BRF SA (BRFS) 2015 Q1 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to BRF SA conference call to discuss First Quarter 2015 Earnings. This conference call is being transmitted via webcast in our website, www.brf-br.com/ir. The presentation is available to download in our website. At this time, all participants are in a listen-only mode. And after the presentation, we will conduct a question-and-answer session. Instructions will be given at that time.

(Operator Instructions)

Forward-looking statements related to the Company's businesses, perspectives, projections, results and Company's growth potential are provisions based on the expectations of the management as to the future of the Company. These expectations are highly dependent on market changes, economic conditions of the country and the sector and international market. These are subject to changes. As a reminder, this conference is being recorded.

I would now like to turn the conference over to Mrs. Christiane Assis. Please go ahead, madam.

Good morning and welcome to BRF first quarter 2015 results. I would like to hand the call over to our Global CEO, Pedro Faria, for his opening statements; and later to our Finance VP, Augusto Ribeiro. After their statements, we'll open for the Q&A session. Thank you. Pedro, you may begin.

Good morning, everyone. Following BRF results of the year 2014, we began the first quarter of 2015 with growth ambitions financially stronger and better prepared than ever to withstand the challenging scenario which we foresee for the short to medium term. As a testament to that, today, we present to you the robust performance of our business and solid consolidated results for the first quarter of 2015.

This performance is linked to the structural changes and strategy adopted in the last two years, now strengthened by the reorganization of the Company's management model, which became more decentralized through the increased independence and autonomy granted to general managers, whose activities have been divided by five geographical markets; Brazil, Latin America, Europe, Middle East and Africa, and finally Asia.

At the beginning of this year, we also adopted this organizational model to Brazil, which is now divided into five regions; the Northeast, the Mid/North, Sao Paulo, South and the Southeast, this last one comprised by Espirito Santos, Minas and Rio de Janeiro real estate.

Reporting directly to the General Manager for Brazil, no longer by sales channels, this is a very relevant milestone for the beginning of a new long-term cycle, which empowers the regions, giving them more decision, more autonomy and increasing focus on the consumer.

The good performance seen in Brazil, mainly in the processed products category, which represent 75% of our business. This has not left us any less attentive to the economic situation, which we are undergoing (inaudible) prospect of higher interest rates, inflation, unemployment, devaluation of the real, and cuts in both public and private investment.

The effect of that scenario can be seen in the slowdown of the economy growth and decline in consumer confidence, which in turn increased the Company responsibility and focus to deliver the results from its internal projects, in order to continue to grow volumes and revenues in Brazil.

Brazil economic challenges also presented social implication. During the first quarter of 2015, we faced 12 days of road blocks in some of the Brazilian highways due to the truckers' strike. This occurred mainly on highways in the Southern part of Brazil, preventing the movement of raw material, finished products, impacting our operations located in these areas. At the same time, this (inaudible) highlighted the attitude shown by BRF local leaders whose strong efforts prevented even greater impact in the Company. I am a big believer that this has left us a much stronger organization.

Also, in the Brazilian market, this year, we continue to work on a number of projects that we began last year and continue to generate a good traction positive results. These projects includes the go-to-market that they will focus much more on raising clients' productivity by increasing volumes, a richer mix as well as improving the purchasing bankruptcy. Our projects focus on boosting the level of service provided, allowing us to capture more sales, avoid losses, as well as strengthening our relationship with clients.

Furthermore, we initiated three new projects in 2015, in line with our pursuit of constant improvements in our operation. The first includes the complete revision of our operational footprint, aiming to optimize our productive structure through a strategy of exploiting specific features in efficiency of our plants as well as benefiting from geographical diversity within Brazil.

Second project is the implementation of a new pricing model that will allow the positioning of prices according to each region, micro region and channel, as well as assisting the improvement of our market intelligence through a dynamic analysis of price readings in the small-to-medium retail.

Third project is the acceleration of the automation process in our plants. We've already planned greater investments in automation this year, which we expect will bring a new level of productivity moving forward. Moreover, regarding the domestic market, we are excited with the relaunching of some of our Perdigao products in some categories starting in July 1. We've been carrying out investments in marketing and launching new campaign integrated into a specific strategic plan for the brand. Remember, Perdigao still to date represents 19% of all the sales volume on the processed and frozen food market in Brazil, a share that makes it the second most consumed brand in Brazil.

