FORM 6-K/A
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16 OF THE
SECURITIES EXCHANGE ACT OF 1934

dated August 14, 2020

Commission File Number 1-15148

BRF S.A.
(Exact Name as Specified in its Charter)

N/A
    (Translation of Registrant’s Name)

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

Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F.

Form 20-F x   Form 40-F o

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T
Rule 101(b)(1):                   

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T
Rule 101(b)(7):                   

Indicate by check mark whether by furnishing the information contained in this Form, the registrant is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.

Yes o   No x

If “Yes” is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): Not applicable.

 

 

 

 
 

 

*             *             *

This material includes certain forward-looking statements that are based principally on current expectations and on projections of future events and financial trends that currently affect or might affect the Company’s business, and are not guarantees of future performance.  These forward-looking statements are based on management’s expectations, which involve a number of known and unknown risks, uncertainties, assumptions and other important factors, many of which are beyond the Company’s control and any of which could cause actual financial condition and results of operations to differ materially fom those set out in the Company’s forward-looking statements.  You are cautioned not to put undue reliance on such forward-looking statements.  The Company undertakes no obligation, and expressly disclaims any obligation, to update or revise any forward-looking statements.  The risks and uncertainties relating to the forward-looking statements in this Report on Form 6-K, including Exhibit 1 hereto, include those described under the captions “Forward-Looking Statements” and “Item 3. Key Information — D. Risk Factors” in the Company’s annual report on Form 20-F for the year ended December 31, 2012.

 

 

 

 
 

 

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.

Date: August 14, 2020  
   
  BRF S.A.
   
   
  By: /s/ Carlos Alberto Bezerra de Moura
    Name:  Carlos Alberto Bezerra de Moura
    Title:

Chief Financial and Investor Relations Officer

 

 

 

 

 

 
 

 

 

EXHIBIT INDEX

Exhibit

Description of Exhibit

 

1 Financial Statements

 

 
 

 

 

 
 

 

INDEX

STATEMENT OF FINANCIAL POSITION 4
STATEMENT OF INCOME (LOSS) 5
STATEMENT OF COMPREHENSIVE INCOME (LOSS) 6
STATEMENT OF CHANGES IN EQUITY 7
STATEMENT OF CASH FLOWS 8
STATEMENT OF VALUE ADDED 9
MANAGEMENT REPORT 10
1.   COMPANY’S OPERATIONS 39
2.   BASIS OF PREPARATION AND PRESENTATION OF INTERIM FINANCIAL STATEMENTS 44
3.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 44
4.   CASH AND CASH EQUIVALENTS 46
5.   MARKETABLE SECURITIES 46
6.   TRADE ACCOUNTS RECEIVABLE AND OTHER RECEIVABLES 47
7.   INVENTORIES 48
8.   BIOLOGICAL ASSETS 49
9.   RECOVERABLE TAXES 51
10.   INCOME AND SOCIAL CONTRIBUTION TAXES 52
11.   JUDICIAL DEPOSITS 54
12.   INVESTMENTS 55
13.   PROPERTY, PLANT AND EQUIPMENT, NET 56
14.   INTANGIBLE ASSETS 59
15.   LOANS AND BORROWINGS 60
16.   TRADE ACCOUNTS PAYABLE 63
17.   SUPPLY CHAIN FINANCE 63
18.   LEASES 64
19.   SHARE-BASED PAYMENT 66
20.   EMPLOYEES BENEFITS PLANS 68
21.   PROVISION FOR TAX, CIVIL, LABOR AND OTHER RISKS 68
22.   SHAREHOLDERS’ EQUITY 69
23.   EARNINGS (LOSS) PER SHARE 70
24.   FINANCIAL INSTRUMENTS AND RISKS MANAGEMENT 71
25.   SEGMENT INFORMATION 82
26.   NET SALES 84
27.   OTHER OPERATING INCOME (EXPENSES), NET 84
28.   FINANCIAL INCOME (EXPENSES), NET 85

 

BRF S.A. | INTERIM FINANCIAL INFORMATION - June 30, 2020 2
 
29.   STATEMENT OF INCOME BY NATURE 85
30.   RELATED PARTIES – PARENT COMPANY 86
31.   COMMITMENTS 89
32.   TRANSACTIONS THAT DO NOT INVOLVE CASH 89
33.   SUBSEQUENT EVENTS 89
34.   APPROVAL OF THE INTERIM FINANCIAL INFORMATION 91
COMENTARY ABOUT THE COMPANY PROJECTIONS BEHAVIOUR 92
BREAKDOWN OF THE CAPITAL BY OWNER (NOT REVIEWED) 92
INDEPENDENT AUDITOR’S REPORT ON REVIEW OF INTERIM FINANCIAL INFORMATION 93
OPINION OF THE AUDIT AND INTEGRITY COMMITTEE 94
STATEMENT OF EXECUTIVE BOARD ON THE INTERIM FINANCIAL INFORMATION AND INDEPENDENT AUDITOR’S REPORT 95

 

 

BRF S.A. | INTERIM FINANCIAL INFORMATION - June 30, 2020 3
 

(in thousands of Brazilian Reais)

 

STATEMENT OF FINANCIAL POSITION

      Parent company   Consolidated         Parent company   Consolidated
ASSETS Note   06.30.20   12.31.19   06.30.20   12.31.19   LIABILITIES Note   06.30.20   12.31.19   06.30.20   12.31.19
CURRENT ASSETS                     CURRENT LIABILITIES                  
Cash and cash equivalents 4     4,469,307    1,368,980    9,671,275    4,237,785   Loans and borrowings 15    3,935,263    3,033,034    4,071,950    3,132,029
Marketable securities 5    309,460    396,994    337,183    418,182   Trade accounts payable 16    5,958,687    5,270,762    6,725,495    5,784,419
Trade and other receivables 6     6,578,951    6,153,937    2,848,634    3,090,691   Supply chain finance 17    982,237    842,037    982,237    842,037
Inventories 7     3,447,795    2,786,147    5,103,218    3,887,916   Lease liability 18    244,450    313,058    317,435    376,628
Biological assets 8     1,803,882    1,545,127    1,882,925    1,603,039   Payroll, related charges and employee profit sharing      964,760    754,032    1,008,666    825,254
Recoverable taxes 9    371,098    274,480    609,955    473,732   Tax payable      205,701    268,193    489,833    517,208
Recoverable income tax and social contribution 9   60,688   40,291   93,781    152,486   Derivative financial instruments 24    1,098,175    151,722    1,100,649    153,612
Derivative financial instruments 24    237,757    193,740    244,362    195,324   Provision for tax, civil and labor risks 21    1,135,183    1,081,103    1,139,238    1,084,308
Restricted cash       1    296,294     1    296,294   Employee benefits 20   87,996   87,996   97,688   95,919
Assets held for sale     15,874   16,671   42,284   99,245   Advances from related parties 30    8,926,155    5,364,164    -   -
Other current assets      422,909    495,743    502,874    590,733   Other current liabilities      226,488    329,166    952,824    512,591
Total current assets     17,717,722     13,568,404     21,336,492     15,045,427   Total current liabilities       23,765,095     17,495,267     16,886,015     13,324,005
                                         
NON-CURRENT ASSETS                     NON-CURRENT LIABILITIES                  
LONG-TERM RECEIVALBLES                     Loans and borrowings 15     17,730,549     13,395,970     20,791,601     15,488,250
Marketable securities 5   14,728   14,891    415,456    307,352   Trade accounts payable 16     7,718   12,347     7,718   12,347
Trade and other receivables 6   63,237   71,029   63,237   71,029   Lease liability 18    1,995,738    1,939,494    2,161,196    2,054,552
Recoverable taxes 9     5,249,535    5,167,016    5,249,509    5,169,547   Tax payable      182,924    190,257    182,924    190,257
Recoverable income tax and social contribution 9   90,759    264,428   97,197    269,263   Provision for tax, civil and labor risks 21    709,199    709,760    709,546    710,061
Deferred income taxes 10     2,131,882    1,808,494    2,180,059    1,845,862   Deferred income tax 10    -   -    120,589   85,310
Judicial deposits 11    560,469    575,681    560,549    575,750   Liabilities with related parties 30    1,165,241    960,056    -   -
Biological assets 8     1,065,330    1,016,642    1,146,000    1,081,025   Employee benefits 20    535,733    506,791    654,297    593,555
Receivables from related parties 30     325    234    -   -   Derivative financial instruments 24   43,905     3   43,905     3
Derivative financial instruments 24     4,881   49,991     4,881   49,991   Other non-current liabilities      284,277    482,109    305,581    1,093,942
Restricted cash     24,178   -   24,178   -                      
Other non-current assets     65,881   78,516   70,990   85,537                      
Total long-term receivables       9,271,205    9,046,922    9,812,056    9,455,356   Total non-current liabilities       22,655,284     18,196,787     24,977,357     20,228,277
                                         
                                         
                      EQUITY 22                
                      Capital       12,460,471     12,460,471     12,460,471     12,460,471
                      Capital reserves      147,280    192,845    147,280    192,845
Investments 12   11,912,608    6,499,517   17,801   14,880   Accumulated losses     (3,739,036)   (3,996,985)   (3,739,036)   (3,996,985)
Property, plant and equipment, net 13   11,073,266     11,333,302     12,265,597     12,276,889   Treasury shares     (138,098)    (38,239)   (138,098)    (38,239)
Intangible assets 14     3,239,478    3,139,532    5,476,891    4,908,079   Other comprehensive loss     (1,936,717)     (722,469)   (1,936,717)     (722,469)
                      Attributable to controlling shareholders      6,793,900    7,895,623    6,793,900    7,895,623
                      Non-controlling interests      -   -    251,565    252,726
Total non-current assets     35,496,557     30,019,273     27,572,345     26,655,204   Total equity      6,793,900    7,895,623    7,045,465    8,148,349
                                         
TOTAL ASSETS     53,214,279     43,587,677     48,908,837     41,700,631   TOTAL LIABILITIES AND EQUITY       53,214,279     43,587,677     48,908,837     41,700,631

The accompanying notes are an integral part of the interim financial information.

 

BRF S.A. | INTERIM FINANCIAL INFORMATION - June 30, 2020 4
 

(in thousands of Brazilian Reais)

 

STATEMENT OF INCOME (LOSS)

  Parent company   Consolidated
  Note   April to June 2020   January to June 2020   April to June 2019   January to June 2019   April to June 2020   January to June 2020   April to June 2019   January to June 2019
CONTINUING OPERATIONS                                  
NET SALES 26    7,063,409    14,512,454    7,025,848   13,443,794    9,103,926     18,052,991     8,338,009   15,697,259
Cost of sales 29     (6,182,886)     (12,011,795)     (5,649,846)     (10,919,670)   (7,125,034)   (13,821,122)    (6,246,360)     (12,088,540)
GROSS PROFIT     880,523   2,500,659    1,376,002     2,524,124    1,978,892    4,231,869     2,091,649     3,608,719
OPERATING INCOME (EXPENSES)                                  
Selling expenses 29     (1,057,781)    (2,090,348)     (987,445)    (1,887,936)   (1,360,889)     (2,645,223)    (1,256,777)    (2,392,072)
General and administrative expenses 29     (122,609)    (209,890)    (85,753)    (177,433)   (190,465)     (333,025)    (136,157)    (277,386)
Impairment loss on trade receivables 29     22,024     (9,078)   (1,035)    (7,573)   21,096    (11,755)   1,709    (3,798)
Other operating income (expenses), net 27   147,221   (84,110)   263,008     175,516    138,553     (100,000)     230,477     153,801
Income (loss) from associates and joint ventures 12    2,086,260   6,073,512   137,670     350,038    -   -    (860)    (1,025)
INCOME BEFORE FINANCIAL RESULTS AND INCOME TAXES      1,955,638   6,180,745   702,447     976,736    587,187    1,141,866     930,041     1,088,239
Financial expenses 28     (577,883)    (1,192,623)     (982,549)    (1,494,651)   (166,563)     (735,913)    (1,048,018)    (1,551,277)
Financial income 28     66,332     173,109   460,656     540,550   81,833   194,711     474,668     560,729
Foreign exchange and monetary variations 28     (1,037,987)    (4,851,516)     68,931     (75,350)   (105,573)     (255,570)     (45,972)     (77,039)
INCOME (LOSS) BEFORE TAXES     406,100     309,715   249,485     (52,715)    396,884   345,094     310,719    20,652
Income taxes 10     (102,230)   (51,766)    (61,591)     128,546     (89,755)    (76,197)    (119,696)    57,093
INCOME FROM CONTINUING OPERATIONS     303,870     257,949   187,894    75,831    307,129   268,897     191,023    77,745
DISCONTINUED OPERATIONS                                  
                                   
INCOME (LOSS) FROM DISCONTINUED OPERATIONS     -     -   134,931    (753,941)    -   -     133,931    (765,122)
INCOME (LOSS) FOR THE PERIOD     303,870     257,949   322,825    (678,110)    307,129   268,897     324,954    (687,377)
                                      
Net Income from Continuing Operation Attributable to                                  
Controlling shareholders     303,870     257,949   187,894    75,831    303,870   257,949     187,894    75,831
Non-controlling interest     -     -   -     -     3,259     10,948   3,129   1,914
      303,870     257,949   187,894    75,831    307,129   268,897     191,023    77,745
                                   
Net Income (Loss) From Discontinued Operation Attributable to                                  
Controlling shareholders     -     -   134,931    (753,941)    -   -     134,931    (753,941)
Non-controlling interest     -     -   -     -    -   -    (1,000)     (11,181)
      -     -   134,931    (753,941)    -   -     133,931    (765,122)
                                   
INCOME PER SHARE FROM CONTINUING OPERATIONS                                  
Weighted average shares outstanding - basic                      809,612,517   810,672,698     811,440,470     811,428,248
Income per share - basic 23                    0.38   0.32    0.23    0.09
Weighted average shares outstanding - diluted                      809,875,209   810,935,390     811,440,470     811,428,248
Income per share - diluted 23                    0.38   0.32    0.23    0.09
                                   
INCOME (LOSSES) PER SHARE FROM DISCONTINUED OPERATIONS                                  
Weighted average shares outstanding - basic                      809,612,517   810,672,698     811,440,470     811,428,248
Income (losses) per share - basic 23                    -   -    0.17   (0.93)
Weighted average shares outstanding - diluted                      809,612,517   810,672,698     811,440,470     811,428,248
Income (losses) per share - diluted 23                    -   -    0.17   (0.93)

The accompanying notes are an integral part of the interim financial information.

 

BRF S.A. | INTERIM FINANCIAL INFORMATION - June 30, 2020 5
 

(in thousands of Brazilian Reais)

 

STATEMENT OF COMPREHENSIVE INCOME (LOSS)

      Parent company   Consolidated
  Note   April to June 2020   January to June 2020   April to June 2019   January to June 2019   April to June 2020   January to June 2020   April to June 2019   January to June 2019
Income (loss) for the period       303,870   257,949     322,825    (678,110)   307,129   268,897   324,954    (687,377)
Other comprehensive income (loss)                                  
Gain (loss) on foreign currency translation of foreign operations       (46,972)     (148,522)     (49,293)     659,167    (63,994)     (105,697)    (80,629)     617,836
Loss on net investment hedge       (69,236)     (342,111)     -     -    (69,236)     (342,111)   -     -
Gain (loss) on cash flow hedge 24     268,028     (741,483)    81,045    95,284   268,028     (741,483)     81,045    95,284
Gain (loss) on debt investments measured at FVTOCI (1) 5     2,703     (170)   1,175   1,568    2,703     (170)    1,175   1,568
Net other comprehensive income (loss),  to be reclassified to the statement of income in subsequent periods       154,523     (1,232,286)    32,927     756,019   137,501     (1,189,461)    1,591     714,688
Gain (loss) on equity investments measured at FVTOCI (1) 5     4,636    5,003    19,298    80,314    4,636    5,003     19,298    80,314
Actuarial gains on pension and post-employment plans 20     6,647     13,035   4,393   5,311    6,623     12,964    4,373   4,956
Net other comprehensive income, with no impact into subsequent statement of income     11,283     18,038    23,691    85,625     11,259     17,967     23,671    85,270
Total comprehensive income (loss), net of taxes       469,676     (956,299)     379,443     163,534   455,889     (902,597)   350,216     112,581
Attributable to                                  
Controlling shareholders       469,676     (956,299)     379,443     163,534   469,676     (956,299)   379,443     163,534
Non-controlling interest      -   -     -     -    (13,787)     53,702    (29,227)     (50,953)
        469,676     (956,299)     379,443     163,534   455,889     (902,597)   350,216     112,581

(1) FVTOCI: Fair Value Through Other Comprehensive Income.

 

 

Items above are stated net of tax and the related taxes are disclosed in note 10.

 

 

The accompanying notes are an integral part of the interim financial information.

 

BRF S.A. | INTERIM FINANCIAL INFORMATION - June 30, 2020 6
 

(in thousands of Brazilian Reais)

 

STATEMENT OF CHANGES IN EQUITY

      Attributed to of controlling shareholders
                  Other comprehensive income (loss)                
      Paid-in capital   Capital reserve   Treasury shares   Accumulated foreign currency translation adjustments   Marketable securities at FVTOCI   Gain (losses) on cash flow hedge   Actuarial losses   Retained earnings (losses)   Total equity   Non-controlling interest   Total shareholders' equity
(consolidated)
BALANCES AT DECEMBER 31, 2018       12,460,471   115,354   (56,676)    (752,815)    (98,451)    (396,165)     (28,088)     (4,279,003)    6,964,627   567,150   7,531,777
Adoption of IFRS 16     -     -    -    -   -     -    -   6,287   6,287     -     6,287
Comprehensive income (loss) (1)                                              
Gain (loss) on foreign currency translation of foreign operations     -     -    -     626,254   -     -    -   -    626,254    (30,666)   595,588
Loss on net investment hedge     -     -    -   (66,818)   -     -    -   -     (66,818)     -    (66,818)
Gains on marketable securities measured at FVTOCI (2)     -     -    -    -   102,905     -    -   -    102,905     -   102,905
Unrealized gains in cash flow hedge     -     -    -    -   -     39,444    -   -   39,444     -   39,444
Actuarial losses on pension and post-employment plans     -     -    -    -   -     -   (148,735)   -   (148,735)   (1,786)     (150,521)
Income (loss) for the year     -     -    -    -   -     -    -    297,612    297,612   (160)   297,452
SUB-TOTAL COMPREHENSIVE INCOME (LOSS)     -     -    -     559,436   102,905     39,444   (148,735)    297,612    850,662    (32,612)   818,050
Realized loss in marketable securities at FVTOCI (2)     -     -    -    -   -     -    -     (52,493)     (52,493)     -    (52,493)
Employee benefits remeasurement - defined benefit     -     -    -    -   -     -    -   30,612   30,612     -   30,612
Appropriation of income (loss)                                              
Dividends     -     -    -    -   -     -    -   -   -   (4,988)   (4,988)
Share-based payments     -   (6,861)    18,437    -   -     -    -   -   11,576     -   11,576
Acquisition (sale) of non-controlling interests     -     84,352    -    -   -     -    -   -   84,352    (276,824)     (192,472)
BALANCES AT DECEMBER 31, 2019       12,460,471   192,845   (38,239)    (193,379)     4,454    (356,721)   (176,823)     (3,996,985)    7,895,623   252,726   8,148,349
Comprehensive income (loss) (1)                                              
Gain (loss) on foreign currency translation of foreign operations     -     -    -    (148,522)   -     -    -   -   (148,522)     42,825     (105,697)
Loss on net investment hedge     -     -    -    (342,111)   -     -    -   -   (342,111)     -     (342,111)
Gains on marketable securities measured at FVTOCI (2)     -     -    -    -     4,833     -    -   -   4,833     -     4,833
Unrealized losses in cash flow hedge     -     -    -    -   -    (741,483)    -   -   (741,483)     -     (741,483)
Actuarial gains (losses) on pension and post-employment plans     -     -    -    -   -     -    13,035   -   13,035     (71)   12,964
Income for the period     -     -    -    -   -     -    -    257,949    257,949     10,948   268,897
SUB-TOTAL COMPREHENSIVE INCOME (LOSS)     -     -    -    (490,633)     4,833    (741,483)    13,035    257,949   (956,299)     53,702     (902,597)
Share-based payments     -    5,380   6,211    -   -     -    -   -   11,591     -   11,591
Acquisition (sale) of non-controlling interests (3)     -    (50,945)    -    -   -     -    -   -     (50,945)    (54,863)     (105,808)
Acquisition of treasury shares     -     -   (106,070)    -   -     -    -   -   (106,070)     -     (106,070)
BALANCES AT JUNE 30, 2020       12,460,471   147,280   (138,098)    (684,012)     9,287    (1,098,204)   (163,788)     (3,739,036)    6,793,900   251,565   7,045,465

(1) All changes in other comprehensive income are presented net of taxes.
(2) FVTOCI: Fair Value Through Other Comprehensive Income.
(3) Acquisition of remaining participation in the subsidiary Al Wafi (note 1.1).

 

 

The accompanying notes are an integral part of the interim financial information.

 

BRF S.A. | INTERIM FINANCIAL INFORMATION - June 30, 2020 7
 

(in thousands of Brazilian Reais)

 

STATEMENT OF CASH FLOWS

    Parent company   Consolidated
    January to June 2020   January to June 2019   January to June 2020   January to June 2019
OPERATING ACTIVITIES                
Income from continuing operations    257,949     75,831    268,897     77,745
Adjustments for:                
Depreciation and amortization    610,390   635,429    741,053   745,932
Depreciation and depletion of biological assets    377,490   360,936    420,747   396,053
Result on disposals of property, plant and equipments     2,380    (24,223)     7,409    (18,248)
Write-down of inventories to net realizable value   40,021     83,670   63,180     89,553
Provision for tax, civil and labor risks    181,851   508,062    182,108   505,675
Income from associates and joint ventures   (6,073,512)     (350,038)    -    1,025
Financial results, net    5,871,030   1,029,451    796,772   1,067,587
Tax recoveries and gains in tax lawsuits   (224,820)     (687,371)   (224,820)     (687,371)
Deferred income tax   51,766     (128,546)   37,865     (143,931)
Employee profit sharing    121,399   101,684    117,992   110,455
Other (1)    251,911     82,466    259,024     56,644
     1,467,855   1,687,351    2,670,227   2,201,119
Trade accounts receivable   (395,989)     (901,666)    643,436   348,735
Inventories   (701,669)    (78,771)   (1,223,384)     (218,889)
Biological assets - current   (258,755)    (30,054)   (268,631)    (49,177)
Trade accounts payable    286,358     (195,476)    522,587     (381,973)
Supply chain finance    140,750     (299,603)    140,750     (299,575)
Cash (applied) generated by operating activities    538,550   181,781    2,484,985   1,600,240
Investments in securities at FVTPL (2)     2,800    (89,046)    -    (92,911)
Redemptions of securities at FVTPL (2)   99,264     19,866    102,172     20,244
Interest received   50,925     94,254   57,176   108,632
Dividends and interest on shareholders' equity received    196    8,247    -     15,551
Payment of tax, civil and labor provisions   (129,746)     (173,762)   (129,748)     (173,762)
Payment of interest   (474,804)     (486,667)   (553,441)     (557,228)
Derivative financial instruments    1,137,007    (94,366)    1,141,152     (109,092)
Payment of income tax and social contribution   -     -   (146)    (68)
Other operating assets and liabilities    947,290     (628,334)    450,922    (97,323)
Net cash (applied) provided by operating activities    2,171,482     (1,168,027)    3,553,072   714,283
Net cash (applied) provided by operating activities from discontinued operations   -     48,342    -     (109,234)
Net cash (applied) provided by operating activities    2,171,482     (1,119,685)    3,553,072   605,049
                 
INVESTING ACTIVITIES                
Investments in securities at amortized cost    -   -    -    (15,362)
Redemptions of securities at amortized cost    -     89,046    -     95,638
Redemptions of securities at FVTOCI (3)    -   100,547    -   131,997
Redemption (Investments) of restricted cash    285,622    9,834    285,622     30,522
Additions to property, plant and equipment   (274,851)     (162,159)   (285,323)     (178,085)
Additions to biological assets - non-current   (423,203)     (353,318)   (470,300)     (391,839)
Proceeds from disposals of property, plant, equipment and investments   65,717   379,256   65,717   1,789,751
Additions to intangible assets    (64,428)    (43,071)    (59,067)    (43,283)
Business combination, net of cash    -   -    -     (183,672)
Sale of participation in associated entities    -   -   38,546   -
Sale (acquisition) of participation in joint ventures and associated entities   (547)    1,971   (547)    1,971
Capital increase (decrease) in associates and joint ventures   (5,000)   -    -   -
Advance for future capital increase    -     (1,559)    -   -
Net cash provided (used in) investing activities   (416,690)     20,547   (425,352)   1,237,638
Net cash provided (used in) investing activities from discontinued operations   -     -    -    (58,782)
Net cash provided (used in) investing activities   (416,690)     20,547   (425,352)   1,178,856
                 
FINANCING ACTIVITIES                
Proceeds from debt issuance    2,855,552   1,668,093    3,357,785   1,783,550
Repayment of debt   (1,381,422)     (2,395,287)   (1,639,768)     (3,121,428)
Treasury shares acquisition   (106,070)     -   (106,070)   -
Acquisition of non-controlling interests   -     -   (100,390)   -
Payment of lease liabilities   (221,046)     (238,305)   (268,264)     (279,086)
Net cash provided (used in) by financing activities    1,147,014     (965,499)    1,243,293     (1,616,964)
Net cash provided (used in) by financing activities from discontinued operations   -     -    -    1,567
Net cash provided (used in) by financing activities    1,147,014     (965,499)    1,243,293     (1,615,397)
EFFECT OF EXCHANGE RATE VARIATION ON CASH AND CASH EQUIVALENTS    198,521    8,903    1,062,477     31,572
Net increase (decrease) in cash and cash equivalents    3,100,327     (2,055,734)    5,433,490   200,080
At the beginning of the period    1,368,980   3,826,698    4,237,785   5,036,011
At the end of the period    4,469,307   1,770,964    9,671,275   5,236,091

(1) Includes provision for class action agreement (note 1.3).
(2) FVTPL: Fair Value Through Profit and Loss.
(3) FVTOCI: Fair Value Through Other Comprehensive Income.

