FINANCIAL STATEMENTS |
Index
1. Independent Auditors’ Report | 3 |
2. Balance Sheets | 6 |
3. Statements of Income | 8 |
4. Statements of Comprehensive Income | 9 |
5. Statements of Changes in Shareholders’ Equity | 10 |
6. Statements of Cash Flows | 11 |
7. Statements of Added Value | 12 |
8. Management Report | 13 |
9. Explanatory Notes to the Financial Statements | 53 |
10.Opinion of the Fiscal Council | 172 |
11.Opinion of the Audit Committee | 172 |
12.Opinion of the Executive Board | 172 |
A free translation from Portuguese into English of Independent Auditor´s Report on financial statements prepared in accordance with the accounting practices adopted in Brazil and International Financial Reporting Standards (IFRS)
INDEPENDENT AUDITOR’S REPORT ON FINANCIAL STATEMENTS
The Shareholders and Officers
BRF S.A.
Itajaí - SC
We have audited the accompanying individual and consolidated financial statements of BRF S.A., identified as Parent Company and Consolidated, which comprise the balance sheet as at December 31, 2014, and the statements of income, comprehensive income, changes in equity and cash flows for the year then ended, and a summary of significant accounting policies and other explanatory information.
Management’s responsibility for the financial statements
Management is responsible for the preparation and fair presentation of the individual and consolidated financial statements in accordance with the accounting practices adopted in Brazil and International Financial Reporting Standards (IFRS), as issued by the International Accounting Standards Board (IASB), as well as for the internal controls management determined as necessary to enable the preparation of these financial statements that are free from material misstatement, whether due to fraud or error.
Independent auditors’ responsibility
Our responsibility is to express an opinion on these financial statements based on our audit, conducted in accordance with the Brazilian and International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the preparation and fair presentation of the Company’s financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Opinion
In our opinion, the individual and consolidated financial statements referred to above present fairly, in all material respects, the individual and consolidated financial position of BRF S.A. as of December 31, 2014, and the individual and consolidated results of its operations and its cash flows for the year then ended in accordance with the accounting practices adopted in Brazil and International Financial Reporting Standards (IFRS) asissued by the International Accounting Standards Board (IASB).
3
A free translation from Portuguese into English of Independent Auditor´s Report on financial statements prepared in accordance with the accounting practices adopted in Brazil and International Financial Reporting Standards (IFRS)
Other matters
Statements of valued added
We have also audited the individual and consolidated statements of value added for the year ended December 31, 2014, prepared under the responsibility of the Company´s management, which presentation is required by the Brazilian Corporate Law for public companies, and as supplemental information by IFRS, which do not require the presentation of the statement of value added. These statements have been subject to the same audit procedures previously described and, in our opinion, are fairly presented, in all material respects, in relation to the financial statements taken as a whole.
São Paulo, February 26, 2015.
ERNST & YOUNG
Auditores Independentes S.S.
CRC-SC-000048/F-0
Antonio Humberto Barros dos Santos Accountant CRC-1SP161745/O-3 | Patricia Nakano Ferreira Accountant CRC-1SP234620/O-4 |
4
(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)
FINANCIAL STATEMENTS Year ended December 31, 2014 and 2013 (Amounts expressed in thousands of Brazilian Reais, unless otherwise stated)
|
BRF S.A.
BALANCE SHEETS
Parent company | Consolidated | ||||||||
ASSETS | Note | 12.31.14 | 12.31.13 | 12.31.14 | 12.31.13 | ||||
CURRENT ASSETS | |||||||||
Cash and cash equivalents | 7 | 1,979,357 | 905,176 | 6,006,942 | 3,127,715 | ||||
Marketable securities | 8 | 283,623 | 178,720 | 587,480 | 459,568 | ||||
Trade accounts receivable, net | 9 | 4,663,193 | 3,985,424 | 3,046,871 | 3,338,355 | ||||
Notes receivable | 9 | 170,029 | 83,743 | 215,067 | 149,007 | ||||
Interest on shareholders' equity receivable | 30 | 13,369 | 33,104 | 10,248 | 16 | ||||
Inventories | 10 | 2,204,822 | 2,462,818 | 2,941,355 | 3,111,615 | ||||
Biological assets | 11 | 1,122,350 | 1,198,361 | 1,130,580 | 1,205,851 | ||||
Recoverable taxes | 12 | 914,720 | 1,211,084 | 1,009,076 | 1,302,939 | ||||
Other financial assets | 22 | 42,922 | 8,857 | 43,101 | 11,572 | ||||
Other current assets | 501,549 | 356,079 | 539,518 | 386,937 | |||||
11,895,934 | 10,423,366 | 15,530,238 | 13,093,575 | ||||||
Assets of discontinued operations and held for sale | 13 | 1,957,565 | 146,924 | 1,958,007 | 148,948 | ||||
Total current assets | 13,853,499 | 10,570,290 | 17,488,245 | 13,242,523 | |||||
NON-CURRENT ASSETS | |||||||||
Marketable securities | 8 | 62,104 | 56,002 | 62,104 | 56,002 | ||||
Trade accounts receivable, net | 9 | 6,486 | 7,690 | 7,706 | 7,811 | ||||
Notes receivable | 9 | 336,815 | 306,069 | 361,673 | 353,675 | ||||
Recoverable taxes | 12 | 898,174 | 790,619 | 912,082 | 800,808 | ||||
Deferred income and social contribution taxes | 14 | 751,932 | 745,875 | 714,015 | 665,677 | ||||
Judicial deposits | 15 | 612,286 | 472,617 | 615,719 | 478,676 | ||||
Biological assets | 11 | 681,823 | 568,978 | 683,210 | 568,978 | ||||
Receivables from related parties | 30 | - | 13,505 | - | - | ||||
Restricted cash | 16 | 115,179 | 99,212 | 115,179 | 99,212 | ||||
Other non-current assets | 310,557 | 393,438 | 317,387 | 413,717 | |||||
Investments in associates and join ventures | 17 | 3,999,729 | 3,204,866 | 438,423 | 107,990 | ||||
Property, plant and equipment, net | 18 | 9,424,609 | 10,338,897 | 10,059,349 | 10,821,578 | ||||
Intangible | 19 | 3,445,090 | 4,084,139 | 4,328,643 | 4,757,922 | ||||
Total non-current assets | 20,644,784 | 21,081,907 | 18,615,490 | 19,132,046 | |||||
TOTAL ASSETS | 34,498,283 | 31,652,197 | 36,103,735 | 32,374,569 |
See accompanying notes to the consolidated financial statements.
5
(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)
FINANCIAL STATEMENTS Year ended December 31, 2014 and 2013 (Amounts expressed in thousands of Brazilian Reais, unless otherwise stated)
|
BRF S.A.
BALANCE SHEETS
Parent company |
|
| Consolidated | ||||||
LIABILITIES | Note | 12.31.14 | 12.31.13 | 12.31.14 | 12.31.13 | ||||
CURRENT LIABILITIES | |||||||||
Short-term debt | 20 | 2,601,022 | 2,469,634 | 2,738,903 | 2,696,594 | ||||
Trade accounts payable | 21 | 3,591,980 | 3,378,029 | 3,977,327 | 3,674,705 | ||||
Payroll and related charges | 378,093 | 390,405 | 427,058 | 433,467 | |||||
Tax payable | 216,256 | 213,331 | 299,951 | 253,678 | |||||
Interest on shareholders' equity | 27 | 430,909 | 336,677 | 430,909 | 336,677 | ||||
Employee and management profit sharing | 374,575 | 177,064 | 395,767 | 177,064 | |||||
Other financial liabilities | 22 | 216,057 | 318,201 | 257,438 | 357,182 | ||||
Provision for tax, civil and labor risks | 26 | 233,636 | 233,435 | 242,974 | 243,939 | ||||
Pension and other post-employment plans | 25 | 56,096 | 49,027 | 56,096 | 49,027 | ||||
Advances from related parties | 30 | 16,403 | 1,672,005 | - | - | ||||
Other current liabilities | 159,918 | 157,430 | 234,439 | 213,698 | |||||
8,274,945 | 9,395,238 | 9,060,862 | 8,436,031 | ||||||
Liabilities of discontinued operations | 13 | 508,264 | - | 508,264 | - | ||||
Total current liabilities | 8,783,209 | 9,395,238 | 9,569,126 | 8,436,031 | |||||
NON-CURRENT LIABILITIES | |||||||||
Long-term debt | 20 | 7,429,599 | 5,205,667 | 8,850,432 | 7,484,596 | ||||
Tax payable | 6,005 | 12,219 | 25,902 | 19,494 | |||||
Provision for tax, civil and labor risks | 26 | 919,446 | 754,632 | 942,759 | 775,359 | ||||
Deferred income and social contribution taxes | 14 | - | - | 90,184 | 20,566 | ||||
Liabilities with related parties | 30 | 19,738 | 12,329 | - | - | ||||
Advances from related parties | 30 | 796,860 | 702,780 | - | - | ||||
Pension and other post-employment plans | 25 | 257,974 | 242,236 | 257,974 | 242,236 | ||||
Other non-current liabilities | 694,975 | 672,025 | 677,415 | 700,133 | |||||
Total non-current liabilities | 10,124,597 | 7,601,888 | 10,844,666 | 9,242,384 | |||||
SHAREHOLDERS' EQUITY | 27 | ||||||||
Capital | 12,460,471 | 12,460,471 | 12,460,471 | 12,460,471 | |||||
Capital reserves | 109,446 | 113,797 | 109,446 | 113,797 | |||||
Income reserves | 3,945,825 | 2,511,880 | 3,945,825 | 2,511,880 | |||||
Treasury shares | (304,874) | (77,379) | (304,874) | (77,379) | |||||
Other comprehensive loss | (620,391) | (353,698) | (620,391) | (353,698) | |||||
Equity attributable to interest of controlling shareholders | 15,590,477 | 14,655,071 | 15,590,477 | 14,655,071 | |||||
Equity attributable to non-controlling interest | - | - | 99,466 | 41,083 | |||||
Total shareholders' equity | 15,590,477 | 14,655,071 | 15,689,943 | 14,696,154 | |||||
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | 34,498,283 | 31,652,197 | 36,103,735 | 32,374,569 |
See accompanying notes to the consolidated financial statements.
6
(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)
FINANCIAL STATEMENTS Year ended December 31, 2014 and 2013 (Amounts expressed in thousands of Brazilian Reais, unless otherwise stated)
|
BRF S.A.
STATEMENTS OF INCOME
Parent company | Consolidated | ||||||||
Note | 12.31.14 | 12.31.13 | 12.31.14 | 12.31.13 | |||||
CONTINUED OPERATIONS | |||||||||
NET SALES | 31 | 25,934,135 | 25,667,319 | 29,006,843 | 27,787,477 | ||||
Cost of sales | 35 | (18,901,439) | (19,658,279) | (20,497,430) | (20,877,597) | ||||
GROSS PROFIT | 7,032,696 | 6,009,040 | 8,509,413 | 6,909,880 | |||||
OPERATING INCOME (EXPENSES) | |||||||||
Selling expenses | 35 | (3,654,697) | (3,370,012) | (4,216,500) | (4,141,016) | ||||
General and administrative expenses | 35 | (289,388) | (303,650) | (402,054) | (427,344) | ||||
Other operating expenses, net | 33 | (338,743) | (419,785) | (438,110) | (458,115) | ||||
Income from associates and joint ventures | 17 | 673,343 | 95,169 | 25,570 | 12,908 | ||||
OPERATING INCOME | 3,423,211 | 2,010,762 | 3,478,319 | 1,896,313 | |||||
Financial income | 34 | (1,755,007) | (1,406,771) | (2,571,454) | (1,564,832) | ||||
Financial expenses | 34 | 780,366 | 542,855 | 1,580,756 | 817,296 | ||||
INCOME BEFORE TAXES | 2,448,570 | 1,146,846 | 2,487,621 | 1,148,777 | |||||
Current | 14 | (77,467) | 8,808 | (117,361) | (13,093) | ||||
Deferred | 14 | (235,889) | (140,403) | (235,205) | (116,026) | ||||
INCOME FROM CONTINUED OPERATIONS | 2,135,214 | 1,015,251 | 2,135,055 | 1,019,658 | |||||
DISCONTINUED OPERATIONS | |||||||||
INCOME FROM DISCONTINUED OPERATIONS | 89,822 | 47,179 | 89,822 | 47,179 | |||||
NET PROFIT | 2,225,036 | 1,062,430 | 2,224,877 | 1,066,837 | |||||
Attributable to | |||||||||
Controlling shareholders | 2,225,036 | 1,062,430 | 2,225,036 | 1,062,430 | |||||
Non-controlling interest | - | - | (159) | 4,407 | |||||
2,225,036 | 1,062,430 | 2,224,877 | 1,066,837 | ||||||
Earnings per share - basic | 870,412,068 | 870,534,511 | |||||||
Weighted average shares outstanding - basic | 28 | 2.55630 | 1.22043 | ||||||
Earning per share - diluted | 870,823,776 | 871,441,705 | |||||||
Weighted average shares outstanding - diluted | 28 | 2.55509 | 1.21916 | ||||||
EARNINGS PER SHARE FROM CONTINUED OPERATIONS | |||||||||
Earnings per share - basic | 870,412,068 | 870,534,511 | |||||||
Weighted average shares outstanding - basic | 28 | 2.45311 | 1.16624 | ||||||
Earning per share - diluted | 870,823,776 | 871,441,705 | |||||||
Weighted average shares outstanding - diluted | 28 | 2.45195 | 1.16502 |
See accompanying notes to the consolidated financial statements.
7
(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)
FINANCIAL STATEMENTS Year ended December 31, 2014 and 2013 (Amounts expressed in thousands of Brazilian Reais, except Dividend – Interest on own equity per share data) |
BRF S.A. | |||||||||
STATEMENTS OF COMPREHENSIVE INCOME | |||||||||
Parent company | Consolidated | ||||||||
Note | 12.31.14 | 12.31.13 | 12.31.14 | 12.31.13 | |||||
Net Profit | 2,225,036 | 1,062,430 | 2,224,877 | 1,066,837 | |||||
Other comprehensive income | |||||||||
Loss ON foreign currency translation adjustments | (120,337) | (41,264) | (120,337) | (41,264) | |||||
Loss on available for sale marketable securities | 8 | (11,931) | (23,759) | (11,931) | (23,759) | ||||
Taxes on unrealized gains on available for sale securities | 8 | 41 | 129 | 41 | 129 | ||||
Unrealized losses on cash flow hedge | 4 | (162,817) | (260,066) | (162,817) | (260,066) | ||||
Taxes on unrealized loss on cash flow hegde | 4 | 55,752 | 94,271 | 55,752 | 94,271 | ||||
Net other comprehensive income, to be reclassified to the statement of income in subsequent periods | (239,292) | (230,689) | (239,292) | (230,689) | |||||
Actuarial gaisn on pension and post-employment plans | 25 | 8,731 | 34,183 | 8,731 | 34,183 | ||||
Taxes on realized gains on pension post-employment plans | 25 | (2,969) | (11,623) | (2,969) | (11,623) | ||||
Net other comprehensive income, with no impact into subsequent statement of income | 5,762 | 22,560 | 5,762 | 22,560 | |||||
Total comprehensive income | 1,991,506 | 854,301 | 1,991,347 | 858,708 | |||||
Attributable to | |||||||||
Controlling shareholders | 1,991,506 | 854,301 | 1,991,506 | 854,301 | |||||
Non-controlling interest | - | - | (159) | 4,407 | |||||
1,991,506 | 854,301 | 1,991,347 | 858,708 |
See accompanying notes to the consolidated financial statements.
8
(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)
FINANCIAL STATEMENTS Year ended December 31, 2014 and 2013 (Amounts expressed in thousands of Brazilian Reais, except Dividend – Interest on own equity per share data) |
BRF S.A. | |||||||||||||||||||||||||||||||
STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY | |||||||||||||||||||||||||||||||
Attributed to of controlling shareholders | |||||||||||||||||||||||||||||||
Capital reserves | Income reserves | Other comprehensive income (loss) | |||||||||||||||||||||||||||||
Paid-in capital | Capital reserve | Treasury shares | Legal reserve | Reserve for expansion | Reserve for capital increases | Reserve for retained profit | Reserve for tax incentives | Acumulated foreign currency translation adjustments | Available for sale marketable securities | Losses on cash flow hedge | Actuarial gains (losses) | Retained earnings (losses) | Total equity | Non-controlling interest | Total shareholders' equity | ||||||||||||||||
BALANCES AT DECEMBER 31, 2012 | 12,460,471 | 69,897 | (51,907) | 220,246 | 1,216,049 | 700,811 | 13,127 | 123,973 | 9,006 | 18,224 | (175,892) | (52,350) | - | 14,551,655 | 37,512 | 14,589,167 | |||||||||||||||
Comprehensive income | |||||||||||||||||||||||||||||||
Loss on foreign currency translation adjustments | - | - | - | - | - | - | - | - | (41,264) | - | - | - | - | (41,264) | - | (41,264) | |||||||||||||||
Unrealized loss on available for sale marketable securities | - | - | - | - | - | - | - | - | - | (23,630) | - | - | - | (23,630) | - | (23,630) | |||||||||||||||
Unrealized loss on cash flow hedge | - | - | - | - | - | - | - | - | - | - | (165,795) | - | - | (165,795) | - | (165,795) | |||||||||||||||
Actuarial gains on pension and post-employment plans | - | - | - | - | - | - | - | - | - | - | - | 78,003 | (55,443) | 22,560 | - | 22,560 | |||||||||||||||
Net profit | - | - | - | - | - | - | - | - | - | - | - | - | 1,062,430 | 1,062,430 | 4,407 | 1,066,837 | |||||||||||||||
SUB-TOTAL COMPREHENSIVE INCOME | (41,264) | (23,630) | (165,795) | 78,003 | 1,006,987 | 854,301 | 4,407 | 858,708 | |||||||||||||||||||||||
Appropriation of income (loss) | |||||||||||||||||||||||||||||||
Dividends - R$0,05171974 per outstanding share at the end of exercise | - | - | - | - | (45,300) | - | - | - | - | - | - | - | - | (45,300) | - | (45,300) | |||||||||||||||
Interest on shareholders' equity - R$0.83154173 per outstanding share at the end of exercise | - | - | - | - | - | - | - | - | - | - | - | - | (724,013) | (724,013) | - | (724,013) | |||||||||||||||
Legal reserve | - | - | - | 53,121 | - | - | - | - | - | - | - | - | (53,121) | - | - | - | |||||||||||||||
Reserve for capital increases | - | - | - | - | - | 121,800 | - | - | - | - | - | - | (121,800) | - | - | - | |||||||||||||||
Reserve for tax incentives | - | - | - | - | - | - | - | 121,180 | - | - | - | - | (121,180) | - | - | - | |||||||||||||||
Reserve for retained profit | - | - | - | - | - | - | (13,127) | - | - | - | - | - | 13,127 | - | - | - | |||||||||||||||
Share-based payments | - | 26,761 | - | - | - | - | - | - | - | - | - | - | - | 26,761 | - | 26,761 | |||||||||||||||
Gains on shares sold | - | 17,139 | - | - | - | - | - | - | - | - | - | - | - | 17,139 | - | 17,139 | |||||||||||||||
Non-controlling interest | - | - | - | - | - | - | - | - | - | - | - | - | - | - | (836) | (836) | |||||||||||||||
Treasury shares acquired | - | - | (78,634) | - | - | - | - | - | - | - | - | - | - | (78,634) | - | (78,634) | |||||||||||||||
Treasury shares sold | - | - | 53,162 | - | - | - | - | - | - | - | - | - | - | 53,162 | - | 53,162 | |||||||||||||||
BALANCES AT DECEMBER 31, 2013 | 12,460,471 | 113,797 | (77,379) | 273,367 | 1,170,749 | 822,611 | - | 245,153 | (32,258) | (5,406) | (341,687) | 25,653 | - | 14,655,071 | 41,083 | 14,696,154 | |||||||||||||||
Comprehensive income | |||||||||||||||||||||||||||||||
Loss on foreign currency translation adjustments | - | - | - | - | - | - | - | - | (120,337) | - | - | - | - | (120,337) | - | (120,337) | |||||||||||||||
Unrealized loss in available for sale marketable securities | - | - | - | - | - | - | - | - | - | (11,890) | - | - | - | (11,890) | - | (11,890) | |||||||||||||||
Unrealized gain in cash flow hedge | - | - | - | �� | - | - | - | - | - | - | - | (107,065) | - | - | (107,065) | - | (107,065) | ||||||||||||||
Actuarial gains on pension and post-employment plans | - | - | - | - | - | - | - | - | - | - | - | (27,401) | 33,163 | 5,762 | - | 5,762 | |||||||||||||||
Net income for the exercise | - | - | - | - | - | - | - | - | - | - | - | - | 2,225,036 | 2,225,036 | (159) | 2,224,877 | |||||||||||||||
SUB-TOTAL COMPREHENSIVE INCOME | (120,337) | (11,890) | (107,065) | (27,401) | 2,258,199 | 1,991,506 | (159) | 1,991,347 | |||||||||||||||||||||||
Appropriation of income (loss) | |||||||||||||||||||||||||||||||
Dividends - R$0,09972393 per outstanding share at the end of exercise | - | - | - | - | - | - | - | - | - | - | - | - | (86,489) | (86,489) | - | (86,489) | |||||||||||||||
Interest on shareholders' equity - R$0.84863360 per outstanding share at the end of exercise | - | - | - | - | - | - | - | - | - | - | - | - | (737,765) | (737,765) | - | (737,765) | |||||||||||||||
Legal reserve | - | - | - | 111,252 | - | - | - | - | - | - | - | - | (111,252) | - | - | - | |||||||||||||||
Reserve for expansion | - | - | - | - | 730,684 | - | - | - | - | - | - | - | (730,684) | - | - | - | |||||||||||||||
Reserve for capital increases | - | - | - | - | - | 451,640 | - | - | - | - | - | - | (451,640) | - | - | - | |||||||||||||||
Reserve for tax incentives | - | - | - | - | - | - | - | 140,369 | - | - | - | - | (140,369) | - | - | - | |||||||||||||||
Share-based payments | - | 20,673 | - | - | - | - | - | - | - | - | - | - | - | 20,673 | - | 20,673 | |||||||||||||||
Gains on of shares sold | - | (23,682) | - | - | - | - | - | - | - | - | - | - | - | (23,682) | - | (23,682) | |||||||||||||||
Goodwill on the acquisition of non-controlling interest | - | (1,342) | - | - | - | - | - | - | - | - | - | - | - | (1,342) | - | (1,342) | |||||||||||||||
Non-controlling interest | - | - | - | - | - | - | - | - | - | - | - | - | - | - | 58,542 | 58,542 | |||||||||||||||
Treasury shares acquired | - | - | (350,942) | - | - | - | - | - | - | - | - | - | - | (350,942) | - | (350,942) | |||||||||||||||
Treasury shares sold | - | - | 123,447 | - | - | - | - | - | - | - | - | - | - | 123,447 | - | 123,447 | |||||||||||||||
BALANCES AT DECEMBER 31, 2014 | 12,460,471 | 109,446 | (304,874) | 384,619 | 1,901,433 | 1,274,251 | - | 385,522 | (152,595) | (17,296) | (448,752) | (1,748) | - | 15,590,477 | 99,466 | 15,689,943 |
See accompanying notes to the consolidated financial statements.
9
(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)
FINANCIAL STATEMENTS Year ended December 31, 2014 and 2013 (Amounts expressed in thousands of Brazilian Reais, unless otherwise stated) |
Parent company | Consolidated | |||||||
12.31.14 | 12.31.13 | 12.31.14 | 12.31.13 | |||||
OPERATING ACTIVITIES | ||||||||
Net profit | 2,135,214 | 1,015,251 | 2,135,214 | 1,015,251 | ||||
Adjustments to reconcile net income to net cash provided by operating activities | ||||||||
Non-controlling interest | - | - | (159) | 4,407 | ||||
Depreciation and amortization | 1,178,124 | 1,060,173 | 1,230,418 | 1,117,352 | ||||
Equity in income of affiliates | (673,343) | (95,169) | (25,570) | (12,908) | ||||
Gain in business combination | - | - | (24,963) | - | ||||
Results on disposal on investments | (179,268) | - | (179,268) | - | ||||
Loss on disposal of property, plant and equipment | (103,291) | (104,300) | (111,410) | (85,226) | ||||
Deferred income tax | 235,889 | 140,403 | 235,205 | 116,026 | ||||
Provision for tax, civil and labor risks | 302,016 | 309,527 | 306,632 | 314,845 | ||||
Other provisions | 15,349 | (58,405) | 70,273 | (60,161) | ||||
Exchange rate variations and interest | 1,323,603 | 949,436 | 1,173,758 | 1,253,195 | ||||
Changes in operating assets and liabilities | ||||||||
Investments in trading securities | (295,424) | - | (295,424) | - | ||||
Redemptions of trading securities | 217,761 | 106,125 | 218,899 | 118,116 | ||||
Other financial assets and liabilities | (300,181) | (133,643) | (284,471) | (158,438) | ||||
Trade accounts receivable | (675,242) | (977,772) | 459,197 | (188,300) | ||||
Inventories | 270,676 | 11,531 | 369,183 | (110,619) | ||||
Biological assets - current assets | 76,011 | 159,754 | 75,271 | 165,148 | ||||
Trade accounts payable | 198,868 | 351,158 | 202,946 | 402,052 | ||||
Payment of tax, civil and labor provisions | (259,445) | (283,908) | (259,445) | (284,761) | ||||
Interest paid | (452,375) | (403,788) | (618,724) | (568,364) | ||||
Payroll and related charges | - | - | (5,556) | (2,333) | ||||
Interest on shareholders' equity received | 114,572 | 22,287 | 54,674 | 22,287 | ||||
Other rights and obligations | (1,522,672) | (591,633) | 114,958 | 155,615 | ||||
Net cash provided by operating activities from continued operations | 1,606,842 | 1,477,027 | 4,841,638 | 3,213,184 | ||||
Net cash provided by operating activities from continued operations | 160,153 | 105,499 | 160,153 | 105,499 | ||||
Net cash provided by operating activities | 1,766,995 | 1,582,526 | 5,001,791 | 3,318,683 | ||||
|
|
|
| |||||
INVESTING ACTIVITIES |
|
|
|
| ||||
Investments in held to maturity securities | - | - | - | (314,991) | ||||
Redemptions of held to maturity marketable securities | - | - | - | 429,214 | ||||
Investments in available for sale securities | - | - | (43,878) | (144,888) | ||||
Redemptions of available for sale securities | 1,014 | - | 43,405 | 156,160 | ||||
Investments in restricted cash | (15,967) | (15,335) | (15,967) | (6,198) | ||||
Capital increase in associates and joint ventures |
| - |
| (104,359) |
| - |
| (17,500) |
Business combination, net of cash |
| - |
| - |
| (372,751) |
| - |
Investments in associates and joint venturies | (3,420) | (1,030) | (53,520) | (55,491) | ||||
Goodwill in the acquisiton of non-controlling entities | (1,342) | - | (1,342) | - | ||||
Cash of merged company | - | - | - | - | ||||
Additions to property, plant and equipment | (771,100) | (1,041,595) | (1,020,964) | (1,180,562) | ||||
Additions to biological assets - non-current assets | (515,849) | (501,842) | (517,488) | (501,842) | ||||
Proceeds from disposals of property, plant and equipment | 141,243 | 264,286 | 170,557 | 265,759 | ||||
Additions to intangible assets | (47,257) | (4,535) | (50,410) | (54,575) | ||||
Net cash used in investing activities from continued operations | (1,212,678) | (1,404,410) | (1,862,358) | (1,424,914) | ||||
Net cash used in investing activities from discontinued operations | (51,161) | (87,720) | (51,161) | (87,720) | ||||
Net cash used in investing activities | (1,263,839) | (1,492,130) | (1,913,519) | (1,512,634) | ||||
|
|
|
| |||||
FINANCING ACTIVITIES |
|
|
|
| ||||
Proceeds from debt issuance | 3,985,631 | 3,281,370 | 5,116,839 | 3,744,296 | ||||
Repayment of debt | (2,462,778) | (2,795,735) | (4,707,779) | (3,897,043) | ||||
Treasury shares acquired | (350,942) | (78,634) |
| (350,942) | (78,634) | |||
Treasury shares disposal | 99,765 | 53,162 | 99,765 | 53,162 | ||||
Payments of dividends and interest on shareholders' equity | (726,013) | (579,050) | (726,013) | (579,050) | ||||
Net cash (used in) provided by financing activities | 545,663 | (118,887) | (568,130) | (757,269) | ||||
EFFECT ON EXCHANGE RATE VARIATION ON CASH AND CASH EQUIVALENTS | 25,362 | 25,748 | 359,085 | 148,242 | ||||
Net encrease in cash | 1,074,181 | (2,743) | 2,879,227 | 1,197,022 | ||||
At the beginning of the period | 905,176 | 907,919 | 3,127,715 | 1,930,693 | ||||
At the end of the period | 1,979,357 | 905,176 |
| 6,006,942 | 3,127,715 | |||
|
|
| ||||||
Supplementary information that not affect cash flow | ||||||||
Goodwill on acquisition of the equity interest of Minerva R$ 247,282 and financial leasing R$30,021. |
See accompanying notes to the consolidated financial statements.
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FINANCIAL STATEMENTS Year ended December 31, 2014 and 2013 (Amounts expressed in thousands of Brazilian Reais, unless otherwise stated) | |
BRF S.A. | |||||||||
STATEMENT OF ADDED VALUE | |||||||||
Parent company | Consolidated | ||||||||
12.31.14 | 12.31.13 | 12.31.14 | 12.31.13 | ||||||
1 - REVENUES | 29,259,062 | 28,741,357 | 32,751,151 | 31,281,047 | |||||
Sales of goods and products | 28,570,547 | 28,152,437 | 31,895,159 | 30,592,365 | |||||
Other income | 11,675 | (251,366) | (54,946) | (283,019) | |||||
Revenue related to construction of own assets | 675,517 | 833,743 | 908,443 | 956,161 | |||||
Allowance for doubtful accounts provisions | 1,323 | 6,543 | 2,495 | 15,540 | |||||
2 - RAW MATERIAL ACQUIRED FROM THIRD PARTIES | (18,402,267) | (18,979,449) | (20,364,761) | (20,714,969) | |||||
Costs of products and goods | (15,180,278) | (15,864,812) | (16,530,170) | (16,793,971) | |||||
Materials, energy, third parties services and other | (3,234,668) | (3,098,658) | (3,851,677) | (3,903,418) | |||||
Recovery (loss) of assets values | 12,679 | (15,979) | 17,086 | (17,580) | |||||
3 - GROSS VALUE ADDED (1-2) | 10,856,795 | 9,761,908 | 12,386,390 | 10,566,078 | |||||
4 - DEPRECIATION AND AMORTIZATION | (1,178,124) | (1,060,173) | (1,230,418) | (1,117,352) | |||||
5 - NET VALUE ADDED (3-4) | 9,678,671 | 8,701,735 | 11,155,972 | 9,448,726 | |||||
6 - RECEIVED FROM THIRD PARTIES | 1,461,829 | 644,591 | 1,614,489 | 837,344 | |||||
Income from associates and joint ventures | 673,343 | 95,169 | 25,570 | 12,908 | |||||
Financial income | 780,366 | 542,855 | 1,580,756 | 817,296 | |||||
Others | 8,120 | 6,567 | 8,163 | 7,140 | |||||
7 - VALUE ADDED TO BE DISTRIBUTED (5+6) | 11,140,500 | 9,346,326 | 12,770,461 | 10,286,070 | |||||
8 - DISTRIBUTION OF VALUE ADDED | 11,140,500 | 9,346,326 | 12,770,461 | 10,286,070 | |||||
Payroll | 3,688,690 | 3,608,993 | 4,082,427 | 3,993,426 | |||||
Salaries | 2,850,479 | 2,782,240 | 3,188,374 | 3,124,457 | |||||
Benefits | 649,633 | 642,329 | 700,277 | 680,777 | |||||
Government severance indemnity fund for employees | 188,578 | 184,424 | 193,776 | 188,192 | |||||
Taxes, Fees and Contributions | 3,334,767 | 3,015,528 | 3,696,140 | 3,372,897 | |||||
Federal | 1,808,228 | 1,562,288 | 2,093,344 | 1,827,898 | |||||
State | 1,498,684 | 1,425,061 | 1,565,961 | 1,501,068 | |||||
Municipal | 27,855 | 28,179 | 36,835 | 43,931 | |||||
Capital Remuneration from Third Parties | 1,981,829 | 1,706,554 | 2,856,839 | 1,900,089 | |||||
Interests | 1,787,751 | 1,456,652 | 2,609,140 | 1,617,007 | |||||
Rents | 194,078 | 249,902 | 247,699 | 283,082 | |||||
Interest on Own-Capital | 2,135,214 | 1,015,251 | 2,135,055 | 1,019,658 | |||||
Interest on shareholders' equity | 737,765 | 724,013 | 737,765 | 724,013 | |||||
Dividends | 86,489 | - | 86,489 | - | |||||
Retained earnings | 1,310,960 | 291,238 | 1,310,960 | 291,238 | |||||
Non-controlling interest | - | - | (159) | 4,407 |
See accompanying notes to the consolidated financial statements.
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FINANCIAL STATEMENTS Year ended December 31, 2014 and 2013 (Amounts expressed in thousands of Brazilian Reais, unless otherwise stated) |
Market Value R$55.3 billion US$20.4 billion Prices BRFS3 R$63.44 BRFS US$23.35 Shares: 872,473,246 shares 5,188,897 treasury shares Basis: 12.31.2014 Webcast Date:02.27.2015 09:00 BRT Portuguese 10:30 English Telephone: Dial–in with connections in Brazil: +55 11 46886361 or +55 11 28204001 Dial-in with connections in the United States: +1 8887000802 www.brf-br.com/ir IR Contacts: Augusto Ribeiro Júnior CFO and IRO Christiane Assis IR Director +55 11 23225398 acoes@brf-br.com | Dear Shareholders,
The year of 2014 was an outstanding year for BRF. The company advanced in its ambitions and in the definition of a new culture. We consolidated our operating and strategic groundwork, which allowed the company to structure itself as a global organization, bigger and better in what it does, and driven by every one of the more than 100 thousand people who are part of the direct workforce.
Bringing together professionals with different backgrounds, aspirations and skills, gave us the opportunity to build a competitive differential. To do so, in 2014 we introduced the Viva BRF, a program which aims to create coherence in the organizational environment, bringing well-being and motivation to the employees, and generating “owners’ passion” in them.
Focusing on the business´ differential, in addition to the discipline in planning and executing, are virtues which, combined, help accomplish BRF´s results to levels of excellence, satisfying all of our stakeholders, and leading to further development in the productive chain. In an economic scenario of challenges and unstable market conditions, we need not only to be the biggest, but also the best in what we do.
In order to achieve this, we advanced in implementing controls for the socio-environmental aspects of our operations and long-term thinking, investing in innovation, internationalizing the Company and improving the level of service. All of which to ensure that BRF becomes a company even more respected, esteemed and appreciated, standing out as natural choice for our customers and an important partner for clients, employees and investors.
In 2014, we approached each one of the main pillars of the BRF-17 strategic plan, establishing priorities and increasing our efficiency and integration. Engaging the teams, encouraging meritocracy, orientation towards the market, segmenting the regions in which we operate and focusing on sustainability in the value chain, were more than just guidelines, they were essential elements that defined our corporate standpoint.
We continued working on our plan to add synergies to the operations, by mapping out opportunities to increase our profitability, cost efficiency and margins. We adjusted the support structure and the managerial models of the manufacturing units, making them more agile in their decision-making process.
We initiated a new process of go-to-market (GTM) in Brazil,through the consolidation of our sales force. The purpose of this project is to expand our penetration, reduce redundancies in the sales processes, and improve the productivity per salesperson. We also focused in better servicing our clients, having identified new opportunities to improve our service level – both in terms of delivery deadlines and logistical processes, as well as in inventory management. As part of our strategy of being more market oriented, we reviewed our presence in the sales points, refined the negotiation processes, and implemented a system to monitor inventory in real time, which all together, resulted in a substantial increase in the service level when compared to 2013. |
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(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)
FINANCIAL STATEMENTS Year ended December 31, 2014 and 2013 (Amounts expressed in thousands of Brazilian Reais, unless otherwise stated) |
Market Value R$55.3 billion US$20.4 billion Prices BRFS3 R$63.44 BRFS US$23.35 Shares: 872,473,246 shares 5,188,897 treasury shares Basis: 12.31.2014 Webcast Date:02.27.2015 09:00 BRT Portuguese 10:30 English Telephone: Dial–in with connections in Brazil: +55 11 46886361 or +55 11 28204001 Dial-in with connections in the United States: +1 8887000802 www.brf-br.com/ir IR Contacts: Augusto Ribeiro Júnior CFO and IRO Christiane Assis IR Director +55 11 23225398 acoes@brf-br.com | Placing the final consumer in the core of our business strategy has proven to be the right choice. We are investing in surveys and studies that allow the company to continuously update its portfolio. The products we launched in 2014 are a testament to that. In total we launched over 120 new products, including the Soltíssimo line of sliced goods, bringing flavor and convenience to the consumer. We are anticipating market trends, and adopting a segmented view adapted to exactly match the profiles of the customers we serve in over 120 countries.
In line with our international expansion strategy, we inaugurated the processed foods plant in Abu Dhabi, in the United Arab Emirates, expanding our presence and global service capacity. With the capacity to produce up to 70,000 tons of processed foods per year, this plant was delivered in record time, reflecting our ambitious view to grow stronger in regions such as the Middle East, South and Southeast Asia and Africa.
Besides the launch of our manufacturing plant in Abu Dhabi, we also announced the acquisition of three of our main distributors in the Middle East, a region of extreme relevance to the Company, where we already present with a renowned brand for more than 30 years.
In line with our strategy of focusing on our Company´s core and most profitable businesses, in 2014 we entered into a strategic partnership with Minerva, passing on our cattle slaughtering plants in exchange for equity shares. Additionally, we signed a contract with Lactalis to sell our dairy operations.
Another key element of our business is socio-environmental responsibility which integrates our strategy through the Sustainability Pillars. Eco-efficient projects in the manufacturing units and initiatives in partnership with the value chain, such as animal well-being and human rights, have been the focal point of our actions in recent years and are demonstrating positive results. Reaffirming our commitment to sustainabledevelopment, we are signatories to the United Nations Global Pact and have been part of the Corporate Sustainability Index (ISE) of the BM&FBovespa stock exchange for the last 10 years. |
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FINANCIAL STATEMENTS Year ended December 31, 2014 and 2013 (Amounts expressed in thousands of Brazilian Reais, unless otherwise stated) |
Market Value R$55.3 billion US$20.4 billion Prices BRFS3 R$63.44 BRFS US$23.35 Shares: 872,473,246 shares 5,188,897 treasury shares Basis: 12.31.2014 Webcast Date:02.27.2015 09:00 BRT Portuguese 10:30 English Telephone: Dial–in with connections in Brazil: +55 11 46886361 or +55 11 28204001 Dial-in with connections in the United States: +1 8887000802 www.brf-br.com/ir IR Contacts: Augusto Ribeiro Júnior CFO and IRO Christiane Assis IR Director +55 11 23225398 acoes@brf-br.com | Despite a year of structural adjustments in the Company and reduction of international sales volumes, the performance of the businesses and the consolidated results were better than expected. This was mainly due to a significant improvement in profitability of the international market and a shift in strategy, positioning the consumer as the key element for its sustained growth.
We registered this year, considering the consolidated results ofthe Company as well as the results from the dairy operations (discontinued operations), R$31.7 billion of net revenues, 4.0% higher than 2013, R$4.9 billion of EBITDA (56.4% above 2013) and net income of R$2.2 billion, 109.4% higher than 2013. Free cash flow amounted to R$4.1 billion in the year, a considerable improvement of almost three times more of what was generated in 2013.
These indicators are a proof that we have chosen a daring, but solid strategy, to enhance our performance and better positions us to face future risks, converting them into opportunities. We have a robust and increasingly more efficient production structure that will allow us to continue growing in the coming years, investing in mutually beneficial relationships with clients and suppliers in order to meet the demands of the different markets with the BRF quality standard.
The year of 2015 starts with new challenges, some being of economic nature, but nevertheless, we will continue to focus on achieving our mission of being a company admired for its results, brands and innovation capacity. We are confident that it will be another year of consistent achievements in our strategic guidelines, focused on growth and profitability. | |
Abilio Diniz Chairman of the Board of Directors | Pedro Faria Global CEO |
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MANAGEMENT REPORT / COMMENTS ON THE PERFORMANCE |
Highlights of the 4th Quarter 2014 (4Q14) and Accumulated Results for the Year (2014)
(The results presented below refer to the Company´s continued operations, excluding the results obtained from the discontinued operations (Dairy). As the Company announced in December 2014, the dairy division is in the process of being sold to Lactalis. We will present the results of the discontinued operations separately in this report following the results of the continued operations, and at the end of the report we present the Financial Statements and the Balance Sheet of the continued operations + discontinued operations. All the numbers consider the normal operation, recurring and non-recurring items.)
Strategic Highlights
· 2014 was an extremely important year for BRF. It was a year focused on execution, with the implementation of a number of projects aimed at improving the Company´s operating performance in Brazil, as well as in the International markets1. The results achieved in the 4Q14 positively reflect these projects, as did the accumulated results for 2014.
Brazil
· The strategic focus in Brazil was market orientation supported by the kick-off of a series of long-term projects, as well as other projects which showed short-term gains, such as the ZBB (Zero Based Budget), which reviewed the processes and structures, making the Company more agile in its decision-making. Furthermore we rationalized our portfolio, by eliminating 35.0% of SKUs (Stock Keeping Units), reducing the complexity of the operations which, in turn, led to lower costs and greater efficiency and flexibility, boosting our results in the last two quarters of the year.
· Regarding our long-term projects, we can highlight the go-to-market strategy (GTM), initiated in the 1Q14, which has been showing positive results in recent quarters. We concluded the consolidation of the sales forces in May, allowing for a gradual increase in volumes that started to be seen mainly in the 3Q14 results, even with a weak macroeconomic scenario. We saw an even greater growth in volumes in the 4Q14(+10.6% y/y), also stemming from the small retail shops, although there was a strong contribution from the commemorative items which make up the Company´s portfolio in the final quarter of the year.
· This performance was also due to the improvement in the Company´s level of service, when measured by the OTIF index (on time, in full), which showed significant improvements throughout 2014. Nevertheless, given the complexity of our operations and the Company’s size, there is still a lot to be implemented on this front.
1Since the 3Q14, to better reflect the structural changes in the Company, we have changed the terms used from Domestic Market, to Brazil, and External Market to International.
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MANAGEMENT REPORT / COMMENTS ON THE PERFORMANCE |
International Market
· We started 2014 with a significant strategic change in the international market, having decided to cut volumes by 200 thousand tons in selected markets and clients, and by reducing our credit exposure to certain countries. Aligned with this strategy, we implemented many structural initiatives and improvements in the International market, such as better allocation of volumes, reduction of inventories, extension of client’s contract terms, reduction of sea freight expenses and a more efficient phasing of monthly shipments. The impact of such initiatives can already be seen in the Company´s operating results.
· In line with our approach in Brazil, we conducted a portfolio rationalization in the International market. As a result, we eliminated 32.0% of the SKUs.
· We concluded the construction of our plant in the Middle East, which was inaugurated in November 2014. Being the biggest processing plant in the region and with a productive capacity of 70 thousand tons a year in breaded products, franks and hamburgers, among others, it will help us ensure a rapid and efficient access to strategic markets and it will serve as an important platform for future growth in this region.
· In line with our goal to internationalize the Company, seeking access to local markets, strengthening our brands and distribution capacity, and expanding our portfolio in the Middle East; in 2014 we acquired three distributors in the region:
Ø Federal Foods: In 2013, we had already acquired a 49.0% stake in Federal Foods,theleading food distribution company in the United Arab Emirates. Following this strategy, in 2014, we announced the acquisition of the remaining economic rights of this company.
Ø Al Khan Foods (AKF): In 2014, we announced the acquisition of a 40.0% stake in AKF, the distributor of BRF’s products in the Sultanate of Oman and the leading distributor of frozen products in the region, serving a broad range of clients in the retail, food services and wholesale channels.
Ø Alyasra: The leading food distributor in Kuwait and operating in the retail and food services sectors, with a presence in the frozen, chilled anddry segments. BRF acquired 75.0% of its frozen food retail distribution business as part of a larger commitment with this market.
Financial Highlights
· EBITDA amounted to R$1.8 billion in the quarter, 125.6% higher than in 4Q13, resulting in an EBITDA margin of 21.9% compared with 10.4% in 4Q13, a gain of 11.5 p.p.. The accumulated EBITDA for the year was R$4.7 billion, an increase of 56.5% over 2013, with a margin of 16.2% compared with 10.8%.
· Net income was R$991 million in 4Q14, up 334.9% y/y, and R$2.1 billion for the year, up 110.3% y/y, with a margin of 12.3% in the quarter compared with 3.0% in the 4Q13 and 7.4% in the year compared with 3.7% in 2013.
· Investments carried out in the 4Q14 totaled R$342.6 million, a reduction of 9.1% y/y. Investments in accumulated terms for the year amounted to R$1.5 billion, in line with guidance (we are considering in this number the investments in biological assets and excluding acquisitions, leasing and others). We continue to direct our investments towards automation, logistics and systems improvements (IT).
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MANAGEMENT REPORT / COMMENTS ON THE PERFORMANCE |
· The Company ended the quarter with a net debt to EBITDA ratio2 (last 12 months) of 1.04x, compared with 1.40x in the 3Q14.
· We concluded the year with a financial cycle of 36.9 days compared with 49.5 days at the end of 2013 and Free CashFlow (FCF)of R$4.1 billion for the accumulated of the year, compared to R$1.5 billion in 2013, an increase of 170.9% on a y/y comparison.
· Finally, we ended the year of 2014 with a Return on Invested Capital (ROIC) of 11.8% which represented an improvement of 4.6 p.p. when compared to 2013.
Financial Highlights – Continued Operations (not including the results from discontinued operations – Dairy)
Results - R$ Million | 4Q14 | 4Q13 | y/y | 3Q14 | q/q | 2014 | 2013 | Δ% |
Net Revenues | 8,047 | 7,535 | 6.8% | 7,238 | 11.2% | 29,007 | 27,787 | 4.4% |
Gross Profit | 2,687 | 1,943 | 38.3% | 2,145 | 25.3% | 8,509 | 6,910 | 23.1% |
Gross Margin (%) | 33.4% | 25.8% | 7.6 p.p. | 29.6% | 3.8 p.p. | 29.3% | 24.9% | 4.5 p.p. |
EBIT | 1,406 | 488 | 188.4% | 833 | 68.9% | 3,478 | 1,896 | 83.4% |
EBIT Margin (%) | 17.5% | 6.5% | 11.0 p.p. | 11.5% | 6.0 p.p. | 12.0% | 6.8% | 5.2 p.p. |
EBITDA | 1,762 | 781 | 125.6% | 1,130 | 56.0% | 4,709 | 3,009 | 56.5% |
EBITDA Margin (%) | 21.9% | 10.4% | 11.5 p.p. | 15.6% | 6.3 p.p. | 16.2% | 10.8% | 5.4 p.p. |
Net Income | 991 | 228 | 334.9% | 572 | 73.2% | 2,135 | 1,015 | 110.3% |
Net Margin (%) | 12.3% | 3.0% | 9.3 p.p. | 7.9% | 4.4 p.p. | 7.4% | 3.7% | 3.7 p.p. |
Earnings per share1 | 1.14 | 0.26 | 336.6% | 0.66 | 73.8% | 2.46 | 1.17 | 111.1% |
1Consolidated Earnings per Share (in R$), excluding Treasury Shares. |
OBS: The term y/y refers to the 4Q14/4Q13 analysis; whereas q/q refers to 4Q14/3Q14.
Recent Transactions
· On September 3, 2014, we announced the signing of a binding memorandum of understanding with Parmalat S.p.A., a company belonging to the Lactalis Group, establishing the terms and conditions for the sale of the Company’s Dairy business. The contract was signed on December 5, 2014 and the amount of the transaction on that date was established at the equivalent in dollar terms of R$1.8 billion (approximately US$700.0 million). (Please refer to Net Financial Result item and Explanatory Note 13.2 of the Financial Statements).
· We celebrated a partnership agreement with Minerva for the beef business, concluded on October 1, 2014, which established the terms and conditions of our two slaughterhouse plants in Mato Grosso state. In exchange, we became a strategic shareholder in Minerva obtaining an equity stake of 15.2% of the company´s total and voting capital (following the integral conversion of the mandatorily convertible bonds issued by the referred company), with a right to two seats on the board.
· We further announced the signing of a binding memorandum of understanding with PT Indofood for a joint venture (JV) to exploit the poultry and processed food business inIndonesia. This was a highly strategic step for the Company as it represents an entry point to a market with around 250.0 million inhabitants, where protein consumption is expanding greatly.