When we move to the most global scene despite the instability seen in important markets such as Venezuela, Russia and Angola, we managed to deliver strong quarter, anchored on some of the structural changes achieved in 2014 as well as new advances in our international supply chain. We saw remarkable improvement in the Middle East and Africa, two of our more strategic markets; Asia as well as Europe despite a [reduction] in pressure by worsened conditions in Russia. Latin America results however were heavily impacted by Venezuela. Given its current economic situation and risk profile, we have chosen not to export to the country during the first quarter of 2015.

We continue to carry on our expansion plan. In Singapore, for example, we have set a new joint venture with SFI, establishing SATS BRF, a company that we will hold 49%. Remember, SFI is a wholly-owned subsidiary of SATS, the largest provider of airport services and catering in Asia, listed in the Singapore Stock Exchange. We have also just announced the acquisition of Invicta Food Group Limited, which will have as main objective distribution of food in the United Kingdom, Ireland, and Scandinavia, as well as the great presence in the UK food service market. In the context of this transaction, BRF will contribute its business as well as Invicta so that BRF will hold 62% of the new entity. Both transactions are completely in line with the Company's strategic project plan to access local market, strengthening our brands and expanding our product portfolio.

Talking a little bit about numbers, our consolidated EBITDA reached BRL951 million in the first quarter, having grown 11.2% year-over-year. And the EBITDA margin came to 13.5%, which is a 0.7 percentage point higher than the same quarter last year. Net income for the period was BRL462 million, 42.8% higher than the same period for 2014, leading to a margin of 6.5% against 4.8% in the first quarter of previous year.

During the first quarter of 2015, our return on capital invested come to 12.3% against 7.2% in 2014. This improvement comes on the back of better results for the Company as well as a much more efficient investment managed both in CapEx as well as working capital. Our financial cycle for the first quarter ended in 32.6 days which compares to 41.8 days in the same period of 2014. Free cash flow for the period was BRL1.1 billion, amounting to BRL4.1 billion in the last 12 months, representing an improvement of 57.8%. Also, very important on April 8, 2015, we had Annual Extraordinary Meeting of Shareholders which approved the election of a new Board of Directors to the Company, now composed of nine members in comparison to 11 members previously; six of the current directors are independent members and they have a mandate of two years.

Now, I will turn the [work] back to Augusto, our CFO, who gets into more detail on our results.

Good morning; good afternoon to everyone. In the first quarter of 2015, net operating revenues totaled BRL7 billion, an increase of 5.1% year-on-year, on the back of higher average price in real, up 13.3%; and the positive results in Brazil, Middle East and Asia, where increase in average price more than compensated volume reduction.

On a quarterly comparison, we saw a 12.4% decrease in net operating revenues due to the seasonality we have in the last quarter of the year, mainly Brazil; as well as the excellent sales performance of our commemorative products in the fourth quarter of 2014.

Furthermore, it is important to highlight that we had an extraordinary performance in the international market in the fourth quarter of 2014, which was positively impacted by the sanction on poultry and pork imposed by Russia to the United States and the European Union, as well as a balanced supply in the main dynamic for poultry in the main markets where we operate.

In the first quarter of 2015, our cost of goods sold amounted to BRL4.9 billion, showing a slight decline of 0.9% compared to same period of the previous year. COGS as a percentage of net operating revenues was 4.2 percentage points lower, going from 73.5% in the first quarter of 2014 to 69.3% in the first quarter of 2015. This was mainly due to the lower cost of soybeans, down 8%; as well as soybean meal, down 3.8%; compared to the same period last year which positively impacted the results despite the rise in the cost of corn, up 2.9% in the same comparison.

Among other main factors that impacted the cost of goods sold in the quarter, it is worth mentioning the impact of the depreciation of the real against the dollar on the cost of packaging and other input materials, increased energy costs, and higher cost in the food conversion due to the truckers' strike.

Compared to the fourth quarter of 2014, we saw an increase in the cost of corn, up 10%; and the soybean meal, up 13%; which resulted in an increase of 2.7 percentage points in the cost of goods sold as a percentage of net operating rev.