The accompanying notes are an integral part of the interim financial information.

 

BRF S.A. | INTERIM FINANCIAL INFORMATION - June 30, 2020 8
 

(in thousands of Brazilian Reais)

 

STATEMENT OF VALUE ADDED

    Parent company   Consolidated
    January to June 2020   Restated (1) January to June 2019   January to June 2020   Restated (1) January to June 2019
1 - REVENUES    16,501,955   15,401,404   19,998,832     17,849,033
Sales of goods and products    16,317,046   14,960,053   19,859,521     17,386,060
Other income     38,180     277,842   18,082   266,806
Revenue related to construction of own assets   272,645     155,251     264,438   159,210
Expected credit losses    (125,916)   8,258   (143,209)     36,957
2 - RAW MATERIAL ACQUIRED FROM THIRD PARTIES   (10,837,295)    (9,701,424)     (12,834,954)   (11,121,046)
Costs of goods sold     (9,226,376)    (8,278,794)     (10,887,673)     (9,344,518)
Materials, energy, third parties services and other     (1,620,836)    (1,443,640)   (1,945,822)     (1,804,238)
Reversal for inventories losses   9,917    21,010    (1,459)     27,710
3 - GROSS ADDED VALUE  (1-2)   5,664,660     5,699,980     7,163,878   6,727,987
4 - DEPRECIATION AND AMORTIZATION    (987,880)    (996,365)   (1,161,800)     (1,141,985)
5 - NET ADDED VALUE (3-4)   4,676,780     4,703,615     6,002,078   5,586,002
                 
6 - RECEIVED FROM THIRD PARTIES   6,245,730     889,945     194,653   559,612
Income from associates and joint ventures   6,073,512     350,038    -     (1,025)
Financial income   173,109     540,550     194,711   560,729
Others     (891)    (643)     (58)    (92)
                 
7 - ADDED VALUE TO BE DISTRIBUTED (5+6)    10,922,510     5,593,560     6,196,731   6,145,614
                 
8 - DISTRIBUTION OF ADDED VALUE    10,922,510     5,593,560     6,196,731   6,145,614
Payroll   2,504,040     2,294,875     2,743,528   2,503,839
Salaries   1,829,075     1,718,794     2,021,894   1,890,010
Benefits   544,184     461,296     582,713   492,363
Government severance indemnity fund for employees   130,781     114,785     138,921   121,466
Taxes, Fees and Contributions   2,045,361     1,582,357     2,085,446   1,837,334
Federal   850,068     603,475     886,296   856,227
State   1,174,975     959,009     1,174,972   959,115
Municipal     20,318    19,873   24,178     21,992
Capital Remuneration from Third Parties   6,115,160     1,640,497     1,098,860   1,726,696
Interests, including exchange variation   6,052,527     1,580,544     999,871   1,638,859
Rents     62,633    59,953   98,989     87,837
Interest on Own-Capital   257,949    75,831     268,897     77,745
Income of the period   257,949    75,831     257,949     75,831
Non-controlling interest     -     -   10,948    1,914

(1) The comparative period was restated for better disclosure of exchange variations.

 

  

The accompanying notes are an integral part of the interim financial information.

 

 

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1. COMPANY’S OPERATIONS

BRF S.A. (“BRF”) and its subsidiaries (collectively the “Company”) is a publicly traded company, listed on the segment Novo Mercado of Brasil, Bolsa, Balcão (“B3”), under the ticker BRFS3, and listed on the New York Stock Exchange (“NYSE”), under the ticker BRFS. The Company’s registered office is at Rua Jorge Tzachel, nº 475, Bairro Fazenda, Itajaí - Santa Catarina and the main business office is in the city of São Paulo.

BRF is a Brazilian multinational company, with global presence, which owns a comprehensive portfolio of products, and it is one of the world’s largest companies of food products. The Company operates by raising, producing and slaughtering poultry and pork for processing, production and sale of fresh meat, processed products, pasta, margarine and others.

The Company holds as main brands Sadia, Perdigão, Qualy, Chester®, Kidelli, Perdix and Banvit, present mainly in Brazil, Turkey and Middle Eastern countries.


 

BRF S.A. | INTERIM FINANCIAL INFORMATION - June 30, 2020 39
 
1.1. Equity interest
              % equity interest
Entity     Main activity   Country   06.30.20   12.31.19
                   
BRF Energia S.A.     Commercialization of eletric energy   Brazil    100.00   100.00
BRF GmbH     Holding   Austria    100.00   100.00
BRF Foods LLC     Import, industrialization and commercialization of products   Russia   99.90     99.90
BRF Global Company Nigeria Ltd. (a)   Marketing and logistics services   Nigeria   99.00     99.00
BRF Global Company South Africa Proprietary Ltd.     Administrative, marketing and logistics services   South Africa    100.00   100.00
BRF Global Company Nigeria Ltd. (a)   Marketing and logistics services   Nigeria     1.00    1.00
BRF Global GmbH     Holding and trading   Austria    100.00   100.00
BRF Foods LLC     Import, industrialization and commercialization of products   Russia     0.10    0.10
BRF Japan KK     Marketing and logistics services, import, export, industrialization and commercialization of products   Japan    100.00   100.00
BRF Korea LLC     Marketing and logistics services   Korea    100.00   100.00
BRF Shanghai Management Consulting Co. Ltd.     Provision of consultancy and marketing services   China    100.00   100.00
BRF Shanghai Trading Co. Ltd.     Import, export and commercialization of products   China    100.00   100.00
BRF Singapore Foods PTE Ltd.     Administrative, marketing and logistics services   Singapore    100.00   100.00
BRF Hungary LLC (c)   Import and commercialization of products   Hungary     -   100.00
Compañía Paraguaya Comercial S.A. (a)   Import and commercialization of products   Paraguay   99.00     99.00
Eclipse Holding Cöoperatief U.A.     Holding   The Netherlands   99.99     99.99
Buenos Aires Fortune S.A.     Holding   Argentina     5.00    5.00
Eclipse Latam Holdings     Holding   Spain    100.00   100.00
Buenos Aires Fortune S.A.     Holding   Argentina   95.00     95.00
Perdigão Europe Lda.     Import, export of products and administrative services   Portugal    100.00   100.00
Perdigão International Ltd.     Import and export of products   Cayman Island    100.00   100.00
BFF International Ltd.     Financial fundraising   Cayman Island    100.00   100.00
Highline International     Financial fundraising   Cayman Island    100.00   100.00
Sadia Overseas Ltd. (a)   Financial fundraising   Cayman Island    100.00   100.00
ProudFood Lda     Import and commercialization of products   Angola   90.00     90.00
Sadia Chile S.A.     Import, export and commercialization of products   Chile   40.00     40.00
BRF Global Namíbia (a)   Import and commercialization of products   Namibia    100.00   100.00
Wellax Food Logistics C.P.A.S.U. Lda.     Import, commercialization of products and administrative services   Portugal    100.00   100.00
BRF Austria GmbH     Holding   Austria    100.00   100.00
One Foods Holdings Ltd     Holding   United Arab Emirates    100.00   100.00
Al-Wafi Food Products Factory LLC     Import, export, industrialization and commercialization of products   United Arab Emirates   49.00     49.00
Badi Ltd.     Holding   United Arab Emirates    100.00   100.00
Al-Wafi Al-Takamol International for Foods Products (b)   Import and commercialization of products   Saudi Arabia    100.00     75.00
BRF Al Yasra Food K.S.C.C. ("BRF AFC")     Import, commercialization and distribution of products   Kuwait   49.00     49.00
BRF Foods GmbH     Industrialization, import and commercialization of products   Austria    100.00   100.00
Al Khan Foodstuff LLC ("AKF")     Import, commercialization and distribution of products   Oman   70.00     70.00
FFM Further Processing Sdn. Bhd. (d)   Industrialization, import and commercialization of products   Malaysia     -     70.00
FFQ GmbH     Industrialization, import and commercialization of products   Austria    100.00   100.00
TBQ Foods GmbH     Holding   Austria   60.00     60.00
Banvit Bandirma Vitaminli     Import, industrialization and commercialization of products   Turkey   91.71     91.71
Banvit Enerji ve Elektrik Üretim  Ltd. Sti. (a)   Generation and commercialization of electric energy   Turkey    100.00   100.00
Banvit Foods SRL     Industrialization of grains and animal feed   Romania     0.01    0.01
Nutrinvestments BV     Holding   The Netherlands    100.00   100.00
Banvit ME FZE     Marketing and logistics services   United Arab Emirates    100.00   100.00
Banvit Foods SRL     Industrialization of grains and animal feed   Romania   99.99     99.99
One Foods Malaysia SDN. BHD.     Marketing and logistics services   Malaysia    100.00   100.00
Federal Foods LLC     Import, commercialization and distribution of products   United Arab Emirates   49.00     49.00
Federal Foods Qatar     Import, commercialization and distribution of products   Qatar   49.00     49.00
BRF Hong Kong LLC (a)   Import, commercialization and distribution of products   Hong Kong    100.00   100.00
Eclipse Holding Cöoperatief U.A.     Holding   The Netherlands     0.01    0.01
Establecimiento Levino Zaccardi y Cia. S.A. (a)   Industrialization and commercialization of dairy products   Argentina   99.94     99.94
BRF Pet S.A.     Industrialization, commercialization and distribution of feed and nutrients for animals   Brazil    100.00   100.00
PP-BIO Administração de bem próprio S.A.     Management of assets   Brazil   33.33     33.33
PR-SAD Administração de bem próprio S.A.     Management of assets   Brazil   33.33     33.33
ProudFood Lda     Import and commercialization of products   Angola   10.00     10.00
PSA Laboratório Veterinário Ltda.     Veterinary activities   Brazil   99.99     99.99
Sino dos Alpes Alimentos Ltda. (a)   Industrialization and commercialization of products   Brazil   99.99     99.99
Sadia Alimentos S.A.     Holding   Argentina   43.10     43.10
Sadia International Ltd.     Import and commercialization of products   Cayman Island    100.00   100.00
Sadia Chile S.A.     Import, export and marketing of products   Chile   60.00     60.00
Sadia Uruguay S.A.     Import and commercialization of products   Uruguay     5.10    5.10
Compañía Paraguaya Comercial S.A. (a)   Import and commercialization of products   Paraguay     1.00    1.00
Sadia Alimentos S.A.     Holding   Argentina   56.90     56.90
Sadia Uruguay S.A.     Import and commercialization of products   Uruguay   94.90     94.90
Vip S.A. Empreendimentos e Participações Imobiliárias     Commercialization of owned real state   Brazil    100.00   100.00
Establecimiento Levino Zaccardi y Cia. S.A. (a)   Industrialization and commercialization of dairy products   Argentina     0.06    0.06
PSA Laboratório Veterinário Ltda.     Veterinary activities   Brazil     0.01    0.01
Sino dos Alpes Alimentos Ltda. (a)   Industrialization and commercialization of products   Brazil     0.01    0.01

(a) Dormant subsidiaries. The Company is evaluating the liquidation of these subsidiaries.

On July 8, 2020, Sadia Overseas Ltd. was liquidated.

(b) On April 21, 2020, Badi Ltd. acquired the non-controlling portion of Al-Wafi Al-Takamol International for Foods Products by the amount equivalent to R$100,390 (USD 19,000).
(c) On June 10, 2020, BRF Hungary LLC was dissolved.

 

BRF S.A. | INTERIM FINANCIAL INFORMATION - June 30, 2020 40
 
(d) On June 24, 2020, BRF Foods GmbH sold all shares held of FFM Further Processing Sdn. Bhd to FFM Berhad for the amount equivalent to R$38,546 (USD7,350). The amount paid is presented in the Investing Activities on the Statement of Cash Flows.

 

On August 20, 2019, the Company’s wholly-owned subsidiary Badi Limited executed a Share Purchase Agreement with Al Takamul International Company for Commercial Investment Limited for the purchase of the remaining 25% of the capital stock owned by non-controlling shareholders in Al Wafi Al Takamul International Company for Food Products Limited (“Wafi”), a company incorporated in the Kingdom of Saudi Arabia responsible for distributing BRF products in that country. The transaction closed on April 21, 2020 for an amount equivalent to R$100,390 thousand (USD19,000 thousand), at which point Wafi became a wholly-owned subsidiary of Badi Limited. The amount paid is presented in the Financing Activities on the Statement of Cash Flows and the difference between the amount paid and the book value of the participation in the subsidiary was recorded in Capital Reserves, in the amount of R$50,945.

On May 07, 2020, the Company executed a share purchase agreement with Hungry Bunny Limited and others, establishing the terms and conditions for the acquisition of 100% of the capital stock of Joody Al Sharqiya Food Production Factory, a food processing company in Saudi Arabia. The transaction considered an enterprise value equivalent to R$43,808 (USD8,000). The closing of this transaction is subject to the satisfaction of conditions precedent applicable to transactions of this nature, including the approval by regulatory authorities.

Except for the associates PP-BIO and PR-SAD in which the Company records the investments by the equity method, all other entities shown in the table above were consolidated.

 

1.2. Investigations involving BRF

The Company has been subject to two external investigations, denominated “Carne Fraca Operation” in 2017 and “Trapaça Operation” in 2018, as detailed below. The Company’s Audit and Integrity Committee conducted independent investigations, along with the Independent Investigation Committee, composed of external members and with external legal advisors in Brazil and abroad with respect to the allegations involving BRF employees and former employees in the scope of the aforementioned operations and other ongoing investigations.

For the six-month period ended on June 30, 2020, the main impacts observed as result of the referred investigations were recorded in other operating expenses in the amount of R$24,072 (R$42,320 in the same period of the previous year), and for three-month period ended on June 30, 2020 the referred impacts amounted R$11,771 (R$31,207 in the same period of the previous year) mostly related to expenditures with lawyers, legal advisors and consultants.

In addition to the impacts already registered, there are uncertainties about the outcome of these operations which may result in penalties, fines and normative sanctions, right restrictions and other forms of liabilities, for which the Company is not able to make a reliable estimate of the potential losses.

The outcomes may result in payments of substantial amounts, which may cause a material adverse effect on the Company’s financial position, results and cash flows in the future.

 

1.2.1. Carne Fraca Operation

On March 17, 2017, BRF became aware of a decision issued by a judge of the 14th Federal Court of Curitiba - Paraná, authorizing the search and seizure of information and documents, and the detention of certain individuals in the context of the Carne Fraca Operation. Two BRF employees were detained and subsequently released, as well as three others were identified for questioning.

In April 2017, the Brazilian Federal Police and the Brazilian federal prosecutors filed charges against BRF employees, which were accepted by the judge responsible for the process, and its main allegations in this phase involved misconduct related to improper offers and/or promises to government inspectors.

On June 04, 2018, the Company was informed about the establishment of a responsibility administrative process (“PAR”) by the Office of the Comptroller General (“CGU”), under the Law Nº 12,846/2013 (“Anti-corruption Law”), which aims to verify eventual administrative responsibilities related to the facts object of the criminal lawsuit Nº 5016879-04.2017.4.04.7000, (“Criminal Lawsuit”) in progress under the 14th Federal Court of the subsection of Curitiba/PR, as a consequence of the Carne Fraca Operation.

 

BRF S.A. | INTERIM FINANCIAL INFORMATION - June 30, 2020 41
 

BRF has informed certain regulators and governmental entities, including the U.S. Securities and Exchange Commission (“SEC”) and the U.S. Department of Justice (“DOJ”) about the Carne Fraca Operation and is cooperating with such authorities, which are conducting their own investigations.

On September 28, 2018, the sentence of the Criminal Lawsuit in first instance was published, discharging one of the BRF employees and convicting a former employee for six months of detention with the possibility of substitution for a right-restricting penalty. The Brazilian federal prosecutors presented appeal to the first instance decision. Since then, the appeal is being analyzed by the Federal Regional Court of the 4th region.

 

1.2.2. Trapaça Operation

On March 5, 2018, the Company learned of a decision issued by a judge of the 1st Federal Court of Ponta Grossa/PR, authorizing the search and seizure of information and documents due to allegations involving misconduct relating to quality violations, improper use of feed components and falsification of tests at certain BRF manufacturing plants and accredited labs. Such operation was denominated as Trapaça Operation. On March 5, 2018, BRF received notice from the Ministry of Agriculture, Livestock and Food Supply (“MAPA”) immediately suspending exports from its Rio Verde/GO, Carambeí/PR and Mineiros/GO plants to 12 countries that require specific sanitary requirements for the control of the bacteria group Salmonella spp and Salmonella pullorum.

On May 14, 2018, the Company received the formal notice that twelve plants located in Brazil were removed from the list that permits imports of animal origin products by the European Union’s countries. The measure came into force as of May 16, 2018 and affects only the plants located in Brazil and which have export licenses to the European Union, not affecting the supply to other markets or other BRF plants located outside Brazil and that export to the European market.

On October 15, 2018, the Federal Police Department submitted to the 1st Federal Criminal Court of the Judicial Branch of Ponta Grossa PR the final report of its investigation in connection to the Trapaça Operation. The police inquiry indicted 43 people, including former key executives of the Company.

On December 04, 2019, the Public Prosecution filed charges against eleven people related to allegations about Premix (compound of vitamins, minerals, and amino acids for the inclusion of micro ingredients in the feed for the ideal nutrition of the animals) as outcome of the Trapaça Operation. No administration member, director or executive in current management position has been identified.

BRF informed certain regulators and government entities, including SEC and DOJ about the Trapaça Operation and has been cooperating with such authorities, which are conducting their own investigations.

 

1.2.3. Governance enhancement

The Company is cooperating with the investigations and collaborates to the clarification of the facts. The Company has been taking actions to strengthen the compliance with its policies, procedures and internal controls. In this sense, the Company has decided to move away, independently of the results of the investigations, all employees mentioned in the Federal Police’s final report of the Trapaça Operation until all facts are clarified.

The Company believes that its efforts strengthens and consolidates its governance to ensure the highest levels of safety standards, integrity and quality.

Among the actions implemented, are: (i) strengthening in the risk management, specially compliance, (ii) continuous strengthening of the Compliance, Internal Audit and Internal Controls departments, (iii) review and issuance of new policies and procedures specifically related to applicable anticorruption laws, (iv) review and enhancement of the procedures for reputational verification of business partners, (v) review and enhancement of the processes of internal investigation, (vi) expansion of the independent reporting channel, (vii) review of transactional controls, and (viii) review and issuance of new consequence policy for misconduct.

 

 

BRF S.A. | INTERIM FINANCIAL INFORMATION - June 30, 2020 42
 
1.3. U.S. Class Action

On March 12, 2018, a shareholder class action lawsuit was filed against the Company, some of its former managers and one current officer before the United States Federal District Court in the city of New York, on behalf of holders of American Depositary Receipts (“ADR”) between April 4, 2013 and March 5, 2018. The suit alleged violations of the federal securities laws of the United States related to allegations concerning, among other matters, Carne Fraca Operation and Trapaça Operation. On July 2, 2018, that Court appointed the City of Birmingham Retirement and Relief System lead plaintiff in the action. On October 25, 2019, the Court granted lead plaintiff leave to file a Fourth Amended Complaint, which was filed on November 8, 2019. On December 13, 2019, the served defendants filed a motion to dismiss. On January 21, 2020, the Lead Plaintiff filed its opposition motion and, on February 11, 2020, the defendants filed a response.

 

On March 27, 2020, the parties reached an agreement to settle this class action by payment of an amount equivalent to R$204,436 (USD40,000), to resolve all pending and prospective claims by individuals or entities who purchased or otherwise acquired BRF’s ADRs between April 4, 2013 and March 5, 2018. On May 27, 2020, the amount was transferred to an escrow account in the name of the lawyers of the Lead Plaintiff. The settlement is subject to court ratification and execution of final settlement documentation.

 

The agreement does not constitute any admission of liability or wrongdoing by BRF or its executives and expressly provides that BRF denies any misconduct or that any plaintiff has suffered any damages or was harmed by any conduct alleged in this action.

 

The provision for the aforementioned amount was recognized in other operating expenses (note 27) in the first quarter of 2020.

 

1.4. Coronavirus (COVID-19)

On January 31, 2020 the World Health Organization announced that the COVID-19 is a global health emergency and on March 11, 2020 declared it a global pandemic. The outbreak has triggered significant decisions from governments and private sector entities, which in addition to the potential impact, increased the uncertainty level for the economic agents and may cause effects in the amounts recognized in the financial statements.

BRF continues to operate its industrial complexes, distribution centers, logistics, supply chain and administrative offices, even if temporarily and partially under remote work regime in some of the corporate offices. Therefore, until the date of approval of the interim financial information, there has been no relevant change in its production plan, operation and/or commercialization. Additionally, management has developed and implemented contingency plans to maintain the operations and monitors the effects of the pandemic through a permanent multidisciplinary monitoring committee, formed by executives, specialists in the public health area and consultants.

Due to the pandemic, the Company has incurred in losses and additional expenditures, mainly related to idleness, personnel, prevention, control and donations, as shown below:

        Consolidated
    April to June 2020   January to June 2020
         
Cost of sales     (173,674)    (174,288)
Selling expenses    (18,575)   (46,317)
General and administrative expenses    (25,893)   (26,066)
      (218,142)    (246,671)

 

Aiming to preventively strengthen its liquidity level, the Company contracted credit facilities with financial institutions in Brazil in the aggregate amount of, approximately, R$2,430,000 and average term of one year, without any financial covenant clause. During July and August of 2020, the Company prepaid part of the referred credit facilities in the aggregated notional and interest amount of R$964,484 (note 33.3).

