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BRF - Brasil Foods S.A. (NYSE:BRFS)

Q3 2013 Earnings Call

October 29, 2013 7:00 am ET

Executives

Ricardo Florence dos Santos

Leopoldo Viriato Saboya - Chief Financial, Administration & Investor Relations Officer and Member of Executive Board

Abilio dos Santos Diniz - Chairman

Claudio Eugenio Stiller Galeazzi - Global Chief Executive Officer and Member of Executive Board

Analysts

Luca Cipiccia - Goldman Sachs Group Inc., Research Division

Thiago Duarte - Banco BTG Pactual S.A., Research Division

Alexander Robarts - Citigroup Inc, Research Division

Operator

[Operator Instructions] Forward-looking statements related to the company's business, prospects, projections, results and the company's growth potential are provisions based on expectations of the management and to the future of the company. These expectations are highly dependent on market changes, economic conditions of the country and the factors and international markets, thus, are subject to changes. As a reminder, this conference is being recorded. In this conference are: Mr. Abilio Diniz, President and Chairman of the Board of Directors; Mr. Claudio Galeazzi, CEO; and Mr. Leopoldo Saboya, Chief Financial and Investor Relations Officer.

Right now, I should turn the floor to directors of the company.

Ricardo Florence dos Santos

Good morning. Delighted to be here with you running this event and have beside me Dr. Abilio, Claudio and Leopoldo as cohosts of this meeting. And thank you, all, for coming and thank the participants from the Internet. And once again, thanks to BMS for this partnership. Now 31 years of partnership with being APIMEC São Paulo and we were responsible for publishing information, making sure that this information gets to analysts and professionals with transparency and visibility. [Operator Instructions] You have received with your material and evaluation questionnaire which will be the base for us to run for the best -- for the award for Best Meeting of the Year. And it is very important that at the end of this meeting, you fill it out and give it in on your way out.

So I'd like to ask Leopoldo to take the floor, so we will start our presentation.

Leopoldo Viriato Saboya

Thank you, Ricardo. On behalf of BRF, I'd like to welcome you all very much and thank you for coming. It's an honor and a pleasure to be here at the Temple of the Stock Exchange or the capital markets with another [indiscernible] day. To such, presentation, we will have the words of Mr. Abilio Diniz, Chairman of the Board. And then I will make a presentation regarding the numbers and the highlights of this quarter. And then we will interrupt for the opening of the floor, about 10, and we will have a small simple ceremony. And then we will come back here for Claudio to make his presentation before we go into our Q&A. So I just wanted to make this announcement for our routine -- before the ringing of the bell.

So now I'd now I'd like to ask Abilio for his introductory remarks.

Abilio dos Santos Diniz

Good morning. So this is the third time I have had contact with you here in the BRF as Chairman, and I feel so well identified and so very happy to be here this time, presenting the results of the third quarter. We are not so pleased regarding any good news to give you. We have had a bad third quarter and we were expecting this, and I think all of you have felt frustrated and disappointed. The markets has told us clearly that yesterday and [indiscernible] off. And the market is the market, and generally, it's right. So what do I have to say to you? I'm being consistent with my first words in April when I made my first statement, when I took over as Chairman of the Board of BRF. Some things you can expect of me, others, no. First, most important is that I represent the investors and I shall always be concerned for the investors. I serve the investors and I'm totally identified with the investors of this company. I will do my utmost for this company but always respecting the interests of the investors. All the money invested in new projects, we will focus on this to give the investors their full return. We will not do anything short term. We will always strive to build a stronger company, both for the present and for the future. So right, following this idea, we get to work.

I look for Claudio Galeazzi. He was my friend. We have worked together before. Claudio Galeazzi [ph] worked Pao de Acucar [ph]. To begin with, Claudio came in as a consultant with his consultancy company then he took over as CEO. We together elaborated a congregate plan of total immersion in the company. As we say, we dive into the company and to learn and we come up with process doing something and we have been doing it and rebuilding the processes and placing the right people in the right places. Next step, we organize a great or meeting of strategic planning which will was held last weekend outside São Paulo, 200 kilometers from São Paulo, where we met as the board at the main offices of the company. And we made this very clear, what the plans are that we have, both for the present and for the future of what we -- of BRF. Our next step is we will draw up our 2014 budget by the 10th of December, maximum. The objective is to close by the end of November, in fact. And following these steps, we are being consistent in what we believe and the work that we said we would do.

The third quarter, there are 2 points. One, about the company, the other, for you. Regarding the company, I don't want to know about explanations. Either I nor Claudio want explanations. We want results and the results didn't come. Don't explain why. We will see why they didn't come. Just to explain -- to find out so that we don't do this again. So we cannot make old mistakes, only new ones. So let's see what happened. We know what happened so we can correct these errors and never commit them again. Two, well, things are a little different. I have different words, obviously, things happened. Second point, anything from the third quarter occurred in a nonrecurring way. Natural things of this reorganization process and even floods in the south of the country which just complicated things. All this explains it. The nonrecurring part, we have already dealt with. However, once again, we are not concerned with the short term. We trust in what we are doing. Those who know me know very well that I don't play around with the -- my audits. I don't post short-term results. I don't need to do that, neither myself nor Claudio. At this stage of our lives, we know who we are and you know who we are. We have to build something very sound, solid, something which is sustainable and can bring a lot of return to people and to the investors who put money in our company. We are still in the process of adjustments of -- adjustments with people.