2The ratio net debt/EBITDA in 4Q14 considers only the results of the continued operations. Considering the same basis for the previous quarter, which also includes discontinued operations, this ratio would be 1.03x in 4Q14. We highlight that despite not considering the results from the dairy operations in this ratio, the cash proceeds from the transaction have not yet been internalized by the Company.
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MANAGEMENT REPORT / COMMENTS ON THE PERFORMANCE |
· At the end of December 2014, based on the Company´s cash position, and taking advantage of a window of opportunity perceived in the market, we also announced a share buyback program of up to 16,260,163 of the Company´s common shares. The program began on January 5, 2015. The purpose of this program is to use the resources available in cash more efficiently in order to enhance the capital allocation of the Company.
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MANAGEMENT REPORT / COMMENTS ON THE PERFORMANCE |
Results BRF S.A.
1) Net Operating Revenues (NOR)
NOR - R$ Million | 4Q14 | 4Q13 | y/y | 3Q14 | q/q | 2014 | 2013 | Δ% |
Brazil | 3,882 | 3,607 | 7.6% | 3,475 | 11.7% | 13,935 | 13,050 | 6.8% |
International | 3,591 | 3,422 | 5.0% | 3,374 | 6.4% | 13,325 | 13,132 | 1.5% |
Food Services | 574 | 507 | 13.3% | 389 | 47.5% | 1,747 | 1,606 | 8.8% |
Total | 8,047 | 7,535 | 6.8% | 7,238 | 11.2% | 29,007 | 27,787 | 4.4% |
In 4Q14, consolidated NOR amounted to R$8.0 billion, +6.8% y/y, with all the Company´s business units making a positive contribution, through the growth of volumes in Brazil and in Food Services, as well as better average prices in the International market. On a quarterly comparison, there was an increase of 11.2% in the NOR.
The accumulated NOR for 2014 was 4.4% higher than the previous year, amounting to R$29.0 billion compared with R$27.8 billion in 2013. This increase in revenues was due to better average prices in the period both in Brazil and internationally, also due to the growth of volumes in Food Services.
Ø Brazil
2014 was a strategically important year for the Company, particularly in terms of the implementation of its strategies for Brazil. In January, we began the new go-to-market (GTM) process in the Minas Gerais state and, subsequently, introduced it to other states in the country. This project was made possible through the consolidation of our sales forces, which began to operate focused on categorized channels according to the client´s profile and, therefore, eliminating redundancies in the operations.
With a view to increase penetration in the areas that it did not serve or did not serve directly, increasing the number of clients and the productivity per salesperson, along with cross selling between the brands, the GTM model has already shown positive results. The number of clients in December 2014 was 22.0% higher than in December 2013 and the cross selling rose from 53.0% at the end of 2013 to 77.0% in the same period of 2014.
Aligned with this project, we also focused on enhancing our level of service through investments in systems, IT and staff training, allowing us to capture more sales and avoid losses, as well as improve our clients´ view of the Company.
We also undertook a project to reduce the number of SKUs in Brazil by approximately 35.0%, aiming to simplify the processes, also aligned with the project to improve service levels. The first results of all these efforts are reflected in the results for Brazil during 2014 and, more specifically, in the 4Q14, having been rising consistently throughout the year.
The results for Brazil in the 4Q14, a quarter that is seasonally stronger for the Company, as well as for 2014 as a whole, show that despite a challenging consumption scenario, with a slowdownin economic growth, we managed to implement our strategy, whilst foreseeing consumer trends and bringing forward initiatives to grow in the small retail channels.
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We expect that as these projects continue to progress, they will continue to capture increasingly positive results until 2017.
Brazil | R$ Million | Thousand Tons | Average Price - R$ | ||||||||||||
4Q14 | 4Q13 | y/y | 3Q14 | q/q | 4Q14 | 4Q13 | y/y | 3Q14 | q/q | 4Q14 | 4Q13 | y/y | 3Q14 | q/q | |
In Natura | 718 | 623 | 15.4% | 685 | 4.9% | 123 | 99 | 23.9% | 116 | 5.5% | 5.86 | 6.29 | (6.9%) | 5.89 | (0.6%) |
Poultry | 540 | 389 | 39.0% | 468 | 15.5% | 101 | 68 | 47.8% | 88 | 15.3% | 5.34 | 5.68 | (5.9%) | 5.34 | 0.1% |
Pork/Beef | 178 | 234 | (23.8%) | 217 | (17.8%) | 22 | 31 | (29.5%) | 29 | (24.5%) | 8.25 | 7.64 | 8.0% | 7.59 | 8.8% |
Processed Foods | 2,971 | 2,758 | 7.7% | 2,561 | 16.0% | 417 | 401 | 4.1% | 383 | 9.0% | 7.12 | 6.88 | 3.5% | 6.69 | 6.4% |
Others Sales | 192 | 226 | (14.8%) | 229 | (16.2%) | 76 | 57 | 33.8% | 66 | 15.4% | 2.51 | 3.95 | (36.3%) | 3.46 | (27.4%) |
Total without Other Sales | 3,690 | 3,381 | 9.1% | 3,245 | 13.7% | 540 | 500 | 8.0% | 499 | 8.2% | 6.83 | 6.76 | 1.1% | 6.50 | 5.1% |
Total | 3,882 | 3,607 | 7.6% | 3,475 | 11.7% | 616 | 557 | 10.6% | 565 | 9.1% | 6.30 | 6.47 | (2.7%) | 6.15 | 2.4% |
In 4Q14 NOR for Brazil reached R$3.9 billion, +7.6% y/y, driven by a 10.6% growth in volumes on the same comparison. This resulted from an improvement in the performance of commemorative items, associated to better performance in the sales points as well as the growing share of the small retail channel. On a quarterly comparison, NOR was 11.7% higher, with volumes also rising by 9.1% in the period.
If we exclude ”Other Sales” (feed, breeders and sub-products) from the analysis, the numbers for the quarter give a more realistic picture of the situation in Brazil, with NOR of R$3.7 billion, +9.1% y/y, boosted by a growth in volumes of 8.0% y/y and an increase of 1.1% in average prices. The quarterly comparison shows an increase of 13.7% in the NOR, with volumes 8.2% higher and average prices up by 5.1% in the same period.
Brazil | R$ Million | Thousand Tons | Average Price - R$ | ||||||
2014 | 2013 | Δ% | 2014 | 2013 | Δ% | 2014 | 2013 | Δ% | |
In Natura | 2,653 | 2,439 | 8.8% | 446 | 407 | 9.6% | 5.95 | 6.00 | (0.8%) |
Poultry | 1,826 | 1,492 | 22.3% | 339 | 275 | 23.2% | 5.39 | 5.43 | (0.7%) |
Pork/Beef | 827 | 947 | (12.6%) | 107 | 132 | (18.8%) | 7.74 | 7.20 | 7.6% |
Processed Foods | 10,361 | 9,670 | 7.2% | 1,509 | 1,502 | 0.5% | 6.87 | 6.44 | 6.7% |
Others Sales | 921 | 941 | (2.1%) | 320 | 324 | (1.2%) | 2.87 | 2.90 | (1.0%) |
Total without Other Sales | 13,014 | 12,109 | 7.5% | 1,955 | 1,909 | 2.4% | 6.66 | 6.34 | 4.9% |
Total | 13,935 | 13,050 | 6.8% | 2,275 | 2,233 | 1.9% | 6.12 | 5.84 | 4.8% |
The accumulated numbers for 2014 show that NOR for Brazil amounted to R$13.9 billion, +6.8% over the previous year. This performance was mainly driven by better average prices(+4.8%) as we managed to transfer the increase of input prices on to the products, particularly during the first two quarters of the year. Volumes presented a slight growth on the same comparison (+1.9%).
When we exclude ”Other Sales” from this comparison, NOR in Brazil amounted to R$13.0 billion in the year, an increase of 7.5% compared with 2013. There was a slight increase in both volumes (+2.4%) and average prices (+4.9%).
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In terms of market share, BRF maintains a strong leading position in the Specialty Meats, Frozen Products, Pizza and Margarines categories (core businesses).
Ø International
In the 4Q14, there was a decline in global pork prices due to the apparent containment of PED (Porcine Epidemic Diarrhea), as well as the prospect of production normalization in North America. Meanwhile the beef segment maintained an upward trend in prices due to the cattle cycle. Whereas, the poultry segment was influenced by the fall in prices of raw materials that occurred during the second and third quarters of the year. It is worth noting that the Russian sanctions against poultry and swine imposed on the United States, the European Union, Canada, Australia and Norwayhad a direct impact on the trade flow and the price of proteins in the international markets during the second half of the year.
Against this backdrop, our strategies of reducing volumes and improving the profitability of the markets, continue to generate positive results. The results for the 4Q14 have shown improvement (both y/y and q/q), as well as in accumulated terms for 2014 as a whole.
International | R$ Million | Thousand Tons | Average Price - R$ | ||||||||||||
4Q14 | 4Q13 | y/y | 3Q14 | q/q | 4Q14 | 4Q13 | y/y | 3Q14 | q/q | 4Q14 | 4Q13 | y/y | 3Q14 | q/q | |
In Natura | 2,752 | 2,555 | 7.7% | 2,564 | 7.3% | 458 | 512 | (10.5%) | 448 | 2.3% | 6.00 | 4.99 | 20.3% | 5.73 | 4.9% |
Poultry | 2,253 | 2,022 | 11.4% | 2,162 | 4.2% | 404 | 444 | (9.1%) | 402 | 0.4% | 5.58 | 4.55 | 22.6% | 5.37 | 3.8% |
Pork/Beef | 498 | 533 | (6.5%) | 402 | 24.0% | 54 | 68 | (19.8%) | 46 | 19.5% | 9.15 | 7.85 | 16.6% | 8.82 | 3.7% |
Processed Foods | 825 | 866 | (4.8%) | 796 | 3.6% | 108 | 124 | (12.9%) | 112 | (3.7%) | 7.64 | 6.99 | 9.3% | 7.09 | 7.7% |
Others Sales | 15 | 1 | - | 14 | 5.0% | 0 | 0 | - | 0 | - | - | - | - | - | - |
Total | 3,591 | 3,422 | 5.0% | 3,374 | 6.4% | 566 | 636 | (11.0%) | 560 | 1.1% | 6.34 | 5.38 | 17.9% | 6.02 | 5.3% |
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International NOR reached R$3.6 billion in the 4Q14, +5.0% y/y, boosted by higher average prices in Reais of 17.9% y/y (+5.5% in dollar terms), and an average exchange rate (R$/US$) 11.8% higher when compared to the same period of the previous year, despite a decline of 11.0% in the volume sold during the period.
The quarterly comparison shows an increase of 6.4% in the NOR, due to average prices in Reais 5.3% higher in 4Q14 (-6.0% in dollar terms) and an average exchange rate (R$/US$) that was also 11.9% higher, combined with slightly larger volumes (+1.1% q/q).
International | R$ Million | Thousand Tons | Average Price - R$ | ||||||
2014 | 2013 | Δ% | 2014 | 2013 | Δ% | 2014 | 2013 | Δ% | |
In Natura | 10,190 | 10,159 | 0.3% | 1,788 | 2,019 | (11.4%) | 5.70 | 5.03 | 13.3% |
Poultry | 8,339 | 8,262 | 0.9% | 1,579 | 1,750 | (9.8%) | 5.28 | 4.72 | 11.9% |
Pork/Beef | 1,851 | 1,897 | (2.4%) | 208 | 268 | (22.3%) | 8.89 | 7.08 | 25.6% |
Processed Foods | 3,085 | 2,917 | 5.8% | 424 | 447 | (5.2%) | 7.28 | 6.53 | 11.6% |
Others Sales | 51 | 56 | (9.9%) | 0 | 55 | - | - | 1.03 | - |
Total | 13,325 | 13,132 | 1.5% | 2,211 | 2,520 | (12.3%) | 6.03 | 5.21 | 15.7% |
In accumulated terms for 2014, International NOR totaled R$13.3 billion, an increase of 1.5% in comparison with 2013. Even though volumes were 12.3% lower, due to the Company´s strategy to reduce volumes in the International markets this year, this was more than compensated by a rise in average prices both in Reais terms (+15.7%) and in dollars (+6.2%).
International Sales Breakdown by Region - Quarterly
(% of Net Operating Revenues - NOR)
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International Sales Breakdown by Region - Annual
(% of Net Operating Revenues - NOR)
Below we present some comments on BRF´s main markets:
· Middle East: The volume sold in the quarter totaled 238 thousand tons, +5.8% y/y and +1.1% q/q, while the NOR was R$1.3 billion, +27.5% y/y (+3.6% q/q). The improvement was mainly due to the Company´s greater participation in important markets such as Saudi Arabia, Kuwait and Yemen. Sales volume in accumulated terms for the year reached 909 thousand tons, a growth of 4.5% compared to 2013. The NOR for the year was R$4.8 billion, 11.6% higher than 2013.
· Asia: Sales volume reached 127 thousand tons, -10.2% y/y (-4.8% q/q), while NOR was R$819.0 million, +8.3% y/y (-0.9% q/q). The accumulated NOR for the year was R$3.0 billion, +12.8% compared to 2013, with volume of 506 thousand tons, 3.2% lower than that of 2013.
· Europe: Sales volumes amounted to 63 thousand tons, a decline of 22.7% y/y (−7.5% q/q), while NOR reached R$562.3 million, -11.0% y/y (-3.8% q/q), in line with our strategy to reduce the sales of products outside the quota in this market. The reduction in the exported volume of turkey was behind part of this variation. The volume sold to Europe equaled 263 thousand tons in the year, 13.3% lower than in 2013, with NOR for 2014 at R$2.3 billion, 9.0% higher than the previous year.
· Eurasia: Sales volume for the region added up to 31 thousand tons, a slight increase of 2.7% y/y, and a significant growth over the previous quarter (+141.9% q/q). This positively impacted NOR as it reached R$278.6 million, an increase of 27.2% y/y (+89.7% q/q). Volumes for Eurasia for the year as a whole, totaled 85 thousand tons, 41.0% lower than in 2013, in line with our strategy to reduce our exposure to this market. NOR for 2014 came at R$812.4 million (11.6% lower than 2013).
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· Africa: Sales volume reached 60 thousand tons in 4Q14, falling 5.6% y/y (-4.2% q/q), explained by our strategy to optimize volumes. NOR for this region was R$265.3 million in the period, +8.9% y/y (+9.9% q/q). In accumulated terms for the year, NOR from the African operations came to R$923 million, with volumes of 221 thousand tons, 14.0% lower than 2013.
· Americas: Sales volume in this market came to 58 thousand tons, having fallen 44.4% y/y(-7.0% q/q), negatively impacting NOR, which amounted to R$445.0 million, a decrease of 28.5% y/y (+15.1% q/q). These reductions were partly explained by the decision to reduce shipments to Venezuela. The total volume sold for the year reached 266 thousand tons, with a decline of 34.3% compared to 2013. NOR came to R$1.7 billion, 26.2% below the same period of the previous year.
Ø Food Services
The Food Services result for the fourth quarter of the year continued to show growth trends in both revenues and volume, despite the challenging backdrop in the segment of outdoors food consumption.
The discipline in execution shown by all the teams ensured an increase in sales for the fast-food chains, industrial kitchens and small businesses throughout the country. We note that the market is experiencing a movement in which informal businesses are being increasingly regulated and we see the appearance of more structured restaurant chains, thus creating new opportunities for expansion in this segment in 2015.
We have also achieved extremely positive results in this period with the Christmas kits campaign. Sales of more than two million units were reached, sustained by an improved management model which guaranteed that the execution went according to plan.
R$ Million | Thousand Tons | Average Price - R$ | |||||||||||||
Food Services | 4Q14 | 4Q13 | y/y | 3Q14 | q/q | 4Q14 | 4Q13 | y/y | 3Q14 | q/q | 4Q14 | 4Q13 | y/y | 3Q14 | q/q |
Total | 574 | 507 | 13.3% | 389 | 47.5% | 73 | 63 | 16.0% | 56 | 30.9% | 7.89 | 8.08 | (2.3%) | 7.00 | 12.6% |
NOR from Food Services came to R$573.8 million in 4Q14, an increase of 13.3% y/y. This was mainly due to the better performance of our sales teams and the commemorative items, as mentioned previously. Thisboosted the sales volume (+16.0% y/y), although the average prices showed a slight reduction of 2.3% in 4Q14 compared with 4Q13.
R$ Million | Thousand Tons | Average Price - R$ | |||||||
Food Services | 2014 | 2013 | Δ% | 2014 | 2013 | Δ% | 2014 | 2013 | Δ% |
Total | 1,747 | 1,606 | 8.8% | 238 | 217 | 9.7% | 7.35 | 7.41 | (0.8%) |
NOR from Food Services grew by 8.8% in 2014, from R$1.6 billion in 2013 to R$1.7 billion in accumulated terms for 2014. Volumes rose by 9.7%, in the same comparison, while average prices remained practically unchanged (-0.8% compared to 2013).
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Breakdown of the Consolidated NOR (%)
(Quarterly)
Breakdown of the Consolidated NOR (%)
(Annual)
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2) Cost of Goods Sold (COGS)
COGS - R$ Million | 4Q14 | 4Q13 | y/y | 3Q14 | q/q | 2014 | 2013 | Δ% |
COGS | (5,359) | (5,592) | (4.2%) | (5,093) | 5.2% | (20,497) | (20,878) | (1.8%) |
% of the NOR | (66.6%) | (74.2%) | 7.6 p.p. | (70.4%) | 3.8 p.p. | (70.7%) | (75.1%) | 4.5 p.p. |
In 4Q14, COGS amounted to R$5.4 billion, 4.2% lower y/y. COGS in the quarter represented 66.6% of NOR, compared to 74.2% for 4Q13, when there was a reduction both in the cost of soybean as well as in soybean meal compared to 4Q13, positively impacting this result.
COGS were 5.2% higher than in 3Q14, mainly due to the increase in the price of soybean meal q/q.
In accumulated terms for 2014, COGS totaled R$20.5 billion, registering a slight drop of 1.8% over 2013. This was mainly due to a fall in corn price for the period, which was partially offset by an increase in soybean meal price. In 2014, COGS represented 70.7% of NOR compared to 75.1% in 2013.
Ø Slaughtering and Production
There was a fall in poultry slaughtering operations during the 4Q14 of 2.5% y/y and 2.0% q/q, reflecting our strategy of optimizing volumes, particularly in the International market. The slaughtering of pork/cattle rose by 3.2% y/y, but fell by 2.1% q/q. It is worth noting that while the strategy of deverticalize the beef business led to a decrease in cattle slaughtering, once we transferred our slaughtering facilities to Minerva, there was still an increase in pork slaughtering activities on an annual comparison.
The accumulated figures for the year show that there was a decline of 7.4% in poultry slaughtering activities, according to the strategy mentioned before. The volume of pork/cattle slaughtering activities was 1.3% lower than in 2013.
We produced 1.1 million tons of food in 4Q14, a volume 1.5% lower y/y and 1.3% lower q/q. The volume in accumulated terms for 2014 as a whole was 6.3% lower than in 2013.
Production | 4Q14 | 4Q13 | y/y | 3Q14 | q/q | 2014 | 2013 | Δ% |
Poultry Slaughter (Million Heads) | 423 | 434 | (2.5%) | 432 | (2.0%) | 1,664 | 1,796 | (7.4%) |
Hog/ Cattle Slaughter (Thousand Heads) | 2,403 | 2,330 | 3.2% | 2,456 | (2.1%) | 9,621 | 9,744 | (1.3%) |
Production (Thousand Tons) | 1,099 | 1,116 | (1.5%) | 1,114 | (1.3%) | 4,307 | 4,595 | (6.3%) |
Meats* | 978 | 985 | (0.7%) | 989 | (1.1%) | 3,825 | 4,089 | (6.4%) |
Other Processed Products** | 121 | 131 | (7.7%) | 125 | (3.3%) | 482 | 506 | (4.9%) |
Feed and Premix (Thousand Tons) | 2,619 | 2,633 | (0.5%) | 2,641 | (0.8%) | 10,360 | 11,036 | (6.1%) |
* Volumes of Meat of 4Q13 changed from 988.5 to 985.2 due to a corretion in volume of Argentina's production | ||||||||
** Volumes of Other Processed Products of 4Q13 changed from 131.5 to 130.9 due to a correction in volumes of Argentina's production. |
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3) Gross Income
Gross Profit - R$ Million | 4Q14 | 4Q13 | y/y | 3Q14 | q/q | 2014 | 2013 | Δ% |
Gross Profit | 2,687 | 1,943 | 38.3% | 2,145 | 25.3% | 8,509 | 6,910 | 23.1% |
Gross Margin (%) | 33.4% | 25.8% | 7.6 p.p. | 29.6% | 3.8 p.p. | 29.3% | 24.9% | 4.5 p.p. |
As previously stated, BRF increased the efficiency of its operations, which translated into more robust earnings as a result of the strategies implemented in Brazil and in the International front. This led to an expansion in gross income to R$2.7 billion in 4Q14, thereby registering increases of 38.3% y/y and 25.3% q/q. The gross margin was 33.4% in 4Q14 compared with 25.8% in 4Q13 and 29.6% in 3Q14.
The Company´s accumulated gross income for the year was R$8.5 billion, 23.1% higher than the previous year, with a gross margin of 29.3% in 2014 compared to 24.9% in 2013.
4) Operating Expenses
Operating Expenses - R$ Million | 4Q14 | 4Q13 | y/y | 3Q14 | q/q | 2014 | 2013 | Δ% |
Selling Expenses | (1,164) | (1,185) | (1.7%) | (1,024) | 13.7% | (4,217) | (4,141) | 1.8% |
% of the NOR | (14.5%) | (15.7%) | 1.3 p.p. | (14.1%) | (0.3) p.p. | (14.5%) | (14.9%) | 0.4 p.p. |
General and Administrative Expenses | (110) | (114) | (3.8%) | (96) | 14.5% | (402) | (427) | (5.9%) |
% of the NOR | (1.4%) | (1.5%) | 0.2 p.p. | (1.3%) | 0.0 p.p. | (1.4%) | (1.5%) | 0.2 p.p. |
Operating Expenses | (1,274) | (1,299) | (1.9%) | (1,120) | 13.8% | (4,619) | (4,568) | 1.1% |
% of the NOR | (15.8%) | (17.2%) | 1.4 p.p. | (15.5%) | (0.4) p.p. | (15.9%) | (16.4%) | 0.5 p.p. |
Our operating expenses in 4Q14 totaled R$1.3 billion, following the downward trend seen in the 4Q13 (-1.9% lower y/y). This was a consequence of better cost control (reflecting the results obtained with the ZBB 3). Operating expenses, in percentage terms, amounted to 15.8% of NOR in 4Q14 compared with 17.2% in 4Q13.
Operating expenses remained relatively stable in accumulated terms, showing a slight rise of 1.1%, mainly due to higher expenditure in marketing and in trade marketing, which was in line with the Company´s strategy of having a greater focus on the customer and strengthening our brands. In percentage terms, given the Company´s growth, operating expenses fell over the year and reached 15.9% of NOR compared to 16.4% in 2013.
³The purpose of the ZBB (Zero Based Budget) was to review the Company´s spending budget, giving priority to those activities and processes that are essential to the business. This project brought great improvements during the year, with the main advances seen in the revision of the headcount and spending on administrative structures.
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5) Other Operating Results
Other Operating Results - R$ Million | 4Q14 | 4Q13 | y/y | 3Q14 | q/q | 2014 | 2013 | Δ% |
Other Operating Revenues | 266 | (2) | - | 23 | 1062.0% | 482 | 82 | 487.6% |
Other Operating Expenses | (266) | (159) | 67.4% | (225) | 18.1% | (920) | (540) | 70.4% |
Other Operating Results | (0) | (162) | (99.8%) | (202) | (99.9%) | (438) | (458) | (4.4%) |
% of the NOR | 0.0% | (2.1%) | 2.1 p.p. | (2.8%) | 2.8 p.p. | (1.5%) | (1.6%) | 0.1 p.p. |
We had a compensation in our operational results line in the 4Q14, mainly due to the capital gain from the sale of the beef assets to Minerva, which was equivalent to R$179.3 million, which, combined with the other revenues earned in the quarter, more than compensated for the higher expenses with the employee profit-sharing plan and provisions, equivalent to R$217.6 million and R$50.0 million, respectively.
The accumulated figures for the year showed a negative net result equivalent to R$438.1 million, representing a reduction of 4.4% over 2013. The main revenues that impacted this result were the net gains from the share swap with Minerva, as mentioned previously, along with net gains from the disposal of property, plants and equipment that totaled R$111.4 million in 2014.
On the other hand, the main expenses in the period included the employee profit- sharing plan which amounted to R$356.5 million, R$214.7 million of restructuring expenses and higher provisions for tax and civil/labor risks equivalent to R$91.2 million and R$72.4 million, respectively.
6) Operating Result (EBIT)
EBIT | R$ Million | EBIT Margin | ||||||||
4Q14 | 4Q13 | y/y | 3Q14 | q/q | 4Q14 | 4Q13 | y/y | 3Q14 | q/q | |
Brazil | 723 | 404 | 78.8% | 381 | 89.5% | 18.6% | 11.2% | 7.4 p.p. | 11.0% | 7.6 p.p. |
International | 581 | 21 | 2676.7% | 413 | 40.7% | 16.2% | 0.6% | 15.6 p.p. | 12.2% | 3.9 p.p. |
Food Services | 103 | 63 | 64.2% | 38 | 168.2% | 17.9% | 12.4% | 5.6 p.p. | 9.9% | 8.1 p.p. |
Total | 1,406 | 488 | 188.4% | 833 | 68.9% | 17.5% | 6.5% | 11.0 p.p. | 11.5% | 6.0 p.p. |
Consolidated EBIT in 4Q14 totaled R$1.4 billion, +188.4% y/y, with all business units contributing positively. The consolidated margin was 17.5% in 4Q14 compared with 6.5% in 4Q13. A quarterly comparison shows a growth in EBIT by 68.9%, while the margin rose by 6.0 p.p.
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EBIT | R$ Million | EBIT Margin | ||||
2014 | 2013 | Δ% | 2014 | 2013 | Δ% | |
Brazil | 1,842 | 1,320 | 39.5% | 13.2% | 10.1% | 3.1 p.p. |
International | 1,433 | 399 | 259.3% | 10.8% | 3.0% | 7.8 p.p. |
Food Services | 203 | 177 | 14.9% | 11.6% | 11.0% | 0.6 p.p. |
Total | 3,478 | 1,896 | 83.4% | 12.0% | 6.8% | 5.2 p.p. |
The accumulated EBIT for the year was R$3.5 billion, 83.4% higher y/y and the margin rose from 6.8% in 2013 to 12.0% in 2014. This result shows that the Company not only benefitted from the positive market conditions but, above all, managed to capture gains from the structural improvements that were implemented in Brazil, as well as in the International markets, during the year.
Ø Brazil
EBIT from the Brazilian operations reached R$722.5 million, +78.8% y/y and +89.5% q/q, with a margin of 18.6% compared with 11.2% in 4Q13 and 11.0% in 3Q14. This was due to higher volumes we saw in this market during the period, as well as the improvement in costs and expenses.
Accumulated EBIT for the year amounted to R$1.8 billion in Brazil thereby, registering an increase of 39.5% over 2013, with a gain of 3.1 p.p. in the margin.
Ø International
The International activities´ EBIT reached R$580.9 million, a significant rise over the 4Q13 figure of R$20.9 million and 40.7% higher q/q. The margin expanded by 15.6 p.p. y/y and by 3.9 p.p. q/q. We continued once again to see a structural improvement in the operating result in all regions during the fourth quarter of the year.
EBIT from the International operations was R$1.4 billion in accumulated terms for the year. This was an impressive improvement of 259.3% compared to 2013, representing a gain of 7.7 p.p. in margin, which rose from 3.0% in 2013 to 10.8% in 2014.
The improved results both for 4Q14 and for the full year of 2014, are a consequence of the initiatives the Company adopted during the period, the main ones being, optimization of the allocation of volumes between markets, better allocation of sales through the channels, the acquisition of distributors in the Middle East, a sharp reduction in sea freight and better phasing of shipments during the month (which brought greater predictability and savings).
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Ø Food Services
Food Services - R$ Million | 4Q14 | 4Q13 | y/y | 3Q14 | q/q | 2014 | 2013 | Δ% |
NOR | 574 | 507 | 13.3% | 389 | 47.5% | 1,747 | 1,606 | 8.8% |
EBIT | 103 | 63 | 64.2% | 38 | 168.2% | 203 | 177 | 14.9% |
EBIT Margin (%) | 17.9% | 12.4% | 5.6 p.p. | 9.9% | 8.1 p.p. | 11.6% | 11.0% | 0.6 p.p. |
EBIT from Food Services was R$103 million in 4Q14, +64.2% y/y and +168.2% q/q, leading to a margin of 17.9% in the period, compared to 12.4% in 4Q13 and 9.9% in 3Q14. This was a result of the higher volumes we sold in this market, greater efficiency and the dilution of expenses, along with better costs in comparison to 4Q13.
The accumulated EBIT from this segment came to R$203.5 million in the year, compared to R$177 million for 2013, an expansion of 14.9% which translated into a gain of 0.6 p.p. in margin for 2014.
7) Net Financial Result
R$ Million | 4Q14 | 4Q13 | y/y | 3Q14 | q/q | 2014 | 2013 | Δ% |
Financial Income | 377 | (127) | - | 616 | (38.7%) | 1,581 | 817 | 93.4% |
Financial Expenses | (578) | (133) | 334.4% | (815) | (29.1%) | (2,571) | (1,565) | 64.3% |
Net Financial Income (Expenses) | (201) | (260) | (22.7%) | (200) | 0.4% | (991) | (748) | 32.5% |
Net financial expenses in 4Q14 were 22.7% lower y/y, mainly as a result of higher gains obtained in currency variation, interest over assets and financial investments, when compared to the same period of the previous year. However, they were also impacted by currency variation on loans and financing as well as on other liabilities, which corresponded to a total net financial expense of R$200.6 million in the quarter. The result was relatively stable when compared to 3Q14, with a slight rise of +0.4% q/q.
This line showed an accumulated net financial expense for the year of R$990.7 million, which corresponded to an increase of 32.5% over 2013. The main elements that impacted this result were the premium paid in carrying out the buyback of bonds in the second quarterand the adjustment to present value for the year.
The use of non-derivative and derivative financial instruments for coverage of foreign exchange exposure allows for significant reductions in the net currency exposure in the balance sheet. We highlight that we moved from a currency exposure impacting the result of US$36.0 million “long” in 3Q14 to US$567 million “long” in 4Q14. This increased long-term currency exposure in the balance sheet resulted from the signing of the contract with Lactalis over the sale of our Dairy business in December 2014. As the amount of the transaction had been previously agreed at a total of R$1.8 billion, and then fixed in dollar terms upon the signing of the contract (approximately US$700.0 million), without the creation of a hedge, it is therefore subject to currency adjustments until the conclusion of this transaction. (Please refer to Explanatory Note 4.1.d.)
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On December 31, 2014, the non-derivative financial instruments designated as hedge accounting for currency protection of the cash flow, amounted to US$ 600.0 million. Furthermore, the derivative financial instruments designated as hedge accounting, in the cash flow hedge concept for covering highly likely exports, totaled US$716.0 million, €82.0 million, £42.0 million and ¥16,993.0 million, in their respective currencies. These instruments also directly contributed to the reduction in the currency exposure. In both cases, the unrealized result from the currency variation was accounted for in the other comprehensive income.
8) Debt
R$ Million | 12.31.2014 | 12.31.2013 | |||
Current | Non-Current | Total | Total | Δ% | |
Debt | |||||
Local Currency | (2,541) | (1,452) | (3,993) | (4,073) | (2.0%) |
Foreign Currency | (455) | (7,399) | (7,854) | (6,466) | 21.5% |
Gross Debt | (2,996) | (8,850) | (11,847) | (10,538) | 12.4% |
Cash Investments | |||||
Local Currency | 2,043 | 177 | 2,220 | 1,091 | 103.6% |
Foreign Currency | 4,594 | - | 4,594 | 2,663 | 72.5% |
Total Cash Investments | 6,638 | 177 | 6,815 | 3,754 | 81.5% |
Net Debt | 3,641 | (8,673) | (5,032) | (6,784) | (25.8%) |
Exchange Rate Exposure - US$ Million | - | - | 567 | (87) | - |
The Total Gross Debt, as shown above, amounting to R$11,847.0 million, accounts for the total financial debt, plus other financial liabilities, which add up to R$257.4 million, as stated in Explanatory Note 4.1.f of the Financial Statements of 12.31.2014.
Development of Net Debt/EBITDA
*For the 4Q14, we have only considered the results from the continued operations for calculating the ratio (excluding Dairy). For the other quarters, the calculations include both continued and discontinued operations.
The Company´s net debt reached R$5.0 billion, 25.8% lower than registered in December 31, 2013, resulting in a net debt to EBITDA ratio (last twelve months) of 1.04x, compared with 1.40x in 3Q14. The reduction in the net debt q/q was mainly due to the Company´s strong operating cash generation. (See Item 11. Free Cash Flow)
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9) Investments (Capex)
The investments in growth, support and efficiency amounted to R$342.6 million in the quarter, representing a reduction of 9.1% y/y. We are also considering in this amount R$135.8 million of investments in biological assets (breeders). Including the amount of R$387.0 million of investments in acquisitions/others, we reached a total of R$729.6 million in investments in 4Q14. We continue to direct investments to automation, logistics and systems (IT).
The Company´s investments in the year totaled R$1.5 billion and were in line with the guidance provided, directed towards growth, support and improving efficiency. We are also considering in this amount R$517.5 million of investments in biological assets. This figure did not include R$514.4 million directed at acquisitions and others, R$ 67.8 million in leasing, which altogether would add up to R$2.0 billion for the year of 2014.
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10) Financial Cycle
Financial Cycle
(Acc. Receivable + Inventories – Acc. Payable)/NOR
*For the 4Q14, we have only considered the results from the continued operations (excluding Dairy). For the other quarters, the calculations include both continued and discontinued operations.
The Company´s focus on optimizing its working capital resulted in the improvement of the financial cycle which reached 36.9 days at the end of 4Q14, compared with 49.5 days at the end of 4Q13 and 41.1 days at the end of 3Q14. In percentage terms, we went from 13.0% in 4Q13 and 10.8% in 3Q14 to 10.1% of NOR in 4Q14. This improvement reflects the results of important projects implemented throughout the year, particularly in the accounts payable and accounts receivable lines, also due to more controlled inventory levels.
It is also worth mentioning that, as we announced in 3Q14, there was an impact on the working capital as a result of the rebuilding of grain inventories, as well as an increase in the inventory of finished products in Brazil (commemorative items). However, we have consumed part of our grain inventory in the 4Q14 and we also increased our accounts payable, which helped improve the financial cycle in the period. On the other hand, as a result of the seasonal factors present in this quarter and the sales performance of the commemorative products, we also had an increase in our receivables in the last quarter of the year.
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11) Simplified Cash Flow
Simplified Cash Flow
(EBITDA – Change in Working Capital - Capex)
*Accumulated FCF for the 4Q14 does not consider discontinued operations (Dairy). The other quarters consider both continued as well as discontinued operations.
Simplified Free cash flow (EBITDA – Financial Cycle Variation – Capex) for the year reached R$4.1 billion, an increase of 170.9% when compared to 2013, reflecting the Company´s better operational performance in the period, both in terms of EBITDA performance as well as in the management of our Financial Cycle, as already mentioned in the item “Financial Cycle”.
12) Equity Income Result
The equity income result resulting from the participation in the earnings of affiliates and Joint Ventures, represented a loss of R$6.5 million in 4Q14 compared with a gain of R$5.5 million in 4Q13. This result was mainly due to Minerva´s performance, which started to be consolidated proportionally in our result through the equity income line as from October 1, 2014, when the agreement for the sale of our beefoperations in exchange for a stake of 15.2% in the company´s total and voting capital(following the integral conversion of the mandatory convertible bonds issued by the referred company) was concluded.
The equity income result showed a total gain of R$25.6 million in accumulated terms for the year. This represented an increase of 98.1% over 2013.
13) Income Tax and Social Contribution
Income Tax and Social Contribution - R$ Million | 4Q14 | 4Q13 | y/y | 3Q14 | q/q | 2014 | 2013 | Δ% |
Income before Taxes | 1,206 | 228 | 428.8% | 633 | 90.5% | 2,488 | 1,149 | 116.5% |
Income Tax and Social Contribution | (214) | (0) | - | (65) | 227.7% | (353) | (129) | 173.1% |
Effective Tax Rates (%) | (17.8%) | (0.2%) | (17.6) p.p. | (10.3%) | (7.4) p.p. | (14.2%) | (11.2%) | (2.9) p.p. |
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The income tax and social contribution showed a total expense of R$214.3 million in 4Q14 compared with R$403.0 thousand in 4Q13 and represented an effective rate of 17.8% and 0.2%, respectively. The main factors that led the Company to present an effective rate lower than the nominal rate were: the fiscal benefit in the payment of interest on capital, subventions for investments and the results of subsidiaries abroad (Please refer to Explanatory Note 14.3).
The accumulated income tax and social contribution in the year showed a total expense of R$352.6 million compared with R$129.1 million in 2013. This was an increase of 173.1% on an annual comparison and represented an effective rate of 14.2%, whereas the effective rateobtained in 2013 was 11.2%. This increase was mainly due to the improvement in the Company´s results in the year, both in Brazil and in the International market.
14) Non-Controlling Shareholders
The result attributed to non-controlling shareholders of subsidiaries in Argentina, the Middle East and Europe, represented in the 4Q14 an expense of R$502.0 thousand, compared to revenues of R$235.0 thousand in 4Q13. In the accumulated of the year, the attributed results to the non-controlling shareholders represented a revenue of R$159.0 thousand, against an expense of R$4.4 million in 2013.
15) Discontinued Operation Results (Dairy)
As mentioned previously, due to the sale of the Dairy operations to the Lactalis group, the results of these activities are presented as discontinued operations.
The net income in 4Q14 of the Dairy operations totaled R$27.2 million vis-à-vis a loss of R$19.4 million in 4Q13, and 47.5% less than 3Q14.
The result of discontinued operations accumulated throughout the year was of R$89.8 million, 90.4% higher if compared to 2013.
A more detailed analysis of these results will be presented in item 20 of this report.
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16) Net Income
Net Income - R$ Million | 4Q14 | 4Q13 | y/y | 3Q14 | q/q | 2014 | 2013 | Δ% |
Net Income from Continued Operations | 991 | 228 | 334.9% | 572 | 73.2% | 2,135 | 1,015 | 110.3% |
Net Margin (%) | 12.3% | 3.0% | 9.3 p.p. | 7.9% | 4.4 p.p. | 7.4% | 3.7% | 3.7 p.p. |
Net Income Total | 1,018 | 208 | 388.5% | 624 | 63.1% | 2,225 | 1,062 | 109.4% |
Net Margin (%) | 11.7% | 2.5% | 9.1 p.p. | 7.8% | 3.9 p.p. | 7.0% | 3.5% | 3.5 p.p. |
The result of the Company´s operational improvements can be seen in the Company´s net income for the period. When we look at the continued operations alone, net income sums up to R$991.0 million in 4Q14, showing an increase of 334.9% y/y and with a net margin of 12.3%, 9.3 p.p. higher y/y. There was growth of 73.2% in the net income in comparison with 3Q14, with the net margin expanding by 4.4 p.p..
The accumulated net income for the year obtained from continued operations totaled R$2.1 billion, an increase of 110.3% compared to 2013, with the net margin expanding from 3.7% in 2013 to 7.4% in 2014.
The Company´s total net income, considering continued and discontinued operations, reached R$1.0 billion in 4Q14, +388.5% y/y, with a growth of 9.1 p.p. of net margin. A comparison with the previous quarter shows that the total net income was 63.1% higher, with a gain of 3.9 p.p. of margin.
The accumulated total net income from continued plus discontinued operations, in 2014, was R$2.2 billion. This represented an increase of 109.4% compared with the same period of the previous year, leading to a gain of 3.5 p.p. in net margin.
17) EBITDA
EBITDA - R$ Million | 4Q14 | 4Q13 | y/y | 3Q14 | q/q | 2014 | 2013 | Δ% |
Net Income | 991 | 228 | 334.9% | 572 | 73.2% | 2,135 | 1,015 | 110.3% |
Income Tax and Social Contribution | 214 | 0 | - | 65 | 227.7% | 353 | 129 | 173.1% |
Net Financial | 201 | 260 | (22.7%) | 200 | 0.4% | 991 | 748 | 32.5% |
Depreciation and Amortization | 357 | 293 | 21.6% | 292 | 22.1% | 1,230 | 1,117 | 10.1% |
EBITDA from Continued Operations | 1,762 | 781 | 125.6% | 1,130 | 56.0% | 4,709 | 3,009 | 56.5% |
EBITDA Margin (%) | 21.9% | 10.4% | 11.5 p.p. | 15.6% | 6.3 p.p. | 16.2% | 10.8% | 5.4 p.p. |
EBITDA Total | 1,818 | 773 | 135.3% | 1,216 | 49.6% | 4,897 | 3,131 | 56.4% |
EBITDA Margin (%) | 20.9% | 9.4% | 11.5 p.p. | 15.2% | 5.7 p.p. | 15.4% | 10.3% | 5.1 p.p. |
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Given all of the things that have been described in this report, EBITDA for the Company´s continued operations reached R$1.8 billion in 4Q14, an increase of 125.6% y/y and 56.0% q/q. This led to an EBITDA margin of 21.9% in 4Q14, compared to 10.4% in 4Q13 and 15.6% in 3Q14.
The accumulated EBITDA for the year for the continued operations amounted to R$4.7 billion, an increase of 56.5% over 2013. There was a gain of 5.4p.p. in margin, that rose from 10.8% in 2013 to 16.2% in 2014.
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Considering continued and discontinued operations, the Company´s total EBITDA was R$1.8 billion, 135.3% higher y/y, with a margin of 20.9%, relative to 9.4% in 4Q13 and 15.2% in 3Q13.
In the accumulated results for 2014, EBITDA for the continued operations combined with the discontinued operations, was R$4.9 billion. This represented an increase of 56.4% in comparison with 2013, a gain of 5.1 p.p. in margin.
18) Shareholder Equity
Shareholder´s Equity reached R$15.7 billion, on December 31, 2014, compared to R$15.4 billion on September 30, 2014. This was mainly due to higher net result obtained in the quarter.
19) Interest on Equity and Dividends
An extraordinary meeting of the Board of Directors held on December 18, 2014 approved the distribution of R$376.8 million allocated to the payment of interest on equity, and R$86.5million for an additional distribution in the form of dividends, totaling R$ 463.3 million. Payments will be made on February 13, 2015. (See Explanatory Note 27.2.)
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During the year of 2014, a total of R$737.8 million was distributed, relative to the interest on equity, and R$86.5 million relative to dividends, totaling a sum of R$824.3 million in distribution.
20) Result from Discontinued Operations (Dairy products)
As already mentioned in this document, in September 2014, we announced the signing of a binding memorandum of understanding with Parmalat S.p.A., a company belonging to the Lactalis Group. This document established the terms and conditions for the sale of the plants in our dairy segment, including the corresponding assets and brands dedicated to the segment. We also announced in December of this same year that we had signed the definitive sale contract for this operation.
In line with the prevailing regulations and legislation now in order, we reclassified the assets and liabilities related to the sold operations in a line in the balance sheet called “Non-current assets maintained for sale and discontinued operations” within the current assets and “Liabilities related to non-current assets for sale and discontinued operations” within the current liabilities. (See Explanatory Note 13.2.)
In the Financial Statements, we are separating the results from the Company´s continued operations, as described in this report, and the results from the discontinued operations relative to the Dairy operations that we describe below.
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Ø Net Operating Revenues (NOR) from Discontinued Operations
Dairy | R$ Million | Thousand Tons | Average Price - R$ | ||||||||||||
4Q14 | 4Q13 | y/y | 3Q14 | q/q | 4Q14 | 4Q13 | y/y | 3Q14 | q/q | 4Q14 | 4Q13 | y/y | 3Q14 | q/q | |
Dry Division | 368 | 351 | 4.7% | 432 | (14.8%) | 145 | 123 | 17.5% | 152 | (4.8%) | 2.54 | 2.85 | (10.9%) | 2.84 | (10.5%) |
Frozen and Fresh Division | 302 | 295 | 2.4% | 311 | (3.1%) | 55 | 59 | (6.9%) | 59 | (6.6%) | 5.52 | 5.02 | 10.0% | 5.32 | 3.8% |
Other Sales | 0 | 27 | - | 0 | - | 0 | 31 | - | 0 | - | - | 0.88 | - | - | - |
Total | 670 | 674 | (0.6%) | 743 | (9.9%) | 199 | 213 | (6.3%) | 211 | (5.3%) | 3.36 | 3.16 | 6.1% | 3.53 | (4.8%) |
In 4Q14, the NOR of the Dairy operations amounted to R$669.6 million, 0.6% less in the comparison y/y, boosted by a rise in the average price of 6.1% y/y, which offset partially the fall in the volumes of 6.3% y/y. A quarterly comparison shows that there was a fall of 9.9% in the NOR, and a decline in volume of 5.3%. Prices also fell by 4.8% in the same comparison.
Dairy | R$ Million | Thousand Tons | Average Price - R$ | ||||||
2014 | 2013 | Δ% | 2014 | 2013 | Δ% | 2014 | 2013 | Δ% | |
Dry Division | 1,537 | 1,446 | 6.3% | 573 | 543 | 5.7% | 2.68 | 2.66 | 0.6% |
Frozen and Fresh Division | 1,183 | 1,208 | (2.0%) | 227 | 249 | (8.7%) | 5.20 | 4.85 | 7.3% |
Other sales | 0 | 80 | - | 0 | 103 | - | - | 0.78 | - |
Total | 2,720 | 2,734 | (0.5%) | 801 | 895 | (10.5%) | 3.40 | 3.05 | 11.2% |
The accumulated NOR for the year from this segment reached R$2.7 billion and was stable in comparison with 2013 (-0.5%). The increase of 11.2% in the average prices compensated the fall of 10.5% in volumes registered in the period.
Ø Operating Result (EBIT) from Discontinued Operations
Dairy - R$ Million | 4Q14 | 4Q13 | y/y | 3Q14 | q/q | 2014 | 2013 | Δ% |
NOR | 670 | 674 | (0.6%) | 743 | (9.9%) | 2,720 | 2,734 | (0.5%) |
EBIT | 37 | (26) | (240.3%) | 70 | (47.5%) | 121 | 63 | 90.4% |
EBIT Margin (%) | 5.5% | (3.9%) | 9.3 p.p. | 9.4% | (3.9) p.p. | 4.4% | 2.3% | 2.1 p.p. |
EBIT from the Dairy operations were R$36.6 million in 4Q14, recovering when compared with the negative result of R$26.1 million in the 4Q13. The margin went from -3.9% in 4Q13, to 9.4% in 3Q14, falling to 5.5% in 4Q14, mainly as a result of the higher costs obtained in the last quarter of the year.
The accumulated EBIT for the year for this segment reached R$120.6 million compared to R$63.3 million in 2013 (+90.4%). This rise was mainly due to the increase in average prices in the period, as previously described, along with the greater efficiency and better dilution of expenses.
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Stock Market
The Company´s market capitalization came to R$55.3 billion at the end of the quarter.
Performance of the shares on the BM&FBovespa (4Q14)
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Performance of the ADRs on the NYSE (4Q14)
Performance of the shares on the BM&FBovespa (2014)
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Performance of the ADRs on the NYSE (2014)
Diffused Control
Base: 31.12.2014
Number of shares: 872,473,246 (common)
Capital Stock: R$12.5 billion
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(We present in the following tables theProfit and LossAccount for the Year, the Balance Sheet and Cash Flow Statement of the continued operations and, as a comparison base, also the statements of the continued + discontinued operations).
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Attachment
Sales Breakdown by Channel – Brazil
(% of Net Operating Revenues - NOR)
*BRF has adopted a new sales structure since January 2014 in order to make this classification fit more adequately into the Company´s current situation. All clients were reclassified under this new structure, in line with their profiles, creating new groups with a different composition and size from those existing in 2013. This reorganization mainly affected the Supermarkets and Retail channels.
Marketing and Innovation
In 4Q14, we announce the launches of new products in the commemorative line which raised our banner as a modern and innovative Company.
We launched the “Chester flavors of Brazil” line with Chester Gaucho style and Chester Mineiro style which brought a tasty touch to Brazilian cuisine.
Additionally, the Sadia brand consolidated the commemorative products of the “Fácil” linethrough the re-launch of the loin, leg of pork and the traditional Sadia turkey products that gained new packaging and flavors.