 

BRF S.A. | INTERIM FINANCIAL INFORMATION - June 30, 2020 43
 

The management also understands that the projections of results and cashflows used for the impairment test of the cash generating units are still substantially adequate and there are no indications of possible impairment. Due to the high volatility and uncertainty around the length and the impact of the pandemic, the Company will keep monitoring the situation and evaluating the impacts on assumptions and estimates used in preparing our financial reporting.

 

1.5. Seasonality

During the months of November and December of each year, the Company is impacted by seasonality in the Brazil operating segment due to Christmas and New Year’s Celebrations. The products that are relevant contributors are: turkey, Chester®, ham and pork cuts (hind leg/pork loin).

In the International operating segment, seasonality is due to Ramadan, which is the holy month of the Muslim calendar. The beginning of Ramadan depends on the beginning of the moon cycle and in 2020 occurred between April 24, 2020 and May 23, 2020.

Consequently to the pandemic, the behavior of the Company’s seasonality has circumstantially changed, due to the decreased movement of people, redirection of channels and changes in the consumption habits.

 

2. BASIS OF PREPARATION AND PRESENTATION OF INTERIM FINANCIAL STATEMENTS

The parent company’s and consolidated interim financial information were prepared in accordance with the CPC 21 (R1) – Interim Financial Statements and the IAS 34 – Interim Financial Reporting issued by the International Accounting Standards Board - IASB as well as with the standards issued by the Brazilian Securities and Exchange Commission (“CVM”). All the relevant information applicable to the interim financial information, and only them, are being evidenced and correspond to those used by administration in its management.

The parent company’s and consolidated interim financial information are expressed in thousands of Brazilian Reais (“R$”) and the disclosures of amounts in other currencies, when applicable, were also expressed in thousands, unless otherwise stated.

The preparation of the parent company’s and consolidated interim financial information require Management to make judgments, use estimates and adopt assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, as well as the disclosures of contingent liabilities. The uncertainty inherent to these judgments, assumptions and estimates could result in material adjustments to the carrying amount of certain assets and liabilities in future periods.

Any judgments, estimates and assumptions are reviewed at each reporting period.

The parent company’s and consolidated interim financial information were prepared based on the recoverable historical cost, except for the following material items recognized in the statements of financial position:

(i)       derivative financial instruments and non-derivative financial instruments measured at fair value;

(ii)       share-based payments and employee benefits measured at fair value;

(iii)       biological assets measured at fair value; and

(iv)       assets held for sale in the cases the fair value is lower than historical cost.

The Company prepared parent company’s and consolidated financial statements under the going concern assumption and disclosed all relevant information in its explanatory notes, in order to clarify and complement the accounting basis adopted.

 

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The interim financial information, in this case quarterly financial information, aim to provide updated information based on the last annual financial statements disclosed. Therefore, the quarterly financial information focus on new activities, events and circumstances and do not duplicate the information previously disclosed, except when Management judges that the maintenance of the information is relevant.

 

BRF S.A. | INTERIM FINANCIAL INFORMATION - June 30, 2020 44
 

The interim financial information was prepared based on the accounting policies and estimates calculation methodologies adopted in the preparation of the annual financial statements for the year ended December 31, 2019 (note 3).

There were no changes on such policies and estimates calculation methodologies. As allowed by CPC 21 (R1), Management decided not to disclose again the details of the accounting policies adopted by the Company. Hence, the interim financial information should be read along with the annual financial statements for the year ended December 31, 2019, in order to allow the users to further understand the Company’s financial conditions and liquidity, as well as its capacity to generate profits and cash flows.

 

 

 

 

 

 

 

BRF S.A. | INTERIM FINANCIAL INFORMATION - June 30, 2020 45
 

 

4. CASH AND CASH EQUIVALENTS
  Average rate (p.a.)   Parent company   Consolidated
    06.30.20   12.31.19   06.30.20   12.31.19
Cash and bank accounts                  
U.S. Dollar  -     557     403     1,986,273     1,356,128
Brazilian Reais  -   55,070     166,506   55,886     167,051
Euro  -   16,065     3,813   61,634   71,626
Other currencies  -     219     180     1,254,978     694,982
      71,911     170,902     3,358,771     2,289,787
Cash equivalents                  
In Brazilian Reais                  
Investment funds 0.27%     3,924     3,507     3,924     3,507
Bank deposit certificates 2.97%     4,090,514     869,473     4,104,358     879,758
        4,094,438     872,980     4,108,282     883,265
In U.S. Dollar                  
Term deposit 0.90%   -     254,583   45,332     270,714
Overnight 0.07%     302,958   70,515     2,132,116     689,874
Other currencies                  
Term deposit -   -   -   26,774     104,145
        302,958     325,098     2,204,222     1,064,733
        4,469,307     1,368,980     9,671,275     4,237,785

 

5. MARKETABLE SECURITIES
          Average interest rate (p.a.)   Parent company   Consolidated
  WAM (1)   Currency     06.30.20   12.31.19   06.30.20   12.31.19
Fair value through other comprehensive income                          
Credit linked note 2.90   USD   3.85%   -   -   25,899   19,285
Stocks -   R$ and HKD   -   -   -   42,307   26,678
              -   -   68,206   45,963
Fair value through profit and loss                          
Financial treasury bills 3.89   R$   2.15%    309,460    396,994    309,460    396,994
Investment funds - FIDC BRF 3.46   R$   -   14,728   14,891   14,728   14,891
Investment funds 0.09   ARS   -   -   -     1,824     1,903
               324,188    411,885    326,012    413,788
Amortized cost                          
Sovereign bonds and others (2) 2.83   AOA   3.82%   -   -    358,421    265,783
               324,188    411,885    752,639    725,534
                           
Current              309,460    396,994    337,183    418,182
Non-current (3)             14,728   14,891    415,456    307,352

 

(1) Weighted average maturity in years.
(2) It’s comprised of private securities and sovereign securities of the Angola Government and are presented net of expected losses in the amount of R$2,062 (R$1,983 on December 31, 2019).

(3) Maturity until December of 2023.

 

Additionally, as of June 30, 2020, the amount of R$88,098 (R$100,435 on December 31, 2019) was pledged as guarantee, with no use restrictions, for USD denominated future contracts, traded on B3.

 

 

 

BRF S.A. | INTERIM FINANCIAL INFORMATION - June 30, 2020 46
 

 

6. TRADE ACCOUNTS RECEIVABLE AND OTHER RECEIVABLES
  Parent company   Consolidated
  06.30.20   12.31.19   06.30.20   12.31.19
Trade accounts receivable              
Domestic customers   660,003     1,333,344     676,209     1,336,762
Domestic related parties 2,091   800    -    -
Foreign customers   562,011     457,413     2,773,937     2,215,050
Foreign related parties   5,896,260     4,779,202    -    -
    7,120,365     6,570,759     3,450,146     3,551,812
( - ) Adjustment to present value  (5,174)    (8,522)    (6,522)   (10,121)
( - ) Expected credit losses  (583,421)    (457,505)    (647,057)    (503,848)
               
    6,531,770     6,104,732     2,796,567     3,037,843
               
Current   6,525,316     6,097,935     2,790,113     3,031,046
Non-current 6,454   6,797   6,454   6,797
               
Other receivables   139,306     150,156     144,192     153,799
( - ) Adjustment to present value  (1,390)    (1,936)    (1,390)    (1,936)
( - ) Expected credit losses (27,498)   (27,986)   (27,498)   (27,986)
               
    110,418     120,234     115,304     123,877
               
Current  53,635    56,002    58,521    59,645
Non-current (1)  56,783    64,232    56,783    64,232

(1) Weighted average maturity of 2.50 years.

The Company performs credit assignments with no right of return to the BRF Clients’ Credit Rights Investment Fund (“FIDC BRF“), whose sole purpose is to acquire credit rights arising from commercial transactions carried out between the Company and its clients in Brazil. On June 30, 2020, FIDC BRF had an outstanding balance of R$650,761 (R$730,251 on December 31, 2019) related to such credit rights, which are no longer recorded in the Company’s statement of financial position.

On June 30, 2020, other receivables are mainly represented by receivables from the sale of farms and various properties, with a balance of R$94,575 (R$109,419 on December 31, 2019).

The movements of the expected credit losses are presented below:

  Parent company   Consolidated
  06.30.20   06.30.20
Beginning balance   (457,505)     (503,848)
Provision   (9,077)    (11,790)
Write-offs  3,704    3,954
Exchange rate variation   (120,543)     (135,373)
Ending balance   (583,421)     (647,057)

The aging of trade accounts receivable is as follows:

  Parent company   Consolidated
  06.30.20   12.31.19   06.30.20   12.31.19
Not overdue   6,529,758     6,028,415     2,541,307     2,820,308
Overdue              
 01 to 60 days  17,072    29,232     234,327     143,303
 61 to 90 days 2,202   5,549    23,589    19,409
 91 to 120 days 2,787   1,568    16,261   3,723
 121 to 180 days 3,970   876   9,200   3,934
 181 to 360 days 2,565   5,166    12,772    20,748
More than 360 days   562,011     499,953     612,690     540,387
( - ) Adjustment to present value  (5,174)    (8,522)    (6,522)   (10,121)
( - ) Expected credit losses  (583,421)    (457,505)    (647,057)    (503,848)
    6,531,770     6,104,732     2,796,567     3,037,843

 

BRF S.A. | INTERIM FINANCIAL INFORMATION - June 30, 2020 47
 

 

7. INVENTORIES
  Parent company   Consolidated
  06.30.20   12.31.19   06.30.20   12.31.19
Finished goods  1,624,840    1,302,419    3,074,295    2,257,119
Work in progress  168,179    147,022    171,668    149,470
Raw materials  833,198    721,278    954,796    803,520
Packaging materials 79,442   57,915   89,149   60,715
Secondary materials  468,102    367,311    476,762    375,744
Supplies  192,776    168,248    229,609    205,399
Imports in transit  105,470   61,021    105,470   61,021
Other 26,103     5,252   51,791   19,266
(-) Adjustment to present value   (50,315)     (44,319)     (50,322)     (44,338)
   3,447,795    2,786,147    5,103,218    3,887,916

The additions and reversals in the write-down of inventories to the net realizable value of inventories, which were recorded against the Cost of Sales, are presented in the table below:

  Parent company
              06.30.20
  Realizable value through sale Impaired inventories Obsolete inventories Total
Beginning balance (9,075)    (37,729)   (8,416)    (55,220)
Additions  (29,257)    (33,954)   (1,913)    (65,124)
Reversals   25,103     -     -     25,103
Write-offs   -     48,724    1,214     49,938
Ending balance  (13,229)    (22,959)   (9,115)    (45,303)
               
  Consolidated
              06.30.20
  Realizable value through sale Impaired inventories Obsolete inventories Total
Beginning balance  (10,712)    (42,526)    (14,919)    (68,157)
Additions  (46,146)    (40,638)   (5,284)    (92,068)
Reversals   28,888     -     -     28,888
Write-offs   -     57,640    4,413     62,053
Exchange rate variation  215   (219)   (328)   (332)
Ending balance  (27,755)    (25,743)    (16,118)    (69,616)

 

BRF S.A. | INTERIM FINANCIAL INFORMATION - June 30, 2020 48
 
8. BIOLOGICAL ASSETS

The live animals are represented by poultry and pork and segregated into consumables and animals for production. The rollforward of the biological assets are presented below:

  Parent company
                          06.30.20
  Current   Non-current
  Live animals   Live animals      
  Poultry Pork Total   Poultry Pork Forests Total
Beginning balance  557,773     987,354    1,545,127     350,285     337,804     328,553     1,016,642
Additions/Transfer  4,369,848     3,214,326    7,584,174   32,856     164,462   19,760     217,078
Changes in fair value (1)  961,656     225,466    1,187,122   19,458     (83,491)   -   (64,033)
Harvest   -    -   -   -   -     (31,368)   (31,368)
Write-off   -    -   -   -   -     (37)   (37)
Transfer between current  and non-current 29,002    44,059   73,061     (29,002)     (44,059)   -   (73,061)
Transfer to assets held for sale   -    -   -   -   -     109   109
Transfer to inventories (5,261,831)    (3,323,771)   (8,585,602)   -   -   -    -
Ending balance  656,448     1,147,434    1,803,882     373,597     374,716     317,017     1,065,330
                           
                           
  Consolidated
                          06.30.20
  Current   Non-current
  Live animals   Live animals      
  Poultry Pork Total   Poultry Pork Forests Total
Beginning balance  615,685     987,354    1,603,039     414,668     337,804     328,553     1,081,025
Additions/Transfer  4,375,532     3,214,326    7,589,858   40,967     164,462   19,760     225,189
Changes in fair value (1)  965,848     225,466    1,191,314   15,187     (83,491)   -   (68,304)
Harvest   -    -   -   -   -     (31,368)   (31,368)
Write-off   -    -   -   -   -     (37)   (37)
Transfer between current  and non-current 29,002    44,059   73,061     (29,002)     (44,059)   -   (73,061)
Transfer between held for sale   -    -   -   -   -     109   109
Transfer to inventories (5,261,831)    (3,323,771)   (8,585,602)   -   -   -    -
Exchange variation 11,255    -   11,255   12,447   -   -    12,447
Ending balance  735,491     1,147,434    1,882,925     454,267     374,716     317,017     1,146,000

(1) The change in the fair value of biological assets includes depreciation of breeders and depletion of forests in the amount of R$377,490 (R$728,904 on December 31, 2019) in the parent company and R$420,747 (R$798,239 on December 31, 2019) in the consolidated.

 

BRF S.A. | INTERIM FINANCIAL INFORMATION - June 30, 2020 49
 

The quantities and balances of live animal are set forth below:

  Parent company
  06.30.20   12.31.19
  Quantity
(thousand of heads)
  Value   Quantity
(thousand of heads)
  Value
Consumable biological assets              
Immature poultry  168,267    656,448    170,071    557,773
Immature pork  4,200    1,147,434    4,098    987,354
Total current  172,467    1,803,882    174,169    1,545,127
               
               
Production biological assets              
Immature poultry  5,789    126,223    6,093    129,837
Mature poultry   10,188    247,374     10,329    220,448
Immature pork 90     86,346    211     77,027
Mature pork  455    288,370    455    260,777
Total non-current   16,522    748,313     17,088    688,089
   188,989    2,552,195    191,257    2,233,216
               
   
  Consolidated
  06.30.20   12.31.19
  Quantity
(thousand of heads)
  Value   Quantity
(thousand of heads)
  Value
Consumable biological assets              
Immature poultry  187,799    735,491    189,602    615,685
Immature pork  4,200    1,147,434    4,098    987,354
Total current  191,999    1,882,925    193,700    1,603,039
               
               
Production biological assets              
Immature poultry  6,663    160,006    7,042    160,415
Mature poultry   11,552    294,261     11,554    254,253
Immature pork 90     86,346    211     77,027
Mature pork  455    288,370    455    260,777
Total non-current   18,760    828,983     19,262    752,472
   210,759    2,711,908    212,962    2,355,511

As of June 30, 2020, the Company has forests pledged as collateral for financing and tax/civil contingencies in the amount of R$84,245 in the parent company and in the consolidated (R$62,408 in the parent company and in the consolidated at December 31, 2019).

 

 

BRF S.A. | INTERIM FINANCIAL INFORMATION - June 30, 2020 50
 
9. RECOVERABLE TAXES
  Parent company   Consolidated
  06.30.20   12.31.19   06.30.20   12.31.19
Recoverable taxes              
ICMS ("State VAT") 1,473,619   1,476,595   1,710,718   1,635,664
PIS and COFINS ("Federal Taxes to Social Fund Programs") 3,157,052   2,986,235   3,158,382   2,990,313
IPI ("Federal VAT") 869,242   848,862   869,245   848,865
INSS ("Brazilian Social Security") 257,025   255,950   257,031   255,967
Other  42,754    41,048    43,632    80,144
(-) Impairment on recoverable taxes  (179,059)    (167,194)    (179,544)    (167,674)
  5,620,633   5,441,496   5,859,464   5,643,279
               
Current 371,098   274,480   609,955   473,732
Non-current 5,249,535   5,167,016   5,249,509   5,169,547
               
               
Recoverable income tax and social contribution              
Income and social contribution tax ("IR/CS") 160,432   313,704   200,007   430,778
(-) Impairment on recoverable taxes   (8,985)     (8,985)     (9,029)     (9,029)
  151,447   304,719   190,978   421,749
Current  60,688    40,291    93,781   152,486
Non-current  90,759   264,428    97,197   269,263

The rollforward of the impairment on recoverable taxes are set forth below:

  Parent company
                      06.30.20
  ICMS   PIS and COFINS   IR/CS   IPI   Other   Total
Beginning balance  (141,193)   (16,922)    (8,985)     (3,818)    (5,261)    (176,179)
Additions   (25,724)    -   -     (263)   -     (25,987)
Write-offs 5,654   2,694   -   2,097     3,677    14,122
Ending balance  (161,263)   (14,228)    (8,985)     (1,984)    (1,584)    (188,044)
                       
                       
  Consolidated
                      06.30.20
  ICMS   PIS and COFINS   IR/CS   IPI   Other   Total
Beginning balance  (141,193)   (16,922)    (9,029)     (3,818)    (5,741)    (176,703)
Additions   (25,724)    -    -   (263.00)   -     (25,987)
Write-offs 5,654   2,694    -   2,097     3,677    14,122
Exchange rate variation   -     -    -     -    (5)     (5)
Ending balance  (161,263)   (14,228)    (9,029)     (1,984)    (2,069)    (188,573)

 

BRF S.A. | INTERIM FINANCIAL INFORMATION - June 30, 2020 51
 

 

10. INCOME AND SOCIAL CONTRIBUTION TAXES
10.1. Deferred income and social contribution taxes
  Parent company   Consolidated
  06.30.20   12.31.19   06.30.20   12.31.19
Assets              
Tax loss carryforwards (corporate income tax) 1,784,359   1,780,424   1,828,398   1,785,027
Negative calculation basis (social contribution tax) 676,882   680,518   678,953   682,175
               
Temporary differences - Assets              
Provisions for tax, civil and labor risks 493,962   477,538   493,962   477,538
Suspended collection taxes  13,409    31,069    13,409    31,069
Expected credit losses 179,231   135,219   179,231   135,374
Impairment on tax credits  66,771    60,771    66,771    60,771
Provision for other obligations  83,578    93,619    83,578    93,619
Employees' profit sharing  49,551    66,166    49,551    66,166
Write-down to net realizable value of inventories  15,003    18,657    15,003    18,718
Employees' benefits plan 212,068   202,228   212,068   202,228
Difference on tax x accounting basis for leases  58,950    37,492    58,950    37,492
Unrealized losses on fair value measurement 193,200    -   193,200    -
Adjustment to estimated annual effective tax rate - CPC 21 275,051    -   275,051    -
Other temporary differences  32,927    35,568    33,246    66,458
  4,134,942   3,619,269   4,181,371   3,656,635
               
               
Temporary differences - Liabilities              
Unrealized fair value gains  -   (11,998)    -   (11,998)
Difference on tax x accounting basis for goodwill amortization  (320,160)    (319,592)    (320,160)    (319,592)
Difference on tax x accounting basis for depreciation (useful life)  (829,223)    (802,844)    (829,223)    (802,844)
Business combination - Sadia (1)  (668,458)    (622,203)    (691,855)    (640,318)
Unrealized gains on derivatives  (171,167)   (43,428)    (171,167)   (43,428)
Other - exchange rate variation  -    -   (85,957)   (69,142)
Other temporary differences (14,052)   (10,710)   (23,539)     (8,761)
   (2,003,060)    (1,810,775)    (2,121,901)    (1,896,083)
               
Total deferred tax 2,131,882   1,808,494   2,059,470   1,760,552
               
               
Total Assets 2,131,882   1,808,494   2,180,059   1,845,862
Total Liabilities  -    -    (120,589)   (85,310)
  2,131,882   1,808,494   2,059,470   1,760,552

(1) The deferred tax asset on the Sadia business combination was recorded on the amortization difference between the accounting and tax goodwill calculated as of the purchase price allocation date. The deferred tax liability on the Sadia business combination is substantially represented by the allocation of goodwill to property, plant and equipment, brands and contingent liabilities.

 

The roll-forward of deferred tax assets is set forth below:

  Parent company   Consolidated
  January to June 2020   January to June 2020
       
Beginning balance   1,808,494     1,760,552
Deferred income and social contribution recognized in the statement of income   (51,766)     (76,197)
Deferred income and social contribution recognized in other comprehensive income   374,855     374,855
Other   299     260
Ending balance   2,131,882     2,059,470

 

 

BRF S.A. | INTERIM FINANCIAL INFORMATION - June 30, 2020 52
 

10.2. Estimated period of realization

 

Deferred tax assets arising from temporary differences will be realized as they are settled or realized. The period of settlement or realization of such differences is subject to externalities and is linked to several factors that are not under the control of Management.

In estimating the realization of deferred tax credits recorded on tax losses and negative social contribution basis, Management considers its budget and strategic plans, adjusted based on the estimates of the main tax additions and exclusions, which were approved by the Board of Directors, as recommended by the Company’s Fiscal Council. Based on this estimate, Management believes that it is probable that these deferred tax credits will be realized, as shown below:

  Parent company   Consolidated
2021   100,037     100,037
2022   159,307     159,307
2023   267,209     267,209
2024   291,568     291,568
2025 to 2027   945,298     945,298
2028 onwards   697,822     743,932
    2,461,241     2,507,351

The deferred tax credits on tax losses and negative social contribution basis related to the parent company and its subsidiaries domiciled in Brazil do not expire.

 

10.3. Income and social contribution taxes reconciliation
  Parent company   Consolidated
  April to June 2020   January to June 2020   April to June 2019   January to June 2019   April to June 2020   January to June 2020   April to June 2019   January to June 2019
                               
Income (loss) before income and social contribution taxes – continued operations  406,100    309,715     249,485    (52,715)    396,884    345,094     310,719   20,652
Nominal tax rate 34%   34%   34%   34%   34%   34%   34%   34%
Credit (expense) at nominal rate   (138,074)     (105,303)   (84,825)   17,923     (134,941)     (117,332)    (105,644)   (7,022)
                               
Reconciling items                              
Income from associates and joint ventures  709,328    2,064,994    46,808    119,013     -     -   (12,635)    (16,691)
Difference of tax rates on results of foreign subsidiaries   -     -    -     -    435,282    998,676    35,600    106,590
Difference of funcional currency of foreign subsidiaries   -     -    -     -    283,238    1,053,917   (13,439)    (17,333)
Deferred tax assets not recognized (1)   (958,804)   (2,291,220)    26,427    (27,909)     (958,804)   (2,291,220)    26,427    (27,909)
Penalties (2,117)   (6,181)   885    702   (2,117)   (6,181)   886    702
Investment grant  8,980   19,514    30,689   30,689    8,980   19,514    30,689   30,689
Estimated annual effective tax rate - CPC 21  279,691    275,051    (201,796)   (4,837)    279,691    275,051    (201,796)   (4,837)
Reversal (recognition) of provision with no deferred tax constituted   -     -     109,251    (21,139)     -     -     109,251    (21,139)
Other permanent differences (1,234)   (8,621)    10,970   14,104   (1,084)   (8,622)    10,965   14,043
    (102,230)    (51,766)   (61,591)    128,546    (89,755)    (76,197)    (119,696)   57,093
                               
Current income tax   -     -    -     -    (21,983)    (38,332)   (62,738)    (86,838)
Deferred income tax   (102,230)    (51,766)   (61,591)    128,546    (67,772)    (37,865)   (56,958)    143,931

(1) Amount related to the non-recognition of deferred tax on tax losses and negative basis in the amount of R$6,738,883 in the parent company and in the consolidated, due to limited capacity of realization (note 10.2).

