution
Not applicable.
C.
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 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.
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 affected 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.
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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, as amended
(“Resolution No. 4,373”). 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. The Central Bank, on the other hand, has,
among other powers, licensing authority over brokerage firms and regulates foreign investment and foreign exchange
transactions. The Brazilian securities market is governed by Brazilian Law No. 6,385/76, as amended, and by Brazilian
Corporate Law and other CVM rulings and regulations.
Under Brazilian Corporate 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
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, Brazilian Corporate 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;
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• The Bovespa Mais Level 2;
• Corporate Governance Level 1;
• Corporate Governance Level 2; and
• The Novo Mercado (New Market) of the B3.
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 Brazilian Corporate 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;
disclose the following policies, approved by the Board of Directors:
o Management Compensation Policy;
o Appointment Policy for Members of the Board of Directors, of the Advisory Committees and
of the Board of Executive Officers;
o Financial Risk Management Policy;
o Related Party Transactions Policy; and
o Securities Trading Policy 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);
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;
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•
•
•
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,
Brazilian Corporate 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.
D.
Selling Shareholders
Not applicable.
E.
Dilution
Not applicable.
F.
Expenses of the Issue
Not applicable.
ADDITIONAL INFORMATION
A.
Share Capital
Not applicable.
B.
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), Brazilian Corporate 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.
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.
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As of December 31, 2020, 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 other companies, 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 to allow the packaging and visualization of the
products;
services for receiving and allocating raw materials to be used in production;
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;
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•
•
•
•
•
•
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 Brazilian Corporate 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. Holders of our common shares have, except in certain circumstances listed in
Brazilian Corporate 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 Brazilian Corporate 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 Brazilian Corporate Law; and
the right to withdraw from our company in the cases specified in Brazilian Corporate Law, which are
described under “—Withdrawal Rights.”
Meeting of Shareholders
Under Brazilian Corporate 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
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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 Brazilian Corporate Law, the following actions, among others, may be taken only at a
shareholders’ meeting:
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•
•
•
•
•
•
•
•
•
•
•
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.
Quorum
As a general rule, Brazilian Corporate 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, virtually
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(whenever the shareholders’ meeting is held under a partial or 100% digital format), by means of the distance voting
form ((boletim de voto a distância) 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 Brazilian Corporate 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 Brazilian Corporate 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 Brazilian Corporate 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 except as provided under applicable legislation,
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 us, up to the end of the suspension period, about the reasons
why it believes that a proposed resolution violates legal or regulatory provisions.
Location of Shareholders’ Meetings
Our shareholders’ meetings take place at our head offices in the City of Itajaí, State of Santa Catarina.
Brazilian Corporate 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 our head office is located and the relevant notice includes
a clear indication of the place where the meeting will occur. Additionally, CVM Instruction No. 481 of December 17,
2009, as amended by CVM Instruction No. 622 of April 17, 2020 and CVM Resolution No. 5 of August 27, 2020,
permits our shareholders’ meeting to be held under a total or partial digital format.
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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) 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 our
shareholders 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 us, duly filled and signed directly to us at Avenida das Nações Unidas, 8501, 1st Floor, 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.
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 us.
Shareholders may also vote by means of instruction transmitted to our 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.
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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 our shares, 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.
In case a shareholders’ meeting is held under a total or partial digital format, we will fully disclose the
conditions of admission on the documents related to the referred to shareholders’ meeting.
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.
Brazilian Corporate 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
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 Brazilian Corporate 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.
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Board of Executive Officers
Our bylaws provide for a board of executive officers composed of at least two and no more than 15 members,
comprised of a Global Chief Executive Officer, a Chief Financial and Investor Relations Officer and all other members
as Vice Presidents. 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 Brazilian Corporate 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, we 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.
Fiscal Council
Under Brazilian Corporate Law, the fiscal council is an auditing body independent from our 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. Brazilian
Corporate Law and our bylaws provide that, if there is a controlling shareholder, then minority shareholders jointly
representing 10% or more of our 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. Brazilian Corporate 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 our officers, excluding other benefits.
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 are 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 are 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.
Our audit and integrity committee have 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;
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•
supervise the activities of: (i) the independent external auditors to evaluate their independence, the
quality and suitability of the services rendered and the annual work plan; (ii) our internal controls
department; (iii) our internal audit department; and (iv) 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 our
internal policies, including our Related Parties Transactions Policy;
evaluate our 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 our internal or external activities,
related to the violation of legal provisions and rules applicable to us (including those of an 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 have 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, Brazilian Corporate Law prohibits a member of the board of
directors or board of executive officers from intervening in any transaction that conflicts with our interests.
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.
Brazilian Corporate 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
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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 Brazilian Corporate 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 Brazilian Corporate 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 the company’s shareholders at the annual
shareholders’ meeting.
Legal Reserve
Under Brazilian Corporate 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 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, 2020,
we did not have a legal reserve.
Unrealized Profit Reserve
Under Brazilian Corporate Law, the amount by which the distributable amount exceeds realized net profits
in a given fiscal year may be allocated to unrealized profits reserves. Brazilian Corporate Law defines realized net
profits as the amount by which net profits exceed the sum of: (i) 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 (ii) 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, 2020, we
did not have an unrealized profits reserve.
Contingency Reserve
Under Brazilian Corporate 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, 2020, we did not have a contingency reserve.
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Bylaw Reserves
Under Brazilian Corporate 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, 2020, 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, 2020, 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, 2020, we did not have a reserve for tax incentives.
Retained Earnings Reserves
Under Brazilian Corporate 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, 2020, we did not
have a retained earnings reserve.
Capital Reserves
Under Brazilian Corporate 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 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, 2020, we have a capital reserve of R$142,080 thousand.
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
Brazilian Corporate 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 Brazilian Corporate 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.
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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 Brazilian Corporate 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 Brazilian
Corporate 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: (i) 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 (ii) 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 Long-Term Interest Rate (Taxa de Juros de Longo Prazo, or “TJLP”) 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 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: (i) that does not impose
income tax or whose income tax rate is lower than 20%; or (ii) 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.
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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 Brazilian Corporate Law, a shareholder’s withdrawal rights may be exercised in the
following circumstances, among others:
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•
•
•
•
•
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 Brazilian Corporate Law); or
the acquisition by us of the control of any company if the acquisition price exceeds the limits established
in the second paragraph of Article 256 of Brazilian Corporate Law.
However, under Brazilian Corporate 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 Brazilian Corporate Law.
In cases where we:
• merge into or consolidate with another company;
•
•
•
participate in a group of companies (as defined in Brazilian Corporate 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 Brazilian Corporate Law.
Our shareholders will not be given withdrawal rights if our shares: (i) 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; or (ii)
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.
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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 Brazilian Corporate 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 Brazilian Corporate 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.
These provisions are not applicable to shareholders who become holders of 33.3% or more of our common
shares as a result of: (i) legal succession, provided that the shareholder sells any shares in excess of the 33.3% limit
within 60 days of the event; (ii) the merging of another company into us; (iii) the merging of the shares of another
company by us; and (iv) the subscription of our shares 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: (i) directed to all of our shareholders; (ii) made through an auction to take
place at the São Paulo Stock Exchange; (iii) launched at a fixed price in accordance with the procedure set forth below;
and (iv) 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
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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, as amended, 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:
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•
•
•
•
•
•
to any of our former officers, directors or members of the fiscal council for a six-month period after
leaving our 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.
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, Brazilian Corporate 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
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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, we 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 us shall be in the form established in Brazilian Corporate 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, we will remain subject to other penalties that may be imposed by B3.
With the exception of tender offers related to delisting from the Novo Mercado or cancelling the 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.
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 Brazilian Corporate 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.
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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 our capital stock 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 our capital stock 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.
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:
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•
•
•
•
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
•
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 Brazilian Corporate 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:
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•
•
•
•
•
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 1.3 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 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;
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 we become 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.
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Information Required by the São Paulo Stock Exchange from Companies Listed on the Novo Mercado
Our shares have been listed to trade on the Brazilian Securities and Derivatives Stock Exchange special listing
segment named Novo Mercado, of B3. Accordingly, we, our shareholders, directors, officers and members of our
fiscal council (if 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
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;
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•
•
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, the rules published by the
CVM, and our Policy on Disclosure of Material Acts or Facts and Trading of Securities 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.
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 material contract, its term, value,
termination provisions and any influence that this agreement may have over the management and operations of our
company.
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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 CVM, which shall be a financial
institution or institution authorized by Central Bank to operate in Brazil.
register as a foreign investor with the CVM; and
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.
C.
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.
D.
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 our capital share 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. 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 our name with respect to our
ADRs. Pursuant to the electronic registration, the custodian will be able to convert dividends and other distributions
with respect to the shares represented by our ADRs into foreign currency and remit the proceeds outside Brazil.
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E.
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 of this annual report, 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 ourselves, 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
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.
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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 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:
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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%
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.
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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.
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 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.
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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 of this annual report.
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;
an estate the income of which is subject to U.S. federal income taxation regardless of its source; or
a trust, if it (i) 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 (ii) 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;
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•
•
•
•
•
•
•
•
•
•
•
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 is subject to be replaced, revoked or modified at any time, and any such action could be
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 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.
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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 us.
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 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 our 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 our 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
“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
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U.S. federal income tax liability. For purposes of calculating the foreign tax credit, dividends paid on 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
ADRs or common shares. The rules governing foreign tax credits 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 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
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: (i) the date of actual or constructive receipt of payment in the case of a cash basis U.S. holder;
or (ii) 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
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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:
•
•
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 2020, and we do not expect to be a PFIC for 2021, 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
162
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 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 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 our ADRs are listed on the NYSE, which constitutes
a qualified exchange, although there can be no assurance that our ADRs will be “regularly traded” for purposes of the
mark-to-market election. It should also be noted that only our ADRs and not our common shares are listed on the
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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) our 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 for 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
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
164
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
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.
F.
G.
H.
Dividends and Paying Agents
Not applicable.
Statement by Experts
Not applicable.
Documents on Display
165
We make our 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, our filings are available to the public over the Internet at
our web site at https://ri.brf-global.com/en/. Such filings and other information on its website are not incorporated by
reference in this annual report. You may request a copy of this filing, and any other report, at no cost, by contacting
us at:
Investor Relations Department
BRF S.A.
Avenida das Nações Unidas, 8501 - 1st Floor
05425-070 – São Paulo – SP – Brazil
Telephone: +55 11 2322-5377
E-mail: acoesri@brf.com
I.
Subsidiary Information
See Note 1.1 to our consolidated financial statements for a description of our 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
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 24 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, 2020. For debt obligations, the table presents principal cash flows and related weighted
166
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
All-in weighted
average annual
interest rate
Short
Term
2021
2022
2023
2024
Thereafter Fair value
Assets
Fixed rate
In US dollar
0.77%
In US dollar
In Reais
Variable rate
In Reais
In Reais
Overnight rate
1.09%
97.04% CDI
In Reais
100.00% SELIC
Floating rate
In Reais
MTM
Other currencies
Without rate
In Reais
In Euros
Floating rate
-
-
-
Other currencies
-
-
-
4.97%
2.74%
3.16%
10.98%
100% CDI+1.62%
Liabilities
Fixed rate
In US dollar
In Euros
In Reais
In Turkish Lira
Variable rate
In Reais
In Reais
In Reais
In Reais
7,890.8
3,792.8
1,419.1
2,320.7
53.0
3,975.0
3,662.4
312.5
4.7
4.7
118.4
112.2
6.1
0.0
(1,060.0)
(855.8)
(196.3)
(18.9)
(413.5)
(227.1)
(204.1)
(22.2)
167
66.4
-
-
302.5
287.5
287.5
-
-
-
-
24.4
24.4
-
-
-
-
-
-
42.0
42.0
15.0
15.0
-
-
-
-
-
-
-
-
-
-
(2,390.3)
(1,661.9)
(362.4)
(1,062.5)
(2,082.6)
(1,259.9)
(1,207.6)
-
-
-
(237.0)
(728.4)
(468.6)
(52.3)
(822.7)
-
Financial
Instruments
In Reais
In Reais
In US dollar
Net
All-in weighted
average annual
interest rate
Short
Term
IPCA+5.59%
LIBOR6M+0.23%
2021
-
2022
(49.1)
(132.8)
2023
-
-
(259.8)
2024
Thereafter Fair value
-
(822.7)
-
6,830.8
(2,324.0)
(1,780.0)
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 and euro. 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, 2020. 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
Short
Term
2022
2023
2024
2025
Thereafter
Fair value
US dollar instruments
3,410.7
(622.2)
(920.1)
(1,530.7)
-
(10,451.6)
(10,113.9)
Assets
Short, Long-term investments
3,739.8
1,419.1
Average annual interest rate
0.15%
Short, Long-term investments
Average annual interest rate
2,320.7
Overnight
rate
-
-
-
-
287.5
287.5
3.82%
-
-
-
-
-
-
Liabilities
Short, Long-term debt
(329.1)
(622.2)
(1,207.6)
(1,530.7)
(329.1)
(622.2)
(1,207.6)
(1,530.7)
Average annual interest rate
4.33%
4.73%
3.95%
4.75%
Euro instruments
Assets
Short, Long-term investments
Average annual interest rate
Liabilities
Short, Long-term debt
(12.8)
(1,062.5)
6.1
6.1
-
-
(18.9)
(1,062.5)
(18.9)
(1,062.5)
-
-
-
-
-
Average annual interest rate
2.74%
2.74%
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
4,027.3
1,706.6
0.77%
2,320.7
Overnight
rate
(10,451.6)
(14,141.2)
(10,451.6)
(14,141.2)
5.09%
4.92%
-
-
-
-
-
(1,075.3)
6.1
6.1
(1,081.4)
(1,081.4)
2.74%
Other Currencies instruments
(174.1)
(195.0)
(52.3)
-
-
-
(421.5)
168
Assets
Short, Long-term investments
53.0
53.0
Average annual interest rate
1.03%
Short, Long-term investments
Average annual interest rate
-
-
42.0
-
42.0
MTM
-
-
-
-
Liabilities
Short, Long-term debt
(227.1)
(237.0)
(227.1)
(237.0)
(52.3)
(52.3)
Average annual interest rate
11.41%
10.81%
9.89%
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
95.0
53.0
1.03%
42.0
MTM
(516.5)
(516.5)
10.98%
(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.
Exchange Interest rate
derivatives
Short
Term
2022
2023
2024
2025
Thereafter
Total Notional
16,446.8
8.2
-
-
-
-
-
-
-
49.9
-
-
49.9
CDI+2.27%
Fair
value
136.4
(14.6)
(14.6)
Cross currency swaps:
Receive Reais Pay US
Dollar
Notional amount
Average interest
received in CDI+2.27%
Average interest paid
in US dollar
Duration
Non-deliverable forward:
Receive Reais Pay US
Dollar
Notional amount
Average interest
received in reais
Average interest paid
in US dollar
Duration
Receive Reais Pay
Euros
Notional amount
Average interest
received in reais
Average interest paid
in euros
0.29
-
-
-
-
-
0.3
10,637.9
8.2
-
4,266.6
8.2
-
1.37%
1.57%
-
-
-
-
-
-
150.8
121.8
1.37%
0.3
1.2
-
-
-
-
0.3
1,653.2
1.62%
169
32.0
Duration
Receive US Dollar Pay
Euros
Notional amount
Average interest
received in US dollar
Average interest paid
in euros
Duration
Receive Yen Pay Euros
Notional amount
Average interest
received in yen
Average interest paid
in euros
Duration
Receive Russian Ruble
Pay Euros
Notional amount
Average interest
received in Russian ruble
Average interest paid
in euros
Duration
Receive US dollar Pay
Reais
Notional amount
Average interest
received in US dollar
Average interest paid
in reais
Duration
0.2
-
-
-
-
-
0.2
92.0
(1.9)
0.2
-
-
-
-
-
0.2
2,502.6
0.7
0.2
-
-
-
-
-
0.2
1,864.4
2.7
0.2
-
-
-
-
-
0.2
259.1
-
-
-
-
-
(4.5)
1.88%
1.88%
0.3
-
-
-
-
-
0.3
FX Options
Notional amount US
dollar
Duration
FX Futures
Notional amount US
dollar
Duration
Nota de corretagem
2,885.2
2,885.2
0.3
2,873.8
2,873.8
0.1
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
9.3
9.3
0.3
(9.1)
(9.1)
0.1
The table below provides further detail on our foreign currency-denominated assets and liabilities as of the
dates indicated below.
170
Cash and cash equivalents ................................................................
Trade accounts receivable ................................................................
Trade accounts payable ....................................................................
Loans and borrowings ......................................................................
Other assets and liabilities, net .........................................................
Exposure of assets and liabilities in foreign currencies in R$..........
Hedge (1) ............................................................................................
Foreign exchange exposure in R$ ....................................................
As of December 31,
2020
2019
(in thousands of R$)
2,855,979
5,765,753
(859,790)
(14,947,793)
225,694
(6,960,157)
6,849,947
(110,210)
2,591,746
4,892,708
(601,007)
(8,854,826)
(162,341)
(2,133,720)
1,734,517
(399,203)
(1)
Swaps and foreign currency futures 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 24 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.
Scenario
Exchange rate - Balance
Base
- 50%
- 25%
- 10%
+ 10%
+ 25%
+ 50%
USD
5,1967 2,5984 3,8975 4,6770 5,7164 6,4959 7,7951
Monetary Assets and Liabilities
Derivative Instruments - Not
designated
Net effect
2.891.741 1.445.871 578.348 (578.348) (1.445.871) (2.891.741)
(2.678.513) (1.339.257) (535.703) 535.703 1.339.257 2.678.513
213.228 106.614 42.645 (42.645) (106.614) (213.228)
EUR
6,3935 3,1968 4,7951 5,7542 7,0329 7,9919 9,5903
Monetary Assets and Liabilities
Derivative Instruments - Not
designated
Net effect
684.591 342.295 136.918 (136.918) (342.295) (684.591)
(736.988) (368.494) (147.398) 147.398 368.494 736.988
(52.397) (26.199) (10.480) 10.480 26.199 52.397
JPY
0,0503 0,0252 0,0377 0,0453 0,0553 0,0629 0,0755
Monetary Assets and Liabilities
Derivative Instruments - Not
designated
Net effect
(77.886) (38.943) (15.577) 15.577 38.943 77.886
62.925 31.463 12.585 (12.585) (31.463) (62.925)
(14.961) (7.480) (2.992) 2.992 7.480 14.961
RUB
0,0698 0,0349 0,0524 0,0628 0,0768 0,0873 0,1047
Monetary Assets and Liabilities
Derivative Instruments - Not
designated
Net effect
(65.717) (32.858) (13.143) 13.143 32.858 65.717
66.348 33.174 13.270 (13.270) (33.174) (66.348)
631 316 127 (127) (316) (631)
TRY
0,7061 0,3531 0,5296 0,6355 0,7767 0,8826 1,0592
171
Monetary Assets and Liabilities
Derivative Instruments - Not
designated
Net effect
51.616 25.808 10.323 (10.323) (25.808) (51.616)
(141.926) (70.963) (28.385) 28.385 70.963 141.926
(90.310) (45.155) (18.062) 18.062 45.155 90.310
Exchange rate - Operating
results
USD
Revenue in USD
NDF
Collar
Loans - Designated
Net effect
Commodity Price Risk
Base
- 50%
- 25%
- 10%
+ 10%
+ 25%
+ 50%
Scenario
5,1967
7,7951
2,5984
(1.881.018) (940.509) (376.204) 376.204 940.509 1.881.018
6,4959
3,8975
5,7164
4,6770
704.153 352.076 140.831 (140.831) (352.076) (704.153)
581.264 279.855 114.019 (94.283) (260.303) (561.712)
574.048 287.025 114.810 (114.810) (287.025) (574.048)
41.105
(21.553)
41.105
26.280
(21.553)
(6.544)
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.
Our risk policy provides guidelines to hedging against increases in the price of corn and soy meal. In 2020,
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:
Exchange/Interest rate
derivatives
Short
Term
2022
2023
2024
2025
Thereafter
Fair
value
Commodities Futures
Receive Corn Pay US
dollar
Notional amount
Duration
Receive Soybean Meal
Pay US dollar
Notional amount
Duration
Receive US Dollar Pay
Soybean Meal
Notional amount
Duration
1,290.8
10.0
-
-
-
-
(144.1)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(213.9)
123.3
83.8
0.5
(11.9)
0.4
1,189.3
10.0
123.3
123.9
94.0
0.5
(7.5)
0.4
-
-
-
-
-
-
-
-
-
-
172
Receive Soy Oil Pay US
dollar
Notional amount
Duration
Receive Corn Pay in reais
Notional amount
Duration
Receive Soy Oil Pay U$
dollar
Notional amount
Duration
Receive U$ dollar Pay Soy
Notional amount
Duration
Corn Futures
Notional amount
(Ton/USD)
Duration
38.2
0.5
(0.8)
0.7
0.9
0.8
(30.5)
0.4
(30.7)
0.1
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
26.5
0.5
#
(0.8)
#
0.7
#
2.8
#
0.8
(28.8)
0.4
(1.7)
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.
Operating results - Commodities
Base
- 50%
- 25%
- 10%
+ 10%
+ 25%
+ 50%
Soy Grain - CBOT - USD/Ton
475 238 356 428 523 594 713
Cost of Sales
NDF
Net effect
(18.132) (9.066) (3.626) 3.626 9.066 18.132
18.132 9.066 3.626 (3.626) (9.066) (18.132)
- - - - - -
Scenario
Soybean Meal - CBOT - USD/Ton 430 215 322 387 473 537 645
Cost of Sales
Collar
NDF
Net effect
52.458 26.229 10.492 (10.492) (26.229) (52.458)
(3.267) (1.126) (97) 753 2.038 4.180
(48.363) (24.181) (9.673) 9.673 24.181
48.363
828 922 722 (66) (10) 85
Soybean Oil - CBOT - USD/Ton
770 385 578 693 847 963 1.156
Cost of Sales
Collar
NDF
Net effect
17.020 8.510 3.404 (3.404) (8.510) (17.020)
(1.775) (488) - 450 1.222 2.509
(14.714) (7.357) (2.943) 2.943 7.357
14.714
531 665 461 (11) 69 203
173
Corn - CBOT - USD/Ton
184 92 138 165 202 230 276
Cost of Sales
NDF
Net effect
(108.892)
(54.446) (21.778) 21.778 54.446 108.892
108.892 54.446 21.778 (21.778) (54.446) (108.892)
- - - - - -
Corn - B3 - BRL/Ton
1.199 600 899 1.079 1.319 1.499
1.799
Cost of Sales
Collar
Net effect
(5.990) (2.995) (1.198) 1.198 2.995 5.990
5.143 2.148 - (1.198) (2.995) (5.990)
(847) (847) (1.198) - - -
DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
A.
Debt Securities
Not applicable.
Warrants and Rights
Not applicable.
Other Securities
Not applicable.
American Depositary Shares
B.
C.
D.
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
6. Expenses of the Depositary
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 our share registry to or
from the name of the Depositary or its agent when you
deposit or withdraw shares.
Cable, telex and facsimile transmissions (when expressly
provided in the deposit agreement); and Converting foreign
currency to U.S. dollars.
174
Rates and Fees
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
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, 2020, pursuant to a letter agreement between us and The Bank of New
York Mellon, they reimbursed us for fees, expenses and related taxes in the gross amount of U.S.$1.9 million or net
amount of U.S.$ 1.4 million.
A form of the Deposit Agreement is filed as Exhibit 2.01 to this annual report. 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
A.
Disclosure Controls and Procedures
As of the end of the period covered by this annual report, our management, with the participation of our 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,
2020, our disclosure controls and procedures were effective at the reasonable assurance level.
B.
Management’s Annual Report on Internal Control Over Financial Reporting
There were no other significant changes in our controls that have materially affected, or are reasonably likely
to materially affect, our internal control over financial reporting.
Management is responsible for establishing and maintaining adequate internal control over our financial
reporting. 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
175
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, 2020, 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, has issued a report on management’s
assessment of our internal control over financial reporting.
C.
D.
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, 2020 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, 2020.
[RESERVED]
ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT
The Board of Directors has determined that Mr. Jeronimo Antunes, a member of our Audit and Integrity
Committee, is an “audit committee financial expert,” as such term is defined in the SEC rules. Mr. Jeronimo Antunes
is independent, as such term is defined in the Novo Mercado listing rules. We have determined that Mr. Jeronimo
Antunes is independent under the standards of the NYSE listing rules and Rule 10A-3 under the Exchange Act that
would apply if we 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. Jeronimo
Antunes.
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-
global.com/wp-content/uploads/2020/12/BRF_Manual_Transp_2020_FINAL1_EN_1.11.pdf. Information on our
website is not incorporated by reference in this annual report. Copies of our “Code of Ethics and Conduct” are also
available without charge upon request to our Investor Relations Office.
During 2020, we revised our “Transparency Guide” based on benchmarks and a multidisciplinary team. The
new version of the “Transparency Guide” was released on December 2020 and is valid as from January 1, 2021.
176
ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Audit and Non-Audit Fees
The following table sets forth the fees billed to us by the independent auditors responsible for auditing the
financial statements included in the annual report, which was KPMG Auditores Independentes for the fiscal years
ended December 31, 2020 and 2019. No payments of consultancy fees were made to the independent auditors during
2020 and 2019. The hiring of our auditors for consultancy services is subject to the approval of our Board of Directors
and Audit and Integrity Committee 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, 2020 and 2019 were:
Audit fees ..........................................................................
Audit-related fees ..............................................................
Tax fees .............................................................................
All other fees .....................................................................
Total fees ..........................................................................
Year Ended December 31,
2020
2019
(in thousands of reais)
9,854
1,040
-
-
10,894
9,272.3
547.1
-
-
9,819.4
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 2020 and 2019 refer to services related to debt offerings.
There were no other fees in 2020 or 2019.
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 our bylaws to the extent permitted by Brazilian law, we believe
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 the audit and integrity
committee to act independently and to satisfy the other requirements of Rule 10A-3 to the extent permitted by Brazilian
Corporate Law.
We also have a permanent Fiscal Council. However, as of April 3, 2014, we no longer rely on the Fiscal
Council to avail ourselves 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
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.
The program was concluded on May 22, 2020 and we acquired 4,836,000 of our common shares, representative of
177
approximately 0.60% of our capital stock. 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 us 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, we have adhered to Level A of the Global Reporting Initiative guidelines for
the publication of our annual reports under Brazilian law.
Further information concerning our corporate governance practices and applicable Brazilian law is available
on our website (https://ri.brf-global.com). Information on our website is not incorporated by reference in this annual
report.
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.
On December 1, 2020, we were included in the 16th B3 Corporate Sustainability Index – ISE portfolio. The
index, pioneer in Latin America, is a tool for comparative analysis of the performance of the companies listed on the
B3 from the standpoint of corporate sustainability, based on economic efficiency, environmental equilibrium, social
justice and corporate governance. The new portfolio will remain valid from January 4, 2021, through December 30,
2021, and is comprised of 46 shares of 39 companies.
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 two 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
178
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 establishing the compensation of our executives and employees. This committee
also provides our executive officers support in the assessment, selection and development of top leadership, and
advises our board of directors in the formulation and practice of our corporate culture in order to monitor and
encourage the proper behavior of our leaders. Further, it proposes actions to align the expectations of our 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 and with our Management Compensation Policy, our
shareholders approve the aggregate compensation of the members of our board of directors 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 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.
We established the Audit and Integrity Committee upon approval at the Annual and Extraordinary General Meeting
held on 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
179
standards described under “Item 9. The Offer and Listing—C. Markets —São Paulo Stock Exchange Corporate
Governance Standards.” In addition, we have adopted a Policy on Disclosure of Material Acts or Facts and Trading
of Securities.
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.
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 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 our long-term debt authorized under each instrument does not exceed 10% of our total
assets and its subsidiaries on a consolidated basis. We undertake to furnish to the SEC any instruments relating to our
long-term debt and that of our subsidiaries upon request by the SEC.
The following are filed as exhibits hereto:
Exhibit
Number
1.01
2.01
2.02
2.03
4.01
4.02
Description
Amended and Restated Bylaws of the Registrant, approved at the ordinary and extraordinary general
shareholders' meeting held on April 27, 2020 (incorporated by reference to Exhibit 1 to the Report on
Form 6-K filed on April 28, 2020, SEC File No. 001-15148).
Description of Securities registered under Section 12 of the Exchange Act.
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 27, 2020 (incorporated by reference to Exhibit 1 to the Report
on Form 6-K filed on April 28, 2020, SEC File No. 001-15148).