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Rating
The company has investment grade rating BBB- from Fitch Ratings and Standard & Poor’s and Baa rating from Moody’s; S&P with a positive outlook and the other two with a stable outlook.
Novo Mercado
BRF joined the Novo Mercado segment of the BM&FBovespa on April 12, 2006 and is bound by the Market Arbitration Chamber, under its commitment clause to the bylaws and regulations.
Risk Management
BRF and its subsidiaries have adopted a series of measures previously structured and addressed in line with its risk policy to maintain the inherent risks to its business under the strictest control. Risks on the operating market, sanitary control, grains, food safety, environmental protection, internal controls and financial risks are monitored. Explanatory Note 4 of the Financial Statements gives details of this supervision and further details can also be found in our Reference Form and 20F Report presented annually to the Brazilian Securities and Exchange Commission (CVM) and the US Securities Exchange Commission (SEC), respectively.
Social Report and Appreciation of Human Capital
BRF operates in Brazil with 34 plants (not taking into consideration the Dairy plants, which are included in the sale agreement signed with Lactalis), 27 distribution centers, TSPs, hatcheries and commercial offices. It operates abroad with seven industrial units in Argentina, two in Europe (England and The Netherlands) and one in the United Arab Emirates (Abu Dhabi), along with 19 commercial offices. BRF has more than 104 thousand employees throughout the world.
In synergy with the Company´s transformation movement and enhancement human capital that has been implemented through the Viva BRF program, we launched the new BRF Leadership Apprentice Path, which focuses especially on supervisors and coordinators. Around 740 people were trained in 2014 and the training process will continue in 2015, both in those places which have already received the Starting Point and will begin the Apprentice Rounds, as well as in those places which have still not received the training and will have the Starting Point offered to their leaders. The focus on the training of Company´s supervisors is encouraged due to the fact that they are responsible for the direct management of around 95% of BRF´s employees.
The work on training staff in obligatory, legal, Health, Safety and Environmental Management and Training at the Workplace aspects continued in 4Q14. It involved 45 thousand staff and amounted to 617 thousand hours of training. Of these employees, 7,700 took part in the Internal Training at the Workplace program, with a work load amounting to 287 thousand hours.
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MANAGEMENT REPORT / COMMENTS ON THE PERFORMANCE |
Viva BRF
Viva BRF was introduced in 2014 and it is a movement of organizational culture that brings together a combination of initiatives, values and attributes designed by the core of the company´s culture and constructed jointly with employees. The core formed by executives, leaders and ambassadors from different areas spent three months of 2014 traveling all BRF´s locations in Brazil in order to speak with staff from different units about BRF´s features.
The process of building our culture is aimed at creating a strong collective force; union and a singleproposal; meritocracy, appreciation and retention of talents; construction of the company´s values; and living and celebrating all that we have and can be. In this context, seven attributes that define the new BRF moment were chosen: Owners passion, inspired by the consumer, healthy life, eager for performance, right away, never settle for less and building together.
We have also built an action model, based on five priorities that will guide our teams to achieve the results we have outlined:
Ø Sustainable chain: We seek an integrated and balanced supply chain supported by collaboration and value generation for all those who are part of it. We want to relive the respect for the rural areas and ownership at each stage by sharing results and creating a virtuous cycle among producers, processors, sales agents and consumers.
Ø Innovation: Maintaining and seeking market leadership on a constant basis in all that we do, either in the development of products and in the continuous improvement of our processes.
Ø People: It is through our people that the company will deliver results with soul.This is why they are at the heart of the new model. By putting the VIVA BRF attitudes and pursuing a distinguished performance and meritocracy as a way of recognition at all levels, we will help BRF become a company with a soul, and distinguished from the others.
Ø Quality: BRF should be a benchmark of quality in all that it does. In our products and in the way we deal with our clients and partners.
Ø Brand: These are the icons that connect with our consumers, attesting to everything we are and to the careful delivery of what we can make best: food. The strength of our brands is connected to the pride we have of our history and propels us to strive to market leaders in all places where we operate.
Health, Safety and Environmental Management
The Health, Safety and Environmental Management supervision (HSE) continues to make considerable progress. In 4Q14, there was a non-recurring increase in the frequency rate (FR) due to an accident in transporting employees. Despite this, there was a decline of 2.3% in the frequency rate in accumulated terms for 2014 and a fall of 33% in the gravity rate (GR) in relation to 2013.
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MANAGEMENT REPORT / COMMENTS ON THE PERFORMANCE |
Stock Options Plan
The Company currently has 11,390,846 stock options granted to 228 executives,with a maximum exercise period of five years, as established in the Regulations of the Stock Option Plan approved on March 31, 2010 and modified in April 24, 2012, April 9, 2013 and April 3, 2014 at the Annual Ordinary and Extraordinary Shareholders´ Meetings. These include the CEO, vice-presidents, directors and other BRF executives.
Relationship with the independent auditors
The Company announces, under CVM Instruction Nº 381 of January 14, 2003, that its policy of contractingservices not related to the external audit is based on principles that preserve the independence of the auditor.
Within the terms of the CVM Instruction 480/09, the management declares that, at a meeting held on February 26, 2015, it discussed,reviewedand agreed with the information expressed in therevision of the independent auditors´ report on the financial information related to the period covering the three months ending on December 31, 2014.
Disclaimer
The statements in this report related to the Company's business perspective, projections and results, and its growth potential are mere forecasts and have been based on the management's expectations of the Company's future. These expectations are highly dependent on market changes and the overall economic performance of the country, the sector and international markets; they are, therefore, subject to changes.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Year ended December 31, 2014 and 2013 (Amounts expressed in thousands of Brazilian Reais, unless otherwise stated) |
1. COMPANY’S OPERATIONS
BRF S.A. (“BRF”) and its subsidiaries (collectively the “Company”) is one of Brazil’s largest companies in the food industry. BRF is a public company, listed on the New Market of Brazilian Securities, Commodities & Futures Exchange (“BM&FBOVESPA”), under the ticker BRFS3, and listed on the New York Stock Exchange (“NYSE”), under the ticker BRFS. It´s headquarter is located at 475, Rua Jorge Tzachel in the City of Itajaí, State of Santa Catarina. With a focus on raising, producing and slaughtering of poultry, pork for processing, production and sale of fresh meat, processed products, pasta, sauce, mayonnaise, frozen vegetables and soybean by-products, among which the following are highlighted:
· Whole chickens and frozen cuts of chicken, turkey and pork;
· Ham products, bologna, sausages, frankfurters and other smoked products;
· Hamburgers, breaded meat products and meatballs;
· Lasagnas, pizzas, cheese breads, pies and frozen vegetables;
· Margarine, sauces and mayonnaise; and
· Soy meal and refined soy flour, as well as animal feed.
As previously disclosed to the market, the Company's Management was studying the best strategic alternative to the operating segment of dairy and decided to discontinue such segment after analyzing offer for acquisition made by a company of Groupe Lactalis, details of which are presented in note 13.
The Company's activities are segregated into 3 operating segments, being Domestic Market (Brazil), Foreign Market (International) and Food Service, as disclosed in note 5.
In Brazil, the Company operates 34 meat processing plants, 3 margarine processing plants, 3 pasta processing plants, 1 dessert processing plant and 3 soybean crushing plant, located close to the Company’s raw material suppliers or the main consumer centers.
The Company has an advanced distribution system and uses 27 distribution centers to deliver its products to supermarkets, retail stores, wholesalers, restaurants and other institutional customers in Brazil and International markets.
In the International market, the Company operates 7 meat processing plants, 1 margarine and oil processing plant, 1 sauces and mayonnaise processing plant, 1 frozen vegetables processing plant, and 15 distribution centers, besides subsidiaries or sales offices in the South Africa, Germany, Saudi Arabia, Argentina, Austria, Singapore, Chile, China, South Korea, United Arab Emirates, Spain, France, The Netherlands, Hungary, Cayman Islands, Italy, Japan, Kuwait, Nigeria, Oman, Portugal, United Kingdom, Russia, Uruguay and Venezuela. The Company exports to more than 120 countries.
The table below summarizes the direct and indirect equity interests of the Company, as well as the activities of each entity:
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Year ended December 31, 2014 and 2013 (Amounts expressed in thousands of Brazilian Reais, unless otherwise stated) |
1.1. Equity interest
Entities |
| Main activity | Country | Participation | 12.31.14 | 12.31.13 | |||||
Avipal Centro-oeste S.A. | (a) |
| Industrialization and commercializations of milk |
| Brazil |
| Direct |
| 100.00% |
| 100.00% |
Avipal S.A. Construtora e Incorporadora | (s) |
| Construction and real estate marketing |
| Brazil |
| Direct |
| - |
| 100.00% |
BRF GmbH | Holding | Austria | Direct | 100.00% | 100.00% | ||||||
Al Khan Foodstuff LLC | (l) | Import, commercialization and distribution of products | Oman | Joint venture | 40.00% | - | |||||
Al-Wafi Food Products Factory LLC | Industrialization and commercialization of products | United Arab Emirates | Indirect | 49.00% | 49.00% | ||||||
Badi Ltd. | Import and commercialization of products | United Arab Emirates | Indirect | 100.00% | 100.00% | ||||||
Al-Wafi Al-Takamol Imp. | Import and commercialization of products | Saudi Arabia | Indirect | 75.00% | 75.00% | ||||||
BRF Al Yasra Food K.S.C.C. | (p) | Import and commercialization and distribution of products | Kuwait | Indirect | 75.00% | - | |||||
BRF Global Company South Africa Proprietary Ltd. | Import and commercialization of products | South Africa | Indirect | 100.00% | 100.00% | ||||||
BRF Global Company Nigeria Ltd. | Marketing and logistics services | Nigeria | Indirect | 1.00% | 1.00% | ||||||
BRF Foods GmbH | (f) | Industralization, import and commercialization of products | Austria | Indirect | 100.00% | - | |||||
BRF Foods LLC | Import and commercialization of products | Russia | Indirect | 90.00% | 90.00% | ||||||
BRF Global Company Nigeria Ltd. | Marketing and logistics services | Nigeria | Indirect | 99.00% | 99.00% | ||||||
BRF Global GmbH | (b) | Holding and trading | Austria | Indirect | 100.00% | 100.00% | |||||
Xamol Consultores Serviços Ltda. | (a) | Import and commercialization of products | Portugal | Indirect | 100.00% | 100.00% | |||||
Qualy 5201 B.V. | (b) | Import and commercialization of products | The Netherlands | Indirect | 100.00% | 100.00% | |||||
BRF Japan KK | Marketing and logistics services | Japan | Indirect | 100.00% | 100.00% | ||||||
BRF Korea LLC | Marketing and logistics services | Korea | Indirect | 100.00% | 100.00% | ||||||
BRF Singapore PTE Ltd. | Marketing and logistics services | Singapore | Indirect | 100.00% | 100.00% | ||||||
Federal Foods LLC | (d) | Import and commercialization of products | United Arab Emirates | Indirect | 49.00% | 49.00% | |||||
Perdigão Europe Ltd. | Import and commercialization of products | Portugal | Indirect | 100.00% | 100.00% | ||||||
Perdigão France SARL | Marketing and logistics services | France | Indirect | 100.00% | 100.00% | ||||||
Perdigão International Ltd. | Import and commercialization of products | Cayman Island | Indirect | 100.00% | 100.00% | ||||||
BFF International Ltd. | Financial fundraising | Cayman Island | Indirect | 100.00% | 100.00% | ||||||
Highline International | (a) | Financial fundraising | Cayman Island | Indirect | 100.00% | 100.00% | |||||
Plusfood Germany GmbH | Import and commercialization of products | Germany | Indirect | 100.00% | 100.00% | ||||||
Plusfood Holland B.V. | Administrative services | The Netherlands | Indirect | 100.00% | 100.00% | ||||||
Plusfood B.V. | Industrialization, import and commercializations of products | The Netherlands | Indirect | 100.00% | 100.00% | ||||||
Plusfood Hungary Trade and Service LLC | Import and commercialization of products | Hungary | Indirect | 100.00% | 100.00% | ||||||
Plusfood Iberia SL | Marketing and logistics services | Spain | Indirect | 100.00% | 100.00% | ||||||
Plusfood Italy SRL | Import and commercialization of products | Italy | Indirect | 67.00% | 67.00% | ||||||
Plusfood UK Ltd. | Import and commercialization of products | England | Indirect | 100.00% | 100.00% | ||||||
Plusfood Wrexham | Industrialization, import and commercializations of products | England | Indirect | 100.00% | 100.00% | ||||||
Rising Star Food Company Ltd. | (i) | Industralization, import and commercialization of products | China | - | - | 50.00% | |||||
Sadia Chile S.A. | Import and commercialization of products | Chile | Indirect | 40.00% | 40.00% | ||||||
Sadia Foods GmbH | (a) | Import and commercialization of products | Germany | Indirect | 100.00% | 100.00% | |||||
BRF Foods LLC | Import and commercialization of products | Russia | Indirect | 10.00% | 10.00% | ||||||
Wellax Food Logistics C.P.A.S.U. Lda. |
|
| Import and commercialization of products |
| Portugal |
| Indirect |
| 100.00% |
| 100.00% |
Elebat Alimentos S.A. | (o) |
| Industrialization and commercialization of products |
| Brazil |
| Direct |
| 99.00% |
| - |
Establecimiento Levino Zaccardi y Cia. S.A. |
|
| Industrialization and commercializations of dairy products |
| Argentina |
| Direct |
| 98.26% |
| 98.26% |
K&S Alimentos S.A. |
|
| Industrialization and commercialization of products |
| Brazil |
| Affiliate |
| 49.00% |
| 49.00% |
Mato Grosso Bovinos S.A. | (e) (m) |
| Participation in other companies |
| Brazil |
| Direct |
| - |
| 99.00% |
Minerva S.A. | (n) |
| Industrialization and commercialization of products |
| Brazil |
| Affiliate |
| 16.29% |
| - |
Nutrifont Alimentos S.A. | (c) |
| Industrialization and commercialization of products |
| Brazil |
| Affiliate |
| 50.00% |
| 50.00% |
Perdigão Trading S.A. | (r) | Holding | Brazil | Direct | - | 100.00% | |||||
PSA Laboratório Veterinário Ltda. | (q) |
| Veterinary activities |
| Brazil |
| Indirect |
| - |
| 12.00% |
PP-BIO Administração de bem próprio S.A. |
|
| Management of assets |
| Brazil |
| Affiliate |
| 33.33% |
| 33.33% |
PSA Laboratório Veterinário Ltda. | (q) |
| Veterinary activities |
| Brazil |
| Direct |
| 100.00% |
| 88.00% |
Elebat Alimentos S.A. | (o) | Industrialization and commercialization of products | Brazil | Indirect | 1.00% | - | |||||
Sino dos Alpes Alimentos Ltda. | (a) (k) |
| Industrialization and commercializations of products |
| Brazil |
| Indirect |
| 99.99% |
| 100.00% |
PR-SAD Administração de bem próprio S.A. | (g) |
| Management of assets |
| Brazil |
| Affiliate |
| 33.33% |
| - |
Quickfood S.A. |
|
| Industrialization and commercialization of products |
| Argentina |
| Direct |
| 90.05% |
| 90.05% |
Sadia Alimentos S.A. | Import and export of products | Argentina | Direct | 99.98% | 99.98% | ||||||
Avex S.A. | (j) | Industrialization and commercialization of products | Argentina | Indirect | 95.00% | 99.46% | |||||
Flora Dánica S.A. | Industrialization and commercialization of products | Argentina | Indirect | 95.00% | 95.00% | ||||||
GB Dan S.A. | Industrialization and commercialization of products | Argentina | Indirect | 5.00% | 5.00% | ||||||
Flora San Luis S.A. | Industrialization and commercialization of products | Argentina | Indirect | 95.00% | 95.00% | ||||||
Flora Dánica S.A. | Industrialization and commercialization of products | Argentina | Indirect | 5.00% | 5.00% | ||||||
GB Dan S.A. | Industrialization and commercialization of products | Argentina | Indirect | 95.00% | 95.00% | ||||||
Flora San Luis S.A. |
|
| Industrialization and commercialization of products |
| Argentina |
| Indirect |
| 5.00% |
| 5.00% |
Sadia International Ltd. | Import and commercialization of products | Cayman Island | Direct | 100.00% | 100.00% | ||||||
Sadia Chile S.A. | Import and commercialization of products | Chile | Indirect | 60.00% | 60.00% | ||||||
Sadia U.K. Ltd. | (h) | Import and commercialization of products | England | Indirect | - | 100.00% | |||||
Sadia Uruguay S.A. | Import and commercialization of products | Uruguay | Indirect | 100.00% | 100.00% | ||||||
Avex S.A. | (j) | Industrialization and commercialization of products | Argentina | Indirect | 5.00% | - | |||||
Sadia Alimentos S.A. |
|
| Import and export of products |
| Argentina |
| Indirect |
| 0.02% |
| 0.02% |
Sadia Overseas Ltd. |
|
| Financial fundraising |
| Cayman Island |
| Direct |
| 100.00% |
| 100.00% |
UP Alimentos Ltda. |
|
| Industrialization and commercializations of products |
| Brazil |
| Affiliate |
| 50.00% |
| 50.00% |
Vip S.A. Emp. Part. Imobiliárias | Commercialization of owned real state | Brazil | Direct | 100.00% | 100.00% | ||||||
Establecimiento Levino Zaccardi y Cia. S.A. | Industrialization and commercializations of dairy products | Argentina | Indirect | 1.74% | 1.74% | ||||||
Sino dos Alpes Alimentos Ltda. | (a) (k) |
| Industrialization and commercializations of products |
| Brazil |
| Indirect |
| 0.01% |
| - |
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Year ended December 31, 2014 and 2013 (Amounts expressed in thousands of Brazilian Reais, unless otherwise stated) |
(a) Dormant subsidiaries.
(b) The wholly-owned subsidiary BRF Global GmbH, started to operate as a trading in the European market as from May 1, 2013. In addition, it owns 101 direct subsidiaries in Madeira Island, Portugal, with an investment as of December 31, 2014 of R$2,964 (R$2,799 as of December 31, 2013) and a direct subsidiary in Den Bosch, The Netherlands, denominated Qualy 20 with an investiment as of December 31, 2014 of R$4,372 (R$1,130 as of December 31, 2013). The wholly-owned subsidiary Qualy 5201 B.V. owns 213 subsidiaries in The Netherlands being the amount of this investment as of December 31, 2014 totaled R$14,553 (R$10,546 as of December 31, 2013). The purpose of these two subsidiaries is to operate in the European market to increase the Company’s market share, which is regulated by a system of poultry and turkey meat import quotas.
(c) Subsidiary pre operating.
(d) On January, 16, 2013 BRF acquired 49% of the equity interest with the rights to 60% of dividends as permitted by Federal Law Nº 8/1984, in force in the United Arab Emirates and according to the shareholders’ agreement. On April 09, 2014, the Company announced the conclusion of purchase of 100% of the economic rights.
(e) On February 11, 2014 change the corporate name from BRF Suínos do Sul Ltda to Mato Grosso Bovinos S.A.. This subsidiary was part of share exchange transaction with Minerva (note 6.2.2)
(f) On February 21, 2014, establishment of wholly-owned subsidiary.
(g) On March 14, 2014, acquisition of equity interest.
(h) On April 12, 2014, settlement of wholly-owned subsidiary.
(i) On April 30, 2014, disposal of 50% of equity interest held by BRF GmbH to Pah Chong Hong Limited.
(j) On June 26, 2014, Sadia Alimentos S.A. disposed of 5% of the shares of Avex S.A. to Sadia Uruguay S.A..
(k) On June 27, 2014, PSA Laboratório Veterinário Ltda, disposed of 1 (one) share to VIP S.A. Empreendimentos e Participações Imobiliárias.
(l) On July 03, 2014, acquisition of 40% of equity interest of Al Khan Foodtuff LLC.
(m) On October 1, 2014, disposal of equity interest to Minerva S.A.
(n) On October 1, 2014, acquisition of equity interest.
(o) On October 15, 2014, establishment of equity interest.
(p) On November 21, 2014, acquisition of equity interest.
(q) On December 1, 2014, corporate restructuring due to dissolution of the wholly-owned subsidiary Perdigão Trading S.A.
(r) On December 1, 2014, dissolution of the wholly-owned subsidiary.
(s) On December 31, 2014, dissolution of the wholly-owned subsidiary.
1.2. Step acquisition – Federal Foods LLC (“FF”)
On April 09, 2014, the Company concluded the acquisition of the remaining economic rights for a consideration of R$61,488, becoming the controlling shareholder of FF. (note 6.1.1).
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Year ended December 31, 2014 and 2013 (Amounts expressed in thousands of Brazilian Reais, unless otherwise stated) |
1.3. Acquisition of share equity of Al Khan Foods LLC (“AKF”)
On July 03, 2014, the Company concluded the acquisition of 40% equity interest of AKF (note 6.2.1).
1.4. Acquisition of share equity of Alyasra Food Company W.L.L. (“AFC”) and goodwill allocation arising from the business combination
On November 21, 2014, the Company acquired 75% of equity interest of BRF AFC (note 6.1.2).
1.5. Exercise of the call option - Carambeí (PR) Facility
On May 13, 2014, the Company entered into a lease agreement with Marfrig Alimentos S.A. (“Marfrig”), by means of which risks and rewards of ownership relating pork slaughtering and processing manufacturing facility located in the City of Carambeí (PR) were transferred. In accordance with the terms of the agreement, Marfrig had a call option of this manufacturing facility for R$188,000, subject to the variation of General Price Market Index (“IGP-M”) which should be exercised until June 01, 2014.
Rights and obligations related to this agreement were assumed by Seara Brasil (“Seara”), a company of Marfrig Group, which was acquired by JBS Group in October 2013.
On May 30, 2014, Seara exercised the call option set out in agreement and paid to BRF the amount of R$57,348 adjusted by IGP-M. The remaining balance of R$138,000, will be paid in the future and adjusted by IGP-M, such amount was recorded as other receivables. Arising from this transaction, the Company measured a gain of R$141.546 recorded as other operating income.
1.6. Acquisition of equity interest of Minerva S.A.
On October 01, 2014, BRF concluded the share exchange transaction between Minerva S.A, and Mato Grosso Bovinos S.A (a wholly-owned subsidiary of BRF S.A) (note 6.2.2).
1.7. Conclusion of the sales contract of the dairy segment by BRF to Groupe Lactalis ("Parmalat")
On December 05, 2014, BRF entered into with Lactalis do Brasil – Comércio, Importação e Exportação de Laticínios Ltda.(“Lactalis”), subsidiary of Parmalat S.p.A, Italian public company owned by Groupe Lactalis, sales contract for its dairy operating segment.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Year ended December 31, 2014 and 2013 (Amounts expressed in thousands of Brazilian Reais, unless otherwise stated) |
1.8. Seasonality
The Company does not operate with any significant seasonality through the year. In general, during the fourth quarter of each year the demand in Brazil is slightly stronger than in the other quarters, mainly due to the year-end holiday season such as Christmas and New Years Eve. Our bestselling products are: turkey, Chester® and ham.
2. MANAGEMENT’S STATEMENT AND BASIS OF PREPARATION AND PRESENTATION OF FINANCIAL STATEMENTS
The Company’s consolidated financial statements are prepared in accordance with the International Financial Reporting Standards (“IFRS”) issued by the International Accounting Standards Board (“IASB”) and interpretations issued by the International Financial Reporting Interpretations Committee (“IFRIC”), implemented in Brazil through Brazilian Accounting Pronouncements Committee (“CPC”) and its technical interpretations (“ICPC”) and guidelines (“OCPC”), approved by the Brazilian Securities Exchange Commission (“CVM”).
The Parent Company’s individual financial statements have been prepared in accordance with the accounting practices adopted in Brazil, which comprises the provisions of Corporate Law, required by Law No. 6,404/76 amended by Law No. 11,638/07 and No. 11,941/09 and accounting pronouncements, interpretations and guidelines issued by CPC, approved by CVM. Up to December 31, 2013, such accounting practices differs from IFRS, applicable to separate financial statements, in relation to the evaluation of investments in subsidiaries, affiliates and joint ventures, which were measured and recorded based on the equity pick-up accounting method rather than at cost or fair value, as required by IFRS.
With the issuance of the Standard IAS 27 (Separate Financial Statements) reviewed by the IASB in 2014, the separate financial statements in accordance with IFRS began to allow the use of the equity pick-up accounting method for evaluation of investments in subsidiaries, associates and joint ventures. In December 2014, CVM issued CVM Deliberation No. 733/2014, approved the Document of Technical Pronouncement Review No. 07 related to the pronouncements CPC 18, CPC 35 and CPC 37 issued by CPC, due to amendments introduced by IAS 27, allowing its adoption from year ended December 31, 2014. Thus, Parent Company’s individual financial statements are in compliance with IFRS from year ended December 31, 2014
The Company’s individual and consolidated financial statements are expressed in thousands of Brazilian Reais (“R$”), as well as the amounts of other currencies disclosed in the quarterly financial statements, when applicable, were also expressed in thousands. The result information is prepared by their accumulated over the sameperiod last year.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Year ended December 31, 2014 and 2013 (Amounts expressed in thousands of Brazilian Reais, unless otherwise stated) |
The preparation of the Company’s financial statements requires Management to make judgments, use estimates and adopt assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, as well as the disclosures of contingent liabilities, as of the reporting date of these financial statements. However, the uncertainty inherent to these judgments, assumptions and estimates could lead to results requiring a material to carrying amount of the affected asset or liability in future periods.
The Company reviews its judgments, estimates and assumptions quarterly.
The consolidated financial statements were prepared on the historical cost basis except for the following items which are measured at fair value:
· derivative and non-derivative financial instruments, being changes to fair value recognized through the statement of income;
· available for sale financial assets; and
· share-based payments and employee benefits.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
3.1. Consolidation: includes the BRF’s individual financial statements and the financial statements from subsidiaries where BRF has direct or indirect control. All transactions and balances between BRF and its subsidiaries have been eliminated upon consolidation, as well as the unrealized profits or losses arising from transactions between the Company and its subsidiaries. Non-controlling interest is presented separately.
3.2. Functional currency: the financial statements of each subsidiary included in consolidation are prepared using the currency of the main economic environment where it operates.
The financial statements of foreign subsidiaries are translated into Brazilian Reais in accordance with their functional currency using the following criteria:
Foreign subsidiaries with functional currency – Dihan, Euro, Argentine Peso and Rial Omã
· Assets and liabilities are translated at the exchange rate in effect at year-end;
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Year ended December 31, 2014 and 2013 (Amounts expressed in thousands of Brazilian Reais, unless otherwise stated) |
· Statement of income accounts are translated based on the monthly average rate; and
· The cumulative effects of gains or losses upon translation are recognized as Accumulated Foreign Currency Translation Adjustments component of other comprehensive income.
Foreign subsidiaries with functional currency – Brazilian Reais
· Non-monetary assets and liabilities are translated at the historical rate of the transaction;
· Monetary assets and liabilities are translated at the exchange rate in effect at year-end;
· Statement of income accounts are translated based on monthly average rate; and
· The cumulative effects of gains or losses upon translation are recognized in the statement of income.
Goodwill arising from business combination entity outside to be expressed in the functional currency of that entity and converted by the closing to exchange rate for the reporting currency of the acquiring.
The accounting policies have been consistently applied by all subsidiaries included in consolidation.
3.3. Investments: investments in associates and joint ventures are initially recognized at cost and adjusted thereafter for the equity method. In the investments in associates the Company has significant influence, which is the power to participate in the financial and operating policy decisions of the investee but it does not have control or joint control of those policies. In investments in joint ventures there is the contractually agreed sharing control of an arrangement, which exists only when decisions about the relevant activities require the unanimous consent of the parties sharing control.
3.4. Business combinations: are accounted for using the purchase method. The cost of an acquisition is the sum of the consideration paid, evaluated based on the fair value at acquisition date, and the amount of any non-controlling interests in the acquiree. For each business combination, the Company recognizes any non-controlling interest in the acquiree either at fair value or at the non-controlling interest’s proportionate share of the acquirer’s net assets. Costs directly attributable to the acquisition are accounted for as an expense when incurred.
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(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Year ended December 31, 2014 and 2013 (Amounts expressed in thousands of Brazilian Reais, unless otherwise stated) |
When acquiring a business, management evaluate the assets acquired and the liabilities assumed in order to classify and allocate them pursuant to the terms of the agreement, economic circumstances and conditions at the acquisition date.
Goodwill is initially measured as the excess of the consideration paid over the fair value of the net assets acquired. If the consideration is lower than the fair value of the net assets acquired, the difference is recognized as a gain in the statement of income.
After initial recognition, goodwill is measured at cost, net of any accumulated impairment losses. For purposes of impairment testing, the goodwill acquired in a business combination, as from the acquisition date, is allocated to each of the Company’s cash generating units expected to benefit from the synergies of the business combination, regardless of whether other assets or liabilities of the acquire are attributed to these units.
3.5. Segment information: an operating segment is a component of the Company that carries out business activities from which it can obtain revenues and incur expenses. The operating segments reflect how the Company’s management reviews financial information to make decisions. The Company’s management has identified reportable segments, which meet the quantitative and qualitative disclosure requirements. The segments identified for disclosure represent mainly sales channels. The information according to the characteristics of the products is also presented, based on their nature, as follows: poultry, pork, beef, processed products, other processed products and other sales.
3.6. Cash and cash equivalents: include cash on hand, bank deposits and highly liquid investments in fixed-income funds and/or securities with maturities, upon acquisition, of 90 days or less, which are readily convertible into known amounts of cash and subject to insignificant risk of change in value. The investments classified in this group, due to their nature, are measured at fair value through the profit and loss, and will be used for the Company in short term.
3.7. Financial instruments: financial assets and liabilities are recorded when the Company becomes party to the contractual provisions of the instruments and classified into the following categories: marketable securities, loans and receivables, derivatives and other.
3.7.1. Marketable securities: are financial assets that comprise public and private fixed-income securities, classified and recorded based on the purpose for which they were acquired, in accordance with the following categories:
· Trading securities: acquired for sale or repurchase in the short term, recorded at fair value with variations directly recorded in the statement ofincome for the year within interest income or expense;
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Year ended December 31, 2014 and 2013 (Amounts expressed in thousands of Brazilian Reais, unless otherwise stated) |
· Held to maturity:when the Company has the intention and ability to hold them up to maturity, investments are recorded at amortized cost, plus interest, monetary and exchange rate changes, when applicable, and recognized in the statement of income when incurred, within interest income or expense; and
· Available for sale:this category is for the remaining securities that are not classified in any of the categories above, which are measured at fair value, with changes to fair value recorded in other comprehensive income while the asset is not realized, net of taxes. Interest and monetary and exchange variation, when applicable, are recognized in the statement of income when incurred within interest income or expense.
3.7.2. Derivatives financial instruments measured at fair value: are those actively traded on organized markets and fair value is determined based on the amounts quoted on an active market at the balance sheet date. These financial instruments are designated at initial recognition, classified as other financial assets and/or liabilities, with a corresponding entry in the statement of income within financial income or expenses or cash flow hedge, a component of other comprehensive income, net of taxes.
3.7.3. Hedge transactions: the Company utilizes derivative and non-derivative financial instruments, as disclosed in note 4, to hedge the exposure to exchange rate and interest variations or to modify the characteristics of financial assets and liabilities and highly probable transactions, which are: (i) highly correlated to changes in the market value of the item being hedged, both at inception and throughout the term of the contract (effectiveness between 80% and 125%); (ii) supported by documents that identify the transaction, the hedged risk, the risk management process and the methodology used to assess effectiveness; and (iii) considered effective in the mitigation of the risk associated with the hedged exposure. These transactions are accounted for in accordance with CVM Deliberation Nº 604/09, that permits the protection accounting methodology (“hedge accounting”) with measurement of effect of fair value in equity and its realization in income for the relevant heading.
Hedges that meet the criteria of hedge accounting are recorded as cash flow hedge.
In a cash flow hedge, the effective portion of the gain or loss on the hedging instrument is recognized as other comprehensive income, while the ineffective portion of the hedge is recognized immediately as financial income orexpense.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Year ended December 31, 2014 and 2013 (Amounts expressed in thousands of Brazilian Reais, unless otherwise stated) |
The amounts recorded as other comprehensive income are immediately transferred to the statement of income when the hedged transaction affects the statement of income, for example, when the forecasted revenue in foreign currency occurs.
If the occurrence of the forecasted transaction or firm commitment is no longer expected, the amounts previously recognized in other comprehensive income are transferred to the statement of income. If the hedging instrument expires or is sold, terminated or exercised without replacement or rollover, or if its classification as a hedge is revoked, the gains or losses previously recognized remain recorded in other comprehensive income until the forecasted transaction or firm commitment affect the statement of income.
3.7.4. Loans and receivables: these are financial assets and liabilities with fixed or determinable payments which are not quoted on an active market. Such assets and liabilities are initially recognized at fair value plus any attributable transaction costs. After initial recognition, loans and receivables are measured at amortized cost under the effective interest rate method, less any impairment losses.
3.8. Adjustment to present value: the Company and its subsidiaries measure the adjustment to present value of outstanding balances of non-current trade accounts receivable, trade payables, social obligations and other non-current liabilities, being recorded in accounts reducing their lines on the other hand financial result. The Company adopts the weighted average of the cost of funding to determine the adjustment to present value to those assets and liabilities, which corresponds to annual rate of 11.20%.
3.9. Trade accounts receivables: are recorded at the invoiced amount and adjusted to present value, when applicable, net of allowance for doubtful accounts.
The Company adopts procedures and analyses to establish credit limits and substantially does not require collateral from customers. In the event of default, collection attempts are made, which includes direct contact with customers and collection through third parties. Should these efforts prove unsuccessful, court measures are considered and the notes are reclassified to non-current assets at the same time receivables are written-off. The notes are written-off from the provision when management considers that they are not recoverable after taking all appropriate measures to collect.
3.10. Inventories: are evaluated at average acquisition or formation cost, not exceeding market value or net realizable value. The cost of finished productsincludes raw materials, labor, cost of production, transport and storage, which are related to all process needed to make the products ready for sale. Provisions for obsolescence, adjustments to net realizable value, impaired items and slow-moving inventories are recorded when necessary. Usual production losses are recorded and are an integral part of the production cost of the respective month, whereas unusual losses, if any, are recorded as other operating expense.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Year ended December 31, 2014 and 2013 (Amounts expressed in thousands of Brazilian Reais, unless otherwise stated) |
3.11. Biological assets: The consumables and production biological assets (live animals) are measured at their cost.
3.12. Assets held for sale: Such assets are measured at carrying amount or fair value, whichever is lower, net of selling costs and are not depreciated or amortized.
The income statement and cash flows from discontinued operations are presented separately from those of continuing operations of the Company.
3.13. Property, plant and equipment: stated at the cost of acquisition or construction, less accumulated depreciation and impairment losses, when applicable. The borrowing costs are capitalized as a component of construction in progress, pursuant to with CVM Deliberation Nº 672/11, considering the weighted average interest rate of the Company’s debt at the capitalization date.
Depreciation is recognized based on the estimated economic useful life of each asset on a straight-line basis. The estimated useful life, residual values and depreciation methods are annually reviewed and the effects of any changes in estimates are accounted for prospectively. Land is not depreciated.
The Company annually performs an analysis of impairment indicators of property, plant and equipment along with goodwill impairment test. If an impairment indicator is identified, the corresponding assets are tested for impairment using the discounted cash flow methodology. Hence, when an impairment is identified, a provision is recorded. The recoverability of these assets was tested for impairment in 2014, and no adjustments were identified. The realization of the test involved the adoption of assumptions and judgments.
Gains and losses on disposals of property, plant and equipment items are calculated by comparing the proceeds of the disposals with their net book values and recognized in the statement of income at the disposal date.
3.14. Intangible assets: Intangible assets acquired are measured at cost at the time they are initially recognized. The cost of intangible assets acquired in a business combination corresponds to the fair value at the acquisition dat. After initial recognition, intangible assets are presented at cost less accumulated amortization and impairment losses, when applicable. Internally-generatedintangible assets, excluding development costs, are not capitalized but recognized in the statement of income as incurred.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Year ended December 31, 2014 and 2013 (Amounts expressed in thousands of Brazilian Reais, unless otherwise stated) |
The useful life of intangible assets is assessed as finite or indefinite.
Intangible assets with a finite life are amortized over the economic useful life and reviewed for impairment whenever there is an indication that their carrying values may be impaired. The amortization period and method for an intangible asset with a finite useful life are reviewed at least at the end of each fiscal year. The amortization of intangible assets with a finite useful life is recognized in the statement of income as an expense consistently with the use of the intangible asset.
Intangible assets with an indefinite useful life are not amortized, but are tested annually for impairment on an individual basis or at the cash generating unit level. The Company records goodwill and trademarks as intangibles assets with in indefinite useful life.
Goodwill recoverability was tested for fiscal year 2014 and no impairment loss was identified. Such test involved the adoption of assumptions and judgments.
3.15. Income taxes: in Brazil, are comprised of corporate income tax (“IRPJ”) and social contribution tax (“CSLL”), which are calculated monthly on taxable income, at the rate of 15% plus 10% surtax for IRPJ, and of 9% for CSLL, considering the offset of tax loss carryforwards, up to the limit of 30% of annual taxable income.
The income from foreign subsidiaries is subject to taxation pursuant to the local tax rates and legislation.
Deferred taxes are recorded on IRPJ and CSLL tax losses, assets and liabilities and temporary differences between the tax basis and the carrying amount and classified as non-current assets, as required by CVM Deliberation nº 676/11. When the Company’s analysis indicates that the realization of these credits, within 10 years, is not probable, a valuation allowance is recorded.
Deferred tax assets and liabilities are offset if a legally enforceable right exists to set off current tax assets against current tax liabilities and they relate to income taxes levied by the same tax authority on the same taxable entity. In the consolidated financial statements, the Company’s tax assets and liabilities can be offset against the tax assets and liabilities of the subsidiaries if, and only if, these entities have a legally enforceable right to make or receive a single net payment and intend to make or receive this net payment, or recover the assets and settle the liabilities simultaneously. Therefore, for presentation purposes, the balances of tax assets and tax liabilities are being disclosed separately.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Year ended December 31, 2014 and 2013 (Amounts expressed in thousands of Brazilian Reais, unless otherwise stated) |
Deferred tax assets and liabilities must be measured by rates that are expected to be applicable for the period when the assets are realized and liabilities settled.
3.16. Accounts payable and trade accounts payable: are initially recognized at fair value plus any accrued charges, monetary and exchange variations incurred through the balance sheet date.
3.17. Provision for tax, civil and labor risks and contingent liabilities: are established when the Company has a present obligation, formalized or not, as a result of a past event, it is probable that an outflow of resources will be required to settle the obligation and its amount can be reliably estimated.
The Company is part of various lawsuits, including, tax, labor and civil claims. The assessment of the likelihood of an unfavorable outcome in these lawsuits includes the analysis of the available evidence, the hierarchy of the laws, available former court decisions, as well as the most recent court decisions and their importance to the Brazilian legal system, as well as the opinion of external legal counsel. The provisions are reviewed and adjusted to reflect changes in the circumstances, such as the applicable statute of limitation, conclusions of tax inspections or additional exposures identified based on new claims or court decisions.
A contingent liability recognized in a business combination is initially measured at fair value and subsequently measured at the higher of:
· the amount that would be recognized in accordance with the accounting policy for the provisions above that comply with CVM Deliberation Nº 594/09; or
· the amount initially recognized less, if appropriate, cumulative amortization recognized in accordance with CVM Deliberation Nº 692/12.
As a result of the business combinations with Sadia, Avex and Dánica group the Company recognized contingent liabilities related to tax, civil and labor claims.
3.18. Leases: lease transactions in which the risks and rewards of ownership are substantially transferred to the Company are classified as finance leases. When there is no significant transfer of the risks and rewards of ownership, lease transactions are classified as operating leases.
Finance lease agreements are recognized in property, plant and equipment and in liabilities at the lower of the present value of the minimum future payments of the agreement and the fair value of the asset, including, when applicable, theinitial direct costs incurred in the transaction. The amounts recorded in property, plant and equipment are depreciated and the underlying interest is recorded in the statement of income in accordance with the terms of the lease agreement.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Year ended December 31, 2014 and 2013 (Amounts expressed in thousands of Brazilian Reais, unless otherwise stated) |
Operating lease agreements are recognized as expenses throughout the lease terms.
3.19. Share based payments: the Company provides share based payments for its executives, which are settled with Company shares. The Company adopts the provisions of CVM Deliberation Nº 650/10, recognizing as an expense, on a straight-line basis, the fair value of the options granted, over the length of service required by the stock options plan, with a corresponding entry to equity. The accumulated expense recognized reflects the acquired vesting period and the Company's best estimate of the number of shares to be acquired. The expense or income arising from the movement during the year is recognized in the statement of income under other operating expense or income. No expense is recognized for options that have not completed their vesting period.
The dilution effect of outstanding options is reflected as additional dilution in the calculation of diluted earnings per share.
3.20. Pension and other post-employment plans: the Company sponsor 04 supplementary defined benefit and defined contribution plans, as well as other post-employment benefits, for those, annually an appraisal actuarial is prepared by an independent actuary. The costing of defined benefits is established separately for each plan using the projected unit credit method (see note).
The measurements comprise the actuarial gains and losses, the effect of a limit on contributions and yields on plan contributions and are recognized in the balance sheet with a contra entry in other comprehensive income when incurred. These measurements are not reclassified to statement of income in subsequent periods.
The Company recognizes the net defined benefit asset, when:
· controls a resource and has the ability to use the surplus to generate future benefits;
· the control is a result of past events; and
· the future economic benefits are available to the Company in the form of a reduction in future contributions or a cash refund, either directly to the Company or indirectly to another deficitary plan. The asset ceiling is the present value of those future benefits.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Year ended December 31, 2014 and 2013 (Amounts expressed in thousands of Brazilian Reais, unless otherwise stated) |
The past service cost is recognized in the statement of income at the earliest of the following dates:
· when the plan amendment or curtailment occurs, or
· when the Company recognizes related restructuring costs.
The past service cost and net interest on net defined benefit liability or asset are recognized in the statement of income within other operating expense or income.
3.21. Earnings per share: basic earnings per share are calculated by dividing the net profit attributable to the holders of ordinary shares of the Company by the weighted average number of ordinary shares during the year. Diluted earnings per share are calculated by dividing the net profit attributable to the holders of ordinary shares of the Company by the weighted average number of ordinary shares during the year, plus the weighted average number of ordinary shares that would be issued when converting all dilutive potential ordinary shares into ordinary shares.
3.22. Determination of income: results from operations are recorded on an accrual basis.
3.23. Revenue recognition: revenues comprise of the fair value of consideration received or receivable by the sale of products, net of taxes, returns, rebates and discounts.
Revenues are recognized in accordance with the accrual basis of accounting, when the sales value is reliably measurable and when the Company no longer has control over the goods sold, or otherwise related to the property, the costs incurred or to be incurred due to transaction can be reliably measured, it is probable that economic benefits will be received by the Company and the risks and benefits were fully transferred to the purchaser.
3.24. Employee and management profit sharing: employees are entitled to profit sharing based on certain targets agreed upon on an annual basis, whereas managers are entitled to profit sharing based on the provisions of the bylaws, proposed by the Board of Directors and approved by the shareholders. The profit sharing amount is recognized in the statement of income for the period in which the targets are attained.
3.25. Financial income: include interest earnings on amounts invested (including available for sale financial assets), dividend income (except for dividends received from equity investees), gains on disposal of available for sale financial assets, changes in fair value of financial assets measured at fair value throughincome and gains on hedging instruments that are recognized in income. Interest income is recognized in earnings through the effective interest method.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Year ended December 31, 2014 and 2013 (Amounts expressed in thousands of Brazilian Reais, unless otherwise stated) |
3.26. Grants and government assistance: government subsidies are recognized at fair value when there is reasonable assurance that the conditions established are met and related benefits will be received. The amounts are accounted for as follows:
· Subsidies relating to assets: are accounted for in the statement of income in proportion to the depreciation of the asset; and
· Subsidies to investments: the amounts recorded in the statement of income when excluded from the income tax and social contribution calculation basis are reclassified to shareholders’ equity, as a reserve of tax incentives, unless there are accumulated losses.
3.27. Dividends and interest on shareholders’ equity: the proposal for payment of dividends and interest on shareholders’ equity made by the Company’s Management, which is within the portion equivalent to the mandatory minimum dividend, is recorded in current liabilities, as a legal obligation provided for in the bylaws; on the other hand, the dividends that exceed the mandatory minimum dividend, declared by management before the end of the accounting period covered by the consolidated financial statements, not yet approved by the shareholders, is recorded as additional dividend proposed in shareholders’ equity.
For financial statement presentation purposes, interest on shareholders’ equity is stated as an allocation of income directly in shareholders’ equity.
3.28. Transactions and balances in foreign currency: the balances of assets and liabilities of foreign subsidiaries are translated into Brazilian Reais using the exchange rates in effect at the balance sheet date and statement of income accounts are translated based on monthly average rates.
The exchange rates in Brazilian Reais effective at the balance sheet dates were as follows:
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Year ended December 31, 2014 and 2013 (Amounts expressed in thousands of Brazilian Reais, unless otherwise stated) |
Exchange rate at the balance sheet date | 12.31.14 | 12.31.13 | ||
U.S. Dollar (US$ or USD) | 2.6562 | 2.3426 | ||
Euro (€ or EUR) | 3.2270 | 3.2265 | ||
Pound Sterling (£ or GBP) | 4.1405 | 3.8728 | ||
Argentine Peso ($ or ARS) | 0.3172 | 0.3594 | ||
Rial Omã (OMR) | 6.8992 | 6.0847 | ||
Dirhan (AED) | 0.7232 | 0.6379 | ||
Average rates | ||||
U.S. Dollar (US$ or USD) | 2.3536 | 2.1576 | ||
Euro (€ or EUR) | 3.1221 | 2.8677 | ||
Pound Sterling (£ or GBP) | 3.8721 | 3.3779 | ||
Argentine Peso ($ or ARS) | 0.2905 | 0.3947 | ||
Rial Omã (OMR) | 6.1134 | 5.6078 | ||
Dirhan (AED) | 0.6408 | 0.5875 |
3.29. Accounting judgments, estimates and assumptions: as mentioned in note 2, in the process of applying the Company’s accounting policies, management made the following judgments which have a material impact on the amounts recognized in the consolidated financial statements:
· fair value of financial instruments (see note 4);
· impairment of non-financial assets (see note 5 and 19);
· measurement of fair value of items related to business combinations (see note 6);
· allowance for doubtful accounts (see note 9);
· net realizable value provision for inventories (see note 10);
· biological assets (see note 11);
· loss on the reduction of recoverable value of taxes (see note 12 and 14);
· useful lives of property, plant and equipment and intangible (see note 18 and 19);
· share-based payment transactions (see note 24);
· pension and post-employment plans (see note 25); and
· provision for tax, civil and labor risks (see note 26).
The Company reviews the estimates and underlying assumptions used in its accounting estimates on a quarterly basis. Revisions to accounting estimates are recognized in the period in each the estimates are revised.
3.30. Statement of added value: the Company prepared individual and consolidated statements of added value (“DVA”) in accordance with CMV Deliberation Nº 557/08, which are submitted as part of these financial statements in accordance with BR GAAP. It represents for IFRS additional financial information.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Year ended December 31, 2014 and 2013 (Amounts expressed in thousands of Brazilian Reais, unless otherwise stated) |
4. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
4.1. Overview
In the normal course of its business, the Company is exposed to credit, liquidity and market risks, which are actively managed in conformity to the Risk Policy and internal guidelines subject to such policy.
The Risk Policy is under the management of the Financial Risk Management Committee, Board of Executive Officers and Board of Directors, with clear and defined roles and responsibilities, as follows:
· The Board of Directors is responsible for approving the Risk Policy and defining the limits of tolerance of the different risks identified as acceptable for the Company on behalf of its shareholders. The current risk policy was reviewed and approved on November 26, 2014, with maturity of two years, and is automatically renewed once for the same period if no change expressed during the term of the agreement;
· The Financial Risk Management Committee is in charge of the execution of the Risk Policy, which comprises the supervision of the risk management process, planning and verification of the impacts of the decisions implemented, as well as the evaluation and approval of hedging strategies and monitoring the risk exposure levels to ensure compliance with Risk Policy;
· The Board of Executive Officers is in charge of the evaluation of the Company’s exposure for each identified risk, according to the guidelines established by the Board of Directors; and
· The Risk Management area has as a crucial role in monitoring, evaluating and reporting of the financial risks taken by the Company.
The Risk Policy does not authorize the Company’s management to contract leveraged derivative transactions and determines that any individual hedge operations (notional amount) must not exceed 2.5% of the Company’s shareholders’ equity.
a. Credit risk management
The Company is subject to the credit risk related to trade accounts receivable, financial investments and derivative contracts, as follows:
· Credit risk associated with trade accounts receivable is actively managed by dedicated team, though specific systems. Furthermore, it should benoted the diversification of the customer portfolio and the concession of credit to customers with good financial and operational conditions. The Company does not usually require collateral for sales to customer, and has a contracted credit insurance policy for specific markets; and
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Year ended December 31, 2014 and 2013 (Amounts expressed in thousands of Brazilian Reais, unless otherwise stated) |
· Credit risk associated with financial investments and derivative contracts is mitigated by the Company’s policy of working with prime institutions.