We have just brought to the company now the new CEO Brazil, Sergio Fonseca, somebody who has deep knowledge of our business. And I am quite sure that he will bring a significant contribution to relationship with BRF and our plans, distributors and our end consumers.

So what happened with BRF to date? BRF is authentic company. It has an integration process and industrial process that are truly admirable. And when I was just a GPA, I used to say there is no more complex business than ours. And BRF is quite right, and this integration process, until the end product, is truly an admirable process. However, this company was somewhat skewed. So what happened? The company was pushed from production to the consumer. The company produced admirable products, no doubt, and it placed them through its plan and to the end consumers, that which it produced, that which it considered good, different for the consumer.

Well, my friends, this company has never been concerned, although, it already had an intelligent consumer department, a very good department. This company never went out to the consumer and actually at the clients -- our clients isn't our distributors. They never went to the distributors to ask them. Well, what do you expect of us? What can we do more for you? How could we make your life easier? And then after, besides that, the end consumer, the consumer, what can we do more with our product which will please you more? The company did not do that. We've produced fantastic products and people liked what we produced, but these questions were never asked. So the company was skewed and pushed by production. This is the same thing as pushing strings. You can't push string, you have to pull it. So what does this company have to do? It has to be pulled by the consumer, by the client, by the consumer market. This company has to ask the client what we could do more for you, both clients and consumers. Our company, as we are trying to straighten it out, we don't want it to keep pushing strings, we want it to start pulling. So it will have to be pulled by the consumer and by the client and this is what we are doing. So it's not all that difficult, but a little complicated to straighten things out. It's years of sucking a bite which makes your mouth go crooked so for years, the company has been doing that, so now we have to straighten it out. So what can this bring to the company? It will bring a lot. We have to be -- on the consumer. The focus of the company has to be on the consumer. That's our bonus. The consumer buys our products and they have to be entirely satisfied with us. This is what we are trying to do, but this, my friend, this doesn't appear. This does not appear in the short-term results. Another very important thing that we are trying. We are capturing synergies because this company has not captured this after margin. We have 50% -- more than 50% market share which is sensational. Of the 2 -- market share of the 2 largest companies in the country but no synergies, and my friend Claudio here does this much better than I. He is there, digging away, trying to find all the synergies and tucking them together in benefit for all [ph]. This is the people who work in the company and basically the end consumer. And this, to capture this physically, I mean more efficiency, productivity, competitiveness and profitability. So this is what we are seeking to do.

Another very important thing is we are seeking [indiscernible]. Investors have had expectations that I might bring more dynamism and efficiency to the company. I do not lack efficiency. Obviously, it has to be kept under control and have to have clear objectives according to reality but when we talk about the company being global, this company has never been a global company. It has always been a very large exporting company, the largest chicken exporters in the world. So what do we want? We want the platform of this company to global company. This is what we're looking for. A global company means a company capable of working with different partners and not only export to them. We do something important, not producing here and producing there [indiscernible] working towards that. The first step is to find out what this company is here for. We have carried them [indiscernible] twice already [indiscernible] but we do know how to separate the [indiscernible] of work [indiscernible] we wish to go to the board [indiscernible] take them abroad and [indiscernible] very close where we are building traffic for supply. Those are [indiscernible] which [indiscernible] America for today [indiscernible] innovations [indiscernible] that has had such in depth [indiscernible] our board member. Level for officers in several places of the world, observing our activities and analyzed the [indiscernible] to ask the board a very clear image of what we have abroad [indiscernible] and the opportunities which we have for improvement. So this works [indiscernible]. This company is different. Our [indiscernible] last year but we will deliver. [indiscernible] difficulty, sometimes slipping and sliding, we will deliver [indiscernible], but we will deliver and it shall be welcome [ph]. I don't like to [indiscernible] what we are doing but in our market, that's what it is, we are building. There are processes [indiscernible] little by little, which is very [indiscernible] and such that this company [indiscernible] myself, all of this [indiscernible] we can. First, Ricardo and myself, we have a lot of experience [indiscernible] that a things have to be done. We are [indiscernible] what do we expect [indiscernible]? This won't give us a scare [indiscernible], it won't be anything exceptional but if the results are [indiscernible] and hard work and we will have [indiscernible] results, nothing spectacular [indiscernible]. [indiscernible] slowly but surely, correctly and [indiscernible]. So that's it. Thank you very much for coming. Thank you very much for listening to us and paying attention to our company and for us. Let's go forward.

Leopoldo Viriato Saboya

Thank you, Abilio for your words, which [indiscernible] for our meeting, [indiscernible] to us, [indiscernible] ourselves ring the bell at 7:00. I will choose some pages from our presentation just to touch on some of the highlights and then during the questions, we could go into further detail regarding some points that we're talking [ph]. So go right on now on Page 6. So for those of you who are on the Internet, it shows us that certainly our results when we look back, we see a great recovery of the domestic and foreign markets, Brazil and they're quite similar to last year, our results and our operating profits. When we see the second quarter it's the results on this [indiscernible] profitability and does not present, as Abilio said, any improvement and this is why the company has conveyed this impression that it is being below our expectations and well below our potential and the possibility because we know how far we can go. When we talk about the gross profits then, here we have a vision of the plan where short term, there has been a slight improvement of 0.3 percentage points. These are the -- the second quarter and rebuilding of the gross margin at that moment last year. It was still affected by congressional cost on margins.