 

The Company’s management determined that the total profits recorded by the holdings of its wholly owned subsidiaries abroad will not be redistributed. Such funds will be used for investments in the wholly owned subsidiaries.

Income tax returns in Brazil are subject to review by the tax authorities for a period of five years from the date of their delivery. The Company may be subject to additional collection of taxes, fines and interest as a result of these reviews. The results obtained by wholly owned subsidiaries abroad are subject to taxation in accordance with the tax laws of each country.

 

 

 

BRF S.A. | INTERIM FINANCIAL INFORMATION - June 30, 2020 53
 
11. JUDICIAL DEPOSITS

The rollforward of the judicial deposits is set forth below:

  Parent company
              06.30.20
  Tax Labor Civil, commercial and other Total
Beginning balance   244,977     301,739    28,965     575,681
Additions  -    63,168   4,414    67,582
Reversals (10,747)   (22,308)   (61)   (33,116)
Write-offs  (907)   (55,866)    (357)   (57,130)
Interest 2,863   4,183   406   7,452
Ending balance   236,186     290,916    33,367     560,469
               
               
  Consolidated
              06.30.20
  Tax Labor Civil, commercial and other Total
Beginning balance   244,977     301,808    28,965     575,750
Additions  -    63,168   4,414    67,582
Reversals (10,747)   (22,308)   (61)   (33,116)
Write-offs  (907)   (55,866)    (357)   (57,130)
Interest 2,863   4,183   406   7,452
Exchange rate variation  -     11    -     11
Ending balance   236,186     290,996    33,367     560,549

 

BRF S.A. | INTERIM FINANCIAL INFORMATION - June 30, 2020 54
 
12. INVESTMENTS

The rollforward of the direct investments in subsidiaries and affiliates of the parent company is set forth below:

  Subsidiaries   Affiliates      
  BRF Energia S.A.   BRF GmbH   Establec. Levino Zaccardi   BRF Pet S.A.   BRF Austria GmbH    PSA Labor. Veter. Ltda   Sadia Alimentos S.A.   Proud Food Lda   Sadia International Ltd.   Sadia Uruguay S.A.   Eclipse Holding Cooperatief   VIP S.A. Empr. e Particip. Imob   PP-BIO
Adm. Bem próprio S.A.
  PR-SAD
Adm. Bem próprio S.A.
  Total
                              06.30.20   12.31.19
a) Participation as of june 30, 2019                                                              
% of participation 100.00%   100.00%   99.94%   100.00%   100.00%   99.99%   43.10%   10.00%   100.00%   94.90%   0.01%   100.00%   33.33%   33.33%        
Total quantity of shares and quotas   7,176,530     1   100     18,741,856   100   5,463,850     594,576,682     150,000   900,000   2,444,753,091    10,000     14,249,459    -    -        
Quantity of shares and quotas held   7,176,530     1   100     18,741,856   100   5,463,849     256,253,695   15,000   900,000   2,319,989,778   1     14,249,459    -    -        
                                                   -            
b) Information as of june 30, 2019                                                              
Share capital 7,177     6,523    1,186   32,664   120    5,564   338,054   3    2,933   497,012     334,999   50    -    -        
Shareholders' equity   607     11,337,111     (305)   19,698   135,707    5,369   9,786    (254)   313,739     90,068   (29,937)    2,382    -    -        
Income (loss) for the year  (423)    2,561,650     (175)   (4,316)   477,442     (195)     (2,890)    (141)     (2,652)     (4,179)    (708)   26    -    -        
                                                               
c) Movements of investments                                                              
Beginning balance (12.31.19) 1,031    6,148,777     -   19,083    -    5,564   4,791   -   235,307     74,821    -    2,355   2,354   4,851    6,498,934     4,042,451
Result Movements                                                              
Income (loss)  (423)    5,538,499     (163)   (4,385)   477,566     (195)     21     (14)     66,742     (4,162)    -   26    -    -    6,073,512     1,186,569
Dividends and interests on shareholders' equity  -   -     -     -    -     -    -   -     -    -    -     -    -    -   -    (8,665)
Capital movements                                                              
Capital increase  -   -     -    5,000    -     -    -   -     -    -    -     -   121   426     5,547   2,385
Capital transaction between subsidiaries  -   -     -     -    -     -    -   -     -    -    -     -    -    -   -     1,314,596
Acquisition (sale) of equity interest  -   -     -     -    -     -    -   -     -    -    -     -    -    -   -     (67,444)
Liquidation of subsidiary  -   -     -     -    -     -    -   -     -    -    -     -    -    -   -    90,834
Goodwill on acquisition of non-controlling interests  -   -     -     -   (50,945)     -    -   -     -    -    -     -    -    -    (50,945)    -
Other                                                              
Other comprehensive income  -   (350,166)    (30)     -    (162,268)     -     (595)    (1)     11,690     14,785     (1)     -    -    -   (486,586)     (81,086)
Provision for losses on investments  -   -   193     -    -     -    -    15     -    -   1     -    -    -    209     128,757
Reversal of provision for losses on investments  -   -     -     -    (128,646)     -    -   -     -    -    -     -    -    -   (128,646)    (109,463)
Ending balance (06.30.20)   608     11,337,110     -   19,698   135,707    5,369   4,217   -   313,739     85,444    -    2,381   2,475   5,277     11,912,025     6,498,934

The Company owns other investments in the amount of R$583 in the parent company and R$10,049 in the consolidated (R$583 at parent company and R$7,676 in the consolidated as of December 31, 2019).

On June 30, 2020, these associates, affiliates and joint ventures do not have any restriction to amortize their loans or advances to the Company.

 

BRF S.A. | INTERIM FINANCIAL INFORMATION - June 30, 2020 55
 

 

13. PROPERTY, PLANT AND EQUIPMENT, NET

The rollforward of property, plant and equipment is set forth below:

  Parent company
  Weighted average depreciation rate (p.a.)   12.31.19   Additions   Disposals   Transfers (1)   06.30.20
Cost                      
Land      546,976     -     (5,945)     21,519    562,550
Buildings, facilities and improvements      9,558,475   81,210   (30,617)     77,614     9,686,682
Machinery and equipment      7,669,528    2,939   (51,718)   115,064     7,735,813
Furniture and fixtures      101,855    193     (584)    5,067    106,531
Vehicles      121,079   16,625     (7,633)    (87)    129,984
Construction in progress      335,872    272,645     -     (257,496)    351,021
Advances to suppliers     -    141     -     -     141
        18,333,785    373,753   (96,497)    (38,319)   18,572,722
                       
Depreciation                      
Land (2) 20.77%   (4,258)   (3,085)     37   (1,799)    (9,105)
Buildings, facilities and improvements 9.53%   (3,126,532)     (294,102)     18,977   (5,307)   (3,406,964)
Machinery and equipment 6.65%   (3,790,298)     (224,938)     28,962    1,341   (3,984,933)
Furniture and fixtures 6.67%    (54,854)   (2,556)   454   48     (56,908)
Vehicles 27.85%    (24,541)    (18,130)    1,041   84     (41,546)
      (7,000,483)     (542,811)     49,471   (5,633)   (7,499,456)
        11,333,302     (169,058)   (47,026)    (43,952)   11,073,266

(1) Refers to the transfer of R$39,532 for intangible assets, R$4,413 for assets held for sale and R$7 for biological assets.
(2) Land depreciation refers to right-of-use assets. The amount of R$2,095 of depreciation was recognized in the cost of formation of forests and will be realized in the result according to the depletion (note 18.1).

 

 

 

 

BRF S.A. | INTERIM FINANCIAL INFORMATION - June 30, 2020 56
 
  Consolidated
  Weighted average depreciation rate (p.a.)   12.31.19   Additions   Disposals   Transfers (1)   Exchange rate variation   06.30.20
Cost                          
Land       603,479     1,321     (6,514)   20,303     12,398     630,987
Buildings, facilities and improvements     10,148,798    133,333    (51,720)   76,936   202,541   10,509,888
Machinery and equipment       8,177,047   19,755    (54,369)    116,851   128,623     8,387,907
Furniture and fixtures       140,439    193     (640)     8,621     16,057     164,670
Vehicles       213,199   19,530    (51,994)   (1,360)     33,010     212,385
Construction in progress       348,907    264,438     -   (259,810)   2,359     355,894
Advances to suppliers       528     1,743     -     139   111     2,521
      19,632,397    440,313     (165,237)     (38,320)   395,099   20,264,252
                           
Depreciation                          
Land (2) 22.31%    (5,086)   (3,107)    605   (1,799)     (727)     (10,114)
Buildings, facilities and improvements 9.06%    (3,263,801)   (336,046)     40,046     (10,968)   (49,301)    (3,620,070)
Machinery and equipment 6.60%    (3,950,250)   (247,080)     30,368   10,703   (47,715)    (4,203,974)
Furniture and fixtures 6.67%     (71,779)   (5,807)    496   (745)     (5,379)     (83,214)
Vehicles 27.34%     (64,592)    (36,153)     39,287   (2,823)   (17,002)     (81,283)
       (7,355,508)   (628,193)   110,802   (5,632)    (120,124)    (7,998,655)
      12,276,889   (187,880)    (54,435)     (43,952)   274,975   12,265,597

 

(1) Refers to the transfer of R$39,532 for intangible assets, R$4,413 to held for sale and R$7 for biological assets.
(2) Land depreciation refers to right-of-use assets. The amount of R$2,095 of depreciation was recognized in the cost of formation of forests and will be realized in the result according to the depletion (note 18.1).

 

 

 

 

 

BRF S.A. | INTERIM FINANCIAL INFORMATION - June 30, 2020 57
 

The amount of capitalized borrowing costs during the six-month period ended on June 30, 2020 was of R$8,388 in the parent company and in the consolidated (R$10,543 in the parent company and in the consolidated in the same period of the previous year) and during the three-month period ended on June 30, 2020 was of R$4,330 in the parent company and in the consolidated (R$5,241 in the parent company and R$5,219 in the consolidated in the same period of the previous year).

The weighted average rate used to determine the amount of borrowing costs subject to capitalization was 6.09% p.a. in the parent company and in the consolidated (6.41% p.a. in the parent company and 2.32% in the consolidated in the same period of the previous year).

The book value of the property, plant and equipment items that are pledged as collateral for transactions of different natures are set forth below:

        Parent company and Consolidated
    Type of collateral   06.30.20   12.31.19
Land   Financial/Tax   225,127   221,727
Buildings, facilities and improvements   Financial/Tax   1,487,465   1,499,808
Machinery and equipment   Financial/Labor/Tax/Civil   1,459,453   1,488,889
Furniture and fixtures   Financial/Tax     15,364     14,090
Vehicles   Financial/Tax    358    369
        3,187,767   3,224,883

 

BRF S.A. | INTERIM FINANCIAL INFORMATION - June 30, 2020 58
 

 

14. INTANGIBLE ASSETS

The intangible assets rollforward is set forth below:

      Parent company
  Weighted average amortization rate (p.a.)   12.31.19   Additions   Disposals   Transfers   06.30.20
Cost                      
Goodwill       1,783,655    -     -     -     1,783,655
Trademarks       1,152,885    -     -     -     1,152,885
Non-compete agreement      71,729    -   (379)     -    71,350
Outgrowers relationship      14,604    -     -     -    14,604
Patents       6,205    -     -     -     6,205
Software       491,682     72,766    (35,744)     70,775     599,479
Intangible in progress      11,450     57,321     -    (39,784)    28,987
        3,532,210   130,087    (36,123)     30,991     3,657,165
                       
Amortization                      
Non-compete agreement 35.65%     (57,690)     (6,946)    379     -     (64,257)
Outgrowers relationship 13.09%     (12,744)     (593)     -     -     (13,337)
Patents 19.05%    (5,524)     (237)     -     -    (5,761)
Software 32.44%   (316,720)   (61,896)     35,744    8,540   (334,332)
      (392,678)   (69,672)     36,123    8,540   (417,687)
        3,139,532     60,415     -     39,531     3,239,478

 

      Consolidated
  Weighted average amortization rate (p.a.)   12.31.19   Additions   Disposals   Transfers   Exchange rate variation   06.30.20
Cost                          
Goodwill       2,713,602    -     -   -    298,138     3,011,740
Trademarks       1,322,262    -     -   -   30,333     1,352,595
Non-compete agreement      99,229    -   (379)   -     9,485     108,335
Outgrowers relationship      14,604    -     -   -   -    14,604
Patents       6,305    -   (106)   -     6     6,205
Customer relationship       892,758    -     -   -    255,491     1,148,249
Software       523,615     74,453    (35,771)   71,744   10,437     644,478
Intangible in progress      12,151     57,380     -     (40,752)     208    28,987
        5,584,526   131,833    (36,256)   30,992    604,098     6,315,193
                           
Amortization                          
Non-compete agreement 27.10%     (74,190)   (10,285)    379   -   (6,051)     (90,147)
Outgrowers relationship 13.09%     (12,744)     (593)     -   -   -     (13,337)
Patents 19.05%    (5,626)     (237)    106   -     (14)    (5,771)
Customer relationship 7.34%   (242,263)   (39,177)     -   -     (76,955)   (358,395)
Software 32.06%   (341,624)   (64,662)     35,771     8,540   (8,677)   (370,652)
      (676,447)    (114,954)     36,256     8,540     (91,697)   (838,302)
        4,908,079     16,879     -   39,532    512,401     5,476,891

During the six-month period ended on June 30, 2020, Management did not identify any event that could indicate an impairment of such assets.

 

 

BRF S.A. | INTERIM FINANCIAL INFORMATION - June 30, 2020 59
 
15. LOANS AND BORROWINGS
  Parent company
  Charges (p.a.)   Weighted average
interest rate (p.a.)
  WAMT (1)   12.31.19   Borrowing   Amortization   Interest paid   Interest accrued   Exchange rate variation   06.30.20
Local currency                                      
                                       
Working capital  Fixed / CDI    3.74%
(6.07% on 12.31.19)
    0.9    3,312,639   800,000   (930,218)     (96,045)   101,284     -     3,187,660
                                       
Certificate of agribusiness receivables (2)  CDI / IPCA    5.03%
(6.73% on 12.31.19)
    2.0    1,597,447    -   -     (23,819)     42,575     -     1,616,203
                                       
Development bank credit lines   Fixed / Selic / TJLP    (5.09% on 12.31.19)     -   45,516    -     (45,470)   (427)   381     -   -
                                       
Export credit facility (3)  Fixed / CDI / USD    5.58%     5.4    1,612,365   1,492,084   -     (45,408)     79,214   483,672     3,621,927
                                       
Special program asset restructuring  IGPM    (12.22% on 12.31.19)     -    284,308    -   (287,621)    (5,142)   8,455     -   -
                                       
Debentures  CDI / IPCA    5.63%
(7.40% on 12.31.19)
    5.5    755,760    -   -     (20,579)     21,835     -     757,016
                                       
Fiscal incentives   Fixed    2.40%
(2.40% on 12.31.19)
    -     5,720    34,532   -   (338)   367     -    40,281
                                       
               7,613,755   2,326,616   (1,263,309)   (191,758)   254,111   483,672     9,223,087
                                       
Foreign currency                                      
                                       
Bonds   Fixed / USD / EUR      4.37%
(4.36% on 12.31.19)
    5.3    8,407,975     (275)   -   (270,264)   281,185    3,058,442   11,477,063
                                       
Export credit facility  Fixed / LIBOR / USD    4.13%
(5.77% on 12.31.19)
    2.7    407,274    -   (118,113)     (12,782)     10,328   127,617     414,324
                                       
Advances for foreign exchange rate contracts  Fixed / USD    3.88     0.8   -   529,211   -   -   4,262     17,865     551,338
                                       
               8,815,249   528,936   (118,113)   (283,046)   295,775    3,203,924   12,442,725
                16,429,004   2,855,552   (1,381,422)   (474,804)   549,886    3,687,596   21,665,812
                                       
Current              3,033,034                         3,935,263
Non-current               13,395,970                       17,730,549

 

(1) Weighted average maturity in years.
(2) The Certificates of Agribusiness Receivables (“CRA”) issued by the Company are backed by receivables of BRF S.A. from certain subsidiaries abroad.
(3) The Export Credit Facility was issued in Reais simultaneously and in connection with a foreign exchange rate swap, resulting essentially in a net cash flow in U.S. Dollars. As the transactions are inseparable, both are recorded together under Loans and Borrowings by their amortized cost.

 

 

 

BRF S.A. | INTERIM FINANCIAL INFORMATION - June 30, 2020 60
 
  Consolidated
  Charges (p.a.)   Weighted average
interest rate (p.a.)
  WAMT (1)   12.31.19   Borrowing   Amortization   Interest paid   Interest accrued   Exchange rate variation   06.30.20
Local currency                                      
                                       
Working capital  Fixed / CDI    3.74%
(6.07% on 12.31.19)
    0.9     3,312,639   800,000   (930,218)    (96,045)   101,284    -     3,187,660
                                       
Certificate of agribusiness receivables (2)  CDI / IPCA    5.03%
(6.73% on 12.31.19)
    2.0     1,597,447    -   -    (23,819)     42,575    -     1,616,203
                                       
Development bank credit lines  Fixed / Selic / TJLP    (5.09% on 12.31.19)     -    45,516    -     (45,470)   (427)    381    -   -
                                       
Debentures  CDI / IPCA    5.63%
(7.40% on 12.31.19)
    5.5     755,760    -   -    (20,579)     21,835    -     757,016
                                       
Export credit facility (3)  Fixed / CDI / USD    4.58%     5.4     1,612,365   1,492,084   -    (45,408)     79,214   483,672     3,621,927
                                       
Special program asset restructuring  IGPM    (12.22% on 12.31.19)     -     284,308    -   (287,621)   (5,142)    8,455    -   -
                                       
Fiscal incentives  Fixed    2.40%
(2.40% on 12.31.19)
    -   5,720    34,532   -   (338)    367    -    40,281
                                       
                7,613,755   2,326,616   (1,263,309)     (191,758)   254,111   483,672     9,223,087
                                       
Foreign currency                                      
                                       
Bonds  Fixed / USD / EUR    4.37%
(4.36% on 12.31.19)
    5.5   10,407,484     (275)   -     (326,755)   316,917   3,799,257   14,196,628
               -                        
Export credit facility  Fixed / LIBOR / USD    4.13% (5.77% on 12.31.19)     2.7     407,275    -   (118,113)    (12,782)     10,328   127,616     414,324
               -                        
Advances for foreign exchange rate contracts  Fixed / USD    3.88     0.8    -   529,211   -     -    4,262     17,865     551,338
               -                        
Working capital  Fixed / TRY    10.19% (16.56% on 12.31.19)     1.4     191,765   502,233   (258,346)    (22,146)     23,294     41,374     478,174
                                       
              11,006,524   1,031,169   (376,459)     (361,683)   354,801   3,986,112   15,640,464
              18,620,279   3,357,785   (1,639,768)     (553,441)   608,912   4,469,784   24,863,551
                                       
Current               3,132,029                         4,071,950
Non-current             15,488,250                       20,791,601

(1) Weighted average maturity in years.
(2) The Certificate of Agribusiness Receivable (“CRA”) issued by the Company are backed by receivables of BRF S.A. from certain subsidiaries abroad.

The Export Credit Facility was issued in Reais simultaneously and in connection with a foreign exchange rate swap, resulting essentially in a net cash flow in U.S. Dollars. As the transactions are inseparable, both are recorded together under Loans and Borrowings by their amortized cost.

 

 

 

As of December 31, 2019 and June 30, 2020, the Company did not have any financial covenant clauses related to its loans and borrowings agreements.

 

BRF S.A. | INTERIM FINANCIAL INFORMATION - June 30, 2020 61
 
15.1. Revolving Credit Facility

With the purpose of maintaining a prudential and sustainable short-term liquidity position, continuing with the strategy of extending its average debt maturity and reducing the cost of debt, on December 27, 2019, the Company retained from Banco do Brasil a revolving credit facility up to the limit of R$1,500,000 for a period of three years. The referenced credit facility can be disbursed totally or partially, at the Company’s will, whenever necessary. As of June 30, 2020, the facility was available, but unused.

 

15.2. Loans and borrowings maturity schedule

The maturity schedule of the loans and borrowings is as follows:

  Parent company   Consolidated
  06.30.20   06.30.20
Current 3,935,263   4,071,950
Non-current  17,730,549    20,791,601
July to december 2021 1,850,633   1,959,689
2022 3,365,885   3,600,786
2023 3,157,481   3,157,739
2024 3,167,562   3,159,866
2025 onwards 6,188,988   8,913,521
   21,665,812    24,863,551

15.3. Guarantees
  Parent company   Consolidated
  06.30.20   12.31.19   06.30.20   12.31.19
Total of loans and financing   21,665,812     16,429,004     24,863,551     18,620,279
Mortgage guarantees   40,281     51,237     40,281     51,237
Related to FINEM-BNDES   -     45,516     -     45,516
Related to tax incentives and other   40,281    5,721     40,281    5,721

On June 30, 2020, the amount of bank guarantees contracted by the Company was of R$593,028 (R$666,335 as of December 31, 2019) which were offered mainly in litigations involving the Company’s use of tax credits. These guarantees have an average cost of 1.79% p.a. (1.77% p.a. as of December 31, 2019).

 

BRF S.A. | INTERIM FINANCIAL INFORMATION - June 30, 2020 62
 

 

16. TRADE ACCOUNTS PAYABLE
  Parent company   Consolidated
  06.30.20   12.31.19   06.30.20   12.31.19
Domestic suppliers              
Third parties 5,460,334   4,921,902    5,472,974    4,930,424
Related parties  9,850    6,392     -     -
  5,470,184   4,928,294    5,472,974    4,930,424
               
Foreign suppliers              
Third parties 556,241   404,068    1,320,280   915,611
  556,241   404,068    1,320,280   915,611
               
(-) Adjustment to present value (60,020)   (49,253)    (60,041)    (49,269)
  5,966,405   5,283,109    6,733,213    5,796,766
               
Current 5,958,687   5,270,762    6,725,495    5,784,419
Non-current  7,718     12,347    7,718     12,347

On the trade accounts payable balance as of June 30, 2020, R$1,674,014 in the parent company and R$1,675,566 in the consolidated (R$1,434,152 in the parent company and R$1,435,025 in the consolidated as of December 31, 2019) corresponds to supply chain finance transactions in which there were no changes in the payment terms and prices negotiated with the suppliers.

 

17. SUPPLY CHAIN FINANCE
    Parent company and Consolidated
    06.30.20   12.31.19
Supply chain finance - Domestic suppliers    694,136    671,869
Supply chain finance - Foreign suppliers    300,609    182,126
     994,745    853,995
         
(-) Adjustment to present value    (12,508)    (11,958)
     982,237    842,037

The Company has partnerships with several financial institutions that allow the suppliers to anticipate their receivables. The suppliers may choose whether to participate and if so, with which institution. The anticipation allows the suppliers to better manage their cash flow needs. This flexibility allows the Company to intensify its commercial relations with the network of suppliers by potentially leveraging benefits such as preference for supply in case of restricted supply, better price conditions and/or more flexible payment terms, among others, without changes in other commercial conditions. These operations are presented in the cash flow of operating activities.

On June 30, 2020, the discount rates applied to the supply chain finance transactions agreed between our suppliers and the financial institutions in the domestic market were set between 0.46% and 0.68% p.m. (0.38% to 0.67% p.m. on December 31, 2019).

On June 30, 2020, the discount rates applied to the supply chain finance transactions agreed between our suppliers and the financial institutions in the external market were set between 0.32% and 0.45% p.m. (0.32% to 0.46% p.m. on December 31, 2019).