On December 31, 2014, the Company had financial investments over R$10,000 at the following financial institutions: Banco BNP, Banco Bradesco, Banco do Brasil, Banco do Nordeste, Banco HSBC, Banco Itaú, Banco Safra, Banco Santander, Caixa Econômica Federal, Standard Chartered and Societe Generale.
The Company also held derivative contracts with the following financial institutions: Banco Bradesco, Banco do Brasil, Banco HSBC, Banco Itaú, Banco Santander, Banco Votorantim, Barclays, Citibank, Deutsche Bank, ING Bank, JP Morgan, Merrill Lynch, Banco BNP and Rabobank.
b. Liquidity risk management
Liquidity risk management aims to reduce the impacts caused by events which may affect the Company’s cash flow. Thus, the Company utilizes the following metrics:
· Cash Flow at Risk (“CFaR”), which aims to statistically estimates the cash flows for the next twelve months and the Company’s liquidity exposure. The Company determined that the minimum cash available should be equivalent mainly to the average monthly billing and EBITDA for the last twelve-month period; and
· Value at Risk ("VaR") is used for derivative transactions that require payments of periodic adjustments. Currently, the Company holds only BM&F operations with daily adjustments and in order to monitor them, such methodology is utilized, which statistically measures potential maximum adjustments to be paid at intervals of 1 to 21-days.
The Company maintains its leverage levels in order to avoid any impact to its ability to settle commitments and obligations. As a guideline, the majority of the debt should be in long term. On December 31, 2014, the long term debt portion accounted for 76.4% (73.5% as of December 31, 2013) of the total outstanding debt with an average term greater than 5 years.
The table below summarizes the commitments and contractual obligations that may impact the Company’s liquidity:
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Year ended December 31, 2014 and 2013 (Amounts expressed in thousands of Brazilian Reais, unless otherwise stated) |
Parent company | |||||||||||||||
12.31.14 | |||||||||||||||
Book | Cash flow contracted | 2015 | 2016 | 2017 | 2018 | 2019 | After | ||||||||
Non derivative financial liabilities | |||||||||||||||
Loans and financing | 4,328,233 | 4,690,501 | 2,731,855 | 342,538 | 535,896 | 586,685 | 174,577 | 318,950 | |||||||
BRF bonds | 5,702,388 | 8,170,684 | 302,876 | 302,876 | 302,876 | 783,501 | 264,126 | 6,214,429 | |||||||
Trade accounts payable | 3,591,980 | 3,591,980 | 3,591,980 | - | - | - | - | - | |||||||
Capital lease(1) | 243,606 | 363,063 | 88,074 | 58,329 | 34,503 | 29,463 | 22,409 | 130,285 | |||||||
Operational lease | - | 784,513 | 169,332 | 150,895 | 127,593 | 110,095 | 93,678 | 132,920 | |||||||
Derivative financial liabilities | |||||||||||||||
Financial instruments designated as cash flow hedge | |||||||||||||||
Interest rate and exchange rate derivatives | 119,388 | 74,724 | 249 | 326 | 45 | 74,104 | - | - | |||||||
Currency derivatives (NDF) | 77,122 | 2,209 | 2,209 | - | - | - | - | - | |||||||
Fixed exchange rate | 3,482 | (13,298) | (13,298) | - | - | - | - | - | |||||||
Currency derivatives (options) | 7,155 | 1,780 | 1,780 | - | - | - | - | - | |||||||
Financial instruments not designated as cash flow hedge | |||||||||||||||
Currency derivatives (Future) | 5,694 | 5,694 | 5,694 | - | - | - | - | - | |||||||
Interest rate and exchange rate derivatives | 3,216 | (2,113) | (1,344) | (290) | (290) | (189) | - | - |
(1) It does not include the capital leases contracted with financial institutions which are included in loans and financing line above.
Consolidated | |||||||||||||||
12.31.14 | |||||||||||||||
Book | Cash flow contracted | 2015 | 2016 | 2017 | 2018 | 2019 | After | ||||||||
Non derivative financial liabilities | |||||||||||||||
Loans and financing | 4,674,151 | 5,063,413 | 2,812,813 | 353,634 | 547,153 | 856,286 | 174,577 | 318,950 | |||||||
BRF bonds | 5,702,388 | 8,170,684 | 302,876 | 302,876 | 302,876 | 783,501 | 264,126 | 6,214,429 | |||||||
BFF bonds | 595,372 | 816,047 | 42,297 | 42,297 | 42,297 | 42,297 | 42,297 | 604,562 | |||||||
Sadia bonds | 427,285 | 497,305 | 29,175 | 29,175 | 438,955 | - | - | - | |||||||
Quickfood bonds | 190,139 | 192,670 | 45,537 | - | 71,939 | 39,248 | 35,946 | - | |||||||
Trade accounts payable | 3,977,327 | 3,977,327 | 3,977,327 | - | - | - | - | - | |||||||
Capital lease(1) | 243,790 | 363,295 | 88,164 | 58,329 | 34,503 | 29,463 | 22,409 | 130,427 | |||||||
Operational lease | - | 788,211 | 169,357 | 152,093 | 128,791 | 111,372 | 93,678 | 132,920 | |||||||
Derivative financial liabilities | |||||||||||||||
Financial instruments designated as cash flow hedge | |||||||||||||||
Interest rate and exchange rate derivatives | 157,975 | 187,257 | 22,778 | 29,700 | 29,582 | 104,571 | 626 | - | |||||||
Currency derivatives (NDF) | 77,122 | (2,209) | (2,209) | - | - | - | - | - | |||||||
Fixed exchange rate | 3,482 | (13,298) | (13,298) | - | - | - | - | - | |||||||
Currency derivatives (options) | 7,155 | 1,780 | 1,780 | - | - | - | - | - | |||||||
Financial instruments not designated as cash flow hedge | |||||||||||||||
Currency derivatives (NDF) | 2,794 | 138 | 138 | - | - | - | - | - | |||||||
Currency derivatives (Future) | 5,694 | 5,694 | 5,694 | - | - | - | - | - | |||||||
Interest rate and exchange rate derivatives | 3,216 | (2,113) | (1,344) | (290) | (290) | (189) | - | - |
(1) It does not include the capital leases contracted with financial institutions which are included in loans and financing line above.
c. Interest rate risk management
Interest rates risk is the one the Company incurs in economic losses resulting from changes in these rates, which could affect its assets and liabilities.
The Company’s Risk Policy does not restrict exposure to different interest rates, neither establishes limits for fixed or floating rates. However, the Company continually monitors the market interest rates, in order to evaluate any need to enter into hedging transaction to protect from the exposure to fluctuation such rates and manage the mismatchbetween its financial investments and debts. In these transactions the Company enters into contracts that exchange floating rate for fixed rate or vice-versa. Such transactions were designated by the Company as cash flow hedge.
77
(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Year ended December 31, 2014 and 2013 (Amounts expressed in thousands of Brazilian Reais, unless otherwise stated) |
The Company’s indebtedness is essentially tied to the London Interbank Offered rate ("LIBOR"), fixed coupon (“R$ and USD”), Long Term Interest Rate ("TJLP") and Monetary Unit of the Bank National Economic and Social Development ("UMBNDES") rates. In case of adverse changes in the market that result in LIBOR hikes, the cost of the floating indebtedness rises and on the other hand, the cost of the fixed indebtedness decreases in relative terms.
With regards to the Company's marketable securities, the main index is the Interbank Deposit Certificate ("CDI") for investments in Brazil and fixed coupon (“USD”) for investments in the International market.
d. Foreign exchange risk management
Foreign exchange risk is the one related to variations of foreign exchange rates that may cause the Company to incur unexpected losses, leading to a reduction of assets or an increase in liabilities.
The Risk Policy is intended to protect the Company's results from these variations, in order to:
· Protect operating revenues and costs that are related to transactions arising from commercial activities, such as estimated exports and purchases of raw materials, utilizing hedging instruments, that is, to protect its future cash flow denominated in foreign currency; and
· Manage assets and liabilities denominated in foreign currencies in order to protecting the balance sheet of the Company, through the use of over-the-counter and futures transactions.
The Company’s consolidated financial statements are mainly impacted by the following currencies: (i) U.S. Dollar (“US$” or “USD”), (ii) Euro (“EUR”), (iii) Pound Sterling (“GBP”) and (iv) Argentine Peso (“ARS”).
Assets and liabilities denominated in foreign currency are as follows:
78
(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Year ended December 31, 2014 and 2013 (Amounts expressed in thousands of Brazilian Reais, unless otherwise stated) |
Consolidated | |||
12.31.14 | 12.31.13 | ||
Total exposure | |||
Cash and cash equivalents and marketable securities | 4,551,213 | 2,651,927 | |
Trade accounts receivable | 1,693,314 | 1,593,473 | |
Accounts receivable from subsidiaries | 1,243 | 146,223 | |
Future dollar agreements | 252,339 | 480,233 | |
Embedded derivative (see note 13.1) | 1,853,379 | - | |
Inventories | 21,128 | 50,808 | |
Exchange rate contracts (Swap) | (4,571) | (20,158) | |
Loans and financing | (7,596,191) | (6,108,727) | |
Bonds designated as cash flow hedge | 796,860 | 702,780 | |
Exports prepayment designated as cash flow hedge | 796,860 | 702,780 | |
Trade accounts payable | (957,201) | (634,214) | |
Other assets and liabilities, net | 97,608 | 231,459 | |
1,505,981 | (203,416) | ||
Foreign exchange exposure (in US$) | 566,968 | (86,833) | |
Foreign exchange exposure impacting the income (in US$) | 550,542 | 28,747 | |
Foreign exchange exposure impacting the shareholders' equity (in US$) | 16,426 | (115,580) | |
Foreign exchange exposure (in US$) | 566,968 | (86,833) | |
The Company's net foreign exchange exposure as of December 31, 2014 corresponds to a liability amounting to US$566,968. Due to the impacts of the functional currency, net foreign exchange exposure is composed of: (i) an asset totaling US$550,542, which variations are recorded in statement of income and (ii) a liability totaling US$16,426, which variation are recognized in comprehensive income. On December 31, 2014, the net foreign exchange exposure is within the limit set by the Company's Risk Policy.
e. Commodity price risk management
In the normal course of its operations, the Company purchases commodities, mainly corn, soymeal and oil and live hog, which are some of the individual components of production cost.
Corn, soymeal and oil prices are subject to volatility resulting from weather conditions, crop yield, transportation and storage costs, government’s agricultural policy, foreign exchange rates and the prices of these commodities on the international market, among others factors. The prices of hog acquired from third parties are subject to market conditions and are influenced by internal availability and levels of demand in the international market, among other aspects.
The Risk Policy establishes limits for hedging the corn and soymeal purchase flow, aiming to reduce the impact resulting from a price increase of these raw materials, andmay utilize derivative instruments or inventory management for this purpose. Currently, the management of inventory levels is used as a hedging instrument.
79
(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Year ended December 31, 2014 and 2013 (Amounts expressed in thousands of Brazilian Reais, unless otherwise stated) |
f. Capital management
The Company’s definition of the adequate capital structure is essentially associated with (i) cash strength as a tolerance factor to liquidity volatility, (ii) financial leverage and (iii) maximization of the opportunity cost of capital.
The cash and liquidity strategy takes into consideration the historical scenarios of volatility of results as well as simulations of sectorial and systemic crises and is based on permitting the resilience in scenarios of restricted access to capital.
Financial leverage aims the balance between the different sources of funding and their conditions of allocation in order to maximize the opportunity cost to BRF in its business expansion initiatives. Moreover, the objective of maintaining the investment grade disciplines the weighting of using own and third party capital.
The Company monitors debt levels and net debt, which are shown below:
Consolidated | |||||||
12.31.14 | 12.31.13 | ||||||
Current | Non-current | Total | Total | ||||
Foreign currency debt | (197,542) | (7,398,649) | (7,596,191) | (6,108,727) | |||
Local currency debt | (2,541,361) | (1,451,783) | (3,993,144) | (4,072,463) | |||
Other financial liabilities | (257,438) | - | (257,438) | (357,182) | |||
Gross debt | (2,996,341) | (8,850,432) | (11,846,773) | (10,538,372) | |||
Marketable securities and cash and cash equivalents | 6,594,422 | 62,104 | 6,656,526 | 3,643,285 | |||
Other financial assets | 43,101 | - | 43,101 | 11,572 | |||
Restricted cash | - | 115,179 | 115,179 | 99,212 | |||
Net debt | 3,641,182 | (8,673,149) | (5,031,967) | (6,784,303) |
4.2. Derivative and non-derivative financial instruments designated as hedge accounting
As permitted by CVM Deliberation Nº 604/09, the Company applies hedge accounting to its derivative instruments classified as cash flow hedge, in accordance with the Risk Policy. The cash flow hedge consists of hedging the exposure to variations of the cash flow which is attributable to a particular risk associated with a recognized asset or liability, or a highly probable transaction that could affect profit and loss.
The Risk Policy has also the purpose of determining parameters of use of financial instruments, including derivatives, which are designed to protect the operating and financial assets and liabilities, which are exposed to the variations of foreign exchangerates, the fluctuation of the interest rates and changes to the commodity prices. The Risk Management area is responsible for ensuring compliance to the requirements established by the Company’s Risk Policy.
80
(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Year ended December 31, 2014 and 2013 (Amounts expressed in thousands of Brazilian Reais, unless otherwise stated) |
The Company formally designated its operations for hedge accounting treatment for the derivative financial instruments to protect cash flows and export revenues by documenting:
· The relationship of the hedge;
· The objective and risk management strategy of the Company to enter into a hedge transaction;
· The identification of the financial instrument;
· The hedge object or transaction;
· The nature of the risk to be hedged;
· The description of the hedge relationship;
· The demonstration of the correlation between the hedge transaction and the hedge object, when applicable; and
· The prospective demonstration of the effectiveness of the hedge.
The transactions for which the Company has designated hedge accounting are highly probable, present an exposure to variation in cash flow that could affect profit and loss and are highly effective in protecting changes in fair value or cash flows attributable to hedged risk, consistent with the risk originally documented in the Risk Policy.
The effectiveness tests are prepared prospectively and retrospectively at each period end.
The prospective test is based on the comparison between the critical terms of derivative and non-derivative financial instruments and the hedged items. The hedged items (e.g. future monthly export sales) and the hedge instruments have the same critical terms, as follows:
· Both fair value change due to the exchange rate variation (spot or forward rate method);
· Their nominal values (notional) are similar; and
81
(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Year ended December 31, 2014 and 2013 (Amounts expressed in thousands of Brazilian Reais, unless otherwise stated) |
· Their maturities are identical and both the hedged item (revenue) and the settlement of the financial instrument will occur at the same period.
The retrospective test is based on the analysis of the coverage ratio. This ratio compares the fair value variation accumulated since the inception of the hedged item (date of hedge designation) with the accumulated variation of the derivative and non-derivative financial instrument since its inception.
The effectiveness of the hedge is determined at the settlement date of the financial instrument, by comparing the cumulative changes of highly probable revenues with the gains or losses arising from the financial instruments.
The Company, within its hedge accounting strategy, utilizes the following financial instruments:
a. Non-deliverable forwards – NDF
Non-deliverable forward contract is the future commitment to purchase or sell certain currencies on a certain date in the future for a predetermined price. This contract does not require physical settlement of contracted positions, but the financial settlement of the difference between the settlement price and the predetermined price of the contract.
b. Interest rate and currency swap
Similar to a non-deliverable forward contract, the swap is the future commitment to buy or sell certain interest rates or currency at a specified date in the future for a predetermined price. The particularity in this type of transaction is the possibility to exchange cash flows on various dates. The Company contracts swaps that do not require the physical settlement of contracted positions, but the financial settlement of the difference between the settlement price and the price established in the contract.
c. Options
A put option gives the holder (option holder) the right to buy an asset at a certain price (strike) at certain future date (the exercise date). A call option gives the holder the right to sell an asset at a certain price at a certain future date. In addition, there is a possibility of buying (premium disbursement, with rights) or selling (premium receiving, with obligations).
d. Fixed exchange rate
Fixed exchange rate is a non-derivative financial instrument contracted from financial institutions that allows the definition of a future rate to internalization of resources arising from foreign activities. Contractually, there is the requirement of submission ofexport invoices to prove the nature of resources which will be internalized trough closing of exchange rate. Such contract has similar characteristics of a non-deliverable forward derivative contract because it determines, at its inception, a future exchange rate. Nevertheless, the contract requires a physical settlement of the contracted positions.
82
(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Year ended December 31, 2014 and 2013 (Amounts expressed in thousands of Brazilian Reais, unless otherwise stated) |
e. Export prepayments – PPEs
The Company utilizes the exchange rates variation of export prepayments contracts (“PPEs”) as a hedge instrument for the highly probable future sales in foreign currency.
f. Senior unsecured notes – Bonds
The Company designates part of the transactions involving Senior Unsecured Notes (Bond BRF2022 and 2023) as hedge accounting.
83
(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Year ended December 31, 2014 and 2013 (Amounts expressed in thousands of Brazilian Reais, unless otherwise stated) |
4.2.1 Breakdown of the balances of derivative financial instruments
The positions of outstanding derivative financial instruments are as follows:
Parent company and Consolidated | ||||||||||||
12.31.14 |
| 12.31.13 | ||||||||||
Instrument | Hedge object | Reference currency (notional) | Reference | Fair value (1) | Reference | Fair value (1) | ||||||
Financial instruments designated as cash flow hedge | ||||||||||||
NDF - Dollar's sale | Currency | USD | 439,655 | (62,699) | 190,000 | (21,349) | ||||||
NDF - Euro's sale | Currency | EUR | 74,042 | 184 | 106,800 | (25,193) | ||||||
NDF - Libra's sale | Currency | GBP | 41,574 | (2,097) | 33,000 | (12,088) | ||||||
NDF - Iene's sale | Currency | JPY | 16,993,208 | (2,761) | - | - | ||||||
Currency swap - US$ | Currency | BRL | 250,000 | (90,328) | 572,990 | (203,924) | ||||||
Interest rate - US$ | Interest | USD | 200,000 | (29,060) | 200,000 | (33,187) | ||||||
Fixed exchange rate - US$ | Currency | USD | 102,470 | (2,848) | 160,000 | (10,429) | ||||||
Fixed exchange rate - Euro | Currency | EUR | 8,000 | 299 | - | - | ||||||
Options (Collar) - US$ | Currency | USD | 164,000 | (3,995) | 120,000 | (287) | ||||||
Total in Parent company | (193,305) | (306,457) | ||||||||||
Interest rate - US$ | Interest | USD | 200,000 | (38,587) | 200,000 | (38,754) | ||||||
Total Consolidated | (231,892) | (345,211) | ||||||||||
Financial instruments not designated as cash flow hedge | ||||||||||||
NDF - Iene's sale | Currency | 1,000,000 | 1,125 | - | - | |||||||
Embedded derivative - Lactalis | Currency | 697,756 | 27,955 | - | - | |||||||
Currency swap - US$ | Currency | USD | 2,798 | (1,750) | 13,992 | (6,104) | ||||||
Interest rate - R$ | Interest | BRL | 590,000 | (1,466) | 317,380 | 590 | ||||||
Options | Live cattle | BRL | - | - | 6,650 | (154) | ||||||
NDF | Live cattle | BRL | - | - | 3,296 | (484) | ||||||
Future - BMF | Live cattle | BRL | - | - | 4,400 | 18 | ||||||
Future - BMF | Currency | USD | 95,000 | (5,694) | 205,000 | 3,247 | ||||||
Total in Parent company | 20,170 | (2,887) | ||||||||||
NDF - Euro | Currency | EUR | 150,000 | 87 | 150,000 | 2,715 | ||||||
NDF - Libra | Currency | GBP | 20,000 | (2,638) | 15,000 | (227) | ||||||
NDF - Peso | Currency | USD | 3,360 | (64) | - | - | ||||||
Total Consolidated | 17,555 | (399) | ||||||||||
Total in Parent company | (173,135) | (309,344) | ||||||||||
Total Consolidated | (214,337) | (345,610) |
(1) The market value determination method used by the Company consists of calculating the future value based on the contracted conditions and determining the present value based on market curves, obtained from the database of Bloomberg and BM&F.
84
(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Year ended December 31, 2014 and 2013 (Amounts expressed in thousands of Brazilian Reais, unless otherwise stated) |
a. Non-deliverable forwards – NDF
The position of the outstanding non-deliverable forward – NDF as of December 31, 2013 and December 31, 2012, by maturity, as well as the weighted average exchange rates and the fair value, are presented as follows:
Parent company and Consolidated | ||||||||||||||||||||||||
12.31.14 | ||||||||||||||||||||||||
| R$ x US$ | R$ x EUR | R$ x GBP | R$ x JPY | ||||||||||||||||||||
Maturities | Notional (US$) | Average rate | Fair value | Notional (EUR) | Average rate | Fair value | Notional (GBP) | Average rate | Fair value | Notional (JPY) | Average rate | Fair value | ||||||||||||
Financial instruments designated as cash flow hedge | ||||||||||||||||||||||||
January 2015 | 104,064 | 2.5538 | (10,982) | 12,000 | 3.1955 | (455) | 4,392 | 4.0142 | (545) | 3,013,280 | 0.0231 | 2,471 | ||||||||||||
February 2015 | 67,800 | 2.5043 | (11,640) | 11,000 | 3.2565 | 54 | 3,891 | 4.0767 | (324) | 4,100,000 | 0.0229 | 1,884 | ||||||||||||
March 2015 | 47,345 | 2.4665 | (10,621) | 11,573 | 3.2743 | (67) | 5,509 | 4.1039 | (441) | 1,000,000 | 0.0219 | (699) | ||||||||||||
April 2015 | 45,020 | 2.4509 | (11,704) | 7,906 | 3.1809 | (970) | 4,270 | 4.0961 | (551) | 1,000,000 | 0.0221 | (712) | ||||||||||||
May 2015 | 46,164 | 2.5392 | (8,883) | 9,736 | 3.2801 | (503) | 4,622 | 4.0088 | (312) | 1,000,000 | 0.0223 | (712) | ||||||||||||
June 2015 | 32,648 | 2.6095 | (4,846) | 10,588 | 3.4497 | 886 | 4,589 | 4.3034 | 37 | 1,000,000 | 0.0225 | (743) | ||||||||||||
July 2015 | 43,532 | 2.6862 | (4,043) | 6,116 | 3.4803 | 522 | 4,934 | 4.3278 | 4 | 1,000,000 | 0.0227 | (758) | ||||||||||||
August 2015 | 27,694 | 2.8184 | 246 | 3,123 | 3.5179 | 265 | 2,622 | 4.3691 | 12 | 1,000,000 | 0.0228 | (784) | ||||||||||||
September 2015 | 7,694 | 2.7831 | (414) | 2,000 | 3.6880 | 452 | 2,564 | 4.4002 | - | 1,000,000 | 0.0230 | (791) | ||||||||||||
October 2015 | 7,694 | 2.8035 | (412) | - | - | - | 2,700 | 4.4360 | 5 | 1,000,000 | 0.0232 | (820) | ||||||||||||
November 2015 | 10,000 | 2.9434 | 600 | - | - | - | 1,481 | 4.4760 | 18 | 1,879,928 | 0.0236 | (1,097) | ||||||||||||
439,655 | 2.5759 | (62,699) | 74,042 | 3.3132 | 184 | 41,574 | 4.1989 | (2,097) | 16,993,208 | 0.0229 | (2,761) | |||||||||||||
| EUR x US$ | GBP x US$ | JPY x R$ | ARS x US$ | ||||||||||||||||||||
Maturities | Notional (EUR) | Average rate | Fair value | Notional (GBP) | Average rate | Fair value | Notional (JPY) | Average rate | Fair value | Notional (ARS) | Average rate | Fair value | ||||||||||||
Financial instruments not designated as cash flow hedge | ||||||||||||||||||||||||
January 2015 | - | - | - | - | - | - | 1,000,000 | 0.0234 | 1,125 | - | - | - | ||||||||||||
March 2015 | 150,000 | 1.2196 | 87 | 20,000 | 1.5535 | (2,638) | - | - | - | 3,360 | 9.1700 | (64) | ||||||||||||
150,000 | 1.2196 | 87 | 20,000 | 1.5535 | (2,638) | 1,000,000 | 0.0234 | 1,125 | 3,360 | 9.1700 | (64) |
85
(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Year ended December 31, 2014 and 2013 (Amounts expressed in thousands of Brazilian Reais, unless otherwise stated) |
b. Interest rate and currency swap
The position of interest rate and currency swap is presented as follows:
|
|
|
|
|
|
| Parent company | Consolidated | ||||||
12.31.14 | ||||||||||||||
Instrument | Maturity | Assets | Liabilities (Protected risk) | Notional | Fair value | Notional | Fair value | |||||||
Financial instruments designated as cash flow hedge | ||||||||||||||
Interest rate | 01.22.18 | LIBOR 6M + 2.82% p.a. | 5.86% p.a. | 100,000 | (15,498) | 100,000 | (15,498) | |||||||
Interest rate | 06.18.18 | LIBOR 3M + 2.60% p.a. | 5.47% p.a. | 100,000 | (13,562) | 100,000 | (13,562) | |||||||
Interest rate | 02.01.19 | LIBOR 6M + 2.70% p.a. | 5.90% p.a. | - | - | 100,000 | (19,399) | |||||||
Interest rate | 02.01.19 | LIBOR 6M + 2.70% p.a. | 5.88% p.a. | - | - | 100,000 | (19,188) | |||||||
(29,060) | (67,647) | |||||||||||||
Currency swap | 05.22.18 | R$ + 7.75% | US$ + 1.60% | 250,000 | (90,328) | 250,000 | (90,328) | |||||||
(119,388) | (157,975) | |||||||||||||
Financial instruments not designated as cash flow hedge | ||||||||||||||
Interest rate - Bond | 05.22.18 | R$ (Fixed rate of 7.75% p.a.) | 68.84% CDI | 50,000 | (166) | 50,000 | (166) | |||||||
Interest rate - NCE | 06.19.15 | R$ (Fixed rate of 8.00% p.a.) | 66.30% CDI | 50,000 | (9) | 50,000 | (9) | |||||||
Interest rate - NCE | 11.19.15 | R$ (Fixed rate of 10.84% p.a.) | 89.84% CDI | 300,000 | (996) | 300,000 | (996) | |||||||
Interest rate - NCE | 06.29.15 | R$ (Fixed rate of 8.00% p.a.) | 67.35% CDI | 90,000 | (48) | 90,000 | (48) | |||||||
Interest rate - NCE | 10.29.15 | R$ (Fixed rate of 10.84% p.a.) | 89.35% CDI | 100,000 | (247) | 100,000 | (247) | |||||||
(1,466) | (1,466) | |||||||||||||
Currency swap | 03.16.15 | R$ (Fixed rate of 8.41% p.a.) | US$ - 0.20% | 2,798 | (1,750) | 2,798 | (1,750) | |||||||
(3,216) | (3,216) |
c. Fixed exchange rate
The position of fixed exchange rate designated as cash flow hedge is presented as follows:
Parent company and Consolidated | ||||||||||||
12.31.14 | ||||||||||||
|
| R$ x US$ | R$ x US$ | |||||||||
Maturities | Notional US$ | Average US$ | Fair value | Notional Eur | Average Eur | Fair value | ||||||
April 2015 | 4,968 | 2.7222 | (35) | - | - | - | ||||||
May 2015 | 4,968 | 2.7387 | (32) | - | - | - | ||||||
June 2015 | 34,968 | 2.6723 | (3,100) | - | - | - | ||||||
July 2015 | 4,968 | 2.7910 | (10) | 5,000 | 3.4126 | 86 | ||||||
August 2015 | 14,968 | 2.8302 | 231 | 3,000 | 3.4977 | 213 | ||||||
September 2015 | 14,968 | 2.8580 | 269 | - | - | - | ||||||
October 2015 | 14,968 | 2.8695 | 135 | - | - | - | ||||||
November 2015 | 7,694 | 2.8411 | (306) | - | - | - | ||||||
102,470 | 2.7754 | (2,848) | 8,000 | 3.4445 | 299 |
d. Options
The Company designates as a cash flow hedge only the variation in the intrinsic value of its options, recognizing the time value of the premium in the financial result. If the hedge is not effective and the option is not exercised due to devaluation of the Brazilian Real, the losses related to the options will be registered as financial expenses in thestatement of income.
86
(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Year ended December 31, 2014 and 2013 (Amounts expressed in thousands of Brazilian Reais, unless otherwise stated) |
The Company has designated transactions involving options denominated collar where there is a purchase of a put option ("PUT") and a sale of a call option ("CALL").
When the market price of any of the options is not available in an active market, the fair value is based on an option pricing model (Black-Scholes or Binomial).
Parent company and Consolidated | ||||||||
12.31.14 | ||||||||
R$ x US$ | ||||||||
Type | Maturities | Notional (US$) | Average US$ | Fair value | ||||
Financial instruments designated as cash flow hedge | ||||||||
Put (Purchase) | From 10.2014 to 12.2014 | 164,000 | 2.5362 | 3,160 | ||||
Call (Sale) | From 10.2014 to 12.2014 | (164,000) | 2.7748 | (7,155) | ||||
Total Opção (Collar) | (3,995) |
4.2.2 Breakdown of the balances of non-derivative financial instruments
The position of non-derivative financial instruments is presented as follows:
Parent company and Consolidated | ||||||||||||
|
|
|
|
|
| 12.31.14 |
| 12.31.13 | ||||
Instrument | Hedge object | Reference currency (notional) | Value (notional) | Fair value | Value (notional) | Fair value | ||||||
Financial instruments designated as cash flow hedge | ||||||||||||
Export prepayment - PPEs | Exchange | USD | 300,000 | 796,860 | 300,000 | 702,780 | ||||||
Senior unsecured notes - Bonds | Exchange | USD | 300,000 | 796,860 | 300,000 | 702,780 | ||||||
600,000 | 1,593,720 | 600,000 | 1,405,560 |
(1) Notional converted by the exchange rate in effect at year-end.
a. Export prepayments – PPEs
The position of PPEs is presented as follows:
Parent company and Consolidated | ||||||||||
12.31.14 | ||||||||||
Hedge Instrument | Type of risk hedged | Maturities | Notional | Average rate | Fair value | |||||
Export prepayment - PPE | US$ (E.R.) | 02.2017 to 02.2019 | 300,000 | 1.7796 | 796,860 |
b. Senior unsecured notes – Bonds
The position of bonds designated as cash flow hedge is presented as follows:
87
(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Year ended December 31, 2014 and 2013 (Amounts expressed in thousands of Brazilian Reais, unless otherwise stated) |
Parent company and Consolidated | ||||||||||
12.31.14 | ||||||||||
Hedge Instrument | Type of risk hedged | Maturities | Notional | Average rate | Fair value | |||||
BRF SA BRFSBZ5 | US$ (E.R.) | 06.2022 | 150,000 | 2.0213 | 398,430 | |||||
BRF SA BRFSBZ3 | US$ (E.R.) | 05.2023 | 150,000 | 2.0387 | 398,430 | |||||
300,000 | 2.0300 | 796,860 |
4.3. Gains and losses of derivative and non-derivative financial instruments
The unrealized gains and losses of derivative and non-derivative financial instruments designated as cash flow hedge are recorded as a component of other comprehensive income, as set forth below:
Shareholders' Equity | |||||||
Parent company | Consolidated | ||||||
12.31.14 | 12.31.13 | 12.31.14 | 12.31.13 | ||||
Financial instruments designated as cash flow hedge | |||||||
Foreign exchange risks | (152,670) | (172,402) | (152,670) | (172,402) | |||
Interest risks | (26,072) | (30,525) | (59,300) | (64,911) | |||
(178,742) | (202,927) | (211,970) | (237,313) | ||||
Financial instruments not designated as cash flow hedge | |||||||
Foreign exchange risks | (450,840) | (262,680) | (450,840) | (262,680) | |||
Gross losses | (629,582) | (465,607) | (662,810) | (499,993) | |||
Deferred taxes on losses | 214,058 | 158,306 | 214,058 | 158,306 | |||
OCI recognized by subsidiaries | (33,228) | (34,386) | - | - | |||
Losses, net of taxes | (448,752) | (341,687) | (448,752) | (341,687) | |||
Rolforward | (163,975) | (277,268) | (162,817) | (260,066) | |||
Income taxes | 55,752 | 94,271 | 55,752 | 94,271 | |||
OCI recognized by subsidiaries | 1,158 | 17,202 | - | - | |||
Net gains (losses) recognized in other comprehensive income | (107,065) | (165,795) | (107,065) | (165,795) |
On December 31, 2014, the realized transaction with derivative and non-derivative financial instruments designated as cash flow hedge resulted in a loss of R$77,100 (loss of R$133,671 as of December 31, 2013), composed by a net loss amounting to R$72,347 (loss of R$132,565 as of December 31, 2013) recorded as gross revenues and a net gain of R$4,753 (loss of R$1,106 as of December 31, 2013) recorded in the financial result.
88
(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Year ended December 31, 2014 and 2013 (Amounts expressed in thousands of Brazilian Reais, unless otherwise stated) |
4.4. Breakdown of financial instruments by category – except derivatives
Parent company | |||||||||||
12.31.14 | |||||||||||
Loans and receivables | Available for sale | Trading securities | Held to maturity | Financial liabilities | Total | ||||||
Assets | |||||||||||
Amortized cost | |||||||||||
Marketable securities | - | - | - | 62,104 | - | 62,104 | |||||
Restricted cash | - | - | - | 115,179 | - | 115,179 | |||||
Trade accounts receivable | 4,669,679 | - | - | - | - | 4,669,679 | |||||
Other credits | 506,844 | - | - | - | - | 506,844 | |||||
Other receivables | 195,481 | - | - | - | - | 195,481 | |||||
Fair value | |||||||||||
Marketable securities | - | - | 283,623 | - | - | 283,623 | |||||
Liabilities | |||||||||||
Amortized cost | |||||||||||
Trade accounts payable | - | - | - | - | (3,591,980) | (3,591,980) | |||||
Loans and financing | |||||||||||
Local currency | - | - | - | - | (3,454,444) | (3,454,444) | |||||
Foreign currency | - | - | - | - | (6,037,477) | (6,037,477) | |||||
Capital lease payable | - | - | - | - | (243,606) | (243,606) | |||||
Fair value | |||||||||||
Loans and financing - NCE | - | - | - | - | (538,700) | (538,700) | |||||
5,372,004 | - | 283,623 | 177,283 | (13,866,207) | (8,033,297) | ||||||
Parent company | |||||||||||
12.31.13 | |||||||||||
Loans and receivables | Available for sale | Trading securities | Held to maturity | Financial liabilities | Total | ||||||
Assets | |||||||||||
Amortized cost | |||||||||||
Marketable securities | - | - | - | 56,002 | - | 56,002 | |||||
Restricted cash | - | - | - | 99,212 | - | 99,212 | |||||
Trade accounts receivable | 3,993,114 | - | - | - | - | 3,993,114 | |||||
Other credits | 389,812 | - | - | - | - | 389,812 | |||||
Other receivables | 284,707 | - | - | - | - | 284,707 | |||||
Fair value | |||||||||||
Marketable securities | - | 623 | 178,097 | - | - | 178,720 | |||||
Liabilities | |||||||||||
Amortized cost | |||||||||||
Trade accounts payable | - | - | - | - | (3,378,029) | (3,378,029) | |||||
Loans and financing | |||||||||||
Local currency | - | - | - | - | (4,072,463) | (4,072,463) | |||||
Foreign currency | - | - | - | - | (3,602,838) | (3,602,838) | |||||
Capital lease payable | - | - | - | - | (187,856) | (187,856) | |||||
4,667,633 | 623 | 178,097 | 155,214 | (11,241,186) | (6,239,619) |
89
(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Year ended December 31, 2014 and 2013 (Amounts expressed in thousands of Brazilian Reais, unless otherwise stated) |
Consolidated | |||||||||||
12.31.14 | |||||||||||
Loans and receivables | Available for sale | Trading securities | Held to maturity | Financial liabilities | Total | ||||||
Assets | |||||||||||
Amortized cost | |||||||||||
Marketable securities | - | - | - | 62,104 | - | 62,104 | |||||
Restricted cash | - | - | - | 115,179 | - | 115,179 | |||||
Trade accounts receivable | 3,054,577 | - | - | - | - | 3,054,577 | |||||
Other credits | 576,740 | - | - | - | - | 576,740 | |||||
Other receivables | 195,481 | - | - | - | - | 195,481 | |||||
Fair value | |||||||||||
Marketable securities | - | 303,857 | 283,623 | - | - | 587,480 | |||||
Liabilities | |||||||||||
Amortized cost | |||||||||||
Trade accounts payable | - | - | - | - | (3,977,327) | (3,977,327) | |||||
Loans and financing | |||||||||||
Local currency | - | - | - | - | (3,454,444) | (3,454,444) | |||||
Foreign currency | - | - | - | - | (7,596,191) | (7,596,191) | |||||
Capital lease payable | - | - | - | - | (243,790) | (243,790) | |||||
Fair value | |||||||||||
Loans and financing - NCE | - | - | - | - | (538,700) | (538,700) | |||||
3,826,798 | 303,857 | 283,623 | 177,283 | (15,810,452) | (11,218,891) | ||||||
Consolidated | |||||||||||
12.31.13 | |||||||||||
Loans and receivables | Available for sale | Trading securities | Held to maturity | Financial liabilities | Total | ||||||
Assets | |||||||||||
Amortized cost | |||||||||||
Marketable securities | - | - | - | 56,002 | - | 56,002 | |||||
Restricted cash | - | - | - | 99,212 | - | 99,212 | |||||
Trade accounts receivable | 3,346,166 | - | - | - | - | 3,346,166 | |||||
Other credits | 502,682 | - | - | - | - | 502,682 | |||||
Other receivables | 284,707 | - | - | - | - | 284,707 | |||||
Fair value | |||||||||||
Marketable securities | - | 280,373 | 179,195 | - | - | 459,568 | |||||
Liabilities | |||||||||||
Amortized cost | |||||||||||
Trade accounts payable | - | - | - | - | (3,674,705) | (3,674,705) | |||||
Loans and financing | |||||||||||
Local currency | - | - | - | - | (4,072,463) | (4,072,463) | |||||
Foreign currency | - | - | - | - | (6,108,727) | (6,108,727) | |||||
Capital lease payable | - | - | - | - | (188,839) | (188,839) | |||||
4,133,555 | 280,373 | 179,195 | 155,214 | (14,044,734) | (9,296,397) |
4.5. Determination of the fair value of financial instruments
The Company discloses its financial assets and liabilities at fair value, based on the appropriate accounting pronouncements, which refers to concepts of valuation and disclosure requirements.
Particularly related to the disclosure, the Company applies the hierarchy requirements set out in CVM Deliberation 699/12, which involves the following aspects:
· The fair value is the price that an asset could be exchanged and a liability could be settled, between knowledgeable willing parties in an arm’s length transaction; and
90
(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Year ended December 31, 2014 and 2013 (Amounts expressed in thousands of Brazilian Reais, unless otherwise stated) |
· Hierarchy on three levels for measurement of the fair value, according to observable inputs for the valuation of an asset or liability on the date of its measurement.
The valuation established on three levels of hierarchy for measurement of the fair value is based on observable and non-observable inputs. Observable inputs reflect market data obtained from independent sources, while non-observable inputs reflect the Company’s valuation technics. These two types of inputs create the hierarchy of fair value set forth below:
· Level 1 – Prices quoted (unadjusted) for identical instruments in active markets;
· Level 2 – Prices quoted in active markets for similar instruments, prices quoted for identical or similar instruments in non-active markets and evaluation models for which inputs are observable; and
· Level 3 – Instruments whose significant inputs are non-observable.
The table below presents the overall classification of financial assets and liabilities according to the valuation hierarchy. The fair value of financial instruments presented below was based in prices observed in active markets, level 1 of the hierarchy for fair value measurement.
Parent company | |||||||
12.31.14 | |||||||
Level 1 | Level 2 | Level 3 | Total | ||||
Assets | |||||||
Financial assets | |||||||
Held for trading | |||||||
Bank deposit certificates | - | 64,820 | - | 64,820 | |||
Financial treasury bills | 218,803 | - | - | 218,803 | |||
Other financial assets | |||||||
Financial instruments derivatives designed as cash flow hedge | - | 13,842 | - | 13,842 | |||
Financial instruments derivatives not designated as cash flow hedge | - | 29,080 | - | 29,080 | |||
218,803 | 107,742 | - | 326,545 | ||||
Liabilities | |||||||
Financial liabilities | |||||||
Loans and financing | - | (538,700) | - | (538,700) | |||
Other financial liabilities | |||||||
Financial instruments derivatives designed as cash flow hedge | - | (207,147) | - | (207,147) | |||
Financial instruments derivatives not designated as cash flow hedge | - | (8,910) | - | (8,910) | |||
- | (754,757) | - | (754,757) |
91
(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Year ended December 31, 2014 and 2013 (Amounts expressed in thousands of Brazilian Reais, unless otherwise stated) |
Parent company | |||||||
12.31.13 | |||||||
Level 1 | Level 2 | Level 3 | Total | ||||
Assets | |||||||
Financial assets | |||||||
Available for sale | |||||||
Stocks | 623 | - | - | 623 | |||
Held for trading | |||||||
Bank deposit certificates | - | 113,253 | - | 113,253 | |||
Financial treasury bills | 64,844 | - | - | 64,844 | |||
Other financial assets | |||||||
Financial instruments derivatives designed as cash flow hedge | - | 5,592 | - | 5,592 | |||
Financial instruments derivatives not designated as cash flow hedge | - | 3,265 | - | 3,265 | |||
65,467 | 122,110 | - | 187,577 | ||||
Liabilities | |||||||
Financial liabilities | |||||||
Other financial liabilities | |||||||
Financial instruments derivatives designed as cash flow hedge | - | (311,459) | - | (311,459) | |||
Financial instruments derivatives not designated as cash flow hedge | - | (6,742) | - | (6,742) | |||
- | (318,201) | - | (318,201) |
Consolidated | |||||||
12.31.14 | |||||||
Level 1 | Level 2 | Level 3 | Total | ||||
Assets | |||||||
Financial assets | |||||||
Available for sale | |||||||
Credit linked notes | 187,867 | - | - | 187,867 | |||
Brazilian foreign debt securities | 92,356 | - | - | 92,356 | |||
Investment funds | 23,634 | - | - | 23,634 | |||
Held for trading | |||||||
Bank deposit certificates | - | 64,820 | - | 64,820 | |||
Financial treasury bills | 218,803 | - | - | 218,803 | |||
Other financial assets | |||||||
Financial instruments derivatives designed as cash flow hedge | - | 13,842 | - | 13,842 | |||
Financial instruments derivatives not designated as cash flow hedge | - | 29,259 | - | 29,259 | |||
522,660 | 107,921 | - | 630,581 | ||||
Liabilities | |||||||
Financial liabilities | |||||||
Loans and financing | - | (538,700) | - | (538,700) | |||
Other financial liabilities | |||||||
Financial instruments derivatives designed as cash flow hedge | - | (245,734) | - | (245,734) | |||
Financial instruments derivatives not designated as cash flow hedge | - | (11,704) | - | (11,704) | |||
- | (796,138) | - | (796,138) |
92
(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Year ended December 31, 2014 and 2013 (Amounts expressed in thousands of Brazilian Reais, unless otherwise stated) |
Consolidated | |||||||
12.31.13 | |||||||
Level 1 | Level 2 | Level 3 | Total | ||||
Assets | |||||||
Financial assets | |||||||
Available for sale | |||||||
Credit linked notes | 173,969 | - | - | 173,969 | |||
Brazilian foreign debt securities | 105,322 | - | - | 105,322 | |||
Investment funds | 459 | - | - | 459 | |||
Stocks | 623 | - | - | 623 | |||
Held for trading | |||||||
Bank deposit certificates | - | 114,351 | - | 114,351 | |||
Financial treasury bills | 64,844 | - | - | 64,844 | |||
Other financial assets | |||||||
Financial instruments derivatives designed as cash flow hedge | - | 5,592 | - | 5,592 | |||
Financial instruments derivatives not designated as cash flow hedge | - | 5,980 | - | 5,980 | |||
345,217 | 125,923 | - | 471,140 | ||||
Liabilities | |||||||
Financial liabilities | |||||||
Other financial liabilities | |||||||
Financial instruments derivatives designed as cash flow hedge | - | (350,213) | - | (350,213) | |||
Financial instruments derivatives not designated as cash flow hedge | - | (6,969) | - | (6,969) | |||
- | (357,182) | - | (357,182) |
The following is a description of the valuation methodologies utilized by the Company for financial instruments measured at fair value:
· Investments in Brazilian foreign debt securities, Financial Treasury Notes (“LFT”), financial investment funds and stocks are classified at Level 1 of the fair value hierarchy, as the market prices are available in an active market;
· Investments in Bank Deposit Certificates (“CDB”) are classified at Level 2, since the determination of fair value is based on the price quotation of similar financial instruments in non-active markets; and
· Derivative financial instruments are valued through existing pricing models widely accepted by financial market and described in appendix III of the Risk Policy. Readily observable market inputs are used, such as interest rate forecasts, volatility factors and foreign currency rates. These instruments are classified at Level 2 in the valuation hierarchy, including interest rates swap and foreign currency derivatives.
4.6. Comparison between book value and fair value of financial instruments
Except for the items presented below, the book value of all other financial instruments approximate fair value. The fair value of financial instruments presented below was based in prices observed in active markets, level 1 of the hierarchy for fair value measurement.
93
(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Year ended December 31, 2014 and 2013 (Amounts expressed in thousands of Brazilian Reais, unless otherwise stated) |
Parent company and Consolidated | |||||||||
|
| 12.31.14 | 12.31.13 | ||||||
Maturity | Book | Fair | Book | Fair | |||||
BRF bonds | |||||||||
BRF SA BRFSBZ5 | 2022 | (1,995,163) | (2,101,511) | (1,757,590) | (1,754,392) | ||||
BRF SA BRFSBZ4 | 2024 | (1,961,020) | (1,953,912) | - | - | ||||
BRF SA BRFSBZ3 | 2023 | (1,245,013) | (1,241,545) | (1,076,223) | (915,169) | ||||
BRF SA BRFSBZ7 | 2018 | (501,192) | (439,461) | (500,323) | (416,898) | ||||
Parent company | (5,702,388) | (5,736,429) | (3,334,136) | (3,086,459) | |||||
BFF bonds | |||||||||
Sadia Overseas BRFSBZ7 | 2020 | (595,372) | (679,571) | (1,501,982) | (1,654,926) | ||||
Sadia bonds | |||||||||
Sadia Overseas BRFSBZ6 | 2017 | (427,285) | (457,477) | (520,609) | (574,900) | ||||
Quickfood bonds | |||||||||
Quickfood | 2016 | (190,139) | (190,139) | (54,586) | (54,586) | ||||
Consolidated | (6,915,184) | (7,063,616) | (5,411,313) | (5,370,871) |
4.7. Table of sensitivity analysis
The Company has financing, loans and receivables denominated in foreign currency and in order to mitigate the risks resulting from exchange rate exposure, it contracts derivative financial instruments.
The Company understands that the current interest rate fluctuations do not affect significantly its financial results, since it opted to fix the exchange rate of a considerable portion of its floating interest rates debts by using derivative transactions (interest rates swaps). The Company designates such derivatives as cash flow hedge and, therefore, their effectiveness is monitored through prospective and retrospective tests.
In the table presented below, five scenarios are considered for the next twelve-month period, considering the percentage variations of the quote of the parity between the Brazilian Reais and U.S. Dollar, Brazilian Reais and Euro, Brazilian Reais and Pounds Sterling and Brazilian Reais and Iene whereas the most likely scenario is that one adopted by the Company. The total of export sales analyzed corresponds to the total of derivative financial instruments increased by the amortization flow of PPEs designated as cash flow hedge.