And talking about operating profit in this quarter or this year -- second half of the year, we have some current events because of the adjustments and the organizational changes of executives and the staff. And this appears on the line of other operating issues [ph] which refer to indemnities and other points. That's why the EBIT line has a full drop regarding this second quarter, which is not followed by the adjusted EBITDA. Because here on Slide 9, the adjusted EBITDA, we see the some recurring effects and shows in line [ph] with what I have said. The results [ph] was actually the same EBITDA which we generated in the second quarter. Net income about the second quarter and last year as well and financial expenses in line -- well, normalized. We don't have any exchange effects in the income generation to date compared to $200 million last year, $400 million this year. When we see net sales evolution, the revenue or sales is above last year by 5.4% and then fairly below the internal market. The domestic market has had a drop, which doesn't come from the main business line because when we talk about process group in this -- compared to 1 year ago, it dropped 1.1%. And last quarter, it was not 100% clear of the effects of suspended [ph] brand and -- over those what was sold. But when I look at a year, we have grown the revenue at 9.5%. And at this 9.5% of last year, at least 7.5% we have seen another company maintaining the assets of the performance agreement. Looking at EBITDA the last 4 quarters, we have been at 12% margin. The fourth quarter was bad last year and then we had an operating level of 2%, and although we didn't have the growth that we wanted, we do have a certain resilience of our numbers vis-a-vis the market which shows that domestic consumption does not contribute. So the company would accelerate its results in the very short term.

[indiscernible] come back [indiscernible] through their [indiscernible] considering fixed revenues, but if we isolate our domestic parts and would work with the slaughtered chicken parts, then that is an important reference that gives us very good idea of how the comps should behave on the quarter [indiscernible] exactly [indiscernible] year [indiscernible] towards impact [indiscernible] the first quarter. The top presents drop in the second quarter [indiscernible] result on exports [indiscernible] but then it jumps back on the third quarter [indiscernible] small or a slight increase [indiscernible] that if we thought that [indiscernible] would contribute to a better management of the gross margins but that is combined, in fact, the combined effect of exchange rates and the soy bean meal that in spite of being stable [indiscernible] the premiums in Brazil really went high and so the soy bean meal became more expensive in Brazil, impacted the price and we still have impact of that on the quarter. [indiscernible] around the same now and the trend is that they will be at that level for the fourth quarter. So on the one hand, we do not have the contribution coming from cost at this moment, but the cost spend for the midterm is a favorable one, David, because the crops are very good and Brazil have a record crop. Therefore, Brazil's cost will have a good impact. And especially in exports, we don't transfer that immediately, so we will see a good result in the future. Just to mention that also this [indiscernible] price do not come from the domestic market. When we isolate Brazil, our operating expense on the net sales dropping in 1% but the operating expenses on the net sales from that foreign market have gone up due to the problem also that we have with shipment at the end of the month. So that's why we have the consolidated at the end of the month a different result. In terms of net sales, our financial position is very good. So I'm going straight to Slide 18 that shows that the company is still on the same beat. If there is business in this -- quarter is the strong cash generation and the de-leveraging that we have in this type of the year. So we did pay dividends. That's something good obviously, an important thing. And we also were able to do some leveraging, even paying dividends. And so we are below 2 -- and the trend is to keep the leverage happening. We are having a CapEx of BRL 1.5 billion, below the BRL 2 billion that we had in terms of guidance, so our down by this year is really happening.

On the Slide 21, we showed that the cash flow generation is very strong. The company really is working hard in terms of CapEx and returning investment capital to the operation that is really happening and the company is really going in the other way of the trend that we seem to go, because everything is leveraging whether by the foreign exchange rate or the cash flow generation, really, we are able to take bigger leaps in the future.

So due to time constraints, I will now talk a little bit about domestic market, and then I'll open the floor for Q&A also about food services, if you have any questions because, really, we don't want to miss the ceremony at 10:00 a.m. So just a quick comment on the domestic market, Slide 26. First, I would like to remind you that when we got a volume that in the year-to-date is up in 12%. When we did the base adjustment, the volume's increase is 2.7% because there is comparable phase and net sales increased in almost 21%. Yes, we did have a hard time in the first half of the year, but that is better than before, as you can see on the Slide 27. On Slide 27, our operating profit improved 1.3%. Part of that is due to the good management of cost and price because we were able to have -- to do some price transferring to improve profitability and also the company is more compatible to the business. And here, I am showing you a chart of growth. When I do the adjustments and take away the line of other sales because here, I have operations sales that we're using in the last quarter for operations, and we did that for pork and the swine slaughters. So I have to take out those lines so that we have more analytical results, and we realized that, really, the company has a performance that is not as good as last year's in terms of volume, but it is good in terms of revenue. And in the short term, the company's able to grow vis-a-vis the prior quarter, transferring some price. And with that, we were able to contribute with the gross margin vis-à-vis the second quarter and obviously, it's much better than last year. But yes, we agree. It's not -- we are not at our full potential yet. And then to conclude the domestic market, we know that probably, this was a point you've made. Your concern or most surprise, if I can say, in which we have a quarter that has dropped vis-à-vis the prior one, even with a favorable exchange rate. And the explanation -- yes, you know that, that gray bar that is increasingly 6.8% only exchange rate with a 10.6% in the average from the second to the third quarter. That really means that we have lost around 3% in terms of dollar, and that is mainly concentrated in one market. We have a market that was sold market [ph] with the largest contribution to our results. So we did have a margin compression in the Arab market, and that is a little bit of the trend. We are working on that market not only -- but also we are leading a movement in Brazil and in the world, so that the supply for that market is compatible to its demand. Once we have now in the Arab market, the lack of market that we're taking chicken products, such as [indiscernible] and Egyptian markets, Jordanian market, and Iraqi [ph] and all those markets are not purchasing products, not only from Brazil, but from all over the world. And that's why the supply end, as part of the volumes have not increased further. At least they increase for some selective countries, and that's where we are able to have better pricing. And that's what we are doing so that we do not lose profitability. But the fact is that we did lose some profitability and advised that price key that I mentioned and in the domestic market or -- I'm sorry, in the foreign market that we see a short-term impact. And also, there was a problem with a shipment. This was in -- this is also an impact as well. And that happened. There was a problem on the fourth -- but really, the results did not follow the improvement of the exchange rate and also some selected markets. So I will pause now so that we can turn to the stock exchange ceremony, and we will be back with the final remarks from Mr. Claudio Galeazzi. So that we can go straight to our Q&A session. Thank you very much.