Restricted Stocks Plan of BRF S.A., approved at the ordinary and extraordinary general shareholders’
meeting held on April 27, 2020 (incorporated by reference to Exhibit 1 to the Report on Form 6-K,
180
Exhibit
Number
4.03
8.01
12.01
12.02
13.01*
13.02*
Description
filed on April 28, 2020, SEC File No. 001-15148).
Management Compensation Policy of the Registrant, approved at the ordinary meeting of the board
of directors held on November 26, 2020 (incorporated by reference to Exhibit 1 to the Report on Form
6-K, filed on December 14, 2020, 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.
181
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 March 26, 2021.
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
182
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, 2020 and 2019 ....................
F-4
Consolidated Statements of Income (Loss) for the Years Ended December 31, 2020, 2019 and
2018 .......................................................................................................................................
Consolidated Statements of Comprehensive Income (Loss) for the Years Ended December 31,
2020, 2019 and 2018..............................................................................................................
Consolidated Statements of Changes in Equity for the Years Ended December 31, 2020, 2019
and 2018 ................................................................................................................................
Consolidated Statements of Cash Flows for the Years Ended December 31, 2020, 2019 and 2018
...............................................................................................................................................
Notes to the Consolidated Financial Statements..........................................................................
F-5
F-7
F-6
F-9
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, 2020 and 2019, 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, 2020, 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, 2020, 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, 2020 and 2019, and the results of its operations and its cash flows for each of
the years in the three-year period ended December 31, 2020, 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, 2020 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 additional financial and non-financial impacts on the Company as a result of those
investigations and their potential developments and, consequently, to record potential losses which could have a material
adverse effect 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.
R-1
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 Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial
statements that was communicated or required to be communicated to the audit committee and that: (1) relates 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 a critical audit matter 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 matter below,
providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
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$
2,082,537 thousand as of December 31, 2020. 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 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 estimates 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 of the business plan, budget and technical
studies 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. We also evaluated the disclosures made by the Company on the expected
recoverability of the deferred tax assets.
/s/ KPMG Auditores Independentes
We have served as the Company’s auditor since 2017.
São Paulo, Brazil
March 26, 2021
R-2
Consolidated
Financial
Statements
Years ended December 31, 2020 and
2019
BRF S.A. | 2020 AND 2019 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
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
21.
22.
23.
24.
25.
26.
27.
28.
29.
30.
31.
............................................................................................................................................................................................. 10
BASIS OF PREPARATION AND PRESENTATION OF FINANCIAL STATEMENTS ................................................................................... 16
COMPANY’S OPERATIONS
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ...................................................................................................................................... 16
CASH AND CASH EQUIVALENTS ................................................................................................................................................................................. 25
MARKETABLE SECURITIES ........................................................................................................................................................................................... 25
TRADE ACCOUNTS RECEIVABLE AND OTHER RECEIVABLES ..................................................................................................................... 26
INVENTORIES ....................................................................................................................................................................................................................... 27
BIOLOGICAL ASSETS ......................................................................................................................................................................................................... 28
RECOVERABLE TAXES ..................................................................................................................................................................................................... 30
DEFERRED INCOME TAXES ........................................................................................................................................................................................... 33
JUDICIAL DEPOSITS .......................................................................................................................................................................................................... 35
PROPERTY, PLANT AND EQUIPMENT, NET .......................................................................................................................................................... 36
INTANGIBLE ASSETS ........................................................................................................................................................................................................ 38
LOANS AND BORROWINGS............................................................................................................................................................................................ 40
TRADE ACCOUNTS PAYABLE ....................................................................................................................................................................................... 44
SUPPLY CHAIN FINANCE ................................................................................................................................................................................................ 44
LEASES ..................................................................................................................................................................................................................................... 44
SHARE-BASED PAYMENT ............................................................................................................................................................................................... 47
EMPLOYEES BENEFITS.................................................................................................................................................................................................... 49
PROVISION FOR TAX, CIVIL AND LABOR RISKS .................................................................................................................................................. 55
EQUITY .................................................................................................................................................................................................................................... 57
EARNINGS (LOSS) PER SHARE ..................................................................................................................................................................................... 58
FINANCIAL INSTRUMENTS AND RISK MANAGEMENT ................................................................................................................................... 59
SEGMENT INFORMATION .............................................................................................................................................................................................. 71
NET SALES ............................................................................................................................................................................................................................. 72
OTHER OPERATING INCOME (EXPENSES), NET ................................................................................................................................................. 73
FINANCIAL INCOME (EXPENSES), NET ................................................................................................................................................................... 73
STATEMENT OF INCOME BY NATURE ..................................................................................................................................................................... 74
RELATED PARTIES ............................................................................................................................................................................................................ 74
GOVERNMENT GRANTS .................................................................................................................................................................................................. 75
COMMITMENTS ................................................................................................................................................................................................................... 75
BRF S.A. | 2020 AND 2019 CONSOLIDATED FINANCIAL STATEMENTS
F-2
32.
33.
34.
35.
INSURANCE COVERAGE .................................................................................................................................................................................................. 76
TRANSACTIONS THAT DO NOT INVOLVE CASH ................................................................................................................................................. 76
EVENTS AFTER THE REPORTING PERIOD............................................................................................................................................................. 76
APPROVAL OF THE CONSOLIDATED FINANCIAL STATEMENTS ................................................................................................................ 76
BRF S.A. | 2020 AND 2019 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 taxes
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 taxes
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
12.31.20
12.31.19 LIABILITIES
Note
12.31.20
12.31.19
4
5
6
7
8
9
9
23
5
6
9
9
10
11
8
23
12
13
7,576,625
314,158
4,136,421
6,802,759
2,129,010
899,120
43,840
377,756
1
186,025
4,237,785
418,182
3,090,691
3,887,916
1,603,039
473,732
152,486
195,324
296,294
99,245
CURRENT LIABILITIES
Loans and borrowings
Trade accounts payable
Supply chain finance
Lease liability
Payroll, related charges and employee profit sharing
Taxes payable
Derivative financial instruments
Provision for tax, civil and labor risks
Employee benefits
Liabilities directly associated with assets held for sale
446,269
22,911,984
590,733
15,045,427
Other current liabilities
Total current liabilities
344,577
49,864
4,868,198
54,859
2,109,064
307,352
71,029
5,169,547
269,263
1,915,370
NON-CURRENT LIABILITIES
Loans and borrowings
Trade accounts payable
Lease liability
Taxes payable
Provision for tax, civil and labor risks
Deferred income taxes
553,341
575,750
Employee benefits
1,221,749
234
24,357
82,123
9,308,366
1,081,025
49,991
-
85,537
9,524,864
8,874
12,215,580
14,880
12,276,889
Derivative financial instruments
Other non-current liabilities
Total non-current liabilities
EQUITY
Capital
Capital reserves
Accumulated losses
Treasury shares
5,220,102
4,908,079
Other comprehensive loss
Attributable to controlling shareholders
Non-controlling interests
26,752,922
26,724,712
Total equity
49,664,906
41,770,139
TOTAL LIABILITIES AND EQUITY
14
15
16
17
23
20
19
14
15
17
20
10
19
23
21
1,059,984
8,996,206
1,452,637
383,162
940,816
395,630
384,969
865,338
125,230
21,718
3,132,029
5,784,419
842,037
376,628
825,254
517,208
153,612
1,084,308
95,919
-
814,638
15,440,328
717,027
13,528,441
21,344,442
15,488,250
13,781
12,347
2,153,519
2,054,552
141,252
837,382
26,527
651,325
727
242,089
190,257
710,061
85,310
593,555
3
1,093,942
25,411,044
20,228,277
12,460,471
12,460,471
142,080
(2,594,028)
(123,938)
(1,298,801)
8,585,784
227,750
192,845
(4,131,913)
(38,239)
(722,469)
7,760,695
252,726
8,813,534
8,013,421
49,664,906
41,770,139
The accompanying notes are an integral part of the consolidated financial statements.
BRF S.A. | 2020 AND 2019 CONSOLIDATED FINANCIAL STATEMENTS
F-4
(in thousands of Brazilian Reais)
CONSOLIDATED STATEMENT OF INCOME (LOSS)
CONTINUING OPERATIONS
NET SALES
Cost of sales
GROSS PROFIT
OPERATING INCOME (EXPENSES)
Selling expenses
General and administrative expenses
Impairment loss on trade 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
Foreign exchange and monetary variations
INCOME (LOSS) BEFORE TAXES
Income taxes
INCOME (LOSS) FROM CONTINUING OPERATIONS
DISCONTINUED OPERATIONS
LOSS FROM DISCONTINUED OPERATIONS
INCOME (LOSS) FOR THE YEAR
Net Income (Loss) from Continuing Operations Attributable to
Controlling shareholders
Non-controlling interest
Net Loss from Discontinued Operations Attributable to
Controlling shareholders
Non-controlling interest
INCOME (LOSS) PER SHARE FROM CONTINUING OPERATIONS
Weighted average shares outstanding - basic
Income (Loss) per share - basic
Weighted average shares outstanding - diluted
Income(Loss) per share - diluted
LOSSES PER SHARE FROM DISCONTINUED OPERATIONS
Weighted average shares outstanding - basic
Losses per share - basic
Weighted average shares outstanding - diluted
Losses per share - diluted
Note
12.31.20
12.31.19
12.31.18
25
28
28
28
6
26
27
27
27
10
22
22
22
22
39,469,700
(29,998,822)
33,446,980
(25,370,042)
30,188,421
(25,320,753)
9,470,878
8,076,938
4,867,668
(5,587,488)
(770,282)
(4,911,666)
(615,683)
(4,513,594)
(551,165)
(12,137)
(49,742)
-
3,051,229
(23,899)
224,384
(1,737)
2,748,337
(46,269)
19,311
17,715
(206,334)
(1,889,454)
(3,096,716)
(2,130,194)
420,757
(230,298)
1,304,187
(72,870)
869,534
(980,814)
1,352,234
172,763
882,938
195,395
(2,447,808)
333,302
1,524,997
1,078,333
(2,114,506)
-
1,524,997
(915,809)
162,524
(2,351,740)
(4,466,246)
1,518,492
6,505
1,524,997
1,067,312
11,021
1,078,333
(2,114,968)
462
(2,114,506)
-
-
-
(904,628)
(2,333,093)
(11,181)
(915,809)
(18,647)
(2,351,740)
809,110,872
811,539,167
811,294,251
1.88
811,348,808
1.32
813,867,119
(2.61)
811,294,251
1.87
1.31
(2.61)
809,110,872
-
809,110,872
-
811,539,167
(1.11)
811,294,251
(2.88)
811,539,167
(1.11)
811,294,251
(2.88)
The accompanying notes are an integral part of the consolidated financial statements.
BRF S.A. | 2020 AND 2019 CONSOLIDADTED FINANCIAL STATEMENTS
F-5
(in thousands of Brazilian Reais)
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (LOSS)
Income (loss) for the year
Other comprehensive income (loss)
Gain (loss) on foreign currency translation of foreign operations
Loss on net investment hedge
Gain (loss) on cash flow hedge
Gain (loss) on debt investments measured at FVTOCI (1)
Net other comprehensive income (loss),
subsequent periods
to be reclassified to the statement of
income in
Gain (loss) on equity investments measured at FVTOCI (1)
Actuarial gain (loss) on pension and post-employment plans
Net other comprehensive income, with no impact into subsequent statement of income
Comprehensive income (loss), net of taxes
Attributable to
Controlling shareholders
Non-controlling interest
Note
12.31.20
12.31.19
12.31.18
1,524,997
162,524
(4,466,246)
23
5
5
19
(179,426)
(277,856)
(81,500)
178
595,588
(66,818)
39,444
2,184
84,361
-
175,987
(1,496)
(538,604)
570,398
258,852
2,384
7,121
9,505
48,228
(119,909)
(71,681)
(104,672)
327
(104,345)
995,898
661,241
(4,311,739)
961,553
34,345
995,898
693,853
(32,612)
661,241
(4,363,771)
52,032
(4,311,739)
(1) FVTOCI: Fair Value Through Other Comprehensive Income.
Items above are stated net of income taxes and the related taxes are disclosed in note 10.
The accompanying notes are an integral part of the consolidated financial statements.
BRF S.A. | 2020 AND 2019 CONSOLIDATED FINANCIAL STATEMENTS F-6
(in thousands of Brazilian Reais)
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
BALANCES AT DECEMBER 31, 2017
Adoption of IFRS 9
Restatement by hyperinflation
Comprehensive income (loss) (1)
Losses 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 the year
SUB-TOTAL COMPREHENSIVE INCOME (LOSS)
Unrealized losses in marketable securities at FVTOCI (2)
Reclassification of actuarial gains (losses) - defined benefit
Appropriation of income (loss)
Absorption of losses with income reserves
Share-based payments
Loss on participation changes
BALANCES AT DECEMBER 31, 2018
Adoption of IFRS 16
Comprehensive income (loss) (1)
Gains (losses) on foreign currency translation of foreign operations
Loss on net investment hedge
Gains on marketable securities measured at FVTOCI (2)
Unrealized gains in cash flow hedge
Actuarial losses on pension and post-employment plans
Income (loss) for the year
SUB-TOTAL COMPREHENSIVE INCOME (LOSS)
Realized loss in marketable securities at FVTOCI (2)
Reclassification of actuarial gains (losses) - defined benefit
Appropriation of income (loss)
Dividends
Share-based payments
Acquisition (sale) of non-controlling interests
BALANCES AT DECEMBER 31, 2019
Income
reserves
Attributed to controlling shareholders
Other comprehensive income (loss)
Paid-in capital
Capital
reserve
Treasury
shares
Legal
reserve
Accumulated
foreign
currency
translation
adjustments
Marketable
securities at
FVTOCI
Gain (losses)
on cash flow
hedge
Actuarial
losses
Retained
earnings
(losses)
Total equity
Non-controlling
interest
Total
shareholders'
equity
(consolidated)
12,460,471
115,097
(71,483)
101,367
(766,959)
(56,258)
(572,152)
(9,872)
-
11,200,211
512,571
11,712,782
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(101,367)
477
(220)
14,807
-
-
-
14,144
-
-
-
-
-
-
-
(106,168)
-
-
-
-
-
-
-
175,987
-
-
14,144
(106,168)
175,987
-
-
-
-
-
-
63,975
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
327
-
327
-
(18,543)
-
-
-
-
12,460,471
115,354
(56,676)
-
-
-
-
-
-
-
-
-
-
-
-
-
12,460,471
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(6,861)
18,437
84,352
192,845
-
(38,239)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(752,815)
(98,451)
(396,165)
(28,088)
(4,279,003)
6,287
6,287
-
626,254
(66,818)
-
-
-
-
559,436
-
-
-
-
-
(193,379)
-
-
-
50,412
-
-
-
50,412
52,493
-
-
-
-
4,454
-
-
-
-
39,444
-
-
-
-
-
-
-
(118,123)
-
39,444
(118,123)
-
-
-
-
-
-
(30,612)
-
-
-
(356,721)
(176,823)
(4,131,913)
(17,087)
130,210
(17,087)
130,210
-
-
-
-
14,144
(106,168)
175,987
327
2,547
-
70,217
-
-
-
(14,540)
130,210
84,361
(106,168)
175,987
327
(4,448,061)
(4,448,061)
(18,185)
(4,466,246)
(4,448,061)
(4,363,771)
52,032
(4,311,739)
(63,975)
18,543
-
101,367
-
-
-
-
-
-
-
162,684
162,684
(52,493)
30,612
-
-
-
-
-
-
-
15,284
(220)
6,964,627
626,254
(66,818)
50,412
39,444
(118,123)
162,684
693,853
-
-
-
11,576
84,352
7,760,695
-
-
-
-
-
-
567,150
-
(30,666)
-
-
-
(1,786)
(160)
(32,612)
-
-
(4,988)
-
(276,824)
252,726
-
-
-
15,284
(220)
7,531,777
6,287
595,588
(66,818)
50,412
39,444
(119,909)
162,524
661,241
-
-
(4,988)
11,576
(192,472)
8,013,421
(1) All changes in other comprehensive income are presented net of taxes.
(2) FVTOCI: Fair Value Through Other Comprehensive Income.
The accompanying notes are an integral part of the consolidated financial statements.
BRF S.A. | 2020 AND 2019 CONSOLIDATED FINANCIAL STATEMENTS F-7
(in thousands of Brazilian Reais)
BALANCES AT DECEMBER 31, 2019
Comprehensive income (loss) (1)
Gains (losses) on foreign currency translation of foreign operations
Loss on net investment hedge
Gains on marketable securities measured at FVTOCI (2)
Unrealized losses in cash flow hedge
Actuarial gains (losses) on pension and post-employment plans
Income for the year
SUB-TOTAL COMPREHENSIVE INCOME (LOSS)
Reclassification of actuarial gains (losses) - defined benefit
Appropriation of income (loss)
Dividends
Share-based payments
Acquisition (sale) of non-controlling interests (3)
Acquisition of treasury shares
BALANCES AT DECEMBER 31, 2020
Attributed to controlling shareholders
Other comprehensive income (loss)
Paid-in capital
Capital
reserve
Treasury
shares
Accumulated
foreign
currency
translation
adjustments
Marketable
securities at
FVTOCI
Gain (losses)
on cash flow
hedge
Actuarial
losses
Retained
earnings
(losses)
Total equity
Non-controlling
interest
Total
shareholders'
equity
(consolidated)
12,460,471
192,845
(38,239)
(193,379)
4,454
(356,721)
(176,823)
(4,131,913)
7,760,695
252,726
8,013,421
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
180
(50,945)
-
12,460,471
142,080
-
-
-
-
-
-
-
-
-
20,371
-
(106,070)
(123,938)
(207,734)
(277,856)
-
-
-
-
(485,590)
-
-
-
-
-
(678,969)
-
-
2,562
-
-
-
2,562
-
-
-
-
-
7,016
-
-
-
(81,500)
-
-
(81,500)
-
-
-
-
-
-
-
-
-
7,589
-
7,589
(19,393)
-
-
-
-
-
-
-
-
-
1,518,492
1,518,492
19,393
-
-
-
-
(438,221)
(188,627)
(2,594,028)
(207,734)
(277,856)
2,562
(81,500)
7,589
1,518,492
961,553
-
-
20,551
(50,945)
(106,070)
8,585,784
28,308
-
-
-
(468)
6,505
34,345
-
(4,458)
-
(54,863)
-
227,750
(179,426)
(277,856)
2,562
(81,500)
7,121
1,524,997
995,898
-
(4,458)
20,551
(105,808)
(106,070)
8,813,534
(1) All changes in other comprehensive income are presented net of taxes.
(2) FVTOCI: Fair Value Through Other Comprehensive Income.
(3) Acquisition of remaining participation in the subsidiary Al-Wafi (note 1.1).
The accompanying notes are an integral part of the consolidated financial statements.
BRF S.A. | 2020 AND 2019 CONSOLIDATED FINANCIAL STATEMENTS F-8
(in thousands of Brazilian Reais)
CONSOLIDATED STATEMENT OF CASH FLOWS
OPERATING ACTIVITIES
Income (loss) from continuing operations
Adjustments for:
Depreciation and amortization
Depreciation and depletion of biological assets
Result on disposal of property, plant and equipments and investment
Write-down of inventories to net realizable value
Provision for tax, civil and labor risks
Impairment
Income from investments under the equity method
Financial results, net
Tax recoveries and gains in tax lawsuits
Deferred income tax
Employee profit sharing
Other
Trade accounts receivable
Inventories
Biological assets - current
Trade accounts payable
Supply chain finance
Cash generated by operating activities
Investments in securities at FVTPL (1)
Redemptions of securities at FVTPL (1)
Interest received
Dividends and interest on shareholders' equity received
Payment of tax, civil and labor provisions
Payment of interest
Derivative financial instruments
Payment of income taxes
Other operating assets and liabilities
Net cash provided by operating activities
Net cash applied by operating activities from discontinued operations
Net cash provided by operating activities
INVESTING ACTIVITIES
Investments in securities at amortized cost
Redemptions of securities at amortized cost
Investments in securities at FVTOCI (2)
Redemptions of securities at FVTOCI (2)
Redemption of restricted cash
Additions to property, plant and equipment
Additions to biological assets - non-current
Proceeds from disposals of property, plant, equipments and investment
Additions to intangible assets
Sale of participation in subsidiaries wirh loss of control
Sale (acquisition) of participation in joint ventures and subsidiaries
Net cash provided by (used in) investing activities
Net cash used in investing activities from discontinued operations
Net cash provided by (used in) investing activities
FINANCING ACTIVITIES
Proceeds from debt issuance
Repayment of debt
Treasury shares acquisition
Acquisition of non-controlling interests
Payment of lease liabilities
Net cash provided by (used in) financing activities
Net cash provided by (used in) financing activities from discontinued operations
Net cash provided by (used in) financing activities
EFFECT OF EXCHANGE RATE VARIATION ON CASH AND CASH EQUIVALENTS
Net increase (decrease) in cash and cash equivalents
Balance at the beginning of the year
Balance at the end of the year
(1) FVTPL: Fair Value Through Profit and Loss.
(2) FVTOCI: Fair Value Through Other Comprehensive Income.
12.31.20
12.31.19
12.31.18
1,524,997
1,078,333
(2,114,506)
1,517,402
876,976
40,220
122,082
319,237
10,160
-
1,698,995
(379,087)
(250,136)
283,065
61,185
5,825,096
(481,192)
(2,622,702)
(524,414)
2,154,693
620,232
4,971,713
-
102,172
87,334
-
(269,820)
(1,421,539)
923,709
(155)
24,216
4,417,630
-
4,417,630
-
-
-
26,352
285,672
(804,609)
(1,006,222)
126,540
(96,181)
38,546
(1,087)
(1,430,989)
-
(1,430,989)
1,503,039
798,239
15,402
149,517
836,357
22,927
1,737
1,865,399
(1,218,993)
(290,094)
269,755
239,540
5,271,158
(182,126)
(130,646)
(94,087)
(392,533)
(31,760)
4,440,006
(92,911)
39,189
180,686
15,551
(564,342)
(1,290,853)
(325,486)
(98)
228,722
2,630,464
(109,234)
2,521,230
(15,362)
95,638
-
264,965
599,847
(417,165)
(837,930)
1,879,220
(64,320)
-
(3,005)
1,501,888
(58,782)
1,443,106
962,677
784,524
51,004
352,164
214,439
-
(17,715)
2,241,474
(263,327)
(340,144)
59,518
62,768
1,992,876
992,512
(226,046)
(50,093)
(1,051,368)
170,940
1,828,821
(273,678)
143,669
177,299
3,606
(168,824)
(1,147,351)
(111,981)
(737)
(22,440)
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)
10,420,333
(10,247,359)
(106,070)
(100,390)
(553,556)
(587,042)
-
(587,042)
939,241
3,338,840
4,237,785
7,576,625
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
The accompanying notes are an integral part of the consolidated financial statements.
BRF S.A. | 2020 AND 2019 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. | 2020 AND 2019 CONSOLIDATED FINANCIAL STATEMENTS
F-10
1.1.
Equity interest
Entity
BRF GmbH
BRF Foods LLC
Main activity
% equity interest
Country (1)
12.31.20
12.31.19
Holding
Import, industrialization and commercialization of products
Austria
Russia
BRF Global Company Nigeria Ltd.
BRF Global Company South Africa Proprietary Ltd.
Marketing and logistics services
Administrative, marketing and logistics services
BRF Global Company Nigeria Ltd.
Marketing and logistics services
BRF Global GmbH
BRF Foods LLC
BRF Japan KK
BRF Korea LLC
BRF Shanghai Management Consulting Co. Ltd.
BRF Shanghai Trading Co. Ltd.
BRF Singapore Foods PTE Ltd.
BRF Hungary LLC
Compañía Paraguaya Comercial S.A.
Eclipse Holding Cöoperatief U.A.
Buenos Aires Fortune S.A.
Eclipse Latam Holdings
Buenos Aires Fortune S.A.
Perdigão Europe Lda.
Perdigão International Ltd.
BFF International Ltd.
Highline International
Sadia Overseas Ltd.
ProudFood Lda
Sadia Chile S.A.
BRF Global Namíbia
Wellax Food Logistics C.P.A.S.U. Lda.
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
Eclipse Holding Cöoperatief U.A.
Establecimiento Levino Zaccardi y Cia. S.A.
BRF Energia S.A.
BRF Pet S.A.
PP-BIO Administração de bem próprio S.A.
PR-SAD Administração de bem próprio S.A.
ProudFood Lda
PSA Laboratório Veterinário Ltda.
Sino dos Alpes Alimentos Ltda.
Sadia Alimentos S.A.
(c)
(g)
(n)
(o)
(f)
(h)
(e)
(k)
(b)
(d)
(a)
(a)
(a) (l)
Holding and trading
Import, industrialization and commercialization of products
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
Holding
Holding
Holding
Holding
Import, export of products and administrative services
Import and export of products
Financial fundraising
Financial fundraising
Financial fundraising
Nigeria
South Africa
Nigeria
Austria
Russia
Japan
Korea
China
China
Singapore
Hungary
Paraguay
The Netherlands
Argentina
Spain
Argentina
Portugal
Cayman Island
Cayman Island
Cayman Island
Cayman Island
Import and commercialization of products
Import, export and commercialization of products
Import and commercialization of products
Import, commercialization of products and administrative
services
Holding
Holding
Import, export, industrialization and commercialization of
products
Holding
Angola
Chile
Namibia
Portugal
Austria
UAE
UAE
UAE
Import and commercialization of products
Import, commercialization and distribution of products
Saudi Arabia
Kuwait
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
Austria
Oman
Malaysia
Austria
Austria
Turkey
Turkey
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
Holding
Romania
The Netherlands
UAE
Romania
Malaysia
UAE
Qatar
Hong Kong
The Netherlands
Industrialization and commercialization of dairy products
Argentina
Commercialization of eletric energy
Industrialization, commercialization and distribution of feed
and nutrients for animals
Management of assets
Management of assets
Import and commercialization of products
Veterinary activities
(a)
Industrialization and commercialization of products
Holding
Brazil
Brazil
Brazil
Brazil
Angola
Brazil
Brazil
Argentina
100.00
100.00
99.90
99.00
99.90
99.00
100.00
100.00
1.00
1.00
100.00
100.00
0.10
0.10
100.00
100.00
100.00
100.00
100.00
100.00
-
-
99.99
4.36
100.00
95.64
100.00
100.00
-
-
-
90.00
40.00
-
100.00
100.00
100.00
100.00
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
100.00
100.00
100.00
49.00
49.00
100.00
100.00
75.00
100.00
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
0.01
99.99
100.00
100.00
75.00
75.00
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
0.01
99.94
100.00
100.00
100.00
33.33
33.33
10.00
99.99
99.99
43.10
33.33
33.33
10.00
99.99
99.99
43.10
BRF S.A. | 2020 AND 2019 CONSOLIDATED FINANCIAL STATEMENTS
F-11
Entity
Sadia Chile S.A.
Sadia International Ltd.
Sadia Chile S.A.
Sadia Uruguay S.A.
Sadia Uruguay S.A.
Sadia Alimentos S.A.
Compañía Paraguaya Comercial S.A.
Vip S.A. Empreendimentos e Participações Imobiliárias
Establecimiento Levino Zaccardi y Cia. S.A.
PSA Laboratório Veterinário Ltda.
Sino dos Alpes Alimentos Ltda.
(1) UAE – United Arab Emirates.
Main activity
(j)
(j)
(i)
(i)
(g)
Import, export and marketing of products
Import and commercialization of products
Import, export and marketing of products
Import and commercialization of products
Import and commercialization of products
Holding
Import and commercialization of products
Commercialization of owned real state
(a) (m)
(a)
Industrialization and commercialization of dairy products
Veterinary activities
Industrialization and commercialization of products
Country (1)
Chile
Cayman Island
Chile
Uruguay
Uruguay
Argentina
Paraguay
Brazil
Argentina
Brazil
Brazil
% equity interest
12.31.20
12.31.19
60.00
100.00
-
-
100.00
56.90
-
100.00
0.01
0.01
0.01
-
100.00
60.00
5.10
94.90
56.90
1.00
100.00
0.06
0.01
0.01
a) Dormant subsidiaries. The Company is evaluating the liquidation of these subsidiaries.
b) On April 21, 2020, Badi Ltd. acquired the non-controlling portion of Al-Wafi Al-Takamol International for Foods Products by the amount
equivalent to R$100,390 (USD 19,000).
c) On June 10, 2020, BRF Hungary LLC was dissolved.
d) On June 24, 2020, BRF Foods GmbH sold all shares held in FFM Further Processing Sdn. Bhd. to FFM Berhad for the amount equivalent
to R$38,546 (USD7,350). The amount received is presented in the Investing Activities on the Statement of Cash Flows.
e) On July 8, 2020, Sadia Overseas Ltd. was liquidated.
f) On October 22, 2020 the subsidiary BFFI International Ltd. was dissolved.
g) On November 3, 2020 the subsidiary Compañía Paraguaya Comercial S.A. was dissolved.
h) On November 5, 2020 the subsidiary Highline International was dissolved.
i) On November 10, 2020 Sadia International Ltd. sold to BRF S.A. the participation of 50% held in Sadia Uruguay S.A.
j) On November 10, 2020 Sadia International Ltd. sold to BRF S.A. the participation of 60% held in Sadia Chile S.A.
k) On November 11, 2020 the subsidiary BRF Global Namíbia was dissolved.
l) On December 3, 2020, BRF S.A. became owner of 99.99% of Establecimiento Levino Zaccardi y Cia. S.A.
m) On December 3, 2020, Vip S.A. Empreendimentos e Participações Imobiliárias became owner of 0.01% of Establecimiento Levino
Zaccardi y Cia. S.A.
n) On December 17, 2020, Eclipse Holding Cöoperatief U.A. became owner of 4.36% of Buenos Aires Fortune S.A.
o) On December 17, 2020, Eclipse Latam Holdings became owner of 95.64% of Buenos Aires Fortune S.A.