94
(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Year ended December 31, 2014 and 2013 (Amounts expressed in thousands of Brazilian Reais, unless otherwise stated) |
2.6562 | 2.3906 | 1.9922 | 3.3203 | 3.9843 | ||||||||
Parity - Brazilian Reais x U.S. Dollar | Current | Scenario I | Scenario II | Scenario III | Scenario IV | |||||||
Transaction/Instrument | Risk | Scenario | 10% appreciation | 25% appreciation | 25% devaluation | 50% devaluation | ||||||
Financial instruments designated as cash flow hedge | ||||||||||||
Non-deliverable forward and Deliverable forward (cash flow hedge) | Devaluation of R$ | (35,322) | 81,458 | 256,629 | (327,276) | (619,229) | ||||||
Deliverable forwards | Devaluation of R$ | 12,212 | 39,430 | 80,257 | (55,833) | (123,878) | ||||||
Options - currencies | Devaluation of R$ | - | 23,969 | 93,296 | 89,450 | 198,354 | ||||||
Export prepayments | Devaluation of R$ | (262,980) | (183,294) | (63,765) | (462,195) | (661,410) | ||||||
Bonds | Devaluation of R$ | (187,860) | (108,174) | 11,355 | (387,075) | �� | (586,290) | |||||
Swaps | Devaluation of R$ | (77,457) | (44,711) | 4,407 | (159,321) | (241,185) | ||||||
Exports | Appreciation of R$ | 23,110 | (144,857) | (430,182) | 293,659 | 544,753 | ||||||
Financial instruments not designated as cash flow hedge | ||||||||||||
Embedded derivative | Appreciation of R$ | (53,421) | (238,759) | (516,765) | 409,924 | 873,268 | ||||||
Dollar Future sales - BM&F Bovespa | Devaluation of R$ | 5,082 | 30,316 | 68,167 | (58,003) | (121,088) | ||||||
Net effect | (576,636) | (544,622) | (496,601) | (656,670) | (736,705) | |||||||
Shareholders' equity | (528,297) | (336,179) | (48,003) | (1,008,591) | (1,488,885) | |||||||
Statement of income | (48,339) | (208,443) | (448,598) | 351,921 | 752,180 | |||||||
3.2270 | 2.9043 | 2.4203 | 4.0338 | 4.8405 | ||||||||
Parity - Brazilian Reais x Euro | Current | Scenario I | Scenario II | Scenario III | Scenario IV | |||||||
Transaction/Instrument | Risk | Scenario | 10% appreciation | 25% appreciation | 25% devaluation | 50% devaluation | ||||||
Financial instruments designated as cash flow hedge | ||||||||||||
Non-deliverable forward and Deliverable forward (cash flow hedge) | Devaluation of R$ | 6,384 | 30,278 | 66,118 | (53,349) | (113,082) | ||||||
Deliverable forwards | Devaluation of R$ | 1,740 | 4,322 | 8,194 | (4,714) | (11,168) | ||||||
Exports | Appreciation of R$ | (8,124) | (34,600) | (74,312) | 58,063 | 124,250 | ||||||
Financial instruments not designated as cash flow hedge | ||||||||||||
NDF and Deliverable forward (cash flow hedge) | Devaluation of R$ | 1,853 | 50,258 | 122,866 | (119,160) | (240,174) | ||||||
Net effect | 1,853 | 50,258 | 122,866 | (119,160) | (240,174) | |||||||
Shareholders' equity | - | - | - | - | - | |||||||
Statement of income | 1,853 | 50,258 | 122,866 | (119,160) | (240,174) | |||||||
4.1405 | 3.7265 | 3.1054 | 5.1756 | 6.2108 | ||||||||
Parity - Brazilian Reais x GBP | Current | Scenario I | Scenario II | Scenario III | Scenario IV | |||||||
Transaction/Instrument | Risk | Scenario | 10% appreciation | 25% appreciation | 25% devaluation | 50% devaluation | ||||||
NDF and Deliverable forward (cash flow hedge) | Devaluation of R$ | 2,428 | 19,642 | 45,463 | (40,606) | (83,640) | ||||||
Exports | Appreciation of R$ | (2,428) | (19,642) | (45,463) | 40,606 | 83,640 | ||||||
Financial instruments not designated as cash flow hedge | ||||||||||||
NDF and Deliverable forward (cash flow hedge) | Devaluation of R$ | (282) | 7,999 | 20,421 | (20,984) | (41,686) | ||||||
Net effect | (282) | 7,999 | 20,421 | (20,984) | (41,686) | |||||||
Shareholders' equity | - | - | - | - | - | |||||||
Statement of income | (282) | 7,999 | 20,421 | (20,984) | (41,686) | |||||||
0.0222 | 0.0200 | 0.0167 | 0.0278 | 0.0333 | ||||||||
Parity - Brazilian Reais x JPY | Current | Scenario I | Scenario II | Scenario III | Scenario IV | |||||||
Transaction/Instrument | Risk | Scenario | 10% appreciation | 25% appreciation | 25% devaluation | 50% devaluation | ||||||
NDF and Deliverable forward (cash flow hedge) | Devaluation of R$ | 10,872 | 48,648 | 105,312 | (83,567) | (178,007) | ||||||
Exports | Appreciation of R$ | (10,872) | (48,648) | (105,312) | 83,567 | 178,007 | ||||||
Financial instruments not designated as cash flow hedge | ||||||||||||
NDF and Deliverable forward (cash flow hedge) | Devaluation of R$ | 1,173 | 3,396 | 6,731 | (4,385) | (9,942) | ||||||
Net effect | 1,173 | 3,396 | 6,731 | (4,385) | (9,942) | |||||||
Shareholders' equity | - | - | - | - | - | |||||||
Statement of income | 1,173 | 3,396 | 6,731 | (4,385) | (9,942) |
95
(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Year ended December 31, 2014 and 2013 (Amounts expressed in thousands of Brazilian Reais, unless otherwise stated) |
5. SEGMENT INFORMATION
The operating segments are reported consistently with the management reports provided to the Board of Directors and Directors for assessing the performance of each segment and allocating resources.
As disclosed in note 1, the operating segment of dairy was discontinued by the Company and the segment information of 2014 and 2013 was prepared based on the 3 remaining operating segments, as follows: Domestic Market (Brazil), Foreign Market (International) and Food Service, which primarily observe division by sales channel.
· Domestic Market (Brazil): includes the Company´s sales executed in Brazil, except those relating to products in the food service channel.
· Foreign Market (International): includes the Company´s sales for exports and those generated outside Brazil, except those relating to products in the food service channel.
· Food Service: includes the Company's sales of all products in its portfolio, generated in Brazil and International market, to the customers for food service category that includes: bars, restaurants, industrial kitchens, among others.
Hence, these segments are disclosed according to the nature of the products as described below:
· Poultry: involves the production and sale of whole poultry and in-natura cuts.
· Pork and beef cuts: involves the production and sale of in-natura cuts.
· Processed products: involves the production and sale of processed foods, frozen and processed products derived from poultry, pork and beef.
· Other processed products: involves the production and sale of processed foods like margarine and vegetable and soybean-based products.
· Other sales: involves the production and trade of animal feed, soy meal and refined soy flour.
96
(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Year ended December 31, 2014 and 2013 (Amounts expressed in thousands of Brazilian Reais, unless otherwise stated) |
The net sales for each reportable operating segment are presented below:
Consolidated | ||||
12.31.14 | 12.31.13 | |||
Domestic market (Brazil) | ||||
Poultry | 1,825,631 | 1,492,300 | ||
Pork and beef | 827,067 | 946,713 | ||
Processed products | 7,474,478 | 6,764,757 | ||
Other processed products | 2,886,806 | 2,904,982 | ||
Other sales | 920,722 | 940,838 | ||
13,934,704 | 13,049,590 | |||
Foreign market (International) | ||||
Poultry | 8,338,599 | 8,261,663 | ||
Pork and beef | 1,850,915 | 1,897,288 | ||
Processed products | 2,643,208 | 2,626,658 | ||
Other processed products | 441,512 | 289,887 | ||
Other sales | 50,584 | 56,112 | ||
13,324,818 | 13,131,608 | |||
Food service | ||||
Poultry | 431,494 | 378,222 | ||
Pork and beef | 211,496 | 224,982 | ||
Processed products | 972,655 | 855,786 | ||
Other processed products | 109,552 | 147,289 | ||
Other sales | 22,124 | - | ||
1,747,321 | 1,606,279 | |||
29,006,843 | 27,787,477 |
The operating income for each reportable operating segment is presented below:
Consolidated | ||||
12.31.14 | 12.31.13 | |||
Domestic market (Brazil) | 1,841,572 | 1,320,275 | ||
Foreign market (International) | 1,433,255 | 398,925 | ||
Food service | 203,492 | 177,113 | ||
3,478,319 | 1,896,313 |
No customer was individually or in aggregate responsible for more than 5% of net sales for the year ended December 31, 2014 and 2013.
Net export sales were originated in the segments of the International market and food service, as set for below:
97
(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Year ended December 31, 2014 and 2013 (Amounts expressed in thousands of Brazilian Reais, unless otherwise stated) |
Consolidated | ||||
12.31.14 | 12.31.13 | |||
Foreign market (International) | 13,324,818 | 13,131,608 | ||
Food service | 258,253 | 230,944 | ||
13,583,071 | 13,362,552 |
Net export sales by region are presented below:
Consolidated | ||||
12.31.14 | 12.31.13 | |||
Middle East / Africa | 5,709,821 | 5,315,353 | ||
Europe / Eurasia | 3,092,636 | 3,010,283 | ||
Far East | 3,072,944 | 2,723,911 | ||
Americas | 1,707,670 | 2,313,005 | ||
13,583,071 | 13,362,552 |
The goodwill and intangible assets with indefinite useful life (trademarks) arising from business combination were allocated to the reportable operating segments, considering the nature of the products manufactured in each segment (cash-generating unit), as presented below:
Consolidated | |||||||||||
Goodwill | Trademarks | Total | |||||||||
12.31.14 | 12.31.13 | 12.31.14 | 12.31.13 | 12.31.14 | 12.31.13 | ||||||
Domestic market (Brazil) | 1,069,958 | 1,069,958 | 982,478 | 982,478 | 2,052,436 | 2,052,436 | |||||
Foreign market (International) | 1,373,846 | 1,278,855 | 285,410 | 319,827 | 1,659,256 | 1,598,682 | |||||
Dairy products | - | 671,398 | - | - | - | 671,398 | |||||
Food service | 81,539 | 81,539 | - | - | 81,539 | 81,539 | |||||
2,525,343 | 3,101,750 | 1,267,888 | 1,302,305 | 3,793,231 | 4,404,055 |
The Company performed the impairment test of the assets allocated to the reportable segments, as disclosed in note 19.
Information referring to the total assets by reportable segments is not being disclosed, as it is not included in the set of information made available to the Company’s Management, which take investment decisions and determine allocation of assets on a consolidated basis.
98
(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Year ended December 31, 2014 and 2013 (Amounts expressed in thousands of Brazilian Reais, unless otherwise stated) |
6. BUSINESS COMBINATION AND ACQUSITION OF ENTITIES INTEREST
6.1. Business combination
6.1.1. Step acquisition – Federal Foods LLC (“FF”)
On January 16, 2013, BRF acquired 49% equity interest of FF, becoming the holder of 60% of economic rights of such company, with no control, pursuant to the terms of shareholders agreement entered into with Al Nowais Investments Company LLC ("ANI"), former parent company of FF.
On April 09, 2014, the Company concluded the acquisition of the remaining economic rights for a consideration of R$61,488, becoming the controlling shareholder of FF. Such transaction, in compliance with CVM Deliberation No. 665/11, which approved the technical pronouncement CPC 15 (R1), in their paragraphs 41 and 42, was accounted for as step acquisition. Thus, the carrying amount of the investment prior to this acquisition was measured at fair value for R$90,226, generating a gain of R$24,963 recorded as other operating results.
The fair value of assets acquired and liabilities assumed in determining the purchase price allocation, as follows:
Fair value recognized on acquisition date | |
Cash and cash equivalents | 10,926 |
Trade accounts receivable, net | 109,904 |
Inventories | 131,498 |
Property, plan and equipament | 2,386 |
Relationship with costumers | 29,349 |
Other assets | 15,722 |
299,785 | |
Loans and financing | 75,275 |
Trade accounts receivable | 78,689 |
Payroll and related charges | 3,028 |
Deferred taxes | 7,337 |
Other liabilities | 27,806 |
192,135 | |
Net assets acquired | 107,650 |
Fair value of consideration paid | 151,714 |
Goodwill from acquisition | 44,064 |
99
(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Year ended December 31, 2014 and 2013 (Amounts expressed in thousands of Brazilian Reais, unless otherwise stated) |
The fair value of consideration paid was determined as follows:
Cash - consideration paid for acquisition of controlling | 61,488 |
Carrying amount of former equity interest | 65,263 |
Gain generated by the remeasurement of the former equity interest at fair value | 24,963 |
Fair value of consideration paid at the acquisition date | 151,714 |
FF contributed with a net profit of R$21,238 from the acquisition date to 31.12.14 in the consolidated net profit. If the acquisition had occurred at the beginning of year 2014, the consolidated net revenues for this year would be increased by R$173,782 and the consolidated net profit of year would be increased by R$326.
6.1.2. Business combination – BRF Alyasra Food Company K.S.C.C (“BRF AFC”)
On January 16, 2013, BRF acquired 75% equity interest of BRF AFC for R$324.730. The acquisition was realized in compliance to the local laws and regulation of Kuwait.
The fair value of assets acquired and liabilities assumed in determining the purchase price allocation, as follows:
Fair value recognized on acquisition date | |
Cash and cash equivalents | 12,531 |
Trade accounts receivable, net | 55,208 |
Inventories | 50,339 |
Property, plan and equipment | 1,497 |
Relationship with costumers | 184,726 |
304,301 | |
Trade accounts payable | 5,904 |
Deferred taxes | 46,181 |
52,085 | |
Net assets | 252,216 |
Non-controlling interest (25%) | (63,054) |
Net assets acquired | 189,162 |
Fair value of consideration paid | 324,730 |
Goodwill on the expected future profitability | 135,568 |
100
(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Year ended December 31, 2014 and 2013 (Amounts expressed in thousands of Brazilian Reais, unless otherwise stated) |
Whereas the BRF AFC was acquired in 21.11.14, the Company's Management believes that the net profit and revenues by the closing date (31.12.14) are not relevant for further disclosures. BRF AFC was originated from the transfer of assets and liabilities arising from the distribution activity of frozen products of Alyasra Food Company WLL, Kuwait. The Company did not have access to revenues and net profit prior at the acquisition date.
6.2. Acquisition of Entities Interest
6.2.1. Acquisition of entity interest of Al Khan Foods LLC (“AKF”)
On July 03, 14, BRF acquired 40% of equity interest of AKF for R$45.492.
The Company prepared an appraisal report to support the fair value of assets acquired and liabilities assumed in determining the purchase price allocation, as follows:
Cash - consideration paid for acquisition of 40% of equity interest | 45,492 |
Fair value of equity interest in AKF immediately before acquisition of 40% of equity interest(1) | 5,249 |
Preliminary goodwill generated in transaction | 40,243 |
Allocation of relationship with customers (note 19) | (17,338) |
Deferred income tax | 4,335 |
Goodwill in the acquisition of equity interest | 27,240 |
(1) Corresponding to assets (current and non-current) of R$29.112 and liabilities (current and non-current) of R$23.863.
Additionally, BRF has a commitment to acquire the remaining equity interest of AKF within 36 to 90 months from the acquisition closing date. The purchase price of the remaining equity interest will be determined based on multiples of EBITDA of AKF.
AKF is a leader in the distribution of frozen food in the Sultanate of Oman, covering a broad sector of retail, food service and wholesale clients. The company has been distributing Sadia’s products for 25 years, in addition to several of frozen products of other brands and suppliers.
The AKF’s investment is measured based on the equity method and classified as joint venture.
6.2.2. Acquisition of equity interest of Minerva Minerva S.A.
On October 01, 2014, the Extraordinary Shareholders Meetings of Minerva S.A. and Mato Grosso Bovinos S.A. (a wholly-owned subsidiary of BRF S.A) approved the merger of all shares issued by Mato Grosso Bovinos S.A. by Minerva S.A. BRF transferred to Mato Grosso Bovinos S.A. its beef slaughtering and deboning activities carried out on the manufacturing facilities of Várzea Grand and Mirassol D’Oeste, both located in Mato Grosso State.
101
(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Year ended December 31, 2014 and 2013 (Amounts expressed in thousands of Brazilian Reais, unless otherwise stated) |
As a consideration for the share exchange transaction, BRF received 29,000,000 shares issued by Minerva S.A. which currently correspond to 16.29% of the total and voting capital stock of Minerva. In such transaction, the Company measured a gain of R$179.268, related to the difference between the carrying amount of net assets of Mato Grosso Bovinos S.A. and the fair value of 29,000,00 shares received by BRF.
A preliminary appraisal report to support the fair value of assets acquired and liabilities assumed in determining the purchase price allocation in the financial statements was prepared to record the Company's investment, since the measurement of fair value was still in progress on the date of approval of the financial statements by the Board of Directors.
The preliminary fair value of assets acquired and liabilities assumed of Minerva on acquisition date as follows:
Fair value recognized on acquisition date | |
Current assets | 632,608 |
Non-current assets | 464,545 |
Current liabilities | 228,796 |
Non-current liabilities | 746,306 |
Preliminary fair value of equity interest in the net assets acquired | 122,051 |
Estimated purchase price | 372,650 |
Goodwill on the expected future profitability | 250,599 |
TheMinerva'sinvestment is measured based on the equity method and classified as associate. The Company has utilized the financial statements of October 31, 2014 of Minerva to adjust the investment and measure the result from the associate up to December 31, 2014.
102
(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Year ended December 31, 2014 and 2013 (Amounts expressed in thousands of Brazilian Reais, unless otherwise stated) |
7. CASH AND CASH EQUIVALENTS
Average rate (p.a.) | Parent company | Consolidated | |||||||
12.31.14 | 12.31.13 | 12.31.14 | 12.31.13 | ||||||
Cash and bank accounts | |||||||||
U.S. Dollar | - | 13,049 | 18,472 | 1,309,800 | 582,898 | ||||
Brazilian Reais | - | 101,422 | 211,874 | 101,654 | 211,929 | ||||
Euro | - | 122,282 | 97,118 | 311,339 | 190,525 | ||||
Other currencies | - | 626 | 428 | 115,719 | 42,299 | ||||
237,379 | 327,892 | 1,838,512 | 1,027,651 | ||||||
Cash equivalents | |||||||||
In Brazilian Reais | |||||||||
Investment funds | 9.85% | 13,863 | 13,650 | 13,863 | 13,650 | ||||
Bank deposit certificates | 11.18% | 1,617,420 | 462,365 | 1,644,069 | 529,959 | ||||
1,631,283 | 476,015 | 1,657,932 | 543,609 | ||||||
In U.S. Dollar | |||||||||
Term deposit(1) | 0.56% | 39,888 | - | 1,521,420 | 1,277,506 | ||||
Overnight | 0.18% | 22,267 | 52,851 | 901,851 | 212,137 | ||||
In Euro | |||||||||
Term deposit | 0.62% | 48,540 | 48,418 | 78,190 | 66,690 | ||||
Other currencies | |||||||||
Term deposit | 5.16% | - | - | 9,037 | 122 | ||||
110,695 | 101,269 | 2,510,498 | 1,556,455 | ||||||
1,979,357 | 905,176 | 6,006,942 | 3,127,715 |
(1) Matures with various dates through March 25, 2015.
103
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Year ended December 31, 2014 and 2013 (Amounts expressed in thousands of Brazilian Reais, unless otherwise stated) |
8. MARKETABLE SECURITIES
Average interest rate (p.a.) | Parent company | Consolidated | ||||||||||||
WATM(1) | Currency | 12.31.14 | 12.31.13 | 12.31.14 | 12.31.13 | |||||||||
Available for sale | ||||||||||||||
Credit linked note | (a) | 5.45 | US$ | 3.77% | - | - | 187,867 | 173,969 | ||||||
Brazilian foreign debt securities | (b) | 1.82 | US$ | 2.28% | - | - | 92,356 | 105,322 | ||||||
Stocks | - | R$ | - | - | 623 | - | 623 | |||||||
Investment funds | (c) | 1.00 | ARS | 11.00% | - | - | 23,634 | 459 | ||||||
- | 623 | 303,857 | 280,373 | |||||||||||
Held for trading | ||||||||||||||
Bank deposit certificates ("CDB") | (d) | 3.99 | R$ | 11.42% | 64,820 | 113,253 | 64,820 | 114,351 | ||||||
Financial treasury bills | (e) | 3.27 | R$ | 11.65% | 218,803 | 64,844 | 218,803 | 64,844 | ||||||
283,623 | 178,097 | 283,623 | 179,195 | |||||||||||
Held to maturity | ||||||||||||||
Financial treasury bills | (e) | 2.73 | R$ | 11.65% | 62,104 | 56,002 | 62,104 | 56,002 | ||||||
62,104 | 56,002 | 62,104 | 56,002 | |||||||||||
345,727 | 234,722 | 649,584 | 515,570 | |||||||||||
Current | 283,623 | 178,720 | 587,480 | 459,568 | ||||||||||
Non-current | 62,104 | 56,002 | 62,104 | 56,002 |
(1) Weighted average maturity in years.
(a) The credit linked note is a structured operation with a first-class financial institution that bears periodic interest (LIBOR + spread) and corresponds to a credit note that contemplates the Company’s risk.
(b) Brazilian foreign debt securities are denominated in U.S. Dollars and remunerated at pre- and post-fixed rates.
(c) The fund in foreign currency is basically represented of public and private securities
(d) Bank Deposit Certificate (“CDB”) investments are denominated in Brazilian Reais and remunerated at rates varying from 98% to 100% of the Interbank Deposit Certificate (“CDI”).
(e) Financial Treasury Bills (“LFT”) are remunerated at the rate of the Special System for Settlement and Custody (“SELIC”).
The unrealized loss by the change in fair value of the available for sale securities, recorded in other comprehensive income, corresponds to the accumulated amount of R$17,296 net of income tax of R$225 (loss of R$5,406 net of income tax of R$266 as of December 31, 2013).
Additionally, on December 31, 2014, of the total of marketable securities, R$32,433 (R$82,758 as of December 31, 2013) were pledged as collateral for operations with future contracts denominated in U.S. Dollars and live cattle, traded on the Futures and Commodities Exchange (“BM&F Bovespa”).
On December 31, 2014, the maturities of the non-current marketable securities are as follows:
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Year ended December 31, 2014 and 2013 (Amounts expressed in thousands of Brazilian Reais, unless otherwise stated) |
Maturities | Parent company and Consolidated |
2017 | 62,104 |
62,104 |
The Company conducted an analysis of sensitivity to foreign exchange rate as presented in note 4.7.
9. TRADE ACCOUNTS RECEIVABLE, NET AND OTHER RECEIVABLES
Parent company | Consolidated | ||||||
12.31.14 | 12.31.13 | 12.31.14 | 12.31.13 | ||||
Trade accounts receivable, net | |||||||
Domestic third parties | 1,476,399 | 1,712,518 | 1,476,399 | 1,712,900 | |||
Domestic related parties | 1,622 | 1,059 | 1,622 | 1,059 | |||
Foreign third parties | 410,943 | 316,750 | 1,693,314 | 1,593,473 | |||
Foreign related parties | 2,889,486 | 2,062,672 | 1,243 | 146,223 | |||
4,778,450 | 4,092,999 | 3,172,578 | 3,453,655 | ||||
( - ) Adjustment to present value | (10,220) | (11) | (10,220) | (11) | |||
( - ) Allowance for doubtful accounts | (98,551) | (99,874) | (107,781) | (107,478) | |||
4,669,679 | 3,993,114 | 3,054,577 | 3,346,166 | ||||
Current | 4,663,193 | 3,985,424 | 3,046,871 | 3,338,355 | |||
Non-current | 6,486 | 7,690 | 7,706 | 7,811 | |||
Credit notes | 532,148 | 403,934 | 602,987 | 520,216 | |||
( - ) Adjustment to present value | (8,640) | (175) | (9,583) | (3,587) | |||
( - ) Allowance for doubtful accounts | (16,664) | (13,947) | (16,664) | (13,947) | |||
506,844 | 389,812 | 576,740 | 502,682 | ||||
Current | 170,029 | 83,743 | 215,067 | 149,007 | |||
Non-current(1) | 336,815 | 306,069 | 361,673 | 353,675 |
(1) Weighted average maturity of 2,84 years.
Credit notes are comprised mainly by receivables from the (i) disposal of Ana Rech assets to JBS, of R$149,350, (ii) disposal of assets of Vila Anastácio, former headquarters of Sadia, of R$ 66,103 and (iii) facility of Carambeí (PR) to Seara, of R$161,599 and (iv) disposal of various other assets and farms, R$177,760.
The trade accounts receivable from related parties are disclosed in note 30 and refers to transactions with the associates UP!, K&S, Nutrifont in domestic market and with the joint ventures AKF in the foreign market.
The rollforward of allowance for doubtful accounts is presented below:
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Year ended December 31, 2014 and 2013 (Amounts expressed in thousands of Brazilian Reais, unless otherwise stated) |
Parent company | Consolidated | ||||||
12.31.14 | 12.31.13 | 12.31.14 | 12.31.13 | ||||
Beginning balance | 99,874 | 106,417 | 107,478 | 123,018 | |||
Additions | 85,163 | 61,051 | 91,315 | 93,739 | |||
Business combination | - | - | 2,798 | - | |||
Reversals | (54,479) | (28,904) | (57,838) | (67,195) | |||
Write-offs | (32,089) | (38,639) | (33,953) | (39,669) | |||
Exchange rate variation | 82 | (51) | (2,019) | (2,415) | |||
Ending balance | 98,551 | 99,874 | 107,781 | 107,478 |
The aging of trade accounts receivable is as follows:
Parent company | Consolidated | ||||||
12.31.14 | 12.31.13 | 12.31.14 | 12.31.13 | ||||
Current | 4,494,352 | 3,913,969 | 2,793,427 | 3,143,565 | |||
Overdue | |||||||
01 to 60 days | 45,872 | 50,559 | 118,902 | 169,744 | |||
61 to 90 days | 29,504 | 33,172 | 29,988 | 35,996 | |||
91 to 120 days | 34,367 | 3,357 | 42,092 | 4,105 | |||
121 to 180 days | 72,658 | 6,903 | 73,992 | 8,716 | |||
181 to 360 days | 13,317 | 3,430 | 13,758 | 4,705 | |||
More than 361 days | 88,380 | 81,609 | 100,419 | 86,824 | |||
( - ) Adjustment to present value | (10,220) | (11) | (10,220) | (11) | |||
( - ) Allowance for doubtful accounts | (98,551) | (99,874) | (107,781) | (107,478) | |||
4,669,679 | 3,993,114 | 3,054,577 | 3,346,166 | ||||
10. INVENTORIES
Parent company | Consolidated | ||||||
12.31.14 | 12.31.13 | 12.31.14 | 12.31.13 | ||||
Finished goods | 1,045,232 | 1,515,920 | 1,551,383 | 1,951,167 | |||
Goods for resale | 16,764 | 26,038 | 23,025 | 26,038 | |||
Work in process | 193,228 | 175,711 | 207,039 | 186,883 | |||
Raw materials | 482,863 | 315,984 | 517,460 | 361,940 | |||
Packaging materials | 75,745 | 80,905 | 96,275 | 100,150 | |||
Secondary materials | 217,604 | 204,282 | 232,657 | 223,901 | |||
Spare parts | 145,311 | 119,966 | 164,925 | 137,510 | |||
Goods in transit | - | 27 | 77,576 | 104,896 | |||
Imports in transit | 74,864 | 59,506 | 122,593 | 63,847 | |||
Advances to suppliers | 10,678 | 11,158 | 10,678 | 11,158 | |||
(-) Provision for adjustment to realizable value | (67) | (30,663) | (1,205) | (31,590) | |||
(-) Provision for deterioration | (17,411) | (10,795) | (19,521) | (19,064) | |||
(-) Provision for obsolescense | (16,522) | (5,221) | (18,063) | (5,221) | |||
(-) Adjustment to present value | (23,467) | - | (23,467) | - | |||
2,204,822 | 2,462,818 | 2,941,355 | 3,111,615 | ||||
The write-offs of products sold from inventories to cost of sales during the year ended December 31, 2014 totaled R$18,901,439 in the parent company and R$20,497,430 in the consolidated (R$19,658,279 in the parent company and R$20,877,597 in theconsolidated in December 31, 2013). Such amounts include the additions and reversals of inventory provisions presented in the table below:
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Year ended December 31, 2014 and 2013 (Amounts expressed in thousands of Brazilian Reais, unless otherwise stated) |
Parent company | |||||||||
12.31.13 | Additions | Reversals | Write-offs | 12.31.14 | |||||
Provision for adjustment to realizable value | (30,663) | (13,053) | 43,649 | - | (67) | ||||
Provision for deterioration | (10,795) | (46,631) | - | 40,015 | (17,411) | ||||
Provision for obsolescence | (5,221) | (15,664) | - | 4,363 | (16,522) | ||||
(46,679) | (75,348) | 43,649 | 44,378 | (34,000) |
Consolidated | |||||||||||
12.31.13 | Additions | Reversals | Write-offs | Exchange rate variation | 12.31.14 | ||||||
Provision for adjustment to realizable value | (31,590) | (14,126) | 68,616 | - | (24,105) | (1,205) | |||||
Provision for deterioration | (19,064) | (48,134) | - | 46,499 | 1,178 | (19,521) | |||||
Provision for obsolescence | (5,221) | (17,090) | - | 4,570 | (322) | (18,063) | |||||
(55,875) | (79,350) | 68,616 | 51,069 | (23,249) | (38,789) |
On December 31, 2014, inventory items of R$40,000 (R$50,000 in December 31, 2013) were pledged as collateral for rural credit operations.
11. BIOLOGICAL ASSETS
The balance of biological assets are segregated in current and non-current assets are presented below:
Parent company | Consolidated | ||||||
12.31.14 | 12.31.13 | 12.31.14 | 12.31.13 | ||||
Live animals | 1,122,350 | 1,198,361 | 1,130,580 | 1,205,851 | |||
Total current | 1,122,350 | 1,198,361 | 1,130,580 | 1,205,851 | |||
Live animals | 459,381 | 446,106 | 460,768 | 446,106 | |||
Forests | 222,442 | 122,872 | 222,442 | 122,872 | |||
Total non-current | 681,823 | 568,978 | 683,210 | 568,978 | |||
1,804,173 | 1,767,339 | 1,813,790 | 1,774,829 |
The living animals which are segregated by the categories: poultry, pork and cattle and separated into consumable and for production.
The animals classified as consumables are those intended for slaughtering to produce in-natura meat or processed products. Until they reach the adequate weight for slaughtering, they are classified as immature. The slaughtering and production process occurs sequentially and in a very short period of time, so that only live animals ready for slaughtering are classified as mature.
The animals classified as for production (breeding stock) are those that have thefunction of producing other biological assets. Until they reach the age of reproduction they are classified as immature and when they are able to initiate the reproductive cycle, they are classified as mature.
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(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Year ended December 31, 2014 and 2013 (Amounts expressed in thousands of Brazilian Reais, unless otherwise stated) |
In the Management’s opinion, the fair value of the biological assets is substantially represented by their cost, mainly due to the short life cycle of the animals and to the fact that a significant portion of the profitability of the Company’s products derives from the manufacturing process and not from obtaining in-natura meat (raw materials at slaughtering point). This opinion is supported by a fair value appraisal report prepared in 2014 by an independent appraiser, which shows a non-significant difference between the fair value and the cost of biological assets. Therefore, they were measured at weighted average cost.
To measure biological assets at fair value, the Company used discounted cash flow methodology. The discount rate used was the Weighted Average Cost of Capital (“WACC”), was 5.39% (4.95% as of December 31, 2013).
The quantities and balances per live animals assets are presented below:
Parent company | |||||||
12.31.14 | 12.31.13 | ||||||
Quantity | Value | Quantity | Value | ||||
Consumable biological assets | |||||||
Immature poultry | 174,855 | 507,707 | 180,316 | 524,189 | |||
Immature pork | 3,370 | 614,643 | 3,332 | 586,463 | |||
Immature cattle | - | - | 73 | 87,709 | |||
Total current | 178,225 | 1,122,350 | 183,721 | 1,198,361 | |||
Production biological assets | |||||||
Immature poultry | 6,793 | 88,652 | 6,526 | 87,391 | |||
Mature poultry | 11,378 | 154,238 | 11,606 | 156,863 | |||
Immature pork | 174 | 44,547 | 160 | 38,699 | |||
Mature pork | 379 | 171,304 | 377 | 163,005 | |||
Immature cattle | - | 395 | - | 60 | |||
Mature cattle | - | 245 | - | 88 | |||
Total non-current | 18,724 | 459,381 | 18,669 | 446,106 | |||
196,949 | 1,581,731 | 202,390 | 1,644,467 |
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(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Year ended December 31, 2014 and 2013 (Amounts expressed in thousands of Brazilian Reais, unless otherwise stated) |
Consolidated | |||||||
12.31.14 | 12.31.13 | ||||||
Quantity | Value | Quantity | Value | ||||
Consumable biological assets | |||||||
Immature poultry | 177,914 | 515,937 | 187,946 | 531,679 | |||
Immature pork | 3,370 | 614,643 | 3,332 | 586,463 | |||
Immature cattle | - | - | 73 | 87,709 | |||
Total current | 181,284 | 1,130,580 | 191,351 | 1,205,851 | |||
Production biological assets | |||||||
Immature poultry | 6,836 | 89,308 | 6,526 | 87,391 | |||
Mature poultry | 11,451 | 154,969 | 11,606 | 156,863 | |||
Immature pork | 174 | 44,547 | 160 | 38,699 | |||
Mature pork | 379 | 171,304 | 377 | 163,005 | |||
Immature cattle | - | 395 | - | 60 | |||
Mature cattle | - | 245 | - | 88 | |||
Total non-current | 18,840 | 460,768 | 18,669 | 446,106 | |||
200,124 | 1,591,348 | 210,020 | 1,651,957 |
The rollforward of biological assets for the year is presented below:
Parent company | |||||||||||||||||
Current | Non-current | ||||||||||||||||
Poultry | Pork | Cattle | Total | Poultry | Pork | Cattle | Forests | Total | |||||||||
Balance as of 12.31.13 | 524,189 | 586,463 | 87,709 | 1,198,361 | 244,254 | 201,704 | 148 | 122,872 | 568,978 | ||||||||
Acquisition | 146,037 | 1,088,380 | 26,032 | 1,260,449 | 25,607 | 123,959 | - | - | 149,566 | ||||||||
Gain on variation in fair value | - | - | - | - | - | - | - | 23,963 | 23,963 | ||||||||
Increase due to reproduction, consumption of animal feed, medication and remuneration of outgrowers | 1,073,534 | 55,977 | 207 | 1,129,718 | 345,428 | 20,355 | 500 | - | 366,283 | ||||||||
Depreciation | - | - | - | - | (317,093) | (69,761) | (8) | - | (386,862) | ||||||||
Harvest | - | - | - | - | - | - | - | (23,353) | (23,353) | ||||||||
Write-off | - | - | - | - | - | - | - | (909) | (909) | ||||||||
Transfer between current and non-current | 55,306 | 60,406 | - | 115,712 | (55,306) | (60,406) | - | - | (115,712) | ||||||||
Reduction due to slaughtering | (1,291,359) | (1,176,583) | (113,948) | (2,581,890) | - | - | - | - | - | ||||||||
Balance as of 12.31.14 | 507,707 | 614,643 | - | 1,122,350 | 242,890 | 215,851 | 640 | 222,442 | 681,823 |
Consolidated | |||||||||||||||||
Current | Non-current | ||||||||||||||||
Poultry | Pork | Cattle | Total | Poultry | Pork | Cattle | Forests | Total | |||||||||
Balance as of 12.31.13 | 531,679 | 586,463 | 87,709 | 1,205,851 | 244,254 | 201,704 | 148 | 122,872 | 568,978 | ||||||||
Acquisition | 146,037 | 1,088,380 | 26,032 | 1,260,449 | 27,246 | 123,959 | - | - | 151,205 | ||||||||
Gain on variation in fair value | - | - | - | - | - | - | - | 23,963 | 23,963 | ||||||||
Increase due to reproduction, consumption of animal feed, medication and remuneration of outgrowers | 1,128,241 | 55,977 | 207 | 1,184,425 | 345,428 | 20,355 | 500 | - | 366,283 | ||||||||
Depreciation | - | - | - | - | (317,400) | (69,761) | (8) | - | (387,169) | ||||||||
Harvest | - | - | - | - | - | - | - | (23,353) | (23,353) | ||||||||
Write-off | - | - | - | - | - | - | - | (909) | (909) | ||||||||
Transfer between current and non-current | 55,306 | 60,406 | - | 115,712 | (55,306) | (60,406) | - | - | (115,712) | ||||||||
Reduction due to slaughtering | (1,344,716) | (1,176,583) | (113,948) | (2,635,247) | - | - | - | - | - | ||||||||
Exchange rate variation | (610) | - | - | (610) | 55 | - | - | - | 55 | ||||||||
Balance as of 12.31.14 | 515,937 | 614,643 | - | 1,130,580 | 244,277 | 215,851 | 640 | 222,442 | 683,210 |
The breeding animal costs are depreciated using the straight-line method for a period from 15 to 30 months.
The acquisitions of biological assets for production occur when there is an expectation that the production plan cannot be met with its own animals and, usually, this acquisition refers to immature animals in the beginning of the life cycle.
The acquisitions of biological assets for slaughtering are represented by day-old poultryand pork of up to 22 kilos, which are subject to the management of a substantial part of the agricultural activity by the Company.
109
(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Year ended December 31, 2014 and 2013 (Amounts expressed in thousands of Brazilian Reais, unless otherwise stated) |
The increase by reproduction of the biological assets classified as current assets is related to eggs from animals for production.
12. RECOVERABLE TAXES
Parent company | Consolidated | ||||||
12.31.14 | 12.31.13 | 12.31.14 | 12.31.13 | ||||
State ICMS ("VAT") | 990,317 | 977,506 | 1,048,236 | 1,017,279 | |||
PIS and COFINS ("Federal Taxes to Social Fund Programs") | 289,333 | 507,782 | 289,389 | 507,866 | |||
Withholding income and social contribution tax | 551,050 | 588,420 | 585,187 | 623,573 | |||
IPI ("Federal VAT") | 59,560 | 60,295 | 59,560 | 60,295 | |||
Other | 148,940 | 84,373 | 172,031 | 119,262 | |||
(-) Allowance for losses | (226,306) | (216,673) | (233,245) | (224,528) | |||
1,812,894 | 2,001,703 | 1,921,158 | 2,103,747 | ||||
Current | 914,720 | 1,211,084 | 1,009,076 | 1,302,939 | |||
Non-current | 898,174 | 790,619 | 912,082 | 800,808 |
The rollforward of the allowance for losses is presented below:
Parent company | |||||||
12.31.13 | Additions | Write-offs | 12.31.14 | ||||
State ICMS ("VAT") | (175,685) | (14,632) | 20,799 | (169,518) | |||
PIS and COFINS ("Federal Taxes to Social Fund Programs") | (17,698) | (13,780) | - | (31,478) | |||
Withholding income and social contribution tax | (8,550) | (435) | - | (8,985) | |||
IPI ("Federal VAT") | (14,740) | - | - | (14,740) | |||
Other | - | (1,585) | - | (1,585) | |||
(216,673) | (30,432) | 20,799 | (226,306) |
Consolidated | |||||||||
12.31.13 | Additions | Write-offs | Exchange rate variation | 12.31.14 | |||||
State ICMS ("VAT") | (175,686) | (14,632) | 20,799 | - | (169,519) | ||||
PIS and COFINS ("Federal Taxes to Social Fund Programs") | (17,698) | (13,780) | - | - | (31,478) | ||||
Withholding income and social contribution tax | (8,550) | (525) | 46 | - | (9,029) | ||||
IPI ("Federal VAT") | (14,740) | - | - | - | (14,740) | ||||
Other | (7,854) | (1,585) | 32 | 928 | (8,479) | ||||
(224,528) | (30,522) | 20,877 | 928 | (233,245) |
12.1. State ICMS ("VAT")
Due to its (i) export activity, (ii) domestic sales that are subject to reduced tax rates and (iii) investments in property, plant and equipment, the Company accumulates tax credits that are offset against debits generated in sales in the domestic market or transferred to third parties.
The Company has ICMS tax credits in the States of Mato Grosso do Sul, Mato Grosso, Paraná, Santa Catarina and Minas Gerais, for which Management understands thatrealization will occur in medium or long term.
110
(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Year ended December 31, 2014 and 2013 (Amounts expressed in thousands of Brazilian Reais, unless otherwise stated) |
12.2. PIS and COFINS
Tax credits on Contribution to the Social Integration Program (“PIS”) and Contribution to Social Fund Programs (“COFINS”) arise from credits on purchases of raw materials used in the production of exported products or products that are taxed at zero rate, such as in-natura meat, margarine, butter, UHT and pasteurized milk. The recovery of these tax credits can be achieved through offsetting against domestic sales operations of taxed products and other federal taxes or compensation claims.
The Management’s Company continually evaluates alternatives that would allow to accelerate the use of these accumulated tax credits.
12.3. Withholding income and social contribution taxes
These correspond to withholding taxes on marketable securities, interest and prepayments of income and social contribution taxes, which are realizable through offsetting against other federal taxes.
111
(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Year ended December 31, 2014 and 2013 (Amounts expressed in thousands of Brazilian Reais, unless otherwise stated) |
13. ASSETS AND LIABILITIES OF DISCONTINUED OPERATIONS AND HELD FOR SALE
13.1. Assets and liabilities non-current held for sale
2014 | 2013 | |||||||||||||||||||
Parent company | Consolidated | Parent company | Consolidated | |||||||||||||||||
Dairy | Other (1) | Total | Other | Total | Dairy | Other | Total | Other | Total | |||||||||||
Asset | ||||||||||||||||||||
Current Assets | ||||||||||||||||||||
Trade accounts receivable | 233,000 | - | 233,000 | - | 233,000 | - | - | - | - | - | ||||||||||
Inventories | 213,000 | - | 213,000 | - | 213,000 | - | - | - | - | - | ||||||||||
Total current assets | 446,000 | - | 446,000 | - | 446,000 | - | - | - | - | - | ||||||||||
Non-Current Assets | ||||||||||||||||||||
Investments | 15,089 | - | 15,089 | - | 15,089 | - | - | - | - | - | ||||||||||
Property, plant and equipment, net | 750,677 | 74,401 | 825,078 | 442 | 825,520 | - | 146,924 | 146,924 | 2,024 | 148,948 | ||||||||||
Intangible | 671,398 | - | 671,398 | - | 671,398 | - | - | - | - | - | ||||||||||
Total non-current assets | 1,437,164 | 74,401 | 1,511,565 | 442 | 1,512,007 | - | 146,924 | 146,924 | 2,024 | 148,948 | ||||||||||
Total Assets | 1,883,164 | 74,401 | 1,957,565 | 442 | 1,958,007 | - | 146,924 | 146,924 | 2,024 | 148,948 | ||||||||||
Liabilities | ||||||||||||||||||||
Current Liabilities | ||||||||||||||||||||
Trade accounts payable | 279,000 | - | 279,000 | - | 279,000 | - | - | - | - | - | ||||||||||
Payroll and related charges | 14,277 | - | 14,277 | - | 14,277 | - | - | - | - | - | ||||||||||
Tax payable | 14,370 | - | 14,370 | - | 14,370 | - | - | - | - | - | ||||||||||
Deferred income tax | 200,617 | - | 200,617 | - | 200,617 | - | - | - | ||||||||||||
Total current liabilities | 508,264 | - | 508,264 | - | 508,264 | - | - | - | - | - | ||||||||||
Total Liabilities | 508,264 | - | 508,264 | - | 508,264 | - | - | - | - | - | ||||||||||
Assets and Liabilities of Discontinued Operations and Held for Sale | 1,374,900 | 74,401 | 1,449,301 | 442 | 1,449,743 | - | 146,924 | 146,924 | 2,024 | 148,948 | ||||||||||
(1) The reduction in other assets held for sale in 2014 is mainly related to the transfer of forests for biological assets. |
13.2. Discontinued operations
On December 05, 2014, BRF entered into a sales contract with Lactalis (“buyer”), establishing terms and conditions for the disposal of its manufacturing facilities in the dairy operating segment, which includes (i) manufacturing facilities located in the cities of Bom Conselho (PE), Carambeí (PR), Ravena (MG), Concórdia (SC), Teutônia (RS), Itumbiara (GO), Terenos (MS), Ijuí (RS), Três de Maio I (RS), Três de Maio II (RS) and Santa Rosa (RS and (ii) related assets and trademarks dedicated to such segmentBatavo,Elegê,Cotochés,Santa Rosa eDoBon) deste segmento (“Transaction”).
On this date, the value of such Transaction was set forth at R$697,756 (equivalent to R$1,800,000), to be received on the conclusion date of the transaction, subject to usual adjustments for working capital and net debt, as the terms of the contract.
The Transaction was fixed in U.S. Dollars and, considering that the functional currency of BRF and of buyer is different of U.S. Dollars, was recognized an embedded derivative in the terms of CPC 38, approved by CVM Deliberation No.604/09. The fair market value of the embedded derivative totaled R$27,955 on December 31, 2014 and
112
(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Year ended December 31, 2014 and 2013 (Amounts expressed in thousands of Brazilian Reais, unless otherwise stated) |
was recognized in other financial assets in counterpart of financial results.
The conclusion of the Transaction is also subject to compliance with precedent conditions, such as necessary investments to adapt the assets to transfer to the buyer and regulatory approval (including the Administrative Council for Economic Defense (“CADE”)). The Company does not expect significant impact on the conclusion of the transaction, planned for the 2nd quarter 2015.
The statement of income and cash flow from discontinued operations that represent the dairy segment performance are disclosed as follows:
STATEMENTS OF INCOME | ||||
Parent company and Consolidated | ||||
12.31.14 | 12.31.13 | |||
Net Sales | 2,720,406 | 2,733,769 | ||
Cost of sales | (2,111,487) | (2,075,548) | ||
Gross Profit | 608,919 | 658,221 | ||
Operating Income (Expenses) | ||||
Selling | (424,899) | (483,273) | ||
General and administrative | (30,042) | (34,761) | ||
Other operating expenses, net | (30,568) | (77,266) | ||
Equity in income of associates | (2,826) | 414 | ||
Income Before Taxes | 120,584 | 63,335 | ||
Current income and social contribution taxes | (30,762) | (16,156) | ||
Net income from discontined operations | 89,822 | 47,179 |
STATEMENTS OF CASH FLOWS | ||||
Parent company and Consolidated | ||||
12.31.14 | 12.31.13 | |||
Net profit from discontinued operations | 89,822 | 47,179 | ||
Adjustments to reconcile net income to net cash provided by discontinued operations |
|
| ||
Depreciation, amortization and exhaustion | 67,505 | 58,734 | ||
Equity in income of affiliates | 2,826 | (414) | ||
Net cash provided by discontinued operating activities | 160,153 | 105,499 | ||
|
| |||
Investing activities from discontinued operations |
|
| ||
Additions to property, plant and equipment | (51,161) | (87,720) | ||
Net cash used investing activities from continued operations | (51,161) | (87,720) | ||
|
| |||
|
| |||
Net cash provided from discontinued operations |
| 108,992 |
| 17,779 |
113
(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Year ended December 31, 2014 and 2013 (Amounts expressed in thousands of Brazilian Reais, unless otherwise stated) |
14. INCOME AND SOCIAL CONTRIBUTION TAXES
14.1. Deferred income and social contribution taxes
Parent company | Consolidated | ||||||
12.31.14 | 12.31.13 | 12.31.14 | 12.31.13 | ||||
Assets | |||||||
Tax loss carryforwards (corporate income tax) | 640,745 | 688,177 | 697,843 | 732,149 | |||
Negative calculation basis (social contribution tax) | 262,731 | 277,826 | 263,159 | 278,494 | |||
Temporary differences | |||||||
Provisions for tax, civil and labor risks | 200,748 | 146,696 | 204,212 | 150,534 | |||
Suspended collection taxes | 69,074 | 70,239 | 69,074 | 70,239 | |||
Allowance for doubtful accounts | 6,783 | 14,958 | 7,652 | 16,136 | |||
Provision for property, plant and equipment losses | 15,529 | 6,454 | 15,529 | 6,454 | |||
Provision for tax credits realization | 73,350 | 70,762 | 73,893 | 70,762 | |||
Provision for other obligations | 50,810 | 53,716 | 52,914 | 55,730 | |||
Employees' profit sharing | 118,899 | 51,607 | 118,899 | 51,607 | |||
Provision for inventories | 11,560 | 15,871 | 11,560 | 15,871 | |||
Employees' benefits plan | 106,784 | 99,029 | 106,784 | 99,029 | |||
Business combination - Sadia(1) | 583,770 | 695,646 | 583,770 | 695,646 | |||
Unrealized losses on derivatives financial instruments | 56,615 | 83,606 | 56,615 | 83,606 | |||
Provision for losses - other debtors | 8,220 | 3,969 | 8,220 | 3,969 | |||
Other temporary differences | 48,428 | 69,667 | 52,014 | 75,649 | |||
2,254,046 | 2,348,223 | 2,322,138 | 2,405,875 | ||||
Liabilities | |||||||
Temporary differences | |||||||
Business combination - Sadia and Quickfood(1) | (750,509) | (763,121) | (750,509) | (763,121) | |||
Business combination - other companies | - | - | (103,557) | (131,000) | |||
Difference between tax basis | (223,213) | (335,858) | (223,213) | (335,858) | |||
Difference between tax depreciation rate and accounting depreciation rate (useful life) | (511,404) | (468,378) | (511,404) | (468,378) | |||
Other temporary differences | (16,988) | (34,991) | (19,440) | (41,841) | |||
(1,502,114) | (1,602,348) | (1,608,123) | (1,740,198) | ||||
Total net deferred tax assets | 751,932 | 745,875 | 714,015 | 665,677 | |||
Business combination - Dánica and Avex (deferred tax liability) | - | - | (15,633) | (20,566) | |||
Business combination - AFC (deferred tax liability) | - | - | (34,636) | - | |||
Business combination - AKF (deferred tax liability) | - | - | (4,334) | - | |||
Business combination - Federal Foods (deferred tax liability) | - | - | (7,751) | - | |||
Other - exchange variation | - | - | (27,829) | - | |||
Total deferred tax | 751,932 | 745,875 | 623,831 | 645,111 |
(1) The deferred tax asset on the business combination with Sadia is mainly computed on the difference between the goodwill tax basis and goodwill accounting basis identified in the purchase price allocation. Deferred tax liabilities on business combinations Sadia and Quickfood are substantially represented by the fair value of property, plant and equipment, trademarks and contingent liabilities.