Claudio Eugenio Stiller Galeazzi

Ladies and gentlemen, good morning and welcome. On behalf of BMF Bovespa, once again, we thank you all for being here. Today, we have with us and we are very happy to have BRF here with us for the BRF Day, celebrating the Acceleration Plan. The objective of today is to broaden visibility and to value the fundamental world that each company has in the country's development. Bovespa works in many fronts to strengthen the company's performance. On the one hand, the sustainability indexes, ICO2, dividend and corporate governance helped to add value to shares. On the other hand, ETF options and incentive to market makers create a liquidity increase and also generate interest by the investors. This way, BMF Bovespa is ready to meet the needs of the companies from different sizes and areas, aiming to generate value and increase liquidity.

So to officially start the ceremony, I'll turn the floor to Mr. Luís Furtado, Executive Director of Technology and Information Security from BMF Bovespa that is going to talk about importance of this day.

Luís Otávio Saliba Furtado

Good morning, everyone. It is really a pleasure to have you here with us for the BRF Day and also for the earnings results for the third quarter of 2013. On behalf of BMF Bovespa, I thank Mr. Abilio Diniz, Claudio Galeazzi, Leonardo Saboya for being here and also, all other members from the Board of Directors for being with us today. This is the fourth time that BRF is here participating on the company day. This program has been created in 2009, and it's for us to highlight all the companies that are listed on the stock exchange. One of the main global companies and also one of the main private companies in the country, BRF is a company that really doesn't require much introduction. It is pioneering corporate governance practices and it is present in the Novo Mercado since 2006. Besides, BRF is bringing more relevance to the market. Right now, the company is part of the indexes of company's sustainability, as well as ICO2. Therefore, we, from the stock exchange, thank BRF for choosing us to, once again, do with us and be here with us for their earnings results presentation. And Bovespa is really privileged for having you with us. Companies like BRF really helps to build a market that is even more sound and robust. So once again, we would like to congratulate BRF for this initiative, and we hope that other companies will use the strength of the Brazilian capital market so that they can do their businesses in our country. Finally, we would like to wish BRF an even more brilliant future and a future where you can hold the strength [indiscernible].

So once again, thank you very much.

Operator

Thank you very much. Mr. Luís. So now we would like to invite Mr. Claudio Galeazzi, CEO of BRF for his remarks.

Claudio Eugenio Stiller Galeazzi

Good morning, everyone. [indiscernible] brief because we do have a time constraint right now, we're really glad that we are here. And we would like to thank you all for being with us or being interested in everything we have to say, and what we still have to tell you after. Thank you very much for the invitation. Thank you for your participation. Thank you BMF for having us, once again, in your home. I remember that 50 years ago when I was working close by, this was really a great home, and I've seen several times, the opening of the market from up there. Thank you very much, once again, for having us. We'll be back shortly, and then we'll talk a little more and we'll go more -- into more details about what we're doing in BRF right now. Thank you very much.

Ricardo Florence dos Santos

Thank you very much, Mr. Claudio Galeazzi. So right now, we would like to invite to ring the bell and that is what represents the beginning of operations in our exchange market today. Mr. Luís Furtado Technology -- Information Technology and Security Director of BMF Bovespa along with all of the board members and EC of BRF that are present here with us today. Please, we would like you all to join.

So on behalf of BMF Bovespa and BRF, we thank you once again for being here. Please remain on your seat for the Q&A session. That will be conducted by Mr. Ricardo Tadeu Martins, President of Apimec São Paulo. We would like to call him to the floor so that we can now start our Q&A session.