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 owned by non-controlling shareholders in Al-Wafi Al-Takamul International Company
for Food Products Limited (“Al-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 (USD19,000), at which point Al-Wafi became a wholly-owned subsidiary of Badi Limited. The amount
paid is presented in the Financing Activities on the Statement of Cash Flows and the difference between the
amount paid and the book value of the participation in the subsidiary was recorded in Capital Reserves, in the
amount of R$50,945.
On May 07, 2020, the Company executed a share purchase agreement with Hungry Bunny Limited and others,
establishing the terms and conditions for the acquisition of 100% of the capital stock of Joody Al Sharqiya Food
Production Factory, a food processing company in Saudi Arabia. The transaction closed on January 18, 2021
(note 34.1).
On December 17, 2020 the Company executed a share purchase agreement with Aaylex System Group S.A.
providing for the terms and conditions for the sale of 100% of the shares held in Banvitfoods SRL by the amount
equivalent to R$129,471 (EUR 20,300). The requirements for the classification of the investment as held for sale
were met (note 3.9) and all assets, in the amount of R$151,189, and liabilities related to this subsidiary, in the
amount of R$21,718, were reclassified to Assets Held for Sale and Liabilities Directly Associated with Assets Held
for Sale, and were measured at the lower of the book value and the fair value less costs to sell. Such
measurement resulted in an impairment of R$55,242, recorded in Other Operating Income (Expenses). The
results and cash flow of this subsidiary remain classified under the Continuing Operations of the Company since
the subsidiary does not represent a separate major line of business or geographic area of operations.
Except for the associates PP-BIO and PR-SAD in which the Company records the investments by the equity
method, all other entities presented in the table above were consolidated.
BRF S.A. | 2020 AND 2019 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.
The main impacts observed as result of the referred investigations were recorded in Other Operating Expenses
in the amount of R$28,004 for the year ended on December 31, 2020 (R$79,207 for the year ended on December
31, 2019) mostly related to expenditures with lawyers, legal advisors and consultants.
In addition to the impacts already recorded, there are uncertainties about the outcome of these investigations
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.
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. Since then, the appeal is being analyzed by the Federal Regional Court of the 4th region. No changes
related to the judgements given on September 28, 2018 occurred during 2019 and 2020.
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 February 25, 2021, the SEC Division of Enforcement issued a letter to the Company stating that it has
concluded its investigation and, based on information to date, does not intend to recommend an enforcement
action by the SEC against the Company.
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 Mineiros/GO plants to 12 countries
that require specific sanitary requirements for the control of the bacteria group Salmonella spp and Salmonella
pullorum.
BRF S.A. | 2020 AND 2019 CONSOLIDATED FINANCIAL STATEMENTS
F-13
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.
No decision related to the charges above occurred during 2020.
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. As well as for
Carne Fraca operation the letter issued by the SEC Division of Enforcement on February 25, 2021, stated that
it has concluded its investigation and, based on information to date, does not intend to recommend an
enforcement action by the SEC against the Company.
1.2.3. Governance enhancement
The Company has been taking actions to strengthen the compliance with its policies, procedures and internal
controls.
The Company believes that its efforts strengthens and consolidates 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 improvement 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 the Company, some of its former
managers and one current officer before the United States Federal District Court in the city of New York, on
behalf of holders of American Depositary Receipts (“ADR”) between April 4, 2013 and March 5, 2018. The suit
alleged violations of the federal securities laws of the United States related to allegations concerning, among
other matters, Carne Fraca Operation and Trapaça Operation. On July 2, 2018, that Court appointed the City
of Birmingham Retirement and Relief System lead plaintiff in the action. On October 25, 2019, the Court granted
to the lead plaintiff leave to file a Fourth Amended Complaint, which was filed on November 8, 2019. On
December 13, 2019, the served defendants, including the Company, filed a motion to dismiss. On January 21,
2020, the Lead Plaintiff filed its opposition motion and, on February 11, 2020, the defendants filed a response.
On March 27, 2020, the parties reached an agreement to settle this class action by the payment of an amount
equivalent to R$204,436 (USD40,000), to resolve all pending and prospective claims by individuals or entities
which purchased or otherwise acquired BRF’s ADRs between April 4, 2013 and March 5, 2018. Since this event
evidenced an existing condition as of December 31, 2019, the settlement was reflected in Other Operating
Expenses (note 26), with a corresponding increase in deferred income tax of R$69,508 (note 10) in the year
ended on December 31, 2019.
On May 27, 2020, the amount was transferred to an escrow account in the name of the lawyers of the lead
plaintiff. On October 23, 2020, the agreement was approved by the United States District Court for the Southern
District of New York. The agreement does not constitute any admission of liability or wrongdoing by BRF or its
BRF S.A. | 2020 AND 2019 CONSOLIDATED FINANCIAL STATEMENTS
F-14
executives and expressly provides that BRF denies any misconduct or that any plaintiff has suffered any damages
or was harmed by any conduct alleged in this action.
The Company is subject to the reporting requirements established by the Brazilian Corporation Law and the
regulations of the Securities and Exchange Commission of Brazil (Comissão de Valores Mobiliários, or “CVM”).
The liability of this class action lawsuit was not recognized in the financial statements filed with the CVM for the
year ended on December 31, 2019, which were filed on March 3, 2020. Therefore, the class action lawsuit was
recognized in the financial statements filed with the CVM for the year ended on December 31, 2020. The main
differences between these consolidated financial statements and those filed with the CVM, resulting from this
event, are disclosed below.
As filed with the CVM
12.31.20
12.31.19
Adjustment for class
action settlement
12.31.19
12.31.20
As filed with the SEC
12.31.20
12.31.19
Corresponding
notes
12.31.20
Statement of income (loss)
Other operating income (expenses), net
Income taxes
Net income from continuing operations
(254,178)
242,271
1,390,069
428,820
125,887
1,213,261
204,436
(69,508)
134,928
(204,436)
69,508
(134,928)
(49,742)
172,763
1,524,997
224,384
195,395
1,078,333
24 and 26
10
22
Statement of Financial Position
814,638
Other current liabilities
Deferred income taxes
2,109,064
(2,594,028)
Accumulated losses
Total assets and total liabilities and equity 49,664,906
512,591
1,845,862
(3,996,985)
41,700,631
-
-
-
-
204,436
69,508
(134,928)
69,508
814,638
2,109,064
(2,594,028)
49,664,906
717,027
1,915,370
(4,131,913)
41,770,139
-
10
21.3
-
1.4.
Coronavirus (COVID-19)
On January 31, 2020 the World Health Organization announced that the COVID-19 is a global health emergency
and on March 11, 2020 declared it a global pandemic. The outbreak has triggered significant decisions from
governments and private sector entities, which in addition to the potential impact, increased the uncertainty
level for the economic agents and may cause effects in the amounts recognized in the financial statements.
BRF continues to operate its industrial complexes, distribution centers, logistics, supply chain and administrative
offices, even if temporarily and partially under remote work regime in some of the corporate offices. Therefore,
until the date of approval of these financial statements, there has been no relevant change in its production
plan, operation and/or commercialization. Additionally, 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.
Due to the pandemic, the Company has incurred in direct expenditures, such as transportation, personnel,
prevention, control and donations, which are presented in the statement of income (loss) within the following
line items:
Cost of sales (1)
Selling expenses
General and administrative expenses
12.31.20
(356,960)
(56,307)
(86,032)
(499,299)
(1)
Includes non-incremental expenditures related do idleness in the amount of R$55,926.
Aiming to preventively strengthen its liquidity level, the Company contracted and withdrew credit facilities with
financial institutions in Brazil in the aggregate amount of R$2,429,211 and average term of approximately one
year, without any financial covenant clause. During July and August of 2020, the Company prepaid part of the
referred credit facilities in the aggregated notional and interest amount of R$2,094,555 (note 14.5).
The management considered in its projections of results and cash flows, to the best of its knowledge, the effects
and uncertainties regarding the pandemic. As described in note 13.1 no impairment was recognized to the cash
generating units. Due to the high volatility and uncertainty around the length and the impact of the pandemic,
BRF S.A. | 2020 AND 2019 CONSOLIDATED FINANCIAL STATEMENTS
F-15
the Company will continue to monitor the situation and evaluate the impacts on assumptions and estimates
used in preparing our financial reporting.
2. BASIS OF PREPARATION AND PRESENTATION OF FINANCIAL STATEMENTS
The consolidated financial statements were prepared in accordance with the International Financial Reporting
Standards - IFRS issued by the International Accounting Standards Board - IASB. All the relevant information
applicable to the financial statements, and only them, are being evidenced and correspond to those used by
administration in its management.
The consolidated financial statements are expressed in thousands of Brazilian Reais (“R$”), unless otherwise
stated. For disclosures of amounts in other currencies, the values were also expressed in thousands, unless
otherwise stated.
The preparation of the consolidated 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 instances where the fair value is lower than historical cost.
The Company prepared 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.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
3.1.
Consolidation
The consolidated financial statements include BRF and the subsidiaries (note 1.1) of which BRF has direct or
indirect control, obtained when the Company is exposed to or has right to variable returns of such subsidiaries
and has the power to influence these returns.
The financial information of the subsidiaries was prepared using the same accounting policies of the 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 18);
» transfer of control for revenue recognition (note 25);
BRF S.A. | 2020 AND 2019 CONSOLIDATED FINANCIAL STATEMENTS
F-16
» probability of exercise of a renewal option or anticipated termination of the lease agreements (note
17).
Main estimates:
» fair value of financial instruments (note 23);
» annual assessment of impairment of non-financial assets (note 13);
» expected credit losses (note 6);
» write-down of inventories to net realizable value (note 7);
» fair value of biological assets (note 8);
» annual assessment of recoverability of taxes (note 9 and 10);
» useful lives of property, plant, equipment and intangible assets with definite useful life (note 12 and
13);
» employee benefits (note 19);
» provision for tax, civil and labor risks (note 20);
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;
» income and expenses are translated at the monthly average rate;
» the cumulative effects of gains or losses upon translation are recognized in Other Comprehensive
Income, within equity.
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 income 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.
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 2020 and 2019 were, respectively, 34.04% and 53.46%.
3.5.
Business combination
Business combinations are recorded 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
BRF S.A. | 2020 AND 2019 CONSOLIDATED FINANCIAL STATEMENTS
F-17
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 over 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.
The IFRS 3 has changed the definition of a business, applicable from January 01, 2020. This change did not
generate impacts in accounting practices nor the consolidated financial statements of Company.
3.6.
Inventories
Inventories are measured at the lower of the average cost of acquisition or 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. Write-down to net realizable value due to obsolescence, impaired items, slow-moving and realizable
value through sale are evaluated and recorded in each reporting period, as appropriate. Normal production
losses are included in the production cost for the respective month, while abnormal losses, if any, are expensed
in Cost of sales without movement through inventories.
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 considered.
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 unused tax losses carried forward and negative CSLL base, as
well as temporary differences between the tax and accounting bases. Deferred income tax 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).
Deferred tax assets and liabilities are presented net if there is 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.
In compliance with the interpretation IFRIC 23, 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
BRF S.A. | 2020 AND 2019 CONSOLIDATED FINANCIAL STATEMENTS
F-18
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 periodically evaluates 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
Assets held for sale 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 Operating Expenses.
The statement of income and cash flows are classified as discontinued operations and presented separately from
continued operations of the Company when the operation represents a separate major line of business or
geographical area of operations.
The prior periods of the statement of income (loss) and of the statement of cash flows are restated for
comparative purposes. The statement of financial position remains as disclosed in prior periods.
3.10.
Investments
Investments classified in this group are: 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
Property, plant and equipment are measured by the cost of acquisition, formation, construction or dismantling,
less accumulated depreciation. Loans and borrowings costs are recorded as part of the costs of property, plant
and equipment in progress, considering the weighted average rate of loans and borrowings 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 13).
Gains and losses on disposal 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 operating
income (expense).
3.12.
Intangible assets
Acquired intangible assets are measured at cost at initial recognition, while those arising from a business
combination are recognized at fair value on the acquisition date. After initial recognition, are presented at cost
less accumulated amortization and impairment losses, when applicable. Internally generated intangible assets,
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 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.
BRF S.A. | 2020 AND 2019 CONSOLIDATED FINANCIAL STATEMENTS
F-19
Intangible assets with indefinite useful lives are not amortized, but are tested annually for impairment, being
allocated to the cash-generating units (note 13). The Company records in this subgroup mainly goodwill and
brands, which are expected to contribute indefinitely to its cash flows.
3.13. Contingent assets
Contingent assets are possible assets to which 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
A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for
a period of time in exchange for consideration. The Company assesses 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
throughout the period of use; and
» the Company has the right to direct the use of the asset throughout the period of use, which occurs in
either of the following situations:
o the Company has the right to direct how and for what purpose the asset is used, or
o the conditions are predetermined so as the Company has the right to operate the asset or has
designed the asset in a way that predetermined 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, which
represents the obligation to make payments related to the underlying asset of the lease.
The right-of-use asset is initially measured at cost and comprises: the initial measurement of the lease liability
adjusted for any payment made at or before the commencement date, less any incentive received; any initial
direct costs incurred; and an estimate of costs in dismantling and removing the asset, restoring the site on
which it is located or restoring the asset to the condition required by the terms of the lease. Renewal or early
termination options are analyzed individually considering the type of asset involved as well as its relevance in
the Company’s production process.
The right-of-use asset is subsequently depreciated using the straight-line method from the commencement date
until the end of the useful life of the right-of-use asset or until the end of the period of the lease. The estimated
useful life of the right-of-use asset is determined on the same methodology used for the assets owned by the
Company (note 3.11). Additionally, the right-of-use asset is adjusted by the subsequent measurement of the
lease liability and when applicable, an impairment is recognized.
The lease liability is initially measured at the present value of the future lease payments using the incremental
borrowing rate, and subsequently, measured at amortized cost using the effective interest method.
The liability is remeasured when there is a change in (i) future payments resulting from a change in index or
rate, (ii) the amount expected to be payable under a residual value guarantee, or (iii) the assessment of whether
the Company will exercise the purchase, renewal or termination option.
When the lease liability is remeasured, the corresponding adjustment is recorded in the book value of the right-
of-use asset, or in the statement of income if the book value of the right-of-use asset has been reduced to zero.
The Company does not apply lease accounting model to: leases with a term of 12 months or less and that do
not contain a purchase option; and leases for which the underlying asset is of low value. For these exemptions,
the lease payments are recognized as an expense on a straight-line basis over the lease term.
Additionally, contracts with indefinite term and no fixed payments are expensed as incurred.
The IFRS 16 has been modified for the inclusion of an optional practical expedient related to benefits granted
on lease agreements due to the COVID-19 pandemic, effective for periods beginning on or after June 1, 2020.
BRF S.A. | 2020 AND 2019 CONSOLIDATED FINANCIAL STATEMENTS
F-20
The Company was not granted benefits in leases related to the pandemic and, therefore, has not adopted this
expedient.
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 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.
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:
» date of changing the plan or significantly reducing the expected length of service;
» 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 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
BRF S.A. | 2020 AND 2019 CONSOLIDATED FINANCIAL STATEMENTS
F-21
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. The initial measurement is done by the
fair value and subsequent measurements by the higher value between: the fair value on its acquisition date;
and the amount by which the provision would be recognized.
3.19. 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.
3.19.1. Financial Assets
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 financial assets are classified and measured:
Category
Initial Measurement
Subsequent Measurement
Amortized Cost
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
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.
Interest, changes in amortized cost and
expected credit losses recognized in the
income statement.
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.
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 income statement.
The interests of financial assets are recorded on Financial Income (Expenses), net.
A financial asset is only derecognized when contractual rights expire or are effectively transferred.
Cash and cash equivalents: comprises the balances of cash, banks and securities of immediate liquidity whose
maturities, 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.
Expected credit losses in Accounts receivable from customers and other receivables: the Company regularly
assesses the historical losses on the customer portfolios it has in each region, taking in consideration the
dynamics of the markets in which it operates and instruments it has for reducing credit risks, such as: letters
BRF S.A. | 2020 AND 2019 CONSOLIDATED FINANCIAL STATEMENTS
F-22
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 well as the related
estimated credit losses. The securities are written off against the estimated loss when the Management considers
that they are no longer recoverable after taking all appropriate actions to collect them.
3.19.2. Financial liabilities
Financial liabilities are recognized when the entity becomes party to the contractual provisions of the instrument.
The initial measurement is at fair value and subsequently at amortized cost using the effective interest rate
method. The interests of financial liabilities are recorded on Financial Income (Expenses), net.
A financial liability is only derecognized when the contractual obligation expires, is settled or canceled.
3.19.3. 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 corresponds to 9.8% per year on December 31,
2020 (11.3% p.a. on December 31, 2019).
3.19.4. Hedge accounting
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 object is recognized,
adjusting the item in which the hedge object 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.
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 object is or will be
recognized. The hedge object, when designated in this relationship, is also measured at fair value.
Net investment hedge: 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
(hedge objects) 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.
3.19.5. Reference interest rate reform
The Company does not have relationship designated for hedge accounting that involve operations indexed to
the reference interest rates object from reform. Additionally, existing liabilities indexed to the reference interest
rates have contractual arrangements foreseeing the replacement for similar rates. Thus, no relevant impact is
expected for the Company if such interest rates cease to exist or are replaced.
3.20. Segment information
An operating segment is a component of the Company that develops business activities to obtain revenues and
incur expenses. The operating segments reflect the way in which the Company’s management reviews the
financial information for decision making. The Company’s management identified the operating segments, which
meet the quantitative and qualitative parameters of disclosure, pursuant its current management model (note
24).
BRF S.A. | 2020 AND 2019 CONSOLIDATED FINANCIAL STATEMENTS
F-23
3.21. Revenue from contracts with customers
Sales revenues are recognized and measured observing the following steps: (i) identification of the contracts
with customers, formalized through sales orders; (ii) identification of the performance obligations in the contract;
(iii) determination of the transaction price; (iv) allocation of the transaction price to the performance obligations
in the contract; and (v) revenue recognition as it satisfies the performance obligations.
Revenues are recognized by the amount that reflects the Company’s expectation to receive for the sale of
products, net of applicable taxes, returns, rebates and discounts.
The sales process begins with sales orders. The discounts and rebates may be negotiated on a spot basis or
may have its conditions formally defined in the agreements, generally signed with large retail and wholesale
chains. In all cases, the performance condition is satisfied when the control of the goods is transferred to the
client.
The Company has sales with immediate and deferred payments, for which the adjustment to present value is
recognized for the financial component (note 3.19.3).
3.22. Government grants
Government grants are recognized at fair value when there is reasonable assurance that the conditions
established will be met and the benefit will be received. The amounts appropriated as revenue in the income
statement, when used to reduce income taxes, are transferred from retained earnings to the tax incentive
reserve in the years the Company presents profit higher than the reclassification.
3.23. Earnings (loss) per share
The basic earnings (losses) per share are calculated by dividing the earnings (losses) attributable to the owners
of ordinary shares, by the weighted average quantity of available ordinary shares during the year.
The diluted earnings (losses) per share are calculated by dividing the earnings (losses) attributable to the owners
of ordinary shares by the weighted average quantity of available ordinary shares during the year summed to
the weighted average quantity of ordinary shares that would be available on the conversion of all potential
dilutive ordinary shares (stock options and restricted shares within the share-based payment plans).
The stock options shall only be considered dilutive when the strike price is lower than the current share price.
BRF S.A. | 2020 AND 2019 CONSOLIDATED FINANCIAL STATEMENTS
F-24
4. CASH AND CASH EQUIVALENTS
Cash and bank accounts
U.S. Dollar
Brazilian Reais
Euro
Other currencies
Cash equivalents
In Brazilian Reais
Investment funds
Bank deposit certificates
In U.S. Dollar
Term deposit
Overnight
Other currencies
Term deposit
(1) Weighted average annual rate.
5. MARKETABLE SECURITIES
Fair value through other comprehensive
income
Credit linked note
Stocks
Fair value through profit and loss
Financial treasury bills
Investment funds - FIDC BRF
Investment funds
Amortized cost
Average rate (1)
12.31.20
12.31.19
-
-
-
-
0.05%
1.86%
0.71%
0.07%
-
1,185,208
112,181
54,687
1,086,996
2,439,072
4,684
3,662,448
3,667,132
198,878
1,220,232
51,311
1,470,421
7,576,625
1,356,128
167,051
71,626
694,982
2,289,787
3,507
879,758
883,265
270,714
689,874
104,145
1,064,733
4,237,785
WAM (1) Currency
Average rate (2)
12.31.20
12.31.19
-
-
3.39
2.96
-
USD
HKD
R$
R$
ARS
-
-
-
-
1.90%
-
42,029
42,029
312,515
15,044
1,643
329,202
287,504
658,735
314,158
344,577
19,285
26,678
45,963
396,994
14,891
1,903
413,788
265,783
725,534
418,182
307,352
Sovereign bonds and others (3)
2.33
AOA
3.82%
Current
Non-current (4)
(1) Weighted average maturity in years.
(2) Weighted average annual rate.
(3)
It’s comprised of private securities and sovereign securities of the Angola Government and are presented net of expected credit losses
in the amount of R$9,894 (R$1,983 on December 31, 2019).
(4) Maturity until December of 2023.
On December 31, 2020, the amount of R$366,671 (R$100,435 on December 31, 2019) classified as cash and
cash equivalents and marketable securities were pledged as guarantee, with no use restrictions, for USD
denominated future contracts traded on B3.
BRF S.A. | 2020 AND 2019 CONSOLIDATED FINANCIAL STATEMENTS
F-25
6. TRADE ACCOUNTS RECEIVABLE AND OTHER RECEIVABLES
Trade accounts receivable
Domestic customers
Foreign customers
( - ) Adjustment to present value
( - ) Expected credit losses
Current
Non-current
Other receivables
Other receivables
( - ) Adjustment to present value
( - ) Expected credit losses
Current
Non-current (1)
12.31.20
12.31.19
2,002,586
2,716,551
4,719,137
(13,316)
(605,940)
4,099,881
4,092,855
7,026
113,949
(156)
(27,389)
86,404
43,566
42,838
1,336,762
2,215,050
3,551,812
(10,121)
(503,848)
3,037,843
3,031,046
6,797
153,799
(1,936)
(27,986)
123,877
59,645
64,232
(1) Weighted average maturity of 2.26 years.
The Company performs credit assignments with no right of return to the BRF Clients’ Credit Rights Investment
Fund (“FIDC BRF“), which has the sole purpose to acquire credit rights arising from commercial transactions
carried out between the Company and its clients in Brazil. On December 31, 2020, FIDC BRF had an outstanding
balance of R$549,083 (R$730,251 on December 31, 2019) related to such credit rights, which are no longer
recorded in the Company’s statement of financial position.
On December 31, 2020, other receivables are mainly represented by receivables from the sale of farms and
various properties, with a balance of R$78,258 (R$109,419 on December 31, 2019).
The movements of the expected credit losses are presented below:
Beginning balance
(Additions) Reversals
Write-offs
Exchange rate variation
Ending balance
The aging of trade accounts receivable is as follows:
Not overdue
Overdue
01 to 60 days
61 to 90 days
91 to 120 days
121 to 180 days
181 to 360 days
More than 360 days
( - ) Adjustment to present value
( - ) Expected credit losses
12.31.20
(503,848)
(12,137)
19,451
(109,406)
(605,940)
12.31.19
(508,848)
(23,899)
44,039
(15,140)
(503,848)
12.31.20
12.31.19
4,010,140
2,820,308
104,195
6,045
398
7,024
15,688
575,647
(13,316)
143,303
19,409
3,723
3,934
20,748
540,387
(10,121)
(605,940)
4,099,881
(503,848)
3,037,843
BRF S.A. | 2020 AND 2019 CONSOLIDATED FINANCIAL STATEMENTS
F-26
7.
INVENTORIES
Finished goods
Work in progress
Raw materials
Packaging materials
Secondary materials
Supplies
Imports in transit
Other
(-) Adjustment to present value
12.31.20
12.31.19
3,610,585
192,335
2,046,681
92,256
531,801
207,033
107,829
94,816
2,257,119
149,470
803,520
60,715
375,744
205,399
61,021
19,266
(80,577)
6,802,759
(44,338)
3,887,916
The movements in the write-down of inventories to the net realizable value, for which the additions, reversals
and write-offs were recorded against Cost of Sales, are presented in the table below:
Beginning balance
Additions
Reversals
Write-offs
Exchange rate variation
Ending balance
Realizable value
through sale
12.31.19
12.31.20
Impaired inventories
12.31.20
12.31.19
Obsolete inventories
12.31.20
12.31.19
12.31.20
(10,712)
(106,357)
85,816
-
98
(31,155)
(65,490)
(81,988)
95,881
41,156
(271)
(10,712)
(42,526)
(60,586)
(14,919)
(12,029)
(68,157)
(91,237)
(153,881)
(10,304)
(9,529)
(207,898)
-
-
-
104,115
171,637
10,688
(183)
(29,831)
304
(42,526)
(184)
(14,719)
-
6,360
279
(14,919)
85,816
114,803
(269)
(75,705)
Total
12.31.19
(138,105)
(245,398)
95,881
219,153
312
(68,157)
BRF S.A. | 2020 AND 2019 CONSOLIDATED FINANCIAL STATEMENTS
F-27
8. BIOLOGICAL ASSETS
The live animals are represented by poultry and pork and segregated into consumables and animals for production. The rollforward of the biological assets are
presented below:
Poultry
Live animals
Pork
Current
Live animals
Non-current
Total
Poultry
Pork
Forests
Total
12.31.20
12.31.19
12.31.20
12.31.19
12.31.20
12.31.19
12.31.20
12.31.19
12.31.20
12.31.19
12.31.20
12.31.19
12.31.20
12.31.19
Beginning balance
Additions/Transfer
Changes in fair value (1)
Harvest
Write-off
Transfer between current and non-current
Transfer to assets held for sale
Transfer to inventories
Exchange variation
Ending balance
615,685
9,705,994
2,059,397
-
-
57,164
582,853
3,456,921
1,564,807
-
-
49,250
987,354
7,108,084
930,280
3,545,494
1,603,039
16,814,078
368,019
-
-
91,574
209,084
-
-
77,155
2,427,416
-
-
148,738
1,513,133
7,002,415
1,773,891
-
-
126,405
-
(11,571,369)
1,557
868,428
-
(5,033,965)
(4,181)
615,685
-
(7,294,449)
-
1,260,582
-
(3,774,659)
-
987,354
-
(18,865,818)
1,557
2,129,010
-
(8,808,624)
(4,181)
1,603,039
414,668
71,494
51,660
-
-
(57,164)
(10,389)
-
1,784
472,053
381,236
94,055
(6,516)
-
-
(49,250)
-
-
(4,857)
414,668
337,804
363,027
(184,005)
-
-
(91,574)
-
-
-
425,252
317,185
272,677
(174,903)
-
-
(77,155)
-
-
-
337,804
328,553
38,536
21,711
(59,586)
(5,099)
-
329
-
-
324,444
362,893
56,134
(28,119)
(48,890)
(11,810)
-
(1,655)
-
-
328,553
1,081,025
473,057
1,061,314
422,866
(110,634)
(59,586)
(5,099)
(148,738)
(10,060)
-
1,784
1,221,749
(209,538)
(48,890)
(11,810)
(126,405)
(1,655)
-
(4,857)
1,081,025
(1) The change in the fair value of biological assets includes depreciation of breeders and depletion of forests in the amount of R$876,976 (R$798,239 on December 31, 2019).