Gross profit for the first quarter of 2015 registered an important growth of 21.8% compared to the same period of the previous year, amounting to BRL2.2 billion. Gross margin improved by 4.2 percentage points, moving from 26.5% in the first quarter of last year to 30.7% in the first quarter of 2015. This improvement was mainly due to better average prices across all regions, with highlights to Latin America, Middle East, Africa and Asia. Compared to the fourth quarter of 2014, gross profit declined by 19.5%, going from 33.4% to 30.7% as a percentage of net operating revenue, mainly due to the seasonal effect from the Brazilian revenue as previously mentioned in the reduction of volumes and prices as a consequence of the effect of Russian and Venezuela in the international region.

During the first quarter of 2015, we saw an increase of 8.9% in the operating expenses compared to the previous year, amounting to 16.9% of net operating revenues against 16.3% in the first quarter of 2014. This was a result of the 8.4% increase in sales expense due to higher marketing expenses, mainly related to the new institutional campaign for the Perdigao brand as we are anticipating the return of certain categories in July, as well as increased expenses with trade marketing in line with the Company's strategy. Furthermore, it is also noteworthy that the variation in operating expense line has been impacted by increasing expense with Federal Foods in the first quarter of 2015, a company that we acquired [immediately], which is being fully consolidated in our results, since the acquisition of 100% of its economic right in April 2014, as well as by Alyasra result, in which we acquired 75% of its frozen food retail distribution business in November of the same year. Compared to the fourth quarter of 2014, which is very important, operating expenses were down by 6.5%.

In the first quarter of 2015, we accumulated an amount of BRL273 million in other operating expense, 126% higher than the BRL121 million in the first quarter of 2014. This includes BRL147 million of non-recurring expense, of which BRL42 million are related to the cost of higher capacity as a result of the truckers' strike that (inaudible) in February 2015; BRL35 million in restructuring expense, BRL27 million regarding some tax adjustments, as well as many other items which altogether amounted to BRL43 million. Excluding impact of these (inaudible) items, other operating results amounted to BRL126 million, in line with the other operating expense in the first quarter of 2014.

Consolidated EBIT for the first quarter of the year was BRL641 million, up 12% year-on-year, mainly due to the higher gross profit, boosted by better average price in reis in Brazil, Middle East/Africa and Asia, which more than made up for the rise in operating expenses. Higher net expenses from other operating results as well as impact of equity income, which went from BRL12 million of revenues in the first quarter of 2014 to BRL59 million of expenses in the first quarter of 2015, mainly as a result of a negative impact from our 15% stake in Minerva.

I, here, would like to make a statement despite the fact that we no longer (inaudible) adjusted EBITDA, I would like to highlight that if you were to adjust for the non-recurring item, our EBITDA margin would have been around 15%, 15.4%, an improvement of 2.9 percentage points. This is a result of both better price in reis, as already mentioned; and the initiatives adopted by the Company, the most important of which were the optimization of the allocation of volume between markets, better allocation of sales within the region and the acquisition of distributors in the Middle East.

Net financial expenses in the quarter were 45.3% lower year-on-year and 46.4% lower quarter-on-quarter, mainly as a result of higher gain from currency variation and interest on financial investment. It is also worth mentioning that we had a gain from the currency valuation in the period, resulting from the sales contract of the Dairy operations to Lactalis, which is indexed to the dollar. Consequently, these revenues reduced the impact of tax benefits in currency variation loan in financing and other liabilities amounted to a net financial expense of BRL108 million in the quarter.

Net debt for the Company was BRL6.2 billion, 23.8% higher than that registered on December 31, 2014, resulting in a net debt to EBITDA in the last 12 months ratio of 1.26 times against 1.04 times in the fourth quarter last year. Despite the strong operational cash generation in the period, there was an increase in net debt compared to the previous quarter, mainly due to the increase in foreign currency debt which in turn was impacted by a 20.8% appreciation in the US dollar compared to the same period in 2014. It is also worth mention that net debt was also impacted by the share buyback program which occurred during this period, reducing cash by BRL1 billion. Without the effect of the share buyback program, net debt would have been in line with that of the fourth quarter of last year.

Investments made in the quarter amounted to BRL313 million, 6.9% below that of the same period last year. We continue to focus a big part of our investments toward automation, logistics, IT systems and started to direct part of the investments to the operational footprint project, as already mentioned earlier.

At the end of the first quarter 2015, the financial cycle came to 32.6 days as the percentage of net operating revenue went from 11% in the first quarter of 2014 and 10.1% in the fourth quarter of 2014 to 8.8% in the first quarter of 2015.