Ricardo Tadeu Martins

So we are here. We're the only ones here because everyone else is working. Okay, the third quarter has gone through a strong implementation of a new structure. Mr. Abilio has mentioned that we are leading a model which DNA was an industrial one and was pushing the commercial barrier. This is undergoing a big change. We're now becoming a commercial company, and the industrial area is there to meet the needs of this commercial company. Right now, in a very short period of time, we have a backup redundancy of around 17%. We are redesigning processes. Also, relocating our employees. And obviously, this accounts for some of the difficulties that we have had recently. On the other hand though, the valid explanation for our expectations not being met, such as problems that we have with shipments, which does not ship over 25,000 tons in a certain moment and that also has impacted our results, bringing them down. On the exchange rate that was bringing an expectation of good results, we had on the other hand, the reduction of international prices. Also, with -- something that was our fault. There was a supply above the demand. In fact, it has created a price drop due to large inventories, not only ours, but also from our competitors. Despite all that and all our inefficiencies, we do not have really to blame ourselves. We did have results, and we have to consider all these explanations, which I don't like very much, but really, this is not the end of the world. Very much on the contrary, that shows that in the fight of our inefficiencies, we are still having some type of delivery even though below than our expectations. And the implementation of this new structure that has strongly started in this new quarter, will keep on happening and until the first half of next year, we have started our 0-based budget. That started and it's going to start up to November 15, and it should happen up till mid-March of next year, and we are going to implement our budget within that plan of 0-based budget. That is going to be implemented from April on. That mindset changed from being a company with an industrial DNA to being a company with a commercial DNA. That implies in taking some actions in the market, and those require a lot of courage. Some of them are already in process and that is -- one of them is the reduction of the supply of our chicken and exports of around 200,000 tons for around 1 month. Our competitor, if they have common sense and I believe they do, should have some reductions as well. What has been the failing with the foreign market is this really high supply above of what the market is willing to consume. What happens is that in the industrial DNA, we manufacture independently from the demand and of course, we end up making money when we reduce cost. But at the end of the production cycle, inventory levels are so high and since those have a short shelf life, we have no alternative other than really lowering prices in trying to sell those products. On the other hand, all of us end up acting against ourselves because we have to sell at lower prices in the best markets that we have, which are the Middle East markets. Nowadays, this is one other factor of our inefficiencies. Our Board of Directors and the main officers were there in the Middle East. We had a board meeting and the Middle East market for us represents around $2.2 billion. We finished -- finishing building a process in France to the mid of next year and our players here, our operating people and planning people here, also our HR people. None of them have ever been there in the last 4 or 5 years. That was an extremely important market for us but it was totally isolated. Right now, we are starting a full program for our teams here to visit that market. So once again, it's not that we have to blame ourselves, but we have to realize that and despite of our inefficiencies, we still have reasonably good results in spite of all these. We, right now, are taking several actions. We will not list them all because they are too many, and so for the domestic market actions, we are reviewing our pricing model taking into consideration different categories and channels. We are fostering our customers. We're generating value also by innovation. And also a very relevant consolidation that is ongoing, and you can only imagine how much of this impacts sales. We are consolidating sales areas. Just to give you an example, we have a sales area that was dedicated to Sadia, another one to Perdigão, another one to Batavo. That is, the client would receive 3 of our sales report Stephens. Each one with a different target and sometimes, they would be competitors among themselves. Also, we are analyzing our branding. We, during these last few years, have not been concerned with the branding. Consequently, we didn't do our pricing correctly. So I have seen the supermarkets Sadia and Perdigão products being sold at exactly the same price. Regarding the export market, we have to have a presence. The concept is already established, but we have to have a physical presence in some markets. This, we are pinpointing. We cannot be just a commodity exporter. We have to be there locally with a brand of processed food. This is what is happening in the Middle East, where we have a brand, top-of-line, Sadia, which they call Sadia, and this is the brand. We are surfing on top of that which was built in the past. We built practically nothing to be there or merchandising recently during these last few years. In other words, we have a huge field both in the domestic market and in the foreign or export market to act and obviously, not be anything in spite of us, but with we do, we will achieve our results. Also, a question, which we often receive, regards a $1.9 million, which was talked about. I'd like to say that we are following this very closely, month by month, about the expectations regarding this gain that were identified during the 100 days. And we feel sometimes we get better results for less. But whatever, we are ahead and we should say that we've gained, have contributed to our results. I'm not saying significantly, but effectively to our EBITDA. The other point is with CapEx. We have already drawn up our 0-based project, specifically for CapEx, identified some investments that we should suspend, reduce. But this does not mean that we will not invest. It means that we will redirect these investments towards more urgent, more immediate things that will bring more immediate results. A simple example is our exported chickens with the weight of our [indiscernible] kilos. The value has been devalued in the market. Now if we cut them in 4 or each pieces, the added value is considerable so an investment in this kind of equipment and also in the automation of -- with machinery reducing labor, so CapEx would not be adjust more to production since we have in the context a certain idleness [ph]. It doesn't make sense to continue investing and increasing production. But in automation and reducing labor and in the improvement of quality of production. And we are very concerned with people having the right people in the right place. We have carried out relevance to the restructuring of our team and the top management, and we have added people to our team like [indiscernible], who is part of our marketing and innovation team, and if you have had a look at our new structure, you will see that each brand has its own marketing completely isolated. We did not have a marketing as a whole and nor did we have one [indiscernible] planning in the company as we have today. We have a vice president for planning at international levels regarding production and demand. Our management model today is focused on results. And the development of the organization as of the target to be aligned with all the stakeholders [ph]. I could say that I'm not talking about numbers here. We could talk about numbers, but I still think that it's too early to talk about these advantages that we are already noticing as we delve deeper into the company. We wish to have efficiency gains and ROI, return on our investment, that's one of my targets, and significantly increase this ROI, and a management model focused on results. Abilio has mentioned strategic planning. We met for 3 days, last weekend, so that we could define all of this. The strategic point, the same principles, the process -- they are telling me that my time is up. But the same process that we implemented in CBD, which led to the results that we had. Obviously, that's the definition -- will be clear definitions of a strategic nature and we will fix the result -- considerably ambitious results that the board is transferring as a responsibility to the executive team. I could also mention some other things, but I think I will stop at this. I'd say that things are happening and they are being very carefully considered, and we are no longer pushing the piece of strings, but pulling a great big rope that is being built. That's what I have to say. Thank you.