BRF S.A. | 2020 AND 2019 CONSOLIDATED FINANCIAL STATEMENTS
F-28
The estimated balances and quantities of live animals are set forth below:
Consumable biological assets
Immature poultry
Immature pork
Total current
Production biological assets
Immature poultry
Mature poultry
Immature pork
Mature pork
Total non-current
12.31.20
12.31.19
Quantity
(thousand of
heads)
Book value
Quantity
(thousand of
heads)
Book value
199,877
4,204
204,081
868,428
1,260,582
2,129,010
189,602
4,098
193,700
615,685
987,354
1,603,039
7,320
11,395
203
457
19,375
223,456
188,967
283,086
93,466
331,786
897,305
3,026,315
7,042
11,554
211
455
19,262
212,962
160,415
254,253
77,027
260,777
752,472
2,355,511
The Company has forests pledged as collateral for financing and tax/civil contingencies on December 31, 2020
in the amount of R$68,381 (R$62,408 on December 31, 2019).
8.1.
Sensitivity analysis
The fair value of animals and forests is determined using unobservable inputs, using the best practices available
in the valuation circumstances, therefore it is classified in the Level 3 of the fair value hierarchy. The main
assumptions used in the measurement of the fair value of forests and their impact on measurement are
presented below.
Asset
Valuation
methodology
Forests
Income approach
Live animals
Cost approach
Non observable significant inputs
Increase
Decrease
Estimated price of standing wood
Increase in the price of wood
Decrease in the price of wood
Productivity per hectare estimated
Increase in yield per hectare
Decrease in yield per hectare
Harvest and transport cost
Discount rate
Price of the feed inputs
Storage costs
Outgrowers cost
Decrease of harvest cost
Descrease in discount rate
Increase of harvest cost
Increase in discount rate
Increase in feed cost
Decrease in feed cost
Increase in storage cost
Increase in outgrowers cost
Decrease in storage cost
Decrease in outgrowers cost
The estimated fair value can change if:
The prices used in the valuation are those practiced in the regions where the Company is located and were
obtained through market research. The discount rate corresponds to the average cost of capital and other
economic assumptions for a market participant.
The weighted average price used in the valuation of biological assets (forests) on December 31, 2020 was
equivalent to R$34.63 (thirty-four and sixty-three Reais) per stere (R$32.99 per stere on December 31, 2019).
The real discount rate used in the valuation of the biological asset (forests) on December 31, 2020 was 6.00%
p.a. (7.07% p.a. on December 31, 2019).
BRF S.A. | 2020 AND 2019 CONSOLIDATED FINANCIAL STATEMENTS
F-29
9. RECOVERABLE TAXES
The rollforward of recoverable taxes are set forth below:
Exchange
variation
12.31.20
39,832
1,568,975
Note
9.1
9.2
9.3
Note
9.4
ICMS and VAT
Recoverable ICMS and VAT
(-) Impairment
PIS and COFINS
Recoverable PIS and COFINS
(-) Impairment
IPI
Recoverable IPI
(-) Impairment
INSS
Recoverable INSS
(-) Impairment
Other taxes
Other recoverable taxes
(-) Impairment
Current
Non-current
Income taxes
Recoverable income taxes
(-) Impairment
Current
Non-current
12.31.19
Additions
Compensations
Transfers (1)
Restatement
570,056
(38,033)
729,213
-
2,319
(263)
88,621
-
11,952
-
1,363,865
1,635,663
(141,193)
2,990,313
(16,922)
848,865
(3,818)
255,967
(102)
80,145
(5,639)
5,643,279
473,732
5,169,547
(549,446)
3,022
(594,483)
2,694
(7,201)
2,097
(7,663)
-
(127,370)
21,483
-
-
(92,812)
-
-
-
(901)
(38,277)
240
-
43,056
-
57,357
-
4,893
-
-
-
-
-
-
-
-
-
7
(30)
-
39,809
3,676
(1,148,205)
-
(236,976)
105,546
12.31.19
Additions
Compensations
Transfers (1)
Restatement
Exchange
variation
58,007
-
58,007
(422,496)
-
(422,496)
-
-
-
4,341
-
4,341
37,098
-
37,098
430,778
(9,029)
421,749
152,486
269,263
(1) The transfers occur from Recoverable Taxes to Other Current Assets and Other Non-Current Assets. In the case of ICMS and VAT,
transfers occur when the credits are sold to third parties and in the case of IPI, when the government acknowledges its obligation to
pay the credit in cash to the Company.
Exchange
variation
12.31.19
(2,372)
1,635,663
Note
9.1
9.2
9.3
Note
9.4
ICMS and VAT
Recoverable ICMS and VAT
(-) Impairment
PIS and COFINS
Recoverable PIS and COFINS
(-) Impairment
IPI
Recoverable IPI
(-) Impairment
INSS
Recoverable INSS
(-) Impairment
Other taxes
Other recoverable taxes
(-) Impairment
Current
Non-current
Income taxes
Recoverable income taxes
(-) Impairment
Current
Non-current
12.31.18
Additions
Compensations
Transfers (1)
Restatement
1,632,110
(140,970)
480,007
(79,896)
(282,246)
29,755
(192,076)
49,918
2,276,859
(266,773)
(496)
992
-
-
3,123
-
11,905
-
29,321
(1,780)
2,719,043
(3,310)
-
(74,841)
-
(107,484)
2
(703,905)
(31,199)
9,744
-
-
-
-
(163,613)
946,399
(17,418)
836,676
(13,562)
307,897
(102)
155,779
(3,873)
3,702,936
560,389
3,142,547
240
-
33,828
-
43,575
-
11,004
-
-
-
88,647
-
-
-
-
-
-
2
2,529
12
171
12.31.18
Additions
Compensations
Transfers (1)
Restatement
Exchange
variation
92,270
-
92,270
(202,091)
-
(202,091)
1,027
-
1,027
17,326
-
17,326
(512)
-
(512)
522,758
(9,029)
513,729
506,483
7,246
(1) The transfers occur from Recoverable Taxes to Other Current Assets and Other Non-Current Assets. In the case of ICMS and VAT,
transfers occur when the credits are sold to third parties and in the case of IPI, when the government acknowledges its obligation to
pay the credit in cash to the Company.
BRF S.A. | 2020 AND 2019 CONSOLIDATED FINANCIAL STATEMENTS
F-30
(154,721)
3,168,099
(14,228)
808,528
(1,984)
341,825
(102)
52,889
(1,963)
5,767,318
899,120
4,868,198
12.31.20
107,728
(9,029)
98,699
43,840
54,859
(141,193)
2,990,313
(16,922)
848,865
(3,818)
255,967
(102)
80,145
(5,639)
5,643,279
473,732
5,169,547
12.31.19
430,778
(9,029)
421,749
152,486
269,263
9.1.
ICMS
Tax on Movement of Goods and Services and VAT
Value Added Taxes
As result of (i) export activity, (ii) tax benefits, (iii) sales in the domestic market subject to reduced rates; and
(iv) acquisition of property, plant and equipment, the Company generates credits that are offset against debits
arising from sales in the domestic market or transferred to third parties.
–
–
The Company has ICMS credit balances in the States of Paraná, Santa Catarina, Mato Grosso do Sul, Minas
Gerais and Amazonas, which will be realized in the short and long term, based on the recoverability study
reviewed and approved by the Management.
In other jurisdictions outside Brazil, value added taxes (VAT) are due in regular operations of the Company with
goods and services.
9.2.
PIS and COFINS
Financing
Social Integration Plan and Contribution for Social Security
–
The accumulated PIS and COFINS tax credits arise from credits on raw material purchases subsequently used
in the production of exported products or products for which sale is not taxed, such as fresh meat and margarine.
In 2020 the Company has also recognized and used extemporaneous credits on items as commercial and labor
expenses. The realization of these credits usually occurs through the compensation with debits on sales of taxed
products in the domestic market, with other federal taxes, and more recently with social security contributions,
or even, if necessary, through refund or reimbursement requests.
In the years of 2018, 2019 and 2020 the Company received unappealable judicial decisions to four processes,
granting the Company the right to exclude ICMS from the PIS and COFINS calculation basis. Such processes
comprehend, besides BRF S.A., the subsidiaries Perdigão Agroindustrial S.A., Sadia S.A. and Avipal S.A.
Avicultura e Agropecuária (later Eleva Alimentos S.A.), all incorporated by BRF S.A. The periods involved in the
processes are from September 1992 until March 2017, date from which the Company began to exclude the ICMS
from the PIS and COFINS calculation basis. The Company, supported by its consultants, obtained the fiscal files
for the period and reconciled them with the accessory obligations, measuring the credits reliably through the
ICMS presented in the invoices.
In the year of 2018, the court issued unappealable decision to the process filled by Perdigão Agroindustrial S.A.,
for which the amount of R$556,970 was recognized under Recoverable PIS and COFINS, being R$225,600 of
principal recorded in Other Operating Income and R$331,370 of interests recorded in Financial Income. In the
year of 2019, the court issued unappealable decisions to the processes filled by Sadia S.A. and BRF S.A., for
which the amount of R$2,078,610 was recognized under Recoverable PIS and COFINS, being R$1,185,386 of
principal recorded in Other Operating Income and R$893,224 of interests recorded in Financial Income.
On October 23, 2020 the Company received an unappealable judicial decision to a process filled by Eleva
Alimentos S.A., for which the amount of R$99,065 was recognized under Recoverable PIS and COFINS, being
R$40,086 of principal recorded in Other Operating Income and R$58,979 of interests recorded in Financial
Income.
As of December 31, 2020, the updated balance of the processes above is R$2,818,391 (R$2,674,629 as of
December 31, 2019). In the study prepared by the Management, its realization is estimated through offsetting
with federal taxes or through reimbursement of the amounts as expected below:
2021
2022
2023
2024
2025
2026
PIS and COFINS
479,225
328,000
537,000
672,000
377,847
424,319
2,818,391
BRF S.A. | 2020 AND 2019 CONSOLIDATED FINANCIAL STATEMENTS
F-31
9.3.
IPI - Industrialized Product Tax
The Company recognized relevant tax assets as result of gains from lawsuits related to IPI, specially “crédito
prêmio”. The balance referring to these assets on December 31, 2020 is R$860,820 (R$1,037,901 on December
31, 2019), of which R$805,001 (R$840,455 on December 31, 2019) is recorded as Recoverable Taxes and the
remainder, referring to cases in which the government will reimburse in cash, is recorded as Other Current
Assets, in the amount of R$40,370 (R$194,388 on December 31, 2019) and as Other Non-Current Assets, in the
amount of R$15,449 (R$3,058 on December 31, 2019).
In the study prepared by the Management, its realization is estimated through the refund of the amounts as
expected below:
2021
2022
2025
2026
9.4.
Income taxes
IPI
40,370
15,449
590,760
214,241
860,820
The accumulated income taxes credits arise, mostly, from withholding taxes on securities, interest and
prepayments on of income tax and social contribution in Brazil. The realization occurs by offsetting with federal
taxes and contributions.
9.5.
Realization of Brazilian federal tax credits
The Company received in cash, through refunds related to IPI credits, the amount of R$235,405 for the year
ended December 31, 2020 (null for the year ended December 31, 2019).
Additionally, the Company used PIS, COFINS, IPI, IRPJ, CSLL, INSS and other tax credits to offset other federal
taxes payable such as INSS and withholding Income Tax in the amount of R$863,604 for the year ended
December 31, 2020 (R$529,273 for the year ended December 31, 2019), preserving its liquidity and optimizing
its capital structure.
BRF S.A. | 2020 AND 2019 CONSOLIDATED FINANCIAL STATEMENTS
F-32
10. DEFERRED INCOME TAXES
10.1. Composition
Assets
Tax loss carryforwards
Negative calculation basis (social contribution)
Temporary differences - Assets
Provisions for tax, civil and labor risks
Suspended collection taxes
Expected credit losses
Impairment on tax credits
Provision for other obligations
Employees' profit sharing
Write-down to net realizable value of inventories
Employees' benefits plan
Lease basis difference
Other temporary differences
Temporary differences - Liabilities
Difference on tax x accounting basis for goodwill amortization
Difference on tax x accounting basis for depreciation (useful life)
Business combination (1)
Unrealized gains on derivatives, net
Unrealized fair value gains, net
Other temporary differences
Total deferred taxes
Total Assets
Total Liabilities
12.31.20
12.31.19
2,060,846
1,785,027
772,283
682,175
458,019
1,871
194,977
67,900
115,959
86,752
19,189
216,510
86,308
40,028
477,538
31,069
164,332
60,797
64,661
66,166
18,718
202,228
37,492
135,940
4,120,642
3,726,143
(320,729)
(851,436)
(761,429)
(42,493)
(39,269)
(22,749)
(319,592)
(802,844)
(640,318)
(43,428)
(11,998)
(77,903)
(2,038,105)
(1,896,083)
2,082,537
1,830,060
2,109,064
(26,527)
2,082,537
1,915,370
(85,310)
1,830,060
(1) The deferred tax asset on the Sadia business combination was recorded on the amortization difference between the accounting and
tax goodwill calculated as of the purchase price allocation date. The deferred tax liability on the Sadia business combination is
substantially represented by the allocation of goodwill to property, plant and equipment, brands and contingent liabilities.
The roll-forward of deferred income taxes, net, is set forth below:
Beginning balance
Deferred taxes on profit recognized in income
Deferred income taxes recognized in other comprehensive income
Deferred income taxes related to discontinued operations
Other (1)
Ending balance
12.31.20
12.31.19
1,830,060
172,763
32,070
-
47,644
2,082,537
1,453,878
290,094
60
116,883
(30,855)
1,830,060
(1) Mainly related to the foreign exchange variation effect on the balances in foreign companies.
BRF S.A. | 2020 AND 2019 CONSOLIDATED FINANCIAL STATEMENTS
F-33
10.2. Estimated period of realization
Deferred tax assets arising from temporary differences will be realized as the differences are settled or realized.
The period of settlement or realization of such differences is subject to externalities and is linked to several
factors that are not under the control of Management.
In estimating the realization of deferred tax credits on tax losses carryforward, Management considers its budget
and strategic plans, which were approved by the Board of Directors, adjusted based on the estimates of the
main tax additions and exclusions. The recoverability study is reviewed by the Fiscal Council and approved by
the Board of Directors. Based on this estimate, Management believes that it is probable that these deferred tax
credits will be realized, as presented below:
2021
2022
2023
2024
2025
2026 to 2028
2029 onwards
55,306
140,612
231,408
291,677
335,681
1,035,323
743,122
2,833,129
The Company has tax losses carryforward in Brazil, which at current tax rates represent R$4,589,674 on
December 31, 2020 (R$2,747,192 on December 31, 2019). Within this amount, R$2,822,245 (R$2,460,942 on
December 31, 2019) are recognized as an asset, according to the recoverability expectation above. The deferred
tax credits on tax losses and negative social contribution basis related to the parent company and its subsidiaries
domiciled in Brazil do not expire and the use to offset income taxes payable is limited to 30% of future taxable
income.
10.3. Effective income tax rate reconciliation
12.31.20
12.31.19
12.31.18
Income before taxes
Nominal tax rate
Expense at nominal rate
Adjustments to income taxes
Income from associates and joint ventures
Difference of tax rates on results of foreign subsidiaries
Difference of functional currency of foreign subsidiaries
Deferred tax assets not recognized (1)
Share-based payment
Transfer price
Penalties
Investment grant
Write-off of non-realizable tax assets - SHB incorporation
Reversal (recognition) of provision with no deferred tax constituted
Other permanent differences
1,352,234
34%
(459,759)
-
955,324
1,142,762
(1,481,478)
(22,774)
(40,568)
(5,261)
52,279
-
-
32,238
172,763
882,938
34%
(300,199)
(2,447,808)
34%
832,255
73,995
(74,172)
73,380
(38,464)
(14,172)
(16,966)
(48,633)
64,127
-
481,356
(4,857)
195,395
6,023
277,088
112,379
(347,116)
(5,842)
(79,043)
(1,626)
59,236
(268,701)
(244,591)
(6,760)
333,302
13.6%
(6,842)
340,144
Effective rate
Current tax
Deferred tax
-12.8%
-22.1%
(77,373)
250,136
(94,699)
290,094
(1) Amount related to the non-recognition of deferred tax on tax losses carryforward in the amount of R$4,357,288, due to limited capacity
of realization (note 10.2).
The Company’s management determined that the total profits recorded by the holdings of its wholly-owned
subsidiaries abroad will not be redistributed. Such funds will be used for investments in the wholly-owned
subsidiaries.
BRF S.A. | 2020 AND 2019 CONSOLIDATED FINANCIAL STATEMENTS
F-34
Income tax returns in Brazil are subject to review by the tax authorities for a period of five years from the date
of their delivery. The Company may be subject to additional collection of taxes, fines and interest as a result of
these reviews. The results obtained by subsidiaries abroad are subject to taxation in accordance with the tax
laws of each country.
11. JUDICIAL DEPOSITS
The rollforward of the judicial deposits is set forth below:
Tax
Labor
Civil, commercial and
other
Total
12.31.20
12.31.19
12.31.20
12.31.19
12.31.20
12.31.19
12.31.20
12.31.19
Beginning balance
Additions
244,977
12,294
288,377
79,702
301,808
133,847
351,648
176,406
Release in favor of the Company
(11,948)
(9,440)
(51,414)
(36,461)
Release in favor of the counterparty
(907)
(123,371)
(126,405)
(198,821)
Interest
Exchange rate variation
Ending balance
4,574
-
248,990
9,709
-
244,977
11,980
(4)
269,812
9,056
(20)
301,808
28,965
6,719
(370)
(2,055)
1,280
-
34,539
29,073
4,373
575,750
152,860
669,098
260,481
(382)
(63,732)
(46,283)
(4,825)
(129,367)
(327,017)
726
-
28,965
17,834
(4)
553,341
19,491
(20)
575,750
BRF S.A. | 2020 AND 2019 CONSOLIDATED FINANCIAL STATEMENTS
F-35
12. PROPERTY, PLANT AND EQUIPMENT, NET
The rollforward of property, plant and equipment is set forth below:
Cost
Land
Buildings, facilities and improvements
Machinery and equipment
Furniture and fixtures
Vehicles
Construction in progress
Advances to suppliers
Depreciation
Land (3)
Buildings, facilities and improvements
Machinery and equipment
Furniture and fixtures
Vehicles
Average
rate (1)
12.31.19
Additions
Disposals
Transfers (2)
Exchange
rate variation
12.31.20
603,479
10,148,798
8,177,047
140,439
213,199
348,907
528
19,632,397
7,582
287,834
20,293
851
165,737
778,151
8,885
1,269,333
21.32%
9.45%
6.64%
6.67%
25.87%
(5,086)
(3,263,801)
(3,950,250)
(71,779)
(64,592)
(7,355,508)
12,276,889
(7,132)
(688,767)
(487,956)
(11,704)
(72,562)
(1,268,121)
1,212
(13,665)
(148,793)
(166,183)
(8,604)
(54,491)
-
-
(391,736)
813
122,812
110,163
6,931
41,236
281,955
(109,781)
6,031
268
278,530
18,946
(5,639)
(516,360)
3,851
(214,373)
(1,802)
15,895
56,748
(801)
2,389
72,429
(141,944)
4,962
156,419
85,833
5,453
27,412
(2,443)
(516)
277,120
(593)
(37,364)
(32,712)
(2,571)
(14,676)
(87,916)
189,204
608,389
10,444,526
8,395,520
157,085
346,218
608,255
12,748
20,572,741
(13,800)
(3,851,225)
(4,304,007)
(79,924)
(108,205)
(8,357,161)
12,215,580
(1) Weighted average annual rate.
(2) Refers to the transfer of R$45,245 for intangible assets, R$96,788 to held for sale and R$(89) for biological assets.
(3) Land depreciation refers to right-of-use assets. The amount of R$4,266 of depreciation was recognized in the cost of formation of forests and will be realized in the result according to the
depletion (note 17.1).
BRF S.A. | 2020 AND 2019 CONSOLIDATED FINANCIAL STATEMENTS
F-36
Cost
Land
Buildings, facilities and improvements
Machinery and equipment
Furniture and fixtures
Vehicles
Construction in progress
Advances to suppliers
Depreciation
Land
Buildings, facilities and improvements
Machinery and equipment
Furniture and fixtures
Vehicles
(1) Weighted average annual rate.
Average
rate (1)
12.31.18
Initial adoption
IFRS 16
Additions
Disposals
Transfers
(1)
Exchange
rate
variation
536,878
7,590,545
8,272,920
159,902
17,402
409,696
13,425
17,000,768
-
(2,602,188)
(3,620,421)
(71,062)
(10,099)
(6,303,770)
10,696,998
23,453
2,278,982
1,182
-
94,065
-
-
2,397,682
-
-
-
-
-
-
2,397,682
1,986
219,145
45,682
2,834
119,520
367,148
898
757,213
(5,134)
(667,622)
(527,007)
(10,908)
(59,348)
(1,270,019)
(512,806)
(5,879)
(149,866)
(212,637)
(25,264)
(9,959)
-
(1,173)
(404,778)
27
26,616
183,168
6,331
1,718
217,860
(186,918)
50,980
196,829
83,812
3,515
(10,502)
(427,737)
(16,959)
(120,062)
-
(15,167)
18,481
2,665
3,579
9,558
(110,504)
(3,939)
13,163
(13,912)
(548)
2,673
(200)
4,337
1,574
21
(5,440)
(4,471)
1,195
(442)
(9,137)
(7,563)
22.31%
5.83%
6.57%
6.67%
32.37%
12.31.19
603,479
10,148,798
8,177,047
140,439
213,199
348,907
528
19,632,397
(5,086)
(3,263,801)
(3,950,250)
(71,779)
(64,592)
(7,355,508)
12,276,889
BRF S.A. | 2020 AND 2019 CONSOLIDATED FINANCIAL STATEMENTS
F-37
The amount of capitalized borrowing costs during the year ended on December 31, 2020 was of R$21,676
(R$19,207 during the year ended on December 31, 2019).
The weighted average rate used to determine the amount of borrowing costs subject to capitalization was 6.26%
p.a. for the year ended on December 31, 2020 (6.60% p.a. for the year ended on December 31, 2019).
The book value of the property, plant and equipment items that are pledged as collateral for transactions of
different natures are set forth below:
Type of collateral
12.31.20
12.31.19
Land
Buildings, facilities and improvements
Financial/Tax
Financial/Tax
Machinery and equipment
Furniture and fixtures
Vehicles
Financial/Labor/Tax/Civil
Financial/Tax
Financial/Tax
223,918
1,491,531
1,470,295
15,700
294
3,201,738
221,727
1,499,808
1,488,889
14,090
369
3,224,883
13. INTANGIBLE ASSETS
The intangible assets rollforward is set forth below:
Cost
Goodwill
Trademarks
Non-compete agreement
Outgrowers relationship
Patents
Customer relationship
Software
Intangible in progress
Amortization
Non-compete agreement
Outgrowers relationship
Patents
Customer relationship
Software
Average
rate (1)
12.31.19
Additions
Disposals
Transfers
(2)
Exchange rate
variation
12.31.20
2,713,602
1,322,262
99,229
14,604
6,305
892,758
523,615
12,151
5,584,526
-
-
413
-
-
-
73,423
95,111
168,947
(74,190)
(12,744)
(5,626)
(242,263)
(341,624)
(676,447)
4,908,079
(18,784)
(1,030)
(476)
(79,969)
(153,288)
(253,547)
(84,600)
-
-
(379)
(9,276)
(115)
-
(45,851)
-
(55,621)
379
9,079
115
-
43,718
53,291
(2,330)
(6,970)
-
-
-
-
-
97,117
(61,434)
28,713
-
-
-
-
9,562
9,562
38,275
228,945
5,476
7,899
-
15
174,955
8,951
226
426,467
(4,813)
-
(12)
(52,899)
(8,065)
(65,789)
360,678
2,935,577
1,327,738
107,162
5,328
6,205
1,067,713
657,255
46,054
6,153,032
(97,408)
(4,695)
(5,999)
(375,131)
(449,697)
(932,930)
5,220,102
23.41%
12.75%
10.00%
7.35%
34.22%
(1) Weighted average annual rate.
(2) Related to transfer of R$6,970 to assets held for sales.
BRF S.A. | 2020 AND 2019 CONSOLIDATED FINANCIAL STATEMENTS
F-38
Average
rate (1)
Cost
Goodwill for future profitability
Trademarks
Non-compete agreement
Outgrowers relationship
Patents
Customer relationship
Software
Intangible in progress
Amortization
Non-compete agreement
Outgrowers relationship
Patents
Customer relationship
Software
33.67%
13.02%
19.05%
7.31%
23.18%
(1) Weighted average annual rate.
13.1. Impairment test
12.31.18
2,694,967
1,336,162
90,012
15,022
6,066
896,039
491,830
-
5,530,098
(45,802)
(11,552)
(5,149)
(172,450)
(275,747)
(510,700)
5,019,398
Initial adoption
IFRS 16
Additions
Disposals
Transfers
-
-
-
-
-
-
61
-
61
-
-
-
-
-
-
61
-
-
8,105
-
-
-
38,259
47,422
93,786
(27,811)
(1,546)
(470)
(67,137)
(141,925)
(238,889)
(145,103)
-
-
-
(418)
-
-
(95,275)
-
(95,693)
-
354
-
-
77,027
77,381
(18,312)
-
-
-
-
235
-
87,576
(35,294)
52,517
-
-
-
-
(10)
(10)
52,507
Exchange
rate
variation
18,635
(13,900)
1,112
-
4
(3,281)
1,164
23
3,757
(577)
-
(7)
(2,676)
(969)
(4,229)
(472)
12.31.19
2,713,602
1,322,262
99,229
14,604
6,305
892,758
523,615
12,151
5,584,526
(74,190)
(12,744)
(5,626)
(242,263)
(341,624)
(676,447)
4,908,079
The impairment test of assets is carried out annually based on the discounted cash flow method, which is
prepared in order to determine the value in use of the Company’s cash-generating units (“CGU”). In 2020, the
Company used its budget, strategic and financial planning with projections until 2025 and average perpetuity of
the cash generating units of 3.25% p.a., based on the history of recent years, as well as in the economic and
financial projections of each market in which the Company operates, in addition to official information from
independent and governmental institutions.
The discount rate used by Management to prepare discounted cash flows varied from 11.21% p.a. to 13.22%
p.a. according to the CGU. The assumptions presented in the table below were also adopted:
Inflation Brazil
Inflation - United States
Exchange rate - BRL / USD
2021
2.84%
2.59%
4.89
2022
3.50%
2.56%
4.32
2023
3.56%
2.53%
4.07
2024
3.55%
2.51%
3.95
2025
3.40%
2.48%
3.87
The rates presented above don’t consider the effects of income taxes.
Based on Management’s analysis, no impairment adjustments were identified.
In addition to the analysis mentioned above, Management prepared a deterministic sensitivity analysis
considering the variations in the Earnings Before Interest and Tax (“EBIT”) margin and in the nominal discount
rate as presented below:
Apreciation (devaluation)
BRAZIL CGU
Discount rate
Ebit Margin
INTERNATIONAL CGU´s
Discount rate
Ebit Margin
1.0%
14.22%
13.76%
12.21%
11.77%
Variations
0.0%
13.22%
12.76%
11.21%
10.77%
(1.0%)
12.22%
11.76%
10.21%
9.77%
The Company, in its sensitivity analysis, did not identify any scenarios in which an impairment was necessary.
BRF S.A. | 2020 AND 2019 CONSOLIDATED FINANCIAL STATEMENTS
F-39
14. LOANS AND BORROWINGS
Charges (p.a.)