The Company prepared an analysis of the effects that could result from application of the provisions of Law No. 12,973 / 14 (previously issued as Provisional Measure No. 627/13) and concluded that no significant effects on its financial statements of 31.12.14 and 31.12.13. Thus, the Company's Management elected not to adopt the new tax regime in 2014.
Certain subsidiaries of the Company have tax loss carryforwards and negative basis ofsocial contribution of R$16,474 and R$16,291, respectively, (R$18,493 and R$18,312 as of December 31, 2013), for which no deferred tax asset was recorded. If there was an expectation that such tax credits would be realized the amount recognized in the balance sheet would be R$5,585 (R$6,271 as of December 31, 2013).
114
(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Year ended December 31, 2014 and 2013 (Amounts expressed in thousands of Brazilian Reais, unless otherwise stated) |
14.2. Estimated time of realization
Deferred tax arising from temporary differences will be realized as they are settled our realized. The period of the settlement or realization of such differences would not be properly estimated and is tied to several factors that are not under control of the Management.
When assessing the likelihood of the realization of deferred tax assets on income tax loss carryforward and negative calculation bases of social contribution tax, Management considers the Company's budget, strategic plan and projected taxable income. Based on this estimate, Management believes that it is more likely than not that the deferred tax will be realized, as shown below:
Parent company | Consolidated | ||
2015 | 213,537 | 215,012 | |
2016 | 176,178 | 177,291 | |
2017 | 196,901 | 203,148 | |
2018 | 219,883 | 226,485 | |
2019 | 96,977 | 103,556 | |
2020-2022 | - | 20,955 | |
2023-2024 | - | 14,555 | |
903,476 | 961,002 |
The rollforward of deferred tax is set forth below:
Parent company | Consolidated | ||||||
12.31.14 | 12.31.13 | 12.31.14 | 12.31.13 | ||||
Beginning balance | 745,875 | 819,236 | 645,111 | 690,388 | |||
Deferred income tax recorded in the statement of income | (235,889) | (140,403) | (235,205) | (116,026) | |||
Deferred income and social contribution taxes transfered to assets held for sale - dairy business | 200,617 | - | 200,617 | - | |||
Deferred income and social contribution taxes in Business combination - Minerva | 1,128 | - | - | - | |||
Deferred income tax recorded in other comprehensive income | 52,783 | 60,848 | 52,824 | 60,718 | |||
Business combination | - | - | (46,722) | 9,356 | |||
Other | (12,582) | 6,194 | 7,206 | 675 | |||
Ending balance | 751,932 | 745,875 | 623,831 | 645,111 |
115
(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Year ended December 31, 2014 and 2013 (Amounts expressed in thousands of Brazilian Reais, unless otherwise stated) |
14.3. Income and social contribution taxes reconciliation
Parent company | Consolidated | ||||||
12.31.14 | 12.31.13 | 12.31.14 | 12.31.13 | ||||
Income before taxes | 2,448,570 | 1,146,846 | 2,487,621 | 1,148,777 | |||
Nominal tax rate | 34% | 34% | 34% | 34% | |||
Tax expense at nominal rate | (832,514) | (395,305) | (845,791) | (395,962) | |||
Reconciling itens: | |||||||
Equity pickup | 222,469 | (107,758) | 8,694 | 4,530 | |||
Exchange rate variation on foreign investments | 6,467 | 140,257 | 43,087 | 129,944 | |||
Difference of tax rates on results of foreign subsidiaries | - | - | 150,394 | (125,423) | |||
Interest on shareholders' equity | 250,840 | 246,164 | 250,840 | 246,164 | |||
Penalties | (15,066) | 1,707 | (15,066) | 1,707 | |||
Investment grant | 47,726 | 41,201 | 47,726 | 41,201 | |||
Other permanent differences | 6,722 | (57,861) | 7,550 | (31,280) | |||
(313,356) | (131,595) | (352,566) | (129,119) | ||||
Current income tax | (77,467) | 8,808 | (117,361) | (13,093) | |||
Deferred income tax | (235,889) | (140,403) | (235,205) | (116,026) |
The taxable income, current and deferred income tax from foreign subsidiaries is presented below:
Consolidated | |||
12.31.14 | 12.31.13 | ||
Taxable income (loss) from foreign subsidiaries | 576,048 | (412,551) | |
Current income tax credit (expense) from foreign subsidiaries | (37,559) | (19,862) | |
Deferred income tax from foreign subsidiaries | (8,311) | 26,163 |
Company determined that the earnings recorded by the holdings of its wholly-owned subsidiaries located abroad will not be redistributed. Such resources will be used for investments in the subsidiaries, and thus no deferred income tax was recognized. The total of undistributed earnings corresponds to R$1,896,478 as of December 31, 2014 (R$1,158,814 as of December 31, 2013).
Brazilian income taxes are subject to review for a 5-year period, during which the tax authorities might audit and assess the Company for additional taxes and penalties. Subsidiaries located abroad are taxed in their respective jurisdictions, according to local regulations.
15. JUDICIAL DEPOSITS
The rollforward of the judicial deposits is presented below:
116
(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Year ended December 31, 2014 and 2013 (Amounts expressed in thousands of Brazilian Reais, unless otherwise stated) |
Parent company | |||||||||||
12.31.13 | Additions | Reversals | Write-offs | Price index update | 12.31.14 | ||||||
Tax | 292,456 | 39,729 | (9,016) | (931) | 30,036 | 352,274 | |||||
Labor | 155,938 | 106,933 | (13,829) | (31,515) | 10,782 | 228,309 | |||||
Civil, commercial and other | 24,223 | 7,188 | (539) | (1,754) | 2,585 | 31,703 | |||||
472,617 | 153,850 | (23,384) | (34,200) | 43,403 | 612,286 |
Consolidated | |||||||||||||
12.31.13 | Additions | Reversals | Write-offs | Price index update | Exchange rate variation | 12.31.14 | |||||||
Tax | 292,633 | 42,543 | (9,328) | (3,731) | 30,080 | (13) | 352,184 | ||||||
Labor | 155,979 | 111,809 | (13,829) | (33,574) | 10,784 | 200 | 231,369 | ||||||
Civil, commercial and other | 30,064 | 7,394 | (5,255) | (1,754) | 2,585 | (868) | 32,166 | ||||||
478,676 | 161,746 | (28,412) | (39,059) | 43,449 | (681) | 615,719 |
16. RESTRICTED CASH
Average interest rate (p.a.) | Parent company and Consolidated | ||||||||
Maturity | Currency | 12.31.14 | 12.31.13 | ||||||
National treasury certificates | 2020 | R$ | 15.67% | 115,179 | 99,212 | ||||
115,179 | 99,212 |
(1) Weighted average maturity in years.
The national treasury certificates are pledged as collateral for the loan obtained through the Special Program Asset Restructuring (“PESA”) (see note 20).
17. INVESTMENTS IN ASSOCIATES AND JOINT VENTURES
17.1. Investments breakdown
Parent company | Consolidated | ||||||
12.31.14 | 12.31.13 | 12.31.14 | 12.31.13 | ||||
Investment in associates and joint ventures | 3,439,320 | 2,756,464 | 137,359 | 105,874 | |||
Goodwill Quickfood | 312,177 | 447,429 | - | - | |||
Goodwill Minerva | 247,283 | - | 247,283 | - | |||
Goodwill AKF | - | - | 52,428 | - | |||
Advance for future capital increase | 100 | 100 | - | - | |||
3,998,880 | 3,203,993 | 437,070 | 105,874 | ||||
Other investments | 849 | 873 | 1,353 | 2,116 | |||
3,999,729 | 3,204,866 | 438,423 | 107,990 |
117
(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Year ended December 31, 2014 and 2013 (Amounts expressed in thousands of Brazilian Reais, unless otherwise stated) |
17.2. Summary financial information in associates and joint ventures
Avipal Centro Oeste S.A. | Avipal Construtora S.A. | BRF | Elebat Alimentos S.A. | Establec. Levino Zaccardi | Perdigão Trading S.A. | PSA Labor. Veter. Ltda. | Quickfood S.A. | Sadia Alimentos S.A. | Sadia | Sadia International Ltd. | Sadia Overseas S.A. | VIP S.A. Empr. e | |||||||||||||
12.31.14 | 12.31.14 | 12.31.14 | 12.31.14 | 12.31.14 | 12.31.14 | 12.31.14 | 12.31.14 | 12.31.14 | 12.31.14 | 12.31.14 | 12.31.14 | 12.31.14 | |||||||||||||
Current assets | 38 | - | 391,669 | 1 | 3,921 | - | 3,698 | 232,850 | 18,533 | - | 1,428 | 39 | 65,907 | ||||||||||||
Non-current assets | - | - | 2,767,582 | - | 124 | - | 2,503 | 217,735 | 89,086 | - | 180,728 | 385,891 | 22,870 | ||||||||||||
Current liabilities | - | - | (13,402) | - | (1,729) | - | (637) | (270,110) | (13,106) | - | (1,737) | (2,917) | (2,608) | ||||||||||||
Non-current liabilities | - | - | (205,604) | - | (1,235) | - | - | (161,763) | (16,110) | - | - | (424,367) | (26) | ||||||||||||
Shareholders' equity | (38) | - | (2,940,245) | (1) | (1,081) | - | (5,564) | (18,712) | (78,403) | - | (180,419) | 41,354 | (86,143) | ||||||||||||
Net revenues | - | - | 10,283 | - | 3,718 | - | - | 860,071 | 3,440 | - | - | - | - | ||||||||||||
Net income (loss) | (44) | (49) | 717,782 | - | (2,960) | (52) | 630 | (23,500) | (35,543) | - | (10,024) | (20,030) | 10,489 | ||||||||||||
12.31.13 | 12.31.13 | 12.31.13 | 12.31.13 | 12.31.13 | 12.31.13 | 12.31.13 | 12.31.13 | 12.31.13 | 12.31.13 | 12.31.13 | 12.31.13 | 12.31.13 | |||||||||||||
Current assets | 81 | 123 | 118,881 | - | 4,588 | - | 6,037 | 184,492 | 27,600 | - | 1,252 | 101 | 125,731 | ||||||||||||
Non-current assets | - | - | 2,255,989 | - | 1,868 | 1,013 | 2,507 | 130,705 | 146,063 | - | 169,564 | 505,045 | 44,592 | ||||||||||||
Current liabilities | - | (5) | (406) | - | (1,979) | - | (2,980) | (184,741) | (19,347) | - | (1,601) | (3,555) | (30,237) | ||||||||||||
Non-current liabilities | - | - | (175,557) | - | (60) | - | - | (79,157) | (21,166) | - | - | (517,054) | (2,025) | ||||||||||||
Shareholders' equity | (81) | (118) | (2,198,907) | - | (4,417) | (1,013) | (5,564) | (51,299) | (133,150) | - | (169,215) | 15,463 | (138,061) | ||||||||||||
Net revenues | - | - | 5,190 | - | 8,449 | - | 10 | 832,083 | 37,470 | 54 | - | - | - | ||||||||||||
Net income (loss) | (4) | 2 | (426,673) | - | (2,238) | (102) | 139 | (4,154) | (56,278) | 62,083 | (466) | (12,290) | 23,140 |
(1) Merger of wholly-owned subsidiaries by BRF GmbH on March 31, 2013.
118
(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Year ended December 31, 2014 and 2013 (Amounts expressed in thousands of Brazilian Reais, unless otherwise stated) |
17.3. Rollforward of the interest in subsidiaries and associates - Parent company
Subsidiaries | |||||||||||||||||||||||||
Avipal Centro Oeste S.A. | Avipal Construtora S.A. | BRF GmbH | Elebat Alimentos S.A. | Establec. Levino Zaccardi | Mato Grosso | Perdigão Trading S.A. | PSA Labor. Veter. Ltda | Quickfood S.A. | Sadia Alimentos S.A. | Sadia Internati-onal Ltd. | Sadia Overseas S.A.(1) | VIP S.A. Empr. e Particip. Imob | |||||||||||||
a) Capital share as of December 31, 2014 | |||||||||||||||||||||||||
% of share | 100.00% | - | 100.00% | 99.00% | 98.26% | 100.00% | - | 100.00% | 90.05% | 100.00% | 100.00% | 100.00% | 100.00% | ||||||||||||
Total number of shares and membership interests | 6,963,854 | - | 1 | 1,000 | 100 | 100 | - | 5,463,850 | 36,469,606 | 33,717,308 | 900 | 50,000 | 14,249,459 | ||||||||||||
Number of shares and membership interest held | 6,963,854 | - | 1 | 990 | 98 | 50 | - | 5,463,850 | 32,841,224 | 33,717,308 | 900 | 50,000 | 14,249,459 | ||||||||||||
b) Subsidiaries' information as of December 31, 2014 | |||||||||||||||||||||||||
Capital stock | 5,972 | - | 6,122 | 1 | 6,604 | - | - | 5,564 | 28,117 | 225,073 | 2,391 | 3 | 40,061 | ||||||||||||
Shareholders' equity | 38 | - | 2,940,245 | 1 | 1,081 | - | - | 5,564 | 18,712 | 78,403 | 180,419 | (41,354) | 86,143 | ||||||||||||
Fair value adjustments of assets and liabilities acquired | - | - | - | - | - | - | - | - | 136,615 | - | - | - | - | ||||||||||||
Goodwill based on expectation of future profitability | - | - | - | - | - | - | - | - | 175,562 | - | - | - | - | ||||||||||||
Income (loss) for the period | (44) | (49) | 717,782 | - | (2,960) | - | (52) | 630 | (23,500) | (35,543) | (10,024) | (20,030) | 10,489 | ||||||||||||
c) Balance of investments as of December 31, 2014 | |||||||||||||||||||||||||
Balance of the investment in the beginning of the exercise | 81 | 118 | 2,198,907 | - | 4,326 | - | 1,013 | 4,550 | 493,576 | 133,150 | 169,215 | - | 138,061 | ||||||||||||
Equity pick-up | (43) | (49) | 717,782 | - | (2,908) | - | (52) | 559 | (21,162) | (35,543) | (10,024) | (20,030) | 10,489 | ||||||||||||
Premium related to Exchange Offer | - | - | - | - | - | - | - | - | - | - | - | - | - | ||||||||||||
Unrealized profit in inventory | - | - | - | - | 704 | - | - | - | (191) | (1) | - | - | - | ||||||||||||
Goodwill in the acquisition of non-controlling entities | - |
| - |
| - |
| - |
| - |
| - |
| - |
| - |
| - |
| (1,342) |
| - |
| - |
| - |
Exchange rate variation on goodwill in the acquisiton of non-controlling entities | - |
| - |
| 3 |
| - |
| - |
| - |
| - |
| - |
| - |
| - |
| - |
| - |
| - |
Exchange rate variation on goodwill | - |
| - |
| - |
| - |
| - |
| - |
| - |
| - |
| (126,664) |
| - |
| - |
| - |
| - |
Goodwill | - | - | - | - | - | - | - | - | (8,033) | - | - | - |
| - | |||||||||||
Write-off of fair value of property, plant and equipment | - | - | - | - | - | - | - | - | (555) | - | - | - |
| - | |||||||||||
Exchange rate variation on foreign investments | - | - | 3,656 | - | - | - | - | - | - | - | 21,227 | (5,862) | - | ||||||||||||
Other comprehensive income | - | - | 19,903 | - | (1,062) | - | - | - | (8,011) | (17,957) | - | - | (19) | ||||||||||||
Increase / decrease in capital | - | - | - | - | - | 180,319 | - | - | - | - | - | - | - | ||||||||||||
Dividends and interests on shareholders' equity | - | - | - | - | - | - | - | (630) | - | - | - | - | (62,389) | ||||||||||||
Write-off plants | - | (69) | - | - | - | (180,319) | (961) | - | - | - | - | - | - | ||||||||||||
Acquisition of Company | - | - | - | - | - | - | - | 1,082 | - | - | - | - | - | ||||||||||||
Impairment losses for investments | - | - | - | - | - | - | - | - | - | - | - | 25,892 | - | ||||||||||||
Transfer to held for sale and dicontinued operations | - | - | - | - | - | - | - | - | - | - | - | - | - | ||||||||||||
38 | - | 2,940,251 | - | 1,060 | - | - | 5,561 | 328,960 | 78,307 | 180,418 | - | 86,142 |
The exchange rate variation result on the investments in foreign subsidiaries, whose functional currency is Brazilian Reais, totaling a gain of R$126,726 on December 31, 2014 (R$382,197 as of December 31, 2013), was recognized as financial result in the consolidated statement of income.
On December 31, 2014, these associates, affiliates and joint ventures do not have any significant restriction to transfer dividends or repay their loans or advances to the Company.
119
(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Year ended December 31, 2014 and 2013 (Amounts expressed in thousands of Brazilian Reais, unless otherwise stated) |
17.4. Summary of financial information in associate and joint venture
Associate | Joint Venture | ||||||||||||||||||||||||||||
K&S | Minerva(1) | Nutrifont | PP-BIO | PR-SAD | UP! | AKF(1) | Federal Foods | Rising Star | |||||||||||||||||||||
12.31.14 | 12.31.13 | 12.31.14 | 12.31.14 | 12.31.13 | 12.31.14 | 12.31.13 | 12.31.14 | 12.31.14 | 12.31.13 | 12.31.14 | 12.31.14 | 12.31.13 | 12.31.14 | 12.31.13 | |||||||||||||||
Current assets | 22,605 | 16,342 | 431,505 | 20,176 | 4,633 | - | - | - | 36,553 | 42,902 | 29,565 | - | 152,319 | - | 46,663 | ||||||||||||||
Non-current assets | 4,369 | 4,893 | 580,945 | 61,827 | 14,455 | 1,355 | 1,030 | 2,015 | 101 | 30 | 2,267 | - | 3,887 | - | 243 | ||||||||||||||
Current liabilities | (9,049) | (7,217) | (221,189) | (65,355) | (1,130) | - | - | - | (36,653) | (14,490) | (24,389) | - | (106,481) | - | (46,714) | ||||||||||||||
Non-current liabilities | (397) | (410) | (681,298) | (1,559) | (43) | - | - | - | - | - | (946) | - | (5,026) | - | (12) | ||||||||||||||
Transfer to held for sale | - | - | - | (15,089) | - | - | - | - | - | - | - | - | - | - | - | ||||||||||||||
17,528 | 13,608 | 109,963 | - | 17,915 | 1,355 | 1,030 | 2,015 | 1 | 28,442 | 6,497 | - | 44,699 | - | 180 | |||||||||||||||
K&S | Minerva(1) | Nutrifont | PP-BIO | PR-SAD | UP! | AKF(1) | Federal Foods | Rising Star | |||||||||||||||||||||
12.31.14 | 12.31.13 | 12.31.14 | 12.31.14 | 12.31.13 | 12.31.14 | 12.31.13 | 12.31.14 | 12.31.14 | 12.31.13 | 12.31.14 | 12.31.14 | 12.31.13 | 12.31.14 | 12.31.13 | |||||||||||||||
Net revenues | 51,577 | 42,682 | 159,809 | - | - | - | - | - | 106,340 | 90,767 | 27,016 | 85,257 | 311,564 | 137,416 | 502,716 | ||||||||||||||
Operational expenses | (10,592) | (11,352) | (23,873) | (255) | (6) | - | - | - | (21,806) | (20,287) | (988) | (12,350) | (42,923) | (2,610) | (9,139) | ||||||||||||||
Net income (loss) | 5,141 | 2,304 | (17,021) | (2,826) | 415 | - | - | - | 35,259 | 28,441 | 46 | 2,615 | (17,221) | (469) | (617) | ||||||||||||||
% of interest | 49% | 49% | 16% | 50% | 50% | 33% | 33% | 33% | 50% | 50% | 40% | 49% | 49% | 50% | 50% |
(1) The balances are not comparative because the acquisition of equity interest of AKF and Minerva occurred on July 03, 2014 and October 01 2014 respectively.
120
(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Year ended December 31, 2014 and 2013 (Amounts expressed in thousands of Brazilian Reais, unless otherwise stated) |
18. PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment rollforward is presented below:
Parent company | |||||||||||||||||
Weighted average depreciation rate (p.a.) | 12.31.13 | Additions | Additions from discontinued operations | Disposals | Reversals | Transfers(1) | Net transfers between held for sale | 12.31.14 | |||||||||
Cost | |||||||||||||||||
Land | - | 567,115 | 7,497 | - | (2,449) | - | 16,698 | (39,367) | 549,494 | ||||||||
Buildings and improvements | - | 5,250,780 | 26,527 | - | (49,953) | - | 64,267 | (437,329) | 4,854,292 | ||||||||
Machinery and equipment | - | 6,215,598 | 66,043 | - | (109,642) | - | 388,844 | (579,980) | 5,980,863 | ||||||||
Facilities | - | 1,538,825 | 1,893 | - | (3,110) | - | 107,642 | (897) | 1,644,353 | ||||||||
Furniture | - | 94,376 | 302 | - | (4,647) | - | 6,963 | (9,173) | 87,821 | ||||||||
Vehicles | - | 156,121 | 1 | - | (20,424) | - | (825) | (3,455) | 131,418 | ||||||||
Construction in progress | - | 647,081 | 675,517 | 51,161 | (187) | - | (879,324) | (36,471) | 457,777 | ||||||||
Advances to suppliers | - | 3,649 | 23,341 | - | - | - | (23,420) | - | 3,570 | ||||||||
14,473,545 | 801,121 | 51,161 | (190,412) | - | (319,155) | (1,106,672) | 13,709,588 | ||||||||||
Depreciation | |||||||||||||||||
Buildings and improvements | 3.06% | (1,341,344) | (127,558) | (22,523) | 29,161 | - | 16,841 | 97,228 | (1,348,195) | ||||||||
Machinery and equipment | 5.86% | (2,261,586) | (340,542) | (41,365) | 75,302 | - | 34,861 | 222,519 | (2,310,811) | ||||||||
Facilities | 3.81% | (423,821) | (62,532) | (2,433) | 2,448 | - | 9,637 | 704 | (475,997) | ||||||||
Furniture | 7.96% | (41,305) | (6,231) | (758) | 2,793 | - | 417 | 3,713 | (41,371) | ||||||||
Vehicles | 18.61% | (47,609) | (21,595) | (426) | 9,518 | - | 483 | 1,708 | (57,921) | ||||||||
(4,115,665) | (558,458) | (67,505) | 119,222 | - | 62,239 | 325,872 | (4,234,295) | ||||||||||
Provision for losses | (18,983) | (50,998) | - | - | 19,297 | - | - | (50,684) | |||||||||
10,338,897 | 191,665 | (16,344) | (71,190) | 19,297 | (256,916) | (780,800) | 9,424,609 |
(1) Besides the balance presented to intangible assets and biological assets, also was included the value of R$180,319, relating to the capitaL paid with property, plant and equipment related to division of beef BRF in its wholly-subsidiary Mato Grosso Bovinos S.A., as disclosed in note 17.3 .
121
(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Year ended December 31, 2014 and 2013 (Amounts expressed in thousands of Brazilian Reais, unless otherwise stated) |
Consolidated | |||||||||||||||||||||
Weighted average depreciation rate (p.a.) | 12.31.13 | Additions | Additions from discontinued operations | Business combination(1) | Disposals | Reversals | Transfers | Net transfers between held for sale | Exchange rate variation | 12.31.14 | |||||||||||
Cost | |||||||||||||||||||||
Land | - | 567,129 | 7,497 | - | - | (3,869) | - | 17,754 | (39,367) | (4,146) | 544,998 | ||||||||||
Buildings and improvements | - | 5,414,069 | 28,424 | - | 2,540 | (143,333) | - | 249,924 | (438,494) | (13,875) | 5,099,255 | ||||||||||
Machinery and equipment | - | 6,538,245 | 69,410 | - | 6,064 | (201,553) | - | 496,107 | (579,980) | (24,868) | 6,303,425 | ||||||||||
Facilities | - | 1,573,355 | 2,757 | - | - | (27,112) | - | 211,957 | (897) | (2,652) | 1,757,408 | ||||||||||
Furniture | - | 111,478 | 1,240 | - | 1,279 | (13,870) | - | 4,807 | (9,173) | 4,669 | 100,430 | ||||||||||
Vehicles | - | 160,474 | 561 | - | 20,772 | (32,926) | - | (64) | (3,455) | (1,314) | 144,048 | ||||||||||
Construction in progress | - | 798,372 | 908,443 | 51,161 | 4,010 | (36,673) | - | (1,090,310) | (36,471) | 9,177 | 607,709 | ||||||||||
Advances to suppliers | - | 13,707 | 32,653 | - | - | - | - | (27,539) | - | 1,446 | 20,267 | ||||||||||
15,176,829 | 1,050,985 | 51,161 | 34,665 | (459,336) | - | (137,364) | (1,107,837) | (31,563) | 14,577,540 | ||||||||||||
Depreciation | |||||||||||||||||||||
Buildings and improvements | 3.07% | (1,348,171) | (133,557) | (22,523) | (2,442) | 31,336 | - | 16,641 | 97,958 | 918 | (1,359,840) | ||||||||||
Machinery and equipment | 5.86% | (2,427,892) | (362,877) | (41,365) | (5,485) | 87,357 | - | 34,624 | 222,519 | 6,946 | (2,486,173) | ||||||||||
Facilities | 3.89% | (459,156) | (64,153) | (2,433) | - | 5,599 | - | 9,716 | 704 | 1,789 | (507,934) | ||||||||||
Furniture | 7.94% | (53,389) | (7,582) | (758) | (1,217) | 3,908 | - | 775 | 3,713 | (56) | (54,606) | ||||||||||
Vehicles | 18.74% | (47,660) | (22,571) | (426) | (17,050) | 22,619 | - | 483 | 1,708 | 3,943 | (58,954) | ||||||||||
(4,336,268) | (590,740) | (67,505) | (26,194) | 150,819 | - | 62,239 | 326,602 | 13,540 | (4,467,507) | ||||||||||||
Provision for losses | (18,983) | (50,998) | - | - | - | 19,297 | - | - | - | (50,684) | |||||||||||
10,821,578 | 409,247 | (16,344) | 8,471 | (308,517) | 19,297 | (75,125) | (781,235) | (18,023) | 10,059,349 |
(1) On January 16, 2012, the Company through its wholly-owned subsidiary BRF GmbH, acquired control and consequently started to consolidate the financial statement of wholly-owned subsidiary Federal Foods (note 6.1.1).
122
(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Year ended December 31, 2014 and 2013 (Amounts expressed in thousands of Brazilian Reais, unless otherwise stated) |
The Company has fully depreciated items that are still in operation, which are set forth below:
Parent company | Consolidated | ||||||
12.31.14 | 12.31.13 | 12.31.14 | 12.31.13 | ||||
Cost |
|
|
|
|
| ||
Buildings and improvements | 114,984 | 110,626 |
| 127,168 | 122,939 | ||
Machinery and equipment | 633,241 | 567,665 |
| 671,054 | 618,276 | ||
Facilities | 71,313 | 75,265 |
| 71,676 | 75,294 | ||
Furniture | 14,499 | 13,766 |
| 19,140 | 21,013 | ||
Vehicles | 4,494 | 5,293 |
| 4,494 | 5,610 | ||
Others | 39,852 | 28,202 |
| 39,852 | 28,202 | ||
878,383 | 800,817 |
| 933,384 | 871,334 |
During year ended December 31, 2014, the Company capitalized interest in the amount of R$32,744 in the parent company and R$ 37,686 in the consolidated (R$49,881 in the parent company and R$52,175 in the consolidated as of December 31, 2013). The weighted average interest rate utilized to determine the capitalized amount was 5.43% p.a in the parent company and 5.98% in the consolidated (5.94% in the parent company and 6.21% in the consolidated p.a. as of December 31, 2013).
On December 31, 2014, the Company had no commitments assumed related to acquisition and/or construction of property, plant and equipment items.
The property, plant and equipment items that are pledged as collateral for transactions of different natures are presented below:
|
| Parent company and Consolidated | ||||
| 12.31.14 | 12.31.13 | ||||
Type of collateral | Book value of the collateral | Book value of the collateral | ||||
Land | Financial/Labor/Tax/Civil | 320,905 | 330,823 | |||
Buildings and improvements | Financial/Labor/Tax/Civil | 1,670,522 | 1,824,785 | |||
Machinery and equipment | Financial/Labor/Tax | 2,053,784 | 2,054,899 | |||
Facilities | Financial/Labor/Tax | 640,400 | 660,038 | |||
Furniture | Financial/Labor/Tax/Civil | 18,699 | 19,906 | |||
Vehicles | Financial/Tax | 10,835 | 1,591 | |||
Others | Financial/Labor/Tax/Civil | 76,944 | 100,337 | |||
4,792,089 | 4,992,379 |
123
(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Year ended December 31, 2014 and 2013 (Amounts expressed in thousands of Brazilian Reais, unless otherwise stated) |
19. INTANGIBLES
Intangible assets are comprised of the following items:
Parent company | |||||||||
Weighted average amortization rate (p.a.) | Cost | Accumulated amortization | 12.31.14 | 12.31.13 | |||||
Goodwill | - | 2,096,587 | - | 2,096,587 | 2,767,985 | ||||
Outgrowers relationship | 12.50% | 13,682 | (3,955) | 9,727 | 10,150 | ||||
Trademarks | - | 1,173,000 | - | 1,173,000 | 1,173,000 | ||||
Patents | 16.51% | 3,722 | (1,397) | 2,325 | 2,896 | ||||
Software | 20.00% | 414,941 | (251,490) | 163,451 | 130,108 | ||||
3,701,932 | (256,842) | 3,445,090 | 4,084,139 | ||||||
Consolidated | |||||||||
Weighted average amortization rate (p.a.) | Cost | Accumulated amortization | 12.31.14 | 12.31.13 | |||||
Non-compete agreement | 2.44% | 332 | (332) | - | 124 | ||||
Goodwill | - | 2,525,343 | - | 2,525,343 | 3,101,750 | ||||
Outgrowers relationship | 12.50% | 13,682 | (3,955) | 9,727 | 10,151 | ||||
Trademarks | - | 1,267,888 | - | 1,267,888 | 1,302,305 | ||||
Patents | 17.30% | 4,823 | (2,266) | 2,557 | 3,485 | ||||
Customer relationship | 7.71% | 351,449 | (21,437) | 330,012 | 168,066 | ||||
Supplier relationship | 42.00% | 10,064 | (7,580) | 2,484 | 5,629 | ||||
Software | 20.00% | 453,551 | (262,919) | 190,632 | 166,412 | ||||
4,627,132 | (298,489) | 4,328,643 | 4,757,922 |
124
(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Year ended December 31, 2014 and 2013 (Amounts expressed in thousands of Brazilian Reais, unless otherwise stated) |
The intangible assets rollforward is set forth below:
Parent company | |||||||||||
12.31.13 | Additions | Disposals | Transfers | Transfer to held for sale | 12.31.14 | ||||||
Cost: | |||||||||||
Goodwill: | 2,767,985 | - | - | - | (671,398) | 2,096,587 | |||||
Ava | 49,368 | - | - | - | - | 49,368 | |||||
Batavia | 133,163 | - | - | - | (133,163) | - | |||||
Cotochés | 39,590 | - | - | - | (39,590) | - | |||||
Eleva Alimentos | 1,273,324 | - | - | - | (465,184) | 808,140 | |||||
Heloísa | 33,461 | - | - | - | (33,461) | - | |||||
Incubatório Paraíso | 656 | - | - | - | - | 656 | |||||
Paraíso Agroindustrial | 16,751 | - | - | - | - | 16,751 | |||||
Perdigão Mato Grosso | 7,636 | - | - | - | - | 7,636 | |||||
Sadia | 1,214,036 | - | - | - | - | 1,214,036 | |||||
Outgrowers relationship | 12,463 | 1,219 | - | - | - | 13,682 | |||||
Trademarks | 1,173,000 | - | - | - | - | 1,173,000 | |||||
Patents | 3,722 | - | - | - | - | 3,722 | |||||
Supplier relationship | 135,000 | - | (135,000) | - | - | - | |||||
Software | 290,396 | 46,038 | (1,447) | 79,954 | - | 414,941 | |||||
4,382,566 | 47,257 | (136,447) | 79,954 | (671,398) | 3,701,932 | ||||||
Amortization: | |||||||||||
Outgrowers relationship | (2,313) | (1,642) | - | - | - | (3,955) | |||||
Patents | (826) | (571) | - | - | - | (1,397) | |||||
Supplier relationship | (135,000) | - | 135,000 | - | - | - | |||||
Software | (160,288) | (91,526) | 1,442 | (1,118) | - | (251,490) | |||||
(298,427) | (93,739) | 136,442 | (1,118) | - | (256,842) | ||||||
4,084,139 | (46,482) | (5) | 78,836 | (671,398) | 3,445,090 |
Consolidated | |||||||||||||||
12.31.13 | Additions | Disposals | Business combination | Transfers | Transfer to held for sale | Exchange rate variation | 12.31.14 | ||||||||
Cost: | |||||||||||||||
Goodwill: | 3,101,750 | - | - | 322,276 | (167,893) | (671,398) | (59,392) | 2,525,343 | |||||||
AKF | - | - | - | - | - | - | - | - | |||||||
Ava | 49,368 | - | - | - | - | - | - | 49,368 | |||||||
Avex | 32,819 | - | - | - | - | - | (3,854) | 28,965 | |||||||
Batavia | 133,163 | - | - | - | - | (133,163) | - | - | |||||||
BRF AFC | - | - | - | 274,112 | (138,544) | - | 2,773 | 138,341 | |||||||
Cotochés | 39,590 | - | - | - | - | (39,590) | - | - | |||||||
Dánica | 8,354 | - | - | - | - | - | (981) | 7,373 | |||||||
Eleva Alimentos | 1,273,324 | - | - | - | - | (465,184) | - | 808,140 | |||||||
Federal Foods | 25,249 | - | - | 48,164 | (29,349) | - | 13,364 | 57,428 | |||||||
Heloísa | 33,461 | - | - | - | - | (33,461) | - | - | |||||||
Incubatório Paraíso | 656 | - | - | - | - | - | - | 656 | |||||||
Minerva | - | - | - | - | - | - | - | - | |||||||
Paraíso Agroindustrial | 16,751 | - | - | - | - | - | - | 16,751 | |||||||
Perdigão Mato Grosso | 7,636 | - | - | - | - | - | - | 7,636 | |||||||
Plusfood | 21,084 | - | - | - | - | - | 3 | 21,087 | |||||||
Quickfood | 246,259 | - | - | - | - | - | (70,697) | 175,562 | |||||||
Sadia | 1,214,036 | - | - | - | - | - | - | 1,214,036 | |||||||
Non-compete agreement | 375 | - | - | - | - | - | (43) | 332 | |||||||
Exclusivity agreement | 497 | - | (382) | - | - | - | (115) | - | |||||||
Outgrowers relationship | 12,463 | 1,219 | - | - | - | - | - | 13,682 | |||||||
Trademarks | 1,302,305 | - | - | - | - | - | (34,417) | 1,267,888 | |||||||
Patents | 5,546 | 50 | (774) | - | - | - | 1 | 4,823 | |||||||
Customer relationship | 179,561 | - | - | - | 214,074 | - | (42,186) | 351,449 | |||||||
Supplier relationship | 146,138 | - | (135,000) | - | - | - | (1,074) | 10,064 | |||||||
Software | 329,340 | 49,141 | (1,448) | 2,040 | 78,363 | - | (3,885) | 453,551 | |||||||
5,077,975 | 50,410 | (137,604) | 324,316 | 124,544 | (671,398) | (141,111) | 4,627,132 | ||||||||
Amortization: | |||||||||||||||
Non-compete agreement | (251) | (100) | - | - | - | - | 19 | (332) | |||||||
Exclusivity agreement | (497) | - | 377 | - | - | - | 120 | - | |||||||
Outgrowers relationship | (2,312) | (1,643) | - | - | - | - | - | (3,955) | |||||||
Patents | (2,061) | (606) | 399 | - | - | - | 2 | (2,266) | |||||||
Customer relationship | (11,495) | (10,150) | - | - | - | - | 208 | (21,437) | |||||||
Supplier relationship | (140,509) | (2,275) | 135,000 | - | - | - | 204 | (7,580) | |||||||
Software | (162,928) | (98,670) | 1,442 | (1,410) | (1,118) | - | (235) | (262,919) | |||||||
(320,053) | (113,444) | 137,218 | (1,410) | (1,118) | - | 318 | (298,489) | ||||||||
4,757,922 | (63,034) | (386) | 322,906 | 123,426 | (671,398) | (140,793) | 4,328,643 |
125
(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Year ended December 31, 2014 and 2013 (Amounts expressed in thousands of Brazilian Reais, unless otherwise stated) |
Amortizations of outgrowers relationship and supplier relationships are recognized as a cost of sales in the statement of income, while software amortization is recorded according to its use as cost of sales, administrative or sales expenses.
Trademarks in intangible assets derive from the business combination with Sadia, Quickfood and Dánica group and are considered assets with indefinite useful life as they are expected to indefinitely contribute to the Company’s cash flows.
The goodwill is based on expected future profitability supported by valuation reports, after purchase price allocation.
Goodwill and intangible assets with indefinite useful life (trademarks) are allocated to cash-generating units as presented in note 5.
In 2014, the Company performed the annual impairment analysis including property, plant and equipment items, based on the value in use that was determined by a discounted cash flow model, in accordance with the allocation of goodwill and intangible assets to the cash generating units.
Discounted cash flows were prepared based on the multi-annual budget (2015-2018) of the Company and growth projections up to 2023 (6.9% p.a. up to 13.1% p.a.), which, are based on historical information and market projections of government agencies and associations, such as the United States Department of Agriculture (“USDA”), the Brazilian Pork Industry and Exporter (“ABIPECS”), the Brazilian Pullet Producer Association (“APINCO”). In the Management’s opinion, the use of periods that exceed 5 years in the preparation of discounted cash flows is adequate as it reflects the estimated time of use of these groups of assets.
Management adopted the WACC (11.8% p.a.) as the discount rate for the development of discounted cash flows and also adopted the assumptions shown in the table below:
|
| 2015 |
| 2016 |
| 2017 |
| 2018 |
| 2019 |
| 2020 |
| 2021 |
| 2022 |
| 2023 |
PIB Brazil-BACEN |
| 3.00% |
| 3.60% |
| 3.50% |
| 3.40% |
| 3.80% |
| 4.20% |
| 4.00% |
| 4.20% |
| 4.20% |
PIB Worldwide - FMI |
| 4.30% |
| 4.30% |
| 4.20% |
| 4.10% |
| 4.00% |
| 4.10% |
| 4.00% |
| 4.00% |
| 4.00% |
IPCA |
| 5.60% |
| 5.40% |
| 5.30% |
| 5.20% |
| 5.20% |
| 5.20% |
| 5.00% |
| 4.90% |
| 4.80% |
CPI-FMI |
| 2.30% |
| 2.20% |
| 2.20% |
| 2.20% |
| 2.20% |
| 2.20% |
| 2.20% |
| 2.20% |
| 2.20% |
SELIC |
| 10.00% |
| 9.30% |
| 8.40% |
| 7.60% |
| 7.50% |
| 7.50% |
| 7.50% |
| 7.30% |
| 7.30% |
The rates above do not consider any tax effect (they are before taxes).
Based on Management analyses performed during 2014, no impairment loss was identified.
In addition to the above mentioned recovery analysis, management prepared a sensitivity analysis considering the variations in the EBITDA margin and in the nominal WACC as presented below:
126
(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Year ended December 31, 2014 and 2013 (Amounts expressed in thousands of Brazilian Reais, unless otherwise stated) |
|
|
| Variations |
|
|
Apreciation (devaluation) | 1.0% |
| 0.0% |
| -1.0% |
WACC | 12.8% |
| 11.8% |
| 10.8% |
EBITDA margin | 17.2% |
| 16.2% |
| 15.2% |
Based on the above scenarios, the Company determined that no need to recognize an impairment loss to the intangible assets with indefinite useful life.
127
(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Year ended December 31, 2014 and 2013 (Amounts expressed in thousands of Brazilian Reais, unless otherwise stated) |
20. LOANS AND FINANCING
Parent company | |||||||||||||
Charges (% p.a.) | Weighted average | WAMT(1) | Current | Non-current | 12.31.14 | 12.31.13 | |||||||
Local currency | |||||||||||||
|
|
| |||||||||||
Working capital | 6.26% |
| 6.26% | 0.6 | 1,239,834 | - | 1,239,834 | 1,210,328 | |||||
|
|
| |||||||||||
Export credit facility | 9.63% |
| 9.63% | 0.5 | 967,748 | - | 967,748 | 914,119 | |||||
|
|
| |||||||||||
Development bank credit lines | Fixed rate / TJLP + 2.50% |
| 3.89% | 1.6 | 277,909 | 485,839 | 763,748 | 866,060 | |||||
|
|
| |||||||||||
Bonds | 7.75% (7.75% on 12.31.13) |
| 7.75% (7.75% on 12.31.13) | 3.4 | 4,140 | 497,052 | 501,192 | 500,322 | |||||
|
|
| |||||||||||
Other secured debts and financial lease | 8.14% (8.37% on 12.31.13) |
| 8.14% (8.37% on 12.31.13) | 3.6 | 45,951 | 248,675 | 294,626 | 362,879 | |||||
Special program asset restructuring | Fixed rate / IGPM + 4.90% |
| 8.54% | 5.2 | 3,887 | 209,564 | 213,451 | 206,073 | |||||
|
|
| |||||||||||
Fiscal incentives | Fixed rate / 10.00% IGPM + 1.00% |
| 1.52% | 7.5 | 1,892 | 10,653 | 12,545 | 12,682 | |||||
|
|
| |||||||||||
|
|
| 2,541,361 | 1,451,783 | 3,993,144 | 4,072,463 | |||||||
|
|
| |||||||||||
Foreign currency |
|
|
| ||||||||||
|
|
| |||||||||||
Bonds | 4.97% |
| 4.97% | 8.5 | 25,900 | 5,175,296 | 5,201,196 | 2,833,814 | |||||
|
|
| |||||||||||
Export credit facility | LIBOR + 2.74% |
| 3.07% | 3.3 | 6,508 | 787,380 | 793,888 | 695,552 | |||||
|
|
| |||||||||||
Development bank credit lines | UMBNDES + 2.22% |
| 6.34% | 1.1 | 27,253 | 15,140 | 42,393 | 73,472 | |||||
|
|
| |||||||||||
59,661 | 5,977,816 | 6,037,477 | 3,602,838 | ||||||||||
2,601,022 | 7,429,599 | 10,030,621 | 7,675,301 |
(1) Weighted average maturity in years.
128
(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Year ended December 31, 2014 and 2013 (Amounts expressed in thousands of Brazilian Reais, unless otherwise stated) |
Consolidated | |||||||||||||
Charges (% p.a.) | Weighted average | WAMT(1) | Current | Non-current | 12.31.14 | 12.31.13 | |||||||
Local currency | |||||||||||||
Working capital | 6.26% | 6.26% | 0.6 | 1,239,834 | - | 1,239,834 | 1,210,328 | ||||||
Export credit facility | 9.63% | 9.63% | 0.5 | 967,748 | - | 967,748 | 914,119 | ||||||
Development bank credit lines | Fixed rate / TJLP + 2.50% | 3.89% | 1.6 | 277,909 | 485,839 | 763,748 | 866,060 | ||||||
Bonds | 7.75% (7.75% on 12.31.13) | 7.75% (7.75% on 12.31.13) | 3.4 | 4,140 | 497,052 | 501,192 | 500,322 | ||||||
Other secured debts and financial lease | 8.14% (8.37% on 12.31.13) | 8.14% (8.37% on 12.31.13) | 3.6 | 45,951 | 248,675 | 294,626 | 362,879 | ||||||
Special program asset restructuring | Fixed rate / IGPM + 4.90% | 8.54% | 5.2 | 3,887 | 209,564 | 213,451 | 206,073 | ||||||
Fiscal incentives | Fixed rate / 10.00% IGPM + 1.00% | 1.52% | 7.5 | 1,892 | 10,653 | 12,545 | 12,682 | ||||||
|
|
| 2,541,361 | 1,451,783 | 3,993,144 | 4,072,463 | |||||||
|
|
| |||||||||||
Foreign currency |
|
|
| ||||||||||
|
|
| |||||||||||
Bonds | 5.87% |
| 5.87% | 7.6 | 89,902 | 6,324,090 | 6,413,992 | 4,910,991 | |||||
|
|
| |||||||||||
Export credit facility | LIBOR + 2.71% |
| 3.01% | 3.4 | 6,948 | 1,052,485 | 1,059,433 | 929,620 | |||||
|
|
| |||||||||||
Working capital | Fixed rate + LIBOR + 2.71% | 22.97% | 0.1 | 65,474 | 3,343 | 68,817 | 173,216 | ||||||
|
|
| |||||||||||
Development bank credit lines | UMBNDES + 2.22% |
| 6.34% | 1.1 | 27,253 | 15,142 | 42,395 | 73,472 | |||||
|
|
| |||||||||||
Other secured debts and financial lease | 15.08% |
| 15.08% | 0.9 | 7,965 | 3,589 | 11,554 | 21,428 | |||||
|
|
| |||||||||||
197,542 | 7,398,649 | 7,596,191 | 6,108,727 | ||||||||||
2,738,903 | 8,850,432 | 11,589,335 | 10,181,190 |
(1) Weighted average maturity in years.
129
(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Year ended December 31, 2014 and 2013 (Amounts expressed in thousands of Brazilian Reais, unless otherwise stated) |
20.1. Working capital
Rural credit: The Company and its subsidiaries entered into rural credit loans with several commercial banks, under a Brazilian Federal government program that offers an incentive to investments in rural activities.
Working capital in foreign currency: Refers to credit lines taken from financial institutions and utilized primarily for short term working capital and import operations of subsidiaries located in Argentina. The loans are denominated in Argentine Pesos and U.S. Dollars, mainly maturing in 2015.
20.2. Export credit facilities
Pre-export facilities: Generally are denominated in U.S. Dollars, maturing between 2017 and 2019. Under the terms of each of these credit facilities, the Company entered into loans which must be evidenced subsequently by accounts receivable related to the exports of its products.
Commercial credit lines: Denominated in U.S. Dollars with quarterly payments of interest and principal maturing in 2018 and are utilized for purchases of imported raw materials and other working capital needs.
Export credit notes: The Company entered into export credit notes contracts indexed to the CDI, to be utilized as working capital and maturing in 2015.
20.3. Development bank credit lines
The Company and its subsidiaries have several outstanding obligations with National Bank for Economic and Social Development (“BNDES”). The loans were obtained for the acquisition of equipment and expansion of productive facilities.
FINEM: Credit lines of Financing for Enterprises ("FINEM") which are subject to the variations of UMBNDES currency basket. The values of principal and interest are paid in monthly installments, with maturities between 2015 and 2019 and are secured by pledge of equipment, facilities and mortgage on properties owned by the Company.
FINEP: Credit lines of Financial of Studies and Projects (“FINEP”) obtained with reduced charges for projects of research, development and innovation, with maturities dates between 2015 and 2019.
20.4. Bonds
SeniorNotes BRF 2024: On May 15, 2014, BRF completed international offerings of 10 year bonds in the aggregate amount of US$750,000 (the “USD Bonds”), which willmature on May 22, 2024 (“Senior Notes BRF 2024”), issued with a coupon (interest) of 4.75% p.a. (yield to maturity 4.952%), payable semi-annually beginning on November 22, 2014.