Ricardo Florence dos Santos

Ladies and gentlemen, now we will go on to our Q&A.

Question-and-Answer Session

Operator

[Operator Instructions]

Unknown Analyst

My question is regarding the production adjustments that the company has done whether you finished those adjustments or is there anything still to be done for the beginning of next year? And regarding the foreign markets, it's clear why the margins have dropped, so what about the expectations for the fourth quarter? Is there an improvement or is it going to be next, speaking of next year?

Claudio Eugenio Stiller Galeazzi

The sound was not at all clear, could you repeat, please?

Unknown Analyst

He's asking about the production adjustments and if there's anything -- if all has been done now or has anything been left for next year? And what about the foreign market in the fourth quarter?

Claudio Eugenio Stiller Galeazzi

The fourth quarter will have a slight reduction. You know that our production portfolio is large. Consequently, you cannot make a decision of reducing production, and this occur immediately. It takes a while. So these reductions are in view of demand expectations. If the world demand will grow and if there is a growth expectation, we will then, once again, step up our production. Obviously, this will not happen overnight, but we are preferring to run after demand, than production full ahead because then we fill up our inventories too much. So we will regulate production according to our expectations of demand both -- well, this is actually more for the export market rather than the domestic market. And also to answer your question -- and the adjustment will be carried out more next year, notwithstanding the qualification of our offer here in the domestic market with a more balanced production. The quality of the mix asset also for the domestic market improved, also, with a better added value when I compare this to the 2013 base. This is what is guiding our medium-term 2014. And just for the fourth quarter and 2013 -- '14, looking with the binoculars, from today, we have some -- in some businesses, we have a less favorable exchange rate and there's been -- there's a small slight peak but it will continue in the fourth quarter. And then, we also have the question of the price in the Arab market, which happened in the half -- in the middle of the third quarter. But it hit the fourth quarter in full. What are we doing? We are calibrating our supply in the very short-term, deciding some things, whether we will build up a buffer stock so as to be able to hold the price. But at the very short term, we tried to -- brand a bit, up our price to -- the best thing would be in the fourth quarter to have more visible results than we did in the third quarter. But it's too early to say since we are now just coming in with these steps to revert the trend of the second half of the year. Well, so it has to do with the export to the Middle East. And instead of putting the prices up, we are contributing for the prices to drop significantly. So now, we will exercise this -- our position as the leader of the market.

Luca Cipiccia - Goldman Sachs Group Inc., Research Division

Luca Cipiccia from Goldman Sachs. I wanted to know about the domestic market and the foreign market regarding the transformation of the company into a global company. You need good leadership and M&A. So the 2 things must work together. And when we talk about M&A, are you talking about the possibility of complementing synergy? Are you looking for companies where you're active or where you're not yet active? Could you elaborate on that please?

Claudio Eugenio Stiller Galeazzi

Well, regarding the CEO -- Global CEO, we are in our final phase of a position with a global CEO. Probably, this should occur in the next 30 days. Consequently, all this question of M&A that we are analyzing very, very carefully, will follow together with the new CEO taking over this position. We are considering the world. In fact, we don't have any interest or any possibility of embracing all the regions of the world. They have been carefully selected, so that we will have a similar presence to that which we have in the Middle East. In other words, in the Middle East, we have brands, we have distribution. We are relevant. 200 countries, we are commodity exporters. We have a small presence in the Netherlands, another one in the U.K. and the concept is the following: in these selected markets, we will be present -- not all, but in those present, we will -- the idea to acquire a local company which has processing facilities and also has a regional brand. We would like to come in with Sadia to get their own brand, but the cost of entering a market with a brand is very high and they [indiscernible] might be an acquisition. And regarding physical participation -- local physical participation, it is important that we will have access to the supply of local raw materials and continue to find an adequate equation for the exports of raw material. Well, so what you -- we'll export to these markets is the crucial criteria. Yes, it seems to me to be common sense. We suffer as a commodity export due to some barriers. Sometimes economic, politics and phytosanitary. So sometimes, for example, Russia, increases its taxes or raises or closes off some region. And if we are in the region, we will have access to the local producers and thus, one can balance out the equation. I have no idea of what it would be at the moment, but there would be a balance between our exports to these countries where, perhaps, one day, we might have made more local brands. And the domestic market. Well, looking on -- at this moment, the Brazilian consumer, Richard (sic) [Ricardo] talked about this dynamic -- about the mix of Brazilian consumption. We are considering the product mix, obviously. The branding and pricing. We have Sadia, which is recognized as top; and Perdigão, which also is well recognized but does not have the added value that the Sadia brand has. As I said, our positions, that does not lead this -- take this into account because in our company, it was good-to-go DNA which prevailed. So it was difficult to accept Perdigão to be below Sadia. Today, it's BRF. It's no longer Perdigão or Sadia. For the consumer, you have to distinguish the different possibilities of purchasing power of different classes, and you have to address the markets in an adequate way. I'm not sure if I answered your question.