Average rate (1)
WAMT
(2)
12.31.19
Borrowing
Amortization
Interest paid
Interest
accrued
Exchange rate
variation
12.31.20
Local currency
Working capital
Fixed / CDI
Certificate of agribusiness receivables (3)
CDI / IPCA
Development bank credit lines
Fixed / Selic / TJLP
Debentures
CDI / IPCA
Export credit facility (4)
Fixed / CDI / USD
Special program asset restructuring
Fiscal incentives
Foreign currency
IGPM
Fixed
Bonds
Fixed / USD / EUR
Export credit facility
Fixed / LIBOR / USD
Advances for foreign exchange rate contracts
Fixed / USD
Working capital
Fixed / TRY
3.25%
(6.07% on 12.31.19)
10.21%
(6.73% on 12.31.19)
(5.09% on 12.31.19)
8.28%
(7.40% on 12.31.19)
3.69% (5.83% on
12.31.19)
(12.22% on
12.31.19)
2.40%
(2.40% on 12.31.19)
4.81%
(4.36% on 12.31.19)
3.13% (5.77% on
12.31.19)
-
10.98% (16.56% on
12.31.19)
Current
Non-current
0.6
3.0
-
7.7
6.8
-
-
3,312,639
1,200,000
(3,947,237)
(340,227)
143,506
1,597,447
45,516
-
-
(780,000)
(100,932)
104,578
(45,470)
(427)
381
755,760
2,124,725
-
(38,339)
179,859
-
-
-
-
368,681
821,093
-
3,022,005
1,612,365
1,490,809
(1,113,176)
(111,498)
152,968
377,229
2,408,697
284,308
-
(287,621)
(5,142)
8,455
-
-
5,720
7,613,755
73,671
4,889,205
(34,609)
(6,208,113)
(667)
(597,232)
701
590,448
-
377,229
44,816
6,665,292
12.4
10,407,484
4,282,961
(3,010,421)
(760,879)
881,137
3,029,711
14,829,993
2.2
-
1.2
407,275
-
(118,113)
(20,686)
17,627
106,533
392,636
-
529,211
(529,210)
-
-
(1)
-
191,765
718,956
(381,502)
(42,742)
46,704
(16,676)
516,505
5,531,128
10,420,333
(4,039,246)
(10,247,359)
(824,307)
(1,421,539)
945,468
1,535,916
3,119,567
3,496,796
11,006,524
18,620,279
3,132,029
15,488,250
15,739,134
22,404,426
1,059,984
21,344,442
(1) Weighted average annual rate.
(2) Weighted average maturity in years.
(3) The Certificate of Agribusiness Receivable (“CRA”) issued by the Company are backed by receivables of BRF S.A. from certain subsidiaries abroad.
(4) The Export Credit Facility was issued in Reais simultaneously and in connection with a foreign exchange rate swap, resulting essentially in a net cash flow in U.S. Dollars. As the transactions
are inseparable, both are recorded together under Loans and Borrowings by their amortized cost.
BRF S.A. | 2020 AND 2019 CONSOLIDATED FINANCIAL STATEMENTS
F-40
Charges (p.a.)
Average rate (1)
WAMT (2)
12.31.18
Borrowing
Amortization
Interest paid
Interest
accrued
Exchange rate
variation
12.31.19
Local currency
Working capital
Pre-fixed / CDI
Certificate of agribusiness receivables
CDI / IPCA
Development bank credit lines
Pre-fixed / Selic / TJLP
6.07%
(7.78% on 12.31.18)
6.73%
(6.08% on 12.31.18)
5.09%
(6.16% on 12.31.18)
Debentures
CDI / IPCA
7.90%
Export credit facility
Special program asset restructuring
Fiscal incentives
Foreign currency
Bonds
Export credit facility
CDI
IGPM
Pre-fixed
5.83%
(9.02% on 12.31.18)
12.22%
(12.45% on 12.31.18)
2.40%
(2.40% on 12.31.18)
Pre-Fixed + e.r. USD and
EUR
4.36%
(4.07% on 12.31.18)
LIBOR + e.r. USD
5.54% (2.47% on 12.31.18)
Advances for foreign exchange rate contracts
Pre-Fixed + e.r. USD
(4.67% on 12.31.18)
Working capital
Pre-Fixed + e.r. TRY
16.56% (21.91% on
12.31.18)
1.2
2.5
0.3
6.2
8.7
0.2
-
6.0
3.2
-
1.1
Current
Non-current
(1) Weighted average annual rate.
(2) Weighted average maturity in years.
5,863,023
1,193,616
(3,745,967)
(421,600)
423,567
2,597,502
264,545
-
-
(999,905)
(139,633)
139,483
(223,077)
(7,005)
11,053
-
742,250
(15)
(16,372)
29,897
1,625,327
(22,403)
(31,700)
(108,845)
149,986
273,426
-
-
(8,554)
19,436
3,317
70,203
(67,805)
(570)
575
10,627,140
1,983,666
(5,068,469)
(702,579)
773,997
-
-
-
-
-
-
-
-
3,312,639
1,597,447
45,516
755,760
1,612,365
284,308
5,720
7,613,755
9,746,446
-
1,383,192
-
214,192
-
3,082,040
(2,906,635)
(504,774)
648,991
341,416
10,407,484
-
92,750
(948,646)
(327,469)
(31,277)
(10,249)
28,937
12,831
(24,931)
17,945
407,275
-
194,474
240,702
(229,919)
(41,974)
42,237
(13,755)
191,765
11,538,304
22,165,444
4,547,389
17,618,055
3,415,492
5,399,158
(4,412,669)
(9,481,138)
(588,274)
(1,290,853)
732,996
1,506,993
320,675
320,675
11,006,524
18,620,279
3,132,029
15,488,250
As of December 31, 2020 and December 31, 2019, the Company did not have any financial covenant clauses related to its loans and borrowings agreements.
BRF S.A. | 2020 AND 2019 CONSOLIDATED FINANCIAL STATEMENTS
F-41
14.1. Revolving credit facility
With the purpose of maintaining a prudential and sustainable short-term liquidity position, continuing with the
strategy of extending its average debt maturity and reducing the cost of debt, on December 27, 2019, the
Company retained from Banco do Brasil a revolving credit facility up to the limit of R$1,500,000 for a period of
three years. On October 28, 2020 the Company retained an additional revolving credit facility before Banco do
Brasil, up to the limit of R$1,500,000, for the next three years. The referenced credit facilities can be withdrawn
totally or partially, at the Company’s will, whenever necessary. As of December 31, 2020, the credit facilities
were available, but unused.
14.2. Issuance of Debentures
On July 17, 2020, 2,200,000 (two million, two hundred thousand) Debentures were subscribed with a notional
value of R$ 1,000.00 (one thousand Brazilian Reais), in a total amount of R$2,200,000 (two billion and two
hundred million Brazilian Reais), in two series as presented in the table below. The Debentures are simple, not
convertible into shares, unsecured and for private placement. The Debentures were privately placed with VERT
Companhia Securitizadora, to back its forty-sixth issuance of Agribusiness Receivables Certificates, in two series,
which were object of public distribution with restricted placement efforts.
12.31.20
Operation
Series
Issue date
Maturity
Rate
Notional Updated Value
Debenture - 2nd Issue
Debenture - 2nd Issue
1st Series
2nd Series
07.14.20
07.14.20
07.14.27
07.12.30
IPCA + 5.30% p.a.
IPCA + 5.60% p.a.
705,000
1,495,000
2,200,000
724,110
1,526,757
2,250,867
The issuance costs of R$75,275 are recognized on the statement of income over the term of the debt according
to the effective interest rate method.
14.3. Issuance of Senior Unsecured Notes
BRF S.A. made international offerings of senior notes on September 21, 2020 in the amount equivalent to
R$2,722,000 (USD500,000), at 98.247% of the principal amount, and on October 26, 2020 in the amount
equivalent to R$1,689,840 (USD300,000), at 98.242% of the principal amount, under the same indenture. The
notes are due on September 21, 2050 and the interests are paid semi-annually at the rate of 5.750% p.a. The
Company incurred in issuance expenses of R$41,645 related to commissions and other costs, which, together
with the R$86,869 of the issuance discount, are recognized on the statement of income over the term of the
notes according to the effective interest rate method.
The Company used and will keep using the proceeds for general corporate purposes, which include the payment
of the other loans.
14.4. Tender Offer for Senior Notes
The Company executed two tender offers between July 17 and July 24, 2020 and between September 21 and
October 9, 2020 for the following senior notes: (i) (a) 5.875% Senior Notes due 2022, (b) 2.750% Senior Notes
due 2022, (c) 3.950% Senior Notes due 2023 and (d) 4.750% Senior Notes due 2024 all issued by BRF; and (ii)
4.350% Senior Notes due 2026, issued by BRF GmbH and guaranteed by BRF. The repurchases reached the cap
and were fully settled by September 28, 2020 and its results are presented in the table below:
Notional repurchased
Outstanding notional (1)
Instrument
Currency
Maturity
(loan currency)
(Reais) (2)
(loan currency)
(Reais) (3)
BRF S.A. - BRFSBZ 2 3/4
BRF S.A. - BRFSBZ 5 7/8 (4)
BRF S.A. - BRFSBZ 3.95
BRF S.A. - BRFSBZ 4 3/4
BRF GmbH - BRFSBZ 4.35
EUR
USD
USD
USD
USD
June 3, 2022
June 6, 2022
May 22, 2023
May 22, 2024
Sep 29, 2026
(1) Outstanding notional after the tender offer.
158,109
38,384
111,956
222,495
718
977,194
203,452
600,585
1,214,329
3,932
166,672
70,928
234,033
295,363
499,282
1,063,017
368,592
1,216,199
1,534,913
2,594,619
BRF S.A. | 2020 AND 2019 CONSOLIDATED FINANCIAL STATEMENTS
F-42
(2) Represented by the amount in the original loan currency, translated by the foreign exchange rate at the settlement date of the
repurchase.
(3) Represented by the amount in the original loan currency, translated by the foreign exchange rate at the settlement date 12.31.20.
(4) Loan fully designated as hedge accounting (note 23.4.2.ii). The exchange rate variation between the designation date and the
settlement date of the repurchased portion will remain in Other Comprehensive Income until the realization of the highly probable
sales (hedge object).
The Company paid the amount equivalent to R$3,160,274 for the repurchase of these liabilities, which includes
notional, interest, premium and taxes. The Company incurred in financial expenses with the repurchases in the
amount of R$112,206 with the premium paid, R$19,675 with taxes and R$16,900 with the write-off of the costs
of issuance.
14.5. Prepayment of Credit Facilities
Additionally to the tender offer described above, during the second semester of 2020, the Company prepaid
certain bilateral credit facilities in Brazil with original maturity between September 2020 and May 2022, in the
aggregated notional, interest and premium amount of R$4,895,300, being R$2,094,555 related to the facilities
described in note 1.4. The Company incurred in financial expenses with the prepayments in the amount of
R$22,347 related to premium and write-off of the costs of issuance.
The transactions described in the items above, are adherent to the Company’s capital structure management
strategy, which includes, among other aspects, the sustaining of liquidity, the lengthening of the average tenor
of its indebtedness and the diversification of its sources of financing.
14.6. Loans and borrowings maturity schedule
The maturity schedule of the loans and borrowings is as follows:
Current
Non-current
2022
2023
2024
2025
2026 onwards
14.7. Guarantees
Total loans and borrowings
Mortgage guarantees
Related to FINEM-BNDES
Related to tax incentives and other
12.31.20
1,059,984
21,344,442
2,114,622
2,569,063
1,782,687
599,266
14,278,804
22,404,426
12.31.20
12.31.19
22,404,426
44,816
18,620,279
51,237
-
44,816
45,516
5,721
On December 31, 2020, the amount of bank guarantees contracted by the Company was of R$590,933
(R$666,335 as of December 31, 2019) which were offered mainly in litigations involving the Company’s use of
tax credits. These guarantees have an average cost of 1.95% p.a. (1.77% p.a. as of December 31, 2019).
BRF S.A. | 2020 AND 2019 CONSOLIDATED FINANCIAL STATEMENTS
F-43
15. TRADE ACCOUNTS PAYABLE
Domestic suppliers
Third parties
Foreign suppliers
Third parties
(-) Adjustment to present value
Current
Non-current
12.31.20
12.31.19
7,611,170
4,930,424
1,487,206
(88,389)
9,009,987
915,611
(49,269)
5,796,766
8,996,206
5,784,419
13,781
12,347
Within the trade accounts payable balance as of December 31, 2020, R$2,576,071 (R$1,435,025 as of December
31, 2019) correspond to supply chain finance transactions in which there were no changes in the payment terms
and prices negotiated with the suppliers.
16. SUPPLY CHAIN FINANCE
Supply chain finance - Domestic suppliers
Supply chain finance - Foreign suppliers
(-) Adjustment to present value
12.31.20
1,309,167
165,060
1,474,227
(21,590)
1,452,637
12.31.19
671,869
182,126
853,995
(11,958)
842,037
The Company has agreements with several financial institutions that allow the suppliers to anticipate their
receivables. The suppliers may choose whether to participate and if so, with which institution. The anticipation
allows the suppliers to better manage their cash flow needs. This flexibility allows the Company to intensify its
commercial relations with the network of suppliers by potentially leveraging benefits such as preference for
supply in case of restricted supply, better price conditions and/or more flexible payment terms, among others,
without identifiable changes in other commercial conditions. These operations are presented in the cash flows
of operating activities.
On December 31, 2020, the discount rates applied to the supply chain finance transactions agreed between our
suppliers and the financial institutions in the domestic market were set between 0.38% and 0.47% p.m. (0.38%
to 0.67% p.m. on December 31, 2019).
On December 31, 2020, the discount rates applied to the supply chain finance transactions agreed between our
suppliers and the financial institutions in the external market were set between 0.18% and 0.40% p.m. (0.32%
to 0.46% p.m. on December 31, 2019).
17. LEASES
The Company is lessee in several lease agreements for forest lands, offices, distribution centers, outgrowers,
vehicles, among others. Some contracts have a renewal option for an additional period at the end of the
agreement, established by contractual amendments. Automatic renewals or renewals for undetermined periods
are not allowed.
The contract clauses mentioned, with respect to renewal, readjustment and purchase option, are contracted
according to market practices. In addition, there are no clauses of contingent payments or restrictions on
dividends distribution, payments of interest on shareholders’ equity or obtaining debt.
BRF S.A. | 2020 AND 2019 CONSOLIDATED FINANCIAL STATEMENTS
F-44
17.1. Right-of-use assets
The right-of-use assets as set forth below are part of the balances of property, plant and equipment and
intangible assets (notes 12 and 13).
Average
rate (1)
12.31.19
Additions
Disposals
Transfers
22,790
2,615,883
115,173
207,443
55,705
5,900
287,451
5,518
165,699
72,766
(961)
(86,557)
(8,289)
(54,260)
(35,625)
20,751
(2,487)
-
-
(18,264)
3,016,994
537,334
(185,692)
-
74,034
Exchange
rate
variation
181
47,626
191
26,036
-
12.31.20
48,661
2,861,916
112,593
344,918
74,582
3,442,670
(5,086)
(512,836)
(96,958)
(57,357)
(44,815)
(717,052)
2,299,942
(6,861)
(464,159)
(17,865)
(71,768)
(32,422)
(593,075)
(55,741)
813
85,042
7,610
41,024
35,625
170,114
(15,578)
(1,799)
(6,765)
-
-
8,564
-
-
(593)
(16,098)
(103)
(13,394)
-
(30,188)
43,846
(13,526)
(914,816)
(107,316)
(101,495)
(33,048)
(1,170,201)
2,272,469
Cost
Land
Buildings
Machinery and equipment
Vehicles
Software
Depreciation
Land
Buildings
Machinery and equipment
Vehicles
Software
16.32%
29.11%
42.48%
26.39%
45.21%
(1) Weighted average annual rate.
Average
rate (1)
12.31.18
Initial adoption
IFRS 16
Additions
Disposals
Exchange rate
variation
Transfers
12.31.19
-
214,171
129,589
14,492
-
68,424
426,676
-
(74,527)
(75,422)
(1,725)
-
(57,486)
(209,160)
217,516
23,453
2,278,982
1,182
-
94,065
61
2,397,743
-
-
-
-
-
-
-
2,397,743
-
216,514
4,110
-
119,422
(6,998)
333,048
(5,134)
(429,600)
(39,361)
-
(58,325)
(37,489)
(569,909)
(236,861)
(421)
(119,540)
(13,321)
-
(8,751)
(50,160)
(192,193)
27
1,948
9,545
-
1,502
50,160
63,182
(129,011)
(42)
4,650
28
-
2,707
-
7,343
21
(644)
(8)
-
(534)
-
(1,165)
6,178
(200)
21,106
(6,415)
(14,492)
-
44,378
44,377
-
(10,013)
8,288
1,725
-
-
-
44,377
22,790
2,615,883
115,173
-
207,443
55,705
3,016,994
(5,086)
(512,836)
(96,958)
-
(57,357)
(44,815)
(717,052)
2,299,942
22.31%
17.79%
36.32%
-
34.32%
67.81%
Cost
Land
Buildings
Machinery and equipment
Facilities
Vehicles
Software
Depreciation
Land
Buildings
Machinery and equipment
Facilities
Vehicles
Software
(1) Weighted average annual rate.
17.2. Lease liabilities
WAM
(1)
4.7
3.4
1.8
2.2
1.6
Land
Buildings
Machinery and equipment
Vehicles
Software
Current
Non-current
12.31.19
Additions
Payments
Interest
paid
Interest
accrued
5,900
310,204
5,518
165,699
72,767
560,088
(5,819)
(425,594)
(26,776)
(64,674)
(4,716)
(99,426)
(13,285)
(15,231)
(30,693)
(553,556)
(3,967)
(136,625)
4,716
170,763
13,285
15,231
3,966
207,961
20,355
2,227,026
25,687
156,975
1,137
2,431,180
376,628
2,054,552
Disposals
Transfers
(1,729)
18,811
(762)
(755)
(14,155)
-
(17,401)
(18,238)
8
(581)
-
-
Exchange rate
variation
350
31,434
91
13,159
-
45,034
12.31.20
37,868
2,195,407
3,773
256,423
43,210
2,536,681
383,162
2,153,519
(1) Weighted average maturity in years.
BRF S.A. | 2020 AND 2019 CONSOLIDATED FINANCIAL STATEMENTS
F-45
WAMT (1)
12.31.18
Initial adoption
IFRS 16
Additions
Payments
Interest paid
Interest
accrued
Disposals
Exchange rate
variation
12.31.19
Land
Buildings
Machinery and equipment
Vehicles
Software
Current
Non-current
5.5
4.3
1.3
2.0
1.3
167,012
66,534
-
8,263
241,809
75,293
166,516
-
17,166
6,287
(4,505)
(762)
2,909
(421)
(319)
20,355
2,278,982
216,514
(410,466)
1,182
94,065
61
4,110
119,422
37,379
(42,216)
(51,263)
(44,567)
(85,940)
(17,756)
(11,359)
(85)
167,689
(111,134)
4,369
2,227,026
17,757
11,359
86
(3,898)
(7,438)
-
(26)
25,687
2,189
156,975
-
1,137
2,391,456
383,712
(553,017)
(115,902)
199,800
(122,891)
6,213
2,431,180
(1) Weighted average maturity in years.
17.3. Lease liabilities maturity schedule
The maturity schedule of the minimum required future payments are presented below:
Current
Non-current
2022
2023
2024
2025
2026 onwards
376,628
2,054,552
12.31.20
383,162
2,153,519
475,563
367,486
289,775
203,854
816,841
2,536,681
17.4. Incremental borrowing rate
The Company uses nominal incremental borrowing rates to measure its lease liabilities. The nominal and real
interest rates are presented below:
Contract Terms
1 year
2 years
3 years
4 years
5 years
6 years
8 years
9 years
10 years
11 years
13 years
14 years
15 years
18 years
20 years
12.31.20
12.31.19
Nominal rate %
p.a.
5.69%
5.96%
6.80%
8.50%
8.98%
-
10.47%
10.75%
11.39%
-
11.68%
11.84%
-
-
13.26%
Real rate % p.a.
1.05%
2.61%
2.53%
4.56%
4.40%
-
5.71%
5.97%
6.64%
-
7.38%
7.13%
-
-
9.00%
Nominal rate %
p.a.
8.46%
9.49%
10.60%
11.43%
11.84%
12.13%
12.43%
12.51%
12.61%
12.68%
12.81%
12.86%
12.90%
13.01%
13.12%
Real rate % p.a.
4.97%
5.37%
6.28%
7.01%
7.28%
7.48%
7.67%
7.78%
7.84%
7.86%
7.93%
7.96%
7.97%
8.03%
8.12%
The nominal rates presented above as of December 31, 2020 refer to the incremental borrowing rates used in
contracts recognized during the year ended on December 31, 2020 and the rates as of December 31, 2019 refer
to the rates used in contracts recognized during the year ended on December 31, 2019.
BRF S.A. | 2020 AND 2019 CONSOLIDATED FINANCIAL STATEMENTS
F-46
17.5. Amounts recognized in the statement of income
The amounts directly recognized in the statement of income presented below relate to items exempt of
recognition: low-value assets, short-term leases and leases with variable payments.
Variable payments not included in the lease liabilities
Expenses related to short-term leases
Expenses related to low-value assets
17.6. Sale-and-leaseback transactions
12.31.20
12.31.19
300,949
162,313
3,531
466,793
222,096
226,010
4,890
452,996
During the year ended on December 31, 2020 four sale-and-leaseback transactions of grain warehouses were
concluded. These warehouses are located in: (i) Campo Erê – Santa Catarina, (ii) Pato Branco, (iii) Medianeira,
and (iv) Paranaguá both in the state of Paraná; which were analyzed within of IFRS 16 premises. The right-of-
use assets and lease liabilities of each contract were recognized and are presented in the additions of the
Buildings class, with the following amounts: right-of-use asset of R$13,473 and lease liability of R$36,245. A
gain was recognized under Other operating income in the amount of R$23,849.
18. SHARE-BASED PAYMENT
The Company grants to its eligible employees, stock options and restricted stocks, ruled by plans approved at
the General Shareholder’s Meeting, with the purpose of: (i) stimulating the expansion, success and achievement
of the Company’s social objectives; (ii) aligning the interests of the Company’s shareholders with those of the
eligible employees; and (iii) enabling the Company and its subsidiaries to attract and retain the employees. On
April 27, 2020, the General Shareholder’s meeting approved changes to the plans, increasing the limit of grants
from 0.5% to 2.5% of the common, registered, book-entry shares with no par value, representative of the
Company’s total capital stock.
18.1. Stock options
The quantity of granted options is determined by the Board of Directors annually, and the exercise price is
equivalent to the average closing price of the share in B3 at the last twenty trading sessions, prior to the grant
date. The exercise price is adjusted monthly by the variation of the Extended Consumer Price Index (“IPCA”)
between the grant date and the month prior to the notification of the exercise by the beneficiary.
The vesting period, when the employee cannot exercise the option is from 1 to 4 years. The beneficiary acquires
the right to exercise the option in each year, proportionally to the vesting period.
The breakdown of the outstanding granted stock options is set forth as follows:
Date
Beggining of
exercise
Grant date
End of the
exercise
Options
granted
Outstanding
options
Quantity
Grant (1)
Fair value of
the option
Strike price (1)
Granting
date
Updated
IPCA
04.26.16
05.31.16
04.30.17
05.31.17
04.30.21
05.31.21
8,724,733
3,351,220
12,075,953
1,275,000
1,145,330
2,420,330
9.21
10.97
56.00
46.68
69.61
57.58
(1) Amounts expressed in Brazilian Reais.
The weighted average exercise price of the outstanding options conditioned to services is R$63.92 (sixty-three
Brazilian Reais and ninety-two cents) (R$60.96 as of December 31, 2019), and the weighted average remaining
vesting term is 5 months (17 months as of December 31, 2019).
BRF S.A. | 2020 AND 2019 CONSOLIDATED FINANCIAL STATEMENTS
F-47
18.2. Restricted stocks
Annually, or whenever it deems appropriate, the Board of Directors approves the grant of restricted stocks,
electing the beneficiaries in favor of which the Company will transfer the restricted stocks, establishing the
terms, quantities and conditions of acquisition of rights related to restricted stocks.
The vesting is conditional to the: (i) continuity of the employment relationship with the Company for three years
after the grant date; (ii) achievement of a minimum shareholder return defined by the Board of Directors in the
granting agreements and measured at the end of the vesting period; or (iii) any other conditions determined by
the Board of Directors in each grant.
Date
Quantity
Grant
10.01.18
07.01.19
09.16.19
06.01.20
Vesting date
Shares granted
Outstanding shares
10.01.21
07.01.22
10.01.22
06.01.23
2,311,394
1,815,649
68,605
3,571,736
7,767,384
876,120
1,071,515
45,736
3,459,647
5,453,018
(1) Amounts expressed in Brazilian Reais.
18.3. Rollforward of the stock options and restricted stock plans
Grant (1)
Fair value of the
shares
21.44
30.61
30.61
21.28
The rollforward of the granted options and shares for the year ended on December 31, 2020, is presented as
follows:
Outstanding options/stocks as of December 31, 2019
Granted
Restricted stocks - June 2020
Restricted stocks - April 2020
Exercised / Delivered:
Restricted stocks – grant of April, 2020
Restricted stocks – grant of September, 2019
Restricted stocks – grant of June, 2019
Restricted stocks – grant of October, 2018
Restricted stocks – grant of June, 2018
Forfeiture (1) :
Restricted stocks – grant of June, 2020
Restricted stocks - grant of April, 2020
Restricted stocks - grant of July, 2019
Restricted stocks - grant of June, 2019
Restricted stocks - grant of October, 2018
Stock options - grant of April, 2016
Outstanding options/stocks as of December 31, 2020
5,820,274
3,571,736
359,293
(260,487)
(16,580)
(140,945)
(267,475)
(97,875)
(112,089)
(98,806)
(440,302)
(125,363)
(244,863)
(73,170)
7,873,348
(1) The forfeitures are related to the resignation of eligible executive before the end of the vesting period.
The Company has recorded under shareholders’ equity, the fair value of share-based compensation plans in the
amount of R$223,191 (R$223,011 as of December 31, 2019) and under non-current liabilities, the amount of
R$21,521 (R$11,761 as of December 31, 2019). In the statement of income for the year ended on December
31, 2020 the amount recognized as expense was R$45,219 (R$38,424 as of December 31, 2019).
18.4. Fair value measurement
The weighted average fair value of the outstanding options as of December 31, 2020 was R$4.84 (four Brazilian
Reais and eighty-four cents) (R$10.03 as of December 31, 2019). The fair value of the stock options is measured
at the grant date using the Black-Scholes pricing model, based on the following assumptions:
BRF S.A. | 2020 AND 2019 CONSOLIDATED FINANCIAL STATEMENTS
F-48
Assumptions
Value
Description
Expected period
Exercise in the 1st year - 3.5 years
Exercise in the 2nd year - 4.0 years
Exercise in the 3rd year - 4.5 years
Exercise in the 4th year - 5.0 years
Risk-free interest rate
6.29% p.a.
Volatility
Expected dividends
27.08%
2.40%
Expected inflation rate
3.37% p.a.
19. EMPLOYEES BENEFITS
19.1. Supplementary pension plans
The beneficiaries will execise their options at the limit of the exercise
period.
National Treasury Bond (“NTN-B”) available on the date of calculation
and with maturity equivalent to the terms of the option.
Took into account the weighting of the trading history of the
Company's shares.
Is based on the average payment of dividends per share in relation to
the market value of the shares for the past four years.
Is based on estimated IPCA by Central Bank of Brazil, considering the
remaining average terms of the option.
The Company is the sponsor of the following pension plans for its employees and executives: i) Plan II – Variable
Contribution with Defined Benefit option – closed for admissions; ii) Plan III – Defined Contribution – open for
admissions; and iii) FAF Plan – Defined Benefit - closed for admissions.
These plans are managed by BRF Previdência, a closed supplementary pension entity, of non-economic and
non-profit nature, and through its Deliberative Board, is responsible for defining pension objectives and policies,
as well as establishing fundamental guidelines aa well as organization, operation and management rules. The
Deliberative Board is composed of representatives from the sponsor and participants, in the proportion of 2/3
and 1/3 respectively.
19.1.1. Defined benefit plans
The Plan II is a variable contribution plan structured as defined contribution during the accumulation of
mathematic provisions and at the benefit grant date the beneficiary may choose to convert the accumulated
balance in a lifetime monthly income (defined benefit). The main related actuarial risks are (i) survival rates
above the mortality tables and (ii) actual return on equity below the actual discount rate.
The FAF (Fundação Attílio Francisco Xavier Fontana) Plan aims to complement the benefit paid by the Brazilian
Social Security (“INSS – Instituto Nacional de Seguridade Social”). The benefit is calculated based on the income
of the participant and the amounts vary according to the type of the retirement, the length of the service and
other criteria defined by the plan. The main actuarial risks related are: (i) survival rates above the mortality
tables, (ii) turnover lower than expected, (iii) salary growth higher than expected, (iv) actual return on equity
below the actual discount rate, (v) changes to the rules of social security, and (vi) actual family composition of
the retired employee or executive different than the established assumption.
The actuarial calculations of the plans managed by BRF Previdência are prepared annually by independent
specialists and reviewed by Management, according to the rules in force.
In the case of a deficit in the plans results, the sponsor, the participants and the beneficiaries, must support
the plan according to the proportion of their contributions.
The economic benefit presented as an asset considers only the portion of the surplus that is actually recoverable.
The recovery of the surplus on the plans is through reductions in future contributions.