This 9-day improvement in the last 12-month financial cycle is a result of implementation of important projects during the year of 2014, actually related to accounts payable where we renegotiated a larger portion of our supplier contracts.

Considering only our continued operations, net income amounted to BRL462 million in the quarter, [42.8%] higher year-on-year with a net margin go 6.5% this year, 1.7 percentage points above that of the same quarter of the previous year.

Here, I would like to reinforce most of the gain, as already mentioned, the constant improvement in our results, that our ROIC of 12.3% in the quarter. We generated BRL1.13 million of cash. Our financial cycle was below 35 days. These numbers give us confidence on the strategy adopted by the Company as well as investments we make in our people with the qualification of the people than it was in year-end. This sums up the results for the period, a solid quarter despite the current situation in Brazil and globally. But strongly impacted by better non-recurring items.

We'd like to thank everyone present and open the call to Q&A. Thank you very much.

Excuse me, ladies and gentlemen, we will now begin the question-and-answer session. (Operator Instructions). Lauren Torres, UBS.

Yes. Hi, good morning, everyone. I was hoping if there's some way of isolating things that you can control versus things that you can't control. And I guess I'm focusing on Brazil here. In the first quarter, there were obviously these non-recurring or other expenses that impacted your results and I guess going forward this year, things like the truckers' strike still should weigh in and there are concerns there and I don't know if there's any lessons learned that you could talk about with respect to how to manage the more variable risks that could weigh on results?

And I guess the other half of the question has to do with things that you can control, knowing that the environment remains quite soft. There is a lot of initiatives you had mentioned in place to kind of stimulate growth, but I was curious to just get your impression on kind of the leading factors of that, in light of how the consumer is behaving and what you're doing differently to kind of stimulate that growth. Thank you.

Thank you, Lauren, for the question. I will try to address the part of the non-recurring events and Pedro will help you with the forecast for the year and the things that we are doing. In general terms, the majority for the -- there are two major events that amounted almost BRL100 million. One of them was the truckers' strike that happened in February, which will impact us right in that month regarding idle capacity, regarding the issue that we had because of our plants were unable to function properly.

But there were also other impact on the first quarter related to the technical type of our cost like the protein conversion, things that had happened because they were unable to work properly throughout the month. But anyway, those impacts happen only on the first quarter, majority of them. We do not see those being relevant for the next quarters. So, from that part of the issue, we do not believe that we might have it. But if you have them, again in Brazil, if that happens again, we believe we are much more better prepared than we were at that time. And we believe we had a very good operations throughout that strike. But in a way much better given the knowledge that we acquired for that event.

The restructuring part of the non-recurring event is something that we are going through since the beginning of last year, actually since the start of the new management, since the -- when I start to unleash all the quotation, believe we are ahead of it. So the majority, bulk of the adjustments regarding people, for example, we believe that we're done in the last year and in this quarter or we might have some of them coming forward.

It is important to say that as long as we are seeing value on those restructuring, we will do them because we believe it is bad for the Company, and actually when you look at all the other indicators in terms of cash generation, EBITDA growth, et cetera, we are delivering that growth for the Company. We are delivering that benefit as we talk. So that might happen. So, we are looking ahead. We are seeing a lot of potential in those items even though we mentioned, they are nonrecurrent for the sense that they happened without our prediction. We are improving a lot our risk management within the Company in order to try to avoid as much as possible those items.

Yes, Lauren. Good morning. This is Pedro. I try to address the growth part of your question. I think you're bringing the more fundamental question, which is which are the growth levers that the Company has and how well we are executing? So it's always difficult to say how much of your performance is actually something you are in control as opposed to variables you can't control. But I would say that when you decompose our growth even in the first quarter with all the challenges that Augusto discussed, you will see pockets of growth, pockets of strength precisely in the markets we chose to focus on the category as well as on the channels.

So, very hard to see from the whole numbers bundled together. But I can probably point you out that throughout this quarter, we have not been active in markets which are very relevant historically for the Company. I would just quote Venezuela, even Russia which you had no significant drop in volumes; even in the Middle East, markets like Iraq, Egypt, Libya, all of those markets seen a lot of turmoil. So when you see flattish growth volumes in international market and very strong performance in Asia as well as Middle East in terms of profitability, I'd like to believe that we are focusing on markets which are more sustainable, which present growth opportunities for the Company with a lot more resilience.