Thiago Duarte - Banco BTG Pactual S.A., Research Division

Thiago Duarte from BTG Pactual. At the beginning of the year, you said that your revenue growth would be 10% to 12%, and if we look at the 9 months, you are at 9.5%. I'd like to know if the 10% or 12% makes sense and obviously implicit is your performance in the fourth quarter.

Claudio Eugenio Stiller Galeazzi

Yes, because of the year to-date, we're closer to 10% than 12% because of the steps taken not only in the export market, but the consequences also the net slaughter has on the domestic market. And we have always tried to keep price and profitability even with a lower volume. So I would say that we still think that it will be feasible to achieve this number but we recognize that it will be closer to 10% than to 12%.

Thiago Duarte - Banco BTG Pactual S.A., Research Division

And if I could ask another question about the impact of the operating other revenues and expenses, if there was an impact of the organizational structure, so will there be an impact on the other quarters as much as was in the third?

Claudio Eugenio Stiller Galeazzi

No. What has to happen has happened now in the third quarter. There will be more happening, a little in the third -- the fourth quarter but most of what was going to happen happened now in the third quarter. I would also like to complement, the bulk of what was going to happen has occurred. And we think that there might still be a need to maximize certain units and detriments of others where we have idle capacity. Sometimes, duplicity there, obviously, should be a rethinking of the industrial footprint. Obviously, there, it will be slower and more relevant when it happens. But it has to be slower because of the production chain all the way through -- all the way up to the slaughter. But the vision of making the company more adjusted is not yet concluded. Quite the opposite, it is far from being concluded. I would say, that this first step was taken as early as possible, to be taken so quickly because of the analysis and the in-depth dive that was taken and the 100 days since the new team took over. I'm not sure whether I was clear.

Unknown Shareholder

My name is Franco [ph]. I'm an investor. So in this clearly focused -- or clear focus to give more emphasis to countries like Russia, is it correct that the company already had some industrial facility in Russia? And if yes, how long has it been operating and what is the focus?

Claudio Eugenio Stiller Galeazzi

Well, the Russian market and the market which, at least, deserves a better analysis of the company before we make any decision of entering this market more completely. We recognize, on the one hand, that the Sadia brand has an important recall in the company, in few categories, but where it still has, there is a consumer recall. So there is a latent possibility. On the other hand, we know that it's a very difficult market to operate in and even more difficult to operate in Brazil -- from Brazil. So what we did was export materials and raw materials, especially pork and some processed meats for the brand. This is why the process of really -- it would really understand that Russia becomes a priority. It makes sense, we will progress. And as far as strategic view of the company, we don't think that Russia is one the top priorities of organic or inorganic growth of the company. But certainly, we understand that yes, there is a latent possibility. So at least, we will examine this with more attention to know what is the design of advancing more in the local distribution chain without having a considerable advance of building factory or M&A.

Unknown Shareholder

At the moment, you have nothing?

Claudio Eugenio Stiller Galeazzi

No. And we are focusing on certain regions where we think there is a market where we must be present. Obviously, there's also a factor called opportunity which can crop up -- where we can have an excellent opportunity, which might -- deviate the focus from another area. So should this opportunity appear -- it has to be an excellent opportunity, we will then consider this. But it's a question of adjustment as you go along. We have a strategic plan and we focus on certain regions. But it's not written in stone. It's nothing really fixed or concrete.

Ricardo Florence dos Santos

We now have a question from the Internet. So let's open up to the Internet. Our next question comes from Mr. Alexander Robarts from Citi.

Alexander Robarts - Citigroup Inc, Research Division

My question is about -- on page 24, on specialty meats. The market was 53.7% in the industrial line, so specialty meats would -- covers July [ph]. And looking at the year, I think this was the highest point. Could you talk a little bit about gains of your market share, and if you would tend to have any level, as an objective, for this segment? And second question is, the Acceleration Plan that you mentioned, BRL 1.9 billion. If you could talk more about the curve to obtain these gains during the next 2 years, if there is any normalcy -- about this curve to obtain this gain?

Ricardo Florence dos Santos

Thank you, Alex, for your questions. The first part, I could hear properly. But the second part, I'd have to ask you to repeat. Let me talk about the market share and then, I'll ask you to repeat because the sound was not all that good. Regarding market share of value, and Alex refers to Slide 24, which I'll put up for everybody. When we look at this market share, it doesn't appear here, but when we compare this value market share to what we had last year, we took what we had before the full execution of our agreement and our performance agreement. The drops which we had were -- because we sold off some brands and product lines and also, we've suspended the production of some of the Perdigão brand. On average, the drop which we had, which is -- is below the one which we would have had if we just removed the effect of the performance agreement on this. But there are some differences between the lines. I'll give you 2 examples. The specialty meats, like ham and sausages, we are even better off than that with the position which we were potentially in, in margarines because we have the quality assets. It's a very powerful brand and the company decided to -- not to increase its production volume. So for each category, there was a different strategy. We'll reposition and recover values and profitability. Now it is a fact that this space has come -- competition has been very strong after this space. So it was divided up among several regional players, smaller players that managed to capture this market share, which has been either sold or suspended. So over here, we'll be looking on an important opportunity to regain this space. For example, like frozen processed meats and pizzas, where the company has a competitive advantage to be regained. When you look at our launches that I went through very quickly, they focused on these categories, especially processed meats, pastas and pizzas. With this focus of the company not only regaining its leadership and at expanding its leadership here, but also creates competitive advantage through innovation. Now I'll ask Alex again to repeat his second question which was not very clear. The sound was not very good. Alex?