19.1.2. Defined contribution plan
The Plan III is a defined contribution plan, in which the contributions are known and the benefit depends directly
on the contributions made by participants and sponsors, on the contribution time and on the returns obtained
through the investment of the contributions. The contributions made by the Company in the year ended on
December 31, 2020 amounted R$21,706 (R$21,100 for the year ended on December 31, 2019). On December
31, 2020, the plan had 39,064 (thirty-nine thousand and sixty-four) participants (37,637 participants as of
December 31, 2019).
BRF S.A. | 2020 AND 2019 CONSOLIDATED FINANCIAL STATEMENTS
F-49
When the participants of the plans II and III terminate the employment relationship with the sponsor, the unused
balance of the contributions made by the sponsor forms a surplus fund that may be used to compensate future
contributions of the sponsor.
19.1.3. Rollforward of defined benefit and variable contribution
The assets and actuarial liabilities, as well as the movement of the related rights and obligations are presented
below:
FAF
Plan II
12.31.20
12.31.19
12.31.20
12.31.19
Composition of actuarial assets and liabilities
Present value of actuarial liabilities
Fair value of assets
(Surplus) Deficit
Irrecoverable surplus - (asset ceiling)
Net actuarial (assets) liabilities
Rollforward of irrecoverable surplus
Beginning balance of irrecoverable surplus
Interest on irrecoverable surplus
Changes in irrecoverable surplus during the year
Ending balance of irrecoverable surplus
Rollforward of present value of actuarial liabilities
Beginning balance of the present value of liabilities
Interest on actuarial obligations
Current service cost
Past service cost - plan changes
Benefit paid
Actuarial losses - experience
Actuarial losses - hypothesis
Ending balance of actuarial liabilities
Rollforward of the fair value of the assets
3,377,234
3,412,120
(3,553,215)
(3,771,792)
(175,981)
(359,672)
175,981
-
359,672
-
359,672
26,184
(209,875)
175,981
695,367
64,113
(399,808)
359,672
3,412,120
2,498,564
242,746
42,106
(4,223)
223,848
28,172
-
(154,096)
(142,390)
148,984
(310,403)
3,377,234
85,002
718,924
3,412,120
Beginning balance of the fair value of plan assets
(3,771,792)
(3,193,931)
Interest income on assets plan
Benefit paid
Return on assets higher (lower) than projection
Ending Balance of the fair value of the assets
Rollforward of comprehensive income
Beginning balance
Reversion to accumulated losses
Actuarial gains (losses)
Return on assets higher (lower) than projection
Changes on irrecoverable surplus
Ending balance of comprehensive income
Costs recognized in statement of income
Current service costs
Interest on actuarial obligations
Projected return on assets
Interest on irrecoverable surplus
Past service cost - plan changes
Costs recognized in statement of income
Estimated costs for the next year
Costs of defined benefit
Estimated costs for the next year
(268,930)
154,096
333,411
(3,553,215)
(287,961)
142,390
(432,290)
(3,771,792)
28,172
(28,172)
161,419
(333,411)
209,875
37,883
(42,106)
(242,746)
268,930
(26,184)
4,223
(37,883)
27,972
(27,972)
(803,925)
432,289
399,808
28,172
(28,172)
(223,848)
287,961
(64,113)
-
(28,172)
(26,741)
(26,741)
(42,106)
(42,106)
BRF S.A. | 2020 AND 2019 CONSOLIDATED FINANCIAL STATEMENTS
23,256
(24,170)
(914)
167
(747)
6,777
476
(7,086)
167
19,550
1,324
-
-
(1,612)
5,273
(1,279)
23,256
(29,580)
(2,028)
1,612
5,826
(24,170)
1,213
(1,213)
(3,994)
(5,826)
7,086
(2,734)
-
(1,324)
2,028
(476)
-
228
54
54
19,550
(29,580)
(10,030)
6,777
(3,253)
8,502
782
(2,507)
6,777
17,447
1,544
-
-
(1,353)
(1,176)
3,088
19,550
(27,819)
(2,497)
1,353
(617)
(29,580)
(567)
567
(1,911)
617
2,507
1,213
-
(1,544)
2,497
(782)
-
171
228
228
F-50
19.1.4. Actuarial assumptions and demographic data
The main actuarial assumptions and demographic data used in the actuarial calculations are presented below:
Actuarial assumptions
Economic hypothesis
Discount rate
Inflation rate
Wage growth rate
Demographic hypothesis
Schedule of mortality
Schedule of disabled mortality
Demographic data
Number of active participants
Number of beneficiary participants assisted
FAF
Plan II
12.31.20
12.31.19
12.31.20
12.31.19
7.49%
3.25%
3.49%
AT-2000
smoothed by
10%
CSO-58
6,495
7,206
7.28%
3.80%
4.47%
AT-2000
RRB-1983
6,796
6,834
7.25%
3.25%
N/A
AT-2000
smoothed by
10%
CSO-58
-
51
7.02%
3.80%
N/A
AT-2000
RRB-1983
-
51
19.1.5. The composition of the investment portfolios
The composition of the investment portfolios is presented below:
FAF
12.31.20
12.31.19
12.31.20
12.31.19
Plan II
Composition of the fund's portfolio
Fixed income
Variable income
Real estate
Structured investments
Transactions with participants
2,330,909
579,174
358,875
262,938
65.6%
16.3%
10.1%
7.4%
2,542,188
524,279
369,636
313,059
67.4%
13.9%
9.8%
8.3%
21,319
3,553,215
0.6%
100.0%
22,630
3,771,792
0.6%
100.0%
% of nominal return on assets
7.49%
9.36%
22,382
92.6%
28,396
96.0%
870
-
918
-
24,170
7.25%
3.6%
-
3.8%
-
100.0%
444
-
740
-
29,580
7.50%
1.5%
-
2.5%
-
100.0%
19.1.6. Expected benefit payments and average term of payments
The following amounts represent the expected benefit payments for future periods and the average duration of
the plan’s obligations:
2021
2022
2023
2024
2025
2026 to 2030
Weighted average duration - in years
FAF
183,771
194,992
204,958
211,397
218,510
1,219,130
13.50
Plan II
1,617
1,658
1,700
1,740
1,778
9,380
9.78
BRF S.A. | 2020 AND 2019 CONSOLIDATED FINANCIAL STATEMENTS
F-51
19.1.7. Sensitivity analysis of the defined benefit plan - FAF
The quantitative sensitivity analysis regarding the relevant assumptions of defined benefit plan – FAF on
December 31, 2020 is presented below:
Relevant assumptions
Benefit plan - FAF
Discount rate
Wage growth rate
Variation of (+1%)
Variation of (-1%)
Assumptions
utilized
Average rate
Actuarial
liabilities (1)
Average rate
Actuarial
liabilities
7.49%
3.49%
8.49%
4.49%
2,992,764
3,451,715
6.49%
2.49%
3,852,966
3,314,607
19.2. Employee benefits: description and characteristics of benefits and associated
risks
Medical assistance
F.G.T.S. Penalty (1)
Award for length of service
Other
Current
Non-current
Liabilities
12.31.20
12.31.19
185,802
282,229
108,908
199,616
776,555
125,230
651,325
187,274
247,485
103,284
151,431
689,474
95,919
593,555
(1) FGTS – Government Severance Indemnity Fund for Employees
The Company has the policy to offer the following post-employment and other employee benefits plans in
addition to the pension plans, which are measured by actuarial calculation and recognized in the financial
statement:
19.2.1. Medical plan
The Company offers a medical plan with fixed contribution to the retired employees according to the Law No.
9,656/98.
It is ensured to the retired employee that has contributed to the health plan during the employment relationship
for at least 10 years, the right of maintenance as beneficiary, on the same conditions of coverage existing when
the employment contract was in force. The main related actuarial risks are (i) survival rates above the mortality
tables, (ii) turnover lower than expected and (iii) medical costs growth higher than expected.
19.2.2. F.G.T.S. penalty by dismissal on retirement
As settled by the Regional Labor Court (“TRT”) on April 20, 2007, retirement does not affect the employment
contract between the Company and its employees. However, when the employee is retired through INSS and is
dismissed from the Company, the Company has the practice to terminate their employment contracts, granting
the payment of the benefit equivalent to the 40% penalty on the F.G.T.S. balance. The main related actuarial
risks are: (i) survival rates above the mortality tables, (ii) turnover lower than expected and (iii) salary growth
higher than expected.
19.2.3. Award for length of service
The Company has the policy to reward active employees that attain at least 10 years of services rendered and
subsequently every 5 years, with an additional remuneration. The main related actuarial risks rare (i) survival
rates above the mortality tables, (ii) turnover lower than expected and (iii) salary growth higher than expected.
BRF S.A. | 2020 AND 2019 CONSOLIDATED FINANCIAL STATEMENTS
F-52
19.2.4. Other – Brazil
i. Retirement compensation
On retirement, employees with more than 10 years of services rendered to the Company are eligible for
additional compensation. The main actuarial related risks are (i) survival rates above the mortality tables, (ii)
turnover lower than expected and (iii) salary growth higher than expected.
ii. Life insurance
The Company offers life insurance benefits to the employees who, at the time of their termination, are retired
and during the employment contract opted for the insurance, with the period of benefit varying from 2 to 3
years. The main related actuarial risks are (i) survival rates above the mortality tables, (ii) turnover lower than
expected and (iii) salary growth higher than expected.
19.2.5. Other – Foreign entities
The Company has a liability recorded for defined benefit plans to certain subsidiaries located in Turkey, Saudi
Arabia, Qatar and United Arab Emirates, related to end of service payments when certain conditions are met,
which varies based on the labor laws for each country. The main related actuarial risks are: (i) survival rates
above the mortality tables, (ii) turnover lower than expected and (iii) salary growth higher than expected.
19.2.6. Rollforward of actuarial liabilities
The rollforward of actuarial liabilities related to other benefits, which was prepared based on actuarial report
reviewed by the Management, are as follows:
Composition of actuarial liabilities
Present value of actuarial liabilities
Net actuarial liabilities
Rollforward of present value of actuarial liabilities
Beginning balance of present value of actuarial liabilities
Interest on actuarial liabilities
Current service costs
Past service costs - plan change²
Benefits paid directly by the Company
Actuarial (gains) losses - experience
Actuarial (gains) losses - demographic hypothesis
Actuarial losses - economic hypothesis
Actuarial (gains) losses - exchange variation
Ending balance of liabilities
Rollforward of the fair value of the assets
Benefits paid directly by the Company
Contributions of the sponsor
Ending Balance of the fair value of the assets
Rollforward of comprehensive income
Beginning balance
Actuarial gains (losses)
Ending balance of comprehensive income
Costs recognized in statement of income
Interest on actuarial liabilities
Current service costs
Past service costs - plan change (2)
Immediate recognition of reduction
Cost recognized in statement of income
Estimated costs for the next year
Current service costs
Interest on actuarial liabilities
Estimated costs for the next year
Medical plan
F.G.T.S. penalty
Award for length of
service
Other (1)
12.31.20
12.31.19
12.31.20
12.31.19
12.31.20
12.31.19
12.31.20
12.31.19
185,802
185,802
187,274
187,274
282,229
282,229
247,485
247,485
108,908
108,908
103,284
103,284
199,616
199,616
151,431
151,431
187,274
13,586
-
-
(7,122)
1,167
13,462
(22,565)
-
185,802
149,046
13,503
-
-
(4,262)
(7,235)
-
36,222
-
187,274
247,485
13,993
12,718
-
(4,225)
14,725
10,195
(12,662)
-
282,229
167,588
11,840
6,471
(61,871)
(10,791)
7,897
84,158
42,193
-
247,485
103,284
6,275
5,741
-
(13,887)
10,759
5,717
(8,981)
-
108,908
55,134
4,366
2,574
-
(14,056)
11,142
34,950
9,174
-
103,284
151,431
8,883
23,174
-
(18,902)
10,548
1,535
4,778
18,169
199,616
96,384
4,260
22,237
-
(9,268)
10,462
14,066
13,290
-
151,431
7,122
(7,122)
-
4,262
(4,262)
-
4,225
(4,225)
-
10,791
(10,791)
-
13,887
(13,887)
-
14,055
(14,055)
-
18,902
(18,902)
-
9,268
(9,268)
-
(76,232)
7,936
(68,296)
(47,245)
(28,987)
(76,232)
(228,345)
(12,258)
(240,603)
(94,097)
(134,248)
(228,345)
-
-
-
-
-
-
(58,617)
(16,861)
(75,478)
(20,799)
(37,818)
(58,617)
(13,586)
-
-
-
(13,586)
(13,503)
-
-
-
(13,503)
(13,993)
(12,718)
-
-
(26,711)
(11,840)
(6,471)
61,871
-
43,560
(6,275)
(5,741)
-
(7,495)
(19,511)
(4,366)
(2,574)
-
(55,266)
(62,206)
(8,883)
(23,174)
-
-
(32,057)
(4,260)
(22,236)
-
-
(26,496)
-
(13,975)
(13,975)
-
(13,586)
(13,586)
(14,833)
(15,711)
(30,544)
(12,718)
(13,993)
(26,711)
(6,319)
(6,656)
(12,975)
(5,741)
(6,275)
(12,016)
(22,021)
(11,217)
(33,238)
(15,911)
(8,201)
(24,112)
(1) Considers the retirement compensation and life insurance benefits.
(2) Refers to a change in the legislation related to F.G.T.S. penalty. The Law Nº 13,932, of December 11, 2019, extinguished the social
contribution due by the employer of 10%.
BRF S.A. | 2020 AND 2019 CONSOLIDATED FINANCIAL STATEMENTS
F-53
19.2.7. Actuarial assumptions and demographic data
The main actuarial assumptions and demographic data used in the actuarial calculations are summarized below:
Actuarial assumptions
Economic hypothesis
Discount rate
Inflation rate
Medical inflation
Wage growth rate
F.G.T.S. balance growth
Demographic hypothesis
Schedule of mortality
Schedule of disabled
Schedule of turnover - BRF's historical
Demoraphic data
Number of active participants
Number of assisted beneficiary participants
Medical plan
12.31.20
12.31.19
F.G.T.S. penalty
12.31.20
12.31.19
Other (1)
12.31.20
12.31.19
7.68%
3.25%
6.35%
N/A
N/A
7.39%
3.80%
6.91%
N/A
N/A
6.51%
3.25%
N/A
3.25%
3.80%
6.07%
3.80%
N/A
4.02%
3.90%
6.51%
3.25%
N/A
3.25%
N/A
6.07%
3.80%
N/A
4.02%
N/A
AT-2000
smoothed by
10%
N/A
2,020
1,245
559
AT-2000
smoothed by
10%
RRB-44
2,020
93,245
-
AT-2000
N/A
2,019
1,115
572
AT-2000
RRB-44
2,019
86,849
-
(1)
Includes retirement compensation and life insurance benefits.
19.2.8. Expected benefit payments and average duration of obligations
The following amounts represent the expected benefit payments for future years (10 years), from the obligation
of benefits granted and the average duration of the plan obligations:
Payments
Medical plan
F.G.T.S. penalty
Award for length
of service
Other
Total
2021
2022
2023
2024
2025
2026 to 2030
Weighted average duration - in years
7,675
8,282
8,940
9,665
10,439
64,829
14.26
81,789
14,552
18,353
19,815
21,916
132,454
6.73
13,329
8,855
10,970
13,952
12,553
66,195
6.70
22,335
13,480
15,556
16,936
18,603
125,521
8.47
125,128
45,169
53,819
60,368
63,511
388,999
8.35
19.2.9. Sensitivity analysis of post-employment plans
The Company prepared sensitivity analysis regarding the relevant assumptions of the plans as of December
31, 2020, as presented below:
Relevant assumptions
Medical plan
Discount rate
Medical inflation
F.G.T.S. penalty
Discount rate
Wage growth rate
Turnover
Assumptions
utilized
(+) Variation
Average (%) Actuarial liabilities
(-) Variation
Average (%) Actuarial liabilities
7.68%
6.35%
6.51%
3.25%
Historical
8.68%
7.35%
7.51%
4.25%
+3%
164,011
211,694
265,825
286,139
233,001
6.68%
5.35%
5.51%
2.25%
-3%
212,435
164,224
301,077
278,672
356,695
BRF S.A. | 2020 AND 2019 CONSOLIDATED FINANCIAL STATEMENTS
F-54
20. PROVISION FOR TAX, CIVIL AND LABOR RISKS
The Company and its subsidiaries are involved in certain legal matters arising in the normal course of business,
which include civil, tax, social security, labor, commercial and other processes.
Company’s Management believes that, based on the elements existing at the base date of these consolidated
financial statements, the provision for tax, civil, labor, commercial and other risks, is sufficient to cover eventual
losses with administrative and legal proceedings, as set forth below.
20.1. Contingencies with probable losses
The rollforward of the provisions for tax, labor, civil, commercial and other risks classified as with probable loss,
and contingent liabilities is presented below:
Beginning balance
Additions
Reversals
Payments
Interest
Exchange rate variation
Ending balance
Current
Non-current
Tax
Labor
Civil, commercial
and other
Contingent liabilities
(1)
Total
12.31.20
12.31.19
12.31.20
12.31.19
12.31.20
12.31.19
12.31.20
12.31.19
12.31.20
12.31.19
583,464
103,773
(246,499)
(70,699)
57,275
(12)
427,302
230,149
451,190
(83,098)
(457,349)
442,622
(50)
583,464
603,074
435,723
(250,029)
(298,599)
144,516
21
634,706
468,513
633,623
(268,043)
(413,727)
182,749
(41)
603,074
307,177
52,961
(34,556)
(29,889)
47,818
19
343,530
281,958
48,576
(34,774)
(20,283)
32,058
(358)
307,177
300,654
-
(3,464)
-
-
(8)
297,182
369,631
124
(69,070)
-
-
(31)
300,654
1,794,369
592,457
(534,548)
(399,187)
249,609
20
1,702,720
1,350,251
1,133,513
(454,985)
(891,359)
657,429
(480)
1,794,369
865,338
837,382
1,084,308
710,061
(1) Contingent liabilities recognized at fair value as of the acquisition date, arising from the business combination with Sadia.
20.1.1. Tax
The tax contingencies classified as probable losses relate to the following main legal proceedings:
ICMS: The Company is involved in disputes related to the ICMS tax arising from the maintenance of credits on
the acquisition of products for which the subsequent sale has reduced tax base (“cesta básica”); maintenance
of credits on the acquisition of goods for consumption, fixed assets, electricity and presumed credit; tax
substitution; compensation with government debts; isolated fines; tax rate differential on seasoned product and
others, in the amount of R$248,560 (R$418,963 as of December 31, 2019).
PIS and COFINS: The Company is involved in administrative and judicial of disputes related to the compensation
of certain tax credits arising from the acquisition of supplies with federal taxes, in the amount of R$149,945
(R$139,711 as of December 31, 2019).
Other tax contingencies: The Company has other provisions for tax claims related to the payment of social
security contribution, INCRA, FUNRURAL, SESI/SENAI/SEBRAE, debts included in the government regularization
program (REFIS) with deposits awaiting consolidation and conversion into payment, differences in supplementary
fiscal obligations, import taxes, IOF, industrialized products taxes and others, in the amount of R$75,360
(R$61,731 as of December 31, 2019).
20.1.2. Labor
The Company is defendant in several labor claims either filed by individuals or by the Public Prosecutors Office,
mainly related to overtime, thermal rest, unhealthy environment, occupational accidents, among others. None
of these labor claims is individually significant. The Company recorded a provision based on past history of
payments, statistical models and on prognosis of loss.
20.1.3. Civil, commercial and others
Civil, commercial and other contingencies are mainly related to litigations containing allegations of contractual
breaches and noncompliance of legal obligations of several natures as disputes arising from contracts in general,
including outgrowers contracts, intellectual property disputes, regulatory issues, environmental and real state,
BRF S.A. | 2020 AND 2019 CONSOLIDATED FINANCIAL STATEMENTS
F-55
traffic accidents, consumer relations, among others. The claims are mostly for compensation of losses and
damages, application of penalties and obligations to do.
20.2. Contingencies with possible losses
The Company is involved in contingencies for which losses have been assessed as possible by Management with
support from legal advisors. On December 31, 2020, the total amount of contingencies classified as possible
was R$14,257,611 (R$13,299,190 as of December 31, 2019), of which solely the ones arising from the business
combination with Sadia are provisioned, measured by the estimated fair value at the business combination date:
R$297,182 (R$300,654 as of December 31, 2019). The remaining possible contingencies are presented below.
20.2.1. Tax
The tax contingencies for which losses have been assessed as possible amounted to R$12,536,528 as of
December 31, 2020 (R$11,811,690 as of December 31, 2019). The most relevant cases are set forth below:
PIS and COFINS: The Company is involved in administrative and judicial disputes related to the non-cumulative
system due to divergence on the concept of input and the use in the productive process, the requirement of
taxation of revenues related to presumed ICMS credits, disputes on the fiscal classification of seasoned meats,
Laws 2.445/88 and 2.449/88 (“semestralidade”), untimely credits and others, in the amount of R$5,549,431
(R$4,915,293 as of December 31, 2019).
ICMS: The Company is involved in disputes related to: (i) non-acceptance of ICMS credits in interstate sales
from states that were unilaterally granted fiscal benefits without the approval of the National Finance Policy
Council (“CONFAZ”), the so-called “guerra fiscal” in the amount of R$416,238 (R$1,457,867 as of December 31,
2019); (ii) lack of evidence of exports in the amount of R$265,590 (R$261,880 as of December 31, 2019);(iii)
infraction notices from State of Rio de Janeiro related to the supposed non-compliance of Agreement Terms
(“TARE”) regarding tax benefits, in the amount of R$550,367 (R$536,799 as of December 31, 2019); (iv) Public
Civil Action in Rio de Janeiro due do the use of tax benefits, in the amount of R$239,845; (v) infraction notice
about ICMS in Goiás related to the exclusion of the reversal of the tax credit from the calculation base of
PROTEGE, in the amount of R$105,866; and (vi) R$2,228,462 (R$2,291,608 on December 31, 2019) related to
other claims. The relevant reduction in the amount related to “guerra fiscal” is mainly due to the recognition of
the credits by the state of São Paulo, for which the probability of loss has been changed to remote.
Income Tax and Social Contribution (IRPJ and CSLL): The Company is involved in administrative and judicial
disputes related to refunds and compensation of negative income tax and social contribution balances, including
credits arising from the Plano Verão and requirement of IRPJ and CSLL related to the compensation of tax loss
carryforwards above the limit of 30% due to incorporation of entities. The contingencies related to these taxes
totaled R$1,249,062 (R$1,238,564 as of December 31, 2019).
Profits earned abroad: The Company was assessed by the Brazilian Federal Revenue for alleged underpayment
of income tax and social contribution on profits earned by its subsidiaries located abroad, in a total amount of
R$629,341 (R$534,819 as of December 31, 2019). The Company’s legal defense is based on the facts that the
subsidiaries located abroad are subject exclusively to the full taxation in the countries in which they are based
as a result of the treaties signed to avoid double taxation.
IPI: The Company disputes administratively and judicially the denial of compensation of IPI credits resulting
from purchases of duty-free goods, sales to Manaus Free Zone and purchases of supplies with PIS and COFINS
from non-taxpayers. Such discussed cases totaled the amount of R$209,314 (R$291,723 as of December 31,
2019).
Social security taxes: The Company disputes cases related to the charges of social security on payroll,
employees profit sharing, GILRAT additional for special retirement financing, SAT/RAT, as well as other cases,
in a total amount of R$418,957 (R$274,278 as of December 31, 2019).
Other contingencies: The Company disputes cases related to the requirement of 50% fine on the compensations
of PIS, COFINS and IRPJ not approved awaiting final decision of the processes, drawback proof, tax on services
and others of several natures, fees, property tax, import tax and IOF, totaling R$674,055 (R$493,104 as of
December 31, 2019).
BRF S.A. | 2020 AND 2019 CONSOLIDATED FINANCIAL STATEMENTS
F-56
20.2.2. Labor
On December 31, 2020 the labor contingencies assessed as possible loss totaled R$197,097 (R$84,039 as of
December 31, 2019).
20.2.3. Civil, commercial and others
Civil, commercial and other contingencies for which losses were assessed as possible totaled R$1,523,987
(R$1,403,461 as of December 31, 2019) and are mainly related to litigations containing allegations of contractual
breaches and noncompliance of legal obligations of several natures as disputes arising from contracts in general,
including outgrowers contracts, intellectual property disputes, regulatory issues, environmental and real state,
traffic accidents, consumer relations, among others. The claims are mostly for compensation of losses and
damages, application of penalties and obligations to do.
20.2.4. Others
The Company has been subject to investigations conducted by public authorities denominated “Carne Fraca
Operation” in 2017 and “Trapaça Operation” in 2018. The development of these processes and the already
incurred effects are described in the note 1.2.
21. EQUITY
21.1. Capital stock
On December 31, 2020, the subscribed and paid capital of the Company was R$12,553,418, which is composed
of 812,473,246 common book-entry shares with no par value. The value of the capital stock is net of the public
offering expenses of R$92,947, made on July 22, 2009.
The Company is authorized to increase the capital stock, irrespective of amendment to the bylaws, up to the
limit of 1,000,000,000 (one billion) common book-entry shares with no par value.
21.1.1. Breakdown of capital stock by nature
Common shares
Treasury shares
Outstanding shares
12.31.20
12.31.19
12.31.18
812,473,246
812,473,246
(4,766,084)
807,707,162
(713,446)
811,759,800
812,473,246
(1,057,224)
811,416,022
21.1.2. Breakdown of capital stock by owner
The shareholding position of shareholders holding more than 5% of the voting capital, management and
members of the Board of Directors is presented below:
Shareholders
Major shareholders
Fundação Petrobras de Seguridade Social - Petros (1)
Caixa de Previd. dos Func. do Banco do Brasil (1)
Management
Board of Directors
Executives
Treasury shares
Other
Quantity
92,716,266
74,856,852
6,865,302
605,902
4,766,084
632,662,840
812,473,246
12.31.20
%
Quantity
12.31.19
%
11.41
9.21
0.84
0.07
0.59
77.88
100.00
92,716,266
76,974,752
6,474,420
236,338
713,446
635,358,024
812,473,246
11.41
9.47
0.80
0.03
0.09
78.20
100.00
(1) The pension funds are controlled by employees that participate in the respective entities.
The Company is bound to arbitration in the Market Arbitration Chamber, as established by the arbitration clause
in its bylaws.
BRF S.A. | 2020 AND 2019 CONSOLIDATED FINANCIAL STATEMENTS
F-57
21.1.3. Rollforward of outstanding shares
Shares at the beginning of the year
Purchase of treasury shares
Delivery of restricted shares
Shares at the end of the year
21.2. Capital reserves
Result on sale and exchange of shares
Share-based payment
Acquisition of non-controlling interest
Capital transactions with subsidiaries
Quantity of outstanding of shares
12.31.20
12.31.19
12.31.18
811,759,800
(4,836,000)
783,362
807,707,162
811,416,022
811,139,545
-
-
343,778
811,759,800
276,477
811,416,022
12.31.20
125,532
223,191
(206,423)
(220)
142,080
12.31.19
125,532
223,011
(155,478)
(220)
192,845
12.31.18
125,532
229,872
(239,830)
(220)
115,354
21.3. Absorption of accumulated losses
The earnings for the year of R$1,524,997 were fully used to offset accumulated losses.
21.4. Treasury shares
The Company has 4,766,084 shares held in treasury, with an average cost of R$26.00 (twenty-six Brazilian
Reais) per share, and market value corresponding to R$105,044.
Shares at the beggining of the exercise
Purchase of treasury shares
Delivery of restricted shares
Shares at the end of the exercise
Quantity of outstanding of shares
12.31.20
713,446
4,836,000
(783,362)
4,766,084
12.31.19
12.31.18
1,057,224
1,333,701
-
(343,778)
713,446
-
(276,477)
1,057,224
The program of repurchase of own shares, which was approved by the Board of Directors on March 26, 2020,
was concluded on May 22, 2020. The Company purchased 4,836,000 common shares, representing 0.60% of
its capital stock, at the cost of R$106,070, with the purpose to maintain in treasury for eventual
disposal, cancellation, as well as to comply with obligations and commitments made under the Stock Option
Plan and the Restricted Stocks Plan.