 

 

 

 

BRF S.A. | INTERIM FINANCIAL INFORMATION - June 30, 2020 63
 

18. LEASES

 

The Company is lessee in several lease agreements for forest lands, offices, distribution centers, integrated producers, vehicles, among others. Some contracts have a renewal option for an additional period at the end of the agreement, established by contractual amendments. Automatic renewals or renewals for undetermined periods are not allowed.

The contract clauses mentioned, with respect to renewal, readjustment and purchase option, are contracted according to market practices. In addition, there are no clauses of contingent payments or restrictions on dividends distribution, payments of interest on shareholders’ equity or obtaining debt.

18.1. Right-of-use assets

The right-of-use assets as set forth below are part of the balances of property, plant and equipment and intangible assets (notes 13 and 14).

  Parent company
  Weighted average depreciation rate (p.a.)   12.31.19   Additions   Disposals   Transfers   06.30.20
Cost                      
Land      20,499    -     (182)   20,751     41,068
Buildings       2,446,641     81,205     (1,387)   (2,487)    2,523,972
Machinery and equipment       114,571   1,073     (7,681)   -    107,963
Vehicles       112,917     16,625     (7,616)   -    121,926
Software      55,705     72,766   (35,624)     (18,264)     74,583
        2,750,333   171,669   (52,490)   -    2,869,512
                       
Depreciation                      
Land 14.77%    (4,258)     (3,086)     37   (1,799)   (9,106)
Buildings 28.79%   (459,122)    (190,934)   723   (6,765)     (656,098)
Machinery and equipment 40.97%     (96,684)   (13,573)   7,024   -     (103,233)
Vehicles 28.75%     (18,550)   (17,886)   1,025   -    (35,411)
Software 45.21%     (44,815)   (16,577)     35,624     8,564    (17,204)
      (623,429)    (242,056)     44,433   -     (821,052)
        2,126,904   (70,387)     (8,057)   -    2,048,460

 

  Consolidated
  Weighted average depreciation rate (p.a.)   12.31.19   Additions   Disposals   Exchange rate variation   Transfers   06.30.20
Cost                          
Land      22,790    1,167     (751)   617    20,751    44,574
Buildings       2,615,883   133,093    (22,443)     61,134     (2,487)     2,785,180
Machinery and equipment       115,173    1,073     (7,729)   213    -     108,730
Vehicles       207,443     19,501    (51,975)     31,480    -     206,449
Software      55,705     72,766    (35,625)    -   (18,264)    74,582
        3,016,994   227,600     (118,523)     93,444    -     3,219,515
                           
Depreciation                          
Land 16.54%    (5,086)     (3,107)    605     (727)     (1,799)   (10,114)
Buildings 28.61%   (512,836)     (223,884)     21,780   (21,910)     (6,765)    (743,615)
Machinery and equipment 40.99%     (96,958)    (13,727)    7,056     (114)    -    (103,743)
Vehicles 28.77%     (57,357)    (35,725)     39,271   (15,594)    -   (69,405)
Software 45.21%     (44,815)    (16,577)     35,624    -   8,564   (17,204)
      (717,052)     (293,020)   104,336   (38,345)    -    (944,081)
        2,299,942    (65,420)    (14,187)     55,099    -     2,275,434

 

 

 

BRF S.A. | INTERIM FINANCIAL INFORMATION - June 30, 2020 64
 

18.2. Lease liabilities
  Parent company
  WAM (1)   12.31.19   Additions   Payments   Interest paid   Interest accrued   Disposals   Transfers   06.30.20
                                   
Land   6.6    18,707    83     (3,543)   (2,169)    2,169     (210)     17,501    32,538
Buildings   7.4     2,106,997   89,637     (170,175)    (41,931)     78,980     (693)    (17,501)     2,045,314
Machinery and equipment   1.1    25,349     1,073   (16,111)   (6,694)    6,694     (733)     -   9,578
Vehicles   2.5     100,362   16,625   (15,806)   (4,972)    4,972     (6,915)     -    94,266
Software   2.0   1,137   72,766   (15,411)   (2,237)    2,237    -     -    58,492
        2,252,552    180,184     (221,046)    (58,003)     95,052     (8,551)     -     2,240,188
                                   
Current       313,058                             244,450
Non-current       1,939,494                             1,995,738

(1) Weighted average maturity in years.
  Consolidated
  WAM (1)   12.31.19   Additions   Payments   Interest paid   Interest accrued   Disposals   Transfers   Exchange rate variation   06.30.20
                                       
                                       
Land   5.0    20,355     1,250     (3,861)   (2,458)    2,458     (210)    17,501    (42)    34,993
Buildings   4.5     2,227,026    141,525     (201,487)    (47,890)     84,939     (693)   (17,501)     40,905     2,226,824
Machinery and equipment   1.1    25,687     1,073   (16,267)   (6,704)    6,704     (747)    -    102   9,848
Vehicles   1.7     156,975   19,501   (31,238)   (7,318)    7,318   (13,388)    -     16,624     148,474
Software   2.0   1,137   72,766   (15,411)   (2,237)    2,237    -    -     -    58,492
        2,431,180    236,115     (268,264)    (66,607)   103,656   (15,038)    -     57,589     2,478,631
                                       
Current       376,628                                 317,435
Non-current       2,054,552                                 2,161,196

(1) Weighted average maturity in years.

 

18.3. Lease liabilities maturity schedule

The minimum future payments required for these finance leases are segregated as follows, and were recorded in current and non-current liabilities:

  Parent company   Consolidated
  06.30.20   06.30.20
Current 244,450   317,435
Non-current 1,995,738   2,161,196
July to december 2021 670,047   714,004
2022 325,344   368,428
2023 266,158   284,173
2024 211,437   217,127
2025 onwards 522,752   577,464
  2,240,188   2,478,631

  

 

BRF S.A. | INTERIM FINANCIAL INFORMATION - June 30, 2020 65
 

18.4. Incremental rate

 

The Company uses nominal incremental rates to measure its lease liabilities. The nominal and real interest rates are presented below.

    06.30.20   12.31.19
Contract Terms   Nominal rate% p.a.   Actual rate% p.a.   Nominal rate% p.a.   Actual rate% p.a.
                 
1 year   5.69%   1.05%   8.46%   4.97%
2 years   6.64%   2.38%   9.49%   5.37%
3 years   6.81%   2.60%   10.60%   6.28%
4 years    -    -   11.43%   7.01%
5 years    -    -   11.84%   7.28%
6 years    -    -   12.13%   7.48%
8 years    -    -   12.43%   7.67%
9 years    -    -   12.51%   7.78%
10 years    -    -   12.61%   7.84%
11 years    -    -   12.68%   7.86%
13 years    -    -   12.81%   7.93%
14 years    -    -   12.86%   7.96%
15 years    -    -   12.90%   7.97%
18 years    -    -   13.01%   8.03%
20 years   13.26%   9.00%   13.12%   8.12%

 

 

The rates presented above as of June 30, 2020 refer to the incremental rates used in contracts recognized in the first semester of 2020 and the rates as of December 31, 2019 refer to the rates used in contracts recognized in 2019.

 

18.5. Amounts recognized in the statement of income

Below are the amounts directly recognized in the statement of income related to items exempt of recognition: low-value assets, short-term leases and leases with variable payments.

    Parent Company   Consolidated
    April to June 2020   January to June 2020   April to June 2020   January to June 2020
Variable payments not included in the lease liabilities     11,403    22,151    79,202     161,730
Expenses related to short-term assets     12,805    28,539    42,045   84,249
Expenses related to low-value assets    1,188   1,264   1,406     1,707
      25,396    51,954   122,653     247,686

18.6. Sale-and-leaseback transactions

During the six-month period ended on June 30, 2020 three sale-and-leaseback transactions of grain warehouses were concluded. These warehouses are located in: (i) Campo Erê – Santa Catarina, (ii) Pato Branco, and (iii) Medianeira, both in the state of Paraná; which were analyzed according to the IFRS 16 premises and the right-of-use assets were recognized, as well as the lease liabilities of each contract. These transactions contained in the addition movements of the Buildings class.

 

19. SHARE-BASED PAYMENT

The rules for the stock options and restricted shares plans granted to executives were disclosed in the financial statements for the year ended on December 31, 2019 (note 20). On April 27, 2020, the general shareholder’s meeting approved changes to the plans, increasing the limit of grants from 0.5% to 2.5% of the common, registered, book-entry shares with no par value, representative of the Company’s total capital stock.

The breakdown of the outstanding granted stock options is set forth as follows:

 

BRF S.A. | INTERIM FINANCIAL INFORMATION - June 30, 2020 66
 
Date   Quantity   Grant (1)   Strike price (1)
Grant date   Beggining of exercise   End of the exercise   Options granted   Outstanding options   Fair value of the option   Granting date   Updated IPCA
                             
04.26.16   04.30.17   04.30.21     8,724,733    1,325,000   9.21   56.00   66.73
05.31.16   05.31.17   05.31.21     3,351,220    1,156,990   10.97   46.68   55.20
            12,075,953    2,481,990            

(1) Amounts expressed in Brazilian Reais.

 

The breakdown of the outstanding granted restricted shares is set forth as follows:

Date   Quantity   Grant (1)
Grant   Vesting date   Shares granted   Outstanding shares   Fair value of the shares
                 
10.01.18   10.01.21    2,311,394    1,293,330    21.44
07.01.19   07.01.22    1,815,649    1,306,455    30.61
09.16.19   10.01.22     68,605     68,605    30.61
04.01.20   04.01.22    359,293    359,293    18.40
06.01.20   06.01.23    3,571,736    3,571,736    21.28
         8,126,677    6,599,419    

(1) Amounts expressed in Brazilian Reais.

The rollforward of the granted options and shares for the six-month period ended on June 30, 2020, is presented as follows:

    Consolidated
     
Outstanding options/shares as of December 31, 2019   4,722,734
 Granted    
 Restricted shares - June 2020   1,315,566
 Restricted shares - April 2020     359,293
 Exercised / Delivered:    
 Restricted Shares – grant of June, 2019    (140,945)
 Restricted Shares – grant of June, 2018   (97,875)
 Forfeiture:    
 Restricted shares - Grant of 2019   (83,824)
 Restricted shares - Grant of 2018   (95,128)
 Stock options - Grant of 2016   (11,510)
Outstanding options/shares as of June 30, 2020   5,968,311

The weighted average exercise price of the outstanding options conditioned to services is R$60.98 (sixty Brazilian Reais and ninety-eight cents) (R$60.96 as of December 31, 2019), and the weighted average remaining vesting term is 11 months (17 months as of December 31, 2019).

The Company has registered as capital reserve, under shareholders’ equity, the fair value of share-based compensation plans in the amount of R$260,825 (R$255,445 as of December 31, 2019). In the statement of income for the six-month period ended on June 30, 2020 the amount recognized as expense was R$5,380 (R$11,691 in the same period of the previous year), and during the three-month period ended on June 30, 2020 the amount recognized as expense was R$1,209 (R$1,351 in the same period of the previous year).

 

BRF S.A. | INTERIM FINANCIAL INFORMATION - June 30, 2020 67
 

 

20. EMPLOYEES BENEFITS PLANS

The Company offers pension and other post-employment plans to the employees. The characteristics of such benefits were disclosed in the annual financial statements for the year ended on December 31, 2019 (note 21) and have not been changed during the following periods. The actuarial liabilities are presented below:

  Parent company   Consolidated
  Liabilities   Liabilities
  06.30.20   12.31.19   06.30.20   12.31.19
Medical assistance 194,067   187,274   194,067   187,274
F.G.T.S. Penalty (1) 260,840   247,485   260,840   247,485
Award for length of service 109,292   103,284   109,292   103,284
Other   59,530     56,744   187,786   151,431
  623,729   594,787   751,985   689,474
               
Current   87,996     87,996     97,688     95,919
Non-current 535,733   506,791   654,297   593,555

(1) FGTS Government Severance Indemnity Fund for Employees

The Company estimated costs for the year of 2020 according to an appraisal report prepared in 2019 by an actuarial expert and recorded in the statement of income for the six-month period ended on June 30, 2020 against other comprehensive income a gain of R$13,035 in the parent company and R$12,964 in consolidated (R$5,311 in the parent company and R$4,956 in the same period of the previous year) and for the three-month period ended on June 30, 2020 a gain of R$6,647 in the parent company and R$6,623 in consolidated (R$4,393 in the parent company and R$4,373 in consolidated in the same period of the previous year).

 

21. PROVISION FOR TAX, CIVIL, LABOR AND OTHER RISKS

The Company and its subsidiaries are involved in certain legal matters arising in the normal course of business, which include civil, tax, social security, labor, commercial and other processes.

Company’s Management believes that, based on the elements existing at the base date of the interim financial information, the provision for tax, civil, labor, commercial and other risks, is sufficient to cover eventual losses with administrative and legal proceedings, as set forth below.

21.1. Contingencies with probable losses

The rollforward of the provisions for tax, labor, civil, commercial and other risks classified as with probable loss, and contingent liabilities is presented below:

   Parent company
                  06.30.20
  Tax   Labor   Civil, commercial and other Contingent liabilities (Business combination) Total
Beginning balance 583,316   600,510   306,476   300,561   1,790,863
Additions   54,362   160,277     19,112    -   233,751
Reversals   (6,641)   (61,375)   (17,237)     (1,388)   (86,641)
Payments (37,809)    (134,174)   (14,895)    -    (186,878)
Interest   30,115     43,707     19,465    -     93,287
Ending balance 623,343   608,945   312,921   299,173   1,844,382
                   
Current                 1,135,183
Non-current                 709,199

 

BRF S.A. | INTERIM FINANCIAL INFORMATION - June 30, 2020 68
 
   Consolidated
                  06.30.20
  Tax Labor Civil, commercial and other Contingent liabilities (Business combination) Total
Beginning balance 583,464   603,074   307,177   300,654   1,794,369
Additions   54,363   160,535     19,112    -   234,010
Reversals   (6,641)   (61,375)   (17,237)     (1,388)   (86,641)
Payments (37,809)    (134,174)   (14,895)    -    (186,878)
Interest   30,115     43,707     19,465    -     93,287
Exchange rate variation   23   474   126     14   637
Ending balance 623,515   612,241   313,748   299,280   1,848,784
                   
Current                 1,139,238
Non-current                 709,546

21.2. Contingencies with possible losses

The Company is involved in contingencies for which losses have been assessed as possible by Management with support from legal advisors, and for which no provision has been recorded. On June 30, 2020, the total amount of contingencies classified as possible was R$14,304,807 (R$13,299,190 as of December 31, 2019), of which R$299,280 (R$300,654 as of December 31, 2019) were recorded at fair value as a result of the business combination with Sadia, presented in the table above.

 

22. SHAREHOLDERS’ EQUITY
22.1. Capital Stock

On June 30, 2020, the subscribed and paid capital of the Company was R$12,553,418, which is composed of 812,473,246 common book-entry shares with no par value. The value of the capital stock is net of the public offering expenses of R$92,947, made on July 22, 2009.

The Company is authorized to increase the capital stock, irrespective of amendment to the bylaws, up to the limit of 1,000,000,000 common book-entry shares with no par value.

 

 

 

 

22.1.1. Breakdown of capital stock by nature
Parent company and Consolidated
  06.30.20   12.31.19
Common shares   812,473,246     812,473,246
Treasury shares   (5,310,626)    (713,446)
Outstanding shares   807,162,620     811,759,800

 

 

BRF S.A. | INTERIM FINANCIAL INFORMATION - June 30, 2020 69
 

22.1.2. Rollforward of outstanding shares
    Parent company
    Quantity of outstanding of shares
    06.30.20   12.31.19
Shares at the beginning of the year     811,759,800     811,416,022
Purchase of treasury shares    (4,836,000)     -
Delivery of restricted shares     238,820     343,778
Shares at the end of the year     807,162,620     811,759,800

22.2. Treasury shares

The Company has 5,310,626 shares held in treasury, with an average cost of R$26.00 (twenty-six Brazilian Reais) per share, and market value corresponding to R$112,904.

    Parent company
    Quantity of outstanding of shares
    06.30.20   12.31.19
Shares at the beggining of the exercise     713,446     1,057,224
Purchase of treasury shares     4,836,000     -
Delivery of restricted shares    (238,820)    (343,778)
Shares at the end of the exercise     5,310,626     713,446

The program of repurchase of own shares, which was approved by the Board of Directors on March 26, 2020, was concluded on May 22, 2020. The Company purchased 4,836,000 common shares, representing 0,60% of its capital stock, at the cost of R$106,070, with the purpose to maintain in treasury for eventual disposal, cancellation, as well as to comply with obligations and commitments made under the Stock Option Plan and the Restricted Stocks Plan.

 

23. EARNINGS (LOSS) PER SHARE

The basic earnings (losses) per share are calculated by dividing the earnings (losses) attributable to the owners of ordinary shares, by the weighted average quantity of available ordinary shares during the period.

The diluted earnings (losses) per share are calculated by dividing the earnings (losses) attributable to the owners of ordinary shares by the weighted average quantity of available ordinary shares during the period summed to the weighted average quantity of ordinary shares that would be available on the conversion of all potential dilutive ordinary shares (stock options and restricted shares).

  Continued operations   Discontinued operations   Continued and discontinued operations
  April to June 2020   January to June 2020   April to June 2019   January to June 2019   April to June 2019   January to June 2019   April to June 2019   January to June 2019
Basic numerator                              
Net earnings (loss) for the exercise attributable to controlling shareholders   303,870   257,949    187,894   75,831    134,931   (753,941)    322,825   (678,110)
                               
Basic denominator                              
Common shares   812,473,246   812,473,246    812,473,246    812,473,246    812,473,246    812,473,246    812,473,246    812,473,246
Weighted average number of outstanding shares - basic
(except treasury shares)
  809,612,517   810,672,698    811,440,470    811,428,248    811,440,470    811,428,248    811,440,470    811,428,248
Net earnings (loss) per share basic - R$  0.38     0.32   0.23   0.09   0.17     (0.93)   0.40     (0.84)
                               
                               
Diluted numerator                              
Net earnings (loss) for the exercise attributable to controlling shareholders   303,870   257,949    187,894   75,831    134,931   (753,941)    322,825   (678,110)
                               
Diluted denominator                              
Weighted average number of outstanding shares - basic
(except treasury shares)
  809,612,517   810,672,698    811,440,470    811,428,248    811,440,470    811,428,248    811,440,470    811,428,248
Number of potential shares   262,692   262,692   -   -   -   -   -   -
Weighted average number of outstanding shares - diluted   809,875,209   810,935,390    811,440,470    811,428,248    811,440,470    811,428,248    811,440,470    811,428,248
Net earnings (loss) per share diluted - R$  0.38     0.32   0.23   0.09   0.17     (0.93)   0.40     (0.84)

 

 

BRF S.A. | INTERIM FINANCIAL INFORMATION - June 30, 2020 70
 
24. FINANCIAL INSTRUMENTS AND RISKS MANAGEMENT
24.1. Overview

In the ordinary course of business, the Company is exposed to credit, liquidity and market risks, which are actively managed in compliance with the Financial Risk Management Policy (“Risk Policy”) and internal guidelines and strategic documents subject to such policy, executing the formal designation of its hedge accounting relations in accordance with CPC 48 / IFRS 09, as disclosed in the financial statements for the year ended on December 31, 2019.

 

24.2. Credit risk management

The Company is exposed to the credit risk related to the financial assets held: trade and non-trade accounts receivable, marketable securities, derivative instruments and cash and equivalents.

On June 30, 2020, the Company held financial investments over R$100,000 at the following financial institutions: Banco Bradesco, Banco BIC, Banco BNP Paribas, Banco do Brasil, Banco BTG Pactual, Banco Itaú, Banco Safra, Banco Santander, Banco Votorantim, Caixa Econômica Federal, Citibank, HSBC, J.P. Morgan Chase Bank, National Commercial Bank, T.Garanti Bankasi A.Ş. and Vakiflar Bankasi.

The Company also held derivative contracts with the following financial institutions: Banco Bradesco, Banco Itaú, Banco Safra, Banco Santander, Banco Votorantim, Bank of America Merrill Lynch, Banco BNP Paribas, Citibank, Deutsche Bank, ING Bank, J.P. Morgan Chase Bank, Morgan Stanley and Rabobank.

 

24.3. Capital management and liquidity risk

On June 30, 2020, the long-term consolidated gross debt represented 80.1% (82.5% as of December 31, 2019) of the total gross indebtedness, which has an average term higher than four years.

The Company monitors the gross debt and net debt as set forth below:

  Consolidated
  06.30.20   12.31.19
   Current    Non-current    Total    Total
Foreign currency debt (940,938)     (14,699,526)    (15,640,464)   (11,006,524)
Local currency debt (3,131,012)    (6,092,075)   (9,223,087)     (7,613,755)
Derivative financial liabilities (1,100,649)   (43,905)   (1,144,554)     (153,612)
Gross debt (5,172,599)     (20,835,506)    (26,008,105)   (18,773,891)
     
Marketable securities and cash and cash equivalents 10,008,458     415,456   10,423,914    4,963,319
Derivative financial assets   244,362   4,881    249,243   245,315
Restricted cash 1    24,178   24,179   296,294
Net debt   5,080,222     (20,390,991)    (15,310,769)   (13,268,963)

The table below summarizes the significant commitments and contractual obligations that may impact the Company’s liquidity:

 

BRF S.A. | INTERIM FINANCIAL INFORMATION - June 30, 2020 71
 
  Parent company
  06.30.20
  Book
value
  Contractual cash flow   Up to 12 months   July to december 2021   2022   2023   2024   2025 onwards
Non derivative financial liabilities                              
Loans and financing 21,665,812     26,231,999     4,579,708    2,263,004     4,203,614     3,859,809     3,662,471     7,663,393
Trade accounts payable   5,966,405    6,026,425     6,018,697     2,011   2,913   2,697     107    -
Supply chain finance  982,237    994,745     994,745   -    -    -    -    -
Lease payables   2,240,188    2,758,299     261,195    740,060     383,954     335,622     284,883     752,585
Derivative financial liabilities                              
Financial instruments designated as cash flow hedge                              
Interest rate derivatives 35,561   35,561    -   35,561    -    -    -    -
Currency derivatives   1,008,908    1,008,908     1,004,188     4,720    -    -    -    -
Commodities derivatives 28,799   28,799    25,174     3,625    -    -    -    -
Financial instruments not designated as cash flow hedge                              
Currency derivatives 68,812   68,812    68,812   -    -    -    -    -

 

  Consolidated
  06.30.20
  Book
value
  Contractual cash flow   Up to 12 months   July to december 2021   2022   2023   2024   2025 onwards
Non derivative financial liabilities                              
Loans and financing 24,863,551     30,288,641   4,855,431   2,450,753   4,574,209   3,987,075   3,781,574     10,639,599
Trade accounts payable   6,733,213    6,793,254   6,785,526   2,011   2,913   2,697   107     -
Supply chain finance  982,237    994,745   994,745    -    -    -    -     -
Lease payables   2,478,631    3,044,828   339,179     788,610   434,799   358,339   292,549    831,352
Derivative financial liabilities                              
Financial instruments designated as cash flow hedge                              
Interest rate derivatives 35,561   35,561    -    35,561    -    -    -     -
Currency derivatives   1,008,908    1,008,908   1,004,188   4,720    -    -    -     -
Commodities derivatives 28,799   28,799     25,174   3,625    -    -    -     -
Financial instruments not designated as cash flow hedge                              
Currency derivatives 71,286   71,286     71,286    -    -    -    -     -

The Company does not expect that the cash outflows to fulfill the obligations shown above will be significantly anticipated, by factors unrelated to its best interests, or substantially modified outside the normal course of business.