I think the same phenomenon occurs in Brazil, where you have a 7.5% growth in volumes on processed category; of course, we have a number supporting our market share. I don't think that the market share figures, we are reporting for the quarter. They adequately represent all of the initiatives in place of the relaunch of the brand, the whole process of decentralizing Brazil operations into five different regions, five region leaders which are now doing a very good job understanding the granularity and the opportunities at a regional level, as well as better channel management. I think it's the highlight of the quarter that we are getting on the key accounts sector back in track, meaning that for a number of quarters, we were underperforming that channel; now, we've seen more resilience. So I think as we look forward, I'd like to say that I'm pretty optimistic with the variables we control. However, we are playing against a backdrop of some uncertainty in the economic scenario.

Okay. Well, good to hear. Thank you.

Tim Tiberio, Miller Tabak.

Good morning and thanks for taking my question. I just wanted to get your sense of how you're looking at the supply backdrop for the In Natura poultry market. I know there is a lot of focus here in the US about -- with all the fee cost coming back into play that (inaudible) are expanding their supply. Just wanted to get a sense as one of the largest producers in Brazil whether you think the market is still remaining disciplined or whether you think that supply growth is starting to really accelerate. Thanks.

Thank you for the question. I'd like to say that, yes, we have seen some supply trends going up. Of course, we are still operating at the margins, which are fairly attractive. So I think there is a genuine supply increase, but that comes against I think a demand equation, which is always surprising to the upside. So a lot of the market participants with (inaudible) of strong correction in first quarter of 2015. We did not see that, we see is likely decreases in prices in dollar terms but though -- I think a superior execution we managed to keep prices under control and some of the markets we are clear leaders. We continue to get market share. So I think there are some trends in the supply, of course the issues, which I think also impact on the offer side like avian influenza in the United States. So I think the scenario is still pretty benign even though of course we all came to knowledge, the fact that we are in the superior part of the cycle.

Thank you.

Jeronimo de Guzman, Morgan Stanley.

Hi, good morning. I had a question on the international markets as well and just wanted to get your outlook for these markets going forward, and in particular the markets that hurt results in the first quarter. So just wanted to see how you see demand in places like Venezuela, Russia and Angola behaving going forward and also if you see other markets that can help offset the weaker demand from these markets.

Okay. Thank you for your question, Jeronimo. I think those markets that presented a decrease in volume for the first quarter, I would not say that we are facing demand issue with those markets. From what we understand, all these markets you mentioned, Venezuela, Angola, even Russia, there is demand and demand has pretty much intact. I think there are other factors which created the situation that we face in those markets.

So, Venezuela definitely a situation which the ability to fulfill payments in credit risk becomes a big issue. Of course, in Russia, there is a strong devaluation of the ruble which created instability among the importers. In Angola, there is a process in which getting licenses has become quite constrained. So, I would say that there is not a big impact in demand, it's how the local agents and clients and players, they are able to ride this more turbulent times.

I think BRF took a very cautious view on those markets. We tried to rebalance our portfolio grow in substantial markets which you'll see more sustainable, getting less and less exposed or dependent on markets which have proven to be historically very volatile.

So when you look at the volume trends in the international markets, even though they are flattish or even downward, in reality, they are hiding a strength in markets we chose to focus a lot. But we continue to focus and try to understand trends in all of those markets because even in the markets we had less of a participation like Russia in the first quarter, we still like to believe we have a very important role to play. Noticeably, during the first quarter, after two-year gap, the Sadia brand was re-launched in the Russian market, in the Russian modern retail market with a strong success; of course, volumes will not appear given the ramp up, but we continue to be very much focused on those markets, but taking a very cautious view as far as credit, as far as potential imbalances in the flow of payments, so on and so forth.

And just to complement it a little bit more, just to remind you that when we announced at the end of 2013 that you would make an adjustment in our offer and demand relationship, that would actually decrease part of our production. By that time, we decided to decrease [preemptly] our volume through Venezuela, Russia, for example. So, not something that we just try to do, but we started. We've been doing that throughout 2014.

Thanks. And just a follow-up on that volume trend, so you did have a volume decline in the first quarter in the international markets as a whole, how do you see the volume trends going forward in these international markets? Should we expect you to continue seeing declines because of this distraction, conscious decision to exit unprofitable market? We think you can actually start shifting more of the volumes to some of the markets that appear to be working pretty well with the Middle East and Asia.