130
(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Year ended December 31, 2014 and 2013 (Amounts expressed in thousands of Brazilian Reais, unless otherwise stated) |
From the total amount raised of Senior Notes BRF 2024, US$ 470,593 was used for settlement transaction denominated Tender Offer realized for the purpose to repurchase a portion of the debts of Sadia Overseas Bonds 2017 and BFF Notes 2020 ("existing bonds").
In the execution of Tender Offer, BRF paid a premium in the amount of US$ 86,427 (equivalent to R$198,514) to the existing bondholders, which was recorded as financial expenses.
BFF Notes 2020: On January 28, 2010, BFF International Limited issued senior notes in the total value of US$750,000, whose notes are guaranteed by BRF, with a nominal interest rate of 7.25% p.a. and effective rate of 7.54% p.a. maturing on January 28, 2020. On June 20, 2013, the amount of US$120,718 of these senior notes was exchanged by Senior Notes BRF 2023 and on May 15, 2014, the amount of US$409,640 was repurchased with part of the proceeds obtained from the Senior Notes BRF 2024, and the remaining balance amounted to US$219,642 on June 30, 2014. For the year ended December 31, 2014, there was no change in the remaining balance.
Sadia Overseas Bonds 2017: In the total value of US$250,000, such bonds are guaranteed by BRF, with an interest rate of 6.88% p.a. and maturing on May 24, 2017. On June 20, 2013, the amount of US$29,282 of these senior notes was exchanged by Senior Notes BRF 2023 and on May 15, 2014, the amount of US$60,953 was repurchased with part of the proceeds obtained from Senior Notes BRF in 2024, and the remaining balance amounted to US$159.765 on June 30, 2014. For the year ended December 31, 2014, there was no change in the remaining balance.
SeniorNotes BRF 2023: On May 15, 2013, BRF completed international offerings of (i) 10 year bonds in the aggregate amount of US$500,000 (the “USD Bonds”), which will mature on May 22, 2023 (“Senior Notes BRF 2023”), issued with a coupon (interest) of 3.95% per year (yield to maturity 4.135%), payable semi-annually beginning on November 22, 2013 and (ii) 5 year bonds in the aggregate amount of R$500,000 (the “BRL Bonds”) which will mature on May 22, 2018, issued with a coupon (interest) of 7.75% p.a. (yield to maturity 7.75%), payable semi-annually beginning as from November 22, 2013.
Senior Notes BRF2022: On June 6, 2012, BRF issued senior notes of US$500,000, with nominal interest rate of 5.88% p.a. and an effective rate of 6.00% p.a. maturing on June 6, 2022. On June 26, 2012 the Company reopened this transaction for an additional amount of R$ 250,000, with nominal interest rate of 5.88% p.a. and effective rate of 5.50% p.a.
131
(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Year ended December 31, 2014 and 2013 (Amounts expressed in thousands of Brazilian Reais, unless otherwise stated) |
20.5. Other secured debts and financial lease
Industrial credit notes: The Company issue industrial credit notes, receiving from official funds, such as Fund for Worker Support (“FAT”), Constitutional Fund for Financing the Midwest (“FCO”) and Constitutional Fund for Financing the Northwest (“FNE”). The notes are paid on a monthly basis and have maturity dates between 2015 and 2023. These notes are secured by a pledge of machinery and equipment and real estate mortgages.
Financial lease: The Company entered into financial leases for acquisition of vehicles, which consists in the principal amount and interest paid in monthly installments.
20.6. Special Program Asset Recovery (“PESA”)
The Company has a loan facility obtained through the Special Program for Asset Recovery (“Programa Especial de Saneamento de Ativos”) promoted by the federal government and securitized by commercial financial institutions. Such loan facility is subject to the variations of the General Market Price Index (“IGPM”) plus interest of 4.90% p.a. The principal is payable in a single installment and the maturity date is 2020, being secured by endorsements and pledges of public debt securities (see note 16).
20.7. Rotative credit line (“Revolver Credit Facility”)
With the purpose of improving its financial liquidity, the Company and its wholly-owned subsidiary BRF Global GmbH obtained a credit line Revolver Credit Facility ("Revolver Credit Facility") in the amount of US$1,000,000, with a maturity date in May 2019, from a syndicate comprised of 28 banks. The transaction was structured to allow the Company to utilize the credit line at any time, during the contracted period. Until December 31, 2014, the Company did not use this credit facility.
20.8. Loans and financing maturity schedule
The maturity schedule of the loans and financing balances is as follow:
| Parent company |
| Consolidated |
| 12.31.14 |
| 12.31.14 |
2015 | 2,601,022 |
| 2,738,903 |
2016 | 268,616 |
| 347,487 |
2017 | 483,290 |
| 946,906 |
2018 | 1,044,846 |
| 1,345,901 |
2019 onwards | 5,632,847 |
| 6,210,138 |
| 10,030,621 |
| 11,589,335 |
132
(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Year ended December 31, 2014 and 2013 (Amounts expressed in thousands of Brazilian Reais, unless otherwise stated) |
20.9. Guarantees
| Parent company |
| Consolidated | ||||
| 12.31.14 |
| 12.31.13 |
| 12.31.14 |
| 12.31.13 |
Total of loans and financing | 10,030,621 |
| 7,675,301 |
| 11,589,335 |
| 10,181,190 |
Mortgage guarantees | 1,102,742 |
| 1,278,353 |
| 1,102,742 |
| 1,278,353 |
Related to FINEM-BNDES | 594,915 |
| 817,340 |
| 594,915 |
| 817,340 |
Related to FNE-BNB | 293,529 |
| 335,395 |
| 293,529 |
| 335,395 |
Related to tax incentives and other | 214,298 |
| 125,618 |
| 214,298 |
| 125,618 |
|
|
|
|
|
|
|
|
Statutory lien on assets acquired with financing | 1,045 |
| 26,755 |
| 1,045 |
| 26,783 |
Related to FINEM-BNDES | 648 |
| 1,203 |
| 648 |
| 1,203 |
Related to financial lease | 397 |
| 25,552 |
| 397 |
| 25,580 |
The Company is the guarantor of a loan obtained by Instituto Sadia de Sustentabilidade from the BNDES. The loan was obtained with the purpose of allowing the implementation of biodigesters in the farms of the outgrowers which take part in the Company´s integration system, targeting the reduction of the emission of Greenhouse Gases. The value of these guarantees on December 31, 2014 totaled R$53,305 (R$61,060 as of December 31, 2013).
The Company is the guarantor of loans related to a special program, which aimed the local development of outgrowers in the central region of Brazil. The proceeds of such loans are utilized by the outgrowers is to improve farm conditions and will be paid by them in 10 years, taking as collateral the land and equipment acquired by the outgrowers through this program. The guarantee as of December 31, 2014 totaled R$280,136 (R$363,700 as of December 31, 2013).
On December 31, 2014, the Company contracted bank guarantees in the amount of R$2,048,340 (R$1,707,162 as of December 31, 2013). The variation occurred in this period is related to bank guarantees offered mainly in litigations involving the Company´s use of tax credits. These guarantees have an average cost of 0.90% p.a. (0.92% p.a. as of December 31, 2013).
20.10. Commitments
In the normal course of the business, the Company enters into agreements with third parties which are mainly related to the purchase of raw materials, such as corn and soymeal, where the agreed prices can be fixed or to be fixed. The Company enters into other agreements, such as electricity, packaging supplies and manufacturing activities. The amounts of the agreements on the date of these financial statements are set forth below:
133
(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Year ended December 31, 2014 and 2013 (Amounts expressed in thousands of Brazilian Reais, unless otherwise stated) |
| Parent company and Consolidated |
| 12.31.14 |
2015 | 3,054,692 |
2016 | 697,757 |
2017 | 550,385 |
2018 | 523,430 |
2019 onwards | 2,197,059 |
| 7,023,323 |
21. TRADE ACCOUNTS PAYABLE
Parent company | Consolidated | ||||||
12.31.14 | 12.31.13 | 12.31.14 | 12.31.13 | ||||
Domestic suppliers | |||||||
Third parties | 3,029,397 | 3,025,005 | 3,029,714 | 3,028,458 | |||
Related parties | 18,795 | 12,033 | 18,795 | 12,033 | |||
3,048,192 | 3,037,038 | 3,048,509 | 3,040,491 | ||||
Foreign suppliers | |||||||
Third parties | 571,563 | 339,387 | 957,201 | 634,135 | |||
Related parties | 608 | 1,604 | - | 79 | |||
572,171 | 340,991 | 957,201 | 634,214 | ||||
(-) Adjustment to present value | (28,383) | - | (28,383) | - | |||
3,591,980 | 3,378,029 | 3,977,327 | 3,674,705 |
In the year ended on December 31, 2014, accounts payable to suppliers are 70 days.
The information on accounts payable involving related parties is presented in note 30. The trade accounts payable to related parties refer to transactions with associates UP! and K&S in the Brazil.
134
(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Year ended December 31, 2014 and 2013 (Amounts expressed in thousands of Brazilian Reais, unless otherwise stated) |
22. OTHER FINANCIAL ASSETS AND LIABILITIES
Parent company | Consolidated | ||||||
12.31.14 | 12.31.13 | 12.31.14 | 12.31.13 | ||||
Derivative financial instruments | |||||||
Financial instruments derivatives designated as cash flow hedge | |||||||
Assets | |||||||
Non-deliverable forward (NDF) | 9,749 | 801 | 9,749 | 801 | |||
Currency option contracts | 3,160 | 2,683 | 3,160 | 2,683 | |||
Deliverable forwards contracts | 933 | 1,518 | 933 | 1,518 | |||
13,842 | 5,002 | 13,842 | 5,002 | ||||
Liabilities | |||||||
Non-deliverable forward (NDF) | (77,122) | (59,431) | (77,122) | (59,431) | |||
Currency option contracts | (7,155) | (2,970) | (7,155) | (2,970) | |||
Deliverable forwards contracts | (3,482) | (11,947) | (3,482) | (11,947) | |||
Exchange rate contracts currency (Swap) | (119,388) | (237,111) | (157,975) | (275,865) | |||
(207,147) | (311,459) | (245,734) | (350,213) | ||||
Financial instruments derivatives designated as cash flow hedge | |||||||
Assets | |||||||
Non-deliverable forward (NDF) | 1,125 | - | 1,304 | 2,715 | |||
Live cattle forward contracts (see note 13.1) | 27,955 | - | 27,955 | - | |||
Exchange rate contracts currency (Swap) | - | 590 | - | 590 | |||
Dollar future contracts - BM&F Bovespa | - | 3,247 | - | 3,247 | |||
Live cattle future contracts - BM&F Bovespa | - | 18 | - | 18 | |||
29,080 | 3,855 | 29,259 | 6,570 | ||||
Liabilities | |||||||
Non-deliverable forward (NDF) | - | - | (2,794) | (227) | |||
Live cattle forward contracts (NFD) | - | (484) | - | (484) | |||
Currency option contracts | - | (154) | - | (154) | |||
Exchange rate contracts currency (Swap) | (3,216) | (6,104) | (3,216) | (6,104) | |||
Dollar future contracts - BM&F Bovespa | (5,694) | - | (5,694) | - | |||
(8,910) | (6,742) | (11,704) | (6,969) | ||||
Current assets | 42,922 | 8,857 | 43,101 | 11,572 | |||
Current liabilities | (216,057) | (318,201) | (257,438) | (357,182) |
The collateral given in the transactions presented above are disclosed in note 8.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Year ended December 31, 2014 and 2013 (Amounts expressed in thousands of Brazilian Reais, unless otherwise stated) |
23. LEASES
The Company is lessee in several contracts, which can be classified as operating or finance lease.
23.1. Operating lease
The minimum future payments of non-cancellable operating lease are presented below:
Parent company | Consolidated | ||
12.31.14 | 12.31.14 | ||
2015 | 169,332 | 169,357 | |
2016 | 150,895 | 152,093 | |
2017 | 127,593 | 128,791 | |
2018 | 110,095 | 111,372 | |
2019 onwards | 226,598 | 226,598 | |
784,513 | 788,211 |
On, December 31, 2014, the payments of operating lease agreements recognized as expense in the year ended December 31, 2014 amounted to R$194,078 in the parent company and R$247,699 in the consolidated (R$249,902 in the parent company and R$283,082 in the consolidated as of December 31, 2013).
23.2. Finance lease
The Company enters into finance leases mainly for the acquisitions of machinery, equipment, vehicles, software and buildings, presented below:
| Parent company | Consolidated | |||||||
Weighted average interest rate | 12.31.14 | 12.31.13 | 12.31.14 | 12.31.13 | |||||
Cost | |||||||||
Machinery and equipment | 23,666 | 75,475 | 32,010 | 86,512 | |||||
Software | 72,961 | 22,108 | 72,961 | 22,108 | |||||
Vehicles | 28,204 | 138,899 | 28,204 | 138,899 | |||||
Buildings | 128,659 | 113,732 | 128,659 | 113,732 | |||||
253,490 | 350,214 | 261,834 | 361,251 | ||||||
Accumulated depreciation | |||||||||
Machinery and equipment | 18.45% | (8,306) | (17,776) | (16,613) | (26,953) | ||||
Software | 20.00% | (48,298) | (8,914) | (48,298) | (8,914) | ||||
Vehicles | 13.02% | (8,831) | (36,996) | (8,831) | (36,996) | ||||
Buildings | 15.43% | (20,248) | (9,638) | (20,248) | (9,638) | ||||
(85,683) | (73,324) | (93,990) | (82,501) | ||||||
167,807 | 276,890 | 167,844 | 278,750 |
(1) The period of depreciation of leased assets corresponds to the lowest of term of the contract and the useful life of the asset, as determined by CVM Deliberation Nº 645/10.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Year ended December 31, 2014 and 2013 (Amounts expressed in thousands of Brazilian Reais, unless otherwise stated) |
The minimum future payments required for these finance leases are segregated as follows, and were recorded in current and non-current liabilities:
Parent Company | |||||
12.31.14 | |||||
Present value of minimum payments(1) | Interest | Minimum future payments(2) | |||
2015 | 63,743 | 24,743 | 88,486 | ||
2016 | 41,750 | 16,579 | 58,329 | ||
2017 | 24,497 | 10,006 | 34,503 | ||
2018 | 21,667 | 7,796 | 29,463 | ||
2019 onwards | 92,356 | 60,338 | 152,694 | ||
244,013 | 119,462 | 363,475 | |||
Consolidated | |||||
12.31.14 | |||||
Present value of minimum payments(1) | Interest | Minimum future payments(2) | |||
2015 | 63,810 | 24,766 | 88,576 | ||
2016 | 41,750 | 16,579 | 58,329 | ||
2017 | 24,497 | 10,006 | 34,503 | ||
2018 | 21,667 | 7,796 | 29,463 | ||
2019 onwards | 92,473 | 60,363 | 152,836 | ||
244,197 | 119,510 | 363,707 |
(1) Comprises the amount of R$407 related to financial lease of vehicles which are recorded as loans and financing.
(2) Comprises the amount of R$412 related to financial lease of vehicles which are recorded as loans and financing.
The contract terms for both modalities, with respect to renewal, adjustment and purchase option, are according to market practices. In addition, there are no clauses of contingent payments or restrictions on dividends distribution, payments of interest on shareholders’ equity or obtaining debt.
24. SHARE BASED PAYMENT
The Company grants to its directors and executive managers the stock option plan, consisting of two instruments: (i) stock option plan and (ii) additional stock option plan, which is optional and the executives can use a portion of their profit-sharing amounts. The basis of the vesting conditions will be the attainment of effective results and appreciation of the Company’s business.
The plan includes shares issued by the Company up to the limit of 2,5% of the total stock, and its purpose is to: (i) attract, retain and motivate the beneficiaries, (ii) add value for shareholders, and (iii) encourage the view of entrepreneur of the business.
The plan is managed by the Board of Directors, within the limits established by the general guidelines of the plan and applicable legislation.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Year ended December 31, 2014 and 2013 (Amounts expressed in thousands of Brazilian Reais, unless otherwise stated) |
The exercise price of the options is determined by the Board of Directors and is equivalent to the average amount of the closing price of the share at the last twenty trading sessions of the BM&FBOVESPA, prior to the grant date, updated monthly by the variation of the Amplified Consumer Price Index (“IPCA”) between the grant date and the month prior to the option exercise notice by the beneficiary.
The vesting period ranges from 1 to 3 years and will observe the following deadlines from the grant date of the option:
· up to 1/3 of the total options may be exercised after one year;
· up to 2/3 of the total options may be exercised after two years; and
· all the options may be exercised after three years.
After the vesting period and within no more than five years from the grant date, the beneficiary is no longer entitled to the right to the unexercised options. To satisfy the exercise of the options, the Company may issue new shares or use shares held in treasury.
At the Extraordinary General Meeting of Abril 03, 2014, was approved by shareholders the stock option plan conditioned to performance, for which were granted 1,251,238 options. On September 30, 2014, by decision of the Board of Directors, such grants were canceled with no effect on the financial statements for the year ended on December 31, 2014.
The breakdown of the outstanding granted options is presented as follows:
Date | Quantity | Grant(1) | Price of converted share(1) | |||||||||||
Grant date | Beginning of the year | End of the year | Options granted | Outstanding options | Fair value of the option | Granting date | Updated IPCA | |||||||
Stock options to related to service condition | ||||||||||||||
05/03/10 |
| 05/02/11 |
| 05/02/15 | 1,540,011 | 80,833 | 7.77 | 23.44 | 30.49 | |||||
05/02/11 |
| 05/01/12 |
| 05/01/16 | 2,463,525 | 401,941 | 11.36 | 30.85 | 37.67 | |||||
05/02/12 |
| 05/01/13 |
| 05/01/17 | 3,708,071 | 959,059 | 7.82 | 34.95 | 40.60 | |||||
05/02/13 |
| 05/01/14 |
| 05/01/18 | 3,490,201 | 1,487,865 | 11.88 | 46.86 | 51.12 | |||||
04/04/14 |
| 04/03/15 |
| 04/03/19 | 1,552,564 | 1,332,113 | 12.56 | 44.48 | 45.66 | |||||
05/02/14 |
| 05/01/15 |
| 05/01/19 | 1,610,450 | 1,426,321 | 14.11 | 47.98 | 49.25 | |||||
12/18/14 |
| 12/17/15 |
| 12/17/19 | 5,702,714 | 5,702,714 | 14.58 | 63.49 | 63.49 | |||||
20,067,536 | 11,390,846 |
(1) Values expressed in Brazilian Reais
The rollforward of the outstanding granted options for the year ended December 31, 2014 is presented as follows:
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Year ended December 31, 2014 and 2013 (Amounts expressed in thousands of Brazilian Reais, unless otherwise stated) |
Consolidated | ||
Quantity of outstanding options as of December 31, 2013 | 6,932,434 | |
Issued - grant of 2014 | 10,116,966 | |
Exercised: | ||
Grant of 2013 | (400,216) | |
Grant of 2012 | (959,596) | |
Grant of 2011 | (820,931) | |
Grant of 2010 | (415,867) | |
Cancelled: | ||
Grant of 2014 (performance) | (1,251,238) | |
Grant of 2014 | (404,580) | |
Grant of 2013 | (864,472) | |
Grant of 2012 | (430,759) | |
Grant of 2011 | (110,895) | |
Quantity of outstanding options as of December 31, 2014 | 11,390,846 |
The weighted average exercise prices of the outstanding options is R$54.93 (fifty four Brazilian Reais and ninety three cents), and the weighted average of the remaining contractual term is 51 months.
The Company records as capital reserve in shareholders’ equity the fair value of the options in the amount of R$92,898 (R$72,225 as of December 31, 2013). In the statement of income in the year ended December 31, 2014 the amount recognized as expense was R$20,673 (R$26,761 as of December 31, 2013).
During the year ended December 31, 2014 the Company’s executives exercised 2,596,610 shares, with an average price of R$38.42 (thirty eight Brazilian Reais and forty two cents) totaling R$99,765. In order to comply with this commitment, the Company utilized treasury shares with an acquisition cost of R$47.54 (forty seven Brazilian Reais and fifty four cents), totaling R$123,447, recording a gain in the amount of R$23,682 as capital reserve.
24.1. Fair Value Measurement
The weighted average fair value of options outstanding as of December 31, 2014 was R$13.20 (thirteen Brazilian Reais and twenty cents) (R$10.11 as of December 31, 2013). The fair value of the stock options was measured using the Black-Scholes pricing model, based on the following assumptions:
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Year ended December 31, 2014 and 2013 (Amounts expressed in thousands of Brazilian Reais, unless otherwise stated) |
|
| 12.31.14 |
Expected maturity of the option: |
|
|
Exercise in the 1st year |
| 3.0 years |
Exercise in the 2nd year |
| 3.5 years |
Exercise in the 3rd year |
| 4.0 years |
Risk-free interest rate |
| 5.18% |
Volatility |
| 29.45% |
Expected dividends over shares |
| 1.26% |
Expected inflation rate |
| 5.92% |
24.2. Expected period
The expected period is that in which it is believed that the options will be exercised and was determined under the assumption that the beneficiaries will exercise their options at the limit of the maturity period.
24.3. Risk-free interest rate
The Company uses as risk-free interest rate the National Treasury Bond (“NTN-B”) available on the date of calculation and with maturity equivalent to the terms of the option.
24.4. Volatility
The estimated volatility took into account the weighting of the trading history of the Company’s shares.
24.5. Expected dividends
The percentage of dividends used is based on the average payment of dividends per share in relation to the market value of the shares for the past four years.
24.6. Expected inflation rate
The expected average inflation rate is based on estimated IPCA by Central Bank of Brazil, considering the remaining average terms of the option.
25. PENSION AND OTHER POST-EMPLOYMENT PLANS
25.1. Pension plans
The Company sponsors pension plans for its employees and executives as presented below:
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Year ended December 31, 2014 and 2013 (Amounts expressed in thousands of Brazilian Reais, unless otherwise stated) |
Plan |
| Modality |
| Adhesions |
|
|
|
|
|
Plan I |
| Variable Contribution |
| Closed |
Plan II |
| Variable Contribution |
| Closed |
Plan III |
| Defined Contribution |
| Open |
FAF |
| Defined Benefit |
| Closed |
These plans are managed by BRF Previdência a pension fund entity of non-economic nature and non-profit, through its Deliberative Board which is responsible for define pension premises and policies, as well as establish fundamentals guidelines and organization, operation and management rules. The Deliberative Board is composed of representatives from the sponsor and participants, the proportion of 2/3 and 1/3 respectively.
a. Defined benefit plans
Plan I and II are defined as variable contribution, structured as defined contribution during the accumulation of mathematics provisions with option to change the account balance to be applicable in lifetime monthly income on the grant date benefit. Main actuarial risks related are (i) survival time over expected in the mortality tables and (ii) real return on equity below the real discount rate.
Main purpose of FAF plan is to supplement the benefit paid by the Brazilian Social Security (“INSS – Instituto Nacional de Securidade Social”), calculated proportionally according to the length of service performed and in line with the type of retirement. Main actuarial risks related are (i) survival time over expected in the mortality tables (ii) turnover lower than expected, (iii) salary growth higher than expected, (iv) actual return on assets below the actual discount rate, (v) amendment of the rules of social security and actual family composition of the retired employee or executive different from the established assumption.
In plans I and II, the contributions are made on a 1 to 1 basis (the contributions of the sponsor are equal to the basic contributions of the participants). In the Plan FAF, the contribution is made through a percentage actuarially defined for the participant and the sponsor. The actuarial calculations of the plans managed by BRF Previdência are made by independent actuaries, on a yearly basis, according to the rules in force.
In case of a deficit result in plans, it must be supported by the sponsor, participants and beneficiaries, in the proportion between their contributions.
b. Defined contribution plan
Plan III is a defined contribution plan, where contributions are known and the benefit amount depends directly on the contributions made by participants and sponsors, time
141
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Year ended December 31, 2014 and 2013 (Amounts expressed in thousands of Brazilian Reais, unless otherwise stated) |
of contribution and of the result obtained through investment of contributions. The contributions are made on a 1 to 1 basis (the contributions of the sponsor are equal to the basic contributions of the participants) and that may vary from 0.7% to 7.0% according to the salary range of the participant. The contributions made by the Company in the years ended December 31, 2014 and December 31, 2013 are amounted R$5,087 and R$4,445 respectively. On December 31, 2014, the plans has 13,362 participants (7,442 participants as of December 31, 2013).
If plans I, II and III participants end the employment relationship with the sponsor, the balance formed by the contributions of the sponsor not used for the payment of benefits, will form a fund of overage of contributions that may be used to compensate the future contributions of the sponsor.
c. Rollforward of defined benefit plans
The assets and actuarial liabilities are presented below:
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Year ended December 31, 2014 and 2013 (Amounts expressed in thousands of Brazilian Reais, unless otherwise stated) |
Consolidated | |||||||
FAF | Plano I e II | ||||||
12.31.14 | 12.31.13 | 12.31.14 | 12.31.13 | ||||
Assets and liabilities composition | |||||||
Present value of actuarial liabilities | 1,644,567 | 1,407,960 | 13,283 | 11,046 | |||
Fair value of assets | (2,385,220) | (2,219,315) | (21,971) | (18,477) | |||
(Surplus) Deficit | (740,653) | (811,355) | (8,688) | (7,431) | |||
Irrecoverable (surplus) deficit - impact on asset limit | 740,653 | 811,355 | 3,164 | 2,959 | |||
Net (Assets) Liabilities | - | - | (5,524) | (4,472) | |||
Rollforward of irrecoverable surplus | |||||||
Beginning balance of irrecoverable surplus | 811,355 | 222,140 | 2,959 | - | |||
Interest on irrecoverable surplus | 101,338 | 19,282 | 369 | - | |||
Changes in irrecoverable surplus during the period | (172,040) | 569,933 | (164) | 2,959 | |||
Ending balance of irrecoverable surplus | 740,653 | 811,355 | 3,164 | 2,959 | |||
Changes in actuarial obligation | |||||||
Beginning balance of the present value of the actuarial obligation | 1,407,960 | 1,916,445 | 11,046 | 14,145 | |||
Interest on actuarial obligations | 169,862 | 163,103 | 1,320 | 1,171 | |||
Current service cost | 16,782 | 42,560 | - | - | |||
Benefit paid | (80,399) | (70,690) | (1,077) | (861) | |||
Actuarial (gains) losses - experience | 11,334 | (69,412) | 1,073 | 300 | |||
Actuarial losses - hypothesis | 119,028 | (574,046) | 921 | (3,709) | |||
Ending balance of actuarial obligation | 1,644,567 | 1,407,960 | 13,283 | 11,046 | |||
Rollforward of assets fair value | |||||||
Beginning balance of the fair value of plan assets | (2,219,315) | (2,138,585) | (18,477) | (11,182) | |||
Interest income on assets plan | (271,200) | (182,385) | (2,245) | (918) | |||
Benefit paid | 80,399 | 70,690 | 1,077 | 861 | |||
Contributions paid by the Company | (407) | - | - | - | |||
Return on assets higher (lower) than projection | 25,303 | 30,965 | (2,326) | (7,238) | |||
Ending balance of assets fair value | (2,385,220) | (2,219,315) | (21,971) | (18,477) | |||
Rollforward of comprehensive income | |||||||
Beginning balance | 42,560 | 29,049 | 7,688 | (2,963) | |||
Reversion to statement of income | (42,560) | (29,049) | (7,688) | 2,963 | |||
Actuarial gains (losses) | (130,362) | 643,458 | (1,994) | 3,409 | |||
Return on assets higher (lower) than projection | (25,303) | (30,965) | 2,326 | 7,238 | |||
Changes on irrecoverable surplus | 172,040 | (569,933) | 164 | (2,959) | |||
Ending balance of comprehensive income | 16,375 | 42,560 | 496 | 7,688 | |||
Costs recognized in statement of income | |||||||
Current service costs | (16,782) | (42,560) | - | - | |||
Interest on actuarial obligations | (169,862) | (163,103) | (1,320) | (1,171) | |||
Projected return on assets | 271,200 | 182,385 | 2,245 | 918 | |||
Interest on irrecoverable surplus | (101,338) | (19,282) | (369) | - | |||
Costs recognized in statement of income | (16,782) | (42,560) | 556 | (253) | |||
Estimated costs for the next period | |||||||
Costs of defined benefit | (27,827) | (16,782) | 633 | 556 | |||
Estimated costs for the next period | (27,827) | (16,782) | 633 | 556 |
d. Actuarial assumptions and demographic data
The main actuarial assumptions and demographic data used in the actuarial calculations are summarized below:
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Year ended December 31, 2014 and 2013 (Amounts expressed in thousands of Brazilian Reais, unless otherwise stated) |
Consolidated | |||||||
FAF | Plan I e II | ||||||
12.31.14 | 12.31.13 | 12.31.14 | 12.31.13 | ||||
Actuarial assumptions | |||||||
Economic hypothesis | |||||||
Discount rate | 11.45% | 12.49% | 11.45% | 12.47% | |||
Projected return on assets | 11.45% | 12.49% | 11.45% | 12.47% | |||
Inflation rate | 5.20% | 5.40% | 5.20% | 5.40% | |||
Wage growth rate | 6.25% | 6.98% | N/A | N/A | |||
Demographic hypothesis | |||||||
Schedule of mortality | AT-2000 | AT-2000 | AT-2000 | AT-2000 | |||
Schedule of disabled mortality | IAPC | IAPC | IAPC | IAPC | |||
Demographic data | |||||||
Number of active participants | 9,431 | 10,103 | - | - | |||
Number of participants in direct proportional benefit | 22 | 104 | - | - | |||
Number of assisted beneficiary participants | 5,502 | 5,230 | 53 | 51 |
e. The composition of the investment portfolios
The composition of the investment portfolios are presented below:
FAF | Plans I and II | |||||||||||||||
12.31.14 | 12.31.13 | 12.31.14 | 12.31.13 | |||||||||||||
Composition of the fund's portfolio: | ||||||||||||||||
Fixed income | 1,717,359 | 72.0% | 1,551,301 | 69.9% | 18,676 | 85.0% | 13,599 | 73.6% | ||||||||
Variable income | 360,168 | 15.1% | 348,432 | 15.7% | 3,066 | 14.0% | 4,231 | 22.9% | ||||||||
Real estate | 179,369 | 7.5% | 210,835 | 9.5% | - | - | - | - | ||||||||
Structured investments | 113,536 | 4.8% | 95,431 | 4.3% | 229 | 1.0% | 647 | 0.04 | ||||||||
Transactions with participants | 14,788 | 0.6% | 13,316 | 0.6% | - | - | - | - | ||||||||
2,385,220 | 100.0% | 2,219,315 | 100.0% | 21,971 | 100.0% | 18,477 | 100.0% | |||||||||
% of nominal return on assets | 11.63% | 6.45% | 11.66% | 0.12% |
f. Forecast and average term of payments of obligations
The following amounts represent the expected benefit payments for future years (10 years) and the average duration of the plan obligations:
FAF | Plans I and II | ||
Payments in: | |||
2015 | 89,215 | 1,040 | |
2016 | 96,738 | 1,090 | |
2017 | 103,888 | 1,144 | |
2018 | 111,755 | 1,197 | |
2019 | 121,659 | 1,253 | |
2020 to 2024 | 779,452 | 7,152 | |
Weighted average duration - in years | 12.50 | 11.37 |
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Year ended December 31, 2014 and 2013 (Amounts expressed in thousands of Brazilian Reais, unless otherwise stated) |
g. Sensibility analysis of defined benefit plan - FAF
The quantitative sensibility analysis regarding the relevant assumptions of defined benefit plan – FAF on December 31, 2014 is presented below:
Assumptions | Variation of 1% | Variation of actuarial liabilities | ||||||
Significant hypothesis | utilized | Increase | Decrease | Increase | Decrease | |||
Benefit plan - FAF | ||||||||
Discount rate | 11.45% | 12.50% | 10.40% | (183,353) | 225,565 | |||
Wage growth rate | 6.25% | 7.30% | 5.20% | 74,274 | (54,541) |
25.2. Post-employment plans: description and characteristics of benefits and associated risks
Parent company and | |||
Liabilities | |||
12.31.14 | 12.31.13 | ||
Medical assistance | 115,666 | 115,478 | |
Penalty F.G.T.S.(1) | 124,461 | 112,023 | |
Reward for working time | 48,288 | 41,421 | |
Other | 25,655 | 22,341 | |
314,070 | 291,263 | ||
Current | 56,096 | 49,027 | |
Non-current | 257,974 | 242,236 |
(1) FGTS – Government Severance Indemnity Fund for Employees
The Company offers the following post-employment plans in addition to the pension plans, which are measured by actuarial calculation and recognized in the financial statement.
a. F.G.T.S. penalty
As settled by the Regional Labor Court (“TRT”) on April 20, 2007, retirement does not affect the employment contract between the Company and its employees. The benefit paid is equivalent to 50% of F.G.T.S being 40% corresponding to a penalty and 10% of social contribution. Main actuarial risks related are (i) survival time over expected in the mortality tables (ii) turnover lower than expected and (iii) salary growth higher than expected.
b. Medical Plan
The Company offers to the retired employee according to the Law No. 9.656 a medical plan with fixed contribution, which guarantees to the retired employee that contributed to the health plan by reason of employment relationship, for at least 10 years, the right of maintenance as beneficiary, on the same conditions of coverage enjoyed when theemployment contract was in force. Main actuarial risks related are (i) survival time over expected in the mortality tables (ii) turnover lower than expected and (iii) medical costs growth higher than expected.
145
(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Year ended December 31, 2014 and 2013 (Amounts expressed in thousands of Brazilian Reais, unless otherwise stated) |
c. Award for length of service
The Company usually rewards employees that attain at least 10 years of services rendered and subsequently every 5 years, with an additional remuneration ranges from 1 to 5 current salaries at the date of the event. Main actuarial risks related are (i) survival time over expected in the mortality tables (ii) turnover lower than expected and (iii) medical costs growth higher than expected.
d. Retirement compensation
On retirement, employees with over 10 years of service to the Company are eligible for additional compensation of 1 to 2 current wages in force at the time of retirement. Main actuarial risks related are (i) survival time higher than expected in the mortality tables (ii) turnover lower than expected and (iii) medical costs growth higher than expected
e. Life insurance
The Company offers life insurance benefit to the employees who, at the time of their termination, are retired and during the employment contract opted for the insurance. For the employees with 10-20 years of service, the maintenance period of insurance is 2 years, from 21 years of service, the period is 3 years. Main actuarial risks related are (i) survival time higher than expected in the mortality tables (ii) turnover lower than expected and (iii) salary growth higher than expected.
146
(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Year ended December 31, 2014 and 2013 (Amounts expressed in thousands of Brazilian Reais, unless otherwise stated) |
f. Rollforward of post-employment plans
The rollforward of actuarial liabilities related to other benefits, prepared based on an actuarial report, are as follow:
Consolidated | ||||||||||||||||
Medical plan | F.G.T.S. penalty | Award for length of service | Others(1) | |||||||||||||
12.31.14 | 12.31.13 | 12.31.14 | 12.31.13 | 12.31.14 | 12.31.13 | 12.31.14 | 12.31.13 | |||||||||
Composition of actuarial liabilities | ||||||||||||||||
Present value of actuarial liabilities | 115,666 | 115,478 | 124,461 | 112,023 | 48,288 | 41,421 | 25,655 | 22,341 | ||||||||
Net liabilities | 115,666 | 115,478 | 124,461 | 112,023 | 48,288 | 41,421 | 25,655 | 22,341 | ||||||||
Rollforward of present value of actuarial liabilities | ||||||||||||||||
Beginning balance of net liabilities | 115,478 | 72,520 | 112,023 | 150,715 | 41,421 | 40,483 | 22,341 | 20,230 | ||||||||
Interest on actuarial liabilities | 14,128 | 6,292 | 11,760 | 11,067 | 4,497 | 2,682 | 2,481 | 1,523 | ||||||||
Current service costs | 505 | 376 | 6,023 | 8,763 | 1,931 | 2,677 | 1,040 | 822 | ||||||||
Past service costs - changes in plan | - | (6,080) | - | - | - | - | (37) | 7,433 | ||||||||
Past service costs - decrease of plan | - | - | (1,009) | - | (66) | - | (127) | - | ||||||||
Benefits paid directly by the Company | (4,062) | (3,817) | (7,579) | (6,197) | (10,079) | (7,019) | (3,747) | (2,907) | ||||||||
Actuarial (gains) losses | (22,406) | 105,356 | 1,931 | 6,192 | 10,952 | 5,245 | 3,157 | 2,446 | ||||||||
Actuarial (gains) losses - demographic hypotesis | (103) | (6,794) | (3,108) | (22,508) | (1,333) | 3,804 | (547) | (525) | ||||||||
Actuarial (gains) losses - economic hypothesis | 12,126 | (52,375) | 4,420 | (36,009) | 965 | (6,451) | 1,094 | (6,681) | ||||||||
Ending balance of net liabilities | 115,666 | 115,478 | 124,461 | 112,023 | 48,288 | 41,421 | 25,655 | 22,341 | ||||||||
Rollforward of assets plan | ||||||||||||||||
Benefits paid directly by the Company | 4,062 | 3,817 | 7,579 | 6,197 | 10,079 | 7,019 | 3,747 | 2,907 | ||||||||
Contributions of the sponsor | (4,062) | (3,817) | (7,579) | (6,197) | (10,079) | (7,019) | (3,747) | (2,907) | ||||||||
Ending balance of fair value of assets plan | - | - | - | - | - | - | - | - | ||||||||
Rollforward of comprehensive income | ||||||||||||||||
Beginning balance | (65,398) | (19,211) | 72,025 | 19,700 | (13,777) | (11,179) | (4,229) | (8,989) | ||||||||
Actuarial gains (losses) | 10,383 | (46,187) | (3,243) | 52,325 | (10,584) | (2,598) | (3,704) | 4,760 | ||||||||
Ending balance of comprehensive income | (55,015) | (65,398) | 68,782 | 72,025 | (24,361) | (13,777) | (7,933) | (4,229) | ||||||||
Costs recognized in statement of income | ||||||||||||||||
Interest on actuarial liabilities | (14,128) | (6,292) | (11,760) | (11,067) | (4,497) | (2,682) | (2,481) | (1,523) | ||||||||
Current service costs | (505) | (376) | (6,023) | (8,763) | (1,931) | (2,677) | (1,040) | (822) | ||||||||
Past service costs | - | 6,080 | 1,009 | - | 66 | - | 164 | (7,433) | ||||||||
(14,633) | (588) | (16,774) | (19,830) | (6,362) | (5,359) | (3,357) | (9,778) | |||||||||
Estimated costs for the next period | ||||||||||||||||
Current service costs | (320) | (505) | (6,424) | (5,938) | (1,991) | (1,927) | (1,055) | (1,034) | ||||||||
Interest on actuarial liabilities | (13,027) | (14,128) | (12,121) | (11,810) | (4,722) | (4,478) | (2,629) | (2,472) | ||||||||
(13,347) | (14,633) | (18,545) | (17,748) | (6,713) | (6,405) | (3,684) | (3,506) |
(1) Considers the sums of the retirement compensation and life insurance benefits.
g. Actuarial assumptions and demographic data
The main actuarial assumptions and demographic data used in the actuarial calculations are summarized below:
147
(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Year ended December 31, 2014 and 2013 (Amounts expressed in thousands of Brazilian Reais, unless otherwise stated) |
Consolidated | ||||||||||||||||
Medical plan | F.G.T.S. penalty | Award for length of service | Others(1) | |||||||||||||
Actuarial premises | 12.31.14 | 12.31.13 | 12.31.14 | 12.31.13 | 12.31.14 | 12.31.13 | 12.31.14 | 12.31.13 | ||||||||
Economic hypothesis | ||||||||||||||||
Discount rate | 11.49% | 12.49% | 11.27% | 12.27% | 11.27% | 12.03% | 11.44% | 12.49% | ||||||||
Inflation rate | 5.20% | 5.40% | 5.20% | 5.40% | 5.20% | 5.40% | 5.20% | 5.40% | ||||||||
Medical inflation | 8.36% | 8.56% | N/A | N/A | N/A | N/A | N/A | N/A | ||||||||
Wage growth rate | N/A | N/A | 6.78% | 6.98% | 6.78% | 6.98% | 6.78% | 6.98% | ||||||||
Medical plan | Other benefits | |||||||||||||||
Actuarial premises | 12.31.14 |
| 12.31.13 | 12.31.14 |
| 12.31.13 | ||||||||||
Demographic hypothesis | ||||||||||||||||
Schedule of mortality | AT-2000 | AT-2000 | AT-2000 | AT-2000 | ||||||||||||
Schedule of disabled | RRB-1944 | RRB-1944 | RRB-1944 | RRB-1944 | ||||||||||||
Schedule of disabled mortality | IAPC | IAPC | IAPC | IAPC | ||||||||||||
Schedule of turnover - BRF's historical | 2014 | 2013 | 2014 | 2013 | ||||||||||||
Demoraphic data | ||||||||||||||||
Number of active participants | 1,558 | 2,941 | 102,534 | 110,201 | ||||||||||||
Number of assisted beneficiary participants | 847 | 649 | - | - |
(1) Includes retirement compensation and life insurance benefits.
h. Forecast and average duration of payments of obligations
The following amounts represent the expected benefit payments for future years (10 years), from the obligation of benefits granted and the average duration of the plan obligations:
Payments | Medical plan | F.G.T.S. penalty | Award for length of service | Others | Total | |||||
2015 | 4,585 | 33,819 | 12,776 | 4,916 | 56,096 | |||||
2016 | 4,986 | 9,910 | 6,746 | 2,061 | 23,703 | |||||
2017 | 5,503 | 13,953 | 7,060 | 2,723 | 29,239 | |||||
2018 | 6,069 | 16,513 | 5,146 | 2,617 | 30,345 | |||||
2019 | 6,730 | 19,678 | 5,391 | 2,911 | 34,710 | |||||
2020 to 2024 | 44,775 | 146,403 | 31,603 | 19,183 | 241,964 | |||||
Weighted average duration - in years | 16.91 | 5.84 | 5.41 | 7.44 | 7.83 |
i. Sensibility analysis of post-employment plans
The Company made the sensibility analysis regarding the relevant assumptions of the plans on December 31, 2014, is presented below:
Assumptions | Variation of 1% | Variation of actuarial liabilities | ||||||||||||
Significant hypothesis | utilized | Increase | Decrease | Increase | % | Decrease | % | |||||||
Medical plan | ||||||||||||||
Discount rate | 11.49% | 12.49% | 10.49% | (15,181) | -12.90% | 19,139 | 16.50% | |||||||
Medical inflation | 8.36% | 9.36% | 7.36% | 19,044 | 16.50% | (15,314) | -13.20% | |||||||
Turnover | Historical | +3,00% | -3,00% | (798) | -0.90% | 1,035 | 0.90% | |||||||
F.G.T.S. penalty | ||||||||||||||
Discount rate | 11.27% | 12.27% | 10.27% | (5,114) | -4.40% | 5,642 | 4.90% | |||||||
Wage growth rate | 6.78% | 7.78% | 5.78% | 1,016 | 0.90% | (947) | -0.80% | |||||||
Turnover | Historical | +3,00% | -3,00% | (17,100) | -14.80% | 23,304 | 20.10% |
148
(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Year ended December 31, 2014 and 2013 (Amounts expressed in thousands of Brazilian Reais, unless otherwise stated) |
26. PROVISION FOR TAX, CIVIL AND LABOR RISKS
The Company and its subsidiaries are involved in certain legal proceedings arising from the normal course of business, which include civil,administrative, tax, social security and labor claims.
The Company classifies the risk of unfavorable decisions in the legal proceedings as “probable”, “possible” or “remote”. The provisions recorded relating to such proceedings is determined by the Company’s management, based on legal advice and reasonably reflect the estimated probable losses.
The Company’s management believes that its provision for tax, civil and labor risks, accounted for according to CVM Deliberation Nº 594/09 is sufficient to cover estimated losses related to its legal proceedings, as presented below:
26.1. Contingencies for probable losses
The rollforward of the provisions for tax, civil and labor risks is summarized below:
Parent company | |||||||||||
12.31.13 | Additions | Reversals | Payments | Price index update | 12.31.14 | ||||||
Tax | 137,098 | 124,586 | (36,509) | (48,272) | 67,480 | 244,383 | |||||
Labor | 261,784 | 267,866 | (99,211) | (161,871) | 46,689 | 315,257 | |||||
Civil, commercial and other | 45,980 | 77,164 | (24,781) | (49,302) | 8,275 | 57,336 | |||||
Contingent liabilities | 543,205 | - | (7,099) | - | - | 536,106 | |||||
988,067 | 469,616 | (167,600) | (259,445) | 122,444 | 1,153,082 | ||||||
Current | 233,435 | 233,636 | |||||||||
Non-current | 754,632 | 919,446 |
Consolidated | |||||||||||||
12.31.13 | Additions | Reversals | Payments | Price index update | Exchange rate variation | 12.31.14 | |||||||
Tax | 141,478 | 130,169 | (37,978) | (48,272) | 67,480 | (500) | 252,377 | ||||||
Labor | 276,128 | 272,257 | (101,198) | (161,871) | 46,692 | (1,584) | 330,424 | ||||||
Civil, commercial and other | 48,257 | 77,164 | (26,683) | (49,302) | 8,278 | (355) | 57,359 | ||||||
Contingent liabilities | 553,435 | - | (7,099) | - | - | (763) | 545,573 | ||||||
1,019,298 | 479,590 | (172,958) | (259,445) | 122,450 | (3,202) | 1,185,733 | |||||||
Current | 243,939 | 242,974 | |||||||||||
Non-current | 775,359 | 942,759 |
26.1.1. Tax
The tax contingencies consolidated and classified as probable losses relate to the following main legal proceedings:
Income tax and social contribution:The Company recorded a provision of R$7,882 (R$5,949 as of December 31, 2013) refers to various claims.
149
(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Year ended December 31, 2014 and 2013 (Amounts expressed in thousands of Brazilian Reais, unless otherwise stated) |
ICMS: The Company is involved in administrative and judicial tax disputes associated to the register and/or maintenance of ICMS tax credits on certain transactions, such as exports, acquisition of consumption materials and monetary correction. The provision amounts to R$96,362 (R$18,696 as of December 31, 2013).
PIS and COFINS: The Company discusses the use of certain tax credits arising from the acquisition of raw materials to offset federal taxes, which amount is R$78,894 (R$76,105 as of December 31, 2013).
Other tax contingencies: The Company recorded other provisions for tax claims related to payment of social security contributions (SAT, INCRA, FUNRURAL, Education Salary), as well as tax debts arising from differences of accessory obligations, duties, including legal fees and others, totaling a provision of R$54,290(R$36,470 as of December 31, 2013).
26.1.2. Labor
The Company is defendant in several labor claims, mainly related to overtime and salary inflation adjustments for periods prior to the introduction of the Brazilian Real, illnesses allegedly contracted at work and work-related injuries and others. The labor suits are mainly in the lower courts, and for the majority of the cases a decision for the dismissal of the claims has been granted. None of these labor claims is individually significant. The Company recorded a provision based on past history of payments. Based on the opinion of the Company’s management and external legal counsel, the provision is sufficient to cover estimated losses.
26.1.3. Civil, commercial and others
Civil contingencies are mainly related to claims relating to traffic accidents, moral and property damage, physical casualties and others. The legal actions are mostly in the lower courts, depending on confirmation or absence of the Company’s guilt.
26.2. Contingencies classified as a risk of possible loss
The Company is involved in other tax, civil, labor and social security contingencies, for which losses have been assessed as possible by management with the support from legal counsel and therefore no provision was recorded. On December 31, 2014 the total amount of the possible contingencies was R$9,268,519 (R$8,433,843 as of December 31, 2013).
26.2.1. Tax
Tax contingencies amounted to R$8,514,288 (R$7,945,012 as of December 31, 2013), from which R$530,106 (R$537,205 as of December 31, 2013) was recorded at fair value as a result of business combination with Sadia, Avex and Dánica group, according to therequirements of paragraph 23 of CVM Deliberation Nº 665/11.
150
(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Year ended December 31, 2014 and 2013 (Amounts expressed in thousands of Brazilian Reais, unless otherwise stated) |
The most relevant tax cases are set forth below:
Profits earned abroad:The Company was assessed by the Brazilian Internal Revenue Service for alleged underpayment of income tax and social contribution on profits earned by its subsidiaries located abroad, in a total amount of R$588,105 (R$742,745 as of December 31, 2013).Such amendment arises, in addition to the interest on the amount of debts litigated, cancellation of tax assessment (Case No. 16561.000122 / 2008-46) in the amount of R$ 258,018 in November 2014 through final decision of the Administrative Tax Appeals Council ("CARF"). The Company’s legal defense is based on the facts that the subsidiaries located abroad are subject exclusively to the full taxation in the countries in which they are based as a result of the treaties signed to avoid double taxation. The total profits earned abroad are disclosed in note 14.3.
Income Tax and Social Contribution: The Company is involved in administrative disputes associated to the use of tax losses, refunds and offset of income and social contribution tax credits against other federal tax debts, including credits arising from the Plano Verão legal dispute, in a total amount of R$482,873 (R$386,274 as of December 31, 2013).