 

24.4. Market risk management
24.4.1. Interest rate risk

The indebtedness is essentially linked to fixed coupons (R$, USD, EUR and TRY), Interbank Deposit Certificate (“CDI”), Broad Consumer Price Index (“IPCA”) and London Interbank Offered Rate (“LIBOR”). In situations of adverse market changes that result in an increase in these rates, the cost of floating-rate debt rises and on the other hand, the cost of fixed-rate debt decreases in relative terms.

Regarding the marketable securities, the Company holds, mainly, instruments indexed by the CDI for investments in Brazil and fixed coupon in USD for investments in the foreign market.

The Company’s exposure to interest rates can be assessed in notes 5 and 15.

The derivative financial instruments hired to hedge the exposure to interest rates as of June 30, 2020 were designated as hedge accounting and are shown in the table below:

 

BRF S.A. | INTERIM FINANCIAL INFORMATION - June 30, 2020 72
 
06.30.20
Cash flow hedges - Derivative instruments   Maturity   Hedged Object   Asset   Liability   Notional   Fair value (R$)
Subsidiaries                          
Interest rate swap    3rd Qtr. 2021    Debt   118,00% CDI    5.60% p.a.   810,000  BRL    (28,212)
Interest rate swap    4th Qtr. 2021    Debt   118,00% CDI    5.72% p.a.   180,000  BRL   (7,349)
                           
                           (35,561)
                           
Derivative instruments not designated   Maturity   Hedged Object   Asset   Liability   Notional   Fair value (R$)
Parent company and Consolidated                          
Interest rate swap    2th Qtr. 2021    Debt   E.R. + 2.80% p.a.    CDI + 2.27% p.a.     49,900  USD   (380)
                           
                          (380)

24.4.2. Foreign exchange risk

This risk is the one that may cause unexpected losses to the Company resulting from volatility of the FX rates, reducing its assets and revenues or increasing its liabilities and costs. The Company’s exposure is managed in three dimensions: statement of financial position exposure, operating income exposure and investments exposure.

i. Statement of financial position exposure

Assets and liabilities denominated in foreign currency for which the exchange variations are recognized in the Financial Results are as follows, summarized in Brazilian Reais:

    Consolidated
    06.30.20   12.31.19 (1)
         
Cash and cash equivalents   4,458,051   2,591,746
Trade accounts receivable   6,473,734   4,892,708
Trade accounts payable    (900,875)    (601,007)
Loans and financing     (14,562,591)    (8,854,826)
Other assets and liabilities, net    (234,839)    (162,341)
Exposure of assets and liabilities in foreign currencies    (4,766,520)    (2,133,720)
Derivative financial instruments (hedge)   4,489,296   1,734,517
         
Exposure in result, net    (277,224)    (399,203)

(1) Restated for better presentation of the amount previously classified in Investments, which was relocated to the corresponding assets and liabilities.

The net P&L exposure is mainly composed of the following currencies:

Net P&L Exposure   06.30.20   12.31.19
Argentinian Peso (ARS)   (12,499)    (13,236)
Euros (EUR)   (60,808)   23,624
Pound Sterling (GBP)   8,980     6,949
Yen (JPY)   (34,361)    (17,285)
Rubles (RUB)    23,907     2,780
Turkish Liras (TRY)   (16,571)   (418,576)
U.S. Dollars (USD)    (185,872)   16,541
Total    (277,224)   (399,203)

The derivative financial instruments hired to hedge the foreign currency statement of financial position exposure on June 30, 2020 are not designated as hedge accounting and are set forth below:

 

BRF S.A. | INTERIM FINANCIAL INFORMATION - June 30, 2020 73
 
06.30.20
Derivative instruments not designated   Asset   Liability   Maturity   Notional   Exercise rate   Fair value (R$)
Parent company                          
Non-deliverable forward    EUR    BRL   3nd Qtr. 2020    EUR   265,000    6.1570    (6,379)
Non-deliverable forward    USD    BRL   3nd Qtr. 2020    USD   340,000    5.4778    (9,569)
Non-deliverable forward    USD    BRL   2nd Qtr. 2021    USD  50,000    5.2800     9,772
Non-deliverable forward    BRL    USD   3th Qtr. 2020    USD 9,000    4.3210     (10,064)
Non-deliverable forward    BRL    USD   4th Qtr. 2020    USD 6,000    4.3314    (6,677)
Collar    BRL    USD   4th Qtr. 2020    USD  31,000    4.2996     (35,672)
Futures - B3    USD    BRL   3nd Qtr. 2020    USD   128,250    5.4400     309
                            (58,280)
                           
Subsidiaries                          
Non-deliverable forward    EUR    JPY   3nd Qtr. 2020    EUR  20,773   120.3499     1,119
Non-deliverable forward    EUR    USD   3nd Qtr. 2020    EUR  55,000    1.1237     535
Non-deliverable forward    EUR    RUB   3nd Qtr. 2020    EUR  18,887     79.4177     2,578
Collar    TRY    USD   3nd Qtr. 2020    USD  50,000    7.1875    (101)
                           
Total Consolidated                           (54,149)

 

ii. Operating income exposure

The derivative and non-derivative financial instruments designated as cash flow hedges for foreing exchange operating income exposure on June 30, 2020 are set forth below:

06.30.20
Cash flow hedge - Derivative instruments   Hedged object   Asset   Liability   Maturity   Notional   Designation rate   Fair value
Parent company and consolidated                              
Non-deliverable forward    USD Exports    BRL    USD   3rd Qtr. 2020    USD  66,000     5.0223    (27,975)
Non-deliverable forward    USD Exports    BRL    USD   4th Qtr. 2020    USD 9,000     4.1090    (12,012)
Collar    USD Exports    BRL    USD   3nd Qtr. 2020    USD   531,000     4.9460   (297,160)
Collar    USD Exports    BRL    USD   4rd Qtr. 2020    USD   254,000     4.5206   (242,225)
Collar    USD Exports    BRL    USD   1th Qtr. 2021    USD   172,000     4.9970    (95,138)
Collar    USD Exports    BRL    USD   2st Qtr. 2021    USD  65,000     5.6098     5,239
                               
                              (669,271)
                               
                               
06.30.20
Cash flow hedge - Non-derivative instruments   Hedged object   Asset   Liability   Maturity   Notional   Designation rate   Fair value (1)
Parent company and consolidated                              
Bond BRF SA BRFSBZ5 (2)    USD Exports    -    USD   2nd Qtr. 2022    USD   109,312     2.0213   (436,066)
Bond BRF SA BRFSBZ3    USD Exports    -    USD   2nd Qtr. 2023    USD   150,000     2.0387   (515,595)
                               
                              (951,661)

(1) Corresponds to the effective portion of the hedge result accumulated in Other Comprehensive Income.
(2) For this instrument, the initial designation was of USD150,000, however there were repurchases with corresponding revocation of the designation in the amounts of USD31,338 at the rate of 3.2408 and USD9,350 at the rate of 4.1827. The accumulated exchange rate variation of the revoked portions is fixed and reserved in Other Comprehensive Income until the recognition of the hedge object in the second quarter of 2022.

 

iii. Investments exposure

The non-derivative financial instruments designated as net investment hedge instruments on June 30, 2020 are set forth below:

 

BRF S.A. | INTERIM FINANCIAL INFORMATION - June 30, 2020 74
 
06.30.20
Net investment hedge -
Non-derivative instruments
  Protection (Investment)   Asset   Liability   Maturity   Notional   Rate   Fair value (1)
Parent company and consolidated                              
Bond - BRF SA BRFSBZ4   Federal Foods LLC    -    USD   3rd Qtr. 2026    USD  75,673   3.7649    (130,129)
Bond - BRF SA BRFSBZ4   BRF Al Yasra Food    -    USD   3rd Qtr. 2026    USD   108,757   3.7649    (167,003)
Bond - BRF SA BRFSBZ4   Al Khan Foodstuff LLC    -    USD   3rd Qtr. 2026    USD  65,570   3.7649    (111,797)
                               
                               (408,929)

(1) Corresponds to the effective portion of the hedge result accumulated in Other Comprehensive Income.

 

24.4.3. Commodities price risk

The financial instruments designated as cash flow hedges and fair value hedges for the commodities price exposure on June 30, 2020 are set forth below:

06.30.20
Cash flow hedge - Derivative instruments   Hedged object   Index   Maturity   Quantity   Exercise rate (USD/Ton)   Fair value
Parent company and consolidated                          
Non-deliverable forward - buy    Soybean meal purchase - floating price    Soybean meal - CBOT   3nd Qtr. 2020    54,985  ton    123.25   (7,814)
Non-deliverable forward - buy    Soybean meal purchase - floating price    Soybean meal - CBOT   4rd Qtr. 2020    19,997  ton    118.46   (578)
Non-deliverable forward - buy    Soybean meal purchase - floating price    Soybean meal - CBOT   1th Qtr. 2021    34,993  ton    117.08   (442)
Non-deliverable forward - buy    Soybean meal purchase - floating price    Soybean meal - CBOT   2st Qtr. 2021    59,999  ton    115.31    572
Non-deliverable forward - buy    Soybean purchase - floating price    Soybean - CBOT   3nd Qtr. 2020   5,001  ton    334.67   (323)
Collar - buy    Soybean purchase - floating price    Soybean - CBOT   3nd Qtr. 2020   4,001  ton    331.06   (222)
Non-deliverable forward - buy    Corn purchase - floating price    Corn - CBOT   4nd Qtr. 2020    39,999  ton    131.55    1,406
Non-deliverable forward - buy    Corn purchase - floating price    Corn - CBOT   1nd Qtr. 2021    59,999  ton    136.96    1,722
Non-deliverable forward - buy    Soybean oil purchase - floating price    Soybean oil - CBOT   3rd Qtr. 2020    21,697  ton    629.39   (624)
Non-deliverable forward - buy    Soybean oil purchase - floating price    Soybean oil - CBOT   4rd Qtr. 2020    20,495  ton    616.65    2,249
Non-deliverable forward - buy    Soybean oil purchase - floating price    Soybean oil - CBOT   1st Qtr. 2021    10,297  ton    626.18    938
Non-deliverable forward - buy    Soybean oil purchase - floating price    Soybean oil - CBOT   2st Qtr. 2021   5,999  ton    645.92   (6)
                           
                          (3,122)
                           
06.30.20
Fair value hedge - Derivative instruments   Hedged object   Index   Maturity   Quantity   Exercise rate (USD/Ton)   Fair value
Parent company and consolidated                          
Non-deliverable forward - sell    Soybean purchase - fixed price    Soybean - CBOT   3rd Qtr. 2020    30,488  ton    339.75    2,918
Non-deliverable forward - sell    Soybean purchase - fixed price    Soybean - CBOT   4th Qtr. 2020    39,488  ton    340.82    3,596
Non-deliverable forward - sell    Soybean purchase - fixed price    Soybean - CBOT   1st Qtr. 2021   5,998  ton    317.10   (189)
Non-deliverable forward - sell    Corn purchase - fixed price    Corn - CBOT   3rd Qtr. 2020     298,898  ton    157.20   37,237
Non-deliverable forward - sell    Corn purchase - fixed price    Corn - CBOT   4th Qtr. 2020     549,034  ton    152.20   42,680
Non-deliverable forward - sell    Corn purchase - fixed price    Corn - CBOT   1st Qtr. 2021     299,131  ton    153.96   19,176
Non-deliverable forward - sell    Corn purchase - fixed price    Corn - CBOT   2nd Qtr. 2021     584,548  ton    147.62    4,158
Non-deliverable forward - sell    Corn purchase - fixed price    Corn - CBOT   3rd Qtr. 2021     209,303  ton    141.70   (3,156)
Non-deliverable forward - sell    Corn purchase - fixed price    Corn - CBOT   4rd Qtr. 2021    33,391  ton    145.56   (233)
Corn future - sell    Corn purchase - fixed price    Corn - B3   3rd Qtr. 2020    32,319  ton    710.75   (539)
                           
                           105,648

 

06.30.20
Fair value hedge -
Derivative instruments
  Protection object   Assets   Liabilities Maturity   Notional   Exercise rate   Fair value
Parent company and consolidated                            
Non-deliverable forward    Cost in USD    BRL    USD  3rd Qtr. 2020    USD  57,352   4.2031   (70,947)
Non-deliverable forward    Cost in USD    BRL    USD  4th Qtr. 2020    USD  97,022   4.4466   (97,261)
Non-deliverable forward    Cost in USD    BRL    USD  1st Qtr. 2021    USD  47,949   4.5868   (41,737)
Non-deliverable forward    Cost in USD    BRL    USD  2nd Qtr. 2021    USD  86,290   5.1581   (28,458)
Non-deliverable forward    Cost in USD    BRL    USD  3rd Qtr. 2021    USD  28,601   5.5164     (116)
Non-deliverable forward    Cost in USD    BRL    USD  4rd Qtr. 2021    USD   5,918   5.5659     43
                             
                             (238,476)

 

24.5. Effects of hedge instruments on financial information

The effects of financial instruments for hedging exchange rate, commodities price and interest rates in the income for the period, in other comprehensive income and in the financial position are set forth below:

 

BRF S.A. | INTERIM FINANCIAL INFORMATION - June 30, 2020 75
 
Income for the period                   Consolidated
April to June 2020   Reference   Exposure   Hedge accounting   Foreign Exchange   Commodities   Interest Rate   Total
                             
                             
Net Sales                9,798,045    -     -   9,798,045
Derivatives result        Operating Results    Cash flow     (694,119)    -     -    (694,119)
Net Revenue   26            9,103,926    -     -   9,103,926
                             
                             
Cost of Goods Sold                 -    (7,085,743)     -     (7,085,743)
Derivatives result        Operating Results    Cash flow / Fair value     -   (39,291)     -   (39,291)
Cost of Goods Sold                 -    (7,125,034)     -     (7,125,034)
                             
                             
Interests on Loans and Financing                 -    -     (317,077)    (317,077)
Interest Rate Derivatives result        Interest expenses    Cash flow     -    -   (4,164)     (4,164)
Foreign Exchange variation on assets and liabilities                 (334,800)    -     -    (334,800)
Foreign Exchange Derivatives result        Financial Position    Not designated   233,391    -     -   233,391
Financial Results   28             (101,409)    -     (321,241)    (422,650)
                             
                     
Other Comprehensive Income                   Consolidated
April to June 2020   Reference   Exposure   Hedge accounting   Foreign Exchange   Commodities   Interest Rate   Total
                             
Derivative Instruments - current        Operating Results    Cash flow   451,206    40,059    (13,125)   478,140
Derivative Instruments - non-current        Operating Results    Cash flow    (71,907)    -     -   (71,907)
Non-derivative Instruments - non-current        Foreign investments    Net investment    (69,236)    -     -   (69,236)
Other Comprehensive Income (1)               310,063    40,059    (13,125)   336,997
                             
                     
Income for the period                   Consolidated
January to June 2020   Reference   Exposure   Hedge accounting   Foreign Exchange   Commodities   Interest Rate   Total
                             
                             
Net Sales                 18,963,157    -     -    18,963,157
Derivatives result        Operating Results    Cash flow     (910,166)    -     -    (910,166)
Net Revenue   26             18,052,991    -     -    18,052,991
                             
                             
Cost of Goods Sold                 -   (13,754,387)     -   (13,754,387)
Derivatives result        Operating Results    Cash flow / Fair value     -   (66,735)     -   (66,735)
Cost of Goods Sold                 -   (13,821,122)     -   (13,821,122)
                             
                             
Interests on Loans and Financing                 -    -     (631,570)    (631,570)
Interest Rate Derivatives result        Interest expenses    Cash flow     -    -     (399)     (399)
Foreign Exchange variation on assets and liabilities                 (1,533,734)    -     -     (1,533,734)
Foreign Exchange Derivatives result        Financial Position    Not designated    1,278,563    -     -   1,278,563
Financial Results   28             (255,171)    -     (631,969)    (887,140)
                             
                     
Other Comprehensive Income                   Consolidated
January to June 2020   Reference   Exposure   Hedge accounting   Foreign Exchange   Commodities   Interest Rate   Total
                             
Derivative Instruments - current        Operating Results    Cash flow     (751,260)    32,673    (29,954)    (748,541)
Derivative Instruments - non-current        Operating Results    Cash flow     (374,784)    -     -    (374,784)
Non-derivative Instruments - non-current        Foreign investments    Net investment     (342,111)    -     -    (342,111)
Other Comprehensive Income (1)                 (1,468,155)    32,673    (29,954)     (1,465,436)
                             
                     
Equity balances                   Consolidado
06.30.20   Reference   Exposure   Hedge accounting   Foreign Exchange   Commodities   Interest Rate   Total
                             
                             
Designated derivatives        Operating Results    Cash flow / Fair value     (907,747)   102,526    (35,561)    (840,782)
Not designated derivatives        Financial Position    Not designated    (54,149)    -     (380)   (54,529)
Asset / (Liability) net                 (961,896)   102,526    (35,941)    (895,311)
                             
                             
Derivative Instruments - current (2)        Operating Results    Cash flow     (674,424)     (7,772)    (29,954)    (712,150)
Derivative Instruments - non-current        Operating Results    Cash flow     (951,661)    -     -    (951,661)
Non-derivative Instruments - non-current        Foreign investments    Net investment     (408,929)    -     -    (408,929)
Other Comprehensive Income (1)                 (2,035,014)     (7,772)    (29,954)     (2,072,740)
                             
                             
Derivatives result        Operating Results    Cash flow / Fair value     -   196,590     -   196,590
Inventories   7             -   196,590     -   196,590

(1) All effects are shown gross of taxes.
(2) Includes R$40,401 related to the time value of the foreign exchange option contracts.

The cash effect of hedge instruments is presented in the Statement of Cash Flows, as Derivative Financial Instruments.

Summarized financial position of derivative financial instruments:

 

BRF S.A. | INTERIM FINANCIAL INFORMATION - June 30, 2020 76
 
  Parent company   Consolidated
  06.30.20   12.31.19   06.30.20   12.31.19
               
Asset              
Designated as hedge accounting              
Currency derivatives  101,161   166,729    101,161   166,729
Commodities derivatives  131,325     25,191    131,325     25,191
Not designated as hedge accounting              
Currency derivatives   10,152     51,811     16,757     53,395
   242,638   243,731    249,243   245,315
               
Current assets  237,757   193,740    244,362   195,324
Non-current assets  4,881     49,991    4,881     49,991
               
Liabilities              
Designated as hedge accounting              
Currency derivatives   (1,008,908)    (73,417)     (1,008,908)    (73,417)
Commodities derivatives  (28,799)    (48,829)    (28,799)    (48,829)
Interest rate derivatives  (35,561)     -    (35,561)     -
Not designated as hedge accounting              
Currency derivatives  (68,432)    (29,479)    (70,906)    (31,369)
Interest rate derivatives (380)     -   (380)     -
    (1,142,080)     (151,725)     (1,144,554)     (153,615)
               
Current liabilities   (1,098,175)     (151,722)     (1,100,649)     (153,612)
Non-current liabilities  (43,905)   (3)    (43,905)   (3)

24.6. Sensitivity analysis

The Management understands that the most relevant risks that may affect the Company’s results are the volatility of commodities prices and foreign exchange rates. Currently the fluctuation of the interest rates does not affect significantly the Company’s results since Management has chosen to keep at fixed rates a considerable portion of its debts.

The scenarios below present the possible impacts of the financial instruments considering situations of increase and decrease in the selected risk factors. The amounts of exports used correspond to the notional amount of the financial instruments designated for hedge accounting.

The information used in the preparation of the analysis is based on the position as of June 30, 2020, which has been described in the items above. The future results may diverge significantly of the estimated values if the reality presents different than the considered premises. Positive values indicate gains and negative values indicate losses.

 

BRF S.A. | INTERIM FINANCIAL INFORMATION - June 30, 2020 77
 
Parity - R$ x USD   5.4760   4.9284   4.1070   6.8450   8.2140
        Current   Scenario I   Scenario II   Scenario III   Scenario IV
Transaction/Instrument   Risk   Scenario   10% appreciation   25% appreciation   25% devaluation   50% devaluation
Designated as hedge accouting                        
Non-deliverable forward   Devaluation of R$   (283,508)     (65,491)    261,535   (828,550)   (1,373,593)
Options - currencies   Devaluation of R$   (636,684)   (141,392)    593,057   (1,987,147)   (3,386,265)
Bonds   Devaluation of R$   (893,235)   (751,236)   (538,237)   (1,248,233)   (1,603,231)
Exports (object)   Appreciation of R$    1,572,169    893,808   (115,245)    3,380,305    5,237,096
Cost (object)   Appreciation of R$    241,258   64,311   (201,110)    683,625    1,125,993
Not designated as hedge accouting                        
NDF - Purchase   Appreciation of R$   (612)   (186,796)   (466,072)    464,848    930,308
NDF - Sale   Devaluation of R$   17,262     9,048   (3,273)   37,797   58,332
Options - currencies   Devaluation of R$     (36,467)     (19,491)     496     (78,906)   (121,345)
Future purchase - B3   Appreciation of R$     4,612     (65,617)   (170,962)    180,187    355,761
Net effect         (15,205)   (262,856)   (639,811)    603,926    1,223,056
                         
                         
                         
Parity - R$ x EUR       6.1539   5.5385   4.6154   7.6924   9.2309
        Current   Scenario I   Scenario II   Scenario III   Scenario IV
Transaction/Instrument   Risk   Scenario   10% appreciation   25% appreciation   25% devaluation   50% devaluation
Not designated as hedge accouting                        
NDF - Purchase EUR x USD   Appreciation of EUR   41     (33,806)     (84,575)   84,658    169,274
NDF - Purchase EUR x RUB   Appreciation of EUR     900   (9,654)     (21,124)   37,456   88,546
NDF - Purchase   Appreciation of R$   (817)   (163,895)   (408,513)    406,879    814,575
Net effect         124   (207,355)   (514,212)    528,993    1,072,395
                         
                         
Price parity CBOT -  Corn - USD/Ton       141.35   127.22   106.01   176.69   212.03
        Current   Scenario I   Scenario II   Scenario III   Scenario IV
Transaction/Instrument   Risk   Scenario   Decrease 10%   Decrease 25%   Increase 25%   Increase 50%
Designated as hedge accounting                        
Non-deliverable forward - Corn sale   Increase in the price of corn    100,447    253,266    482,495   (281,601)   (663,650)
Non-deliverable forward - Corn purchase   Decrease in the price of corn     3,589   (4,151)     (15,761)   22,940   42,291
Cost (object)   Increase in the price of corn   (104,036)   (249,115)   (466,734)    258,661    621,359
Net effect        -    -    -    -    -
                         
                         
                         
Price parity CBOT -  Soybean meal - USD/Ton       115.44   103.90     86.58   144.30   173.17
        Current   Scenario I   Scenario II   Scenario III   Scenario IV
Transaction/Instrument   Risk   Scenario   Decrease 10%   Decrease 25%   Increase 25%   Increase 50%
Designated as hedge accounting                        
Non-deliverable forward - Soybeal meal purchase   Decrease in the price of soybean meal   (2,951)     (13,696)     (29,814)   23,912   50,775
Cost (object)   Increase in the price of soybean meal     2,951   13,696   29,814     (23,912)     (50,775)
Net effect        -    -    -    -    -
                         
                         
Price parity CBOT -  Soybean - USD/Ton       323.28   290.95   242.46   404.10   484.92
        Current   Scenario I   Scenario II   Scenario III   Scenario IV
Transaction/Instrument   Risk   Scenario   Decrease 10%   Decrease 25%   Increase 25%   Increase 50%
Designated as hedge accounting                        
NDF - Soybean sale   Increase in the price of soybean     6,340   19,789   39,964     (27,284)     (60,908)
NDF - Soybean purchase   Decrease in the price of soybean   (312)   (1,197)   (2,525)     1,901     4,114
Soybean options   Decrease in the price of soybean   (179)   (886)   (1,948)     1,275     3,044
Cost (object)   Increase in the price of soybean   (5,849)     (17,706)     (35,491)   24,108   53,750
Net effect        -    -    -    -    -
                         
                         
                         
                         
Price parity CBOT - Soybean oil - USD/Ton       634.10   570.69   475.58   792.63   951.15
        Current   Scenario I   Scenario II   Scenario III   Scenario IV
Transaction/Instrument   Risk   Scenario   Decrease 10%   Decrease 25%   Increase 25%   Increase 50%
Designated as hedge accounting                        
NDF - Soybean oil purchase   Decrease in the price of soybean oil     2,576     (17,733)     (48,196)   53,348    104,120
Cost (object)   Increase in the price of soybean oil   (2,576)   17,733   48,196     (53,348)   (104,120)
Net effect        -    -    -    -    -

 

 

 

BRF S.A. | INTERIM FINANCIAL INFORMATION - June 30, 2020 78
 

24.7. Financial instruments by category
  Parent company
  06.30.20
  Amortized cost   Fair value through profit and loss   Total
Assets          
Cash and bank 71,911   -   71,911
Cash equivalents -     4,397,396     4,397,396
Marketable securities -    324,188    324,188
Restricted cash 24,179   -   24,179
Trade accounts receivable   6,335,207    196,563     6,531,770
Other receivables  110,418   -    110,418
Derivatives not designated -   10,152   10,152
Derivatives designated as hedge accounting (1) -    232,486    232,486
           
Liabilities          
Trade accounts payable (5,966,405)   -   (5,966,405)
Supply chain finance (982,237)   -   (982,237)
Loans and financing (2)  (21,665,812)   -    (21,665,812)
Derivatives not designated -     (68,812)     (68,812)
Derivatives designated as hedge accounting (1) -   (1,073,268)   (1,073,268)
   (22,072,739)     4,018,705    (18,054,034)

(1) All derivatives are measured at fair value. Those designated as hedge accounting have their gains and losses also affecting other comprehensive income and inventories.
(2) All loans and borrowings are measured at amortized cost. Those designated as hedge accounting have their gains and losses also affecting shareholders’ equity.