22. EARNINGS (LOSS) PER SHARE
Basic numerator
Net earnings (loss) for the exercise attributable to controlling shareholders
1,518,492
1,067,312
(2,114,968)
(904,628)
(2,333,093)
162,684
(4,448,061)
Continued operations
Discontinued operations
Continued and discontinued
operations
12.31.20
12.31.19
12.31.18
12.31.19
12.31.18
12.31.19
12.31.18
Basic denominator
Common shares
Weighted average number of outstanding shares - basic (except treasury
shares)
Net earnings (loss) per share basic - R$
Diluted numerator
812,473,246
812,473,246
812,473,246
812,473,246
812,473,246
812,473,246
812,473,246
809,110,872
1.88
811,539,167
1.32
811,294,251
(2.61)
811,539,167
(1.11)
811,294,251
(2.88)
811,539,167
0.20
811,294,251
(5.48)
Net earnings (loss) for the exercise attributable to controlling shareholders
1,518,492
1,067,312
(2,114,968)
(904,628)
(2,333,093)
162,684
(4,448,061)
Diluted denominator
Weighted average number of outstanding shares - basic (except treasury
shares)
Number of potential shares (1)
Weighted average number of outstanding shares - diluted
Net earnings (loss) per share diluted - R$
809,110,872
2,237,936
811,348,808
1.87
811,539,167
2,327,952
813,867,119
1.31
811,294,251
-
811,294,251
(2.61)
811,539,167
-
811,539,167
(1.11)
811,294,251
-
811,294,251
(2.88)
811,539,167
2,327,952
813,867,119
0.20
811,294,251
-
811,294,251
(5.48)
(1) Comprised of the restricted stocks under the share-based payment plans for which the payment is made in equity instruments.
BRF S.A. | 2020 AND 2019 CONSOLIDATED FINANCIAL STATEMENTS
F-58
23. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
23.1. Overview
In the ordinary course of business, the Company is exposed to credit, liquidity and market risks, which are
actively managed in compliance with the Financial Risk Management Policy (“Risk Policy”) and internal guidelines
and strategic documents subject to such policy. The Risk Policy was approved by the Board of Directors on
December 17, 2020, is valid for one year and is available at the Company’s website.
The Company’s risk management strategy, guided by the Risk Policy, has as main objectives:
»
»
»
To protect operating and financial results of Company, as well its shareholders’ equity from adverse
changes in the market prices, specially commodities, foreign exchange and interests;
To protect the Company against counterparty risks in existing financial operations as well as to
establish guidelines for sustaining the necessary liquidity to fulfil its financial commitments;
To protect the cash of Company against price volatilities, adverse conditions in the markets in
which the Company acts and adverse conditions in its production chain.
The Risk Policy defines the governance of the bodies responsible for the execution, tracking and approval of the
risk management strategies, as well as the limits and instruments that can be used.
23.2. Credit risk management
The Company is exposed to the credit risk related to the financial assets held: trade and non-trade accounts
receivable, marketable securities, derivative instruments and cash and equivalents. The Company’s credit risk
exposure can be assessed in notes 4, 5, 6 and 23.
23.2.1. Credit risk in accounts receivable
The credit risk associated with trade accounts receivable is actively managed through specific systems and is
supported by internal policies for credit analysis. The significant level of diversification and geographical
dispersion of the customer portfolio significantly reduces the risk. However, the Company chooses to
complement the risk management by contracting insurance policies for specific markets. The impairment of
these financial assets is carried out based on expected credit losses.
23.2.2. Counterparty credit risk
The credit risk associated with marketable securities, cash and cash equivalents and derivative instruments in
general is directed to counterparties with Investment Grade ratings. The maintenance of assets with
counterparty risk is constantly assessed according to credit ratings and the Company’s portfolio concentration,
aligned with the applicable impairment requisites.
On December 31, 2020, the Company held financial investments over R$100,000 at the following financial
institutions: Banco Bradesco, Banco BIC, Banco BNP Paribas, Banco do Brasil, Banco BTG Pactual, Banco Itaú,
Banco Safra, Banco Santander, Citibank, HSBC, J.P. Morgan Chase Bank, T.Garanti Bankasi A.Ş. and Vakiflar
Bankasi.
The Company also held derivative contracts with the following financial institutions: Banco Bradesco, Banco
Itaú, Banco Santander, Banco Votorantim, Bank of America Merrill Lynch, Banco BNP Paribas, Citibank, Deutsche
Bank, ING Bank, J.P. Morgan Chase Bank, Morgan Stanley, Rabobank and XP.
23.3. Capital management and liquidity risk
The Company is exposed to liquidity risk as far as it needs cash or other financial assets to settle its obligations
in the respective terms. The Company’s cash and liquidity strategy takes into consideration historical volatility
scenarios of results as well as simulations of sectorial and systemic crisis. It is grounded on allowing resilience
in scenarios of capital restriction.
The ideal capital structure definition at BRF is essentially associated with (i) strong cash position as a tolerance
factor for liquidity shocks, which includes minimum cash analysis; (ii) net indebtedness; and (iii) maximization
of the capital opportunity cost.
BRF S.A. | 2020 AND 2019 CONSOLIDATED FINANCIAL STATEMENTS
F-59
Non derivative financial liabilities
Loans and borrowings
Trade accounts payable
Supply chain finance
Lease liabilities
Derivative financial liabilities
Financial instruments designated as
cash flow hedge
Currency derivatives
Commodities derivatives
Financial instruments not designated
as cash flow hedge
As a guideline, the gross debt must be concentrated at long-term. On December 31, 2020, the long-term
consolidated gross debt represented 93.66% (82.50% as of December 31, 2019) of the total gross indebtedness,
which has an average term higher than nine years.
The Company monitors the gross debt and net debt as set forth below:
Foreign currency loans and borrowings
Local currency loans and borrowings
Derivative financial liabilities
Gross debt
Marketable securities and cash and cash equivalents
Derivative financial assets
Restricted cash
Net debt
12.31.20
12.31.19
Current
Non-current
Total
Total
(575,147)
(15,163,987)
(15,739,134)
(11,006,524)
(484,837)
(384,969)
(6,180,455)
(727)
(6,665,292)
(385,696)
(7,613,755)
(153,612)
(1,444,953)
(21,345,169)
(22,790,122)
(18,773,891)
7,890,783
377,756
1
344,577
234
24,357
8,235,360
377,990
4,963,319
245,315
24,358
(14,152,414)
296,294
(13,268,963)
The table below summarizes the significant commitments and contractual obligations that may impact the
Company’s liquidity:
Book
value
Contractual
cash flow
2021
2022
2023
2024
2025
12.31.20
2026
onwards
22,404,426
9,009,987
1,452,637
2,536,681
34,310,033
9,098,376
1,474,227
3,277,861
1,731,718
9,084,595
1,474,227
409,409
3,405,806
5,499
-
542,947
3,491,994
5,433
-
448,295
2,668,153
2,849
-
377,710
1,418,320
-
-
283,917
21,594,042
-
-
1,215,583
Interest rate derivatives
Currency derivatives
14,649
20,036
14,649
20,036
14,649
20,036
81,650
269,361
81,650
269,361
81,650
268,634
-
727
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
The Company does not expect that the cash outflows to fulfill the obligations presented above will be significantly
influenced by factors unrelated to its best interests, or substantially modified outside the normal course of
business.
23.4. Market risk management
23.4.1. Interest rate risk
The interest rate risk may cause economic losses to the Company resulting from volatility in interest rates that
affect its assets and liabilities.
The Company’s Risk Policy does not restrict exposure to different interest rates, neither establishes limits for
fixed or floating rates. However, the Company continually monitors the market interest rates in order to evaluate
any need to enter into hedging transactions to protect from the fluctuation of such rates and manage the
mismatch between its financial investments and debts.
The indebtedness is essentially linked to the fixed coupon (R$, USD, EUR e TRY), Interbank Deposit Certificate
(“CDI”), Broad Consumer Price Index (“IPCA”) and London Interbank Offered Rate (“LIBOR”). In situations of
adverse market changes that result in an increase in these rates, the cost of floating-rate debt rises and on the
other hand, the cost of fixed-rate debt decreases in relative terms.
Regarding the marketable securities, the Company holds, mainly, instruments indexed by the CDI for
investments in Brazil and fixed coupon in USD for investments in the foreign market.
The Company’s exposure to interest rates can be assessed in notes 4, 5 and 14.
BRF S.A. | 2020 AND 2019 CONSOLIDATED FINANCIAL STATEMENTS
F-60
The derivative financial instruments used to hedge the exposure to interest rates as of December 31, 2020 are
presented in the table below:
Derivative instruments not
designated
Interest rate swap
Maturity
2nd Qtr. 2021
Asset
Liability
Notional
USD + 2.80% p.a. CDI + 2.27% p.a.
49,900
USD
12.31.20
Fair value
(R$)
(14,649)
(14,649)
23.4.2. Foreign exchange risk
This risk is the one that may cause unexpected losses to the Company resulting from volatility of the FX rates,
reducing its assets and revenues or increasing its liabilities and costs. The Company’s exposure is managed in
three dimensions: statement of financial position exposure, operating income exposure and investments
exposure.
i. Statement of financial position exposure
The Risk Policy regarding statement of financial position exposure has the objective to balance assets and
liabilities denominated in foreign currencies, hedging the Company’s statement of financial position by using
natural hedges, over-the-counter derivatives and exchange traded futures.
Assets and liabilities denominated in foreign currency for which the exchange variations are recognized in the
Financial Results are as follows, summarized in Brazilian Reais:
Cash and cash equivalents
Trade accounts receivable
Trade accounts payable
Loans and borrowings
Other assets and liabilities, net
Exposure of assets and liabilities in foreign currencies
Derivative financial instruments (hedge)
Exposure in result, net
12.31.20
12.31.19 (1)
2,855,979
5,765,753
2,591,746
4,892,708
(859,790)
(601,007)
(14,947,793)
(8,854,826)
225,694
(162,341)
(6,960,157)
(2,133,720)
6,849,947
(110,210)
1,734,517
(399,203)
(1)
In the consolidated financial statements for the year of 2019, the Company presented the exposure arising from monetary assets and
liabilities in foreign entities, for which Real is the functional currency, in a single line item “Investments”. For better management of
the foreign exchange exposure, in 2020 the Company begun to break down such exposure, by classifying each asset or liability by its
nature. Therefore, the comparative period has been restated for comparability.
The net P&L exposure is mainly composed of the following currencies:
Net P&L Exposure
Argentinian Peso (ARS)
Euros (EUR)
Pound Sterling (GBP)
Yen (JPY)
Rubles (RUB)
Turkish Liras (TRY)
U.S. Dollars (USD)
Total
12.31.20
(5,310)
104,539
9,394
29,976
(1,261)
178,906
(426,454)
(110,210)
12.31.19
(13,236)
23,624
6,949
(17,285)
2,780
(418,576)
16,541
(399,203)
The Company has exposure to other different currencies, although they have been grouped in the currencies
above due to its high correlation or for not being individually significant.
The derivative financial instruments hired to hedge the foreign currency statement of financial position exposure
on December 31, 2020 are not designated as hedge accounting and are set forth below:
BRF S.A. | 2020 AND 2019 CONSOLIDATED FINANCIAL STATEMENTS
F-61
Derivative instruments not
designated
Non-deliverable forward
Non-deliverable forward
Non-deliverable forward
Futures - B3
Non-deliverable forward
Non-deliverable forward
Non-deliverable forward
Collar
Total
Asset
Liability
Maturity
Notional
Exercise
rate
12.31.20
Fair value
(R$)
EUR
USD
USD
BRL
EUR
USD
EUR
TRY
BRL
BRL
BRL
USD
JPY
EUR
RUB
USD
1st Qtr. 2021
1st Qtr. 2021
2nd Qtr. 2021
1st Qtr. 2021
1st Qtr. 2021
1st Qtr. 2021
1st Qtr. 2021
1st Qtr. 2021
EUR
USD
USD
USD
EUR
EUR
EUR
USD
265,000
340,000
50,000
553,000
19,789
75,000
20,836
50,000
6.2671
5.1077
5.2800
5.1797
126.3299
1.2274
91.1883
7.8800
32,015
27,023
(4,525)
(9,086)
704
(1,888)
2,655
8,544
55,442
ii. Operating income exposure
The Risk Policy regarding operating income exposure has the objective to hedge revenues and costs denominated
in foreign currencies. The Company is supported by internal models to measure and monitor these risks, and
uses financial instruments for hedging, designating the relations as cash flow hedges.
The derivative and non-derivative financial instruments designated as cash flow hedges for foreing exchange
operating income exposure on December 31, 2020 are set forth below:
Cash flow hedge - Derivative
instruments
Non-deliverable forward
Non-deliverable forward
Non-deliverable forward
Collar
Collar
Collar
Collar
Hedged object
Asset Liability
Maturity
Notional
USD Exports
USD Exports
USD Exports
USD Exports
USD Exports
USD Exports
USD Exports
BRL
BRL
BRL
BRL
BRL
BRL
BRL
USD
USD
USD
USD
USD
USD
USD
1st Qtr. 2021 USD 241,000
2nd Qtr. 2021 USD
25,000
3rd Qtr. 2021 USD
5,000
1st Qtr. 2021 USD 132,000
2nd Qtr. 2021 USD
45,000
45,000
3rd Qtr. 2021 USD
4th Qtr. 2021 USD
10,000
12.31.20
Designation
rate
Fair value
5.4084
5.6329
5.8018
4.9158
5.3785
5.5933
5.7500
53,721
10,964
2,940
(33,764)
10,110
18,967
5,457
68,395
12.31.20
Cash flow hedge - Non-
derivative instruments
Hedged object
Liability
Maturity
Notional
Designation
rate
Fair value
(1)
Bond BRF SA BRFSBZ 5 7/8 (2)
Bond BRF SA BRFSBZ 3.95
USD Exports
USD Exports
USD
USD
2nd Qtr. 2022 USD
70,928
2nd Qtr. 2023 USD 150,000
2.0213
2.0387
(409,518)
(473,700)
(883,218)
(1) Corresponds to the effective portion of the hedge result accumulated in Other Comprehensive Income.
(2) For this instrument, the initial designation was of USD150,000, however there were repurchases with corresponding revocation of the
designation in the amounts of USD31,338 at the rate of 3.2408, USD9,350 at the rate of 4.1827, USD27,190 at the rate of 5.1889 e
USD11,194 at the rate of 5.5714. The accumulated exchange rate variation of the revoked portions is fixed and reserved in Other
Comprehensive Income until the recognition of the hedge object in the second quarter of 2022.
iii. Investments exposure
The Company holds investments abroad in functional currencies different than the Brazilian Real, which generate
currency exposure that affects directly the Company’s Equity, in Other Comprehensive Income.
The non-derivative financial instruments designated as net investment hedge instruments on December 31,
2020 are set forth below:
Net investment hedge -
Non-derivative instruments
Bond - BRF SA BRFSBZ 4.35
Bond - BRF SA BRFSBZ 4.35
Federal Foods LLC
BRF Al Yasra Food
Bond - BRF SA BRFSBZ 4.35
Al Khan Foodstuff LLC
Object (Investment)
Liability
Maturity
Notional
Rate
Fair value (1)
12.31.20
USD
USD
USD
3rd Qtr. 2026
3rd Qtr. 2026
3rd Qtr. 2026
USD
75,673
USD 108,757
65,570
USD
3.7649
3.7649
3.7649
(108,991)
(142,280)
(93,403)
(344,674)
(1) Corresponds to the effective portion of the hedge result accumulated in Other Comprehensive Income.
BRF S.A. | 2020 AND 2019 CONSOLIDATED FINANCIAL STATEMENTS
F-62
23.4.3. Commodities price risk
In the ordinary course of business, the Company purchases commodities, mainly corn, soybean, soybean meal
and soybean oil, individual components of the production costs.
Corn and soy prices are subject to volatility resulting from weather conditions, harvest productivity, transport
and warehouse costs, government agricultural policies, FX rates and international market prices, among other
factors.
The Risk Policy establishes coverage limits to the flow of purchases of corn and soy with the purpose of reducing
the impact due to a price increase of these raw materials. The hedge may be reached using derivatives or by
inventory management.
The financial instruments designated as cash flow hedges and fair value hedges for the commodities price
exposure on December 31, 2020 are set forth below:
Cash flow hedge - Derivative
instruments
Non-deliverable forward - buy
Non-deliverable forward - buy
Non-deliverable forward - buy
Non-deliverable forward - buy
Collar - buy
Collar - buy
Collar - buy
Non-deliverable forward - buy
Non-deliverable forward - buy
Non-deliverable forward - buy
Collar - buy
Collar - buy
Fair value hedge - Derivative
instruments
Non-deliverable forward - sell
Non-deliverable forward - sell
Non-deliverable forward - sell
Non-deliverable forward - sell
Non-deliverable forward - sell
Non-deliverable forward - sell
Non-deliverable forward - sell
Non-deliverable forward - sell
Corn future - sell
Corn future - sell
Corn future - sell
Collar - sell
Hedged object
Index
Maturity
Quantity
Soybean meal purchase - floating price
Soybean meal purchase - floating price
Soybean meal purchase - floating price
Soybean meal purchase - floating price
Soybean meal purchase - floating price
Soybean meal purchase - floating price
Soybean meal purchase - floating price
Soybean oil purchase - floating price
Soybean oil purchase - floating price
Soybean oil purchase - floating price
Soybean oil purchase - floating price
Soybean oil purchase - floating price
Soybean meal - CBOT
Soybean meal - CBOT
Soybean meal - CBOT
Soybean meal - CBOT
Soybean meal - CBOT
Soybean meal - CBOT
Soybean meal - CBOT
Soybean oil - CBOT
Soybean oil - CBOT
Soybean oil - CBOT
Soybean oil - CBOT
Soybean oil - CBOT
1st Qtr. 2021
2nd Qtr. 2021
3rd Qtr. 2021
4th Qtr. 2021
1st Qtr. 2021
2nd Qtr. 2021
4th Qtr. 2021
2nd Qtr. 2021
3rd Qtr. 2021
4th Qtr. 2021
3rd Qtr. 2021
4th Qtr. 2021
5,000
80,995
128,995
9,999
4,990
9,072
4,990
19,098
18,098
1,000
2,994
2,994
ton
ton
ton
ton
ton
ton
ton
ton
ton
ton
ton
ton
12.31.20
Exercise rate
(USD/Ton)
Fair value
430.69
372.18
381.44
390.12
465.17
462.42
402.67
762.42
731.37
825.63
861.57
858.26
1,062
38,447
28,387
590
939
1,970
431
13,524
12,892
123
1,396
1,376
101,137
12.31.20
Hedged object
Index
Maturity
Quantity
Exercise rate
(1)
Fair value
Soybean purchase - fixed price
Soybean purchase - fixed price
Soybean purchase - fixed price
Soybean - CBOT
Soybean - CBOT
Soybean - CBOT
Corn purchase - fixed price
Corn purchase - fixed price
Corn purchase - fixed price
Corn purchase - fixed price
Corn purchase - fixed price
Corn purchase - fixed price
Corn purchase - fixed price
Corn purchase - fixed price
Corn purchase - fixed price
Corn - CBOT
Corn - CBOT
Corn - CBOT
Corn - CBOT
Corn - CBOT
Corn - B3
Corn - B3
Corn - B3
Corn - B3
1st Qtr. 2021
2nd Qtr. 2021
3rd Qtr. 2021
1st Qtr. 2021
2nd Qtr. 2021
3rd Qtr. 2021
4th Qtr. 2021
1st Qtr. 2022
2nd Qtr. 2021
3rd Qtr. 2021
4th Qtr. 2021
3rd Qtr. 2021
26,322
29,998
19,999
16,573
743,321
239,954
175,433
9,998
36,801
95,364
6,480
9,990
ton
ton
ton
ton
ton
ton
ton
ton
ton
ton
ton
ton
411.58
399.35
383.18
140.98
147.47
142.95
146.65
153.33
1,040.42
972.98
847.38
1,104.39
(9,063)
(11,788)
(7,955)
(3,946)
(148,541)
(39,015)
(21,643)
(727)
(479)
(1,102)
(94)
(841)
(245,194)
(1) Base price of each commodity in USD/ton, except for Corn – B3 denominated in R$/ton.
Fair value hedge -
Derivative instruments
Non-deliverable forward
Non-deliverable forward
Non-deliverable forward
Non-deliverable forward
Non-deliverable forward
Protection object
Assets
Liabilities
Maturity
Notional
12.31.20
Exercise
rate
Fair value
Cost in USD
Cost in USD
Cost in USD
Cost in USD
Cost in USD
BRL
BRL
BRL
BRL
BRL
USD
USD
USD
USD
USD
U 1st Qtr. 2021
U 2nd Qtr. 2021
U 3rd Qtr. 2021
U 4th Qtr. 2021
U 1st Qtr. 2022
USD
USD
USD
USD
USD
13,170
121,597
41,966
25,727
1,533
5.4056
5.2471
5.5286
5.4991
5.4651
2,939
5,340
12,692
5,958
234
27,163
BRF S.A. | 2020 AND 2019 CONSOLIDATED FINANCIAL STATEMENTS
F-63
23.5. Effects of hedge instruments on financial information
The effects of financial instruments for hedging exchange rate, commodities price and interest rates in the
income for the year, in Other Comprehensive Income and in the financial position are set forth below:
Income for the year
12.31.20
Net Sales
Derivatives result
Net Revenue
Cost of Sales
Derivatives result
Cost of Sales
Note
Exposure
Hedge accounting
Operating Results
Cash flow
25
Operating Results
Cash flow / Fair
value
Interests on loans and borrowings
Interest Rate Derivatives result
Foreign Exchange variation on assets and
liabilities
Foreign Exchange Derivatives result
Effects on Financial Result
27
Interest expenses
Cash flow
Financial Position
Not designated
Other Comprehensive Income
12.31.20
Derivative Instruments - current
Non-derivative Instruments – non-current
Non-derivative Instruments - non-current
Other Comprehensive Income (1)
(1) All effects are presented gross of taxes.
Exposure
Hedge accounting
Operating Results
Operating Results
Foreign investments
Cash flow
Cash flow
Net investment
Foreign
Exchange
40,841,803
(1,372,103)
39,469,700
-
-
-
-
-
(1,179,236)
981,847
(197,389)
Foreign
Exchange
Commodities
Interest Rate
Total
-
-
-
(29,816,160)
(182,662)
(29,998,822)
-
-
-
-
-
-
-
-
-
-
-
(1,545,825)
(32,909)
-
-
40,841,803
(1,372,103)
39,469,700
(29,816,160)
(182,662)
(29,998,822)
(1,545,825)
(32,909)
(1,179,236)
981,847
(1,578,734)
(1,776,123)
Commodities
Interest Rate
Total
(28,893)
(306,340)
(277,856)
211,751
-
-
(613,089)
211,751
-
-
-
-
182,858
(306,340)
(277,856)
(401,338)
Statement of financial position
12.31.20
Designated derivatives
Not designated derivatives
Asset / (Liability) net
Note
Exposure
Hedge accounting
Foreign
Exchange
Commodities
Interest Rate
Total
Operating Results
Financial Position
Cash flow / Fair
value
Not designated
95,558
55,442
151,000
(144,057)
-
(144,057)
-
(14,649)
(14,649)
(48,499)
40,793
(7,706)
Derivative Instruments - current (2)
Non-derivative instruments – non-current
Non-derivative Instruments - non-current
Other Comprehensive Income (1)
Operating Results
Operating Results
Foreign investments
Cash flow
Cash flow
Net investment
47,942
(883,218)
(344,674)
(1,179,950)
171,306
-
-
171,306
Derivatives result
Inventories
Operating Results
Cash flow / Fair
value
7
-
-
442,398
442,398
-
-
-
-
-
-
219,248
(883,218)
(344,674)
(1,008,644)
442,398
442,398
(1) All effects are presented gross of taxes.
(2) Includes R$6,251 related to the time value of the foreign exchange option contracts, and R$6,178 related to the time value of the
commodity options contracts.
BRF S.A. | 2020 AND 2019 CONSOLIDATED FINANCIAL STATEMENTS
F-64
Income for the year
12.31.19
Net Sales
Derivatives result
Net Revenue
Cost of Sales
Derivatives result
Cost of Sales
Note
Exposure
Hedge accounting
Operating Results
Cash flow
25
Operating Results
Cash flow / Fair
value
Interests on loans and borrowings
Interest Rate Derivatives result
Foreign Exchange variation on assets and
liabilities
Foreign Exchange Derivatives result
Effects on Financial Result
27
Interest expenses
Cash flow
Financial Position
Not designated
Other Comprehensive Income
12.31.19
Derivative Instruments - current
Non-derivative Instruments – non-current
Non-derivative Instruments - non-current
Other Comprehensive Income (1)
Statement of financial position
12.31.19
Designated derivatives
Not designated derivatives
Asset / (Liability) net
Exposure
Hedge accounting
Operating Results
Operating Results
Foreign investments
Cash flow
Cash flow
Net investment
Note
Exposure
Hedge accounting
Operating Results
Financial Position
Cash flow / Fair
value
Not designated
Derivative Instruments - current
Non-derivative Instruments - non-current
Non-derivative Instruments - non-current
Other Comprehensive Income (1)
Operating Results
Operating Results
Foreign investments
Cash flow
Cash flow
Net investment
Foreign
Exchange
33,465,194
(18,214)
33,446,980
-
-
-
-
-
100,480
(178,523)
(78,043)
Foreign
Exchange
Commodities
Interest Rate
Total
-
-
-
(25,339,804)
(30,238)
(25,370,042)
-
-
-
-
-
-
33,465,194
(18,214)
33,446,980
(25,339,804)
(30,238)
(25,370,042)
-
-
-
-
-
(1,516,677)
5,173
(1,516,677)
5,173
-
-
100,480
(178,523)
(1,511,504)
(1,589,547)
Commodities
Interest Rate
Total
46,110
23,328
(66,818)
2,620
(14,056)
-
-
(14,056)
-
-
-
-
32,054
23,328
(66,818)
(11,436)
Commodities
Interest Rate
Total
Foreign
Exchange
93,312
22,026
115,338
76,835
(576,877)
(66,818)
(566,860)
(23,638)
-
(23,638)
(40,445)
-
-
(40,445)
-
-
-
-
-
-
-
-
-
69,674
22,026
91,700
36,390
(576,877)
(66,818)
(607,305)
47,374
47,374
Derivatives result
Inventories
Operating Results
Cash flow / Fair
value
7
-
-
47,374
47,374
(1) All effects are presented gross of taxes.
In the Statement of Cash Flows, the effect of the derivative financial instruments designated as hedge accounting
is presented in the line item in which the hedged object is recorded. For the instruments not designated, the
effects are presented in the Derivative Financial Instruments line item.
BRF S.A. | 2020 AND 2019 CONSOLIDATED FINANCIAL STATEMENTS
F-65
Summarized financial position of derivative financial instruments:
Asset
Designated as hedge accounting
Currency derivatives
Commodities derivatives
Not designated as hedge accounting
Currency derivatives
Current assets
Non-current assets
Liabilities
Designated as hedge accounting
Currency derivatives
Commodities derivatives
Not designated as hedge accounting
Currency derivatives
Interest rate derivatives
Current liabilities
Non-current liabilities
12.31.20
12.31.19
177,208
125,304
75,478
377,990
377,756
234
166,729
25,191
53,395
245,315
195,324
49,991
(81,650)
(269,361)
(73,417)
(48,829)
(20,036)
(14,649)
(385,696)
(384,969)
(727)
(31,369)
-
(153,615)
(153,612)
(3)
BRF S.A. | 2020 AND 2019 CONSOLIDATED FINANCIAL STATEMENTS
F-66
23.6. Sensitivity analysis
The Management understands that the most relevant risks that may affect the Company’s results are the
volatility of commodities prices and foreign exchange rates. Currently the fluctuation of the interest rates does
not affect significantly the Company’s results since Management has chosen to keep at fixed rates a considerable
portion of its debts.
The amounts below represent the possible impacts (incremental results) of the hedging instruments and their
respective hedged positions, considering situations of increase and decrease in the selected risk factors.
The information used in the preparation of the analysis is based on the position as of December 31, 2020, which
has been described in the items above. The future results may diverge significantly of the estimated values if
the reality presents different than the assumptions used. Positive values indicate gains and negative values
indicate losses.