Yes. What you continue to see in the quarters to come is this rebalancing of our portfolio, seeing healthy growth trends in the markets we are focusing. I would quote a view like the whole region of the Persian Gulf and you will see us getting more and more out and cautious on some of the markets which are proven to be more unstable or are exposed to other kinds of risks. So at the end of the day, we think that looking at the large average, you will see volume trends flattish, probably slightly positive. But again, these are I'd say not misleading, but these are hiding the real truth in some of the markets in which we will be getting market share in a meaningful way. And of course, we expect also Brazil market share trends to improve given the initiatives we described.

Great, thank you very much.

Jose Yordan, Deutsche Bank.

Hi, good morning, guys. My main question was asked, but I'll ask you about the clarification on the other operating expenses. Number one there, I noted the big increase in employee profit sharing and I was wondering if that was sort of the timing of when you make those profit sharing payments or [something more]. And then, number two, these idle capacity costs, I know you had these in the past, (inaudible) there has been idle capacity costs. So I mean I guess I'm interested in getting a little more color as to why every company has idle capacity and it's just reflected in higher fixed cost of goods sold, et cetera, why do you kind of quote it differently, I guess, out of these idle capacity cost in the quarter, how much was really related to the strike and how much was your usual idle capacity cost that you get?

Well, thank you, Jose. I will start to answer your question. You are right, we definitely increase and we plan to increase a lot the profit sharing within the Company. We believe in that model. We believe in that people deserve to be rewarded given the result the Company is delivering in the extra, our objectives for the years to come. So -- but the majority of those -- part of those non-recurring is related to some restructuring that we did and some -- I don't know how to translate that, actually some payments done to severance of some executives.

So I guess your second question, a little bit is going to comprehend something regarding the profit sharing.

Yes, I think it's important to say that in this process of transformation of the Company, we have really embraced the notion of (inaudible). As you all know, we had probably historically high results in 2014, thanks to a number of the achievements. And I think, under that meritocracy philosophy, I think that the profit sharing mechanism was improved. I'd like and I'm proud to say that even if you look at the factory level worker it probably got 3 times the variable compensation that he got in 2013, which is really heavy and huge impact on the morale, on the productivity and on the core philosophy of our Company culture. So, yes, it is a higher number, but I think it is also following through from the historical results of 2014.

And your second question, if I'm not mistaken, was related to idle capacity and how much is within these truckers is related to, actually part of idle capacity related to truckers and how much else is related to other items?

I guess in a more general way, why is idle capacity accounted for outside of the cost of goods line, would that it be a fixed cost of the outline.

That's a good point. There (inaudible) you can see how the result of the positive non-recurring event. And the truckers caused by the truckers strike, all the impact regarding [floating] conversion on the cost per se, they are within the COGS. That's why the total effect of the truckers' strike is not BRL43 million right now in first quarter. We are calling them as non-recurring because those are related to the idle capacity of the workers not been able to work and I have the expense of their salaries on demand. But part of the cost increase that we had in first quarter related to that strike is within the comp. So when you consider total impact of this strike for BRF in the fourth quarter, its more close to BRL100 million than BRL43 million, but we're calling only BRL43 million we are calling. The rest is within our cost, within the first quarter. We try to enter a price, to put a lot of expenses within a company, to try to compensate in some way within our P&L.

Okay, great. Thanks.

Alex Robarts, Citi.

Thanks for taking my question. Hi, everybody. I was keen to go back to Brazil and very interested in just some of your commentary in an earlier Brazil call around pricing, and you commented on the Brazil call around just pricing trends. But when you look at the total portfolio, right, and the 9% sales growth and I'm excluding the others. The sales growth right now in Brazil has been driven by volume, I mean to a large extent.

I mean your average price excluding others, they exclude flat. Is this something that we can kind of perhaps think about for the rest of the year? Do you feel like -- I mean, obviously, there is an increase in the Natura -- in the poultry commodity volumes. Is this a strategy that you will be rolling out more throughout the year and is the kind of more volume-driven topline outlook, it seems to be for the rest of the year in the domestic market, is that a function of just trading down or kind of a soft general consumer environment and should we see that kind of revert and perhaps change price versus volume as the economy eventually sees some pickup. So if you could comment around that, that will be helpful.