 

  Parent company
  12.31.19
  Amortized cost   Fair value through profit and loss   Total
Assets          
Cash and bank  170,902   -    170,902
Cash equivalents -     1,198,078     1,198,078
Marketable securities -    411,885    411,885
Restricted cash  296,294   -    296,294
Trade accounts receivable   5,878,791    225,941     6,104,732
Other receivables  120,234   -    120,234
Derivatives not designated -   51,811   51,811
Derivatives designated as hedge accounting (1) -    191,920    191,920
           
Liabilities          
Trade accounts payable - Restated (5,283,109)   -   (5,283,109)
Supply chain finance (842,037)   -   (842,037)
Loans and financing (2)  (16,429,004)   -    (16,429,004)
Derivatives not designated -     (29,479)     (29,479)
Derivatives designated as hedge accounting (1) -   (122,246)   (122,246)
   (16,087,929)     1,927,910    (14,160,019)

 

 

BRF S.A. | INTERIM FINANCIAL INFORMATION - June 30, 2020 79
 
  Consolidated
  06.30.20
  Amortized cost   Fair value through other comprehensive income   Fair value through profit and loss   Total
    Equity instruments   Debt instruments    
Assets                  
Cash and bank 3,358,771   -   -   -    3,358,771
Cash equivalents  -   -   -     6,312,504    6,312,504
Marketable securities 358,421   42,307   25,899    326,012   752,639
Restricted cash  24,179   -   -   -     24,179
Trade accounts receivable 2,600,004   -   -    196,563    2,796,567
Other receivables 115,304   -   -   -   115,304
Derivatives not designated  -   -   -   16,757     16,757
Derivatives designated as hedge accounting (1)  -   -   -    232,486   232,486
                   
Liabilities                  
Trade accounts payable  (6,733,213)   -   -   -     (6,733,213)
Supply chain finance  (982,237)   -   -   -     (982,237)
Loans and financing (2) (24,863,551)   -   -   -   (24,863,551)
Derivatives not designated  -   -   -     (71,286)    (71,286)
Derivatives designated as hedge accounting (1)  -   -   -   (1,073,268)     (1,073,268)
Written option– business combination  -   -   -   (422,188)     (422,188)
  (26,122,322)   42,307   25,899     5,517,580   (20,536,536)

 

(1) All derivatives are measured at fair value. Those designated as hedge accounting have their gains and losses also affecting other comprehensive income and inventories.
(2) All loans and borrowings are measured at amortized cost. Those designated as hedge accounting have their gains and losses also affecting shareholders’ equity.

 

  Consolidated
  12.31.19
  Amortized cost   Fair value through other comprehensive income   Fair value through profit and loss   Total
    Equity instruments   Debt instruments    
Assets                  
Cash and bank 2,289,787   -   -   -    2,289,787
Cash equivalents  -   -   -     1,947,998    1,947,998
Marketable securities 265,783   26,678   19,285    413,788   725,534
Restricted cash 296,294   -   -   -   296,294
Trade accounts receivable 2,811,902   -   -    225,941    3,037,843
Other receivables 123,877   -   -   -   123,877
Derivatives not designated  -   -   -   53,395     53,395
Derivatives designated as hedge accounting  -   -   -    191,920   191,920
                   
Liabilities                  
Trade accounts payable - Restated  (5,796,766)   -   -   -     (5,796,766)
Supply chain finance  (842,037)   -   -   -     (842,037)
Loans and financing (18,620,279)   -   -   -   (18,620,279)
Derivatives not designated  -   -   -     (31,369)    (31,369)
Derivatives designated as hedge accounting  -   -   -   (122,246)     (122,246)
Written option– business combination  -   -   -   (706,920)     (706,920)
  (19,471,439)   26,678   19,285     1,972,507   (17,452,969)

 

 

BRF S.A. | INTERIM FINANCIAL INFORMATION - June 30, 2020 80
 
24.8. Fair value of financial instruments

The fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

Depending on the inputs used for measurement, the financial instruments at fair value may be classified into 3 hierarchy levels:

» Level 1 – Uses quoted prices (unadjusted) for identical instruments in active markets. In this category are classified investments in stocks, credit linked notes, savings accounts, overnights, term deposits, Financial Treasury Bills (“LFT”) and investment funds;
» Level 2 – Uses prices quoted in active markets for similar instruments, prices quoted for identical or similar instruments in non-active markets and evaluation models for which inputs are observable. In this level are classified the investments in Bank Deposit Certificates (“CDB”) and derivatives, which are measured by well-known pricing models: discounted cash flows and Black-Scholes. The observable inputs are interest rates and curves, volatility factors and foreign exchange rates;
» Level 3 – Instruments for which significant inputs are non-observable. The Company has a financial liability arising from a put option written in the context of a business combination. This option gives the non-controlling shareholder the right to sell its equity stake in the subsidiary for an amount equivalent to a multiple of the income before taxes, interests, depreciation and amortization of the economic group of this subsidiary in the last 12 months prior to the exercise. The exercise period is comprised of the six-month period beginning on May 25, 2021. This liability is measured at fair value using internal assumptions regarding the results of that economic group. The effects of the remeasurement resulted in a gain in financial results of R$390,353 in the six-month period ended on June 30, 2020 (loss of R$19,967 in the same period of the prior year), as per note 28.

The table below presents the overall classification of financial instruments measured at fair value by measurement hierarchy. For the six-month period ended on June 30, 2020, there were no changes among the 3 levels of hierarchy.

  Parent company
  06.30.20   12.31.19
  Level 1   Level 2   Total   Level 1   Level 2   Total
Financial Assets                      
Fair value through profit and loss                      
Savings account and overnight  302,958     -    302,958   70,515   -   70,515
Term deposits -     -     -    254,583   -    254,583
Bank deposit certificates -    4,090,514    4,090,514   -    869,473    869,473
Financial treasury bills  309,460     -    309,460    396,994   -    396,994
Investment funds 18,652     -     18,652   18,398   -   18,398
Trade accounts receivable -    196,563    196,563   -    225,941    225,941
Derivatives -    242,638    242,638   -    243,731    243,731
Financial Liabilities                      
Fair value through profit and loss                      
Derivatives -     (1,142,080)     (1,142,080)   -   (151,725)   (151,725)
   631,070    3,387,635    4,018,705    740,490    1,187,420    1,927,910

 

BRF S.A. | INTERIM FINANCIAL INFORMATION - June 30, 2020 81
 
  Consolidated
  06.30.20   12.31.19
  Level 1   Level 2   Level 3   Total   Level 1   Level 2   Level 3   Total
Financial Assets                              
Fair value through other comprehensive income                              
Credit linked notes 25,899     -     -     25,899   19,285   -     -   19,285
Stocks 42,307     -     -     42,307   26,678   -     -   26,678
Fair value through profit and loss                              
Savings account and overnight   2,132,116     -     -    2,132,116     689,874   -     -     689,874
Term deposits 72,106     -         72,106     374,859   -     -     374,859
Bank deposit certificates -    4,104,358     -    4,104,358   -     879,758     -     879,758
Financial treasury bills   309,460     -     -    309,460     396,994   -     -     396,994
Investment funds 20,476     -     -     20,476   20,301   -     -   20,301
Trade accounts receivable -    196,563     -    196,563   -     225,941     -     225,941
Derivatives -    249,243     -    249,243   -     245,315     -     245,315
Financial Liabilities                              
Fair value through profit and loss                              
Derivatives -     (1,144,554)     -     (1,144,554)   -   (153,615)     -   (153,615)
Written option– business combination -     -     (422,188)     (422,188)   -   -     (706,920)   (706,920)
    2,602,364    3,405,610     (422,188)    5,585,786     1,527,991     1,197,399     (706,920)     2,018,470

Except for the items set forth below, the fair value of all other financial instruments is approximate to their book value. The fair value of the bonds set forth below is based in prices observed in active markets, level 1 of the fair value hierarchy, while the debentures are based in level 2 and are measured by discounted cash flows.

  Parent company and Consolidated
      06.30.20   12.31.19
  Maturity   Book
value
  Fair
value
  Book
value
  Fair
value
BRF bonds                  
BRF SA BRFSBZ5 2022    (595,863)    (623,833)    (435,934)    (460,606)
BRF SA BRFSBZ4 2024     (2,840,225)     (2,878,792)     (2,086,169)     (2,191,726)
BRF SA BRFSBZ3 2023     (1,877,298)     (1,897,818)     (1,370,446)     (1,427,754)
BRF SA BRFSBZ2 2022     (2,000,452)     (1,996,879)     (1,492,653)     (1,559,476)
BRF SA BRFSBZ4 7/8 2030     (4,163,225)     (3,992,887)     (3,022,773)     (3,160,573)
Debentures 2030    (757,016)    (822,166)    (755,760)    (832,213)
Parent company     (12,234,079)   (12,212,375)     (9,163,735)     (9,632,348)
                   
BRF GmbH bonds                  
BRF SA BRFSBZ4 2026     (2,719,565)     (2,683,338)     (1,999,509)     (2,101,175)
Consolidated     (14,953,644)   (14,895,713)   (11,163,244)   (11,733,523)

 

25. SEGMENT INFORMATION

The operating segments are reported consistently with the management reports provided to the main strategic and operational decision makers for assessing the performance of each segment and allocation of resources. The operating segments information are elaborated considering three reportable segments, being: Brazil, International and Other Segments.

The operating segments include the sales of all distribution channels and are subdivided according to the nature of the products whose characteristics are described below:

» Poultry: production and sale of whole poultry and in-natura cuts.
» Pork and other: production and sale of in-natura cuts.
» Processed: production and sale of processed food, frozen and processed products derived from poultry, pork and beef, margarine, vegetables and soybean-based products.
» Other sales: sale of flour for food service and others.

Other segments are comprised of commercialization and development of animal nutrition ingredients, human nutrition, plant nutrition (fertilizers) and health care (health and wellness), as well as commercialization of agricultural products.

The net sales for each reportable operating segment is set forth below:

 

BRF S.A. | INTERIM FINANCIAL INFORMATION - June 30, 2020 82
 
    Consolidated
Net sales   April to June 2020   January to June 2020   April to June 2019   January to June 2019
Brazil                
In-natura   1,093,445   2,350,532     1,140,672   2,239,820
Poultry   793,689   1,763,725     908,900   1,794,305
Pork and other   299,756   586,807     231,772   445,515
Processed   3,541,008   6,933,812     2,937,848   5,775,094
Other sales    8,402     13,665   3,176    7,249
    4,642,855   9,298,009     4,081,696   8,022,163
                 
                 
International                
In-natura   3,563,006   7,016,267     3,373,477   6,009,675
Poultry   3,007,661   5,978,347     3,040,066   5,449,083
Pork and other   555,345   1,037,920     333,411   560,592
Processed   563,054   1,074,175     547,066   1,048,979
Other sales     81,226   132,547    64,955   120,715
    4,207,286   8,222,989     3,985,498   7,179,369
                 
Other segments   253,785   531,993     270,815   495,727
    9,103,926    18,052,991     8,338,009    15,697,259

The operating income (loss) for each segment is set forth below:

    Consolidated
     April to June 2020    January to June 2020   April to June 2019   January to June 2019
Brazil   352,266   716,145     490,325   556,933
International   227,685   668,333     425,668   551,134
Other segments     22,628     60,157    40,557     40,531
Sub total   602,579   1,444,635     956,550   1,148,598
Corporate   (15,392)     (302,769)     (26,509)   (60,359)
    587,187   1,141,866     930,041   1,088,239

The items presented above as Corporate refer to relevant events not attributable to the normal course of business neither to the operating segments. The composition of the main effects in the Corporate segment is set forth below:

    Consolidated
Corporate   April to June 2020   January to June 2020   April to June 2019   January to June 2019
                 
Investigations involving the Company (note 1.2)   (11,771)   (24,072)   (31,207)   (42,320)
Agreement - Class Action (note 1.3)    -    (204,436)    -    -
Tax and Civil Contingencies (note )   (19,263)   (59,889)   4,503   4,246
Arbitration reversal    14,520    14,520    -    -
COVID-19 - Expenses and expcted credit losses     (2,182)   (26,260)    -    -
Restructuring plan    -    -    -   (16,431)
Other   3,304     (2,632)   195     (5,854)
    (15,392)    (302,769)   (26,509)   (60,359)

No customer individually or in aggregate (economic group) accounted for more than 5% of net sales for the six-month period ended on June 30, 2020 and 2019.

The goodwill arising from business combinations and the intangible assets with indefinite useful life (trademarks) were allocated to the reportable operating segments, considering the economic benefits generated by such intangible assets. The allocation of these intangible assets is presented below:

 

BRF S.A. | INTERIM FINANCIAL INFORMATION - June 30, 2020 83
 
  Consolidated
  Goodwill   Trademarks   Total
  06.30.20   12.31.19   06.30.20   12.31.19   06.30.20   12.31.19
Brazil   1,151,498    1,151,498     982,478    982,478     2,133,976   2,133,976
International   1,860,242    1,562,104     370,117    339,784     2,230,359   1,901,888
    3,011,740    2,713,602     1,352,595    1,322,262     4,364,335   4,035,864

Information related to total assets by reportable segment is not disclosed, as it is not included in the set of information made available to the Company’s administration, which makes investment decisions and determine allocation of resources based on information about the consolidated assets.

 

26. NET SALES
  Parent company   Consolidated
  April to June 2020   January to June 2020   April to June 2019   January to June 2019   April to June 2020   January to June 2020   April to June 2019   January to June 2019
Gross sales                              
Brazil  5,739,830     11,506,128    5,069,822    9,951,874    5,739,830     11,506,128    5,069,822    9,951,942
International  2,198,586    4,751,730    2,704,490    4,970,220    4,537,513    8,804,578    4,289,643    7,745,612
Other segments  274,412    566,044    298,480    558,305    283,285    590,579    305,893    554,970
   8,212,828     16,823,902    8,072,792     15,480,399     10,560,628     20,901,285    9,665,358     18,252,524
                               
Sales deductions                              
Brazil (1,096,975)   (2,208,119)     (988,126)   (1,929,779)   (1,096,975)   (2,208,119)     (988,126)   (1,929,779)
International  (24,698)    (48,646)    (30,665)    (55,620)     (330,227)     (581,589)     (304,145)     (566,243)
Other segments  (27,746)    (54,683)    (28,153)    (51,206)    (29,500)    (58,586)    (35,078)    (59,243)
  (1,149,419)   (2,311,448)   (1,046,944)   (2,036,605)   (1,456,702)   (2,848,294)   (1,327,349)   (2,555,265)
                               
Net sales                              
Brazil  4,642,855    9,298,009    4,081,696    8,022,095    4,642,855    9,298,009    4,081,696    8,022,163
International  2,173,888    4,703,084    2,673,825    4,914,600    4,207,286    8,222,989    3,985,498    7,179,369
Other segments  246,666    511,361    270,327    507,099    253,785    531,993    270,815    495,727
   7,063,409     14,512,454    7,025,848     13,443,794    9,103,926     18,052,991    8,338,009     15,697,259

 

27. OTHER OPERATING INCOME (EXPENSES), NET
  Parent company   Consolidated
  April to June 2020   January to June 2020   April to June 2019   January to June 2019   April to June 2020   January to June 2020   April to June 2019   January to June 2019
Recovery of expenses (1) 156,174   234,651     695,513     703,323   156,370   235,057     695,814     704,811
Provision reversal  70,625    70,625   357    14,080    70,625    70,625   357    14,085
Scrap sales 2,742   5,434   2,868   5,865   2,787   5,562   3,221   6,837
Provision for civil and tax risks (2) (22,796)   (65,272)    (356,726)    (363,884)   (23,045)   (65,520)    (356,210)    (363,918)
Other employees benefits   (8,214)   (15,649)     (7,458)   (14,916)     (8,214)   (15,649)     (9,918)   (17,374)
Insurance claims costs   (1,791)     (5,476)     (2,345)   (13,845)     (828)     (2,517)     (2,193)   (14,977)
Net gains (losses) from the disposals of investments  -    -    (482)    (482)   223   256     (2,354)     (2,354)
Net gains (losses) from the disposals of property, plant and equipment 7,390     (2,380)    13,978    24,223   3,467     (7,409)   9,128    18,248
Employee participation and bonuses (71,874)    (121,399)   (51,873)    (101,684)   (71,347)    (117,992)   (52,843)    (110,455)
Demobilization expenses   (2,108)     (5,863)     (8,404)   (17,187)     (1,998)     (6,255)   (10,949)   (21,932)
Expenses with investigations and class action (3)   (9,773)    (204,757)   (23,921)   (35,034)   (11,771)    (209,151)   (31,207)   (42,320)
Expected credit losses in other receivables (92)     (3,185)    -    -   308     (3,157)    -    -
Other  26,938    29,161   1,501   (24,943)    21,976    16,150   (12,369)   (16,850)
  147,221   (84,110)     263,008     175,516   138,553    (100,000)     230,477     153,801

(1) Includes recovery of PIS and COFINS taxes on marketing, rebates and benefit expenses in the amount of R$224,466 for the six-month period ended on June 30, 2020 and R$150,509 for the three-month period ended on June 30,2020. For the three-month and six-month periods ended on June 30, 2019, includes the effects of the final decision related to the exclusion of ICMS from the PIS and COFINS calculation base of R$696,127.
(2) For the three-month and six-month periods ended on June 30, 2019, includes the effects of the tax contingency on ICMS credit in the basic food basket products of R$358,935.
(3) Includes provision for class action agreement (note 1.3) in the first quarter of 2020.

  

 

BRF S.A. | INTERIM FINANCIAL INFORMATION - June 30, 2020 84
 
28. FINANCIAL INCOME (EXPENSES), NET
      Parent company   Consolidated
  Note   April to June 2020   January to June 2020   Restated (1)
April to June 2019
  Restated (1)
January to June 2019
   April to June 2020   January to June 2020    Restated (1)
April to June 2019
   Restated (1)
January to June 2019
Financial income      66,332    173,109     460,656    540,550   81,833    194,711     474,668     560,729
Interest on cash and cash equivalents 4    32,813   53,847   22,828   59,692   21,474   51,029   34,901    69,451
Revenues from marketable securities 5   2,478   21,921   26,152   44,642   28,800   45,387   27,868    54,404
Fair value throught other comprehensive income      -   -   -     -    243    454     152   323
Fair value throught profit and loss     2,306     6,060     5,740   10,244     2,305     5,716     5,352   9,856
Amortized cost     172   15,861   20,412   34,398   26,252   39,217   22,364    44,225
Interest on recoverable taxes 9    23,659   80,256     401,731    419,335   23,704   80,340     401,797     419,467
Interest on other assets     7,382   17,085     9,945   16,881     7,855   17,955   10,102    17,407
Financial expenses      (577,883)   (1,192,623)   (982,549)   (1,494,651)   (166,563)   (735,913)   (1,048,018)    (1,551,277)
Interest on loans and financing 15    (272,631)   (550,464)   (299,517)     (588,543)   (317,077)   (631,570)   (340,960)    (674,531)
Interest with related parties 30    (100,565)   (181,326)     (37,672)    (76,070)   -   -   -    -
Interest on contingencies 21   (38,121)   (104,164)   (437,637)     (456,591)    (39,042)   (105,940)   (437,637)    (457,436)
Interest on leases 18   (47,015)    (95,261)     (45,284)    (90,830)    (51,494)   (103,863)     (49,651)   (99,707)
Interest on other liabilities     3,956     5,360     (20,961)    (26,316)     3,977     5,384     (21,320)    (4,984)
Written option - Business combination (2)      -   -   -     -    337,677    390,353     (20,056)   (19,967)
Adjustment to present value 6 e 16   (90,680)   (181,468)     (76,011)     (143,501)    (90,557)   (181,498)     (76,634)    (145,092)
Other     (32,827)    (85,300)     (65,467)     (112,800)    (10,047)   (108,779)   (101,760)    (149,560)
Monetary, exchange and derivative results, net      (1,037,987)   (4,851,516)   68,931    (75,350)   (105,573)   (255,570)     (45,972)   (77,039)
Exchange rate variation on monetary assets and liabilities      (1,265,586)   (6,120,056)     162,148   70,690   (334,800)   (1,533,734)   46,854    82,544
Derivative results       227,599    1,268,540     (93,217)     (146,040)    229,227    1,278,164     (92,826)    (159,583)
                                   
       (1,549,538)   (5,871,030)   (452,962)   (1,029,451)   (190,303)   (796,772)   (619,322)    (1,067,587)

(1) The comparative period was restated for better disclosure of exchange variations effects and derivative results.
(2) Refers to the fair value remeasurement of the written option recorded from business combination (note 24.8).

