São Paulo, March 3, 2017
Brazilian Securities and Exchange Commission - CVM
Corporate Relations Superintendence Office - SEP
Rua Sete de Setembro, 111, 33th floor
Rio de Janeiro - RJ
For the Attention of: Mr. Fernando Soares Vieira
Mr. Francisco José Bastos Santos
BM&FBOVESPA S.A. Bolsa de Valores, Mercadorias e Futuros
Corporate Oversight Superintendence Office
Praça Antonio Prado, 48, Centro
São Paulo - SP
For the Attention of: Mr. Nelson Barroso Ortega
Ref.: Official Inquiry Letter BM&FBOVESPA 287/2017-SAE
BRF S.A., a listed company with its head office at Av. Jorge Tzachel, 475, in the City of Itajaí, Santa Catarina state, registered with the Brazilian Securities and Exchange Commission (CVM) under number 01629-2, registered in the CNPJ/MF corporate tax roll under number 01.838.723/0001-27 ("Company or "BRF"), represented in this deed by its Investor Relations Director, presents, through this document, its response to Official Inquiry Letter 287/2017-SAE of the BM&FBOVESPA ("Official Inquiry"), and provides the explanations required.
"A news item published by the Valor Econômico newspaper, on 01/03/2017, under the headline "In a dilemma, BRF promises to reform its management", states, amongst other information, that the expectation of the company, which had an Ebitda margin of 10% in 2016, is to be able to achieve margins above those of 15% seen in the previous two years.
We have not identified this information in the documents sent by this company through the Empresas.NET System. Should this not be the case, please inform us of the document and the pages in which the information appears and the date and time when this information were sent.
It should be stressed that the company must disclose regular, timely and other information of market interest through the Empresas.NET, System, ensuring its widespread and immediate disclosure and equal treatment for its investors and other market participants.
Therefore, we request explanations on the highlighted items, by 09:00 hours on 02/03/2017, regardless of what is stated in single paragraph of article 6 of CVM Instruction Nº 358/02, with your confirmation or not, as well as any other information regarded as important, particularly on the accounting line to which this growth refers."
First of all, it is worth stating that the material published in the Valor Econômico newspaper on 01/03/2017 refers to a teleconference on the results of the 4th quarter of 2016 ("Teleconference"), held on 24/02/2017 and quotes a phrase attributed to Mr. Abílio dos Santos Diniz, Chairman of the Board of Directors of the Company, in relation to the EBITDA margin.
However, it should be explained that this phrase was taken out of context from a reply given by Mr. Abílio dos Santos Diniz at the Teleconference. In order to put this phrase in its proper context, we present a transcription below of the part of the Teleconference in which the phrase quoted in the news item appears:
"Yesterday at the board meeting here, we analyzed a long historic series presented showing the EBITDA margin of this company going back even before the merger. The average EBITDA margin of this company seen in the historic series analyzed for all the years from the beginning of this millennium is around 10%. What has happened is that since we arrived, it has risen to 15% and then to 17% in 2015. We raised the EBITDA margin to a level which is not, in fact, the usual level within the industry. We achieved a really good profit in 2015. Was it the cycle? It was the cycle but it was also the work we carried out inside the Company. However, we are refusing to lower this level; we reduced it this year to the historic average of the Company´s EBITDA margin of around 10% and what will happen now? We want to take it to the level we have already achieved. We have already seen that we can do so and will raise it to this level. This is our challenge at this moment."
Therefore, as mentioned in the passage underlined above, the conclusion that it is the "intention to return to the EBITDA level of 2015" is a desire of the Company and a challenge facing it at this time. Consequently, it is not a projection, a piece of further-looking information or guidance but only a statement of the desire to make the Company achieve once again the EBITDA margin of 2015, above the historic series level of 10%.
In conclusion, it is worth pointing out that the complete transcription of the Teleconference, as well as the transcriptions of previous teleconferences held by BRF are available on the Company´s investor relations site (http://ri.brf-global.com, on the "Presentations and Teleconferences" icon).
We trust that this answers your inquiry and remain at your disposition for any further explanations you may feel necessary.
José Alexandre Carneiro Borges
Investor Relations Director