Alexander Robarts - Citigroup Inc, Research Division

I was asking about the Acceleration Plan and the objective of capturing BRL 1.9 billion in the next 2 years. So the question is, can you elaborate a little bit now about the curve -- capture curve that you're imagining, if most will be coming in, in 2014 or anything that you could say would be great.

Ricardo Florence dos Santos

Fine, Alex. Now I understood the number that you were asking about. The Acceleration Plan, the gains in 2013, or the curve which was drawn for 2013 was very timid. It was the beginning of this -- but we are absolutely on track, on average. Claudio has some -- mentioned some project which was a little bit below because -- that's normal because you plan some actions and projects which are risk-dependent and not only -- and not all are according to expectations. But we are on track, as expected. I do not have, in fact, an important curve to show you just at the moment but there are many things which are being sown or started for a more robust capture in 2014. I would say that 2014, in answering your question Alex, is essential when we freed up capture and the implementation of important project. So that after 2015, we'll be able to start surfing [ph] on these gains -- annualized gains, there will be many gains. So that depends on CapEx as well. It depends on investments and the investments take terms not only to mature but also to give some expected results. And Claudio follows this closely -- and I see this every day. There are 29 projects in all and he follows them closely. Not only the numbers but the accountability of every officer involved so these projects will be totally developed. So not only the planning is detailed but they have the sponsorship of the top management so that they will occur in the given period and according to what we are expecting. So I think this was your question.

Ricardo Florence dos Santos

Now we're going to turn to our last question.

Unknown Analyst

I am from [indiscernible] from [indiscernible] Corretora. Question is for Eduardo (sic) [Ricardo]. Can you talk about BRF's vision regarding other products of the company, food service, dairy, and I see that you have a market share that is below other products. So -- within this new model for [ph] the company, what are you foreseeing in terms of growth? I know each product has a different growth dynamic, a different competition. What do you foresee for these products in other markets?

Ricardo Florence dos Santos

We are right now focusing ourselves because there's a lot of attention being given to dairy and food service. About dairy, I would say we are being very specific in a deeper market and opportunity analysis. We're not as effective but we are doing a reassessment process in terms of our prior position. Food service is another area in which we need to focus, and we are also starting to work on it but that is a very large market. We do have a relevant share, but it's still below our full potential. I would not be able, right now, to give you a smart answer to these 2 areas because they are undergoing assessments. But I'm sure that in a short period of time, we will be more prepared to bring to you better forecast. Just one comment please. We -- when we see dairy -- what we have here in the market share is just a part of what we call dairy. And that's going to be -- in terms of that, this is not -- no longer going to be an isolated or separate business division but it's, rather, it's going to be part of our strategy to gain market and also a strategy of profitability in the Brazilian market within the frozen and refrigerated products. So within dairy, we have desserts, yogurt, cheeses that is very relevant. And really, BRF has an obligation in terms of its marketing and distribution to win that cheese game. We are already in a very interesting trajectory. So there is a strategic area in the long-term. Of course, if we analyze this globally, it is also very strategic and so once everything is working out and this is on our hands, we can really think harder about food services. This has been mentioned. We are undergoing some challenges in the Brazilian market for food services. It has to do with a down-trading of the mix that is offered. You know that Brazil became an expensive country. It's now a slogan and everything complains about it. Restaurants and transformation change also just think of -- labor costs have increased a lot. Occupations and real estate costs have increased and also, food has increased in cost. That's why transformation industry is looking for more affordable raw materials so that they don't have to increase their prices at -- for the end consumer. So we're having to deal with these domestic issues. But when we analyze the size of food service and we check all the institutional possibilities, global [indiscernible] status heels [ph] for a company like ours. And of course, we're going to focus our efforts on a global and -- global efforts and we believe that BRF is going to be able to turn the tables.

Claudio Eugenio Stiller Galeazzi

Food service, nowadays, has a worldwide reach. We are not operating like that yet, but about dairy, we have just started the international process. But it's also possible to bring foreign partners that are relevant. That is, all opportunities are being considered.

Ricardo Florence dos Santos

Very well. I will conclude our meeting. I would like to remind you to fill up the questionnaire that we have handed out, which is an extension of the quality award. So it's very important to us. Again, we thank all the board members from BRF that are here with us. Analysts, investment professionals, investors, we know how difficult it is to gather such a select group in the company in the same day. So thank you, once again, Mr. Abilio. On behalf of Mr. Claudio and Leopoldo, I thank all participants. We did have a great opportunity to talk. Once again, thank you, Claudio. I will turn the floor to you for your final remarks.

Claudio Eugenio Stiller Galeazzi

Please, I have already said everything that I have to say. We brought to you everything we had. Once again, thank you for this opportunity of exchanging ideas for those of you that know me from other companies, you know that the opinion and the participation of others is very important to me. You will always be very welcome in all opportunities whenever you need more information and possibly, everything that we can tell you on a specific moment. Thank you, once again, for being with us.

Operator

The conference call for BRF S.A. is concluded. Thank you, all, for your participation, and have a nice day.

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