 

29. 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
  April to June 2020   January to June 2020   April to June 2019   January to June 2019   April to June 2020   January to June 2020   April to June 2019   January to June 2019
Costs of sales                              
Raw materials and consumables (1)  4,231,356     8,139,255     3,770,516     7,206,588    5,047,664     9,722,981     4,298,158    8,224,665
Salaries and employees benefits 983,001     1,914,252     896,650     1,759,779    1,002,007     1,947,175     910,021    1,785,418
Depreciation 419,500     835,104     417,998     833,222   460,821     913,052     448,822    893,489
Amortization   12,704    26,389    19,884    36,229     29,238    57,583    33,630   62,820
Others 536,325     1,096,795     544,798     1,083,852   585,304     1,180,331     555,729    1,122,148
   6,182,886   12,011,795     5,649,846   10,919,670    7,125,034   13,821,122     6,246,360     12,088,540
                               
Sales expenses                              
Indirect and direct logistics expenses 547,545     1,063,078     454,180     867,678   624,692     1,208,409     503,961    1,002,381
Marketing   86,606     203,672     133,615     221,640   136,138     290,233     198,023    337,448
Salaries and employees benefits 267,851     517,086     258,731     508,602   353,584     671,734     319,209    631,950
Depreciation   37,740    68,621    23,923    49,861     57,533     111,113    45,376   89,795
Amortization   15,319    29,038    17,492    32,480     22,753    42,712    22,990   43,325
Others 102,720     208,853    99,504     207,675   166,189     321,022     167,218    287,173
   1,057,781     2,090,348     987,445     1,887,936    1,360,889     2,645,223     1,256,777    2,392,072
                               
Administrative expenses                              
Salaries and employees benefits   50,540    90,720    42,902    85,282     85,617     155,839    72,505    142,882
Fees   17,350    29,213   7,954    14,215     17,350    29,213   7,954   14,215
Depreciation  8,172    14,483   4,123     8,698     12,130    21,627   6,203   12,305
Amortization  6,646    14,245   4,889    11,281    7,505    15,713   7,011   15,438
Others   39,901    61,229    25,885    57,957     67,863     110,633    42,484   92,546
  122,609     209,890    85,753     177,433   190,465     333,025     136,157    277,386

(1) Includes abnormal losses in the production chain.

 

The Company incurred in expenses with internal research and development of new products of R$31,187 for the six-month period ended on June 30, 2020 in the parent company and in the consolidated (R$31,516 in the parent company and in the consolidated in the same period of the previous year) and R$14,872 in the parent company and in the consolidated for the three-month period ended on June 30, 2020 (R$16,851 in the parent company and in the consolidated in the same period of the previous year).

 

 

 

BRF S.A. | INTERIM FINANCIAL INFORMATION - June 30, 2020 85
 
30. RELATED PARTIES PARENT COMPANY

In the normal course of business, rights and obligations arise between related parties, resulting from transactions of sale and purchase of products, as well as from financial operations.

The Company holds a Related Parties Transactions Policy, which was reviewed and approved by the Board of Executive Officers and applies to all subsidiaries of the group.

The policy mentioned above provides the conditions that must be observed for the realization of a transaction between related parties, as well as establishes approval hierarchies according to the value and nature of the transactions involved. The policy also foresees situations of conflict of interests and how they must be conducted.

 

BRF S.A. | INTERIM FINANCIAL INFORMATION - June 30, 2020 86
 
30.1. Transactions and balances

The balances of the transactions with related parties registered in the statement of financial position of the Parent Company are as follows:

  Accounts receivable   Dividends and interest on the shareholders' equity receivable   Loans   Trade accounts payable   Other rights   Advances and other liabilities
  06.30.20   12.31.19   06.30.20   12.31.19   06.30.20   12.31.19   06.30.20   12.31.19   06.30.20   12.31.19   06.30.20   12.31.19
                                               
Al-Wafi Food Products Factory LLC -   -   -   -   -    -   -   -   -    30     -   (927)
Banvit -   -   -   -   -    -   -   -     236     1,094     -     -
BRF Energia S.A. -   -   -   -   -    -    (9,813)    (6,376)   -   -     -     -
BRF Foods GmbH  849,134    833,062   -   -   -    -   -   -   -   -     -     -
BRF Foods GmbH - Branch -   -   -   -   -    -   -   -   -     1,296   (2,354)   (1,733)
BRF Foods LLC -   -   -   -   -    -   -   -     552     466   (2)   (2)
BRF Global GmbH   4,859,603     3,843,949   -   -   -    -   -   -   -   -     (7,142,683)  (1)   (4,049,636)
BRF GmbH -   -   -   -   -    -   -   -     1,830     1,520     (1,780,933)  (2)   (1,311,123)
BRF Pet S.A.   2,091     800   -   -   -    -     (37)     (16)     299     167     -     -
Establecimiento Levino Zaccardi y Cia. S.A. -   -   -   -     325   234   -   -             -     -
Federal Foods Qatar -   -   -   -   -    -   -   -   -   -     -   (141)
FFM Further -   -   -   -   -    -   -   -   -    70     -     -
Highline International Ltd. -   -   -   -   -    -   -   -   -   -     -   (7,351)
One Foods Holdings -   -   -   -   -    -   -   -     7,693     5,662     -     -
Perdigão International Ltd. -   -   -   -   -    -   -   -   -   -     (1,117,287)  (1)   (905,550)
PSA Laboratório Veterinário Ltda. -   -     200     396   -    -   -   -   -   -     -     -
Sadia Alimentos S.A. -   -   -   -   -    -   -   -   -   -    (10,266)    (11,159)
Sadia Chile S.A.  160,128   99,095   -   -   -    -   -   -   -   -     -     -
Sadia Uruguay S.A. 27,395     3,096   -   -   -    -   -   -   -   -    (37,871)    (36,598)
VIP S.A. Empreendimentos e Partic. Imob. -   -    22    22   -    -   -   -   -   -     -     -
Total   5,898,351     4,780,002     222     418     325   234    (9,850)    (6,392)   10,610   10,305    (10,091,396)     (6,324,220)

(1) The amount corresponds to export pre-payments, usual operation between the productive units in Brazil with the wholly-owned subsidiaries that operate as trading companies in the international market.
(2) Exercising its power as parent Company, BRF S.A. performs reimbursement to certain subsidiaries for losses incurred in the normal course of their operations, generating liabilities recorded as Other Obligations with Related Parties.

 

BRF S.A. | INTERIM FINANCIAL INFORMATION - June 30, 2020 87
 
  Revenue   Financial results, net   Purchases
  April to June 2020   January to June 2020   April to June 2019   January to June 2019   April to June 2020   January to June 2020   April to June 2019   January to June 2019   April to June 2020   January to June 2020   April to June 2019   January to June 2019
                                               
Avex S.A. -   -    -   1,439   -   -    -    -   -   -    -    -
BRF Energia S.A. -   -    -    -   -   -    -    -     (58,002)   (131,460)   (58,002)    (117,191)
BRF Foods GmbH  47,582    93,362    56,769     118,497   -   -    -    -   -   -    -    -
BRF Global GmbH   2,693,708     5,307,306   2,520,702   4,603,783     (82,774)   (147,907)   (23,152)   (48,050)   -   -    -    -
BRF Pet S.A.   1,317     2,487   366   749   -   -    -    -   (21)   (58)   (21)   (26)
Campo Austral -   -    -   1,448   -   -    -    -   -   -    -    -
Establecimiento Levino Zaccardi y Cia. S.A. -   -    -    -   4   7    -    -   -   -    -    -
Perdigão International Ltd. -   -    -    -     (17,084)     (31,879)   (11,821)   (25,320)   -   -    -    -
Sadia Alimentos S.A. -   -    -    -    (166)    (361)    (731)    (731)   -   -    -    -
Sadia Chile S.A.  46,936    79,518    18,139    30,170   -   -    -    -   -   -    -   (46)
Sadia Uruguay S.A.  11,270    20,713   9,793    19,991    (544)    (1,186)     (1,969)     (1,969)   -   -    -    -
Total   2,800,813     5,503,386   2,605,769   4,776,077   (100,564)   (181,326)   (37,673)   (76,070)     (58,023)   (131,518)   (58,023)    (117,263)

 


The subsidiaries of the Company enter into loan agreements pursuant its cash management strategy. As of June 30, 2020, the balance of these transactions was R$2,497,871 (R$1,808,320 as of December 31, 2019) with a weighted average rate of 4.44% p.a. (4.43% p.a. as of December 31, 2019).

30.2. Other Related Parties

The Company leased properties owned by BRF Previdência, for the six-month period ended on June 30, 2020, the total amount paid as rent was R$9,764 (R$8,462 in the same period of the previous year) for the three-month ended on June 30, 2020, the total amount paid as rent was of R$4,882 (R$4,231 in the same period of the previous year).

Due to the acquisition of biodigesters from Instituto Sadia de Sustentabilidade, the Company has an outstanding payable to this entity of R$1,962 on June 30, 2020 (R$3,053 as of December 31, 2019) included in Other Liabilities.

30.3. Granted guarantees

The Company recorded a liability in the amount of R$543 (R$844 as of December 31, 2019) related to the fair value of the guarantees offered to BNDES concerning a loan made by Instituto Sadia de Sustentabilidade.

The Company is the guarantor of loans related to a special program that aims the local development and were obtained by outgrowers in the central region of Brazil. The proceeds of such loans are utilized by the outgrowers to improve farm conditions and will be paid by them in 10 years, taking as collateral the land and equipment acquired through this program. The value of these guarantees on June 30, 2020 totaled R$6,195 (R$12,949 as of December 31, 2019).

30.4. Management remuneration

The total remuneration and benefits expense with board members, statutory directors and the head of internal audit are set forth below:

  Consolidated
  April to June 2020   January to June 2020   April to June 2019   January to June 2019
Salary and profit sharing 23,638   35,605     12,752   22,722
Short term benefits (1)   1,492     1,611    114     131
Private pension   589     896    180     302
Post-employment benefits -   -     -    47
Termination benefits   1,439     4,403    3,484     8,169
Share-based payment   4,360     8,394    2,155     3,983
  31,518   50,909     18,685   35,354

 

(1) Comprises: medical assistance, educational expenses and others.

 

In addition, the executive officers received among remuneration and benefits the total amount of R$9,435 for the six-month period ended on June 30, 2020 (R$23,051 in the same period of the previous year) and R$4,835 for the three-month period ended on June 30, 2020 (R$9,230 in the same period of the previous year).

 

 

BRF S.A. | INTERIM FINANCIAL INFORMATION - June 30, 2020 88
 

 

31. COMMITMENTS

In the normal course of the business, the Company enters into agreements with third parties for the purchase of raw material, mainly corn and soymeal. The agreed prices in these agreements can be fixed or variable. The Company also enters into other agreements, such as electricity supply, packaging supplies, construction of buildings and others for the supply of its manufacturing activities. The firm commitments schedule is set forth below:

  Parent company   Consolidated
  06.30.20   06.30.20
Current   4,809,544    5,123,497
Non-current   1,849,078    1,890,505
July to december 2021   617,655    634,736
2022   285,482    309,828
2023   200,098    200,098
2024   192,744    192,744
2025 onwards   553,099    553,099
    6,658,622    7,014,002

 

 

32. TRANSACTIONS THAT DO NOT INVOLVE CASH

The following transactions did not involve cash or cash equivalents during the six-month period ended on June 30, 2020:

(i) Capitalized loan interest: as referred in note 13.
(ii) Addition of lease by right-of-use assets and respective lease liability: in the six-month period ended on June 30, 2020, amounted to R$171,669 in the parent company and R$227,600 in the consolidated (R$2,174,821 in the parent company and R$2,422,669 in the consolidated in the same period of the previous year) and in the three-month period ended on June 30, 2020, amounted to R$21,260 in the parent company and R$21,463 in the consolidated (R$10,091 in the parent company and R$17,541 in the consolidated in the same period of the previous year).

 

33. SUBSEQUENT EVENTS
33.1. Issuance of Debentures

On July 17, 2020, 2,200,000 (two million, two hundred thousand) Debentures were subscribed with a notional value of R$ 1,000.00 (one thousand Brazilian Reais), in a total amount of R$2,200,000 (two billion and two hundred million Brazilian Reais), in two series as shown in the table below. The Debentures are simple, not convertible into shares, unsecured and for private placement. The Debentures were privately placed with VERT Companhia Securitizadora, to back its forty-sixth issuance of Agribusiness Receivables Certificates, in two series, which were object of public distribution with restricted placement efforts.

Parent company and Consolidated
06.30.20
Operation   Series   Issue date   Maturity   Rate   Notional
                     
Debenture - 2nd Issue   1st Series   07.14.20   07.14.27   IPCA + 5.30% p.a.   705,000
Debenture - 2nd Issue   2nd Series   07.14.20   07.12.30   IPCA + 5.60% p.a.   1,495,000
                    2,200,000

 

BRF S.A. | INTERIM FINANCIAL INFORMATION - June 30, 2020 89
 

The issuance costs of R$75,275 will be recognized on the statement of income over the term of the debt according to the effective interest rate method.

This transaction is adherent to the Company’s capital structure management strategy, which includes, among other aspects, the sustaining of liquidity, the lengthening of the average tenor of its indebtedness, and the diversification of its sources of financing.

33.2. Tender offer for Senior Notes

Between July 17 and July 24, 2020 the Company executed an offer to repurchase any and all outstanding (i) (a) 5.875% Senior Notes due 2022, (b) 2.750% Senior Notes due 2022, (c) 3.950% Senior Notes due 2023; and (d) 4.750% Senior Notes due 2024 all issued by BRF; and (ii) 4.350% Senior Notes due 2026, issued by BRF GmbH and guaranteed by BRF. The offer was conditioned on the aggregate amount of the repurchase price of USD300,000 and the results are shown in the table below:

Instrument   Maturity   Notional repurchased   Outstanding notional (1)
    (debt currency)   (Reais) (2)   (debt currency)   (Reais) (2)
                     
BRF SA BRFSBZ2 - 5,875% - USD (3)   2022   27,190    141,086   82,122    426,123
BRF SA BRFSBZ3 - 3,950% - USD   2023   60,567    314,276    285,422    1,481,026
BRF SA BRFSBZ4 - 4,750% - USD   2024   64,144    332,837    453,714    2,354,277
BRF SA BRFSBZ5 - 2,750% - EUR   2022    119,061    723,355    205,720    1,249,852

(1) Outstanding notional after the tender offer.
(2) Represented by the amount in the original debt currency, translated by the foreign exchange rate at the settlement date of the repurchase.
(3) Loan fully designated as hedge accounting (note 24.4.2.ii). The exchange rate variation between the designation date and the settlement date of the repurchased portion will remain in Other Comprehensive Income until the realization of the highly probable sales (hedge object).

 

On July 27, 2020 and on July 28, 2020, the Company paid the amount equivalent to R$1,554,850 for the repurchase of these liabilities, which includes notional, interest and premium. The Company incurred in financial expenses with the repurchase in the amount of R$34,033 for the premium paid, R$5,998 with taxes and R$8,961 with the write-off of the costs of issuance.

 

33.3. Prepayment of credit facilities

Additionally to the tender offer described above, in July and August 2020, the Company prepaid certain bilateral credit facilities in Brasil with original maturity between September 2020 and August 2021, in the aggregated notional and interest amount of R$1,593,176, being R$964,484 related to the facilities described in note 1.4.

 

 

 

BRF S.A. | INTERIM FINANCIAL INFORMATION - June 30, 2020 90
 
34. APPROVAL OF THE INTERIM FINANCIAL INFORMATION

The interim financial information was approved and the issuance authorized by the Board of Directors on August 12, 2020.

BOARD OF DIRECTORS  
   
Chairman (Independent) Pedro Pullen Parente
Vice-Chairman (Independent) Augusto Marques da Cruz Filho
Independent Member Dan Ioschpe
Independent Member Flavia Buarque de Almeida
Independent Member Flavia Maria Bittencourt
Non-Independent Member Ivandré Motiel da Silva
Independent Member José Luiz Osório de Almeida Filho
Independent Member Luiz Fernando Furlan
Independent Member Marcelo Feriozzi Bacci
Independent Member Roberto Rodrigues
   
FISCAL COUNCIL  
   
Chairman Attílio Guaspari
Member Maria Paula Soares Aranha
Member André Vicentini
   
AUDIT AND INTEGRITY COMMITTEE  
   
Comittee Coordinator (Independent) Augusto Marques da Cruz Filho
Non-Independent Member Ivandré Motiel da Silva
Independent Member Marcelo Feriozzi Bacci
External Member Valmir Pedro Rossi
External Member Jerônimo Antunes
   
BOARD OF EXECUTIVE OFFICERS  
   
Global Chief Executive Officer Lorival Nogueira Luz Júnior
Vice-President of Finance and Investor Relations Carlos Alberto Bezerra de Moura
Vice-President of Operations and Procurement Officer Vinícius Guimarães Barbosa
Vice-President of Commercial Brazil Market Sidney Rogério Manzaro
Vice-President of Human Resources and Shared Services Alessandro Rosa Bonorino
Vice-President of Strategy, Managing and Innovation Rubens Fernandes Pereira
Vice-President of Quality and Sustainability Neil Hamilton dos Guimarães Peixoto Jr.
Vice-President of Sales & Operations Planning and Supply Chain Leonardo Campo Dallorto
   
   
   
Marcos Roberto Badollato Joloir Nieblas Cavichini
Accounting Director Accountant – CRC 1SP257406/O-5

 

 

 

 

BRF S.A. | INTERIM FINANCIAL INFORMATION - June 30, 2020 91
 

COMENTARY ABOUT THE COMPANY PROJECTIONS BEHAVIOUR

In the twelve-month period ended December 31, 2019, Company's net leverage, as measured by the Net Debt / Adjusted EBITDA ratio, reached 2.50x.

The projections initially disclosed on June 29, 2018 for the fiscal year ending December 31, 2019 were replaced on February 7, 2019, on June 3, 2019, on August 9, 2019 and finally on November 8, 2019. Following the completion of the Monetization Plan, the Company revised the net leverage guidance indicator to approximately 2.75X at the end of 2019 and maintained its guidance of approximately 2.65x for 2020. On March 3, 2020 the Company revised the net leverage guidance to a range between 2.35 - 2.75x for the year 2020.

 

BREAKDOWN OF THE CAPITAL BY OWNER (NOT REVIEWED)

The shareholding position of the shareholders holders of more than 5% of the voting stock, management, members of the Board of Directors is presented below:

    06.30.20   12.31.19
Shareholders   Quantity   %   Quantity   %
Major shareholders                
Fundação Petrobras de Seguridade Social - Petros (1)    92,716,266   11.41    92,716,266   11.41
Caixa de Previd. dos Func. do Banco do Brasil (1)    76,290,652   9.39    76,974,752   9.47
Management                
Board of Directors   6,596,580   0.81   6,474,420   0.80
Executives     355,643   0.04     236,338   0.03
Treasury shares   5,310,626   0.65     713,446   0.09
Other     631,203,479   77.70     635,358,024   78.20
      812,473,246   100.00     812,473,246   100.00

(1) The pension funds are controlled by employees that participate in the respective companies.

 

The Company is bound to arbitration in the Market Arbitration Chamber, as established by the arbitration clause in the by-laws.

 

BRF S.A. | INTERIM FINANCIAL INFORMATION - June 30, 2020 92
 

 

INDEPENDENT AUDITOR’S REPORT ON REVIEW OF INTERIM FINANCIAL INFORMATION

 

To the Board of Directors and Shareholders of

BRF S.A.

Itajaí - SC

 

 

Introduction

We have reviewed the accompanying individual and consolidated interim financial information of BRF S.A. (“Company”) contained in the Quarterly Information Form - ITR for the quarter ended June 30, 2020, which comprises the statement of financial position as of June 30, 2020 and the respective statements of income (loss) and comprehensive income (loss) for the three and six-month period then ended and changes in equity and cash flows for the six-month period then ended, including the explanatory notes.

 

The Company's management is responsible for the preparation of this individual and consolidated interim financial information in accordance with Technical Pronouncement CPC 21 (R1) and IAS 34 - Interim Financial Reporting, issued by the International Accounting Standards Board - IASB, as well as for the presentation of this information in accordance with standards issued by Comissão de Valores Mobiliários, applicable to the preparation of Quarterly Information - ITR. Our responsibility is to express a conclusion on this interim financial information based on our review.

 

Scope of review

We conducted our review in accordance with the Brazilian and International standards on review engagements of interim financial information (NBC TR 2410 – Revisão de Informações Intermediárias Executada pelo Auditor da Entidade and ISRE 2410 - Review of Interim Financial Information Performed by the Independent Auditor of the Entity, respectively). A review of interim financial information consists of making inquiries, primarily of persons responsible for the financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with the auditing standards and, consequently, does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

 

Conclusion on the individual and consolidated interim financial information

Based on our review, nothing has come to our attention that causes us to believe that the accompanying individual and consolidated interim financial information included in the Quarterly Information referred to above has not been prepared, in all material respects, in accordance with CPC 21 (R1) and IAS 34, issued by IASB, applicable to the preparation of Quarterly Information - ITR, and presented in accordance with the standards issued by Comissão de Valores Mobiliários.

 

Emphasis of matter

We draw attention to explanatory note 1.2 to the individual and consolidated interim financial information, which describe the investigations involving the Company, as well as their current and potential developments. In the current stage of the investigations, it is not possible to determine the potential financial and non-financial impacts on the Company resulting from them and of their potential developments and, consequently, to record potential losses which could have a material adverse effect on the Company´s financial position, results of operations and cash flows in the future. Our conclusion is not modified in respect to this matter.

 

Other matters - Statements of Value Added

The individual and consolidated interim financial information related to statements of value added (DVA) for the six-month period ended June 30, 2020, prepared under the responsibility of the Company's management, presented herein as supplementary information for IAS 34 purposes, have been subject to review procedures jointly performed with the review of the Quarterly Information - ITR of the Company. In order to form our conclusion, we assessed whether those statements are reconciled with the interim financial information and accounting records, as applicable, and whether their format and contents are in accordance with the criteria determined in the Technical Pronouncement CPC 09 - Demonstração do Valor Adicionado. Based on our review, nothing has come to our attention that causes us to believe that the statements of value added above referred were not prepared, in all material respects, consistently with the overall individual and consolidated interim financial information.

 

 

São Paulo, August 12, 2020

 

KPMG Auditores Independentes

CRC 2SP014428/O-6

 

Original report in Portuguese signed by

Fabian Junqueira Sousa

Accountant CRC 1SP235639/O-0

 

 

BRF S.A. | INTERIM FINANCIAL INFORMATION - June 30, 2020 93
 

OPINION OF THE AUDIT AND INTEGRITY COMMITTEE

 

The Audit and Integrity Committee of BRF S.A., in fulfilling its statutory and legal duties, reviewed:

 

(i) the interim financial information (parent company and consolidated) for the six-month period ended on June 30, 2020;
(ii) the Management Report; and
(iii) the review report issued without modification by KPMG Auditores Independentes.

 

Based on the documents reviewed and on the explanations provided, the members of the Audit and Integrity Committee, undersigned, issued an opinion for the approval of the interim financial information for the six-month period ended on June 30,2020.

 

 

São Paulo, August 12, 2020.

 

 

Augusto Marques da Cruz Filho

Coordinator (Independent)

 

 

Ivandré Motiel da Silva

Non-Independent member

 

 

Marcelo Feriozzi Bacci

Independent member

 

Valmir Pedro Rossi

External member

 

Jerônimo Antunes

External member

 

 

BRF S.A. | INTERIM FINANCIAL INFORMATION - June 30, 2020 94
 

STATEMENT OF EXECUTIVE BOARD ON THE INTERIM FINANCIAL INFORMATION 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 interim financial information for the six-month period ended on June 30, 2020, and
(ii) reviewed, discussed and agreed with conclusions expressed in the review report issued by KPMG Auditores Independentes for the Company's interim financial information for the six-month period ended on June 30, 2020.

 

 

São Paulo, August 12, 2020.

 

 

Lorival Nogueira Luz Júnior

Global Chief Executive Officer

 

Carlos Alberto Bezerra de Moura

Vice President of Finance and Investor Relations

 

Vinícius Guimarães Barbosa

Vice-President of Operations and Procurement Officer

 

Sidney Rogério Manzaro

Vice-President of Commercial Brazil Market

 

Alessandro Rosa Bonorino

Vice-President of Human Resources and Shared Services

 

Rubens Fernandes Pereira

Vice-President of Strategy, Managing and Innovation

 

Neil Hamilton dos Guimarães Peixoto Jr.

Vice-President of Quality and Sustainability

 

Leonardo Campo Dallorto

Vice-President of Sales & Operations Planning and Supply Chain

 

 

BRF S.A. | INTERIM FINANCIAL INFORMATION - June 30, 2020 95
 

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