Thank you, Alex. I will start to answer and Pedro will help us to get a better view on Brazil. In general terms, what happened in the first quarter, first of all, it's hard for us to split between macroeconomic environment and all the actions that we do in Brazil. We had increasing a lot. If you remember, we merged the sales force in the first semester of last year, we went through a lot of new point-of-sales captured mainly on the second semester of last year with a new sales force already merged. We implemented these regional offices, which a lot more responsibility within [these] regions. So, we started to see a better management on the point of sales level. So when you put all of those together, definitely, part of our growth volume came from those actions.

In the first quarter, we did not increase prices as much as we're planning to do yet. When I look forward in the year, it is not a guidance, but definitely we should consider size of the Company. Our position is relatively to the market share, et cetera. Of course, BRF is a company that has to lead price increase in Brazil on [those] category and therefore, we will do that as the inflation keeps -- continues to be a hot topic in Brazil.

Probably, we are aiming to be more close to inflation level in Brazil for 2015. But, coupled with that target, we have again, coming back to the project that I mentioned before, we will have our second quarter of those regional offices already implemented; so there, they started to get used to the new format of management format. So we are increasing our capability of deliver the actions that may be important to increase to regain market share, to increase volume. So it would be a mixture of both. In price increase, we do that definitely. We are constant that everything that we're doing, will help us to get to obtain growth on the categories that we want to grow. But it's important to say that even in Brazil, we have poked in our target related to some product, some mix, effect of mix in our numbers. So we are quite confident for 2015, but I do not -- even though the macroeconomic scenario is going to be a testing environment for Brazilian players, for the rest of the year. You want to complement?

Yes, let me just complement what Augusto just said. I think on the Brazil scenario, and you'll ask specific down trends et cetera, there is of course a big impact on the poultry progress which is coming from our conscious decisions of letting go some markets like Venezuela, which of course we have to redirect product to Brazil, which impacted the mix substantially. But I think the more important and relevant aspect of the first-quarter performance is the quite healthy growth on the core categories we decide to chose, which I think the market reacted quite substantially. And like I said, I think current initiatives in place should continue to bulletproof Brazilian operation against a backdrop of a broader economic retraction or adjustment.

Sure, that's very helpful. So it's safe to perhaps assuming that when we think about (inaudible) coming into the market in July, this kind of pullback from Venezuela that's helping the Natura segment, the commodity segment, these elements might have a little bit of a downward pressure on your average selling price. However, as inflation picks up and as you look perhaps for some room, if you move up pricing, we can perhaps have the view that pricing can be stable this year in Brazil, is that a fair assumption?

Yes, I think you are right. I think in terms of pricing, we actually had the same question, a call in Portuguese. We put that as one of the core initiatives of the Company, the strategic pricing being implemented now. I think it brings two major benefits to us, which should also help our execution. Number one, it's actually the capability of implementing a price strategy, it's much easier said than done. And I think right now, with this structure, which is more independent, autonomous, we've been able to enforce a price strategy as opposed to just taking no actions in one part of the variable, which is the price declines, but we are very focused on price to consumers through a number of sell-out initiatives.

And the second part is precisely the granularity of the pricing strategy. I think for the first time now, with the tools we developed, with the strengthening of the pricing team, we are now able to understand specific trends in particular markets, regions, channels and categories to implement a much more granular strategy in terms of price which will allow in one side to recoup some of the cost pressure we've been facing. But on the second, to more adequately price against certain market share goals that we have and that we are going after.

And just to reinforce that point, if you look at the first quarter, we are able to increase two percentage points in the gross profit in Brazil operation even though we have all of those points are [at present] in the first quarter.

Okay, got it. Thanks very much.

This concludes today's question-and-answer session. I would like to pass the floor to Mr. Pedro Faria for his final statements.

Well, thank you very much for all the participants in our first quarter 2015 call. I think the quarter of 2015 was marked by some very important events that I think created some relevant impacts in our results. Having said that, as we said throughout the call, we remain quite confident in our ability to execute the strategy. We see clearly in terms of profitability trends the success of the initiatives being taken. Of course growth in market share trends will be something that will be quite clearly monitoring, but I just like to emphasize the management team, our confidence in continue to execute its strategy. Thank you very much and look forward to being with you on the next quarterly call.

Thank you very much for your participation. Have a good day.