Exchange rate - Balance
USD
Base
5.1967
Monetary Assets and Liabilities
Derivative Instruments - Not designated
- 50%
- 25%
Scenario
- 10%
+ 10%
+ 25%
+ 50%
2.5984
3.8975
4.6770
5.7164
6.4959
7.7951
2,891,741
(2,678,513)
213,228
1,445,871
(1,339,257)
106,614
578,348
(535,703)
42,645
(578,348)
535,703
(42,645)
(1,445,871)
1,339,257
(106,614)
(2,891,741)
2,678,513
(213,228)
Net effect
EUR
Monetary Assets and Liabilities
Derivative Instruments - Not designated
Net effect
JPY
Monetary Assets and Liabilities
Derivative Instruments - Not designated
Net effect
RUB
Monetary Assets and Liabilities
Derivative Instruments - Not designated
Net effect
TRY
6.3935
3.1968
4.7951
5.7542
7.0329
7.9919
9.5903
684,591
(736,988)
(52,397)
342,295
(368,494)
(26,199)
136,918
(147,398)
(10,480)
(136,918)
147,398
10,480
(342,295)
368,494
26,199
(684,591)
736,988
52,397
0.0503
0.0252
0.0377
0.0453
0.0553
0.0629
0.0755
(77,886)
62,925
(14,961)
(38,943)
31,463
(7,480)
(15,577)
12,585
(2,992)
15,577
(12,585)
2,992
38,943
(31,463)
7,480
77,886
(62,925)
14,961
0.0698
0.0349
0.0524
0.0628
0.0768
0.0873
0.1047
(65,717)
66,348
631
(32,858)
33,174
316
(13,143)
13,270
127
13,143
(13,270)
(127)
32,858
(33,174)
(316)
65,717
(66,348)
(631)
0.7061
0.3531
0.5296
0.6355
0.7767
0.8826
1.0592
Monetary Assets and Liabilities
Derivative Instruments - Not designated
Net effect
51,616
(141,926)
(90,310)
25,808
(70,963)
(45,155)
10,323
(28,385)
(18,062)
(10,323)
28,385
18,062
(25,808)
70,963
45,155
(51,616)
141,926
90,310
Exchange rate - Operating results
USD
Revenue in USD
NDF
Collar
Loans - Designated
Net effect
Base
5.1967
- 50%
- 25%
Scenario
- 10%
+ 10%
+ 25%
+ 50%
2.5984
3.8975
4.6770
5.7164
6.4959
7.7951
(1,881,018)
704,153
581,264
574,048
(21,553)
(940,509)
352,076
279,855
287,025
(21,553)
(376,204)
140,831
114,019
114,810
(6,544)
376,204
(140,831)
(94,283)
(114,810)
26,280
940,509
(352,076)
(260,303)
(287,025)
41,105
1,881,018
(704,153)
(561,712)
(574,048)
41,105
BRF S.A. | 2020 AND 2019 CONSOLIDATED FINANCIAL STATEMENTS
F-67
Cost of Sales
Collar
NDF
Net effect
Corn - CBOT
Cost of Sales
NDF
Net effect
Corn - B3
Cost of Sales
Collar
Net effect
Exchange rate - Operating results
USD
Cost of Sales
NDF
Net effect
Base
5.1967
- 50%
- 25%
Scenario
- 10%
+ 10%
+ 25%
+ 50%
2.5984
3.8975
4.6770
5.7164
6.4959
7.7951
(530,044)
530,044
-
(265,022)
265,022
-
(106,009)
106,009
-
106,009
(106,009)
-
265,022
(265,022)
-
530,044
(530,044)
-
Operating results - Commodities
Base (1)
- 50%
- 25%
Soy Grain - CBOT
475
238
Cost of Sales
NDF
Net effect
(18,132)
18,132
-
356
(9,066)
9,066
-
Soybean Meal - CBOT
430
215
322
Cost of Sales
Collar
NDF
Net effect
52,458
(3,267)
(48,363)
828
Soybean Oil - CBOT
770
385
26,229
(1,126)
(24,181)
922
578
8,510
(488)
(7,357)
665
17,020
(1,775)
(14,714)
531
Scenario
- 10%
428
(3,626)
3,626
-
387
10,492
(97)
(9,673)
722
693
3,404
-
(2,943)
461
+ 10%
+ 25%
+ 50%
523
3,626
(3,626)
-
594
9,066
(9,066)
-
713
18,132
(18,132)
-
473
537
645
(10,492)
753
9,673
(66)
847
(3,404)
450
2,943
(11)
(26,229)
2,038
24,181
(10)
(52,458)
4,180
48,363
85
963
1,156
(8,510)
1,222
7,357
69
(17,020)
2,509
14,714
203
184
92
138
165
202
230
276
1,199
(108,892)
108,892
-
600
(5,990)
5,143
(847)
(54,446)
54,446
-
(21,778)
21,778
-
899
1,079
(2,995)
2,148
(847)
(1,198)
-
(1,198)
21,778
(21,778)
-
1,319
1,198
(1,198)
-
54,446
(54,446)
-
1,499
2,995
(2,995)
-
108,892
(108,892)
-
1,799
5,990
(5,990)
-
(1) Base price of each commodity in USD/ton, except for Corn – B3 denominated in R$/ton.
23.7. Financial instruments by category
Fair value through other
comprehensive income
Equity
Debt
instruments
instruments
Fair value
through profit
and loss
Amortized cost
Assets
Cash and bank
Cash equivalents
Marketable securities
Restricted cash
Trade accounts receivable
Other receivables
Derivatives not designated
Derivatives designated as hedge accounting (1)
Liabilities
Trade accounts payable
Supply chain finance
Loans and borrowings (2)
Derivatives not designated
Derivatives designated as hedge accounting (1)
Written option– business combination
2,439,072
-
287,504
24,358
3,789,616
86,404
-
-
(9,009,987)
(1,452,637)
(22,404,426)
-
-
-
(26,240,096)
-
-
42,029
-
-
-
-
-
-
-
-
-
-
-
42,029
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
12.31.20
Total
2,439,072
5,137,553
658,735
24,358
4,099,881
86,404
75,478
302,512
-
5,137,553
329,202
-
310,265
-
75,478
302,512
-
-
-
(34,685)
(351,011)
(185,401)
5,583,913
(9,009,987)
(1,452,637)
(22,404,426)
(34,685)
(351,011)
(185,401)
(20,614,154)
(1) All derivatives are measured at fair value. Those designated as hedge accounting have their gains and losses also affecting other
comprehensive income and inventories.
(2) All loans and borrowings are measured at amortized cost. Those designated as hedge accounting have their gains and losses also
affecting shareholders’ equity.
BRF S.A. | 2020 AND 2019 CONSOLIDATED FINANCIAL STATEMENTS
F-68
Assets
Cash and bank
Cash equivalents
Marketable securities
Restricted cash
Trade accounts receivable
Other receivables
Derivatives not designated
Derivatives designated as hedge accounting
Liabilities
Trade accounts payable
Supply chain finance
Loans and borrowings
Derivatives not designated
Derivatives designated as hedge accounting
Written option– business combination
Fair value through other
comprehensive income
Equity
instruments
Debt instruments
Fair value
through profit
and loss
Amortized cost
2,289,787
-
265,783
296,294
2,811,902
123,877
-
-
(5,796,766)
(842,037)
(18,620,279)
-
-
-
(19,471,439)
-
-
26,678
-
-
-
-
-
-
-
-
-
-
-
26,678
-
-
19,285
-
-
-
-
-
-
-
-
-
-
-
19,285
-
1,947,998
413,788
-
225,941
-
53,395
191,920
-
-
-
(31,369)
(122,246)
(706,920)
1,972,507
12.31.19
Total
2,289,787
1,947,998
725,534
296,294
3,037,843
123,877
53,395
191,920
(5,796,766)
(842,037)
(18,620,279)
(31,369)
(122,246)
(706,920)
(17,452,969)
23.8. Fair value of financial instruments
The fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date.
Depending on the inputs used for measurement, the financial instruments at fair value may be classified into 3
hierarchy levels:
» Level 1 – Uses quoted prices (unadjusted) for identical instruments in active markets. In this
category are classified investments in stocks, savings accounts, overnights, term deposits,
Financial Treasury Bills (“LFT”) and investment funds;
» Level 2 – Uses prices quoted in active markets for similar instruments, prices quoted for identical
or similar instruments in non-active markets and evaluation models for which inputs are
observable. In this level are classified the investments in Bank Deposit Certificates (“CDB”) and
derivatives, which are measured by well-known pricing models: discounted cash flows and Black-
Scholes. The observable inputs are interest rates and curves, volatility factors and foreign
exchange rates;
» Level 3 – Instruments for which significant inputs are non-observable. The Company has a
financial liability arising from a put option written in the context of a business combination.
The table below presents the overall classification of financial instruments measured at fair value by
measurement hierarchy. For the year ended on December 31, 2020, there were no changes among the 3 levels
of hierarchy.
BRF S.A. | 2020 AND 2019 CONSOLIDATED FINANCIAL STATEMENTS
F-69
Level 1
Level 2
Level 3
12.31.20
Total
Level 1
Level 2
Level 3
Financial Assets
Fair value through other
comprehensive income
Credit linked notes
Stocks
Fair value through profit and loss
Savings account and overnight
Term deposits
Bank deposit certificates
Financial treasury bills
Investment funds
Trade accounts receivable
Derivatives
Financial Liabilities
Fair value through profit and loss
Derivatives
Written option– business combination
-
42,029
1,220,232
250,189
-
312,515
21,371
-
-
-
-
-
-
-
-
3,662,448
-
-
310,265
377,990
(385,696)
-
-
-
-
-
-
-
-
-
-
-
42,029
1,220,232
250,189
3,662,448
312,515
21,371
310,265
377,990
(385,696)
-
(185,401)
(185,401)
19,285
26,678
689,874
374,859
-
396,994
20,301
-
-
-
-
-
-
-
-
879,758
-
-
225,941
245,315
(153,615)
12.31.19
Total
19,285
26,678
689,874
374,859
879,758
396,994
20,301
225,941
245,315
(153,615)
-
-
-
-
-
-
-
-
-
-
-
(706,920)
(706,920)
1,846,336
3,965,007
(185,401)
5,625,942
1,527,991
1,197,399
(706,920)
2,018,470
Except for the items set forth below, the fair value of all other financial instruments is approximate to their book
value. The fair value of the bonds set forth below is based in prices observed in active markets, level 1 of the
fair value hierarchy, while the debentures are based in level 2 and are measured by discounted cash flows.
Currency
Maturity
BRF S.A.
BRF SA BRFSBZ 5 7/8
BRF SA BRFSBZ 4 3/4
BRF SA BRFSBZ 3.95
BRF SA BRFSBZ 2 3/4
BRF SA BRFSBZ 4 7/8
BRF SA BRFSBZ 5 3/4
Debenture - 1st Issue
Debenture - 2nd Issue
BRF GmbH
BRF SA BRFSBZ 4.35
USD
USD
USD
EUR
USD
USD
BRL
BRL
USD
23.8.1. Level 3 measurement
2022
2024
2023
2022
2030
2050
2026
2030
2026
Book
value
12.31.20
Fair
value
(367,714)
(389,611)
(1,538,086)
(1,207,468)
(1,081,404)
(3,951,539)
(4,106,115)
(771,138)
(2,250,867)
(1,659,891)
(1,275,598)
(1,105,478)
(4,333,054)
(4,705,851)
(778,016)
(2,225,796)
Book
value
(435,934)
(2,086,169)
(1,370,446)
(1,492,653)
(3,022,773)
-
(755,760)
-
12.31.19
Fair
value
(460,606)
(2,191,726)
(1,427,754)
(1,559,476)
(3,160,573)
-
(832,213)
-
(2,577,667)
(17,851,998)
(2,779,574)
(19,252,869)
(1,999,509)
(11,163,244)
(2,101,175)
(11,733,523)
The Company holds a financial liability arising from a put option written in the context of a business combination.
This option gives the non-controlling shareholder the right to sell its equity stake in the subsidiary for an amount
equivalent, in Turkish Liras, to a multiple of the Earnings Before Interest, Taxes, Depreciation and Amortization
(EBITDA) of the economic group of this subsidiary in the last 12 months prior to the exercise. The exercise
period is comprised of the six-month period beginning on May 25, 2021. This liability is measured at the present
value of redemption amount using internal assumptions regarding the results of that economic group.
The effects of the subsequent measurement resulted in a gain in financial results of R$579,946 in the year ended
on December 31, 2020 (loss of R$189,816 in the year ended on December 31, 2019), as per note 27.
The Company assessed the unobservable inputs used in the determination of the fair value of this instrument
and observed that the premise which causes relevant impact is the expected EBITDA of the economic group
object of the option. The other unobservable inputs, e.g. net debt, when submitted to the analysis have not
shown relevant impacts on the fair value of the option. Below, 4 scenarios with the correspondent fair value of
option are presented:
- 50%
- 25%
Scenario
Base
+ 25%
+ 50%
Written option (business
combination)
(88,528)
(136,965)
(185,401)
(233,837)
(282,274)
BRF S.A. | 2020 AND 2019 CONSOLIDATED FINANCIAL STATEMENTS
F-70
24. SEGMENT INFORMATION
The operating segments are reported consistently with the management reports provided to the main strategic
and operational decision makers for assessing the performance of each segment and allocation of resources.
The operating segments information is prepared considering three reportable segments, being: Brazil,
International and Other Segments.
The operating segments include the sales of all distribution channels and are subdivided according to the nature
of the products, for which the characteristics are described below:
» Poultry: production and sale of whole poultry and in-natura cuts.
» Pork and others: production and sale of in-natura cuts.
» Processed: production and sale of processed food, frozen and processed products derived from poultry,
pork and beef, margarine, vegetables and soybean-based products.
» Other sales: sale of flour for food service and others.
Other segments are comprised of 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.
The items not allocated to the segments are presented as Corporate and refer to relevant events not attributable
to the operating segments.
The net sales for each reportable operating segment is set forth below:
Net sales
Brazil
In-natura
Poultry
Pork and other
Processed
Other sales
International
In-natura
Poultry
Pork and other
Processed
Other sales
Other segments
12.31.20
12.31.19
12.31.18
5,014,250
3,738,560
1,275,690
15,944,162
26,707
20,985,119
14,570,620
12,246,499
2,324,121
2,366,204
303,370
17,240,194
1,244,387
39,469,700
4,635,597
3,692,377
943,220
12,808,408
45,474
17,489,479
12,605,846
11,262,954
1,342,892
2,119,918
173,630
14,899,394
1,058,107
33,446,980
3,998,483
3,198,356
800,127
12,274,681
19,372
16,292,536
10,905,155
10,021,923
883,232
1,850,614
312,902
13,068,671
827,214
30,188,421
The income (loss) before financial results for each segment and for Corporate is set forth below:
Brazil
International
Other segments
Sub total
Corporate
12.31.20
12.31.19
2,081,150
1,100,212
197,233
3,378,595
(327,366)
3,051,229
1,818,813
1,275,285
109,138
3,203,236
(454,899)
2,748,337
12.31.18
590,416
23,778
89,311
703,505
(909,839)
(206,334)
The composition of the main effects not allocated to the operating segments and presented as Corporate is set
forth below:
BRF S.A. | 2020 AND 2019 CONSOLIDATED FINANCIAL STATEMENTS
F-71
Corporate
Investigations involving the Company (note 1.2)
Agreement - Class Action (note 1.3)
Tax and civil contingencies
Expenses COVID-19 (1)
Results with disposal of businesses
Results with sale and disposal of fixed assets
Expenses with demobilization
Effects of the truck drivers' strike
Impairment of investments
Restructuring plan
Other (2)
12.31.20
(28,004)
-
(109,088)
(81,562)
(29,471)
(28,178)
(16,494)
-
(62,006)
(58)
27,495
(327,366)
12.31.19
(79,208)
(204,436)
(63,228)
-
3,234
(14,642)
(39,281)
-
(21,751)
(14,460)
(21,127)
(454,899)
12.31.18
(492,795)
-
(2,530)
-
(56,950)
28,485
(36,543)
(85,057)
(56,497)
(206,095)
(1,857)
(909,839)
(1) Mainly comprised of donations in Brazil, consultants and expenses with health and safety, which are not associated with the business
segments.
(2) For the year ended on December 31, 2019, it includes the expense of R$19,045 in favor of the Municipality of Lucas do Rio Verde,
arising from the housing incentive program for employees.
No customer individually or in aggregate (economic group) accounted for more than 5% of net sales for the
year ended on December 31, 2020, 2019 and 2018.
The goodwill arising from business combinations and the intangible assets with indefinite useful life (trademarks)
were allocated to the reportable operating segments, considering the economic benefits generated by such
intangible assets. The allocation of these intangible assets is presented below:
Brazil
International
Goodwill
Trademarks
Total
12.31.20
12.31.19
1,151,498
1,784,079
2,935,577
1,151,498
1,562,104
2,713,602
12.31.20
982,478
345,260
1,327,738
12.31.19
982,478
339,784
1,322,262
12.31.20
12.31.19
2,133,976
2,129,339
4,263,315
2,133,976
1,901,888
4,035,864
Information related to total assets by reportable segment is not disclosed, as it is not included in the set of
information made available to the Company’s management, which makes investment decisions and determine
allocation of resources based on information about the consolidated assets.
25. NET SALES
Gross sales
Brazil
International
Other segments
Sales deductions
Brazil
International
Other segments
Net sales
Brazil
International
Other segments
12.31.20
12.31.19
12.31.18
26,017,981
18,514,099
1,378,344
45,910,424
21,645,253
16,191,795
1,167,463
39,004,511
20,659,378
14,012,629
941,360
35,613,367
(5,032,862)
(1,273,905)
(133,957)
(6,440,724)
(4,155,774)
(1,292,401)
(109,356)
(5,557,531)
(4,366,842)
(943,958)
(114,146)
(5,424,946)
20,985,119
17,240,194
1,244,387
39,469,700
17,489,479
14,899,394
1,058,107
33,446,980
16,292,536
13,068,671
827,214
30,188,421
BRF S.A. | 2020 AND 2019 CONSOLIDATED FINANCIAL STATEMENTS
F-72
26. OTHER OPERATING INCOME (EXPENSES), NET
Recovery of expenses (1)
Provision reversal
Scrap sales
Provision for civil and tax risks (2)
Other employees benefits
Insurance claims costs
Gains (losses) on the disposal of non-financial assets
Employee participation and bonuses
Demobilization expenses
Expected credit losses in other receivables
Impairment of investments
Restructuring plan
Other (3)
12.31.20
408,161
73,361
12,204
(68,295)
(27,741)
(8,762)
(40,220)
(283,065)
(19,988)
(989)
(62,090)
-
(32,318)
(49,742)
12.31.19
1,293,623
16,638
12,494
(395,389)
(13,500)
(19,830)
(10,786)
(269,755)
(48,251)
-
(21,751)
-
(319,109)
224,384
.12.31.18
285,309
27,920
14,724
(18,013)
(25,037)
(9,436)
(59,633)
(47,025)
(42,696)
(2,664)
-
(17,781)
(86,357)
19,311
(1)
Includes recovery of taxes in the amount of R$293,789 for the year ended on December 31, 2020, mainly referring to PIS and COFINS
taxes on marketing, rebates and benefit expenses. Additionally, are included the effects of the final decision related to exclusion of
ICMS from the PIS and COFINS calculation basis from Eleva in the amount of R$40,086 (note 9). For the year ended on December
31, 2019, includes the effects of the final decision related to the exclusion of ICMS from the PIS and COFINS calculation base of
R$1,185,386.
(2) For the year ended on December 31, 2019, includes the effects of the tax contingency on ICMS credit in the basic food basket products
of R$358,935.
Includes cost with investigations (note 1.2) and expenses with class action agreement (note 1.3) in the first quarter of 2020.
(3)
27. FINANCIAL INCOME (EXPENSES), NET
Financial income
Interest on cash and cash equivalents
Income with marketable securities
Fair value throught other comprehensive income
Fair value throught profit and loss
Amortized cost
Interest on recoverable taxes (2)
Interest on other assets
Financial expenses
Interests on loans and borrowings
Interest on contingencies (3)
Interest on leases
Interest on actuarial liabilities
Interest on other liabilities
Written option - Business combination (4)
Adjustment to present value
Other
Monetary, exchange and derivative results, net
Exchange rate variation on monetary assets and liabilities
Derivative results
Note
12.31.20
12.31.19 (1)
12.31.18 (1)
4
5
9
14
20
17
6 and 15
420,757
119,068
54,094
538
8,771
44,785
205,066
42,529
(1,889,454)
(1,545,825)
(42,641)
(207,598)
(33,549)
11,412
579,946
(418,234)
(232,965)
(230,298)
(1,179,236)
948,938
(1,698,995)
1,304,187
145,193
115,130
630
21,065
93,435
1,027,835
16,029
(3,096,716)
(1,516,677)
(574,432)
(199,276)
(49,900)
(2,447)
(189,816)
(305,190)
(258,978)
(72,870)
100,480
(173,350)
(1,865,399)
869,534
160,015
113,845
651
14,544
98,650
421,280
174,394
(2,130,194)
(1,281,766)
(46,237)
(41,464)
-
(23,175)
(109,473)
(277,371)
(350,708)
(980,814)
(768,145)
(212,669)
(2,241,474)
(1) Due to the significant increase in the effects of exchange variations and results of derivatives in 2020, the Company begun to group
such results in a line item separate from other financial income and expenses. Therefore, the comparative period was restated for
comparability.
(2) The following effects are included: the final decision related to the exclusion of ICMS from the PIS and COFINS calculation basis from
Eleva in the amount of R$58,979 for the year ended on December 31, 2020 (R$893,224 for the year ended on December 31, 2019
related to Sadia and BRF cases).
(3) For the year ended on December 31, 2019, the effect includes the tax contingency on ICMS credit in the basic food basket products
of R$390,242.
(4) Refers to the measurement of the written option recorded from business combination (note 23.8.1). The behavior of the results of the
economic group of the referred subsidiary resulted in a reduction of the liability with the corresponding increase in financial results in
the year ended on December 31, 2020.
BRF S.A. | 2020 AND 2019 CONSOLIDATED FINANCIAL STATEMENTS
F-73
28. STATEMENT OF INCOME BY NATURE
The Company discloses its statement of income by function and thus presents below the details by nature:
Costs of sales
Raw materials and supplies (1)
Salaries and employees benefits
Depreciation
Amortization
Others
Sales expenses
Indirect and direct logistics expenses
Marketing
Salaries and employees benefits
Depreciation
Amortization
Others
Administrative expenses
Salaries and employees benefits
Fees
Depreciation
Amortization
Others
12.31.20
12.31.19
12.31.18
21,619,848
4,046,054
1,873,422
123,270
2,336,228
29,998,822
2,531,506
632,870
1,443,117
217,732
91,683
670,580
5,587,488
352,212
54,739
47,682
40,589
275,060
770,282
17,665,346
3,618,779
1,787,506
126,953
2,171,458
25,370,042
2,133,894
558,043
1,369,277
196,143
87,423
566,886
4,911,666
298,368
50,349
26,064
26,485
214,417
615,683
17,790,900
3,637,727
1,381,226
78,627
2,432,273
25,320,753
2,260,379
507,979
1,190,189
69,525
65,575
419,947
4,513,594
260,604
28,621
21,453
78,713
161,774
551,165
(1) For the year ended on December 31, 2020, includes tax recoveries in the amount of R$ 56,221 (null in the same periods of the previous
year) mainly relating to social security contributions on labor benefits. Additionally, it includes increase in the fair value of forests in
the amount of R$ 21,711 in the year ended on December 31, 2020 (reduction of R$28,122 in the year ended on December 31, 2019).
The Company incurred in expenses with internal research and development of new products of R$65,168 for the
year ended on December 31, 2020 (R$67,846 in the same period of the previous year).
29. RELATED PARTIES
In the normal course of business, rights and obligations arise between related parties, resulting from transactions
of sale and purchase of products, as well as from financial operations.
The Company holds a Related Parties Transactions Policy, which was reviewed and approved by the Board of
Directors and applies to all subsidiaries of the group.
The policy mentioned above provides the conditions that must be observed for the realization of a transaction
between related parties, as well as establishes approval hierarchies according to the value and nature of the
transactions involved. The policy also foresees situations of conflict of interests and how they must be conducted.
29.1. Loans
The subsidiaries of the Company enter into loan agreements pursuant its cash management strategy. As of
December 31, 2020, the balance of these transactions was R$2,116,463 (R$1,808,320 as of December 31, 2019)
with a weighted average rate of 3.01% p.a. (4.43% p.a. as of December 31, 2019).
BRF S.A. | 2020 AND 2019 CONSOLIDATED FINANCIAL STATEMENTS
F-74
29.2. Other Related Parties
The Company has made contributions related to the post-employment benefit plans of its employees to BRF
Previdência, which holds these plans (note 19). Additionally, the Company leased properties owned by BRF
Previdência, and for the year ended on December 31, 2020, the total amount of lease payments was R$19,528
(R$18,200 for the year ended on December 31, 2019).
The Company maintains other transactions with related parties resulting from guarantees, transferences and
donations to related associations and institutes, as well as leasing and other commercial transactions with related
people and entities. Such transactions are compliant with the Related Party Transactions Policy and are not
relevant, individually or in aggregate.
29.3. Management remuneration
The total remuneration and benefits expense with board members, statutory directors and the head of internal
audit are set forth below:
Salary and profit sharing
Short term benefits (1)
Private pension
Post-employment benefits
Termination benefits
Share-based payment
12.31.20
12.31.19
12.31.18
67,814
2,777
1,323
-
8,417
17,397
97,728
59,589
257
893
125
16,275
12,052
89,191
40,082
47
564
132
10,070
5,621
56,516
(1) Comprises: medical assistance, educational expenses and others.
In addition, the executive officers (non-statutory) received among remuneration and benefits the total amount
of R$20,319 for the year ended on December 31, 2020 (R$30,375 in the same period of the previous year).
30. GOVERNMENT GRANTS
The Company has tax benefits related to ICMS for investments granted by the governments of states as follows:
Programa de Desenvolvimento Industrial e Comercial de Mato Grosso (“PRODEIC”), Programa de
Desenvolvimento do Estado de Pernambuco (“PRODEPE”) and Fundo de Participação e Fomento à
Industrialização do Estado de Goiás (“FOMENTAR”). Such incentives are directly associated to the manufacturing
facilities operations, job generation and to the economic and social development.
On December 31, 2020, this incentive totaled R$153,762 (R$188,610 as of December 31, 2019).
31. COMMITMENTS
In the normal course of the business, the Company enters into agreements with third parties for the purchase
of raw material, mainly corn and soymeal. The agreed prices in these agreements can be fixed or variable. The
Company also enters into other agreements, such as electricity supply, packaging supplies, construction of
buildings and others for the supply of its manufacturing activities. The firm commitments schedule is set forth
below:
Current
Non-current
2022
2023
2024
2025
2026 onwards
12.31.20
5,293,415
1,504,551
401,777
271,022
244,654
175,982
411,116
6,797,966
BRF S.A. | 2020 AND 2019 CONSOLIDATED FINANCIAL STATEMENTS
F-75
32. INSURANCE COVERAGE
The Company’s policy for insurances considers the concentration and relevance of the risks identified in its risk
management program. Thus, according to Managements understanding, the contracted insurance coverage is
adequate to the entity’s size and nature of activities being sufficient to cover eventual damages. The Company
also takes into consideration orientations provided by its advisors.
Assets covered
Operational risks
Coverage
Coverage against damage to buildings, facilities, inventory, machinery
and equipment, loss of profits.
Transport of goods
Coverage of goods in transit and in inventories.
Civil responsability
Third party complaints.
Each legal entity has its own coverages, which are not complementary.
12.31.20
Amount of
coverage
4,472,077
628,760
415,736
33. TRANSACTIONS THAT DO NOT INVOLVE CASH
The following transactions did not involve cash or cash equivalents during the year ended on December 31,
2020:
(i) Capitalized loan interest: as referred in note 12.
(ii) Addition of lease by right-of-use assets and respective lease liability: for the year ended on December 31,
2020, amounted to R$560,088 (R$2,775,168 in the year ended December 31, 2019).
34. EVENTS AFTER THE REPORTING PERIOD
34.1. Acquisition in Saudi Arabia
On May 7, 2020 the Company’s wholly-owned subsidiary Badi Limited executed a share purchase agreement
with Hungry Bunny Limited and others, establishing the terms and conditions for the acquisition of 100% of the
capital stock of Joody Al Sharqiya Food Production Factory, a food processing company in Saudi Arabia. The
transaction was concluded on January 18, 2021, after the satisfaction of conditions precedent, for an amount
equivalent to R$41,620 (SAR29,793) paid in cash, with a preliminary goodwill of R$12,684 (SAR9,013) and from
this date, the Joody Al Sharqiya Food Production Factory has become a wholly-owned subsidiary of Badi Limited.
34.2.
On March 9, 2021 the Company, through its wholly-owned subsidiary One Foods Holdings Ltd., acquired the
Purchase of remaining capital stock in BRF Al Yasra Food K.S.C.C. (“BRF AFC”)
minority stake of 25% of BRF AFC, entity located in Kuwait, for the amount equivalent to R$238,383
(USD40,825). Therefore, from this date onwards the Company owns 100%, legally and economically, of the
referred subsidiary.
35. APPROVAL OF THE CONSOLIDATED FINANCIAL STATEMENTS
The consolidated financial statements were approved and the issuance authorized by the Board of Directors on
March 25, 2021.
BRF S.A. | 2020 AND 2019 CONSOLIDATED FINANCIAL STATEMENTS
F-76