ICMS: The Company is involved in the following disputes associated to the ICMS tax: (i) alleged undue ICMS tax credits generated by tax incentives granted by certain State tax authorities (“guerra fiscal”) in a total amount of R$1,963,122(R$1,720,984 as of December 31, 2013); (ii) maintenance of ICMS tax credits on the acquisition of certain products with a reduced tax burden (“cesta básica”) in a total amount of R$522,000 (R$513,196 as of December 31, 2013); (iii) utilization of tax benefit deemed credits in a total amount of R$100,455 (R$142,982 as of December 31, 2013); and (iv) R$1,007,465 (R$949,540 as of December 31, 2013) related to other ICMS claims.
IPI: The Company discusses administratively the non-ratification of compensation of IPI credits resulting from purchases of exempted goods, sales to Manaus Free Zone and purchases of supplies of non-taxpayers with PIS and COFINS in the amount of R$546,225 (R$299,912 as of December, 2013).
IPI Premium Credits: The Company is involved in a judicial dispute related to the alleged undue offsetting of IPI Premium Credits against other federal taxes in a total amount of R$420,548 (R$401,248 as of December 31, 2013). The Company recorded and used the credits based on a final judicial decision.
PIS and COFINS: The Company is involved in administrative proceedings regarding the offsetting of credits against other federal tax debts, in the amount of R$2,572,291 (R$1,681,248 as of December 31, 2013).
Normative Instruction 86: The Company discusses administratively the imposition of separate fine due to absence of delivery magnetic file to the Brazilian Internal Revenue Service for the periods 2003 to 2005, for a total amount of R$219,355 (R$178,955 as ofDecember 31, 2013). In the year ended December 31, 2014, the Company obtained a favorable decision issued by CARF, such legal proceedings was reclassified by our legal advices as remote risk of loss.
151
(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Year ended December 31, 2014 and 2013 (Amounts expressed in thousands of Brazilian Reais, unless otherwise stated) |
Social Security Taxes: The Company is involved in disputes related to social security taxes allegedly due on payments to service providers as well as joint responsibility with civil construction service providers and others in a total amount of R$113,307 (R$170,560 as of December 31, 2013).
Other Contingencies: The Company is involved in other tax contingencies including rural activity, transfer price, social contribution tax and others, totaling R$197,991 (R$187,552 as of December 31, 2013).
Additionally, management is disclosing the information related to the lawsuit in which the Company was included as co-responsible in a debt from Huaine Participações Ltda (former holding of Perdigão). In this lawsuit it is being discussed the inclusion of the Company in the liability from the tax execution in the amount of R$609,329 (R$595,945 as of December 31, 2013). BRF presented a guarantee to the debt, which was duly accepted by the judge and filed a motion to stay execution, which is awaiting judgment. The Company’s legal advisors classified the risk of losses as remote.
27. SHAREHOLDERS’ EQUITY
27.1. Capital stock
On December 31, 2014, the capital subscribed and paid by the Company is R$12,553,418, which is composed of 872,473,246 book-entry shares of common stock without par value. The value of the capital stock is net of the public offering expenses of R$92,947.
The Company is authorized to increase the capital stock, irrespective of amendment to the bylaws, up to the limit of 1,000,000,000 common shares, in book-entry form without par value.
27.2. Interest on shareholders’ equity and dividends
On February 14, 2014 the payment of R$365,013 was made related to the interest on shareholders’ equity proposed by the Management on December 20, 2013 and approved in the Shareholders Ordinary Meeting on April 4, 2014.
On June 18, 2014, the Board of Directors approved the payment of R$361,000 related to interest on shareholder’s equity settled on August 15, 2014.
152
(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Year ended December 31, 2014 and 2013 (Amounts expressed in thousands of Brazilian Reais, unless otherwise stated) |
On December 18, 2014, the Board of Directors approved the payment of R$376,765 related to interest on shareholder’s equity and R$86,489 related to dividend, settled on February 13, 2015.
27.3. Breakdown of capital stock by nature
| Consolidated | ||
| 12.31.14 |
| 12.31.13 |
Common shares | 872,473,246 |
| 872,473,246 |
Treasury shares | (5,188,897) |
| (1,785,507) |
Outstanding shares | 867,284,349 |
| 870,687,739 |
27.4. Rollforward of outstanding shares
|
| Consolidated | ||
|
| Quantity of outstanding of shares | ||
|
| 12.31.14 |
| 12.31.13 |
Shares at the beggining of the exercise |
| 870,687,739 |
| 870,073,911 |
Purchase of treasury shares |
| (6,000,000) |
| (1,381,946) |
Sale of treasury shares |
| 2,596,610 |
| 1,995,774 |
Shares at the end of the exercise |
| 867,284,349 |
| 870,687,739 |
153
(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Year ended December 31, 2014 and 2013 (Amounts expressed in thousands of Brazilian Reais, unless otherwise stated) |
27.5. Shareholders’ remuneration
Parent company | |||
12.31.14 | 12.31.13 | ||
Net profit | 2,225,036 | 1,062,430 | |
Legal reserve (5.00%) | (111,252) | (53,121) | |
Dividends calculation base | 2,113,784 | 1,009,309 | |
Minimum mandatory dividend (25.00%) | 528,446 | 252,327 | |
Remuneration of shareholders' exceeding the mandatory minimum | 295,808 | 471,686 | |
Total remuneration of shareholders' in the year, as interest on shareholders' equity and dividends (R$86.489 in 2014) | 824,254 | 724,013 | |
Withholding income tax on interest on shareholders' equity | (64,176) | (60,551) | |
Remuneration of shareholders', net of withholding income tax | 760,078 | 663,462 | |
Percentage of calculation base | 38.99% | 71.73% | |
Earnings paid per share | 0.94836 | 0.83154 | |
Payment of interest on shareholders' equity, paid in the year - gross of withholding income tax of R$30,272 in 2014 (R$30,532 in 2013) | (361,000) | (359,000) | |
Paid in the previous period - interest on shareholders' equity - gross withholding income tax of R$30,019 in 2013 (R$15,743 in 2013) | (365,013) | (174,750) | |
Paid in the previous period - Dividends | - | (45,300) | |
Payments maid during in the year | (726,013) | (579,050) | |
Total remuneration of shareholders' outstanding | 463,254 | 365,013 | |
Withholding income tax on interest on shareholders' equity | (33,904) | (30,019) | |
Remaining amounts outstanding | 1,559 | 1,683 | |
Interest on shareholders' equity outstanding | 430,909 | 336,677 |
27.6. Profit distribution
Income appropriation | Reserve balances | |||||||||
Limit on | ||||||||||
capital % | 12.31.14 | 12.31.13 | 12.31.14 | 12.31.13 | ||||||
Gain actuarial FAF | - | (33,163) | 55,443 | - | - | |||||
Dividends | - | 86,489 | - | - | - | |||||
Interest on shareholdes' equity | - | 737,765 | 724,013 | - | - | |||||
Legal reserve | 20 | 111,252 | 53,121 | 384,619 | 273,367 | |||||
Capital increase reserve | 20 | 451,640 | 121,800 | 1,274,251 | 822,611 | |||||
Reserve for expansion | 80 | 730,684 | - | 1,901,433 | 1,170,749 | |||||
Reserve for tax incentives | - | 140,369 | 121,180 | 385,522 | 245,153 | |||||
Reserve of retained profit - adjustment of CVM Deliberation No. 695/12 | - | - | (13,127) | - | - | |||||
2,225,036 | 1,062,430 | 3,945,825 | 2,511,880 |
Legal reserve: It is computed based on five percent (5%) of net profit of each fiscal year as specified in article 193 of Law No. 6,404/76, modified by Law No. 11,638/07, which shall not exceed twenty percent (20%) of the capital stock. On December 31, 2014, this reserve corresponds to 3.09% of capital stock (2.20% as of December 31, 2013).
154
(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Year ended December 31, 2014 and 2013 (Amounts expressed in thousands of Brazilian Reais, unless otherwise stated) |
Reserve for capital increase: it is calculated based on twenty percent (20%) towards the establishment of reserves for capital increase, which shall not exceed twenty percent (20%) of the capital stock. On December 31, 2014 this reserve corresponds to 10.23% of capital stock (6.66% as of December 31, 2013).
Reserve for expansion: Up to 50% (fifty per cent) for the constitution of the reserve for expansion. This reserve should not exceed 80% (eighty per cent) of the capital stock. On December 31, 2014 the balance of this reserve correspond to 15.26% of the capital stock (9.40% as of December 31, 2013).
Reserve for tax incentives: Constituted as specified in article 195-A of the Law No. 6,404/1976, modified by Law No. 11,638/07, based on the amounts of government grants for investment.
27.7. Treasury shares
The Company has 5,188,897 shares in treasury, with an average cost of R$58.76 (fifty eight Brazilian Reais and seventy six cents) per share, with a market value corresponding to R$326,745.
During the year ended December 31, 2014, the Company sold 2,596,610 treasury shares due to exercise of the stock options of the Company’s executives.
During the year ended December 31, 2014, as authorized by the Board of Directors, the Company acquired 6,000,000shares of its own shares at a cost fo R$350,942, with the objective of maintenance of treasury shares for possible compliance with the provisions in the plans of options and additional stock option, both approved by tha special meeting of Board of Directors held on May 19, 2014 and annual meeting of the Board of Directors on September 25, 2014.
On December 18, 2014, the Board of Directors approved the repurchase of shares, between January 05, 2015 to April 03, 2015, issued by itself, with the objective of the treasure shares for eventual compliance maintenance with the provisions in the stock options plans and stock option.
27.8. Breakdown of the capital by owner
The shareholding position of the largest shareholders, management, members of the Board of Directors and Fiscal Council is presented below (unaudited):
155
(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Year ended December 31, 2014 and 2013 (Amounts expressed in thousands of Brazilian Reais, unless otherwise stated) |
12.31.14 | 12.31.13 | |||||||
Shareholders | Quantity | % | Quantity | % | ||||
Major shareholders | ||||||||
Fundação Petrobrás de Seguridade Social - Petros(1) | 108,933,497 | 12.49 | 105,530,869 | 12.10 | ||||
Caixa de Previd. dos Func. Do Banco do Brasil(1) | 100,282,352 | 11.49 | 106,946,152 | 12.26 | ||||
Tarpon | 91,529,085 | 10.49 | 68,667,090 | 7.87 | ||||
BlackRock, Inc | 43,444,596 | 4.98 | 42,485,050 | 4.87 | ||||
Fundação Vale do Rio Doce de Seg. Social - Valia(1) | 8,904,259 | 1.02 | 21,432,909 | 2.46 | ||||
Fundação Sistel de Seguridade Social(1) | 7,444,520 | 0.85 | 9,409,120 | 1.08 | ||||
FAPES/BNDES | 1,523,104 | 0.17 | 2,520,304 | 0.29 | ||||
Management | ||||||||
Board of Directors | 35,117,782 | 4.03 | 64,909,594 | 7.44 | ||||
Executives | 85,221 | 0.01 | 94,962 | 0.01 | ||||
Treasury shares | 5,188,897 | 0.59 | 1,785,507 | 0.20 | ||||
Other | 470,019,933 | 53.88 | 448,691,689 | 51.42 | ||||
872,473,246 | 100.00 | 872,473,246 | 100.00 |
(1) The pension funds are controlled by employees that participate in the respective entities.
The shareholding position of the shareholders holding more than 5% of the voting capital is presented below (unaudited):
12.31.14 | 12.31.13 | |||||||
Shareholders | Quantity | % | Quantity | % | ||||
Fundação Petrobrás de Seguridade Social - Petros(1) | 108,933,497 | 12.49 | 105,530,869 | 12.10 | ||||
Caixa de Previd. dos Func. Do Banco do Brasil(1) | 100,282,352 | 11.49 | 106,946,152 | 12.26 | ||||
Tarpon | 91,529,085 | 10.49 | 68,667,090 | 7.87 | ||||
300,744,934 | 34.47 | 281,144,111 | 32.23 | |||||
Other | 571,728,312 | 65.53 | 591,329,135 | 67.77 | ||||
872,473,246 | 100.00 | 872,473,246 | 100.00 |
(1) The pension funds are controlled by employees that participate in the respective entities.
The Company is bound to arbitration in the Market Arbitration Chamber, as established by the arbitration clause in its bylaws.
156
(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Year ended December 31, 2014 and 2013 (Amounts expressed in thousands of Brazilian Reais, unless otherwise stated) |
28. EARNINGS PER SHARE
Parent company | |||
12.31.14 | 12.31.13 | ||
Basic numerator | |||
Net profit for the exercise attributable to controlling shareholders | 2,225,036 | 1,062,430 | |
Basic denominator | |||
Common shares | 872,473,246 | 872,473,246 | |
Weighted average number of outstanding shares - basic | 870,412,068 | 870,534,511 | |
Net earnings per share basic - R$ | 2.55630 | 1.22043 | |
Diluted numerator | |||
Net profit for the exercise attributable to controlling shareholders | 2,225,036 | 1,062,430 | |
Diluted denominator | |||
Weighted average number of outstanding shares - basic | 870,412,068 | 870,534,511 | |
Number of potential shares (stock options) | 411,708 | 907,194 | |
Weighted average number of outstanding shares - diluted | 870,823,776 | 871,441,705 | |
Net earnings per share diluted - R$ | 2.55509 | 1.21916 |
Parent company | |||
Continued operations | 12.31.14 | 12.31.13 | |
Basic numerator | |||
Net profit for the continued operations attributable to controlling shareholders | 2,135,214 | 1,015,251 | |
Basic denominator | |||
Common shares | 872,473,246 | 872,473,246 | |
Weighted average number of outstanding shares - basic | 870,412,068 | 870,534,511 | |
Net earnings per share basic - R$ | 2.45311 | 1.16624 | |
Diluted numerator | |||
Net profit for the continued operations attributable to controlling shareholders | 2,135,214 | 1,015,251 | |
Diluted denominator | |||
Weighted average number of outstanding shares - basic | 870,412,068 | 870,534,511 | |
Number of potential shares (stock options) | 411,708 | 907,194 | |
Weighted average number of outstanding shares - diluted | 870,823,776 | 871,441,705 | |
Net earnings per share diluted - R$ | 2.45195 | 1.16502 |
157
(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Year ended December 31, 2014 and 2013 (Amounts expressed in thousands of Brazilian Reais, unless otherwise stated) |
Parent company | |||
Discontinued operations | 12.31.14 | 12.31.13 | |
Basic numerator | |||
Net profit for the discontinued operations attributable to controlling shareholders | 89,822 | 47,179 | |
Basic denominator | |||
Common shares | 872,473,246 | 872,473,246 | |
Weighted average number of outstanding shares - basic | 870,412,068 | 870,534,511 | |
Net earnings per share basic - R$ | 0.10319 | 0.05420 | |
�� | |||
Diluted numerator | |||
Net profit for the discontinued operations attributable to controlling shareholders | 89,822 | 47,179 | |
Diluted denominator | |||
Weighted average number of outstanding shares - basic | 870,412,068 | 870,534,511 | |
Number of potential shares (stock options) | 411,708 | 907,194 | |
Weighted average number of outstanding shares - diluted | 870,823,776 | 871,441,705 | |
Net earnings per share diluted - R$ | 0.10315 | 0.05414 |
On December 31, 2014, from the total of 11,390,846 stock options outstanding (6,932,434 as of December 31, 2013) granted to executives of the Company, 8,616,900 options (2,752,553 as of December 31, 2013) were not considered in the calculation of the diluted earnings per share due to the fact that the exercise price until the vesting period was higher than the average market price of the common shares during the period, so that they did not cause any dilution effect.
29. GOVERNMENT GRANTS
The Company has tax benefits related to ICMS for investments granted by the governments of states of Goiás, Pernambuco, Mato Grosso and Bahia. Such incentives are directly associated to the manufacturing facilities operations, job generation and to the economic and social development in the respective states.
On December 31, 2014, this incentive totaled R$140,369 (R$120,826 as of December 31, 2013) composing so, the Reserve for Tax Incentives account as set forth in the tax legislation.
158
(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Year ended December 31, 2014 and 2013 (Amounts expressed in thousands of Brazilian Reais, unless otherwise stated) |
30. RELATED PARTIES – PARENT COMPANY
As part of the Company’s operations, rights and obligations arise between related parties, resulting from transactions of purchase and sale of products, loans agreed on normal conditions of market for similar transactions, based on contracts.
All the relationships between the Company and its subsidiaries were disclosed irrespective of the existence or not of transactions between these parties.
All the transactions and balances among the companies were eliminated in the consolidation and refer to commercial and/or financial transactions.
159
(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Year ended December 31, 2014 and 2013 (Amounts expressed in thousands of Brazilian Reais, unless otherwise stated) |
30.1. Transactions and balances
Tha balances of the opertion with the related parties are as follow:
Accounts receivable | Dividends and interest on the shareholders' equity receivable | Loan contracts | Trade accounts payable | Advance for future capital increase | Other rights | Other obligations | ||||||||||||||||||||||
12.31.14 | 12.31.13 | 12.31.14 | 12.31.13 | 12.31.14 | 12.31.13 | 12.31.14 | 12.31.13 | 12.31.14 | 12.31.13 | 12.31.14 | 12.31.13 | 12.31.14 | 12.31.13 | |||||||||||||||
Avex S.A. | 9,269 | 4,049 |
| - | - |
| - | - |
| (608) | (1,028) | - | - | 25,468 | 25,423 |
| - | - |
| |||||||||
Avipal Centro Oeste S.A. | - | - |
| - | - |
| - | - |
| - | - |
| - | - |
| - | - |
| (38) | (38) |
| |||||||
Avipal S.A. Construtora e Incorporadora | - | - |
| - | 5 |
| - | - |
| - | - |
| - | - |
| - | - |
| - | - |
| |||||||
BFF International Ltd. | - | - | - | - | - | - | - | - | - | - | 1,448 | 1,277 |
| - | - |
| ||||||||||||
BRF Foods LLC | - | - | - | - | - | - | - | - | - | - | 323 | 62 |
| - | - |
| ||||||||||||
BRF Foods GmbH | 8,484 | - | - | - | - | - | - | - | - | - | - | - |
| (571) | - |
| ||||||||||||
BRF Global GmbH | 2,773,388 | 1,898,754 | - | - | - | - | - | (3) | - | - | - | - | - | (670,414) | (1) | |||||||||||||
Highline International Ltd. | - | - | - | - | (4,844) | (4,272) |
| - | - |
| - | - |
| - | - |
| - | - |
| |||||||||
K&S Alimentos S.A. | - | - | 1,221 | (2) | 16 |
| - | - |
| (4,011) | - |
| - | - |
| 2,643 | - |
| - | - |
| |||||||
Minerva S.A. | - | - | - | - |
| - | - |
| - | - |
| - | - |
| - | - |
| (5,413) | - |
| ||||||||
Nutrifont Alimentos S.A. | - | - | - | - | - | - | - | - | - | - | 428 | 291 |
| - | - |
| ||||||||||||
Perdigão Europe Ltd. | 38,475 | 50,906 | - | - | - | - | - | - | - | - | - | - | - | - | ||||||||||||||
Perdigão International Ltd. | - | 52,070 | - | - | (14,894) | (8,057) | - | - | - | - | 9,735 | 1,820 | (806,660) | (1) | (1,340,352) | (1) | ||||||||||||
PSA Laboratório Veterinário Ltda. | - | - | 630 | 2,980 |
| - | - |
| - | - |
| 100 | 100 |
| - | - |
| - | (45) |
| ||||||||
Quickfood S.A. | 20,226 | 3,404 |
| - | - |
| - | - |
| - | - |
| - | - |
| - | - |
| (581) | - |
| |||||||
Sadia Alimentos S.A. | 12,366 | 14,721 |
| - | - |
| - | - |
| - | (81) | - | - | - | - |
| - | - |
| |||||||||
Sadia Chile S.A. | 22,550 | 24,125 |
| - | - |
| - | - |
| - | (46) | - | - | - | - |
| - | - |
| |||||||||
Sadia Uruguay S.A. | 4,728 | 3,144 |
| - | - |
| - | - |
| - | (279) | - | - | - | - |
| - | - |
| |||||||||
UP! Alimentos Ltda. | 1,622 | 1,059 | 9,027 | (2) | - | - | - | (14,784) | (12,033) | - | - | 4,328 | 3,590 | - | - | |||||||||||||
VIP S.A. Empreendimentos e Partic. Imob. | - | - | 2,491 | 30,103 |
| - | - |
| - | - |
| - | - |
| - | 6 |
| - | - |
| ||||||||
Wellax Foods Logistics C.P.A.S.U. Lda. | - | 11,499 |
| - | - |
| - | - |
| - | (167) | - | - | 225 | - |
| - | (363,936) | (1) | |||||||||
| 2,891,108 | 2,063,731 |
| 13,369 | 33,104 |
| (19,738) | (12,329) |
| (19,403) | (13,637) | 100 | 100 | 44,598 | 32,469 |
| (813,263) | (2,374,785) |
|
160
(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Year ended December 31, 2014 and 2013 (Amounts expressed in thousands of Brazilian Reais, unless otherwise stated) |
Revenue | Financial results, net | Purchases | |||||||||
12.31.14 | 12.31.13 | 12.31.14 | 12.31.13 | 12.31.14 | 12.31.13 | ||||||
Avex S.A. | 5,220 | 4,140 | - | - | (9,022) | (9,343) | |||||
BRF Foods GmbH | 8,018 | - | - | - | - | - | |||||
BRF Global GmbH | 9,280,147 | 2,544,447 | (19,841) | (1,831) | - | - | |||||
Establecimiento Levino Zaccardi y Cia. S.A. | - | - | - | - | (1,517) | (3,864) | |||||
K & S Alimentos Ltda. | - | - | - | - | (117,174) | (93,731) | |||||
Nutrifont Alimentos S.A. | - | - | 484 | - | - | - | |||||
Perdigão Europe Ltd. | - | 332,086 | - | - | - | - | |||||
Perdigão International Ltd. | 18,046 | 3,345,302 | (50,304) | (67,533) | - | - | |||||
Quickfood S.A. | 16,985 | 3,404 | - | - | (12,905) | (10,385) | |||||
Sadia Alimentos S.A. | 2,339 | 17,415 | - | - | - | - | |||||
Sadia Chile S.A. | 50,810 | 69,554 | - | - | - | - | |||||
Sadia Uruguay S.A. | 12,185 | 13,958 | - | - | (181) | (666) | |||||
UP! Alimentos Ltda. | 14,735 | 11,232 | - | - | (191,750) | (172,182) | |||||
Wellax Foods Logistics C.P.A.S.U. Lda. | - | 3,150,185 | (5,305) | (43,238) | - | - | |||||
Galeazzi e Associados Consult Serv Ltda. | - | - | - | - | (11,565) | (7,098) | |||||
Instituto de Desenvolvimento Gerencial S.A. | - | - | - | - | (2,912) | - | |||||
9,408,485 | 9,491,723 | (74,966) | (112,602) | (347,026) | (297,269) |
All companies presented in note 1.1 are controlled by BRF, except for UP! Alimentos Ltda, K&S, PP-Bio, PR-SAD, Minerva and Nutrifont, which are associates. During the year ended December 31, 2014, the Galeazzi and Associates consulting firm, which BRF has no equity interest, provided advisory services for strategic management and organizational restructuring.
The Company also recorded a liability in the amount of 10,833 (R$13,228 as of December 31, 2013) related to the fair value of the guarantees offered to BNDES concerning a loan made by the Instituto Sadia de Sustentabilidade.
Due to the acquisition of biodigesters from Instituto Sadia de Sustentabilidade, as of December 31, 2014 the Company recorded a payable to this entity of R$39,173 included in other liabilities (R$47,832 as of December 31, 2013).
The Company entered into loans agreement with its subsidiaries. Below is a summary of the balances and rates charged for the transactions which corresponding balance is above R$10,000 at the balance sheet date:
161
(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Year ended December 31, 2014 and 2013 (Amounts expressed in thousands of Brazilian Reais, unless otherwise stated) |
Counterparty | Balance | Interest rate (p.a.) | ||||||
Creditor | Debtor | Currency | 12.31.14 | |||||
BRF GmbH | BRF Global GmbH |
| US$ |
| 500,291 |
| 1.1% | |
Sadia Overseas Ltd. |
| BRF Global GmbH |
| US$ |
| 385,891 |
| 7.0% |
BFF International Ltd. |
| BRF Global GmbH |
| US$ |
| 167,532 |
| 8.0% |
Sadia International Ltd. |
| Wellax Food Comércio |
| US$ |
| 156,389 |
| 1.5% |
Quickfood S.A. | Avex S.A. |
| AR$ |
| 137,472 |
| 25.0% | |
BRF GmbH |
| Plusfood Holland B.V. |
| EUR |
| 120,324 |
| 3.0% |
Perdigão International Ltd. | BRF Global GmbH | US$ |
| 99,020 |
| 0.9% | ||
BRF GmbH | BRF Foods GmbH | US$ |
| 91,263 |
| 1.2% | ||
Plusfood Holland B.V. | Plusfood B.V. |
| EUR |
| 76,734 |
| 3.0% | |
BRF GmbH |
| BRF Foods LLC |
| US$ |
| 49,672 |
| 2.5% |
Wellax Food Comércio |
| BRF GmbH |
| EUR |
| 25,834 |
| 1.5% |
Perdigão International Ltd. | BRF S.A. | US$ |
| 14,894 |
| 0.4% | ||
BRF GmbH | BRF Global GmbH |
| EUR |
| 13,235 |
| 1.5% | |
Plusfood Holland B.V. | BRF GmbH |
| EUR |
| 12,901 |
| 1.5% |
30.2. Other Related Parties
The Company leased properties owned by FAF. For the year ended December 31, 2014, the total amount paid as rent was R$6,166 (R$6,022 as of December 31, 2013). The rent value was set based on market conditions.
30.3. Granted guarantees
All granted guarantees on behalf of related parties were disclosed in note 20.10.
30.4. Management remuneration
The management key personnel include the directors and officers, members of the executive committee and the head of internal audit. On December 31, 2014, there were 24 professionals (24 professionals as of December 31, 2013).
The total remuneration and benefits paid to these professionals are demonstrated below:
162
(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Year ended December 31, 2014 and 2013 (Amounts expressed in thousands of Brazilian Reais, unless otherwise stated) |
Consolidated | |||
12.31.14 | 12.31.13 | ||
Salary and profit sharing | 48,093 | 32,793 | |
Short term benefits of employees(1) | 917 | 1,342 | |
Private pension | 387 | - | |
Post-employment benefits | 168 | 166 | |
Termination benefits | 28,411 | 1,881 | |
Stock-based payment | 8,665 | 8,003 | |
86,641 | 44,185 |
(1) Comprises: Medical assistance, educational expenses and others.
31. NET SALES
Parent company | Consolidated | ||||||
12.31.14 | 12.31.13 | 12.31.14 | 12.31.13 | ||||
Gross sales | |||||||
Domestic market (Brazil) | 16,998,856 | 15,898,719 | 17,003,975 | 15,911,822 | |||
Foreign market (International) | 10,385,534 | 11,201,066 | 13,925,919 | 13,860,319 | |||
Food service | 1,980,009 | 1,764,358 | 2,016,743 | 1,856,145 | |||
29,364,399 | 28,864,143 | 32,946,637 | 31,628,286 | ||||
Sales deductions | |||||||
Domestic market (Brazil) | (3,068,987) | (2,861,959) | (3,069,271) | (2,862,232) | |||
Foreign market (International) | (107,924) | (106,407) | (601,101) | (728,711) | |||
Food service | (253,353) | (228,458) | (269,422) | (249,866) | |||
(3,430,264) | (3,196,824) | (3,939,794) | (3,840,809) | ||||
|
|
|
| ||||
Net sales | |||||||
Domestic market (Brazil) | 13,929,869 | 13,036,760 | 13,934,704 | 13,049,590 | |||
Foreign market (International) | 10,277,610 | 11,094,659 | 13,324,818 | 13,131,608 | |||
Food service | 1,726,656 | 1,535,900 | 1,747,321 | 1,606,279 | |||
25,934,135 | 25,667,319 | 29,006,843 | 27,787,477 |
32. RESEARCH AND DEVELOPMENT COSTS
Consist of expenditures on internal research and development of new products which are recognized when incurred. The amounted to R$192,786 for year ended December 31, 2014 in the parent company and the consolidated (R$68,586 as of December 31, 2013 in the parent company and the consolidated).
163
(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Year ended December 31, 2014 and 2013 (Amounts expressed in thousands of Brazilian Reais, unless otherwise stated) |
33. OTHER OPERATING INCOME (EXPENSES), NET
Parent company | Consolidated | ||||||
12.31.14 | 12.31.13 | 12.31.14 | 12.31.13 | ||||
Income | |||||||
Net income on exchange of Minerva stock | 179,268 | - | 179,268 | - | |||
Net income from the disposal of property, plant and equipment | 103,291 | - | 111,410 | - | |||
Recovery of expenses | 44,364 | 37,319 | 63,773 | 44,892 | |||
Gain on business combination | - | - | 24,963 | - | |||
Provision reversal | 6,317 |
| 8,270 |
| 6,317 |
| 8,270 |
Other(1) | 76,395 | 24,936 | 96,613 | 28,923 | |||
409,635 | 70,525 | 482,344 | 82,085 | ||||
Expenses | |||||||
Employees profit sharing | (324,002) | (130,540) | (356,495) | (137,785) | |||
Restructuring(2) | (119,735) | (98,062) | (214,737) | (103,880) | |||
Provision for tax risks | (91,152) | (37,196) | (91,219) | (35,599) | |||
Provision for civil and labor risks | (71,611) | (37,431) | (72,354) | (37,431) | |||
Idleness costs(3) | (31,883) | (52,793) | (54,116) | (52,879) | |||
Other employees benefits | (33,439) | (32,545) | (33,439) | (32,545) | |||
Stock options plan | (20,673) | (26,761) | (20,673) | (26,761) | |||
Management profit sharing | (13,863) | (17,712) | (14,159) | (17,712) | |||
Net losses from the disposal of property, plant and equipment | - | (21,565) | - | (14,126) | |||
Other | (42,020) | (35,705) | (63,262) | (81,482) | |||
(748,378) | (490,310) | (920,454) | (540,200) | ||||
(338,743) | (419,785) | (438,110) | (458,115) |
(1) Includes the amount arising of R$27,562 related to success in the lawsuit compulsory loan Eletrobrás.
(2) Includes amounts arising from the review of the administrative and operational structure.
(3) Idleness cost includes depreciation expense in the amount of R$23,431 and R$30,323 for the year ended December 31, 2014 and December 31, 2013, respectively.
164
(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Year ended December 31, 2014 and 2013 (Amounts expressed in thousands of Brazilian Reais, unless otherwise stated) |
34. FINANCIAL INCOME (EXPENSES), NET
Parent company | Consolidated | ||||||
12.31.14 | 12.31.13 | 12.31.14 | 12.31.13 | ||||
Financial income | |||||||
Exchange rate variation on assets | 369,733 | 303,558 | 694,353 | 161,209 | |||
Exchange rate variation on marketable securities | 25,358 | 25,748 | 287,232 | - | |||
Interest on assets | 243,862 | 114,948 | 251,015 | 133,823 | |||
Gains on the translation of foreign investments(1) | - | - | 126,726 | 382,219 | |||
Interest on cash and cash equivalents | 76,686 | 27,276 | 97,280 | 33,024 | |||
Interests on financial assets classified as | |||||||
Held for trading | 27,802 | 15,842 | 27,902 | 16,621 | |||
Held to maturity | 22,069 | 19,586 | 22,069 | 23,533 | |||
Available for sale | 391 | 75 | 10,314 | 23,973 | |||
Gains on derivative transactions | - | - | 46,260 | - | |||
Others | 14,465 | 35,822 | 17,605 | 42,894 | |||
780,366 | 542,855 | 1,580,756 | 817,296 | ||||
Financial expenses | |||||||
Exchange rate variation on loans and financing | (645,879) | (312,579) | (648,022) | (316,762) | |||
Interest on loans and financing | (482,266) | (391,733) | (645,052) | (567,382) | |||
Exchange rate variation on other liabilities | (123,869) | (334,485) | (582,844) | (323,559) | |||
Premium paid for the repurchase (Tender Offer) | - | - | (198,514) | - | |||
Interest on liabilities | (172,626) | (134,768) | (179,863) | (170,887) | |||
Adjustment to present value | (157,918) | - | (154,359) | - | |||
Losses on derivative transactions | (8,046) | (39,754) | - | (72,370) | |||
Interest expenses on loans to related parties | (74,694) | (111,237) | - | - | |||
Others | (89,709) | (82,215) | (162,800) | (113,872) | |||
(1,755,007) | (1,406,771) | (2,571,454) | (1,564,832) | ||||
(974,641) | (863,916) | (990,698) | (747,536) |
(1) Refers to investments in subsidiaries whose functional currency is Real.
165
(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Year ended December 31, 2014 and 2013 (Amounts expressed in thousands of Brazilian Reais, unless otherwise stated) |
35. STATEMENT OF INCOME BY NATURE
The Company has chosen to disclose its statement of income by function and thus presents below the details by nature:
Parent company | Consolidated | ||||||
12.31.14 | 12.31.13 | 12.31.14 | 12.31.13 | ||||
Costs of sales | |||||||
Costs of goods | 13,400,201 | 14,095,006 | 14,632,935 | 14,998,447 | |||
Depreciation | 999,659 | 927,441 | 1,019,374 | 952,383 | |||
Amortization | 2,517 | 4,707 | 2,721 | 10,370 | |||
Salaries and employees benefits | 2,624,640 | 2,479,195 | 2,844,547 | 2,704,383 | |||
Others | 1,874,422 | 2,151,930 | 1,997,853 | 2,212,014 | |||
18,901,439 | 19,658,279 | 20,497,430 | 20,877,597 | ||||
Sales expenses | |||||||
Depreciation | 54,881 | 46,651 | 58,438 | 52,231 | |||
Amortization | 4,883 | 1,438 | 5,964 | 2,569 | |||
Salaries and employees benefits | 840,980 | 821,934 | 985,574 | 950,660 | |||
Indirect/direct logistics expenses | 1,912,657 | 1,750,302 | 2,127,448 | 2,181,998 | |||
Others | 841,296 | 749,687 | 1,039,076 | 953,558 | |||
3,654,697 | 3,370,012 | 4,216,500 | 4,141,016 | ||||
Administrative expenses | |||||||
Depreciation | 7,111 | 9,227 | 15,731 | 17,523 | |||
Amortization | 86,339 | 40,389 | 104,759 | 51,954 | |||
Salaries and employees benefits | 187,938 | 214,151 | 245,358 | 267,816 | |||
Fees | 25,874 | 22,090 | 26,124 | 22,134 | |||
Others | (17,874) | 17,793 | 10,082 | 67,917 | |||
289,388 | 303,650 | 402,054 | 427,344 | ||||
Other operating expenses(1) | |||||||
Depreciation | 22,734 | 30,320 | 23,431 | 30,322 | |||
Others | 725,644 | 459,990 | 897,023 | 509,878 | |||
748,378 | 490,310 | 920,454 | 540,200 |
(1) The composition of other operating expenses is disclosed in note 33.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Year ended December 31, 2014 and 2013 (Amounts expressed in thousands of Brazilian Reais, unless otherwise stated) |
36. INSURANCE COVERAGE
The Company adopts the policy of contracting insurance coverage for assets subject to risks in amounts sufficient to cover any claims, considering the nature of its activity.
12.31.14 | ||||||
Assets covered | Coverage | Insured amounts | Amount of coverage | |||
Inventories and property, plant and equipment | Fire, lightning, explosion, windstorm, deterioration of refrigerated products, breakdown of machinery, loss of profit and other | 31,603,893 | 1,856,524 | |||
Garantee | Judicial, traditional and customer garantees | 1,900,238 | 1,900,238 | |||
National / international transport | Road risk and civil liability of cargo carrier and transport risk during imports and exports | 37,081,830 | 1,095,586 | |||
General civil liability for directors and officers | Third party complaints | 32,966,366 | 2,947,607 | |||
Credit | Customer default | 419,320 | 387,987 |
37. NEW ACCOUNTING PRONOUNCEMENTS RECENTLY ADOPTED
IAS 32 – Offsetting Financial Assets and Financial Liabilities – Amendment
In December 2011, IASB issued an amendment to clarify the meaning of “currently has a legally enforceable right to offset the recognized amounts" and the criteria that would cause the not simultaneous settlement mechanisms of clearing houses to qualify for offsetting. The Company analyzed the content of this standard and there was no impact on its financial statements for the year ended December 31, 2014.
IFRS 10, IFRS 12 and IAS 27 – Investment Entities – Amendment
In October 2012, IASB issued an amendment to introduce a definition for “Investment Entity” and an exception to consolidation, specific for Investment Entity, which requires that such entity measures its investment in a subsidiary at fair value through profit or loss in accordance with Technical Pronouncement CPC 38 – Financial Instruments: Recognition and Measurement in its consolidated and separated financial statements. On December 12, 2014, CVM issued CVM Deliberation No. 733/14, correspondent to these IFRS/IAS. The Company analyzed the content of this standard and there was no impact on its financial statements for the year ended December 31, 2014.
IFRIC 21 – Levies
In May 2013, the IASB issued IFRIC 21, which provides guidance on when an entity should recognize a liability for a levy in accordance with laws and/or regulations, except for income taxes, in its financial statements. The obligation should only be recognized when the event that triggers such obligation occurs. IFRIC 21 is an interpretation of IAS 37 – Provisions, Contingent Liabilities and Contingent Assets. IAS 37 establishes criteria for the recognition of a liability, one of which is the requirement that the Company has a present obligation as a result of a past event, known as the obligating event. On November 27, 2014, CVM issued CVM Deliberation No. 730/14, correspondent to this IFRIC. The Company analyzed the content of this standard and there was no impact on its financial statements for the year ended December 31, 2014.
167
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Year ended December 31, 2014 and 2013 (Amounts expressed in thousands of Brazilian Reais, unless otherwise stated) |
IAS 36 – Recoverable Amount Disclosures for Non-Financial Assets – Amendment
On May 2013, IASB issued an amendment to introduce the disclosure of fair value hierarchy level for each impairment loss or reversal recognized during the period for individual asset, including goodwill or cash generate unit, as well as improvement of wording, aiming a better application of standard in accordance with international accounting practices and do not change the meaning of the original text issued. On August 14, 2014, CVM issued CVM Deliberation No. 724/14, correspondent to this IAS. The Company analyzed the content of this standard and there was no impact on its financial statements for the year ended December 31, 2014.
IAS 39 – Novation of Derivatives and Continuation of Hedge Accounting – Amendment
On June 2013, IASB issued an amendment to eases the discontinuation of hedge accounting when the novation of a derivative designated as a hedge meets certain criteria and retrospective application is mandatory. These revisions are effective for fiscal years beginning on or after January 01, 2014 and the Company does not expect a material impact on its consolidated financial statements. On August 14, 2014, CVM issued CVM Deliberation No. 724/14, correspondent to this IAS. The Company analyzed the content of this standard and there was no impact on its financial statements for the year ended December 31, 2014.
38. NEW ACCOUNTING PRONOUNCEMENTS NOT ADOPTED
IFRS 9 – Financial Instruments
On July 2014, IASB issued the final version of IFRS 9 – Financial Instruments, which reflects all phases of financial instruments project and replaces IAS 39 – Financial Instruments: Recognizing and Measurement and all previous versions of IFRS 9. The standard introduces new guidance about classification and measurement, impairment loss and hedge accounting. Early adoption is not permitted and is effective from periods beginning on January 1, 2018. Retrospective adoption is mandatory, however, is not required the presentation of comparative information. Early adoption of previous versions of IFRS 9, issued in 2009, 2010 and 2013, is permitted if the initial adoption date is prior to February 1, 2015. The effects related to the adoption of this standard affects only the classification and measurement of financial assets, financial liabilities are exempt. The Company is evaluating the impact of adopting this standard in itsconsolidated financial statements.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Year ended December 31, 2014 and 2013 (Amounts expressed in thousands of Brazilian Reais, unless otherwise stated) |
IFRS 15 – Revenue from Contracts with Customers
On May 2014, IASB issued IFRS 15 that establishing a 5 steps model that will be applied to revenue obtained from a contract with customer. In accordance with this standard, revenues are recognized based on an amount that reflects the consideration which an entity expects to be entitled for the transfer of goods or services to a customer. The guidelines of IFRS consider a more structured approach to measure and recognize revenue.
This standard is applicable to all entities and will replace all current requirements related to revenue recognition. Retrospective adoption, total or modified, is mandatory to periods beginning on January 1, 2017 or after. Earlier adoption is permitted, but it is under analysis for regulatory entities in Brazil. The Company is evaluating the impact of adopting this standard in its consolidated financial statements.
IFRS 11 – Accounting for Acquisition of Interests in Joint Operations – Amendment
On May 2014, IASB issued amendments to IFRS 11, which demands that a joint operator that is accounting an acquisition of equity interest in which the joint operation activity constitutes a business, applied the guidelines according to IFRS 3 for business combination accounting. The amendments also clarify that an equity interest previously held in a joint operation is not remeasured on an additional acquisition of interest in the same joint operation while the joint control is held. Additionally, the amendments are not applied when the parties sharing the control, including the reporting entity, are under common control of the parent company.
The amendments are applicable to both the acquisition of the final equity interest in a joint operation and on the acquisition of any additional equity interest in the same joint operation. This standard will be in force prospectively to periods beginning on January 1, 2017 or after. Early adoption in Brazil is not permitted by regulatory entities. The Company is evaluating the impact of adopting this standard in its consolidated financial statements.
IAS 16 and IAS 38 – Clarification of Accountable Methods of Depreciation and Amortization – Amendment
On May 2014, IASB issued amendments to clarify guidelines of IAS 16 and IAS 38, that revenue reflects a model of economic benefits generated from operation of business (of which the asset is a part), instead of economic benefits generated from the use of the asset. As a result, a method based on revenue cannot be used for property, plant and equipment depreciation purposes and may be used only under very limited circumstances to amortize intangible assets. The amendments will be in force prospectively to amortize intangible assets fiscal years beginning on January 01, 2016or after. The Company does not expect impact on its consolidated financial statements, since the Company does not use a method based on revenue to depreciate non-current assets.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Year ended December 31, 2014 and 2013 (Amounts expressed in thousands of Brazilian Reais, unless otherwise stated) |
39. SUBSEQUENT EVENTS
39.1. State ICMS (“VAT”) – Basic Food Basket
In a meeting held on October 16, 2014 and disclosure of decision on February 02, 2015, the Federal Supreme Court ("STF") was favorable to Tax Authority of State of Rio Grande do Sul, in the judgment of the extraordinary appeal No.635.688 submitted by company Santa Lúcia, understanding as improper the integral maintenance of ICMS tax credits on the reduced tax basis of food products that composes the basic food basket.
Although this decision has wide general reflection and attributable to other taxpayers and courts, it will be held still, in accordance with applicable law, motion for clarification of resources. The motion for clarification of resources aiming, including the determination of the beginning of effects of such decision applicable to the Company, making it impossible the measurement of its effects and the recognition in the Company's financial statements.
39.2. Tax Assessment Notice – Income Tax and Social Contribution
On February 05, 2015, BRF received an tax assessment notices through which is demanded Income Tax and Social Contribution, in the amount of R$521,105, related to the compensation of tax loss carryforwards and negative calculation basis up to limit of 30%, carried out based on legal opinion, upon the merger of Sadia S.A. Legal defenses will be presented, considering that the Company's legal advice classify the risk of loss as possible.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Year ended December 31, 2014 and 2013 (Amounts expressed in thousands of Brazilian Reais, unless otherwise stated) |
40. APPROVAL OF THE CONSOLIDATED FINANCIAL STATEMENTS
The consolidated financial statements were approved by the Board of Directors on February 26, 2015.
BOARD OF DIRECTORS |
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Chairman (Independent) | Abilio dos Santos Diniz |
Vice-Chairman (Independent) | Sérgio Ricardo Silva Rosa |
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Board Member | Carlos Fernando da Costa |
Board Member | Eduardo Silveira Mufarej |
Board Member | José Carlos Reis de Magalhães Neto |
Board Member | Luis Carlos Fernandes Afonso |
Independent Member | Luiz Fernando Furlan |
Independent Member | Manoel Cordeiro Silva Filho |
Board Member | Paulo Assunção de Sousa |
Independent Member | Walter Fontana Filho |
Board Member | Vicente Falconi Campos |
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FISCAL COUNCIL |
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Chairman and Financial Specialist | Attilio Guaspari |
Members | Décio Magno Andrade Stochiero |
Members | Susana Hanna Stiphan Jabra
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AUDIT COMITTÊE |
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Comittee Coordinator | Sérgio Ricardo Silva Rosa |
Members | Walter Fontana Filho |
Members | Fernando Maida Dall Acqua |
BOARD OF EXECUTIVE OFFICERS(1) |
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|
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Chief Executive Officer Global | Pedro de Andrade Faria |
Vice President of Finance, and Investor Relations | Augusto Ribeiro Junior |
Vice President of Marketing and Innovation | Flavia Moyses Faugeres |
Vice President of Quality and Management | Gilberto Antônio Orsato |
Vice President de Supply Chain | Hélio Rubens Mendes dos Santos |
Vice President of Legal and Relationships | José Roberto Pernomian Rodrigues |
Vice President of People | Rodrigo Reghini Vieira |
(1) On January 1, 2015, the Board of Directors became composed of: Chief Executive Officer Global - Pedro de Andrade Faria; Vice President of Quality and Management - Gilberto Antônio Orsato; Vice President Legal and Relations - José Roberto Pernomian Rodrigues and Vice President People - Rodrigo Reghini Vieira
Marcos Roberto Badollato Controller | Joloir Nieblas Cavichini Accountant – CRC 1SP257406/O-5 |
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FINANCIAL STATEMENTS Year ended December 31, 2014 and 2013
|
OPINION OF THE FISCAL COUNCIL
The Fiscal Council of BRF S.A., in fulfilling its statutory and legal duties, reviewed:
(i) the financial statements (parent company and consolidated) for the fiscal year ended on December 31, 2014.
(ii) the Management Report; and
(iii) the conclusion issued by Ernst&Young Auditores Independentes S.S.;
Based on the documents reviewed and on the explanations provided, the members of the Fiscal Council, undersigned, issued an opinion for the approval of the financial information identified above.
São Paulo, February 26, 2015.
Attílio Guaspari
Chairman and Financial Expert
Décio Magno Andrade Stochiero
Fiscal Council Member
Susana Hanna Stiphan Jabra
Fiscal Council Member
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FINANCIAL STATEMENTS Year ended December 31, 2014 and 2013
|
OPINION OF THE AUDIT COMMITTEE
The Audit Committee of BRF S.A., in fulfilling its statutory and legal duties, reviewed:
(i) the financial statements (parent company and consolidated) for the fiscal year ended on December 31, 2014.
(ii) the Management Report; and
(iii) opinion report issued by Ernst & Young Auditores Independentes S.S.
Based on the documents reviewed and on the explanations provided, the members of the Audit Committee, undersigned, issued an opinion for the approval of the financial information identified above.
São Paulo, February 26, 2015.
Sergio Ricardo Silva Rosa
AuditorCommittee Coordinator
Walter Fontana Filho
AuditorCommittee Member
Fernando Maida Dall Acqua
Independent Member and Financial Expert
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FINANCIAL STATEMENTS Year ended December 31, 2014 and 2013
|
OPINION OF EXECUTIVE BOARD ON THE CONSOLIDATED
FINANCIAL STATEMENTS AND INDEPENDENT AUDITOR’S REPORT
In compliance with the dispositions of sections V and VI of article 25 of CVM Instruction No. 480/09, the executive board of BRF S.A., states:
(i) reviewed, discussed and agreed with the Company's consolidated financial statements for the fiscal year ended on December 31, 2014; and
(ii) reviewed, discussed and agreed with opinions expressed in the Ernst&YoungAuditores Independentes S.S. reported on the Company's consolidated financial statements for the fiscal year ended on December 31, 2014.
São Paulo, February 26, 2015.
Cláudio Eugênio Stiller Galeazzi
Chief Executive Officer Global
Sérgio Carvalho Mandin Fonseca
Chief Executive Officer Brazil
Pedro de Andrade Faria
Chief Executive Officer International
Augusto Ribeiro Junior
Vice President of Finance, and Investor Relations
Ely David Mizrahi
Food Service Executive Officer
Gilberto Antônio Orsatto
Vice President of Administration and Human Resources
Hélio Rubens
Vice President of Integrated Planning and Management Control
Flávia Moyses Faugeres
Vice President of Marketing and Innovation
On January 1, 2015, the Board of Directors became composed of: Chief Executive Officer Global - Pedro de Andrade Faria; Vice President of Quality and Management - Gilberto Antônio Orsato; Vice President Legal and Relations - José Roberto Pernomian Rodrigues and Vice President People - Rodrigo Reghini Vieira
174